Briefing on GRAP 103 for Department of Arts and Culture entities 14 February 2017 Briefing on GRAP 103 for Department of Arts and Culture entities

Our reputation promise/mission The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

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Outline of the presentation Audit outcomes for 2015-16 Requirements of GRAP 103, Heritage assets Overview of heritage assets within the sector Challenges faced by the entities Challenges faced by the Auditor-General of South Africa Recommendations

Audit outcomes for 2015-16 There was an overall regression in the audit outcomes for the Arts and Culture entities for the 2015-16 financial year. The major contributor to this regression was the fact that the requirements of GRAP 103, Heritage assets came into effect in 2014-15. This affected 38% (10) of the entities in the portfolio . Entities affected by this are as follows : 8 museums William Humphrey Art Gallery National Library of SA

Requirements of the Standard – GRAP 103 Initial recognition : The cost of fair value can be measured reliably. Future economic benefits are expected to flow to the entity (par. 13). If an entity holds an asset that might be regarded as a heritage asset but which, on initial recognition, does not meet the recognition criteria of a heritage asset because it cannot be reliably measured, relevant and useful information about it shall be disclosed in the notes to the financial statements (par. 17). Measurement at recognition: A heritage asset that qualifies for recognition as an asset shall be measured at its cost. Where a heritage asset is acquired through a non-exchange transaction, its cost shall be measured at its fair value as at the date of acquisition (par. 24 and p25). .

Overview of heritage assets within the sector Auditee Type of assets Progress Number of heritage assets (estimate) Amount disclosed in annual financial statements 2015-16 Ditsong Museums of SA Invertebrates, vertebrates, library books, military uniforms, military weapons, military aircraft, furniture, ceramics, toys, clothes, meteorite crater and houses Project team has been appointed to count the heritage assets. Valuation has not yet started. Unknown R0 Iziko Museums of Cape Town Library reference books Art collections Social history and national history collections Verification and valuation of assets are in progress. R1,3 million KwaZulu-Natal Museum Natural science collection, Human science collection and cultural history The heritage assets policy and evaluation plan have been drafted A request for service providers to submit proposals to value heritage assets has been advertised. R336 000

Overview of heritage assets within the sector Auditee Type of assets Progress Number of heritage assets (estimate) Amount disclosed in annual financial statements 2015-16 National English Literary Museum Arts and artifacts (works of literature) Waiting for funds from National Treasury Unknown R 0 National Library of SA Books, journals, serials, newspapers, magazines, maps, prints, sound and music recording Benchmarking with other international libraries completed and business plan developed. No actual work has been done R12,7 million Msunduzi/Voortrekker Museum Photographs, textiles, artworks and ethnographic items Service provider was appointed on 1 February 2017 for the valuation of heritage assets. R7 832 R0 Nelson Mandela National Museum Medals, coins, stamps, objects of decorative or fine art, stationery, insignia, precious metal and weaponry. Service provider appointed. Valuation will be completed by February 2017. R3 390

Overview of heritage assets within the sector Auditee Type of assets Progress Number of heritage assets (estimate) Amount disclosed in AFS 2015/16 National Museum Art collection; book collection; acarology; arachnology; mammalogy; ornithology; palaeontology; herpetology; botany; entomology; human osteology; anthropology; history documents, photographs, objects; textiles; numismatics; weapons; and rock art O/S R651 298 R0 War Museum of the Boer Republics Object collection, document collection, library collection, Philatelic collections and photographic collections 3 experts (valuators) were consulted . They concluded that it is not possible to obtain a reliable fair value of the heritage assets. R36 168 William Humphreys Art Gallery

Challenges faced by entities Funding from National Treasury is only available from 1 April 2017 and the cost of complying with the Standards outweighs the benefit. Different measurement techniques and experts are used. There is no clear guidance from the Accounting Standards Board and the National Treasury. Sustainability of entities to comply with the Standards after the one-off funding from National Treasury has been depleted. Availability of sufficiently skilled valuators to determine reliable fair values. Security of assets after the valuation process. No adequate human resource capacity to perform the verification process as most of the entities have high volumes of heritage assets.

Challenges faced by the Auditor-General of South Africa The exemption issued by the minister of Finance for all DAC entities from complying with the measurement and recognition criteria of GRAP 103 was assessed by the AGSA’s technical division and the outcome was that it affects the fair presentation of financial statements and was therefore not accepted for audit purposes. Entities were unable to prove impracticability to comply with the measurement criteria of the Standard. No evidence was provided by management to substantiate their claim that no active/open market existed for some of the heritage assets. No proper categorisation of assets and therefore a blanket approach was followed in valuation of assets.

Recommendations The Department of Arts and Culture should take a lead and do research to identify different heritage assets within the sector and whether there are active markets and if possible develop a White paper on heritage assets in South Africa for entities to use as a guideline. National Treasury should support and guide entities on the procurement process and if possible compile database of valuators that can be used. ASB needs to provide clear guidance and possibly alternative accounting where it is impractical to value heritage assets. Each entity has its own individual challenges which should be considered when seeking a solution. Entities need to embrace the Standard and demonstrate that all possible solutions had been considered when they disclose heritage assets.

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