Co-operative Banks Development Agency Annual Report Annual Report 2011... · Co-operative Banks Development Agency Annual Report ... The Co-operative Banks Development Agency has

Co-operative Banks Development Agency Annual Report | For the year ended 31 March 2012

i

Co-operative Banks Development AgencyAnnual ReportFor the year ended 31 March 2012

Co-operative Banks Development AgencyAnnual Report

For the year ended 31 March 2012


iv

Vision

Creating a strong and vibrant co-operative banking sector that broadens access to and participation in diversified financial services to

achieve economic and social well-being.

Mission

The mission of the Co-operative Banks Development Agency (CBDA) focuses on the development of the co-operative banking sector

in the context of protecting those who participate in it through:

• appropriateregulationandsupervision;

• innovativecapacitydevelopmentandsupport;

• promotingco-operativevaluesandprinciples;

• promotingasavingscultureandfinancialliteracy;and

• protectingdepositors.

Values

The CBDA values:

• passion:tobedrivenanddedicated,withasenseofurgencyandencouragingfullparticipationandaspiritofcelebration;

• integrity:tobehonest,frank,accountableandtransparent;

• mutualrespect:tobetrustworthy,selfless,willingtoserveandcompassionate,withsharedvaluesandrespectfordecisions;

• commitmenttosolidarityandco-operation:tobecommittedtoteamwork,whichincludesbeingsupportive,havingacommon

purpose,sharinginformationandtakingresponsibility;

• excellence:tobevalue-adding,diligent,professional,punctualandcompetent.Itincludespayingattentiontodetailandbeing

committedtoknowledgeandlearning;and

• confidentiality:tomaintainprivacyindealingswithallstakeholders.

Vision, mission and Values


v

Theco-operativemovement,broadly,andthefinancialco-operativesector inSouthAfrica (SA)specificallyareat the thresholdof

significantdevelopmentswhich.willenablethemtomakeabiggerimpactinSA.

The past year has seen a hive of activity in the co-operative financial service sector with the very successful launch of the first Financial

Co-operativesIndaba,underthetheme“Enhancing financial inclusion through a vibrant co-operative banking sector in South Africa”, held

in Cape Town in October 2011.

The indaba allowed the sector to discuss issues of common concern and strategies to create sustainable and compliant co-operative

financialinstitutions(CFIs),andaself-sustainingmovementinSA.Theindabarealisedtwoveryimportantmilestones,thefirstbeing

the agreement by CFIs to establish aNational Association as a representative organisation for the sector; and the second being

NationalTreasury’slaunchofanewinvestmentproduct,namelytheFinancialCo-operativesRetailSavingsBond.TheBondisaimedat

providingasecure,affordablesavingvehicleforCFIs.

ThisyeartheworldcelebratestheInternationalYearofCo-operatives(IYC),whichisintendedtoraisepublicawarenessoftheinvaluable

contributionsofco-operativeenterprises,includingfinancialco-operatives,topovertyreduction,employmentgenerationandsocial

integration. The year will also highlight the strengths of the co-operative business model as an alternative means of doing business

and furthering socio-economic development. The Co-operative Banks Development Agency (CBDA) is playing an important role in

localinitiativesintheIYCbyparticipatinginthedti’sIYCtaskteamandco-ordinatingcommittee,aswellashostingitssecondannual

indabainKwaZulu-Natalunderthetheme“Financial Co-operatives building better communities”.

AsweconsiderthechallengesaheadfortheCBDA,theexperienceandknowledgeof itsboard,managementandstaff,aswellas

collaborationbetweentheCBDAandotherkeyroleplayers,suchaslocalandprovincialgovernment,providereasonstobepositive

about the future of the co-operative banking sector. Let us harness the commitment and energy within the sector to bring financial

co-operativesinSouthAfricatothesamematurestageofdevelopmentweseeinmovementsinternationally.

Pravin J. Gordhan

Minister of Finance

minisTeR’s sTaTemenT


vi

TotheMinisterofFinance,MrPravinGordhan:

Ihavethehonourofsubmittingtoyou,inaccordancewiththePublicFinanceManagementAct(1999),theannualreportoftheCo-

operative Banks Development Agency for the period 1 April 2011 to 31 March 2012.

SifisoNdwandwe

Chairman and Accounting Authority

Co-operative Banks Development Agency

suBmission oF THe annual RePoRT To THe eXeCuTiVe auTHoRiTY


vii

Bankers

FirstNationalBankLimited

External Auditors

AuditorGeneralSA

Physical Address

27thFloor,NationalTreasury

240VermeulenStreet

Pretoria

Postal Address

Private Bag X 115

Pretoria,

0001

Telephone

+27 12 315 5367

Fax

+27123155905

Website

w w w . t r e a s u r y . g o v . z a /

coopbank

Acting Managing Director

MsIngridGoodspeed

Director: Capacity Building and Information

MrRobertMbeza

Supervisor Co-operative Banks

Mr David de Jong

adminisTRaTiVe inFoRmaTion


viii

aCRonYms used in THis RePoRT

CBDA Co- operative Banks Development Agency

ACCOSCAAfrican Confederation of Co-operative Credit

andSavingsAssociation

BANKSETA BankingSectorEducationandTrainingAuthority

ATM Automated Teller Machines

CFI Co-operativeFinancialInstitution

CFFCentralFinanceFacilitySavingsandCredit

Co-operative

CIPCCompaniesandIntellectualProperty

Commission

dti DepartmentofTradeandIndustry

FSC FinancialServicesCo-operative

GP Gauteng

GRAP GenerallyRecognisedAccountingPractice

HR HumanResources

IT InformationTechnology

IYC InternationalYearofCo-operatives

KZN KwaZulu-Natal

Lim Limpopo

MOU Memorandum of Understanding

MP Mpumalanga

MTEF MediumTermExpenditureFramework

NEHAWUNationalEducation,HealthandAllied

Workers’UnionofSA

NQF NationalQualificationFramework

NT NationalTreasury

NW NorthWest

OSK OranjekasSpaarenKrediet

PAA PublicAuditActofSouthAfrica

PEARLS

Protection,EffectiveFinancialStructure,

AssetQuality,RatesofReturnLiquidity,Signs

of Growth

PFMA Public Finance Management Act

ROACRegulatoryandOversightAdvisory

Committee

SA SouthAfrica

SACCASavingsandCreditCo-operativeAssociation

Africa

SACCO SavingsandCreditCo-operative

SACCOLSavingsandCreditCo-operativeLeagueof

SouthAfrica

SAICA SouthAfricanInstituteofChartered

Accountants

samaf SouthAfricanMicro-financeApexFund

SAMWU SouthAfricanMunicipalWorkersUnion

SARB SouthAfricanReserveBank

SCM SupplyChainManagement

SME SmallandMediumEnterprise

SMME SmallMicroandMediumEnterprise

SRO Self-regulatoryOrganisation

WC Western Cape

WOCCU World Council of Credit Unions


ix

1. REPORTOFTHEACCOUNTINGAUTHORITY ...................................1

2. REPORTOFTHEMANAGINGDIRECTOR ............................................3

3. HUMANRESOURCES .....................................................................................7

4. CORPORATEGOVERNANCE ...................................................................10

5. PERFORMANCEAGAINSTSTRATEGICTARGETS .........................13

6. CO-OPERATIVEBANKSSUPERVISIONREPORT ............................19

7. CAPACITYBUILDINGANDINFORMATIONREPORT .................29

8. STATEMENTOFRESPONSIBILITY .........................................................34

9. REPORTOFTHEAUDITCOMMITTEE ................................................36

10. REPORTOFTHEAUDITOR-GENERALTOPARLIAMENT

ONTHECO-OPERATIVEDEVELOPMENTAGENCY ...................39

11. FINANCIALSTATEMENTS ..........................................................................45

TABles AnD FiguRes

Figure1:StructureoftheCBDA ..................................................................... 8

Table 1: CBDA committees .......................................................................... 10

Table 2: Board and committees attendance ..................................... 11

Table3: MDandCorporateServices ...................................................... 13

Table4: Co-operativeBanksSupervisionUnit ................................. 16

Table5: CapacityBuildingInformationUnit ..................................... 17

Table6: StatisticsforCFIsasat29February2012 ..........................19

Figure2:ConsolidatedstatisticsforeligibleCFIs.............................. 20

Figure3:MostprevalentweaknessesofCFIs ..................................... 21

Table7: Ratingandfrequencyofon-siteexaminations ............ 23

Table8: ThegrowthandfinancialperformanceofCFIs

(including co-operative banks) ............................................... 30

Table9: Statusofco-operativebanksandCFIseligible

for registration as co-operative banks ................................ 30

TaBle oF ConTenTs


x

1. RePoRT oF THe aCCounTinG auTHoRiTY


1

TheCo-operativeBanksDevelopmentAgencyhasbeeninexistenceforjustunderfouryears.Duringthisperiod,thefocushasbeen

onestablishingtheinstitutionalstructure,gettingtherightpeopleintotherightpositions,gettingeligiblefinancialco-operativesto

applyforregistrationasco-operativebanks,understandingthefinancialco-operativessectoranddoingthegroundworkfortackling

the challenges that lie ahead. What has been abundantly clear during this period is that financial co-operatives in the country are still

developing.Asaresult,thedevelopmentalmandateoftheAgencybecomesimperative,buttressedbyafitandappropriateregulatory

framework.

TheAgencyhasgoneaboutensuringitmeetsitsmandatebyregularandconsistentdialoguewithvariousroleplayersinthesector,

notably the financial co-operatives themselves, self-regulatory bodies and relevant local government departments.The intended

outcome is a more co-ordinated and systematic approach to addressing the needs of co-operative financial institutions.

Duringthecourseofthefinancialyear,MrNkosanaMashiya,asecondmentfromNationalTreasury,wastheManagingDirectorofthe

CBDAonashort-termcontract,astheboardworkedonalong-termsolution.Beforetheboardcouldfinaliseitsrecruitmentprocess,

MrMashiyawasappointedastheDeputyRegistrarofBanksattheSouthAfricanReserveBank.NationalTreasuryprovidedasecond

secondment,Ms IngridGoodspeed, to steer theorganisation for the remainderof thefinancial yearuntil theappointmentofMs

OlaotseMatshaneasManagingDirectorinMay2012.Despitethesesignificantchangesatstrategiclevel,theAgencyhasremained

focused on attaining its vision of “creating a strong and vibrant co-operative banking sector that broadens access to and participation in

diversified financial services to achieve economic and social wellbeing.”

SifisoNdwandwe

Chairman and Accounting Authority





2

2. RePoRT oF THe manaGinG diReCToR


3


The essence and importance of co-operative bankingThe 2007/08 financial crisis and ensuing economic crisis had a negative impact onmost enterprises across theworld. However,

co-operative financial institutions (CFIs), including co-operative banks, savings and credit co-operatives and financial services co-

operatives,allovertheworldarereportingnotonlythattheyarestillfinanciallysound,butthatcustomersareflockingtobankwith

thembecause they arehighly trusted.Theessenceof co-operativebanking is simple:members,whohavea commonbond, are

owners andcanbeboth savers andborrowers; theyuse theco-operativefinancial institution to intermediatemoney from those

memberswhohaveittothosememberswhoneedit,withoutanybodyexternaltotheCFItakingaprofitandwithinterestratessetso

thatthemodelworksineverymember’sinterest.Importantly,eachCFIisdemocraticallygovernedbyitsmembers,witheverymember

havinganequalvoiceregardlessoftheamountofsavingsorloanstheyhavewiththeCFI.

Inaddition,CFIsareparticularlygoodatreachingthepoorandvulnerable,particularlyinruralareas.Theyareabletoprovidearange

ofaffordablefinancialservicestomemberswhilekeepingcostslow.Thustheydeliverqualityproductsandservicestocommunities

whilestillbeingprofitable.Furthermore,theco-operativebankingmodelhasthepotentialtobegoodnewsforemploymentcreation,

asCFIsareidealvehiclesforenablingsmall,microandmediumenterprisestoexpand.InEurope,forinstance,29%ofco-operativebank

lending is to small and medium enterprises.

ItisinthiscontextthattheCo-operativeBanksActprovidesspaceforcommunitiestoparticipateintheirownco-operativebanksthat

canbegearedtowardstheirfinancialservicesneeds,intheprocessallowingforempowermentandself-determination.

Fulfilling CBDA’s mandateIfthepotentialofCFIstoimproveaccesstofinancialservicesistoberealised,thedevelopmentoftheco-operativebankingsector

becomescritical.TheCBDA’smandate,asprovidedinsection2oftheCo-operativeBanksActof2007,istopromotethedevelopment

of sustainable and responsible co-operative banks. This will be achieved by putting in place robust, achievable andmeasurable

actionplans,deliverablesandtargetstoadvanceCFIsthatareeligibletobeco-operativebanks,totherequiredlevelofsoundness,

sustainability and governance to register as co-operative banks.

The year under reviewOn14June2011oneco-operativebank,OSKCo-operativeBank,with379membersandR42.1million indeposits,wasregistered

bytheSupervisorattheSouthAfricanReserveBank,bringingthetotalnumberofco-operativebankstotwo.Duringtheyearunder

review,thenumberofCFIseligibleforregistrationasco-operativebankswas19.

NoneoftheCFIseligibletoberegisteredasco-operativebanksthatwereassessedduringthe2011/12financialyearmanagedto

addresstheweaknessespointedoutbytheSupervisorssufficientlyandhencenonewasregisteredasaco-operativebank.Themost

prominentareasofweaknesswereinadequatecapitallevels,weakgovernancestructures,insufficientoperationalcapacityandpoor

managementinformationsystems.TheseshortcomingswerebroughttotheattentionoftheCapacityBuildingUnittoenableit,as

partofitsdevelopmentalobjectives,toimplementappropriatestrategiestosupportsuchCFIsinaddressingthesedeficiencies.



4

Duringtheyearunderreview,theCapacityBuildingUnitcontinuedtofocusoninitiativessupportingandpromotingfledgingCFIsand

acceleratingCFIperformancetowardsregistrationassafeandreliableco-operativebanks.Theseinitiativescentredon(i)improving

datacollection,managementanddissemination in theCFI sector; (ii)establishinganationalassociationwithprovincial structures

tobringtogetherallCFIs intheprovincesandanationalstructurewithrepresentatives fromallnineprovinces; (iii) facilitatingthe

developmentoflearningprogrammesandimplementingtrainingarrangementsthroughuniversitiesandcolleges;and(iv)improving

CFIcompliancerateswiththerules,regulationsandstandards.

The year ahead

In the year ahead, the legislative environment inwhichCFIsoperate is to change.TheCo-operativeBanksAct is expected tobe

amendedtomovethesupervisoryfunctionoftheCBDAtotheSouthAfricanReserveBank(SARB).Also,anewBanksActexemption

noticeistobeputinplacetoassigntheregulationandsupervisionofallCFIs,thatis,potentialco-operativebanks,totheCBDA.

The CBDA looks forward to the challengesposedbythesechanges.Itisenvisagedthattheywillfosterthedevelopmentmandateof

the CBDA and allow both the supervision and capacity building functions to put in place programmes to ensure a healthy pipeline of

viableandsustainableCFIsthatwilleventuallyberegisteredasco-operativebanks.

