TELEPHONE NUMBER/S: EXTERNAL AUDITORS: Auditor-General. BANKERS: Absa

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2 KWAZULU-NATAL FILM COMMISSION S GENERAL INFORMATION REGISTERED NAME: KwaZulu-Natal Film Commission PHYSICAL ADDRESS: 22 Dorothy Nyembe Street, 101 Marine Building, 1st Floor, Durban POSTAL ADDRESS: P O Box 5274, Durban, 4000 TELEPHONE NUMBER/S: ADDRESS: info@kwazulunatalfilm.co.za WEBSITE ADDRESS: EXTERNAL AUDITORS: Auditor-General BANKERS: Absa COMPANY/BOARD SECRETARY: STATUCOR LIST OF ABBREVIATIONS/ACRONYMS AGSA MEC BBBEE CEO CFO PFMA TR MTEF SMME SCM KZN KZNFC EDTEA Auditor-General of South Africa Member of Executive Council Broad-Based Black Economic Empowerment Chief Executive Officer Chief Financial Officer Public Finance Management Act Treasury Regulations Medium Term Expenditure Framework Small, Medium and Micro Enterprises Supply Chain Management KwaZulu-Natal KwaZulu-Natal Film Commission Economic Development, Tourism and Environmental Affairs Tourism photos courtesy of Tourism KwaZulu-Natal Design and layout by ARTWORKS Communications

3 Contents PART A: GENERAL INFORMATION 2 Foreword by the MEC for Economic Development, Tourism and Environmental Affairs 3 Foreword by the Chairperson 4 Chief Executive Officer s Overview 5 Statement of Responsibility and confirmation of Accuracy for the Annual Report 7 STRATEGIC OVERVIEW 8 Vision 8 Mission 8 Values 8 Legislative and Other Mandates 8 Organisational Structure 10 PART B: PERFORMANCE INFORMATION 11 Auditor s Report: Predetermined Objectives 12 Situational Analysis 13 Service Delivery Environment 13 Organisational Environment 13 Key Policy Developments and Legislative Changes 13 Strategic Outcome Oriented Goals 13 Performance Information By Programme 14 Programme 1: Administration 14 Programme 2: Transformation 15 Programme 3: Human Capital Development 15 Programme 4: Investment Facilitation 16 Programme 5: Promotion and Marketing 17 PART C: GOVERNANCE 18 Introduction 19 Portfolio Committees 19 Executive Authority 19 The Accounting Authority 19 Risk Management 21 Internal Control Unit 21 Internal Audit and Audit Committees 21 Compliance with Laws and Regulations 22 Audit Committee Report 23 PART D: HUMAN RESOURCE MANAGEMENT 24 Introduction 25 Human Resource Oversight Statistics 26 PART E: FINANCIAL INFORMATION 27 Report of the External Auditor 29 Annual Financial Statements 34 1

4 PART A GENERAL INFORMATION

5 Foreword by the MEC for Economic Development, Tourism and Environmental Affairs michael mabuyakhulu (mpp) MEC for Economic Development, Tourism AND ENVIRONMENTAL AFFAIRS The KwaZulu-Natal Film Commission Act No. 3 of 2010 was promulgated to give effect to the establishment of the KwaZulu-Natal Film Commission. The prioritisation of the film industry as a strategic sector in the country and in our province is due to two key reasons. Firstly the economic indicator of 2.89 for each Rand spent on the Sector provides for substantial spins off to the peripheral industries that support film. This includes many SMEs and micro businesses (e.g. catering, carpenters, makeup artists, designers) which are considered crucial for job creation in the province. Secondly the sectors brings about social cohesion not only through sharing cultural and historical stories of the past but by creating an understanding and respect for the various rich cultures present in the country and in the province. The province has a significant opportunity to grow this sector based on its location offerings, talent and local incentives. The support programmes will enhance the capabilities of local emerging filmmakers to develop the required skills to eventually compete on an international level. The Zulu story, unique to our province, is rich in its own making and whilst it will attract the international audience it is equally attractive to our youth in terms of retaining our rich cultural heritage. The KZN Film Commission has been mandated to provide the necessary support to develop the required skills and infrastructure to improve the region s competitiveness and attract world class productions. As the shareholder, I will ensure that the necessary policy directives and support is provided to ensure that the legislated mandate is adequately resourced in order to be delivered against. The first few months of operation have allowed the executive Importantly, too, our province is blessed with no fewer than two World Heritage Sites, the ecologically sensitive isimangaliso Wetland Park and the ukhahlamba-drakensberg Park. Our unique selling point is that of accessibility as all of these experiences are within a mere two-hour commute of Durban and its new King Shaka International Airport. and Board to assess and develop the appropriate strategy and operational systems to respond to the needs of the industry. Ongoing interaction with relevant stakeholders will be encouraged as such plans and systems are finetuned. We look forward to seeing great strides this year in developing our unique KZN story and wish the entity well in its first year of operations. Michael Mabuyakhulu MEC for Economic Development, Tourism and Environmental Affairs 3

6 Foreword by the Chairperson Welcome Msomi Chairperson The KwaZulu-Natal Film Commission started operating in October 2013 with the appointment of the Chief Executive Officer. The focus of the initial five months was to establish a sound organisation that would operate independently of the shareholder s department. This required the development of the annual performance plan which would guide the strategic direction and resource requirements of the organisation. The strategic direction of the entity is guided by the underlying legislation and the mandate provided by our shareholder the honourable MEC for Economic Development, Tourism and Environmental Affairs. The strategic goals for the organisation during this reporting period focused on operational set up and initiating the interaction with international stakeholders in creating an awareness of the province and building strategic relationships with the industry stakeholders. The 2014 financial year s strategy has been shaped following a detailed strategic planning session with the Board, the executives and the shareholder representatives. The focus will be on: Stable operational effectiveness; Stakeholder engagement and relationship building; Promoting, marketing and branding our province and organisation; KwaZulu-Natal local content development and production; and Human capital development with a strong emphasis on supporting previously disadvantaged individuals and communities throughout the above-mentioned focal areas. The Board is encouraged by the development and The strategic goals for the organisation during this reporting period focused on operational set up and initiating the interaction with international stakeholders in creating an awareness of the province and building strategic relationships with the industry stakeholders. achievements obtained thus far in a relatively short span of time with limited resources. The need to begin service delivery is clearly evident by the influx of enquiries and meetings held with various industry stakeholders with the executives. The Board will continue to support the executives in concise decision-making and strategic guidance on policy matters. Welcome Msomi Chairperson 4

7 Chief Executive Officer s Overview Carol Coetzee Chief Executive Officer The KZN Film Commission received a budget of R3.5m from the Department of Economic Development, Tourism and Environmental Affairs on the 28th of February 2014, at which time the entity was able to operate independently from the department. The proceeding five months entailed: The appointment of the Chief Executive officer (1 October 2013) and three executives (1 February 2014); Development and approval of financial and operational policies; Development of critical operational strategies such as the marketing strategy and funding policy; Procuring and installing appropriate financial management systems; Development of an interim performance plan and budget to complete the setup of the entity which the department initiated; Engagement with stakeholders at a local and international level; Obtaining the required approvals from the relevant treasuries in order to operate within the ambit of the Public Finance Management Act; Securing critical services such as financial management support and appointment of internal auditors; and Establishment and induction of Board and committees of the Board. With regards to supply chain management, the function was performed by the Department of Economic Development, Tourism and Environmental Affairs for the first five months of operations. The entity therefore procured limited goods and services in the month of March when funding was made available directly to the entity. Adequate policies and systems were in place with no immediate challenges being experienced. The need for additional personnel to strengthen the governance has been prioritised with appropriate interim measures having been put in place and the development of a supplier database is underway. No unsolicited bids were accepted during the period under review. The funding received from the department was utilised in the month of March for specific purposes in the completion of the setup of the entity and for day-to-day operational costs of the organisation and Board. The financial statements reflect additional expenditure which was incurred on our behalf by the department during the five months mentioned above. These expenses related to the salaried expenses of the entity, marketing and branding materials and professional fees. In relation to the assets procured in the establishment of the entity these have been transferred to the entity at original purchase cost. Given the start date of the entity the annual financial statements do not reflect any comparative figures for the previous financial year. An amount of R1.8m remains unspent at the end of the financial year which relates to the procurement of a server and payment of accruals for the entity. The procurement process was initiated by the department and concluded in May An application for a rollover has been submitted to the necessary authorities and approval received. The annual performance plan tabled in April 2014 presents the strategic focus of the entity over the Medium Term Expenditure Framework. Whilst the first few months of the financial year will be establishing additional systems to support the various initiatives and resourcing the entity based on the revised organisational structure, significant service delivery will take place during the third and fourth quarters of the 2014 year. 5

8 ICONMANN Round Table in Hollywood. In order to deliver on the stated strategic outcomes, it will be essential to ensure that the appropriate resources are secured both from a financial and human resources aspect. Certainty with regards to the funding allocation could impact on the planning and delivery capabilities of the entity and will be a key focus in securing the appropriate funding from the shareholder. Given that this is a new entity there are currently no new proposed activities nor are there any discontinued activities. This financial year will provide a baseline on the response to our programmes from the industry and could potentially see a review of the funding requirements and allocation requests. The critical challenge will be to demonstrate the value the film industry brings to the economy of KwaZulu-Natal and its contribution to the achievement of the Provincial Growth and Development Strategy in order to secure additional funding in the following financial years. The film sector has shown phenomenal growth and is projected to continue growing at an average of 7% with an economic multiplier effect of 2.89 (which is considered a conservative estimate based on limited data available on the sector). The electronic home video segment is forecasted to grow 24% by 2017 according to the latest report by PWC [4th Annual Edition: South African entertainment and media outlook: ]. Based on the interactions with local and international markets there is a significant interest in the province as a filming destination and specific programmes are focusing on ensuring our international competitiveness. Certain of these programmes especially, those focusing on human capital, will be realised over the medium to long term whilst an immediate impact is expected through the funding policies. The achievement of our annual performance plan in the new year will be largely dependent on the partnerships we must establish and maintain with our private and public sector partners. Integration and co-ordination of the various programmes and initiatives of government will enhance our capabilities and maximise the impact on the filming sector. Given the duration of operations there have been no internal audits undertaken on behalf of the entity. The provincial treasury has been appointed to perform the functions of internal audit which will commence in the new financial year based on the outcome of the risk assessment of the entity. The 2013/2014 annual financial statements will be audited by the office of the Auditor-General. There have been no significant events which have taken place after the reporting date. The establishment of the entity has been an interesting challenge and much success has been achieved over a short period of time. This must be ascribed to the fact that we have received significant support firstly from our shareholder, the MEC Mabuyakhulu, and his department, and secondly from our Board and specifically the Chairperson, Mr Msomi. I wish to thank my team for their commitment and loyalty, who have worked tirelessly in the establishment of the entity and look forward to fully engaging in the new year. Carol Coetzee Chief Executive Officer 6

