Namibian Broadcasting Corporation

REPUBLIC OF NAMIBIA

REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE

NAMIBIAN BROADCASTING CORPORATION

FOR THE FINANCIAL YEAR ENDED 31 MARCH 2011

Published by authority

Price (Vat excluded) N$ 62.28 Report no 57/2014 REPUBLIC OF NAMIBIA

TO THE HONOURABLE SPEAKER OF THE NATIONAL ASSEMBLY

I have the honour to submit herewith my report on the accounts of the Namibian Broadcasting Corporation for the financial year ended 31 March 2011, in terms of Article 127(2) of the Namibian Constitution. The report is transmitted to the Honourable Minister of Finance in terms of Section 27(1) of the State Finance Act, 1991, (Act 31 of 1991) to be laid upon the Table of the National Assembly in terms of Section 27(4) of the Act.

WINDHOEK, June 2014 JUNIAS ETUNA KANDJEKE AUDITOR-GENERAL NAMIBIAN BROADCASTING CORPORATION (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

CONTENT Ref Detail Page

1. Introduction 2

2. Annual financial statements 2

3. Scope of the audit 2-3

4. Audit observations 3-27

5. General 28

6. Acknowledgement 28

7. Disclaimed audit opinion 28-29

8. Balance Sheet 30

9. Income Statement 31

10. Statement of Changes in Equity 32-33

11. Cash Flow Statement 34-35

12. Notes to the Annual Financial Statements 36-47

13. Detailed Income Statement 48-50

REPORT OF THE AUDITOR-GENERAL ON THE ACCOUNTS OF THE NAMIBIAN BROADCASTING CORPORATION FOR THE FINANCIAL YEAR ENDED 31 MARCH 2011

1. INTRODUCTION

The Namibian Broadcasting Corporation has been established in terms of Section 2 of the Namibian Broadcasting Corporation Act, 1991, (Act No. 9 of 1991) hereinafter referred to as the Act. Section 3 of the Act stipulates the main objectives of the Corporation as follows:

inform and entertain the public of Namibia; contribute to the education and unity of the nation and to peace in Namibia; provide and disseminate information relevant to the social-economic development of Namibia, and promote the use and understanding of the English language.

The firm PKF (Namibia) of Windhoek have been appointed under the provisions of Section 26 (2) of the State Finance Act, 1991, to perform the audit on behalf of the Auditor-General and under his supervision.

2. ANNUAL FINANCIAL STATEMENTS – 31 March 2011

The Corporation's statements of accounts referred to in Section 21(1) of the Act and other statements in respect of the financial years ended, duly signed, are on the file in the Office of the Auditor-General and published in this report as follows:

Annexure A: Balance sheet as at 31 March 2011 Annexure B: Income statement for the financial year ended 31 March 2011 Annexure C: Statement of changes in equity for the financial year ended 31 March 2011 Annexure D: Cash flow statement for the financial year ended 31 March 2011 Annexure E Notes to the annual financial statements for the financial year ended 31 March 2011 Annexure F: Detailed income statement for the financial year ended 31 March 2011

These financial statements should have been submitted to the Minister of Information, Communication and Technology within six month after year-end in terms of Section 21(3)(a) of the Act but were only availed to the Auditor-General during October 2012 for audit purposes.

The amounts in the statements and in this report were rounded off to the nearest Namibia Dollar.

3. SCOPE OF THE AUDIT

Management’s responsibility for the financial statements

The Accounting Officer of the Corporation is responsible for the preparation and fair presentation of the financial statements and for ensuring the regularity of the financial transactions. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

It is the responsibility of the Auditor-General to form an independent opinion, based on the audit, on those statements and on the regularity of the financial transactions included in them and to report his opinion to the National Assembly. The said firm conducted the audit in accordance with International Standards on Auditing. Those standards require that the firm complies with ethical requirements and plans and performs the audit to obtain reasonable assurance whether the financial statements are free from misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatements in the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

4. AUDIT OBSERVATIONS

During the audit of the Corporation the following observations were made. These observations are set out below for the current year under review.

4.1 Comparison of Airwaves system with AccPac system

Through the discussion with management (finance department) auditors confirmed that the following two systems are integrated. They are: • Airwaves system – scheduling, generation and management system with regard to TV and radio advertising income; and • AccPac system

Monthly integration runs are performed to ensure that invoices generated by Airwaves are correctly accounted for in AccPac.

As part of the controls testing procedures performed to verify as to whether the integration process is operating effectively, Auditors noted the following instances were invoices generated by Airwaves did not appear in the relevant AccPac general ledger account. These instances are listed in the following table:

2011 Airwaves Acpac Total Diff Radio TV N$ N$ N$ N$ N$ April 2 600 741 1 214 847 1 239 805 2 454 651 146 090 May 2 554 450 1 153 810 1 247 585 2 401 395 153 055 June 3 717 494 1 300 051 2 308 075 3 608 126 109 368 July 2 968 556 1 097 951 1 600 118 2 698 069 270 486 August 3 055 119 1 504 617 1 451 808 2 956 426 98 693 September 3 228 390 -63 711 - -63 711 3 292 100 October 2 947 121 2 560 625 3 424 016 5 984 640 -3 037 519 November 3 577 762 1 537 706 1 585 785 3 123 491 454 270 December 3 322 847 787 030 1 932 596 2 719 626 603 221 January 2 811 005 1 095 822 1 632 102 2 727 924 83 081 February 2 031 273 899 023 1 104 786 2 003 809 27 464 March 2 901 247 1 276 40 8 1 290 864 2 567 273 333 974 35 716 004 14 364 180 18 817 541 33 181 721 2 534 284

Comfort as to the effective and efficient operation and integration procedures performed on a monthly basis between the two systems (Airwaves and AccPac) could thus not be obtained. This again impacts on the completeness of advertising revenue disclosed in the general ledger and finally in the annual financial statements of the Corporation.

Auditors further noted that, in case of errors made with regards to invoice generation or other credit notes being issued, these are only effected on the AccPac side. This also applies for debtor and cash customer payments received. The full potential of the Airwaves system as a control tool with regards to management of radio and TV advertising income is thus not utilized.

Recommendation The Board should consider utilizing the Airwaves system to its full potential with regards to radio and TV advertising income generating activities. It is further advised that monthly reconciliation procedures are implemented to verify that the monthly integration process has been correctly performed. Any discrepancies noted are to be followed up.

This process also ensures that improved segregation of duties are in place and appropriate responsibilities can be assigned to staff members with regards to the monthly integration process.

4.2 Advertising income – client approval

Through the extending testing performed on TV and Radio advertising revenue generated auditors noted that for a number of transactions no signed approval / authorization documentation was in place confirming mutual agreement by client and the Corporation that the TV and Radio advertising transactions to the amount of N$ 1 798 713 was valid.

Recommendation The Board should ensure that for all TV and Radio advertising transactions entered into the appropriate approval and authorization from the client is present. This will prevent possible claims for non-compliance with terms and conditions attached to the advertising income incurred.

4.3 Credit note authorization

The review performed on credit notes issued during the year and at year end indicated that not all credit notes are approved by management. Auditors noted that the credit note to the amount of N$ 614 642 issued during the year was not approved.

Non-approval for the issue of credit notes could lead to manipulation of revenue and could thus also lead to financial losses being incurred by the Corporation. The possibility of fraudulent transactions being hidden in this respect exists.

Recommendation The Board should ensure that all credit notes issued are authorized by the relevant senior official responsible. All credit notes are to be supported by the original invoice issued as well as a detailed reason as to why the original invoice is to be reversed via the issue of a credit note.

4.4 Barter agreements

As part of the audit procedures to be performed auditors requested a list of all barter agreements entered into covering the financial period under review – 31 March 2011. It was brought to auditors attention that there is not one complete list or document available indicating all barter agreements held. Auditors understand that each account executive maintains such a list of agreements entered into.

Generation of barter transaction advertising income is recorded on the same basis as for normal paying customers via the Airwaves system. Settlement of the relevant barter agreement debtor is in some instances not accounted for.

Further with regards to the barter agreements entered into it appears that the cost portion related to the barter agreement is not accounted for e.g. the content received / products provided or delivered with regards to the barter agreement entered into.

Recommendation The Board should ensure that a complete register of all barter agreements entered into is to be maintained and updated on a regular basis. Creation of a database where all barter agreements entered into are logged, signed copies are maintained in electronic format and a summary of the applicable accounting entries that result from the specific barter agreement are logged. The finance department is to review and approve the barter agreement transactions to be accounted for in the general ledger prior to logging these on the proposed database.

The Board should through the above procedures ensure that compliance with regards to revenue recognition in terms of IAS 18 – Revenue and SIC 31 Revenue – Barter Transactions involving Advertising Services is achieved.

4.5 TV license revenue

As part of the audit procedures performed with regards to TV license revenue, auditors observed that for Nampost collections in the majority of the sample selection either:

• The relevant TV license book could not be found / provided; • The breakdown of TV licenses sold could not be provided; and • Invoices could not be provided

Further to the testing performed with regards to TV license revenue auditors also tested a sample of non- Nampost related TV license sales. For the sample selection in this case no supporting documentation as to the provision of the applicable TV license book or a copy of the relevant TV license sold could be handed to the auditors in order to perform the audit procedures.

Auditors also enquired as to the stationery controls in place over TV license books and noted that no effective control procedures are in place. No reconciliation procedures are performed with regards to TV license books handed out and received back and the relevant TV license revenue received from the various agents returning the complete books.

Through discussions held with senior officials in the finance department and TV licensing division it was pointed out that not everyone with a TV pays their required TV license. NBC also has no control in place over companies that sell Television sets. The risk associated to this statement is these companies may be selling TV’s without issuing the required TV licenses. As a result NBC could be incurring TV license revenue losses.

Via an email confirmation received from a senior employee from the TV license department during the field work with regards to the outstanding TV license books issued to Nampost, auditors took note that 338 TV license books were still outstanding / unaccounted for. As a result of the fact that no proper reconciliations of the outstanding TV license books is maintained, the completeness of TV license revenue accounted for in the financial records of NBC cannot be verified.

The deficiencies noted with regards to above prevent management from obtaining comfort as to the completeness of TV license income received / receivable. The possibility of fraud being committed in this respect – in particular with regards to cash payments received from customers – cannot be excluded.

Recommendation The Board should ensure that controls with regards to the stationery control over TV license books received, issued and returned is maintained. Appropriate reconciliation procedures are to be implemented to ensure that TV license revenue per returned books is verified to actual funds received. Any discrepancies noted are to be investigated and cleared on a timeous basis.

