GOVERNANCE LAPSES GOVERNANCE LAPSES EMANATING FROM THE SOC EMANATING FROM THE SOC ANNUAL REPORTING CYCLE ANNUAL REPORTING CYCLE 2010/112010/11

Presentation to thePresentation to the Portfolio CommitteePortfolio Committee

28 FEBRUARY 201228 FEBRUARY 2012

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TABLE OF CONTENTSTABLE OF CONTENTS

• SOC GOVERNANCE STRUCTURE, THE DPE CONTEXTSOC GOVERNANCE STRUCTURE, THE DPE CONTEXT Shareholder Relationship with the Boards The Logical Planning, Monitoring & Evaluation Process Shareholder Compact & Corporate Plans Performance against pre-determined objectives

• SOC INTERNAL CONTROLS SOC INTERNAL CONTROLS Review of 2010/11 SOC Annual Reports & Governance Lapses

Requirement

• DPE CONTINUED INTERVENTIONS TO ENHANCE THE DPE CONTINUED INTERVENTIONS TO ENHANCE THE SOC OVERSIGHT ROLESOC OVERSIGHT ROLE

• DPE/SOC LEGISLATIVE/POLICY CHALLENGESDPE/SOC LEGISLATIVE/POLICY CHALLENGES Integrated Coastal Management BillIntegrated Coastal Management BillECS Licence for InfracoECS Licence for InfracoPPPFA RegulationsPPPFA RegulationsAventura Resorts ActAventura Resorts Act

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SHAREHOLDER RELATIONSHIP WITH THE SHAREHOLDER RELATIONSHIP WITH THE BOARDBOARD

• The Board of each SOC is accountable to the shareholder Minister – this relationship functions through corporate law.

• DPE & SOC corporate governance includes processes & systems by which SOC are directed, controlled & held to account to stakeholders (shareholder, Parliament, customers, employees, lenders e.t.c).

SHAREHOLDER EXPECTATION - the Board to:SHAREHOLDER EXPECTATION - the Board to:

• Report on adequacy of controls, sufficiency of resources, business plan & SOC performance.

• Account and evaluates its performance against the outcomes in the Shareholder Compact.

• Apply government policies consistently across the SOC.• Ensure that the SOC have strong, independent and adequately

skilled Executive Management to oversee and supervise the SOC business operations.

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LOGICAL PLANNING, MONITORING & LOGICAL PLANNING, MONITORING & EVALUATION PROCESSEVALUATION PROCESS

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THE SHAREHOLDER COMPACT AND THE SHAREHOLDER COMPACT AND CORPORATE PLANCORPORATE PLAN

• Treasury Reg 29.2.1Treasury Reg 29.2.1: the Board is primarily responsible for initiation of shareholder's compact, to be concluded by OCTOBER of each year ahead of the annual plan.

• Treasury Reg 29.2.2Treasury Reg 29.2.2: The shareholder's compact MUST document the mandated key performance measures and indicators to be attained by the SOC as agreed between the Board and the Minister.

 • Treasury Reg 29.1.1Treasury Reg 29.1.1: The corporate plan must cover a period

of 3 YEARS and must include:

(a) strategic objectives; and (b) outcomes identified and agreed to by the Board and the

Minister in the shareholder's compact.

The above shows that, the shareholder's compact must first The above shows that, the shareholder's compact must first be in place; then corporate plan must be prepared to be in place; then corporate plan must be prepared to demonstrate how the KPAs and KPIs in the shareholder's demonstrate how the KPAs and KPIs in the shareholder's compact will be achieved (implementation plan).compact will be achieved (implementation plan).

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PERFORMANCE AGAINST PRE-DETERMINED PERFORMANCE AGAINST PRE-DETERMINED OBJECTIVESOBJECTIVES

• All public sector entities are required to submit their annual performance reports for auditing together with the annual financial statements within TWO MONTHS after the end of the financial year;

• Where the AGSA has opted not to perform the audit of a public entity, the audit report must reflect an opinion or conclusion on the reported information relating to the SOC performance against pre-determined objectives;

• The auditing of performance information provides assurance on whether the reported performance against predetermined objectives by SOC is useful and reliable; and

• Focus is on strategic planning, implementation, monitoring and reporting of actual performance (information) against predetermined objectives.

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SOC INTERNAL CONTROLS

GOVERNANCE LAPSES (1)GOVERNANCE LAPSES (1)

• PFMA Section 65: Requirement for EA to table their institutions’ AR & AFS within SIX MONTHS from FY end.

• Review of the 2011 audit indicated poor outcomes for some SOC (financial management, poor audits & governance challenges).

• The Shareholder is concerned with the wide range of challenges emanating from the SOC AR such as: Challenges around non-compliance with legal and regulatory

prescripts; Qualified audits (lack of internal controls, inadequate information

provided to auditors, fruitless and wasteful expenditure, late submission of information);

SCM audit findings ( unfair and/or irregular procurement practices, inadequate controls & poor contract management ) – systemic across SOC;

Emphasis of matter (awareness of issues that require attention such as going concern issues & guarantees that are due to expire over the next year) – relationship between internal & external auditors;

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GOVERNANCE LAPSES (2)GOVERNANCE LAPSES (2)

Deficient management structures & vacancies at senior level (no information on resignation of senior executives);

Incoherencies, both at Board and management levels (tensions between the Board & the CEO) - very often there are little or no early warning signs of a dysfunctional relationship;

Inadequate measures, mechanisms and/or systems in place to deal with potential cases of directors’ conflict of interest & appropriate disclosures;

Delays in finalisation of Shareholder Compacts; Planned targets not met (financial, operational, HR, socio-

economic, safety); and Quality of information submitted to DPE – manifest itself through

PFMA applications & retrospective approvals.

