Chapter Seventeen Financial Statements · Chapter Seventeen Financial Statements 59 ... The financial statements has been audited by the Office of the Auditor-General which was given

58

COMPENSATION FUND

(Compensation for Occupational Injuries and Diseases Act, 1993 (Act No. 130 of 1993)

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

COMPENSATION FUND (Compensation for Occupational Injuries and Diseases Act, 1993 (Act No. 130 of 1993) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

STREET ADDRESS Compensation HouseCorner of Hamilton Street and Soutpansberg RoadPRETORIA0002

POSTAL ADDRESS P O Box 955PRETORIA0001

ACCOUNTING AUTHORITY Director-General: Department of Labour

AUDITOR The Office of the Auditor-GeneralP O Box 446PRETORIA0001

Chapter SeventeenFinancial Statements

59

Approval of Financial Statements

The accounting authority is responsible for the preparation, integrity and fair presentation of the financial statements of the Compensation Fund. The financial statements presented have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by The Compensation for Occupational Injuries and Diseases Act, 1993 (Act No. 130 of 1993), and include amounts based on judgements and estimates made by management. The accounting authority prepared the information included in the annual report.

The going concern basis has been adopted in preparing the financial statements. The accounting authority has no reason to believe that the Fund will not be a going concern in the foreseeable future. These financial statements support the viability of the Fund.

The financial statements has been audited by the Office of the Auditor-General which was given unrestricted access to all financial records and related data, including the minutes of all meetings.

The financial statements set out on pages 63 to 82, were approved and signed by the accounting authority of the Compensation Fund.

L KettledasActing Director-General: Depar tment of Labour

Pretoria

Date:30 May 2005

COMPENSATION FUND (Compensation for Occupational Injuries and Diseases Act, 1993 (Act No. 130 of 1993)

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

60

Auditor-General’s Report

Report of the Auditor-general to Parliament on the Financial Statements of the Compensation Fund for the year ended 31 March 2005

1. Audit Assignment

The financial statements as set out on pages 63 to 82, for the year ended 31 March 2005, have been audited in terms of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 13 and 20 of the Public Audit Act, 2004 (Act No. 25 of 2004) and section 20(2) of the Compensation for Occupational Injuries and Diseases Act, 1997 (Act No. 61 of 1997). These financial statements, the maintenance of effective control measures and compliance with relevant laws and regulations are the responsibilities of the accounting authority. My responsibility is to express an opinion on these financial statements, based on the audit.

2. Nature and Scope

The audit was conducted in accordance with Statements of South African Auditing Standards. Those standards require that I plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatements.An audit includes:• examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,• assessing the accounting principles used and significant estimates made by management, and• evaluating the overall financial statement presentation.

Further more, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations, which came to my attention and are applicable to financial matters.The audit was completed in accordance with Auditor-General Directive No. 1 of 2005 dated 17 January 2005.I believe that the audit provides a reasonable basis for my opinion.

3. Qualification

3.1 Accuracy of contribution income

As a result of management policies and procedures not being adequately followed, a material breakdown in internal accounting controls occurred in the following areas:• the monitoring, approval and the accuracy of assessment information. • a sample of assessments tested revealed the existence of materially incorrect assessments that arose

from duplicate assessments and the inaccurate estimation of employers earnings. Although audit exceptions detected have been corrected in the financial statements, the large volume

61

of assessments issued does not allow the performance of sufficient alternative auditing procedures to confirm the accuracy of contribution income. Consequently, I am unable to express an opinion on the accuracy of revenue contributions of R2,567 billion.

3.2 Valuation of assessment debtors

As a result of management policies and procedures not being adequately followed, a material breakdown in internal accounting controls occurred that affected the monitoring of individual assessment debtors and debt collection. A sample of assessment debtors tested revealed the existence of materially incorrect assessment debtors and accounting entries due to human error. Although the exceptions noted have been corrected in the financial statements, the large number of assessment debtors does not allow the performance of sufficient alternative audit procedures to confirm the reasonableness of assessment debtors. Consequently, I am unable to express an opinion on the valuation and accuracy of assessment debtors totaling R2,466 billion.

4. Qualified Audit Opinion

In my opinion, except for the effect on the financial statements of the matters referred to in paragraph 3, the financial statements fairly present, in all material respects, the financial position of the Compensation Fund at 31 March 2005 and the results of its operations and cash flows for the year then ended, in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Public Finance Management Act (Act No1 of 1999).

