PRESENTATION TO PORTFOLIO COMMITTEE ON MINING OF 2009 / 10 ANNUAL REPORT 12 OCTOBER 2010

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PRESENTATION TO PORTFOLIO COMMITTEE ON MINING OF 2009 / 10 ANNUAL REPORT

12 OCTOBER 2010

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Presentation Outline1. Introduction

2. Financial performance- An overview of the audit report

- An overview of the Audit Committee report

- Annual Financial Statements, including notes thereto

- State of Financial Management systems

Report on Financial misconduct and measures taken

Efficiency savings and productivity gains.

Supply chain management.

Information Technology – Making better use of technology

3. Non Financial Performance Informationi. Programme 1: Administrationii. Programme 2: Mine Health & Safetyiii. Programme 3: Mineral Regulationiv. Programme 4: Mineral Policy & Promotion

4. Closure / Discussion

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INTRODUCTION

1. Mine Health and Safety Act

2. Council for Geoscience Act

3. Derelict and Ownerless Mines Strategy

4. Service Delivery Environment

5. Emerging Issues

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An overview of the audit report

Audit opinion• Qualified audit opinion issued

Basis for qualified opinion• Completeness of receivables for departmental revenue (R25m) could not be

verified• This is related to disclosure note 26 (page 189)• Although the department prepares AFS on modified cash basis, such

disclosure notes are necessary as part of the preparation for migration into accrual basis of accounting

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Root Cause• Lack of a comprehensive debtors system• Skills gaps

Management action plan• New debtors system to be developed as part

of the new system – BAS to be used in the interim

• Monthly workshops with regional offices to review registers

• Additional staff with Financial background to be appointed in all regional offices

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Emphasis of matter• This matters are not a qualification but are

intended to draw the readers attention to such matters due to their importance.

Matters reported are:• Basis of reporting - this is a standard

paragraph for all national departments – No further action is required in this regard.

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• Irregular Expenditure – – expenditure that was incurred without

adhering to the internal delegation of authority, e.g. services rendered prior to approval by the relevant authority

– These were picked up the internal controls established by the department

– All cases were evaluated and condoned by the Accounting Officer during the year

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• Restatement of previous financial year figures.

• Changes effected on prior year’s reported figures• These changes were either made as a result of a query

from the AG or initiated by Management • The intention is to align prior year’s figures to the

current for comparability. • One of the major causes for these adjustments is

change in reporting framework, e.g. disclosure of minor assets.

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An overview of the audit report • Material under-spending of budget

• Although the amount appears significant it only represents 2,9 percent of the total budget – which is below the materiality threshold set by National Treasury

• The under spending was primarily caused by delays in finalising contracts for non-grid service. These contracts were signed towards the end of the financial year

• Approval was granted by National Treasury for the roll over of the funding to the 2010/11

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Potential unauthorised expenditure due to accruals exceeding saving• Of the R22.2 m accruals disclosed, R20.4 m relates

to the DPW disputed invoices.• There was no deliberate intention to withhold

invoices• At year end DPW had not submitted a revised

invoice on the confirmed amount

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Overview of the Audit Committee• The Audit Committee comprised of 3 independent

members• The Committee met 6 times during the period under

review (required minimum is 4 meetings)• The Committee approved its reviewed charter in terms of

the PFMA and Treasury Regulations• The work of the Audit Committee was conducted in line

with the approved charter and covered

- Review of the effectiveness of Internal

controls

- Evaluation of Financial Statements

- Effectiveness of the Internal Audit function• A process of appointing the members of the DMR Audit

Committee following the split has been finalised

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APPROPRIATION STATEMENT FOR 2009/10

PRGRAMME

2009/10Final Budget

R'000

2009/10ActualR'000

VarianceR'000

2008/9Actual R’000

1. Admin 250,216 249,253 963 226,023

2. MHS 138,717 138,543 174 118,822

3. MR 158,164 150,596 7,568 125,180

4. MPP 73,776 73,724 52 58,318

5. HCEP 56,973 56,925 48 44,199

6. ENCE 338,936 334,070 4,866 262,575

7. Associated 3,665,222 3,541,605 123,617 2,894,889

Total 4,682,004 4,544,716 137,288 3,730,006

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Analysis of variances

• The overall under spending by the Department was R137,288 million which is 2.9 % of the budget.

