Name Surname Directorate Date Amatola Water Board Annual report for the 201415 financial year Presented by Mr Lefadi Makibinyane Chief Executive Officer Date 26 February 2016 Annual report for the 201415 financial year ID: 638407
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PRESENTATION TITLEPresented by:Name SurnameDirectorateDate
Amatola Water
Board
Annual report for the 2014/15 financial year
Presented by: Mr. Lefadi Makibinyane
Chief Executive Officer
Date: 26 February 2016Slide2
Annual report for the 2014/15 financial year Part 1: Overview of financial performance
Part 2: Overview of non-financial performance
CONTENTS
2Slide3
Part 1: overview of financial performance3
Programme expenditure trends
Notes to the financial statements
Overview of the audit report and action planSlide4
4
FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31 MARCH 2015
Audited Outcome
Audited Outcome
Variance
2014/15
2013/14
R'000
R'000
%
Revenue
338,901
332,533
2%
Revenue from Section 29
261,680
236,445
11%
Revenue from Section 30
73,557
92,317
-20%
Other income
3,664
3,771
-3%
Expenditure
(338,898)
(303,372)
12%
Cost of sales
(236,696)
(227,952)
4%
Operating and administrative expenses
(108,433)
(88,719)
22%
Interest income
6,464
13,585
-52%
Finance cost
(233)
(286)
-19%
Surplus/(deficit)from operating activities
3
29,161
-100%Slide5
Consolidate results 5Slide6
6Slide7
RatiosLiquidity The current ratio1.0:1 (2014; 1.22:1).Cash flow from operations The cash and cash equivalent at the end of the year amounted to R120 Million (2014; R124 Million)Return on assets
The ratio on return on assets is 0% (2014; 0.04%). This illustrates the entity’s inability to effectively utilise its investment in assets.Debtor days in salesDuring the period under review, the debtor days’ analysis reflected a regression from 289 days in 2014 to 345 days in 2015
This is due to challenges in collecting debts owed by WSA’s where Amatola Water is an implementing agent. Other ratios applicable
Debt-Equity Ratio for 2015 is 0.0:1 (2014; 0.89:1)
Working Ratio achieved in 2015 is 1.0 (2014; 0.95)
7Slide8
Expenditure outcome: 30 June 20158Slide9
Consolidated expenditure per programme9
Operational Expenditure Outcome
as at 30 June 2015
Programme
Budget
R'000
Actual
R'000
Variance
%
Primary
217,280
232,721
-7%
Secondary
61,955
52,073
16%
Support
68,456
53,008
23%
Total
347,690
337,802
3%Slide10
10Slide11
Detailed expenditure trends per programme11Slide12
Programme 1: Primary Business (Section 29 Activities)12Slide13
Programme 1: Primary Business (Section 29 Activities)Financial performance primary business Amatola Water sold less water in the year under review compared to last year reviewed. Right of use volumes sold at Makana has increase sharply by 43 percent.The adverse performance worsens due to some of the utility’s non-viable water treatment works which under-recovering on costs due to the volumes of water produced.
Amatola Water also strongly recommended the review of the raw water pricing strategy and the need for amendment of raw water pricing, especially in rural areas such as the Eastern Cape, which are to some degree poverty stricken.
13Slide14
Programme 2: Secondary Business (Section 30 Activities)14Slide15
Programme 2: Secondary Business (Section 30 Activities)Financial performance - secondary business The level of engagement in secondary business activities has declined since the termination of the Operation and Maintenance contracts with Amathole District Municipality (ADM) and Joe Gqabi District Municipality (JGDM) with a final handover of all plants as per transfer agreements. Amatola Water has made significant strides in its Project Implementing Agency (PIA) work, with the majority of the work comprising the King
Sabata Dalindyebo Presidential Intervention (KSD PI).
15Slide16
Programme 3: Administration (Support Services)16Slide17
Programme 3: Administration (Support Services)Financial Performance: Amatola Water support and administrative costs contribute negatively to the achievement of targeted surpluses and key performance ratios despite numerous cost containment measures implemented. Fixed labour costs are the main driver of these costs generally noted to be excessively high and managements’ strategies have been developed to curb these costs through rationalising of discretionary benefit or allowance policies. In the year ahead, active monitoring of these costs will be improved by placing systems that will enhance control environment.