Considerations to perform surprise TV sale audits at companies that sell TV’s to the public should be investigated in order to ensure that these companies comply with the requirement to issue TV license for every set sold and to ensure that revenue is paid over to the Corporation. Non-compliance by these companies and how to enforce non-compliance should be investigated in depth by the Board of Directors.

4.6 Pro forma invoice use

As part of the control procedures performed on revenue and through discussions held with finance department employee, auditors noted that use is made of pro forma invoices as set out below:

Pro forma invoices are generated on excel by the sales executives when client request invoices on short notice. A fixed template was designed on excel and forwarded to all sales executives. When a pro forma invoices needs to be generated a number is requested from the finance department. The latter department then records the pro forma invoice into a book manually. The pro forma invoice numbers awarded follow in sequence. Through enquiry auditors established that the collection of funds with regards to these pro forma invoices is not followed up. No appropriate controls are thus exercised over pro forma invoice book.

The request to review the pro forma invoice book for the year under review could not be performed as the relevant manually controlled book could not be provided. No comfort as to the correct recording of the pro forma invoices in the accounting records could thus be obtained.

The risk of misappropriation of funds, received in cash, on settlement of a pro forma invoice issued thus exists, which could lead to financial losses being incurred by the Corporation.

Recommendation The Board should ensure that monthly review / reconciliation procedures with regards to manually maintained pro forma invoice book are implemented. All pro forma invoices issued for a specific month are to be traced manually to maintained the books as well as the general ledger. In additions recovery of all debtors are to be reviewed which originated from the issue of a pro forma invoice. Follow up procedures are to be implemented with regards to the collection of outstanding funds from the relevant debtor. Appropriate segregation of duties with regards to the various steps impacting on the issue to the collection of funds related to the issue of a pro forma invoice is to be implemented.

4.7 Transmitter income

The audit procedures performed on transmitter income and through the review of contracts in place auditors observed that proper record of transmitter income on external excel sheets was maintained for the year under review. Auditors however noted that transmitter income has not been correctly processed on the accounting system (AccPac) through the debtor’s cycle on a monthly basis, nor have payments for the use of the transmitters per the contractual agreements been followed up. The general ledger transmitter revenue generated for the 2011 financial year differs significantly if compared to the result of the test performed e.g. comparing actual revenue per agreement to revenue recorded in the general ledger. The variance noted results from: • prior years transmitter income not calculated correctly to take into account the increase in inflation and administration fee on an annual basis; • cut-off errors with regards to transmitter income received e.g. allocation to the incorrect accounting period; and • non-follow up on collection of outstanding transmitter revenue.

The table below discloses the variances noted for the current year under review:

Total for a year per Auditors Total per NBC schedules N$ N$ Total re-calculated 5 909 285 5 822 505 Total as per GL 2 163 458 2 163 458

Difference 3 745 827 3 659 047

The line item “Total re-calculated” has been obtained from an analysis of the relevant transmitter income contracts in place. In both instances above not all transmitter revenue due to the Corporation has been accounted for / recovered by the Corporation for the year under review

Recommendation The Board should ensure that strict compliance with transmitter rental agreements is enforced. Clients, who do not comply with the agreement requirements, and who are in arrears with transmitter income payments are to be subjected to interest charges on area amounts. For continued non-payment and non-compliance with terms of the agreement management should consider de-activating the relevant transmitter signal until full payment or agreement on repayment of accumulated debt has been reached.

Annual reviews of contracts and notifications as to increase agreed upon per contract should be communicated to the customers to ensure that awareness of required payments is achieved and to advise what the consequences of non-compliance will be.

4.8 Rent received – parking and housing

The review of revenue generated via renting of parking and housing to Corporation employees auditors noted the following: • Some contracts with regards to housing (flats owned by the Corporation) rented out to employees are not signed by the lessee.

On enquiring it was stated that some of the contracts are not signed due to: • Some employees do not agree with the monthly rental amount levied; and • Employees staying in remote areas such as Oshakati or Katima Mulilo are difficult to get hold of which complicates the obtaining of signed lease agreement.

Financial losses will be incurred due to the non-enforcement via a legally signed and binding agreement not being possible. Damages effected to the property leased to the lessee will also not be recoverable and obtaining a deposit (as security) will also not be enforceable due to the non-existence of valid and signed lease agreement.

Auditors further noted that, via the scrutinising of a rental contract for an outside room in Pavlov Street, Windhoek West, no rent has been deducted from the salary of a staff member. This instance was verified with the D-Bit system.

Differences were also noted when comparing rental income as per contract to the monetary value accounted for in the general ledger for the year under review.

Recommendation The Board should ensure that all properties leased to employees or third parties are supported by a valid and binding lease agreement. Possible financial losses will be prevented.

Annual reviews of contracts in place are to be performed and maintenance of an appropriate database in this respect is advised.

Regular checks are to be made to ensure that rent per salary deductions is in agreement with the relevant contract entered into. Annual variations are to be updated as soon as they become effective.

Implementation of reconciliation procedures between all rental contract entered into and the rental revenue accounted for in the general ledger should be considered. This could be done via the creation of a database were all rental contracts are processed to improve control in this respect.

4.9 Input VAT not claimed

During the testing of expenditure incurred for the year under review auditors noted that Input VAT to the amount of N$ 15 559 was not claimed on the following expense incurred:

Recommendation The Board should ensure that all Input VAT which the Corporation can claim back is accounted for correctly in the relevant Input VAT control account. Accounting staff members are to be trained properly to ensure that all VAT transactions are accounted for correctly.

4.10 Functions and gifts

Auditors testing of functions and gifts expenditure incurred for the year under review revealed that a possible duplicate payment has been effected. The table below sets out the possible duplicate payment:

Account # Date Supplier Invoice # Amount (N$)

5440-80-802 2010/12/02 M Jagger 18308 13 947.50 5440-80-802 2010/12/07 M Jagger MISS NBC 76674 13 947.50

On enquiry with regards to this possible duplicate payment auditors were informed that the amount has been paid back. Matching of the repaid amount could not be achieved.

Recommendation The Board should ensure that all payments are properly authorized and that supporting documentation is clearly stamped as paid. This should prevent possible duplicate payments being incurred, which would result in financial losses being incurred by the Corporation.

4.11 Cut-off – Insurance expense

The testing of insurance expenses indicated that cut-off errors in the processing of these expenses occurred. The following insurance expense transactions incurred with regards to Old Mutual were paid during April 2010 but relate to March 2010. They are:

Account # Date Details Amount N$

5660-60-601 2010/04/27 Old Mutual – Insurance Mortgage Bond 53 442 5660-60-601 2010/04/27 Old Mutual – Insurance Mortgage Bond 53 514

A cut-off error to the value of N$ 106 956 was thus made. Insurance expense is thus overstated for the year ended 31 March 2011 and understated for the year ended 31 March 2010.

Further cut-off instances with regards to expenses incurred for Vehicle expenses were noted for vehicle expenses. Expenses amounting to N$ 93 218 were accounted for in the financial reporting period ended 31 March 2011 instead of the accounting period ended 31 March 2010.

Recommendation The Board should ensure proper cut-off procedures are implemented at year end to ensure that all transactions are accounted for in the accounting period to which they relate. This will ensure that accurate financial results are presented.

4.12 Salary processing charges

The review of the salary processing charges for the year under review indicated that no service level agreement has been entered into with a service provider. A copy of the agreement in place was requested during the audit fieldwork stage but could not be presented. Thus the terms of reference and the charges agreed per agreement to actual payments effected could not be verified

Recommendation The Board should ensure that for all service providers used a valid service level agreement is in place which addresses all applicable responsibilities by both contracting parties and formalizes the professional service relationship entered into.

4.13 Allocation of expenses

As part of the review and testing of expenses incurred (water and electricity) for the year under review auditors noted that allocation errors are made. In this case function and gifts expenditure were allocated to this account.

These allocation errors made result in management account income statement transaction totals being misstated. The misstatement further impacts on budget preparation and drafting function.

The misallocations can further result for over expenditure on a specific budget line item and thus prevent unwanted queries as to why certain budget lines have been exceeded.

Recommendation The Board should ensure that Finance staff is to be trained adequately to ensure that allocation errors in the income statement are prevented ensuring accurate management accounts being presented.

4.14 Extra ordinary accounts

Through the review of this account auditors established that this account represents a provision processed with regards to the financial clean-up process performed at the Corporation. Processing of this transaction resulted in an increase of the current provision of N$ 45 000 000 at 31 March 2010 to N$ 60 000 000 at 31 March 2011.

According to the enquiries with regards to this account auditors established that the transactions posted to this account all formed part of the financial clean-up process performed by NBC.

No supporting documentation other than the journal entries processed was presented to the audit team during the fieldwork stage.

Recommendation

It is recommended that the Board provides the supporting documents to substantiate the balance on the extra ordinary account.

4.15 Loss on VAT

Further to the review of the financial clean up assignment performed by Ernst and Young we noted that existence of an account created – Loss on VAT. This account discloses a debit balance of N$ 97 709 (2010: N$ 3 951 472).

Through our review of this account we established that this account consists of a number of journal entries processed in order to agree the balances of VAT Input and VT output accounts to audited VAT returns as well as corrections processed with regards to consulting fees and severance payments.

According to our enquiries with regards to this account we established that the transactions posted to this account all formed part of the financial clean-up process performed by NBC and for whose purposes Ernst and Young were appointed.

No supporting documentation other than the journal entries processed was presented to the audit team during the fieldwork stage.

Recommendation It is recommended that the Board clears the balance of N$ 3 951 472 and institute strict internal and reporting controls after the cleaning up process.

4.16 Provision of supporting documentation

As part of the review and testing of expenses incurred for the year under review auditors selected based on the audit methodology a number of transactions for audit verification. Various requests to the relevant employees of the finance department staff members were communicated. At the completion of the audit fieldwork and the reporting of the audit, relevant and appropriate supporting documentation amounting to N$ 16 476 769 were not presented.

As a result of the above non-provision of the requested / selected transactions entered into by NBC the validity thereof could not be established. The possibility of fraudulent transactions being incurred can also not be excluded as fraud represents an unavoidable risk for every entity in today’s business environment.

Recommendation Appropriate and valid supporting documentation is to be maintained at all times in order to be able to demonstrate that expenditure has been incurred for bona fide company purposes. Maintenance of appropriate and valid supporting documentation will also ensure that internal control procedures are adhered to and complied with.

No expenditure is to be incurred / approved unless all the relevant supporting documentation is attached to a payment request.

4.17 Rental / lease agreements

The review of rent paid offices expense indicated that no duly signed rental agreement could be provided for audit verification of the rental expense incurred. Written communication was provided as support.

