Biannual Financial Statements: Department briefing

Water and Sanitation

09 November 2004
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WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
10 November 2004
BIANNUAL FINANCIAL STATEMENTS: DEPARTMENT BRIEFING

Chairperson
: Ms C September (ANC)

Documents handed out:
Half yearly financial review (April 2004 - September 2004)
Quarterly Report on Estimates of National Expenditure:
Estimates of National Expenditure: Vote 34 (See: www.treasury.gov.za)

SUMMARY
Mr Mabala's report on the Department's bi-annual financial statements focussed on the Auditor-General's concerns over poor record-keeping and the limited capacity of the internal auditors to complete their work ahead of the external audit. The Department had implemented several measures to rectify problems with financial management and the most recent audit reflected improvement.

Members were still concerned about the Department's financial management. They asked questions about the expensive cancellation of a contract with Yorkor, and about the Department's costly dependence on consultants.

MINUTES
Mr J Mabala, Department Chief Financial Officer, presented the financial results for the period ended 30 September 2004. The report was compared with that of the previous year. The Treasury awarded budget allocation of R3 823 112 million was considerably lower than the R4 146 516 million awarded in 2003. This year, 43% of the budget allocation had been utilised, as opposed to 40% in 2003. The forestry programme had utilised 52% of its allocation, mainly due to the cancellation of an unwieldy timber contract with Yorkor which cost the Department R38 million.

The Department managed four accounts, three of which were intended to generate their own income and one of which, the Exchequer account, was fed by the National Treasury. In past years, the Auditor-General had qualified all of the accounts, thus reflecting the financial problems of the Department. Only the Exchequer account was qualified by the Auditor-General in 2004. This reflected an improvement, but the following concerns required urgent attention:
- Misallocation of transactions amongst the vote and trading entities;
- poor record-keeping;
- recovery of loans from water boards, irrigation boards, municipalities and the Land and Agricultural Development Bank;
- the capacity of the internal audit to complete its work ahead of the external audit, and
- asset management registers not developed or maintained.

Many of these problems stemmed from the fact that all four Department divisions used the same bank account, making it very difficult to track the outflow of money. Several mechanisms had been proposed, and some of them implemented, that should improve financial management. These included the creation of separate bank accounts for each of the Department's areas; improved internal audit capacity; improved record-keeping, and continuous training.

Mr Mabala then reviewed Budget Vote 34 that entitled the Department to R430 million in roll-overs to deal with engagements that had carried through from the previous financial year. The administration programme had received R29 million for personnel-related costs linked to the transfer of some of the Department's functions to appropriate institutions.

The Water Resources Management programme had received R104 million for drought relief projects. Water Services had received R44 million for existing drought relief programmes in about 32 municipalities, and R57 million for payments to service providers on water services projects, many of which had been delayed since 2003 due to problems with the accounting system. Forestry had received R38 million for the payment of a cancellation of contract fee to Yorkor.

Discussion:
Mr P Mathebe (ANC) asked why the Department had cancelled the contract with Yorkor. Mr Mabala replied that the 75-year Yorkor contract had originated in 1985, the result of a deal between the former Lebowa government forestry wing and Yorkor. The terms of this contract have since proven unrealistic. It had been decided that the contract would be terminated and Yorkor asked for over R100 million in reparations. The matter went to court and Yorkor was awarded R38 million.

Mr Mathebe said the Department had a tradition of over-using consultants. He wanted to know how much had been spent on consultants in 2004. Mr Mabala said the issue of consultancy was an ongoing dilemma that the Department would review in Parliament on a quarterly basis.

Mr D Maluleke (DA) asked if all the drought relief money had been spent. Mrs Z Mathe, Director of Regional Co-ordination, responded that all municipalities across the country had exhausted their drought relief funds, with the exception of several municipalities in Limpopo that were inexperienced in matters of water supply and in need of support.

Mr T Ramphele (ANC) asked how much income the three self -ufficient accounts had generated in addition to the Treasury budget allocation. Mr Mabala said the Department's combined budget was over R7 billion. Mr Ramphele asked what was done with the surplus money. Mr Mabala said that the Department had spent over 99% of its budget.

Mr S Simmons (NP) was concerned that an internal audit seemed to be missing from the Department's financial management framework.

Mr Mabala said the Department had 13 internal auditors, although it was clear this number was not sufficient. It had been proposed that internal auditors should be present in every region.

The meeting was adjourned.

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