1. KING III Impact on Government

2. Contents Introduction Key Principles of King III Governance Framework and Application New Requirements Chapters 1 to 11 of King III Way Forward

3. Introduction King III released on 1 September 2009 Represents a significant milestone in the evolution of corporate governance in South Africa Significant opportunities for institutions that embrace its principles.

4. Key principles of King III King III has broadened the scope of corporate governance in South Africa with its core philosophy revolving around leadership, sustainability and corporate citizenship. These key principles are given prominence: Good Governance is essentially about effective leadership. Sustainability Innovation, fairness and collaboration are key aspects to any transition to sustainability Social Transformation and Redress

5. Governance Framework and Application King III has opted for an ‘apply or explain’ governance framework. Best interests of the institution, it can adopt a practice different from that recommended in King III, but must explain it King III applies to all entities regardless of the manner and form of their incorporation or establishment. Principles are drafted on the basis that, if they are adhered to, good governance is practised. Institutions should disclose which principles and/or practices they have decided not to apply or explain.

6. New Requirements Some of the requirements introduced by King III include: The need for an annual integrated report that focuses on the impact of the institution in the economic, environmental and social spheres; A statement by the audit committee to the board and shareholders on the effectiveness of internal financial controls to be included in the integrated report; The consideration of the strategic role of IT and its importance from a governance perspective; The positioning of internal audit as a strategic function that conducts a risk-based internal audit and provides a written assessment of the institution’s system of internal control, including internal financial controls; and The governance of risk through formal risk management processes

7. Ch1. Ethical Leadership and Corporate Citizenship The responsibility for leadership is assigned to the EA and delegated to the AO – The PSR articulates the responsibility of the AO Responsibility for effective service delivery is the AO – Measurable objectives are established in the Strategic Plan Management of Ethics – Ethics and Code of Conduct as per PSR

8. Ch2. Boards and Directors Departments do not have boards of Directors Corporate Governance Board Functions are performed by the AO and Executive management team The EA approves the strategy and this is tabled in the Legislature Leadership positions are expected to perform their duties in the best interest of the department Executive appointments are regulated by the PSA Responsible for establishing Audit Committees Governance Responsibilities as per TR Remuneration matters are managed by the DPSA

9. Ch3. Audit Committees The Executive should ensure that the department has an effective and independent audit committee Audit committee members should be suitably skilled and experienced independent non-executive directors The audit committee should be chaired by an independent non-executive director The audit committee should oversee integrated reporting The audit committee should ensure that a combined assurance model is applied to provide a coordinated approach to all assurance activities

10. Ch3. Audit Committees …. The audit committee should satisfy itself of the expertise, resources and experience of the finance function The audit committee should be responsible for overseeing of internal audit The audit committee should be an integral component of the risk management process The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process The audit committee should report on how it has discharged its duties

11. Ch4. Governance of Risk Responsibility for RM has been established in the PFMA RM framework has been established by NT Prudent RM to be achieve objectives The RM Committee roles and responsibility is established in RM framework Management responsibilities for risk ownership and management Risks must be assessed on a regular basis Risk management plans must be regularly assessed IA to assess the key risk facing the department Responsibility of IA, AC and AG to provide independent assurance on the effectiveness of RM processes Annual Report to disclose on RM arrangements

12. Ch5. Governance of IT PSR Chapter 5 places an obligation for AO to ensure the acquisition, management and utilisation of IT improves. PSR recognises the important roles IT plays to achieve Government vision TR requires IT acquisition or expansion plan in line with IT Plan IT Governance Framework, IT Committee, Charter, Policies and Procedure Information Technology Guidelines adopted refers to Control Objectives for IT (COBIT) Minimum Information Security Standards – CIO Internal Audit to evaluate the controls in IT IT to form an integral part of RM SITA to assist with management of IT risks Information assets managed properly (PPI, PAIA, MISS)

13. Ch6. Compliance with Laws, rules, codes & standards The PFMA takes precedence over all other laws within the public sector environment Section 38 requires AO to ensure compliance with applicable legislation Legal services units established to provide assistance with compliance Compliance with laws and regulations articulated in the RM framework Review of compliance delegated to the AC and IA

14. Ch7. Internal Audit The Executive to ensure that there is an effective internal audit unit Internal audit follow a risk-based approach to its plan Internal Audit to comply with IIA standards Internal audit to provide a written assessment of the effectiveness of the system of internal controls and risk management The audit committee responsible for overseeing internal audit Internal audit strategically positioned to achieve its objectives

15. Ch8. Governing Stakeholder Relationships Stakeholder perceptions managing stakeholder perceptions and relationships is an integral part of the day-to- day operations Batho Pele Principles Stakeholder relationships SCOPA, Portfolio Committee, public can attend

16. Ch9. Integrated Reporting and Disclosure Transparency and Accountability PFMA requires an Annual report Integrity of Annual report Annual Report includes financial and non- financial information Reporting requirements prescribed by NT AG to report on going concern / sustainability issues AC to evaluate and report on AR

17. Ch10. Alternative Dispute Resolution All internal disputes are handled in terms of the regulations set out by the Public Service Commission. Presiding officers are appointed to manage the internal dispute processes together with labour relations units Treasury Regulation 16A deals with supply chain management as it relates to contracts and contract management. The Accounting Officer cannot commit to any liability for which money has not been appropriated (section 38(2) of the PFMA)

18. Ch.11 Internal Financial Controls Control framework adopted (e.g. COSO) Controls in place to manage risks Treasury Regulation requires that the AC comment on the effectiveness of internal control in the annual report The AC include the oversight role over financial information, internal controls and legal and regulatory compliance IA to subject the information systems environment to evaluation.

19. Ch12. Remuneration of Directors and Senior Executives The remuneration structures for national and provincial government are determined via section 37 of the Public Service Act (PSA), and articulated in Part V of the PSR. Part III and Part VIII of the PSR sets out the performance management systems to be established and adopted Disclosure is limited to number of employees per level and band within a level. The annual report templates issued by National Treasury require disclosure of employee costs and vacancies

20. Way Forward Managers to be aware of requirements in terms of King III for their various sections Review measures to implement requirements not yet implemented Implement requirements of King III or explain reasons for non-compliance Combined Assurance Service Delivery RESPONSIBILITY

21. Thank You Questions ???