The risk that the agreement may not be valid and enforceable exists. Should the agreement be cancelled by the lessor prior to the termination date of the agreement without due reason the Corporation will not be able to enforce the agreement due to its unsigned nature.

Recommendation The Board is to ensure that for all lease agreements entered into that a duly signed copy of it is maintained in a special permanent file.

Consideration to develop a database of all lease agreements entered into should be considered for improved management of the expenditure incurred in this respect.

4.18 Agent commission

Through the audit procedures performed on agents’ commission auditors established that the Corporation authorises a 16.5% agency commission for all their clients. Auditors however noted that for a supplier a 20% or 21.5 % agent commission was granted.

Further investigations from the person responsible for this account revealed that the granting of the 20% or 21.5% agent commission was based on a verbal agreement between the Corporation and supplier. This verbal agreement was in place for a number of years. Terms and references of verbal agreements entered into are difficult to enforce.

Recommendation The Board should ensure that, for all agent commission percentages approved and granted, are valid and signed agreements are in place. The terms of references of the contracting parties are clearly managed in this agreement and possible disputes can be resolved with reference to the signed agreements.

This is not the case with verbal agreements and verbal agreements place the Corporation under undue risk of being exploited and incurring undue possible financial losses.

4.19 Royalties

Through enquiry and testing performed on royalty expenses incurred by the Corporation for the year under review auditors noted that the Corporation calculates royalties’ payable on a provision basis. Through review of the general ledger auditors noted that no provisions were raised for the financial reporting periods ending 31 March 2009 and 31 March 2010.

Further enquiry from the finance department senior employees during a meeting held on 27 November 2012 indicated that the transactions accounted for in the general ledger represented payments for the financial reporting periods ended 31 March 2008 and 31 March 2009. Royalties are being paid on a cash basis and are accounted for as such. The arrear payments resulted from payments effected to NASCAM not being monitored properly in the past.

Auditors also reviewed the NASCAM agreement and noted that clause 8(B) of the agreement states that a certified return should be submitted when due. However it was observed that NASCAM is only a partner and therefore no formal returns will be submitted.

The Corporation however did send a reconciliation of the revenue generated every six months to NASCAM. Final royalty liability will only be known once the arrear annual financial statements have been released. Currently the Corporation is paying royalties on a basis of one year in arrears.

Recommendation The Board should consider to implement procedures which will result in royalties due to NASCAM being accounted for on an accrual basis. This will then ensure that correct financial position of the Corporation is presented in management reports.

4.20 Control testing performed on cheque payments

In addition to the substantive audit procedures performed on expenses auditors conducted also control testing procedures with regards to expenses incurred and the authorisation of expenses incurred. From the sample selected auditors could not test the compliance with regards to control procedures in place as the selected cheque payment documentation could not be provided.

Recommendation Control procedures in place are to be strictly enforced. All supporting documentation is to be properly filed and should be retrievable on enquiry for whatever purpose the documentation is requested for.

4.21 Vehicle leases

Through the testing of vehicle lease expenses auditors noted that the follow selected transactions entered into with regards to Avis Fleet Lease could not be provided. These transactions are listed in the table below:

Vehicle - lease

Account # Date Details GL inv no . Amount (N$) 7390-60-600 03/05/2010 Avis Fleet 1567 3 7 935 7390-60-600 03/05/2010 Avis Fleet 15673 379 481 7390-60-600 01/06/2010 Avis Fleet 16246 385 065 7390-60-600 01/07/2010 Avis Fleet 16288 374 105 7390-60-600 02/08/2010 Avis Fleet 16718 408 049 Total 1 554 635

Account # Date Details GL inv no. Amount (N$) 7390-70-701 01/09/2010 Avis Fleet 17083 92 788 7390-70-701 01/09/2010 Avis Fleet 17083 347 826 7390-70-701 08/09/2010 Avis Fleet 17083 42 370 7390-70-701 30/09/2010 Avis Fleet 17240 368 805 7390-70-701 01/11/2010 Avis Fleet 17675 365 173 7390-70-701 01/12/2010 Avis Fleet 18089 356 783 7390-70-701 03/01/2011 Avis Fleet 18365 375 626 7390-70-701 01/02/2011 Avis Fleet 18604 329 865 7390-70-701 01/03/2011 Avis Fleet 18823 357 080 7390-70-701 31/03/2011 Avis Fleet 19581 359 400 Total 2 995 716

Auditors also obtained the relevant lease agreement entered into with Avis Fleet but were not able to reasonably reconcile the monthly amounts disclosed on the agreement to the relevant transactions incurred which amounted to N$ 826 178.

Large discrepancies were noted between the agreement stated monthly amount and the actual expense recorded in the relevant account. Due to the fact that the Avis Fleet supporting documentation file could not be provided auditors were unable to confirm / verify the expenditure incurred.

Recommendation Proper record keeping procedures are to be implemented to ensure that all transactions entered into can be traced to the relevant supporting documentation.

Invoices received are to be reconciled to the agreement in place and any variance noted is to be followed up, documented and cleared as soon as possible.

4.22 Payroll comparison to general ledger

Auditors summarized the various “Summary Action Costing Reports” with regards to payroll for NBC for the various “departments” being Artist payroll, permanent payroll and casual payroll and compared this summary to the total payroll expense as recorded in the general ledger. The differences amounted to N$ 8 529 702.

Recommendation The Board should ensure that the payroll is reconciled on a monthly basis to the general ledger. Any discrepancies noted as a result of the performance of this reconciliation should be investigated immediately and should be cleared as soon as possible.

Sign-off of this reconciliation performed by a senior official from the accounting department is vital.

4.23 Payroll approval

Auditors noted during the payroll review that monthly payroll reports were not printed in order to be reviewed and signed off for visible authorization of the payroll before payment reports are run.

Recommendation The Board should ensure that visible approval of payroll on a monthly basis is evident. This will ensure that control procedures in place are performed as required.

It is further vital to ensure that proper filing procedures are implemented to ensure recovery of reports from archives and store rooms should the need exist.

4.24 Payroll deductions – PAYE

Our review of PAYE return submission indicated that for the year under review the PAYE returns were submitted late to Inland Revenue.

N$ November 2010 2 031 215.71 14/06/2011 Submission late

Recommendation The Board should ensure that full compliance is achieved with regards to the Income Tax Act and that all returns and payments are submitted on or before the relevant due dates.

4.25 PAYE per control account versus Inland Revenue tax status report

As part of the audit procedures performed on payroll, auditors obtained the tax status report from Inland Revenue on 23 November 2012 with regards to PAYE and analyzed the report. Auditors then compared the report findings to the balances disclosed in the general ledger of the Corporation and noted differences.

Penalties and interest have been levied due to late submission of returns and late submission of payments to Inland Revenue. As a result of the above the Corporation currently does not comply with the requirements of the Income Tax Act.

Recommendation The Board should continue to engage with Inland Revenue in order to clear the outstanding capital, interest and penalties charged. Furthermore is it vital for the Board to ensure that all returns and payments are submitted on time. This will ensure that compliance with the Income Tax Act is achieved.

4.26 Import VAT returns not submitted

The review of the Import VAT returns required to be submitted versus the Asycuda reports obtained from Inland Revenue indicates that neither Import VAT returns nor any Import Vat payments have been effected for the period April 2009 to March 2010. This represents a clear contravention of the VAT Act.

Auditors also established that no Import VAT was claimed via the submission of the VAT returns.

Recommendation The Board should ensure that it is committed to clear all VAT related issues due to non-submission of returns or non-remittance of payments is maintained. It should be the objective to reach full compliance with all VAT related aspects and to ensure that future returns are submitted and remitted at the relevant due dates. This will ensure that financial losses due to penalties and interest being incurred are limited to an acceptable level. Zero tolerance with regards to non-compliance should be the target of the Corporation.

4.27 VAT reconciliation

Through the performance of the VAT reasonability test with regards to Output and Input VAT auditors noted that possible under declaration of Output VAT and short claiming of Input VAT for the year under review occurred.

With regards to the Output VAT difference noted auditors were unable to perform any further reconciliation procedures as noted that VAT returns are not correctly completed e.g. exempt and zero rated columns of the returns are not completed. Reconciliation back to revenue as per general ledger is thus not possible.

With regards to the Input VAT difference noted auditors were unable to perform any further reconciliation procedures. Auditors were also unable to obtain details on capital additions as no supporting documentation could be provided. Capital additions are excluded from the Input VAT reasonability testing.

As part of the VAT reasonability procedures performed auditors also noted that the VAT control account does not disclose the correct VAT balances at year end as no provision has been made for penalties and interest levied due to late submission of returns. It also transpired that no reconciliation is performed on the VAT control account with regards to actual payment payable.

Recommendation The Board should ensure that VAT returns are properly completed and all Outputs and Inputs are accounted for correctly. Bi- monthly VAT control account reconciliations are to be performed in order to ensure that the control account and the payments / refunds are properly accounted for.

4.28 VAT per control account versus Inland Revenue tax status report

As part of the audit procedures performed on VAT auditors obtained the tax status report from Inland Revenue on 15 November 2012 with regards to VAT and analysed the report. Auditors then compared the report findings to the balances disclosed in the general ledger of the Corporation and noted the differences amounting to.

At the reporting periods under review the VAT control account is thus understated.

As a result the Corporation currently does not comply with the requirements of the VAT Act.

Recommendation The Board should continue to engage with Inland Revenue in order to clear the outstanding capital, interest and penalties charged. Furthermore is it vital for management to ensure that all returns and payments are submitted on time. This will ensure that compliance with the VAT Act is achieved.

4.29 Import VAT per control account versus Inland Revenue tax status report

As part of the audit procedures performed on Import VAT auditors obtained the tax status report from Inland Revenue on 15 November 2012 with regards to VAT and analyzed the report. Auditors then compared the report findings to the balances disclosed in the general ledger of the Corporation and noted the differences amounting to:

At the reporting periods under review the Import VAT control account is thus understated.

As a result the Corporation currently does not comply with the requirements of the VAT Act.

4.30 Bank reconciliations

The review of bank reconciliations for the year under review indicated that poor control has been exercised over the monthly reconciliation process and the performance of bank reconciliations.

