1. IAADVISER
APRIL/MAY 2015
STRATEGIES FOR INTERNAL AUDITORS TO NEGATE
INTIMIDATION AND VICTIMISATION
THE GREY MATTERS ON ETHICS
QUESTIONS THE AUDIT COMMITTEE SHOULD ASK ABOUT IT
2. LEADERS FORUM
8 June 2015 I Emperors Palace
The IIA SA will be hosting the Leaders Forum, exclusively for Heads of Internal Audit (CAEs).
This unique forum is an opportunity for like-minded, progressive CAEs to meet, maintain and enhance their networks, listen to
high-profile speakers and be exposed to new trends. In addition, pertinent issues affecting the profession will be discussed.
Please visit the IIA SA website: www.iiasa.org.za for more information and to register.
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3. IA ADVISER April/May 2015 | 3
BOARD OF DIRECTORS e-mail: directors@iiasa.org.za
Chairman: Riaan Thiart CIA
Vice Chairman: Vonani Chauke CIA
Directors: Faith Burn
Paresh Lalla
Paresh Lalla CIA
Oupa Mbokodo CIA
Tshepo Mofokeng
Rudzani Nemaangani CIA
Rob Newsome CIA
Molefi Nkhabu
Jan Opperman
Dion Poole CIA
Kameetha Singh
Arno Vorster
Chief Executive Officer: Dr Claudelle von Eck
Past President: Shirley Machaba
Past Past President: Justine K Mazzocco
REGIONAL GOVERNORS
Central Region: Refilwe Mocwaledi
Eastern Cape - Border Kei: Norman Trimaley
Eastern Cape - Port Elizabeth: Veronique Reddy
Gauteng - Johannesburg: Bukkie Adewuyi
Gauteng - Pretoria: Muthelo Madzivhandila
KwaZulu Natal: Alexander Winterbach
Limpopo: Moloto Mokwele
Mpumalanga: Tony Mancos
North West: Sikhuthali Nyangintsimbi
Northern Cape: Johannes van Tonder
Western Cape: James Gourrah CIA
Lesotho: Liteboho Mokuena
Namibia: Julian Beukes
Swaziland: Wesley Mndzebele
23
26
Contents
MESSAGE FROM THE chief executive officer 5
Welcome to new members 8
Strategies for Internal Auditors to Negate
Intimidation and Victimisation 10
List of Occupations in High Demand: 2014 12
MICROFINANCING: INNOVATION OR CURSE 14
THE GREY MATTERS ON ETHICS 19
QUESTIONS THE AUDIT COMMITTEE SHOULD ASK ABOUT IT 23
Corporate SA is still failing to include women 26
feedback from the 2014 National conference 28
BOOK REVIEWS 34
4.
5. IA ADVISER April/May 2015 | 5
Institute of Internal Auditors South Africa
Unit 2, Bedfordview Office Park
Bedfordview , 2008
P O Box 2290, Bedfordview, 2008
Telephone: +27 11 450 1040
Facsimile: +27 11 450 1070
IIA SA Website: www.iiasa.org.za
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Business Hours:
Mon - Thurs: 08h30 - 17h00
Friday: 08h30 - 16h00
Accounts / Finance: Warren Elbourne
e-mail: warren@iiasa.org.za
fax: 086 685 0163
Bookstore: Xolisile Vuyiswa Mngwevu
e-mail: bookstore@iiasa.org.za
fax: 086 685 0164
Certification: Tina Wolmarans
e-mail: certification@iiasa.org.za
fax: 086 685 0162
Communications and Business
Development: Val Brazao
e-mail: val@iiasa.org.za
CPD: Jenine Dresse
e-mail: seminars@iiasa.org.za
fax: 086 685 0161
Learnerships:
Lawrence Chetty: e-mail: lawrence@iiasa.org.za
Membership: Stephanie Erasmus
e-mail: membership@iiasa.org.za
fax: 086 685 0160
Regions: Nazlie Ismail
e-mail: regions@iiasa.org.za
fax: 086 572 4301
Technical: Charles Nel CIA
e-mail: charles@iiasa.org.za
fax: 086 685 0165
Advertising For advertising enquiries contact
Queen Sithole: modjadji@iiasa.org.za
If you need to change your details
please e-mail membership@iiasa.org.za
Editorial / Article Submission
Val Brazao: val@iiasa.org.za
Charles Nel: charles@iiasa.org.za
To submit an article e-mail: dorah@iiasa.org.za
ISSN 2079-729X
Published by the Institute of Internal Auditors South
Africa and supplied gratis to members.The IIA SA does
not accept responsibility for any opinions expressed
by the contributors or correspondents, nor for the ac-
curacy of any information contained in contributions,
advertisements or correspondence in this publication.
All material submitted for consideration is subject to
the discretion of the Editor and the Editorial Team. The
Editor reserves the right to edit all material. Advertise-
ments do not constitute an endorsement.
Although I have some really important Insti-
tute related news to share with you, it would
be remiss of me to not first pause and say a
few words around recent events that have
rocked our country and cast us in a very
bad light. The recent spate of xenophobic
attacks should probably not have come as a
surprise to us. Many of us have been warn-
ing for a while now that we are sitting on a
time bomb as the gap between the haves
and have-nots continuous to widen. While
most of us have preferred to only comment
from afar, we have now received a wake-up
call. This affects all of us and none of us can
distance ourselves from what has been fes-
tering within. It is going to take a collective
effort as South Africans and SA institutions
to combat what has become an embarrass-
ing exposure of the rot that is building up.
It is important that we send a clear message
to the world that South Africans will not al-
low a minority to define who we are as a
people. In this context the IIA SA says NO to
xenophobia and NO to violence against our
fellow human beings.
Now, having said that, let me turn to the is-
sues directly affecting the Institute. My in-
tention is to only focus on news not already
covered in our Integrated Report which is
accessible to all on our website. I am really
proud of our Integrated Report, which this
year now appears in both PDF and Flash
with video clips. I encourage you to read
the IR as it is filled with information on what
is happening in the land of the IIA SA.
Firstly, you should be aware of a significant
shift in the South African qualifications
landscape which has seen the establish-
ment of the Quality Council for Trades and
Occupations (QCTO) under the South Afri-
can Qualifications Authority (SAQA). As is
implicit in its name, SAQA is the custodian
of qualifications in South Africa. You will
start to hear more and more about SAQA,
especially in the light of the fact that we
have seen so many high profile cases of in-
dividuals falsifying their qualifications in re-
cent times. The Skills Development Act has
made provision for quality councils under
SAQA to oversee the establishment, regis-
tration and maintenance of qualifications.
