2012/13 PRE - AUDIT BUDGET AND EXPENDITURE OUTCOME Presentation to

1. 2012/13 PRE - AUDIT BUDGET AND EXPENDITURE OUTCOME Presentation to Parliament’s Select Committee on Finance 13 August 2013

2. Discussion Topics • Overview of Selected Key Socio-economic Trends • Provincial Fiscal Envelope – 2013 MTEF • 2012/13 Outcomes • Pre-Audited Financial Performance • Expenditure • Own Revenue • Non-Financial • Cash Management, Support & Interlinked Financial Systems & SCM • Audit Outcomes & Related Information • 2012/13 Audit Opinion • Unauthorised Expenditure • Irregular Expenditure • Fruitless & wasteful Expenditure • Commitments • Accruals • Overall Challenges and Corrective Measures • 2013/14 in Brief

3. OVERVIEW OF FS’s SOCIO-ECONOMIC TRENDS

4. Population Source: Stats SA, Census 2011; Stats SA, Mid-year population estimates, 2013

5. Fertility Rates Source: Stats SA, Mid-year population estimates, 2013

6. Life Expectancy Source: Stats SA, Mid-year population estimates, 2013

7. Labour Market Source: Stats SA, QLFS, Quarter 2 2013

8. Education 15 new schools were build since 2009 10 schools received mobile Grade R Classrooms last year 15 Grade R classrooms are under construction since 2011/2012 financial year. 185 fully functional mathematics laboratories in primary schools have been rolled out. Assistance given to schools with analysis and interpretation and strategies for intervention at different levels. Reduction of under-performing schools from  (pass rate below 60%) 85 to in 2010 to 60 in 2011. Bachelor improvement from 21.3% in 2010  to 26.4% in 2011. Increase in assistance for Grade R learners for better results in ANA ( ANNUAL NATIONAL ASSESSMENT) results.

9. Grade 12 Passes Source: Stats SA, QLFS, Quarter 2 2013

10. Economic Structure: Free State Source: Global Insight, Regional eXplorer, 2013

11. Economic Structure: Northern Cape Source: Global Insight, Regional eXplorer, 2013

12. Economic Structure: North West Source: Global Insight, Regional eXplorer, 2013

13. Economic Performance: Free State Source: Global Insight, Regional eXplorer, 2013 & Own Calculations

14. Economic Performance: Northern Cape Source: Global Insight, Regional eXplorer, 2013

15. Economic Performance: North West Source: Global Insight, Regional eXplorer, 2013

16. Economic Growth Review & Outlook No signs of extraordinary growth Forecasts Source: Global Insight, Regional eXplorer, 2013

17. Revised Free State Growth & Development Strategy - Overview 17

18. Revised Free State Growth & Development Strategy – Pillars 1 & 2 • Increase the provincial growth rate from 2.1% in 2010 to 7% in 2030 • Increase the contribution of non-petro-chemicals sub-sectors to the manufacturing sector from 25% to 50% • Increase the contribution of the manufacturing sector from 14% to 28% • Increase the contribution of the agricultural sector from 3.8% to 10% • Increase the provincial contribution to the South African economy from 5% in 2010 to 15% in 2030 • Increase GDP per capita income per person from R32 304 in 2010 to R110 000 in 2030 • Reduce unemployment rate from 25.5% in 2011 to 6% by 2030 • Increase the availability, affordability and speed of broad band from the 256 kilobytes per second in 2011 to at least 2 megabytes per second in 2030 Pillar 1 Inclusive economic growth and sustainable job creation • Eradicate micronutrient deficiencies in children under 18 months • Ensure that all children have at least two years of pre-school education • Increase Grade R enrolment from 58% in 2010 to 80% in 2030 • Increase Grade 12 pass rate with at least 50% from 70.7% in 2011 to 95% in 2030 • Increase Grade 12 Mathematics and Science pass rate from 67% in 2010 to 90% • Increase the number of people with Grade 12 who are 15+ years from 23% in 2010 to 80% in 2030 • Increase the FET graduation rate to 75% in 2030 Pillar 2 Education, Innovation and Skills Developmt 18

