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Insurance for small businesses: What should be covered?

Insurance for small businesses: What should be covered?

Small firms contribute to more than 40% of South Africa’s gr...

Forward-thinking solutions to financial compliance woes

Forward-thinking solutions to financial compliance woes

According to a recent international survey conducted by Long...

Before you claim - know your facts

Before you claim - know your facts

Is buying insurance products simply a leap of faith? Persona...

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Monday, 07 April 2014 12:27

The 5 Best Corruption Tips for April

The 5 Best Corruption Tips for April

If you want to be successful in fraud and corruption, South Africa seems to be the perfect university for the eager pupil.


April Fool jokes aside, the hard-ribbed reality is that corruption, like crime, pays. It is the reason the Mafia have lasted where governments have failed. It’s what keeps the courts and jails filled. Whenever the temptation factor is high, corruption will follow.


The Old English word for best derives from the superlative of its root word, meaning remedy or reparation. For many the best remedy for their own greed is to steal, lie, and cheat. The best way to promotion, it seems, is through corruption and not hard work or strong ethics.

Published in Economy
Tuesday, 22 October 2013 10:18

Ethics in the Workplace

Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great.

Whenever we think of ‘ethics in the workplace’, we inevitably think of all the things we could possibly do wrong at work. In the workplace, ethics seems to be about not committing fraud, theft or corruption. It is about not sexually harassing colleagues or discriminating unfairly. What ethics in the workplace requires also depends on who you ask. For those in management, it is about getting everyone to toe the line – not to loaf, not to steal, not to accept gifts or bribes in return for preferential treatment, and not to use company resources for private gain. For employees, on the other hand, it is all about unfairness – in treatment, in workload, and in remuneration.

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Published in Accounting & Payroll
Reckless lending equals 9.3 million consumers with impaired credit records

The debt industry portal, theDCI recently announced its support for initiatives by the authorities to address a ‘rising flood’ of unsecured debt that threatens to swamp embattled consumers.


Initial steps by Finance Minister Pravin Gordhan and National Treasury are welcome, but further action is required, theDCI lead a recent campaign that forced credit providers to suspend their Voluntary Debt Mediation Solution as it was judged to be in violation of the National Credit Act (NCA).


The recent meeting between the Minister, Treasury and banking leaders is the first implicit acknowledgement that unsecured lending is a problem and the scourge of millions of South Africans.


The authorities stopped short of calling it a ‘bubble’ and highlighted the rapid increase as a ‘concern’. Whether it’s a ‘bubble’ or a rising flood of unsecured debt depends on your choice of words.


Thankfully, the authorities are starting to listen to debt counsellors (DCs) and now acknowledge the distress we see daily. Millions are ensnared in debt and it is high time banks reviewed their lending practices. DCs know of numerous abuses and are eager to assist the authorities by providing details.


At the end of the banking indaba, Treasury said banks “could do more to ensure they lend responsibly”.


Reserve Bank statistics indicate unsecured loans rose 21% to R381 billion in the year to June. This category of lending includes personal loans, credit card debt and credit from retailers.


Ramped-up personal debt offsets weak corporate demand for credit while charges on unsecured loans can be five times higher than other categories.


Until the NCA’s introduction, banks drove up profits by giving multiple housing bonds to better-off customers. Then the economy hit trouble, higher earners became over-exposed and the NCA tightened up lending criteria on credit.


As a consequence banks then proceeded to aggressively market the lucrative unsecured loans sector. Millions of families now face the consequences. Reckless lending is a far bigger issue than what is currently being acknowledged.


Figures from the National Credit Regulator suggest 9.3 million South Africans are behind with credit instalments. The outstanding amount totals R1.36 trillion.


About 6400 consumers a month apply for debt counselling, the NCA-backed process that helps over-indebted people repay debt.


Demand for affordable ways of handling debt has risen so dramatically that theDCI, in collaboration with a leading broker and underwriter, recently launched its own group life insurance product, enabling debts owed by consumers to be provided for in the event of the death of the consumer, in a one cost-effective package.


