1. SOUTH AFRICAN DIAMOND AND PRECIOUS METALS REGULATOR (SADPMR)

2. PRESENTATION TO THE PORTFOLIO COMMITTEE ON SADPMR’s ANNUAL REPORT FOR THE 2010/ 2011 FINANCIAL YEAR

3. PRESENTATION OUTLINE 1.Introduction 2.Outstanding Audit matters from 2009/2010 financial year 3. Financial Performance as per AG report 4. Annual Financial Statements 4. Challenges 5. Closure 3

4. INTRODUCTION The audit report for the year under review was for the period 2010/2011, policies have been reviewed and aligned to the PFMA requirements and relevant financial systems and controls have been established and are correctly implemented 4

5. OUTSTANDING AUDIT MATTERS FROM 2009/2010 FINANCIAL YEAR FINDING 1: As disclosed in note 26 on page 79 to the financial statement, irregular expenditure to the total amount of R 2 674 647 was incurred, as proper tender process was not followed AG RECOMMENDATION: The supply chain management policy must be followed as documented and minutes of the decision and reason to deviate from the supply chain management policy by the board must be kept as evidence of such decisions having taken place. Required steps should be taken to rectify the situation including cancellation of this contract and consideration of disciplinary action against the relevant personnel. ACTION BY SADPMR The condonation for the Irregular expenditure was approved by the Board and the relevant contract was terminated 5

6.  ANNUAL REPORT FOR THE 2010/11 FINANCIAL YEAR 6

7. AUDIT OPINION UNQUALIFIED AUDIT OPINION ISSUED FINANCIAL PERFORMANCE- AUDIT REPORT 7

8. Emphasis of matters Matters reported 1. Restatement of corresponding figures – As disclosed in note 23 to the financial statement, the corresponding figures for 31 March 2010 were restated as a result of an error discovered during 31 March 2011 in the financial statements of the SADPMR at, and for the year ended, 31 March 2010 Action taken The financial statements were revised accordingly FINANCIAL PERFORMANCE- AUDIT REPORT 8

9. Emphasis of matters Matters reported 2. Material losses – As disclosed in the statement of financial performance, material losses to the amount of R619, 554 were reported by SADPMR as a result of a write-off of irrecoverable trade debtors. Remedial Action taken There was an accumulation of debt which dated back to the old SA Diamond Board. This accumulation was prompted by the automatic billing through the system that was applicable then. This resulted in the incorrect billing of 272 licensees. Regulator embarked on a verification process of tracing the debtors and could not traced most of the old debtors. The Regulator on advice of the AG approached the Board to write off the amount as irrecoverable. However, measures are in place to recover written off amount should the debtor resurface on the Regulator for any other transactions. For instance a debtor to the amount of R68 000.00 has been identified as a penalty and is currently been collected. FINANCIAL PERFORMANCE- AUDIT REPORT 9

10. Other legal and regulatory requirements (cont…) Matters reported 3. Procurement and contract management– Sufficient appropriate audit evidence could not be obtained that goods and services with transaction value between R10 000 and R500 000 were procured by inviting at least three written price quotation from prospective suppliers as per the requirements of TR 16A6.1 and National Treasury Practice note 8 of 2007/8. Remedial action taken The goods and services were obtained from supplier s which were contracted by the old SAD Board. These contracts were inherited from the old SAD Board. Previously the contracts were audited and no findings were raised by the auditors. The inherited contracts were reviewed. Some were canceled and some due to the nature of their sensitivity and the possible negative impact on that they could have on the Regulator, were extended until a proper SCM process is followed to award new contracts. FINANCIAL PERFORMANCE- AUDIT REPORT 10

11. Other legal and regulatory requirements (cont…) 4. Procurement and contract management– Goods and services with a transaction value of over R500 000 were not procured by means of a competitive bidding process as per the requirements of TR16A6.1, TR16A6.4 and National Treasury Practice Note 8 of 2007/2008. Remedial action taken The finding relates to a request for proposal to render travel arrangements which did not include the total cost but service and administration fees. The service was sourced without completing Standard Bidding Documents (SBD 4 & 8). The Regulator embarked on a three quote process and appointed the service provider with less administration fees. The AG, however, determined this as irregular expenditure. On consultation with the National Treasury it was resolved that this was not irregular expenditure but non compliance to the completion of SBD forms. National Treasury has since sent a letter to AG to clarify the matter. FINANCIAL PERFORMANCE- AUDIT REPORT 11

