Chapter 2

ANNUAL FINANCIAL STATEMENTS

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Statement of Responsibility

The Public Finance Management Act, 1999 (Act No. 1 of 1999), as amended, requires the accounting authority to ensure that the ROBBEN ISLAND MUSEUM keeps full and proper records of its financial affairs. The annual financial statements should fairly present the state of affairs of the ROBBEN ISLAND MUSEUM, its financial results, its performance against predetermined objectives and its financial position at the end of the year in terms of the basis of accounting as set out in note 1 to the financial statements.

The annual financial statements are the responsibility of the accounting authority. The Auditor-General is responsible for independently auditing and reporting on the financial statements. The Auditor-General has audited the entity’s financial statements and the Auditor-General’s report appears on pages 24 to 29.

The annual financial statements have been prepared in accordance with the basis of accounting as set out in note 1 to the financial statements. These annual financial statements are based on appropriate accounting policies, supported by reasonable and prudent judgements and estimates.

As part of the restructuring of the Institution for the 2008/9 year, all budgets are to be reviewed. However, on the basis of preliminary projections and, in view of the current financial position, the accounting authority has every reason to believe that the entity will be a going concern in the year ahead and has continued to adopt the going concern basis in preparing the financial statements.

The accounting authority sets standards to enable management to meet the above responsibilities by implementing systems of internal control and risk management that are designed to provide reasonable, but not absolute assurance against material misstatements and losses. The entity maintains internal financial controls to provide assurance regarding:

• The safeguarding of assets against unauthorised use or disposition.• The maintenance of proper accounting records and the reliability of financial information used within the

business or for publication.

The controls contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. Even an effective system of internal control, no matter how well designed, has inherent limitations, including the possibility of circumvention or the overriding of controls. An effective system of internal control therefore aims to provide reasonable assurance with respect to the reliability of financial information and, in particular, financial statement presentation. Furthermore, because of changes in conditions, the effectiveness of internal financial controls may vary over time.

The accounting authority has reviewed the entity’s systems of internal control and risk management for the period from 1 April 2007 to 31 March 2008. The accounting authority is of the opinion that the entity’s systems of internal control and risk management were inadequate for the period under review. However, steps will be taken to address the identified weaknesses over the two financial years ending 31 March 2010.

The annual financial statements for the year ended 31 March 2008, set out on pages 31 to 69, were submitted for auditing on 31 July 2008 and approved by the accounting authority in terms of section 51(1) (f) of the PFMA, 1999 (Act No. 1 of 1999), as amended and are signed on its behalf by:

Mr Naledi TsikiChairperson of Council26 September 2008

Report of the Audit Committee

Report of the Audit Committee for the financial year ended 31 March 2008

The RIM Audit Committee is pleased to present its report for the financial year ended 31 March 2008, in accordance with Treasury Regulation 27 and the Public Finance Management Act, 1999 (PFMA).

Audit Committee Members and Attendance

The Audit Committee convened five times during the year under review. Its members and their attendance at meetings were as follows:

Member Position Date appointed No of meetings attended

A C Coombe Independent chairperson July 2003 5 out of 5

F Mbali Council member October 2007 1 out of 1

C Abdoll Independent member June 2006 5 out of 5

G T Ndlovu Independent member June 2006 5 out of 5

Audit Committee responsibility

The Audit Committee reports that it has complied with its responsibilities arising from section 38 (1)(a) of the Public Finance Management Act and Treasury Regulation 3.1.13. The Audit Committee also reports that it has prepared appropriate formal terms of reference in the form of its audit committee charter, which has been duly adopted by the Council, has regulated its affairs in compliance with this charter and, as far as possible, has discharged all its responsibilities as contained therein.

Effectiveness of internal control

Based on our review and evaluation of the work of the Internal Auditors and of the Auditor-General, as reported to us for the year under review, the Audit Committee is of the opinion that the systems of internal control were generally inadequate and were operated for the most part ineffectively during the past year. We have noted numerous areas of weakness identified and reported by the Internal Auditors and the Auditor-General; we will monitor Management’s actions and responses thereto during the forthcoming year.

