Annual Report 2006/2007

Annual R

e

por

t 2006/2007

Our Vision

“INSETA promotes and enables quality skills development through funding education and training

in South Africa to meet the national skills agenda and contributes to transformation in the sector”

ISBN 978-0-621-37139-0 RP67/2007

CONTENTS:

The Chairperson’s Report 2

The Chief Executive Officer’s Report 4

Report of the Audit Committee 12

Report of the Auditor-General 14

Annual Financial Statements 16

INSETA Council 48

Council Committees 50

INSETA Organogram 51

INSETA Team 52

Statements of Support 54

National Skills Development Strategy (NSDS) II Targets and INSETA's Achievements 57

Glossary of Terms 61

2

CHAIRPERSON’S REPOR

It can be said that the crux of a SETA’s work is determined by the Service Level Agreement it has signed with the Department of Labour and whether it has met its targets in terms of this Agreement. I am pleased to report that INSETA, during the period under review, has achieved its targets and has increased its rate of delivery to stakeholders.

As in previous years both Council and INSETA’s Management have identified good corporate governance, as one of its critical success factors and this year of reporting is no exception. INSETA’s commitment to transformation is evident both in the composition of its Council (61% black of who 53% are female) and staff (83% black with a 71% female profile).

Representing a sector which faces transformational challenges, INSETA has a key role to play by providing discretionary funding for the education and training of employed and unemployed learners and interns. The National Skills Development Strategy (NSDS) is transformational in that it requires of SETAs that 85% of people trained should be black, 54% women and 4% people with disabilities. The SETA provides an education and training pipeline through which black matriculants and graduates are provided with the skills and expertise to assist the sector to meet its Financial Sector Charter (FSC) targets. Together with my fellow Councillors we have approved R57,3 million in terms of funding of discretionary grants for projects that are aligned to the NSDS. Many of the projects are direct interventions into transformational issues such as INSETA’s Black Brokers “Running a Brokerage” pilot project. The project aims to train and equip 20 black SMMEs with the necessary skills and knowledge to grow, become sustainable and profitable and to be future role models for other SMMEs in the sector.

INSETA continues to fund learning through its Bursary Fund that addresses the scarce and critical skills needs in the sector such as actuaries, financial planners, financial managers, customer care managers and compliance managers.

We are pleased to report that as in previous years, INSETA’s levy-payers again achieved a high rate of compliance in terms of mandatory grants. Two institutions were the proud recipients of INSETA’s Institute of Sectoral or Occupational

Excellence (ISOE) Grant, namely the Nelson Mandela Metropolitan University and the Umfolozi College.

During the period under review, 112 education and training providers were accredited with INSETA’s Quality Division, INSQA and many of the new accreditations were as a result of providers wishing to offer education and training towards the requirements for licensing of Financial Advisors under the Fit and Proper Determination of the

Financial Advisory and Intermediary Services (FAIS) Act.

The uptake in terms of learners participating in Learnerships has been very encouraging and Council approved R20,6 million in terms of funding for employed and unemployed learners. We are very appreciative of the National Skills Fund (NSF) support, funding and approval for our Critical Skills Project where 539 learners are participating in a Wealth Management Learnership aimed at National Qualifications Framework (NQF) Level 5.

APPRECIATION

During the period under review, developments took place at Council where new Councillors were appointed as well as a change in Chairperson and Deputy Chairperson. I would like to express my gratitude to outgoing Chairperson, Barry Scott and Deputy Chairperson, Blum Khan for their efforts, support and commitment to INSETA during their tenure. I would also like to welcome the new Councillors to Council who are already making a positive and meaningful contribution to INSETA. To the remaining Councillors, thank you for your support and sage advice, which I value immensely.

To Mike Abel and his team, well done on your sterling efforts and thank you for your continued commitment and passion for the work that you do at INSETA. Our appreciation must be expressed to all INSETA’s stakeholders and in particular the Department of Labour and the South African Qualifications Authority (SAQA) for their assistance.

“Representing a

sector which faces

transformational

challenges, INSETA has

a key role to play by

providing discretionary

funding for the education

and training of employed

and unemployed learners

and interns.”

TETIWE JAWUNA

4

CHIEF EXECUTIVE OFFICER’S REPOR

We are pleased to report that our undertaking to increase our rate of delivery to stakeholders has once again been achieved, through good corporate governance and our commitment to assisting the sector to contribute towards the economic growth of the country through a skilled and transformed work force.

CORPORATE GOVERNANCE

In September 2006 our Annual General Meeting was held where new Councillors were elected to serve on our Council. Our current Council comprises of thirteen Councillors representing constituencies from Labour, Business and State, all of who have a sound appreciation of strategic issues that surround the SETA and a strong inclination of corporate governance.

Our Council Sub-Committees, namely the Audit Committee, Finance, IT & Administration Committee and HR/Remuneration Committee met on a regular basis during the year. All three Committees saw the election of a new Chairperson and it would be remiss of me not to express our sincere appreciation to the outgoing Chairpersons for their commitment and support to INSETA during their tenure as Chairpersons.

REVIEW OF INSETA’S VISION AND MISSION

During the period under review strategic planning sessions were held with Management and with our Council where our vision and mission statement was reviewed. It was felt that a change was needed which compellingly reflects INSETA’s attitude, outlook and orientation. Our vision and mission statement now states: “INSETA promotes and enables quality skills development through funding education and training in South Africa to meet the national skills agenda and contributes to transformation in the sector”. Our new mission statement encapsulates our reason for existence, aims and responsibilities as a SETA.

POLICIES AND PROCEDURES

Several policies and procedures were reviewed and in some instances amended during the period under review. Policies reviewed included: Travel, Information Technology, Training, Finance, Supply Chain Management and Human Resources. In addition, a Quality Management System Manual was reviewed and submitted to the South African Qualifications Authority (SAQA), and the Materiality Framework was updated.

SUPPLY CHAIN MANAGEMENT

Our preferred provider database was reviewed during the year and providers were afforded the opportunity to submit

an expression of interest with a view to providing support materials and services to INSETA.

Continuous improvements were made to our electronic order and invoice processing system which provide for live budgeting control capabilities as well as a review of the process flow protocol for invoice processing in order to achieve greater efficiency in making payments.

Within the financial year the Department of Trade and Industry gazetted the BBBEE Codes of Good Practices through Parliament for implementation, requiring that all public entities comply. As such we initiated a process to ensure that INSETA has a BBBEE compliance model with system reviews, which is necessary for meeting our targets.

HUMAN RESOURCES

During the period under review, INSETA had a permanent personnel compliment of 24. INSETA’s Management is committed to transformation and the table on the following page illustrates delivery against this commitment.

