RAND WATER MEDICAL SCHEME (REGISTRATION NUMBER 1201) Annual Financial Statements for the year ended 31 December, 2015

Transcription

1 RAND WATER MEDICAL SCHEME (REGISTRATION NUMBER 1201) Annual Financial Statements for the year ended 31 December, 2015

2 Contents The reports and statements set out below comprise the annual financial statements presented to the members: Contents Page Statement of Responsibility by the Board of Trustees 2 Statement of Corporate Governance by the Board of Trustees 3 Report of the Independent Auditors to the Members of Rand Water Medical Scheme 4 Report of the Board of Trustees 5-12 Statement of Financial Position 13 Statement of Profit or Loss and Other Comprehensive Income 14 Statement of Changes in Funds and Reserves 15 Statement of Cash Flows 16 Accounting Policies Notes to the Annual Financial Statements

3 Statement of Responsibility by the Board of Trustees The Board of Trustees are responsible for the preparation, integrity, and fair presentation of the annual financial statements of the Rand Water Medical Scheme and to ensure that proper systems of internal control are employed. The annual financial statements presented on pages 13 to 36 have been prepared in accordance with International Financial Reporting Standards (IFRS) and include requirements issued by the Council of Medical Schemes (refer to Circular 18 of 2009, Circular 23 of 2009 and 41 of 2012) and include amounts based on judgements and estimates. The Board of Trustees consider that in preparing the financial statements they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates. The Board of Trustees are satisfied that the information contained in the financial statements fairly presents the results of operations for the year and the financial position of the Scheme at year-end. The Board of Trustees also reviewed the other information included in the annual report and are responsible for both its accuracy and its consistency with the annual financial statements. The Board of Trustees are responsible for ensuring that accounting records are kept. The accounting records disclose with reasonable accuracy the financial position of the Scheme to enable the Board of Trustees to ensure that the annual financial statements comply with the relevant legislation. Rand Water Medical Scheme operated in a well-established control environment, which is well documented and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and the risks facing the Scheme are being controlled. The going concern basis has been adopted in preparing the annual financial statements. The Board of Trustees have no reason to believe that the Scheme will not be a going concern in the foreseeable future, based on acculmulated funds, forecasts and available cash resources. These financial statements support the viability of the Scheme. PricewaterhouseCoopers Inc. have unrestricted access to all financial records and related data, including minutes of all meetings of members, the Board of Trustees and committees of the Board. The Board of Trustees believe that all representations made to the independent auditors during their audit were valid and appropriate. The Code of Corporate Practices and Conduct has been adhered to. The Scheme's external auditors, PricewaterhouseCoopers Inc, are responsible for auditing the financial statements in terms of International Standards and their report is presented on page 4. The financial statements were approved by the Board of Trustees on 15 April 2016 and are signed on its behalf by Chairperson : Ms Mamorena Madisha Trustee Friday, 15 April,

4 Statement of Corporate Governance by the Board of Trustees Rand Water Medical Scheme is committed to the principles and practices of responsibility, accountability, fairness and transparency in all its dealings with its stakeholders. The Member Trustees are elected by the Members of the Scheme and the Employer Trustees are appointed by the Employer. The Scheme takes cognizance of the Code of Corporate Governance standards as applicable to medical schemes and Trustees. BOARD OF TRUSTEES The Board of Trustees meet regularly and monitor the performance of the Scheme. They address a range of key issues and ensure that discussion of items of policy, strategy and performance which are critical, are informed and constructive. The Board of Trustees and its sub-committees have a charter and terms of reference. All Trustees have access to the advice and services of the Principal Officer and, where appropriate, may seek independent professional advice at the expense of the Scheme. INTERNAL CONTROL The Administrator of the Scheme maintains internal controls and systems designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to safeguard, verify and maintain accountability for its assets adequately. Such controls are based on established policies and procedures and are implemented by trained personnel with the appropriate segregation of duties. A formal internal audit function exists within the Administrator, with regular reporting to the Scheme's audit committee. The Board of Trustees assesses the adequacy and effectiveness of these controls via the internal audit reports provided by the Administrator's internal audit department. No event has come to the attention of the Board of Trustees that indicates any material breakdown in the functioning of key internal controls and systems during the year under review. RISK MANAGEMENT During the current year, there were no changes that could potentially pose a risk to the operations of the scheme.the Board of Trustees adhere to appropriate risk management principles, which include contract reviews, maintenance of a risk register and review of internal and external reports. GOVERNANCE In terms of good corporate governance practices, the Scheme complies with a recognised governance framework, which includes regular monitoring of third party service providers and the management of internal control and its effectiveness. Chairperson : Ms Mamorena Madisha Trustee Friday, 15 April,

