I am pleased to report on the Guardian's Fund operations, challenges and progress made during the year under review. This office continues to address the problems that have arisen in the past and is in the process of transforming itself in order to improve service delivery to the people. Long standing areas of concern are being addressed and plans have been put in place to rectify them.
The manual accounting system which is no longer able to cope with the current growth rate of the fund is in the process of being converted to the electronic format. Staff with accounting degrees were recruited but due to lack of experience, the massive increase in the growth of the fund and lack of full staff complements due to budget constraints, the larger offices experienced considerable difficulties reporting their financial positions. The Chief Financial Officer's office is assisting in bringing the bank reconciliations up to date.
Over the past number of years active steps have been taken to address these problems.
Previously it was reported that the process of converting these offices from the manual system currently in use to the electronic format had been piloted in the Bloemfontein office. This in fact was done but the Brilliant accounting system that had been selected to be utilised as the financial reporting element of the system was taken off the market.A replacement had to be found and adapted to the requirements of the fund. The Pastel accounting package was selected after discussions with that company's management. As it was felt that this accounting system could be adapted far more rapidly in a small well run office, the emphasis shifted to the Kimberley office which was smaller than Bloemfontein. The Kimberley office has now been converted to the electronic format and it is expected soon to be in a position to produce financial information whenever required. The Bloemfontein office is currently in the process of its final conversion with the Cape Town office to follow.
The reason for the cautious approach is that all information regarding a beneficiary already exists electronically. However, before being transferred to the permanent electronic record, the information must be carefully verified. The large number of manual records makes this task a slow process.
Due to the size of the remaining offices such as Pretoria, Pietermaritzburg and Grahamstown a slightly different approach will be followed. From a determined date in the future all new business will be dealt with on the electronic format while the current records will be transferred as and when they have been verified.
In order to improve service delivery to the public new offices will be opened at three new locations to deal with Guardian's Fund business. These are Johannesburg, Port Elizabeth and Durban; in addition Umtata, Bisho, Thohoyandou and Mmabatho will be reopened. With this expansion many members of the public will not have to travel great distances, as they did in the past, in order to receive funds due to them. In an attempt to minimise even the travel problem, members of the public will be encouraged to open bank accounts in order to facilitate the transfer of funds electronically.
Despite the progress made so far, further computer programming adaptations are required to improve the system even further. Such improvements as the ability to interrogate the funds bank account and reconcile its records with those of the bank together with the ability to issue income tax certificates to the beneficiaries in accordance with the income-tax act will be added as and when these adaptations become available.
As stated previously the Guardian's Fund has been reorganised into three divisions in order to improve its internal operating ability.
This division deals with the legal aspects of the fund such as the interpretation of any legislation and the affect of any court decisions. Applications for payouts such as maintenance, clothing, schooling etc are reviewed by this section before a payout is made.
This division is responsible for the processing and recording of the ï¬nancial information affecting the fund. In addition it is responsible for complying with the legal requirements of the Public Finance Management Act (PFMA) and the Treasury Regulations and the Departments Financial Instructions (DFI).
This division was set up to assist the other two core divisions by dealing with the normal ofï¬ce procedures required in such an ofï¬ce.
We experienced an annual growth rate in the fund in excess of 20% per annum during the last three years. As a result the Guardian's Fund is currently standing at R3.41 billion. However, this phenomenal growth rate has had an adverse impact on the people administering this fund making the conversion of the manual system to the electronic format absolutely imperative.
I have audited the financial statements of the Guardian's Fund as set out on pages 10 to 16, for the year ended 31 March 2006, as required by section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with sections 4 and 20 of the Public Audit Act, 2004 (Act No. 25 of 2004). These financial statements are the responsibility of the Master of the High Court. My responsibility is to express an opinion on the financial statements, based on the audit.
The audit was conducted in accordance with the International Standards on Auditing read with General Notice 544 of 2006, issued in Government Gazette no. 28723 of 10 April 2006 and General Notice 808 of 2006, issued in Government Gazette no. 28954 of 23 June 2006. Those standards require that I plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements assessing the accounting principles used and significant estimates made by management evaluating the overall financial statement presentation.