17Slide18
Notes to the financial statements18
Basis of preparation
The annual financial statements are prepared on the historical costs basis, unless stated otherwise, and incorporate the following principal
accounting policies which conform to South African Statements of Generally Accepted Accounting Practice (SA GAAP),
the Public
Finance Management Act (Act 1 of 1999, as amended by Act 29 of 1999) and the Water Services Act (Act 108 of 1997
). These principal
accounting policies are consistent with the previous year.
Functional currency
The functional and presentational currency of Amatola Water Board is the South African Rand (ZAR
).
Capital contribution
Capital contribution comprises of Inventory and Property, Plant and Equipment that was transferred from the Department of
Water and
Sanitation (DWS). Refer to the Property, Plant and
Equipment
accounting policy for further information. Slide19
Analysis of expenditure by programme 19Slide20
Analysis of current payments20Slide21
Unauthorised expenditure
21
Amatola Water did not incur unauthorised expenditure during 2014/2015. Slide22
Irregular expenditureAnalysis: Irregular expenditure 22
Incident
Value
R’000
Irregular expenditure investigation outcome (causes)
Procurement policy not
adhered to in awarding of bids
R16 208
A significant portion of the irregular expenditure was identified during the audit process and investigation of the causes is underway and will be presented to the accounting authority on conclusion of the investigation.
Overspending on expired
contracts
R827
Irregular expenditure relates to historical contracts that have not been renewed by
Amatola Water Board that are paid via the debit order facility in place with Standard
Bank. These contracts have expired although the entity is
utilising
the services.
Overspending on expired
contracts
R7 624
Irregular expenditure relates to residual contracts on the fleet management the
transactions on this contract will continue to be irregular until new contracts have been entered through SCM procuring the services through correct process. This amount has thus been condoned.
Prior year irregular
expenditure
R56 871
Irregular expenditure condonation report submitted to the accounting authority as irregular expenditure registers not available. Expenditure, although irregular, economic benefits flowed to the entity and thus is proposed to be condoned.Slide23
Fruitless and Wasteful Expenditure23
2014/15
2013/14
R'000
R'000
Opening balance
181
82
Fruitless and wasteful expenditure – relating to current year
927
102
Fruitless and wasteful expenditure awaiting resolution
0
0
Transfer to receivables
for recovery
(8)
(3)
Total
1100
181Slide24
Reduction of Fruitless & Wasteful Expenditure24
Incident
Value
R’ 000
Fruitless and wasteful expenditure investigation outcome (causes)
Interest on late payment of invoices
146
Investigations to be undertaken and disciplinary action to be instituted.
Preliminary comments on findings to be presented to accounting authority. R128 000 of interest has been incurred but not paid due to this interest relating to project invoices where payment is effected after receipt of funding from the principal funders.
Over payment to SARS
730
PAYE paid as a result of 2012/13 audit findings related to the interim CEO being contracted as an independent contractor. The amount reflected in the reconciliation indicates Amatola Water Board has made an overpayment to SARS and this will be released by SARS once all the conditions have been met.
Payments on cancelled contracts
51
A number of canon fax contracts were cancelled in June 2014. Finance was not informed of these cancellations and the debit orders were not cancelled. Canon has been informed of the matter and a receivable has been raised to recover the moneys from Canon.
Prior year fruitless and wasteful
expenditure
181
Prior year fruitless and wasteful expenditure relates to SARS penalties and
interest expenses. This amount is to be taken to the accounting authority for
condonement as there are no reasonable prospects of recovering the funds.
Slide25
Commitment analysis25Slide26
Amatola Water staff debts combined are very negligible or insignificant. Staff debts are merely arising from sale of Amatola Water corporate merchandise or disposal of property, plant and equipment.
Staff debts are recovered on a monthly basis on an agreed payment plan.
