Higher Education Act, 1997 (Act No. 101 of 1997) Regulations Regulations for Annual Reporting by Public Higher Education Institutions Schedule Implementation Manual for Annual Reporting Chapter 3

 

CONTENT AND FORM OF ANNUAL REPORTS

 

The following is a representation of the content and form of the Annual Report that each higher education institution is required to present to the Department of Education within six months of the end of an institution's financial year; i.e. a date not later than 30 June each year.

 

References in bold type are to page numbers in the "King Report on Corporate Governance for South Africa - 2002". All HEls are expected to comply with its applicable recommendations. The various references are for the reader's convenience and are not intended to convey the only content of the Report that is applicable to HEls.

 

 

These statements comprise of the following:

 

(King II:7-20; 32-41; 91-142)

 

 

This report is the means whereby the Council through its Chairperson discharges part of its statutory duty to account for its actions and achievements in the governance of the institution during the period under review.

 

This example and those that follow are for guidance only. The respective reports must reflect not only the effect of decisions and actions taken and the influence, both past and present, of these decisions and actions on the institution, but also the effect that these, and possibly other decisions and actions, will have on the institution in the future. In this latter regard the relationship between decisions and actions and the articulated mission, strategies, objectives, and plans of the institution should be incorporated in the report. In the example below and in the examples of the other reports that follow, there are items that are duplicated. How these are to be included in the reports of actual institutions depends on individual style, but this report must reflect only matters relating to governance.

 

The Report of the Chairperson of Council would include:

 

(King II:24-26; 35-37; 46-67; 176-212)

Developments, academic and other, which influence progress towards the attainment of the mission and objectives of the institution:

 

 

 

 

 

 

 

 

 

 

 

 

 

The report is signed by the Chairperson of the Council.

 

 

The Council is required to provide an account of its governance by means of a separate corporate governance statement, an example of which appears below, in which detail of governance structures, responsibilities and procedures are provided.

 

Council must approve this statement.

 

 

(King II: 11-12; 46-72)

The following statement is provided to assist readers of the Annual Report to obtain an understanding of the governance structures and procedures applied by the HEl's Council:

 

The HEI is committed to the principles of discipline, transparency, independence, accountability, responsibility, fairness and social responsibility, as advocated in the King Report on Corporate Governance. Accordingly, the Council endorses, and during the period under review has applied, the Code of Corporate Practices and Conduct and the Code of Ethical Behaviour and Practice as set out in the King II Report (King It: 21-22; 37; 101-106; 221-227). In supporting these Codes the Council recognises the need to conduct the business of the HEI with integrity and in accordance with generally accepted practices. Monitoring the HEI's compliance with the Code forms part of the mandate of the HEI's Audit Committee.

 

The External Auditors, [XYZ & Company], reviewed the HEI's compliance with the specific matters in the Code, in accordance with recommendations made in the King Report. They reported that it is appropriate for the Council to make the above statement. (NB. The use of the auditors to report as above for this purpose is optional.)

 

Council

 

(King II:22-26; 46-72)

 

The HEl's Council comprises academic and non-academic persons appointed in terms of the Statutes of the HEI, of whom the majority (at least 60 per cent) are neither employees nor students. The role of the Chairperson of the Council is separate from the role of the HEI's chief executive, the Principal. Matters reserved to the Council for decision-making are set out in the Statutes of the HEI, by custom and in terms of the Higher Education Act, 1997. The Council is responsible for the ongoing strategic direction of the HEI, approval of major developments and the receipt of regular reports from management on the day-today operation of its business. The Council meets six times a year and has several committees, including a Remuneration Committee, a Finance Committee, a Council Membership Committee and an Audit Committee (King II: 28-29; 67-69;182-212). All of these committees are formally constituted with terms of reference and are comprised mainly of members of the Council who are neither employees nor students of the HEI.

 

Remuneration Committee

 

(King II: 26-28; 194-200)

The Remuneration Committee's specific terms of reference include direct authority for, or consideration and recommendation to the Council of, matters relating to, amongst other things, general staff policies, remuneration and prerequisites, bonuses, executive remuneration, members of Council remuneration and fees, service contracts and retirement funds.

 

Finance Committee

 

The Finance Committee, amongst other things, recommends the HEI's annual revenue and capital budgets and monitors performance in relation to approved operating and capital budgets, It is responsible for assuring the financial health of the institution as a "going concern". It is also responsible for ensuring that the accounting information systems and the personnel complement are maintaining the accounting records of the institution in good order.

