Department of Water Affairs on its Annual Report and Audit 2011/12

Water and Sanitation

10 October 2012
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Meeting Summary

The Committee met with a very large delegation from the Department of Water (DWA) to be briefed on performance, audited financial statements, audited financial statements for the Water Trading Entity (WTE) and to be briefed by the Auditor-General on the Department’s audited financial statements 2011/12.

The performance information contained in the 2011/12 Annual Report covered a number of areas: goals and strategic objectives and non-financial performance reviews from the main account for the administration, water sector management, regional implementation and support and international water cooperation. The presentation also looked at the overall performance of non-financial information for the WTE in the administration, water infrastructure management and regional implementation and support programmes.

The briefing on the audited financial statements for DWA 2011/12 covered reasons for under-spending in water sector management, water infrastructure management, regional implementation and support, water sector regulation, international water regulation and acid mine drainage. The briefing also looked at successes and challenges. Some of the challenges were that data discrepancies delayed the finalisation of the comprehensive reserves, the high water levels in the Vaal River delayed the completion of the Klipplaatdrift monitoring station and the implementation of the Occupational Specifc Dispensation (OSD) was impacting the availability of the technical skills required to ensure service delivery as critical posts could not be filled.

The briefing on the audited financial statements for the WTE 2011/12 covered the WTE’s operational overview and basis used to prepare WTE financial statements, an analysis of financial performance, analysing audit outcomes, interventions to address 2010/11 audit opinion and ended with looking beyond 2012/12 in terms of people, processes and technology and internal key drivers.

The briefing by the Auditor-General looked at focus areas, drivers of internal control, percentage achievement against predetermined objectives and findings on compliance with laws and regulations.

Members questioned the filling of additional and vacant posts, the status of Bushbuckridge, illegal cases of procurement, irregular expenditure, targets, disciplinary matters, actions plans and under-spending.

Meeting report

Mr Maxwell Sirenya, DWA Director-General, introduced the large delegation from the Department of Water and said the Minister could not be present as Cabinet was sitting. He highlighted that the Department was aiming for an unqualified audit by 2014. He said the briefing on the agenda would cover performance information related to the 2011/12 Annual Report.

The Chairperson noted that he did not expect the Minister to attend and the invitation was merely extended to her as a courtesy.

DWA performance information 2011/12 Annual Report
Mr Trevor Balzer, Chief Operating Officer for DWA, began the briefing and noted that indicators were difficult to verify and targets were difficult to measure but the Department was making great improvement.

Mr Balzer began by looking at the five strategic objectives:
- to ensure the availability of water supply for economic and domestic use through the development of infrastructure, improve access to water for rural development and productive use and to improve access to water for key growth points.

- to set out a strategic framework for water management, ensure balance of water supply and demand through integrated planning, improve equity in water allocation through regulatory instruments, enhance the supply of water, ensure the protection of water resources, improve water use efficiency and improve the management of the water resources.

- to improve the regulation of the water sector, improve the water use authorization and improve the protection of water resources and ensure sustainability.

- to ensure the provision of local government support and to broaden access to water services while the last objectives were to contribute to the advancement of the African agenda in the global system of governance, contribute to the water agenda in the global system of governance and the leverage international resources for the SA water sector through multilateral agreements like with the Democratic Republic of Congo (DRC). He noted the Department would be making great improvement in the area of local government.

- to
build capacity to deliver quality services.

Non-financial performance review per programme for DWA main account
A traffic light system was used to assess the performance of the six programmes:

Administration: strategic objective was to achieve a high performance culture.
Mr Balzer noted that 98% of information technology was available, 68% of employees were trained in line with the work skills plan, an automated monitoring and evaluation system was developed and implemented, there was 95% alignment of the planning process and 99.8% (5 919 of 5 932) of signed performance agreements were aligned to business plans. Also, there was a 24.88% annual average vacancy rate, 50 graduates trainees were developed, 50 graduate trainees were placed into candidate positions, 687 leaderships were implemented, 57% internships were implemented, 100% of the Department’s HIV/AIDS programme was implemented, 42% of women were employed and 0.31% of people with disabilities were employed. A approved risk management framework in place and implemented, 96% implementation of the annual internal audit coverage plan, 98% reliable asset register, 83 irregular expenditure cases were reported and R40 510 000 of irregular expenditure reported while R58 920 000 had been condoned. DWA main account had received a qualified audit

The Chairperson questioned the irregular expenditure and the condonement.