The Audit Committee repeats its concern of the previous financial year that a Council was not in place during the first half of the current financial year and that the new Council was only appointed from 1 October 2007. During much of the previous year and half of the current year, this critically important level of governance was not available to the organization and its Management. The Committee communicated in the previous year with the Minister of Arts and Culture in this regard.

The Audit Committee also repeats its concern that a risk management committee has not been constituted by the Council. Management has now appointed a risk and compliance officer and has drafted terms of reference of a risk management committee. Management is in the process of assessing the entire risk and fraud environment, after which a risk register will be established and a Council sub-committee appointed to monitor on a continuous basis the management of organizational risk.

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Report of the Audit Committee

Quality of quarterly management reports

The Audit Committee noted a serious deterioration in the quality of financial and other information contained in quarterly reports provided by Management to users during the past year. The Committee was supplied with a full set of reports for only one quarter of the past year, namely that for 31 December 2007. The Committee will continue to monitor the quality and timely preparation of these reports and to make recommendations for improvement, so as to enhance their adequacy, reliability and accuracy.

Evaluation of financial statements

The Audit Committee has:

• reviewed and discussed with the Auditor-General and the interim Chief Executive Officer the audited annual financial statements to be included in the annual report,

• reviewed the Auditor-General’s management letter and Management’s response thereto,• reviewed the appropriateness of accounting policies and practices, and• reviewed significant adjustments resulting from the audit.

The Audit Committee draws particular attention to the disclaimed audit report and the numerous reasons for reaching this unsatisfactory conclusion. The Committee concurs with and understands the disclaimed audit opinion of the Auditor-General on the annual financial statements and recommends that the audited annual financial statements, read together with the report of the Auditor-General thereon, be accepted.

A C Coombe

Chairperson of the Audit Committee

26 September 2008

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Report of The Auditor-General

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF THE ROBBEN ISLAND MUSEUM FOR THE YEAR ENDED 31 MARCH 2008

REPORT ON THE FINANCIAL STATEMENTS

Introduction1. I was engaged to audit the accompanying financial statements of the Robben Island Museum (RIM) which comprise

the statement of financial position as at 31 March 2008, statement of financial performance, statement of changes in net assets and cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes, and the accounting authority’s report, as set out on pages 30 to 69.

Responsibility of the accounting authority for the financial statements2. The accounting authority is responsible for the preparation and fair presentation of these financial statements in

accordance with the basis of accounting determined by the National Treasury, as set out in accounting policy note 1.1, and in the manner required by the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA). This responsibility includes: • designing, implementing and maintaining internal control relevant to the preparation and fair presentation of

financial statements that are free from material misstatement, whether due to fraud or error • selecting and applying appropriate accounting policies• making accounting estimates that are reasonable in the circumstances.

Responsibility of the Auditor-General3. As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section 4 of the Public

Audit Act, 2004 (Act No. 25 of 2004) (PAA), my responsibility is to express an opinion on these financial statements based on my audit.

4. I conducted my audit in accordance with the International Standards on Auditing and General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance on whether the financial statements are free from material misstatement.

5. 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.

6. An audit also includes evaluating the:• appropriateness of accounting policies used• reasonableness of accounting estimates made by management• overall presentation of the financial statements.

7. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

Basis of accounting 8. The public entity’s policy is to prepare financial statements on the basis of accounting determined by the National

Treasury, as set out in accounting policy note 1.1.

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Report of The Auditor-General

Basis for disclaimer of opinion Prior year errors9. Sufficient appropriate audit evidence could not be provided to substantiate the adjustments to prior year figures

as disclosed in note 18 to the financial statements. The following comparative figures are affected:• Net Expenditure (R442 885)• Deferred revenue R435 507• Non current assets R5 877 854• Current assets (R229 093)• Current liabilities (R406 559)There were no alternative audit procedures that could be performed to obtain reasonable assurance that the prior year adjustments are accurate, valid and complete.

