1. Modified Cash Standard Expenditure Classification
Portfolio Committee on Environmental Affairs
Presenter: Lindy Bodewig | Chief Director, National Treasury | 02 May 2017

2. Presentation outline Expenditure categories
Delineation between Exchange vs. non-exchange transactions
Involvement of agents in transactions
Grant type arrangements
Stipends
Conclusion for the Department of Environmental Affairs

3. Expenditure categories
Payments to employees for services rendered
Compensation of employees
Inventory, consulting services, T&S, advertising..
Goods and services
Motor vehicles, buildings, roads, computers…
Capital assets
Departmental expenditure
Social grants, equitable share to munics, grants..
Transfers and subsidies
Interest and rent on land
Interest on debt, royalties
Financial transactions in assets
and liabilities
Debt write-off, forex losses

4. Exchange vs. Non-Exchange
Exchange transactions are transactions in which one entity receives assets or services, or has liabilities extinguished, and directly gives approximately equal value (primarily in the form of cash, goods, services, or use of assets) to another entity in exchange.
Goods and services
Exchange
Capital assets
Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, an entity either receives value from another entity without directly giving approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in exchange.
Non- Exchange
Transfers and subsidies

5. Examples What am I buying? Am I receiving something of value?
Does this value approximate the cash disbursed?
The department appoints a consultant to conduct research and to develop a policy position on sustainable production in agriculture. The consultant was appointed through open tender, the amount paid was thus market related. [Exchange transaction – Goods and services]
The department purchased new laptop computers for employees through SITA. Each cost more than R5,000. [Exchange transaction – Capital assets]
A department purchases learning and teaching support material (LTSM) for distribution to schools within a specific district.
It takes delivery of the LTSM and distributes it to the schools
The supplier distributes the LTSM to the schools on behalf of the department
A department refunds a school that purchased its own learning and teaching support material.

6. Involvement of an agent in a transaction
A principal-agent arrangement results from a binding arrangement in which one entity (an agent), undertakes transactions with third parties on behalf, and for the benefit of, another entity (the principal).
Not all transactions with service providers are principal-agent arrangements. For such an arrangement to exist the contracted party must undertake an activity (or a transaction) with a third party on behalf of and for the benefit of the department.
In a principal-agent arrangement, the principle determines the significant terms of the arrangement with the 3rd parties, determines how the resources will be utilised, and is exposed to any variability in the transaction. The principle controls the transaction with the third party.
Therefore we “look through” the transaction in order to determine the appropriate classification.
Similar to using a service provider to deliver services directly to the beneficiary (LTSM example)

7. Grant type arrangements
Departments enter into grant agreements with Institutions (such as municipalities, NGO’s, private companies) to undertake activities often for third parties
Performance criteria are set in the arrangements and payment is made based on the achievement thereof
The Institution is responsible for delivery of the output (good and or service), i.e. determines how the resources will be used and is responsible for any variances that may arise
The department monitors performance, delivery is the responsibility of the Institution
The value generated is therefore for the beneficiary, and the funds given to the institution by the department is classified as a non-exchange transaction
Similar to the reimbursement of LTSM costs

8. Stipends
Workers are provided an opportunity to gain skills (through a training programme)
The stipend received is for transport costs, food etc. and not for the services rendered
This is not seen as an exchange transaction, therefore the payments made are classified as transfers to households (non-exchange)

9. Conclusion
Department to determine the nature of the arrangement with the implementing agents:
Agents of the department (using the criteria for agent-principal arrangements)
Institutions receiving conditional grants
Stipend classified as transfers to households

10. THANK YOU