Umsobomvu Youth Fund Annual Report 2006 - Nyda

eportof thedirectorsincomestatementsfor the year ended31 March 2006Umsobomvu Youth Fund 2006 Financial StatementsThe Directors of the Umsobomvu Youth Fund (“UYF” or “theFund”) Board are pleased to submit their report together withthe Fund’s audited financial statements for the year ended31 March 2006.Nature of business and operationsThe Umsobomvu Youth Fund was established by the SouthAfrican Government to address the unemployment challengesfacing South African youth. It is incorporated as an associationnot for gain under Section 21 of the Companies Act, 61 of 1973,as amended.The Fund focuses on the facilitation and promotion of jobcreation as well as skills development and transfer amongyoung South Africans between the pages of 42 and 81 bymaking strategic investments that facilitate opportunitiesfor young people to acquire skills, access job opportunitiesor pursue meaningful self-employment opportunities throughvarious enterprise initiatives.Corporate governanceThe Board and Management of Umsobomvu Youth Fundhave adopted and endorsed the Code of Corporate Practiceand Conduct as set out in the King II Report on CorporateGovernance and supplemented by the Protocol on Governancein the Public Sector. The Corporate Governance Manual and thesupporting Charters were approved by the Board of Directorsin June 2005.Public Finance Management Act (PFMA)Umsobomvu Youth Fund has implemented governancestructures, policies and processes to support its compliancewith the provisions of the PFMA. In addition, Management hasprepared a materiality framework which was duly reviewedand approved by the Board of Directors in June 2005. Thisframework has recently been amended for review and approvalby the Board, and will be forwarded to the Fund’s executiveauthority.Whilst every effort is made to manage and monitor compliance,the Fund has identified instances in its operations that arenon-compliant with the PFMA, and has fully documentedand disclosed these matters to the Board and these will beforwarded to the Executive Authority. Details of these instancesof non-compliance are as follows:• Sec 29 Treasury Regulations: Shareholder’s compact awaitingthe Minister’s approval;• Sec 54(2): A specific transaction occurred in 2005, in termsof which UYF acquired “significant shareholding” in Hi-TechTransformer Maintenance (Pty) Ltd, in the ordinary courseof UYF’s lending business, as a result of which it becamea subsidiary. The Fund did not inform National Treasury inwriting or request the Minister of Labour to approve theacquisition of this significant shareholding prior to theconclusion of this transaction as the Directors were of theopinion the transaction was in the ordinary course of UYF’slending business. The Fund has applied to the Minister ofLabour requesting exemption from S54(2)(a)-(d) of the PFMAand is awaiting the Minister’s response on this matter.• The auditors have reported the above matter to theIndependent Regulatory Board for Auditors as this matter mayconstitute a reportable irregularity in terms of the AuditingProfession Act.• Sec 55(2)(b)(i) PFMA: Two isolated cases of irregular expenditurein respect of overpayments amounting to R389 312 andR346 319, respectively, to approved projects were detected;• Sec 55(2)(b)(iii) PFMA: One incident of fruitless and wastefulexpenditure in respect of an insurance write-off of R79 169had been incurred; and• Sec 55(1)(c): The Fund was unable to supply draft annualfinancial statements to its auditors within two months of thefinancial year-end.International Financial ReportingStandards (IFRS)In the current year under review, the Fund elected to adopt andcomply with International Financial Reporting Standards (IFRS)and to prepare its annual financial statements in accordancewith these standards. These financial statements are the firstfinancial statements to be prepared in accordance with IFRS,and note 1 to the annual financial statements on page 50details the accounting policies adopted by the Fund.The Fund is following international best practice by adoptingthe International Financial Reporting Standards, and its annualfinancial statements will be internationally comparable. Themajority of financial and development finance institutions haveadopted IFRS.Umsobomvu Youth Fund met the requirements of the SouthAfrican Venture Capital Association (SAVCA) and has beenadmitted as a full member from the year 2006. As an accreditedventure capital organisation, the Fund qualifies for certainexemptions in IFRS from consolidating underlying investmentsin its Group annual financial statements.42