Revenue10. Due to an inadequate control system implemented over tourism income, I was unable to satisfy myself as to the

completeness of the total ticket sales amounting to R28 335 209 as disclosed in note 12 to the annual financial statements. There were no alternative audit procedures that could be performed to obtain reasonable assurance that tourism revenue had been completely recorded.

11. Due to an inadequate control system implemented over operating lease income amounting to R395 159, as disclosed in note 15 to the annual financial statements, I was unable to satisfy myself as to the completeness, occurrence and accuracy of the accounting records relating to operating lease income. There were no alternative audit procedures that could be performed to obtain reasonable assurance that all operating lease income had been properly recorded.

Disclosures12. A material unexplained difference amounting to R945 995 was identified in the prior year figures disclosed in the

cash flow statement. The amount was disclosed as an unexplained reconciling item in the cash flow statement and, as a result, significant uncertainty exists regarding the valuation of the opening balances of all balance sheet accounts. There were no alternative audit procedures that could be performed to ensure correctness of the cash flow statement.

Deferred revenue13. Due to an inadequate control system implemented over the allocation and utilisation of the special project income,

I was unable to verify the completeness and valuation of the deferred revenue as disclosed in note 7. There were no alternative audit procedures that could be performed to obtain reasonable assurance that the deferred revenue had been completely and accurately recorded. As a result, uncertainty exists as to whether funds earmarked for special projects were fully funded with available cash at year-end.

Management representation letter14. I was unable to obtain the representations considered necessary from the management of the RIM with respect

to the accompanying financial statements. I could not determine the effect of the lack of such representations on the financial position of the entity as at 31 March 2008, or the results of its operations and its cash flows for the year then ended.

Property, plant and equipment15. The following were identified:

• Upon physical verification between the asset register and the floor material, variances were identified. As a result the existence, valuation and completeness of the closing balance of fixed assets and the related depreciation as disclosed in note 2 of the annual financial statements could not be audited.

• South African Statements of Generally Accepted Accounting Practices, IAS 16 (AC 123) Property, Plant and Equipment states that the residual value and the useful life of an asset shall be reviewed at least at each financial year-end. RIM did not conduct a useful life and residual value review of all assets at year-end resulting in assets which were still in use disclosed at R1 in the financial statements. There were no satisfactory audit procedures that I could perform to obtain reasonable assurance that all assets had been recorded at the correct value. Consequently, I was unable to perform the audit procedures I consider necessary to determine the valuation and allocation of property, plant and equipment.

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Report of The Auditor-General

Expenditure16. Due to a material breakdown in internal control systems and procedures the following was identified:

• Sufficient appropriate audit evidence could not be provided to substantiate expenditure amounting to R1 110 950 as disclosed in the statement of financial performance. I was unable to perform alternative procedures to obtain reasonable assurance regarding the accuracy, occurrence and completeness of these classes of transactions.

• Expenditure amounting to R784 900 has been recorded in the incorrect accounting period and as a result the expenditure as disclosed in the statement of financial performance has been overstated.

Disclaimer of opinion 17. Because of the significance of the matters described in the Basis for disclaimer of opinion paragraphs, I have not

been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements of the RIM. Accordingly, I do not express an opinion on the financial statements.

Other mattersI draw attention to the following matters that relate to my responsibilities in the audit of the financial statements:

Internal controls18. Section 51(1)(a)(i) of the PFMA states that the accounting authority must ensure that the entity has and maintains

effective, efficient and transparent systems of financial and risk management and internal control. The table below depicts the root causes that gave rise to the inefficiencies in the system of internal control, which led to the disclaimer of opinion. The root causes are categorised according to the five components of an effective system of internal control. In some instances deficiencies exist in more than one internal control component.

