ANNUAL REPORT 2005/2006
REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF THE
NORHTERN FLAGSHIP INSTITUTION FOR THE YEAR ENDED 31 MARCH 2006
1. AUDIT ASSIGNMENT
The financial statements as set out on pages 57 to 72, 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) (PAA) and section 55(1)[c] of the Public Finance
Management Act, 1999 (Act No.1 of 1999)(PVMA). 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 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
Leave provision
All employees' leave was capped as at 30 June 2003. Leave days utilised by
employees thereafter have been erroneously calculated by the payroll system.
Given the above system error, an audit opinion cannot be expressed regarding
the accuracy and valuation of provision for leave in accordance with
International Accounting Standard (IAS) 37, as disclosed in the annual
financial statements at 31 March 2006.
5. AUDIT OPINION
In my opinion except for the effect on the financial statements of the matter
referred to in paragraph 4, the financial statements present fairly, in all
respects, the financial position of the Northern Flagship Institution (NFi) 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 PFMA.
6. EMPHASIS OF MATTER
Without further qualifying the audit opinion, attention is drawn to the
following matters:
6.1 Post-retirement medical-aid benefits
Post-retirement medical aid benefits are provided for qualifying employees and
retirees in accordance with IAS 19. The NFl recorded the liability of R18,1
million based on a valuation undertaken at 31 March 2006. The NFl recognized
the importance of providing for this liability. However, it did not have the
required funds to match the liability.
The disclosure requirements are also not adhered to. The prior year adjustments
cannot be quantified and as a result no prior year errors are disclosed in the
financial statements.
6.2 Non-compliance with laws and regulations
Due to a lack of policy framework, the NFl did not fully comply with:
·
Section 51 (a) of the PFMA: Certain policies and
procedures are not developed, updated or approved regularly;
·
IAS 16: Residual values and the useful life of assets
were not reviewed at least at each financial year-end;
·
IAS 17: Inadequate disclosure of finance leases (at an
estimated amount of R150 830); and
·
Treasury Regulation 27.2: A risk management policy was
not approved for the financial year under review.
6.3 Collections policy
In terms of the Cultural Institutions Act, 1998 (Act No. 119 of 1998), the
principal activities of the NFl are the collection, conservation and safe
management of national heritage collections on behalf of the South African
nation.
As reported in the 2004/05 audit report, an approved accounting policy
addressing the classification, disclosure and valuation of collections has not
yet been approved by the Council.
6.4 Validity of non-financial performance information could not be verified
In terms of section 20(2)[c] of the PAA, the information related to performance
against predetermined objectives is subject to auditing by the Auditor-General.
The entity does not have a proper policy and procedure framework to manage the
process of finalising their performance information, as it was not submitted
for audit purposes.
7. APPRECIATION
The assistance rendered by the staff of the Northern Flagship Institution
during the audit is sincerely appreciated.
AH Muller
For Auditor-General
Pretoria
27 Jury 2006
AUDITOR-GBNBRAL