These councils oversee the registration of
qualifications in the three main spheres of
education and training. While the coun-
cils for the schooling (Amalusi) and higher
education (CHE) sectors have long been
established, the council overseeing trades
and occupations has only recently been es-
tablished. As a result, professional qualifica-
tions had in the past been registered direct-
ly with SAQA. With the establishment of the
QCTO, all professional qualifications must
MESSAGE FROM THE
chief executive officer
6. 6 | IA ADVISER April/May 2015
MESSAGEFROMCHIEFEXECUTIVEOFFICER
now be registered with the QCTO as their direct registration with
SAQA is expiring this year. This basically means that the IIA SA has
to re-register its current learnerships under the QCTO. The Institute
has therefore now kick-started the registration of the national inter-
nal audit qualifications. We have had our first scoping meeting with
the QCTO and various stakeholders and I am pleased to announce
that the IIA SA has been appointed the Development Quality Part-
ner for the registration of the internal audit qualifications. What does
this mean for our learnerships? These qualifications essentially will
be our current learnerships now recognised as national qualifications
under the QCTO and will underpin our designations IAT and PIA. This
is good news for the profession. Those currently in our programs will
not be affected, but once the national qualifications are registered,
new entrants will go through the new process. You will not feel the
difference as the process will remain much the same.
Another important piece of news that I need to share with you is the
outcome of the AGM which was held on 22nd April 2015. Beside the
election of the directors, members also voted on changes to the By-
laws and the establishment of a subsidiary under the Institute to sat-
isfy the QCTO requirements for the new national qualifications. Both
the changes to the Bylaws and the establishment of the Academy
(subsidiary) were approved by an overwhelming majority of those
who voted.
Your new Board now consists of:
Chairman Riaan Thiart
Newly elected in this
position
Vice Chairman Vonani Chauke
Newly elected in this
position
Director Rob Newsome Re-elected
Director Molefi Nkhabu Re-elected
Director Arno Vorster Re-elected
Past Chairman Shirley Machaba
Vacated Chairman’s
seat
PastPastChairman Justine Mazzocco
Vacated Past Chairman’s
seat
CEO Claudelle von Eck
Still in office. Appointed
by the Board
Director Dion Poole Term end in 2016
Director Oupa Mbokodo Term end in 2016
Director Paresh Lalla Term end in 2016
Director Rudzani Nemaangani Term end in 2016
Director Jan Opperman Newly elected
Director Kameetha Singh Newly elected
Director Faith Burn Newly elected
Director Tshepo Mofokeng Newly elected
We congratulate all of those who were elected to serve on the Board.
With a professional body that has a lot of complexity to deal with, the
Board is kept very busy and is often confronted with tough decisions
to make. These are the people who make decisions on behalf of your
Institute and have a significant impact on the direction the profes-
sion takes in the local context. This is a significant burden. Exercising
leadership is not always an easy thing to do. In actual fact, more often
than not it is difficult as one has to be brave while taking people to
a new reality at a pace that the majority can absorb. It is therefore
imperative that we give the Board our support.
I do want to spend a minute talking to our members about the es-
tablishment of the Academy as it is important that you fully under-
stand the rationale for it. Currently the Institute is responsible for the
roll-out of the learnerships as well as the assessment process. Under
the QCTO’s procedures, provision is made for two functions for the
occupational qualifications. The one is the Skills Development Part-
ner (SDP) and the other the Assessment Quality Partner (AQP). The
former is responsible for offering the training that accompanies the
qualification and the latter the assessment that ascertains compe-
tence at the end of the training process. Under the QCTO these two
roles cannot be played by the same organisation. In other words, you
cannot be both player and referee on the field. It has therefore be-
come necessary for us to accelerate the establishment of a separate
entity to create a clear separation between the player and referee
aspects. In this context the Institute is applying to be AQP and the
Academy will play the role of SDP.
Thus, we are dealing with some really exciting (albeit a little scary
when one thinks of all the work involved) projects at the moment.
This is all in the name of professionalising internal audit. This profes-
sion is such an important pillar of governance in South Africa that we
cannot ignore the fact that we must ensure that internal auditors are
adequately prepared for the increasing expectations from the mar-
ket. I believe that we are on the right path. Key questions to you: Is
your internal audit function aligned to the efforts to professionalise
internal audit and are you ready to take the quantum leap with us?
Claudelle von Eck, CEO: IIA SA
7. IA ADVISER April/May 2015 | 7
Progress Through Sharing
IIA Membership
The Institute of Internal Auditors South Africa is the leading professional body representing the interests of Internal
Auditors in South Africa. As part of an international network, the IIA SA upholds and supports the fundamental tenets
of the profession - the Code of Ethics and the International Standards for the Professional Practice of Internal Auditing.
The IIA SA supports the profession by providing a wide range of services dedicated to the education and advancement
of internal auditors and dynamically promoting and developing the profession in South Africa.
We serve internal auditors in South Africa by offering Technical Guidance, Professional Training Programs, Certification
Programs, Continuing Professional Development Opportunities, Conferences
and Networking Opportunities.
