Presenting his report on the audit outcomes for national and provincial entities for the 2018-19 financial year, the Auditor-General, Kimi Makwetu made a call for greater accountability in an effort to stem a continuing increase in the amount of irregular and fruitless and wasteful expenditure that is draining the fiscus and impeding service delivery. Dr Simo Lushaba, a Chartered Director and facilitator at the Institute of Directors in South Africa (IoDSA), agrees that this trend will only be reversed if there are genuine consequences for directors and executives when adverse audit outcomes occur.
“At most, directors or executives are redeployed into other positions across the state system, a sort of pretend termination that is actually no consequence at all,” says Dr Lushaba. “We need civil society to step up and exert pressure on government to hold boards and executive committees to account.”
The Auditor-General’s report stated that irregular expenditure that did not comply with legislation or procurement processes increased from R51 billion to R62.6 billion. Fruitless and wasteful expenditure—money that has been lost to government—also rose to R849 million, for a cumulative five-year total of R4.6 billion.
Parmi Natesan, IoDSA CEO, says that the problem is a complex one and needs a multifaceted approach. A key challenge is that many board and executive appointments are made on political grounds, and that many appointees lack the necessary skills to implement the Auditor-General’s recommendations effectively.
“This speaks to the nomination process of executives and board members, an issue that we have raised time and again,” she says. “Government, as the powerful single shareholder, really needs to take the recommendations of King IV to heart and make these appointments with the best interests of the entity in mind. In similar vein, public-sector boards must actively engage with the shareholder to ensure that individuals with the right skills are appointed.”
She points out that the IoDSA offers Certified Director and Chartered Director designations that can only be obtained if individuals meet certain requirements based on the IoDSA’s Director Competency Framework. To maintain their status, Certified and Chartered Directors have to commit to continuous professional development to keep their skillsets current, and to the IoDSA’s Code of Conduct.
“These certifications thus offer government a credible way of identifying individuals with the necessary skills, but also individuals who can be disciplined by the IoDSA should they act improperly in any way,” she says. “The buck ultimately stops with the board, so directors have a compelling duty to ensure that they collectively have the right skills on both the board, and also specifically in relation to these findings, the audit committee.
“Another big push towards accountability is the growing use of Section 162(5) of the Companies Act to take directors who do not act in the best interests of the company to court. If declared delinquent, the director would no longer be able to act in a similar position for a specified time period. The Act applies to state-owned companies, so could be used the hold their directors to account,” she ends.
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