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DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM

REPORT TO THE SELECT COMMITTEE ON THE MRLF ANNUAL REPORTS FOR

2002 to 2005 AND2005/2006

30 JANUARY 2007

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VISION

“TO BE A PROSPEROUS AND EQUITABLE SOCIETY LIVING IN HARMONY WITH OUR

NATURAL RESOURCES”

MISSION“TO LEAD SUSTAINABLE DEVELOPMENT IN THE ENVIRONMENT AND TOURISM SECTOR

FOR A BETTER LIFE FOR ALL”

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BACKGROUND

• The Marine and Living Resources Fund (MLRF) was established in terms of the Marine Living Resources Act (MLRA) of 1998

• MLRF was listed as a Public Entity in 2001• The fund must generate its own revenue• The main sources of income are from levies on

fish products; license fees and permits, fines and confiscations, harbour fees & transfers from DEAT

• Personnel expenditure is funded by the vote of the department

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ANNUAL REPORT 2002 - 2005

SUMMARY OF ACHIEVEMENTS• 9 new fisheries sectors over 5 years• Planning for Long-term rights allocations (LTRAMP) –

both policies and procedures• Planning for expansion of the country’s Marine Protected

Areas (MPAs)• Amended regulations for the control of use of vehicles in

the coastal zone• Blue Flag beaches piloted• Programme to halt illegal developments on the coastline

initiated

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ACHIEVEMENTS 2002/5 (CONT)

• National Contingency Plan for the Prevention and Combating of Pollution from Ships developed in partnership with SA Maritime Safety & Dept Transport

• Took delivery of 2 new protection vessels (Lillian Ngoyi & Sarah Baartman) & commissioned a further 2 vessels

• Benguela Current Large Marine Ecosystem (BCLME) project launched

• African Journal of Marine Science published

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Office of the CFO (Challengers) - 2002-2005 • Revenue into the Fund has been erratic over the 2002,2003 and

2004 years.• Operating expenses increased significantly. Annual increases for

2003, 2004, and 2005) have been 25%, 27% and 50% respectively.• Cost control has been historically poor.• Debtors increased significantly.• No proper budgeting or budget control process.• General accounting principles and practices not adhered• Reconciliations not performed.• Lack of supporting documentation.• Inconsistencies between cash and accrual accounting methods.• There was no Financial System in place or Proper Cash

Management.• Staff were not properly skilled and guided.

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MARINE LVIVING RESOURCES FUND ANNUAL REPORT FOR 2005/2006

30 JANUARY 2007

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Spending Trends 2005-2006

• Fund must generate its own revenue – Biggest source of revenue is levies charged on fish and fish products.

• Vessel Costs for the year R101 million – 35% of the fund expenditure.

• DEAT Transferred R501 million for the purchase of 4 new compliance vessels – 2 commissioned in 2004/05 and remainder 2 delivered in 2005/06.

• R38 million is being transferred over the period 2004- 2007 for the Langebaan Coastal Erosion project.

• R108 million has been allocated for the replacement of the research vessel Sardinops – Delivery March 2007.

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Spending Trends 2005-2006 (cont..)

• Government Grants transferred from DEAT - 2005/06 - R93 million:

• R25m – Vessel operating cost• R33m – Procurement of research vessel• R14m – Langebaan coastal erosion• R21m – Financial assistance

• R45 million went towards the LTRAMP process.• Personnel expenditure is funded by the vote of

the department.• Revenue generated as at 31 March 2006 –

R259 million.• Total expenditure for the year – R375 million.

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CHIEF DIRECTORATE: RESOURCE MANAGEMENT

PURPOSE:

• Facilitate sustainable & equitable use of marine & coastal resources

• Regulating the utilisation of marine resources through the administration of fishing rights, permits & licenses

• Stimulating economic growth & restructuring of the fishing industry

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ACHIEVEMENTS

• General Fishing Policy approved by Cabinet• 20 Fishery specific policies developed (target:20)• Consulted 9000 fishing stakeholders on policies• New model for determining application fees for long-term

fishing rights developed – introduced a sliding scale of fees linked to value of the fisheries

• Allocation of long-term rights in 20 fisheries (target:20)