12. FINANCIAL PERFORMANCE- AUDIT REPORT Other legal and regulatory requirements (cont…) Remedial action taken During 2010/ 2011, the SCM was introduced and all procurement of goods above R30,000 are obtained through competitive bidding The process involves the introduction of Bid Evaluation and Adjudication Committee which recommends awarding of bids to the Accounting Officer and Accounting Authority 12

13. Other legal and regulatory requirements (cont…) Matters reported 5. Expenditure Management – The Accounting Authority did not take effective and appropriate steps to prevent irregular expenditure as per the requirements of TR16A6.1, TR16A6.4 and National Treasury Practice Note 8 of 2007/2008. Remedial action taken The value of the Irregular expenditure is R3 291 million: Six (6) contract were terminated which amounts to R 728 956. Five (5) contract were extended and the deviation was approved by the Accounting Officer valued at R876 831. One (1) contract is in consultation to be reclassified based on a letter from National Treasury clarifying irregular expenditure to the valued of R1,686,060. The above actions were done to enforce compliance with the legal/regulatory requirements. FINANCIAL PERFORMANCE- AUDIT REPORT 13

14. ANNUAL FINANCIAL STATEMENTS Revenue (Millions) During the year under review the revenue increased by 1,75% compared to the previous year (2010) The actual revenue was R 49,455 (incl. Transfer Payment R40,643) compared to R48,589 of 2010. The in house generated revenue decreased by 3,98% to R8,811 from R 9,176. The primarily decrease emanates from the following: Levy income, licence, penalty and service fees (5,67%) Interest received (12,34%) Discount received (29%) Despite the decrease on in house generated revenue an increase was realised on sale of books, recoveries and other income. 14

15. ANNUAL FINANCIAL STATEMENTS Expenditure (Millions) The overall operational expenditure increased by 18,45% compared to the previous year. The actual expenditure for the year under review was R52,737 compared to R42,008 of 2010. The increase can be attributed to the following: Compensation of employees (23,85%) Operating expenditure (7,32%) The employees head count has increased as a result of the committed expansion, review of the organizational structure and cost of living adjustment. 15

16. ANNUAL FINANCIAL STATEMENTS The accumulated surplus movement yielded a decrease by 4,63% to R70,591 (2010:R74,019). The transfer payment has been capped at R40,001 for the last three years. The approved budget and final allocation has variance of 10,72% (2009);19,04% (2010) and 26% (2011) per financial year. The operations budget and the grant received from the DMR has been as follows: 2010/11 2009/10 2008/9 R’000 R’000 R’000 Approved budget 55 533 48 557 44 802 Grant received 40 643 39 312 40 000 Budget Variance (14 890) (9 245) (4 802) Add: Actual in house revenue 8 811 9 176 24 847 Surplus/ (deficit) (3 428) 5 797 13 424 16

17. ANNUAL FINANCIAL STATEMENTS Trend on utilization of funds Major cost items 2010/11 2009/10 2008/09 R’000 R’000 R’000 Compensation of employees 34 270 26 093 21 370 Other operating expenses 14 657 13 584 14 560 Payment for Capex 1 045 2 767 2374 The operating expense has increased to ensure delivery of predetermined objectives enshrined on the annual performance plan. The Regulator incurred a deficit of R3,4 million compared to the surplus of R5,7million for 2009/10. 17

18. CHALLENGES The transfer payment has been capped at R40,001 over the Medium term period and final allocation for the next Medium term has shown no Improvement in transfer payment; Access to funding for emerging businesses is still a problem; Availability of rough diamonds for beneficiation; and Access to markets for polished diamonds by small beneficiators. 18

19. THANK YOU & DISCUSSIONS 19