Nextyear, theCBDAwillseektoensureaCFIsector that is institutionallysoundbyregistering, regulatingandsupervisingCFIsand

therebyimprovingtheirsafetyandsoundnessandthefinancialstabilityofthesectorasawhole.Furthermore,theCBDAwillstrivefor

avibrantandgrowingCFIsectorthatbroadensaccessandmobilisessavingsatcommunitylevel.TheCBDAwillachievethisthrough:

(i) establishing and implementing training programmes to address the low levels of skills and competencies in the management

and leadershipofCFIs; (ii) putting inplace a national bankingplatformwith administrative capabilities and access to thenational

paymentsystemtoallowCFIstokeepappropriaterecords,producemanagementinformationandtoissuedebitcardswithfullaccess

toautomatedtellermachines,pointsofsaleatmerchantsandmobilebankingservices;and(iii)strengtheningthenationalassociation

ofCFIsasarepresentativeandsupportorganisationforthesector

Organisational authority and financial managementThe CBDA is a statutory body registered as a public entity in terms of section 3 (a) of the Public Finance Management Act. The CBDA is

funded by transfer paymentsthroughNationalTreasury.TheCBDAmaintainedadequateaccountingrecordsandaneffectivesystem

ofinternalcontrolsandriskmanagementandcomplied,inallmaterialrespects,withapplicablelawsandregulations.

AcknowledgementsDuringtheyearunderreview,MrNkosanaMashiya,theCBDA’sactingManagingDirector,lefttheCBDAtojointheSARB.TheCBDAis

gratefulforthestrategicguidanceanddirectionprovidedbyMrMashiya,whoreinforcedimplementationofthemandateoftheCBDA

topromoteanddevelopthesector,inclusiveofbothco-operativebanksandprospectiveco-operativebanks.



5

Wearegratefulforthewisdom,supportandguidanceofourchairmanMrSifisoNdwandwe,andtherestoftheboard.Bymaintaining

focusonprovidingstrategicdirection,theboardhasensuredthattheCBDAhasputinplaceinitiativesthatwillnotonlyproduceCFIs

thataresufficientlyviableandsustainabletoberegisteredasco-operativebanks,butwillsecurethefutureoftheCFIsectorasawhole.

Inaddition, Iwish to thank the staffof theCBDA for theirenormousdedicationandhardwork inadifficult andat timesvolatile

environment.ItisthroughtheireffortsthattheCBDAhasmadetheprogressithas.

IngridGoodspeed

Acting Managing Director



6

3. Human ResouRCes


7

3. Human ResouRCes

TheCBDA’s staff complement is 10 (2011 – 8).The increase in the staff complement is to cater for assigning the regulatory and

supervisoryfunctionintermsoftheBanksActexemptionnoticetotheCBDA.Futurestaffincreaseswillbeinlinewiththedevelopment

of other programmes.

The current organisational chart of the CBDA is outlined in Figure 1:

TheCBDA’smanagingdirectorissupportedbyaCorporateServicesUnit,SupervisionUnitandCapacityBuildingUnit,

Corporate services unitThe corporate services unit comprises:

• thefinancialfunction,whichisoutsourcedtoRossalNo98(Pty)Ltd;

• thehumanresourcesfunction,whichisoutsourcedtoNationalTreasury;

• theprogrammeadministrator,MrPercyMolokoane;and

• thepolicyandresearchofficer.Thispositionisvacant.

supervision unit TheSupervisionUnitisheadedbytheSupervisor,MrDaviddeJong,andissupportedbyoneseniorexaminer,MrMKuhlengisa,and

oneinspector,MrMfundoZama.AdministrativeassistanceisprovidedbyMsMokgadiMafojane.

Two additional posts (an examiner and an inspector) have been created in the unit for the next financial year in anticipation of the

CBDA’sassumptionofadditionalregulatoryresponsibilitiesforallCFIsnotregisteredasco-operativebanks.

Capacity Building unitTheCapacityBuildingUnit isheadedbyMrRobertMbeza,whoissupportedbyhisdeputy,MsNomadeloSauli,andanofficer,Mr

TimothyMutyavaviri.Administrativesupportwasprovided,atvarioustimesoftheyear,byMrPercyMolokoane,MsMokgadiMafojane

andMsShirleyMolongoana.Theadministrativeassistantpositionwillbefilledin2012.

3. Human ResouRCes


8

Figure 1: Structure of the CBDA

3. Human ResouRCes

Human Resources(OutsourcedtoNationalTreasury)

Financial management(OutsourcedtoRossalNo98(Pty)Ltd)

Programme AdministratorPercy Molokoane

Policy and ResearchVacant

ExaminerM Kuhlengisa

ExaminerVacant

InspectorVacant

InspectorMfundo Zama

Team AssistantMokgadi Mafojane

Capacity BuildingDirector

RobertMbeza

Capacity BuildingDeputy

NomadeloSauli

Capacity Building OfficerTimothy Mutyavaviri

Office AdministratorShirleyMolongoana

Board

Acting Managing Director IngridGoodspeed

Corporate Services

Supervision & RegulationSupervisor

David de Jong


9

4. CoRPoRaTe GoVeRnanCe


10

TheCBDAisapublicentityestablishedintermsoftheCo-operativeBanksActof2007(theAct).ItisapublicentityunderSchedule

3aof thePublic FinanceManagementAct 1999, as amended (PFMA).As such,Treasury regulations impose certain statutory and

regulatoryrequirementsontheCBDA.

Board of DirectorsThe Board of Directors of the CBDA is appointed by the Minister of Finance (the Minister) in terms of section 58 of the Co-operative

Banks Act of 2007. The Board is the accounting authority of the CBDA and must fulfil certain duties and responsibilities provided for in

thePFMA.Inaddition,theActrequirestheBoardto:

• provideeffective,transparent,accountableandcoherentcorporategovernanceandconducteffectiveoversightoftheaffairsof

theCBDA;

• complywithallapplicablelegislationandagreements;

• communicateopenlyandpromptlywiththeMinisterandanyministerialrepresentatives;

• dealwiththeMinisterandanyministerialrepresentativesingoodfaith;and

• atalltimesactinaccordancewiththecodeofconductformembersoftheCBDAasmaybeprescribedbytheMinister.

Membership of the CBDA Board of directors as at 31 March 2012:

MrSNdwandwe(Chairperson)

Adv.EJZKuzwayo(DeputyChairperson)

MrVSatgar

Mr K Mahuma (resigned on 30 March 2012)

Mr J Theron

Ms D Hamilton

Mr P Koch

Ms O Matshane (appointed as Managing Director from 14 May 2012)

Acting Managing Directors during the financial year:

MrNMashiya(appointedasActingManagingDirectorfrom14April2011to31October2011)

MsIGoodspeed(appointedasActingManagingDirectorfrom8November2011to13May2012)

CBDA Board committees as at 31 March 2012Table1indicatestheCBDA’scommitteesandmembershipofthosecommittees.

Table 1: CBDA committees

HR & Remuneration Committee

Audit Committee (combined with that of national Treasury) in terms of section 77(c) of PFMA

Risk Committee (combined with that of national Treasury) in terms of section 77(c) of PFMA

Regulatory Overview & Advisory Committee (ROAC)

AdvEJZKuzwayo Ms O Matshane MsIGoodspeed AdvEJZKuzwayo

Mr J Theron Mr P Koch (alternate)

MrSNdwandwe

TheBoardcommitteesenabletheBoardtodischargeitsresponsibilitiesanddutiesproperly.Eachcommitteeactsinaccordancewith

its charter and is chaired by an independent non-executive director.



11


Board and Board committee meeting attendanceBoard and committeemeetings are scheduled annually in advance. Boardmembers’ attendance of Board and Board committee

meetings is outlined in Table 2.

Table 2: Board and committees attendance

Board and committee meeting attendance

Board HR and Remuneration Committee

Audit Committee ROAC

MrSifisoNdwandwe 5/5 3/3

Adv. Jabu Kuzwayo 5/5 3/3 1/1

Ms Daphne Hamilton 5/5

Mr KeaObaka Mahuma 0/5

Mr Jan Theron 5/5 3/3

Ms Olaotse Matshane 3/5 1/3

Mr Peter Koch 4/5

MrVishwasSatgar 4/5

Remuneration of Board membersCBDABoardmembersareremuneratedatratesdeterminedandissuedbytheNationalTreasuryintermsofservicebenefitpackages

foroffice-bearersofcertainstatutoryandotherinstitutions.

The remuneration of Board members is summarised in note 25.2 in the annual financial statements.


12

5. PeRFoRmanCe aGainsT sTRaTeGiC TaRGeTs


13


Tab

le 3

: MD

and

Cor

por

ate

Serv

ices

Ob

ject

ive

ind

icat

ors

Act

ual p

erfo

rman

ce a

gai

nst

targ

etRe

ason

s fo

r var

ian

ce a

nd

oth

er c

omm

ents

Targ

etA

ctua

lVa

rian

ce

1.EstablishtheDep

osit

InsuranceSche

meforthe

CFIsector

Afu

ndwith

1.25%

coverageof

insu

rabl

e de

posi

ts b

y 31

Mar

ch

2012

Securefinancing

tosetup20%

com

plet

e by

31

Mar

ch 2

012

Non

eNoap

proved

fu

nd a

nd s

ecur

ed

fund

ing

TheNationalTreasurywillestab

lishasing

leinsurance

fund

with

inth

eSA

RBto

protectdep

osito

rsofall

banks,includ

ingco-ope

rativeba

nks.

2.Streng

then

strateg

ic

rela

tions

hips

with

st

akeh

olde

rs

Num

bero

fstakeho

lderm

eetin

gs/

cons

ulta

tions

hel

d an

d M

OU

si

gned

by

31 M

arch

201

2

12 s

take

hold

er

cons

ulta

tions

1 M

OU

sig

ned

12 s

take

hold

er

cons

ulta

tions

1 M

OU

sig

ned

0One

MOUsigne

dwith

BANKSETA

Num

bero

fstakeho

lderindaba

she

ld b

y 31

Mar

ch 2

012

1 st

akeh

olde

r Indaba

1stakeh

olde

rInd

aba

0

3.

Dev

elop

a s

trat

egic

leadership,financial

managem

ent,administrative

supp

ort t

o en

sure

that

the

CBD

A m

eets

it s

tatu

tory

m

anda

te b

y M

arch

201

2

Securedbu

dgetallocatio

ninline

with

requ

estedbids

9.3million

9.3million

0

Num

bero

fnew

position

sfilled

21

-1Th

is p

ositi

on w

as re

prio

ritis

ed fo

r the

201

2/13

fin

anci

al y

ear.


14 Ob

ject

ive

ind

icat

ors

Act

ual p

erfo

rman

ce a

gai

nst

targ

etRe

ason

s fo

r var

ian

ce a

nd

oth

er c

omm

ents

Targ

etA

ctua

lVa

rian

ce

4.Establishsoun

dgo

vernance

structures;internalcon

trols

and

finan

cial

man

agem

ent

that

adh

ere

to la

ws

and

regu

latio

ns(PFM

A);Treasury

Regu

latio

nsbyMarch2012

.

HRPlanestab

lishe

d50%com

plete

0%com

plete

-50%

TheHRPlanisinpartadd

ressed

bytheHRsectionof

the

2012

/201

5 st

rate

gic

plan

. Oth

er c

ompo

nent

s of

theHRPlanwillbede

velope

dincon

sultatio

nwith

NationalTreasuryHRandtheCBD

AHRCo

mmittee.

RetentionStrategyestab

lishe

d50%com

plete

0%-50%

TheRetentionPlanisstilltobe

develop

edafter

consultatio

nwith

NationalTreasuryHRandtheCBD

A

HRCo

mmittee.

Frau

d Pr

even

tion

Plan

est

ablis

hed

and

impl

emen

ted

100%

0%-100%

Thedraftp

lanwastabled

toth

ebo

ard.Itwill

be re

view

ed b

y th

e au

dit c

omm

ittee

bef

ore

it is

im

plem

ente

d.

Compliancewith

SCMpolicies

100%

com

pliance

100%

com

pliance.

0%Fi

nal c

onfir

mat

ion

subj

ect t

o au

dit fi

ndin

gs

Upd

ated

pol

ices

on:

Insuranceon

com

puterassets

100%

0%-100%

Afteracost-be

nefitanalysis,CBD

Adecided

toado

pt

theNationalTreasury’spo

licyofreplacingcompu

ter

asse

ts in

stea

d of

insu

ring

them

.

Intang

ibleassets-amen

dcurren

tfin

anci

al p

olic

ies

100%

100%

0%

Jour

nal p

olic

ies

100%

100%

0%

Tab

le 3

: MD

and

Cor

por

ate

Serv

ices

- co

ntin

ued



15Ob

ject

ive

ind

icat

ors

Act

ual p

erfo

rman

ce a

gai

nst

targ

etRe

ason

s fo

r var

ian

ce a

nd

oth

er c

omm

ents

Targ

etA

ctua

lVa

rian

ce

5.

Dev

elop

and

impl

emen

t eff

ective,efficien

tand

tr

ansp

aren

t sys

tem

s of

inte

rnal

con

trol

s on

pe

rfor

man

ce m

anag

emen

t by

Mar

ch 2

012

Polic

ies

and

proc

edur

es fo

r qu

arterlyperform

ancerepo

rting

100%

0%-100%

TheCBD

Aado

pted

theNationalTreasurypo

sitio

nofusing

theNationalTreasuryFram

eworkfor

PerformanceInform

ation,whichwasdevelop

edin

2012

as

a gu

idin

g do

cum

ent

Quarterlyrepo

rtssubm

itted

toth

een

titie

s un

it100%

100%

0%

Ann

ual p

erfo

rman

ce p

lan

that

linksto

thequ

arterlyperform

ance

repo

rt

100%

50%

-50%

Thequ

arterlyperform

ancerepo

rtte

mplatethatwas

used

pre

sent

ed s

ome

of th

e ta

rget

s at

a c

onso

lidat

ed

levelw

hichm

adesomeofth

equ

arterlyrepo

rttargets

not t

o al

ign

to th

e ta

rget

s as

doc

umen

ted

in th

e an

nual

per

form

ance

pla

n.

Note:The

introd

uctio

nofadep

ositinsurancesche

meforco-op

erativebanksisnolong

erinclud

edinth

estrategicob

jectivesofthe

CBD

Aasaseparatedep

ositinsurancesche

meforco-op

erative

banksmaynotbene

cessary.In

itspo

licydo

cumen

t“AsaferfinancialsectortoserveSou

thAfricabetter”,the

NationalTreasuryrecogn

ised

thatap

artfro

mprotectingba

nkdep

osito

rs,the

introd

uctio

nofdep

ositinsuranceisim

portantforencou

raging

new

entrantstoth

eba

nkingsector.Suchne

wentrantscouldbe

co-op

erative,m

utualand

ded

icated

banks.H

oweverinsteadofa

depo

sitinsurancesche

meforeachtype

ofbanktheNationalTreasuryiscon

side

ringasing

ledep

ositinsurancesche

methatprotectsa

llba

nkdep

osito

rs,in

clud

ingde

positorsofco-op

erativeba

nks.

