Introduction

Homonate Travel is a private company operating in the travel industry within South Africa. It has 50 branches located throughout South Africa. Homonate Travel has been in operation for 20 years and offers different holiday packages to its loyal customers. Homonate strives to comply with KING IV principles and Corporate Governance. Homonate Travel has its own customer representatives available at the holiday destinations to provide support to its customers. All-inclusive holidays (in which all food and drinks are provided within the holiday price) are offered within each of the three product offerings. Homonate Travel only sells its own products and does not act as an agent for any other travel companies. It uses the services of other companies engaged in the travel industry such as chartered airlines and hotels which it pays for directly on behalf of its customers.

Marketing of products

Homonate Travel relies for the vast majority of its business on the literature, available in hard copy or online, which it provides on the holiday products it sells. Homonate Travel is able to offer some of its existing holiday products at discount prices. These may be offered under any of the three main product categories, but they are mostly cut-price holiday deals which are available under the holiday package deals which include flights and accommodation.

Sales structure

Staff in each of the 50 branches accepts bookings from customers and all branches have direct IT access to head office. Online enquiries and bookings are received and processed centrally at head office, which is located in Cape Town. Branch managers have some discretion to offer discounts on holidays to customers.

Retirement of the Executive Chairman

The Executive Chairman, Mr Rembrandt formally announced to the Board in August 2023 that he intends to retire on 31 August 2024 and wishes to sell part of his shareholding in the company. This would mean that Homonate fully complies to the JSE Requirements as well as the KING IV and Corporate Governance Principles. The Board members believe the time is right for Homonate Travel to consider expansion plans, and to enter a new stage in its financing arrangements, in the form of either debt or equity from new providers. Mr Rembrandt has also indicated that its about time that the company gets listed on the Johannesburg Stock Exchange.

Board composition and operational responsibilities

The Board of Directors comprises five people: an Executive Chairman, Mr Rembrandt (who also fulfils the role of Chief Executive Officer), a Finance Director, an Operations Director, an IT Director, and a Human Resources Director. The branch managers all report directly to the Operations Director. In addition, the Operations Director is responsible for liaising with airlines and hotels which provide the services offered by Homonate Travel. The IT Director is responsible for Homonate Travel IT/IS functions. The Finance Director is responsible for Homonate Travels financial and management accounting systems and has a small team of accountancy staff, including a part-qualified management accountant, reporting to her. The Human Resources Director has a small team of staff reporting to him.

Audit Committee

The company has never appointed an audit committee and the Mr Rembrandt believes that TKY Auditors has been auditing the company since its inception 20 years ago, and TKY offers other services to the company, the auditors are well paid and are considered to be an integral part of the business. So, Mr Rembrandt does not see a need to have an audit committee to check up on TKY Auditors. If there is really a need for one, Mr Rembrandt has indicated that he will appoint himself as [CONFIDENTIAL] Page 8 of 12 [TURN OVER] the chairman of the audit committee and he will be assisted his son who has just completed his Bachelor of Arts Degree. He further said that he might consider an alternative to get the shareholders to include a clause that the company does not require an audit committee.

Employees

Homonate Travel employs 550 full-time staff. Turnover of staff is relatively low. High performance rewards in terms of bonuses are paid to staff at each branch if the branch meets or exceeds its quarterly sales targets. Employee development for staff that is in direct contact with the public is provided through updates on products which Homonate Travel offers in-house. Each member of staff undertakes a two day induction programme at the commencement of their employment with the organisation. The emphasis of the induction programme is on customer service, not on details relating to the products as it is expected that new staff will become familiar with the product details as they gain experience within Homonate Travel.

REQUIRED:

Discuss Mr Rembrandts attitude to audit committees and his intended action regarding the audit committee to be appointed with reference to the KING IV and the Principles of Corporate Governance and (15)

b) Prepare a memo explaining in detail to Mr Rembrandt the role that the audit committee plays in promoting good corporate governance and the Boards overall responsibilities in this regard..