19. Revised Free State Growth & Development Strategy – Pillars 3 & 4 • Reduce the Gini-coefficient from 0.64 in 2010 to 0.3 in 2030 • Increase the proportion of people with access to electricity from 90% in 2010 to 100% • Develop integrated, affordable and environmentally friendly public transport system • Increase the proportion of people with access to water in their dwelling from 45% in 2009 to 100% in 2030 • Increase the proportion of people with access to flush or chemical toilets from 70% in 2009 to 100% in 2030 • Reduce the housing informal settlement backlog from 23.4% in 2010 0% in 2030 • Increase the number of people living closer to their places of work to 20% in 2030 • Reduce infant mortality rate from 31.4% in 2010 to 7% in 2030 • Promote Health Education as an essential part of school curriculum • Reduce HIV prevalence from 22.6% of the population in 2010 to 14% in 2030 and ensure that the under 20 age group is largely HIV- free generation • Increase life expectancy from 46 in 2011 to 70 in 2030 • Increase the TB cure rate from 71.3% in 2010 to 100% in 2030 • Reduce the number of people living in poverty from 44.7% in 2010 to 0% in 2030 • Reduce the number of municipalities with green drop score from 17 in 2010 to 0 in 2030 and those with blue drop score from 12 to 0 Increase the land dedicated to formal conservation from 1.6% of the land surface in 2010 to 3% in 2030 • Reduce property related crimes from 1 020 per 100 000 in 2010 to 200 per 100 000 in 2030 Pillar 3 Improved Quality of Life Pillar 4 Sustainable Rural Development • Increase the provision of quality basic services and invest in education, healthcare and public transport • Increase investment in agro-processing, tourism, aquaculture and crafts industries • Increase financial support to rural communities • Increase investment in irrigation technologies and implement conservation measures • Improve access to markets for small-scale farmers and rural co-operatives 19

20. Revised Free State Growth & Development Strategy – Pillars 5 & 6 • Popularise and promote rights and responsibilities embedded within the Constitution • Introduce African languages in all schools to facilitate understanding, tolerance, respect and diversity • Promote sports and Recreation as an essential part of the education curriculum • Develop and embed shared values amongst communities • Strengthen participatory democracy to encourage citizenry expression to guide and influence behaviour • Increase socio-economic access and opportunities to all to eliminate any forms of prejudice and marginalisation • Create a safe and secure environment for individuals Pillar 5 Build Social Cohesion • Establish a strong and capable political and administrative management cadre • Strengthen an integrated development orientation and planning approach in government • Improve the link between citizens and the state to ensure accountability and responsive governance • Develop a skilled and capable public service workforce to support the growth and development trajectory for the province • Improve the overall financial management in governance structures in the province to ensure clean audits and appropriate financing towards the growth and development of the province • Assess and enhance the efficiency, effectiveness and accountability of institutions and stakeholders to deliver against outcomes and other mandates within the Free State Province. Pillar 6 Good Governance 20

21. PROVINCIAL FISCAL ENVELOPE2013 MTEF

22. Provincial Revenue Envelope

23. 2012/13 OUTCOMESBUDGETS

24. 2012/13 Provincial Budget Summary • 2012/13 Allocated Adjusted Budget Amounts to R25.906 billion: • Equitable Share = R18.795 billion (72.6%) • Conditional Grants = R5.963 billion (23.0%) • Provincial Own Receipt = R821 million (3.2%) • Provincial Cash Reserves = R321.7 million (1.2%) • Provincial Deficit Budget = R5.5 million (0.02%) • Economic Classification: • Current Payments = R19.591 billion (75.6%) • Of which Compensation = R15.195 billion (58.6%) • Payments for Capital Assets = R2.709 billion (10.5%) • Transfer Payments = R3.6056billion (13.9%) • Social vs. other departments: • SHE departments = R19.125 billion (73.8%) • Other departments = R6.781 billion (26.2%)

25. 2012/13 Expenditure by Department

26. Expenditure by Department in last 3 yrs

27. 2012/13 Expenditure by Economic Classification

28. Expenditure by Econ. Classification in last 3 yrs

29. 2012/13 Expenditure on CoE

30. 2012/13 Expenditure on Goods &Services

31. 2012/13 Expenditure on Capital

32. 2012/13 Expenditure on Conditional Grants (1)

33. 2012/13 Expenditure on Conditional Grants (2)