Ms Nthabiseng Fundakubi, Chief Financial Officer (CFO) for DWA, said R40 million was recorded under the current financial year and R58 million was condoned from previous years.

The Chairperson asked why Mr Balzer had indicated there was an improvement if there was a qualified audit.

Mr Balzer said that broadly, the trading account for DWA was improving and there were elements in the main account that were better. 

Mr Sirenya said the main account was qualified this year and last year but the target for the main account had not been reached yet.

Water sector management
Mr Balzer noted a status quo on a raw water pricing strategy was developed, the Water for Growth and Developed (WfGD) was finalised, discussion documents for the National Water Act (NWA), Water Services Act (WSA) and the Water Research Act (WRA) were produced.

The Chairperson asked where the documents were.

Mr Balzer said they were not at a stage for them to be presented to the Committee but amendments to the Water Research Act would be taken to the cluster system and would be ready to be reported to Parliament thereafter.

Mr Helgard Muller, Acting Deputy DG for Policy and Regulation for DWA, said the WRA amendments would be gazetted in March and would then be ready for public comment and the WSA would be ready five or six months after this.

The National Water Resource Strategy (NWRS) version 0.5 was produced, an inception report on a climate change strategy was developed, a draft report on institutional realignment was developed as was a feasibility study on an independent economic water regulator, desalination and a re-use strategy. Moving on, he said feasibility plans of phase two of Mokolo Crocodile West was advanced, crocodile west surface water ecological reserves were determined, proposed management classes for Olifants-Doorn river systems were still to be gazetted, a number of water management areas with
Resource Quality Objectives (RQOs) were established in significant water resources, the 2009/10 Annual Report on the status of water quality in dams were produced and draft water consumption targets for three irrigation schemes were developed. Looking at the management of water resources, 12 systems (dams and schemes) were established with operating rules, five priority catchments were monitored, four monitoring stations were constructed, two business cases for existing Catchment Management Areas (CMAs) were established, 12 water boards, two CMAs, the Trans-Caledon Tunnel Authority (TCTA), and the Water Research Commission (WRC) were complying with corporate governance, principles and legislation, two irrigation boards were transformed to Water User Associations (WUAs), 40 municipalities were supported and 1 224 councillors were inducted into Water Service Authorities (WSAs) covering 45 district municipalities.

Regional implementation and support
Five bulk infrastructure schemes were completed but particular commissioning problems were experienced in Jagersfontein, 4 505 cumulative jobs were created through regional bulk infrastructure, 4174 additional resource poor farmers were provided with access to water, 0 irrigation schemes were rehabilitated, 598 776 additional people were provided with access to water per year and 8068 additional rain water harvesting tanks were distributed for food production (per year). He added that four major rivers were rehabilitated, eight catchments where waste discharge change system was implemented, 68 municipalities were supported in implementing Water Conservation and Water Demand (WCWD) measures to reduce water losses, 519 048 335 m3 volume of water was saved and 14 water resource institutions were regulated as per business plans.

The Chairperson asked how the water saved was measured and to what the saving was due.

Mr Balzer replied the amount was measured by municipalities and noted a lot of the saving arose from better infrastructure, responding quicker to breakdowns and pressure controls.

Mr Balzer continued and said 76 municipalities were supported to improve their compliance with Water Quality Standards, 109 municipalities were supported to improve compliance with wastewater quality standards, 52 prioritised municipalities with low Blue Drop scores, 59 prioritised municipalities with low Green Drop scores, 152 municipalities were supported to align their Water Services Development Plans (WSDPs) with Integrated Development Plans (IDPs) and 22 transferred schemes were refurbished.

Water sector regulation
The inception reports for new water management areas in which compulsory licensing had been completed, 931 Blue Drop municipal assessments were completed, 821 Green Drop municipal assessments were completed, 831 water supply systems were assessed to meet effluent standards per year and 86 mines were monitored for non-compliance by 2014.

