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Report of the Audit, Risk and Compliance Committee
The Audit, Risk and Compliance Committee (“ARCC” or “the committee”) is pleased to present its report for the financial year ended 31 May 2011. This report is presented in accordance with the requirements of the Companies Act and the recommendations contained in King III.
MANDATE AND TERMS OF REFERENCE
The ARCC discharges its duties in accordance with a formal detailed terms of reference. During the year under review the terms of reference were updated and approved by the board. In terms of the revised terms of reference the ARCC is mandated to:
| > | examine and review the group’s financial statements and reporting of interim and final results; |
| > | review and consider, for recommendation to the board, the consolidated budget for the ensuing financial year; |
| > | oversee integrated reporting; |
| > | oversee the Internal Risk and Compliance Committee; |
| > | oversee the functions of the Compliance Officer; |
| > | ensure that Blue Label has implemented an effective policy and plan for risk management that will enhance the company’s ability to achieve its strategic objectives; |
| > | ensure that the disclosure regarding risk is comprehensive, timely and relevant; |
| > | ensure that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities; |
| > | review and satisfy itself of the expertise, resources and experience of the Blue Label finance function; |
| > | oversee the internal audit function and internal financial control process; |
| > | recommend the appointment of the external auditor and overseeing the external audit process including external auditor’s independence; |
| > | establish, implement and maintain a compliance function with adequate policies and procedures to ensure compliance with rules, regulations, statutes and procedures applicable to Blue Label; |
| > | report to the board and shareholders on how it has discharged its duties. |
COMPOSITION AND PROCEDURES
The members of the ARCC are JS Mthimunye [chairman], GD Harlow, NN Lazarus SC and LM Tyalimpi. All of the members of the ARCC save for Mr Lazarus SC are independent non-executive directors. Mr Lazarus SC has specialist professional skill and experience and makes an important contribution to the work of the committee. Mandatory attendees of the ARCC include BM Levy, MS Levy, DB Rivkind, DA Suntup (financial director of TPC), the audit partner from PricewaterhouseCoopers Inc. and a partner from KPMG to whom Blue Label outsources its internal audit function.
The quorum for an ARCC meeting is three members present throughout the meeting. The ARCC meets quarterly and at every meeting the external and internal auditors have an opportunity to address the meeting. The external and internal auditors also have direct access to the ARCC to hold separate private discussions on matters they deem important.
Attendance at meetings:
Members
(and invitees) |
Jun |
Aug |
Nov |
Feb |
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| JS Mthimunye (Chairman) |
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| GD Harlow | |
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| NN Lazarus SC | |
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| LM Tyalimpi | |
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| BM Levy^ | |
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| MS Levy^ | |
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A | |
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| DB Rivkind^ | |
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| DA Suntup^ | |
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Attendance |
| A | Apologies submitted and leave of absence granted |
| ^ | Attends by invitation and is not a member of the committee |
The internal auditors and external auditors attended and reported at each meeting of the ARCC.
DUTIES DISCHARGED
During the financial year ended 31 May 2011, the ARCC carried out its duties as set out in the terms of reference and in accordance with its annual plan. The committee’s role and responsibilities included its statutory duties as per the previous Companies Act of 1973 (as amended), the Companies Act 71 of 2008 and the responsibilities assigned to it by the board. The committee performed the following duties:
| > | reviewed and commented on the annual financial statements and the accounting practices; |
| > | reviewed interim reports and results announcements and recommended these to the board for approval; |
| > | considered the committee’s report describing how duties have been discharged; |
| > | reviewed the external auditor’s report to the committee and management’s responses; |
| > | nominated the re-appointment of PricewaterhouseCoopers Inc. with Eben Gerryts the audit partner, as the registered independent auditors; |
| > | ensured that the appointment of the external auditor complies with the previous Companies Act of 1973 (as amended) and any other legislation relating to the appointment of the auditors; |
| > | reviewed significant judgements and/or unadjusted differences resulting from the audit, as well as any reporting decisions made; |
| > | monitored compliance with accounting standards and legal requirements; |
| > | ensured that all regulatory compliance matters had been considered in the preparation of the financial statements; |
| > | determined the fees to be paid to PricewaterhouseCoopers Inc. and approved the terms of engagement; |
| > | maintained a non-audit services policy which determines the nature and extent of any non-audit services that PricewaterhouseCoopers Inc. may provide to the group; |
| > | discharged those statutory obligations of an audit committee as prescribed by section 270A of the previous Companies Act of 1973 (as amended) and section 94 of the Companies Act 71 of 2008 acting in its capacity as the appointed audit committee of the subsidiary companies of Blue Label; |
| > | reviewed the co-operation and co-ordination between the internal and external audit functions and co-ordinated the formal internal audit work plan with external auditors to avoid duplication of work; |
| > | examined and reviewed the progress made by internal audit against the approved 2010/2011 audit plan and furthermore approved the internal audit plan for the 2011/2012 financial year; |
| > | considered the effectiveness of internal audit; |
| > | considered internal audit findings and corrective actions taken in response to findings; |
| > | formed an integral component of the risk management process and, among others, monitored quarterly risk assessments and considered the adequacy of internal financial controls; |
| > | considered and approved a Corporate Compliance Policy; |
| > | reviewed developments in corporate governance and best practice and considered their impact and implications on the group in particular the principles of King III; |
| > | satisfied itself that the financial director is suitable and appropriately qualified to fulfil his role and that the finance function of Blue Label is suitably resourced and skilled to carry out its obligations; |
| > | reviewed and aligned the committee’s terms of reference with the Companies Act 71 of 2008 and principles of King III; |
| > | reviewed the text of various reports, including the corporate governance statement, the internal audit assurance statement, the sustainability report and the directors’ report, for inclusion in the Blue Label’s 2011 Integrated Annual Report. |
EXTERNAL AUDITORS
The ARCC has satisfied itself as to the independence of the external auditor, PricewaterhouseCoopers Inc., as set out in section 270A of the previous Companies Act of 1973 (as amended) and section 94(7) of the Companies Act 71 of 2008, which includes consideration of compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors. Requisite assurance was sought and provided by PricewaterhouseCoopers Inc. that internal governance processes within the firm support and demonstrate their claim to independence.
