PRESENTATION TO PORTFOLIO COMMITTEE ON DMR 2010 / 11 ANNUAL REPORT 18 OCTOBER 2011

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PRESENTATION TO PORTFOLIO COMMITTEE ON DMR 2010 / 11

ANNUAL REPORT

18 OCTOBER 2011

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Presentation Outline 1. Financial performance

- Annual Financial Statements

2. Auditor General’s Report

- Audit Findings

- Report on Material Losses

- Report on Accruals

3. Progress on BRRR Recommendations4. Section 32 Report

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APPROPRIATION STATEMENT FOR 2010/2011

PROGRAMME

2010/11Final Budget

R'000

2010/11ActualR'000

VarianceR'000

2009/10Actual R’000

1. Admin 227,865 226,727 1,138 249,253

2. MHS 137,095 137,092 3 138,543

3. MR 188,611 188,608 3 190,008

4. MPP 442,271

442,270 1 73,724

Total 995,842 994,697 1,145 651,528

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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

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Analysis of variances

• Mine Health and Safety Branch reflected 100% spending. An amount of R4.9 million was re-allocated to other Branches to cater for over expenditure

• Although Mineral Regulation Branch reflected 100% spending, an amount of R6.2 million was re-allocated to this Branch from other Branches to cater for higher than anticipated expenditure

• Mineral Policy and Promotion Branch reflected 100% spending. An amount of R2 million was re-allocated to other Branches for higher than anticipated expenditure

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TREND ON UTILISATION OF FUNDS

EconomicClassification 2010/11 2009/10 2008/09 2006/07

Compensation of Employees 326,457 403,323 330,089 290,561

Goods and services 206,504 263,475 269,408 277,222

Payment for Capex 28,603 48,690 18,855 7,470

Transfer and subsidy 438,120 3,828,303 3,111,061 2,366,512

Theft and losses 50 924 593 5,602

Unspent 1,145 137,288 56,235 27,570

TOTALS (BUDGET) 995,842 4,682,004 3,786,241 2,974,937

% Under Spending 0.11% 2.9% 1.48% 0.93%

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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.

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Analysis of variance in Statement of Financial Performance

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Items2010/11 2009/10 Variance % variance

R’000 R’000 R’000

Compensation of employees

Basic salary 217,268

259,530

(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)

Advertising 1,661

2,829 (1,168)

(41.28)Communication 11,181

19,875

(8,694)

(43.75)

Analysis of the Statement of Financial Performance

Item2010/11 2009/10 Variance

% variance

R’000 R’000 R’000

Travelling 54,667

67,458 (12,791)

(18.96)Operating leases

64,147 34,231 29,916

87.39

Financial transactions in assets and liabilities

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925 (875)

(94.00) Transfers and Subsidies 438,120 3,828,303 (3,390,183) (88.55)

Tangible capital assets

Buildings and other fixed structures 17,059 26,917 (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)

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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

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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.

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Analysis of variances: Statement of Financial Position

Item 2010/11 2009/10 Variance %variance

R’000 R’000 R’000

Current Assets Cash and cash equivalents 37,493 192,279 (154,786)

(80)

Prepayments and Advances 40 5,902 (5,862) (99)

Receivables 20,663 14,580 6,083 41 Current Liabilities Voted Funds to be surrendered 1,145 137,288 (136,143)

(99)

Revenue to be surrendered 2,482 74,344 (71,862) (96)

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Analysis of variances: Statement of Financial Position

Item 2010/11 2009/10 Variance %variance

R’000 R’000 R’000

Net Assets Recoverable Revenue 1,052 1,062 10

0.94

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Details of Transfers and Subsidies

Recipient

2010/11

Purpose of transfer payment

Actual transfer

R'000

SBT Trust and Council for Geoscience 35,671

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 Geoscience 136,505Core funding in terms of establishing act

Council for Mineral Technology Research 195,840

R165.8 million -Core funding in terms of establishing act and R30 million - Mine Rehabilitation projects

South African Diamond and Precious Metals Regulator 40,643

Core funding in terms of establishing act

Mine Health and Safety Council 5,358

Core funding in terms of establishing act

Industrial Development Corporation of SA (Small scale mining) 23,609

Small scale mining projects

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Audit Findings and action plan: 2009/2010 v 2010/2011

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AG Finding 2009/10 AG Finding 2010/11 Comment

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•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


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•Implemented 31 July 2010•Implemented 31 July 2010

• Maintain action plans already in place•Enhance expediting of orders and monitor progress on a monthly basis

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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

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- 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 2012

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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

Action plan to address the finding

Due date

•Motivate for additional funding

•Motivate for additional funding•Introduce further cost containment measures on Good and Services

• Done in July 2011

•By 01 April 2012

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Report on Material Losses - Assets: Category and Value

Category Quantity

Purchase Value

Book Value

1. Assets that could not be verified for two or more consecutive financial years 485 R2,070,189.17 R 75,400.48

2. Assets that went missing during the relocation

614 R3,332,165.68 R489,301.25

3. Assets that could not be moved (fixtures)

34 R 245,404.07 0

4. Leased Assets 21 R 46,200.00 0

5. Reported Losses 10 R 145,691.67 R262,264.93

Total 1 164 R5,839,651.59 R826,966.66

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Report on Material Losses - Assets: Root Cause and Action Plan

