UNIVERSITY OF PRETORIA ANNUAL REVIEW 2009 11. Financial ...

UNIVERSITY OF PRETORIA ANNUAL REVIEW 2009

11.

Financial Statements

COMPOSITION OF THE COUNCIL AND EXECUTIVE OF THE UNIVERSITY OF PRETORIA AS ON 31 DECEMBER 2009

UNIVERSITY OF PRETORIA FINANCIAL REPORT 2009

Council of the University of Pretoria Nominated by the Minister

Ms B Dibate Dr P Z Dube Ms N F T Mpumlwana Dr B-A J Ribeiro Mr A W Taylor

Elected by the Convocation

Mr A D Botha Dr B P Botha (Deputy Chairperson) Dr E C Botha Dr J van Zyl

Elected by the Senate

Prof C Koornhof Prof A Str?h 1 Vacancy

Elected by the Donors

Mr L L Dippenaar Prof D J du Plessis

Appointed by the Council based on expertise/experience

Dr W J Barnard Dr S F Booysen Mr R M Loubser Ms D Magugumela Ms N T Mtoba (Chairperson) Mr I B Skosana

Nominated by the Tshwane local authority

Mr S Pillay

Student representatives

Mr H Beyers Mr C Oberholzer

Elected as representative of the academic staff

Prof J H Potgieter

Elected as representative of the non-academic staff

Prof A van Aswegen

Executive members (ex officio)

Prof C M de la Rey (Vice-Chancellor and Principal) Prof C R de Beer (Senior Vice-Principal) Prof R M Crewe (Vice-Principal) Prof R A Mogotlane (Vice-Principal) Prof N A Ogude (Vice-Principal)

Executive of the University of Pretoria

Prof C M de la Rey (Vice-Chancellor and Principal) Prof C R de Beer (Senior Vice-Principal) Prof R M Crewe (Vice-Principal) Prof R A Mogotlane (Vice-Principal) Prof N A Ogude (Vice-Principal) Prof N J Grov? (Registrar) Prof A M de Klerk (Executive Director) Prof A P Melck (Executive Director) Prof S Vil-Nkomo (Advisor to the Vice-Chancellor and Principal) 1 Vacancy

Addresses of the University

Physical address

University of Pretoria Lynnwood Road Pretoria

Postal address

Office of the Registrar Room 4-23 Administration Building University of Pretoria Pretoria 0002

UNIVERSITY OF PRETORIA FINANCIAL REPORT 2009

Contents

Scope of the summarised consolidated annual financial statements

5

Annual financial review for 2009

5

Statement on internal administrative / operational structures of control

8

Statement on risk assessment and management thereof

9

Approval of the consolidated financial statements

9

Report of the independent auditors

10

Consolidated statement of financial position

11

Consolidated income statement

13

Consolidated statement of comprehensive income

13

Consolidated statement of changes in equity

14

Consolidated statement of cash flows

15

Summary of accounting policies

16

Notes to the consolidated financial statements

30

UNIVERSITY OF PRETORIA FINAANNNCUIAL REVPOIERWT 2009

SCOPE OF THE SUMMARISED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

This report provides a financial profile of the University of Pretoria for the year ending 31 December 2009. The financial statements include the revenues, expenses, assets and liabilities, as well as the transactions of all the operations and organisations under the jurisdiction of the University.

ANNUAL FINANCIAL REVIEW FOR 2009

Becoming an internationally recognised South African teaching and research university is central to the University of Pretoria's mission statement. The Department of Finance supports the University in its pursuance of this mission.

On the assumption that tuition fees would be increased by 10% and that the University's block grant would increase by 8,8%, the provisional guideline budget for 2009 presented to the executive during June 2008 reflected a substantial deficit. The Budget and Planning Committee subsequently initiated several processes with internal stakeholders at institutional, faculty and support service level in order to reduce the human resources and other expenses in the University, which resulted in the shortfall for the budget for subsidised activities being decreased to R23,2m.

During November 2008, higher education institutions were informed of an additional subsidy allocation for 2009. This additional allocation enabled the University to fund the budgeted shortfall of R23,2m and, in addition, to make provision for:

?

the lowering of the planned increase in tuition fees from

10% to 9%;

?

increased maintenance cost of buildings;

?

increased cost of library materials;

?

an increase in bursaries.

Although the per capita subsidy in real terms has been increasing since 2006, it is still not at the same level as in 2000 (2000 ? R15 500, 2009 ? R14 600). This fact, together with the limited scope for an increase in tuition fees and the volatility of investment markets, have put strain on the operating budget of the University.

SOURCES OF INCOME

As indicated in Table 1, the University's total income increased during the reporting period with R255 million to R3 796 million. Included in the Government Grant is the block grant subsidy of R1 201,2 million, representing an increase of 10,7% on 2008. Although total tuition fee income increased with 16,5%, from an individual student's perspective, it was only increased by 9,0% during 2009. The difference can be ascribed primarily to a higher than anticipated overall increase in student numbers.