5. Matters of Emphasis Without fur ther qualifying the audit opinion expressed above, attention is drawn to the following:

5.1 Material adjustments

The annual financial statements were submitted to the Office on 31 May 2005 as required by the PFMA. The following material adjustments were, however, made to these financial statements:

• Assessments incorrectly raised of R31 420 000.• Increase in provision for impairment of receivable by R371 551 000.• Increase in provision for outstanding claims by R 2 627 000.

The revised annual financial statements was received on the 20th of July 2005.

5.2 General computer controls

A follow-up review of control weaknesses identified in the information systems environment was done. Progress had been made in resolving reported weaknesses. Control weaknesses still exist due to the absence of documented procedures for :• Security administration and monitoring• Logical access security• Monitoring of user and administrator activity.

62

5.3 Non-compliance with Treasury regulations

The investment policy of the Fund as required by Treasury regulation number 31.3 was only approved by the accounting authority on 5 May 2005. For the year under review, investments with the PIC were not monitored in terms of an approved investment policy.

5.4 Processing of claims

The Fund is still experiencing a backlog in the processing of claims. Except for the actuarially calculated provision created for outstanding claims, it is not possible to determine the impact of the backlog on the completeness of claims due to the volume of transactions. As a result of the lack of an appropriately documented framework for third par ty claims, proper internal control procedures to support the complete and timeous lodging of third par ty claims are not in place.

6. Appreciation

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

N. Manik for Auditor-GeneralPretoria31 July 2005

63


INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2005

Revenue

2005 2004

Notes R’000 R’000

2, 588, 116 2, 569, 799

23

Revenue contributionsOther income

2, 567, 200 20, 916

2, 546, 709 23, 090

Benefits paid 1, 783, 851 1, 735, 079

45

Net claims incurredActuarially calculated capitalised value of pensions

1, 391, 546 392, 305

1, 415, 191 319, 888

804, 265 834, 720

407,199 400, 0016

Income before administration expenses

397, 066 434, 719

137

448, 046672, 088

506, 027 11, 578

Administration expenses

Surplus from operations

Increase in calculated value of pensionsIncrease in provision for impairment of receivables

(723, 068) (82, 886)

1, 165, 658 1, 046, 3268

Surplus/(shortfall) before investment income

Net investment income

442, 590 963, 440Surplus for the year

64


BALANCE SHEET AS AT 31 MARCH 2005

Non-current assets

2005 2004

Notes R’000 R’000

6, 888, 713 5, 129, 899

910

Property and equipmentInvestments

10, 416 6, 878, 297

11, 1195, 118, 780

Current assets 7, 253, 985 7, 955, 180

1011

Current portion of investmentsDebtors and other receivablesAccrued interestBank balances and cash

5, 338, 0241, 554, 502

927360, 532

5, 317, 2921, 967, 511

2, 730667, 647

121314

Assets

Total assets

FUNDS AND LIABILITIES

Accumulated funds

Non-current liabilities

Provision for outstanding claimsCapitalised value of pensionsProvisions

Current liabilities

ProvisionsProvision for outstanding claimsAccounts payable

14, 142, 698 13, 085, 079

8, 086, 717 7, 609, 539

4, 752, 955 4, 308, 269

2, 068, 6275, 508, 000

510, 090

1, 938, 0004, 982, 000

689, 539

1, 303, 026 1,167, 271

141215

180, 000885, 000238, 026

159, 659842, 000165, 612

14, 142, 698 13, 085, 079

65


STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2005

Balance as reported on 1 April 2003Capitalised value of pensions reclassified as technical liability

Restated opening balanceIncrease in provision for merit rebatesUnclaimed moneys transferred to reservesSurplus for the yearCapitalised value of pensions transferred from Pension reserveInvestment income transferred to pension reserveClosing balance 31 March 2004

Opening balance on 1 April 2004Unclaimed moneys transferred to reservesSurplus for the yearCapitalised value of pensions transferred from Pension reserveInvestment income transferred to pension reserve

Closing balance 31 March 2005

Note

a

Nature of transactionsCompensation

R’000

2, 633, 133 -

Note (a): RESTATEMENT OF FUNDS

Pension

R’000

5, 279, 451(4, 433, 000)

7, 912, 584(4, 433, 000)

R’000

Total

2, 633, 133(135, 307)

552963, 440506, 027

(587, 640)

846, 451--

(506, 027)587, 640

3, 479, 584(135, 307)

552963, 440

- -

3, 380, 205 928, 064 4, 308, 269

3, 380, 2052, 096

442, 590448, 046

(706, 764)

