AUDIT AND RISK COMMITTEE REPORT

1. AUDIT AND RISK COMMITTEE REPORT Parliamentary Portfolio Committee on Energy Ms Thulisile Mashanda– Member: Audit and Risk Committee 15 October 2013

2. PRESENTATION OUTLINE • Background • Responsibilities of Audit and Risk Committee • Audit and Risk Committee’s Activities Undertaken • Annual Audit • Major Findings • Management Report • Audit and Risk Committee Views • Steps Taken To Address the Shortcomings

3. A. BACKGOUND

4. BACKGROUND • Was established in 2005 when NERSA was established • Consists of 4 members: • Chairperson and one other member are part-time members of the Energy Regulator • 2 external members • Invitees: • Chief Executive Officer • Chief Audit Executive • Chief Financial Officer • Auditor-General

5. BACKGROUND

6. BACKGROUND A formal induction process which provides new members with sufficient briefings about their role and performance is in place for all members. A comprehensive training plan on regulatory issues is in place for all Regulator members, NERSA is in the process of developing a training plan for all Audit and Risk members on audit, risk and corporate governance matters.

7. B. RESPONSIBILITIES OF AUDIT AND RISK COMMITTEE

8. RESPONSIBILITIES OF AUDIT AND RISK COMMITTEE • The Audit and Risk Committee discharges its responsibilities in accordance with the Audit and Risk Committee Charter (which is in line with the Public Finance Management Act). It is responsible for, amongst others, the review of: • Effectiveness of internal control system; • Effectiveness of Internal Audit function; • Risk areas to be covered in the scope of internal and external audits; • Adequacy, reliability and accuracy of financial and performance information; and • Monitoring compliance with applicable laws and regulations.

9. AUDIT AND RISK COMMITTEE ACTIVITIES UNDERTAKEN • The Audit and Risk Committee: • Reviewed all significant findings from internal and external audit reports, management comments and agreed action plans; • Approved risk management policies and procedures and monitored the implementation risk mitigation strategies; • Approved the combined assurance plan; • Approved the compliance framework and continues to maintain oversight over the status of compliance with legislation and regulations; • Reviewed the audited Annual Financial Statements, Report on Performance Against Predetermined Objectives and Annual Report; and • Reviewed the Auditor-General’s interim and final management reports for 2012/13.

10. D: ANNUAL AUDIT

11. I. ANNUAL AUDIT: MAJOR FINDINGS • NERSA has never received a qualified audit; • Matter of Emphasis: restatement of corresponding figures (corresponding figures for 2011/12 have been restated as a result of errors discovered during 2012/13; • SARS payment which was never recorded in the previous periods; SARS and NERSA management are busy with reconciliation to determine if and how much is owed by NERSA • Reversal of invoices which were wrongly captured as payables in the previous periods; These related to fraudulent activities, The decision to reverse was taken after the conclusion of the investigation that the invoices were indeed fraudulent. • Reassessment of useful life of assets that were fully depreciated in prior years resulting in restatement of prior year depreciation figures.

12. MAJOR FINDINGS • Total irregular expenditure not yet condoned at year end was R2.77 million; this expenditure relates mainly to the photocopier and printer contract entered into without fully complying with the Supply Chain Management Policy. The condonaton is pending the finalisation of the investigation. • Fruitless and Wasteful expenditure of R1 222 relates to interest charged on Telkom account due invoices received late. Management follows up with Telkom to ensure that the invoices are received on time. • An investigation on over payments of part time Regulator Members fees was concluded during the year and the Minister approved the condonation on April 2013

13. II. ANNUAL AUDIT: MANAGEMENT REPORT • Management implemented all agreed action plans on findings from the Auditor-General from the 2011/12 audit; • The 2012/2013 management report had 18 findings of which (11 matters affecting the audit report; 7 other important matters) • As at 30 September 2013, Internal Audit conducted an audit and 14 findings were found to be have been fully addressed. • Management is committed to continuously improve the internal control environment.

14. E. AUDIT AND RISK COMMITTEE VIEWS • Effectiveness of Internal Controls: The internal control, risk management and governance processes are effective. There are no material deficiencies in the system of internal control. • Robustness of the practices and procedures : The Audit and Risk Committee is satisfied with the robustness of processes and practices however, management is in the process of developing electronic systems that will improve the efficiency and minimise risks.

15. AUDIT AND RISK COMMITTEE VIEWS Quality of quarterly reports: The Audit and Risk Committee reviews the performance reports and management accounts on a quarterly basis for adequacy, reliability and accuracy. Further, internal audit provides assurance on the on the reliability and accuracy of quarterly performance reports. Evaluation of financial statements: The Audit and Risk Committee reviewed unaudited and audited performance information and financial statements. Changes and reasons for changes to the financial information are considered. The Audit and Risk Committee is satisfied with the evaluation processes on financial statements.

16. F. STEPS TAKEN TO ADDRESS THE ABOVE • NERSA has started an organisation wide business process review with the aim of streamlining internal processes; • Expediting the appointment of Chief Financial Officer; • Robust oversight with special focus on shortcomings as identified by the Auditor General.

17. THANK YOUvisit us at www.nersa.org.za