5

“By focusing on

strengthening our

stakeholder relations

and sound financial

management, governance

and operational

competence we have

again met our targets

in terms of our mandate

as a SETA. An

accomplishment we are

very proud of and one

that could only be

achieved through the solid

partnerships that we have

with our stakeholders.”

Name Designation Gender Race

Mike Abel Chief Executive Officer Male Indian

Phakama Nkosi Corporate Services Manager Male Black

Shirley Steenekamp Skills Development Manager Female White

Glen Edwards ETQA Manager Male White

Aubrey Maseko Learnerships Manager Male Black

Laurel de Bruyn Public Relations Officer Female White

Neesha Naidoo ETQA Senior Consultant Female Indian

Tamara Ntombela ETQA Specialist Female Black

Nathan Seotsanyana ETQA Specialist Male Black

Tumi Peele Skills Development Consultant Female Black

Delaine Galloway ETQA Consultant Female Coloured

Bongiwe Ramaboea Learnerships Administrator Female Black

Vuyo Diniso Learnerships Administrator Female Black

Tebogo Mothapo Supply Chain Unit Administrator Female Black

Setlakalane Mokou Corporate Services Specialist Male Black

Kim Pretorius Skills Development Administrator Female White

Viola James Skills Development Administrator Female Coloured

Ella Matshikiza Personal Assistant to CEO Female Black

Kgomotso Mogomi Corporate Services Office Administrator Female Black

William Fisher ETQA Administrator Male Coloured

Lavern Ogle Learnerships Secretary Female Coloured

Itumeleng Motaung ETQA Secretary Female Black

Zodwa Motloung Receptionist Female Black

Jabu Mabaso Housekeeper Female Black

INSETA Personnel as at 31 March 2007:

Salary Bands and Grading for INSETA Personnel

6

Paterson Range Position Monthly Salary

D5 – D4 Managers R35 145 – R37 709

D1 – C3 Senior Specialist and Specialists R21 300 – R26 663

C1 – B5 Administrators and Personal Assistant R9 500 – R20 000

C4 – B3 Secretarial R6 750 – R8 480

7

TRAINING AND DEVELOPMENT

INSETA personnel received skills based capacity development training and study funding support during the period under review. Performance appraisals were conducted for staff through which training needs were identified and training plans completed.

FINANCIAL MANAGEMENT

As was the case in previous years, INSETA’s stakeholders achieved a very high rate of compliance in terms of the mandatory grants. A computation was prepared whereby the actual grants were used to calculate an estimate grant payout percentage; this is currently 87% (2005/6 – 87%). Furthermore, the employer grants and project expenses increased to R125,8 million for the 2006/07 financial year.

Of the R250 million cumulative surplus available for the allocation to projects, R240 million has been approved and allocated for projects and skills priorities. The total amount spent on these approved projects to date is R155 million which is a 65% (2005/6 – 62%) spend rate on allocated funds.

Of the funds (80%) received through the Skills Levy Act, 12,5% percent may be utilised for operational purposes. INSETA generated an administration surplus of R2,0 million (2005/06 – R3,4 million) for the current financial year, i.e. unspent administration income. This surplus was subsequently transferred to the discretionary reserve for future sector related projects.

COST OF CONSULTANTS AND TECHNICAL ADVISORS

INSETA’s main service partners have not changed during the year and are:

• Deloitte (Financial, Administration & IT Management) • PricewaterhouseCoopers (Project Management) • Ngubane & Co (Internal Auditors)

• The Auditor-General (External Auditors)

During the year under review, the cost of engaging the services of the abovementioned consultants and technical advisors was approximately R8,2 million.

INVESTMENTS POLICY

The INSETA Investments Policy requires that funds are invested on a 30 day call / short-term fixed deposit with any of the big four South African Banks. Funds invested must be spread between at least three banks and not more than forty percent of the total fixed deposits may be invested with a single bank.

INSETA placed its investments with RMB (a division of FirstRand Bank Limited), Nedbank Limited, BOE and ABSA Bank limited during the 2006/07 financial year.

STAKEHOLDER RELATIONS AND MARKETING

Much emphasis was placed in fostering greater relationships with our stakeholders during the year under review. Many hours were spent visiting individual stakeholders, which allowed for open discussion and communication.

Previously we outsourced the function of Public Relations and Communications and during the year we appointed a permanent staff member as Public Relations Officer, bringing this function in-house. This move has seen the consolidation and implementation of a corporate image for INSETA, the reintroduction of our monthly newsletter and a concerted drive to increase our visibility with the media by regularly disseminating media releases and articles and participating in stakeholder functions.

There has been increased activity on the INSETA website as more and more stakeholders use it and the Call Centre. Many information sessions and training workshops were held with stakeholders during the period under review, which were well attended and well received.

SKILLS DEVELOPMENT

RESEARCH, PRODUCTION AND DISSEMINATION OF THE SECTOR SKILLS PLAN (SSP)

The annually updated Sector Skills Plan for 2006/7 was presented to the Department of Labour. In the preparation of the Sector Skills Plan an in-depth industry wide skills audit and research was conducted. An Executive Summary of the Sector Skills Plan was also compiled and distributed to stakeholders at regional forums.

As a result of research conducted in the sector, a Career Guide was also produced which contains input received from employees, HR Directors and education and training providers. We are pleased to advise that this Guide has been well received and distributed and formed the topic of a series of focused workshops, which were conducted regionally.

In going forward the focus of research will extend to cover employment equity implementation as well as the extent and need for ABET interventions in the sector.

TRAINING OF SKILLS DEVELOPMENT FACILITATORS

Research conducted indicated that the role of the Skills Development Facilitator (SDF) is becoming increasingly important and has identified the need for them to be strategic in organisations. However research also indicates that most SDFs are relatively junior officials within their organisations and as such have little strategic input into the top echelons. Organisations are increasingly wanting to maximise the Return on Investment (ROI) on training rands, and this has highlighted the importance of the SDF function. During the period under review, INSETA sponsored an SDF Upskilling Programme. As SDFs complete their training and assessments they will be professionally registered with the South African Board of Personnel Practitioners (SABPP), in a newly assigned professional HR category for SDFs.

INSETA SMME STRATEGY

Our Regional Advisors remain the major “drivers” in the regions for all INSETA-related SMME functions. Their work

is to ensure that these small and medium sized enterprises are participating as much as possible in appropriate education and training and other INSETA initiatives.