International water cooperation
Mr Balzer noted joint decisions, four joint studies, four South African positions were adopted and incorporated into Southern African Development Community (SADC) water initiatives, two memoranda of understanding/agreements were signed in Africa, a draft strategic partnership agreement with the Netherlands and one existing bilateral instruments were realigned or expanded per year. In terms of the Africa agenda and global engagements, four water profiles leading to the establishment of country strategies, three African Ministers Council on Water (AMCOW) initiatives were supported and two AMCOW meetings were convened.

Non-financial performance review per programme for Water Trading Entity (WTE)
Mr Balzer said there was a 91% complete and accurate asset register, nine irregular expenditure cases were reported involving R36 301 256, 92% billable and registered customers were billed accurately, 45% of cash was collected against outstanding debt, 95% of revenue was billed against revenue budget. He noted the qualified audit.

The Chairperson was impressed with the 91% complete and accurate asset register. He questioned the 92% accurate billing of customers.

Mr Fayzel Ismail, Acting CFO for DWA, said it referred to the billing and not collection.

Water infrastructure management
Mr Balzer noted the implementation of the infrastructure maintenance programme; the total dam rehabilitation projects in progress (design or construction phase) to reduce maintenance backlogs; in the
dam safety rehabilitation programme (DSRP), a number of projects were completed; a number conveyance systems were developed and percentage assurance of supply water user.

Regional implementation and support
A number of dams with a safety risk were classified, a number of dams were identified for safety risk, a number of licences were issued to historically disadvantaged individuals (HDIs), volume of water allocated to HDIs, a number of water management areas were assessed for compulsory licensing and volume of water loss reduction. Added to this, a number of water users were authorised, a number of dams were identified per catchment, a number of sampling points were monitored, a number of waste discharge points were monitored and authorised and a number of mines where pollution inspection was conducted.

Human resources (HR)
Mr Balzer discussed the status of HR by the end of the period looking at posts filled and vacant posts.

In reply to the Chairperson asking if additional posts were filled, he replied that they were almost filled

Mr G Morgan (DA) praised the Department on improvement made although noting there were many problem areas still needing attention. He wanted comment on the role played of the targeted outcomes of the Department on whether an adverse, qualified or disclaimer audit status was granted.

Ms C Zikalala (IFP) congratulated the Department on the report. She was concerned about a recent media report saying that Bushbuckridge was still without water and questioned the validity of this. She also expressed concern about rural women and their access to water.

Mr J Skosana (ANC) thanked the Department for the report and said he could see there was movement and progress in dealing with certain issues. He was, however, concerned about human resources and irregular expenditure. He also wanted an update on the areas where water problems were experienced.

Mr S Huang (ANC) raised the issue of procurement and wanted to know how many illegal cases there were of stolen money from the Department.

Mr Morgan turned to the targets and wanted the Department to expand on particular problems that led to variance.

The Chairperson asked who decided the methodology. He felt the Committee needed to sit down with the DG and the Minister more carefully when going through the strategic plan to look at specific targets which would aid in better managing performance. This would also allow the Committee to better understand the performance and for the process to be effective. He said this should be placed in the BRRR report of the Committee.

Ms Thandeka Mbassa, Deputy DG for DWA answered the question on food production, saying challenges were experienced in cases of drought and therefore water tanks were supplied for basic water supply in the case of rainwater harvesting. She also noted the budget was a limitation. Linked to this programme, was education for women. Starter packs of seeds were provided to aid people in beginning food production. Responding to the issue of Bushbuckridge, the problem occurred because of infrastructure being vandalised and systems had not been upgraded to supply the increased demand in the area. Vandalism was linked to tampering and this exacerbated the weak water board in the area.

The Chairperson asked where the report was on all the problem areas the Committee had asked for at a previous meeting. He wanted a briefing when such a report was ready.

Ms Mbassa said such a report could be made available.

Ms Fundakubi spoke on irregular expenditure and noted an increase in these incidents. The Department had a number of instruments in place to curb and control such incidents such as a misconduct board, while the labour relations took action thereafter. She noted most cases of irregular expenditure occurred as a result of deviation from procurement processes.

The Chairperson pointed out that the weakest spots in the Department were in procurement when he first became Chairperson of the Committee two years ago. He felt there should be appropriate checks, balances and protocols in place to prevent problems in procurement. Before the end of the year he wanted a report on all the problems related to procurement and what the Department planned to resolve them.