CHALLENGES• Complexity of resolving appeals i.t.o. long-term

allocations• Allocation of rights in the subsistence and small scale

fisheries – limited understanding of these sectors

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CHIEF DIRECTORATE: MONITORING, CONTROL & SURVEILLANCE

PURPOSE:• Preventing and eliminating illegal marine activity

ACHIEVEMENTS• Strengthening of EPV fleet through delivery of 2 more

inshore vessels (Ruth First & Victoria Mxenge) [fleet of 5]• SADC/regional cooperation through 1 patrol to Marion

Island and 2 patrols to Tanzanian & Mozambique• 171 Fisheries Control Officers at 31 compliance stations

conducted ongoing patrols & inspections

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ACHIEVEMENTS (CONT)

• 5 Memorandums of Understandings signed to increase compliance capacity

• Provision of 2 full time prosecutors for the Environmental Court in Hermanus

CHALLENGES• Financial costs of operating the compliance vessels• Ongoing need to recruit and train compliance staff• Organised nature of poaching

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CHIEF DIRECTORATE: INTEGRATED COASTAL MANAGEMENT

PURPOSE:• Managing human impacts on the marine & coastal environment

through:– Regulating coastal developments

– Regulating marine pollution

– Promoting marine ecotourism & mariculture

– Managing marine protected areas (MPAs)

ACHIEVEMENTS

• Draft aquaculture policy• Promulgation of 4 new MPAs (Stilbaai, Kei, Gxulu & Gonubie)

[target:6]

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ACHIEVEMENTS (CONT)

• Designation of S.A’s southern continental shelf waters as Special Area by the International Maritime Organisation (protection for seabirds against oil pollution)

• Consensus on the Coastal Management Bill• 20 local beaches awarded Blue Flag status

CHALLENGES• Difficulty in reaching consensus delayed

passage of the Coastal Management Bill

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CHIEF DIRECTORATE: RESEARCH, ANTARCTICA & ISLANDS

PURPOSE• Provision of advice on the sustainable utilisation of

marine and coastal resources by carrying out appropriate research

• Providing infrastructural support for S.A’s research in the Southern Ocean and Antarctica

ACHIEVEMENTS• Ongoing research/surveys on state of fish stocks (6

cruises)• Recommendation of TACs & TAEs in 18 species

(target:18)• BCLME collaboration on predator-prey relationships &

by-catch

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ACHIEVEMENTS (CONT)

• Marion Islands research facility construction 70% complete.

• Completed feasibility study to replace SA Agulhas.

• Made progress towards replacement of the Sardinops.

• Successfully completed Marion and Gough Island expedition & Antarctic Relief Expedition.

• AJMS published online.

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CHALLENGES

• Recruitment & retention of scientists, particularly black scientists

INTERNATIONAL RELATIONS

• Ongoing positive relations and cooperation with partners (Norway, Australia and new Zealand)

• Signing of South East Indian Fisheries Organisation (SEAFO)

• Ongoing honouring of regional & international obligations

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Demographics - Branch

Pink- Indians, Green – Africans

YellowYellow- Coloureds, Blue- Whites

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1994 1995 1996 1997 1998 1999 2002 2003 2004 2005

MARINE AND COASTAL MANAGEMENT

STAFF COMPOSITION BY RACE FOR THE YEARS 1994- 1999 AND 2002- 2005 (PERCENTAGE)

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Office of the CFO - TARGETS FOR 2005-2006Render effective and efficient financial management for the MLRF.

• Complete and sign of Audits for 2002 to 2005 and publish Annual Report.• Skills capacity and staffing issues to be addressed.• Take over accounting function from Consulting firm.• Commission the development of a new integrated financial and procurement

system.• Commission the development of a Cost Recovery Framework for the

Fishing industry.• Develop a portal for all database systems. – (MAST)• Prepare a budget for 31 March 2006. - Ensure correct MTEF submission to

Treasury• Ensure compliance to all regulations (PFMA, Treasury Regs, SCM, GRAP).• Ensure all revenue due to the fund is collected timeously.• Balance income and expenditure whilst providing public good services.• Appoint Internal Auditors for the fund.• Set BEE procurement spending target at 47%.