5 Report of the Independent Auditors to the Members of Rand Water Medical Scheme We have audited the financial statements of Rand Water Medical Scheme as set out on pages 13 to 36, which comprise the statement of financial position as at 31 December 2015, and the statements of comprehensive income, changes in funds and reserves and cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. Trustees' Responsibility for the financial statements The scheme s Trustees are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Medical Schemes Act, No. 131 of 1998 as amended, and for such internal control as the Trustees determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of Rand Water Medical Scheme at 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Medical Schemes Act of South Africa. Report on other legal and regulatory requirements As required by the Council for Medical Schemes, we report that there are no material instances of non-compliance with the requirements of the Medical Schemes Act of South Africa, that have come to our attention during the course of our audit. We draw attention to Note 20 to the financial statements which indicates the areas of non-compliance of the Rand Water Medical Scheme with the Medical Schemes Act, No. 131 of 1998, as amended PricewaterhouseCoopers Inc Director : C Mitchelson Registered Auditor Johannesburg 15 April,

6 Report of the Board of Trustees The Board of Trustees hereby presents its report for the year ended 31 December Description of the Medical Scheme 1.1 Terms of registration The Rand Water Medical Scheme is a not-for-profit restricted medical scheme registered in terms of the Medical Schemes Act 131 of 1998, as amended ("The Act"). 1.2 Benefit options within the Rand Water Medical Scheme The medical scheme offers 2 benefit options to members. These are: Option A - A Comprehensivel medical plan covering a range of in and out-of-hospital benefits. Option B Plus - is a standard medical plan covering a similar range of benefits provided for in Option A, but at reduced benefit cover and funded by a lower contribution rate. 2. Savings plan The medical scheme does not operate a personal medical savings account facility. 3. Risk transfer arrangements The risk transfer arrangements are as set out in Note 19 to the annual financial statements. 4. Management 4.1 Board of Trustees in office during the period under review Date Appointed Date Resigned Designation Date Reappointed Ms M Madisha 21/06/2012 Member Trustee-Chairperson 30/06/2015 Ms E Maartens 30/06/2015 Member Trustee Ms N Bangani 30/06/2015 Member Trustee Mr M Kgwale 30/06/2015 Member Trustee Mr J Arnold 30/06/2015 Member Trustee - Alternate Mr E Kayster 30/06/2015 Member Trustee - Alternate Mr R Luther 30/06/2015 Member Trustee - Alternate Mr J Ramasike 30/06/2015 Member Trustee - Alternate Mr S Mosia 30/06/2015 Member Trustee - Alternate Mr G Pierce 30/06/2015 Member Trustee - Pensioner Mr C Raftopoulos 21/06/ /06/2015 Member Trustee Mr C Hall 21/06/ /06/2015 Member Trustee Ms S Miller 21/06/ /06/2015 Member Trustee Mr E M Ngobe 21/06/ /06/2015 Member Trustee Ms NSN Sithole 14/06/2014 Employer Trustee Ms B Bam 14/06/2014 Employer Trustee Ms NGJ Mbileni 14/06/2014 Employer Trustee Ms W Mohamed 14/06/2014 Employer Trustee Ms S Molokoane-Machika 14/06/2014 Employer Trustee- Deputy Chairperson 5