Mr Ismail said the Auditor-General could not ascertain whether full disclosure was achieved in terms of irregular expenditure within the WTE. There were a number of issues that constituted irregular expenditure for disclosure purposes. He gave instances of how problems occurred with procurement.

The Chairperson could not fathom how such incidents occurred. It needed to be sorted out and proper mechanisms needed to be put in place. He felt the CFOs and DG needed to be more centralised with certain decisions. He asked about the results of disciplinary processes.

Mr Squire Mahlangu, DWA Acting Deputy DG of Corporate Services, said the Department was dealing with cases of charging people and hoped this would deter other employees. He would brief the Chairperson on the status of these cases. He noted senior managers had two final written warnings. He told the Committee of an incident where a relatively senior employee increased the quote of a private contractor so that he could pocket the extra money to finish building his bottle store. He also noted two employees were dismissed in Limpopo.

The Chairperson asked how many disciplinary matters were pending.

Mr Mahlangu said there were five matters pending. These were two DDGS suspended in WGE for some time and the matter needed to be finalised.

The Chairperson wanted the DG to make a decision before the end of October.

Mr Huang was still unhappy as he felt his question was not fully answered. He wanted the total amount of money stolen by the employees under investigation.

Mr Morgan questioned the case of the individual who breached the payment system and made payments to his own account. He wanted an update on this. He also wanted to know the status of the IT contract.

Mr Mahlangu said the IT contract was cancelled and a new tender was busy being adjudicated. The individual who breached the payment system got two final written warnings but it was being dealt with in court.

Mr Ismail gave a background to this case noting that R2 million was stolen but the individual was convicted. The recovery option was very low.

The Chairperson wanted a small report done on the conviction and the Department’s plan to recover the money.

Ms Zandile Mathe, from DWA, said there were plans in place to increase capacity in Project Management Units (PMUs). She added that WTE using the same processes as DWA created certain problems.

Auditor-General SA briefing on audit
The representative from the auditor-general (AG) looked the combined assurance of on risk management in the public sector and highlighted how strong the internal units should be with effective checks and balances.

She then touched on the movement in audit outcomes from 2010-11. She noted a lot of work needed to be done to get the basics right. She also noted an improvement in the internal control environment.

She highlighted IT was an area not spent enough time on under the status of focus areas.

She then looked at the drivers of internal control. She noted a number of issues should be dealt with proactively instead of reactively if the submission of quarterly reports were committed to. She also suggested a pre-audit to look at the usefulness of targets and whether they were measurable, attainable and time-bound to meet the requirements from Treasury. She noted however, the AG could not have an opinion on the appropriateness of targets, she also said there needed to be a linkage between the strategic plan and the budget.

She noted there was a huge increase in irregular expenditure when looking at unauthorised, irregular as well as fruitless and wasteful expenditure (WTE&DWA: qualified on irregular expenditure). She said this was linked to Division of Revenue Act (DORA).

Mr James Aguma, Senior Manager for AGSA, said that irregular expenditure was particularly linked to DORA and money was transferred incorrectly.

The Chairperson was shocked the money was transferred according to the incorrect procedure.

Mr Aguma said the problem was with the method of the transfer.

Ms Mbassa explained how money was transferred and the best practice was for payment to be made on the day of invoice and not prior.

The representative from the AG said the Department should consult with Treasury on DORA and how best to implement their requirements.

The AG representative then looked at the root causes and noted the problems of accountability in the regions.

The Chairperson said officials should be reporting to the CFO who would then go to the DG as he was ultimately the person accountable for money in the Department.

The AG representative said the structure needed to be changed so that problems did not continue. She carried on looking at the root causes. She said people were not held to account immediately for irregular practices. She added that capacity needed to be beefed up in a number of areas.

She briefly went through what was covered in the 2011/12 PFMA Outcomes document compiled by the AG for the Department.

The Chairperson asked how far the plan to get one financial system in place in the Department was. He asked if something was done about this.

Mr Sirenya said it had been discussed and was on the agenda.

Ms Fundakubi said the finance team met with the DDG to discuss this matter but the implementation had yet to start. She noted they were waiting on a communiqué from HR.

The Chairperson wanted a date and a time for when this would be completed.

