Risk management
Risk management and internal control
RMBH recognises that managing risk and compliance is an integral part of generating sustainable shareholder value and enhancing stakeholder interests.
The board and the boards of investees are accountable for establishing, maintaining and monitoring the effectiveness of the processes of risk management and systems of internal control applied throughout the group and in any joint ventures and associations to which the group is party.
The group's risk management and control framework covers the following key aspects:
- identifying key performance indicators;
- identifying significant business risks, both financial and other;
- maintaining proper accounting records;
- ensuring the reliability of financial information used within the business for decision-making or for publication;
- ensuring compliance with applicable laws, regulations and codes of conduct;
- ensuring that the group is not unnecessarily exposed to avoidable financial risks such as the risks associated with fraud, potential liability and loss, including the safeguarding of assets;
- managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions;
- ensuring the effectiveness and efficiency of operations;
- monitoring the progress of group companies in complying with the Financial Sector Charter;
- ensuring that the group and any projects in which it is involved are subject to sound environmental practices; and
- ensuring that the appropriate balance is struck between entrepreneurial endeavour and sound business practice.
Overall effectiveness of control environment
As with most systems of internal control, the effectiveness of internal control systems in the group is subject to inherent limitations, including:
- the possibility of human error and/or poor decision-making;
- the deliberate circumventing of controls by employees or others;
- management overriding controls; and
- the occurrence of unforeseeable circumstances.
Controls systems are therefore designed to manage, rather than eliminate, the risk of failure. Accordingly, it is recognised that a sound system of internal control can provide only reasonable and not absolute assurance against risks impacting the achievement of business objectives or any misstatement or loss.
Management reports regularly to the respective group boards on the effectiveness of the group's risk and compliance management and control framework. The effectiveness of this framework is subject to continuous review.
Integrated assurance
The board does not only rely on the adequacy of the internal control embedment process but considers reports on the effectiveness of risk management activities. The Audit and Risk committee ensures that the assurance functions of management as well as internal and external audit are sufficiently integrated.
The various assurance providers to the board comprise the following:
- The Management committee and senior management consider the company's risk strategy and policy along with the effectiveness and efficiency thereof.
- The Audit and Risk committee considers the adequacy of risk management strategies, systems of internal control, risk profiles, legal compliance, internal and external audit reports and also reviews the independence of the auditors, the extent and nature of their engagements, scope of work and findings. This committee also reviews the level of disclosure in the annual financial statements and the appropriateness of accounting policies adopted by management, the ethics register and other loss incidents reported. The board reviews the performance of the Audit and Risk committee against its charter.
Internal audit
RMBH outsources its internal audit function to FirstRand Internal Audit division ("Internal Audit"). Internal Audit is an effective independent appraisal function and employs a risk-based audit approach. The head of Internal Audit has direct access to the chairman of the Audit and Risk committee as well as to the chairman of the group.
External audit
The company's external auditor attends all Audit and Risk committee meetings and has direct access to the chairman of the Audit and Risk committee and the chairman of the group. The external audit scope of work is adequately integrated with the Internal Audit function without the scope being restricted.
The directors are of the opinion that, based on enquiries made and the reports from the internal and external auditors, the risk management processes and systems of internal control of the company and its subsidiaries were effective for the period under review.
The Audit and Risk committee has satisfied itself that there are effective audit committees functioning at the company's associated companies.
RMBH is committed to good corporate citizenship practices and organisational integrity in the direction, control and stewardship of the group's affairs. To the extent that it is possible, the directors of RMBH seek to ensure that this commitment is practised and reported on by the company's associate (FirstRand). This commitment provides stakeholders with comfort that the group's affairs are being managed in an ethical and disciplined manner.
This discussion is a limited overview from a RMBH perspective. FirstRand publishes a detailed sustainability review.
RMBH subscribes to a philosophy of providing meaningful, timely and accurate communication to its key stakeholders, based on transparency, accountability and integrity.
The direct stakeholders of RMBH are shareholders, analysts, employees, suppliers, regulators; government and civil society, communities and indirectly customers.
