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 2012.

The committee is an independent statutory committee appointed by the shareholders of the company. In addition to its statutory duties the board has delegated further duties to the committee. This report includes both these sets of duties and responsibilities.

Mandate and terms of reference

The ARCC operates within a formal board approved mandate and terms of reference. The responsibilities of the ARCC include the following:

	Examining and reviewing the group’s financial statements and reporting of interim and final results.
	Reviewing and considering, for recommendation to the board, the consolidated budget for the ensuing financial year.
	Overseeing integrated reporting.
	Overseeing the Internal Risk and Compliance Committee function.
	Monitoring the risk management framework and assess the risks impacting the group’s ability to achieve its strategic objectives.
	Reviewing and satisfying itself of the expertise, resources and experience of the Blue Label finance function.
	Overseeing the internal audit function and internal financial control process.
	Recommending the appointment of the external auditor and overseeing the external audit process including their audit fee, independence, nature and extent of any non-audit services.
	Monitoring compliance activities.

Composition and procedures

In line with the requirements of the Act, Messrs JS Mthimunye, GD Harlow and NN Lazarus SC were elected members of the committee at the annual general meeting that was held on Tuesday, 22 November 2011.

Members of the ARCC during the period under review included the following directors:

Mr JS Mthimunye (Independent non-executive chairman)

Mr GD Harlow (Independent non-executive director)

Mr NN Lazarus SC (Non-executive director), and

Ms LM Tyalimpi (Independent non-executive director)

Ms LM Tyalimpi resigned from the board on 30 August 2011. On the recommendation of the ARCC, the board appointed Mr JS Vilakazi to the committee in February 2012. All of the members of the ARCC, save for Mr Lazarus SC, are independent non-executive directors. Mr Lazarus SC has specialist professional skills and experience and makes an important contribution to the work of the committee.

The committee meets quarterly and the quorum for an ARCC meeting is three members present throughout the meeting. Mandatory attendees at the meetings are the joint chief executive officers, the financial director of Blue Label and the financial director of TPC. The audit partner from PwC and a director from KPMG Services Proprietary Limited to whom Blue Label outsources its internal audit function are also attendees. Both internal and external audit are afforded the opportunity to address the meeting. They have unlimited access to the chairman of the committee. The internal audit function reports directly to the ARCC and is also responsible to the financial director on day-to-day administrative matters.

Refer to page 39 for the attendance register of the committee.

Duties discharged

For the financial year ended 31 May 2012, the ARCC carried out its duties as set out in its terms of reference and section 94(7) of the Act as follows:

	Reviewed and commented on the annual financial statements, interim reports, announcements and the accounting policies 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 thereto.
	Nominated the re-appointment of PwC, with Mr Eben Gerryts the audit partner, as the registered independent auditors.
	Approved the fees to be paid to PwC and other external auditors, where applicable, and approved the terms of engagement./td>
	Monitored compliance with accounting standards and legal requirements.
	Ensured that all regulatory compliance matters had been considered in the preparation of the financial statements.
	Maintained a non-audit services policy which determines the nature and extent of any non-audit services that PwC may provide to the group.
	Discharged those statutory duties as prescribed by section 94 of the Act acting in its capacity as the appointed audit committee of the subsidiary companies of Blue Label.
	Reviewed the co-operation and coordination 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 2011/12 audit plan and furthermore approved the internal audit plan for the 2012/13 financial year.
	Considered the effectiveness of internal audit.
	Considered internal audit findings and corrective actions taken in response to such findings.
	Monitored bi-annual risk assessments.
	Considered the adequacy of internal financial controls.
	Reviewed developments in corporate governance and best practice and considered their impact and implications on the group with particular reference to the principles of King III.
	Satisfied itself that the Financial Director is suitable and appropriately qualified to fulfil his role.
	Ensured that the finance function of Blue Label is suitably resourced and skilled to carry out its obligations.
	Reviewed the text of various reports for inclusion in Blue Label’s Integrated Annual Report 2012.

External auditors and non-audit services

The ARCC has satisfied itself as to the independence of the external auditor, PwC, as set out in section 94(7) of the Act, 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 PwC 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 2012 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 2012, comprised tax advisory services, tax compliance services and general advisory services. The fees applicable to the aforementioned services totalled R1.4 million (2011: R3.4 million).

The ARCC has nominated, for approval at the annual general meeting, the re-appointment of PwC as registered auditors for the 2013 financial year and Mr Eben Gerryts, the audit partner, as the independent registered auditor of Blue Label Telecoms. The committee also satisfied itself that PwC is accredited and appears on the JSE List of Accredited Auditors as contemplated in paragraph 3.86 of the JSE Listings Requirements.

Internal audit and controls

Internal controls comprise methods and procedures adopted by management to provide reasonable assurance in safeguarding assets, prevention and detection of errors, accuracy and completeness of accounting records, and reliability of annual financial statements of all entities within the group. The internal audit function serves management and the board by performing independent evaluations of the adequacy and effectiveness of the group’s internal controls and risk management including internal financial controls.

As recommended by King III, internal audit provided a written assessment on the system of internal control and risk management to the board and a written assessment on internal financial control to the ARCC.

Risk management and compliance

The committee is responsible to the board for the review and assessment of the integrity of the risk control systems and to ensure that the risk policies and strategies of the company are effectively managed. The committee will make recommendations to the board concerning the levels of tolerance and appetite and will monitor that risks are managed within the approved levels.

The group’s strategic objectives and risks are detailed on pages 14 to 18.

The committee is furthermore responsible to the board for the company’s compliance policy and its ongoing implementation to assess the extent to which the company is managing its compliance risk effectively. Internal audit completed a Regulatory and Compliance Review in July 2012 which resulted in the compilation of a detailed roadmap and advice on a way forward to ensure the effective implementation of the compliance function.

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

The committee considered the appropriateness of the expertise and experience of the Financial Director and finance function In accordance with the JSE Limited Listings Requirements and governance best practice. The ARCC has concluded that the finance function is adequately resourced with technically competent individuals and is effective. The committee confirms that it is satisfied that Mr David Rivkind possesses the appropriate expertise and experience to discharge his responsibilities as Financial Director.

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 requirements of the Act.

Integrated annual report

The ARCC has reviewed the report and recommended the report for approval by the board.

JS Mthimunye
Chairman

23 October 2012