34. Expenditure on Cond. Grants in last 3 yrs (1)

35. Expenditure on Cond. Grants in last 3 yrs (2)

36. 2012/13 Expenditure on Infrastructure (1)

37. 2012/13 Expenditure on Infrastructure (2)

38. Expenditure on Infrastructure in last 3 yrs

39. 2012/13 Own Revenue by Department

40. Own Revenue Performance in last 4 yrs

41. Own Revenue Enhancement Initiatives (1) • Outstanding Debts (revenue)—Provincial Treasury strengthening recovery of debts. • DETEA • Electronic booking system (included in REA request). • Liquor Database system (included in REA request). • Improving facilities at Resorts – Upgrade. • Security at resort & reserves – review of control measures. • Health • Patients billing & verifications (included in REA request). • Collection of outstanding debt. • Case Managers (included in REA request).

42. Own Revenue Enhancement Initiatives (2) • Public Works • Rental dwelling: tenants contracts & rental fees – Continuing • Advertising/Branding on Government Building - Approved & busy with advertising guidelines • Parking space & allocation system – Continuing work • Revamp of restaurants – (Included in REA) • Police, Roads & Transport • Weighbridges – in progress • Grades and functions of Registration Authorities – in progress • Agriculture • Production of Dairy Facilities and other agricultural products (included in REA request)

43. CASH MANAGEMENT, SUPPORT AND INTERLINKED FINANCIAL SYSTEMS & SUPPLY CHAIN MANAGEMENT

44. Support And Interlinked Financial Systems – System Controls, Cash Management And Payments Budget blocking – if there are no funds against the item used to place a order, the transaction will not go through Sundry payments outside of LOGIS are limited to specific payments which are not provided for on LOGIS/PERSAL System Controllers for BAS is situated in the Provincial Treasury . Provincial Treasury handle all registration of banking detail for all suppliers/employees, etc. as well as the second verification is done by the bank before it is captured on systems. Computer printed cheques are only printed by Provincial Treasury while hand written cheques are also only issued by Provincial Treasury. Hand written cheques are limited to an amount of R500 000-00 All supplier payments above R1 m and PERSAL payments above R5m [BCT] are verified and approved by Provincial Treasury before implementation by the bank Disbursements for all Departments are approved by Provincial Treasury.

45. CASH MANAGEMENT

46. Management Of Cash • The provincial budget is controlled by means of cash-linked ACB limits which are implemented by the Bank on instruction from Provincial Treasury • The limits can only be amended by Provincial Treasury officials • Any payments in excess of the approved limit are rejected/approved by Provincial Treasury • BAS disbursements are deactivated for Departments who exceed monthly cash allocation • Approval for final cash processing of BCT payments (single payments in excess of R1million) is vested in Provincial Treasury • Monthly reconciliation between Exchequer and Provincial Departments in respect of all financial transactions. • Quarterly PMG forums with all departments to promote best cash management practices • Individual meetings held with Departments for follow up and continued improvement in the cash management processes • Bi-weekly reports to MEC on provincial cash position

47. Provincial Cash Position (Excluding Unauthorised Expenditure To Be Transferred And Surrendered)

48. Cash Flow Position • While the Province tabled a break-even budget, the amount of unauthorised expenditure reported at the end of March 2013 has put pressure on the Provincial Revenue Fund. • Investments are only made on surplus funds which are not immediately required to defray expenditure, and therefore do not hinder cash flow requirements by the Departments • The balance unspent funds and revenue to be surrendered will be processed directly from the PMG accounts after finalisation of the departments audit (15 August 2013), at which point the accounting records would have been closed off for the 2012/13 financial year. • The amount of unspent funds to be surrendered to the National Departments will also be paid back during August 2013

49. PMG Bank Balances To ensure that PMG accounts do not carry excessive cash, Provincial Treasury monitors the fluctuation of the bank balances and any excess funds are transferred into the PRF account Any transfer of equitable share or conditional grants to the PMG accounts is processed upon submission of disbursement reports by the departments – only cash required to defray the disbursed expenditure is transferred to the Provincial Departmental PMG accounts Revenue collected by the Departments is transferred on a weekly basis into the PRF account

50. SCM COMPLIANCE