REFERENCE:

PORTFOLIO COMMITTEE ON WATER AFFAIRS AND FORESTRY QUARTERLY FINANCE REPORT : 12 SEPTEMBER 2007

1. INTRODUCTION

Following the 2004/05 Audit of the Department a number steps were taken by EXCO and Top Management to ensure that the Financial Management of the Department is improved and placed on a much firmer footing. While these actions, which were taken in the later half of the 2005/06 financial year, did not have a significant impact on the results of the 2005/06 Audit, it is expected that with the interventions put in place that an improvement has been witnessed in 2006/07. More of the impact of financial management reforms in the department will be seen during the fiscal year 2007/08 and 2008/09 with a plan to have unqualified audit opinion for the department at the end of 31 March 2009.

For historical reasons, the Department is involved in trading activities, which include the sale of water-related services. The medium term plan to migrate these activities out of the Department that started in 2006 is on course. The medium-term plan is geared towards improving the general financial management through specific financial amangement improvement interventions, which include:

· A restructuring of the Finance Branch at Head Office and at Regional level through the separation of the Water Trading Account and Main Account (Exchequer) activities;

· A national accounting firm was contracted to provide temporary resources at the Department’s National and Regional offices to improve our financial management while we recruit suitable staff for the Department;

· The implementation of SAP as the preferred Enterprise Resource Planning (ERP) system to support our trading activities. This system became operational during the last quarter of 2006. This will mean that we will be able to fully implement accrual accounting for the trading activities and comply with the provisions of section 40(1) of the Public Finance Management Act,1999 (Act No. 1 of 1999) (PFMA);

· Coupled with the implementation of SAP is an extensive ongoing training programme for the Departmental staff which includes computer literacy, accrual accounting and the application of SAP in the Departmental environment;

· Implementing an asset management strategy to ensure that the Department is able to comply with all of the National Treasury’s requirements, including Generally Accepted Accounting Practice (GAAP). This will also include a re-valuation of all of the Department’s fixed assets. To this end, an enterprise-wide asset management project is in progress to verify and value water resource management assets in accordance of GAAP; and

· Build on the successes achieved in the management of the audit process through the Audit Steering Committee (Chaired by the Deputy Chief Finance Officer). This committee was establised in 2005/06. This committee, with members from the Department and the Office of the Auditor-General, oversaw the 2006/07 fiscal year audit and continue to monitor progress on the 2007/08 annual audit which will commence in November 2007.

The projects implemented by the Department requires the Chief Financial Officer, who assumed duty on 02 July 2007, to have an ongoing engagement with the Office of the Accountant-General to implement a comprehensive programme of support to the Department with regard to financial management and to ensure that the Department can in the future look forward to have improved financial management practices for the Department of Water Affairs and Forestry in order to unqualified audit reports situation.

2. BUDGET 2007 TO 2010

Main account Vote 34

The approved budget for 2007 to 2010 is summarised below (R’000):

Table 2.1: MTEF Allocations

Programme	2007/08	2008/09	2009/10
Administration	516 110	524 384	565 995
Water Resources	2 730 032	3 221 192	4 313 760
Water Services	1 913 660	2 419 150	2 527 591
Forestry	460 545	440 258	463 962
Total	5 620 347	6 604 984	7 871 308

The 2007 MTEF allocations include amounts already in the baseline and new allocations of R505 million for 2007/08, R975 million for 2008/09 and R1 690 million for 2009/10, for spending on the following new policy priorities:

· Upgrading and expansion of the National surface water gauging network (R10 million for 2007/08, R20 million for 2008/09 and R30 million for 2009/10);

· Working on Fire (R10 million for 2007/08, R20 million for 2008/09 and R30 million for 2009/10);

· Refurbishment of infrastructure (water schemes) (R20 million for 2007/08, R25 million for 2008/09 and R30 million for 2009/10);

· Bulk infrastructure (conditional grant to Local Government) (R300 million for 2007/08, R450 million for 2008/09 and R650 million for 2009/10); and

· An increase in the allocation for the social component of the De Hoop Dam downstream projects (phases 2B to 2G) (R50 million for 2007/08, R250 million for 2008/09 and R600 million for 2009/10).

· Schools and clinics water supply and sanitation (R105 million 2007/08, R210 million 2008/09 and R350 million 2009/10).

Medium- Term Expenditure Framework (MTEF) 2008 Budget proposal

The Department has submitted the budget proposal to National Treasury for consideration and are excluded in the MTEF 2007 – Refer to Table 2.2. The budget proposal are as follows

Table 2.2: Medium- Term Expenditure Framework (MTEF) 2008 Budget proposal

Proposal	2008/09 R’000	2009/10 R’000	2010/2011 R’000
Additional funding to replace donor funds and support the 2010 sanitation targets	100 000	120 000	800 000
Forestry Charter	30 000	35 000	40 000
The need for additional capacity	30 000	30 000	80 000
National regional bulk water services infrastructure programme	160 000	200 000	800 000
Trees for food programmes	20 000	25 000	30 000
Working for Water, Working on Fire and Working for Wetlands	110 000	160 000	400 000
TOTAL	450 000	600 000	2 150 000

3. EXPENDITURE REPORT 2007/08 (END AUGUST 2007)

3.1 Main Account (Vote 34)

In terms of section 40(4) of the PFMA, information on Departmental spending must be reported to the National Treasury and also to the Minister. Summarised in Table 3.1 is the Departmental actual expenditure from 01 April 2007 to 31 August 2007 (four-month period).

The Department had spent 32% of the approved budget of R5 620, 347 million (including roll-overs). This compares favourably with the expenditure for 2006/07 for the same period, the Department had spent 29% of the approved budget of R4 599, 753 million as shown in the Table 3.1.

Table 3.1: Main Account - Expenditure end of August 2007

2006/07 Financial Year				2007/08 Financial Year
Programme	Budget Allocation R’000	Actual Expenditure R’000	% Spent	Budget Allocation R’000	Actual Expenditure R’000	% Spent
Administration	509 670	181 603	36	516 110	222 805	43
Water Resource Management	2 229 432	594 350	27	2 730 032	811 739	30

REFERENCE:

Main account Vote 34

Administration