For more information contact the Membership Administrator on
Telephone: (011) 450 1040 or e-mail: membership@iiasa.org.za
IIA SA website: www.iiasa.org.za
8. 8 | IA ADVISER April/May 2015
Border Kei
Alfred NZO District Municipality Aviwe Mtakasi
Department of Economic Development &
Environmental Affairs - Eastern Cape Neliswa Nyosana
Department of Local Government & Trad Affairs - EC Andile Makhabeni
Department of Roads & Public Works - Eastern Cape Sibulelo Mbam
Zikhona Sagwityi
Department of Sports Recreation Arts & Culture
(Eastern Cape) Nokuzola Mahanjana
Department of Transport (Eastern Cape) Lulama Mpandana
Ntikhoyo Mene
Nosisa Mahlutshana
Bonginkosi Nyongo
Eastern Cape Development Corporation Sisamkele Ngxawu
Inkwanca Municipality Asanda Mkonqo
Lukhanji Local Municipality Ayanda Doko
Asanda Magqaza
Lumoka Chartered Accountants Nosiphiwo Magubeni
Matseliso Mfanta
Mandisi Msongelwa
Mnquma Local Municipality Phelela Mdladlamba
Xolisa Mjakujo
Nkonkobe Local Municipality Luyolo Mapitiza
Nyandeni Local Municipality Sinovuyo Madolo
Office ofThe Auditor General South Africa ( Eastern Cape) Pumza Golimpi
Rakoma & Associates Incorporated Tembelani Tshabane
South African Post Office (SAPO) Leon de Vos
FREE-STATE
Central University of Technology (Student) Maite Letsoalo
Ethekwini Municipality Sifiso Ntozakhe
Northern Cape Provincial Treasury Tau Pitso
Provincial Treasury - Northern Cape Tumelo Gaarekwe
South African Post Office (SAPO) Lawrence Pitso
University of the Free State Nandi Lubbe
johannesburg
ABSA Bank Ltd Phathiswa Nqini
Charlene Chung
Dingaan Khoza
ABSA Bank Ltd (Internal Audit) Sonia Manilal
Alexander Forbes Financial Services (Pty) Ltd Ludwe Mqengqeni
Auditor General of South Africa (AGSA) - Pretoria Sibusisiwe Nkutha
Auditor General South Africa (AGSA) Lindelihle Kunene
Borwa Financial Services (Pty) Ltd Christinah Zebediela
C N Corporate Partners SA cc Cease Nyamasoka
Department of Justice Mareka Tebakang
Department of Mineral Resources Nhlonipho Khoza
Department of Social Development Malemane Kganana
Department of Tourism (National) Lebogang Mtshali
Development Bank of Southern Africa Tebogo Manakana
Nakasani Muronga
Discovery Ltd Arlene Alves
Edison Group Miguel Dos Santos
Eskom Holdings SOC Ltd Liaqat Azam
Financial Services Board Bertha Khoele
Group 5 Limited Mputluki Mokonyane
Group Five Construction Mosidi Komane
Imperial Truck Rental Surette Vorster
Land & Agricultural Bank of SA Sydney Nkuna
Liberty Group Limited Oupa Mokgoantle
Anthon Booysen
Liberty Group Limited Mohummed Areff
Lloyd Viljoen Lindsey Bord
MNB Chartered Accountants Rhangani Mbhalati
Rivalani Ntuli
Mogale City Local Municipality Boingotlo Bantaotse
MRL Incorporated CA ( SA ) Molefe Morife
National Treasury Keneiloe Kgoroeadira
Netcare Management (Pty) Ltd Silindile Sibiya
Nexia SAB&T Lethabo Mongalo
Ngubane & Company Ephraem Sibanda
Nkonki Incorporated Sindi Zilwa
Mahendrin Moodley
Morne Kermis
Varsha Chetty
Khomotso Legote
Mzimtsha Nkonki
Tererai Dzirekwa
Nomcebo Mlambo
Thuto Masasa
Zakhele Nkosi
Pandell Consulting Simbarashe Mlambo
SAA Technical Michael Mpanza
SizweNtsalubaGobodo Serame Mothupi
South African Post Office (SAPO) Stephen Masango
Jeremia Mosieleng
Willem Fourie
South African Reserve Bank Kavershnie Moodley
Standard Bank South Africa Phumzile Gebashe
Kealeboga Mabe
Lerato Dlamini
Olebogeng Siko
Mandisi Mzinyati
Miliswa Mgavu
Shoki Maditsi
Oneilwe Methikge
Berko Danso
Fhatuwani Mufamadi
Stateway Switchboards Nkosingiphile Doko
Tollserve cc Ntsoaki Mokoena
Transnet Freight Rail Nthabiseng Tlalang
Umgeni Water Godfrey Ngwenya
Watermark Auditors Inc Nyasha Kaliyati
kwazulu Natal
Durban University of Technology Mohammed Kharwa
Durban University of Technology Student Busisiwe Dhladhla
Health System Trust Blessing Mncwabe
HTB Consulting Nobuhle Khuzwayo
KwaDukuza Municipality Zama Bekwa
KZN Gaming and Betting Board Nontobeko Hlengwa
KZN Provincial Treasury Thobeka Basi
Michaelmas College (Pty) Ltd Thembeka Mngqithi
Newcastle Municipality Khulakahle Poulten
Nexia SAB&T Pirogan Mudaly
Ntshidi & Associates Buza Bengu
OMA Professional Advisory Group (KZN) Suveen Dabeepersadh
Muhammad Sheik
Provincial Treasury - KZN Lipworth Mbonambi
Duduzile Ditlhale
Road Accident Fund Mbali Khubisa
SA Post Office PIA Ian Barnes
SizweNtsalubaGobodo Don Saunders
Sumitomo Rubber South Africa (Pty) Ltd Nduduzo Chala
Umgeni Water Ronica Mhlabane
Welcome to new members
10. 10 | IA ADVISER April/May 2015
Strategies for Internal Auditors to Negate
Intimidation and Victimisation
With internal auditors facing increasing in-
timidation, victimisation and malicious re-
porting within both the public and private
sectors, the need for internal audit profes-
sionals to find and employ effective psycho-
logical and behavioural strategies to negate
these extremely detrimental practices can-
not be overstated.
To this end, Dr. Graham du Plessis (PhD),
lecturer in the Department of Psychology at
the University of Johannesburg, and a prac-
ticing clinical psychologist who counsels a
number of internal auditors in both a thera-
peutic and consulting context, outlines a
number of such strategies which internal
auditors can develop and utilize.
“To begin with, I have observed that inter-
nal auditors often operate within a rather
stressful and complex environment where
strong people skills are very necessary.
While each case is certainly different and
requires a degree of tailoring, in the context
of threatening interactions there are a num-
ber of important principles to keep in mind,”
he explains.
First and foremost, he says, it is important in
such situations to look beyond the threat-
ening behavior in order to discern its func-
tion for the person who is doing the threat-
ening, and that to do this, it is necessary to
check our emotional reaction and to look at
the facts at hand.
“Often people threaten others as part of
a negotiation. In essence, the idea of the
threat is to elicit emotion in someone with
the intent of getting them to act in a certain
manner. Therefore, internal auditors faced
with threats need to remember that they
should see the threat as a form of negotia-
tion, and that by practicing checking their
emotional reactions of fear, shock and an-
ger, they can most effectively focus on the
task at hand.”
He continues that while there is no ‘silver
bullet’ for formulating and implementing
this strategy as each situation needs to be
specifically managed and strategized par-
ticular to the parties and context involved,
he has found two ideas to be extremely
popular, and effective, with the people and
companies he has worked with.
The first of these is boundary
setting.
“Setting boundaries is crucial in both our
personalandworkrelationships,particularly
so in instances where overt and tacit threats
occur.This is because boundaries define the
line between what I am responsible for, and
what others are responsible for.”
He expounds that in order to set a bound-
ary, a person must follow three steps.
“Firstly, they should acknowledge the need
of the other person. For example, ‘you
would like for me to delete X information
from your report, and replace it with Y in-
formation.’ While this is often as simple as
repeating to that person their request or
statement, or your understanding thereof,
it does require practice to perfect.”
The second step is to set the
boundary.
“In this case, the person communicates the
line of responsibility clearly and without
deviation. For example, ‘I cannot remove
information from my report.’”
The final step involves offering an alternative.
“In this step, the person setting the bound-
ary gives another option to the person with
whom the boundary is being set. An ex-
ample may be, ‘…but I am willing to add in
an extra section or addendum to the report
that explains your concerns and position
regarding informationY.’It is vital to remem-
ber all three steps in boundary setting.”