Ms Mbassa said the mechanisms had been discussed and it was just now a case of putting on paper and having it agreed to. Separating functions and changing accounts were the main concerns.

The Chairperson said who reports to who needed to be sorted out first and placed in a document. He wanted to hear about the progress on this matter from the DG by the end of the week. By the end of the year, he wanted a written plan explaining what had been implemented and what still needed to be done. Thereafter, he wanted an implementation plan which addressed capacity issues. Added to this, he requested the report of the problems with procurement.

[Mr Skosana became the acting Chairperson in the afternoon session[

Department of Water Audited Financial Statements 2011/12
Explaining the reasons for under spending, Ms Fundakubi said the Department spent R
8 164 906000of the total allocation of R9 028 319 000which represented 90.4% total spending of the Department. The remaining 9.6% of the under expenditure was mainly due to, in the case of administration, the allocation of R34 million could not be spent in respect of Business Process Review (BPR) because the committee was appointed in the middle of the financial year, unfilled vacant posts amounted to R12 million not spent, goods and services amounted to R32 million related to accrual and commitments, machinery and equipment amounted to R16 million while funds, in respect of the learning academy, amounted to R2.3 million.

Under spending
Ms Fundakubi said reasons for under spending in water sector management were because the
allocation of R250 million could not be spent on Acid Mine Drainage (AMD) due to the unforeseen delays in finalising the detailed design/concept of infrastructure, the allocation of R18 million could not be transferred to Bushbuckridge Water Board due to a decision that was taken that the funding should not be transferred. However, after reconsidering the discussions between the Department and Water Boards a resolution was taken that the funding be transferred in order to refurbish the ailing infrastructure. She said the decision was taken very late in the financial year and funds could therefore not be transferred before the cut-off. Added to this were unfilled vacant posts including Occupational Specific Dispensation (OSD) posts which amounted to R54 million and goods and services amounted to R18 million relating to accrual and commitments.

Turning to the reasons for the under spending on the water infrastructure management, she said t
The spending on this programme was on acceptable level as the programme managed to make use of its allocated budget and there was insignificant variance.

Ms Fundakubi said the reasons for under spending on regional implementation and support was because the
allocation of R209 million could not be spent on Water Services Projects such as the Nandoni Pipeline, Hluhluwe and Inyaka because the approval of service providers took longer than anticipated, an allocation of R20 million could not be spent in respect of Moutse Bulk Water Supply because the payment could not be captured before the payment cut-off date, unfilled vacant posts including OSD posts amounted to R88 million and material ordered for regional bulk infrastructure projects but not delivered at year end which amounted to R81 million.

She said under spending on water sector regulation was due to
goods and services amounting R5 million relating to accrual and commitments and unfilled vacant posts including OSD posts amounting to R16 million.

Looking at the under spending on international water cooperation, she said the
allocation of R3.7 million could not be spent due to a number of planned international engagements not taking place, due to political dynamics and postponements in certain countries, and unfilled vacant posts amounting to R 1.4 million.

Successes and challenges experienced
The noted successes were that
approximately 98% of the AMD decant from the Western Basin was currently being partially treated at the upgraded Rand Uranium treatment plant. This resulted in a recent increase of the pH leaving the Hippo pool from 3, 5 to 6, 2. The Department completed a total of nine regional bulk schemes comprising of two Waste Water Treatment Works (WWTW), three Water Treatment Works (WTW) and four Bulk Water Supply Schemes (BWSS). The development of Reconciliation Strategiesfor Bloemfontein and Mzimkhulu Catchment were completed and good progress was made with the development of the All Towns Strategies as well as the Olifants River which were earmarked for finalisation in 2012/13 financial year. Other successes were that good progress had been made in ensuring that various systems and stand-alone dams had robust operating rules which were annually updated and implemented. As such, annual system operation runswere done for all systems with the Algoa System, the only one with restrictions on both urban (PE area) and irrigation water use. Five catchments were optimally monitored (Berg, Breede, Gouritz, Olifants, Mhlathuze and Levhuvu/Letaba) and the incentive based regulatory approach had succeeded in raising awareness and providing a positive stimulus for gradual and sustainable improvement in both water and wastewater treatment works. This was evident in both the 2011 Blue Drop and Green Drop reports. This was also shown by the 21% improvement on the Blue Drop scores attained (72.9% in 2011 compared to 51.4% in 2009) while the Green Drop scores improved by 8%. Other successes mentioned were that in preparation for the 2012 reports, 831 wastewater and 931 water supply systems were assessed, the Councillors Induction Programme gained momentum as 1224 Councillors were inducted far exceeding the 166 that was planned for and the water infrastructure status and intervention plans for 22 priority District Municipalities were completed.

