Report of the Board Audit Committee in terms of Regulations 27(1)(10)(b) and (c) of the Public Finance Management Act of 1999 (as amended) and requirements of King III Code of Governance
The IDC Board Audit Committee (BAC) assists the Board in fulfilling its oversight responsibilities, in particular with regard to evaluation of the adequacy and efficiency of accounting policies, internal controls and financial reporting processes. In addition, the BAC assesses the effectiveness of the Internal Auditors and the independence and effectiveness of the external auditors.
RESPONSIBILITIES, COMPOSITION AND FUNCTIONS OF THE COMMITTEE
The committee’s roles and responsibilities include its statutory duties as per the Public Finance Management Act of 1999 (as amended), the requirements of King III Code of Governance, the Companies Act, No 71 of 2008 (as amended) and the responsibilities assigned to it by the Board.
The committee therefore reports that it has adopted appropriate formal terms of reference as approved by the Board, and is satisfied that it has discharged its responsibilities as per the Companies Act, King III and PFMA.
The committee has carried out its functions through the attendance at Audit Committee meetings and discussions with executive management, Internal Audit and external advisers where appropriate.
The BAC consists of four members, all of whom are independent Non-executive directors, and its members are Ms NP Mnxasana (Chairperson), Mr RM Godsell, Dr SM Magwentshu-Rensburg and Mr B Molefe.
The Audit Committee meets at least four times per annum, with authority to convene additional meetings as circumstances require.
The invitees to committee meetings include the two Executive directors, Chief Risk Officer, internal and external auditors, the Head of Financial Management as well as the Head of Information Technology, and any other executives when necessary.
To execute the key functions and discharge the responsibilities outlined in its charter the committee, during the period under review:
- Assisted the Board of directors in its evaluation of the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing processes applied within the Company in the day-to-day management of its business
- Facilitated and promoted communication between the Board, management, the external auditors and internal audit department on matters that are the responsibility of the committee
- Introduced measures that, in the opinion of the committee, may enhance the credibility and objectivity of the financial statements and reports prepared with reference to the affairs of the Company (and the IDC Group)
- Nominated and recommended for appointment as external auditors the Company registered auditors (KPMG Inc, and SNG. KPMG have subcontracted 20% of their portion of the audit to Ngubane & Co.), who, in the opinion of the committee, are independent of the IDC
- Determined the fees to be paid to the external auditors and the auditors’ terms of engagement
- Ensured that the appointment of the external auditors complied with the Companies Act and any other legislation relating to the appointment of auditors
The BAC monitored the effectiveness of the IDC’s internal controls and compliance with the Enterprise wide Risk Management Framework (ERMF). The emphasis on risk governance is based on three lines of defence and the BAC uses the regular reports received from the three lines of defence (process owners/department heads; Risk & Compliance departments, Management; and Internal Audit department) to evaluate the effectiveness of the internal controls. The ERMF places weight on accountability, responsibility, independence, reporting, communication and transparency, both internally and with all the IDC’s key external stakeholders.
No findings have come to the attention of the committee to indicate that any material breakdown in internal controls has occurred during the financial year under review. The committee is of the opinion that the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the consolidated Annual Financial Statements, and accountability for assets and liabilities is maintained and that this is based on sound accounting policies, supported by reasonable and prudent judgements and estimates. The BAC is further of the opinion that the internal controls of the Corporation had been effective in all material aspects throughout the year under review.
This opinion is based on the information and explanations given by management regarding various processes and initiatives aimed at improving the internal control environment and the integrity of information, discussions with Internal Audit, as well as the independent external auditors on the results of their audits.
To formulate its opinion, the committee:
- Monitored the identification and correction of weaknesses and breakdowns of systems and internal controls
- Monitored the adequacy and reliability of management information and the efficiency of management information systems
- Reviewed quarterly, interim and final financial results and statements and reporting for proper and complete disclosure of timely, reliable and consistent information
- Evaluated on an ongoing basis the appropriateness, adequacy and efficiency of accounting policies and procedures, compliance with generally accepted accounting practice and overall accounting standards as well as any changes thereto
- Discussed and resolved any significant or unusual accounting issues
- Reviewed reports supplied by management regarding the effectiveness and efficiency of the credit monitoring process, exposures and related impairments and adequacy of impairment provisions to discharge its obligations satisfactorily
- Reviewed and monitored all key financial performance indicators to ensure that they are appropriate and that decision-making capabilities are maintained at high levels
- Reported to the Board on the effectiveness of the Company’s internal reporting controls
The IDC’s external auditors are KPMG Inc, and SizweNtsalubaGobodo (SNG). KPMG has subcontracted 20% of their portion of the audit to assist with transformation objectives by offering an emerging black-owned audit firm, Ngubani & Co, an opportunity to be exposed to auditing a company the size of the IDC.
The BAC has a well-established policy on auditors’ independence and audit effectiveness. The committee has satisfied itself that the external auditors, KPMG Inc, Ngubani & Co and SNG were independent of the Company, as set out in sections 90(2)(c) and 94(8) of the Companies 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 the external auditors that internal governance processes within their entities support and demonstrate their claim to independence. The committee, in consultation with executive management, agreed to the engagement letter, terms, audit plan and audit fees for the financial year ended 31 March 2016.
