research for equity and community health trustreachtrust.org/downloads/financial statement 30 june,...

RESEARCH FOR EQUITYAND COMMUNITY HEALTH TRUST

Financial Statements for the year ended30 June 2010

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTFINANCIAL STATEMENTSFor the year ended 30 June 2010

INDEX PAGES

STATEMENT OF TRUSTEES' RESPONSIBILITIES

REPORT OF THE INDEPENDENT AUDITOR 2-3

STATEMENT OF FINANCIAL POSITION 4

STATEMENT OF COMPREHENSIVE INCOME 5

STATEMENT OF CHANGES IN RESERVES 6

STATEMENT OF CASH FLOWS 7

NOTES TO THE FINANCIAL STATEMENTS 8 -15

SUPPLEMENT ARY INFORMATION

APPENDIX I (FIXED ASSETS REGISTER) 17- 21

APPENDIX II (NORWEGIAN ASSOCIATION OF LUNG AND HEART PATIENTSINCOME STATEMENT) 22

APPENDIX II (NORWEGIAN ASSOCIATION OF LUNG AND HEART PATIENTSTRIAGE PLUS) 23

APPENDIX II (NORWEGIAN ASSOCIATION OF LUNG AND HEART PATIENTSHEALTH COMMUNICATIONS) 24

APPENDIX II (NORWEGIAN ASSOCIATION OF LUNG AND HEART PATIENTSINSTITUTIONAL CAPACITY STRENGTHENING) 25

RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTSTATEMENT OF TRUSTEES' RESPONSIBILITIESFor the year ended 30 June 2010

The trustees accept that it is their duty to prepare financial statements annually, which give a true andfair view ofthe state of affairs of the Trust at the reporting date and the results for the year then endedand otherwise comply with relevant regulations.

The trustees also acknowledge their duty to ensure that the Trust keeps proper accounting records whichdisclose with reasonable accuracy at any time the financial position of the Trust and enable them toensure that the financial statements comply with the relevant regulations.

In preparing the financial statements the trustees accept responsibility for the following:

• Maintenance of proper accounting records;• Selection of suitable accounting policies and applying them consistently;• Makingjudgments and estimates that are reasonable and prudent;• Compliance with applicable accounting standards, when preparing financial statements; and• Preparation of financial statements on a going concern basis unless it is inappropriate to presumethat the Trust will continue in operation.

The trustees are also responsible for establishing internal controls that ensure the propriety oftransactions and accuracy and reliability of the accounting records and to safeguard the assets of theTrust against loss by theft, fraud, defalcation or otherwise.

The trustees are of the opinion that the financial statements give a true and fair view of the state ofthefinancial affairs ofthe Trust and of its operating results and cash flows for the year ended 30 June 2010.

Chairman: --~~-4~~~~~~--~-=~---------

Trustee:

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Deloitte. P.O. Box 30364Capital CityLilongwe 3Malawi

Public AccountantsDeloitteSecond FloorOld Mutual HouseRobert Mugabe Crescent

Tel: +265 (0) 1 773 699+265 (0) 1 773 069

Fax: +265 (0) 1 772 276Email: [email protected]

REPORT OF THE INDEPENDENT AUDITORTO THE BOARD OF TRUSTEES FOR THERESEARCH FOR EQillTY AND COMMUNITY HEALTH TRUST

We have audited the financial statements of the Research for Equity And Community Health Trust asset out on pages 4 to 15 which comprise the statement of financial position as at 30 June 2010,statement of comprehensive income, statement of changes in reserves and statement of cash flows forthe year then ended, and a summary of significant accounting policies and other explanatory notes.

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Management's Responsibility for the Financial StatementsManagement is responsible for preparation and fair presentation of these financial statements inaccordance with Generally Accepted Accounting Principles (GAAP). This responsibility includes:designing, implementing and maintaining internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud orerror; selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonable assurancewhether the fmancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity's internal control. An audit also includes evaluating appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

OpinionIn our opinion the financial statements give a true and fair view ofthe financial position of Research forEquity and Community Health as of30 June 2010, and of its financial performance and its cash flowsfor the year then ended in accordance with Generally Accepted Accounting Principles (GAAP) and theprovisions of the Trustees Incorporation Act.