26
Staff debt analysisSlide27
Provisions27
2014/15
2013/14
R’000
R’000
Provisio
n for litigation
550
550
Long service awards
523
523
Total
1073
1073Slide28
2014/15
2014/13
Variance
Variance
R'000
R'000
R'000
%
Contingent liabilities
5000
50
4950
100%
Total
Contingent assets
Total
0
0
0
0
Contingent liability note:
Claim for damages by student who was injured on site during a planned school visit.
The matter is under jurisdiction of the courts.
The date of the hearing is not finalised and therefore the timing of this litigation is uncertain.
The amount of the award is not quantifiable as this would need to be awarded by the courts.
Contingent liabilities and assets
28Slide29
OVERVIEW OF audit report29Slide30
Analysis: matters relating the audit report per year2010/11
2011/12
2012/13
2013/14
2014/15
Audit opinion
Audit opinion
Audit opinion
Audit opinion
Audit opinion
Qualified
Unqualified
Unqualified
Unqualified
Unqualified
30Slide31
Trend analysis: matters relating the audit report31Slide32
Number of findings per category per year32Slide33
Comparative analysis: 2011/12 to 2014/1533Slide34
Action planMajor FindingRoot Cause
Action
Effective Leadership Culture
Staff were not trained to properly implement the policies
Internal and external audit findings not adequately addressed resulting in repeat findings
Management’s lack of accountability and commitment toward improving the control environment.
Board and Management will provide effective
leadership which is based on a culture of honesty, integrity, accountability and responsibility with emphasis on ethical business practices and good governance.
Oversight responsibility
Responsibility and accountability has not been adequately delegated to management
Control weaknesses are not analysed and follow-up actions are not taken to address root causes resulting in numerous deficiencies re-occurring as management did not implement the plan that was put in place adequately
Insufficient monitoring controls in place to ensure adherence to the internal policies and procedures
Extensive vacancies resulted in certain areas not being overseen completely and correctly
Inadequate review by Accounting Authority resulting in numerous adjustments to the financial information
The
Board and management will exercise oversight responsibility regarding financial and corporate performance reporting, compliance as well as related internal controls.
34Slide35
Action plan…cont.Major FindingRoot Cause
Action
Human resource management
Numerous vacancies as a result of a moratorium imposed on the entity
The entity did not properly plan and provide training on performance information
The entity did not hold performance management and reporting staff accountable for shortcomings identified during the internal and external audit processes
Staff were not properly trained to understand the requirements resulting in numerous incidents on non-compliance with the PFMA
Action plans to address internal control deficiencies – actions plans not properly implemented
Management will implement effective human resources management to ensure that adequate and sufficiently skilled resources are in place and performance is monitored.
35Slide36
Action plan…cont.Major FindingRoot Cause
Action
Financial and performance management
Proper record keeping: delays in receiving information timeously and in certain instances, difficult to obtain
Monthly reconciliations performed, however, review process was inadequate and numerous findings were noted
Regular, accurate and complete financial and performance reports – Indicates AFS contained numerous misstatements and not sufficient audit evidence to supported reported performance information
Compliance monitoring – non-compliance could have been prevent with sufficient monitoring
Management will implement a proper record keeping in a timely manner to ensure complete, relevant and accurate information is accessible and available to support finance and performance reporting.
Management will also implement controls over daily and monthly processing and reconciling of transactions.
Regular reviews and monitoring will be performed by management against applicable legislation.
36Slide37
Part 2: overview of non-financial performance37Slide38
Analysis: achievement of the strategic oriented goals 38
Achieved
(100%)
Partially achieved
(50 – 99%)
Not achieved
(<50%)Slide39
Analysis of annual performance 39
Achieved
(100%)
Partially achieved
(50 – 99%)
Not achieved
(<50%)
Analysis of balance scorecard - target achievement
2014 -2015
Scorecard
Quadrant
Balance
(In & Out)
Number of
targets
Targets
Achieved
Not
Achieved
Information
Outstanding
Total
Customer & Stakeholder
22%
14
13
1
0
14
Financial
28%
18
7
11
0
18
Internal Process
35%
23
19
3
1
23
Learning & Growth
15%
10
6
3
1
10
100%
65
45
18
2
65
100%
69%
28%
3%
100%Slide40
Explanatory notesMeasure Reference
Milestones that were not achieved
Comments on deviations
SS1.2
% Compliance with supplier open tender contractual commitments
Compliance with contractual commitments target has not been achieved although there has been an improvement during the year. Management’s focus in the year ahead will be to deepen on interventions that would strengthen stakeholder relations. (The age analysis should be between the people funded from AW funding and those funded from outside AW funders. The motivations are based on liquidity risk and how the matter is being remedied 60 days)
FV1.1
Liquidity Ratios: Current ratio
The current ratio is not favourable at the end of the fourth quarter as the current liabilities have increased more than current assets. The target has not been achieved due to the slow collection of debtors and a significant reduction in cash funds.
