AGRICULTURAL RESEARCH COUNCIL ANNUAL REPORT 2005/2006

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF THE AGRICULTURAL RESEARCH COUNCIL FOR THE YEAR ENDED 31 MARCH 2006

1 . AUDIT ASSIGNMENT

The financial statements as set out on pages 105 to 129, 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 22(1) of the Agricultural Research Act, 1990 (Act No. 86 of 1990). 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. SCOPE

The audit was conducted in accordance with the 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 Government Gazette no. 28954 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's policy is to prepare financial statements on the basis of accounting determined by the National Treasury, as described in note 1 to the financial statements.

4. QUALIFICATION

4.1 Non-compliance with IAS 16 Property, Plant and Equipment

The entity did not comply with the following requirements of IAS 16 Property, Plant and Equipment:

· The useful lives and residual values of property, plant and equipment were not reviewed in the current period as required by IAS16 Property, Plant and Equipment.

I could therefore not perform audit procedures to verify that property, plant and equipment were stated at the correct values.

4.2 Existence of Accounts Receivable

The receivables balance includes an amount of R49,7 million which the entity claims is due to it in respect of VAT on the Parliamentary grant that is recoverable from the transferring agent. At the date of this report, the entity had not received any confirmation from the transferring agent in respect of the acceptance of this liability. I could therefore not verify the existence of the above debtors' balance.

5. QUALIFIED AUDIT OPINION

In my opinion, except for the effect on the financial statements of the matters referred to in the preceding paragraphs, the financial statements present fairly, in all material respects, the financial position of Agricultural Research Council 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 note 1 to the financial statements, and in the manner required by the Public Finance management Act, 1999 (Act No.1 of 1999) as amended.

6. EMPHASIS OF MATTER

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

6.1 Weaknesses in internal control

According to sections 51(1)(a)(i) of the PFMA, an accounting authority for a public entity must ensure that the public entity has and maintains an effective, efficient and transparent system of financial and risk management and internal control and an official in the public entity must ensure that a system of internal control is carried out within the area of responsibility of the official. The following areas within the Agricultural Research Council revealed significant deficiencies in internal controls:

· Revenue recognition principles/calculations

· Segregation of duties in journal processing

· Inventory management

· Budget process

6.2 Implementation of Supply Chain Management

According to sections 76(4)(c) of the PFMA and the Framework for Supply Chain Management, a public entity has to determine a framework for an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective. Although a formal framework of this nature has been developed, formally approved and adopted by the Agricultural Research Council, it has not yet been implemented.

6.3 Changes to financial statements

The financial statements were submitted on 31 May 2006 however, these financial statements required significant adjustments.

6.4 Performance information

The following deficiencies were noted in respect of the Agricultural Research Council's performance information:

· Measurable objectives were not linked to specific time periods.

· The actual level of performance was not always measurable.

7. APPRECIATION

The assistance rendered by the staff of the Agricultural Research Council during the audit is sincerely appreciated for Auditor-General Pretoria

31/07/2006

AUDITOR-GENERAL