Table 1: Total income of the University of Pretoria in 2009

Income

Government grants* Tuition Fees Accommodation and Meal Fees Investment income ? Profits on disposal Interest / Dividend Income Expected return on plan assets Income from contracts Service rendering Donations and gifts

Non-recurrent income

Total

2009 Rm 1 256

833 181

2008 Rm 1 192

715 168

39 148

285 302 349 275

295 245 440 366 102 118

16

12

3 796 3 541

Change

Rm

%

64 5,4%

118 16,5%

13 7,7%

(109) (73,6%)

(17) (5,6%) 74 26,9%

50 20,4% 74 20,2% (16) (13,6%)

4 33,3% 255 7,2%

*Grant (R80m) i.r.o. infrastructure is recognised as deferred income, previously included as a government grant.

UNIVERSITY OF PRETORIA FINANCIAL REPORT 2009

RECOVERY FROM GLOBAL ECONOMIC SLOWDOWN

From an investment perspective, the year 2009 will be remembered as an extremely challenging one. The year started with severe losses in the global equity markets while corporate credit markets were on the brink of disaster. Fortunately, policy makers globally quickly recognised the gravity of the situation and implemented aggressive policy interventions to rescue the situation.

As a result, markets responded quickly from the second quarter to stage the most impressive recovery in history and, on average, they now appear appropriately priced for current financial and economic conditions. However, the aftermath of the extraordinary financial rescue measures that were implemented during 2009, continues to present serious risks in 2010.

The University's investment portfolio performed satisfactorily during 2009. The main driver behind this was the recovery of the global and local equity markets. The local equity market (ALSI) was up 32,1% for the year ending December 2009. The University's interest and dividend income declined mainly as a result of cash outflows associated with the start of new building projects, while profits on the disposal of listed securities decreased as a result of the absence of major security transfers between investment managers and lower security turnover within the portfolios.

The overall performance outlook for 2010 is positive, especially against the backdrop of the 2010 soccer world cup that could spur investment sentiment. However, possible tighter monetary policy could place a damper on this outlook.

EXPENDITURE

The University was again able to contain its operating expenses within the boundaries of affordability by pursuing measures of effectiveness and efficiency and by maintaining stringent budget control. Operating expenses before deferred payments, provisions

and minority interest increased by 14,7% from R2 794 million in 2008 to R3 205 million in 2009.

Government allocated substantial ad hoc amounts to the University's capital budget in terms of its infrastructure and efficiency funding programme to increase the number of engineering students at South African universities. The progress of this programme was slower than planned and the project will only be fully completed early in 2011, resulting in an under spending on the capital budget. These funds (including the University's part of the funding for this project) have been ring-fenced and are carried forward to 2010 and 2011.

During the second round of infrastructure funding the Government allocated a grant of R135m to the University for the erection and alterations of buildings as well as the replacement of equipment to the value of R313m. The projects will be completed during 2010 and 2011.

The systems renewal project that was initiated in 2005 gained substantial momentum during 2009. In terms of this project, the current administrative systems are being replaced by the PeopleSoft system. The Human Resource module and the Accounts Receivable module were implemented during 2009.

STUDENT FINANCIAL AID

During 2009 the University provided student financial aid to the amount of R513m, as depicted in the table below. This represents an overall increase of 27% in comparison with financial aid provided in the previous year (2008: R404m).

70% of the financial aid was awarded to black students and 30% to white students, reflecting the socio-economic circumstances in South Africa.

The University is also strongly focused on promoting research driven postgraduate studies. Awards for 2009, viz. R149,5m, reflect a 20% increase in comparison to 2008.

UNIVERSITY OF PRETORIA FINANCIAL REPORT 2009

Government sponsored student aid funding (NSFAS loans) increased from R70,6m in 2008 to R90m in 2009. This includes R5,4m that was ring-fenced for teacher education, in accordance with Government's resolve to increase the number of qualified teachers.

In addition to this, Government also supported teacher education through the Funza Lushaka bursary scheme. Bursaries to the value of R25,2m were awarded.

SCHOLARSHIP & LOAN AWARDS

UP-Funded bursaries UP-Controlled bursaries UP-Administered bursaries BURSARIES TOTAL UP-loans NSFAS loans Eduloan LOANS - TOTAL GRAND TOTAL 2009 RACIAL COMPOSITION % GRAND TOTAL 2008 RACIAL COMPOSITION % INCREASE %

UNDERGRADUATE

WHITE

BLACK*

R'000

R'000

38 410

16 155

6 801

18 571

41 163

110 857

86 374

145 583

2 506

4 842

15 700

74 393

687

33 916

18 893

113 151

105 267

258 734

29%

71%

80 839

198 920

29%

71%

30%

30%

Black*: African, Indian and Coloured students

POSTGRADUATE

WHITE

BLACK*

R'000

R'000

17 918

13 559

27 805

27 523

4 172

13 756

49 895

54 838

415

1 888

94

113

207

42 007

716

44 008

50 611

98 846

34%

66%

45 539

78 526

37%

63%

11%

26%

GRAND TOTAL

WHITE

BLACK*

R'000

R'000

56 328

29 714

34 606

46 094

45 335

124 613

136 269

200 421

2 921

6 730

15 794

74 506

894

75 923

19 609

157 159

155 878

357 580

30%

70%

126 378

277 446

31%

69%

23%

29%

TOTAL R'000

86 042 80 700 169 948 336 690

9 651 90 300 76 817 176 768 513 458

100% 403 824

100% 27%

UNIVERSITY OF PRETORIA FINANCIAL REPORT 2009

YEAR END CLOSING OF THE FINANCIAL STATEMENTS

Notwithstanding the uncertain economic outlook and a sharp increase in costs, the University was able to show a surplus on its operating account for the year. This surplus will be reserved for capital replacements and for deferred maintenance.