REPORTING AND MANDATORY GRANT EVALUATIONS AND PAYMENT

INSETA has approximately 7 000 stakeholders of which some 4 260 are levy payers. An amount of R87,3 million has been paid in mandatory grants for this financial year. It is from the Workplace Skills Plans (WSPs) and Annual Training Reports (ATRs) that interesting statistics are drawn to show the extent of transformation in the sector and where the planned training has and will take place. These are recorded in INSETA’s SSP Publication. The sector can take heed of these statistics since they indicate that unless skills development is far more focused on black people and females, then the NSDS and FSC targets will take longer to realise.

Scarce skills that need to be addressed remain black and women executives and senior managers, black actuaries and professionals such as qualified financial planners and financial managers. Customer care, compliance and marketing skills remain a scarce skill as well.

ALIGNMENT OF EMPLOYMENT EQUITY AND SKILLS DEVELOPMENT

A series of workshops were conducted and meetings held with key individuals within organisations during the period under review with a specific focus on aligning skills development and employment equity.

Name of Project

Objective of the Project

Approved

Funding

Guide and to provide training to 50 SDFs who will provide career guidance to learners who will be employed in the sector.

R190 000

Sector Skills Plan Research Project

The objective of the project is to provide all stakeholders with an updated and comprehensive Sector Skills Plan and a Report on Critical and Scarce Skills in the Sector according to the guidelines as provided by the Department of Labour. This will be done by means of thorough and detailed research.

R780 000

DISCRETIONARY GRANT PROJECTS

Some of the projects approved during the period under review include:

Name of Project

Objective of the Project

Approved

Funding

Economic Empowerment Support Project

The objective of this project is to quantify the number of BEEs in the sector and measure the level of skills support in terms of a number of initiatives such as entrepreneurial skills development, procurement development, corporate governance support, BEE grants for New Venture Creation Learnerships.

R2,185 500

ABET Support Project The objective of this project is to train 500 learners (both from formal and informal sectors) in programmes leading to an ABET Level 4 qualification.

R1,150 000

Corporate Social Investment (CSI) Project

The objective of the project is to support NGOs/CBOs that operate within or that provide support services to the Insurance industry. Organisations receive a skills development grant to support the skills needs of its staff. Ten NGOs/CBOs/Co-operatives who comply with INSETA’s criteria will receive a CSI Grant.

R600 000

Institutes of Sectoral or Occupational Excellence (ISOE) Project

The objective of this project is to improve the quality and relevance of education and training provision by means of the ISOE project.

R1,140 000

New Venture Creation Institutional Support Project

The objective of this project is to train and mentor 54 young people from designated groups to establish viable new ventures and to measure the sustainability of the new ventures after 12 months.

R1,400 000

Black Brokers “Running a Brokerage” Project

The objective of this pilot project is to train and equip 20 black SMMEs with the necessary skills and knowledge to grow their brokerages and become sustainable and profitable and to be role models to other SMMEs in the sector.

R780 000

SMME Support Project The objective of the SMME Support project is essentially a capacity-building project designed to support the achievement of the NSDS objective of supporting SMMEs. This proposed project would assist with meeting the objective of providing strategic and practical skills development support that will enable the maintenance of sustainable SMME businesses in the sector.

R618 000

Research Studies, Impact Study, Customer Satisfaction Survey, Sustainability Study

The objective of this project is to measure the impact of INSETA’s skills development interventions, like the discretionary grant-funded projects and how these have contributed to skills growth and transformation in the sector. In this reporting year, the research focused only on identifying the baseline of BBBEE levy-paying companies.

R380 000

Provider Capacity Building Project

The objective of this project is to address the shortage of black education and training providers who can effectively and efficiently provide education and training to the industry. Through a focused capacity building programme for 40 potential participants, action learning will be integrated in the workplace to accelerate capacity-building and opportunities for skills and knowledge transfer to happen.

R310 000

Employment Equity Project The objective of this project is to support the effective implementation R1,820 000

10

BURSARY FUND

INSETA’s Bursary Fund specifically focuses on funding learning to address the scarce and critical skills needs in the sector as identified in our Sector Skills Plan and Scarce and Critical Skills Research Reports. Recipients of bursaries are engaged through a variety of institutions in leadership and development programmes, financial management programmes, customer care and marketing programmes, FAIS Fit & Proper programmes and ABET programmes. Since the inception of the Bursary Fund in September 2005 we have disbursed R12,5 million to achieve this objective.

INSTITUTES OF SECTORAL OR OCCUPATIONAL EXCELLENCE (ISOE)

Two institutions have been identified, have met the criteria and have received INSETA’s annual ISOE grants; they are the Nelson Mandela Metropolitan University and the Umfolozi FET College.

QUALITY ASSURANCE

ACCREDITATION OF LEARNING PROVIDERS

INSETA’s accreditation of education and training providers for the delivery of learning for competence towards unit standards and qualifications is an ongoing function. In the past year a total of 112 providers received primary and/or secondary accreditation.

INSETA monitors and audits the work of such providers.

Many of the new accreditations were as a result of providers wishing to offer training towards the requirements for licensing of Financial Advisors under the Fit and Proper Determination of the FAIS Act. In this regard, INSQA has assisted the sector in meeting licensing requirements through targeted skills programmes and recognition of prior learning. Our ETQA division continues to offer support to Financial Advisors affected by the FAIS Act, and many queries have been dealt with during the year.

Large volumes of active learners as a result of learnerships and skills programmes means that our ETQA Division has had to manage large volumes of verifications of learner achievements, and assist the Learning Providers in loading the results onto the

National Learner Records Database (NLRD). A new CD for the uploading of learner details and achievements has been developed in this regard, and distributed to providers, giving them an efficient and consistent system for keeping records.

QUALIFICATIONS

A number of SAQA registered Insurance Qualifications expired during the year and were replaced with reviewed Qualifications. Responsibility for the development and registration of qualifications is now managed under a new arrangement, a Joint Implementation Plan (JIP) with SAQA.

WORKSHOPS AND TRAINING PROGRAMMES

At the end of March 2007, workshops were conducted for Learning Providers in Gauteng, Western Cape and Kwazulu Natal to assist them in specific details relating to accreditation, learning delivery, quality assurance and certification.

Training programmes in Coaching and Mentoring, and in Outcomes-Based Education, were also offered to INSETA’s stakeholders and were well received.

During the year, Assessor and Moderator Forums were established in Gauteng, Cape Town and Durban. The purpose of these forums is for Assessors and Moderators to share ideas and to establish consistent practices in the sector and to refer quality assurance issues to them for input.

SAQA AUDIT

INSQA is due for an audit by SAQA in the new financial year to ensure ETQA compliance and performance with SAQA requirements. Preparations for the audit have commenced in the form of a self-evaluation exercise, which has been completed and submitted to SAQA.