9 Statement of Responsibility and Confirmation of Accuracy for the Annual Report To the best of my knowledge and belief, I confirm the following: All information and amounts disclosed in the annual report is consistent with the annual financial statements audited by the Auditor-General. The annual report is complete, accurate and is free from any omissions. The annual report has been prepared in accordance with the guidelines on the annual report as issued by National Treasury. The Annual Financial Statements (Part E) have been prepared in accordance with the Generally Recognised Accounting Practice standards applicable to the public entity. The accounting authority is responsible for the preparation of the annual financial statements and for the judgements made in this information. The accounting authority is responsible for establishing and implementing a system of internal control that has been designed to provide reasonable assurance as to the integrity and reliability of the performance information, the human resources information and the annual financial statements. The external auditors are engaged to express an independent opinion on the annual financial statements. In our opinion, the annual report fairly reflects the operations, the performance information, the human resources information and the financial affairs of the public entity for the financial year ended 31 March Yours faithfully Chief Executive Officer Carol Coetzee Date: 30 May 2014 Chairperson of the Board Welcome Msomi Date: 30 May

10 Strategic Overview Vision The KwaZulu-Natal Film Commission s vision is to position KZN as a globally competitive, diverse and sustainable choice film destination. Mission To facilitate effective support throughout the value chain to the local and international film industry stakeholders in order to create opportunities and grow the KwaZulu-Natal film industry. Values The values of the KZN Film Commission (KZNFC) are aligned to the Provincial Citizen s Charter as follows: Discipline and professionalism Transparency Integrity Accountability and responsibility Fairness/equity Social responsibility and cohesion Legislative and Other Mandates Constitutional mandate The KZNFC is mandated through the powers and responsibilities delegated by the Premier to the respective Member of the Executive Council (in relation to film). In KZN this responsibility falls within the Economic Development, Tourism and Environmental Affairs portfolio. At a national level, the primary legislative mandate of the National Department of Arts and Culture (under which portfolio this sector falls) comes from the Constitution of the Republic of South Africa, which states that: Section 16 (1) Everyone has the right to freedom of expression, which includes: Freedom of press and other media; Freedom to receive or impact information or ideas Freedom of artistic creativity; and Academic freedom and freedom of scientific research, and Section 30 Everyone has the right to use language and to participate in the cultural life of their choice, but no one exercising these rights may do so in manners inconsistent with any provision of the Bill of Rights. 8

11 Legislative Mandate The KZNFC is governed by various legislation, the first being the KwaZulu-Natal Film Act No. 3 of 2010 which established the KwaZulu-Natal Film Commission (KZNFC) and has as part of its objectives: a) To promote and market the Province as a global destination for film production; b) To develop, promote and market, locally, nationally and internationally, the film industry in the Province; c) To facilitate investment in the film industry in the Province; d) To provide and encourage the provision of opportunities for persons, especially from disadvantaged communities, to enter and participate in the film industry in the Province; e) To address historical imbalances in the infrastructure and in the distribution of skills and resources in the film industry in the Province; and f) To contribute to an enabling environment for job creation in the film industry in the Province. The other legislation which governs the operations of the entity include: The Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996) Public Finance Management Act (Act No. 1 of 1999, as amended) National Treasury Regulations 2001 The National Film and Video Foundation Act 1997 Promotion of Access to Information Act (Act No. 2 of 2000) Preferential Procurement Policy Framework Act (Act No. 5 of 2000) Intergovernmental Relations Framework Act (Act No. 13 of 2005) Policy mandates The MEC for the Department of Economic Development, Tourism and Environmental Affairs is responsible for defining the policy directives of the entity. The Board is responsible for approving the operational policies of the entity dealing with the financial, human resources and operational matters. 9

12 Organisational Structure Accounting Authority/ Board CEO Board governance/secretariat Stategic oversight COO CFO Marketing & Promotion Communications Investment Promotion Fund Management Financial Management Human Resources Information Technology Corporate Services J Motsepe COO K Bogatsu CFO 10

13 PART B PERFORMANCE INFORMATION

14 Auditor s Report: Predetermined Objectives The AGSA currently performs the necessary audit procedures on the performance information to provide reasonable assurance in the form of an audit conclusion. The audit conclusion on the performance against predetermined objectives is included in the report to management, with material findings being reported under the Predetermined Objectives heading in the report on other legal and regulatory requirements section of the auditor s report. Refer to page 29 of the Report of the Auditors Report, published as Part E: Financial Information. 12

15 Situational Analysis Service Delivery Environment The KwaZulu-Natal Film Commission has been in operation for six months since the appointment of the CEO. The entity however, only operated independently from the department on 1 March 2014 following the transfer of the grant to the organisation. The organisation s focus was therefore on the set up of basic systems, policies and procedures to ensure that the funding received from the department was spent in the manner prescribed by the PFMA and in accordance with good corporate practice. The Board held its first meeting in November 2013 wherein the shareholder provided the strategic guidance in terms of his vision for the entity. The Board and executives were then tasked to unpack the vision in terms of measureable programmes that were aligned to the national and provincial priorities of government. The strategy session also provided a platform to understand the current trends in the industry and a thorough SWOT analysis was undertaken to ensure that the programmes being developed will address the challenges and will impact directly on the developmental and transformation agenda of the entity. The film industry in the province lags behind the two leading provinces being Western Cape and Gauteng, which have established infrastructure and human capital. In order to entice producers to our region and thereby retain our talent and skills base and attract investment, provincial incentives will be required to be developed. The 2014/2015 financial year will focus on developing these aspects into tangible projects based on the financial and human resources made available by the department and other partners. Organisational Environment The establishment of the new entity allowed for the design to be aligned to the new strategy developed by the Board and the executives in February. The entity has therefore focused on ensuring that streamlined business processes and policies are developed to enhance the operational effectiveness for the 2013/2014 financial year where it will become fully operational in the second quarter of the financial year. Four employees have been appointed, with a complete organisational design being completed and approved by the Board. Additional resources were appointed on a temporary basis to ensure that fundamental functions could operate within the regulatory environment of the PFMA. Key Policy Developments and Legislative Changes There have been no policy changes with regards to the mandate of the entity. There has however been significant development in terms of establishing all operational policies for the organisation. This included the financial and human resource policies necessary to ensure the independent functioning of the entity from 1 March Additional policies regarding funding of filming projects and a marketing strategy were also presented with the operational policies to the Board for approval during the past three Board meetings. Strategic Outcome Oriented Goals The entity was in operation independently from the department for less than one month of the financial year. The achievements were therefore primarily focused around developing the foundation of basic systems and policies to allow for decision-making and business processes to begin operating. The achievement of the strategic objectives listed below is therefore the focus for the new financial year with the successful finalisation of the financial resources. The progress made against each strategic objective is detailed in the following pages. To operate an effective administrative business process inculcating Governance, Risk and Compliance; To facilitate transformation in the film industry; To facilitate human capital development in the film industry; To facilitate investment promotion into KwaZulu-Natal s filming industry; and To promote and market KZN as a choice film destination. 13

16 Performance Information by Programme The strategic objectives listed on page 13 are allocated to the five programmes and are discussed in more detail below: Programme 1: Administration Programme 2: Transformation Programme 3: Human Capital Development Programme 4: Investment Facilitation Programme 5: Promotion And Marketing Programme 1: Administration Purpose The administration business unit will provide the required services such as financial management, human resource development, information technology, and corporate services. Being the first year in operations, the priorities will be to establish the appropriate policies, systems, business processes and resources to enhance governance, risk management and compliance within the legislative environment whilst enhancing efficiency through business process and control design. Strategic objectives, performance indicators, planned targets and actual achievements Strategic Objective Programme Annual Target Actual Performance Variance Performance Indicators (APP) 2012/2013 To operate an effective administrative business process inculcating Governance, Risk and Compliance Table 1 Audit Outcome Unqualified Due in July 2014 The audit will be completed in July 2014 Turnaround time met per service charter Develop service charters Service charters being developed Effective oversight Board 3 Board 3 through Board Sub-committee - 3 committee meetings Sub-committee 4 Service charters will be completed by 30/04/2014. The focus was on developing the policies and systems Delays in human resources appointments impacted on need for HR committee meeting The entity operated with one employee for a period of four end of March. The design of the organisational structure months with the appointment of additional resources only was delayed until the executives were appointed and hence taking place in February. This as well as the lack of an one less meeting was held with the Human Resource and acquired integrated financial management system impacted Remuneration Committee. on the ability to finalise the service delivery charters by the 14