Prior year errors X

Revenue X

Disclosures X

Deferred revenue X

Management representation letter X

Property, plant and equipment X X

Expenditure X

Reporting item Control environment

Risk assessment

Control activities

Information & communication Monitoring

Control environment: establishes the foundation for the internal control system by providing fundamental discipline and structure for financial reporting.

Risk assessment: involves the identification and analysis by management of relevant financial reporting risks to achieve predetermined financial reporting objectives.

Control activities: policies, procedures and practices that ensure that management’s financial reporting objectives are achieved and financial reporting risk mitigation strategies are carried out.

Information and communication: supports all other control components by communicating control responsibilities for financial reporting to employees and by providing financial reporting information in a form and time frame that allows people to carry out their financial reporting duties.

Monitoring: covers external oversight of internal controls over financial reporting by management or other parties outside the process; or the application of independent methodologies, like customised procedures or standard checklists, by employees within a process.

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Report of The Auditor-General

Non-compliance with applicable legislation

Public Finance Management Act19. Section 51(1) (b) of the PFMA – RIM did not take effective and appropriate steps to collect all revenue due to the

entity.20. Section 51 (1) (c) of the PFMA – assets could not be properly safeguarded as a proper asset register was not

maintained during the year.

Treasury Regulations21. Treasury Regulation 56.1 – an approved and updated delegation of authority has not been implemented as required

by legislation.22. Treasury Regulation 27.2.1 – a risk management strategy and fraud prevention plan had not been implemented

for the year under review.23. Treasury Regulation 33.1.2 - requires the accounting authority to institute investigations into alleged financial

misconduct within 30 days of the reported date of the alleged misconduct. The accounting authority did not institute such investigations or proceedings within 30 days.

24. Treasury Regulation 28.2.1 – material losses through criminal conduct have not been disclosed in the annual report.25. Treasury Regulation 16A – threshold values applicable to procuring goods and services were not always adhered

to resulting in the disclosure of irregular expenditure as disclosed in note 26.

Matters of governance26. The PFMA tasks the accounting authority with a number of responsibilities concerning financial and risk management

and internal control. Fundamental to achieving this is the implementation of certain key governance responsibilities, which I have assessed as follows:

Matter of governance Yes No

Audit committee

• The entity had an audit committee in operation throughout the financial year

• The audit committee operates in accordance with approved, written terms of reference.

•The audit committee substantially fulfilled its responsibilities for the year, as set out insection 77 of the PFMA and Treasury Regulation 27.1.8.

Internal audit

•The entity had an internal audit function in operation throughout the financial year.

•The internal audit function operates in terms of an approved internal audit plan.

•The internal audit function substantially fulfilled its responsibilities for the year, as set out in Treasury Regulation 27.2.

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Report of The Auditor-General

Matter of governance Yes No

Other matters of governance

•The annual financial statements were submitted for audit as per the legislated deadlines section 55 of the PFMA.

•The financial statements submitted for audit were not subject to any materialamendments resulting from the audit.

•No significant difficulties were experienced during the audit concerning delays or theunavailability of expected information and/or the unavailability of senior management.

•The prior year's external audit recommendations have been substantially implemented.

•SCOPA resolutions have been substantially implemented.

•An accounting authority was appointed for the full year under review

OTHER REPORTING RESPONSIBILITIES

REPORT ON PERFORMANCE INFORMATION

27. I have reviewed the performance information as set out on pages 9 to 18.

Responsibility of the accounting authority for the performance information28. The accounting authority has additional responsibilities as required by section 55(2)(a) of the PFMA to ensure that

the annual report and audited financial statements fairly present the performance against predetermined objectives of the public entity.

Responsibility of the Auditor-General29. I conducted my engagement in accordance with section 13 of the PAA read with General Notice 616 of 2008, issued

in Government Gazette No. 31057 of 15 May 2008.

30. In terms of the foregoing my engagement included performing procedures of an audit nature to obtain sufficient appropriate evidence about the performance information and related systems, processes and procedures. The procedures selected depend on the auditor’s judgement.

