AUDITOR-GENERAL

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF THE COMPENSATION FUND FOR THE YEAR ENDED 31 MARCH 2006

1. AUDIT ASSIGNMENT

The financial statements as set out on pages 67 to 88 for the year ended 31 March 2006, 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) and section 20(2) of the Compensation for Occupational Injuries and Diseases Act. 1993 (Act No. 130 of 1993). These financial statements are the responsibility of the accounting authority. My responsibility is to express an opinion on these financial statements based on the audit.

2. SCOPE

The audit was conducted in accordance with International Standards on Auditing read with General Notice 544 of 2006, issued in Government Gazette no. 28723 of 10 April 2006 and General Notice 808 of 2006, issued in terms of Government Gazette no. 28954 of 23 June 2006. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An 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.

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

3. BASIS OF ACCOUNTING

The entity's policy is to prepare financial statements on the basis of accounting determined by the National Treasury of South Africa, as described in note 1 to the financial statements.

4. QUALIFICATION

4.1 Completeness and accuracy of revenue contributions

4.1.1 A lack of capacity has resulted in the fund experiencing a backlog in the raising of assessments. The extent of the backlog cannot be reliably determined and quantified. Except for the impact of the actuarially calculated provision for the outstanding claims the impact on the completeness of revenue contributions cannot be determined.

4. 1.2 A lack of monitoring controls to verify the accuracy of information submitted by employers and their assessments raised has resulted in various materially incorrect assessments being recorded. The large volume of assessments recorded does not allow the performance of sufficient alternative auditing procedures to confirm the accuracy of revenue contributions.

4. 1.3 Consequently. I am unable to express an opinion on the completeness and accuracy of revenue contributions totalling R2.9 billion.

4.2 Valuation of assessment debtors

A lack of monitoring controls has resulted in various materially incorrect assessments being recorded in the current and previous financial years. The large number of assessments raised does not allow the performance of sufficient alternative audit procedures to confirm the valuation of assessment debtors. Consequently. I am unable to express an opinion on the valuation of assessment debtors totalling R2,4 billion.

5. QUALIFIED AUDIT OPINION

In my opinion except for the effect of the financial statements of the matters referred to in paragraph 4 the financial statements fairly present. in all material respects the financial position of the Compensation Fund at 31 March 2008 and the results of its operations and cash flows for the year then ended in accordance with the basis of accounting determined by the National Treasury of South Africa as described in note 1 to the financial statements and in the manner required by the Public Finance Management Act 1999 (Act No. 1 of 1999).

6. MATTERS OF EMPHASIS

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

6.1 General computer controls

A follow-up review of control weaknesses identified in the information systems environment was done. Progress had been made in resolving some of the reported weaknesses but control deficiencies in the general computer control environment of the Fund still exist in respect of the following:

· Security administration and monitoring

· Logical access security

· Monitoring of user and administrator activity at the network operating system, application and database levels

· Inadequate succession planning in relation to key people who support the business critical applications.

6.2 Internal control weaknesses

The effectiveness of the control environment was negatively influenced by the lack of formal routine and approved policies and procedures, inadequate management information and inadequate supervision and review.

APPRECIATION

The assistance rendered by the staff of the Compensation Fund during the audit is sincerely appreciated.

N. Manik: For Auditor-General: Pretoria

31 July 2006