• The main reason for the under spending was the delay in finalising contracts for the non-grid electrification programme – roll over approved in this regard

• An under-spending of 0.4% under programme 1 relates to outstanding lease payments and accommodation charges payable to the Department of Public works.

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Analysis of variances • Mine Health and Safety branch reflected an

under-spending of 0.1% which is due to vacancies within the branch.

• The under-spending of R7.5 million under Mineral Regulation branch is attributable to delays in contracts and subsequent payments for projects aimed at rehabilitating ownerless and derelict mines of which R5 million was approved for roll over.

• The under spending on Electricity and Nuclear branch can be attributed to payments that were not disbursed due to delays in finalising agreements

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TREND ON UTILISATION OF FUNDS

Economicclassification 2009/10 2008/09 2006/07 2005/06

Compensation of Employees 403,323 330,089 290,561 246,154

Goods and services 263,475 269,408 277,222 254,665

Payment for capex 48,690 18,855 7,470 6,804

Transfer and subs 3,828,303 3,111,061 2,366,512 2,099,917

Theft and losses 924 593 5,602 135

Unspent 137,288 56,235 27,570 27,425

TOTALS (BUDGET) 4,682,004 3,786,241 2,974,937 2,635,100

% Under Spending 2.9% 1.48% 0.93% 1.04%

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Analysis of unspent funds• Under spending has been consistently below

3% for the last three years .• The increase in unspent funds for the year

under review is attributable to the following : • R82 million non-grid electrification transfers

that did not realize however contracts already concluded

• The funds appropriated for working for energy project (R5m)

• The R5m relating to Rehabilitation of ownerless and derelict mines

• Roll over application has been made to National Treasury for the above

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Analysis of variance in Statement of Financial Performance

Item2009/10 2008/9 Variance % variance

R’000 R’000 R’000

Compensation of employees

Basic salary 259,530 207,803 51,727

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Periodic payments 1,526 2,950 (1,424)

(48)

Pension 33,503 26,771 6,732

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Goods and services

Venues and facilities 5,454 11,239 (5,785)

(51)

Advertising 2,829 16,009 (13,180) (82)

Communication 19,875 17,207 2,668 15.

Analysis of the Statement of Financial Performance

Item2009/10 2008/9 Variance

% variance

R’000 R’000 R’000

Travelling 67,458

79,317 (11,859)

(14)

Operating leases 34,231

19,413 14,818

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Financial transactions in assets and liabilities

925

593 332

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Tangible capital assets

Buildings and other fixed structures 26,917 3,978 22,939 577

Machinery and equipment 20,467 12,565

11,133

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Software and other intangible assets

1,306

2,312 (1,006)

(44))

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Statement of Financial Performance: Variance analysis

• The staff cost increased in relation to the increase in staff numbers (1272 vs.1169)

• The G & S cost is relatively low compared to 2008/9 owing to cost containment measures implemented during the year under review. The related costs include, travelling, venues and facilities, advertising and catering.

• Tangible capital assets increased significantly owing to acquisition of furniture and servers for new building

• Intangible capital assets decreased as only security related software were acquired during 2009/10

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Statement of Financial Performance: Variance analysis

• Increase of 23% in transfers represent new funds appropriated for Demand Side Management project (R250m), Working for Energy and Renewable Energy Finance Subsidy Office (REFSO) @ R5m apiece

• Financial transactions in assets and liabilities went up by 56% and account for R925 thousand mainly written off for car accidents and ex-employees debts.

