ANNUAL REPORT 2009/2010

Briefing to the Portfolio Committee, on CGE’s Annual Financial Statements for the year ending 31 March 2010

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REPORTING FRAMEWORK: CONVENTIONS AND REGULATIONS

• GRAP – Generally Recognized Accounting Practices

• GAAP – Generally Accepted Accounting Principles

• IFRS – International Financial Reporting Standards

• PFMA – Public Financial Management Act

• TR – National Treasury Regulations

• PPR&R – CGE policies

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FINANCIAL MANAGEMENT: APPROPRIATION

Baseline allocations ( R’ thousand)

2007/08 2008/09 2009/10 2010/11 20011/12 2012/13 2013/14

39,745 46,193

49,112

51,949

55,150

57,930

61,116

% growth 16% 6% 6% 6% 5% 5%

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STATEMENT OF FINANCIAL PERFORMANCE

• Transfers received from the National Treasury amounted to R49,112 million

• Expenditure realized at R51,6 million compared to restated 2008-09 figure of R 57 million

• Resulting in a reported deficit of R2,5 million (2008-09; R10,7 million deficit)

• Key cost drivers : Staff costs due to excessive leave accrual, Administrative expenses, depreciation and amortization

• Depreciation amounting to R3,7 million is the major contributor to the reported deficit but was off-set by savings on CAPEX(R1.06 million)

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ACTUAL 3 YEAR INCOME & EXPENDITURE COMPARATIVES

Income and expenditure trends

R thousand

2007/08 2008/09 2009/10

Total government grant 39745 46193 49112

% growth 16% 6%

Total expense 40,383 56,981 51,637

% growth 41% -9%

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STATEMENT OF FINANCIAL POSITION

• The total net assets situation deteriorated from a positive figure of R420, 485 in 2009 to a negative figure of R2, 03 million in 2010

• Current ratio improved from 9 % (PY) to 19% (CY)Cash in bank grew from R271k to R1,6 m (CY)

• Current Liabilities dropped by 6% , contributing toa favorable current ratio

• Downward movement in non-current assets due todepreciation write-down (R3,7m)

• Balance sheet deteriorated mainly by the deficits reported ; (R2,5 m CY) & (R10,7 m (PY)

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STATEMENT OF CHANGES IN NET ASSETS

Prior Year error corrections

Items effecting the accumulated surplus/(deficit) as at 1 April 2008: R

16.3Accounting for finance leases : Prior years depreciation and interest (1,516,576)

16.3Correcting operating leases: Reversal of prior operating lease expense 2,750,688

16.4Fixed assets – Useful life reviews and depreciation 2,106,297

16.8Correcting provision reversals - Leave 1,035,636

Reversal of incorrect accrual – Trade Creditors 1,000,000

Amount disclosed in the statement of changes in net assets 5,376,044

•Other than changes in the statement due to net movements from the statement of financial performance, Prior year errors were corrected retrospectively amounting to R5, 376, 044•This resulted in the prior year deficit being restated to R10,7 m against a previously reported figure of R5, 2 m in the AR for 2008-09•The Accumulated surplus in the statement of financial position was restated to R420k, implying a weakening of the balance sheet as a result

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STATEMENT OF CASH FLOW• Cash brought forward from prior year : R271k• Cash inflows amounts to R49 million, in the main received from National

Treasury• Outflows to fund operating activities: to Employees and Suppliers: R47, 5

million• Outflows utilized to acquire assets: Expenditure of capital nature: R33k• Outflows to service lease installments: R287k• Closing cash and cash equivalent balance: R1,6 m which includes cash on

hand of R11k

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AUDIT - OVERVIEW

• Finalized on 18th August 2010

• Final AR indicates a qualification, consistent with the commitment made in our Turnaround Strategy– Staff Costs, Leave provision, irregular expenditure,

Contingent liabilities• No opinion expressed on performance information but

we noting AGSA comments in the management letter

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FINANCIAL MANAGEMENT• Challenges

– Staff Capacity and Competence– Inadequate internal Control systems– History of non-compliance with regulations– Negative audit findings in the recent past

• Achievements– Dealt with backlog of issues, record keeping, accounting activities e.g. Resolved

issues of the Fixed Assets register and related accounting activities– Improved audit opinion on the Annual Financial Statements for the year ended

31 March 2010– Staffing arrangement improved in the establishments - New critical positions

approved– Geared towards fulfilling the goals set in the Turnaround strategy

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STRATEGIC FINANCIAL MANAGEMENT

• Idealized to include two more head count viz. Financial Manager and SCM/Management Accountant, over and above the current structure

• To implant competence on Financial and management reporting: Compliance to standards; GRAP,GAAP, IFRS and various treasury regulations

• Improve the control environment: systems descriptions, operating procedures, policies, risk management & internal control

• Add value by producing timely, accurate, relevant/integrative management reports and advise Management prudently on matters of operations and financial management (linking a/c data to ops, etc)

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TURN AROUND ACTIVITIES

• In part to be assisted by staffing changes• Systems, process and procedures to be streamlined : simplified

model :Procurement Expenditure management Reporting• Build/document systems and operating procedures(SOP) for all

process including operations, develop/update risk assessment register for all critical areas

• Integrate/interface related functions: VIP(Salaries & leave) to the finance/accounting, document management, etc

• Generally follow the on TA strategy plus AGSA’s reports and implement key controls

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BROAD PLAN – TIMELINES/DELIVERABLES

• Fill the positions in F&A by 31 October 0 to ensure speedy removal of backlog + implement Plenary /FC resolution re: SCM unit and statutory reporting requirements + standard MIS for management

• Full compliance with NT reports/IYM template and sought condonation concurrently

• Finalize internal control procedures/documentation thereof by end of Nov 2010 for implementation immediately/sought adoption where appropriate

• Develop a risk register in consultation with other functional areas by end of December 2010

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THANK YOU

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