17 Programme 2: Transformation Purpose The entity will develop programmes to address the various challenges existing in the film industry regarding the lack of transformation. A critical baseline assessment will provide a starting point against which to measure the effectiveness of the various strategic initiatives implemented by the department. This programme cuts across all the programmes of the entity and will be coordinated through the CEO s office. In developing the appropriate programmes, consultation on and alignment with the province s BEE strategy will be taken into consideration. Based on the funding provided by the department for the month of March, focusing on start-up working capital, no funding was provided specifically for this programme and no targets were set in the APP for this financial year. The entity has however engaged with the department s BEE unit to ensure that the internal policies take BEE into consideration and have drafted a BEE scorecard for the entity. The procurement and recruitment policies have specific attention being paid to the transformation agenda of the entity. Furthermore the funding policy which was approved by the Board is directed towards giving preference to the previously disadvantaged individuals and companies in the filming sector in the province. KZNFC bursary students. Programme 3: Human Capital Development Purpose In order to attract producers to the region, we need to provide skilled labour throughout the value chain. This will enable sustainable growth in the sector. The interventions will range from short-term technical training to mediumterm interventions delivering skills in the areas higher up in the value chain. This will require partnerships between the various training institutions and industry to enhance the absorption rate. This will be achieved through the provision of crucial workplace experience. The initial priority will be an assessment of the various training institutions as well as the skills shortage currently being experience by the industry. Strategic objectives, performance indicators, planned targets and actual achievements Strategic Objective Programme Performance Indicators Annual Target (APP) 2012/2013 Actual Performance Variance To facilitate human capital development to enhance availability of skills and create employment opportunities throughout the value chain Number of bursaries 5 8 Additional bursaries were provided as students supported had raised a portion of their own funding and therefore additional funding was available to sponsor more students. Table 2 15

18 Welcome Msomi and Blair Underwood In Hollywood February Round Table discussion with ICONMANN at the PanAfrica Film Festival in February Limited funding was made available given that the entity was operational for one month of the financial year. However every effort was made to secure bursary funding in March for students in a variety of tertiary institutions at various levels of fields in the filming sector in order to begin building a solid base of skills in the province. Programme 4: Investment Facilitation Purpose Trade and Investment KZN has a well-established strategy with regards to investment promotion and will guide the development of an appropriate strategy for the film industry. The key to the success of such a strategy will be: Well packaged, financially viable business opportunities; Targeting specific countries/investors; The identification and linking of local partners to drive transformation opportunities; and Facilitation of the investment process through partnerships documented in an investment protocol, thereby unblocking bureaucratic challenges. Strategic objectives, performance indicators, planned targets and actual achievements Strategic Objective To facilitate and promote business opportunities in the KZN film industry in order to attract Investment Table 3 Programme Performance Indicators No. of business network sessions Annual Target (APP) 2012/2013 Actual Performance Variance 1 2 Based on the response received from industry in Hollywood, two sessions had to be held to ensure effective discussions and interaction 16

19 Meeting with the Opray Winfrey Network. Meeting with the Weinstein Company in Los Angeles. Business networking sessions are critical to promote the region and create relationships with critical stakeholders. The intention is also to gain confidence with producers who would become ambassadors for the KZN Film Commission based on their positive experience in the region. The sessions are also required to establish partnerships in the human capital development programmes in areas such as skills development and exchange programmes. In terms of the engagements held during the year, there is a significant interest in the establishment of a filming studio in the province both from the investor s point of view and from the industry as end consumers of such critical infrastructure. An assessment will be undertaken to confirm both the infrastructure needs of studio facilities, servicing companies, equipment hiring companies as well as the appetite of potential funders. The establishment of new infrastructure is also the ideal platform for transformation deals and KZNFC will facilitate such linkages. Programme 5: Promotion and Marketing Purpose KZN is required to compete with Gauteng and the Western Cape, which have been operating successfully for several years and capture approximately 90% of the market. KZNFC has developed a marketing strategy which identifies and promotes our competitive niche and clearly differentiates the region in terms of our offering. To enhance our locations offering we need to partner with the respective cost drivers of film production to provide further cost incentives. Our first priority was to focus on assessing our competition in order to develop an appropriate marketing strategy. Our focus will now turn to the development of the required legislative databases which will provide essential information to the film industry such as location sites, accommodation venues, servicing companies, funding incentives etc. We will continue with the establishment of partnerships with such cost drivers to enhance our offerings beginning with partnerships with Tourism KZN and entering into charters with the various industries. Based on the funding provided by the department for the month of March, focusing on start-up working capital, no funding was provided specifically for this programme and no targets were set in the APP for this financial year. A marketing strategy was presented and approved by the Board in March which will direct the resources and campaigning in the new financial year. Adequate resources have been allocated to ensure that the entity s strategy is implemented effectively. 17

20 PART C GOVERNANCE

21 Introduction Corporate governance embodies processes and systems by which public entities are directed, controlled and held to account. In addition to legislative requirements based on a public entity s enabling legislation, and the Companies Act, corporate governance with regard to public entities is applied through the precepts of the Public Finance Management Act (PFMA) and run in tandem with the principles contained in the King s Report on Corporate Governance. The provincial legislature, the Executive and the Accounting Authority of the public entity are responsible for corporate governance. Portfolio Committees The public entity began to operate from 1 October The KZNFC has not been requested to attend any portfolio committee meetings to date. The entity will be responsible for reporting to the Economic Development, Tourism and Environmental Affairs Portfolio as well as the Finance Portfolio Committee and the Standing Committee on Public Accounts. Executive Authority The KwaZulu-Natal Film Commission was required to provide the Annual Performance Plan (APP) to the Executive Authority in preparation for the Budget Speech in March The development of the APP included the representation of the shareholder to ensure that the strategic goals and objectives are aligned to the strategic direction of the department. The Accounting Authority Introduction The Board is appointed in terms of the founding legislation of the KZN Film Commission Act. The membership is clearly defined and the responsibilities of the Board are guided by the principles of good corporate governance, which include: Recruitment of the CEO. Provide strategic direction to the organisation. The Board has a strategic function in providing the vision, mission and goals of the organisation. These are determined in combination with the CEO and the executive team. Establish a policy based governance system. The Board has the responsibility of developing a governance system for the business. Provide oversight over the performance of the organisation. Fiduciary duty to protect the interests of the shareholder. The details of the Board members appointed by the MEC for Economic Development, Tourism and Environmental Affairs are as follows, including an indication of their attendance at meetings and remuneration paid during the financial year as contained in the annual financial statements. 19

22 Board of Directors Membership and Attendance: Board Meetings in 2013/2014 Member Designation (in terms of the Public Entity Board structure) Date Appointed Date Resigned 05 November January March 2014 No. of Meetings Attended Mr W Msomi Chairperson 1-Feb-13 n/a P P P 3 Ms N Malange Deputy Chair 1-Feb-13 n/a P P P 3 Mr P Raleigh Member 1-Feb-13 n/a P A P 2 Mr N Khoza Member 1-Feb-13 n/a A P P 2 Mr Z Gwala Member 1-Feb-13 n/a A P P 2 Mr M Mzimela Member 1-Feb-13 n/a P P P 3 Ms N Mthembu Member 1-Feb-13 n/a P P A 2 Ms L Berning Member 1-Feb-13 n/a P P P 3 Mr D Ndlovu Member 1-Feb-13 n/a P P A 2 Ms A Monty Member 1-Feb-13 n/a P A P 2 Ms O Geldenhuys Member 1-Feb-13 7-Feb-14 N/A N/A N/A 0 Ms Bongiwe Ntuli Member 1-Feb Oct-13 N/A N/A N/A 0 Mr C Hamilton Member 1-Feb Oct-13 N/A N/A N/A 0 P = Present A = Apology N/A = Not Applicable Table 4 Membership and Attendance: Audit and Risk Committee in 2013/2014 Member 26 February 2014 No. of Meetings Held No. of Meetings Attended Mr N Khoza (Chairperson) P 1 1 Mr Z Gwala P 1 1 Ms A Monty P 1 1 P = Present A = Apology Table 5 Membership and Attendance: HR Committee in 2013/2014 Member 5 December 2013 to No. of Meetings Held No. of Meetings Attended 19 March 2014 Ms L Berning (Chairperson) P 2 2 Ms N Malange P 2 2 Mr M Mzimela P 2 2 P = Present A = Apology Table 6 Remuneration of Board Members The remuneration of the Board is determined in line with the requirements of the KZN Film Commission Act. The Department is required to determine the remuneration in consultation with the MEC for Finance. A detailed guideline was provided by the department with respect to the relevant amounts to be paid to the Board members on a quarterly basis. o Members representing public entities or other government organisations on the Board do not qualify 20

23 for remuneration. These include: Z Gwala, N Khoza, A Monty and N Mthembu. Board members are reimbursed for their travelling expenses in line with the entity s travel policy. The following amounts were paid to the directors during the financial year (beginning 1 October 2013): Name Remuneration Travel and Total Other Reimbursements Mr W Msomi 463,404 7, ,448 Ms N Malange 128, ,265 Mr P Raleigh 47,068 47,068 Ms L Berning 74,326 6,638 80,964 Mr D Ndlovu 11,767 5,310 17,077 Mr M Mzimela 59,482 59,482 Table 7 Risk Management The public entity began operating in October 2013 with the appointment of the CEO, whilst the CFO and COO were appointed in February The focus was to establish the basic operating systems and policies in order to operate independently from the department which provided the interim support. Internal audit unit of the Provincial Treasury will provide the required internal audit services including the internal audit support. A risk assessment will be undertaken in the new financial year as part of the development of the five-year strategy. This will in turn inform the development of the internal audit plan. Following the assessment will be the development of the risk management policy and strategy. The executive management team are currently forming the IT and Risk Management Committee, which will monitor the recommendations and actions arising out of the risk matrix and register on a quarterly basis. The audit committee will receive quarterly progress reports on the progress being made to mitigate risks and will participate in the risk assessment. Internal Control Unit The internal control unit has not been established given that the public entity was effectively in operation from 1 October with the management of its own systems and business processes regarding finance and human resources effective from 1 March The business processes have been designed to ensure that effective internal controls are in place to enhance accountability and compliance in the organisation. The size of the entity will require the roles of the internal control unit to be incorporated into the roles of key financial personnel whilst enhancing the segregation of duties. Internal Audit and Audit Committees Audit and Risk Committee Responsibility The function of the Audit and Risk Committee is, primarily, to assist the Board in discharging its duties as they relate to the safeguarding of assets, the effective management of liabilities and working capital, the operation of adequate systems of internal control, together with the preparation of financial reports and Annual Financial Statements. Internal Audit (services provided by the Provincial Treasury) operates within an annual and three-year rolling plan approved by the Audit and Risk Committee. The audit coverage includes mainly cyclical audits and focuses on areas considered to be important. The entity commenced its operations from 1 October 2013 and the internal audit will commence their audit work from the new financial year 2014/2015. The Audit and Risk Committee adopted appropriate formal Terms of Reference, as per its Audit Committee Charter and has regulated its affairs in compliance with this Charter in the discharge of its responsibilities as contained therein. Risk Management As part of ongoing efforts to further improve governance, the Audit and Risk Committee has requested the Provincial Internal Audit Unit to conduct a risk assessment which will be completed in the new financial year 2014/2015. The Committee is of the opinion that once the risk management process has been rolled-out, it will significantly improve the strategic management and corporate governance of the entity. We believe that strategy, risk performance and sustainable service delivery are inseparable. Proper risk management will ensure that best practice is implemented and that the core function of the entity remains the focal point, so contributing enormously to service delivery. The Audit and Risk Committee will constantly monitor the roll-out of risk management in order to ensure that the process reaches maturity within a reasonable time. 21