7 Report of the Board of Trustees 5. Principal Officer Ms M Nyembe- appointed 1 September Registered Office and Postal address: Physical address Postal address 522 Impala Road P O Box 1127 Glenvista 2058 Johannesburg Medical Scheme Administrator during the year Self-administered Physical address Postal address 522 Impala Road P O Box 1127 Glenvista Johannesburg The scheme is self-administered. The IT medical aid administration system is provided by Sanlam Healthcare (Pty) Ltd. 6. Investment managers during the year As the investments of the scheme currently comprise cash on call, fixed term deposits and other money market instruments the need to appoint investment managers and advisors has not been considered during the year under review. The funds are currently managed by Rand Water treasury department. 7. Actuaries Insight Actuaries (Pty) Ltd Physical address: Central Park th Road Randjiespark Postal address: Private Bag X17 Halfway House Midrand Registered Auditors PricewaterhouseCoopers Inc Physical address: Postal address: 2 Eglin Road Private Bag X31 Sunninghill Sunninghill

8 Report of the Board of Trustees 9. Audit Committee members Members Date Date Designation Appointed Resigned Ms NGJ Mbileni 04/16/2015 Employer trustee Ms N Phangwa 10/08/2012 Manager internal Audit - Rand Water Ms M Madisha 08/16/2012 Member trustee Ms G Chikwakwa 02/25/2010 Group Financial Manager - Rand Water Mr Z Myeza 01/07/2014 Independent chairperson Ms NSN Sithole 06/14/2014 Employer trustee 10. Investment Strategy of the Scheme The The Board of Trustees hereby presents its report for the year ended 31 December 2015 continue to invest funds in line with the requirements of the Act. The scheme s investment objectives are to maximise the return on its investments on a long term basis at minimal risk.the investment strategy takes into consideration both constraints imposed by legislation and those imposed by the Board of Trustees. The investments comprise cash held in interest bearing accounts with registered banks and investments in money market funds.the scheme invested in fixed deposits and cash instruments during This investment policy is reviewed annually, taking into consideration compliance with the Act, the risk and returns of the various investment instruments and the surplus of funds available. 11. Management of Insurance Risk The primary insurance activity carried out by the Scheme assumes the risk of loss to members and their dependants that are directly subject to the risk. This risk relates to the health of the Scheme members. As such the Scheme is exposed to the uncertainty surrounding the timing and severity of claims under the contract. The Scheme manages its insurance risk through benefit limits and sub-limits, approval procedures for transactions that involve pricing guidelines, pre-authorisation and case management, service provider profiling, centralised management of risk transfer arrangements, and the monitoring of emerging issues. The Scheme uses several methods to assess and monitor insurance risk exposures both for individual types of risks insured and overall risks. These methods include internal risk measurement models, sensitivity analyses, scenario analyses and stress testing. The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts. The principal risk is that the frequency and severity of claims are greater than expected. Insurance events are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated with established statistical techniques. There are no changes to assumptions used to measure insurance assets and liabilities that have a material effect on the financial statements and there are no terms and conditions of insurance contracts that have a material effect on the amount timing and uncertainty of the Scheme s cash flows. 7

9 Report of the Board of Trustees 12. Review of the Accounting Period's Activities Operational statistics per option 2015 A B plus Total Scheme Average number of Principal members during the accounting period Number of members at 31 December Average number of beneficiaries during the accounting period Number of beneficiaries at 31 December Dependant ratio at 31 December Net contributions per average member per month Net contributions per average beneficiary per month Relevant healthcare expenditure per average member per month Relevant healthcare expenditure per average beneficiary per month Average administration costs per member per month Average administration cost per beneficiary per month Relevant healthcare expenditure as a % of gross contributions 91.21% 69.85% 89.08% Administration expenses as a % of gross contributions 4.48% 10.11% 4.63% Average age of beneficiaries at 31 December Beneficiaries per member at 31 December Pensioner / member ratio 31 December 15.30% % Average accumulated funds per member at 31 December Operational statistics per option Restated Average number of principal members during the accounting period Number of members at 31 December Average number of beneficiaries during the accounting period Number of beneficiaries at 31 December Dependant ratio at 31 December Net contributions per average member per month Net contributions per average beneficiary per month Relevant healthcare expenditure per average member per month Relevant healthcare expenditure per average beneficiary per month Average administration costs per member per month Average administration cost per beneficiary per month Relevant healthcare expenditure as a % of gross contributions 95.48% 51.86% 92.50% Administration expenses as a % of gross contributions 4.52% 6.81% 4.61% Average age of beneficiaries at 31 December Beneficiaries per member at 31 December Pensioner / member ratio 31 December 15.44% % Average accumulated funds per member at 31 December

