1

WATER TRADING ENTITY

FINANCE PRESENTATION TO PORTFOLIO COMMITTEE 17/18 APRIL 2012

Mr. F IsmailaCFO: WTE

CONTENTS1. WTE Operations overview2. WTE Finance Branch Objective3. WTE Proposed Finance Structure4. WTE Finance Key Goals5. WTE Turnaround plan progress update6. Audit Action Plans Highlights7. AFS preparation and Audit Plan2011/12

3

WTE OPERATIONS OVERVIEW

4

Asset Class Extent Replacement Value (R bn)

Buildings 2 572 Number 2 301

Canals 8 036 km 29 073

Dams and weirs 359 Number 72 002

Measuring Facilities 3011 Number 7 381

Pipelines 1 063 km 8 044

Pump stations 57 Number 1 673

Reservoirs 51 Number 631

Treatment works 62 Number 69

Tunnels 171 km 18 354

Other 77 Number 85

State owned land 343 237 Ha 6 792

Servitudes 51 849 Ha 769

TOTAL 147 174

WTE OPERATIONS OVERVIEW

5

WTE OPERATIONS OVERVIEW

WTE FINANCE BRANCH OBJECTIVE

• The WTE Finance Branch is part of the Administration Programme of the Department and its purpose is to support NWRI Branch and WRM (Proto CMA’s) with regard to ensuring sound financial management practices based on the implementation of accountability and governance framework underpinning the Public Finance Public Finance Management ActManagement Act, (Act No. 1 of 1999) for Water Trading Entity.

6

OVERVIEW: PROPOSED WTE FINANCE BRANCH STRUCTURE

7

The WTE finance structure including job descriptions, job evaluations, associated skills requirements and recruitment plans are in the process of being finalised for implementationGREEN = ACTING , RED = UNFILLED “part of revised proposals”, BLUE = FILLED

WTE FINANCE KEY GOALS WTE FINANCE KEY GOALS

Financial year 2013/14 Unqualified

Audit Opinion

Financial year 2013/14 Unqualified

Audit Opinion

WTE Turnaround Plan

WTE Turnaround Plan

Audit Remedial Action Plans

Audit Remedial Action Plans

WTE TURNAROUND PLAN PROGRESS UPDATE

WTE Turnaround plan progress Critical Elements of plan include-• Strategy – financially viable & sustainable whilst focused on excellence

in service delivery (pricing strategy, operating efficiencies, culture) – Focusing on business fundamentals, project management, analysing results & assigning accountability,

• Governance – Undefined Operating model WTE Finance and NWRI Branch (construction, engineering, O&M, Infrastructure development) – own finance and support components - started creating mechanisms and structures that ensure close working relationship between WTE Finance & NWRI branch – focus on core competencies

WTE Turnaround plan progress Critical Elements of plan include-• People – Inadequate skills, competencies and experience in

house – key focus to acquire in-house capacity supported by Minister and working closely with BPRC progress will start to show greater momentum during 2012/13 [skills in all areas engineering, financial management and project management]

• Processes - Policies, procedures and business processes across all areas of the WTE operations require attention – Being focused on in all areas finance and operations and it’s ongoing

WTE Turnaround plan progress Critical Elements of plan include-• Systems – IT Systems and automation of processes across the value chain

is an imperative. – SAP full ERP functionality ECC6 version has been acquired in process of formulating and sourcing implementation structure (Project Manager, SAP “max attention” & Integration Partner, ) aim is June / July 2012 implementation and governance structure fully in place. ASAP methodology will be followed underpinned by principle of minimum level of customisation thus using SAP standard as far as possible cost effective. Phased approach realise quick wins, building own SAP competency – [super-users, business analysts]

REMEDIAL AUDIT ACTION PLANS HIGHLIGHTS

Remedial Action Plans• Plans developed for audit findings 2010/11:

– Supply Chain Management– Revenue Management– Asset Management– Management Accounting– Financial Accounting

• Update for interim audit findings 2011/12

Supply Chain Management• ID & disclose Fruitless and Wasteful and

Irregular Expenditure • ID & disclosure of related parties and related

party transactions and balances– Processes to support the above

• Suppliers recons and age analysis• Inventory – warehouse & construction

Revenue Management

• Reconciliations between sub-systems and SAP• Accurate age analysis• Discounting of debtors with >30day payment

period• Provision for impairment on different classes• Clearing of Suspense accounts

Asset Management• Completeness of Fixed Asset Register• Review of useful lives, residual values –

supporting schedules for those• Fixed Asset Register reconciliations• Rehabilitation provision• CAPEX Commitments• Capitalisation of expenses

Management Accounting

• Reconciliation between approved budget and final budget

• Analysis between final budget and actuals – reasons for deviations

• Performance information?

Financial Management• AFS preparation and disclosures• Accounting policies review• Coordination of audit process and audit files• Reconciliations of general ledger account

balances• Leave and other staff related Provisions

AFS PREPARATION AND AUDIT PLAN 2011/12

Summary Project PlanMar Apr May Jun

04. 11. 18. 25. 01. 08. 15. 22. 29. 06. 13. 20. 27. 03. 10. 17. 24.

01. Jun 2012

Audit Committee

Quality review

Draft AFS

Performance info & budget

Recons & Supporting schedules

System Closure

Pilot AFS

07. Mar 2012

AFS submission

Audit Commences

Activity

AFS PREPARATION PROCESS• Mapping accounts and accounting policies• Supporting schedules for each B/S account• Requests for information• Working papers• System closure • Year-end journals and approval

Technical Accounting Issues• Accounting Framework: GRAP applicability• Technical opinion – accounting treatment of assets financed off

budget by TCTA • Changes in accounting policies: Revaluation and Deferred

revenue• Measurement of water services revenue and expenses• Rehabilitation provision• Completeness of revenue• Work-in-progress and Inventory• Impairment of assets and Review of useful lives

EARLY ADOPTION OF GRAPEARLY ADOPTION OF GRAP• Directive 9

– Issued by the Accounting Standards Board– GRAP is effective: 1 April 2013 for all Public

Entities – Early adoption is allowed

REASONS FOR EARLY ADOPTIONREASONS FOR EARLY ADOPTION• Focus on public sector accounting issues e.g.

the recognition of non-exchange revenue• Focus on accountability and transparency not

on max profit for shareholders • Save costs and effort

– Due to current review of policies and plans– Expert knowledge available

REASONS FOR EARLY ADOPTIONREASONS FOR EARLY ADOPTION• GRAP more simpler than IFRS in some respects

– Assist with recognition of deferred revenue– Discounting is simpler (rules based)– Recognition of revenue simpler– Less disclosure requirements (PPE, Intangibles,

Financial Instruments)

CHALLENGESCHALLENGES

• Budget information to be disclosed• Changes in accounting policies

– Retrospective application

• Limited knowledge on GRAP by officials

AUDIT PROCESSAUDIT PROCESS

• Preparation of audit file– All WP to be send through to AFS prep team– Communication with auditors > one message

AUDIT COMMUNICATION