24 Financial Statements The Audit and Risk Committee shall: Examine and review the Annual Financial Statements and interim financial reports with management and the external auditors before filing with regulators, and shall consider whether such documentation is complete and consistent with information known to members of the Committee and reflects appropriate accounting principles; Review with management and external auditors the results of the audit, including any difficulties encountered; Review the Annual Financial Statements and consider whether they are complete, consistent with information known to Committee members and reflect appropriate accounting principles; and Review with management and the external auditors all matters required to be communicated to stakeholders under generally accepted auditing standards. Internal Control The Audit and Risk Committee shall: Consider the effectiveness of the organisation s internal control system, including information technology security and control; Understand the scope of internal and external auditor s review of internal control over financial reporting and obtain reports on significant findings and recommendations, together with management s responses; Review the effectiveness of the internal control systems; Review the control procedures followed by management; Review the controls designed to ensure that assets are safeguarded; Review the Fraud Prevention Plan implemented to prevent and detect fraud; Review risk management and related policies; and Review compliance with prescribed accounting framework. Compliance with Laws and Regulations The Committee reports that it has complied with its responsibilities arising from Section 50(1) of the Public Finance Management Act and Treasury Regulations. The Audit and Risk Committee shall be responsible for: Reviewing the effectiveness of systems for monitoring compliance with laws and regulations and the results of management s investigation and follow-up on any instances of non-compliance; Reviewing processes for communicating the Code of Conduct to personnel and for monitoring compliance therewith; and Obtaining regular updates from management and the organisation s legal counsel regarding compliance matters. The new year will focus on putting in place the fraud prevention plan and systems, and an ethics management programme. The risk assessment will provide the Committee with an overview of the focal points which will be monitored during the year. A review of the newly designed policies and business processes will be undertaken to ensure alignment with legislation whilst ensuring adequate governance and operational effectiveness. 22

25 Audit Committee Report We are pleased to present our report for the financial year ended 31 March Audit Committee Responsibility The Audit Committee reports that it has complied with its responsibilities arising from the Public Finance Management Act and Treasury Regulation The Audit Committee also reports that it has adopted appropriate formal terms of reference as its Audit Committee Charter, has regulated its affairs in compliance with this charter and has discharged all its responsibilities as contained therein, except that we have not reviewed changes in accounting policies and practices. The Effectiveness of Internal Control The system of control is designed to provide cost-effective assurance that assets are safeguarded and that liabilities and working capital are effectively managed. In line with the Public Finance Management Act and King III Report on Corporate Governance requirements, internal audit provides for the Audit Committee and Management process, as well as identification of corrective action and suggested enhancements to controls and process. The entity commenced operations from 1 October 2013, and the controls that have been developed by the entity are supply chain, financial and human resources policies and procedures which were reviewed and approved by the Audit Committee and Approved by the Board. The Audit Plan has been presented and will be rolled out in the financial year 2014/2015. Evaluation of Financial Statements We have reviewed the annual financial statements prepared by the entity and hereby approve the statement presented by the executive. Auditor s Report The Audit Committee concurs and accepts the conclusions of the external auditor on the annual financial statements and is of the opinion that the audited annual financial statements be accepted and read together with the report of the auditor. N Khoza Chairperson of the Audit Committee KwaZulu-Natal Film Commission 29 May

26 PART D HUMAN RESOURCE MANAGEMENT

27 Introduction The establishment of the new entity required the organisational design to talk to the strategic priorities as identified by both the shareholder and the Board. A draft interim structure was presented to the Board in March and was approved pending a review of the longer term resource requirements of the entity. The final structure will be presented to the Board including the prioritised posts to be filled in the 2014/2015 financial year to ensure that service delivery can take place in terms of the annual performance plan. A number of human resource policies were developed in the set up phase of the entity and presented to the Board for approval. These were to enable the entity to begin operating in March 2014 with the minimum required policies in place. The first quarter of the new financial year will focus on finalising all polices and establish the appropriate performance management systems and payroll systems and establishing appropriate employee benefits. The structure will ensure multiskilling and functioning of personnel with a strong emphasis on providing entry points for the interns being employed by the entity through focused programmes. Every effort will be made to operate with a streamlined team to reduce operational administrative costs and direct the budget to key programmes through partners for implementation. 25

28 Human Resource Oversight Statistics Personnel Cost by Programme/Activity/Objective Programme/ Activity/Objective Total Expenditure for the Entity (R 000) Personnel Expenditure (R 000) Personnel Exp. as a % of Total Exp. (R 000) No. of Employees Average Personnel Cost per Employee (R 000) All programmes 4,190 1,199 28% Table 8 Personnel Cost by Salary Band Level Personnel Expenditure (R 000) % of Personnel Exp. to Total Personnel Cost (R 000) No. of Employees Average Personnel Cost per Employee (R 000) Top Management % Senior Management Professional Qualified, Experienced Specialist and Mid Management Skilled Technically Qualified % TOTAL 1, % Table 9 Performance Rewards No performance rewards were granted during the period as employees were recruited in the last quarter of the financial year. Training Costs No training costs were incurred as employees were recruited in the last quarter of the financial year. Employment and Vacancies The draft organisational structure was approved subject to further review in March by the Board based on the resource allocation and strategy of the entity. The review of the structure will be finalised in the first quarter of the financial year with the assistance of the appropriate expertise in organisational design. The appointments made during the year were as follows and represent the only employees of the organisation (there were no resignations during the period under review): CEO 1 October 2014 COO and CFO and Executive Assistant 1 February Labour Relations: Misconduct and Disciplinary Action There were no labour relation matters during the reporting period. Equity Target and Employment Equity Status In line with the development of the organisational structure an employment equity plan will be developed and finalised in the first quarter of the financial year. 26

29 PART E FINANCIAL INFORMATION

30 Financial Statements for the year ended 31 March 2014 KwaZulu-Natal Film Commission Annual Financial Statements for the year ended 31 March 2014 The reports and statements set out below comprise the financial statements presented to the provincial legislature: Index Report of the Auditor-General to the KwaZulu-Natal Legislature on KwaZulu-Natal Film Commission Page Members' Responsibilities and Approval 32 Members of the Board 33 Members Report 34 Statement of Financial Position 35 Statement of Financial Performance 36 Statement of Changes in Net Assets 37 Statement of Cash Flows 38 Accounting Policies 39 Notes to the Annual Financial Statements

31 Financial Statements for the year ended 31 March 2014 Report of the Auditor-General to the KwaZulu-Natal Provincial Legislature on KwaZulu-Natal Film Commission Report on the Financial Statements Introduction 1. I have audited the financial statements of the Film Commission set out on pages 32 to 58, which comprise statement of financial position as at 31 March 2014, the statement of financial performance, statement of changes in net assets and statement of cash flows, as well as the notes, comprising a summary of significant accounting policies and other explanatory information. Accounting Authority s Responsibility for the Financial Statements 2. The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (No.1 of 1999) (PFMA), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor-General s Responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. 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. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the Film Commission as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with SA Standards of GRAP and the requirements of the PFMA. Emphasis of Matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter. Irregular Expenditure 8. The entity incurred irregular expenditure of R as disclosed in note 24 as a result of the contravention of SCM legislation. Additional Matter 9. I draw attention to the matter below. My opinion is not modified in respect of this matter. 29

32 Financial Statements for the year ended 31 March 2014 Unaudited Supplementary Schedules 10. The supplementary information does not form part of the financial statements and is presented as additional information. I have not audited these schedules and, accordingly, I do not express an opinion thereon. Report on Other Legal and Regulatory Requirements 11 In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected programmes presented in the annual performance report, noncompliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters. Predetermined Objectives 12. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected programmes presented in the annual performance report of the entity for the year ended 31 March 2014: Programme 1: Administration on page 14 Programme 3: Human capital development on pages 15 to 16 Programme 4: Investment facilitation on pages 16 to I evaluated the reported performance information against the overall criteria of usefulness and reliability. 14. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury s Framework for managing programme performance information (FMPPI). 15. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. 16. The material findings in respect of the selected programmes are as follows: Administration Usefulness of Reported Performance Information 17. Measurability of Indicators and Targets Performance targets not specific The FMPPI requires the following: Performance targets must be specific in clearly identifying the nature and required level of performance. A total of 33% of the targets were not specific. Performance targets not measurable Performance targets must be measurable. I could not measure the required performance for 33% of the targets. Performance targets not time bound The period or deadline for delivery of targets must be specified. A total of 33% of the targets were not time bound. 18. Reliability of Reported Performance Information Validity, accuracy and completeness The FMPPI requires auditees to have appropriate systems to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievements against planned objectives, indicators and targets. Adequate and reliable corroborating evidence could not be provided for 33% of the targets to assess the reliability of the reported performance information. The auditee s records did not permit the application of alternative audit procedures. 30