Tab

le 3

: MD

and

Cor

por

ate

Serv

ices

- co

ntin

ued



16 Tab

le 4

: Co-

oper

ativ

e Ba

nks

Sup

ervi

sion

Uni

t

Ob

ject

ive

ind

icat

ors

Act

ual p

erfo

rman

ce a

gai

nst

targ

etRe

ason

s fo

r var

ian

ce a

nd

oth

er c

omm

ents

Targ

etA

ctua

lVa

rianc

e

1.Registerand

sup

ervise15co-

oper

ativ

e ba

nks

by 2

016

App

licat

ions

are

resp

onde

d to

with

in tw

o w

eeks

of

rece

ipt

2 w

eeks

2 w

eeks

0

Nosupe

rvised

co-op

erativeba

nkfallsbelow

a

CAMELratin

gof3

3 ra

ting

3 ra

ting

0

Co-ope

rativeba

nkoff-sitereturnsareanalysed

an

d re

port

ed w

ithin

thre

e m

onth

s to

Min

iste

r and

Bo

ard

4 re

port

s4

repo

rts

0

2.

Han

dle

trou

bled

co-

oper

ativ

e ba

nks

Lett

ers

issu

ed w

ithin

thre

e m

onth

sle

tter

s is

sued

to

trou

bled

co-

op

erat

ive

bank

s

0 le

tter

is

sued

0Th

ere

was

no

trou

bled

co-

oper

ativ

e ba

nk

3.

Com

plia

nce

with

and

revi

ew o

f re

gula

tory

fram

ewor

k90%com

pliancewith

BaselPrin

ciplesford

eposit-

taki

ng m

icro

finan

ce in

stitu

tions

70%

com

plia

nt

Mar

ch 2

012

85%

com

plia

nt

Mar

ch 2

012

15%

TheSupe

rvisionun

itwascom

pliantwith

21ou

tof

the

25 B

asel

Prin

cipl

es

Acc

ount

abili

ty a

nd s

ubm

ittin

g st

atut

ory

repo

rts

on ti

me

4 re

port

s to

M

inis

ter

4 re

port

s to

M

inis

ter

0

Ensureself-reg

ulatoryorganisatio

nsectorreturns

with

inth

reemon

thsafterend

ofthe

quarter

00

0Exem

ptionmanagem

entp

rogram

mebe

comes

effectiveJune

2012



17Tab

le 5

: Cap

acit

y Bu

ildin

g In

form

atio

n U

nit

Ob

ject

ive

ind

icat

ors

Act

ual p

erfo

rman

ce a

gai

nst

targ

etRe

ason

s fo

r var

ian

ce a

nd

oth

er c

omm

ents

Targ

etA

ctua

lVa

rian

ce

1.Im

provedatacollection,

man

agem

ent a

nd

dissem

inationinth

eCFI

sect

or

Registered

CFIsrepo

rtingon

financialstatusby

Mar

ch 2

012

1531

16Targetexceede

d-1

6CFIswereassisted

toprodu

ceth

ere

port

s by

a s

ervi

ce p

rovi

der

2.

Ass

ist s

econ

dary

in

term

edia

ry c

o-op

erativesand

otherCFI

repr

esen

tativ

e bo

dies

to

improvetheirleade

rship,

man

agem

ent a

nd

oper

atio

nal c

apab

ility

Securin

gfund

ingtosetupaba

nkingplatform

by

Mar

ch 2

012

R1.84M

R2M

R0.16M

Budg

et a

ppro

ved

in th

e 20

12-2

013

oper

atio

nal p

lan

Trai

ning

pro

gram

mes

and

dire

ct te

chni

cal

assi

stan

ce c

ondu

cted

by

the

Leag

ue b

y M

arch

201

23

1-2

Budg

et m

oved

to th

e de

velo

pmen

t of c

urric

ulum

and

training

ofm

anagersbu

tsolicitedfund

ingfro

mBANKSETA

for o

ne tr

aini

ng p

rogr

amm

e co

nduc

ted

by a

ser

vice

pr

ovid

er s

ince

the

Leag

ue w

as n

ot fu

nctio

ning

CFIperform

ancem

onito

ringcond

uctedbySACC

OL

by 2

012

416

12Performanceassessm

entscon

ducted

byCBD

Astaff,since

theLeague

wasfacing

ope

ratio

nalchalleng

esand

staffused

everyop

portun

ityth

eyhadwith

theCFIstoassesstheir

perf

orm

ance

Streng

then

ingthefin

ancialco-op

erative

mov

emen

t thr

ough

est

ablis

hmen

t of a

pro

ject

torevitaliseSA

CCOLorestab

lishon

enatio

nal

repr

esen

tativ

e bo

dy b

y D

ecem

ber 2

011

11

0Achieved.CFIsresolved

toform

one

unifiednatio

nal

associationthatbrin

gsto

getherSavingsand

CreditC

o-op

eratives(SACC

Os),FinancialServicesCo

-ope

ratives(FSC

s)

and

co-o

pera

tive

bank

s

Stud

ytourforthe

estab

lishm

ento

fstudycircles

10

-1Th

e st

udy

circ

le p

rogr

amm

e ha

s be

en p

ut o

n ho

ld

3.

Faci

litat

e th

e de

velo

pmen

t of l

earn

ing

prog

ram

mes

and

im

plem

ent t

rain

ing

arra

ngem

ents

thro

ugh

existin

gun

iversitie

s,co

llege

s an

d su

ppor

t or

gani

satio

ns

Fina

ncia

l co-

oper

ativ

e se

ctor

cur

ricul

um/

qualificatio

nsdevelop

edand

training

toCFI

man

ager

s pr

ovid

ed b

y M

arch

201

2

One

cu

rric

ulum

de

velo

ped

and

20

man

ager

s tr

aine

d

One

cu

rric

ulum

de

velo

ped

and

20

man

ager

s tr

aine

d

0A

chie

ved

4.Im

proveratesof

com

plia

nce

with

exi

stin

g rules,regu

latio

nsand

st

anda

rds

CFIsregistered

asco-ope

rativeba

nksbyMarch

2012

10

-1Morethan70%ofthe

eligibleCFIshavealowto

neg

ative

capitalade

quacyratio

,makingitim

possibleto

registerth

em

asco-op

erativeba

nks;ho

wever,one

CFI’sap

plicationis

bein

g pr

oces

sed

but n

ot y

et re

gist

ered

.



18

6. Co-oPeRaTiVe BanKs suPeRVision RePoRT


19


introductionTheSupervisorsofco-operativebanks,appointedbytheCBDAandtheSARB,followacoordinatedapproachtoensuretheconsistent

applicationoftheCo-operativeBanksAct,2007(ActNo.40of2007–theAct),andtocircumventregulatoryarbitrage.TheSupervisors’

objective is to gain proper understanding of the operation of co-operative banks and to apply and where necessary adapt international

regulatoryandsupervisory standards tocater for theuniqueneedsof thedomesticco-operativebankingsector.TheSupervisors

operate through a relationship ofmutual trust and co-operation with all role players in an effort to promote and enhance the

accessibilityofsoundfinancialservicestoallSouthAfricans.

The Supervision Unit within the CBDA is responsible for the regulation and supervision of CFIs thatmeet the requirements for

registrationasco-operativebankshavingmobilisedbetweenR1millionandR20millionindepositswithaminimumthresholdof

200 members.

Performance of eligible CFis during the year under reviewConsistentwith Section 41 (2) of theCo-operative BanksAct, supervisory activitieswere limited toCFIs thatmeet theminimum

requirementsforregistrationasco-operativebanks,thatis,morethanR1millioninmemberdepositsandatleast200members.Details

oftheseCFIsarereflectedinTable6.

Table 6: Statistics for Co-Operative Banks and Eligible CFIs as at 29 February 2012

CFi Type Prov Member Deposits loans Total assets

OSK Co-op Bank NC 593 R48,986,108 R36,382,615 R54,021,899

Ditsobotla Co-op Bank NW 980 R6,523,744 R5,515,084 R7,569,026

Total co-op banks 1,573 R 55,509,852 R 41,897,699 R 61,590,925

Oranjekas SACCO GP 732 R38,684,394 R27,301,589 R41,179,597

Kleinfontein SACCO GP 356 R36,673,229 R32,778,407 R37,443,039

Kathorus SACCO GP 1,911 R10,458,640 R6,174,568 R9,889,423

Motswedi FSC NW 3,632 R7,121,614 R202,000 R8,284,101

NEHAWU SACCO NAT 4,536 R7,106,412 R4,623,715 R6,473,097

Sibanye SACCO WC 3,002 R5,389,434 R5,033,546 R6,358,548

SAMWU SACCO SA 2,267 R5,066,731 R1,866,609 R5,317,959

Flash SACCO WC 4,845 R1,832,277 R316,483 R4,634,780

Ziphakamise SACCO KZN 480 R3,071,787 R1,556,944 R4,059,632

CFF SACCO NAT 34 R 2,898,007 R 2,404,422 R 3,442,571

LotlhakaneFSC FSC NW 1,251 R1,538,638 R72,030 R2,275,161

Mathabatha FSC Lim 2,191 R1,682,638 R957,972 R1,954,670

Kraaipan FSC NW 1,392 R3,551,207 R212,500 R1,907,663

Mayibuye SACCO EC 223 R1,315,290 R1,054,126 R1,475,283

Boikago SACCO NW 671 R1,182,365 R935,440 R1,460,830

K.LadiesEmpower FSC KZN 528 R1,003,474 R383,125 R1,407,841

Disaneng FSC NW 495 R1,451,752 R191,775 R1,034,577

Beehive SACCO MP 1,056 R1,235,261 R561,075 R824,631

Lehurutshe FSC NW 306 R1,176,242 R209,797 R808,744

Total SACCOs+FSCs 29,908 R132,439,392 R 86,836,123 R140,232,147

TOTALS 31,481 R187,949,244 R 128,733,822 R 201,823,072

Note1: Statistics collated from compliance reports submitted to self-regulatory bodies SACCOL and samaf and the CBDA capacity building section

Note 2: NAT = National footprint

Note 3: Statistics as at 29 February, as it is the financial year end for the CFIs



20

Duringtheyear,threeadditionaleligibleCFIswereidentified.OneeligibleCFIbecameaco-operativebank(OSK),bringingthenumber

ofco-operativebankstotwoandthenumberofeligibleCFIsto19.ThethreeadditionalCFIsarestilltoapplyforregistrationasco-

operative banks according to section 3 (1) of the Act.

Membershipofco-operativebanksandeligibleCFIsincreasedby12.5percent,from28,034membersto31,481membersyearon

year.TheincreasewasdrivenbysignificantgrowthinmembershipnumbersatthreeCFIs,namelyNehawu,SibanyeandFlash,aswell

astheincreaseineligibleCFIs.

Depositsofthetwoco-operativebanksand19eligibleCFIsincreasedby17percenttoR187.9millionduringtheyearunderreview,

fromR161millioninthepreviousyear.Thisisduetothelargerinstitutionsshowingstrongdepositgrowth.

Figure 2: Consolidated Statistics for Eligible CFIs

R250,000,000

R200,000,000

R150,000,000

R100,000,000

R50,000,000

R0Total Deposits

2011 2012

Total Loans Total Assets

Totalnetloanlevelsincreasedby20percentyearonyearandtotalledR129millionattheendofFebruary2012.

Assessment of eligible CFisNoneoftheeligibleCFIsassessedduringthe2011/12financialyearmanagedtoaddresstheweaknessespointedoutbytheSupervisors

sufficientlyandhencetheywerenotregisteredasco-operativebanks.

Institutionalassessments1werejointlyconductedbytheCapacityBuildingandSupervisoryUnitsinrespectofthreenewlyidentified

eligibleCFIsthathadnotappliedforregistration,butmettheminimumregistrationcriteria(ofR1millionindepositsand200members).

TheCapacityBuildingUnitisnowprovidingthesethreeCFIswithdevelopmentalsupporttoassisttheminqualifyingforregistration

as co-operative banks.

TheweaknessespreventingeligibleapplicantCFIsfromregisteringasco-operativebankswerehighlightedintheSupervisors’2010/11

Combined Annual Report.Aswas thecaseduring thepreviousfinancial year, theprimarychallenges facedbyapplicantCFIswere

inadequatecapital,poorgovernanceandweakmanagementinformationsystems.Themostprominentweaknessesidentifiedduring

theassessmentsofeligibleCFIsarereflectedinFigure3.


1 InstitutionalassessmentsareconductedatCFIstodetermine,interalia,thereasonsfornon-compliancewithsection3oftheAct,thatis,tosubmitanapplicationtotheSupervisorforregistrationasco-operativebank.Pre-registrationassessmentsareconductedonCFIsthathavesubmittedallthedocumentsrequiredforregistration.


21

Figure 3: Most prevalent weaknesses of CFIs

Reasons preventing registration

16

14

12

10

8

6

4

2

0

No.ofo

ccurances

CapitalAdequacy Govern/Management Operations Legal MIS

TheCapacityBuildingUnitiscurrentlyworkingwithalleligibleapplicantCFIstoaddressidentifiedweaknesses.

launch of the Ditsobotla Co-operative Bank

TheDitsobotlaPrimarySavingsandCreditCo-operativeBankLtd,thefirstco-operativebanktoberegisteredinSouthAfrica,celebrated

itsofficiallaunchon5November2011.TheMECofEconomicDevelopmentandTourism,theHonourableTebogoModise,officiated

attheceremony,whichwasattendedbyco-operatorsfromaroundthecountryaswellasfromSwazilandandBotswana,themayorof

theareaandinvitedguestsfromtheCBDA,theSARBandtheSouthAfricanMicro-financeApexFund(samaf).

TheDitsobotlaCo-operativeBank,withabout913membersatthattime,registeredasaco-operativebankwiththeCDBASupervisor

in February 2011. The Ditsobotla Co-operative Bank originated when the union encouraged employees of the then Blue Circle Cement

Factorytobeginaneducationalfundtoassistemployees.Asthefundgrew,theysoughtalternativeinvestmentopportunitiesand

optedtoformtheItirelengSACCO.Soonafterthat,municipalemployees intheareaformedtheirownIkagengSACCO,whilstthe

AngloAlphacementfactoryemployeesformedtheAganangSACCO.



22

ThethreeSACCOsrealisedthatiftheyweretomakeameaningfulcontributiontoservicingallpeopleintheLichtenburgarea,even

thoseoutsidethemunicipalityorcement factories, thingswouldhavetobedonedifferentlyandtheybeganmergerdiscussions,

whichbroughtabouttheDitsobotlaSACCO,whichservicestheDitsobotladistrict.

The launch was a real celebration of the achievement of these financial co-operative pioneers in South Africa. Dancing and

entertainment at the launch epitomised the joy of their collective achievements to date.

Performance against targets

strategic goal 1: Register and supervise co-operative banks

Sub-goal 1: Applications are responded to within two weeks of receipt.

TheunithasinplaceacomprehensivesystemformonitoringalleligibleCFIsforregistrationasco-operativebanks.Allapplicationsare

respondedtowithintwoweeksofreceipt.Further,regularreportingonperformancestandardstotheCapacityBuildingUnitallows

theCBDAtokeeptrackofCFIsthataregettingclosetomeetingtheminimumregistrationrequirementsforco-operativebanks,i.e.R1

millionindepositsand200members.However,theonusremainsoneligibleCFIstosubmittheirapplicationsforregistrationinterms

of section 3 of the Co-operative Banks Act within two months of meeting the minimum criteria.

