Governance Lapses in SOC Annual Reporting Cycle 2010/11

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