928, 064--

(448, 046)706, 764

4, 308, 2692, 096

442, 590 - -

3, 566, 173 1, 186, 782 4, 752, 955

2004R’000

Compensation FundAs previously reported

Restated pension accountAs previously reportedNet capitalised value of pensions reclassified as technical liability

Actuarial adjustment (Note 13.1)

Restated surplus

881, 827

587,640630,613

(42, 973)

(506, 027)

963, 440

66


CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2005

Cash generated from activities

Contributions received Cash payments in respect of claims, employees and other expenditure

Investment income

Cash flow from investing activities

Proceeds on disposal of property and equipmentPurchases of property and equipmentIncrease in investments

Cash flow from financing activities

'(Decrease)/increase in pensions

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Notes

16

Cash flow from operating activities2005

R’000

2004

R’000

2 359, 142(2, 124, 290)

2, 327, 742(2, 048, 985)

(1, 785, 580) (1, 069, 730)

458, 895 458, 686

176(5, 507)

(1, 780, 249)

44(1, 915)

(1, 067, 859)

784, 718 630, 613

784, 718 630, 613

(307, 115) 298, 326

667, 647 369, 321

360, 532 667, 64717

737, 443278, 757

693, 747 234, 852,

67


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2005

1. ACCOUNTING POLICIES

Basis of preparation

The principal accounting policies adopted in the preparation of these financial statements are set out below and are consistent with those of the previous year. The financial statements are prepared in accordance with and comply with South African Statements of Generally Accepted Accounting Practice. The financial statements are prepared under the historical cost convention.

1.1 Recognition of revenue contributions

Revenue contributions are recognised on the accrual basis of accounting and consist mainly of assessments issued to registered employers in terms of the Compensation for Occupational Injuries and Diseases Act, 1993 (Act No 130 of 1993).

1.2 Claims incurred

Claims incurred comprise the total estimated cost of claims that have occurred in the year and for which the Fund is responsible, whether or not reported by the end of the year.

1.3 Capitalised value of pensions

Pensions are paid to disabled employees and widows and children of deceased employees from work-related accidents. The capitalised value of pensions ("CVP") is the present value of future liabilities. The liability is based on assumptions as to future pension increases, mortality, management expenses and investment income, which are reviewed by management on an annual basis for reasonableness. Independent actuarial valuations of the CVP are carried out every year.

1.4 Operating leases

Rentals payable under operating leases are charged to income when they become due.

1.5 Property and equipmentProperty, plant and equipment are reflected at cost less accumulated depreciation. Depreciation is charged with the intent to write off property, plant and equipment over their estimated useful lives.

Buildings 10%Motor vehicles 20%Computer mainframe 25%Furniture and equipment 16.67% - 33.33%

68 17

Objectives

The objectives of the Compensation Sub-directorate are:• Recording, management and payment of compensation claims ie. pension payments, lump sum payments

and payments in respect of temporary total disablement (loss of salary); and• Raising public awareness.

Outputs

The outputs of the Compensation Sub-directorate were:• Stakeholder education • Reduction in the turn around time for awarding compensation

Major Achievement

A dedicated Communications Manager and personnel for the Compensation Fund were appointed.

External Impact

• Stakeholder awareness raised• The number of correctly completed claims documents increased.

Reporting of Accidents

The Act requires employers to report occupational injuries within seven days of the injury being reported to them and occupational diseases within four teen days of it being diagnosed.

During the current financial year the average number of days delay in reporting from the date of an accident/date of diagnosis of an occupational disease increased dramatically from 78 days the previous year to 123 days. This state of affairs is not acceptable and defaulting employers will be penalised for their laxity in this regard. The Act makes provision for penalties to be levied against employers who do not report within the prescribed timeframes, the amount of which can be the complete cost of the claim which can run into hundreds of thousands of rands. It is definitely not in the best interest of employers not to report within the time limit.

Chapter FourRegistrations And Public Relations

Johan vd Merwe: Manager : Registrations and Public Relations

At each balance sheet date, the Fund reviews the carrying amounts of its assets to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. In determining the recoverable amount of assets, expected cash flows are discounted to their present values.

Realised gain or losses arising on the disposal of an asset is determined as the difference between the proceeds and the carrying amount of the assets and is recognised in the income statement.