Duringtheyear,applicationsforregistrationasco-operativebankswerereceiveddirectlyfromtwoCFIsthatmettherequirements

ofsection3(a)oftheAct.Followingpre-registrationassessment,itwasnotedthatthetwoCFIsexperiencedsignificantoperational

andlegaldifficultiesthatdemandedattentionbeforeaco-operativebankinglicensecouldbegranted.TheSupervisorstillawaitsthe

successful resolution of the supervisory concerns raised during the assessments.

FiveinstitutionalassessmentswereconductedduringtheyearforCFIsthatwereeligiblebuthadnotappliedforregistrationinterms

ofSection3oftheAct.TheseassessmentswereheldjointlywiththeCapacityBuildingUnit,thesupervisoryintentbeingtoestablish

thereasonwhytheCFIsfailedtocomplywiththeregulatoryrequirement.Inallinstances,theCFIshadaweakcapitalposition.Inthe

interim,theseCFIsremainoperationalintermsofexemptionnoticeswhiletheCapacityBuildingUnitisworkingwiththemtoaddress

the weaknesses.

In addition to the five mentioned above, two other CFIs received formal letters from the Supervisor to apply for registration.

Simultaneously,theCapacityBuildingUnitinitiatedfinancialauditsofthetwoCFIstoverifytheirfigures.Theauditandsubsequent

assessment revealed that oneof theCFIswasbelow theminimumdeposit threshold,while theotherwasoperating anopaque

investmentstructuremasqueradingasaCFI.TheCapacityBuildingUnitisworkingwiththeCFIconcernedtoregulariseitsoperations.

Sub-Goal 2: No supervised co-operative bank falls below a CAMEL rating of 3

TheSupervisorshaveadoptedtheinternationallyrecognisedCapitalAdequacy,AssetQuality,Management,Earnings,andLiquidity

(CAMEL) rating system in theevaluationof theperformanceof co-operativebanks.The standardised rating system facilitates the

identificationof those institutionswhose financial, operational,managerial or complianceweaknesses require special supervisory

attentionand/orwarrantahigher-than-normaldegreeofsupervisoryconcern.Theratingsystem,onascalefrom1to5,isanimportant

tooltodeterminethefrequencyofon-sitesupervision.Asageneralrule,theexistingminimumfrequencyfortheconductofon-site

examinations based on the rating of co-operative banks is as follows:



23

Table 7: Rating and frequency of on-site examinations

safety and soundness rating* Frequency of on-site examinations

1 Once every 12 months




5 Once every month

* 1 = strong, 2 = satisfactory, 3 = fair, 4 = weak, 5 = critical

Accordingtothestandardprocess,theexaminersdiscusstheirfindingwiththemanagementoftheco-operativebankdirectlyafter

conductingtheexamination.AseparatemeetingisthenconductedbetweentheBoardoftheco-operativebankandtheSupervisor.

After the meeting the co-operative bank provides written response as to how it intends to attend to the identified shortcoming.

Duringtheyearunderreview,DitsobotlaCo-operativeBankwastheonlyco-operativebankregisteredbytheCBDA.Inlinewithits

previousCAMELrating,onefull-scopeandtwotargetedexaminationswereconducted.

Nosupervisedco-operativebankfellbelowaCAMELratingof3duringtheperiodunderreview.

Sub-Goal 3: Co-operative banks’ off-site returns are analysed and reported within three months to the Minister and Board.

TheSupervisionUnit, inconjunctionwith theSARB, ispilotinganelectronic returnsubmissionsystem for registeredco-operative

banks.The intention is that all financial information relating to co-operativebankswill be capturedona singleplatform, thereby

alleviatingthepotentialproblemsassociatedwith the futuremigrationofco-operativebanksbetweenSupervisorsandtoenable

macro prudential analysis of the co-operative banking sector.

The Supervisor has a statutory obligation to report to theMinister on theperformance of the co-operative banking sector on a

quarterlyandanannualbasis.Theunitdulycontributedtothe2010/11Combined Annual Report, which was submitted to the Minister

on31May2011,whilequarterlyfeedbackreportsontheperformanceandoperationsofco-operativebankswereprovidedforthe

periodsending31May2011,31August2011,30November2011and29February2012(tobesubmittedby30April2012).Allreports

were circulated to the board for noting.

strategic goal 2: Handling troubled co-operative banks.

Sub-Goal 1: Troubled CFIs dealt with within three months of identification of problem.

TheSupervisors,duringthisperiod,adopteda“problembanksresolutionframework”toco-operateinacrisisinordertoestablishand

facilitate the actions and the timely decision-making process of the authorities responsible for the management and resolution of the

crisis.TheframeworkwillbefinalisedoncetheCBDADepositInsuranceFundhasbeenestablished.

TheCBDAhasattemptedtobepro-activewithregardtoanumberoffailingCFIs.ThreeCFIswerefoundtobeinsolventfollowing

jointinvestigationsconductedbysamafandtheCBDASupervisor.TheCBDASupervisorrecommendedthattheseCFIsbeliquidated;

however,theprovincialDepartmentsofEconomicDevelopmentelectedtorehabilitatethem.TheCBDASupervisorwillliquidatethese

CFIs,shouldtheidentifiedinterventionsnottakeplaceinatimelymanner.Thiswillbedonetoprotectthedepositorsandmaintain

confidenceinthesector.SACCOLhasreportedtwofailingSACCOstotheSupervisorandtheyarecurrentlyreceivingattention.



24

strategic goal 3: Compliance with review of regulatory frameworks.

Sub-Goal 1: Ninety per cent compliance with Basel Principles for deposit-taking microfinance institutions

Duringtheyear,thejointSupervisorsconductedaninternalself-assessmentoncompliancetotheBaselCorePrinciplesforEffective

BankingSupervisionofDeposit-takingMicrofinanceActivities.Thedefinitionofmicrofinanceactivitiesincludesdeposit-takingfinancial

co-operatives.ThecoreprincipleshaveassistedtheSupervisors indevelopingacoherentapproachto regulatingandsupervising

financial co-operatives according to four main themes:

i) efficientallocationofsupervisoryresources;

ii) developmentofspecialisedknowledgewithinthesupervisoryteamtoevaluatetherisksofmicrofinanceactivitieseffectively,

iii) recogniseprovencontrolandmanagerialpracticesthatmaydifferfromconventionalretailbankingbutmaysuitthemicrofinance

businessbothinsmallandlargeinstitutions,specialisedornot,inmicrofinance;and

iv) achieveclarityintheregulationswithregardtomicrofinanceactivities,particularlythedefinitionofmicro-credit,andspecifywhich

activitiesarepermittedtodifferentinstitutionaltypes,whileretainingsomelevelofflexibilitytodealwithindividualcases.

ItwasfoundthatalthoughtheSupervisorswerefullycompliantwithmostoftheseprinciples,therewerestillsomecoreprincipleswith

whichtheywereonlyregardedaslargelycompliant.Inthisregard,attentionwillbepaidtoaddressingtheshortcomingsidentified

duringtheself-assessment.InlinewiththeBaselCommittee’srecommendations,themainfocuswillbeonissuingadditionalrules

that will provide legal backing to compel co-operative banks to follow prescribed procedures and to set minimum policy standards

relating to the risks to which they are exposed.

Theself-assessmentindicatedthattheSupervisorswereonlynon-compliantwithoneofthecoreprinciplesowingtothefactthat

co-operative banks are not defined as ‘accountable institutions’ in terms of Schedule 1 of the Financial Intelligence Centre Act,

SouthAfrica’santi-money-launderinglegislation.Thedecisionnottoincludeco-operativebanksasaccountableinstitutionscanbe

ascribedtothereducedriskofmember-basedinstitutions,giventheirnature,sizeandcomplexitycomparedtocommercialbanks.

Notwithstandinganylegalobligation,theknow-your-clientprincipleisenforcedbySupervisorsandco-operativebankshavebeen

instructedtoreportsuspicioustransactionswiththeassistanceoftheSupervisor,ifrequired.However,nosuspicioustransactionshave

been reported to date.

Sub-Goal 2: Accountability and submitting statutory reports on time

As reported in strategicobjective 1, Sub-goal 3 above, reportshavebeen submitted to theMinister of Finance. Furthermore the

Supervisory Unit held one ROACmeeting inOctober 2011. ROAC, primarilymeant to review and develop policy and legislation

applicabletoCFIsandco-operativebanks,isajointcommitteeoftheSARBSupervisor,theCBDASupervisor,theManagingDirectorof

theCBDA,theRegistrarofCo-operativesandrepresentativesoftheCBDABoardandNationalTreasury.

ToensureaconsistentapproachbybothSupervisors,ROACadoptedapolicyframeworkthatsetsoutthebroadframeworkforthe

Supervisorsinapplyingtheminimumprudentialrequirementsforregistrationpurposes,giventhenatureandsizeoftheapplicants.The

policydocumentalsosetsouttheactiontobetakenbytheSupervisorswithregardtonon-compliancewithregistrationrequirements.

up-to-date regulatory framework

TheCBDAandSARBarecognisantoftheproposedlegislativereviewscurrentlytakingplace.TheseincludeamendmentstotheCo-

operativeBanksActof2007,theCo-operativeActof2005andtheFinancialServicesLawsGeneralAmendmentBill,2012(Omnibus Bill).

AdetailedreviewoftheCo-operativeBanksActwasundertakeninordertodeterminethoseareasthatrequirerefinementoramendment

and the findings were published in the CombinedAnnualReportoftheSupervisorsoftheCo-operativeBanksDevelopmentAgency

andtheSouthAfricanReserveBank2011/12.



25

Annual co-operation and co-ordination plan2

Intermsofsection52oftheAct,theSupervisorsreportedontheimplementationoftheCo-operationandCo-ordinationPlanreferred

to in section 42 of the Act.

Therehasbeengoodco-operationandco-ordinationbetweentheSupervisoryUnitsoftheCBDAandtheSARB.Someofthejoint

activities included:

· weeklyco-ordinationmeetings;

· meetings withstakeholders,interestedpartiesandregulatoryauthorities;

· commentsonrelevantfinancialregulationBills;

· issuanceofstatutoryreportsandguidancenotes;

· reviewofcompliancewithinternationalstandards;

· assessmentandevaluationofapplications;and

· co-ordination of manuals and administrative systems.

Sub-goal 3: Ensure self-regulatory organisations submit sector returns within three months

Duringtheyearthetwoself-regulatoryorganisations,–SACCOLandsamaf,agreedtorelinquishtheirroleofregulatingandsupervising

theactivitiesofFSCsandSACCOsinthenewfinancialyear.

InordertoensurethatCFIsremainregulatedandsupervised,theNationalTreasuryproposedthattheCBDAbedesignatedasthe

regulatoryandsupervisoryagencyforallCFIsthatdonotmeettheminimumrequirementstoregisterasco-operativebanks.The

Minister of Financewill repeal the exemption notices relating to FSCs, SACCOs and stokvels and replace themwith a proposed

exemptionnoticethatwilldesignatetheCBDAastheregulatoryagencyforCFIs.StokvelswillremaininthedomainoftheNational

StokvelsAssociationofSouthAfrica(NASASA).ThisexemptionwillassisttheCBDAtoperformitsfunctionofdevelopingfinancialco-

operatives as prescribed by section 55 of the Co-operative Banks Act.

Inanticipationofthismove, itwasagreedthattheregistrationandmonitoringofCFIswill fallundertheSupervisoryUnitwithinthe

CBDA.AnExemptionNoticePolicyframeworkhasbeentabledandapprovedbytheCBDABoardtogiveeffecttothisnewmandate.The

SupervisoryUnithasprepareddraftrulesonitsanticipatedregistrationandcompliancerequirementsfordiscussionwithallstakeholders.

Participation in national and international regulatory or supervisory forums

TheSupervisorsareexpectedtoparticipateintheactivitiesofinternationalbodiesandauthoritieswhosemainpurposeistodevelop,

advance and promote the sustainability of co-operative banks and to co-operate with international bodies and authorities in respect of

matters relating to co-operative banks.

TheCBDASupervisoryUnitparticipatedinthefollowing:

· WOCCUInternationalCreditUnionRegulators’Network(ICURN)heldinWashingtonD.C.,UnitedStates,from8to10June2011.

· FinancialCo-operativesIndabaheldinCapeTown,from19to21October2011.

· SACCAcongressheldinAccra,Ghana,from2to5October2011.

· ACCOSCAThirdSACCOLeadershipForum,heldinGaborone,Botswana,from21to23March2012.


2 Foradetailed reporton the jointactivitiesof theSARBandCBDAcapacitybuildingunits, refer to theCombinedAnnualReportof theSupervisorsof theCo-operativesBanksDevelopmentAgencyandtheSouthAfricanReserveBank2011/12place.


26

The Co-operative Financial institutions indaba 19 – 20 October 2011

TheCBDAorganisedandhostedanindabaforCFIsinCapeTownfrom19to21October2011.Thethemeoftheindabawas,“Creating

a strong and vibrant co-operative banking sector that broadens access to and participation in diversified financial services towards

economicandsocialwell-being”.Theconferencewasattendedbymorethan150representativesfromCFIsinSouthAfricaaswellas

otherkeystakeholdersinthesector,notablyrepresentativesfromtheDepartmentofEconomicDevelopment,localuniversitiesand

samaf.AlsoinattendancewereinternationalguestspeakersfromtheUSA,KenyaandMalawi.

TheHonourableMinisterofFinance,MrPravinGordhan,deliveredthewelcomingaddressviavideo.Heconfirmedthegovernment’s

commitmenttoensuringthateverySouthAfricanhasaccesstoaffordablefinancialproductsandservices.TheHonourableDeputy

MinisterofFinance,MrNhlanhlaNene,deliveredthekeynoteaddressandchallengedallthoseinvolvedwiththefinancialco-operative

sector to change their mind-set in order to make meaningful contributions to communities. He implored members to build a more

unified,inclusive,vibrantandself-sustainablemovement.

The indabaprovidedagreatopportunity for theCBDAto launchanAnnual IncentiveProgrammeforbestperformingCFIsbased

ontheirperformanceagainstthestandardssetforthesector.SixCFIs,whichincludedthetworegisteredco-operativebanks,were

awarded trophies for outstanding performance. The categories in which prizes were awarded were as follows:

a) BestPerformingCFIbasedonPrudentialRequirementsandRatioAnalysis

b) Highest Active Membership Growth

c) HighestSavingsGrowth.

Oneof the keyoutcomesof the conferencewas thedecisionby SACCOL, theonly surviving representativebody for SACCOs, to

dissolveandtoallowtheformationofanewinclusiverepresentativebody.Thenewbodyintendstoestablishitselfasthemovements’

representativeandsupportorganisationofallCFIsincludingSACCOs,FSCsandco-operativebanks.Theindabawillnowbeanannual

eventtobeheldinOctobertocoincidewithInternationalCreditUnionDayonthethirdThursdayofOctobereveryyear.