10 Report of the Board of Trustees 13. Operational statistics Operational statistics for the scheme 2015 R 2014 R Average accumulated funds per member 50,038 44,068 Breakdown of total amounts paid to administrator: - staffing cost 4,659,100 4,358,613 - administration fee 460, ,311 Return on investments as a percentage of investments 5.90 % 5.79 % The investment income for the current financial year is R 9.6 million as compared to R 8.5 million in The total investments and cash and cash equivalents for 2015 amounted to R 163 million as compared to R 146 million at the end of Solvency ratio In terms of regulation 29(2) of the Medical Schemes Act 131 of 1998, as amended, the Scheme must maintain a 25% solvency ratio. The accumulated funds (solvency) ratio is calculated on the following basis: Total members' funds per statement of financial position 160,222, ,738,402 Less: Revaluation Reserve - - Accumulated Funds per regulation ,222, ,738, R 2014 R Gross Contribution 172,409, ,625,779 Solvency margin = Accumulated funds / Gross contribution income x 100% % % Reserve accounts The scheme does not have any reserve accounts. Outstanding claims provision The basis of calculation of the outstanding claims provision is disclosed in Note 6 to the annual financial statements. 14. Actuarial Services The Scheme s actuaries have been consulted in the determination of the contribution and benefit levels, as well as in the calculation of the provision for outstanding claims (IBNR). 15. Events After Statement Of Financial Position Date No events have occurred between the statement of financial position date and the date of approval of these financial statements that have any material effect on the scheme. 16. Related party Transactions No trustee remuneration was paid by the Scheme during the year. Refer to the related party transactions disclosure note 17 to the annual financial statements. 9

11 Report of the Board of Trustees 17. Investments in and Loans to Participating Employers of Members of the Medical Scheme and to other Related Parties The Scheme holds no investments in, nor has it made loans to, the participating employer of Scheme members, or other related parties. 18. Audit Committee An Audit committee has been established in accordance with provisions of the Act. The Committee is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. The committee consists of six members of which three are members of the Board of Trustees.The majority of members, including the chairperson, who is independent, are not officers of the Scheme. In accordance with the provisions of the Act, the primary responsibility of the Committee is to assist the Board of Trustees in carrying out its duties relating to the medical scheme s accounting policies, internal control systems and financial reporting practices. The external and internal auditors formally report to the Committee on critical findings arising from audit activities. The Committee presently comprises: an Employer Trustee, a Member Trustee and Independent members, ie the Group Financial Manager, Internal Audit official of Rand Water and an Independent chairperson. No remuneration is paid to the members of the Committee by the Scheme with an exception of the independent chairperson of the Audit committee who is remunerated on an hourly basis for meetings attended. 19. Pricing And Investment Committee Pricing and Investment committee has been established in accordance with provisions of good corporate governance. The Committee is mandated by the Board of Trustees through written terms of reference as to its memebership, authority and duties. The committee consists of four members of the Board of Trustees. The primary responsibility of the Commmittee is to assist the Board of Trustees in carrying out its duties relating to the Scheme's investments and benefit pricing. No remuneration is paid to members of the Committee by the Scheme. 20. Non-compliance with the Act The following areas of non-compliance with the Medical Schemes Act No 131 of 1998, as amended, were identified during the course of the annual financial year: Non-compliance with Section 26(7) of the Act- Contributions not received within three days of becoming due Nature and cause of non-compliance Section 26 (7) states that: All subscriptions or contributions shall be paid directly to a Medical Scheme not later than three days after payment thereof becomes due". Possible impact of the non-compliance Late payment may result in a loss of interest to the Scheme for the number of days that payment was late. This amount would however not be considered significant, due to the short duration of the contributions being outstanding and the small value of such contributions in the context of the total contributions receivable. Contributions outstanding were collected via the debit order within first 3 business days of 2016, effectively leaving a small balances of debit orders rejected. Corrective course of action adopted to ensure compliance, including timing of corrective action This non-compliance is due to a third contributed by pensioner members, as the two thirds would have been received on time from the employer. The non-compliance represents 0.025% of contribution income. The scheme intends to benchmark with other medical schemes for a solution relating to timeous collections of contributions. 10