Du Plessis continues that the second popu-
lar idea is that in any communication there
are a number of levels to consider.
“We communicate through what we say
and how we say it. The content of the
words we use is only a small part of what
is being communicated. Our tone, inflec-
tion and body language while we are say-
ing something also convey a great deal of
information. When the content of what we
say matches how we say it, we are commu-
nicating in a manner that is highly authentic
and which often is most effective at making
others comfortable and in getting the best
out of relationships.”
He elaborates that when there is disagree-
ment between what is being said and how it
is being said, there is a problem in the com-
munication, and that this is often the case
in the context of threats, or when there is
some other form of relational breakdown.
“Therefore, when communicating our-
selves, it is advisable to be as congruent
in what we say and how we say it as pos-
sible. When dealing with others who are
being dissonant in their communication,
the rule of thumb is to focus on the ac-
tual content of the words, and to ignore
the non-verbal communications. The fun-
damental idea of this strategy is to com-
pel the person who is communicating in
a discordant manner to verbalize with
words the other, non-verbal message of
his or her communication.”
11. IA ADVISER April/May 2015 | 11
STRATEGIESFORINTERNALAUDITORSTONEGATEINTIMIDATIONANDVICTIMISATION
Often, threats are made through implicit
communications where the words are not
necessarily threatening but the manner in
which the non-verbals are employed com-
municates a clear implicit message, which
often is a threat.
“In these situations, emphasizing boundary
setting in relation only to the actual content
of the words is an effective strategy for han-
dling threats. It is one of the most effective
means of dealing with threats in the busi-
ness environment.”
Du Plessis maintains that another good
psychological principle to apply in regards
to people being aggressive, unfriendly or
threatening is as follows:
“As a rule you cannot cure unkindness with
kindness, and this also applies to threats. If,
when you are threatened, you accept the
threat and are very nice about it, the person
who has threatened you is simply going to
learn that this is an acceptable way to in-
teract with you in future. I certainly do not
advocate fighting back aggressively; rather
I have found that effective boundary set-
ting is a very useful manner in which to as-
sertively and implicitly communicate to the
‘threaten-er’that this type of interaction will
not work with you.”
And he stresses that these same principles
apply after a threat has actually been car-
ried out, and to many other aspects of an in-
ternal auditors’job, such as communicating
sensitive information, and obtaining their
stakeholders’buy-in to implement their rec-
ommendations.
“Congruence is crucial when it comes to
communicating sensitive information. It is
also crucial, although often forgotten, to
remember that all communication is a two
way street. When communicating informa-
tion to others, and especially sensitive infor-
mation, it is of absolute importance to listen
to what the other has to say.”
Yet his clients are often surprised by this
idea, saying, “I have something that my
stakeholders need to hear. I don’t really
need information from them.”
“On a logical level they are often correct,”
says du Plessis. “However, on a psychologi-
cal level they are forgetting that in order for
other people to hear us, actually hear us, we
need to listen to them as well. It is not logi-
cal so much as psychological, which, when
working with others, is only logical.”
As for obtaining stakeholder buy-in to im-
plement their recommendations, du Plessis
asserts that as a guiding rule he would en-
courage internal auditors to make sure that
they are communicating in a very congru-
ent manner.
“Again, what you say and how you say it
shouldalllineupintoanauthenticcommuni-
cation.The other golden rule of‘buy-in’is that
youneedtolistencarefullytoothers’opinions.
I would encourage internal auditors to take
timetoreallylistentowhattheirstakeholders
have to say. As a consultant clinical psycholo-
gistIhaveoftencomeacrosstheopinionthat
‘because it has to be this way, there is really
no point in discussing it with the stakehold-
ers any further’. On a purely logical level this
position makes sense, but on a psychological
level it can be disastrous.”
Andthistakesusbacktoboundary
setting.
“Boundary setting underscores two crucial
aspects of human nature.The first is that we
want and need to be listened to and heard,
even if our requests are not necessarily met.
What is key here is to remember that being
listened to is a practical human request.
While on the surface it may appear to have
very little to do with the work at hand, in
practice is it the most fundamental requi-
site as it lays the relational foundation for all
other work and ‘buy-in’. The second is that
we don’t like to be ‘boxed-in’. All people
have a basic need to direct their lives and
business in some way. Therefore it is crucial
to buy-in to make sure that stakeholders
have some say in what they do. This ‘say’
does not necessarily have to be around core
issues that can’t be changed, but it does
have to be there.”
Thus, in pursuing buy-in it is important for
internal auditors to remember that when
they allow stakeholders some freedom to
act, even if it is in regards to a non-core or
seemingly irrelevant aspect of implemen-
tation, they are far more likely to lay a solid
foundation for effective implementation.
In addition to these psychological and be-
havioural strategies, Du Plessis points out
that because internal auditors often work in
stressful and complex environments, they
are generally in a position where ‘self-care’
is vital.
“Broadly, this means that internal audi-
tors need to look after themselves prop-
erly. This involves paying attention to
the human sides of life, such as investing
time and energy in their personal rela-
tionships, their health, and in occasion-
ally taking some mental ‘time off’. Most
important of all is spending time on life
works that are personally meaningful and
fun,” he concludes.
Steven Chiaberta for The Wisdom Keys Group (WKG) on behalf of the Institute of Internal Auditors South Africa (IIASA)
12. 12 | IA ADVISER April/May 2015
Introduction
Given that Internal Audit has once again
appeared in the latest version of the
commonly known scarce skills list under
OFO code 242211 (DHET.2014/22), an
introductory document was thought
necessary to provide a brief overview of the
aforementioned list and its origins.
Background
Aiming to influence, amongst other things:
qualifications’ development; supply side
planning; student fund allocation; skills
development for special government
projects; career guidance; and global
human resource attraction strategies; 100
scarce skills in the country were identified
and shared with the public on 23 May
2015 (Government Gazette No. 37678).
Feedback, however, revealed the need to
and desire to incorporate more skills and
as such the original intent of confining the
list to 100 could not be met. The commonly
understood term of scarce skills was, thus,
replaced by that of ‘occupations in high
demand’, as published by the Department of
Higher Education andTraining (DHET) in the
National Government Gazette (No. 38174).
The Development of the List
The development of this list was based on
the appeal for such information captured in
several publicsourcedocuments,including,
amongst others, JIPSA, IPAP 2 and the NDP
etc. The process started with agreeing on
the terms of reference and establishing an
advisory committee to guide the project.