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ACHIEVEMENTS

• Appointed a full-time CFO• Completed 4 years of audits and published annual

report.• Appointed a consortium to develop a cost recovery

framework.• Trained all staff in 1st phase damelin accrual accounting.• Took over financial function from consulting firm.• Appointed debt collectors.• Instituted legal action against previous developers of the

failed financial system• Submitted treasury reports timeously.

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ACHIEVEMENTS

• Appointed NDT to develop and implement an integrated financial and procurement system for the fund.

• Institutional design approval – 3 directors in office of the CFO.

• Appointed a consortium to develop a cost recovery framework for the fund.

• Monthly management reports produced, costs brought under control.

• Control measures implemented for better managing of

MLRF resources.

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IMPLEMENTATION CHALLENGES AND/OR RISKS

• Managing limited cash resources.

• Lack of historical data for debtors.

• Limited skills and internal capacity.

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MARINE LIVING RESOURCES FUND

ANNUAL FINANCIAL STATEMENTS

31 March 2002

31 March 2003

31 March 2004

31 March 2005

31 March 2006

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2005 2004 2003 2002R’000 R’000 R’000 R’000

TOTAL REVENUE 320,260 356,887 258,112 246,065Application fees 210 693 2,888 16,977Confiscated products 52,803 63,314 18,204 9,940Levy on fish products 60,652 43,047 40,229 37,532DEAT Operational Grant 16,225 9,497 8,025 3,968DEAT - Transfer Payments 153,000 196,000 147,000 147,000

OPERATING EXPENSES 277,298 183,984 143,123 113,446 Vessel operating costs 124,478 71,460 54,115 41,977

NET PROFIT/(LOSS) FOR THE YEAR 54,321 189,001 131,295 134,235

INCOME STATEMENT FOR THE YEAR ENDED

INCOME STATEMENTS

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BALANCE SHEETS

2005 2004 2003 2002R’000 R’000 R’000 R’000

ASSETS

Non-current assetsPlant and equipment 450,289 338,699 156,558 10,517

Current assets 149,283 148,368 187,020 195,151Inventory 0 170 22,058 10,025Trade and other receivables 25,215 5,636 18,118 7,487Prepayments 1,970 236 - 26Cash resources 122,098 142,326 146,844 177,613

Total assets 599,572 487,067 343,578 205,668

EQUITY and LIABILITIES

Capital and reservesRetained earning 526,591 472,270 326,957 195,662

Current liabilities 72,981 14,797 16,621 10,006Trade and other payables 72,981 14,224 14,283 4,872Bank Overdraft - 1,938 -Loan - - - 4,934Provisions - 573 400 200

Total equity and liabilities 599,572 487,067 343,578 205,668

BALANCE SHEET AS AT

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AUDITOR-GENERAL REPORTS

1. 31 March 2002 - Qualified Audit Opinion

• 1 x Qualification

• 4 x Emphasis of Matter

2. 31 March 2003 - Qualified Audit Opinion

• 2 x Qualifications

• 8 x Emphasis of Matter

3. 31 March 2004 - Disclaimed Audit Opinion

• 5 x Qualifications

• 7 x Emphasis of Matter

4. 31 March 2005 - Disclaimed Audit Opinion

• 2 x Qualifications

• 5 x Emphasis of Matter

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AUDITOR-GENERAL REPORT (cont..)

All 4-years reports lead to the following:-

Lack of Internal Control;

Lack of compliance to the PFMA;

No proper accounting and fixed asset system;

Lack of Historical Data and Supporting Documentation;

Insufficient control on Debtors and Income;

Failed to adhere to the principles of Accrual Accounting;

Staffing Issues.