27

launch of the Financial Co-operatives Retail Bond

TheNationalTreasury,throughitsAssetandLiabilityManagementdivision,createdanewinvestmentproduct,namelytheFinancial

Co-operativesRetailSavingsBond.ThisproductwaslaunchedduringtheCo-operativeFinancialInstitutionsIndaba,heldinCapeTown

from19to21October2011.Themainobjectiveistoprovideasecure,affordablesavingsvehicleforFSCs,SACCOsandco-operative

banks.ItwillalsoservetodiversifysavingsinstrumentsavailabletoCFIs.

ThebondsoffercompetitiveinterestratesandwillprovideCFIswithasafeinstrumentinwhichtoinvest,withnocharges.Additional

featurestakeintoaccounttheuniquenessofthefinancialco-operativemodel,throughtop-upsandearlywithdrawals.



28

7. CaPaCiTY BuildinG and inFoRmaTion RePoRT


29


introductionCapacitybuildingprogrammesduringtheyear2011/12continuedestablishinginitiativesthatsupport,promoteanddevelopCFIs

intobecomingsafeandreliableco-operativebanks;acceleratingperformancetowardsco-operativebankregistrationandpromoting

andsupportingfledglingCFIs.Toachievethesekeystrategic thrusts, theCapacityBuildingand InformationUnitset fourstrategic

objectivesforthereportingyear,vizto:

1. improvedatacollection,managementanddisseminationintheCFIsector;

2. assistsecondaryintermediaryco-operativesandotherCFIrepresentativebodiestoimprovetheirleadership,managementand

operationalcapability;

3. facilitatethedevelopmentoflearningprogrammesandimplementtrainingarrangementsthroughexistinguniversities,colleges

andsupportorganisations;and

4. improvecompliancerateswiththeexistingrules,regulationsandstandards.

Inaddition to theseobjectives, theunitwasalso involvedwith leveragingpartnerships toachievesynergyandperformance.The

unitcollaboratedcloselywiththetwoself-regulatorybodiesofthefinancialco-operativesector,SACCOLandsamaf,aswellasthe

DepartmentsofEconomicDevelopmentinalltheprovinces,DepartmentofTransportinKwaZulu-Natal,DepartmentofAgriculture,

ForestryandFisheriesandtheBANKSETA.

2011/12 objectives, indicators and performance against targets

Objective 1: improve data collection, management and dissemination in the CFi sector

AccordingtotheCIPCdatabasethereare163registeredCFIs(112FSCsand51SACCOs).SomeoftheseCFIsarenotfunctionalandnot

affiliatedtoorworkingwitheitherSACCOLorsamaf.

Themajorityofthosethatarefunctionalarenotproducingconventionalfinancialstatements,whichisacompliancerequirement.

ResearchconductedbyDeloitteandTouché in2003and2006andconfirmedbytheCBDAin2010notedthatmanyCFIsarenot

reporting on their financial performance through the production of financial statements. The research established that:

1. FSCsdonotproduceconventionalbalancesheetsandincomestatementsbuttendtoreportforgrant-fundingpurposes;

2. SACCOsarenotconsistentinreportingtoSACCOL;

3. thereisadearthofexperienceandqualificationsinbasicaccountingskills;and

4. wherethereareauditedfinancialreports,theauditorsdonotunderstandthefinancialco-operativemodel.

In2010/11,theCapacityBuildingandInformationUnitsdevelopedamanualaccountingsystem,whichincludedanExcelversionfor

thoseCFIsthathavecomputerstoassistCFIstostartproducingfinancialstatements.However,mostCFIswerebehindinupdatingtheir

financialtransactionsandthis,coupledwithlackofaccountingknowledge,madeitdifficultforthemajorityofCFIstoproducefinancial

reports.Theunitthereforeassisted16CFIstobringtheirbooksofaccountsuptodateandproducefinancialstatements.Inaddition,

theunitconductedin-servicetrainingsothattheCFIscanproducefinancialreportsinfuture.Theunitcollectedfinancialstatements

fromanother15CFIsthatproducedthereportsontheirown,makingatotalof31accuratefinancialreports.

Aftercollectingthefinancialreports,theunitconductedratioanalysisusingafinancialperformancemonitoringtoolcalledPEARLS.

All31financialreportswereanalysedandreportswithrecommendationswereissuedto19CFIsthatareeligibleforregistrationasco-

operative banks and three that are just below the threshold for registration.



30

Theunitalsocompiledfinancialinformationcollectedfromtheself-regulatoryorganisations–SACCOLandsamaf-andtogetherwith

thefinancialstatementscollectedfromtheCFIs,producedfourquarterlyfinancialgrowthtrendanalysesforthesector.

SamafandSACCOLinformedtheCBDAthat15CFIshadbeenclosedbecauseofnon-performance,reducingthereportednumberof

CFIsfrom121in2010/11to106in2011/12.Thetablebelowshowsthegrowthtrendforthesector.

Table 8: The growth and financial performance of CFIs (including co-operative banks)

2010/11 2011/12 gROWTH PeRCenTAge

No.ofCFIs 121 106 -12.4%

Membership 59,394 53,240 -10.4%

Savings R175,265,000 R196,230,000 12.0%

Loans R116,577,000 R132,227,000 13.4%

Assets R195,213,000 R217,506,000 11.4%

sector classification by assets

CFIs Assets No.ofCFIs TotalSectorAssets(%)

Very large >R20million 3 61.0%

Large R1million–R20million 18 32%

Small R150,000–R1million 13 5%

Very small <R150,000 72 2.0%

106 100%

Table 9: Status of co-operative banks and CFIs eligible for registration as co-operative banks

2010/11 2011/12 growth %

No.ofCFIs 18 21(Note1) 16.7%

Membership 28,034 31,481 12.3%

Savings R160,996,000 R187,949,000 16.7%

Loans R107,261,160 R128,733,822 20%

Assets R175,897,017 R201,823,000 14.7%

Note 1: A detailed breakdown per CFI is provided in Table 6 above

RespondingtotheinadequaciesoffinancialstatementsfromtheCFIsduringtheyear,theunitdevelopedafinancialreportingtool,

whichwillprovideguidancetoaccountingofficersandauditorsoftheCFIs.TheunitiscollaboratingwithSAICA,whichisreviewing

the tool to ensure compliance with all accounting standards.

TheunitalsodevelopedaframeworkforauditpreparationtoassistCFImanagersandmanagingdirectorsofco-operativebanksto

prepare for audits. The objectives of the framework are to:

a) serveasahandbookforguidingCFIsinpreparingforaudit;

b) equipCFIswithskillsnecessarytogetaclean(unqualified)audit;and

c) serveasareferencebooktothosepreparingtheauditfilesoftheCFIs.



31

Objective 2: Assist secondary intermediary co-operatives and other CFi representative bodies to improve their leadership, management and operational capability

Theonlysurvivingself-regulatorybody,SACCOL,continuedtofaceoperationalandfinancialchallenges.However,theCBDAassisted

SACCOLinitsattempttoestablishanationalassociationthatwillrepresentallCFIs.

The national associationwill have representatives andprovincial structures for CFIs in all nine provinces.TheCBDA supports the

initiativeandencouragesprovincialgovernmentdepartmentsthatarepromotingthedevelopmentofCFIstosupporttheinitiative

too.TheresolutiontoestablishtheNationalAssociationwasmadeduringtheCFIIndabainOctober2011.

Through the benchmarking workshops conducted in 2010/11, the unit developed performance standards for the sector and a

performanceassessmenttoolformonitoringtheperformanceofCFIsagainsttheseperformancestandards.Theunitusedthistoolto

conductperformanceassessmentof18CFIs.Thepurposeoftheassessmentswastoestablish:

· acomprehensivepictureofhowCFIsaremovingtowardsachievingtheirperformancegoals;

· amechanismforrespondingtoissuesthatmayrequireremedialaction;

· thepotentialoftheCFIstoimprovetheirperformanceagainstthestandards;and

· theperformanceoftheCFIsinsixkeystrategicareasofgrowth,i.e.management,financialmanagement,policiesandprocedures,

governance,marketingandproductsandco-operativeprinciples.

RegularevaluationoftheperformanceoftheCFIsisexpectedtopromotegrowthandsustainability.TheCFIsarelikelytoimprove

compliancebyproducingtimelymanagementreports.Intermsofregistration,allqualifyingCFIswillstrivetoimproveperformance

againstthestandardsinordertosatisfytherequirementstoberegisteredasco-operativebanks.Theassessmentsalsohelptoidentify

non-performingCFIsandenabletheCBDAtoputinplacesolutionstostopmemberslosingtheirdeposits.

Objective 3: Facilitate the development of learning programmes and implement training arrangements through existing universities, colleges and support organisations

ResearchconductedbytheCBDAonmanagementpracticesamongCFIsshowedthatmostCFIstaffhave insufficientknowledge

aboutthelegislativeframeworkthatgovernsCFIs,lackunderstandingofprudentialrequirements,humanresourcemanagement,risk

management,accountingandfinancialmanagement,aswellasdelinquencymanagement.ThemanagersofmostCFIsareunable

todirectandcontroltheirCFIstowardsoperationalandfinancialsustainability.TheCBDAthereforefacilitatedthedevelopmentofa

financial co-operatives sector curriculum by the University of Pretoria in an attempt to address the skills gaps in the sector.

The certificate course in CFIManagement is directed at CFImanagers, especially thosemanagingCFIs eligible to register as co-

operativesbanks.Afterattendingthecourse,themanagersareexpectedtobeabletomanagelendingpractices;identify,avertand/or

mitigaterisks;producetherequiredmonthlyfinancialreportsandcomplywiththeminimumprudentialstandards,thusdirectingthe

CFIstooperationalandfinancialsustainabilityandregistrationasco-operativebanks.TheBANKSETAprovidedfundingforthetuition

of the 20 participants.

Furthermore,theunitobtainedadditionalfundingfromtheBANKSETAforatrainingprogrammeongovernance,whichwasattended

by 24 participants.



32

Certificate course in Co-operative Financial institution Management

The CBDA launched a certificate course in Co-operative Financial Institution Management at the University of Pretoria. The

universitydevelopedthematerialswiththeaimofprovidingmanagersofCFIswiththoroughknowledgeandunderstandingof

effectivemanagementtechniquesforfinancialco-operativesandofthelegislativeandcompliancerequirementsforregistration

as co-operative banks.

The course includes the following learning outcomes:

• Understandingthelegislativeframeworkgoverningfinancialco-operativesandco-operativebanks;

• Understandingprudentialrequirements;

• Developingskillsineffectivemanagementofhumanresources;

• Developingskillsinthecompilationoffinancialandmanagementaccounts;

• Understandinghowtomeasureandmanageloandelinquencyandmanagelendingpracticesefficiently;

• Understandinghowtomanagetheoverallrisksfacingaco-operativefinancialinstitution;and

• Knowinghowtoguideaco-operativefinancialinstitutiontowardsinstitutionalandfinancialsustainability.

Theinauguralcoursewasrunwithtwentyparticipants.Seventeenparticipantspassed.Sixtypercentoftheparticipantswereallocated

thehighestmarkpossibleforsatisfyingtherequirementsoftheprogramme.Themaincriticismofthecoursewastheshortageoftime

to cover the range of topics.

Objective 4: improve compliance rates with the existing rules, regulations and standards

OneofthekeyfocusareasoftheunithasbeensupportfornineteenCFIseligibletoregisterasco-operativebanks.Twelveexperience

capitaladequacyconstraints,whiletheothersfaceavarietyofchallenges,includinginabilitytoprovideauditedfinancialstatements

and lack of strategic plans. The unit assisted seven of them to produce financial statements and seven to draw up strategic plans.

TheunitalsoassistedsomeCFIstodeveloppolicies,includingloansandsavingspoliciesandprocedures.



33

8. sTaTemenT oF ResPonsiBiliTY


34

TheCBDABoardisresponsibleforpreparingandpresentingfinancialstatementsthatareafairrepresentationofthefinancialposition,

performanceandcashflowsfortheperiod.TheCBDABoardwouldliketodrawattentiontothefollowingwithregardtotheannual

financial statements:

TheCBDAhadasurplusofR1095000forthefinancialyear2011/12.Aftertakingintoconsiderationaccrualsandprovisions,thenet

surplusisR197,000.TheBoardhasapprovedtherequestforexcessfundstoberolledoverinthe2012/13financialyeartobeusedto

fundastabilisationfundforthesector.FinalapprovalfromNationalTreasuryispending.

TheCBDAmaintainedadequateaccountingrecordsandaneffectivesystemofinternalcontrolsandriskmanagementandcomplied,

inallmaterialrespects,withapplicablelawsandregulations.

Theannualfinancialstatements,presentedfrompages38to69,arepreparedusingthestandardsofGenerallyRecognisedAccounting

Principles (GRAP), in themannerprescribedby thePFMA.Appropriateaccountingpolicies, supportedby reasonableandprudent

judgementsandestimates,havebeenusedconsistently.

TheCBDAisfinanciallydependentonatransferpaymentfromtheNationalTreasury.Onthebasisthatthetransferpaymenthasbeen

listedintheEstimatesofNationalExpenditure,theBoardbelievesthattheCBDAwillcontinuetobeagoingconcernintheyearahead.

Forthisreason,theannualfinancialstatementsarepreparedonagoingconcernbasis.

TheexternalauditoroftheCBDAfortheyearunderreviewwastheAuditorGeneralSA.TheAuditorGeneralisresponsibleforreporting

onwhetherthefinancialstatementsarefairlypresented.ThereportoftheAuditorGeneralispresentedonpage39.

The annual financial statements for the year ended 31 March 2012 were approved by the Board of Directors on 31 May 2012 by round

robin and were signed on its behalf by:

SifisoNdwandwe

Chairman of the Board


8. sTaTemenT oF ResPonsiBiliTY


35

9. RePoRT oF THe audiT CommiTTee


36


Audit Committee Members and attendance:The Audit Committee consists of themembers listed hereunder and hasmet as reflects below, in linewith its approved terms

of reference.

Table 10: Audit Committee Meetings 2011/12

name of member number of meetings attended

Mr Vuyo Jack 4 of 4

Ms Mamoroke Lehobye 3 of 4

Ms Lesibana Fosu 1 of 4

Mr Joe Lesejane 1 of 4

MrZachLeRoux 4 of 4

Ms Berenice Francis 4 of 4

The Audit Committee responsibilityThe Audit Committee reports that it has complied with its responsibilities arising from section 51(1)(ii) of the PFMA and Treasury

Regulation3.1.TheAuditCommitteealso reports that ithasadoptedappropriate formal termsof referenceas incorporated in its

audit committeecharter.TheAuditCommitteehas regulated its affairs in compliancewith this charter andhasdischargedall its

responsibilities as contained therein.

The effectiveness of internal controlsTheAuditCommittee isof theopinion,basedon the informationandexplanationsgivenbymanagement, the internal auditors,

anddiscussionswith the independentexternalauditors (Auditor-General)on the resultsof itsaudits, that the internalaccounting

controlsareoperatingtoensurethatthefinancialrecordsmayberelieduponforpreparingtheannualfinancialstatements,andthat

accountabilityforassetsandliabilitieshasbeenmaintained.FromthevariousreportsoftheInternalAuditors,theAuditReporton

theAnnualFinancialStatementsandthemanagementletteroftheAuditor-General,itwasnotedthatnosignificantormaterialnon-

compliance with prescribed policies and procedures have been reported. We can report that the system of internal control for the

periodunderreviewwaseffective.However,attentionisdrawntothefollowingareasofconcern:

• Asdisclosedinnote53tothefinancialstatements,theCo-operativeBanksDevelopmentAgencyincurredirregularexpenditureof

R596000.

