LIFE HEALTHCARE Integrated report 2021

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Report of the Audit Committeefor the year ended 30 September 2021

INTRODUCTION

In line with the requirements of King IVTM* and the Companies Act, the Life Healthcare Group Holdings Limited’s audit committee (the Committee) is pleased to present its report for the year ended 30 September 2021.

ROLE OF THE AUDIT COMMITTEE

The primary role of the Committee is to assist the Board in discharging its Group governance oversight responsibilities. These responsibilities relate to the safeguarding of assets, monitoring the adequacy and effectiveness of the Group’s systems and control environment, including that the Group has appropriate financial reporting procedures and that those procedures are operating as intended, and oversight over the integrated report preparation and fairly presented annual financial statements, in compliance with all applicable legal and regulatory requirements and accounting standards. The Chairman of the Committee reports to the Board on the Committee’s deliberations and decisions.

COMPOSITION, QUALIFICATIONS AND MEETINGS

Members of the Committee are formally nominated by the Board for re-election by shareholders at the annual general meeting (AGM). The individual members satisfy the requirements to serve as members of an audit committee, as provided in section 94 of the Companies Act and they have the requisite level of knowledge and experience to fulfil their duties.

The Chairman of the Board, Group Chief Executive, Group Chief Financial Officer, Group Chief Internal Audit Executive, Group Risk Manager and senior management in the financial function attend meetings at the invitation of the Committee, together with the external auditor. In line with best practice, the internal and external auditors have unrestricted access to the Committee, where they can raise any matter that requires the Committee’s attention, and they also have the opportunity to meet with the Committee without members of management being present. The Chairman of the Committee and Ms AM Mothupi are also members of the risk, compliance, and IT governance committee, which ensures the flow of information between the two committees.

The Committee composition in the year, attendance as well as qualifications are set out below:

Name Qualifications Date appointed Attendance
Peter Golesworthy Chairman) BA (Hons), Accounting Studies, CA 10 June 2010 5/5
Caroline Henry CA(SA) 1 September 2021 0/0 (first meeting was on 1 Oct 2021)
Cindy Hess CA(SA) 1 September 2021 0/0 (first meeting was on 1 Oct 2021)
Audrey Mothupi BA (Honours) Political Science 3 July 2017 5/5
Garth Solomon* CA(SA) 10 June 2010 5/5
Royden Vice CA(SA) 1 February 2014 5/5

Four (4) scheduled meetings and one (1) special meeting were held during the year

* Garth Solomon resigned from the Committee on 31 August 2021.

* Copyright and trademarks are owned by the Institute of Directors South Africa NPC and all of its rights are reserved.

The Committee welcomed Ms Caroline Henry and Ms Cindy Hess as new members to the Committee and looks forward to their contribution. The Committee recognised, with thanks, the important role played by Mr Solomon during his tenure on the Committee.

Members were assessed by the nominations and governance committee, on behalf of the Board, in terms of the requirements of King IV and the Companies Act. The current members of the Committee continue to meet the independence requirements.

The current Committee members will be recommended to the shareholders at the next AGM for appointment for the financial year ending 30 September 2022.

THE COMMITTEES' MANDATE

The Committee has adopted comprehensive and formal terms of reference that can be viewed on the Group’s website at www.lifehealthcare.co.za.

The Committee has discharged its responsibilities as contained in the terms of reference, including ensuring that financial information issued to stakeholders is prepared in alignment with legislation and best practice. More specifically, the main functions performed by the Committee during the year under review were as follows:

  • Monitored the proper operation of adequate and effective systems of internal controls, including receiving and reviewing reports, from both internal and external auditors, concerning the effectiveness of the internal control environment. This included all the entities in the consolidated group IFRS financial statements, to ensure that the Group had access to all financial information to effectively prepare and report on the financial statements of the Group.
  • Considered whether there were significant weaknesses in the design, implementation or execution of the internal financial controls
  • Considered and satisfied itself on the appropriateness of accounting policies and material estimates, assumptions and judgements
  • Monitored the reporting processes and the preparation of fairly presented annual financial statements in compliance with the applicable legal and regulatory requirements and accounting standards, and recommended, for adoption by the Board, the financial information that is publicly disclosed, which for the year included the:
    • Interim results for the six months ended 31 March 2021
    • Annual results for the year ended 30 September 2021
    • Related SENS and press announcements for both interim and year-end
  • Reviewed and confirmed the going concern basis of preparation of the interim and annual financial statements
  • Made recommendations to the Board in relation to distributions to shareholders
  • Considered the JSE’s proactive monitoring of financial statements report, as issued in 2021, and the applicability of the issues raised, with the view to improving disclosure where applicable. The Committee reviewed a letter received by the Company from the JSE following its review of the 2020 financial statements, highlighting certain disclosure matters, and responded to the JSE: the matters raised have been addressed in the 2021 annual financial statements.
  • Reviewed and recommended for approval by the Board the integrated report, including the disclosure of sustainability issues
  • Considered the reports of management and the internal and external auditors regarding compliance with legal and regulatory requirements, as well as relevant findings of the risk, compliance and IT governance committee
  • Reviewed legal matters that could have a material impact on the Group
  • Conducted an internal evaluation on the performance of the Committee and no material issues arose
  • Performed the functions required in terms of section 94(2) of the Companies Act on behalf of the Group’s South African subsidiary companies

ASSESSMENT OF THE APPROPRIATENESS OF THE EXPERTISE AND ADEQUACY OF RESOURCES AND EXPERIENCE OF THE GROUP’S FINANCE FUNCTION AND THE GROUP CHIEF FINANCIAL OFFICER

The Committee received regular reports on the key finance initiatives. At the end of 2020, the finance team in South Africa was restructured, creating a centralised Group finance function under the leadership of the newly appointed General Manager: Finance, who reports directly into the Group Chief Financial Officer. Some of the finance functions that existed solely within South Africa were relocated to Group in order to standardise processes and Group expertise. The restructure also has the benefit of allowing for better employee development and succession planning.

Both SAP and OneStream have been successfully implemented across the Group. The new systems will allow for better reporting and improved future planning.

The management teams continued to learn, adapt, and change to accommodate the evolving COVID-19 environment. The finance team operates using the hybrid working model, namely working from home as well as coming into the office on a regular basis. This allowed for more effective communication within the team as well as better discussion and reporting in respect of financial matters. Regular feedback was provided on remote working and engagement with teams working virtually to ensure the integrity of financial reports and the Committee was kept appraised of the actions taken to ensure that the finance functions across the Group operated effectively.

The Committee considered the appropriateness and adequacy of resources and experience of the finance function and confirmed its satisfaction.

Mr PP van der Westhuizen is the Group Chief Financial Officer (Group CFO). He is a qualified chartered accountant and has practised as one for over 25 years. He has been employed in the role of Group CFO of the Group since 2013.

The Committee reviewed the qualifications and experience of Mr PP van der Westhuizen and was satisfied that his skill, expertise and experience were appropriate to meet the requirements of the position.

IMPACT OF COVID-19

The Committee considered the COVID-19 global pandemic (the pandemic) and associated impact on the Group’s operations and the preparation of the 2021 annual financial statements. The Committee is satisfied that the events related to the pandemic have been disclosed accordingly in the annual financial statements. The impact of the pandemic necessitated ongoing review of the following key matters:

  • Impairment assessments of non-current assets, and specifically intangible assets and goodwill
  • The recoverable amount of financial assets
  • The solvency, liquidity and going concern assessments

The Committee considered management’s documentation relating to the going concern assumption used in the financial statements. In recommending to the Board that the going concern assumption was an appropriate basis for preparing the annual financial statements, the Committee, inter alia, considered the budget for the 2022 financial year, liquidity forecasts, including the assumptions and sensitivities and available committed and uncommitted debt facilities.

INTERNAL AUDIT AND INTERNAL CONTROLS

The Committee ensured that the internal audit function is independent and has the necessary resources to enable it to fulfil its mandate. The Group Chief Internal Audit Executive reports functionally to the Committee Chairman and administratively to the Group Chief Financial Officer. An outsourced internal audit function operates across the Group, with the Group Chief Internal Audit Executive responsible for co-ordinating the planning, implementing and reporting thereon.