Auditors observed the Corporation performed an “accounting clean-up” assignment which included attending to year end bank reconciliations as well. Auditors review of the bank reconciliations provided by the Corporation to the auditors which have been completed by the Corporation indicated the following:

• Opening balance differences from the prior financial reporting period • Duplicate processing of cheque payments • Cheque payments disclosed on bank reconciliation not cleared through the bank statement are not followed up • Cheque payments on bank reconciliation which have been accounted for on the relevant account bank statement • Cheque payments and deposit received appearing on the bank statements not accounted for in cashbook of the Corporation • Cheque payments and deposit received appearing in the cashbook of the Corporation but not on the bank statements • Differences have been noted from the bank reconciliation cashbook balance to the general ledger balance which could not be explained. It was evident from the review of bank reconciliations prepared by the Corporation as part of their “accounting clean-up” process that a lot of time costs has been invested. The non-performance of bank reconciliations on a monthly basis represents the non-adherence to a vital control procedure with regards to proper overall financial control. Long outstanding reconciling entries are not followed up. The non-follow up of long outstanding reconciling items can be misused for fraudulent transactions to be entered into. Financial losses will thus be incurred by the Corporation.

Recommendation The Board should as a matter of urgency implement the performance of monthly bank reconciliations. All bank reconciliations performed are to be reviewed and signed off (visible sign-off) by a person more senior then the preparer of the bank reconciliation. Any none reconciling items are to be investigated and are to be cleared as soon as possible. The clearance of reconciling items of a regular basis will assist in limiting the possibilities of fraud being committed to an acceptable level.

4.31 Petty cash

The review of cash and cash equivalent balances for the year under review and through discussion with the finance manager of NBC indicated that no petty cash registers are kept / maintained by the Corporation. As a result of the non-maintenance of petty cash registers and the non-performance of monthly petty cash register reconciliations by a person other than the person responsible for maintaining the petty cash register auditors report that a lack of proper control exists in this area. As a result of the lack of control maintained over petty cash the risk of fraud being committed or the misappropriation of funds is considered to be high. The result of financial losses being incurred is thus a relevant possibility.

Recommendation The Board should as a matter of urgency implement the: • Maintenance of petty cash registers; and • Enforce the performance of monthly petty cash reconciliations.

All petty cash reconciliations performed are to be reviewed and signed off (visible sign-off) by a person more senior then the preparer of the bank reconciliation. Any reconciling items / discrepancies noted are to be investigated and are to be cleared as soon as possible. Cash shortages are to be recovered from the relevant person assigned to maintain the petty cash and petty cash register in order to enforce ownership on the relevant employee in this respect.

4.32 Long outstanding debtors due to barter agreement transactions

Through the review and verification procedures performed on the ageing analysis of trade receivables auditors noted that a large portion of trade receivables are older than 120 days. Closer investigation and enquiry with finance department staff members indicated that these long outstanding trade receivables originate from barter agreements entered into. Control and accounting thereof is not managed well.

The review of the trade debtor’s age analysis highlighted the balance of a debtor with a balance of N$ 8 255 998 in 120 days. The balance of the debtor remained unchanged at N$ 7 228 million from 31 March 2010. The recoverability of this specific debtor could thus not be verified. This non-recovery of a trade debtor impacts severely on the cash flow situation of the Corporation.

The review of the debtor’s age analysis highlighted that a weakening of the aging occurred from 2010 to 2011. 83% of the Corporations debtors are accounted for in the 120 + day bracket compared to 79% in 2010.

Recommendation Monthly review procedures with regards to the recoverability of long outstanding trade debtors are to be implemented. Strict settlement terms are to be implemented and considerations of utilizing a debt collection agency for collection of long outstanding debtors need to be investigated.

Improved controls procedures are to be implemented with regards to barter agreements entered into as well as the related accounting transactions. Related trade debtor balances are to be cleared on a regular basis.

4.33 Death benefits owed to deceased staff members

The procedures performed on credit balances included in the debtors ledger indicated the existence of cases where death benefits are accounted for in the debtors ledger with regards to deceased employees.

The Corporation also confirmed that staff loans with credit balances related to death benefits were received. The latter receipts still have to be paid to the relatives of duly authorized beneficiaries.

Recommendation The Board should review this account and similar accounts in order to be able to follow up / find relatives of the staff member. Once relatives of the deceased staff member are found / located all efforts should be made to pay the death benefits received due to them.

4.34 Provision for doubtful debts

The evaluation of the provision for doubtful debts raised at year-end indicated that bad debt provision is based on debtors outstanding for a long period. It appears that no procedures are in place for evaluating and calculating the debtors to be provided for. No Board approval for writing off bad debts was evident. The provision for bad debts was done on a “rule of thumb” basis.

Recommendation In order to improve control over trade debtors it is recommended that long outstanding debtors are reviewed on a regular basis in order to determine their recoverability.

Any bad debts to be written off are to be approved by the Board of Directors and the appropriate resolutions approved are to be filed accordingly. Strict settlement terms and measures are to be implemented.

4.35 Staff loans credit balances

The review of the general ledger for 2011 and the summarization of staff loans indicated the existence of balances at year to the amount of (N$ 818 774).

On enquiry to obtain supporting documentation in order for the external auditors to verify staff loans and to investigate the origin of the staff loan clearing account auditors observed that the handling of these account were not properly done.

The finance department of the Corporations could not clarify the causes for the large credit balances being disclosed in the staff loans clearing account. Indications for the reason of the existence of credit balance include: • Incorrect accounting treatment of loan repayment transactions; and • Benefits received from insurance companies, such as death benefits.

Auditors were informed that the finance department was unable to extract the necessary information in order to test the account, as the account is not in the condition to do so.

Possible misuse of the staff loan account system together with weak control implementation could lead to financial losses being incurred by the Corporation.

Recommendation It is of vital importance that appropriate control procedures are implemented and strictly adhered to. On a monthly basis the staff loan accounts and the staff loan clearing account is to be reconciled. Any balances remaining on the staff loan clearing account are to be investigated and valid reasoning for the existence of the balance is to be noted.

On an annual basis management should consider confirming staff loans via the issue of a staff loan statement that is to be signed off by the relevant staff member. Signed confirmations are to be filed on the relevant employee file.

4.36 Staff loans – recoverability, interest free or interest bearing below 12% level

Auditors scrutinized the debtors age analysis at 31 March 2011 and noted that a large number of staff loans exist which exceed N$ 3 000. Auditors further noted that some of the staff loans appear to be unusually high as some staff members owes the Corporations more than N$ 100 000.

Auditors further noted from the review of the debtors age analysis that staff loans provided generally exceed N$ 3 000. The nature of the loans provided could not be established e.g. are they granted for study purposes

18 or for private financial assistance purposes. With regards to the latter staff loans (private purposes) the fringe benefit treatment with regards to interest free and interest bearing loans below an interest rate of 12% per annum might not be accounted for correctly.

Fringe benefit is to be accounted for on the differential of the 12% interest rate as determined by Inland Revenue and the interest rate applied to the loan below 12% per annum.

As per the Namibian Tax regulations: “The taxable value of interest-free or subsidized loans that are not utilized for further study by an employee or exceeds N$3 000 p.a. of the loan amount less interest actually paid on the loan is deductible for tax purposes”.

Recommendation It is of vital importance that appropriate control procedures are implemented and strictly adhered to ensure that loans granted are indeed repaid. Non-adherence to repayment of staff loans is to be rigorously followed up. With granting of staff loans the requirement to provide security in case of default should be considered.

The Board should further ensure that staff loans granted to employees are correctly processed and that loans other than for study purposes with an interest rate of below 12% per annum are appropriately subjected to fringe benefit taxation in the hand of the relevant employee.

4.37 Control Home owners Insurance

The review of the Control Home owners Insurance Account for the year under review indicated a net increase of N$ 236 651 from N$ 193 859 at 31 March 2010 to N$ 430 510 at 31 March 2011. On enquiry as to the reason for this increase we established that no payments were made.

The fact that no payments are made was then discussed with the payroll accountant who confirmed that payments are in fact made but that the account is not cleared appropriately. The latter lead to the increase in the account noted for the year under review.

Recommendation It is of vital importance that the Board ensures that the performance of control procedures designed are in fact executed. Reconciliations are to be performed diligently and should be reviewed by a person other than the preparer of the reconciliation. Any discrepancies and other reconciling items are to be followed up immediately in order to be cleared satisfactorily.

4.38 Provision for financial clean-up

The review of the general ledger and trial balance for the 2011 financial reporting period highlighted the increase of N$ 15 million from N$ 45 000 000 to N$ 60 000 000.

On enquire as to the nature and reason for existence of this account with the Corporations auditors established that the account represents a provision raised and approved by management (based on pure judgment) for the following instances: a) Debtors recoverability Although a provision for bad debts has been raised a degree of uncertainty still exists with regards to the recoverability of trade debtors. b) Opening balances Opening balance differences, due to cut-off problems exist as processing was still performed on older periods. Most errors are considered to be corrected but a degree of uncertainty still exists with regards to whether all cut-off issues have been resolved.

c) Liabilities Barter agreements entered with a Supplier not fully utilized resulted in losses of millions being incurred due to unaired airtime. Management is still uncertain as to the amount of losses incurred. The Corporation is currently paying back monies owed to the Supplier for these losses incurred. Further uncertainty with regards to other barter agreements that may have been entered into in the past of which new management is not aware of exists. d) Reserves Management is in process of reviewing and assessing all the reserves disclosed in the annual financial statements due to the fact that some of the reserves are very old and disclosed no movements. Uncertainties with regards to the accuracy and valuation of these reserves as per the Act also exist. This raises a concern that possible misstatement of these reserve balances might exists for which quantification at this point in time is not possible.

Recommendation The Board should investigate the above documented instances in order to obtain clarity as to the actual liabilities that could face the Corporations as this can impact negatively on the going concern assumptions of the Corporation and future profitability of the Corporation.

4.39 NBC Retirement

The review of the NBC Retirement Fund revealed the following: • As per a valuation performed at 31 December 2000, both the employer and members ceased to make contributions for the period January 2001 to April 2001; • Members resumed contributions in May 2001; • Employer resumed contributions in October 2001; and • Actuaries valued the cost of the over extension as the gross contributions that should have been paid by the employer from 1 May 2001 to 30 September 2001.

Based on these facts as well as the assumptions applied, a liability of N$ 7 498 921 was calculated as at 31 March 2011.

The Board of Trustees of the NBC Retirement Fund thus did not comply with the Pension Fund Act regulations. The Act requires that contributions (employee and employer) be paid over within 7 days after month end. As a result of this non-compliance the fund incurred additional financial losses which have been factored into the liability of N$ 7 498 921.

Recommendation The Board of the Corporation should ensure that all requirements of the Pension Fund Act are complied with. The calculated liability of N$ 7 498 921 should be settled as soon as possible to the NBC Retirement Fund in order to ensure that the retirement benefits of members are earning the investment returns to which the members of the fund are entitled to.

Those members that have withdrawn from the fund are to be considered as well in this respect with regards to financial losses incurred by them due to contributions not being paid over on time by the Corporation to the NBC Retirement Fund.