The committee, in consultation with executive management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2011 financial year.
Non-audit services to be provided by the external auditors are governed by a formal written policy which incorporates a monetary delegation of authority in terms of non-audit services to be provided. The committee has approved the terms of the written policy for the provision of non-audit services, and approved the nature and extent of non-audit services that may be provided by the external auditor.
The non-audit services rendered by the external auditors during the year ended 31 May 2011, comprised tax advisory services, tax compliance services and general advisory services. The fees applicable to the aforementioned services totalled R3.4 million (2010: R1.8 million).
The ARCC has nominated, for approval at the annual general meeting, the re-appointment of PricewaterhouseCoopers Inc. as registered auditors for the 2012 financial year and Mr Eben Gerryts, the audit partner, as the independent registered auditor of Blue Label Telecoms. The committee also satisfied itself that PricewaterhouseCoopers Inc. is accredited and appears on the JSE List of Accredited Auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements.
INTERNAL AUDITORS
The internal auditors report administratively to the financial director and functionally to the ARCC and operate under an approved internal audit charter and audit plan. The internal audit partner is responsible for reporting the findings of the internal audit work against the agreed internal audit plan to the committee on a quarterly basis. The internal audit partner has direct access to the committee.
The ARCC has overseen a process by which internal audit performed a written assessment of the effectiveness of the group’s system of internal control and risk management, including internal financial controls. This written assessment by internal audit formed the basis for the ARCC’s recommendation in this regard to the board, in order for the board to report thereon. The board report on the effectiveness of the systems of internal controls is included on page 93 of this report. The ARCC supports the opinion of the board in this regard.
RISK MANAGEMENT
The committee is responsible for monitoring risk management in the group, whilst the board retains overall accountability for risk in general. The IRCC supports the ARCC by identifying, evaluating and measuring group-wide risks and compliance in all functional areas of the group. The ARCC reviews the minutes of the IRCC on a quarterly basis and clarifies any questions or concerns with the financial director who is chairman of the IRCC.
COMPLIANCE
A corporate compliance policy was approved by the ARCC. The compliance officer has obtained the necessary authority to implement a management tool to assist in evaluating the group’s compliance with its regulatory universe and the compilation of risk management plans to ensure that risks are mitigated effectively. The committee will be provided with appropriate progress reports as the project progresses
WHISTLE-BLOWING AND ETHICS HOTLINE
The committee is satisfied that instances of whistle-blowing were appropriately dealt with during the year under review.
EXPERTISE AND EXPERIENCE OF THE FINANCIAL DIRECTOR AND FINANCE FUNCTION
In accordance with the JSE Limited Listings Requirements and governance best practice, the committee considered the appropriateness of the expertise and experience of the financial director and finance function of the group. The ARCC is satisfied that Mr David Rivkind possesses the appropriate expertise and experience to discharge his responsibilities.
The ARCC has furthermore considered and has satisfied itself of the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the finance function.
ANNUAL FINANCIAL STATEMENTS
The group annual financial statements and company annual financial statements have been prepared by senior management and supervised and reviewed by Mr Rivkind.
The committee has reviewed the annual financial statements of the company and the group and is satisfied that they comply with International Financial Reporting Standards and the Companies Act.
RECOMMENDATION OF THE INTEGRATED ANNUAL REPORT FOR APPROVA L BY THE BOARD
The ARCC has reviewed the report and recommended the report for approval by the board.
JS Mthimunye
Chairman
10 October 2011