DISCRETIONARY GRANT FUNDING FOR LEARNERSHIPS

INSETA’s Council approved the funding for the amount of R6,8 million for Learnerships for Employed Learners and R13,8 million for Learnerships for Unemployed Learners. Stakeholders have been extremely positive in their participation of these grants and we currently have 1 374 Learners participating in these Learnerships.

11

Wealth Management

Level 5 13Q130044781205

National Certificate:

Wealth Management 57608 16/11/09

MIKE ABEL

CHIEF EXECUTIVE OFFICER

NATIONAL SKILLS FUNDS CRITICAL SKILLS PROJECT

We are pleased to report that the NSF approved our project application to train 539 Learners on a Wealth Management Learnership (NQF Level 5) and provided funding of R13 million towards this project and INSETA has committed funding of R6,7 million. The project commenced in March 2007 and is progressing well.

INTERNSHIPS AND WORK-BASED EXPERIENCE GRANTS

During the period under review, INSETA’s Council approved funding to the value of R11,1 million for Internships and Work-Based Experience Grants, to date we have supported 271 interns participating in this project.

NEW LEARNERSHIP REGISTERED

The following Learnership was registered during the period under review:

APPRECIATION

I would like to thank our Chairperson and Deputy Chairperson, Tetiwe Jawuna and Ivan Mzimela and members of Council for their guidance, support, expertise and wisdom. To my great team of managers and staff, thank you for your commitment, dedication and hard work. To all of our stakeholders, thank you for embarking on this skills development journey with us; we look forward to another successful year of partnering with you.

INTRODUCTION

We are pleased to present our report for the financial year ended 31 March 2007.

AUDIT COMMITTEE MEMBERS AND ATTENDANCE

The Audit Committee consists of the members listed below and meets 4 times per annum as per its approved Terms of Reference. At 31 March 2007, the Audit Committee consisted of the following members:

C P Kemp (Chairperson) M J Botha

N Molope B Khan

AUDIT COMMITTEE RESPONSIBILITY

The Audit Committee reports that it has adopted appropriate formal terms of reference as its audit committee charter, has regulated its affairs in compliance with this charter and has discharged all it’s responsibilities as contained therein.

THE EFFECTIVENESS OF INTERNAL CONTROL The system of controls is designed to provide cost effective assurance that assets are safeguarded and that liabilities and working capital are efficiently managed. In line with the PFMA and the King II Report on Corporate Governance requirements, Internal Audit provides the Audit Committee and management with assurance that the internal controls are appropriate and effective. This is achieved by means of the risk management process, as well as the identification of corrective actions and suggested enhancements to the controls and processes. From the various reports of the Internal Auditors, the Audit Report on the Annual Financial Statements (AFS), and management letter of the Auditor-General, it was noted that no significant or material non-compliance with prescribed policies and procedures have been reported. Accordingly, we can report that the systems of internal control for the year under review were effective and efficient.

EVALUATION OF THE ANNUAL FINANCIAL STATEMENTS

The Audit Committee has

• Reviewed the results of the risk assessment.

• Reviewed and approved the internal audit coverage plan and budget.

• Obtained and considered periodic assurances regarding INSETA’s continued compliance with the PFMA and other legislation.

• Reviewed and discussed the audited AFS to be included in the annual report with the Auditor-General and the Accounting Officer;

• Reviewed the Auditor-General management letter and management’s response thereto;

• Reviewed changes in accounting policies and practices; and

• Reviewed significant adjustments resulting from the audit.

CONCLUSION IN RESPECT OF THE YEAR UNDER REVIEW

The Audit Committee wishes to report to Council that in its opinion:

• The respective charters of the Audit Committee and internal audit continue to be appropriately aligned to the PFMA Regulations and corporate governance practices in force during the year.

• The Audit Committee has effectively carried out its responsibilities and functions in accordance with the statutory requirements and its charter.

• The Internal Auditors (Ngubane and Co.) have operated objectively and independently. Their mandate includes providing independent assurances on the effectiveness of controls in terms of an Internal Audit Coverage Plan approved by the Audit Committee. This Plan is reviewed annually by the Committee so as to ensure that all significant functions, business processes and systems will be afforded internal audit coverage within the 3 year internal audit cycle required by the PFMA.

• The External Auditors have identified no impediments to conducting their audit of the AFS of INSETA.

REPOR

T OF

THE

A

UDIT COMMITTEE

12

CONCLUSION IN RESPECT OF THE YEAR UNDER REVIEW (continued)

• The continued adequacies of the methodology to more comprehensively identify, assess and document the risks are being given appropriate attention from management, the Audit Committee and Internal Audit. • The effectiveness of measures taken to mitigate identified risks is continuously being assessed by management and internal audit.

• Control weaknesses identified and recommendations for control enhancements identified by internal audit receive adequate management attention.

• The Committee is satisfied that the SETA’s overall system of internal control operated satisfactorily during the year under review.

The Audit Committee concurs and accepts the Auditor-General conclusions on the AFS. The Audit Committee recommended that audited AFS be accepted together with the report of the Auditor-General.

C P KEMP

CHAIRPERSON OF THE AUDIT COMMITTEE 23 JULY 2007

REPORT ON THE FINANCIAL STATEMENTS INTRODUCTION

1.) I have audited the accompanying financial statements of the Insurance Sector Education and Training Authority (INSETA) which comprise the statement of financial position as at 31 March 2007, statement of financial performance, statement of changes in net assets and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 18 to 47

RESPONSIBILITY OF THE ACCOUNTING AUTHORITY FOR THE FINANCIAL STATEMENTS

2.) The accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with the basis of accounting determined by the National Treasury of South Africa, as described in note 1 to the financial statements and in the manner required by the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA). This responsibility includes:

• designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error • selecting and applying appropriate accounting policies • making accounting estimates that are reasonable in the

circumstances.

RESPONSIBILITY OF THE AUDITOR-GENERAL 3.) As required by section 188 of the Constitution of the Republic of South Africa, 1996 read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) and section 14(6) (a) of the Skills Development Act, 1998 (Act No. 97 of 1998), my responsibility is to express an opinion on these financial statements based on my audit.

4.) I conducted my audit in accordance with the International Standards on Auditing and General Notice 647 of 2007, issued in Government Gazette No. 29919 of 25 May 2007. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

5.) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls.

6.) An audit also includes evaluating the: • appropriateness of accounting policies used

• reasonableness of accounting estimates made by management

• overall presentation of the financial statements.

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

BASIS OF ACCOUNTING

8.) The entity’s policy is to prepare financial statements on the basis of accounting determined by the National Treasury, as described in note 1 to the financial statements.

