Wednesday, April 21, 2021

When legislation becomes an impediment

BY PORTIA NKANI

The Botswana Accountancy Oversight Authority’s has said that the founding legislation of State Owned Enterprises (SOEs)  has become the underlying constraint which limits their ability to comply with best practices in corporate governance, such as those recommended by King lll or King IV.

BAOA’s 2018 annual report which was tabled before Parliament this week showed that the financial reporting monitoring and corporate governance reviews in Botswana’s SOEs continue to be a disappointment. Poor results are consistently demonstrated during the annual reviews.

The latest review for the financial year which ended in 31st December 2018 which covered ten entities also revealed widespread non compliance with international financial reporting standards (IFRS) and also non compliance with good practice in corporate governance.

The review included a local commercial bank – FNBB, some listed blue chip companies, non-banking financial institutions such as insurance companies and SOEs/Parastatals.

Through the report BAOA cautioned Public Interest Entities (PIEs) auditors for poor audit quality. More disturbing is the revelation that auditors of non PIEs fail the BAOA audit practice reviews in large numbers.

In a chit-chat with Sunday Standard at his office on Thursday, BAOA Chief Executive Officer, Duncan Majinda disappointedly expressed that the oversight body continues to see more disturbing news of failures in corporate governance by PIEs with one listed entity currently suspended from the Botswana Stock Exchange, being Choppies group.

More on the report findings, listed companies and banks appear to be better managed than their public sector counterparts.

Listed companies have strong boards constituted along lines of King lll, with the necessary balance of skills and expertise and also the balance of executive and non executive directorships. They also have strong board committees, including nominations, remuneration, and risk committees in addition to the conventional committees like finance, audit and human resources.

The report further shows that Botswana Insurance Holdings Limited and First National Bank Botswana came out to be best entities to ever have good boards of directors, good management and strong committees that comply with code of corporate governance.

Botswana Railways which recently at the Parliament Statutory Bodies examination Committee turned out to be amongst the poor performers.

Majinda however indicated that on a positive note, the company has turned around.

“This is in terms of the company’s new structure, new Board of Directors, new strategy, they now know what they are doing and this is worth noting,” he said.

Parastatals appeared to be lagging behind with poorly constituted boards dominated be ex-officio members appointed by the shareholder, which is government. The Authority’s management painted that, any semblance of balance of skills and expertise is by coincidence and not through a deliberate action by the appointing officers.

“Naturally, therefore board committees are weak and more often than not, do not include committees like remuneration, nominations and risk. Comparatively, the remuneration of staff and board members is also lagging behind and does not meet the guidelines of King lll,” reads the report.

As the profession, Majinda said, “we must together put our house in order by promoting high standards of financial reporting and auditing to enhance accountability and transparency.”

He added, “This might sound like a harsh attack on the profession but in order to come up with appropriate interventions, we have to be candid about our weaknesses as the profession.”

Majinda advised that some entities should take BIHL and FNBB as a benchmark to improve in the area of corporate governance and financial reporting standards.

Michael Lesolle, BAOA Board Chairperson also could not hide his dissatisfaction on the subject at hand.

He indicated that, it is in the area of corporate governance where SOEs quote their founding legislation as the underlying constraint which limits their ability to comply with best practices in corporate governance.

In a different but related context, the public has in recent months witnessed some degree of dysfunction in certain parts of the economy particularly as regards allegations of corrupt practices and white collar crime.

The exemplary fresh case that Sunday Standard can put a finder on is that of the National Petroleum Fund which implicates amongst them, the Kebonang twin brothers Zein and Sadique, as well as Bakang Seretse. The matter is still ongoing before the courts of law.

Another case to cite is the 2017 Botswana Public Officers Pension Fund’s fraud scandals where pensioners’ investment was misappropriated and remained unaccounted for.

Put together, according to Lesolle’s commentary, “these are major threats to investor confidence and economic stability in the country overall.”

The relatively new authority established in 2010, has also talked with leadership of the Botswana Institute of Chartered Accountants (BICA) to up its game in monitoring their members as the high incidents of non compliance with IFRS are a result of the poor performance of their members.

During 2018, the Authority embarked upon further raising public awareness regarding the consequences of the breakdown in corporate governance protocols within the economy at large. The former Botswana Accountancy College Executive Director, Lesolle expressed that, it therefore became imperative for the Authority to do all in its power to impose compliance and enforcement targeted at the market as a whole. Public interest entities and certified auditors are sampled on an ongoing basis to establish any deviation from the expected minimum standards.

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