The debt counselling industry works hard to assist debtors, but prevention is better than cure. We must combat reckless lending and credit extension abuses and there are many. We see cases where credit consultants don’t check application forms for obvious misstatements and lies. They focus solely on obtaining new business.


There are cases where instead of advising clients to get a bond at affordable rates a lender’s marketing staff encourage them to take out multiple unsecured loans. The reason? Banks make up to 32% and more in profit on these deals.


Contrary to misleading statements in the press of late, it is cheaper for consumers to go into debt review than to take out another loan. Debt review is a real solution that works.

Published in Banking
Corporate ethics, government ethics – are we accepting double standards?

South Africa has an excellent corporate governance regime, with a raft of laws, codes and guidelines designed to enforce compliance with the highest global ethical standards.


“At its heart, ethical business practice is about accountability,” says Kevin Phillips, MD of idu Software. If I am the director of a business, I am in effect managing the money of the shareholders in that business – and I have a duty to manage it with care, skill and honesty, and to account for my actions. That is what a “fiduciary duty” is – to uphold the trust people place in us when they give us charge of their cash. The principle is ancient (the word “fiduciary” comes from the Latin), but nowadays it is also enshrined in statutory as well as common law. Directors who fail in this duty now face criminal prosecution and even prison time.

Published in Accounting & Payroll
Friday, 31 August 2012 11:51

South Africa’s top 100 listed companies make positive progress on corporate reporting, but still some way to go

Intergrated Reporting

South Africa’s top 100 companies listed on the JSE have made positive progress in their corporate reporting initiatives, yet there remain areas for improvement, according to a report released by Professional Services Firm PwC.

Zubair Wadee, a director at PwC says: "Most companies appear to be comfortable disclosing those matters that have traditionally been a focus area, such as reporting related to audit committees, but appear to be less comfortable in addressing newer areas of governance introduced in the third King Report on Governance for South Africa, 2009, such as IT governance.”

The purpose of PwC ‘s ‘Moving from principle to practice: Corporate reporting survey’ is to assess reporting by entities both in terms of the King III Report, which became effective for all companies listed on the JSE with financial years commencing on or after 1 March 2010, and selected benchmarks arising from current developments in integrated reporting. The survey process involved an analysis of the integrated reports of the top 100 companies on the JSE for their financial periods beginning on or after 1 January 2011. The study focuses on pivotal areas contained in the King III Report, such as boards and directors; ethical leadership; the governance of information technology; the audit committee; compliance with law and rules; and integrated reporting.

South Africa was the first country to mandate integrated reporting for all listed companies. An integrated report brings together the material information about a company’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context in which it operates.

Professor Mervyn King, Chairman of the International Integrated Reporting Committee and non-executive Chairman of PwC’s Business School, says: “Integrated thinking is a revolution in management and board behaviour. The outcome of integrated thinking is the integrated report. All companies depend on a variety of resources and stakeholder relationships to create value and to sustain value creation.

“The world has changed and so must corporate reporting. The users of corporate reports need to make an informed assessment that the company will sustain value creation. The only way in which to do this is by means of a concise and clearly understandable integrated report.”

Wadee says: “There is an increased global focus by investors, regulators, markets and other interested stakeholders on the integrated reports that are being released by listed South African companies. They will be looking at the quality of reports and the trends as they start to evolve.”

Boards and disclosure

The study shows that there is room for improvement in reporting on the actual performance of the board and its committees. Although the board was cited in many cases as a formality, it was not possible to ascertain whether it was actually engaged in any of the listed activities of committees.

While the classification of board members in terms of independence was well disclosed overall, the process of assessing the stated independence of directors was not always adequately explained by companies.

The majority of companies (85%) reported on directors’ remuneration, keeping in line with the requirements for listed companies contained in the King III Report.

Ethical leadership and corporate citizenship

Most entities tended to shy away from reporting on the more progressive areas of the King III Report, for example, the disclosing of actual performance in terms of ethics.

