overview of financial performance annual financial statements 2009/10

Overview of Financial Performance: Annual Financial Statements 2009/10Presentation to Portfolio Committee , 13 October 2010

Parliament of the Republic Of South Africa

Overview of Financial PerformanceAnnual Financial Statements 2009/10

Presentation to Portfolio Committee , 13 October 2010


Presentation to the Portfolio Committee: Presentation to the Portfolio Committee: Water & Environmental AffairsWater & Environmental Affairs

Presentation byMr. Onesmus Ayaya

Chief Financial Officer19 October 2010

1



Presentation Outline1. Purpose of the presentation 2. PART A- Main Account

• Departmental Expenditure• Reasons for under-spending• Rollover of Funds• Final virements• Reason for virement• Earmarked Funding• Official Development Assistance –donor funds• Transfer of function



Presentation Outline1. PART B- Water Trading Entity

• Objective of the presentation2. Overview of the Annual Financial Statements (AFS)

• Improvements in relation to previous years• Presentation on Financial Performance• Presentation of Financial Position• Presentation on Cash Flow Position• Recommendations for improvements going forward

3. Recommendations



Purpose of the presentation

1. Report to the Portfolio Committee on the financial performance for the year ended 31 March 2010 as embodied in the Annual Financial Statements (AFS)

2. Highlight improvements made by the WTE in relation to the previous year’s AFS

3. To highlight challenges shown by the financial results 4. Provide recommendations on improvements going forward



PART AMain Account



Overview of spending trends per programme MEA (2008/09 vs 2009/10)

Programme 2008/09 BudgetR’mil

2008/09ExpendR’mil

% Spent 2009/10 BudgetR’mil

2009/10ExpendR’mil

% Spent

Programme 1: Administration 682 088

681 758 99.95847 255

846 185 100

Programme 2: Water Resource Management

3 499 812 3 001 348 85.80 4 112 603 4 072 090 99

Programme 3: Water Services

2 348 031 2 341 817 99.70 2 814 144 2 668 556 95

Programme 4: Forestry 506 685 506 648 100 - - -

TOTAL 7 036 616 6 531 571 92.80 7 774 002 7 586 831 98

MA



Departmental Actual Expenditure Fourth Quarter Ending – 31 March 2010 after transfer of functions

Economic classification Adjusted Budget

2009/10

2009/10 ActualR’000

% spent Available Budget

Compensation of Employees 916,832 910,572 99 6,260

Goods and Services 2,219,406 2,095,506 94 123,900

Interest and Rent on land 1,133 1,133 100 -

Theft and Losses 50,277 50,277 100 -

Transfers and Subsidies 4,099,658 4,045,738 99 53,920

Payments for Capital Assets 486,696 483,605 99 3,091

Total 7,774,002 7,586,831 98 187,171

MA



Reason for under disbursementThe department failed to disburse the entire allocated budget due to:• The fact that Accelerated Community Infrastructure Project has

under spent it’s budget. This was as a result of the fact that the projects are linked to municipal financial year which ended in June 2010. The funding of this project is committed and work has started in MP, LP, EC, KZN and NC.

• Water Service Grant to Mopani District Municipality was withheld as they had failed to finalise their business plan and failed to submit 2008/09 close out report on how the 2008/09 funds were spent.

• De-Hoop: Unspent funds on Social Component of Downstream Project. This was as a result of delays by commercial users (mining) to commit to the commercial components of the project during the recessionary conditions prevailing throughout the global market.

MA



Reconciliation of Unspent Budget

Programme Unspent budgetR’000

Unpaid invoices Total unpaid invoices

Phakisa Arrivia Other

Administration 1, 070 11, 417 26, 074 16, 511 54, 002

Water Resource Management

40, 513 5, 825 - 40, 770 46, 595

Water Services 145, 588 2, 876 - 5,735 8, 611

Total 187, 171 20, 118 26, 074 63,016 109, 208

MA



Rollover requests from 2009/10 - 2010/11Description of Service Amount

New office space in Limpopo 3,547

Water Allocation ReformClaim against the Department

7,8304,127

Water Service Operating Subsidy Grant 10,000

National Youth Service 3,200

Hartbeespoort Dam Remediation Project 9,500

Revision of National Water Resource Strategy (NWRS) 4,100

Rain Water Harvesting Tanks in EC and NC 6,368

Accelerated Community Infrastructure Programme (ACIP) 74,964

Total 123,636

MA



Rollover requests approved

Description of Service Amount

Water Allocation Reform 7,830

Water Service Operating Subsidy Grant 10,000

Claim against the Department 4,127

Hartbeespoort Dam Remediation Project 9,500

Revision of National Water Resource Strategy (NWRS) 4,100

Accelerated Community Infrastructure Programme (ACIP) 43,444

Total 79,001

MA



Final Virement (Shifting of Funds in terms of Section 43 of PFMA)