Up to the date of this report, the Master of the High Court, who is responsible for the administration of this fund had not yet implemented a proper control framework and financial accounting processes and controls to ensure the effective administration of the Guardian's Fund.
The complexity of the manual system, the enormous number of interest calculations, the record keeping of thousands of beneficiary accounts as well as the calculation of the annual interest provision posed a material risk of error and hindered the compilation of timely and accurate records and consequent financial statements. Most of the offices still use the old method of updating beneficiary information using manual record cards. This information is not captured on computer. I am not satisfied that alternative procedures in place adequately address the risk of record cards being misfiled, lost, stolen or destroyed. The risk of creating fictitious cards leading to the payment of fictitious beneficiaries is also real. The financial statements also included unallocated interest amounting to R143 184 732 and unallocated monies to the amount of R168 874 108 which should have been allocated to beneficiaries. Consequently, I am not satisfied on the accuracy and completeness of the accounting information generated through these systems on which the financial statements were prepared.
No proper financial information was available to compile the summary statements and it was mostly based on estimates, the basis of which could not be established. The financial statements were also not compiled in terms of Generally Accepted Accounting Practice. I could not satisfy myself regarding the completeness and accuracy of the information contained in the financial statements. It is also impractical to disclose the nature of the deviation from the statements of Generally Accepted Accounting Practice as this would involve a reproduction of all the financial records.
The reconciliation of the PlC investment account with the accounting records of the fund at year-end could not be produced for audit purposes in Pieterrnaritzburg and Bloemfontein. Although the balance per the financial statements was the same as that per the independent direct confirmation received from the PlC, this would not automatically suggest that the accounting records of the fund were accurate until each of the detailed transactions have been reconciled.
An examination of the reconciliation performed at the Guardian's Fund (Pretoria) on the PlC investment account identified that the incorrect PlC statement balance was used and reconciled.
In terms of section 88(2)(b) of the Administration of Estates Act, 1965 (Act No. 66 of 1965) interest-bearing accounts in the funds that became legally claimable but remained unclaimed for any period, must not earn interest after the expiry of five years.
Due to the volume of transactions that had to be processed manually and inadequate controls the ageing of these accounts could not be readily determined. Accordingly, the extent to which such amounts were not transferred to non-interest-bearing monies in terms of the legal requirements and any consequent overstatement of the interest could not be ascertained.
In terms of section 92 of the Administration of Estates Act. 1965 (Act No. 66 of 1965) those monies in the funds that have remained unclaimed by the persons entitled thereto for a period of 30 years from the date upon which such persons became entitled to claim the said money, must be forfeited to the state. Due to the current cumbersome manual accounting systems the extent to which unclaimed monies should be forfeited to the state could not be readily determined. The financial statements of the Guardian's Fund could therefore incorrectly include funds that belong to the state. Accordingly, audit procedures for verification could not be performed.
In terms of section 93 of the Administration of Estates Act of 1965 commission should be calculated on all unclaimed monies. If the monies were paid and cleared by the bank, the commission should be paid over to the South African Revenue Service (SARS). If the monies remained unclaimed, the entire amount including the commission must be paid over to SARS.
The commission, which should have been calculated and transferred, could not be quantified due to the large number of record cards and the manual accounting system. Audit procedures for verification could not be performed.
Because of the significance of the re-reported matters discussed in paragraphs 3.1.1 to 3.1.4 I do not express an opinion on the financial statements as at 31 March 2006.
In many instances tax certificates regarding interest allocated to beneficiary accounts were not sent to the South African Revenue Service and to beneficiaries on an annual basis as required by the Income Tax Act, 1962 (Act No. 58 of 1962).
inadequate back-up policy inadequate disaster recovery plan inadequate risk assessment performed at the Guardian's Fund.
However, the Master was in the process of computerising and revising policies and procedures in respect of the administration of the Guardian's Fund which should address the above.
The annual reports of the Guardian's Fund for 2002-03, 2003-04 and 2004-05 have not been tabled in Parliament. However, the annual report for 2002-03 was made public on the website of the Master of the High Court.
The assistance rendered by the staff of the Guardian's Fund during the audit is sincerely appreciated.
Trust monies held on 1st April, 2005.
Surplus/(Deficit) for the year.