31. I believe that the evidence I have obtained is sufficient and appropriate to provide a basis for the audit findings reported below.

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Report of The Auditor-General

Audit findings (performance information)

Measurable objectives not consistent32. I draw attention to the fact that the objectives listed in the annual report of the entity are materially inconsistent

when compared with the predetermined objectives as per the budget. Material inconsistencies were identified for the following programmes:• Marketing and communication• Estates and services

OTHER REPORTS

Investigations 33. The new Council of RIM, on the recommendation of the Minister of Arts and Culture requested the Department of

Arts and Culture to institute a forensic audit into the management of RIM. This report highlighted various areas of possible mismanagement and based on its findings the Chief Executive Officer, Chief Operations Officer and Chief Financial Officer have been suspended. The disciplinary process has started but has not been concluded. Consequently the forensic report is not yet available for public consumption.

34. A forensic audit was conducted into the theft of cash from sales at the RIM curio shops. Theft of cash was highlighted by this report and as a result disciplinary hearings were held where after certain curio employees were dismissed.

APPRECIATION35. The assistance rendered by the staff of the Robben Island Museum during the audit is sincerely appreciated.

Pretoria26 September 2008

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Accounting Authority’s Report for the year ended 31 March 2008

The Accounting Authority presents the annual report, which forms part of the audited financial statements of the Museum for the year, ended 31 March 2008.

PRINCIPAL ACTIVITY OF THE MUSEUMThe sustainable operation of a cultural institution and world heritage site.

COUNCIL MEMBERSAppointed 1 October 2007:N Tsiki, Mr ChairpersonC Niehaus, Dr Deputy ChairpersonF Mbali, Mr Council MemberM Mgxashe, Mr Council MemberG Singh, Mr Council MemberI Ebrahim, Mr Council MemberPM Molefe, Dr Council Member

EXECUTIVE OFFICERSChief Executive Officer: P. Langa - suspended 24 July 2008Chief Operations Officer: D Tungwana - suspended January 2008Chief Financial Officer: I.L. Masekwameng - suspended January 2008Company Secretary: Ms Cezanne Britain-Renecke - Resigned 30 April 2007

Linda Loubser - Appointed 2 January 2008 - Resigned 31 March 2008

GOVERNMENT DEPARTMENTDepartment of Arts and Culture

ADDRESSRobben Island MuseumNelson Mandela Gateway to Robben Island, ClocktowerV&A Waterfront, Cape Town

PO Box 51806, Waterfront, 8002

Telephone: 021 413 4200 Fax: 021 425 0206Website: www.robben-island.org.za

LEGAL FORMThe entity is a schedule 3A Public Entity in terms of the Public Finance Management Act No 1 of 1999 and is governed by the Natural Heritage Resources Act No 18 of 1999.

E Randall Council MemberMS Booi, Mr Council MemberP Dexter, Mr Council MemberE Godongwana, Mr Council MemberB Mydral, Mr Council MemberT Sandwith, Mr Council Member

LEGISLATIVE MANDATEThe mandate and core business of the ROBBEN ISLAND MUSEUM (RIM), is underpinned by the Constitution and all other relevant legislation and policies applicable to government departments.

The specific mandate of Robben Island Museum derived from the following Acts, Policies, Treaties and Conventions:

The National Heritage Resources Act, 1999The Cultural Institutions Act, 1998The National Monuments Act, 1969The World Heritage Convention Act, 1999The Public Finance Management Act, 1999The National Environmental Management Act, 1998Cape Nature and Environmental Conservation Ordinance, 1974Conservation of Agriculture Resources Act, 1983Marine Living Resources Act, 1998Environment Conservation Act, 1989Sea-shore Act, 1935National Veld and Forest Fire Act, 1998National Water Act, 1998

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Statement of Financial Position as at 31 March 2008

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Statement of Financial Performance for the year ended 31 March 2008

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Statement of Changes in Net Assets for the year ended 31 March 2008

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Cash Flow Statement for the year ended 31 March 2008