TRYPHOSA RAMANO: Where Gordhan must start
The Public Finance Management Act should be the guiding light to lift state enterprises out of decay
In his Thuma Mina (Send Me) clarion call recently, President Cyril Ramaphosa called for a "social compact" to lift state-owned enterprises (SOEs) out of their financial morass.
Everyone wants to see SOEs fulfil their mandates of being strategic national assets for infrastructure development and transformation, operating efficiently and embracing financial accountability to help tackle unemployment, underdevelopment and poverty.
But why has it taken government so long to fix this, given that it has always been in direct control of SOEs?
One explanation is that government has failed to deploy capable people with good credentials to the right positions. Equally, it has failed to ensure people are held accountable through the Public Finance Management Act (PFMA) and other treasury regulations.
It is hoped this will change. A month ago, Ramaphosa picked Pravin Gordhan as public enterprises minister. Gordhan will have his job cut out for him to make the PFMA the cement that holds the bricks of SOE corporate governance together.
It won’t be easy, particularly because the act has been in place for years, yet, if anything, governance lapses have increased in recent times.
Curiously, we have nonexecutive directors involved in procurement processes.
Gordhan will have his job cut out for him to make the PFMA the cement that holds the bricks of corporate governance togetherTryphosa Ramano
Why is this? Why is the concept of accountability in public financial management easy in theory but difficult in practice? Why do some of these companies hide losses to maintain a façade of profit?
The answer is that the boards and management of SOEs only pay lip service to the PFMA as a guideline of sound management, ethical accountability and governance.
For years there has been a slow breakdown in adherence to the PFMA. It’s not only boards either — citizens and customers should do their civic duty in exposing problems at these organisations.
When implemented properly, the PFMA should expose managers who pursue their own self-interest, and indulge in corruption and theft.
One of the key ways to sort out SOEs is to fix their internal auditing function — a pivotal part of any large organisation that should flag issues early in the process.
One of the questions regulators ask when public organisations such as SA Airways, the Passenger Rail Agency of SA (Prasa), Petro- SA and others have serious problems is always: "What did internal audit find?"
Independent internal audit
What many CEOs don’t seem to understand is that internal audit is accountable to the audit committee of the board of directors — not management.
This division is critical, as regulation has been modified over the past decade to stress the independence of internal audit from management.
Internal auditors themselves don’t often understand this, seeing themselves as reporting to management.
But every management team needs oversight through an effective internal audit department — even the best CEO.
We need technically astute and independent chairmen to head the audit committees of our SOEs.
In recent months, questions have been asked about how directors were chosen for the boards of state companies. Eskom, Transnet and Prasa are cases in point. In some cases, it seems to have been more of a question of who they knew, rather than how competent some of the directors were to fulfil these roles.
We need to revert to a situation where suitably qualified people apply for jobs, like everyone else, and are selected based on their skills. It’ll be a first step towards reasserting the PFMA as a foundation for instilling confidence in the ethical leadership of state companies. This is where Gordhan must start.
• Ramano is the CFO of PPC and a former board member of a number of SOEs