4.40 Trade creditor, reconciliations and various other aspects

As part of the audit procedures performed on trade and other payables auditors tested selected creditor balances as recorded in the creditor’s age analysis at 31 March 2011. The following findings were noted: • Differences noted between the trial balance and the creditors age analysis originate due to the fact that no proper supervision appears to have been maintained over the reconciliation process.

• No proper documentation could be provided in the form of creditor statements in order for the auditors to re-perform the creditor’s reconciliation. • Processing errors were noted with regards to creditor invoices being processed to the incorrect creditor account with payments being effected and the age analysis never being updated; • Staff loans with credit balances were noted to be of existence and according finance department corroborating confirmations obtained staff loans should never disclose a credit balance; • Clearance of account balance not being effected after payment of accounts;

It can be concluded from the above that a lack of proper accounting control and reconciliation procedures exists with regards to trade creditors. This results in processing errors not being noted. This could further lead to duplicate payments as well as fraudulent transactions incurred not being noted in time. As a result possible financial losses can be incurred by the Corporation.

Recommendation The Board should perform monthly creditor’s reconciliations in order to ensure that all discrepancies are cleared on a regular basis. Review of the reconciliations prepared is to be performed by a senior person and evidence of performing the review through sign-off should be visible.

This together with the performance of bank reconciliations will ensure that reconciling items are cleared, possible fraudulent transactions are noted / detected early and as a result the state of financial reporting will improve considerable.

4.41 Provision for leave pay and leave days accrued by staff members

Provision for leave pay Through our re-performance testing procedures performed on the provision for leave pay accounted for in the general ledger of the Corporation for the current year under review auditors observed the difference amounting N$ 4 640 639.

It was also confirmed that problems were experienced with the leave day database when computing the actual leave days due to employees.

Leave days accrued Auditors also reviewed the leave report provided to the audit team and noted that a total of 161 staff members have accumulated 50 leave days or more. The total number of leave days due to the 171 staff members amounts to 19 102 leave days. In monetary terms this equates to N$ 21 515 685. A large number of staff members have leave day credits in access of the annual 22 days awarded as per Corporation policy. Leave is not allowed to accumulate and the Labour Act, 2007 prescribes that leave must be taken annually.

In terms of section 23 of the Labour Act, 2007: “(5) An employer may determine when the annual leave is to be taken provided that it is taken no later than (a) four months after the end of the annual leave cycle; or (b) six months after the end of the annual leave cycle, if, before the end of the four month period contemplated in paragraph (a), the employee agreed in writing to such an extension. (10) Except on termination of employment, an employer must not pay an employee an amount of money in substitution for the annual leave to which that employee is entitled, whether or not the employee requests or agrees in writing to such a payment.”

Recommendation The Board should review the leave records in order to verify the correctness of leave days accumulated by staff members as a matter of urgency. The Board should further ensure that compliance with the Labour Act is met in respect of leave days accumulated.

4.42 Accruals – purchase foreign programs

The review of accruals (made up of foreign program purchases and provision for audit fees) auditors compared the accrual calculation provided by the accounting department to the actual terms of the foreign program purchase contracts entered into for the year under review. As a result of this review auditors noted that Daro 14163 with a contract period 1/12/2008 to 31/12/2010 and Daro with a contract period since 2007 are still outstanding.

It appears that the Corporation did not review the terms and conditions of these contracts and thus no payments were made. This represents a contravention of the contract terms and could lead to financial losses being incurred based on terms and conditions contained in the contract entered into.

Recommendation The Board should ensure that full compliance with all program contracts entered into is achieved at all times. Implementation of a database to ensure compliance is achieved at all times should be considered.

4.43 The fixed asset register does not indicate specific purchase dates

The review of the fixed asset register maintained by the corporation indicated that the fixed asset register does not indicate specific purchase dates of assets acquired. The fixed asset register only discloses the financial reporting period during which the relevant asset was acquired. This results in depreciation not being calculated accurately. Auditors noted that all additions for the current year under review are not depreciated. As a result of this expenses (depreciation charge for the current year) are being understated and assets overstated.

Recommendation The exact acquisition date should be entered on recording an addition in the fixed asset register. Depreciation should then be calculated based on the acquisition date and should be accounted for as such in the accounting records of the Corporation.

4.44 Not all assets accounted for in the fixed asset register have bar code numbers

Further to the review of the fixed asset register maintained by the Corporation auditors noted that not all assets are marked with bar code numbers. The absence of bar code numbers makes it difficult to identify assets on the fixed asset register. It also makes physical verification impossible for assets without bar code numbers. Assets which are not bar coded or marked otherwise are risk prone of manipulation or misappropriation.

Recommendation The Board should endeavor to ensure that all movable assets are bar coded and that regular physical verification of assets is conducted.

4.45 Adjustment

The review of journal entries processed to the general ledger with regards to fixed assets and in particular with regards to broadcasting equipment auditors observed that broadcasting equipment cost and accumulated depreciation was adjusted with a journal entry that contained the description reconciling balance to the General Ledger. The credit adjustment entry processed for the 2010 financial reporting period amounted to N$ 16 165 697. The relevant adjustment was processed as the cost of the general ledger was used as basis and subsequently

22 the fixed asset register was adjusted to match the cost and accumulated depreciation balances disclosed in the general ledger.

As a result of this entry being processed the risk accounting for assets being disposed but never removed from the fixed asset register exists. A further possibility exists in that the values determined for assets during the clean - up exercise conducted by the Corporation are overstated.

Based on the above observation it is evident that regular reconciliation procedures are not performed from the fixed asset register to the general ledger and vice versa.

Recommendation The Board should ensure that the fixed asset register agrees to the general ledger. Monthly, quarterly and bi- annual reconciliations are to be performed in order to ensure that the general ledger and the fixed asset register are in agreement. Any discrepancies are to be followed up and are to be cleared timeously.

4.46 Additions as per fixed asset register differ significantly from addition as per the general ledger accounts

Additions as per fixed asset register differ significantly from addition as per the general ledger accounts to the amount of N$ 10 892 939.

The above difference noted gives raise to the risk that asset additions are accounted for via cut-off errors. As a result of the possible cut-off errors for recording additions depreciation might be incorrectly calculated.

Recommendation The Board should ensure that the fixed asset register is updated on a regular basis. The fixed asset register should agree to the general ledger accounts.

4.47 Change in deprecation policy

The Corporation decided to depreciate assets commencing for the financial reporting period ended 31 March 2009. Before this reporting period no depreciation was calculated provided at all. The change in accounting policy was applied retrospectively and retained earnings of pre 2009-2011 reporting periods was adjusted accordingly. All assets older than their useful life were written down to a net book value of N$ 1. As part of this exercise no detail residual value analysis of the relevant classes of assets was performed by management.

The lack of establishing residual values for classes of assets increases the risk of assets being understated. Some of the older assets might still have a residual value. As a result of this depreciation / accumulated depreciation might be overstated as residual values are not included in the calculation of depreciation.

Recommendation The Board should consider determining residual values for significant assets. The residual values should then be recorded in the fixed asset register in order to ensure that depreciation is calculated correctly and that assets are fairly stated at actual / residual values in the fixed asset register and the general ledger.

4.48 Useful lives of assets

The review of the useful lives of assets accounted for in the fixed asset register indicated that several assets useful lives appear not to be reasonable. Assets recorded in these asset categories have already been written off to a net book value of NIL or N$ 1. It is evident that Board did not estimate the useful lives of assets with due care.

Recommendation The Board should ensure that residual value reviews of all classes of assets accounted for in the fixed asset register are performed on an annual basis. This will ensure that fixed assets owned by the Corporation are fairly stated and disclosed in the annual financial statements of the corporation.

4.49 Provision of detailed split of reconciliation journals

The review of journal entries with regards to fixed assets for the current year under review and with regards to the accounting clean-up exercise performed by Corporation resulted in the Corporation not being able to provide the auditors with the detail split of the reallocation journals drafted and posted. Auditors established through discussion held with the corporation that these journals were posted based on the totals. The general ledger accounts were adjusted to match the fixed asset register balances as per category. It was thus impossible to test the reallocation performed due to the dates not being specified and no detailed split being provided.

As only totals were transferred this could raise the risk of these journals also impacting on opening balances of the general ledgers which would be then represent a cut off error. The possibility thus exists that assets were wrongly classified. This could mislead users of the financial statements. Furthermore this aspect could also be attributed to the reason why auditors were unable to trace additions as per general ledger to the fixed asset register.

Recommendation The fixed asset register should be updated on a regular basis and reconciled to the general ledger accounts. The asset register should include a column showing all additions and a column showing all disposals. This would make it easier to identify the movements for the year and if these agree to the general ledgers.

4.50 Disclosure with regards to property, plant and equipment in the annual financial statements

No detailed split was provided with regards to notes of the annual financial statements presenting reconciliation from the opening net book value to the closing net book value of assets setting out the additions, reclassification and disposals.

It is common accounting practice to disclose such note in the financial statements. The omission of such disclosure could lead to difficulties for users to understand the financial statements.

Recommendation The Board should keep detailed records of all disposal and additions. Regular reconciliation between the opening net book value and closing net book value should be done to ensure that appropriate and correct disclosures can be presented in the annual financial statements.

4.51 Properties

The review of the returned title deed investigations revealed that for the following properties owned by the corporation no valuation had been performed in order to account for these properties in the accounting records of the corporation at latest fair value amount. Land and buildings might be understated due to the properties not being recorded at latest valuation amount. As no valuation was done on these properties auditors were unable to determine the misstatement.

Auditors further noted that these properties were not recorded in the financial records of the corporation.

The relevant properties concerned are listed in the table below:

Town/Farm Plot no. Purchase date Deed no.

Signalberg FM/TV Station Gauss no 46 19/11/1984 3147/1984 Keilberg no 743 19/11/1984 3147/1984 Farm Swauk no 1154 19/11/1984 3147/1984

Recommendation A valuation should be performed on these properties and then the properties should be added on the property register. The market values should be recorded into the accounting records.

4.52 No summary obtained agreeing fixed asset register to general ledger

No summary could be provided during the audit fieldwork agreeing the fixed asset register to the general ledger. Auditors therefore could not test the general ledger for existence of assets. If no register exists which agrees to the general ledger there is a risk of assets already being disposed of not being removed from the general ledger or vice versa. It also could be that property was acquired and never recorded in the general ledger or recorded in the general ledger but not on the summary which again makes it impossible to verify.

Recommendation A register of all properties owned by the Corporation should be maintained. The schedule should also include the market values determined by a qualified valuator. This register should be reconciled to the accounting records on a regular basis.