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Audit. Tax • Consulting. Financial Advisory •ResidentPartners: N.T.Uka J.S. Melrose L.L. Katandula V.w. Beza C.A. Kapenda

A member ofDeloitte Touche Tohmatsu

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Other matterWithout qualifying our opinion, we draw your attention to the fact that supplementary information setout on pages 16 to 25 does not form part of the financial statements and is presented as additionalinformation. We have not audited these schedules and accordingly we do not express an opinionthereon.

Public AccountantsLilongwe, Malawi-{-O ..December 2010

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTSTATEMENT OF FINANCIAL POSITIONAt 30 June 2010

Notes 2010 2009K K

ASSETS

Receivables 4 1,465,601 826,286Bank and cash 5 10,353,330 14,811,737

TOTAL ASSETS 11.818,931 15,638,023

RESERVES AND LIABILITIES

RESERVESCapital fund 11,780,645 11,780,645Accumulated deficit (14,604,715) (2,671,080)

Total reserves (2,824,070) 9,109,565

CURRENT LIABILITIESPayables 6 11,522,142 6,528,458Bank overdraft 5 3,120,859

Total current liabilities 14,643,001 6,528,458

TOTAL RESERVES AND LIABILITIES 11.818,931 15,638,023

The financial statements were approved and authorised for issue by the Board of Trustees on3 December 2010 and were signed on its behalf by:

IBoard Chairman

Trustee,....

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTSTATEMENT OF COMPREHENSIVE INCOMEFor the year ended 30 June 2010

Notes 2010 2009K K

INCOMEGrants received 7 82,270,483 118,144,370Miscellaneous income 1,986,305Exchange gains 787,030Interest receivable 42,658 43,684

TOTAL INCOME 83,100,171 120,174,359

EXPENDITURESalaries & wages 33,401,727 35,273,872Allowances and honorarium 13,643,383 23,340,461Travelling and hire 9,446,839 14,046,342Printing and stationery expenses 8,542,689 6,458,070Motor vehicle expenses, fuel and oil 8,832,569 11,916,620Consultancy expenses 3,602,433 11,424,167Communication expenses 3,160,796 3,554,160Rent and rates 3,159,730 1,599,789Refreshments 2,976,109 3,105,906Audit fees 1,540,000 1,540,000Training costs 1,320,430 4,820,425Security services 1,194,054 477,048Plant and equipment purchases 946,700 3,249,302Repairs and maintenance 921,275 750,918Grocery expenses 742,505 56,574

r: Bank charges 412,599 470,279Area 10 guest house 399,546 872,277General expenses 323,380Trustees costs 281,990 5,000Casual labour 165,872 92,368Exchange loss 1,250,141Medical account 19,180 1,185,801Ethical approval costs 171,180National Tuberculosis Control Programme overheads 150,158Recruitment expenses 59,500Legal fees 21,075

I , -TOTAL EXPENDITURE 95,033,806 125,891,433

DEFICIT FOR THE YEAR 11 01.933,635) (5,717,074)

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTSTATEMENT OF CHANGES IN RESERVESFor the year ended 30 June 2010

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For the year ended 30 June 2009Balance at the beginning of the yearDeficit for the year

Accumulatedsurplus/

Capital fund (deficit) TotalK K K

11,780,645 3,045,994 14,826,639(5,717,074) (5,717,074)

11.780,645 (2,671.080) 9,109,565r:

At the end of the year

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For the year ended 30 June 2010Balance at the beginning of the yearDeficit for the year

11,780,645 (2,671,080)(11,933,635)

9,109,565(11,933,635)

At the end of the year 11.780,645 (14,604,715) (2,824,070)

Capital fund

Capital fund represents the value of net assets taken over from TB Knowledge Programme, thepredecessor organisation.