33 Financial Statements for the year ended 31 March 2014 Compliance with Legislation 19. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows: Internal Audit 20. The accounting authority did not ensure that the internal audit function was established, as required by section 51 (1)(a)(ii) of the PFMA and treasury regulations and Expenditure Management 21. The accounting authority did not take effective steps to prevent irregular expenditure, as required by section 51(1)(b)(ii) of the Public Finance Management Act. Procurement and Contract Management 22. Goods and services with a transaction value below R were procured without obtaining the required price quotations, as required by treasury regulation 16A6.1. Strategic Planning and Performance Management 23. The proposed strategic plan for was not submitted to the MEG for approval as required by treasury regulation Internal Control 24. I considered internal control relevant to my audit of the financial statements, Part B: Perfromance Information and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted to the findings on the annual performance report and the findings on non-compliance with legislation included in this report. Leadership 25. The accounting authority did not exercise oversight responsibility regarding financial and performance reporting and compliance and related internal controls. In this regard, the accounting authority did not ensure that indicators and targets are specific, measurable and time bound as approved by the relevant executive authority. Governance 26. The accounting authority did not ensure that adequately resourced and functioning internal audit unit that identifies internal control deficiencies is established. Pietermaritzburg 31 July

34 Financial Statements for the year ended 31 March 2014 Members Responsibilities and Approval The members are required by the Public Finance Management Act No. 1 of 1999, to maintain adequate accounting records and are responsible for the content and integrity of the financial statements and related financial information included in this report. It is their responsibility to ensure that the financial statements fairly present the state of affairs of the entity as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with Standards of Generally Recognised Accounting Practice (GRAP). The external auditors are engaged to express an independent opinion on the financial statements and were given unrestricted access to all financial records and related data. The financial statements have been prepared in accordance with the Standards of Generally Recognised Accounting Practice (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board and supported by reasonable and prudent judgments and estimates. The members acknowledge that they are ultimately responsible for the system of internal financial control established by the entity and place considerable importance on maintaining a strong control environment. To enable the members to meet these responsibilities, the members set standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the entity and all employees are required to maintain the highest ethical standards in ensuring the entity s business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the entity is on identifying, assessing, managing and monitoring all known forms of risk across the entity. While operating risk cannot be fully eliminated, the entity endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. The members are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. Going concern The members have reviewed the entity s cash flow forecast for the year to 31 March 2015 and, in the light of this review and the funding commitment by the KZN - Department of Economic Development, Tourism and Environmental Affairs, they are satisfied that the entity has access to adequate resources to continue in operational existence for the foreseeable future. The entity is wholly dependent on the KZN - Department of Economic Development, Tourism and Environmental Affairs for continued funding of operations. The financial statements are prepared on the basis that the entity is a going concern and that the Provincial Treasury has neither the intention nor the need to liquidate or curtail materially the scale of the entity. The external auditors are responsible for independently reviewing and reporting on the entity s financial statements. The financial statements set out on pages 34 to 58, which have been prepared on the going concern basis, were approved by the members on 31 May 2014 and were signed on its behalf by: Welcome Msomi Chairperson Carol Coetzee Chief Executive Officer 32

35 Financial Statements for the year ended 31 March 2014 Members of the Board Standing, from L-R: A Monty (Board Member), L Berning (Board Member), P Raleigh (Board Member), N Mthembu (Board Member), D Ndlovu (Board Member), J Motsepe (COO), N Khoza (Board Member) and K Bogatsu (CFO). Seated, from L-R: Z Gwala (Board Member), C Coetzee (CEO), W Msomi (Chairperson), N Malange (Deputy Chairperson) and M Mzimela (Board Member). 33

36 Financial Statements for the year ended 31 March 2014 Members Report 1. Incorporation The entity was incorporated on 09 September The KwaZulu-Natal Film Commission commenced its operations on 1 October Review of Activities The Board held its first meeting in November 2013 with the newly appointed CEO as the first employee of the commission. In the five months of operations, the CEO developed the basic foundations for the start-up entity. This included the basic infrastructure and complying with the statutory requirements with the PFMA and Treasury Regulations. The CEO presented a number of policies for approval during the reporting period in order to establish strong governing business principles for the entity. In February the appointment of three further staff members took place in order to begin operating in ernst with the initial funding being transferred on 28 February Before that time, the EDTEA providing administrative support to the CEO in securing the required resources. The strategy session held in February provided a clear direction for new executive team and Board which will further guide the establishment of the entity in order to deliver fully on its mandate. The team presented at a number of local and international platforms in order to begin to build the brand and to create an awareness of the provinces offerings as a choice film destination. The five months of operations have certainly been very productive with secured budget and an effectively operating entity in place from 1 March Going Concern The financial statements have been prepared on the basis of accounting policies applicable to a going concern. This basis presumes that funds will be available to finance future operations and that the realisation of the assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. 4. Subsequent Events The members are not aware of any matter or circumstance arising since the end of the financial year. 5. Members The members of the entity during the year and to the date of this report are as follows: Board Members (Refer to Table 4 on page 20) Executive Management Name Designation Date of appointment Date of resignation Ms CL Coetzee Chief Executive Officer 01/10/ Mr K Bogatsu Chief Financial Officer 01/02/ Ms JM Motsepe Chief Operations Officer 01/02/ Table Members Meetings Board Meetings During the year the members met three times, which the members believe is sufficient for discharging the Board s responsibilities, the was due to the entity commencing its operations in from 1 October Details of members attendance at the Board meetings held during the year are set out in Tables 4, 5 and 6 on page

37 Financial Statements for the year ended 31 March 2014 Statement of Financial Position Figures in Rand Note (s) 2014 Assets Current assets Cash and cash equivalents 2 1,814,659 Prepayments 3 219,345 2,034,004 Non-current assets Property, plant and equipment 4 1,318,881 Intangible assets 5 387,041 1,705,922 Total assets 3,739,926 Liabilities Current liabilities Trade and other payables from exchange transactions 6 712,892 Trade and other payables from non-exchange transactions 7 139,839 Deferred income 8 1,034,747 1,887,478 Total liabilities 1,887,478 Net assets 1,852,448 Net assets Accumulated surplus 1,852,448 Total liabilities and Net assets 3,739,926 35

38 Financial Statements for the year ended 31 March 2014 Statement of Financial Performance Figures in Rand Note (s) 2014 Revenue Revenue from non-exchange transactions: Grants and transfers 9 6,049,205 Revenue from exchange transactions: Finance income 10 2 Total revenue 6,049,207 Expenses Board and executive members remunerations 11 1,767,691 Employee related cost ,498 Marketing costs ,735 General expenses 14 1,350,033 Depreciation and amortisation ,802 Total expenses 4,196,759 Surplus for the year 1,852,448 36

39 Financial Statements for the year ended 31 March 2014 Statement of Changes in Net Assets Figures in Rand Accumulated surplus/ (deficit) Total Net Assets Balance at 01 April Changes in net assets surplus for the year 1,852,448 1,852,448 Total changes 1,852,448 1,852,448 Balance as at 31 March ,852,448 1,852,448 Note (s) 37

40 Financial Statements for the year ended 31 March 2014 Statement of Cash Flows Figures in Rand Note (s) 2014 Cash flows from operating activities Receipts Grants 3,500,500 Interest income 2 3,500,502 Payments: Goods and services/suppliers (1,368,405) Other payments (219,345) (1,587,750) Net cash flows from/(used in) operating activities 16 1,912,752 Cash flow from investing activities Purchase of property, plant and equipment 4 (10,658) Purchase of other intangible assets 5 (87,435) Net cash used in investing activities (98,093) Cash flow from financing activities Increase/(decrease) in bank overdraft - Net cash flows from/(used in) financing activities - Net increase/(decrease) in cash and cash equivalents 1,814,659 Cash and cash equivalents at the beginning of the year - Cash and cash equivalents at the end of the year 2 1,814,659 38

41 Financial Statements for the year ended 31 March 2014 Accounting Policies 1. Presentation of Financial Statements These annual financial statements were prepared in accordance with Standards of Generally Recognised Accounting Practice (GRAP), as issued by the Accounting Standards Board in accordance with Section 91(1) of the Public Finance Management Act, (Act No 1 of 1999). The annual financial statements were prepared on the accrual basis of accounting and incorporate the historical cost conventions as the basis of measurement, except where specified otherwise. In the absence of an issued and effective Standard of GRAP, accounting policies for material transactions, events or conditions were developed in accordance with paragraphs 8, 10 and 11 of GRAP 3 as read with Directive 5. Assets, liabilities, revenues and expenses were not offset, except where offsetting is either required or permitted by a Standard of GRAP. The following are the GRAP standards complied with: GRAP 1 - Presentation of Financial Statements GRAP 2 - Cash Flow Statement GRAP 3 - Accounting policies, Changes in Accounting Estimates & Errors GRAP 9 - Revenue from Exchange Transactions GRAP 14 - Events after the Reporting Date GRAP 17 - Property, Plant & Equipment GRAP 19 - Provisions, Contingent Liabilities and Contingent Assets GRAP 21 - Impairment of Non-cash Generating Assets GRAP 23 - Revenue from Non-exchange Transactions GRAP 24 - Presentation of Budget Information in Financial Statements GRAP 25 - Employee Benefits GRAP 26 - Impairment of Cash Generating Assets GRAP Financial Instruments GRAP Intangible Assets GRAP 20 - Related Party Disclosures The principal accounting policies, applied in the preparation of these annual financial statements, are set out below Presentation currency These annual financial statements are presented in South African Rand, which is the functional currency of the entity Going concern assumptions These annual financial statements were prepared based on the expectation that the entity will continue to operate as a going concern for at least the next 12 months Comparative information Current year comparatives (Budget) Budget information in accordance with GRAP 1 and 24 has not been complied with, as the entity s budget was not published, as the entity was in its first year of operations. Prior year comparatives When the presentation or classification of items in the annual financial statements is amended, prior period comparative amounts are also reclassified and restated, unless such comparative reclassification and/or restatement is not required by a Standard of GRAP. The nature and reason for such reclassifications and restatements are also disclosed. 39

