The financial statements as set out on pages 53 to 83, for the year ended 31 March 2005, have been audited in terms of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 4 and 20 of the Public Audit Act, 2004 (Act No.25 of 2004). These financial statements, the maintenance of effective control measures and compliance with relevant laws and regulations are the responsibility of the accounting authority. My responsibility is to express an opinion on these financial statements, based on the audit.

2. NATURE AND SCOPE

The audit was conducted in accordance with Statements of South African Auditing Standards. Those standards require that I plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.
Ac audit includes:

· examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,

· assessing the accounting principles used and significant estimates made by management, and

· evaluating the overall financial statement presentation.

Furthermore, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations which came to my attention and are applicable to financial matters.

The audit was completed in accordance with Auditor/3eneral Directive No.1 of 2005.

I believe that the audit provides a reasonable basis for my opinion.

3. QUALIFICATION

3.1 Irregular expenditure

Regulation 3(1) and 3(2) in the Skills Development Act, 1998 (Act no 97 of 1998) prescribes a 10% administrative expenditure threshold for the Setas. For the year under review, Tourism, Hospitality and Sport Education and Training Authority has exceeded the 10% threshold with an amount of R4 585 000, due to inadequate monitoring of administration expenditure.

4.AUDIT OPINION

In my opinion, except for the effect on the financial statements of the matter referred to in paragraph 3,the financial statements fairly present, in all material respects, the financial position of the Tourism, Hospitality and Sport Education and Training Authority at 31 March 2005 and the results of its operations and cash flows for the year then ended, in accordance with Statements of Generally Accepted Accounting Practice and in the manner required by Public Finance Management Act (Act No1 of 1999).

5. EMPHASIS OF MATTER

Without further qualifying the audit opinion expressed above, attention is drawn to the following matters:

For the current and prior year, the Tourism, Hospitality and Sport Education and Training Authority has not paid out any dicretionary grants to any of its contributing employers. Subsequent to year end, the seta has taken steps to address the payment of discretionary grants.

5.2 Progress on SCOPA resolutions

With reference to the seventy second report, 2003, of the Standing Committee on Public Accounts, it is noted that the

Tourism, Hospitality and Sport Education and Training Authority has made no progress with regard to the exceeding of the 10% administration threshold for the current and previous financial years as recommended by SCOPA

5.3 Special investigation

During the year under review, an investigation into procurement practices was initiated by the Department of Labour. This was as a result of concerns raised by a whistle blower. The investigation is currently under way and I will report on the progress in my next report.

The assistance rendered by the staff of Tourism, Hospitality and Sport Education and Training Authority during the audit Is sincerely appreciated.

N. Manik for Auditor-General

Pretoria

31 July 2005

REPORT OF THE ACCOUNTING AUTHORITY

1. General review of the state of financial affairs

THETA finds itself in a much stronger financial position compared to the previous year, levy income increased by 8.6 % from R 89 million to R 96.7 million. This can be accredited to the real increase of buy4n from employers and a drive by THETA to convince non payers to contribute to skills development levies by THETA A prior year adjustment of R 6.2 million increased levy income for the period ended March 2004 due to the inaccurate recording of income in the prior year resulting in a restatement of levy income from R 82.8 million to R 89 million for the prior year.

On the negative side administration expenses increased by 9.3 %from R15 million to RI6.4 million. This increase was mainly attributed to an increase in operating rentals, service provider fees and cost of employment. The increase of 48% in operating lease rentals was mainly attributed to rental of building. This action was taken to increase available office and other accommodation (from 1112 m to 2500m) to ensure adequate infrastructure for all training purposes. This resulted in an actual saving of rental costs to all projects under THETA control. These increases although relevant are directly linked to the increase in effective service delivery ability of THETA

During the year 42 % more than the prescribed amount of R10 million was spent on operational activities. The current infrastructure of THETA (including the staff complement) is currently adequate to maintain the current levels of service delivery and the administration status quo. The only administration expense that can reasonably be controlled, while trying to maintain current levels of service delivery, is the staff complement. My attempt to decrease this expense can result in a serious decline in the ability of THETA to maintain its high level of service delivery and administration backup. THETA has however subsequently pulled back the administration expenses in line with the threshold for the coming year.

The 10% operational cost threshold remains unrealistic in the Tourism Sector where most of the stakeholders are exempt from paying levies because of their size. The possible exemption of smaller businesses (payroll under R 500 thousand per annum) will result in an additional loss of six thousand levy paying employers and a decrease of approximately R 11 million in levy income, and R 1 million in administration income. This will place a further burden on THETA to maintain the level of service delivery under the cost threshold.

During the past financial year THETA appointed an acting Chief Financial Officer. Her input in reengineering and restructuring of the Financial Department will result in a dramatic saving in outside consulting fees. This appointment coupled with the stability and continuity in the Chief Executive Officer position should result in streamlined operational and financial activities and a major cost cut in expenses to maintain and produce financial reporting abilities and operational capabilities.

The increase of 431% in employer grant disbursements (from R 6.9 million to R 36.7 million) clearly demonstrates the increase in service delivery capacity achieved by THETA during this financial year. It is the aim of THETA to increase this capacity in the following five years. Spending relating to internal projects increased from R5.8 million to R29.9 due to the effective launch and management of 16 projects in THETA

The delays in the past in processing and reconciling levy income and grant payments (done manually) has through a reengineering process been automated which will expedite the initial capturing and reconciling of income and payments, this tell further enhance the ability of THETA to achieve its set targets and levels of service delivery.