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AUDIT COMMITTEE REPORT31 March 2006

Audit Committee responsibility

- Meet 4 times a year – (Committee met twice)

-The effectiveness of internal control - (Not effective)

- The quality of monthly and quarterly reports submitted in terms of the Act – (Unable to review)

- Evaluation of annual financial statements – (Concurs with AG report)

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AUDITOR-GENERAL REPORT

QUALIFICATIONS – Disclaimed Audit Opinion

1. Property, plant and equipment.

2. Revenue and trade and other receivables.

3. Trade and other payables.

4. Expenses.

5. Contractual commitments.

6. Inventories.

7. Pay-as-you-earn (PAYE).

8. Cash flow statement.

9. Opening balances.

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AUDITOR-GENERAL REPORT

EMPHASIS OF MATTER

1. Weakness in internal controls

2. Non-compliance with laws and regulations

3. Audit Committee

4. Previous audit report

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ANNUAL FINANCIAL STATEMENTS

Statement of Financial Performance

2006R’000

REVENUE 259,034Application fees 22,350Chartering of departmental vessels 14,521Confiscated assets and fish products 15,185Fines 3,997Grants and other transfer payments 97,322Harbour fees 6,178Levy on fish products 69,150Licences and permits 24,213Other income 913Interest income 3,504Foreign exchange gain 100Decrease in provision for doubtful debt 750Pollution clean up equipment hire 851

EXPENSES 289,439Audit fees 990Commission paid 13,109Confiscation expenses 1,801Depreciation 26,928Hire of equipment 1,206Legal costs 3,127Membership fees, licences and training 3,271Other operating expenses 19,576Postage and telecommunication 5,909Printing, stationery and consumables 10,744Professional and special services - government 89Professional and special services - non government 73,129Rental of property and facilities 1,256Repairs and maintenance 750Transport, subsistence and entertainment 26,314Interest paid 4Vessel operating costs 101,236

SURPLUS/DEFICIT FOR THE PERIOD (30,405)

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ANNUAL FINANCIAL STATEMENTS

Statement of Financial Position

2006 2005R’000 R’000

ASSETS

Current assets

Inventory - -

Trade and other receivables 31,300 25,215

Prepayments and advances 406 1,970

Cash and cash equivalents 9,571 122,098

41,277 149,283

Non-current assets

Plant and equipment 508,727 450,289

Total assets 550,004 599,572

LIABILITIES

Current liabilities

Provisions - -

Trade and other payables 56,008 75,169

Total liabilities 56,008 75,169

NET ASSETS

Accumulated surplus 493,996 524,403

Total net assets 550,004 599,572

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4. PLANT AND EQUIPMENT2006Total

R’000

Beginning of year

- assets at cost 471,906

- accumulated depreciation (21,617)

- net book value 450,289 Current year movements

- additions 85,366

- disposals -

- depreciation (26,928)

Balance at end of year 508,727Made up as follows:

- assets at cost 557 272

- accumulated depreciation (48 545)

- net book value 508 727

ANNUAL FINANCIAL STATEMENTS

Notes to the Financial Statements

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ANNUAL FINANCIAL STATEMENTS

Notes to the Financial Statements

2006

R’000

5. INVENTORY

Consumables -Forfeited fish is being held in cold storage

The estimated net realisable value excluding cost 2,169

6. TRADE AND OTHER RECEIVABLES

Trade receivables 46,899

Less: Provision for doubtful debts (15,958)

30,941

VATOther receivables 359

31,300

7. PREPAYMENTS AND ADVANCESStaff debt 159Travel and subsistence advances 247Prepayments -Advances -

406

8. CASH AND CASH EQUIVALENTSCash at bank 5,664Cash on hand 13Short term investments 3,894

9,571For the purposes of the cash flow statementBalance at the beginning of the year 122,098

Cost related transportation of forfeited fish: 38

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ANNUAL FINANCIAL STATEMENTS

Notes to the Financial Statements

2006R’000

10. TRADE AND OTHER PAYABLESTrade creditors 49,617Income received in advance 432PAYE 2Administered funds 5,957

56,008

11. RECONCILIATION OF PROFIT TO CASH GENERATED FROM OPERATIONS

Profit/Loss (30,405)- Depreciation on plant and equipment 26,928- Profit on disposal of plant and equipment -- Foreign exchange profit (100)- Interest income (3,504)- Decrease in provisions for bad debts (750)- Interest paid 4

(7,827)Working capital changes (22,834)- Decrease in inventories -- (Increase)/decrease in receivables (3,771)- Increase/(decrease) in payables (19,063)

Cash generated from operations (30,661)

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END