- Approved the external auditor’s annual plan and related scope of work
- Monitored the effectiveness of the external auditors in terms of their skills, independence, execution of the audit plan, reporting and overall performance
- Considered whether the extent of reliance placed on internal audit by the external auditors was appropriate and whether there were any significant gaps between the Internal and External Audits
- The BAC had also approved the Non-audit Services Policy that specifies that the external auditors are precluded from engaging in non-audit related services
The committee has reviewed the financial statements of the Company and the IDC Group and is satisfied that they comply in all material respects with IFRS and the requirements of the Companies Act and PFMA. During the period under review the committee:
- Reviewed and discussed the audited Annual Financial Statements included in this Integrated Report with the external auditors, the Chief Executive and the Chief Financial Officer
- Reviewed the external auditors’ report and management’s response thereto
- Reviewed any significant adjustments resulting from external audit queries and accepted unadjusted audit differences
- Reviewed areas of significant judgements and estimates in the Annual Financial Statements
- Received and considered reports from the Internal Auditors
EXPERTISE AND EXPERIENCE OF FINANCE FUNCTION
The committee has considered, and has satisfied itself of the overall appropriateness of the expertise and adequacy of resources of the IDC’s finance function and experience of the senior members of management responsible for the financial function.
DUTIES ASSIGNED BY THE BOARD
INTEGRATED AND SUSTAINABILITY REPORTING
The BAC fulfils an oversight role regarding the Company’s Integrated Report and the reporting process and considers the level of assurance coverage obtained from management, and internal and external assurance providers in making its recommendation to the Board.
The committee considered the Company’s information as disclosed in the Integrated Report and has assessed its consistency with operational and other information known to committee members, and for consistency with the Annual Financial Statements. The committee discussed the information with management and has considered the conclusions of the external assurance provider. The committee is satisfied that the sustainability information is, in all material respects, reliable and consistent with the financial results. Nothing has come to the attention of the committee to indicate any material deficiencies in this regard.
The committee is responsible for monitoring the combined assurance model detailing significant processes, line management monitoring, Internal Audit and external assurances. This model is used to assess the appropriateness of assurance over risks/controls provided to the Board. Engagement regarding the extent to which the various assurance providers rely on each other’s work or where overlaps are unavoidable, take place continuously. A better coordination between External and Internal Audit has been achieved, however an area of improvement is considered for the next reporting year with other assurance providers such as Compliance Function and Risk Management Department.
The committee concurs that the adoption of the going concern assumption in the preparation of the consolidated Annual Financial Statements is appropriate and sound. This is after the committee reviewed a documented assessment by management of the going concern premise of the Company and the IDC Group.
GOVERNANCE OF RISK
The Board has assigned oversight of the company’s risk management function to a separate Board Risk Committee. The chairman of the BAC attends the Board Risk Committee meetings as an ex officio member to ensure that information relevant to these committees is shared regularly.
The committee fulfils an oversight role regarding financial reporting risks, internal financial controls, fraud risk and information technology risks as they relate to financial reporting. The committee is satisfied that the appropriate and effective risk management processes are in place.
IA forms part of the third line of defence as set out in the ERMF and engages with the ﬁrst and second lines of defence to facilitate the escalation of key control breakdowns. More information about IA is provided in the online section of this report.
The IA department has a functional reporting line to the committee chairperson and an operational reporting line to the CEO. The BAC, with respect to its evaluation of the adequacy and effectiveness of internal controls, receives reports from IA on quarterly basis, assesses the effectiveness of IA function, and reviews and approves the IA audit plan.
The Audit Committee is responsible for ensuring that the company’s IA function is independent and has the necessary resources, standing and authority within the company to enable it to discharge its duties. The IA function’s annual audit plan was approved by the Audit Committee.
The committee monitored and challenged, where appropriate, action taken by management with regard to adverse IA findings.
The committee has overseen a process by which IA has performed audits according to a risk-based audit plan where the effectiveness of the risk management and internal controls were evaluated. These evaluations were the main input considered by the Board in reporting on the effectiveness of internal controls. The committee is satisfied with the independence and effectiveness of the IA function.
Having considered, analysed, reviewed and debated information provided by management, IA and External Audit, the committee confirmed that:
- The internal controls of the Group were effective in all material aspects throughout the year under review
- These controls ensured that the group’s assets had been safeguarded
- Proper accounting records had been maintained
- Resources had been utilised efficiently
- The skills, independence, audit plan, reporting and overall performance of the external auditors were acceptable
Following our review of the financial statements for the year ended 31 March 2016, we are of the opinion that they comply with the relevant provisions of the PFMA, as amended, and IFRS, and that they fairly present the results of the operations, cash flow and financial position of the Corporation.
The Board Audit Committee has complied with all the King III principles, with the inclusion of integrated reporting, evidenced by the Corporation’s fifth issue of its Integrated Report 2016.
The committee is satisfied that it has complied in all material respects, with its legal, regulatory and other responsibilities.
We hereby recommend the Integrated Report to the Board for approval.
On behalf of the Board Audit Committee
Ms NP Mnxasana
Chairperson of the Board Audit Committee
21 June 2016