OPINION

9.) In my opinion the financial statements present fairly, in all material respects, the financial position of the Insurance Sector Education and Training Authority as at 31 March 2007 and its financial performance and cash flows for the year then ended, in accordance with the basis of accounting determined by the National Treasury of South Africa, as described in note 1 to the financial statements, and in the manner required by the Public Finance Management Act, 1999 (Act No.1 of 1999)

EMPHASIS OF MATTERS

Without qualifying my audit opinion, I draw attention to the following matters:

REPOR

T OF

THE

A

UDIT

OR-GENERAL

14

APPRECIATION

17.) The assistance rendered by the staff of the Insurance Education and Training Authority during the audit is sincerely appreciated.

AH Muller for Auditor-General

Pretoria 20 August 2007

Highlight of a matter affecting the financial statements included in the notes.

SKILLS DEVELOPMENT LEVIES

10.) I draw attention to accounting policy note 3 to the financial statements. The SETA does not have a legislative mandate to obtain and maintain source documentation to support revenue. As a result the SETA experienced difficulties in ensuring that revenue was recorded on a complete and accurate basis. The National Treasury has amended the accounting policy on revenue recognition to take legislative constraints into account and the new accounting policy will be effective from 1 April 2007. The financial statements for the year under review were prepared on a basis consistent with the previous year.

OTHER REPORTING RESPONSIBILITIES

REPORTING ON PERFORMANCE INFORMATION 11.) I have audited the performance information as set out on pages 57 to 60.

RESPONSIBILITY OF THE ACCOUNTING AUTHORITY 12.) The accounting authority has additional responsibilities as required by section 55 (2)(a) of the

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

RESPONSIBILITY OF THE AUDITOR-GENERAL 13.) I conducted my engagement in accordance with section 13 of the Public Audit Act, 2004 (Act No. 25 of 2004) read with General Notice 646 of 2007, issued in Government Gazette No. 29919 of 25 May 2007.

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

15.) I believe that the evidence I have obtained is sufficient and appropriate.

AUDIT FINDINGS

16.) I have not observed any matters that require inclusion in my report.

ANNU

AL FINANCIAL ST

A

TEMENTS

16

The Annual Financial Statements for the year ended 31 March 2007, set out on pages 18 to 47, have been approved by the Accounting Authority in terms of section 51(1) (f) of the

Public Finance Management Act (PFMA), No 1 of 1999 as amended, on 31 May 2007, and are signed on their behalf by:

Tetiwe Jawuna - Chairperson Mike Abel - CEO

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

31 MARCH 2007

Contents Page

Report of the Accounting Authority 18

Statement of Financial Performance 21

Statement of Financial Position 22

Statement of Changes in Net Assets 23

Cash Flow Statement 24

Accounting Policies to the Annual Financial Statements 25

Notes to the Annual Financial Statements 31

REPOR

T

OF

THE A

CCOUNTING A

UTHORITY

Report by the Accounting Officer to the Executive Authority and Parliament of the Republic of South Africa.

As the INSETA Accounting Authority, it is the Council’s responsibility to prepare Financial Statements that fairly present INSETA’s Financial Position at March 2007, and also the Financial Performance and summary Cash Flow Activities for the year ending 31 March 2007. We are of the opinion that appropriate Accounting Policies, supported by reasonable and prudent judgements and estimates, have been applied on a consistent basis. The Financial Statements comply with GAAP, including any interpretations of such Statements issued by the Accounting Practices Board and with the prescribed Standards of Generally Recognised Account Practice (GRAP).

CORPORATE GOVERNANCE

From the outset both Council and INSETA’s Management identified good corporate governance, as one of its critical success factors, by setting the highest standards that comply with best practice and this stance remains unchanged as the SETA ends its seventh year of operations. The Council is supported in its functions and duties by the Audit Committee, Finance, IT & Administration Committee and HR/ Remuneration Committee all of which have been functional since the establishment of the SETA.

The Audit Committee is governed by a Charter which outlines its roles and responsibilities and the Finance, I T & A d m i n i s t r a t i o n C o m m i t t e e a n d H R / Remuneration Committee abide by a Terms of Reference.

INSETA has compiled a Fraud Prevention Plan and a high-level risk profile developed to be used in identifying, managing and controlling the business risks of the SETA. INSETA also has a Code of Conduct, which staff members and service providers abide by. INSETA has also developed and implemented a Supply Chain Management Policy and Procedure Manual.

GENERAL REVIEW OF THE STATE OF AFFAIRS The Insurance Sector Education and Training Authority promotes and represents the training and development interests of the Insurance sector of the economy in terms of the skills development legislation. INSETA’s mission is to promote and enable quality skills development through funding education and training in South Africa to meet the national skills agenda and contribute to transformation in the sector.

INSETA represents the following constituents within the Insurance sector:

• Short-term insurance • Life insurance

• Insurance and pension funding • Risk management

• Health care benefits administration • Collective investments

• Funeral insurance • Reinsurance • Pension funding and

• Activities auxiliary to financial intermediation

The Insurance sector is a rapidly evolving, growing and developing major player in the South African economy. Approximately 7,000 employers have registered with the South African Revenue Services within the insurance sector with 4,260 classified as levy contributors. INSETA represents an industry with a diverse range of employers, many of whom are very small (about 10 employees) and some of whom are very large employers (in excess of 12,000 employees). The majority of the workforce represents skilled and highly skilled employees. The Insurance sector employs approximately 102,458 people (excluding people employed in micro-enterprises and informal businesses).

The Council, which comprises of Business, Labour and the State, govern the affairs of the INSETA. INSETA itself is managed by Chief Executive Officer, Mike Abel, and has a permanent staff compliment of twenty four as at 31 March 2007, which increased from nineteen as

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at 31 March 2006. Regional Advisors are appointed in Gauteng, Western Cape, Eastern Cape and Kwazulu Natal to assist, support and guide small employers in terms of the skills development legislation. The offices of the INSETA are located in Parktown, Johannesburg.

INSETA has adopted a learning strategy, which is aimed at all levels of employment in the sector. This strategy’s objective is based on a “classroom to boardroom” approach and is aligned with the National Skills Development Strategy.

INSETA’s 80% levy income increased by 12.7% from R135,9 million for the 2005/06 financial year to R153,1 million for the 2006/07 financial year. Changes in levy income estimates relating to prior years are included in the current year balances. The administration surplus for 2006/07 was R2,0 million (2005/06 R3,4 million). The actual administration expenditure for the current financial year was R17,0 million (2005/06 R13,6 million). Total project and grant expenditure for the current financial year amounted to R125,8 million

(2005/06: R112,4 million). INSETA has allocated approxi-mately 96% of its available surplus funds as at 31 March 2007 (31 March 2006 – 97%).