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Analysis of variances: Statement of Financial Position

Item 2009/10 2008/09 Variance %variance

R’000 R’000 R’000

Current Assets Cash and cash equivalents 192,279 127,225 65,054 34 Prepayments and Advances 5,902 19,133 (13,231)

(224)

Receivables 14,580 29,674 (15,094 (104)

Current Liabilities Voted Funds to be surrendered 137,288 54,105 83,183 61 Revenue to be surrendered 74,344 115,158 (40,814) (55)

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Analysis of variances: Statement of Financial Position


R’000 R’000 R’000

Net Assets Recoverable Revenue 1062 844 218 21

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Analysis of major variances : Statement of Financial Position

• The asset base increased by 24% from last year attributable to bank balance (R158m) for payments projected to disburse at year end , late revenue payments (R33m)

• Prepayments and advances went down by 224% due to rehabilitation of ownerless and derelict mines projects that were concluded during the 2009/10 financial year.

• Recoverable expenditure (R7.6m fraud and approximately R1. 9m – land for IPP project).

• Notable decrease in long outstanding staff debt (R2.2m vs. R2.7m)

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Analysis of major variances : Statement of Financial Position

• Total liabilities of R201m(also 24% increase) include R 74 m revenue and R137m of voted funds for surrender

• Net assets of R3.2 m include the capitalization reserve (R2.2m) and R1m recoverable revenue

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Analysis of variances: Cash Flow Statement


R'000 R'000 R'000

Receipts 4,899,148 4,068,731 830,417 17 Net cash flow available from operating activities 113,526 27,808 85,718 76 Net cash flow available from financing activities 218 (17) 235 108 Cash and cash equivalents 192279 127225 65054 34

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Analysis of major variances: Cash Flow Statement

• The increase in net cash flow available from operating activities is attributable to the increase in unspent funds by 60%. (as explained under unspent funds)

• The significant increase in net cash flow from investing activities is due to acquisition of furniture and servers for the new building as well as the improvements made to the new building

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Analysis of variances: Disclosure notes

Items 2009/10 2008/09 Variance %variance

R'000 R'000 R'000 Contingent liabilities and contingent assets

367,474

273,800

93,674

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Commitments

99,002

87,526

11,476

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Accruals

40,525

13,358

27,167

67

Employee Benefits

42,201

30,241

11,960

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Lease commitments

368,526

359,464 9,062

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Receivable for Departmental Revenue

25,567

10,437

15,130

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Irregular Expenditure 4,203

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4,203 100

Related Party Transactions 17,600

58,349

(40,749) (232)

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Items 2009/10 2008/09 Variance %variance

R'000 R'000 R'000 Key Management Personnel 33,377 24,738 8,639 26

Provisions 10,559 7,847 2,712 26

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• Contingent Liabilities is made out of legal claims against the department, guarantees issues and interdepartmental payables (unconfirmed balances).

• Accruals increased by 67% as a result of R20.4m due to Public works, invoice of which is still awaited

• Increase on employees benefits is as a result of leave and performance bonuses due

• Receivables increased as a result of uncollected monies due to the department

• Irregular expenditure incurred in the current financial year was due to officials not following the departmental financial delegations.


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Details of Transfers and Subsidies

Recipient

2009/10

Actual transfer

Purpose of transfer paymentR’000

Assistance to Mines 31,100

Assistance to marginal mines in the form of pumping subsidies and research to prevent ingress of water into underground holdings (CGS:R17.6m and Mining companies R13.5 m)

Council for Geoscience 132,677Core funding in terms of establishing act

Council for Mineral Technology Research 161,108

Core funding in terms of establishing act

South African Diamond and Precious Metals Regulator 39,412


Mine Health and Safety Council 5,118


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Transfers and Subsidies

Recipient

2009/10

Actual transfer

Purpose of transfer paymentR’000

Industrial Development Corporation of SA (Small scale mining) 25,058

Small scale mining projects

State Diamond Trader 1,000 Bail out during recession

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State of Financial Management systems

Report on Financial Misconduct• 4 cases of financial misconduct were reported

during the year. • Outcomes of the hearing are: 2 were found guilty,

1 is in progress while the other 1 has already left the Department.

