FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2006

REPORT OF THE AUDITOR-GENERAL TO PARL.IMENT ON THE RNANCIAL STATEMENTS OF THE UNEMPLOYMENT INSURANCE FUND FOR THE YEAR ENDED 31 MARCH 2006

1. AUDIT ASSIGNMENT

The financial statements as set out on pages 37 to 70, 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, read with sections 4 and 20 of the Public Audit Act, 2004 (Act No. 25 of 2004) and section 11 (3) of the Unemployment Insurance Act, 2001 (Act No.53 of 2001}.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 the International Stal1dards on Auditing read with General Notice 544 of 2006, issued in Government Gazette no. 28723 of 10 April 2006 and General Notice 544 of 2006, issued in Government Gazette no. 28594 of 23 June 2006. Those standards require that I plan and perform the audit to obtain reasonable assurance that 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

· evaluating the overall financial statement presentation.

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

3. BASIS OF ACCOUNTING

The entity is required to prepare financial statements on the basis of accounting determined by the National Treasury. The financial statements need to be prepared in accordance with the South African Statements of Generally Accepted Accounting Practices (GAAP) including any interpretations of such Statements issued by the Accounting Practices Board, with the prescribed Standards of Generally Recognised Accounting Practices (GRAP). The entity has prepared financial statements In accordance with South African Statements of Generally Accepted Accounting Practice, as described in note 1 to the financial statements.

4. AUDIT OPINION

In my opinion the financial statements present fairly, in all material respects, the financial position of the Fund at 31 March 2006 and the results of its operations and its 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 paragraph 3, and in the manner required by the Public Finance Management Act (Act No 1 of 1999).

5. EMPHASIS OF MATTER

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

5.1 Benefit payments to contributors

Due to a lack of monitoring Of implemented policies and procedures the following internal controls around the benefit payments to contributors were found to be ineffective

· Incorrect information was in certain cases used as a basis for determining unemployment benefits payable;

· The information systems of the Unemployment Insurance Fund (UIF); Department of Social Development and Compensation Fund established under the Compensation for Occupational lnjuries and Disease Ad, 1993 (Act No. 130 of 1993), were not integrated as a consequence the Fund was not able to adequately verify that contributors are not paid unemployment benefits whilst also receiving other benefits from these other entities.

· A report of changes to the contributors banking details was not printed. Reviewed or reconciled to original source document to prevent unauthorised changes.

5.2 Bank reconciliation process

Various current and prior year's unreconciled debits and credits have been accumulated and reported as unreconciled balances. The unreconciled credits and debits are disclosed in the financial statements. These amounts are still being investigated to determine their nature.

5.3 Accuracy of contribution revenue

Section 6(1) of the Unemployment Insurance Contributions Act provides for remuneration paid or payable by the employer to the employee during any month to be used as a basis for determining unemployment contributions. The controls implemented by the Fund to administer the employer information were found to be ineffective. As a consequence, I was unable to use the declarations and monthly returns to verify that the contribution income received was accurately determined in terms of legislated tariffs.

5.4 Benefits paid in error

Trade and other receivables disclosed in note 14 of the financial statements includes an amount of R33 078 000 that represents overpayments of benefits to contributors. The Fund does not have an effective control framework to monitor collections of these overpayments.

5.5 Non-compliance to laws and regulations

Due to the inadequate monitoring of compliance with laws and regulations, the following instances of non compliance were noted;

(a) Public Finance Management Act, 1999 (Act No.1 of 1999)

· Sec 51 (1)(a)(i) - Effective and efficient systems of financial and risk management and internal control not effectively implemented.

· Sec 51(1)(a)(iii) - Policies of the procurement and provisioning systems not always adhered to.

· Sec 51 (1)(b)(i) - Effective steps to coiled all revenue due not taken.

(b) Treasury Regulations

· Par 31.1.2(a) - Non-collecting of revenue when due.

· Par 31.1.2(e) - Non-pursuance of debtors with appropriate sensitivity and rigour.

(c) Unemployment Insurance Contributions Act, 2002 (Act No.4 of 2002)

· Sec 12 - Non-levying of interest on non-SARS late payments.

· Sec 13 - Non-levying of penalties on non-SARS late payments.

5.6 Services rendered by the Department of Labour

Personnel, administration and rental expenses of approximately R356 million have been made to the Department of Labour for the value of services rendered. Due to a lack of a control framework for performing independent reconciliations and checks to ensure the validity and accuracy of these payments, the Fund relies on the Department to ensure the correctness of the allocations of expenses against the Fund.

5.7 Supply Chain Management

Due to a lack of a proper control framework to monitor compliance with the procurement policy framework, the Fund did not implement a supply chain management system that fully complies with section 16A of the Treasury Regulations.

5.8 Internal Audit

The internal audit component did not function effectively during the current year mainly due to a lack of monitoring of the internal audit plan. The approved scope of work of internal audit was' limited by the lack of resources during the year. As a result, a significant portion of the assignments planned in the original internal audit plan were not carried out

5.9 Departmental agency

Attention is drawn to note 25 in the annual financial statements. The Fund began operating as a departmental agency with delegated powers on 4 April 2006. As a result, the Director General of the Department of Labour has delegated some of his powers to the Unemployment Insurance Commissioner.

6. APPRECIATION

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

SA Fakie Auditor General: Pretoria

25 August 2006