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTSTATEMENT OF CASH FLOWSFor the year ended 30 June 2010

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CASH FLOWS FROM OPERA nONS

Deficit for the year (11,933,635) (5,717,074)

Adjustments for:- Purchase of plant and equipment expense 946,700 3,249,302- Interest receivable (42,658) (43,684)

OPERATING CASH OUTFLOW BEFORE WORKINGCAPITAL CHANGES (11,029,593) (2,511,456)

r (Increase)/ decrease in receivables (639,315) 2,443,461Increase in payables 4,993,684 2,751,848

NET CASH FLOW FROM OPERA nONS (6,675,224) 2,683,853

Interest received 42,658 43,684

CASH FLOWS FROM OPERATING ACTNITIES (6,632,566) 2,727,537

INVESTING ACTNITIESPurchase of plant and equipment (946,700) (3,249,302)

NET CASH FLOW FROM INVESTING ACTNITIES (946,700) (3,249,302)

Net cash flow for the year (7,579,266) (521,765)

CASH AND CASH EQUN ALENTS at the beginning of the year 14,811,737 15,333,502

CASH AND CASH EQUN ALENTS at the end of the year (Note 5) 7.232.471 14,811.737

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTNOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 June 2010

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1. General information

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The Research for Equity And Community Health (REACH) Trust came into existence on 3December 2004 following a resolution made on 3 December 2004 by the senior managementmembers ofthe TB Knowledge Programme, the predecessor entity of the REACH Trust. Theoperations of the Trust commenced with effect from 1April 2005 when the operations ofTBKnowledge Programme were formally taken over by the Trust. The Trust, which wasincorporated under the Trustees Incorporation Act on 16 August 2005, is governed by itsConstitution. Its principal aims and objectives as stated in Article IV of its Constitution include:

• Promotion of strategies that enhance the del ivery of health services for the poor,vulnerable and disadvantaged;

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• Reduction of the stigma associated with diseases and raise awareness of the healthneeds of the society;

• Raising, obtaining and receiving funds and any other forms of gifts or donations in kindfor the promotion of the general aims and objectives of the Trust;

• Affiliating itself to any appropriate association or society or other organization,charitable or non-charitable, within and outside Malawi with the aim of facilitating andenhancing the Trust's aims and objectives; and

• Undertaking any other lawful competent activities not cited above that will promote theaims of the Trust.

2. Significant accounting policies

The principal accounting policies are set out below.

Statement of complianceThe financial statements have been prepared in accordance with Generally AcceptedAccounting Principles.

Basis of preparationThe financial statements are prepared in terms of the historical cost convention.

No other procedures have been adopted to reflect the impact on the financial statements ofspecific price changes or changes in the general level of prices.

2.1 Plant and equipmentPlant and equipment are expensed in the period of purchase because they are financedthrough grants, which are accounted for on a receipt basis. A comprehensive fixed assetsregister is maintained for all items of plant and equipment held by the Trust.

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTNOTES TO THE FINANCIAL STATEMENTS (Continued)For the year ended 30 June 2010

2. Significant accounting policies (Continued)

2.2 ProvisionsProvisions are recognised when the Trust has a present obligation (legal or constructive) asa result of a past event, which it is probable that the Trust will be required to settle theobligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required tosettle the present obligation at the balance sheet date, taking into account the risks anduncertainties surrounding the obligation. Where a provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the present value ofthose cash flows.

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When some or all of the economic benefits required to settle a provision are expected to berecovered from a third party, the receivable is recognised as an asset if it is virtually certainthat reimbursement will be received and the amount of the receivable can be measuredreliably.

2.3 Foreign currency translation

(a) Functional and presentation currencyItems included in the financial statements are measured using Malawi Kwacha,the functional currency of the primary economic environment in which the Trustoperates. The financial statements are presented in Malawi Kwacha, which is theTrust's functional and presentation currency.

(b) Transactions and balancesTransactions in currencies other than Malawi Kwacha are initially recorded atthe rates of exchange ruling on the date of the transactions. Monetary assets andliabilities denominated in such currencies are retranslated at the rates ruling onthe balance sheet date. Profits or losses arising on retranslation are dealt with inthe income statement.

Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the year.Exchange differences arising on the retranslation of non-monetary items carriedat fair value are included in profit or loss for the year except for differencesarising on the retranslation of non-monetary items in respect of which gains andlosses are recognised directly in equity. For such non-monetary items, anyexchange component ofthat gain or loss is also recognised directly in equity.