12 Report of the Board of Trustees Non-compliance with Section 59(2) of the Act- claims not paid within thirty days of becoming due Nature and cause of non-compliance According to the Medical Aid Scheme act, No. 131 of 1998, medical scheme shall, in the case where an account has been rendered, subject to the provisions of this Act and the rules of the medical scheme concerned, pay to a member or a supplier of service, any benefit owing to that member or supplier of service within 30 days after the day on which the claim in respect of such benefit was received by the medical scheme. Possible impact of the non-compliance These could result in valid claims not paid by the scheme or possible interest charged to the scheme. Corrective course of action adopted to ensure compliance, including timing of corrective action Due to change of managed healthcare service provider, migration became a challenge hence the delay of paying claims within 30 days period. The scheme is monitoring payments of claims received and system intergration is managed via implementation project, currently all claims received are timeously paid. There are processes which are currently under implementation to ensure compliance in this regard. Non-compliance Section 35(8)a Investments in Employers, Administrators Nature and cause of non-compliance The Scheme holds shares in ultimate holding companies of Medical Scheme Administrators which is prohibited in terms of Section 35(8)(c) of the Act. During the year a number of shares were held in Netcare Limited and MMI Holdings. Possible impact of the non-compliance Non-compliance with the Medical Schemes Act. Corrective course of action adopted to ensure compliance, including timing of corrective action The Scheme has already applied for exemption from the provisions of section 35(8) and has been granted to the Scheme by the Council of Medical Schemes. 21. Trustee Meetings The Board of Trustees meet regularly and have additional meetings as and when the need arises. No trustee remuneration is paid by the Scheme including sub- committees with an exception of the independent chairperson of the Audit committee who is remunerated on an hourly basis for meetings attended. The following schedule sets out Board of Trustee meeting attendance and attendance by members of Board sub-committees: 11

13 Report of the Board of Trustees Trustee/Subcommittee member Pricing & investment committee meetings attended Pricing & Audit investment committee committee meetings meetings heldattended Audit Board of committee trustees meetings heldmeetings attended Ms S Molokoane-machika 6 6 Ms NSN Sithole Ms B Bam Ms NGJ Mbileni Ms W Mohamed *^Mr J Arnold 2 6 *^Mr E Kayster 2 6 *^ Mr R Luther 2 6 *^Mr J Ramasike 2 6 *^Mr S Mosia 2 6 *Ms M Madisha *Ms E Maartens 3 6 *Ms N Bangani *Mr M Kgwale 2 6 *Mr G Pierce 3 6 **Mr C Raftopoulos 3 6 **Mr C Hall 2 6 **Ms S Miller **Mr E M Ngobe ~Ms G Chikwakwa 2 2 ~Ms N Phangwa 1 2 ~Mr Z Myeza 2 2 * Newly appointed *^Newly appointed Alternate ** Resigned during the year ~ Sub-committee member not a trustee No separate sub-committees were appointed during the year under review Board of trustees meetings held. CHAIRPERSON TRUSTEE PRINCIPAL OFFICER Date: 15 April

14 Statement of Financial Position as at 31 December, 2015 Figures in Rand Note(s) Assets Current Assets Trade and other receivables 3 4,253,817 2,557,594 Cash and cash equivalents 4 65,804,640 62,977,969 Investments 5 97,556,354 83,034, ,614, ,569,931 Funds and Liabilities Accumulated funds 160,222, ,738,402 Current Liabilities Outstanding Claims Provision 6 3,250,000 4,750,000 Trade and other payables 7 4,142,001 4,081,529 7,392,001 8,831,529 Total funds and Liabilities 167,614, ,569,931 13