Ms Fundakubi said some of the challenges were that
data discrepancies delayed the finalisation of the comprehensive reserves, the high water levels in the Vaal River delayed the completion of the Klipplaatdrift monitoring station and the implementation of OSD was impacting the availability of the technical skills required to ensure service delivery within the Branch as critical posts could not be filled.

Under expenditure on AMD
Some of these reasons were that the
since the Trans Caledon Tunnel Authority (TCTA) had been appointed by the Minister, a decision was made that prior to implementation of any solution, a due diligence review had to be done first.Collaborative efforts between the Department and the TCTA had resulted in interrogation of existing mine water treatment infrastructure in the Western and Central Basin mining areas, as well as potential arrangements with the mining companies still operational in these Basins. Long consultation processes to compile transfer agreements were fruitful but time consuming. There was also delay in the implementation of the Immediate Intervention for the Western Basin. The upgrade of the Rand Uranium Treatment plant at a cost of R25 million was only completed in June 2012 compared to the originally planned completion date of March 2012. The delay was mainly due to longer than anticipated manufacturing times for the electrical and mechanical equipment. Under expenditure was also caused by the delay in the award of the contract for the construction of the short-term intervention for the three basins. The delay was caused by a longer than expected tender evaluation period. The original planned date of award was February 2012 compared to a date now of August 2012 which date was subject slightly to lower rise of water levels in the Central and Eastern Basins allowed more time. She said it was extremely important that critical decisions only be made on good and reliable data. Due to a lack of consistent information, more time was spent in obtaining as much data as was possible from various sources subject to sufficient funding being secured to allow TCTA to enter into contractual commitments.

Remedial action plans
She noted
strengthening the project management and contract management capacity within the department including overseeing, improve on the governance structures that will assist with the monitoring of the expenditure on a continuous basis, the Department had established a Budget Committee that will quarterly review the expenditure against the performance and the service delivery, quarterly review sessions with the National Treasury and the Department had also established the Capital Expenditure (CAPEX) committee that will oversee and monitor all projects under work in progress.

Ms Zikalala was concerned about the abbreviations. She felt the presenter should state the abbreviation in full if it was not stated in the hard copy of the presentation.

Mr Morgan questioned to what extent the action plan was already being practised. He said it was superficial to simply have plans for the future in place. He added that he was particularly worried about under-spending and noted there were substantive reasons for the Department not spending their budget.

The Chairperson said under-spending was a serious matter which translated to underdevelopment and the Department not delivering on their mandate. He questioned the unfilled vacant posts in the Department.

Mr Sirenya said there were broad compliance requirements to address these issues.

Ms Fundakubi said there were monitoring mechanisms with programme managers in place to address a number of issues. Business processes were being rolled out within the Department. Condoning of irregular expenditure was awaited on. She took note of the issue of abbreviations. On the R20 million, she said it was entered into the system incorrectly as R200 million and this fell under under-spending.

The Chairperson asked if the R200 million was tantamount to irregular expenditure.

Ms Fundakubi explained that it was simply captured into the system incorrectly. She said the Department was comfortable with the spending under Programme One which was Administration. She said work needed to be done on the spending under other programmes.

Mr Huang questioned the increases of certain amounts.

Ms Fundakubi said there were certain submissions made by the Overberg to the Department as they were unable to pay off their loan.

Mr Muller added that the water board approached the Department over a number of years and it was decided to write-off the loan so that they could use the money to pay for the refurbishment of their assets.

