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PRESENTATION TO SELECT COMMITTEE ON ECONOMIC DEVELOPMENT OF DMR 2010 / 11 ANNUAL REPORT 15 NOVEMBER

Presentation Outline 1. Financial performance - Annual Financial Statements 2. Auditor General’s Report - Audit Findings - Report on Material Losses - Report on Accruals 3

APPROPRIATION STATEMENT FOR 2010/2011 PROGRAM ME 2010/11 Final Budget R' /11 Actual R'000 Variance R' /10 Actual R’ Admin227,865226,7271, , MHS137, , , MR188,611188, , MPP442, , ,724 Total995, ,6971,145651,528 4

Analysis of variances The overall under spending by the Department was R1,145 million which is 0.11 % of the budget The main reason for the under spending relates to the procurement of goods and services whereby orders were raised during the 2010/2011 financial year but delivery thereof and processing of invoices and payments happened subsequent to that. This was mainly on Programme 1: Administration 5

TREND ON UTILISATION OF FUNDS Economic Classification2010/112009/102008/092006/07 Compensation of Employees326,457403,323330, ,561 Goods and services206,504263,475269, ,222 Payment for Capex28,60348,69018,855 7,470 Transfer and subsidy438,1203,828,3033,111,061 2,366,512 Theft and losses ,602 Unspent1,145137,28856,235 27,570 TOTALS (BUDGET)995,8424,682,0043,786,241 2,974,937 % Under Spending0.11%2.9%1.48%0.93% 6

Analysis of Unspent Fund Under spending has been consistently below 3% for the last three years For the year under review, the unspent funds is attributable to the late receipt of invoices and consequent delay in processing payments However, this is not a true reflection of the matter as there is a huge gap between the unspent amount and the accrual raised which would have had constituted unauthorised expenditure had payment been done in time. 7

Analysis of variance in Statement of Financial Performance 8 Items 2010/112009/10Variance% variance R’000 Compensation of employees Basic salary 217, ,530 (42,262)(16.28) Periodic payments 187 1,526 (1,339) (87.74) Pension 28,875 33,503 (4,628) (13.81) Goods and services Venues and facilities 2,282 5,454 (3,172) (58.15) Advertising1,661 2,829 (1,168) (41.28) Communication 11,181 19,875 (8,694) (43.75)

Analysis of the Statement of Financial Performance Item 2010/112009/10Variance % varianc e R’000 Travelling 54,667 67,458 (12,791) (18.96) Operating leases 64,147 34,231 29, Financial transactions in assets and liabilities (875) (94.00) Transfers and Subsidies 438,1203,828,303 (3,390,183)(88.55) Tangible capital assets Buildings and other fixed structures 17,05926,917(9,858)(36.62) Machinery and equipment 10,404 20,467 (1,063) (49.16) Software and other intangible assets 1,140 1,306 (166) (12.71) 9

Statement of Financial Performance: Variance analysis The staff cost decreased as a result of the split of Department of Minerals and Energy into Dept of Mineral Resources and Dept of Energy. (1,076 vs 1,272) The G & S cost is relatively low compared to 2009/10 owing to split of Dept of Minerals and Energy. However the operating lease cost increases due to the relocation of the Head Office and some of the Regional offices The decrease in Tangible capital assets cost is attributable mostly to the leasehold improvements for Trevenna paid in 2009/10 10

Statement of Financial Performance: Variance analysis Decrease of 88.55% in transfers and subsidies is due to the fact that most of the transfers for the former DME relate to Dept of Energy Financial transactions in assets and liabilities went down by 94% due to fewer losses written off during the financial year. 11

Analysis of variances: Statement of Financial Position Item2010/112009/10Variance%variance R’000 Current Assets Cash and cash equivalents 37, ,279 (154,786) (80) Prepayments and Advances 40 5,902(5,862) (99) Receivables 20,663 14,580 6, Current Liabilities Voted Funds to be surrendered 1, ,288(136,143) (99) Revenue to be surrendered 2,482 74,344(71,862) (96) 12

Analysis of variances: Statement of Financial Position Item2010/112009/10Variance%variance R’000 Net Assets Recoverable Revenue1,0521,

Analysis of major variances : Statement of Financial Position The asset base decrease by 84% from last year is attributable to the reduction in bank balance by R 121.6m for payments projected to disburse at year end Prepayments and advances declined by 99% due to the completion of rehabilitation of ownerless and derelict mines projects during the 2010/11 financial year The decrease by 73% on current liabilities is due to the Department utilising 99.97% of the appropriated funds while 91.8% of the revenue collected during the year was paid into the Revenue Fund 14