GOING CONCERN

We have every reason to believe that INSETA will continue to operate as a going concern in the foreseeable future.

ALLOWANCES PAID TO COUNCIL MEMBERS

Council members’ employers are remunerated for their attendance at Council meetings and attendance at meetings of the various INSETA governance structures. Disclosure of the allowances paid to all Council members is in accordance with Treasury Regulation 28.1.2 and is as follows:

Council Chairperson : R1 000 per meeting Council Deputy Chairperson : R900 per meeting Council Member : R800 per meeting

Name of Councillor

Committee meeting attended

during period under review

Total Amount

Paid

Artwell Hlengwa

Council

R800

Audrey Mothupi

Council

R800

Barry Scott

Council

R3 800

HR/Remuneration Committee

R2 400

Blum Khan

Council

R3 500

Finance, IT & Administration Committee

R800

Charles Wells

Council

R2 400

Eltie Links

Council

R1 600

Eugene Zeeman

Council

R4 000

Ivan Mzimela

Council (Deputy Chairperson)

R1 800

HR/Remuneration Committee

R1 600

Laetitia van Dyk

Council

R1 600

Notes:

1_{Barry Scott was Chairperson of INSETA during the period:} 2_{Blum Khan was Deputy Chairperson of INSETA during the} 3 _{Eltie Links resigned from the Council}

Remuneration of the Chief Executive Officer

As required by Treasury Regulation 28.1.2 of the Public Finance Management Act, the remuneration of the Chief Executive Officer during the reporting period consisted of the following components:

The CEO also acts as the CFO of INSETA.

BUSINESS ADDRESS

The Insurance Sector Education and Training Authority is situated on the Ground Floor, North Wing, Oakhurst, 11 St. Andrews Road, Parktown, Johannesburg. The postal address is P O Box 32035, Braamfontein, 2017.

2006/07

2005/06 (10 months)

Basic Salary R1 030 500 R738 735

Bonuses R85 866

-Travel expense and allowance R18 720

-Other R38 836 R11 931

Total R1 173 921 R750 666

Name of Councillor

Committee meeting attended

during period under review

Total Amount

Paid

Lindani Ndlovu

Council

R1 600

Margie Naidoo

Council

R3 200

HR/Remuneration Committee

R5 000

Nosipho Molope

Council

R1 600

Audit Committee

R800

Reone Kerr

Council

R2 400

Tetiwe Jawuna

Council (Chairperson)

R4 400

HR/Remuneration Committee

R4 000

TOTAL

R48 100

The payments indicated above are paid to the nominating organisation and not to the individual representative.

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Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31 MARCH 2007

2006/07 2005/06

Note R’000 R’000

REVENUE

Skills Development Levy: income from non-exchange transactions 2 153 119 135 880 Skills Development Levy: penalties and interest from non-exchange transactions 949 466

National Skills Fund income 11 - 12 273

Investment income 3 7 215 6 225

Total revenue 161 283 154 844

EXPENSES

Employer grant and project expenses 4 (125 837) (112 395)

Administration expenses 5 (17 046) (13 620)

National Skills Fund expenses 11 - (12,273)

Total expenses (142 883) (138 288)

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Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2007

2006/07 2005/06

Note R’000 R’000

ASSETS

Non-current assets

Property, plant and equipment 6 1 055 1 000

Current assets

Accounts receivable 7 194 365

Accounts receivable from non-exchange transactions 8 46 110 28 744

Cash and cash equivalents 9 99 948 93 145

Total current assets 146 252 122 254

Current liabilities

Accounts payable 10 43 040 41 143

National Skills Fund received in advance 11 6 775 3 235

Government grants and donor funding received in advance 12 176 176

Provisions 13 885 669

Total current liabilities 50 876 45 223

TOTAL NET ASSETS 96 431 78 031

FUNDS AND RESERVES Funds and reserves

Administration reserve 1 055 1 000

Employer grant reserve 340 170

Discretionary reserve 95 036 76 861

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reserve reserve reserve surplus Total

R’000 R’000 R’000 R’000 R’000

Balance at 1 April 2005

as previously reported - 61 475 - 61 475

Reclassification of reserve balances 18 701 - ( 701) -

-Balance at 1 April 2005 as restated 701 - 60 774 - 61 475

Net surplus per Statement of

Financial Performance - - - 16 556 16 556

Allocation of unappropriated surplus 3 411 ( 489) 13 634 (16 556) -Excess reserves transferred to

Discretionary reserve (3 411) 659 2 752 - -

Reclassification of reserve balances 18 299 - ( 299) - -

Balance at 31 March 2006 as restated 1 000 170 76 861 - 78 031

Net surplus per Statement of

Financial Performance - - - 18 400 18 400

Allocation of unappropriated surplus 2 074 11 979 4 347 (18 400) - Excess reserves transferred to

Discretionary reserve 1 (2 019) (11 809) 13 828 - -

Balance at 31 March 2007 1 055 340 95 036 - 96 431

An amount of R1 055 000 (2006: R1 000 000) is retained in the administration reserve equal to the carrying value of Property, plant and equipment.

An amount of R340 000 (2006: R170 000) is disclosed in the employer grant reserve for newly registered member companies, participating after the legislative cut-off date.

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 31 MARCH 2007

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2006/07 2005/06

Note R’000 R’000

CASH FLOWS FROM OPERATING ACTIVITIES Operating activities

Cash receipts from stakeholders 136 776 132 363

Levies, interest and penalties received 137 244 133 011

Other cash receipts from stakeholders ( 468) ( 648)

Cash paid to stakeholders, suppliers and employees (140 377) (155 717)

Grants and project payments (124 856) (126 708)

Special projects - (12 273)

Compensation of employees (6 863) (5 661)

Payments to suppliers and other (8 658) (11 075)

Cash utilised in operations 14 (3 601) (23 354)

Investment income 3 7 215 6 225

Special projects 11 & 12 3 540 11 956

Net cash inflow (outflow) from operating activities 7 154 (5 173)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment 6 ( 351) ( 538)

Net cash outflow from investing activities ( 351) ( 538)

Net increase (decrease) in cash and cash equivalents 6 803 (5 711)

Cash and cash equivalents at beginning of year 9 93 145 98 856

Cash and cash equivalents at end of year 9 99 948 93 145

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

CASH FLOW STATEMENT

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1. Basis of preparation

The financial statements have been prepared in accordance with the South African Statements of Generally Accepted Accounting Practices (GAAP) including any interpretations of such Statements issued by the Accounting Practices Board, with the effective Standards of Generally Recognised Accounting Practices (GRAP) issued by the Accounting Standards Board replacing the equivalent GAAP Statement as follows:

