SOUTH AFRICAN DIAMOND AND PRECIOUS METALS REGULATOR (SADPMR)

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

2. PRESENTATION TO THE PORTFOLIO COMMITTEE ON SADPMR’s ANNUAL REPORT FOR THE 2009/ 2010 FINANCIAL YEAR 23 FEBRUARY 2011

3. PRESENTATION OUTLINE • Introduction • Outstanding Audit matters from 2008/2009 financial year 3. Non Financial Performance Information (i) Business unit: Diamond and Precious metals (ii) Legal and Compliance (iii) Support Services 4. Financial performance of 2009/2010 financial year - Annual Financial Statements 5. Closure

4. OUTSTANDING AUDIT MATTERS FROM 2008/2009 FINANCIAL YEAR FINDING 1: IRREGULAR EXPENDITURE – FAILURE TO ADVERTISE THE INTERNAL AUDIT AND CONSULTING SERVICES AG RECOMMENDATION: Request for ratification from the National Treasury ACTION BY SADPMR The Accounting Authority approved the deviation of the tender process on the 23 July 2010. The approval was granted in accordance with the provisions of the Treasury Regulations 16A6.4 which stipulates that the relevant accounting officer or accounting authority may approve the deviation from the required prescripts.

5. OUTSTANDING AUDIT MATTERS FROM 2008/2009 FINANCIAL YEAR FINDING 2: IRREGULAR EXPENDITURE ON THE OPENING OF AN ACCOUNT AG RECOMMENDATION: The Regulator to pay the unspent portion of sponsorship amount into a relevant revenue fund. ACTION BY SADPMR The bank account that was administered by the Regulator on behalf of the Department of Minerals and Energy was closed on the 18th of March 2010 and the remaining funds were distributed as per the instruction of the Department of Minerals and Energy.

6. OUTSTANDING AUDIT MATTERS FROM 2008/2009 FINANCIAL YEAR FINDING 3: NON COMPLIANCE WITH LEGISLATION • Risk assessment not performed AG RECOMMENDATION: The risk register to be prepared as per the risk management plan of the SADPMR and be regularly reviewed and updated. ACTION BY SADPMR The risk management strategy was approved by the board on the 27th May 2010 and the risk register is regularly updated.

7. ANNUAL REPORT FOR THE 2009/10 FINANCIAL YEAR

8. FINANCIAL PERFORMANCE- AUDIT REPORT AUDIT OPINION • UNQUALIFIED AUDIT OPINION ISSUED

9. FINANCIAL PERFORMANCE- AUDIT REPORT Emphasis of matters • These are matters that the Auditor- General draws the attention of the readers due to their importance Matters reported • Restatement of corresponding figures – As disclosed in note 21 to the financial statement, the corresponding figures for 31 March 2009 were restated as a result of an error discovered during 31 March 2010 in the financial statements of the SADPMR at, and for the year ended, 31 March 2009 Action taken • The financial statements were revised accordingly

10. FINANCIAL PERFORMANCE- AUDIT REPORT Emphasis of matters • These are matters that the Auditor- General draws the attention of the readers due to their importance Matters reported • Irregular expenditure – As disclosed in note 26 to the financial statement, irregular expenditure to the total amount of R 2 674 647 was incurred, as proper tender process was not followed Remedial action taken • Request for condonation was forwarded to the Accounting authority. • Disciplinary measures in the form of a written warning has been taken against the responsible official.

11. FINANCIAL PERFORMANCE- AUDIT REPORT Other legal and regulatory requirements • These are matters that relate to compliance to report on pre determined objectives, compliance with the PFMA, Diamonds Act, 1986 (Act No. 56 of 1986) and financial management (internal control). Matters reported • Pre determined objectives – The Regulator did not have documented and approved internal policies and procedures to address planning, implementation, monitoring and reporting processes and events pertaining to performance management and reporting. Remedial action taken • A procedure manual for managing performance information has been drafted and approved to address the planning, implementation, monitoring and reporting processes pertaining to performance information

12. FINANCIAL PERFORMANCE- AUDIT REPORT Other legal and regulatory requirements (cont…) Matters reported • No declaration of interest - Contrary to the requirements of section 50(3) of the PFMA, ten members of the accounting authority did not declare their interest to the accounting authority. Remedial action taken All board and committee members have declared their interest for the financial year 2010/2011 financial year.