15 Statement of Profit or Loss and Other Comprehensive Income Figures in Rand Note(s) Restated Risk contribution income 8 172,409, ,625,779 Relevant healthcare expenditure (153,584,568) (142,940,946) Risk claims incurred 9 (150,748,931) (140,835,420) Accredited managed healthcare services 10 (2,682,498) (1,993,578) Net income/(expense) on risk transfer arrangements 11 (153,139) (111,948) Risk transfer arrangement fees/premiums (507,461) (477,349) Recoveries from risk transfer arrangements 354, ,401 Gross healthcare result 18,825,247 19,684,833 Administration expenditure 12 (7,984,364) (7,494,886) Net healthcare result 10,840,883 12,189,947 Other income Investment income 13 9,643,525 8,455,586 Surplus for the year 20,484,408 20,645,533 Other comprehensive income - - Total comprehensive income for the year 20,484,408 20,645,533 14

16 Statement of Changes in Funds and Reserves Figures in Rand Accumulated funds Total equity Opening balance as previously reported 119,092, ,092,869 Net Surplus for the year 20,645,533 20,645,533 Total comprehensive income for the year 20,645,533 20,645,533 Balance at 01 January, ,738, ,738,402 Net Surplus for the year 20,484,408 20,484,408 Other comprehensive income - - Net Surplus for the year 20,484,408 20,484,408 Balance at 31 December, ,222, ,222,810 15

17 Statement of Cash Flows Figures in Rand Note(s) Cash flows from operating activities Cash receipts from customers 172,409, ,625,779 Cash paid to suppliers and employees (164,704,683) (160,171,432) Cash generated from operations 14 7,705,132 2,454,347 Interest income 9,643,525 8,455,586 Net cash from operating activities 17,348,657 10,909,933 Cash flows from investing activities Sale of financial assets (14,521,986) 1,419,009 Net cash from investing activities (14,521,986) 1,419,009 Total cash movement for the year 2,826,671 12,328,942 Cash at the beginning of the year 62,977,969 50,649,027 Total cash at end of the year 4 65,804,640 62,977,969 16

18 Accounting Policies 1. Significant Accounting Policies The following are the significant accounting policies applied in the preparation of these annual financial statements. These policies comply with International Financial Reporting Standards (IFRS). These policies have been consistently applied to all the years presented, unless otherwise stated. The format of the Statement of comprehensive income has been amended to conform to the requirements set out in Circular 23 of 2009 and Circular 41 of 2012, issued by the Council for Medical Schemes. 1.1 Basis of preparation Statement of Compliance The annual financial statements are prepared in accordance with manner required by Medical Schemes Act no 131 of 1998, or amended (the Act) International Financial Reporting Standards (IFRS) as defined by IAS 1. Basis of measurement The annual financial statements are prepared on the going-concern basis and using the historical cost basis, except for available-for-sale investments, which are carried at fair value. Functional and presentation currency These financial statements are presented in Rand, which is the Scheme's functional and presentation currency. All the financial information presented in Rand has been rounded to the nearest Rand. Use of estimates and judgements The preparation of annual financial statements, in conformity with IFRS, requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Scheme s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the annual financial statements are disclosed in Note 6. 17

19 Accounting Policies 1.2 Financial assets The Scheme classifies its financial assets into the following categories: Available-for-sale financial assets Loans and receivables The classification depends on the purpose for which the financial assets were acquired. Financial assets are recognised on the Scheme s statement of financial position when the Scheme becomes a party to the contractual provisions of the instrument. 1.3 Measurement Financial instruments are initially measured at fair value. Subsequent to initial recognition, these instruments are measured as set out below: 1.4 Available-for-sale investments Investments to be held for an indefinite period of time, which may be sold in response to needs in liquidity or changes in market conditions, are classified as available-for-sale investments. These are included in non-current assets unless the Trustees have the express intention of holding the investment for less than 12 months from the financial position date or unless they will need to be sold to raise working capital in which case they are included in current assets. All purchases and sales of investments are recognised on the trade date, which is the date that the Scheme commits to purchase or sell the asset. The cost of purchases includes transaction costs. Investments in available-for-sale investments are subsequently carried at fair value. Unrealised gains and losses arising from changes in the fair value of the available-for-sale investments are recognised in funds and reserves in the available-for sale reserve and are not taken to the statement of comprehensive income. Once an investment is sold, the realised fair value gain or loss on the changes in the fair value of the investments is recognised in the statement of comprehensive income. Subsequent to initial recognition, investments are measured at fair value and changes therein, are recognised directly in funds and reserves. 1.5 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after reporting date. These are classified as non-current assets. The Scheme's loans and receivables comprise trade and other receivables in the statement of financial position. These financial assets are subsequently measured at amortised cost using the effective interest rate method, less any impairment losses. 1.6 Trade and other receivables Trade and other receivables are measured on initial recognition at fair value, and are subsequently measured at amortised cost, using the effective interest method. 1.7 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term liquid investments that are readily convertible within a three month period to a known amount of cash and are subject to an insignificant risk of change in value, net of bank overdrafts. Cash and cash equivalents are measured at amortised cost using the effective interest rate method. 18