Standard of GRAP Replaced Statement of GAAP

GRAP 1: Presentation of financial statements AC101: Presentation of financial statements GRAP 2: Cash flow statements AC118: Cash flow statements

GRAP 3: Accounting policies, changes in accounting, AC103: Accounting policies, changes in accounting, estimates and errors estimates and errors

Currently the recognition and measurement principles in the above GRAP and GAAP Statements do not differ or result in material differences in items presented and disclosed in the financial statements. The implementation of GRAP 1, 2 & 3 has resulted in the following changes in the presentation of the financial statements:

Terminology differences:

Standard of GRAP Replaced Statement of GAAP

Statement of financial performance Income statement Statement of financial position Balance sheet

Statement of changes in net assets Statement of changes in equity

Net assets Equity

Surplus/deficit Profit/loss Accumulated surplus/deficit Retained earnings

Contributions from owners Share capital

Distributions to owners Dividends

The cash flow statement can only be prepared in accordance with the direct method.

Specific information has been presented separately on the statement of financial position such as: (a) receivables from non-exchange transactions, including taxes and transfers

(b) taxes and transfers payable

(c) trade and other payables from non-exchange transactions.

The amount and nature of any restrictions on cash balances is required.

Paragraph 11 - 15 of GRAP 1 has not been implemented due to the fact that the budget reporting standard has not been developed by the local standard setter and the international standard is not effective for this financial year. Although the inclusion of budget information would enhance the usefulness of the financial statements, non-disclosure will not affect the objective of the financial statements.

The principal accounting policies adopted in the preparation of these financial statements are set out below and are, in all material respects, consistent with those of the previous year, except as otherwise indicated.

2. Currency

These financial statements are presented in South African Rands since that is the currency in which the majority of the entity transactions are denominated.

3. Revenue recognition

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

26

3. Revenue recognition (continued)

3.1 Levy income

The accounting policy for the recognition and measurement of skills development levy income has been amended on the basis of a revised interpretation of the Skills Development Act, Act No 97 of 1998 and the Skills Development Levies Act, Act No 9 of 1999.

The new accounting policy allows SETAs to recognize revenue on the receipt of the funds from the Department of Labour in the bank account of the SETA in line with international practice for revenue recognition on an accrual basis.

The revision was completed and issued by National Treasury on the 27th_{July 2007 and is effective from 1}st_{April 2007.}

The accounting policy for 2006 – 2007 is consistent with previous year policies and disclosures.

In terms of section 3(1) and 3(4) of the Skills Development Levies Act (the Levies Act), 1999 (Act No. 9 of 1999) as amended, registered member companies of the SETA pay a skills development levy of 1% of the total payroll cost to the South African Revenue Services (SARS), who collects the levies on behalf of the Department of Labour (DoL). Companies with an annual payroll cost less than R500 000 are exempted in accordance with section 4(b) of the Levies Act as amended, effective 1 August 2005.

80% of skills development levies are paid over to the SETA (net of the 20% contribution to the National Skills Fund). The SETA was not in a position to verify that SARS has collected all potential skills levy income.

Levy income is recognised on the accrual basis.

An accrual is made for outstanding levies due at year end, based on an extrapolation of the first eleven months’ levies received for the year. Changes to prior year estimates are accounted for in revenue in the current period.

Revenue is adjusted for inter-SETA transfers due to employers changing SETA’s. Such adjustments are separately disclosed as interSETA transfers. The amount of the interSETA adjustment is calculated according to the most recent Standard Operating Procedure issued by the Department of Labour.

When a new employer is transferred to the SETA, the levies transferred by the former SETA are recognised as revenue and allocated to the respective category to maintain its original identity.

3.2 Interest and penalties

Interest and penalties received on the skills development levy are recognised on the accrual basis.

3.3 Funds allocated by the National Skills Fund for Special Projects

Funds transferred by the National Skills Fund (NSF) are accounted for in the financial statements of the SETA as a liability until the related eligible special project expenses are incurred, when the liability is extinguished and revenue recognised.

Property, plant and equipment acquired for NSF Special Projects are capitalised in the financial statements of the SETA, as the SETA controls such assets for the duration of the project. Such assets may however only be disposed of in terms of agreement and specific written instructions by the NSF.

3.4 Government grants and other donor income

Conditional government grants and other conditional donor funding received are recorded as deferred income when they become receivable and are then recognised as and when the conditions are met. Unconditional grants received are recognised when the amounts have been received.

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

27

3. Revenue recognition (continued)

3.5 Investment income

Interest income is accrued on a time proportion basis, taking into account the principal outstanding and the effective interest rate over the period to maturity.

4. Grants and project expenditure

A registered employer may recover a maximum of 50% of its total levy payment as mandatory employer grant (excluding interest and penalties) by complying with the criteria in accordance with the Skills Development Act, 1998 SETA Grant Regulations regarding monies received and related matters (the SETA Grant Regulations).

Mandatory grants

Grants are equivalent to 50% of the total levies contributed by employers to the SETA during the corresponding financial period.

Retrospective adjustments by SARS

The SETA refunds amounts to employers in the form of grants, based on information from SARS. Where SARS retrospectively amends the information on levies collected, it may result in grants that have been paid to certain employers that are in excess of the amount the SETA is permitted to have granted to employers. A receivable relating to the overpayment to the employer in earlier periods is raised at the amount of such grant over-payment, net of bad debts and provision for irrecoverable amounts.

Discretionary grant and project expenditure

A SETA may out of any surplus monies and in accordance with criteria as defined in the SETA Grant Regulations allocate funds to employers, and other associations or organisations when the conditions have been met. The criteria for allocating funds are approved by the SETA Board. Where necessary it can be required of interested employers, associations or organisations to complete and submit a funding application for consideration and approval by the SETA.

Project expenditure comprise:

- costs that relate directly to the specific contract

- costs that are attributable to contract activity in general and can be allocated to the project, and - such other costs as are specifically chargeable to the SETA under the terms of the contract.

Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics.

Discretionary grant and project costs are recognised as expenses in the period in which they are incurred.

5. Irregular and fruitless and wasteful expenditure

Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including:

- The PFMA, as amended

- The Skills Development Act (the Act), 1998 (Act No. 97 of 1998) as amended.

Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised.

All irregular and fruitless and wasteful expenditure is recognised against the respective class of expense in the period in which they are incurred.