• Further action taken - 2 of the cases were reported to the police while the other one was suspended without pay for 3 months and the 4th one is still in progress

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State of Financial Management systems

Efficiency Savings and Productivity Gains:• Reduction on travel related expenditure and

Catering is attributable to the effective implementation of the cost containment measures introduced during the year

• The split of the Department of Minerals and Energy into two, namely the Department of Mineral Resources and the Department of Energy was successfully executed

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State of Financial Management systems Supply Chain Management:• The SCM component has been fully restructured

and aligned with the SCM Framework requirements. This enables effective implementation of all functionalities and improves productivity.

• All SCM Committees as required in the framework have been constituted and fully operational. This enhances internal control measures within the SCM environment

• Departmental Internal control systems in place are able to pick up irregular expenditure effectively

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Information Technology Management • The department has developed a new integrated

information management system• The Mine Health and Safety modules have been completed

and rolled out for implementation • Currently developing modules for Mineral Regulation

(licensing and compliance monitoring)• Some of the benefits of the new system include:

– Online submission and processing of applications for prospecting and mining rights

– Online checking of availability of farms prior to completing the application forms

– Online checking of the status of the application– Integration of various processes within the department

for improved efficiency.

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Programme 1

CORPORATE SERVICES

PurposeTo enable the Department to deliver on its mandate, by providing strategic management and administrative support to the Ministry and the Department

SUCCESSES• Successful implementation of the President’s request to split the

Department of Minerals and Energy into Department of Mineral Resources (DMR) and Department of Energy (DOE).

Successful realignment of Organizational Structure in line with the new mandate of the newly established Departments.

Successful matching and placing Service Level Agreement developed and agreed for to be the

hosting Department for DOE Shared Support Services

• Evaluation of MOUs signed with prioritized countries

• Implementation of the Media and stakeholder engagement plan

• Compliance Framework developed, approved and implemented

• Policies , procedures and guidelines approved

• Development and implementation of the balance score card implementation plan

• Completion of the executive leadership development program through Wits.

• Improved security measures

• Continued addressing of issues of transformation regarding vulnerable groups

CHALLENGES

• Change management issues due to the split

• Capacitating the new Structure

• Inadequate / lack of funding for the new approved structure

• Implementation of the Communication Strategy

CORRECTIVE MEASURES

• Reprioritization of priorities to ensure a successful Split of the Department

• Climate Survey on DMR employees to be conducted

• Prepare requests for additional funding through MTEF process for the implementation of the approved organizational structure

• To obtain approval of the DMR Communication Strategy

Programme 2Mine Health and Safety Inspectorate

Purpose

Execute the Department’s mandate to safeguard the health and safety of the mine employees and people affected by mining activities

ObjectiveReduce mining-related deaths, injuries and ill health through the formulation of national policy and legislation, the provision of advice, and the application of systems that monitor, audit and enforce compliance in the mining sector

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Achievements/ Successes

Improved stakeholder relationships: Quarterly meetings in all regions with Unions Quarterly meetings with DoL, DoH and DPP

•Address Health and Safety Risks: Completed Inquiries & Investigations as planned

Audits (83%) & Inspections (91%)

•Development of Guidelines: Reviewed existing Guidelines (e.g. Underwater Mining; Emergency Preparedness; and Drawpoints, Tipping Points & Orepasses)

•Review and develop internal policies and procedures: Exams Policy, Medical Appeal Procedure; Inclusion or Non-Inclusion of Fatal accidents in Statistics

•Human Resource Development : 99 Officials completed a course on Risk Management in Mining

97 Officials completed Health & Safety Training (Legal, Inspection, Audit, Investigation and

inquiries)