Analysis of major variances : Statement of Financial Position Royalty amounting to R51m collected during the financial year was transferred to Payables while the Department was busy with the process of establishing the legal recipient following the enactment of the Royalty Act Recoverable expenditure (R7.6m fraud and R9.4 m claims against the Dept of Energy) 15

Details of Transfers and Subsidies Recipient 2010/11 Purpose of transfer payment Actual transfer R'000 SBT Trust and Council for Geoscience35,671 Assistance to marginal mines in the form of pumping subsidies (R3m) and research to prevent ingress of water into underground holdings (CGS:R32.7m) Council for Geoscience136,505 Core funding in terms of establishing act Council for Mineral Technology Research195,840 R165.8 million -Core funding in terms of establishing act and R30 million - Mine Rehabilitation projects South African Diamond and Precious Metals Regulator40,643 Core funding in terms of establishing act Mine Health and Safety Council5,358 Core funding in terms of establishing act Industrial Development Corporation of SA (Small scale mining)23,609 Small scale mining projects 16

Audit Findings and action plan: 2009/2010 v 2010/ AG Finding 2009/10AG Finding 2010/11Comment 1. Receivable for Departmental Revenue – incomplete, inconsistent and inaccurate Receivable for Departmental Revenue – application of the Royalty Act and interest calculation The database issue raised in 2009/10 has been resolved. Allocation and interest calculation are new issues Action plan to address 2009/10 finding: Status as at 31 March 2011: Proposed action plan to address 2010/11 finding: review revenue registers monthly Conduct review sessions monthly Appoint staff with Finance knowledge and experience at Regional offices Develop Rev Management system Implemented since August 2010 – ongoing Resource commenced on 01 February 2011 Not finalised as priority was given to the SAMRAD online Finalise the development of the Revenue Management model in SAMRAD

Audit Findings and action plan: 2009/2010 v 2010/2011 AG Finding 2009/2010 AG Finding 2010/2011 Comment 2. Invoices not paid within 30 days or receipt Invoices not paid within 30 days of receipt This is a repeat finding Action plan to address 2009/2010 finding Status as at 31 March 2011 Proposed Action Plan to address 2010/11 finding Communicate centralisation of invoices monthly report on contract versus order Review process to confirm payments Implemented 31 July 2010 Maintain action plans already in place Enhance expediting of orders and monitor progress on a monthly basis 18

Audit Findings and action plan: 2009/2010 v 2010/2011 AG Finding 2009/10AG Finding 2010/11Comment 3. Irregular expenditure incurred not reported in the disclosure notes -- Action plan to address 2009/10 finding: Status as at 31 March 2011 Proposed action plan to address 2010/11 finding: Adjust 2009/10 financials and report irregular expenditure Implement corrective measures against transgressors Adjusted in June 2010 Irregular Expenditure register updated monthly Branches are notified or irregular expenditure as it occurs for investigation and remedial action n/a – will just be maintained 19

Audit Findings and action plan: 2009/2010 v 2010/2011 AG Finding 2009/10AG Finding 2010/11Comment -Contingent Liability – obligation for the rehabilitation of derelict and ownerless mines not provided for New finding -Action Plan to address the finding Due date Appoint Council for Geosciences to finalise the quantification of priority sites and estimated cost thereof 28 February

Audit Findings and action plan: 2009/2010 v 2010/2011 AG Finding 2009/10AG Finding 2010/11Comment 4. Accruals – exceeded funds to be surrendered and would have constituted unauthorised expenditure had payment be made in time Accruals – exceeded funds to be surrendered and would have constituted unauthorised expenditure had payment be made in time This is a repeat query Action plan to address the finding Due date Motivate for additional funding Introduce further cost containment measures on Good and Services Done in July 2011 By 01 April

Report on Accruals The R1,1 million unspent funds to be surrendered would not have been sufficient to cover the accrual raised at the end of the year and this seem to be a growing trend. Records show a trend between accruals and unspent funds for the past two financial periods as follows: 2009/2010: R19,6 million vs R11,5 million (deficit of R8,1 million) 2010/2011: R37,7 million vs R3,8 million (deficit of R33,9 million) The unauthorised expenditure that would have been incurred by the Department as shown by the deficit above is an indication that there are serious challenges in the allocation of budget for Goods and Services 22

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