Thereafter, research was conducted and a
draft list was compiled. The results of this
research were supported by an interview
sample of employer associations. The
findings were then presented to the
Advisory panel and thereafter revised
according to their feedback. The revised
document was then gazetted for public
comment based upon which the final list
was drafted and published
Key Findings
The Joint Initiative on Priority Skills
Acquisition (JIPSA) source documents
indicated that immediate attention
needs to be given to developing world
class engineers for industries focused on
transport, communications, and water and
energy. In addition, they emphasised the
need for city, urban and regional planning
and engineering skills as well as artisanal
and technical skills, especially those directed
towards infrastructure development, and
housing and energy. Management and
planning skills in education and health
was also a concern as well as mathematics,
science and language competence in public
schooling.Inaddition,JIPSAmadeproposals
to prioritise skills initiatives in the fields of
tourism, information and communication
technology, business process outsourcing
and bio-fuels.
The Industrial Policy Action Plan (IPAP) 2
identified the following 3 areas as in need
of market growth and the associated
upgrading of supply capacity and
capability: green industry; agro-processing;
and fabrication, capital and transport
equipment.
The National Development Plan (NDP)
2010-2030 suggested the need for skills
in the areas of: Public service delivery;
Sustainable Livelihoods; Education and
Training;ResearchandDevelopment;Public
List of Occupations in High Demand: 2014
INTERNAL AUDIT
Imagecourtesyofwww.freegreatpicture.com/
13. IA ADVISER April/May 2015 | 13
LISTOFOCCUPATIONSINHIGHDEMAND:2014
infrastructure; and Health professionals.
The National Growth Path (NGP) identified
the following disciplines in need of
employment creation and growth:
• Engineers: Target at least 30 000
additional engineers by 2014, changing
subsidy formulae for universities as
appropriate;
• Artisans:Targetatleast50000additional
artisans by 2015, with annual targets
for state owned enterprises;
• Workplace skills: Improve skills in every
job and target 1, 2 million workers for
certified on the-job skills improvement
programmes annually from 2013;
• Further education and training (FET)
colleges: Colleges have a central role in
providing important middle-level skills
for young people; and
• Information and communications
technology (ICT) skills: The departments
ofeducationshouldensurethatcomputer
skills are taught in all secondary schools
and form part of the standard adult basic
educationandtraining(ABET)curriculum
by 2015. All public servants should also
receive ICT training.
The Government Strategic Infrastructure
Projects (SIPs) note a dire shortage across
the disciplines with regards to engineers,
technologists, technicians, and artisans.
The Job Opportunities and Unemployment
Report (JOUR) noted that the high number
of vacancies in the country included
managers, senior public sector officials,
engineers,technicians,artisans,Information
Technology professionals; and maths and
science teachers.
The Human Resources Development
Council (HRDC) report on the Production
of Professionals (2013) highlights the need
for the production of professionals in
engineering, mining, health care and, the
built environment.
The Salary and Wage Analysis (2013/2014)
indicated wage growth was strong for
engineers, project managers, medical
personnel, artisans, and IT professionals.
(DHET.2014/13-16).
Scoring of Occupations
The methodology used to identify
occupations in high demand involved
the use of a scoring system to determine
eligibility for the list. The following steps
were followed in scoring occupations:
• Occupations were selected if source
documents identified them as“in need”
or“scarce”.
• Points were allocated to each occupation
based on a 100-point rating scale
• The top 100 occupations in demand
were identified based on those that
scored the highest
• Additionaloccupationswereincorporated
into list based on public comments.
• Some source documents (such as
the NDP and IPAP 2) refer to clusters
of occupations rather than actual
occupations upon which occupations
wereinferredandlowerscoresallocated
to reduce researcher bias.
• Owing to its infrastructure focus, SIPs
projects were allocated 10 points also
to reduce bias.
• Occupations listed in the Sector
Education Training Authority (SETA)
Pivotal Skills Lists were allocated 20
points given that they were based on
recent studies (DHET.2013)
• In addition those occupations with
professional designations (such as
engineers, quantity surveyors, doctors
and teachers) received higher scores
due to global high demand for such
professions.
Rakal Govender, Senior Research Analyst: Private Sector, IIA SA
References
1. Department of Economic Development (2010). The New Growth
Path: agenda. Pretoria: EDD.
2. Department of Higher Education and Training (2013a). White
Paper for Post-School Education and Training. Pretoria: DHET.
3. Department of Higher Education and Training (2013b). Learning
pathways for SIPs scarce skills. Pretoria: DHET.
4. Department of Higher Education and Training. (2013c).
Compilation of SETA Scarce and Pivotal Skills Lists (2013/2014).
Pretoria: DHET.
5. Department of Higher Education and Training. 2014. List of
Occupations in High Demand: 2014.Pretoria: DHET
6. Department of Labour. (2013). Job Opportunities and
Unemployment in the South African Labour Market 2011-2012.
Pretoria: DoL.
7. Department of Trade and Industry 2011/12 - 2013/14. (2012).
Industrial Policy Action Plan 2. Pretoria: DTI.
8. Human Resource Development Council of SA. (2010). Human
Resource Development Strategy for South Africa (2010 - 2030) .
HRDCSA: Pretoria.
9. Human Resource Development Council of SA. (2012). Key issues
in improving the quantity and quality of professionals in South
Africa. HRDCSA: Pretoria.
10. National Planning Commission. (2012). National Development
Plan 2030. Pretoria: NPC.
11. ThePresidency.(2010).JointInitiativeonPrioritySkillsAcquisition,
March. Pretoria: The Presidency.
14. 14 | IA ADVISER April/May 2015
MICROFINANCING: INNOVATION OR CURSE
Background
The idea of micro finance is quite simple:
to provide financial services to the poor.
It is an instrument for alleviating poverty
and providing the poor access to financial
services. It makes a range of financial ser-
vices products accessible to the lower in-
come segments of the population who do
not meet the requirements of traditional
financing.
Micro lending in developing countries is
not banking as usual. It is a unique process
that relies on social relationships in order
to overcome moral hazard, monitoring
and enforcement problems. Micro lending
has historically served customers in low-
growth, informal economies with weak
property rights and tight social control.
These individuals have limited experience
with access to capital, capital accumulation
and its effective deployment. Hence, the
business of micro lending are tying their
fortunes to a fundamentally different kind
of banking customer where the customer’s
income is smaller, irregular and unpredict-
able. As a result, a deep understanding of
the customers is a fundamental step for
successful entry into such markets. Focus-
sing purely on repayment rates, a common
practice, obscures the more complex reali-
ties of micro lending. To understand micro
lending, one needs to start with the cus-
tomer and their social environments. In mi-
cro lending the individual is the key to suc-
cess. The mission of a typical micro lender
is centred on providing access of credit for
the underprivileged. The success of mi-
cro credit programs has largely depended
upon the process of“character-based”lend-
ing which essentially means reliance on
social pressures or peer-monitoring when
extending loans.