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Safety performance

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Safety performance

Commodity

Fatalities*

Actual

01/01/2009-04/10/2009

01/01/2010 - 04/10//2010 % change

Total 130 97 -25

Gold 60 47 -22

Coal 9 8 -11

Platinum 37 24 -35

Other 24 18 -25

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CHALLENGES

• Capacity Building

• Compliance Levels monitoring tool

CORRECTIVE MEASURES

• Appointment of 19 Learner Inspectors

• 18 Bursary Students

• Training Initiatives with WITS, MQA and IRCA

• Implementation of an electronic business management system

• Electronic business management system still being developed

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CHALLENGES

• FOG accidents

CORRECTIVE MEASURES

• SIMRAC project on integration of seismic networks has commenced

• Specialist Task team has been established to look on FOGs

• Quarterly review meetings between Minister, CEOs, Labour

• Enhance Rock engineering capacity of the Inspectorate both in H/O and Regions

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CHALLENGES

• Occupational Health

CORRECTIVE MEASURES

• Reviewed TB guideline• Chief Directorate on

Health established • Silicosis Roadshows

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Programme 3Mineral Regulation

Purpose To regulate the minerals and mining sectors to achieve

transformation and sustainable development.

Objective To transform the minerals and mining sectors into one that competitively contributes to the sustainable development in the country.

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Regulation of the minerals and mining sector to achieve transformation and sustainability.

• Exceeded the target of granting Rights to HDSA

Monitor and enforce compliance• Exceeded the target of conducting inspections

Effectively implement relevant legislation• Exceeded the target of conducting industry workshops

Successes

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Challenges• Whilst we have exceeded targets in granting rights to HDSA,

not many of these have graduated into Mining Rights.

• Sale of Rights and dilutions - Some of these Rights could have been subjected to auctioneering without Ministerial consent

• Inadequate capacity to conduct compliance inspections

• Whilst the branch may have succeeded in conducting inspections, the impact is not felt on the ground, as limited number of Section 93 and 47 have been issued

• Whilst the branch may have succeeded in conducting community and industry workshops, the branch experienced an increase in complaints from communities. These complaints though wide ranging, border on non compliance by mining companies on SLP commitments.

• Funding (personnel, goods and services)

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Corrective Measures

• Imposition of a moratorium on lodgement of new prospecting rights, to allow a thorough audit of all rights granted since implementation of the MPRDA

• Development of a new electronic system for the lodgement and administration of mining and prospecting applications.

• The new system will enable online lodgement of all applications

- transparency built into the system• Reduction in timeframes for the processing of applications.• Strengthening capacity of Regional offices by re-deploying

Chief Directors, creation of additional Chief Director posts, and additional resources for monitoring and evaluation.

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Programme 4Mineral Policy & Promotion

Purpose To formulate mineral-related policies and promote the mining

and minerals industry of South Africa, making it attractive to investors.

ObjectiveThrough research, provide relevant information to enhance global competitiveness, review policies and formulate legislation to achieve transformation and attract new investment into South Africa’s minerals industry..

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MINERAL POLICY AND PROMOTIONSuccesses

• Mining Summit held with all industry stakeholders

• MIGDETT intervention to mitigate job losses

• Adopted strategy on sustainable growth and meaningful

transformation of mining industry by stakeholders

• Evaluation of state’s exposure to mining industry – led to

moratorium on disposal of State owned mining assets

• Mining report towards the country UNCSD report

• Mining Charter Assessment report completed

• Minister approved the strategy for rehabilitation of derelict

and ownerless mines

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Challenges

• Beneficiation strategy

• Finalisation of the implementation plan for D & O

mines

• Acid Mine Drainage threat

• Small Scale Mining Strategy

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Corrective Measures• Beneficiation Strategy - Broadening consultation within the government

system (Economic Development Cluster) and with stakeholders through

MIGDETT

• An implementation plan for D & O in process of finalization

• AMD threat - Constitution of a comprehensive and pragmatic

stakeholder forum consisting of science councils of the DMR, DWAE

and the DST, academics from universities engaged in research on water

resources and management and the resultant impacts of mining

activities

• Reconfiguration of the implementation agent framework for small scale

mining by enhancing the role of the IDC and weaning away from the

CGS

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Documents

PRESENTATION TO PORTFOLIO COMMITTEE ON MINING OF 2009 / 10 ANNUAL REPORT 12 OCTOBER 2010