Towards the end of 2020, the outsourced internal audit function transitioned from Ernst & Young (EY) in South Africa to PriceWaterhouseCoopers (PwC). With effect from 1 October 2021, the outsourced function transitioned from BDO in the International operations to PwC, resulting in PwC providing the outsourced internal audit services across the Group. In addition to a smooth transition with the outsourced audit function, the Chief Internal Audit Executive expanded his team with the appointment of two persons. This has assisted in ensuring that tasks are carried out in accordance with the audit plan and the closing out of audit findings once remediated by management.

The internal audit function continues to provide a professional independent service, with due regard to the tenets of its charter, and has the full support of the Group Chief Executive Officer (Group CEO) and the Group CFO. Given the various services provided by PwC, care has been taken to ensure that the necessary policies are in place to ensure the independence of PwC as internal auditor.

The Committee:

  • Reviewed the internal audit charter in line with King IV recommendations and recommended it to the Board for approval
  • Approved the risk-based internal audit plans for the 2021 financial year and changes thereto during the year, to take account of changing circumstances
  • Considered the effectiveness and the performance of the internal audit function and the Chief Internal Audit Executive for the year under review: both were found to be satisfactory
  • Approved the combined assurance framework and reviewed combined assurance effectiveness
  • Received risk updates, particularly in relation to matters concerning financial reporting
  • Reviewed and evaluated reports in relation to internal audit and risk management and the appropriateness and adequacy of management’s responses in relation thereto. Significant progress was made by management during the year in closing out matters raised in internal audit reports
  • Reviewed arrangements made by the Company to enable employees and outside whistle-blowers to report any concerns and the reports received from the Tip-Off line, as well as the consequent corrective action implemented
  • Reviewed internal audit’s assessment of the internal control environment

The pandemic continued to impact internal audit’s ability to perform its audits, which necessitated the re-prioritisation of a number of assignments during the year.

EXTERNAL AUDIT

Following approval by shareholders at the AGM in January 2021, Deloitte served as the Group’s registered external auditor for the 2021 financial year. Mr Bongisipho Nyembe was appointed as the designated partner for 2021, but it is with sadness that we report that he passed away in August 2021 from a COVID-19-related illness. Bongisipho was an invaluable member of the Deloitte team and had demonstrated his integrity and commitment to Life Healthcare in the difficult first year of Deloitte’s audit in 2020. Mr J Welch was approved as the designated partner to succeed Bongisipho and the JSE was accordingly notified of the change.

2021 was Deloitte’s second year as the external auditor and this was an easier process for both it and management after the impact of COVID-19 and the cyber-attack in the previous year.

For the year under review the Committee:

  • Approved the auditor’s remuneration, for audit or non-audit services and approved the terms of engagement and the scope of the audit. The fees paid to the external auditors are disclosed in note 6 to the annual financial statements
  • Reviewed and approved the external audit plan and ensured no limitations were imposed on the scope of the external audit. Notwithstanding the improvements made to the South African IT control environment in the current year, Deloitte was unable to fully rely on the IT General Control environment in planning its audit and accordingly adopted a fully substantive audit approach
  • Reviewed the external auditor’s report and confirmed that there were no material unresolved issues between the Group and the external auditor
  • Reviewed and agreed the key audit matters identified by Deloitte, as set out in its report
  • Obtained assurance from the external auditor that appropriate and adequate accounting records were being maintained
  • Reviewed the quality and effectiveness of the external audit process, which management, the Committee and Deloitte found to be satisfactory
  • Considered the external auditor’s suitability in terms of paragraph 3.84(g)(iii) and section 22.15(h) of the JSE Listings Requirements after review of the relevant documentation and enquiry
  • Confirmed that Deloitte’s independence was not impaired and received assurance that its internal governance processes supported and demonstrated its claim to independence
  • Reviewed and confirmed the non-audit services provided by Deloitte in terms of the approved non-audit services policy, which amounted to R0.8 million, being 1.8% of the Group audit fee in the current year
  • Confirmed that no reportable irregularities had been identified or reported by the external auditor under the Auditing Profession Act

The Committee resolved to recommend to the shareholders that Deloitte be appointed as the Group’s registered external auditor for the 2022 financial year and Mr J Welch as the designated partner.