As discussed in Note 19 of the Annual Financial Statements a contingent liability of approximately R2.5 million exists in the form of ongoing legal cases against THETA

2. Objectives and achievements against targets

A detailed schedule of THETA performance against National Skills Development Strategy (NSDS) targets are discussed in the Annual Report under the heading CEO ‘s Report.

National Skills Funds

An amount of R53.2 million (2004, R40.6 million) was received from the National Skills Fund during this financial year. These funds were received under certain conditions for the Integrated Nature-Based Tourism and Conservation Project (INTAC) and Tourism Learnership Project (TLP). The amounts received are recognised as a liability until the conditions attached are met. During the financial year R49.5 million (2004, R33.3million) eligible project expenses were incurred. At the year end R13.1 million (2004, R8.8 million) continues to be accounted for as a liability until the remaining conditions have been met.

Detailed information on these projects is discussed under the CEO’s report in the Annual Report 2005.

Donor Funding

During the financial year, R0.8 million (2004, R29.5million) was received for the South African Tourism Institute Project, (SATI) and TLP

The amounts received are recognised as a liability until the conditions attached are met. During the financial year R 13.7 million (2004, R25.0 million) eligible project expenses were incurred. At the year end R 11.3 million (2004, R22.9 million) continues to be accounted for as a liability until the remaining conditions have been met.

Detailed information on these projects is discussed under the CEO’s report in the Annual Report 2005.

4. Corporate governance arrangements

THETA is committed to the objectives and principles of transparency, accountability and integrity explained in the King Code of Corporate Governance. Detailed discussion of the application and results of Corporate Governance in the organisation is discussed under the heading Coots report Corporate Governance in the Annual Report 2005.

Full disclosure of risk items and policies are discussed under note 23. in the Annual Financial Statements, disclosure of conflict of interest and related parties transactions are noted under note 25 in the Annual Financial Statements.

SUMMARY OF THE ANNUAL REPORT OF THE TOURISM, HOSPITALITY AND SPORT EDUCATION AND TRAINING AUTHORITY

THETA, the Tourism, Hospitality and Sport Education and Training Authority, is the Sector Education and Training Authority (SETA) established under the Skills Development Act (No.97 of 1998) for the Tourism, Hospitality and Sport Economic Sector. THETA conducts its activities within the tourism, hospitality and sport sector that comprises the following sub-sectors:
· Tourism and Travel Services

· Hospitality

· Gambling and Lotteries

· Conservation and Guiding

• Sport, Recreation and Fitness

The Vision of THETA is: "Our people skilled for a sustainable future". The Mission is: "To facilitate the achievement of excellent standards and growth through the development and recognition of people".

This brief will focus on the issues relating to the sport and recreation sector.

PROGRAMME ACHIEVEMENTS

Skills Development

The following key achievements were noted:
· By March 2004 THETA began hosting focus group meetings to examine the development of the Sector Skills Plan (SPP).

· Research was undertaken to support this initiative.

· The Skills Development Department (SDD) has identified a great need for Adult Basic Education and Training (ABET) among employees and in accordance with this need, has directed 60% of the Discretionary Grant towards ABET.

· ABET intervention will be intensified in the future.

The following key achievements were noted:
· The Equestrian School and Jockey Academy Project was launched.

· The Sport, Recreation and Fitness Chamber instituted a Sport Facility Management Programme.

· The Sport, Recreation and Fitness Chamber launched Fitness Learnerships that will lead to a Certificate in Fitness Learnership, Level 5

· THETA is ready to support the BEE (black economic empowerment) Score Card in various programmes of Sport Facility Management.

· There are 52 registered skills programmes.

· THETA is currently engaged in reviewing standards and qualifications.

· This will include National Diplomas and Certificates in Sport; Recreation; Fitness; Fitness Leadership; and Coaching Science.

THE REPORT OF THE AUDITOR-GENERAL

The following points of concern were noted:
· THETA received a qualified report relating to irregular expenditure, viz. the overspending of the 10% administration threshold due to inadequate monitoring of administration expenditure.

· For the current and prior year, THETA has not paid out any Discretionary Grants to its contributing employers.

· For the current and prior year, THETA has made no progress with regard to exceeding the 10% administration threshold, as recommended by the Standing Committee on Public Accounts in its 2003 report.

· A special investigation into the procurement practices of THETA is being conducted by the Department of Labour.

Questions
· Is an evaluation programme in place to monitor and evaluate the success or otherwise of the ABET intervention? If yes, provide further details. If not, are there any plans to do so? Which aspects of this programme have relevance for the sport and recreation sector?
· Is an evaluation programme in place to gauge the labour absorptive capacity or entrepreneurship potential of the skills training programmes? If yes, provide further details. If not, are there any plans to do so?
· Which aspects of the skills training and learnership programmes have relevance for the sport and recreation sector? Provide further details.
· There is insufficient information on the Equestrian School and Jockey Academy Project - provide further details.

· There is insufficient information on the on the Fitness Learnerships -provide further details. What does the Level 5 Certificate enable the holder to do?
· What is the role of the Sport, Recreation and Fitness Chamber?
· Provide further details on the Sport Facility Management Programme -for example, what have been its major successes and challenges?
· Provide further details on the BEE Score Card.
· Provide further details on the Skills Gap Study as it applies to the sporting sector.
· What progress has been made with regard to the reviewing of standards and qualifications in the sport and recreation sector?
· How successful are the internal financial controls currently being implemented? Are these sufficient to prevent a similar problem in relation to administrative overspending from occurring again?
· Why have no Discretionary Grants been paid out to employers?
· What progress has been made on the Department of Labour's investigation into procurement practices?
· How is THETA helping to prepare for the 2010 Soccer World Cup? Provide full details.

REFERENCES

THETA. 2005: Annual Report, 2005.