13. FINANCIAL PERFORMANCE- AUDIT REPORT Other legal and regulatory requirements (cont…) Matters reported • Statutory Fines not imposed- Contrary to the requirements of section 57(2) of the Diamonds Amendments Act, 2005 and Regulations 13 and 14 of the Regulation Gazette No. 10684, penalties for the late submission of J-Registers were not charged for the year under review and the previous year. Remedial action taken • Records were updated and the billing process has commenced for the 2008/9, 2009/10. The process of charging for late submission is ongoing for the 2010/2011 financial year; and • Disciplinary measures in the form of a written warning has been taken against the responsible official.

14. FINANCIAL PERFORMANCE- AUDIT REPORT Other legal and regulatory requirements (cont…) Matters reported • Remuneration not at approved rates - Contrary to the requirements of section 11(5) of the Diamonds Amendment Act, 2005, two audit committee members were remunerated for services provided at a rate above the approved rates. Remedial action taken • The Minister of Mineral Resources approved that Audit committee members appointed from outside the Public service based on their professional expertise can be remunerated at a rate recommended by Regulation 3.1.6 read with Regulation 20.2.3 of the National Treasury Regulations.

15. FINANCIAL PERFORMANCE- AUDIT REPORT Other legal and regulatory requirements (cont…) Matters reported • Preference point system not applied - Contrary to the requirements of section 2(a) of the Preferential Procurement Policy Framework Act, 2000 (Act No.5 of 2000), the accounting authority did not apply the preference point system for procurement transactions above R30 000. Remedial action taken • The preference point system is currently applied for all procurement transactions above R30 000 as required by Preferential Procurement Policy Framework Act, 2000 (Act no.5 of 2000)

16. NON FINANCIAL PERFORMANCE INFORMATION

17. NON FINANCIAL PERFORMANCE INFORMATION DIAMONDS AND PRECIOUS METALS

18. Diamonds Export and Exchange Centre • The Diamond Exchange and Export Centre managed to facilitate tenders with limited number of viewing rooms and the following were achieved: • Parcels received under the period of 2009/2010 were 27% more compared to the period of 2008/2009. • An increase of 47% occurred in terms of weight of diamonds (in carats) submitted by the industry. • The number of diamond parcels sold in 2009/2010 increased by 34% compared to year 2008/2009.

19. Government Diamond Valuation (GDV) • Ensured that all diamonds imported and exported reflected the Fair Market Value. - 100% of all unpolished diamonds exported were valued by GDV. (Total of 2,489,136.86 carats). - 100% of all unpolished diamonds imported were valued by GDV. (Total of 321,712.32 carats). • Verified the value of diamonds offered to State Diamond Trader and ensured that they reflected the fair market value. During the financial year - 100% of all unpolished diamonds were valued by GDV. (Total of 578,491.27 carats). • Assisted the SAPS with all cases presented to the Regulator, during the financial 100% of all confiscated exhibits presented are valued by GDV (R 7,303,895.29).

20. PRECIOUS METALS • Precious Metals Inspectorate ensured that all precious metals registers are submitted to the Regulator , actual . 15% Performed follow up inspections on all non compliance, seven (7) follow up inspections were conducted. • Perform follow up inspections on all non compliance, actual 100%. • Minimize the impact of Precious Metals Inspectorate on the licensing application processing time. Actual , 60% of the premises inspections were conducted within 5 days from requested date.

21. BENEFICIATION • Promotion of diamond and precious metals beneficiation - SADPMR provided a “Beneficiation Concepts Document” as input to the Beneficiation Strategy that was being formulated by DMR. • Represented SA at Kimberly Process Working Group -Kimberly Process Working Group drafted an alternative wording for Harmonized System tariff codes relating to diamonds. • Compiled a database of platinum and palladium Jewellery Fabricators in SA - A report on broad characteristics of precious metals industry players was compiled. • Facilitated and coordinated the development of a Diamond Provence Laboratory in collaboration with MINTEK(SADPMR provided MINTEK with the initial capital expenditure). • Provided inputs on possible amendments on Precious Metals Act and provided a list of sections that will require amendments.

