1. 1 NAC & Downtown Studios Presentation to Portfolio Committee 29 August 2012

2. 2 Presentation Overview Summary of Progress Made since last appearance NAC Council position on Downtown Studios Institutional Framework – MOU – Funding NAC Council position Matters impacting on the transfer & progress made in resolving these – Financial viability – Corporate governance – Other matters Resolving the Audit Issues

3. 3 Summary of Progress Chairperson and Deputy Chairperson hosted by Chairperson of Downtown Music Hub and the CEO for a site visit. There is a good understanding of the challenges and the way forward between the parties. Condonation received for the purchase from the Minister. Audits have been conducted for 2009/10, 2010/2011 and 2011/2012 based on compete annual financial statements for Downtown Studios and Fox Street properties. Unqualified audit reports received. The audited financials have been integrated into the NAC Annual Financial Statements for 2012/2013.

4. 4 For the Committee’s Information The NAC did invite Fana Mokoena to make a presentation to the NAC Council meeting on 27 and 28 July 2012 Unfortunately Mr Mokoena did not respond to the invitation

5. 5 The Institutional Framework: Role Department of Arts & Culture National Arts Council (NAC) Downtown Music Hub AVUSA (Gallo) Fox Street Properties Downtown Studios Building @ 62 Goud Street Business & Assets Instructs NAC to purchase from AVUSA Establishes the SPV Initiates discussions with AVUSA Transfer

6. 6 Institutional Framework: MOU MOU signed between DAC & NAC in 2008 – NAC to act on behalf of the DAC in the purchase of the property and the business – Property & the business to be transferred to a Special Purpose Vehicle (SPV) which would be established in 2009 – Funds were transferred to the NAC as follows: ItemBudget Purchase of propertyR4,600,000 Purchase of businessR 143,160 OperationsR1,500,000 Development of a business planR 400,000 Transfer costsR 200,000 VATR 666,400 TOTALR7,509,560

7. 7 Addendum to MOU signed in 2010 – Expands the role of the NAC to include the appointment of the staff members as independent contractors and payment of staff and creditors

8. 8 Funding through NAC to date utilising DAC Funds held for transfer DateItemBudget 2008/2009Purchase, operations & business planningR7,509,560 2009/2010Operations and further business planningR3,000,000 2012/2013Auditing, operations & settling of debtsR1,823,441 2012/2013Operations & additional audit costsR2,000,000 TOTAL R14,333,001 DAC provided R3 million directly to the Downtown Music Hub in 2010/2011 and 2011/2012 for operations and programmes

9. 9 NAC Council Position Downtown Studios led to: – A qualified audit for the NAC in 2009/10 – An adverse audit opinion in 2010/2012 The new Council of the NAC took office in March 2011 Recognising the implications of the ongoing challenges presented by Downtown Studios for the NAC, a task team was established to investigate matters and prepare comprehensive recommendations for Council On the basis of this report, Council resolved that Downtown Studios should be transferred to the Downtown Music Hub as a matter of urgency

10. 10 A meeting was held with the DAC to agree on a joint approach, supported by the Downtown Music Hub, to the management of the issue. It was agreed to: – Engage with the short and medium term financial viability of the organisation – Deal with corporate governance matters impacting on the NAC regularity audit – Finalise all matters pertaining to the transfer of Downtown Studios

11. 11 Matters impacting on Transfer IssueInterventionFurther ActionsStatus Financial viability Funds secured settle outstanding debts Funds secured for 2012/2013 DAC and Downtown Music Hub to determine further short to medium term funding arrangements Workshop between DAC, NAC and Downtown Music planned Progress as planned Financial Reporting 3 year management accounts prepared PFMA principles and NAC policies to be applied to all transactions relating to Downtown Studios and Fox Street Properties Progress as planned

12. 12 IssueInterventionFurther ActionsStatus Preparations for 2011/2012 audit Establishment of appropriate treatment with regard to NAC AFS in consultation with Treasury & AG Application of treatment in 2012/2013 Progress as planned Unqualified audit outcomes for 2009/10, 2010/211 and 2011/2012 Fox Street Properties and Downtown Studios to be included in NAC regularity audit conducted by the AG for 2012/2013 financial year Progress, however audit delayed Other matters Signing over of provident funds and finalisation of outstanding taxation matters None required

13. 13 IssueInterventionFurther ActionsStatus Employee taxation Payment of outstanding funds owing to SARS Not applicable Progress as planned Settling of debts All outstanding rates and taxes and other accounts settled NAC to transfer rates and taxes accounts to Downtown Music Hub on transfer Progress as planned Approval from Minister Condonation of purchase received Condonation required from Minister for transfer Progress as planned

14. 14 Resolving the Audit Findings YearCategoryActionsStatus 2009/10 Irregular expenditure Approval not obtained for the purchase of Downtown Studios from the relevant Executing Authority Condonation received from Minister Resolved 2009/10 Rental revenue Rental revenue not recognised in NAC AFS Downtown Studios & Fox Street Properties integrated into NAC AFS in 2011/2012 based on audited financials Rental revenue recognised Resolved

15. 15 YearCategoryActionsStatus 2010/11 Non-Current Asset held for Transfer Assets not measured in accordance with GRAP 17 Treatment of assets agreed to with Treasury and AG Treatment applied in NAC AFS for 2011/2012 Resolved 2010/11 Revenue from Non-Exchange Transaction Non-exchange revenue not recognised contrary to GRAP 23 Appropriate GRAP standard agreed to with Treasury and the AG Non-exchange revenue recognised in NAC AFS for 2011/2012 Resolved 2010/11 Expenditure Management Irregular expenditure as condonation for purchase of the asset not received from the Executing Authority Condonation received Irregular expenditure reported in 2011/2012 as expenditure at Downtown Studios not in terms of PFMA Partially Resolved

16. 16 YearCategoryActionsStatus 2010/11 Business Combination & Consolidated Financial Statements Purchase not correctly accounted for in terms of International Financial Reporting Standards and GRAP 6 AFS prepared for Downtown Studios and Fox Street Properties for 2009/10, 2010/11 and 2011/2012 Integration of trial balances into NAC AFS in accordance with agreed approach between NAC and AG Resolved 2010/11 Material Misstatements in AFS Material Misstatements identified during the audit. Integration of trial balances into NAC AFS in accordance with agreed approach between NAC and AG Led to material misstatements and prior year errors in the 2011/2012 AFS Partially Resolved

17. 17 NAC Audit Outcome for 2011/2012 The NAC received a qualified audit for 2011/2012 due to: – Material misstatements in the AFS due to the incorporation of the Downtown Studios and Fox Street Property trial balances which impacted on accumulated surplus and expenses While disappointing this is an improvement on the adverse audit finding of 2010/2011 The work reported on in this presentation has also laid the foundation for the transfer of Downtown Studios and Fox Street Properties to the Downtown Music Hub in 2012/2013 and also laid the foundation for an improved audit outcome for 2012/2013

18. 18 Thank you