2.4 GrantsGrants are recognised as income on receipt basis.

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2.5 TaxationThe Trust is exempt from income tax on its surplus for the year or capital gains (if any)under the First Schedule to the Taxation Act.

2.6 Financial instrumentsFinancial assets and financial liabilities are recognised on the Trust's balance sheets whenthe Trust becomes a party to the contractual provisions of the instrument.

ReceivablesReceivables are measured at amortised cost using the effective interest method, less anyimpairment.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash andare subject to an insignificant risk of changes in value.

PayablesPayables are measured at fair value, being the amount expected to be incurred onsettlement.

Impairment of financial assetsFinancial assets, other than those at FVTPL, are assessed for indicators of impairment atthe end of each reporting period. Financial assets are impaired where there is objectiveevidence that, as a result of one or more events that occurred after the initial recognition ofthe financial asset, the estimated future cash flows of the investment have been affected.

For financial assets carried at amortised cost, the amount of the impairment is thedifference between the asset's carrying amount and the present value of estimated futurecash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly forall financial assets with the exception of trade receivables, where the carrying amount isreduced through the use of an allowance account. When a trade receivable is considereduncollectible, it is written off against the allowance account. Subsequent recoveries ofamounts previously written off are credited against the allowance account. Changes in thecarrying amount ofthe allowance account are recognised in profit or loss.

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2.6 Financial instruments (Continued)

Impairment of financial assets (Continued)With the exception of AFS equity instruments, if, in a subsequent period, the amount oftheimpairment loss decreases and the decrease can be related objectively to an event occurringafter the impairment was recognised, the previously recognised impairment loss is reversedthrough profit or loss to the extent that the carrying amount of the investment at the date theimpairment is reversed does not exceed what the amortised cost would have been had theimpairment not been recognised.

In respect of AFS equity securities, impairment losses previously recognised in profit orloss are not reversed through profit or loss. Any increase in fair value subsequent to animpairment loss is recognised in other comprehensive income.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements, in conformity with GAAP, requires the use of certaincritical accounting estimates. It also requires management to exercise its judgement in the processof applying the principal accounting policies of the Trust. Estimates and judgements are evaluatedand based on historical experience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances.

3.1 Critical judgements in applying the Trust's accounting policiesNo critical judgements were made by the trustees during the current year which would havea material impact on the financial statements.

3.2 Key sources of estimation uncertainty

Provision for doubtful debtsProvision for doubtful debts is based upon a policy which takes into account pasttransaction history with debtors and projected collections. Actual collection experiencemay differ from the current projections.

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2010 2009K K

4. Receivables

Staff loans and advances 1,626,312 986,997Allowance for doubtful debt (160,711) (160,711)

Total receivables 1.465,601 826.286

Receivables mainly comprise staff loans and advances. These are given to employees for provenunforeseeable circumstances and for house rent payments and purchases of personal effects, amongother things. These loans and advances are deducted from the monthly salaries for the concernedemployees. These loans have to be approved by the Executive Director. No interest is charged onloans and advances.

r:2010K

Movement in provision for doubtful receivables

Balance at the beginning of the yearAmounts recovered during the year

160,711

Balance at the end of the year

5. Cash and cash equivalents

Bank and cashMain bank accountMain bank accountESC bank accountReach Trust LHLReach Trust LHLReach Trust WHOReach Trust WHOReach Trust OXFAMPetty cash

Total bank and cash

Bank overdraftMain bank accountESC bank account

Total bank overdraft

160,711

- Pound Sterling- Malawi Kwacha- Malawi Kwacha- Pound sterling- Malawi Kwacha- Pound sterling- Malawi Kwacha- Malawi Kwacha

676,009

76,3315,010,554124,462115,301699,7303,544,563106,380

10,353,330

- Malawi Kwacha- Pound Sterling

850,8462,270,013

3,120,859

Total cash and cash equivalents 7.232.471

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2009K

170,71100,000)

160,711

3,301,696318,679153,4047,528,026974,802765,920649,8341,074,71744,659

14,811,737

14,811.737


r 2010 2009K K

6. Payables

Provision for audit fees 1,434,804 1,540,000Accruals 9,994,521 4,983,323Umodzi Welfare Fund 92,817 5,135

Total payables 11.522,142 6,528.458

The trustees consider that the carrying amount of payables approximates to their fair value.