FV1.2
Debtors Days
The debtors’ days are adverse and management is actively engaging with stakeholders in resolving this issue, ORTDM remains the largest contributor to this
FV1.3
Employee to revenue (R Million)
Employee to revenue is adverse as revenue generated from operations has been lower than target, even though the number of employee is lower than baseline.
FV1.5
Return on assets %
The return on asset is adverse due to lower than expected surplus at the end of the year.
FV1.6
Net profit margin % (All)
Net profit margin achieved is lower than the target due to a decrease in secondary revenue and fixed administrative costs.
40Slide41
Explanatory notes…cont.Measure Reference
Milestones that were not achieved
Comments on deviations
FV1.7
Gross profit margin % (All)
Gross profit margin target has not been achieved due to the reduction in raw water sold while treated water sold has been maintained by a tariff increase.
FV1.10
Electricity Cost (R/KL)
Electricity usage per kilo litre is adverse due to the increase in the tariff charged by Eskom.
FV2.1
Revenue in
Rands
(in million
Rands
)
Revenue achieved is below target due to the reduction in raw water sold and, secondary revenue that has not been realized as planned for the year under reviewed.
FV2.2
Surplus in
Rands
(in Million
The targeted Surplus has not been achieved due to the reduction on raw water sold and secondary revenue while costs containment measures are applied on discretionary spending.
FV2.3
Amount of targeted surplus placed in reserve fund (in million Rand)
Management does not have a target amount to put into reserves since the outcome is a deficit.
FV2.5
% Labour costs of total costs
The labour costs to total costs are adverse. Management continues to proactively to monitor labour input costs.
IS2.1
% annual grant allocation spend AW Plant Upgrade
The project commenced in 2014 with appointment of Professional Service Providers and the award of various contracts from the 1st to 4th quarter of 2014/15 FY.
41Slide42
Explanatory notes…cont. Measure Reference
Milestones that were not achieved
Comments on deviations
OO2.2
Effective internal controls and risk management Internal audit findings: Number Repeats
These items are being closely followed by the CEO Office and the Audit Risk Committee and progress is being consistently made in resolving and reducing these.
OO2.3
Effective internal controls and risk management Internal audit findings: Number unresolved
OO2.7
Board member attendance
Board members have been urged to attend meeting. Written apologies will only be accepted in future.
LG1.1
% Achieved of the Corporate Scorecard Targets
The final score will be provided once the audit review has been completed at this stage the target has not been achieved.
LG1.3
% MANCO resolutions which are implemented in prescribed timeframes
The target has not been achieved and MANCO has subsequently deferred some of the operational resolutions to its committees and task teams to accelerate implementation.
LG4.1
Average rating of corporate culture survey (Out of 5)
Survey to be re-conducted due to the low response rate from employees
42Slide43
DefinitionsAbbreviation / AcronymDescription
ACIP
Accelerated
Community Infrastructure Programme
AFUR
African Forum for Utility Regulators
AFS
Annual Financial Statements
AG
Auditor-General
AMD
Acid Mine Drainage
AOPO
Audit of Predetermined
Objective
APP
Approved Professional Person
BRICS
Brazil, Russia, India, China and South Africa
CRM
Customer Relations Unit
DoRA
Division of Revenue Act
DWS
Department of Water and Sanitation
EC
Eastern Cape
EIA
Environmental Impact Assessment
EMP
Environmental Management
Programme
ER
Economic regulation
EU
European Union
e-WULAAS
Electronic
Water Use Licence Application and Authorisation System
Exp
Expenditure
43Slide44
End44