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GOVERNANCE LAPSES (3)GOVERNANCE LAPSES (3)

• Risk Management:Risk Management: The Department is not adequately informed of impending or

emerging risk – divulging of material information to Parliament and/or media;

Risk management strategies are not outlined in the reports; and

Inadequate financial disclosures & Board’s reliance on management without verification of information submitted.

• Managing the reputational risks to the Government:Managing the reputational risks to the Government: Ensuring alignment between the Compact targets and

executive performance (Remuneration and benefits of executive managers); and

Negative issues emanating from the auditors report, financial losses.

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GOVERNANCE LAPSES (3)GOVERNANCE LAPSES (3)

• Misalignment between the SOC quarterly reporting, the draft Misalignment between the SOC quarterly reporting, the draft annual financials; the AGM pack and the final AR:annual financials; the AGM pack and the final AR:

Ratification of a defective notice (incomplete pack); Condonation of late submission; Hampers the technical teams’ ability to adequately prepare the

Department’s leadership for the AGM; Results in a postponement of the AGM; and Has a negative impact in meeting the deadline to table the

Reports to Parliament.

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DPE’s INTERVENTION (1)DPE’s INTERVENTION (1)

• Strengthen the appointment of Board and Board Committees (section 66 Companies Act & 51 of the PFMA).

• Appointment of Audit & Risk Committee ( section 94 of the Companies Act read with section 25 of the PAA – consultation with AG is critical & statutory).

• Formalised process (reminder to SOC to submit their Corporate Plans by 28 February – Section 52 of the PFMA – engagement with NT is critical).

• Appointment of internal auditors (delineation of roles recognised) - review reliability of information, ensure compliance with policies, procedures, company systems, laws and regulations.

• Submission of quarterly reports to DPE & robust monitoring of mega projects.

• Independent Board Evaluations – to improve Board performance, provide role clarity & accountability.

• Board induction - to provide clear & coherent shareholder expectation.

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DPE’s INTERVENTION (2)DPE’s INTERVENTION (2)

• Improving on Channels of Communication (improve on Improving on Channels of Communication (improve on decision making process)decision making process)

Strategic monthly meetings (Minister & Chairpersons, DG & CEOs and Chairpersons Forum & other related forums).

Structured engagements with AG. Standing meetings (x2 per annum) between AG, Minister &

Chairpersons of the Audit & Risk Committees. Regular interactions with NT. DG and Ministerial bilateral – to (i) address bottlenecks and (ii)

ensure alignment with policy departments. Adhoc meetings with DPE officials.

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LEGISLATIVELEGISLATIVE//

POLICY POLICY CHALLENGESCHALLENGES

TRANSPORT TRANSPORT

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• Exclude any immovable structure within Ports from the coastal public property

TRANSPORT (CONT…)TRANSPORT (CONT…)

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BROADBAND INFRACOBROADBAND INFRACO

Infraco’s Statutory Infraco’s Statutory Mandate Mandate

Is to expand the availability and affordability of Is to expand the availability and affordability of access to electronic communications (Broadband access to electronic communications (Broadband Connectivity)Connectivity)

LicenceLicence

Infraco was issued with ECNS licence by ICASA in Infraco was issued with ECNS licence by ICASA in October 2009 enable Infraco to provide long October 2009 enable Infraco to provide long distance connectivity to national and distance connectivity to national and international markets on a bulk wholesale basisinternational markets on a bulk wholesale basis

In terms of the Broadband Infraco Act, Infraco In terms of the Broadband Infraco Act, Infraco should be issued with the following licences to be should be issued with the following licences to be able to carry out its mandateable to carry out its mandate Electronic communications network services Electronic communications network services

(ECNS)(ECNS) Electronic communications services (ECS)Electronic communications services (ECS)

Decision by ICASADecision by ICASAOn 7 April 2010, ICASA resolved not to issue an On 7 April 2010, ICASA resolved not to issue an

ECS licence to InfracoECS licence to Infraco

ImplicationsImplications

The lack of ECS licence will make it virtually The lack of ECS licence will make it virtually impossible for Infraco to achieve developmental impossible for Infraco to achieve developmental or strategic objectivesor strategic objectives

To ask ICASA for additions conditional ECS licence at leastTo ask ICASA for additions conditional ECS licence at least

Way forwardWay forward

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PREFERENTIAL PROCUREMENT POLICY PREFERENTIAL PROCUREMENT POLICY FRAMEWORK REGULATIONSFRAMEWORK REGULATIONS

AVENTURA LIMITEDAVENTURA LIMITED

DECISION TO WIND UP

• Cabinet decided at Aventura be wound up• Aventura not carrying out business since then • Some assets disposed of• Department will be initiating voluntary liquidation process

• First liquidate and deregister the company• Repeal the Aventura Resorts Act • Last Quarter 2012/13 Financial Year or first Quarter 2013/14

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LEGISLATIVE PROCESS

THANK YOU