• Intermsofthesection25oftheCo-operativeBanksActofSouthAfrica2007,theagencymustestablishandmanageafundtobe

knownastheCo-operativeBanksDepositInsuranceFund.TheCo-operativeBanksDevelopmentAgencydidnothaveaDeposit

insurancefundasrequiredbytheCo-operativeBanksAct.

• TheAuditCommitteenotesthelackofmeasurabletargetsintheperformanceagainstpredeterminedobjectivesreportasreported

by the Auditor-General. We see this as a weakness in controlling performance and ensuring accountability and discipline.

• InternalAuditdidnotevaluatecompliancewithlawsandregulations,asrequiredbyTreasuryRegulation27.2.10(e).

Other than these matters, nothing significant has come to the attention of the Audit Committee to indicate that any material

breakdowninthefunctioningofthesecontrols,proceduresandsystemshasoccurredduringtheyearunderreview.


37


The effectiveness of internal AuditTheAuditCommitteereviewedtheeffectivenessofinternalaudit.Notwithstandingthis,theAuditCommitteereceivedawiderange

of internal audit reports and feels comfortable that the areas covered provided us with good insight into the internal controls of the

agency. Areas that are weak and needs improvement have been discussed with management and actions plans have been agreed. The

Audit Committee will continue to oversee and monitor the disposition of these findings.

The risk areas of the institution’s operationsRiskmanagement isstill relativelynewwithintheCo-operativeBanksDevelopmentAgency.Howeverthere isaRiskManagement

Committee that meets on a regular basis and shares its reports with the Audit Committee. A risk register is kept and updated

continuously to ensure that all the major risks facing the agency are recorded.

Accounting and auditing concerns identified as a result of internal and external auditsFromthevariousreportsoftheInternalAuditors,theAuditReportontheAnnualFinancialStatementsandthemanagementletterof

theAuditor-General,itwasnotedthatnosignificantormaterialaccountingorauditingconcernswereidentified.

The institution’s compliance with legal and regulatory provisionsFromtheAuditReportontheAnnualFinancialStatementsandthemanagementletteroftheAuditor-General,itwasnotedthatno

significant or material non-compliance with legal and regulatory provisions have been reported other than reported in the Auditor-

General’sreportbelow.

evaluation of annual financial statementsThe Audit Committee has evaluated the annual financial statements of the Co-operative Banks Development Agency for the year

ended31March2012and,basedontheinformationprovidedtotheAuditCommittee,concursandacceptstheAuditor-General’s

conclusionsontheannualfinancialstatements,andwouldrecommendtotheboardthattheauditedannualfinancialstatementsbe

accepted and read together with the report of the Auditor-General.

Vuyo Jack

Chairperson of the Audit Committee

06 August 2012


38

10. RePoRT oF THe audiToR-GeneRal To PaRliamenT on THe Co-oPeRaTiVe BanKs

deVeloPmenT aGenCY


39

10. RePoRT oF THe audiToR-GeneRal To PaRliamenT on THe Co-oPeRaTiVe BanKs

deVeloPmenT aGenCY

RePORT On THe FinAnCiAl sTATeMenTs

introduction

1. Ihaveauditedthefinancialstatementsof theCo-operativeBanksDevelopmentAgencysetoutonpages45to69 ,

whichcomprisethestatementoffinancialpositionasat31March2012,andthestatementoffinancialperformance,

statementofchangesinnetassetsandthecashflowstatementfortheyearthenended,andthenotes,comprisinga

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

accordancewithSouthAfricanStandardsofGenerallyRecognisedAccountingPractice(SAStandardofGRAP)andthe

requirementsof thePublicFinanceManagementActofSouthAfrica,1999 (ActNo.1of1999) (PFMA),and for such

internal control as the accounting authority determines is necessary to enable the preparation of financial statements

thatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Auditor-general’s responsibility

3. My responsibility is to express anopinionon these financial statementsbasedonmyaudit. I conductedmyaudit

inaccordancewiththePublicAuditActofSouthAfrica,2004(ActNo.25of2004)(PAA),theGeneral Notice issued in

termsthereofandInternationalStandardsonAuditing.ThosestandardsrequirethatIcomplywithethicalrequirements

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

materialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,the

auditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatements

inordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressingan

opinionontheeffectivenessoftheentity’s internalcontrol.Anauditalso includesevaluatingtheappropriatenessof

accountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluating

the overall presentation of the financial statements.

5. IbelievethattheauditevidenceIhaveobtainedissufficientandappropriatetoprovideabasisformyauditopinion.

Opinion

6. Inmyopinion,thefinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheCo-operative

BanksDevelopmentAgencyasat31March2012,anditsfinancialperformanceandcashflowsfortheyearthenended

inaccordancewithSouthAfricanStandardsofGRAPandtherequirementsofthePublicFinanceManagementActof

SouthAfrica,1999(ActNo.1of1999)PFMA.

10. RePoRT oF THe audiToR-GeneRal To PaRliamenT on THe Co-oPeRaTiVe BanKs deVeloPmenT aGenCY


40


emphasis of matters

7. Idrawattentiontothematterbelow.Myopinionisnotmodifiedinrespectofthismatter

irregular expenditure

8. Asdisclosedinnote26.3tothefinancialstatements,theCo-operativeBanksDevelopmentAgencyincurredirregular

expenditureofR596000.

RePORT On OTHeR legAl AnD RegulATORY ReQuiReMenTs

9. InaccordancewiththePAAandtheGeneral Notice issuedintermsthereof, Ireportthefollowingfindingsrelevantto

performanceagainstpredeterminedobjectives,compliancewithlawsandregulationsandinternalcontrol,butnotfor

the purpose of expressing an opinion.

Predetermined objectives

10. I performed procedures to obtain evidence about the usefulness and reliability of the information in the annual

performance plan as set out on pages 13 to 17 of the annual report.

11. The reported performance against predetermined objectives was evaluated against the overall criteria of usefulness

and reliability. The usefulness of information in the annual performance report relates to whether it is presented

inaccordancewith theNationalTreasuryannual reportingprinciplesandwhether the reportedperformance is

consistent with the planned objectives. The usefulness of information further relates to whether indicators and

targetsaremeasurable(i.e.welldefined,verifiable,specific,measurableandtimebound)andrelevantasrequired

by the National Treasury Framework for managing programme performance information.

Thereliabilityoftheinformationinrespectoftheselectedprogrammesisassessedtodeterminewhetheritadequately

reflectsthefacts(i.e.whetheritisvalid,accurateandcomplete).

12. The material findings are as follows: concerning the usefulness of the information.

usefulness of information Consistency

13.Treasury Regulation 30.1.3(g) requires that the strategic plan should form the basis for the annual report, therefore

requiringtheconsistencyofobjectives,indicatorsandtargetsbetweenplanningandreportingdocuments.Atotalof

45%ofthereportedtargetsarenotconsistentwiththetargetsaspertheapprovedannualperformanceplan.Thisisdue

to the lack of a policy on reporting of predetermined objectives and the lack of a review processes in the Co-operative

Banks Development Agency.


41


Measurability

14.TheNationalTreasuryFrameworkformanagingprogrammeperformanceinformation(FMPPI)requiresthatperformance

targetsbespecificinclearlyidentifyingthenatureandrequiredlevelofperformance.

Atotalof49%ofthetargetsrelevanttoCorporateServices,SupervisionandCapacitybuildingprogrammeswerenot

specificinclearlyidentifyingthenatureandtherequiredlevelofperformance.Thiswasduetothefactthatmanagement

wasnotawareoftherequirementsoftheFMPPI.

15.TheNationalTreasuryFramework formanagingprogrammeperformance information (FMPPI) requires that thetime

periodordeadlinefordeliverybespecified.Atotalof50%ofthetargetsrelevanttoCorporateServices,Supervisionand

Capacity building programmes were not time bound in specifying a time period or deadline for delivery. This was due to

thefactthatmanagementwasnotawareoftherequirementsoftheFMPPI.

Additional matter

16. Idrawattentiontothefollowingmatterbelow.

Achievement of planned targets

17.Ofthetotalnumberofplannedtargets,only29wereachievedduringtheyearunderreview.Thisrepresents21%of

total planned targets that were not achieved during the year under review. This was as a result of the institution not

consideringrelevantsystemsandevidentialrequirementsduringtheannualstrategicplanningprocess.

Compliance with laws and regulations

18.Iperformedprocedurestoobtainevidencethattheentityhascompliedwithapplicablelawsandregulationsregarding

financialmatters, financialmanagementandother relatedmatters.Myfindingsonmaterialnon-compliancewith

specific matters in key applicable laws and regulations as set out in the General Notice issued in terms of the PAA are

as follows:

Procurement and contract management

19.Thepreferencepointsystemwasnotappliedintheprocurementofonecompetitivebidastheexpenditureincurred

wasincontraventionofTreasuryRegulation16A.6.3(b)relatingtosupplychainmanagement.Theexpenditureincurred

wasincontraventionofthePPPFActsection2(a).Theaccountingofficerdidnotexerciseoversightresponsibilityover

reporting and compliance with laws and regulations and internal control.

A recommendation to the accounting authority and the final award of a contract was not made by an adjudication

committeeconstitutedinaccordancewiththeSCMpolicy.ThemanagingdirectordidnotdevelopanSCMsystemthat

provided for the approval of bid evaluation and adjudication committee recommendations in procurement processes.


42

internal Audit

20. Internalauditdidnotevaluatecompliancewithlawsandregulations,asrequiredbyTreasuryRegulation27.2.10(e).

21. Internal audit did not evaluate the reliability and usefulness of the operational information as required byTreasury

Regulation3.2.11(b).

strategic planning and performance management

22. Intermsofsection30.1.1TreasuryRegulationsstatesthat:“TheaccountingauthorityforapublicentitylistedinSchedule

3A or 3C must annually submit a proposed strategic plan for approval by the relevant executive authority. Co-operative

BanksDevelopmentAgency’sStrategicPlanfor2011/12wasnotapprovedbytheMinisterofFinance.

Annual financial statements

23. The financial statements submitted for audit did not comply with section 55(1) (b) of the PFMA and material misstatements

were identified during the audit. Material misstatements of income and expenditure and disclosure items identified by

theauditorsweresubsequentlycorrected,resultinginthefinancialstatementsreceivinganunqualifiedopinion.

Co-operative Banks Act of south Africa, 2007

24. Intermsofthesection25oftheCo-operativeBanksActtheagencymustestablishandmanageafundtobeknown

astheCo-operativeBanksDepositInsuranceFund.Co-operativeBanksDevelopmentAgencydidnothaveaDeposit

InsuranceFundasrequiredbytheCo-operativeBanksAct.

internal control

25. Iconsideredinternalcontrolrelevanttomyauditofthefinancialstatements,annualperformancereportandcompliance

with laws and regulations. The matters reported below under the fundamentals of internal control are limited to the

significantdeficienciesthatresultedinthebasisforqualifiedopinionontheannualperformancereport.Howeverthere

werenosignificantdeficienciesininternalcontrolsthatresultedinaqualificationoftheauditor’sopiniononthefinancial

statements and the findings on compliance with laws and regulations included in this report.

leadership

Oversight responsibility regarding reporting and compliance

26.Theaccountingauthoritydidnotexerciseadequateoversightoverthefinancialstatements,reportingonpredetermined

objectivesandcompliancewithlawsandregulations.Thishasresultedinmaterialadjustmentstothefinancialstatements,

findings on the predetermined objectives and non-compliance with laws and regulations.



43

Financial and performance management

Regular, accurate and complete financial and performance reports

27. Management did not follow policies and procedures to complete the reporting performance report as a result a

numerousinstancesofnon-compliancewithTreasuryRegulationswereidentified.

Review and monitor compliance with laws and regulations

28. Management did not follow policies and procedures to review internal controls of the Agency regarding compliance

with laws and regulations and as a result a number of recurring non-compliances were identified.

Pretoria

31 July 2012



44

11. FinanCial sTaTemenTs For the year ended 31 March 2012


45


statement of Financial Position 2012 2011

notes R’000 R’000

Assets

non-current assets

Property,plantandequipment-SPO 2 70 100

Intangibleassets 3 3 6

73 106

Current assets

Cashandcashequivalents-SPO 4 1,870 31

Trade and other receivables –Cu 5 44 19

1,914 50

TOTAL ASSETS 1,987 156

liabilities - -

non-current liabilities - -

Current liabilities

Trade and other payables –SPO 6 822 804

Provisions-CurrentSPO 7 557 133

DeferredIncome 8 294 -

1,673 937

TOTAl liABiliTies 1,673 937

net assets

Accumulated surplus/(deficit) -SPO 314 (781)

314 (781)

–SPO

TOTAl neT AsseTs 314 (781)

TOTAl neT AsseTs AnD liABiliTies 1,987 156



46


statement of Financial Performance 2012 2011


Revenue

Non-exchange revenue 9,516 8,200

Transfers and subsidies–SPR 9 9,310 8,200

GrantIncome 8 206 -

Exchange revenue 162 78

Saleofgoodsandrenderingofservices–S 10 9 35

Interest,dividendsandrentonland-SPR 11 153 43

9,678 8,278

expenditure

Goods and services–SPR 12 (4,272) (4,677)

Compensation of employees –SPR 13 (4,042) (3,947)

Depreciation/amortisation and impairment– (63) (52)

GrantExpenditure 8 (206) -

(8,583) (8,676)

suRPlus/DeFiCiT FOR THe YeAR 1,095 (398)


47


statement of Changes in net assets

Accumulated surplus/deficit

Total


Balance at 1 April 2010 as originally stated (383) (383)

As restated (383) (383)

Surplus/(deficit)fortheyear (398) (398)

Balance at 1 April 2011 as originally stated (781) (781)

As restated (781) (781)

Surplus/(deficit)fortheyear 1,095 1,095

Balance on 31 March 2012 314 314


48


Cash Flow statement 2012 2011


Cash flow from operating activities

Cash receipts 9,973 8,278

Transfers and subsidies 9,310 8,200

Saleofgoodsandrenderingofservices 9 -

Interest,dividendsandrentonland 103 43

GrantRevenue 500 -

Other operating revenue 51 35

Cash payments (8,104) (8,219)

Compensation of employees (3,474) (3,814)

Goods and services (4,630) (4,405)

net cash generated from operating activities 15 1,869 59

Cash flow from investing activities

Purchase of assets (30) (28)

net cash used in investing activities (30) (28)

net (decrease)/increase in cash, cash equivalents and bank overdrafts 1,839 31

Cash,cashequivalentsandbankoverdraftsatbeginningoftheyear 31 -

Cash, cash equivalents and bank overdrafts at end of the year 1,870 31


49


notes to the annual financial statements

1. Accounting Policies

1.1 Basis of preparation

Theannualfinancialstatementshavebeenpreparedusingtheaccrualbasisofaccounting,intermsofwhichitemsarerecognisedas

assets,liabilities,netassets,revenueandexpenseswhentheysatisfythedefinitionsandrecognitioncriteriaforthoseelements,which

inallmaterialaspectsareconsistentwiththoseappliedinthepreviousyear,exceptwhereachangeinaccountingpolicyhasbeen

recorded.

