for the year ended 30 September 2011
 

Audit committee report

 
 

The audit committee has pleasure in submitting its report to stakeholders for the financial year ended 30 September 2011.

The audit committee is an independent statutory committee appointed by the shareholders. The board delegates duties and responsibilities to the audit committee according to terms of reference, which are formalised in a charter. The charter is approved by the board and reviewed annually. During the year under review, the audit committee conducted its affairs in accordance with its charter, and discharged its responsibilities as required by the Companies Act 71 of 2008 and the King Code of Governance Principles for South Africa, 2009 (King III). The few exceptions where King III requirements have not been applied are explained in the corporate governance section of the integrated report.

Composition and meetings

Members: R van Rooyen (chairman), YZ Cuba, SD Jagoe,
KW Mzondeki.

BP Connellan retired from the committee on 8 February 2011.

The audit committee comprises four independent non-executive directors and meets at least three times a year. The chairman of the Reunert board, chief executive, financial director, external auditors, internal auditors and financial executives attend committee meetings by request.

Attendance
register  
Appointed  
to committee  
  10 May  
2011  
16 Sep  
2011  
10 Nov  
2011  
R van Rooyen   17 Nov 2009             
YZ Cuba   1 Jan 2011             
SD Jagoe   14 Nov 2000             
KW Mzondeki   17 Nov 2009        Apology     

Roles and responsibilities

According to its terms of reference, the audit committee assists the board to discharge its duties relating to:

  • safeguarding assets
  • operating adequate systems and internal controls
  • assessing the company’s going concern status
  • ensuring there are effective and relevant financial risk management processes in place
  • reviewing interim financial information and annual financial statements, which are provided to shareholders and other key stakeholders
  • internal and external audit processes
  • the company’s process for monitoring compliance with laws and regulations
  • information technology governance.

The chairman of the committee meets individually with external and internal audit without any other executives of Reunert present, at least on an annual basis. The committee has unrestricted access to management, external auditors and the internal audit team.

Expertise and experience

The committee has considered and is satisfied that the expertise and experience of the financial director is suitable, and the adequacy of resources of the finance function and experience of the senior members of management responsible for the financial function is appropriate.

External auditor appointment and independence

The audit committee has engaged Deloitte & Touche (Deloitte) to perform an independent and objective audit of the group. The financial statements are prepared in terms of International Financial Reporting Standards (IFRS).

The committee is satisfied that Deloitte is independent of the group, as contemplated in section 94(8) of the Companies Act. In making this determination the committee has considered Deloitte’s 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 Deloitte that internal governance processes in the audit firm support its claim of independence.

The committee, in consultation with executive management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2011 year. Deloitte is considered for non-audit services according to a formal procedure, and the nature and extent of non-audit services that Deloitte may provide is agreed in terms of a pre-approval policy.

The audit committee nominates Deloitte for re-election at the annual general meeting of Reunert Limited, and Mr Patrick Smit as the designated partner to perform the functions of external auditor. The audit committee is satisfied that Deloitte and Mr Smit are accredited and appear on the JSE list of auditors and advisors.

Internal audit

Internal audit operates under a charter recommended by the audit committee and approved by the board. Internal audit attends all audit committee meetings by request and reports its findings to the committee.

The internal audit function reports independently on whether risk management, control and governance processes are adequate and functioning within the group. Internal audit performs periodic independent evaluations of the adequacy and effectiveness of controls, financial reporting structures and integrity of information systems and records. The audit committee approves the annual risk-based internal audit work plan. The head of internal audit has a standing invitation to attend executive committee meetings and attends selected operational management meetings.

Internal audit reports to the chairman of the audit committee and has unrestricted access to him. This committee approves the appointment and dismissal of the head of internal audit and assesses the internal audit team’s performance, objectivity and independence.

The board does not perform an independent quality review of the internal audit function as it has delegated this review to the audit committee. The members of the audit committee engage directly with internal audit and are best placed to perform an effective and independent review.

Reunert’s internal audit function has performed a review of the company’s internal control environment, including its internal financial controls, and its risk management process. Based on the results of these reviews, except for an isolated breach of governance as set out in the director’s report and as reported by Deloitte in its audit report, the internal audit function has confirmed to the audit committee and the board that no evidence has come to light to indicate that the company’s internal control environment and risk management process is ineffective. In addition, there is no indication of any material weakness in internal financial controls in terms of design, implementation or operation.

Internal, financial and accounting controls

Financial and internal controls focus on critical risk areas. The controls are designed to provide reasonable assurance that assets are safeguarded from loss and unauthorised use, and financial records may be relied on for preparing the financial statements and maintaining accountability for assets and liabilities. The identification of risks and implementation and monitoring of adequate systems of internal, financial and operating controls to manage such risks is delegated to senior executive management. Financial risk management policies are communicated directly to executive management and the appropriate levels of management in the various operations.

The board acknowledges its responsibility for ensuring that management implements and monitors the effectiveness of systems of internal, financial and operating controls. The board, via the audit committee, monitors the effectiveness of established controls and procedures to ensure the accuracy and integrity of accounting records, and monitors the group’s businesses, financial risks and performance.

Based on internal audit’s review of the design, implementation and effectiveness of Reunert’s system of internal financial controls in 2011, and considering information and explanations given by management and discussions with Deloitte on the results of its audit, nothing has come to the attention of the audit committee to indicate that Reunert’s system of internal financial controls is not effective or the preparation of financial statements is unreliable.

Information technology (IT)

The board recognises that IT is a key enabler for Reunert in providing employees and decision makers with critical information needed to make effective decisions on behalf of the group. The board has assigned the responsibility of monitoring IT governance to the audit committee. An IT steering committee was established during the year to focus on:

  • IT security
  • Data integrity
  • Business continuity
  • Standardising IT policies and procedures
  • IT procurement.

Key IT risks are assessed and reported bi-annually to the risk committee. A senior manager was appointed in November 2011 as group information officer.

The audit committee believes the systems of internal control over IT are adequate and effective and is not aware of any material breakdown in the functioning of the internal IT control systems during the financial year.

Whistle-blowing function

Reunert outsourced its whistle-blowing reporting function to Deloitte Tip-offs Anonymous in January 2011. Tip-offs Anonymous is an independent, confidential whistle-blowing hotline service and gives employees and all stakeholders the opportunity to anonymously report any unethical practices.

An awareness campaign was rolled out to all operations during the year and calls to the hotline increased towards the end of the financial year. A total of 52 contacts resulted in 38 reports. All reports were thoroughly investigated and appropriately acted on under the guidance of internal audit.

Corruption and fraud

All group companies submit defalcation reports monthly. An isolated corporate governance infraction, as set out in the director’s report, was reported in the past year.

All operational processes are analysed to identify the risk of potential corruption and fraud. Fraud risk is monitored closely and processes are continually improved to curtail and eliminate opportunities for fraud. Two new cases of fraud totalling R1,6 million were reported during the financial year. In addition, there was an armed robbery at a distribution centre and one incident of theft is still under investigation.


Rynhardt van Rooyen

Chairman

Sandton
14 November 2011