42 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) Where material accounting errors, which relate to prior periods, have been identified in the current year, the correction is made retrospectively as far as is practicable and the prior year comparatives are restated accordingly. Where there has been a change in accounting policy in the current year, the adjustment is made retrospectively as far as is practicable and the prior year comparatives are restated accordingly Standards, amendments to standards and interpretations issued but not effective The following Standards of GRAP and/or amendments thereto have been issued by the Accounting Standards Board, but will only become effective in future periods or have not been given an effective date by the Minister of Finance. The entity has not early-adopted any of these new Standards or amendments thereto, but has referred to them for guidance in the development of accounting policies in accordance with GRAP 3 as read with Directive 5: Standard number Standard name Effective date GRAP 7 Preface to Interpretations of the Standards of GRAP No effective date GRAP 18 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their interaction No effective date GRAP 105 Segment Reporting No effective date GRAP 106 Transfer of functions between entities under common control No effective date GRAP 107 Transfer of functions between entities not under common control No effective date GRAP 18 Segment Reporting: The standard requires the identification and aggregation of the operating segments of the entity into reportable segments. For each of the reportable segments identified details of the financial performance and financial position will be disclosed. The precise impact of this on the financial statements of the entity is still being assessed but it is expected that this will only result in additional disclosures without affecting the underlying accounting. This standard does not yet have an effective date Significant judgement and estimates The use of judgement, estimates and assumptions is inherent to the process of preparing annual financial statements. These judgements, estimates and assumptions affect the amounts presented in the annual financial statements. Uncertainties about these estimates and assumptions could result in outcomes that require a material adjustment to the carrying amount of the relevant asset or liability in future periods. In the process of applying these accounting policies, management has made the following judgements that may have a significant effect on the amounts recognised in the financial statements. Estimates Estimates are informed by historical experience, information currently available to management, assumptions, and other factors that are believed to be reasonable under the circumstances. These estimates are reviewed on a regular basis. Changes in estimates that are not due to errors are processed in the period of the review and applied prospectively. Other provisions Provisions are measured as the present value of the estimated future outflows required to settle the obligation. In the process of determining the best estimate of the amounts that will be required in future to settle the provision management considers the weighted average probability of the potential outcomes of the provisions raised. This measurement entails determining what the different potential outcomes are for a provision as well as the financial impact of each of those potential outcomes. Management then assigns a weighting factor to each of these outcomes based on the probability that the outcome will materialise in future. The factor is then applied to each of the potential outcomes and the factored outcomes are then added together to arrive at the weighted average value of the provisions. 40

43 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) Depreciation and amortisation Depreciation and amortisation recognised on property, plant and equipment and intangible assets are determined with reference to the useful lives and residual values of the underlying items. The useful lives and residual values of assets are based on management s estimation of the asset s condition, expected condition at the end of the period of use, its current use, expected future use and the entity s expectations about the availability of finance to replace the asset at the end of its useful life. In evaluating the condition and use of the asset informs the useful life and residual value management considers the impact of technology and minimum service requirements of the assets. Impairments of non-financial assets In testing for, and determining the value-in-use of non-financial assets, management is required to rely on the use of estimates about the asset s ability to continue to generate cash flows (in the case of cash-generating assets). For non-cash-generating assets, estimates are made regarding the depreciated replacement cost, restoration cost, or service units of the asset, depending on the nature of the impairment and the availability of information Financial instrument Initial recognition The entity recognises a financial asset or a financial liability in its Statement of Financial Position when, and only when, the entity becomes a party to the contractual provisions of the instrument. This is achieved through the application of trade date accounting. Upon initial recognition the entity classifies financial instruments or their component parts as a financial liabilities, financial assets or residual interests in conformity with the substance of the contractual arrangement and to the extent that the instrument satisfies the definitions of a financial liability, a financial asset or a residual interest. Financial instruments are evaluated, based on their terms, to determine if those instruments contain both liability and residual interest components (i.e. to assess if the instruments are compound financial instruments). To the extent that an instrument is in fact a compound instrument, the components are classified separately as financial liabilities and residual interests as the case may be. Initial measurement When a financial instrument is recognised, the entity measures it initially at its fair value plus, in the case of a financial asset or a financial liability not subsequently measured at fair value, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Subsequent measurement Subsequent to initial recognition, financial assets and financial liabilities are measured at fair value, amortised cost or cost. Derecognition A financial asset is derecognised at trade date, when: a) The cash flows from the asset expire, are settled or waived; b) Significant risks and rewards are transferred to another party; or c) Despite having retained significant risks and rewards, the entity has transferred control of the asset to another entity. A financial liability is derecognised when the obligation is extinguished. Exchanges of debt instruments between a borrower and a lender are treated as the extinguishment of an existing liability and the recognition of a new financial liability. Where the terms of an existing financial liability are modified, it is also treated as the extinguishment of an existing liability and the recognition of a new liability. Gains and losses A gain or loss arising from a change in the fair value of a financial asset or financial liability measured at fair value is recognised in surplus or deficit. 41

44 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) For financial assets and financial liabilities measured at amortised cost or cost, a gain or loss is recognised in surplus or deficit when the financial asset or financial liability is derecognised or impaired or through the amortisation process. Offsetting The entity does not offset financial assets and financial liabilities in the Statement of Financial Position unless a legal right of set-off exists and the parties intend to settle on a net basis. Impairments All financial assets measured at amortised cost, or cost, are subject to an impairment review. The entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. For financial assets held at amortised cost: The entity first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and individually or collectively for financial assets that are not individually significant. If the entity determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in the collective assessment of impairment. For financial assets held at cost: If there is objective evidence that an impairment loss has been incurred on an investment in a residual interest that is not measured at fair value because its fair value cannot be measured reliably, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed. Policies relating to specific financial instruments Cash and cash equivalents Cash and cash equivalents are measured at amortised cost. Cash includes cash on hand and cash with banks. Cash equivalents are short-term highly liquid investments that are held with registered banking institutions with maturities of three months or less and are subject to an insignificant risk of change in value. For the purposes of the Cash Flow Statement, cash and cash equivalents comprise cash on hand and deposits held on call with banks. Trade and other receivables Trade and other receivables are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition and subsequently stated at amortised cost, less provision for impairment. All trade and other receivables are assessed at least annually for possible impairment. Impairments of trade and other receivables are determined in accordance with the accounting policy for impairments. Impairment adjustments are made through the use of an allowance account. Bad debts are written off in the year in which they are identified as irrecoverable. Amounts receivable within 12 months from the reporting date are classified as current. Interest is charged on overdue accounts. Trade and other payables Trade payables are initially measured at fair value plus transaction costs that are directly attributable to the acquisition and are subsequently measured at amortised cost using the effective interest rate method. 42

45 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) 1.7. Property, plant and equipment Initial recognition and measurement Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in the production or supply of goods or services, rental to others, or for administrative purposes and are expected to be used during more than one year. Items of property, plant and equipment are recognised as assets when it is probable that future economic benefits or service potential associated with the item will flow to the entity and the cost or fair value of the item can be measured reliably. Items of property, plant and equipment are initially recognised as assets on acquisition date and are initially recorded at cost where acquired through exchange transactions. However, when items of property, plant and equipment are acquired through non-exchange transactions, those items are initially measured at their fair values as at the date of acquisition. The cost of an item of property, plant and equipment is the purchase price and other costs directly attributable to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by the entity. Trade discounts and rebates are deducted in arriving at the cost at which the asset is recognised. The cost also includes the estimated costs of dismantling and removing the asset and restoring the site on which it is operated. The entity capitalises assets that are equivalent to R5,000 or above. When significant components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. These major components are depreciated separately over their useful lives. Where an item of property, plant and equipment is acquired in exchange for a non-monetary asset or monetary assets or a combination of monetary and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the acquired item s fair value is not determinable, its deemed cost is the carrying amount of the asset(s) given up. Major spare parts and servicing equipment qualify as property, plant and equipment when the entity expects to use them during more than one period. Similarly, if the major spare parts and servicing equipment can be used only in connection with an item of property, plant and equipment, they are accounted for as property, plant and equipment. Subsequent measurement Subsequent to initial recognition, items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Subsequent expenditure Where the entity replaces parts of an asset, it derecognises the part of the asset being replaced and capitalises the new component. Subsequent expenditure including major spare parts and servicing equipment qualify as property, plant and equipment if the recognition criteria are met. Depreciation Depreciation is calculated on the depreciable amount, using the straight-line method over the estimated useful lives of the assets. Components of assets that are significant in relation to the whole asset and that have different useful lives are depreciated separately. The depreciable amount is determined after taking into account an assets residual value, where applicable. The assets residual values, useful lives and depreciation methods are reviewed at each financial year-end and adjusted prospectively, if appropriate. 43

46 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) The annual depreciation rates are based on the following estimated asset useful lives: Item Plant, equipment and machinery Furniture and Fixtures Motor vehicles Computer equipment Average Useful Life 5 years 6 years 5 years 3 years Impairments The entity tests for impairment where there is an indication that an asset may be impaired. An assessment of whether there is an indication of possible impairment is done at each reporting date. Where the carrying amount of an item of property, plant and equipment is greater than the estimated recoverable amount (or recoverable service amount), it is written down immediately to its recoverable amount (or recoverable service amount) and an impairment loss is charged to the Statement of Financial Performance. Where items of property, plant and equipment have been impaired, the carrying value is adjusted by the impairment loss, which is recognised as an expense in the Statement of Financial Performance in the period that the impairment is identified. An impairment is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised. A reversal of the impairment is recognised in the Statement of Financial Performance. Derecognition Items of property, plant and equipment are derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying value and is recognised in the Statement of Financial Performance Intangible assets Initial recognition and measurement An intangible asset is an identifiable non-monetary asset without physical substance. The entity recognises an intangible asset in its Statement of Financial Position only when it is probable that the expected future economic benefits or service potential that are attributable to the asset will flow to the entity and the cost or fair value of the asset can be measured reliably. Internally generated intangible assets are subject to strict recognition criteria before they are capitalised. Research expenditure is never capitalised, while development expenditure is only capitalised to the extent that: a. The entity intends to complete the intangible asset for use or sale. b. It is technically feasible to complete the intangible asset. c. The entity has the resources to complete the project. d. It is probable that the entity will receive future economic benefits or service potential. e. The entity has the ability to measure reliably the expenditure during development. Intangible assets are initially recognised at cost. Where an intangible asset is acquired by the entity for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of that asset on the date acquired. 44