20 Accounting Policies 1.8 Trade and other payables Trade and other payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities as payment is due within one year or less. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 1.9 Derecognition of financial assets and liabilities The Scheme ceases to recognise a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Scheme neither transfers nor retains substantially all the risks and the rewards of ownership and continues to control the transferred asset, the Scheme recognises its retained interest in the asset and an associated liability for any amounts it may have to pay. Where the risks and rewards of ownership of the financial asset is substantially retained, the financial asset continues to be recognised. The Scheme also ceases to recognise a financial liability when the contractual obligations are discharged or expire Disclosure of interests in other entities The scheme discloses significant judgements and assumptions made in determining whether the scheme controls, jointly controls,significantly influences or has some other interests in other or structured entities Fair value measurements Level 1: Quoted market price (unadjusted in an active market for identical instruments). Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued by using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. The Scheme's financial instruments are measured at fair value at the end of the reporting period Contribution income Contributions on member insurance contracts are accounted for monthly when their collection in terms of the insurance contract is reasonably certain. There are no savings plan contributions. The earned portion of net contributions received is recognised as revenue. Net contributions are earned from the date of attachment of risk, over the indemnity period on a straight-line basis. Medical insurance contracts Contracts under which the Scheme accepts significant medical insurance risk from another party (the member) by agreeing to compensate the member or other beneficiary if a specified uncertain future event (the insured event) adversely affects the member or other beneficiary are classified as medical insurance contracts. the contracts issued compensate the scheme's members for healthcare expenses incurred Relevant healthcare expenditure Relevant healthcare expenditure consists of net claims incurred, accredited managed care services and net income or expense from risk transfer arrangements. 19

21 Accounting Policies 1.14 Claims incurred Gross claims incurred comprise the total estimated cost of all claims arising from healthcare events that have occurred in the year and for which the scheme is responsible, whether or not reported by the end of the year. Net claims incurred represent claims incurred net of discounts received and recoveries from members for copayments after taking into account recoveries from third parties Accredited Managed care:management services These expenses represent external expenditure and the amounts paid or payable to third party administrators, related parties and other third parties for managing the use, costs and quality of healthcare services to the Scheme. Such costs are expenses as incurred Risk transfer arrangements Risk transfer arrangements are contractual arrangements whereby a third party undertakes to indemnify the Scheme against all or part of the loss that the Scheme may incur as a result of carrying on the business of a medical scheme. Risk transfer arrangements do not reduce the Scheme's primary obligation to its members and their dependants. The arrangement only decrease the loss the Scheme may incur as a result of carrying on the business of a medical scheme. Risk transfer arrangement fees (including managed care: managed healthcare services) are recognised as an expense over the indemnity period on a straight-line basis. The claims incurred under member insurance contracts and the equivalent claims recoveries are presented in the statement of comprehensive income on a gross basis. Amounts recoverable under such contracts are therefore recognised in the same year as the related claims. Where applicable the claims incurred liability under risk transfer arrangements and the equivalent receivable are also presented in the statement of financial position on a gross basis. Only contracts that give rise to a significant transfer of insurance risk are accounted for as insurance. Assets relating to risk transfer arrangements include the balances due under risk transfer arrangements for outstanding claims provision and claims reported not yet paid. Amounts recoverable under risk transfer arrangements are estimated in a manner consistent with the outstanding claims provisions, claims reported not yet paid and settled claims associated with the risk transfer arrangement. Amounts recoverable under risk transfer arrangements are assessed for impairment at each statement of financial position date. These assets are deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition that the Scheme may not recover all amounts due and that the event has a reliable measure of the impact on the amounts that the Scheme will receive under the risk transfer arrangement. The Scheme gathers objective evidence that a risk transfer arrangement asset is impaired using the same process adopted for financial assets held at amortised cost. The impairment loss is also calculated following the same method used for these financial assets Road Accident Fund(RAF) The medical scheme has no direct relationship with the RAF. Receivables are therefore raised for amounts ceded by members once the medical scheme is notified of the amount to be paid over and the RAF has indicated that the claim is ready for payment, because it is only at this time that the asset can be reliably measured. Receivables from the RAF are tested for possible impairment despite the RAF's notification of payment of the claim. To the extent that the asset cannot be reliably measured,it is disclosed as a contingent asset. 20