More vulnerable households in develop-
ing countries are more concerned with
ensuring housing and securing food than
less vulnerable households. A thorough
understanding of importance of various
risks and the role household assets and
available coping mechanisms play in miti-
gating them is a milestone in designing
relevant micro finance services that will
assist households in increasing their se-
curity of priority household needs. To be
successful micro lenders should use more
household information in the screening
and portfolio segmentation process. Client
retention should be of utmost importance
as compared to further client growth. Mi-
cro finance entities should improve their
services by further adapting their products
and services to specific target groups.
Financial education plays a key role in en-
couraging responsible financial behaviour.
Borrowers default if their net equity falls
below a certain threshold or if they can-
not make their monthly payments due to
credit constraints. Non-payment behaviour
is common amongst middle and low in-
come earners. Individuals have recognised
that the causes of financial difficulties lie
primarily in their inability to manage mon-
ey and decisions regarding spending and
indebtedness. Lack of borrower education
programs was one of key reasons to high
defaults.
Risky Business
A micro finance institutions’ success and
penetration is largely influenced by both
socio-political factors as well as operational
subtleties.The business of micro finance in-
stitutions should be a constant balance be-
tween outreach (reaching large numbers of
poor clients), financial sustainability (gen-
erating sufficient revenues to cover costs)
and impact (showing a positive effect on
client’s quality of life). Factors affecting the
sustainabilityofmicrofinancinginstitutions
is broadly divided between institutional
and environmental variables. Institutional
variables are those factors that are specific
to the institution, while environmental are
those economic settings of the country in
which the institution operates. Programs
with high operating costs are less viable
than those with lower costs. Micro finance
institutions tend to be more sustainable by
increasing the size of their operations. Sus-
tainability is a necessary long term goal for
almost all micro finance institutions.
Many risks are common to micro lenders.
Typically they are broken into 3 categories
each focussing on different perspectives of
the micro lending risk environment. Below
is a list of common risk areas with corre-
sponding approaches in managing the risk.
Although not exhaustive, it clearly gives in-
sight into the common risks:
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15. IA ADVISER April/May 2015 | 15
MICROFINANCING:INNOVATIONORCURSE
1. Financial Risks
a. Credit risk
o Risk to earnings as a result of bor-
rowers’late or non-payment of loan
obligations
Effective approaches to managing risk
o Well-designed borrower screening,
careful loan structuring, close moni-
toring, clear collection procedures
and active oversight by management
o Good portfolio reporting that accu-
ratelyreflectsthestatusandmonth-
ly trends in delinquency, including
a portfolio-at-risk aging schedule
and reports per loan product
o Routine comparing of credit risk
with adequacy of loan loss reserves
b. Liquidity risk
o Risk that micro finance institution
cannot meet its obligations on
timely basis
Effective approaches to managing risk
o Maintaining detailed estimates of
projected cash inflows and out-
flows
o Maintaining investment accounts
that can easily be liquidated into
cash
o Anticipating the potential cash re-
quirements of new product intro-
ductions
c. Interest rate risk
o Risk of financial loss from changes
in market interest rates
Effective approaches to managing risk
o Reduce the mismatch between
short-term variable rate liabilities
and long-term fixed rate loans
d. Foreign exchange risk
o Risk for loss of earnings as a result
of fluctuations in currency values
Effective approaches to managing risk
o Avoid funding the loan portfolio
with foreign currency if it cannot
match foreign liabilities with for-
eign assets
o Use of interest rate swaps or futures
contracts to “lock-in” a certain ex-
change rate
e. Investment portfolio risk
o Risk referring to longer term invest-
ment decisions rather than short
term liquidity or cash management
decisions
Effective approaches to managing risk
o Staggering investment maturities
o Policies establishing parameters for
acceptable investment decisions in
investment portfolio
2. Operational Risks
a. Transaction risk
o Risk that arises daily as transactions
are processed
Effective approaches to managing risk
o Simple, standardized and consis-
tent procedures for cash transac-
tions
o Effective internal controls to reduce
human error and fraud
o Strong internal audit activity to test
and verify accuracy of information
and compliance
o Limiting manual data capturing
b. Fraud risk
o Risk of loss of earnings as a result of
intentional deception by employ-
ees or client
Effective approaches to managing risk
o Use of preventive measures to re-
duce fraud by having education
campaigns, standardize loan poli-
cies and procedures, enforce hu-
man resource policies
o Client visits to verify information
3. Strategic Risks
a. Governance risk
o Risk of having an inadequate struc-
ture to make effective decisions
Effective approaches to managing risk
o Board comprise of the right mix of
skills and experience
o Clear lines of authority for board
members and management
o Clearly communicate performance
expectations and lines of account-
ability
b. Reputation risk
o Risk to earnings as a result of from
negative public opinion
Effective approaches to managing risk
o Building relationships with clients,
funders or investors and regulators
c. External business risk
o Inherent risks as result of the exter-
nal business environment
Effective approaches to managing risk
o Contingency plans for anticipation
and possible external events that
can impact the business
d. Regulatory and compliance risk
o Risk of non-compliance with laws,
rules, regulations or ethical stan-
dards
Effective approaches to managing risk
o Establishing good working rela-
tions with regulatory authorities
Granting microloans to borrowers not only
result into credit risk but also in liquidity
risk due to the refinancing process, interest
rate risk, foreign exchange risk if applicable
and operational risk due to staff fraud. Mac-
roeconomic factors such as unemployment
and inflation is regarded as being signifi-
cant to micro finance institutions. Micro fi-
nance challenges are further compounded
by over emphasis on collateral and ignor-
ing the debtor’s willingness or ability to pay
and poor culture of repayment. The micro
finance technologies of service delivery,
screening, and monitoring significantly dif-
fer from those in the formal banking sector.
Research suggest that micro finance insti-
tutions do not always do better, and some-
times do substantially worse where institu-
tions are more advanced.
Further Research Insights
• Larger micro finance loans result in a
lower yield on gross portfolio. Even
though larger loans reduce operating
costs, the gains in costs is off-set by the
16. 16 | IA ADVISER April/May 2015
MICROFINANCING:INNOVATIONORCURSE
increased difficulty in finding good bor-
rowers willing to take out bigger loans.
• Stronger profit orientation leads to
higher interest rates but is also associ-
ated with higher costs.
• Micro finance institutions offering
smaller loans tend to be more efficient
than those offering larger loans. Mi-
cro finance institutions offering larger
loans do not benefit in terms of effi-
ciency from raising interest rates as a
result of competition.
• The most efficient micro financing insti-
tutions are the ones offering small but
expensive loans. Moving towards better
off clients in an attempt to reap the ben-
efits of economies of scale, lower risk and
profit oriented investments lead to an
inefficient use of resources. Micro financ-
ing institutions that stick to the poorer
clients tend to be the most efficient.