Provision for impairment

Financial assets carried at amortised costs are assessed to impairment at each balance sheet date. A financial asset is impaired if its carrying value is greater than its estimated recoverable amount. When the asset is not collectable, it is written off against the related impairment. Subsequent recoveries are credited to the income statement in the period in which it occurred. Assessments are written off based on recommendations by inspectors of the Department of Labour or the appointed private debt collector firm. If the amount of the impairment subsequently decreases due to an event occurring after the initial impairment, the reversal is reflected in the income statement in the period in which it occurred. The Fund creates impairment when there is objective evidence that it will not be able to collect all amounts due. The amount of such impairment is the difference between the carrying amount and the recoverable amount, calculated as the present value of expected future cash flows discounted at the original effective interest rate. Future cash flows has been defined as expected cash flows within the next five financial years.

Retirement benefit cost

Payments to defined contribution plans are charged as an expense as they fall due. Payments made to the state-managed retirement benefit scheme are dealt with as defined contribution plans where the Fund’s obligations under the scheme are equivalent to those arising in a defined contribution retirement benefit plan. The Fund is also liable for other post retirement benefits, such as accumulated leave, to which the employees become entitled to at retirement.

Recognition of investment income

Interest income is recognised on a time proportion basis, by reference to the nominal value and the effective interest rate over the period to maturity.

Dividend income is recognised when the shareholders' rights to receive payment have been established.

1.6

1.7

1.8

16 69

from the Compensation Fund, but an independent actuary evaluates both. The affordability of benefit increases proposed annually by the Compensation Commissioner is also evaluated. Where the worker would reasonably have been expected to maintain children beyond 18 years of age, the child pension considerations extend to ter tiary education. Based on the annual returns of earnings received, 5 254 429 workers are covered and they are employed by 280 484 employers who are registered with the Fund. These workers are all potential beneficiaries.

Medical claims

This sub-directorate processes the claims of more than 14 000 medical service providers registered with the Board of Health Funders. Medical service providers are from different disciplines of medicine. The payment of claims is based on negotiated tariffs agreed with the different specialist associations. The tariffs are implemented on the first day of April each year.

Public service beneficiaries

State departments, provincial administrations and local authorities do not pay assessments to the Compensation Fund, and the Fund therefore does not pay COIDA benefits to public servants. However, they are expected to register with the Compensation Commissioner as their employees are entitled to COIDA benefits. When accidents and diseases are reported, the Fund processes the claims and sends payment awards to the Department concerned for processing of payment. Only monthly pension payments are sent to the National Treasury - Pensions Administration for payment. The major challenge to the Fund is to ensure that these exempted employers have budgeted for COIDA benefits, that the securities submitted are adequate to pay pensions when they arise, and that they are aware that they need to pay benefits to employees.

Major Achievements

• Policies completed this year : Work aggravated asthma and Upper Airways Disorders • All COIDA pensions were increased by 4.8%. In addition, all old pensions (1941 – 1985) received

differential inflationary increases to bring them to the level of the current inflation• The Compensation Fund has established a communication unit to serve as liaison between the Fund

and the public and media

Challenges

• Find solutions for delays in processing of claims• Finalise policies that are already under discussion• Develop strategy to maximize communication with stakeholders• Decentralising the Claims Enquiry system to Provincial Offices of the Depar tment to improve access

to the Fund



Realised and unrealised gains and losses arising from changes in the fair value of instruments traded in an active market are included in the income statement in the period in which they arise.

Financial instrumentsRecognition

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions of the instrument. Assets are derecognised when the entity looses control of contractual rights that comprise the assets and liabilities when the obligation is extinguished.

Measurement

Financial instruments are initially measured at cost, which includes transaction costs.

Purchases and sales of investments are recognised on the settlement date, which is the date that the asset is transferred to or by the Fund.

Financial assets not traded in an active market

Financial assets that are not traded in an active market are classified as "originated loans and receivables" and carried at amortised cost. The amortised cost of these instruments is calculated based on the effective yield method. These instruments include bank and cash balances and accounts and other receivables. Amortised costs is adjusted by making provision for impairment at the balance sheet date.

The Fund recognizes the purchase and sale of financial assets included in the portfolio that required delivery within the time frame established by regulation or market convention (regular way purchases and sales) at trade date, which is the date the Fund is contractually committed to purchase or sell the asset.

1.9A new claims processing system has been introduced,to speed-up service delivery to the public

70



Financial Instruments (continued)Financial assets traded in an active market

Financial assets that are traded in an active market are classified as "held for trading" and carried at fair value, irrespective of the purpose for which they were acquired. They are initially recognized at cost, including transaction costs. Subsequently, the fair value of instruments quoted in an active market is calculated based on the quoted market bid price.

Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into. Financial liabilities consist of accounts and other payables and are stated at their nominal value.

Receivables and prepayments

Accounts and other receivables are presented net of allowance for doubtful receivables, estimated by the Fund's management based on prior experience and the current environment. The credit risk with respect to accounts receivable is limited due to the large number of employers and their dispensation across different industries and geographical areas.

Cash and bank

The Fund does not have a formal counter par ty policy, but the credit risk in respect of cash resources is limited as the counter par ty is a high quality credit institution with a sound reputation. Management considers the carrying amount of cash and bank to approximate its value.

Provisions

Provisions are recognised when the Fund has a present legal obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the obligation can be made.

1.9

1.10

71

2. REVENUE CONTRIBUTIONS

Contributions by employersInterest and penalties on the late payment of contributions

TOTAL REVENUE

OTHER INCOME

Sundry revenue

CLAIMS INCURRED

Compensation for permanent disabilityCompensation for temporary disabilityIncrease in provision for outstanding claimsMedical claimsThird par ty recoveries

NET CLAIMS INCURRED

ACTUARIALLY CALCULATED CAPITALISED VALUE OF PENSIONS

Pensions capitalised during the year

ADMINISTRATION EXPENSES

Audit feesBad debts written offCompensation related expensesDepreciation

Furniture and equipmentMotor vehicles

Fees for professional servicesNet (profit)/loss on disposal of property and equipmentOperating lease payments

3.

4.



2005

R’000

2004

R’000

2, 376, 851 190, 349

2, 274, 068272, 641

2, 567, 200 2, 546, 709

20, 916 23, 090

134, 231 81, 765

171, 000 95, 000

(21, 100) (7, 723)

1, 391, 546 1, 415, 191

77, 491 91, 727

1, 029, 924 1, 154, 422

5.

392, 305 319, 888

6.

1, 369121, 639

2, 8306, 209

9721,39, 773

1, 7437, 625

5, 785424

7, 320305

24, 898(176)

14, 938

30, 457(44)

12, 273

72

BuildingsComputer hardwareOffice equipment

Reimbursement to government depar tmentsRepairs and maintenance of property and equipmentStaff costs

RemunerationExecutive remuneration excluding Director General (Note 6.1)Contributions to defined contribution plan

Subsidies for accident prevention

Other expenses

Advertising and enter tainmentBank chargesCleaning and security servicesCommunication costsContributions towards public private par tnershipInformation technology related expensesInsurance premiumsPostagePrinting and stationeryRegional services leviesSundry and incidental expensesWater and electricity

TOTAL ADMINISTRATION EXPENSES



2005

R’000

2004

R’000

5, 4777, 1542, 307

3, 2307, 0901, 953

53, 9563, 141

95, 772

34, 6104, 765

97, 486

87, 5721, 5716, 629

90, 2861, 2915, 909

2, 019 1, 467

80, 604 68, 874

5, 0241, 7741, 1236, 157

44, 5476, 9201, 2065, 4004, 4171, 083

4422, 511

4361, 896

9494, 653

40, 8051, 289

677, 4763, 925

7233, 6313, 024

407, 199 400, 001

73

6.1



Details

Director General: Dr. VM Mkosana

Paid by the Depar tment of Labour

Compensation Commissioner : SW MagojoBusiness Executive : WK TselaneChief financial officer : GJ DreyerChief information officer : V Sirkisson

Paid by the Fund

EXECUTIVE REMUNERATION

Bonuses and performance

related payments

Basicsalary

R’000 R’000 R’000 R’000 R’000

Otherallowances

Medicalaid

Total

307262263237

2522-13

121103112103

-21-

453389376353

405 21 157 9 592

405 21 157 9 592

1, 069 60 439 3 1, 571

7. INCREASE IN PROVISION FOR IMPAIRMENT OF RECEIVABLESAssessment debtorsThird par ty recoveriesOther receivables

INCREASE IN PROVISION

NET INVESTMENT INCOME

Compensation Fund related income

Sundry interest receivedDividend incomeFair value adjustmentsRealised gains/(losses)(Loss)/profit on disposal of investmentsLess: Investment management fees

2005R’000

2004R’000

654, 9097, 2009, 979

11, 578--

672, 088 11, 578

458, 894 458, 686

2, 8888

70, 673388, 866(2, 180)(1, 361)

3, 5098

(3, 810)460, 557

(606)(972)

8.