STATEMENT ON INTERNAL ADMINISTRATIVE / OPERATIONAL STRUCTURES OF CONTROL

The University of Pretoria accepts that it has both an obligation to use its resources carefully and a responsibility regarding the disclosure of reliable financial information. To fulfil its responsibility in this regard, the University maintains proper internal control systems. These systems are designed to provide reasonable assurance that the University's assets are safeguarded against unauthorised acquisition, use or disposal, and that the accounting records provide a reliable basis for the preparation of financial statements.

The internal control systems take account of the University's organisational structure and are based on the division of responsibilities. The University's established policies and procedures, including its Code of Ethics, are communicated throughout the organisation to foster a strong ethical climate. The University has also adopted a Fraud Policy and Response Plan as well as a Whistle Blowing Policy to set the University's stance on fraud and corruption and to reinforce existing systems, policies and procedures aimed at deterring, preventing, detecting, reacting to and reducing the impact of fraud and corruption.

The University's internal audit activities are performed by the Department of Risk Management and Internal Audit, while certain elements are co-sourced to an independent firm of auditors. Internal control systems, in accordance with the annual Internal Audit Plan as approved by the Audit Committee, are appraised on a continuous basis by either the Department of Risk Management and Internal Audit, or the cosourced independent internal auditors. Such audit plan is largely based on the strategic risks facing the University that emanate from the University's risk management process.

The internal audit function operates under the supervision of the University Council. The Audit and Risk Management Committee and the Standing Committee of Council exercise the supervision on behalf of the Council. Weaknesses identified in respect of the internal control systems are brought to the attention of management and the Audit Committee. Recommendations made in respect of obviating weaknesses are also submitted to management for consideration.

The effectiveness of any system of internal control is subject to limitations. These limitations include the possibility that human errors and the circumvention and overriding of controls can occur. Effective internal control systems can only provide reasonable assurance regarding the preparation of financial statements and the safeguarding of assets. However, the effectiveness of the systems can vary as circumstances change.

The University is of the opinion that its consolidated financial statements and the results of its operations in 2009 fairly present its financial position as at 31 December 2009. Wherever necessary, reasonable estimates and judgements were made in order to arrive at a fair appraisal.

UNIVERSITY OF PRETORIA FINANCIAL REPORT 2009

STATEMENT ON RISK ASSESSMENT AND MANAGEMENT THEREOF

The design, implementation and monitoring of the process of risk management is the responsibility of the University. In this regard management is accountable to the University Council.

A Risk Management Committee comprising members of the Executive evaluates and co-ordinates the management of identified strategic risks faced by the University. Risk management processes are reviewed regularly for continuing relevance and effectiveness. The Risk Management Committee reports to the Executive. A report on the risk management process that is being followed, as well as a summary of the risk register, are presented to the Audit Committee and to the Council of the University on a regular basis.

A multi-manager approach to the management of investments is followed in order to limit investment risk. Funds are invested in five divergent portfolios, with specific mandates developed to contain risk within set parameters. In order to hedge investment funds against currency fluctuations, the portfolio managers strive to invest some of the available funds abroad.

Within the existing mix of self-insurance and external insurance, the University is adequately insured against the risks of property damage, motor vehicle damage, public and professional indemnity, contract works, personal accident and a variety of smaller risks.

APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements presented on pages 11 to 73 represent an extract of the full statements of the University of Pretoria. These financial statements were approved by the Council of the University of Pretoria at a meeting held on 10 June 2010.

The full financial statements were prepared in accordance with International Financial Reporting Standards and in the manner required by the Minister of Higher Education and Training in terms of section 41 of the Higher Education Act, 1997 (Act No. 101 of 1997), as amended.

The `going concern' basis was adopted in the preparation of the financial statements. Based on forecasts and available cash resources, the Council believes that the University of Pretoria will remain a `going concern' in the foreseeable future. The viability of the institution is supported by the content of the financial statements.

The financial statements were audited by PricewaterhouseCoopers Inc. who were given unrestricted access to all financial records and related data, including the minutes of meetings of the Council and all its committees. The Council believes that all representations made to the independent auditors during their audit were valid and appropriate.

_____________________________________

_________________________________________

VICE-CHANCELLOR AND PRINCIPAL

EXECUTIVE DIRECTOR

PROF CM DE LA REY

PROF AP MELCK

28 June 2010

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