Construction is one of the largest industries globally and is currently transforming. Delta Development and Construction Limited $($hereafter referred to as Delta Development$)$ is a company that specialises in renting out construction tools to developers.

Board and other committees$$ composition

While checking the integrated reports of the company, you came across the company$$s disclosure on the JSE$-$listed composition of the governing body and its committees. From the various notes and commentaries on the annual report, you were able to extract the following information relating to the governing body and its committees:

The following list consists of the board of directors:

$$ Tebogo Mamba $($non$-$executive chairperson and retired CEO of Delta Development for two years$)$ MSc Mechanical Engineering

$$ Victoria Ndlovu $($CEO$)-$ MBA

$$ Karabo Modisha $($CFO$)$ CA $($SA$)$

$$ Benjamin Sehloho $($Operations Director$)$ Mechanical Engineer

$$ Shan Reddy $($Human Resource Director$)$ MA $($Business Administration$)$

$$ Patricia Lee $($Marketing Director$)-$ MBA

$$ Mark le Roux $($non$-$executive director$)$ MBA

$$ Daniel Crompton $($non$-$executive director$)$ CA $($SA$)$

$$ Abigail Sehloho $($non$-$executive director$)$ LL$.$M

Note $1$: The board of directors as a whole, nominates, elects, and appoints members of the governing body.

Note $2$: Daniel Crompton is also a non$-$executive director of Sigma $($Pty$)$ Ltd$,$ a major customer of Delta Development.

Note $3$: Abigail Sehloho $($sister of Benjamin Sehloho$)$ is a director in a small auditing firm.

The company has three board committees, namely, the audit committee, the remuneration committee and the social and ethics committee.

Audit committee

Victoria Ndlovu is the chairperson with all members of the governing body serving on the audit committee.

Remuneration committee

Shan Reddy is the chairperson of the remuneration committee. Tebogo Mamba, Karabo Modisha, Victoria Ndlovu, Mark le Roux and Daniel Crompton are members of the remuneration committee.

Social and ethics committee

Tebogo Mamba is the chairperson. Karabo Modisha, Victoria Ndlovu, and Abigail Sehloho are

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members of the social and ethics committee.

Internal audit function

The internal audit function consists of Peter Locker, the CAE, two internal audit managers, three senior internal auditors and six internal auditors. There is an internal audit charter in place.

An extract from some of the sections $(6,7$ and $8)$ of the internal audit charter reads as follows:

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$6.$ Organisation

The CAE shall report to the board administratively and functionally to the CEO.

$7.$ Independence and Objectivity

The chief audit executive will ensure that the internal audit activity remains free from all conditions that threaten the ability of internal auditors to carry out their responsibilities in an unbiased manner, including matters of audit selection, scope, procedures, frequency, timing, and report content.

Internal auditors will have no direct operational responsibility or authority over any of the activities audited. The internal auditors should assist with specific operational responsibilities when requested.

$8.$ Responsibility

The Chief Audit Executive and the internal audit staff has the responsibility to:

a$)$ Submit annually to senior management and the board a risk$-$based internal audit plan for notification purposes.

b$)$ Ensuring that the internal audit function collectively possesses or obtains the knowledge, skills and other competencies needed to meet the requirements of the internal audit charter.

c$)$ Set the risk appetite for the organisation and review the management of key risks.

d$)$ Issue quarterly reports on the results of the audit activities to management and the board, after its approval by the CEO.

Approval$/$Signature

$\_\_\_\_\_\_\_\_\_\_\_15/06/2022\_\_\_\_\_$

Chief Audit Executive Date $\_\_\_\_\_\_\_\_\_\_\_\_\_\_17/06/2022\_\_\_\_\_$

Chief Executive Officer Date

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REQUIRED Marks

$1.$

Explain the instances of non$-$adherence to the recommended practices outlined in the King IV Report on Corporate Governance for South Africa $2016$ relating to:

a$)$ the composition of the governing body$/$board and

b$)$ the composition and the sufficiency of the board committees.

$(30)$

Provide your answer in the following format:

No

King IV requirement $(1$ mark each$)$

Instance of non$-$adherence in Delta Development Ltd $(1$ mark each$)$

$2$

Review the internal audit charter above according to the Global Internal Audit Standards, identify and explain shortcomings and recommend improvements to the charter.

$(20)$

Provide your answer in the following format:

No

Identification and explanation of

deficiency$/$shortcoming

identified

$(1$ mark each$)$

Quote from Global Internal Audit Standards

$(1$ mark each$)$

Recommendation to the internal audit charter $($e$.$g$.,$ indicate if a certain part should be taken out or if rewritten $$ rewrite how it should be$)$

$(1$ mark each$)$