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

28

6. Property, plant and equipment

Property, plant and equipment is stated at cost less any subsequent accumulated depreciation and adjusted for any impairments. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, using the straight line method.

The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount (i.e. impairment losses are recognised).

The gain or loss on disposal of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount and are taken into account in determining operating surplus.

7. Leasing

Finance leases, consistent with the definition set out in the Treasury Regulations refer to a contract that transfers the risks, rewards, rights and obligations incidental to ownership to the lessee and are recorded as a purchase of equipment by means of long-term borrowing. All other leases are classified as operating leases.

Payments made under operating leases (leases other than finance leases) are charged to the Statement of Financial Performance on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

8. Provisions

Provisions are recognised when the SETA has a present obligation as a result of a past event and it is probable that this will result in an outflow of economic benefits that can be estimated reliably. Long-term provisions are discounted to net present value.

The cost of employee benefits is recognised during the period in which the employee renders the related service. Employee entitlements are recognised when they accrue to employees. A provision is made for the estimated liability as a result of services rendered by employees up to the Statement of Financial Position date. Provisions included in the Statement of Financial Position are provisions for leave (based on the current salary rates) and termination benefits.

Termination benefits are recognised and expensed only when the payment is made.

No provision has been made for retirement benefits as the SETA does not provide for retirement benefits for its employees.

9. Grants and projects

Mandatory and discretionary grant payments

A liability is recognised for grant payments once the specific criteria set out in the SETA Grant Regulations has been complied with by member companies and it is probable that the SETA will approve the grant application for payment. The liability is measured at the net present value of the expected future cash outflow as determined in accordance with the Act. The measurement involved an estimate, based on the amount of levies received.

Discretionary projects

No provision is made for projects approved at year-end, unless the service in terms of the contract has been delivered. Where a project has been approved, but has not been accrued for or provided for, it is disclosed as commitments in the notes to the financial statements.

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

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10. Financial instruments Recognition

Financial assets and financial liabilities are recognised on the SETA’s Statement of Financial Position when the SETA becomes a party to the contractual provisions of the instrument.

Financial assets

Investments are recognised and derecognised on a trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit and loss, which are initially measured at fair value.

Financial assets can be classified into the following specified categories: financial assets as ‘at fair value through profit or loss’ (FVTPL), ‘held to-maturity investments’, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

All financial assets of the SETA were categorised as loans and receivables.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate except for short-term receivables where the recognition of interest would be immaterial.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the surplus or deficit.

Financial liabilities

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities Account and other payables do not bear interest and are stated at their nominal value. Financial liabilities at FVTPL

Financial liabilities are classified as FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. All financial liabilities of the SETA were classified as other financial liabilities.

Other financial liabilities.

Other financial liabilities are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

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11. Reserves

Net assets is classified based on the restrictions placed on the distribution of monies received in accordance with the regulations issued in terms of the Skills Development Act, 1998 (Act 97 of 1998) as amended as follows:

- Administration reserve - Employer grant reserve - Discretionary reserve - Unappropriated surplus

Employer levy payments are set aside in terms of the Skills Development Act and the regulations issued in terms of the Act, for the purpose of:

2006/07 2005/06

% %

Administration costs of the SETA 10 10

Employer grant fund levy 50 50

Discretionary grants and projects 20 20

Received by the SETA 80 80

Contribution to the National Skills Fund 20 20

100 100

In addition, contributions received from public service employers in the national or provincial spheres of government may be used to fund the SETA’s administration costs.

Interest and penalties received from SARS as well as interest received on investments are utilised for discretionary grants projects.

Surplus funds in the administration reserve and unallocated funds in the employer grant reserve are moved to the discretionary fund reserve. Provision is made in mandatory grant reserve for newly registered companies, participating after the legislative cut-off date.

12. Comparative figures

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.

13. Taxation

No provision has been made for taxation, as the SETA is exempt from income tax in terms of Section 10 of the Income Tax Act , 1962 (Act 58 of 1962).

14. Consumable inventory

Consumables are recognised as an asset on the date of acquisition and it is measured at the cost of the acquisition it is subsequently recognised in surplus or deficit as it is consumed.

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

31

1 ALLOCATION OF NET SURPLUS FOR THE YEAR TO RESERVES:

Admini- Employer

stration grants Discretionary Total

2005/06 2006/07 reserve reserve grants Projects discretionary

R’000 R’000 R’000 R’000 R’000 R’000 R’000

Total revenue 154 844 161 283 19 120 95 942 38 057 8 164 46 221

Skills Development Levy: Income from non-exchange transactions

Admin levy income (10%) 17 031 19 120 19 120 - - - -

Grant levy income (70%) 118 849 133 999 - 95 942 38 057 - 38 057

Skills Development Levy: Penalties and interest from non-exchange

transactions 466 949 - - - 949 949

National Skills Fund income 12 273 - - - -

Investment income 6 225 7 215 - - - 7 215 7 215

Total expenses 138 288 142 883 17 046 83 963 ( 289) 42 163 41 874

Administration expenses 13 620 17 046 17 046 - - - -

National Skills Fund expenses 12 273 - - - -

Employer grants

and project expenses 112 395 125 837 - 83 963 ( 289) 42 163 41 874

Net surplus per Statement of

Financial Performance Allocated 16 556 18 400 2 074 11 979 38 346 (33 999) 4 347

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

Total per Statement of Financial Performance

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2 SKILLS DEVELOPMENT LEVY INCOME FROM NON-EXCHANGE TRANSACTIONS

2006/07 2005/06 R’000 R’000

The total levy income per the Statement of Financial Performance is as follows:

Levy income: Administration 19 120 17 031

Levies received 17 032 16 615

Levies received from SARS 16 806 16 436

Interseta transfers in 270 225

Interseta transfers out ( 44) ( 46)

Levies accrued 2 088 416

Levy income: Employer grants 95 942 85 097

Levies received 85 514 86 016

Levies received from SARS 84 231 85 090

InterSETA transfers in 1 505 1 104

InterSETA transfers out ( 222) ( 178)

Levies accrued 10 428 ( 919)

Levy income: Discretionary grants 38 057 33 752

Levies received 33 885 29 914

Levies received from SARS 33 592 29 686

InterSETA transfers in 382 288

InterSETA transfers out ( 89) ( 60)

Levies accrued 4 172 3 838 153 119 135 880 3 INVESTMENT INCOME 2006/07 2005/06 R’000 R’000 Interest income 7 215 6 225 Bank deposits 7 215 6 225 7 215 6 225

Insurance Sector Education and Training Authority ANNUAL FINANCIAL STATEMENTS

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007

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4 EMPLOYER G