47 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) Where an intangible asset is acquired in exchange for a non-monetary asset or monetary assets or a combination of monetary and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the acquired item s fair value is not determinable, its deemed cost is the carrying amount of the asset(s) given up. Subsequent measurement Intangible assets are subsequently carried at cost less accumulated amortisation and impairments. The cost of an intangible asset is amortised over the useful life where that useful life is finite. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Financial Performance in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life assumption continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in Statement of Financial Performance in the expense category consistent with the function of the intangible asset. During the period of development, the asset is tested for impairment annually. Amortisation and impairment Amortisation is charged to write off the cost of intangible assets over their estimated useful lives using the straight-line method. The annual amortisation rates are based on the following estimated average asset lives: Item Computer Software Average Useful Life 3 years The amortisation period, the amortisation method and residual value for intangible assets with finite useful lives are reviewed at each reporting date and any changes are recognised as a change in accounting estimate in the Statement of Financial Performance. Impairments The entity tests intangible assets with finite useful lives for impairment where there is an indication that an asset may be impaired. An assessment of whether there is an indication of possible impairment is performed at each reporting date. Where the carrying amount of an item of an intangible asset is greater than the estimated recoverable amount (or recoverable service amount), it is written down immediately to its recoverable amount (or recoverable service amount) and an impairment loss is charged to the Statement of Financial Performance. Derecognition Intangible assets are derecognised when the asset is disposed of or when there are no further economic benefits or service potential expected from the asset. The gain or loss arising on the disposal or retirement of an intangible asset is determined as the difference between the sales proceeds and the carrying value and is recognised in the Statement of Financial Performance. 45

48 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) 1.9. Employee benefits Short-term employee benefits Short-term employee benefits encompasses all those benefits that become payable in the short term, i.e. within a financial year or within 12 months after the financial year. Therefore, short-term employee benefits include remuneration, compensated absences and bonuses. Short-term employee benefits are recognised in the Statement of Financial Performance as services are rendered, except for non-accumulating benefits, which are recognised when the specific event occurs. These short-term employee benefits are measured at their undiscounted costs in the period the employee renders the related service or the specific event occurs. Post-employment benefits The entity operates a defined contribution plan in the form of a provident fund scheme covering all qualifying employees. The assets of the scheme are held separately from those of the entity and are administered by the scheme s trustees. The entity s contributions to the defined contribution fund are included in the staff costs and charged to the statement of financial performance during the year to which they relate Revenue Revenue from exchange transactions Revenue from exchange transactions refers to revenue that accrues to the entity directly in return for services rendered or goods sold, the value of which approximates the consideration received or receivable, excluding indirect taxes, rebates and discounts. Recognition Revenue from exchange transactions is only recognised once all of the following criteria have been satisfied: a. The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; b. The amount of revenue can be measured reliably; and c. It is probable that the economic benefits or service potential associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue arising out of situations where the entity acts as an agent on behalf of another entity (the principal) is limited to the amount of any fee or commission payable to the entity as compensation for executing the agreed services. Measurement Revenue from exchange transactions is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity. Expenditure from exchange transactions The accounting policy for expenditure arising from exchange transactions is similar to the policy for exchange revenue. Revenue from non-exchange transactions Non-exchange transactions are transactions that are not exchange transactions. Revenue from non-exchange transaction arises when the entity either receives value from another entity without directly giving approximately equal value in exchange or gives value to another entity without directly receiving approximately equal value in exchange. Revenue from non-exchange transactions is generally recognised to the extent that the related receipt or receivable qualifies for recognition as an asset and there is no liability to repay the amount. 46

49 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) Specific non-exchange-revenue sources Revenue from public contributions and donations is recognised when all conditions associated with the contribution have been met or, where the contribution is to finance property, plant and equipment, when such items of property, plant and equipment qualifies for recognition and first becomes available for use by the entity. Where public contributions have been received but the entity has not met the related conditions that would entitle it to the revenue, a liability is recognised. Contributed property, plant and equipment is recognised when such items of property, plant and equipment qualifies for recognition and first becomes available for use by the entity. Grants, transfers and donations received or receivable are recognised when the resources that have been transferred meet the criteria for recognition as an asset and there is not a corresponding liability in respect of related conditions. Measurement An asset that is recognised as a result of a non-exchange transaction is recognised at its fair value at the date of the transfer. Consequently, revenue arising from a non-exchange transaction is measured at the fair value of the asset received, less the amount of any liabilities that are also recognised due to conditions that must still be satisfied. Where there are conditions attached to a grant, transfer or donation that gave rise to a liability at initial recognition, that liability is transferred to revenue as and when the conditions attached to the grant are met. Grants without any conditions attached are recognised as revenue in full when the asset is recognised, at an amount equalling the fair value of the asset received. Interest earned on the investment is treated in accordance with grant conditions. If it is payable to the funder it is recorded as part of the creditor. Expenditure relating to non-exchange transactions The accounting policy for expenditure arising from non-exchange transactions is similar to policy for non-exchange revenue Surplus or deficit Gains and losses Gains and losses arising from fair value adjustments on investments and loans, and from the disposal of assets, are presented separately from other revenue in the Statement of Financial Performance. Income, expenditure, gains and losses are recognised in surplus or deficit except for the exceptional cases where recognition directly in net assets is specifically allowed or required by a Standard of GRAP Unauthorised expenditure Unauthorised expenditure is expenditure that has not been budgeted for, expenditure that is not in terms of the conditions of an allocation received from another sphere of government or organ of state and expenditure in the form of a grant that is not permitted. Unauthorised expenditure is accounted for as an expense in the Statement of Financial Performance and where recovered, it is subsequently accounted for as income in the Statement of Financial Performance Irregular Expenditure Irregular expenditure is expenditure that is contrary to the Public Finance Management Act (PFMA) and the Public Office Bearers Act (Act No. 20 of 1998) or is in contravention of the entity s supply chain management policies. Irregular expenditure excludes unauthorised expenditure. Irregular expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequently accounted for as revenue in the Statement of Financial Performance. 47

50 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) Fruitless and wasteful expenditure Fruitless and wasteful expenditure is expenditure that was made in vain and would have been avoided had reasonable care been exercised. Fruitless and wasteful expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequently accounted for as revenue in the Statement of Financial Performance Recovery of unauthorised, irregular, fruitless and wasteful expenditure The recovery of unauthorised, irregular, fruitless and wasteful expenditure is based on legislated procedures, and is recognised when the recovery thereof from the responsible officials is probable. The recovery of unauthorised, irregular, fruitless and wasteful expenditure is treated as other income Post-reporting date events Events after the reporting date are those events, both favourable and unfavourable, that occur between the reporting date and the date when the financial statements are authorised for issue. Two types of events can be identified:»» Those that provide evidence of conditions that existed at the reporting date (adjusting events after the reporting date); and»» Those that is indicative of conditions that arose after the reporting date (non-adjusting events after the reporting date). The entity will adjust the amounts recognised in the financial statements to reflect adjusting events after the reporting date once the event occurred. The entity will disclose the nature of the event and an estimate its financial effect or a statement that such estimate cannot be made in respect of all material non-adjusting events, where non-disclosure could influence the economic decisions of users taken on the basis of the financial statements Related parties The entity has processes and controls in place to aid in the identification of related parties. A related party is a person or an entity with the ability to control or jointly control the other party, or exercise significant influence over the other party, or vice versa, or an entity that is subject to common control, or joint control. Related party relationships where control exists are disclosed regardless of whether any transactions took place between the parties during the reporting period. Where transactions occurred between the entity any one or more related parties, and those transactions were not within: a. Normal supplier and/or client/recipient relationships on terms and conditions no more or less favourable than those which it is reasonable to expect the entity to have adopted if dealing with that individual entity or person in the same circumstances; and b. Terms and conditions within the normal operating parameters established by the reporting entity s legal mandate. Further details about those transactions are disclosed in the notes to the financial statements Provisions and contigencies Provisions are recognised when: a. The entity has a present obligation as a result of past event; b. It is probable that an outflow of resources embodgying economic benefits or service potential will be required to settle the obligation; and c. A reliable estimate can be made of the obligation. The amount of a provision is the best estimate of the expenditure expected to be required to settle the present obligation at the reporting date. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Provisions are reversed if it is no longer probable that an outflow of resources embodying economic benefits or service potential will be required, to setlle the obligation. 48

51 Financial Statements for the year ended 31 March 2014 Accounting Policies (continued) Employee entitlement to annual leave is recognised when it accrues. A provision is made on the estimated liability for annual leave as a result of services rendered by employees up to the amount of the obligation. A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument. Where a fee is received by the entity for issuing a financial guarantee and /or where a fee is charged on loan commitments, it is considered in determining th ebest estimate of the amount required to settle the obligation at a reporting date. Where a fee is charged and the entity considers that an outflow of economic resources is probable, an entity recognises the obligation at the higher of: a. The amount determined using the Standard of GRAP on Provisions, Contigent Liabilities and Contigent Assets; and b. The amount of the fee initially recognised less, where appropriate, cumulative amortisation recognised in accodance with the Standard of GRAP on Revenue form Exchange Transactions. 49