 

Planning and Resources Committee

 

The Planning and Resources Committee is concerned with medium and long term strategic plans, together with providing input for the preparation of the annual budget by the Finance Committee. It is responsible, amongst other things, for ensuring that all financial implications of both capital development programmes and the annual operating budget, including the implications of resource allocation to strategic activities, are referred to the Finance Committee.

 

Council Membership Committee

 

The Council Membership Committee considers nominations for vacancies in the Council membership in terms of the relevant Statute.

 

Audit Committee

 

(King II: 34-35; 68; 86-90; 186-194)

The Audit Committee, whose chairperson and members must either be members of Councilor not members of Council but specialists in the field, was established six years ago. Both the internal and external auditors have unrestricted access to the Audit Committee, which ensures that their independence is in no way impaired. Meetings are held at least twice a year and are attended by the external and internal auditors and appropriate members of the executive management. The Audit Committee operates in accordance with written terms of reference, confirmed by the Council, which provide assistance to the Council with regard to:

 

NB: Relevant detail of all other Council subcommittees concerned with strategic, policy or financial matters must be included.

 

 

A group of individuals has been identified who are professionally qualified and experienced in mediation, arbitration and dispute resolution and are available to the Council to assist in the resolution of any disputes between parties within the institution with the objective of avoiding conflict. During the current year it has not been necessary to call upon their services.

 

 

(King II: 8-9; 114-120)

The HEI utilises a variety of participating structures on issues which affect employees and students directly and materially, and which are designed to achieve good employer/employee and student relations through effective sharing of relevant information, consultation and the identification and resolution of conflicts. These structures embrace goals relating to productivity, career security, legitimacy, and identification with the HEI.

An affirmative action programme forms part of the HEI's training programme and business plan.

 

 

(King II: 221-227)

The HEI's Code of Ethics commits the HEI to the highest standards of integrity, behaviour, and ethics in dealing with all its stakeholders, including its Council members, managers, employees, students, customers, suppliers, competitors, donors, and society at large. Council members and staff are expected to observe the institution's ethical obligations in order to conduct its business through the use of fair commercial competitive practices.

 

The wording used in the above examples must be adapted to the circumstances applicable to individual institutions.

 

The Council must approve the above statements.

 

 

The report of the Senate will normally contain the following:

 

 

The Chairperson of the Senate signs this report.

 

 

The content of the report will depend on the activities of the Institutional Forum.

 

The report of the Institutional Forum must include all instances of advice sought by and advice given to the Council by the Institutional Forum. The composition of the Forum should be listed.

 

The Chairperson of the Institutional Forum signs this report.

 

 

(King II: 53-54)

The report of the Principal must address the following:

 

In addition, a statement of self-assessment of the achievement of the Principal in attaining the objectives set for the period under review with summary detail of realised achievements (self-evaluation) should be included.

 

This report should address matters relating only to the management/administration of the institution.

 

The Principal or Vice Chancellor signs this report.

 

 

An example of wording that should be adapted for their own use by individual institutions relating to "Systems of Internal Control."

 

(King II: 73-90; 216-220)

The HEI maintains systems of internal control over financial reporting and the safeguarding of assets against the unauthorised acquisition, use or disposal of such assets. Such systems are designed to provide reasonable assurance to the HEI and the Council regarding an operational environment that promotes the safeguarding of the HEI's assets and the preparation and communication of reliable financial and other information.

 

This includes documented organisational structures setting out the division of responsibilities, as well as established policies and procedures, including a Code of Ethics that is communicated throughout the organisation to foster a strong ethical climate and the careful selection, training and development of its people.

 

Information systems utilising modern information technology are in use throughout the organisation. All have been developed and implemented according to defined and documented standards to achieve efficiency, effectiveness, reliability and security.

 

Accepted standards are applied to protect privacy and ensure control over all data, including disaster recovery and "back-up" procedures. Systems are designed to promote ease of access for all users. The development, maintenance and operation of all systems are under the control of competently trained staff.

 

In utilising electronic technology to conduct transactions with staff and with third parties, control aspects receive close scrutiny and procedures are designed and implemented to minimise the risk of fraud or error.

Internal auditors monitor the operation of internal control systems and report findings and recommendations to management and the Council. Corrective actions are taken to address control deficiencies and other opportunities for improving systems when identified. The Council, operating through its Audit Committee, provides oversight of the financial reporting process.