The study suggests that the measurement of the effect of corporate citizenship initiatives is an area in which entities could improve by attaching statistics or financial investments to specific initiatives. ‘Something as simple as disclosing the number of families in a community that could have been affected by an entity’s actions could improve an integrated report,” says Wadee. One of the trends that is evident from the survey is that companies dedicate a significant amount of effort to reporting comprehensively, while not always considering whether those items that have been reported upon are material to the users on the report.

IT governance

As with other areas that are new to King III, most companies provided very little information about the governance of information technology. “This is concerning given the ubiquitous nature of IT in the operations of most entities,” he says. Only two-thirds of all entities surveyed indicated that the governance of IT is a board’s responsibility, while only a handful discussed the importance of IT in relation to the strategy of the company or discussed the implementation of an IT governance framework.

Audit committees

The role of the audit committee has increased significantly in the wake of the King III Report and it appears that most companies have understood the importance of this committee and are being seen to comply with the requirements of the report. There has been an increased focus on ensuring that the appropriate number of non-executive directors serves on the committee (more than 80%). Furthermore, most companies describe the role of the audit committee in risk management.

However, almost a third of audit committees did not provide adequate information relating to the audit committee’s oversight role in the implementation of a combined assurance model, or the appointment and performance review of the chief audit executive.

A refreshing trend has emerged whereby 82% of reports disclosed how the audit committee discharged its duties during the financial period under review. Wadee says that a potential focus area in future will be the appointment of a chief audit executive for internal audit by the audit committee, and oversight of this individual’s performance.

Risk governance

An overwhelming percentage of companies (90%) disclosed their key risks and how they were mitigated. However, only 25% of entities disclosed their risk appetite. “This is disappointing as most companies would presumably have this information readily available.

“While it is encouraging that the vast majority of boards of directors accepted responsibility for risk management and have disclosed how risk management has been aligned with the strategy of the company and integrated into the daily activities of the company, it is concerning that less than two-thirds reported on their assessment of the effectiveness of risk management,” says Wadee. Furthermore, less than a quarter of companies surveyed disclosed who the chief risk officer was.

Internal audit

The majority of companies reported that they had an internal audit function in place. However, the study shows there is some room for improvement in terms of reporting on how the internal audit reports to the audit committee (currently 85% of companies disclose this).

Laws and regulations

The majority of companies provided very little information about compliance with laws, rules, codes and standards. Wadee says that this is concerning, given that all companies operate within legal frameworks that could potentially have a detrimental effect both financially and from a reputational perspective for entities that do not comply with them.

Integrated reporting and disclosure

While most companies explained their vision and objectives in their reports, less than two-thirds of organisations surveyed disclosed the performance measures management uses to monitor the success of its actions. Furthermore, only half of integrated reports disclosed performance targets and the organisations’ achievement in respect of these targets.

Given that most entities express the desire to grow, the report finds it surprising to note that only half of the companies surveyed explain the key underlying external drivers for current and future growth. Also of concern is the neutrality and balance of the disclosures that companies provide. In 85% of reports surveyed, companies disclosed a positive effect, while less than a third of organisations disclosed any negative aspects.

Responsibility for sustainability reporting is also not clearly defined in almost a quarter of reports. Although all of the companies surveyed had a sustainability report, only 43% obtained assurance over the key elements of sustainability reporting, with half of these being assured by the external auditor.

An emerging trend is for companies to produce a separate sustainability report that does not form part of the integrated annual report, while incorporating material sustainability aspects into the integrated report. Although it is encouraging to note that entities value sustainability enough to devote an entire report to it, in some cases the integrated report does not contain enough information about sustainability issues to satisfy the criteria of the King III Report, says Wadee.

Wadee says: “While companies have made positive strides in moving towards integrated reporting, it has been an evolutionary rather than a revolutionary process. There are clear leaders in this field of reporting who have embraced the concept wholeheartedly, while others are taking a more cautious and reactionary approach, driven by what the leaders in this space are doing. Overall the effect is a positive one – reporting in South Africa is moving in the right direction.”

Listen to the podcast of Prof. Mervyn King's presentation of the findings to the survey!

Published in Financial Reporting

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