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DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM REPORT TO THE PORTFOLIO COMMITTEE ON THE MLRF ANNUAL REPORT FOR THE 2006/7 FINANCIAL YEAR March 2008 CONTENTS Overview…….. Introduction • Vision and Mission • Background to the MLRF Performance Information: • Vision and Mission • Background to the MLRF • Achievements Audit Report • Comparison with prior year • Results of 2006/07 audit • Way forward OVERVIEW OF MLRF DEAT’s AIM…… vision – “a prosperous and equitable society living in harmony with our natural resources”. OVERVIEW OF MLRF CONTINUED… DEAT’s AIM…… mission – “leading sustainable development of our environment for a better life for all” through: • Promoting conservation and sustainable utilization of our natural resources to enhance economic growth. • Promoting a global sustainable development agenda. • Transformation of the fisheries sector MCM/MLRF Relationship to DEAT Programmes of DEAT The Branch: Marine and Coastal Management falls under Programme 3 of DEAT Programme 3: Marine and Coastal Management Promote the development and management of South Africa's marine and coastal environments in a way that ensures sustainability of the marine resources while maximising economic opportunities, job creation and poverty alleviation. MARINE LIVING RESOURCES FUND Background to MLRF • MLRF established in terms of Section 10 of the MLRA, Act 18 of 1998 • MLRF is a schedule 3A Public Entity (PFMA) • MLRF is the main source of funding for operations of the Branch: Marine & Coastal Management MARINE LIVING RESOURCES FUND CONTINUED Background to MLRF MLRF covers the operational costs of the 5 Chief Directorates: R, A & I: Investigate and advise on sustainable use of resources through carrying out research RM (Marine): Regulating utilisation through admin of fishing rights, permits & licences MCS: Enforcing relevant laws and regulations ICM: Managing human impacts on the coast through regulation CFO: Financial management of the MLRF MARINE RESEARCH Scientific Research Achievements: • Stock estimates and recommendations completed for 18 fisheries • Stock estimate reports for 2 new fishery sectors (horse mackerel & octopus) • Developed a graduate science programme to ensure skills development • Ecosystems effects of fishing & top predators studies completed for BCLME MARINE RESOURCE MANAGEMENT Rights allocation & Regulation Achievements: • Long-term fishing rights granted in 20 fisheries • Average interest by previously disadvantaged rights holders = 59% (December 2006) • Draft policies on Subsistence & Small-scale fisheries published • Draft policy on the Management of Seals, Seabirds & Shorebirds published INTEGRATED COASTAL MANAGEMENT Achievements: Coastal conservation • Published the Integrated Coastal Management Bill for comment • Gazetted Draft Marine Aquaculture policy for public comment • 3 Marine Protected Areas (MPAs) were declared (Aliwal Shoal, De Hoop and Goukamma) • Draft policies on BBWW & WSCD published for public comment • ToR for NPOA on land based sources of marine pollution Enforcement MONITORING, CONTROL & SURVEILANCE Achievements: • Improved monitoring capacity through the implementation of the new Vessel Monitoring System • Effective deployment of EPVs • Joint SADC patrol to Mozambique • Co-operation agreements with lawenforcement agencies signed Turnaround Financial Strategy CHIEF FINANCIAL OFFICER Achievements: • Implemented an MLRF turnaround strategy for weaknesses identified (AG and SCOPA) • Implemented Oracle and MAST - Dec 06 – Financial Management System – Management Information System • Draft Cost Recovery Model developed • Accounting policies and internal controls changed to ensure compliance with International Accounting Standards (IAS) and PFMA MARINE LIVING RESOURCES FUND AUDIT REPORT FROM DISCLAIMED AUDIT OPINIONS (2003/04, 2004/05, 2005/06) TO A QUALIFIED AUDIT OPINION IN 2006/07 Moving Towards an Unqualified Audit for 2007/08 MLRF AUDIT 2006/07 OVERVIEW • Comparison of 2005/06 and 2006/07 financial year’s audit opinions • Present management plan to move from disclaimers and qualifications towards an unqualified audit report in 2007/08 SUMMARY OF ANNUAL REPORT This Annual Report represents a significant turnaround in the management and systems governing the Fund: • Previous audit report had 20 qualifications - AG decided not to express an opinion • Current audit report has 5 qualifications - AG decided to express an opinion – still a concern to the Department • Improvement in financial management has led to the clearing of significant disclaimers relating to revenue, debtors and disposal of assets SUMMARY OF ANNUAL REPORT CONTINUED… • Correct application of IAS • Continued improvement of governance issues, with a focus on due diligence, strengthening the control environment and improving coordination, communication and monitoring • Special attention given to strengthening the financial accounting skills and capacity of the entity COMPARISONS BETWEEN 2005/06 AND 2006/07 FINANCIAL YEARS Audit Qualification Property, plant and equipment Revenue, trade and other receivables Expenses, Trade and other payables Year 05/06 None compliance with GAAP Depreciation overstated (2Q) Debtors could not be verified Validity of Revenue could not be confirmed (9Q) Incorrect allocation of vessel operating cost Incorrect allocation of commission paid Supplier statements not provided/reconciled (4Q) Amount Year 06/07 Amount R 1M Overstatement (Florence Mkize) (1Q) R0.7M R 33M None - R 75M None - R 28.6M None - R 6.4M None - R17m Supplier reconciliations overstated (1Q) R1m COMPARISONS BETWEEN 2005/06 AND 2006/07 FINANCIAL YEARS continued…. Audit Qualification Contractual commitments Inventories Pay as you earn Cashflow statements Year 05/06 Could not be verified (1Q) Was disclosed as R0 instead of its fair value (1Q) No employee’s tax deducted. No exemption cert for labour brokers (1Q) Was not prepared in terms of GRAP 2 (1Q) Amount Year 06/07 Amount R 86M None - - None - Could not be determined None - - None - COMPARISONS BETWEEN 2005/06 AND 2006/07 FINANCIAL YEARS continued…. Audit Qualification Opening balances Government grants TOTAL Year 05/06 Accuracy and completeness of opening balances were in question (1Q) None 20 Qualifications (Disclaimed opinion) Amount Year 06/07 Amount - Accuracy and completeness of opening balances were in question (1Q) Deferred income completeness not verified due to opening balance qualification & deficiency of prior years’ internal controls (2Q) 5 Qualifications (Qualified opinion) - - R247m R24m (No approval) R25.7m TOWARDS AN UNQUALIFIED AUDIT REPORT • Management formed a Project Steering Committee called “Let’s Fix It” - meets weekly, internal audit participates • Temporary staff appointed to assist in problematic areas i.e. creditors recons, balance sheet accounts recons, deferred income recons and fixed assets • CFO appointed PROGRESS TO DATE • Asset verification process commenced and procedures for disposal of assets functional • Procedure manual on payables developed • Ongoing work on Supplier recons, payment on statement only • Budget process for the 2008/09 financial year was finalised • Ongoing training on Oracle financial system • Financial management training schedule with SAMDI finalised LETS FIX IT!