4.53 Title deeds with regards to property

The review of title deeds of property accounted for in the records of the corporation revealed that the following title deeds could not be obtained or that properties accounted for in the accounting records of the Corporation appear not be owned by the Corporation. The properties concerned are disclosed in the table below:

Town/Farm Plot no. Title deed Size Market value

Tsumkwe Office Block Erf 52 None 5,497 m2 760 000 Keetmanshoop Studios Erf 243 305/1983 1,197 m2 1 510 000 Katima Mulilo Oice Block Erf 501 None 6,990 m2 5 790 000

Land and buildings could possibly be overstated in the accounting records of the corporation due to the uncertainty with regards to ownership noted of the properties.

Recommendation Land and buildings that does not belong to the corporation should be removed from the accounting records. In order to establish and verify ownership management should obtain the original title deeds. Any other proof to verifying acquisition of properties should also be obtained.

In case that ownership cannot be proven beyond doubt that relevant properties are to be removed from the accounting records of the corporation.

4.54 Fixed asset addition and disposal testing

As part of the additions and disposal testing performed during the year under review auditors noted the following exceptions.

a) No detailed list of disposals could be obtained. As a result of no detailed list of disposals being provided auditors were unable to test disposals satisfactory. Disposals of assets could be done without anyone noticing the relevant disposal. Profit and losses on disposals may be omitted from accounting records. Property, plant and equipment cost and accumulated depreciation in the general ledgers might be misstated as no disposals are recorded. Depreciation might still be calculated on assets already sold or disposed.

Fraudulent transactions with regards to disposal of assets might occur resulting in financial losses being incurred by the corporation.

b) No supporting documentation for several additions. The audit procedures performed on selected additions indicated that for several additions no relevant and appropriate supporting documentation could be provided. Additions might be accounted for which are not the property of the corporation. Furthermore additions might not have been properly authorized or might be fictions of nature in order to improve the financial position of the corporation.

c) Wrong cut-off with regards to additions. Auditors also noted with regards to the testing performed on selected additions that asset cut-off errors were made in that assets were accounted for in the wrong financial reporting period. Users of the financial statements might be misled with regards to the presentation of assets in the annual financial statements and notes thereto.

d) Tracing of additions per general ledger to the fixed asset register. As part of the additions testing auditors also traced additions to the fixed asset register. For all numbers of additions tested auditors were unable to trace the additions to the fixed asset register.

Although the asset register was reconciled to the general ledger the two do not agree in detail. Reasons for this discrepancy could be that incomplete projects are only transferred when completed and then the total cost is entered on the asset register as one amount. Auditors also could not trace addition from ledgers other than incomplete project to the fixed asset register. This raises the concern that the asset register was forced to balance and that the assets on the fixed asset register were not correctly updated with the additions effected in the ledger accounts.

Recommendation The Board should ensure that the following recommendations are implemented.

a) Detailed records should be maintained for all disposals. Disposals should be recorded through the cost and accumulated depreciation general ledgers accounts and should also be removed from the fixed asset register. The fixed asset register should include a column for disposals. Regular reconciliations of the general ledger accounts to the fixed asset register are to be performed to ensure that discrepancies noted are cleared timeously.

For all disposals the appropriate authorization forms / documentation is to be maintained. No disposal should be affected without such an approval form.

b) Management should ensure that for all additions incurred valid and appropriate supporting documentation is presented before authorizing the addition to be incurred. Large capital expenditure

to be incurred should in addition to the latter requirements be supported via a valid resolution from the Board of Directors authorizing the relevant capital expenditure to be incurred.

c) The accounting department should ensure that additions are correctly classified and that cut-off is achieved properly. If the need requires training in this respect the relevant training should be provided.

d) The fixed asset register should be updated on a regular basis and be reconciled to the general ledger accounts on a regular basis. The asset register should include columns disclosing all additions all disposal separately. This will assist with the identification of movements (additions and disposals) for the year and reconciliation of additions and disposals to the relevant general ledger accounts.

4.55 Insurance of assets

As part of the audit procedures performed on property, plant and equipment auditors also reviewed the insurance cover of assets owned by the Corporation. Auditors noted that land and buildings appear to be under-insured as set out in the table below:

Asset type Net book value Insured amount Difference N$ N$ N$

Land, buildings and improvements 32 939 768 228 728 600 (195 788 832) Revaluation 166 340 232 - 166 340 232 Buildings and improvements 18 874 356 - 18 874 356 Incomplete projects - Freehold 28 709 530 - 28 709 530

Total 246 863 886 228 728 600 18 135 286

Land and buildings are based on the table above under-insured by an amount of N$ 18 135 286. This analysis is based on book values and not market values. Comparison to market values would result in an even larger under-insured amount being recorded.

Recommendation The Board should review its insurance policy in order to ensure that assets and in particular land and buildings are not under-insured. In case of fire or any other natural disaster huge financial losses can be incurred.

4.56 NBC Housing Scheme

The review of the bank confirmation letter requested by Congratulation from Bank Windhoek with regards to the Housing Fund auditors noted that a letter dated 15 September 2011 issued by Bank Windhoek to the Namibian Broadcasting Corporation indicated that Bank Windhoek was not in possession of an official signed housing scheme agreement.

This housing scheme is in place to cover housing loans requested and approved with regards to NBC staff members via their pension fund credits accumulated in the NBC Pension Fund.

Recommendation The Board should ensure that with regards to all agreements entered into a valid and signed agreement is maintained. All agreements are to be reviewed on a regular basis in order to ensure that time changes and other changes are appropriately addressed.

5. GENERAL

An audit committee can be established to overlook certain matters in the financial management of the Corporation.

6. ACKNOWLEDGEMENT

The assistance and co-operation given by the Corporation’s staff during the audit is highly appreciated.

7. DISCLAIMED AUDIT OPINION

The financial statements of the Namibian Broadcasting Cooperation for the financial year ended 31 March 2011 have been audited in accordance with the provisions of Section 25 (1) (b) of the State Finance Act, 1991 read with the provisions of Section 22(1) of the Namibian Broadcasting Act, 1991.

Going concern

The Corporation’s ability to continue as a going concern depends largely on the continued support of the Government.

Disclaimer of audit opinion

I am unable to express an opinion on the financial statements of the Corporation for the financial year ended 31 March 2011 due to the following reasons:

• The asset register was found to be incomplete. On the fixed asset register broadcasting equipment cost and broadcasting equipment accumulated depreciation was adjusted with an amount of N$ 9 266 726 (credit) in order to reconcile fixed asset register to general ledger. The existence and value of fixed assets could as such not be verified. • Fixed asset register additions differed significantly from additions accounted for in the general ledger with an amount of N$ 10 892 939. • No supporting documents could be provided for expenditure amounting to N$ 16 476 769 from the audit sample drawn in order to test accuracy, occurrence and completeness of expenditure incurred. • An extra ordinary account amounting to N$ 15 000 000 was noted as part of expenditure testing. The balance originates from a provision for financial clean-up being raised. No supporting documentation with regards to the validity and basis of this transaction could be provided. The current year provision for financial clean-up amounts to N$ 60 000 000 and is purely based on judgement. • Loss on VAT transactions amounting to N$ 972 709 were noted and written off to the income statement. Completeness and accuracy of this balance being written off could not be verified. • Comparing the payroll (permanent employees, casual employees and artist) maintained on Dbit to the total employee cost as accounted for in the general ledger an unexplained difference of N$ 18 529 702 was noted with which the general ledger exceeded the payroll. • PAYE control account of N$ 178 560 917 payable to Inland Revenue is materially understated. Per tax status report dated 23 November 2012 the full settlement amount payable, including capital, interest and penalties, amounted to N$ 225 590 012. • Net Import VAT is disclosed as a receivable from Inland Revenue amounting to N$ 4 011 whereas the records of Inland Revenue disclose that the Corporation owes N$ 40 800 267 (including tax and interest). Import Vat is as such misstated by N$ 40 804 278. • TV licence income completeness of N$ 14 431 444 could not be verified via reconciliation procedures relevant supporting documentation including TV licence books. No proper stationery control with regards to TV licence books is maintained at the TV Licence department.

• The completeness of revenue received from licence fees could not be confirmed. • The completeness and accuracy of advertising income could not be confirmed. A difference of N$ 2 534 283 was noted between the two recording systems e.g. Airwaves vs AccPac. No reconciliations are performed. • Credit notes are passed without proper authorization. • An unexplained shortage of N$ 3 659 047 was noted when comparing the total transmitter receivable per corporation contract summary schedule to the general ledger. The general ledger amount appears to be understated by that amount as a result of cut-off errors. • Net VAT is disclosed as a receivable from Inland Revenue amounting to N$ 4 405 170 whereas the records of Inland Revenue disclose that the Corporation owes N$ 1 528 664. Vat is as such misstated by N$ 5 933 834. • Bank reconciliations were not performed. Assistance from consultants was required in order to attend to bank reconciliations resulting in material balance and reconciling items being written off as part of the financial clean-up process. • Staff loans clearing account and staff loans disclosing a credit balance of N$ 1 269 148 and a debit balance of N$ 450 374 respectively exist. No valid supporting evidence as to the existence and validity of the credit and debit balance could be provided. • No provision has been made for estimated legal costs of up to N$ 120 000 000.