Accruals at 30 June 2010 are represented by amounts payable to the Malawi Revenue Authority(MRA) amounting to K8.59 million (2009: K4,47 million) in respect of Pay As You Earn (PAYE)deducted from employees and amounts payable to local suppliers in respect of various expensesincurred but whose invoices had not yet been received or had been received but not booked as at year-end. The average credit period on purchases of goods and services is 30 days. The Trust has financialrisk management policies in place to ensure that all payables are paid within the credit timeframe.These amounts do not attract any interest charges.

2010 2009K K

7. Grants and consultancies received

GrantsHealth Workers Study 3,838,107DFID through Liverpool School of Tropical Medicine 13,435,991 16,407,891OXFAM 8,295,207Norwegian Heart and Lung Association (LHL) 42,393,082 ~ 41,398,291 VWHO Counselling and testing 1,092,929 5,830,223Management Sciences for Health TB CAP 8,390,662 6,042,866Equinet 77,959Global Development Network (GDN) 2,664,698Mafesta 1,424,151Immunisation - Oslo 903,608Accountant General 949,599Pulm plus 4,937,201CoBaSys 1,443,386Immunisation study 5,894,936

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ConsultanciesGlobal Fund 11,518,308National Aids Commission (NAC) 3,777,973Institute of Development Studies (IDS) 1,157,424 1,770,518Sue Ryder Foundation 1,894,387 208,000GTZ 659,570Global Aids Alliance 4,170,104 9,837,782

Total grants and consuItancies received 82.270.483 118,144,370

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RESEARCH FOR EQUITY AND COMMUNITY HEALTH TRUSTNOTES TO THE FINANCIAL STATEMENTS (Continued)

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7. Grants and consultancies received (Continued)

Grants are normally given for specific activities or expenditures. Where grants are restricted or thedonor otherwise requires, funds are maintained in separate bank accounts and reports are made tothe donors according to their requirements (if any).

8. Related party transactions

Compensation of key management personnel

The remuneration of key management during the year was as follows:

2010K

2009K

Short term employee benefits 9,472,466 10,032,130

The remuneration of employees in key positions is determined by the Promotions and RecruitmentCommittee having regard to the performance of individuals and market trends.

9. Capital commitments

There were no capital commitments as at 30 June 2010.

10. Contingent liability

There were no contingent liabilities as at 30 June 2010.

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11. Deficit for the year

The Trust incurred a deficit ofKl1.9 million (2009: K5.7 million). At the reporting date, the Trusthad net current liabilities ofK2.8 million (2009: Net current assets ofK9.l million). This trend ismainly attributed to the declining levels of funding from donors and consultancies.

However, the deficit for the year is mainly due to the timing differences on receipt of funds andwhen the related expenditure takes place. In most cases, expenditure is incurred before the relatedfunds are received. Subsequent to year end, funds amounting to K8.3 million relating to expenditurealready incurred and recognised in the period under review were received and expected to beaccounted for in the in the year ending 30 June 2011 in line with policy note 2.4.

The trustees believe that the Trust has an adequate asset base to cover its existing liabilities andcoupled with the existing commitments from its funding partners, there is no doubt that the Trustwill continue as a going concern.

2010 2009

12. Exchange rates and inflation

Exchange rates (GBP: K) 229.48 259.94Exchange rates (USD: K) 150.80 140.60Inflation rate 7.5% 8.4%

Subsequent to year-end as at 9 December 2010 the above noted exchange rates had moved as follows:

Kwacha/GBPKwacha/US Dollar

241.11150.80

Inflation (%) (October 2010)

No adjustments arising from the movement of the exchange rate after the year-end have been madein the financial statements.

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SUPPLIMENTARY INFORMATION

(The following appendices do not form part of the financial statements)

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