Category Root Cause Action Plan

1. Assets that could not be verified for two or more consecutive years

• Duplication in the Assets Register

• Tag replacement process during verification has been defined in 2010/2011

•Process for the IT equipment replacement/movement has been developed for implementation by 30 November 2011

2. Assets that went missing during the relocation

•Poor synchronisation of activities involved in the relocation

•Capacity challenges

•Project management for relocation will include all aspects that have impact on the relocation

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Report on Material Losses - Assets: Root Cause and Action Plan

Category Root Cause Action Plan

3. Assets that could not be moved (fixtures)

• Lack of distinct method to record fixtures on the Asset Register

•To record them distinctively so that they can be written off immediately after relocation

4. Leased Assets •Lack of distinct method to record fixtures on the Asset Register

•Recording of Leased Assets distinctively started during the 2010/11 financial year

5. Reported Losses •Assets Lost by Officials

•To review the processes of reporting and recording losses•Implement the Loss Management Strategy

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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

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Progress on BRRR Recommendations

Recommendation:

The Minister needs to ensure that capacity within the department is built and therefore avail/provide for the necessary resources including financial budget

DMR Response:

Funding problems have always been the challenge as illustrated in the next slide. This has a negative impact on performance as limited funding inhibits achievements of some of the set objectives thereby affecting service delivery

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Progress on BRRR RecommendationsDMR Response Cont’d

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Financial YearAdditional Funding Requested

Additional Funding Allocated

Variance

2010/2011 R281,234 R10 996 R270,238

2011/2012 R452,324 R10,136 R462,460


Recommendation:

In order to ensure the DMR’s contribution to the process of creating decent jobs and ensuring sustainable livelihood for the people the Minister of Mineral Resources needs to speed up the process of completing the beneficiation and small scale mining strategies

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Progress on BRRR Recommendations Cont’d

DMR Response:• The Beneficiation strategy was adopted as the country’s

policy by Cabinet on the 8th of June 2011.

-Process of developing implementation plans for the five pilot value chains as outlined in the strategy.

-Two value chains are being finalized for presentation to Cabinet - the iron and steel and the energy commodities value chains .

-The rest of the value chains will be developed during the next financial .

• The small scale mining strategy – Draft strategy has been completed and going through the internal approval processes.

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Recommendation:

The department should ensure capacity is created to enforce the compliance with legislation

DMR Response:

The Department has provided for the establishment of a compliance unit under the Mineral Regulation Branch however the posts remain unfunded and the Branch will continue to motivate for the necessary funding

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Recommendation:• The Director General should ensure the

Committee receives the organogram of the new DMR

DMR Response:• A high level organogram and schedule of

current vacancies are attached to this presentation

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SECTION 32 REPORT: EXPENDITURE ANALYSISSECTION 32 REPORT: EXPENDITURE ANALYSIS

Year to date analysis (per economic classification)

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Economic Classification

Year to Date

% Variance

Projected Expenditur

e Actual

Expenditure

Variance on Projected vs.

Actual Expenditure

Compensation of employees

190,576

180,094

10,482 5.50%

Goods and Services 121,557

110,861

10,696 8.80%

Capital payments

5,129

4,188

941 18.35%

Financial Transactions

-

14 -

14 0.00%

Transfer Payments 266,683

223,934

42,749 16.03%

TOTALS 583,945

519,091

64,854 11.11%

EXPENDITURE ANAYSISEXPENDITURE ANAYSIS

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The Department has, as at 30 September 2011, disbursed R519.1 million which represents 50.10% of the total budget allocation of R1.036 billion for the 2011/12 financial year.

This was R64.9 million (11.11%) lesser than the projected expenditure of R583.9 million

SLOW SPENDING AREASSLOW SPENDING AREAS

1. Transfer Payments

The year to date transfer payments totalling R42.7 million which mostly includes:

– R23 million in respect of IDCSA for Small Scale Mining

– R9 million for assistance to mines– R9.3 million in respect of Mintek

rehabilitation of ownerless and derelict mines projections were changed during the year

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SLOW SPENDING AREAS (CONTSLOW SPENDING AREAS (CONT))

2. Goods and Services

The underspending in this category is mainly due to the outstanding payments totalling R6.6.million in respect of office accommodation to the Department of Public Works which accounts for 61.4% of the under spending

Other contributing factor are vacancies as a result of the Department’s inability to attract professional bands and the time frame associated with filling of the posts

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REMEDIAL ACTIONSREMEDIAL ACTIONS

Fast track the finalisation of the Strategy, MoA and other processes that are prerequisite to the transfer of funds

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SECTION 32 REPORT: REVENUE ANALYSISSECTION 32 REPORT: REVENUE ANALYSIS

• Year to date analysis

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ITEM DESCRIPTION Projected Revenue

Revenue collection as at 30/09/2011

Variance on projected vs

Revenue collected

% Variance

DEPARTMENTAL REVENUE

(9,691) (28,851) 19,160 -198%

REVENUE ANALYSIS

• The year to date revenue recoveries mainly consist of prospecting fees and royalty payments which represents 53.37% and 39.09% respectively of the total revenue received totalling R28.9 million

• The revenue projections were based on historical information

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REMEDIAL ACTIONSREMEDIAL ACTIONS

1. Underestimated Revenue

- The revenue projections were increased during the 2011 AENE and the monthly projections will be adjusted after the 2011 AENE is tabled in Parliament

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THANK YOU

PRESENTATION TO PORTFOLIO COMMITTEE ON DMR 2010 / 11 ANNUAL REPORT 18 OCTOBER 2011

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