WINDHOEK, June 2014 JUNIAS ETUNA KANDJEKE AUDITOR-GENERAL

NAMIBIAN BROADCASTING CORPORATION ANNEXURE A (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

BALANCE SHEET AS AT 31 March 2011

2011 2010 Notes N$ N$

ASSETS Non-current assets 436 720 556 301 277 418 Property, plant and equipment 2 436 205 170 300 762 032 Reserve fund investment 3 515 386 515 386

Current assets 46 614 791 22 926 170 Reserve fund investment 3 - 9 620 059 Inventories 4 - - Trade and other receivables 5 4 202 617 9 017 079 Bank and cash balances 42 412 174 4 289 032

Total assets 483 335 347 324 203 588

RESERVES AND LIABILITIES

Reserves 165 185 293 56 669 431 Capital and reserves 501 001 339 456 001 339 Accumulated losses (523 940 314) (421 102 776) Statutory reserve fund 6 3 369 269 3 369 269 Non-statutory reserve fund 6 184 754 999 18 401 599

Non-current liabilities Interest-bearing borrowings - -

Current liabilities 318 150 054 267 534 157 Current portion of interest-bearing borrowings - - Provisions 7 98 726 764 70 978 662 Trade and other payables 8 197 072 386 178 861 422 Bank overdrafts 22 350 904 17 694 073

Total reserves and liabilities 483 335 347 324 203 588

NAMIBIAN BROADCASTING CORPORATION ANNEXURE B (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

INCOME STATEMENT FOR THE YEAR ENDED 31 March 2011

2011 2010 Notes N$ N$

Operating income 1.1 57 332 569 52 533 587

Add: State subsidy 9 122 016 010 106 142 000

Profit on disposal of property 28 000 1 659 297

Total income 179 376 579 160 334 884

Expenditure (277 225 557) (278 862 802)

Operating deficit for the year 10 (97 848 978) (118 527 918)

Net finance costs 11 (4 988 560) (5 487 447)

Net deficit for the year (102 837 538) (124 015 365)

NAMIBIAN BROADCASTING CORPORATION ANNEXURE C (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 March 2011

Non- Statutory statutory Capital Accumulated reserve reserve fund reserve losses fund Total reserve N$ N$ N$ N$ N$

31 March 2009 407 312 339 (297 087 411) 3 369 269 18 374 668 131 968 865 Net book value of assets taken over 4 059 225 - - - 4 059 225 Total of subsidies received for capital projects in prior years 332 478114 - - - 332 478 114 Movement for the year 70 775 000 (110 067 459) 193 216 5 641 (39 093 602) Opening balance - (187 019 952) 3 176 053 18 369 027 (165 474 872)

Net deficit for the year - (124 015 365) - - (124 015 365) 2010 Other movements for - - - 26 931 26 931 the year Government capital 48 689 000 - - - 48 689 000 subsidy

31 March 2010 456 001 339 (421 102 776) 3 369 269 18 401 599 56 669 431

31 March 2010 456 001 339 (421 102 776) 3 369 269 18 401 599 56 669 431 Net book value of assets taken over 4 059 225 - - - 4 059 225 Total of subsidies received for capital projects in prior years 403 253 114 - - - 403 253 114 Movement for the year 48 689 000 (124 015 365) - 26 931 (75 299 434) Opening balance - (297 087 411) 3 369 269 18 374 668 (275 343 474)

Net deficit for the year - (102 837 538) - - (102 837 538) 2011 Revaluation reserve - - - 166 340 232 166 340 232 Other movements for - - - 13 168 13 168 the year Government capital 45 000 000 - - - 45 000 000 subsidy

31 March 2011 501 001 339 (523 940 314) 3 369 269 184 754 999 165 185 293

NAMIBIAN BROADCASTING CORPORATION ANNEXURE C (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 March 2011

Non- Statutory statutory Capital Accumulated reserve reserve fund reserve losses fund Total reserve N$ N$ N$ N$ N$

31 March 2011 501 001 339 (523 940 314) 3 369 269 184 754 999 165 185 293 Net book value of assets taken over 4 059 225 - - - 4 059 225 Total of subsidies received for capital projects in prior years 451 942 114 - - - 451 942 114 Revaluation reserve - - - 166 340 232 166 340 232 Movement for the year 45 000 000 (102 837 538) - 13 168 (57 824 370) Opening balance - (421 102 776) 3 369 269 18 401 599 (399 331 908)

NAMIBIAN BROADCASTING CORPORATION ANNEXURE D (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 March 2011

Notes 2011 2010 N$ N$

Operating activities Cash receipts from customers 57 332 568 52 533 588 Government subsidy 122 016 010 106 142 000 Cash paid to suppliers and employees (183 260 853) (184 068 215) Cash flows (to)/from operations A (3 912 275) (25 392 627) Finance charges and interest paid 11 (6 586 528) (7 619 235) Interest received 11 1 597 967 2 131 789 Net cash flow (to)/from operating activities (8 900 835) (30 880 073)

Investing activities: Other movement in the statement of changes in equity 13 168 26 931 Government capital subsidy 45 000 000 48 689 000 Proceeds on disposal of property, plant and equipment 28 000 1 659 297 Purchase of property, plant and equipment (12 294 081) (39 783 294) Increase in reserve fund investment 9 620 059 (585 817) Net cash flows from investing activities 42 367 146 10 006 117

Financing activities: (Decrease)/increase in interest -bearing borrowings - (63 213) Net cash (outflow)/inflow from financing activities - (63 213)

Net movement in cash and cash equivalents 33 466 311 (20 937 170)

Change in cash and cash equivalents Balance at the beginning of the year (13 405 041) 7 532 129 Net movement 33 466 311 (20 937 170) Balance at the end of the year 20 061 270 (13 405 041)

The balances comprise: Cash and operational bank balances 32 998 434 4 007 355 Capital expenditure bank balances 9 413 740 281 677 Bank overdraft (22 350 904) (17 694 073) 20 061 270 (13 405 041)

NAMIBIAN BROADCASTING CORPORATION ANNEXURE D (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 March 2011 (Continued)

Notes 2011 2010 N$ N$

A. RECONCILIATION OF DEFICIT TO CASH (USED BY)/GENERATED FROM OPERATIONS

Loss for the year (102 837 538) (124 015 365) Adjusted for: - Net profit on disposal of property (28 000) (1 659 297) - Depreciation 43 191 176 46 376 196 - Net finance costs 4 988 560 5 487 447

Operating loss before working capital changes (54 685 802) (73 811 019)

Working capital changes: - Decrease/ (increase) in receivables 4 814 462 6 315 624 - Decrease/ (increase) inventory - - - Increase in payables 45 959 065 42 102 768

Cash (used by)/generated from operations (3 912 275) (25 392 627)

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011

1. Basis of preparation

The financial statements are prepared on the historical cost basis except where stated otherwise. The accounting policies which are set out below are applied consistently with previous years and comply with generally accepted accounting practice, unless otherwise stated. The principal accounting policies of the Corporation are as follows:

1.1 Depreciation Fund

Depreciation and increased replacement costs of fixed assets are provided for by the transfer of surplus funds to the depreciation fund, after provision has been made for the operating capital requirements of the Corporation as at the end of the current accounting period and if there are any surplus funds available to transfer.

Repairs and maintenance are generally charged to expenses during the financial period in which they are incurred. However, major renovations are capitalised and included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Corporation. Major renovations are depreciated over the remaining useful life of the related asset.

1.2 Redemption and Interest Fund

The redemption fund makes provision for the future repayment of borrowed capital and the Interest Fund makes provision for the annual payment of the interest thereon.

1.3 Leased assets

Leases of assets where the corporation assumes substantially all the benefits and risks of ownership are classified as finance leases. Assets leased in terms of finance lease agreements are capitalised at the estimated present value of the underlying lease payments. The corresponding rental obligation, net of finance charges, are included in long-term payables. Lease finance charges are amortised over the duration of the leases by the effective interest rate method.

Operating lease [payments are recognized as an operating expense in the income statement on a straight line basis over the lease term.

1.4 Consultation fees and installation costs

Consultation fees and installation costs on completed projects which cannot be allocated directly to specific items of equipment are written off against income over a period of five years.

1.5 Investments

Unlisted investments other than in associates are stated at cost and are written down only where there is a permanent impairment in value. Listed investments are stated at market value. Dividends are brought to account as at the last day of registration in respect of listed shares and when declared in respect of unlisted shares.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

1.5 Investments (continued)

On disposals of an investment, the difference between the net disposal proceeds and the carrying amount is charged or credited to the income statement.

1.6 Inventories and work in progress

Consumables and other stock are valued at cost on a weighted average basis.

1.7 Trade receivables

Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. Such provision for impairment of trade receivables is established if there is objective evidence that the Corporation will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of the expected cash flows, discounted at the market rate of interest for similar borrowers.

1.8 Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market instruments, net of bank overdrafts. In the balance sheet, bank overdrafts are included in current liabilities.

1.9 Trade payables

Trade payables are carried at the fair value of the consideration to be paid in future for goods or services that have been received or supplied and invoiced or formally agreed with the supplier.

1.10 Provisions

Provisions are recognised when the Corporation has a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount of the obligation can be made.

Where the Corporation expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain.

1.11 Revenue recognition

Advertising and other income Revenue comprises the invoiced value for sale of services rendered net of value-added tax, rebates and discounts.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

1.11 Revenue recognition (continued)

Revenue arising from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Interest income is recognised on a time proportion basis.

Licence fees Licence fees are taken into account as income during the year in which they are received.

1.12 Capital reserve

The Capital reserve consist of book value of assets taken over from the South African Broadcasting Corporation plus the total government subsidies received for capital projects since the inception of the Corporation.

1.13 Property, plant and equipment

All property, plant, and equipment is stated at historical cost, except as stated in note 1.1 on the depreciation fund.

The cost of an item of property, plant and equipment is recognised as an asset when: • it is probable that future economic benefits associated with the item will flow to the company; and • the cost of the item can be measured reliably.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment the carrying amount of the replaced part is derecognised.

The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also included in the cost of property, plant and equipment.

Property, plant and equipment are carried at cost less accumulated depreciation and any impairment losses.

Item Average useful life Plant and machinery 5 – 20 years Furniture and fittings 1 – 10 years Motor vehicles 5 years Computer equipment 5 years

The residual value and the useful life of each asset are reviewed at each financial period-end.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

1.13 Property, plant and equipment (continued)

Repairs and maintenance are generally charged to expenses during the financial period in which they are incurred. However, major leasehold improvements are capitalized and included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the company. Major leasehold improvements are depreciated over the remaining useful life of the related asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds if any and the carrying amount of the item.

1.14 Change in policy

All property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the property, plant and equipment when that cost is incurred, if the recognition criteria are met.

Property, plant and equipment are depreciated on a straight line basis at rates estimated to write each asset down to estimated residual value over the term of its useful life.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 2 FIXED ASSETS

At cost 586 283 700 407 649 386 - Land, buildings and improvements 218 154 356 51 326 525 - Plant and machinery 327 213 478 301 727 605 - Motor vehicles 3 602 328 3 295 846 - Computer and office equipment 8 604 008 8 048 930 - Work in progress 28 709 530 43 250 479

Accumulated depreciation (150 078 530) (106 887 354) - Plant and machinery (141 634 604) (99 998 738) - Motor vehicles (1 518 016) (858 847) - Computer and office equipment (6 925 910) (6 029 768)

Net book value 436,205,170 300 762 032 - Land, buildings and improvements 218 154 356 51 326 525 - Plant and machinery 185 578 874 201 728 867 - Motor vehicles 2 084 312 2 436 999 - Computer and office equipment 1 678 098 2 019 162 - Work in progress 28 709 530 43 250 479

Summary Total cost 586 283 700 407 649 386 Total accumulated depreciation (150 078 530) (106 887 354)

Net book value 436 205 170 300 762 032

Details in terms of Section 25(1)(a) of the Namibian Broadcasting Act No. 9 of 1991.

Due to improper records previously maintained, management initiated a clean-up exercise to address the completeness and accuracy of fixed assets. This has also resulted in some reclassification among the categories accounted for during 2009.