Shareholders
Communication
RMBH's communication practices are designed to allow investors to make decisions about the acquisition and ownership of shares. The company communicates formally with shareholders twice a year when it announces interim and year end results. These comprehensive reports are sent to all shareholders and are accessible on the company's internet site (www.rmbh.co.za). The chairman and chief executive officer meet with investors and investment analysts from time to time.
Ownership
Significant shareholdings are disclosed on page 121. An analysis of the RMBH share price and trading data appears on page 121.
Customers
FirstRand provides a comprehensive range of financial services to South African corporates and individuals. In this regard the integrity of its various brands, their image and reputation are paramount to ensure the sustainability of their businesses, FirstRand regularly engages with its customers to measure satisfaction levels and gain insight into their needs. FirstRand emphasis on innovation encourages new solutions for extending financial services to new markets.
In terms of the Financial Sector Charter, FirstRand is committed to providing financial services to previously disadvantaged communities.
Employees
RMBH together with FirstRand (collectively "the group") believe that employees have an important role to play in sustaining the positive performance of the group. The human resource strategy is to attract, develop and retain the best industry talent. We empower our people, hold them accountable, and reward them appropriately.
The group follows a practice of aligning employee remuneration with shareholders return. FirstRand's division operates across a variety of financial services activities, each with a distinct employment and human resources pressure. The group's remuneration policy takes account of the diverse needs of the group and the implementation of appropriate industry remuneration practices in accordance with the group's remuneration policy. During the current year special attention was applied to the effective application of the Financial Stability Board's Principles for Sound Compensation and the Financial Services Authority's remuneration code of practice.
Compensation consists of the following:
- basic salary plus benefits; and, where appropriate,
- annual performance related rewards; as well as
- share incentive schemes.
Remuneration is based on individual and business unit performance. Annual remuneration reviews encompass all three elements. All employees are required to belong to a medical aid.
Employment equity
In line with the business philosophy of empowerment, each business unit in the group is charged with meeting its targets in terms of plans submitted to the Department of Labour as required by the Employment Equity Act. During the year steps were taken to achieve greater alignment between employment equity performance, talent management and skills development. During the year macro economic conditions continue to negatively impact employee growth which in turn negatively impacted the employment equity component of the group. The group, however, remains committed to the transformation process.
Employee wellness
The group is committed to the health and safety of employees and has implemented procedures to ensure optimal health and safety conditions for employees.
Of growing importance is the impact of HIV/Aids on the workforce and the South African economy in general. The group has adopted an HIV/Aids policy that is based on education, communication, counselling and confidentiality.
Suppliers
The group has established a set of procurement guidelines to assist in meeting their commitment to place business with BEE suppliers. FirstRand has developed a centralised procurement function, the principal objective is to improve the B-BBEE procurement spend and leverage efficiencies through economies of scale with improved coordination of procurement functions.
Regulators
The group is subject to the independent oversight of South African regulatory authorities. The group representatives interact with a wide spectrum of regulatory bodies, including the South African Reserve Bank, the Financial Services Board and the Johannesburg Stock Exchange. The relationship sought is one of compliance and constructive participation in committees with a view to ensuring that South African industry practice remains amongst the best in the world.
The group supports initiatives aimed at infrastructure development, the promotion of democracy and business and government dialogue. The group is represented on the council which oversees the implementation of the Financial Sector Charter.
Communities
All group companies are committed to uplifting the societies in which they operate through following sound employment practices and meeting the real needs of the communities.
FirstRand group companies contribute 1% of its after-tax earnings to the FirstRand Foundation which has, since its inception in 1999, contributed more than R800 million to various community upliftment programmes. In addition, staff in the group is encouraged to give of their time and skills in community related work.
Natural environment
The group is committed to reduce both the direct and indirect impacts its business activities have on the natural environment. Both direct and indirect impacts are regulated through application of relevant legislation, subscription to voluntary external regulations, and ongoing internal self regulation.
| Document last modified: October 31, 2011 | Return to top |