ThefinancialstatementsarepreparedinSouthAfricanrand(R).

TheannualfinancialstatementshavebeenpreparedinaccordancewiththeeffectivestandardsofGRAP,includinganyinterpretations

anddirectivesissuedbytheAccountingStandardsBoard.

The principal accounting policies adopted in the preparation of these financial statements are set out below.

Assets;liabilities;revenuesandexpenseshavenotbeenoffsetexceptwhenoffsettingisrequiredorpermittedbyastandardofGRAP.

1.2 Changes in accounting policy and comparability

The CBDA is preparing the second set of financial statements since its inception. The accounting policies have been applied consistently.

TheCBDApreparedthefinancialstatementsinaccordancewithGRAP.

The entity will change an accounting policy if the change results in the financial statements providing reliable and more relevant

informationabouttheeffectsoftransactions,othereventsorconditionsontheperformanceorcashflow.

1.3 going concern assumption

The annual financial statements have been prepared on the assumption that the CBDA will continue to operate as a going concern

for at least the next 12 months.

1.4 Revenue recognition

Revenue from exchange transactions

Revenuefromexchangetransactionsreferstorevenuethataccruedtotheentitydirectlyinreturnforservicesrenderedorgoodssold,

thevalueofwhichapproximatestheconsiderationreceivedorreceivable.Revenueisrecognisedtotheextentthatitisprobablethat

theeconomicbenefitswillflowtoCBDAandrevenuecanbereliablymeasured.Revenueismeasuredatfairvalueoftheconsideration

receivableonanaccrualbasis.Revenueincludesinvestmentandnon-operatingincomeexclusiveofvalueaddedtaxation,rebatesand

discounts. The following specific recognition criteria must also be met before revenue is recognised:

a. Revenue from sale of goods

Revenuefromthesaleofgoodsisrecognisedwhensignificantriskandrewardsofownershipofgoodsaretransferredtothebuyer.

Saleofgoodsincludespublications.


50


b. Interest income

Revenueisrecognisedasinterestaccruedusingtheeffectiveinterestrate,andisincludedinotherrevenueinthestatementoffinancial

performance.

c. Revenue arising from application of tariff

Revenuearisingfromtheapplicationoftheapprovedtariffofchargesisrecognisedwhentherelevantserviceisrenderedbyapplying

therelevantgazettetariff.Thisincludesregistrationofco-operativebanks.

d. Revenue from non-exchange transactions

Revenuefromnon-exchangetransactionsreferstotransactionswheretheentityreceivedrevenuefromanotherentitywithoutdirectly

givingapproximatelyequalvalueinexchange.Revenuefromnon-exchangetransactionsisgenerallyrecognisedtotheextentthatthe

relatedreceiptorreceivablequalifiesforrecognitionasanassetandthereisnoliabilitytorepaytheamount.

1.5 Taxes

CBDAisexemptfromincometaxintermsofsection10(1)oftheIncomeTaxActNo58of1962.

1.6 Property, plant and equipment

initial recognition

Property,plantandequipmentaretangibleassetsthatareheldforuseintheproductionorsupplyofgoodsorservices,rentaltoothers

orforadministrativepurposes,andareexpectedtobeusedmorethanoneyear.Itemsofproperty,plantandequipmentareinitially

recognised asassetsonthedateofacquisitionandareinitiallyrecordedatcost.Thecostofanitemofproperty,plantandequipment

is the purchase price and other costs 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. The cost also includes

the necessary costs of dismantling and removing the asset and restoring the site on which it is located.

When significant componentsof an itemofplant, property andequipmenthavedifferentuseful lives, they are accounted for as

separateitemsofproperty,plantandequipment.

Whereanassetisacquiredbytheentityfornooranominalconsideration(non-exchangetransaction),thecostisdeemedtobeequal

tothefairvalueofthatassetonthedateacquired.

Whereanitemofproperty,plantandequipmentisacquiredinexchangeforanon-monetaryassetormonetaryassets,oracombination

ofmonetaryandnon-monetaryassets,theassetacquiredisinitiallymeasuredatfairvalue(thecost).Iftheacquireditem’sfairvalueis

notdeterminable,itsdeemedcostisthecarryingamountoftheasset(s)givenup.

subsequent measurement

Subsequenttoinitialrecognition,itemsofproperty,plantandequipmentaremeasuredascostlessaccumulateddepreciationand

impairment losses.

Wheretheentityreplacespartsofanasset,itderecognisesthepartoftheassetbeingreplacedandcapitalisesthenewcomponent.

notes to the annual financial statements - continued


51


Subsequentexpenditure incurred on an asset is capitalised when it increases the capacity or future economic benefits associated with

the asset.

Depreciation and impairment

Depreciation is calculated on the depreciable amount, using the straight linemethod 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 annual depreciation rates are based on the estimated average asset lives stated below.

Repairsandmaintenancecostsarechargedtothestatementoffinancialperformance.

equipment, furniture and fittings

Theannualdepreciationratesappliedtothevariouscategoriesofequipmentare:

• Computerequipment3years

• Furnitureandfittings5years.

Derecognition

Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsorservicepotential

isexpectedfromtheuseoftheasset.Thegainorlossarisingondisposalorretirementofanitemofproperty,plantandequipment

isdeterminedasthedifferencebetweenthesalesproceedsandthecarryingvalueandisrecognisedinthestatementoffinancial

performance.

Assets’residualvalues,usefullivesandmethodsofdepreciationarereviewedateachfinancialyearendandadjustedprospectivelyif

appropriate.

1.7 intangible assets

Softwareisclassifiedasintangibleassets.Initialexpenditureonsoftwareisrecognisedatcostandcapitalised.Subsequentexpenditure

is capitalised only when it increases the future economic benefits embodied in the asset to which it relates. The amortisation is

calculated at a rate considered appropriate to reduce the cost of the asset less residual value over the shorter of its estimated useful life

or contractual period.Residualvaluesandestimatedusefullivesarereviewedannually.

Intangibleassetsthatmeettherecognitioncriteriaarestatedinthestatementoffinancialpositionatamortisedcost,beingtheinitial

cost price less any accumulated amortisation and impairment losses.

Amortisationisprovidedtowritedowntheintangibleassets,onastraightlinebasis,totheirresidualvaluesasfollows:

• ITsoftware 3years



52


1.8 impairment of non-financial - assets

TheCBDAassessesateachreportingdatewhetherthereisanyindicationthatanassetmaybeimpaired.Ifanysuchindicationexists,

theentityestimatestherecoverableamountoftheindividualasset. If it isnotpossibletoestimatetherecoverableamountofthe

individualasset,therecoverableamountofthecash-generatingunittowhichtheassetbelongsisdetermined.

Acash-generatingunitisthesmallestidentifiablegroupofassetsthatgeneratescashinflowsthatarelargelyindependentofthecash

inflowsfromotherassetsorgroupsofassets.

Therecoverableamountofanassetoracash-generatingunitisthehigherofitsfairvaluelesscoststosellanditsvalueinuse.Ifthe

recoverableamountofanassetislessthanitscarryingamount,thecarryingamountoftheassetisreducedtoitsrecoverableamount.

That excess is an impairment loss and it is charged to the statement of financial performance.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in

the statement of financial performance. Any impairment deficit of a revalued asset is treated as a revaluation decrease in the

revaluation reserve.

The CBDA assesses at each reporting date whether there is any indication that an impairment loss recognised in previous periods for

assetsmaynolongerexistormayhavedecreased.Ifanysuchindicationexists,therecoverableamountsofthoseassetsareestimated

and matched against their carrying values and any excess of the recoverable amounts over their carrying values is reversed to the

extent of the impairment loss previously charged in the statement of financial performance.

1.9 leases

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified

as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. The classification of leases is

determinedusingGRAP13-Leases.

a. Operating leases - lessee

Lease agreements are classified as operating leases where substantially the entire risks and rewards incident to ownership remain with

thelessor.Operatingleasepaymentsarerecognisedasanexpenseonastraight-linebasisovertheleaseterm.Thedifferencebetween

the amounts recognised as an expense and the contractual payments is recognised as an operating lease asset/liability. The asset is

not discounted.

b. Finance leases - lessee

Financeleasesarerecognisedasassetsandliabilitiesinthestatementoffinancialpositionatamountsequaltothefairvalueofthe

leasedpropertyor,iflower,thepresentvalueoftheminimumleasepayments.Thecorrespondingliabilitytothelessorisincludedin

the statement of financial position as a finance lease obligation.

The discount rate used in calculating the present value of the minimum lease payments is the market-related interest rate approved by

the CBDA. The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge

is allocated to each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.



53


1.10 employee benefits

a. Short-term employee benefits

Thecostofshort-termemployeebenefits(thosepayablewithin12monthsaftertheserviceisrendered,suchaspaidvacationleave,

bonuses) is recognised in the period in which the service is rendered and is not discounted.

1.11 Foreign currency transactions

Transactions in foreign currencies are accounted for at the rate of exchange ruling on the date of the transaction. Liabilities in foreign

currencies are translated at the rate of exchange ruling at the reporting date or at the forward rate determined in forward exchange

contracts.Exchangedifferencesarisingfromtranslationsarerecognisedinthestatementoffinancialperformanceintheperiodin

which they occur.

1.12 Provisions and contingencies

Provisions are recognised when:

• theCBDAhasapresentobligationasaresultofpastevents;

• it is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the

obligations;and

• areliableestimatecanbemadeoftheobligation.

Provisions are not recognised for future operating losses.

IftheCBDAhasacontractthatisonerous,thepresentobligationunderthecontractisrecognisedandmeasuredasaprovision.

Contingent assets and contingent liabilities are not recognised.

1.13 Financial instruments

initial recognition

Financial instruments are initially recognised at fair value.

subsequent measurement

Financialassetsarecategorisedaccordingtotheirnatureaseitherfinancialassetsheldatfairvaluethroughprofitorloss–tomaturity,

loans and receivables - or available for sale. Financial liabilities are categorised as either at fair value through profit or loss or financial

liabilitiescarriedatamortisedcost.Thesubsequentmeasurementoffinancialassetsandliabilitiesdependsonthiscategorisation,in

theabsenceofanapprovedGRAP

a. Trade and other receivables

Tradereceivablesarecategorisedasfinancialassets:loansandreceivablesareinitiallyrecognisedatfairvalue,andaresubsequently

measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts

are recognised inprofitor losswhenthere isobjectiveevidencethat theasset is impaired.Significant financialdifficultiesof

thedebtor, anddefault or delinquency inpayments (more than 120days overdue) are considered indicators that the trade



54


receivable is impaired.Theallowancerecognisedismeasuredforalldebtorswith indicationsof impairment. Impairmentsare

determined based on the risk profile of each debtor. Amounts that are receivable within 12 months from the reporting date are

classified as current.

Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccount,andtheamountofthelossisrecognisedin

thestatementoffinancialperformancewithinoperatingexpenses.Whenatradereceivableisuncollectable,itiswrittenoffagainst

theallowanceaccountfortradereceivables.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainstoperating

expenses in the statement of financial performance.

b. Trade and other payables

Financialliabilitiesconsistoftradepayablesandborrowings.Theyareinitiallymeasuredatfairvalue,andaresubsequentlymeasuredat

amortisedcostusingtheeffectiveinterestratemethod,whichisinitialcarryingamount,lessrepayments,plusinterest.

c. Cash and cash equivalents

Cashincludescashonhand(includingpettycash)andcashequivalentsinthestatementoffinancialposition,comprisingcashatbanks

andonhand,including investments and short-term deposits with an original maturity of three months or less. For the purpose of the cash

flowstatement,cashandcashequivalentsconsistofcashandcashequivalentsasdefinedabove,netofoutstandingbankoverdrafts.

These are initially andsubsequentlyrecordedatfairvalue.

1.14 unauthorised expenditure

Unauthorisedexpenditure isexpenditurethathasnotbeenbudgeted for,expenditurethat isnot in termsof theconditionsof the

allocationreceivedfromanothersphereofgovernment,municipalityororganofstateandexpenditureintheformofagrantthatisnot

permitted in terms of the Public Finance Management Act. Unauthorised expenditure is accounted for as an expense in the statement

offinancialperformanceandwhererecovered,itissubsequentlyaccountedforasrevenueinthestatementoffinancialperformance.

1.15 irregular expenditure

Irregular expenditure is expenditure that is contrary to the Public FinanceManagementAct (Act 1 of 1999 as amended) or is in

contraventionof theCBDA’s supplychainmanagementpolicy. Irregularexpenditureexcludesunauthorisedexpenditure. Irregular

expenditure is accounted for as expenditure in the statement of financial performance andwhere recovered, it is subsequently

accounted for as revenue in the statement of financial performance.

1.16 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 it is

recovered,itissubsequentlyaccountedforasrevenueinthestatementoffinancialperformance.

1.17 Related parties

The CBDA operates in an economic sector currently dominated by entities directly or indirectly owned by the South African

government.AsaconsequenceoftheconstitutionalindependenceofthethreespheresofgovernmentinSouthAfrica,onlyentities

within the national sphere of government are considered to be related parties.



55


Keymanagementisdefinedasindividualswiththeauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesof

the entity. All individuals from the level of Managing Director to the board members of the CBDA are regarded as key management

according to the definition of the financial reporting standard.

Closefamilymembersofkeymanagementpersonnelareconsideredtobethosefamilymemberswhomaybeexpectedtoinfluence,

orbeinfluencedbykeymanagementindividuals,intheirdealingswiththeentity.



56



2. Property, plant and equipment

Reconciliation of carrying value

Opening net carrying amount - 100 100

Gross carrying amount - 167 167

Accumulated depreciation - (67) (67)

Additions & revaluations 22 8 30

TransferfromNationalTreasury - - -

Additions 22 8 30

Disposals & adjustments - - -

Depreciation (2) (58) (60)

Closing net carrying amount 20 50 70

Gross carrying amount 22 175 197

Accumulated depreciation (2) (125) (127)

Reconciliation of the carrying values of property and equipment

2012

Carrying value beginning of the

year

Additions Depreciation Carrying value end of the year

Computerequipment 100 8 (58) 50

Officeequipment - 22 (2) 20

100 30 (60) 70


2011


year

Additions Depreciation Carrying value end of the year

Computerequipment - 148 (48) 100

Officeequipment - - - -

- 148 (48) 100

2012

Office

equipmentComputer

equipmentTotal

R' 000 R' 000 R' 000


57



3. intangible assets

Reconciliation of carrying value

Opening net carrying amount 6

Gross carrying amount 10

Accumulated amortisation (4)

Additions & revaluations

TransferfromNationalTreasury -

Amortisation (3)

Closing net carrying amount 3

Gross carrying amount 10

Accumulated amortisation (7)


2012


year

Additions Amortisation Carrying value end of the year

Computer software 6 - (3) 3

6 - (3) 3


2011


year

Additions Amortisation Carrying value end of the year

Computer software - 10 (4) 6

- 10 (4) 6

2012

Computer

software

R’ 000


58



4. Cash and cash equivalentsCash at bank 1,870 31

Total 1,870 31

5. Trade and other receivables from exchange transactionsTrade receivables - 2

Prepayments 4 -

Staffloans 40 17

44 19

5.1 Trade receivables: Ageing

Current(0–30days) - -

31 - 60 days - -

61-90days - -

91-120days - -

121 - 365 days - 2

+ 365 days - -

- 2

Tradereceivableswhicharelessthan3monthspastduearenotconsideredtobeimpaired.Asat31March2011,R2400werepast

due but not impaired.

