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Governance Lapses in SOC Annual Reporting Cycle 2010/11

This presentation discusses the governance lapses and challenges observed in the SOC annual reports for the cycle of 2010/11. It covers the SOC governance structure, shareholder relationship with boards, planning and evaluation process, performance against objectives, internal controls, and interventions to enhance SOC oversight. It also addresses legislative and policy challenges.

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Governance Lapses in SOC Annual Reporting Cycle 2010/11

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  1. GOVERNANCE LAPSES EMANATING FROM THE SOC ANNUAL REPORTING CYCLE 2010/11 Presentation to the Portfolio Committee 28 FEBRUARY 2012 CONFIDENTIAL

  2. TABLE OF CONTENTS • SOC 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 • Review of 2010/11 SOC Annual Reports & Governance Lapses Requirement • DPE CONTINUED INTERVENTIONS TO ENHANCE THE SOC OVERSIGHT ROLE • DPE/SOC LEGISLATIVE/POLICY CHALLENGES • Integrated Coastal Management Bill • ECS Licence for Infraco • PPPFA Regulations • Aventura Resorts Act CONFIDENTIAL 2

  3. SHAREHOLDER RELATIONSHIP WITH THE BOARD • 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: • 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. 3 CONFIDENTIAL

  4. Intra-governmental consultations Consultations with sector depts., NT & Presidency on SOC strategy LOGICAL PLANNING, MONITORING & EVALUATION PROCESS Strategic Intent Statement SOC AGMs & Reporting to Parliament PFMA Sec 65 Performance Monitoring TR 29.3 - Quarterly Reports - Dashboard - Quarterly & annual Investor Briefs Shareholder Compact TR 29.2 SOC Corporate Plan PFMA Sec 52 28 Feb 4 CONFIDENTIAL

  5. THE SHAREHOLDER COMPACT AND CORPORATE PLAN • Treasury 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 29.2.2: 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 29.1.1: 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 be in place; then corporate plan must be prepared to demonstrate how the KPAs and KPIs in the shareholder's compact will be achieved (implementation plan). 5 CONFIDENTIAL

  6. PERFORMANCE AGAINST PRE-DETERMINED OBJECTIVES • 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. 6 CONFIDENTIAL

  7. SOC INTERNAL CONTROLS

  8. 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; 8 CONFIDENTIAL

  9. 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. 9 CONFIDENTIAL

  10. GOVERNANCE LAPSES (3) • 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: • 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. 10 CONFIDENTIAL

  11. GOVERNANCE LAPSES (3) • Misalignment between the SOC quarterly reporting, the draft 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. 11 CONFIDENTIAL

  12. CONFIDENTIAL 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. 12

  13. CONFIDENTIAL DPE’s INTERVENTION (2) • Improving on Channels of Communication (improve on 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. 13

  14. LEGISLATIVE/ POLICY CHALLENGES

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

  16. TRANSPORT (CONT…)

  17. BROADBAND INFRACO • Is to expand the availability and affordability of access to electronic communications (Broadband Connectivity) Infraco’s Statutory Mandate • Infraco was issued with ECNS licence by ICASA in October 2009 enable Infraco to provide long distance connectivity to national and international markets on a bulk wholesale basis • In terms of the Broadband Infraco Act, Infraco should be issued with the following licences to be able to carry out its mandate • Electronic communications network services (ECNS) • Electronic communications services (ECS) Licence Decision by ICASA • On 7 April 2010, ICASA resolved not to issue an ECS licence to Infraco Implications • The lack of ECS licence will make it virtually impossible for Infraco to achieve developmental or strategic objectives Way forward • To ask ICASA for additions conditional ECS licence at least

  18. PREFERENTIAL PROCUREMENT POLICY FRAMEWORK REGULATIONS

  19. AVENTURA LIMITED DECISION TO WIND UP LEGISLATIVE PROCESS • 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

  20. THANK YOU

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