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER ATTESTATION

The JSE Listings requirement for the attestation by the Group CEO and Group CFO relating to controls and fairly presented financial statements became effective in 2021. The Committee received regular updates on the processes that were adopted to review the control environment and to provide the Group CEO and Group CFO with the necessary assurance to enable them to provide the attestation which is set out in the Statement of Group Chief Executive and Group Chief Financial Officer in the financial statements.

The Group CEO and Group CFO reviewed the controls over financial reporting and presented the findings to the Committee. This evaluation included:

  • The identification and classification of risks, formulation of a risk assessment control matrix and the determination of materiality
  • Assessment of controls for material account balances and identification of material deficiencies in the design and implementation of internal controls
  • Review of internal audit reports relating to FY2021 to further identify material weaknesses in internal controls
  • Consideration of control feedback provided by the external auditor and other assurance providers through the FY2021 audit process
  • Obtaining control declarations from managers on the operating effectiveness of key controls done
  • The use of appropriate experts where appropriate to provide assurance on certain judgements, estimates and assumptions

Based on this evaluation, management identified certain deficiencies relating to the IT General Control environment, which included a number of high, medium and low risk areas, with a significant improvement noted over the prior year. The evaluation also identified gaps in certain financial controls, but these were largely mitigated by compensating controls and did not lead to any material concerns with the financial reporting process.

As part of the Group’s ongoing journey towards strengthening the internal controls related to financial reporting, a remediation plan has been developed by management to address control deficiencies, which is planned to be completed in stages, especially as it relates to control improvements associated with control disciplines and the implementation of new computer systems.

This rigorous process has enabled the Group CEO and Group CFO to conclude and sign-off on the effectiveness of the internal controls over financial reporting, in accordance with the JSE Listings Requirements.

The audit committee in turn has discussed the documented basis for management’s conclusion, including discussions with the internal and external auditors as well as with management. The Committee believes that the Group’s internal controls can be relied upon as a reasonable basis for the preparation of the annual financial statements.

KEY FOCUS AREAS FOR 2021

The table below sets out the key focus areas for 2021 that were set out in last year’s report and the Company’s progress in relation to those areas.

Focus area   Met/Work in Progress/Not Met
Continued oversight of the South African system projects and the SAP project within the International operations   Met. The Committee received regular updates in relation to various projects
Oversight of the newly appointed internal auditors and the delivery of the internal audit plan   Met. There has been a smooth transition from EY in South Africa to PWC in the current year and PwC was involved in the 2022 planning following its appointment for the International business from 1 October 2021
Continued evaluation, with the support of the risk, compliance and IT governance committee, of the key risks, related controls and mitigations in respect of the IT infrastructure and project implementation, as it related to internal controls   Work in Progress. There has been a marked improvement in addressing the key risks in the IT infrastructure and key projects
Overseeing the accounting for the disposal of Scanmed and the subsequent disclosures to the market following the sale   Met. The Committee received detailed reports on the disposal of Scanmed and reviewed the disclosures
Continuous focus on the Group’s reporting processes and financial controls and integration of the International operations.   Met. The Committee received regular reports on the financial controls and on the International operations’ integration

FOCUS AREAS FOR 2022

For the new financial year the Committee will continue to review management’s efforts to enhance the risk and control environment. Key areas of focus will include:

  • Continued oversight of the key finance IT initiatives across the Group, including those impacting the efficiency and integrity of the reporting processes
  • Monitoring the ongoing changes to the finance structure and the bedding down of the new Group finance structure
  • Continued evaluation of the IT environment, in consultation with the risk, compliance and IT governance committee, especially in so far as such systems relate to internal controls and financial reporting
  • Continued monitoring of the process to enhance the assessment of the internal controls to enable the Group CEO and Group CFO to comply with the JSE attestation process requirements
  • Consideration of the evolving climate and other environmental, social and governance (ESG) related reporting requirements

The Committee confirms that for the 2021 financial year, it has discharged its responsibilities in accordance with its terms of reference and in compliance with the requirements of the Companies Act, the JSE Listings Requirements and all other relevant legislation.

I would like to record my appreciation to colleagues on the Committee, as well the management team and the internal and external auditors, for all the hard work and dedication through the year.

For and on behalf of the Committee.

PJ Golesworthy
Chairman: audit committee

Johannesburg

15 November 2021

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