706, 764 587 640

122, 594571, 85412, 316

(5, 840)593, 937

(457)

1, 165, 658 1, 046, 326

Pension account related income

Fair value adjustmentsInterest on investmentsRealised gains/(losses)

TOTAL INVESTMENT INCOME

74

9



9.1Narration

Year ended 31 March 2005

Opening net book amountAdditionsDisposalsDepreciation charge

Closing net book amount

PROPERTY AND EQUIPMENT

Projectsin progress

Buildingsand land

R’000 R’000 R’000 R’000 R’000

Motorvehicles

Computermainframe

Furnitureand

equipment

----

-

-3,742

--

3,742

9641,017(281)(142)

1,558

----

-

10, 155 748 (15) (5,772)

5,116

R’000

Total

11, 119 5,507 (296)(5,914)

10,416

At 31 March 2005

CostAccumulated depreciationNet book amount

Year 31 March 2004

Opening net book amountAdditionsDisposalsDepreciation charge

Closing net book amount

Year 31 March 2004

CostAccumulated depreciationNet book amount

8,739(8,739)

3,742-

2,575(1,017)

27,732(22,616)

48,466(38,050)

- 3,742 1,558 5,116 10,416

----

-

----

-

613656(70)(235)

964

16, 216 1,259

-(7,320)

10,155

16,829 1,915 (70)(7,555)

11,119

----

-

5,678(5,678)

-

9.2 Building comprises Compensation House on Lot No. 66/R, Prinshof No. 349 JR, Pretoria (Market value = R29,0 million) Building on Remainder of Lot no. 252, Phalo Road, Bisho (Market value = R1,4 million)

9.3 Land and Buildings Land and buildings was last valued in 2003 by independent valuers on an open market basis. Revaluation surpluses have not been recorded in the accounting records of the fund.

8,739(8,739)

-

---

1,839(875) 964

26,999(16,844)10,155

43,255(32,136)11,119

5,678(5,678)

-

75

10.



10.1 Summary

Listed shares held for trading

Opening net book amountAdditionsDisposalsFair value adjustmentAccrued interest

Bonds originated by the entityat amortised cost

Opening net book amountAdditionsDisposalsAccrued interestUnrealised gains/(losses)

Bills and securities held for trading

Opening net book amountAdditionsDisposalsAccrued interest

Deposits originated by entityat amortised cost

Opening net book amountAdditionsMatured

At end of year

Current investmentsNon current investments

INVESTMENTSTotalCompen-

sation

R’000 R’000 R’000 R’000 R’000

Compen-sation

Pension Total

250

91--

159-

250

91--

159-

91

91----

-

-----

91

91----

Pension

R’000

-

-----

2005 2004

2,630,111

1,819,970 859,713(102,652)

25,83927,241

6,946,383

5,134,3071,789,743(205,364)

68,086159,611

1,793,034

1,380,4972,343,960

(1,904,487)16,336

(43,272)

3,352,628

2,157,1773,572,166

(2,415,006)31,1887,103

5,145,662

3,537,6745,916,126

(4,319,493)47,524

(36,169)

4,316,272

3,314,337930,030

(102,712)42,247

132,370

935, 903

1,691,3613,284,902

(4,094,779)54,419

1,408,511

3,017,7215,921,740

(7,628,462)97,512

1,726,944

1,063,8755,245,888

(4,618,402)35,583

1,364,162

1,380,1575,325,724

(5,379,521)37,802

3,091,106

2,444,03210,571,612(9,997,923)

73,385

472,608

1,326,3602,636,838

(3,533,683)43,093

1,985,281

1,012,9693,922,793

(2,950,481)

3,861,177

2,199,2137,101,355

(5,439,391)

1,012,969

1,402,2691,997,515

(2,386,815)

1,186,244

1,100,0001,950,244

(1,864,000)

2,199,213

2,502,2693,947,759

(4,250,815)

1,875,896

1,186,2443,178,562

(2,488,910)

5,551,545

2,947,2732,604,272

12,216,321

5,338,0246,878,297

4,533,038

2,753,7271,779,311

5,903,034

2,563,5653,339,469

10,436,072

5,317,2925,118,780

6,664,776

2,390,7514,274,025

77



PROVISION FOR OUTSTANDING CLAIMS

Actuarially calculated opening balanceTransfer from income statement

Actuarially calculated closing balanceTransfer to current liabilities

CAPITALISED VALUE OF PENSIONS

Actuarially calculated opening balanceIncrease in capitalised value of pensions

Pensions capitalised during the yearPayments and adjustments

Actuarial adjustment (Note 13.1)

ACTUARIALLY CALCULATED CLOSING BALANCE

13.