• Micro financing institutions should be
highly discouraged from allowing bor-
rowers to enter into multiple debt con-
tracts considering that micro finance
institutions cannot improve their perfor-
mance by indiscriminately lending more
as over-lending reduces efficiencies.
Impact of a Financial Crisis and
Recession on Micro Financing In-
stitutions
The impact of a financial crisis on both mi-
cro financing institutions and their clients
depend on several characteristics includ-
ing: the macroeconomic environment, the
level of integration of the country to the
global economy, cost and funding struc-
tures and the ability of management to
deal with the crisis.
Components of a financial crisis that are
most relevant to the micro financing indus-
try are listed below:
• Liquidity and credit crunch – defined
as the contraction of the availability of
funding.
o This creates an environment where
less funding is available as capital
streams dry up due to the lack of
confidence in the repayment ca-
pacity of counterparts.
o Cost of funds increase as percep-
tion of risk change
o Funderstendtoprefershorttermtrans-
actions as they are less sure of getting
theiroutstandingcreditsback.
• High inflation episodes – Inflation risk
is a common risk for micro finance insti-
tutions especially for those operating in
countries with weak monetary policies
or unsustainable economic regimes.
o Changes in food and fuel prices can
feed back into inflationary spirals
• High currency devaluation – currency
devaluations can contain serious con-
sequences for the asset- liability man-
agement of micro finance institutions.
• Global recession – This refers to mul-
tiple events associated with worldwide
economic downturn. The most relevant
of these events include:
o Higher unemployment and lower
domestic demand for goods and
services
o Lower remittances
o Increase demand for consumption-
smoothing purposes
• Food and fuel price shocks – increases
in this without comparable increase in
income, forces borrowers to allocate
higher promotions of income to those
expenses and directly affect the ability
to repay loans.
Potential effects of a financial crisis on the
micro finance institution include:
o Reduction in borrower repayment
capacity as a result of inflation, dif-
ficulty in dealing with higher inter-
est rates, reduction in remittances,
increases in fuel and food prices
o Higher costs and potentially higher
interest rates for borrowers
o Reduced growth due to liquid-
ity crunch, economic recession and
food and fuel crisis
o Increased foreign exchange losses
due to currency devaluation, if ap-
plicable
o Deterioration of microcredit repay-
ment culture as a result of increase
in defaults and arrears in the rest of
financial system, political interven-
tion and competition from new fi-
nancial institutions
Findings in the South African Mi-
cro Financing Industry
The below findings are based on research
that was performed where a comparison
was made between micro financing man-
agement perceptions as compared to the
analysis of quantitative customer data. The
following key findings are noted:
Biggest Risks
Whereas management sees fraud, over
indebtedness and bad debts as the big-
gest risks, client data suggest that the big-
gest risks are bigger loan amounts, longer
term loans and loans to younger clients.
The different views and analysis are how-
ever overlapping as indebtedness possi-
bly results into bigger, longer term loans
to clients that cannot meet the necessary
obligations. According to the research the
average good micro finance client in South
Africa is a client that meets obligations of a
6 month loan and a loan amount of R3450
as per affordability calculation.
Finding Balance between Too Little and
Too Much Risk
According to management within micro
finance institutions the best way to acceler-
ate micro finance business in South Africa
is to extend the term and the amount of
loans to attract a bigger market. However,
client data indicates that the longer loan
terms and bigger loan amounts drastically
increases the possibility of non-payment.
17. IA ADVISER April/May 2015 | 17
MICROFINANCING:INNOVATIONORCURSE
Proactively Managing Risk in Micro Fi-
nance Environment
Customer data suggest that a credit scor-
ing model is the best way of managing risk.
This is followed closely by building a cus-
tomer relationship with shorter term prod-
ucts and staff training. On the other hand,
management suggests that the best way of
optimising client service is through a real
time debtor management system.
Increasing the Success of Predicting the
Outcome of Micro Finance Credit Trans-
actions
According to management the biggest
predictor of non-payment of new clients is
the level of the client’s disposable income
after living expenses and loan instalments.
Management also suggest that the num-
ber of loans and number of judgements
are also predictors of the outcome of credit
transactions. However, client data totally
contradicts management in the sense that
the number of loans and judgements do
not materially influence the outcome pre-
dictions of credit transactions. Client analy-
sis suggest that smaller loan amounts on
shorter terms hold much less risk than loans
with bigger amounts over longer terms.
The average good micro finance client in
South Africa has the following characteristics:
• Average age of 42
• Average loan amount of R3 450
• Average loan term of 6 months
• Average number of 25 loans over a pe-
riod of 5 years
• Has about 2.34 open loans at any stage
• Has an average credit exposure of
about R50 000 over a period of 5 years
The average bad micro finance client in South
Africa has the following characteristics:
• Average age of 36
• Average loan amount of R6 300
• Average loan term of 14 months
• Average of number of 12 loans over a
period of 5 years
• Has about 1.81 open loans at any stage
• Has an average credit exposure of
about R20 000 over a period of 5 years
Other findings include:
• In terms of risk tools, credit granting pol-
icies and customer affordability calcula-
tions together with internal controls and
debt collecting is rated as being more
important than credit scoring models
• Respondents are not totally convinced
that traditional banking tools can be
applied to the micro financing industry
• A real time, effective loan management
system is seen as being the most ef-
ficient way to optimise client service
and reduce risk as compared to decen-
tralised credit decisions, cash disburse-
ments to clients, a call centre function
and centralised credit decisions
• External fraud is a much bigger risk
than internal fraud
• At age of 38 the probability that client
will be good or bad is equal
• The probability of debtors going bad as
a result of death is less than 1%
• The probability of clients going for debt
counselling after they became bad pay-
ers is less than 10%
Key Recommendations to Consider
Micro finance institutions in South Africa
need to eliminate the risk of fraud, both in-
ternal and external, as far as possible. This
can be done by investing in staff training,
real time loan management systems and
effective internal controls. The level of cli-
ent disposable income needs to also be
more accurately assessed in terms of af-
fordability. A credit scoring model is crucial
to match the correct product with a specific
client, based on the client’s risk profile. The
term of the loan is the main outcome of a
credit scoring model and a good predictor
of non-payment. As smaller loan amounts
over shorter periods reduces microfinance
risks drastically, it should be more actively
marketed.
A Value Add Role by Internal Audit in Mi-
cro Finance Environment
With so much risk within the micro finance
environment, internal audit would be in
the best position to provide Management
with the needed assurance in an indepen-
dent and objective manner by evaluating
the controls around the key risks. The fol-
lowing value adding comments should be
noted by Internal Audit.