22. CHALLENGES • Limited Viewing Rooms • Limited capacity • Court cases challenging the amended diamond act • Funding from DMR has not increased to cover operational costs • Access to funding for emerging businesses is still a problem • Access to rough diamonds is limited to financial strong buyers • Access to markets for polished diamonds by small beneficiators does not exist

23. NON FINANCIAL PERFORMANCE INFORMATION LEGAL AND COMPLIANCE

24. LICENSING DIAMOND LICENSING A total of 853 diamond licence applications were received • 524 licenses were issued • 36 Diamond Dealers licences; • 3 Diamond Beneficiation licences; • 2 Diamond Research licences; • 462 Authorised Representative certificates and • 21 Export permits. PRECIOUS METALS A total of 1099 precious metals licenses were received • 334 licenses issued: • 5 Refining licences; • 290 Jeweller’s permits; • 21 PM Beneficiation licenses; • 9 Export approvals granted; • 7 Import permits and 2 Special permits

25. NON FINANCIAL PERFORMANCE INFORMATION SUPPORT SERVICES

26. HUMAN RESOURCES • Appointments: During the year under review 17 employees were appointed across all occupational levels, including the appointment of the new CEO. - Three (3) interns were appointed. • Employment Equity: The workforce profile was 52 Females and 28 Males within core and support functions. • HR policies: Approval of Performance Management and Development Policy by the Board of Directors. • Skills Development: Approval of the Workplace Skills Plan (WSP) and Annual Training Report by MQA SETA; - 29 employees attended training programmes in line with the WSP; -11 Employees were granted Educational Assistance; and - 8 external learners granted bursaries to further their studies in the diamond industry. • Labour Relations: Promotion of employee/ employer relations. - Signing of the recognition agreement with NUM. • Employee Assistance: Achieved the monitoring of the utilization rate of the EAP. For the year under review, 33 employees utilized the EAP services.

27. INFORMATION COMMUNICATION TECHNOLOGY • During 2009/2010, the developed SADPMR ICT system was completed and fully operational.

28. CHALLENGES • Limited Viewing Rooms • Limited capacity • Court cases challenging the amended diamond act • Funding from DMR has not increased to cover operational costs • Access to funding for emerging businesses is still a problem • Access to rough diamonds is limited to financial strong buyers • Access to markets for polished diamonds by small beneficiators does not exist

29. CHALLENGES • Lack of appropriate HR policies, skills/competencies. • Shortage of staff. • Inadequate HR processes and procedures. • System was Shutdown because it was no longer meeting business requirement • Intellectual property did not belong to the SADPMR

30. ANNUAL FINANCIAL STATEMENTS • OVERVIEW. Revenue During the year under review the Regulator saw its revenue decrease by 25% compared to that of the previous year. the decrease can be attributed to: • the decrease in the levy income, service and licence fees. • the decrease in the investment income due to the reduction in the prime interest rates. • the decrease in the amounts collected from the sale of books and registers.

31. ANNUAL FINANCIAL STATEMENTS Expenditure The overall operational expenditure decreased by 16% compared to the previous year. The reasons for the decrease are as follows: • the impairment of the investment into the diamond finger printing project of R10,2 million. • the employee costs, however, increased by 22% due to an increase in the head • count and the increase in the cost of living adjustment.

32. ANNUAL FINANCIAL STATEMENTS • The annual surpluses of the Regulator have been decreasing drastically over the last three years. The reason is that the Grant received by the Regulator from the State has been capped at R40 million during the last three years. This has put the future of the Regulator into uncertainty unless new ways of generating cash can be found. The operations budget and the grant received from the State has been as follows: 2009/10 2008/09 2007/08 R’000R’000R’000 Approved budget 48 557 44 802 28 418 Grant received 39 31240 00020 000 Budget deficit (9 255) (4 802) (8 418) Add in-house revenue 14 653 18 226 28 158 Surplus 5 41813 42419 599

33. ANNUAL FINANCIAL STATEMENTS • Trend on utilization of funds Major cost items 2009/10 2008/09 2007/08 R’000 R’000 R’000 Compensation of employees 26 093 21 370 11 029 Goods and services 14 714 26 657 9 640 Diamond valuation 2 154 3 412 2 875 Payment for capex 2 766 2 374 10 243 Unspent / 5 419 13 424 19 599 Total budget 48 380 64 874 53 336 % of under (over) spending 11% 20% 37% The under spending was due to savings on the employee which amounted to R4,4million and the saving on consultation and professional fees of R1,9 million.

34. ANNUAL FINANCIAL STATEMENTS • The Regulator relies on the grant from the State to finance its operations. • Over the past three years the grant has been capped at R40 million per annum whilst the cost of operations have been increasing at a rate of 16% per annum. • When the Regulator took over the functions of the old Diamond Board no provision was made to generate own revenue to augment the state grant.

35. REMEDIAL ACTION • The Regulator has applied for the national treasury approval to utilised the savings to finance the operational costs. • Plans are being made to revise the user based fees of the Regulator to generate more revenue.

36. THANK YOU & DISCUSSIONS