2005R’000

2004R’000

2, 780, 000173, 627

2, 685, 00095, 000

2, 780, 000842, 000

2, 953, 627885, 000

4, 433, 00042, 973

4, 982, 00077, 954

319, 888(276, 915)

392, 305(314, 351)

1, 938, 0002, 068, 627

506, 027448, 046

4, 982, 0005, 508, 000

12.

76

10.2



Cash movements

Compensation reserves Bonds Bills and securities Disposals Shares in listed companies

Pension reserves Bonds Bills and securities Deposits

At end of year

Contractual maturity schedule

Up to 1month

1,110,48825,839

408.025676,374

250

1 months to

3 months

786,785-

486,785300,000

-

3 months to 1 year

1,050,000--

1,050,000-

1 year to5 years

2,402,0272,402,027

---

5 yearsand over

202,245202,245

---

Total

5,551,5452,630,111

894,8102,026,374

250

742,57542,247

340,323360,005

1,853,063

698,176-

98,176600,000

1,484,961

950,000--

950,000

2,000,000

3,970,6573,970,657

--

6,372,684

303,368303,368

--

505,613

6,664,7764,316,272

438,4991,910,005

12,216,321

RECEIVABLES AND PREPAYMENTS

Assessments raised

Outstanding balances Provision for impairment

Third par ty claims

Outstanding balance Provision for impairment

Other receivables

AdvancesRecoverable medical expensesOther receivablesProvision for impairment

11.

2005R’000

2004R’000

1,893,574

2,230,067(336,493)

1, 474,192

2,465,594(991,402)

41,834

41,834-

49,688

56,888(7,200)

32,10330,622

4,724436

26,943-

16,980107

23,514(9,979)

TOTAL RECEIVABLES AND PREPAYMENTS 1,967,5111,554,502

78

CAPITALISED VALUE OF PENSIONS - continued

Independent actuarial valuations of the capitalised value of pensions (CVP) liability are carried out every year. The most recent valuation was done at 31 March 2005. The principal actuarial assumptions utilised in the calculation of the liability are as follows:

Pensions liability assumptions

Investment returnAnnual pension increasesReal discount rate

The effect on the pension liabilities of a change in the main valuation assumptions, compared with the main valuation results can be summarized as follows:



2005 20048.25 %3.75 %4.50 %

13.1

9.00 %4.50%4.50%

2005R’000

2004R’000

Main valuation liabilityContingency for possible adverse experience variationsIncrease in net rate from 4.5% to 6.5%95% of the mortality and 4.5% interest

In calculating the liability, allowance was made for additional pensions payable to the dependants on the death of the pensioner. It was assumed that females would be 5 years younger than male spouses. It is also assumed that 90% of pensioners are married.

In the case of pensioners, other dependants, and spouses, it was assumed that pensions would be payable for life. In addition, it was assumed that 30% of pensioners would die as a result of qualifying injury or disease resulting in contingent dependants’ liability. The assumed proportion will be reviewed once the actual experience has been collated and analysed.

In the case of children, a date on which the pension is expected to cease is provided. Each child pension is then valued as an annuity cer tain to that date. 15% of those below 19 years and 100% of those aged 19 and above at the cease date are assumed to have their pensions extended to age 23.

The mortality of persons in receipt of pensions payable is assumed to be in accordance with the SA 79/ 81 mortality tables, with the age taken as 3 years more than the actual age.

4, 746762

3, 9374, 799

4, 363619

3, 5884, 403

79



PROVISIONS

14.1Provision for merit rebates

Opening balance - non-currentTransfer to currentCharge to reserves

CLOSING BALANCE - NON-CURRENT

Opening balance - currentUtilised during the yearTransfer from non-current

CLOSING BALANCE - CURRENT

14.2Accumulative leave

Opening balance - non-currentUtilised during the yearCharge to income statement


14.3TOTAL


CLOSING BALANCE - CURRENT

ACCOUNTS PAYABLE

Audit feesDebtors with credit balancesDepar tment of LabourMedical expenses recovered in advanceOther payablesOutstanding chequesProcurement creditors

677, 290(180, 000)

-

701, 642(159, 659)

135, 307

497, 290 677, 290

14.

2005R’000

2004R’000

15.