Programmes Virement

Administration 34,714

Water Resource Management (8,400)

Water Services (26,314)

Net Effect 0

Reasons for virement

• Programme 1 (ADMINISTRATION) has overspent it’s allocated budget by R33 million on IT services, write offs and office accommodation, hence funds were shifted to the programme.

• A total of R8,400 and R26,314 were shifted from Programme 2: Water Resource Management and Programme 3: Water Services respectively as a result of savings that was realised under personnel budget due to departmental restructuring and high staff turn-over.

MA



Earmarked FundingEarmarked funding are allocations earmarked by National Treasury for a specific purpose and may not be used for other purposes. Below are earmarked allocations for 2009/10 financial year. Total of earmarked funds amount to R2 698 166 000

Rent of buildings 138 331 000

Working for Water 477 851 000

Working on Fire 123 608 000

Refurbishment of water scheme 30 000 000

De Hoop Dam (Phases 2B to 2G) 98 000 000

Additional capacity: Internal Audit and Finance 6 000 000

Sanitation at school and clinics 350 000 000

Regional Bulk infrastructure 616 753 000

Operating subsidy (Water Services) 857 623 000

Total earmarked funding 2,698,166,000

MA



Official Development Assistance –Donor funds

Opening balanceR’000

RevenueR’000

ExpenditureR’000

Closing balanceR’000

Received in cash (242 010) 454 387 316 478 (104 101)

Received in kind

TOTAL (242 010) 454 387 316 478 (104 101)

MA



Transfer of functions

• The President of Republic of South Africa announced during his state of the nation address that functions of Sanitation services and Forestry will reside with the Dept. of Human Settlement and the Dept. of Agriculture, Fisheries and Forestry (DAFF), respectively.

• A total budget of R 579.104 million was shifted to DAFF as a result of shifting of forestry function during the financial year.

• The expenditure to the amount of R554.076 million was claimed from the DAFF as a result of the expenditure that the Department of Water Affairs has incurred on their behalf.

MA



PART BWater Trading Entity (WTE)



Overview of the Annual Financial Statements

• AFS were prepared in accordance with principles of GAAP• Preparation framework has not changed from previous years• AFS include the following:

Statement of Comprehensive IncomeStatement of Financial PositionStatement of Changes in Net Assets

Statement of Cash FlowsNotes to the Financial Statements

• There were no changes in accounting policies when comparing current year with previous year’s accounting policies.

• There were further refinements made by the WTE which necessitated a restatement of prior year’s amounts

WTE



Improvements in relation to previous years

• Vendor reconciliations have been performed and are all up-to-date

• Interest has been charged to long-outstanding debtors• Deferred income has been split into current and non-

current portions• The entity did not have bank overdraft in the current

year

WTE



Financial Performance

2008/09 R’million

2009/10R’million

% Change

Revenue 1,537,082 2,057,585 34%

Other income 491,435 514,555 5%

Income before expenses 2,028,517 2,572,140 27%

Expenses (3,475,452) (3,787,718) 9%

Deficit for the year (1,446,935) (1,215,578) -16%

WTE



Financial Performance cont…

• Increase in revenue (34% increase as compared to prior year) resulted partly from the increase in the tariff and also from the increase in number of billed customers as a result of the process of identification of all water customers undertaken by the WTE.

• Other income is up from the prior year by approximately R23 million (or 5 %).

WTE



Financial Performance cont…• The increase is mainly due to an increase in other

income as compared to prior year, which relates to sundry income received from the water users.

• There was an increase in expenses of 9 % (312 million) partly as a result of an increase of approximately 30% (R196 million) in employee costs in the current year as compared to prior year.