Depreciation was not originally taken into account in the determining the 2008 values. Due to the change in accounting policy, the carrying amounts of the assets in 2008 were restated.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2 FIXED ASSETS (continued) The land and buildings that were revalued during 2011 comprise of: • TV Headquarters Erf 6922, measuring 41,586 m², situated Windhoek, Namibia. • Maytime flats Erf 1114, measuring 2,710 m², situated Windhoek, Namibia. • Radio & building houses, Erf 6866, measuring 47,085 m², situated Windhoek, Namibia. • Otjiwarongo Studios, Erf 33, measuring 2,149 m², situated Otjiwarongo, Namibia. • Tsumkwe office block, Erf 52, measuring 5,497 m², situated Tsumkwe, Namibia. • Keetmanshoop studios, Erf 243, measuring 1,209 m², situated Keetmanshoop, Namibia. • Katima Mulilo office block, Erf 501, measuring 6,990 m², situated Katima Mulilo, Namibia. • Katima Mulilo office block, Erf 390, measuring 600 m², situated Katima Mulilo, Namibia. • Katima Mulilo dwellings, Erf 503, measuring 600 m², situated Katima Mulilo, Namibia. Properties where NBC has permission to occupy ("PTO") are stated at cost and have not been revalued.

2011 2010 N$ N$ 3 RESERVE FUNDS ARE REPRESENTED BY THE FOLLOWING INVESTMENTS

3.1 Long-term investments Housing Fund Investment 515 386 515 386 Opening balance 515 386 515 386 Movement for the year - -

Total long-term reserve fund investments 515 386 515 386

3.2 Short-term investments

Depreciation Fund investment - 9 620 059 Opening balance 9 620 059 8 841 026 Movement for the year (9 620 059) 779 033

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 3 RESERVE FUNDS ARE REPRESENTED BY THE FOLLOWING INVESTMENTS (continued)

3.2 Short-term investments (continued) Redemption Fund investment - - Opening balance - 193 216 Movement for the year - (193 216)

Total short-term reserve fund investments - 9 620 059

515 386 10 135 445

4 INVENTORIES Inventory has been written off as the balance has not moved for years. Prior audits found inventory to be overstated due to obsolescence and currently there is no inventory on hand.

5 TRADE AND OTHER RECEIVABLES

Sundry debtors (504 544) 47 988 Prepayments (159 812) 304 090 Trade debtors 22 001 687 17 339 396 Receiver of Revenue- VAT 4 735 210 3 366 456 Staff loan clearing account (1 269 148) (1 261 893) Staff debtors 448 528 (520 047)

25 251 921 19 275 990 Less: Provision for impairment of receivables (21 049 304) (10 258 911)

4 202 617 9 017 079

Bad debts amounting to N$ (6) (2009: N$ 1,311,542) have been (recovered) / written off.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 6 RESERVE FUNDS

6.1 Statutory Reserve Funds Depreciation Fund 2 952 085 2 952 085 Opening balance 2 952 085 2 952 085 Movement for the year - -

Redemption Fund 417 184 417 184 Opening balance 417 184 417 184 Movement for the year - -

Total Statutory Reserve Funds 3 369 269 3 369 269

6.2 Non-statutory Reserve Funds General Reserve Fund 25 945 626 25 945 626 Opening balance 25 945 626 25 945 626 Movement for the year - -

Profit and Loss Reserve Fund (9 591 240) (9 591 240) Opening balance (9 591 240) (9 591 240) Movement for the year - -

Housing Fund 1 419 554 1 419 554 Opening balance 1 419 554 1 419 554 Movement for the year - -

Aid Fund 552 264 552 264 Opening balance 552 264 553 289 Movement for the year - (1 025)

Internal Insurance Fund 7 037 7 037 Opening balance 7 037 7 037 Movement for the year - -

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 6 RESERVE FUNDS (continued)

6.2 Non-statutory Reserve Funds (continued) General Housing Fund 6 556 6 556 Opening balance 6 556 6 556 Movement for the year - -

Motor Insurance Investment 10 827 10 827 Opening balance 10 827 10 827 Movement for the year - -

Reserves other 64 143 50 975 Opening balance 50 975 23 018 Movement for the year 13 168 27 957

Revaluation reserve 166 340 232 - Opening balance - - Movement for the year 166 340 232 -

Total Non-statutory Reserve Funds 184 754 999 18 401 599

Total long and short-term Reserve Fund investments 188 124 268 21 770 868

7 PROVISIONS

Employee leave 31 227 843 19 161 396 Alexander Forbes Employee Retirement Fund 7 498 921 6 817 266 Provision for clean-up 60 000 000 45 000 000

98 726 764 70 978 662

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 8 TRADE AND OTHER PAYABLES

Trade payables 7 830 247 8 959 910 PAYE - capital 76 873 740 73 143 086 Penalties and interest on outstanding PAYE 102 645 561 94 202 560 Penalties and interest on VAT 326 039 326 039 Other payables 9 396 799 2 229 827

197 072 386 178 861 422

9 GOVERNMENT SUBSIDY

Subsidy for operating expenditure 107 016 010 100 842 000 Development subsidy utilized for operating expenditure 15 000 000 5 300 000

122 016 010 106 142 000

10 OPERATING DEFICIT FOR THE YEAR

The following expenses have been included in operating deficit for the year:

Directors’ remuneration: Non-executive directors for services 245 985 285 020 as directors Consulting fees 276 494 594 440 Staff and retirement benefit costs (refer to note12) 146 465 898 140 334 042

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 11 NET FINANCE COSTS

Interest expense (6 586 527) (7 619 235) Bank overdraft (430 057) (23 144) Receiver of Revenue (6 156 470) (7 596 091)

Interest income Bank and investment accounts 1 597 967 2 131 789

(4 998 560) (5 487 446)

12 STAFF AND RETIREMENT BENEFIT COSTS

Total number of employees 497 528 Permanent employees 419 430 Contract workers 78 98

Employment expenses 146 465 898 140 334 042 Salaries and wages 119 118 287 129 312 134 Provision for leave pay 12 941 204 459 091 Employer’s contribution to retirement benefits of current staff 14 406 407 10 562 817

13 CONTINGENCIES AND COMMITMENTS

13.1 The Corporation is a defendant in various legal actions. In the opinion of the directors, after taking appropriate legal advice; the outcome of such actions may give rise to losses. The current total cash effect of this possible loss is approximately N$ 120,000,000 (2010: N$ 120,000,000).

13.2 NBC has entered into commercial leases on certain motor vehicle. The leases have been classified as operating leases as the terms and conditions thereof do not meet the criteria of finance leases entirely. These leases have an average life of five years.

NAMIBIAN BROADCASTING CORPORATION ANNEXURE E (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 N$ N$ 13 CONTINGENCIES AND COMMITMENTS (continued)

Future rentals payable, which include fleet management service costs for the related vehicles, under the operating leases as at 31 March are as follows

Within one year 3 722 675 3 722 675 After one year, but not more than five years 7 195 413 10 918 088

10 918 088 14 640 763

NAMIBIAN BROADCASTING CORPORATION ANNEXURE F (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

DETAILED INCOME STATEMENT FOR THE YEAR ENDED 31 March 2011

2011 2010 Notes N$ N$

49 647 342 51 600 293 Advertising-Radio 14 364 181 14 286 536 Advertising-TV 18 688 259 17 810 273 TV Licensing 14 431 444 16 722 107 Transmitter and bill board rentals 2 163 458 2 781 377

Other income 7 685 227 933 294 Commission received 47 473 59 553 Cafeteria income 1 168 35 933 Sales: Business development 6 795 911 533 180 Dubbings (7 693) 14 044 Guest house 40 100 23 969 Reference books 7 529 9 299 Rent - parking/house 458 097 252 366 Sundry income - 150 Tenders 35 871 4 800 Insurance claims 306 771 -

Operating income 1.1 57 332 569 52 533 587

Add: State subsidy 9 122 016 010 106 142 000

Profit on disposal of property 28 000 1 659 297

Total income 179 376 579 160 334 884

NAMIBIAN BROADCASTING CORPORATION ANNEXURE F (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

DETAILED INCOME STATEMENT FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 Notes N$ N$ Expenditure (277 225 557) (278 862 802)

Advertising 242 554 377 009 Awards 74 435 19 600 Bad debts (6) 1 311 542 Bank charges 638 695 440 829 Barter agreements 77 802 715 245 Board fees 245 985 285 020 Cleaning 48 214 157 836 Commission and agency fees 1 764 671 1 721 643 Consulting 276 494 594 440 Depreciation 43 191 176 46 376 196 Employment 12 146 465 898 140 334 042 Entertainment 62 520 50 057 Financial clean up 15 000 000 15 105 143 Freelancers 2 450 - Functions and gifts 210 029 167 540 Hire facilities 197 639 221 158 Insurance 2 284 327 2 069 920 Internal audit 250 000 576 662 Legal fees 871 401 674 636 Loss on Vat 972 709 3 657 933 Penalties on late payment of PAYE 2 286 530 646 262 Postage and courier 756 055 831 142 Power feeds 20 218 2 361 Printing and stationery 1 849 241 2 371 015 Program sponsorship (82 975) 31 028 Promotions 156 688 410 493 Protective clothing 48 864 24 312 Provision for bad debts 10 790 393 5 471 668 Purchase batteries and diesel 2 562 021 3 073 092 Purchase program material 4 481 942 8 681 999

NAMIBIAN BROADCASTING CORPORATION ANNEXURE F (Established in terms of the Namibian Broadcasting Act, No. 9 of 1991)

DETAILED INCOME STATEMENT FOR THE YEAR ENDED 31 March 2011 (continued)

2011 2010 Notes N$ N$ Expenditure (continued)

Royalties 1 337 641 1 579 466 Refreshments 108 607 211 124 Rental offices 81 076 79 705 Repairs and maintenance 2 947 904 3 471 655 Salary processing charges 1 365 40 699 Security 1 843 949 1 661 687 Social club contribution 15 384 66 933 Satellite 11 666 418 11 133 056 Subscription 665 502 100 742 Telephone/e-mail 4 614 302 4 277 852 Training and development 196 724 540 750 Travel 3 384 305 3 324 592 Vat Penalties and interest - 293 539 Vehicle expenses 2 157 067 2 541 768 Vehicle-lease 1 554 634 4 606 768 Water and electricity 10 391 793 7 801 911 Website 128 913 162 322 Win-a-house / Other expenses 384 003 568 412

Operating deficit for the year 10 (97 848 978) (118 527 918)

Net finance costs 11 (4 988 560) (5 487 447) Interest received 1 597 967 2 131 789 Interest paid (6 586 528) (7 619 236)

Net deficit for the year (102 837 538) (124 015 365)