 

There are inherent limitations to the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation and the safeguarding of assets. Furthermore, the effectiveness of an internal control system can change according to circumstances.

 

The HEI assessed its internal control systems as at dd/mm/yyyy in relation to the criteria for effective internal control over financial reporting described in its Internal Control Manual. Based on this assessment, the HEI believes that, as at dd/mm/ywy, its systems of internal control over its operational environment, information reporting and safeguarding of assets against the unauthorised acquisition, use or disposal of assets met those criteria.

 

This section must be prepared for and signed by the chairperson of the Audit Committee and the head of Internal Audit.

 

 

(King II:30-34; 73-85; 216-220)

The following note provides the basis on which the statement on risk should be prepared. It identifies the two primary categories of "financial" and "non-financial" risk and the managerial procedures that must be in place in order to be able to prepare a report on risk.

 

 

Risk can be defined as "a potential threat or possibility that an action or event will adversely or beneficially affect an organisation's ability to achieve its objectives."

 

Events and actions that are potential risks must be identified and the likelihood of their occurrence and their anticipated impact assessed. In every organisation there is a need to balance its opportunities and risks if economic progress is to be maintained. Risk profiles must initially be controlled within the normal organizational internal control structures and procedures.

 

Despite these structures and procedures, the potential exists that adverse events may occur and will affect the results of normal operations throughout the institution at all levels of activity. It is therefore essential that, first, the exposure to such specific "risk events" be identified, and secondly, the likelihood of anyone of these events occurring, as well as its potential impact, be assessed. Finally, and most importantly, an HEI must have identified, through defined responsibility and accountability for management, each risk event, condition or area. There must, therefore, be an established line-function individual/committee with the remit of determining the identification and interpretation/assessment of risks, as well as intervention measures and all aspects of the management of risk affecting the HEI. A resultant "risk register" should be maintained.

 

The scope of the duties of risk management within the organisation must therefore be clearly defined. The individual/committee responsible must report to both the Audit and Finance Committees and through them to the Council, and such individual or chairperson must have unrestricted access to the chairpersons of the Audit Committee and of the Council and to the Principal. It will also be essential to report to other appropriate committees, e.g. "Buildings and Safety". At least annually, the Council should review a comprehensive report on significant risks facing the institution.

 

There are some risks that will have direct financial implications and there are others that will not have immediate financial implications. These are differentiated from each other as "financial risks" and "non-financial risks". Eventually, "non-financial risks" may have serious financial implications, which will need to be identified.

 

 

All potential risk consequences must be both identified and evaluated and, by appropriate management, the conditions arising within which such risks must constantly be controlled and monitored. Methods of minimising adverse consequences must be employed based on cost effectiveness analysis. For this reason the risk register must be constantly up-dated.

 

The proper management of such conditions is therefore a matter that the governance of an institution must be assured about and on which it must receive reports. A precondition for this is that responsibility and accountability for the identification and management of risk events and risk areas should be assigned and managed within the institution.

 

A report on "risk and risk management" prepared by the risk committee or the responsible officer is included in the Annual Report and signed by the responsible individual or the chairperson of the Risk Committee or by the chairperson of the Audit Committee.

 

This report should describe in general terms any structures that are in place to assess and to minimise the risk of loss, both financial and non-financial, to the institution. The most significant risks should be identified, together with the measures applied to control these risks within the context of the strategic attitude to risk adopted by the Council and the administration.

 

The report is signed by the officer/committee with the designated "risk" responsibility and the chairperson of the Audit Committee.

 

 

The review should provide an overview of the institution's budget process and indicate the means whereby the process, specifically as regards to resource allocation, promotes the attainment of the strategic goals and objectives of the institution and intends to promote operational sustainability in the foreseeable future.

The effect of the budgetary control mechanism in maintaining financial discipline throughout the institution should be addressed. The review should also address salient features in the financial statements in relation to the financial condition of the institution and the extent to which the achievement of primary strategic objectives is reflected in these statements. There should be a statement distinguishing between the financial consequences of the use of assets representing restricted and those representing unrestricted (Council-controlled) funds. This report should be treated as a thorough financial analysis of the institution using all data contained in the financial statements, and any other additional financial records.

 

The Chairperson of the Finance Committee and the Chief Financial Officer sign this report.