22 Accounting Policies 1.18 Allocation of income and expenditure to benefit options The following items are directly allocated to benefit options: Contribution income; Claims incurred Net income/(expense) on risk transfer arrangement fees; Managed care: management services Administration fees; and Investment income 1.19 Investment income Interest is recognised on a yield to maturity basis, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Scheme Liabilities and related assets under the liability adequacy test At financial position date the liability for insurance contracts is tested for adequacy by discounting current estimates of all future contractual cash flows, including related cash flows such as claims handling costs, and comparing this amount to the carrying value of the liability net of any related assets. Where a shortfall is identified, an additional provision is made and the Scheme recognises the deficiency in the statement of comprehensive income Impairment losses Financial Assets The carrying amounts of the Scheme's financial assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. This can be caused by providers being liquidated or members deceased. If any such indication exists, the asset s recoverable amount is determined. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. The Scheme first assesses whether objective evidence of impairment exists, for financial assets that are individually significant, such as service provider debtors. In the case of assets which are not individually significant, such as contribution debtors, financial assets are grouped on the basis of similar credit characteristics, such as asset type and past-due status. These characteristics are used in the estimation of future cash flows recoverable. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, if no impairment loss had been recognised. Reversal of impairment The impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in the recoverable amount can be objectively related to an event occurring after the impairment loss was recognised. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined,if no impairment loss had been recognised. 21

23 Notes to the Annual Financial Statements 2. New Standards, amendments and interpretations issued and effective in 2014 and relevant to scheme 2.1 Standards and interpretations effective and adopted in the current year In the current year, the Scheme has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: IFRS 9 Financial Instruments IFRS 9 issued in November 2009 introduced new requirements for the classification and measurements of financial assets. IFRS 9 was subsequently amended in October 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in November 2013 to include the new requirements for general hedge accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a)impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a "fair value through other comprehensive income" (FVTOCI) measurement category for certain simple debt instruments. Key requirements of IFRS 9: All recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the outstanding principal are generally measured at amortised cost at the end of subsequent reporting periods. Debt instruments that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on outstanding principal, are measured at FVTOCI. All other debt and equity investments are measured at fair value at the end of subsequent reporting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income with only dividend income generally recognised in surplus or deficit. With regard to the measurement of financial liabilities designated as at fair value through surplus or deficit, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of the liability is presented in other comprehensive income, unless the recognition of the effect of the changes of the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in surplus or deficit. Under IAS 39, the entire amount of the change in fair value of a financial liability designated as at fair value through surplus or deficit is presented in surplus or deficit. In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. It is therefore no longer necessary for a credit event to have occurred before credit losses are recognised. The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been replaced with the principal of an "economic relationship". Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity's risk management activities have also been introduced. The effective date of the standard is for years beginning on or after 01 January,

24 Notes to the Annual Financial Statements IFRS 15 Revenue from Contracts with Customers IFRS 15 supersedes IAS 11 Construction contracts; IAS 18 Revenue; IFRIC 13 Customer Loyalty Programmes; IFRIC 15 Agreements for the construction of Real Estate; IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue - Barter Transactions Involving Advertising Services. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: Identify the contract(s) with a customer Identify the performance obligations in the contract Determine the transaction price Allocate the transaction price to the performance obligations in the contract Recognise revenue when (or as) the entity satisfies a performance obligation. IFRS 15 also includes extensive new disclosure requirements. The effective date of the standard is for years beginning on or after 01 January