5.2 Trade receivables impaired

Receivablearenotconsideredtobeimpaired.

The ageing of these receivables is as follows:

3 to 6 months - 2

- 2

The fair value of trade receivables approximates their carrying amounts.

2012 2011



59



6. Trade and other payables from exchange transactionsTrade creditors 590 803

Accruals 232 1

822 804

The CBDA considers that the carrying amount of trade and other payables approximates their fair value.

7. Current provisionsProvision for leave 198 133

Provision for bonuses 359 -

557 133

The‘Provisions’balanceincludesleavepay,whichrelatestotheCBDA’sestimatedliabilitiesarisingasaresultofservicesrenderedby employees and bonuses which have not yet been paid.

Provision

1 April 2011 133 -

Contributions to provision 557 360

Unused amounts reversed (113) -

Expenditureincurred (20) (227)

31 March 2012 557 133

8. grant incomeGrant revenue 500 -

AccruedGrantExpenditure (206) -

DeferredIncome 294 -

TherevenueisaBANKSETAgrantreceivedforfundingGovernanceTrainingandAccommodationforCFIManagerattendingtheCertificateCourseinManagementofCo-operativeFinancialInstitution.

Atyearend,trainingexpenditureandaccommodationcoststotheamountofR206,000wererealisedasincome.

9. Transfers and subsidies TransferfromNationalTreasury 9,310 8,200

9,310 8,200

2012 2011



60



10. sale of goods and rendering of servicesApplication fee to register as a co-operative bank - 12

Workshop registration fee 9 23

9 35

11. interest, dividends and rent on landInterestreceived 103 43

Donation received 50 -

153 43

12. goods and services Administrative fees 39 80

Advertising 90 70

Assets less than capitalisation threshold 11 -

Audit fees 539 -

Bursaries (employees) 80 37

Netforeignexchangegains/(loss) - 1

Communication - 12

Computer services 19 -

Consultants,contractorsandagency/outsourced services

1,449 1,781

Maintenance,repairsandrunningcosts 41 11

Operating lease 41 38

Travel and subsistence 584 480

Trainingandstaffdevelopment 43 93

Venues and facilities 119 -

Other operating expenditure 1,217 2,074

4,272 4,677

13. Compensation of employeesEmployeecosts 3,372 2,842

ExecutiveDirector'semoluments 93 972

Provisions 577 133

4,042 3,947

2012 2011



61



14. Deficit/(surplus) for the previous yearAssetstransferredfromNationalTreasuryatcostlessaccumulateddepreciationintermsofGRAPStandard17recognitioncriteria

- 130

InvoicesaccruedintermsofGRAPStandard1 - (513)

Opening deficit as at 1 April 2011 - (383)

15. net cash flows from operating activitiesSurplus/(deficit)fortheyear 1,095 (398)

Adjustment for:-

Depreciation and amortisation 63 52

Increaseinprovisions 424 133

Operating surplus before working capital changes:

1,582 (213)

(Increase)/decreaseintradereceivables (25) (19)

Increase/(decrease)intradepayables 312 291

Cash generated by/(utilised in) operations 1,869 59

16. Operating lease arrangements as the lessee:-

16.1 Future minimum lease payments

Up to 12 months

Photocopier/printerequipment 41 41

41 41

1 year to 5 years

Photocopier/printerequipment 4 45

Minolta operating lease

4 45

Therentalagreementisforaperiodof36monthsending30April2013withfixedrentalpayments.Intheeventofa24-monthextensionperiod,therentalwillbereducedby75%.

2012 2011



62



17. Capital commitmentNocapitalcommitmentsweremadeinthecurrentorpreviousfinancialyear.

18. Contingent liabilitiesPending claims

Management is not aware of any pending contingent liabilities against CBDA.

19. events after the reporting date The managing director was appointed on 14 May 2012.

20. TaxationNoprovisionhasbeenmadefortaxation,astheCBDAisexemptfromtaxationintermsofsection10oftheIncomeTaxAct.

21. going concern assumption

2012

TheCBDAhasasurplusofR1097000anditstotalassetsexceeditstotalliabilitiesbyR314000.

TheCBDAwasestablishedintermsoftheCo-operativeBanksActof2007.ItistheintentionofthegovernmenttocontinuefundingtheentityinthefutureMTEFperiods.

The annual financial statements have been prepared on a going concern basis.

2011

TheCBDAhasadeficitofR398000anditstotalliabilitiesexceeditstotalassetsbyR781000.

TheCBDAwasestablishedintermsoftheCo-operativeBanksActof2007.ItistheintentionofthegovernmenttocontinuefundingtheentityinthefutureMTEFperiods.

The annual financial statements have been prepared on a going concern basis.

22. standards approved and effectiveThefollowingstandardsofGRAPareeffectiveforfinancialyearscommencingonorafter1April2012.

The CBDA has elected to continue applying the previous accounting policies.

GRAP21-ImpairmentofNon-cashGeneratingAssetsGRAP23-RevenuefromNon-exchangeTransaction(TaxesandTransfer)GRAP24-PresentationofBudgetInformationinFinancialStatementsGRAP26-ImpairmentofCash-GeneratingAssetsGRAP103-HeritageAssetsGRAP104-FinancialInstruments


63



22.1 standards issued but not yet effective

Atthedateofauthorisationofthesefinancialstatements,thefollowingaccountingstandardsofGRAPwereinissue,butnotyeteffective:GRAP18-SegmentReportingGRAP25-EmployeeBenefits

TheapplicationofalloftheaboveGRAPstandardswillbeeffectivefromadatetobeannouncedbytheMinisterofFinance.Thisdate is not currently available.

23. significant accounting judgements, estimates and assumptionsThepreparationofCBDAfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffectthereportedamountsofrevenues,expenses,assetsandliabilities,andthedisclosureofcontingentliabilities,atthereportingdate.

However,uncertaintyabouttheseassumptionsandestimatescouldresultinoutcomesthatrequireamaterialadjustmenttothecarryingamountoftheassetorliabilityaffectedinfutureperiods.

Judgements

Therewerenoitemsthatrequiredmanagement’sjudgementintheprocessofapplyingtheCBDAaccountingpolicies.

estimates and assumptions

Therewerenokeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthebalancesheetdate,thatpose a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year.

24. Reconciliation of budget surplus/deficit with the surplus/deficit in the statement of financial performanceNetsurplus/deficitperthestatementoffinancialperformance 1,095 (398)

Adjustment for:

Increaseincurrentprovisions 65 133

Netforeignexchange(gain)orloss - 1

Depreciation 63 52

Interestreceived (103) (43)

Other income (59) (35)

Netsurplus/deficitperapprovedbudget 1,061 (290)

2012 2011



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25. Related partiesTheCBDAisaschedule3ANationalPublicEntityintermsofthePublicFinanceManagementAct(Act1of1999asamended)andthereforefallswithinthenationalsphereofgovernment.AsaconsequencetheCBDAhasrelatedparties,whichareentitiesthatfall within the national sphere of government.

Unlessspecificallydisclosed,thesetransactionsareconcludedonanarm’slengthbasis.TherearenorestrictionsintheCBDA’scapacity to transact with an entity.

25.1 Transactions with related parties

BAnKseTA services rendered R’000 services received R’000

2012 2012

Transactions Balance Transactions Balance

- - 500 294

- - 500 294

sAMAF services rendered R’000 services received R’000

2011 2011

Transactions Balance Transactions Balance

69 - 65 -

69 - 65 -


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25.2 Fees paid to the board members and executive Management salaries

2012

Allowance Travel Total

R’000 R’000 R’000

Mr.SMNdwandwe 76 19 95

Mrs. J Kuzwayo 35 1 36

Mr. P Koch 17 30 47

Mr. K Mahuma - - -

Mr.VSatgar 5 - 5

Mrs. D Hamilton 13 1 14

Mr. J Theron 22 45 67

Ms O Matshane 7 1 8

MrNMashiya(ActingManagingDirector) 56 - 56

MsIGoodspeed(ActingManagingDirector) 37 - 37

ExecutiveDirectors 1,596 - 1,596

1,864 97 1,961

2011

Allowance Travel Total

R’000 R’000 R’000

Mr.SMNdwandwe 74 5 79

Mrs. J Kuzwayo 37 1 38

Mr. P Koch 19 20 39

Mr. K Mahuma 21 1 22

Mr.VSatgar 14 1 15

Mrs. D Hamilton 15 3 18

Mr. J Theron 14 17 31

Ms O Matshane 8 - 8

Managing Director 952 - 952

ExecutiveDirectors 1,464 - 1,464

2,618 48 2,666


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26. statement of unauthorised, irregular and fruitless and wasteful expenditure

26.1 unauthorised expenditure

31 March 2012 31 March 2011

R’000 R’000

Reconciliation of unauthorised expenditure

Opening balance 781 -

Unauthorisedexpenditure–currentyear - 781

Unauthorised expenditure approved by Parliament/legislature - -

Transfer to receivables for recovery (not approved) - -

Unauthorised expenditure awaiting authorisation (781) -

- 781

Incident Disciplinary steps taken/criminal proceedings

2012

The CBDA is not aware of any unauthorised expenditure that occurred during the financial period.

2011

Unauthorised expenditure occurred as a result of spending in excess of the allocated funds.

N/A

None

Comments

2012

Nounauthorisedexpenditureoccurredduringthefinancialyear.

2011

AsubordinationletterwaswrittenandsubmittedtothePublicEntitiesSupportunitinNationalTreasury.


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26.2 Fruitless and wasteful expenditure

31 March 2012 31 March 2011

R’000 R’000



Fruitlessandwastefulexpenditure–currentyear 18 55

Fruitless and wasteful expenditure condoned - -

Transfer to receivables for recovery - -

Fruitless and wasteful expenditure awaiting condonation - -

73 55

Analysis of current fruitless and wasteful expenditure


2012

Due to the late payment of salaries in October 2011 one of the CBDA employeeswaschargedR650bankchargesasaresultofhisdebitordersnotbeingpaidontime,forwhichCBDAhadtorefundhim. TheCBDApaymenttoSARSforNovember2011wasdelayedduetothefactthatthecomputerequipmentfortheManagerwhodoespayments was not functioning. The manager received a new laptop whichdidnothavetheFNBOnlinesystem.Theonlinesystemwassetup after the payment due date.

CBDA incurred an expense for Board member travel and board fee due theCBDABoardSelectionCommitteemeetingthatwascancelled.TheSelectionCommitteewasnotifiedaboutthecancellationontheirarrival at the meeting.

2011Anemployee’straveltickettoaconferenceintheUSAwasbooked.Theticketwascancelledbecausetheemployee’sVISAapplicationwasdeclined. The CBDA was not refunded since all travel agents had a rulingthatflightscancelledduringtheWorldCupperiod(June)wouldnot be refunded.

None

None

None

None

Comments

2012Nounauthorisedexpenditureoccurredduringthefinancialyear.

2011

A subordinationletterwaswrittenandsubmittedtothePublicEntitiesSupportunitinNationalTreasury.


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26.3 irregular expenditure

31 March 2012 31 March 2011

R’000 R’000



Irregularexpenditure–currentyear 596 404

Irregularexpenditurecondoned - -

Transfer to receivables for recovery - -

Irregularexpenditureawaitingcondonation - -

1 000 404


2012

TheAgencyincurredirregularexpenditureofR596,000.The preference point system was not applied in the procurement of one competitive bid as the expenditure was in contravention ofTreasuryRegulation16A.6.3(b)relatingtosupplychainmanagement

2011

A service provider who is the only supplier that could provide servicesofthenaturerequiredbytheCBDAonthebenchmarkingof co-operative banks in the country was appointed without a tax clearance certificate.

None

None

Comments

2012

Noirregularexpenditureoccurredduringthecurrentfinancialyear.

2011

AsubmissiontoNationalTreasurytorequestcondonationofnon-compliancewiththePFMAhasbeenwritten.Authorisationhasnot yet been obtained.

27. Comparative figures

Whenthepresentationorclassificationofitemsintheannualfinancialstatementsisamended,previousperiodcomparativeamountsarerestated,unlessastandardofGRAPdoesnotrequiretherestatementofcomparativeinformation.Thenatureofandreasonforthereclassificationaredisclosed.Wherematerialaccountingerrorshavebeenidentifiedinthecurrentfinancialyear,thecorrectionismaderetrospectivelyasfarasispracticable,andthepreviousyear’scomparativesarerestatedaccordingly.Wheretherehasbeenachangeinaccountingpolicyinthecurrentfinancialyear,theadjustmentismaderetrospectivelyasfarasispracticable,andthepreviousyear’scomparativesarerestatedaccordingly.


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28. Financial instruments

InthecourseoftheCBDA’soperationsitisexposedtointerestrate,credit,liquidityandmarketrisk.

The CBDA has developed a comprehensive risk strategy to monitor and control these risks. The risk management process relating to each of these risks is discussed under the headings below.

Credit risk

Financialassets,whichpotentiallysubjecttheCBDAtotheriskofnon-performancebycounter-partiesandthussubjectittocreditconcentrationsofcreditrisk,consistmainlyofcashandcashequivalentsandreceivablesfromexchangetransactions. Refertonote5fortheagingofreceivablesfromexchangetransactions. The CBDA manages/limits its treasury counter-party exposure by only dealing with well-established financial institutions approved byNationalTreasurythroughtheapprovaloftheirinvestmentpolicyintermsofTreasuryRegulations.

liquidity risk

TheCBDAmanagesliquidityriskthroughpropermanagementofworkingcapital,capitalexpenditureandactualvs.forecastcashflowsanditscashmanagementpolicy.Adequatereservesandliquidresourcesarealsomaintained.

Market risk

TheCBDAisexposedtofluctuationsintheemploymentmarket.Forexamplesuddenincreasesinunemploymentandchangesinthewagerates.NosignificanteventsoccurredduringtheyearthattheCBDAisawareof.

Fair values

TheCBDA’sfinancialinstrumentsconsistmainlyofcashandcashequivalents.Nofinancialinstrumentwascarriedatanamountin excess of its fair value and fair values could be reliably measured for all financial instruments. The following methods and assumptions are used to determine the fair value of each class of financial instruments:

Cash and cash equivalents

Thecarryingamountofcashandcashequivalentsapproximatesfairvalue.

Other receivables from exchange transactions

The carrying amount of other receivables from exchange transactions approximates fair value due to the relatively short-term maturity of these financial assets.

noTes

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Documents

Co-operative Banks Development Agency Annual Report Annual Report 2011... · Co-operative Banks Development Agency Annual Report ... The Co-operative Banks Development Agency has