Corporate Governance in South Africa: Weak Links that Allow Fraud and Corruption to be Rampant
One has now lost count of the number of fraud and corruption incidents that get reported in the media - almost daily. Most would agree that this indicates our corporate governance is collapsing, has completely collapsed or that it needs some serious re-vamp. The fact that fraud and corruption incidents do get reported, confirms that corporate governance still works – but mainly on the detective side. What about the preventative side? Until a balance is struck between preventative and detective controls, combating fraud and corruption will remain as elusive as ever or may even escalate. I have noted three key weak links in our corporate governance structure here in South Africa:
- We do not have minimum governance structure expectation from organisations. Until we do that, we will forever be chasing possible fraud and corruption perpetrators only after the action has been done;
- Organisations are not legally required to have internal audit departments. Those that have internal audit departments make such to suffocate within the organisations – adding very minimal value if any, to what they could potentially do to their organisations;
- The fact that organisations have an option to follow King III guidelines or not is a waste of resources - taking into account time and money invested in the research. What is the use if only say 10 percent of organisations follow the King guidelines? It simply means there are no corporate governance guidelines in South Africa.
To re-invent itself, internal audit has to fight for legal recognition. The current status is that organisations may opt to have or not to have internal auditors in their structures. We need legalised internal audit for these reasons:
- Once given a legal standing, internal auditors should be elevated to report not to management but to the shareholder. This will give internal auditors the necessary muscle to do their work without fear of reprisal from management;
- Preventative controls will be entrenched in all organisations. The likelihood of fraud and corruption being reported once it has occurred will be significantly reduced;
- Inefficient, ineffective and uneconomical control environment will be discovered and reported sooner rather than later;
- On-the-job training for inexperienced youths could be housed in this department. With a well run internal audit department, managers have a pleasure to recruit from the internal audit department because recruitees would have had some exposure to business processes and procedures within the organisation;
- Like external auditors, internal auditors should have their reports included in the annual reports;
- If legalised, so many new quality job opportunities will be created for youths entering the market – this is where the job fund could come in handy.
- Kgosiemang Esau Moloko, Mobile: 084 700 4784