52 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements Figures in Rands Cash and cash equivalents Cash - ABSA 1,814,659 Cash on hand - Total 1,814,659 At year end the carrying amounts of cash and cash equivalents approximated their fair values due to the short-term maturities of these assets. 3. Prepayments Prepayments 219, ,345 Prepayments relates to the venue hire of the ICC, the deposit had to be paid in advance to secure the venue for the Simon Sabela Awards to be held in July Property, plant and equipment Cost 2014 Accumulated Depreciation Carrying Value Furniture and fixtures 314,212 (26,184) 288,028 IT equipment 1,170,621 (139,768) 1,030,853 Total 1,484,833 (165,952) 1,318,881 Reconciliation of property, plant and equipment 2014 Opening Balance Additions Depreciation Total Furniture and fixtures - 314,212 (26,184) 288,028 IT equipment - 1,170,621 (139,768) 1,030,853 Total - 1,484,833 (165,952) 1,318,881 The entity commenced operations from 1 October 2013, and the Department of Economic Development, Tourism and Environmental Affairs aquired the assets on behalf of the entity. The property, plant and equipment that has been included in additions for the current financial year includes the assets that were purchased by the Department of Economic Development, Tourism and Environmental Affairs (EDTEA) in the prior year. This is part of the grants transfers that the DEDT spent on behalf of the KwaZulu-Natal Film Commission, while it was not operational. The additions have been recognised at cost and depreciated from 1 October 2013, when the assets were brought into use. 50

53 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands Intangible assets Cost 2014 Accumulated Depreciation Carrying Value Computer software 446,891 (59,850) 387,041 Total 446,891 (59,850) 387,041 Reconciliation of Intangible assets 2014 Opening Balance Additions Amortisation Total Computer software - 446,891 (59,850) 387, ,891 (59,850) 387,041 The entity commenced operations from 1 October 2013, and the Department of Economic Development, Tourism and Environmental Affairs aquired the assets on behalf of the entity. The Intangible assets that has been included in additions for the current financial year includes the assets that were purchased by the Department of Economic Development, Tourism and Environmental Affairs (EDTEA) in the prior year. This is part of the grants transfers that the DEDT spent on behalf of the KwaZulu-Natal Film Commission, while it was not operational. The additions have been recognised at cost and amortised from 1 October 2013, when assets were brought into use. 6. Trade and other payables from exchange transactions Trade payables and accruals 684,229 Accruals for leave 28, ,892 Leave accrual is calculated at the current salary rate multiplied by number of available leave credits. 7. Trade and other payables from non-exchange transactions SARS - Paye 139, , Deferred income Balance at beginning of year - Grant received Department of Economic Development, Tourism and Environmental Affairs (EDTEA) 3,500,000 Grants Transfer Spent on Behalf of KZNFC 3,583,452 Total Grant Income 7,083,452 51

54 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands 2014 Released to income from DEDT 2013/14 (2,465,253) Grants on Behalf of KZNFC 2013/14 (2,548,574) Grants on Behalf of KZNFC 2012/13 (1,034,878) Balance at end of period 1,034,747 Non current liabilities Current liabilities 1,034,747 The grants included in the deferred income are unconditional grants that are to be rolled over to the next financial year, and be utilised to aquire assets (computer equipment) 9. Revenue from non-exchange transactions Released to income from DEDT 2013/14 2,465,253 Grants on Behalf of KZNFC 2013/14 2,549,074 Grants on Behalf of KZNFC 2012/13 1,034,878 Total Grants Released 6,049,205 The entity commenced operations from 1 October 2013, and the Department of Economic Development, Tourism and Environmental Affairs aquired the assets and other related expenditure on behalf of the entity. Included in the grants released to the statement of financial performance are grants from Department of Economic Development, Tourism and Environmental Affairs (EDTEA), which were spent on behalf of the enity. The total expenditure and assets at cost, have been reflected in the grants released to the statement of financial position in the current financial year. 10. Revenue from exchange transactions Bank - Interest Earned Compensation to members and executive management 2014 Executive Management Designation Basic Salary Total Remunerations CL Coetzee Chief Executive Officer 652, ,746 K Bogatsu Chief Financial Officer 155, ,821 JM Motsepe Chief Operations Officer 155, , , ,388 52

55 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands Compensation to members and executive management (continued) Board members Fees Allowances Total W Msomi 463,404 7, ,448 N Malange 128, ,265 M Mzimela 59,482-59,482 L Berning 74,326 6,638 80,964 P M Raleigh 47,068-47,068 D Ndlovu 11,767 5,310 17, ,311 18, ,303 Total 1,767, Employee related cost Wages and salaries: Total Cost of employment permanent 52,462 Temporary Staff 154,374 Leave Accruals 28, , Marketing costs Marketing Costs 617, General expenses Bank charges 82 Cleaning services 1,503 Consulting services 259,442 Postage & courier 8,623 Printing & stationery 33,160 Recruitment costs 349,005 Busaries - external 300,505 Conferences & planning 32,680 SCM - advertising and processing 44,597 Staff welfare 2,067 Non capitalised equipment - consumables 291,233 Travel & accomodation - local 27,137 1,350,033 Included in the general expenses is expenditure that was paid by the Department of Economic Development, Tourism and Environmental Affairs (EDTEA) on behalf of the KwaZulu-Natal Film Commission, when it was not operational, as it commenced operations from 1 October The related expenditure has been allocated to its relevant classification. 53

56 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands Depreciation Furniture and fittings 26,184 Computer equipment 139,768 Computer software 59, , Cash flows from operating activities (Deficit)/surplus before tax 1,852,448 Non-cash movements/working capital changes Depreciation 225,802 Staff cost accruals & other 28,663 (Decrease)/increase in payables 846,706 (Decrease)/increase in receivables 219,344 Net movement in Grants (1,260,211) Net cash flows from operating activities 1,912,752 Interest rate risk The entity's interest bearing assets are included under cash and cash equivalents. The entity's income and operating cash flows are substantially independent of changes in market interest rates due to the short-term nature of interest bearing assets. Balances with banks, deposits and all call and current accounts attract interest at rates that vary with the South African prime rate. The company's policy is to manage interest rate risk so that fluctuations in variable rates do not have a material impact on the surplus/deficit. Interest charged on trade debtors in arrears is linked to South African prime rate. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on financial instruments exposure to interest rates at reporting date. The basis points increases or decreases, as detailed in the table below, were determined by management and represent management s assessment of the potential change in interest rates. A positive number below indicates an increase in surplus. A negative number below indicates a decrease in surplus. The sensitivity analysis shows reasonable expected changes in the interest rate, either an increase or decrease in the interest percentage. The equal but opposite percentage adjustment to the interest rate would result in an equal but opposite effect on surplus and therefore has not been separately disclosed below. The disclosure only indicates the effect of the change in interest rate on surplus. Estimated increase in rates 2014 Estimated increase in basis points 100 Effect on accumulated profit/(loss) - 54

57 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands Financial risk management (continued) Market risk: other price risk The entity s financial assets do not include equity investments that will expose it to price risks. The entity has no market risk exposure for the year, as there have been no foreign exchange transactions and financial borrowing during the current financial year. IFRS 7 - Financial Instruments: Disclosure: Liquidity risk The entity s liquidity risk is as a result of the funds available to cover future commitments. The entity manages liquidity risk through a review of future commitments and funding agreements. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the entity. Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The entity only deposits cash with major banks with high quality credit standing and limits exposure to any particular counterparty. Trade receivables comprise a widespread counter base. Credit exposure is controlled by the application of the entity's credit control and debt collection policies. Adequate provision has been made for anticipated doubtful debts. The carrying amounts of financial assets, represent the entity's maximum exposure to credit risk in relation to these assets. The entity's cash and cash equivalents and short-tem deposits are placed with high credit quality financial institutions. There has been no significant change during the financial year, or since the end of the financial year, to the entity's exposure to credit risk, the approach of measurement or the objectives, policies and processes for managing the risk. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the entity's maximum exposure to credit risk: Capital management The entity manages its capital to ensure that the entity will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the assets. The entity's overall strategy remains unchanged. The entity is not subject to any externally imposed capital requirements. Cash and cash equivalents 1,814,659 Prepayments 219,

58 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands Contingent liabilities The entity has reviewed the contingent liabilities as at 31 March 2014, and there were no significant matters or legal cases that the entity was aware of. 20. Financial instruments Categories of financial instruments The accounting policies for financial instruments have been applied to the line items below: At amortised cost Non-financial instruments Loan & receivables Current financial assets Prepaid expenses - 219,345 - Cash and cash equivalents - - 1,814,659 Total Current financial liabilities Trade and other payables 20, , , ,731 Deferred Income (unspent grants) - 1,034, Related parties Relationships Members of key management CL Coetzee K Bogatsu JM Motsepe Members W Msomi N Malange N Khoza L Berning P Raleigh Z Gwala M Mzimela N Mthembu D Ndlovu A Monty 56

59 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands 2014 Related party transactions Total grants received for the year Department of Economic Development, Tourism and Environmental Affairs 3,500,000 Total grants paid on behalf of KwaZulu-Natal Film Commission for the year Department of Economic Development, Tourism and Environmental 3,583,952 Compensation to members and other key management Key management remuneration 964,388 Board members' fees 803,303 Members' and prescribed officer emoluments Non-executive For services as members 803, Statement of comparison of budget and actual amounts The budget that was allocated amounted to R3,5 million in which the actuals are inline with the budget. The entity surplus is as per the approved budget. 23. Analysis of current year fruitless and wasteful expenditure No fruitless and wasteful expenditure was incurred during 2013/2014 year. 24. Going concern and post reporting date events The management have reviewed the entity's cash flow forecast for the year to 31 March 2015 and, in the light of this review and the funding commitment by the Department of Economic Development, Tourism and Environmental Affairs (EDTEA), they are satisfied that the entity has access to adequate resources to continue in operational existence for the foreseeable future. 25. Irregular expenditure Opening balance - Movement for the year 40,926 Condoned during the year - Recovered - Closing balance 40,926 The irregular expenditure relates to stationery purchased to set up the entity and one quote was sourced to procure the items in 2013/2014 financial year, instead of three quotes. 57

60 Financial Statements for the year ended 31 March 2014 Notes to the Annual Financial Statements (continued) Figures in Rands Funds to be surrendered Cash and cash equivalents at year end 1,814,659 Less: Accruals for goods and services 712,892 Projects to be finalised and completed 2014/2015 1,101,767 Funds to be surrendered - There are no grant or funds to surrender in the 2013/2014 financial year. 27. Prior year comparatives The entity commenced operations from 1 October 2013, and therefore there are no prior year annual financial amounts as comparatives. 58

61 Notes 59

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