159, 659(159, 659)

180, 000

4, 812(4, 812)

159, 659

180, 000 159, 659

12, 249-551

--

12, 249

12, 800 12, 249

510, 090 689, 539

180, 000 159, 659

147128, 85111, 830

40037, 80651, 6057, 387

57085, 86010, 087

40030, 27235, 9182, 505

238, 026 165, 612TOTAL ACCOUNTS PAYABLE

80

Profit on disposal of property, plant and equipmentProvision for accumulated leaveProvision for assessments not raisedProvision for unreported claimsInvestment incomeActuarial adjustmentDepreciationProvision for doubtful debts

Operating surplus before working capital changes

Working capital changes

(Increase)/decrease in accounts and other receivablesIncrease/(decrease) in accounts and other payables and accrualsIncrease/(decrease) in payments and adjustments for merit rebates(Increase)/decrease in accrued interestIncrease in unclaimed monies

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and bank balances.Cash and cash equivalents included in the cash flow statements comprise of the following balance sheet amounts:

Bank balances and cash



RECONCILIATION OF CASH (UTILISED IN)/GENERATED BY OPERATIONS

Surplus for the yearAdjusted for :

(176)551

(110, 415)173, 627

(1, 165, 658)448, 046

6, 209672, 088

(44)12, 249

(41, 905)95, 000

(1, 046, 326)506, 027

7, 625(18, 507)

16.

2005R’000

2004R’000

17.

442, 59024, 272

963 440(485 881)

466, 862 477, 559

(232, 010) (198, 802)

(148, 664)72, 414

(159, 659)1, 8032, 096

(207, 827)13, 333(4, 812)

(48)552

234, 852 278, 757

360, 532 667, 647

81



CONTINGENT LIABILITY

Licences in terms of section 30 of the Act to carry out the business of the Fund in certain industries have been issued by the Minister of Labour to two mutual associations. These mutual associations must deposit securities with the Fund to cover its liabilities. Fur thermore, cer tain local authorities have been granted exemption from paying annual assessments and are liable to pay compensation to their injured employees in the workplace. In terms of sections 31 of the Act, these exempted employers are required to deposit with the Commissioner securities, which are equivalent to the capitalised pensions of their employees.

If a mutual association or an exempted employer fails to meet in full its liabilities, in terms of the Act, the Accounting Authority may apply such securities to pay the liabilities, and the balance of the liabilities and future liabilities of the employer will have to be paid from the reserves. The securities thus controlled by the Fund amounts to R7.3billion (2004: R6.4billion).

18.

2005R’000

2004R’000

COMMITMENTS

19.1 Operating lease commitments

The future minimum lease payments under non-cancelable operating leases are as follows:

Not later than 1 yearLater than 1 year and not later than 5 yearsLater than 5 years

19.

13, 210, 1094, 171, 057

-

12, 009, 1903, 791, 870

-

17, 381, 166 15, 801, 060

19.2 Other commitments

The Fund is in the process of renovating Compensation House. The renovations commenced during the 2004/05 financial year and an estimated amount of R22.0 million will be paid during the next financial year.

ACTUARIAL VALUATION

Section 17(1) of the Act requires an actuarial valuation of the Fund at least every three years. The latest actuarial valuation indicated that the Fund is in a sound financial position as at 31 March 2005. Refer note 12 and 13.

20.

82



POSSIBLE DEPARTURE FROM SOUTH AFRICAN STATEMENTS OF GENERALLY ACCEPTED ACCOUNTING PRACTICES (GAAP)

21.

In December 2002 the Department of Labour entered into a public private partnership agreement in terms of which the complete information technology support function of the Depar tment, the Compensation Fund and the Unemployment Insurance Fund is outsourced. The Department of Labour and for that matter the Compensation Fund as well, is in the process of obtaining expert opinion on the appropriate accounting treatment of the agreement.

Currently the contribution (R44.5 million ; 2004: R40.8 million) by the Fund in terms of the agreement has been expensed. However, should the agreement be accounted for as a finance lease, expenses could be misstated and capitalised lease assets and liabilities could be understated. At this stage the effect of the possible depar ture from GAAP is not determinable.

21.1

21.2

83

Publisher Department of LabourChief Directorate of CommunicationPrivate Bag X117Pretoria0001

Editing, Photography, TSEBO Communications / Cinga Raba Inc Layout and Design.

Website www.labour.gov.za

Documents

Chapter Seventeen Financial Statements · Chapter Seventeen Financial Statements 59 ... The financial statements has been audited by the Office of the Auditor-General which was given