WTE




• The increase in revenue and the increase in expenses resulted in an overall decrease of 16 % (R 231 million) in the deficit recorded in the current financial year as compared to the prior financial year.

• There is a marked improvement in the ratio of the deficit for the year as a percentage of revenue earned, which improved from 94% in the prior year to 59% in the current year.

WTE




• One of the main contributors to this improvement can be attributed to the efficiencies in the revenue and costs management systems that are beginning to bear fruit within the WTE.

WTE




• Taking out the effect of depreciation, the ratio of expenses as compared to total income is as follows:

• 2008/09 = 1.02 which means that 102% of total income earned was consumed by operating expenses if we exclude depreciation

• 2009/10 = 0.93 which shows that there is huge improvements in the current year. The ratio shows that the WTE has generated enough income to cover its operating expenses, excluding depreciation.

WTE



Financial Position2008/09R’million

2009/10R’million

% Change

Non current assets 65 613 747 64 971 931 -1%

Trade and other receivables 2 142 035 1 912 706 -11%

Other current assets 23 930 445 379 1 761%

Total assets 67 779 712 67 330 016 -1%

Capital and reserves 64 699 981 62 995 380 -3%

Non-current liabilities 1 530 669 2 604 299 70%

Trade and other payables 1 307 527 1 319 577 1%

Other current liabilities 241 534 410 760 70%

Total equity and liabilities 67 779 712 67 330 016 -1%

WTE



Financial Performance cont…• Continuing refinements to the infrastructure asset values on

the reported figures for the 2007/08 and 2008/09 financial year were made, resulting in a restatement of prior year figures

• Trade and other receivables decreased by 11% year on year, further giving testament to the improvements being made by the WTE in its revenue management efforts.

• This is one of the factors that contributed to an increase in cash and cash equivalents in the current year.

• Other current liabilities increased by 70 % as compared to the prior year mainly as a result of an increase of 71% (R 1 076 billion) increase in deferred income

WTE



Statement of Changes in Net Assets

Accumulated deficitR’ million

Revaluation ReserveR’million

Total

R‘million

Balance as at 1 April 2008 1,458,224 86,309,495 87,767,719

Restated balance at 1 April 2008 1,460,354 64,740,661 66,201,015

Deficit for the year (1,446,935) - (1,446,935)

Restated balance as at 31 March 2009 1,343,553 63,356,428 64,699,381

Deficit for the year 113,135 (1,817,737) (1,704,602)

Balance as at 31 March 2010

1,456,688 61,538,692 62,994,780

WTE



Statement of Changes in Net Assets cont

• The statement shows the impact that a change wherein the increase in depreciation as a result of revaluation of infrastructure assets is now released to accumulated surplus each year.

• This assists in limiting the impact on the accumulated deficit for the year.

• As a result the revaluation reserve has decreased from R 86 billion on 1 April 2008 to R 61 billion at 31 March 2010

WTE



Cash Flow Position

2008/09R’million

2009/10R’million

% Change

Cash inflows from operations 1,273,801 1,688,924 33%

Cash flow from investing activities (1,372,530) (1,264,758) -8%

Cash flow from financing activities

(11,817) (3,406) -71%

Net cash flow at end of year 9,910 430,670 4 146%

WTE



Cash Flow Position

The cash position of the WTE has improved by 4 146%year on year as a result of the following:

• Decrease in the deficit for the period as a result of efficiencies achieved by the WTE through its operational improvement projects

• Decrease in trade receivables balance• Increase in trade and other payables

WTE



Recommendations – Main Account

1. Monthly Trial balance meetings2. Fill all vacancies3. Audit action plan to be compiled to address

reported matters4. Report to be compiled regarding problems

experienced during compilation of AFS5. Workshops to address governance and policy

matters6. Regional visits to address specific needs

MA



Recommendations – Main Account

7. Regional Heads and responsible CD’s to sign off inputs (AFS & Audit queries)

8. Training staff on how to respond to audit findings9. A-G’s (strategic plan) Engagement Letter will be fine

combed regarding budget vs. outcome10. All Managers to be more involved11. Top Management to be briefed frequently

MA



Recommendations -WTE

A radical turn-around that would comprise of • Getting external technical expertise• Reassessing the risks• Developing a medium-term to long-term strategy

to sustain sound financial management



THANK YOUTHANK YOU

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overview of financial performance annual financial statements 2009/10

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