Mr Mahlangu said the Department was hoping to absorb some students as candidate engineers but the Department was trying to off-set the problem with OSD. He said the problem related to OSD was that the Department could not employ the engineers without them being registered to specific organisations. Added to this was the problem of making sure the engineers had a certain number of years of work experience. The Minister requested candidate engineers were taken in who were students just out of university with engineering degrees but they could not be employed because of OSD. The vacancy rate was going down albeit at a slow pace. He felt a study on this matter should be carried out. Looking at the filling of the senior manager posts, the Department was doing fine and the filling of these posts were done on a regular basis. The Department was trying their best to fill the vacancies but noted it would help if some obstacles were removed.

Water Trading Entity 2011/12 Audited Financial Statement
Mr Ismail said the purpose of this presentation was to
provide a brief overview of the annual financial statements for the year ended 31 March 2012 and the audit outcome for 2011/12 and highlight the action plans and corrective measures going forward.

WTE operations overview
He explained the basis used to prepare the WTE financial statements which were different to the processes used by the Department. He noted the change in the WTE accounting framework from International Financial Reporting Standards (IFRS) Generally Accepted Accounting Practices (GAAP) to the early adoption of the Accounting Standards Board (ASB) Government Regulated Accounting Practices (GRAP).
WTE adopted GRAP for the first time in 2011/12 in accordance with Directive Nine issued November 2011 by the ASB. It was mandatory by 1 April 2013 for all Public Entities and the rationale for the early adoption of GRAP was to focus better on public sector issues, provide more transparency and not profit driven standards. The adoption of GRAP resulted in the re-classification and re-measurement of certain annual financial statements (AFS) items. A number of changes in WTE accounting policies were required to better present the financial affairs of the entity including adopting a cost model for Property Plant and Equipment (PPE), recognising augmentation grants when received and pumping cost as a reserve. Some 26 adjustments were made in respect of prior year errors to ensure reliable financials were presented including TCTA accounting arrangements.

Analysis of the statement of financial performance
Mr Ismail noted the
increase in total assets (2% compared to 2010/11)resulted from an increase in cash and cash equivalents by 46% due to improvement in cash collections, receivables from exchange transactions had increased by 30% and PPE increased by 1% (R925 million) primarily due to an increase in Asset under Construction of some R1.1 billion reduced by an increase in depreciation of R269 million compared to 2010/11. There was also an increase in total liabilities (1% compared to 2010/11, or R236 million) which resulted mainly from an increase of R160 million in the provision required for dam safety rehabilitation. There was still some work required to enhance the processes involved in the formulation of the dam safety rehabilitation but there was a marginal increase in TCTA financial liability compared to the prior year.

Analysis of the audit outcomes for 2010/11 and 2011/12
He began with matters related to audit report 2010/11 and noted the audit outcome was a disclaimer and highlighted the factors leading to the disclaimer.

Mr Ismail then spoke about the interventions for addressing the audit opinion of 2010/11 and the goal of a clean audit by 2014. He said that based on the audit report, 19 audit recommendations that were accepted by management in the prior year were implemented or alternative actions were taken which resolved the prior year audit findings. 15 recommendations were still in the process of being implemented. He emphasised that a major turnaround strategy with clearly defined timelines and deliverables which impacts on all areas of the operational side of business was in place and steady progress was being achieved. He then turned to the 2011/12 results where the outcome was a qualified audit.

Way forward
Looking forward to 2012/13 and beyond, specifically in terms of people, process and technology. He looked at the internal key drivers to ensure the implementation of an effective turnaround strategy to ensure a clean audit by 2014. These drivers included
improved collaboration, a clearly defined role and responsibility matrix, revised delegations of authority, system workflows linked to delegations, clearly defined business process across the WTE value chain, skills acquisition and retention, skills development and training, development of a values charter that encouraged a high performance culture, improved communication (developed an effective communications strategy) and diversified revenue streams to improve financial sustainability. He spoke to people and processes going forward.

Mr Huang thanked the presenter for the briefing. He wanted an explanation on certain increases.

Ms Zikalala asked if the Department relied more on qualifications or experience when employing engineers. She also questioned the relation between the Department and National Treasury for the funding of projects.

Mr Ismail said there was a decrease of 78% but a lot of work was required to recover the money. And it would not just be declared a loss.

Mr Mahlangu said the Department would not be paying.

Mr Sirenya spoke about the relationship with National Treasury and noted there was a positive atmosphere.

The Chairperson thanked the Department for the thorough presentation.

Meeting was adjourned.

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