Internal controls assist in promoting and
providing reasonable assurance of the fol-
lowing:
• Profitability and sustainability
• Adherence to management policies
• Safeguarding of assets both physical
and non-physical
• Prevention and detection of fraud and
error
• Accuracyandcompletenessofaccount-
ing records
• Timely preparation of reliable financial
information
• Discharge of statutory responsibilities
A weak internal control system has the fol-
lowing evident
• Lack of segregation of duties
• Lack of supervisory or internal audit
monitoring
• Lack of independent verification of
work performed
• Lack of good information systems
• Lack of senior management to internal
controls
The 3 most critical aspects of micro financ-
ing operations include:
• Human resources
• Policies and procedures
• Information systems
18. 18 | IA ADVISER April/May 2015
MICROFINANCING:INNOVATIONORCURSE
Wayne Poggenpoel CIA, CCSA, CGAP, Technical Committee: IIA SA
Fraud is often detected by the increase in
delinquencies, accounting irregularities
and employee tip-offs.
From a Micro Finance Perspective, Internal
Auditors should “FOLLOW THE MONEY”.
They need to understand the flow of cash in
and out of the institution according to the
different cycles i.e. revenue cycle, expendi-
ture cycle and treasury or finance cycle.
Key Indications of Problems in Micro Fi-
nance Sector
• Over-indebtedness and Regulatory
Pressure
• Diversifying away from its core client
base
• Too strong growth, under-provisioning
and mispricing risk
Areas of Internal Audit Interest
FRAUD DETECTION SIGNALS
Danger Signals Examples of Problems that may Result
Employee exceeds scope of
responsibilities
Individual negotiates contracts and
assumes responsibility for approving
invoices in order to get kickbacks
Unusual reduction in or loss of regular
customer business
Key employee has silent partnership in
new competitor
Loan officer also approves a loan Financial information inflated and loans
given in order for kickbacks
Employee living beyond his/her means Employee embezzling to support lifestyle
CCSA
Lelane Brits
Chanelle Da Silva
Umaira Gani
Nkosazana Joko
Tebogo Maidi
Fortune Mkhabela
Nokukhanya Mlanduli
Sibongile Motloung
Mareda Mphaphuli
Sylishna Naidoo
Lungile Ngcobo
Ritesh Patel
Subhadra Ragubeer
Thakane Rampai
Samuel Ramuhashi
Jeremy Samuel Mark
Solomons
Willie Swart
Mlulasi Zenani
CGAP
Jean-Pierre Rossouw
Ritesh Patel
CFSA
Thembakazi Tina
Marco van der Merwe
Theo Kruger
Ramoshie Mahapa
Karen Louw
Jeremy Sanderson
CRMA
Angelique Adams
Kevin Chivere
Cynthia Cornelius
Junior Dube
Elias Dlamini Elias
Gary Leong Gary
Heinrich Joodt Heinrich
Unathi Kondlo
Cecile Louw
Tuliswa Makoba
Thapelo Matsapola
Bongani Wilberforce
Mbewu
Thokozile Mthembu
Mamogobalale Phala
Willem Pieters
Kgomotso Ragoleka
Itumeleng Ramoganyaka
Thakane Rampai
Zubair Sader
Sisanda Mahlasela
Fannie Sithole
Thomas Swanepoel
Jacobus van derWesthuizen
Jacques van Zyl
Nazir Vanker
John Varga
Nicolene Waso
Thembisile P Zwane
Congratulations to CCSA, CFSA, CGAP and CRMA candidates
19. IA ADVISER April/May 2015 | 19
The Ethics Challenge
At some time or other in their lives most
internal audit professionals have attended
a lecture on the subject of ethics. This
lecture did not necessarily entail the
science of debits or credits or an intricate
understanding of financial concepts but
referred rather to a behavioural attribute
that is expected of someone pursuing a
career in internal auditing.
Today, the moral ethical bar has been
raised; there is an expectation that, as an
internal auditor, your ethical conduct has to
be beyond reproach. Although such moral
discussions centre on simple qualities such
as integrity and honesty, they nevertheless
provoke contentious opinions.
What is integrity? This question elicits a
variety of responses, yet the meaning is
simple: “Doing the right thing even when
no one sees you.”
This response has had a profound influence
on me, and I have realised that a career as
an internal auditor requires a certain level
of introspection.
The challenge in this regard relates to
the fact that a person’s values and belief
system have to be aligned in some way
or other with the ethical requirements of
the profession. It is not about role playing
or separating one’s own values and beliefs
from those required by the job.
By its actions and its words the internal audit
activity must be seen both to be setting
an example of strong ethics and actively
promoting them (Verschoor, 2007, p. 20).
Personal values can differ widely as they are
influenced by a variety of factors including
upbringing and culture. It is therefore critical
to understand that they can differ from
the organisational values as well. It then
becomes appropriate, indeed essential, that
the organisation espouses a set of values that
reflects what is acceptable in the workplace.
That having been said, there is hardly
an issue of a newspaper or a business
publication that does not include at least
one story about a new or ongoing ethical
scandal. One does not need to look far to
find such scandals on the international
landscape. Think about the corporate
failures such as Enron, HealthSouth,
MF Global, WorldCom, Parmalat, Qwest
Communications and Tyco International
and the Ponzi scheme masterminded by
Bernard Madoff.
InarecentcaseintheSouthAfricancontext,
aPinnacleHoldingsexecutivewasallegedly
involved in bribing a police officer to secure
a tender. The executive was accused of
offering a R5 million bribe to a member of
the South African Police Service to secure
a multimillion rand contract. Subsequent
to the scandal the company’s share price
dropped by more than 40 per cent (Eye
Witness News, 2014).
Another scandal involves Aveng, one of
several companies in the construction
sector accused of engaging in anti-
competitiveness practices by the
Competition Commission. The cartel of
which it had formed part had apparently
engaged in various collusive practices such
as holding meetings to divide markets and
to agree on margins and plan collusion
among firms to create the illusion of
competition (IIA SA, 2013).
Bribery and corruption continue to occupy
a predominant position today in our
society, ranging from petty bribes to traffic
officials to significant amounts of money
paid as commission to secure tenders.
Whilst amounts may differ the actions do
not, as all such acts fundamentally amount
to corruption (Schoeman, 2014, p. 17).
The incident that has captured the
imaginationofSouthAfricanscountrywide
and has kept everyone talking is the
Nkandla saga, which involves costs that
THE GREY MATTERS ON ETHICS
20. 20 | IA ADVISER April/May 2015
ADVISERTHEGREYMATTERSONETHICS
have been conservatively estimated
to be in the region of R246 million for
upgrading the President’s homestead.
Although the Public Protector has
highlighted a number of irregularities in
the project, what lies at the core of this
debacle is the improper ethical conduct
by various stakeholders.
Consistent with the view expressed by the
Public Protector, the City Press newspaper
(Du Plessis, 2014) reports, “Zuma and his
ministers should have acted when the
Mail & Guardian blew the whistle in 2009
on the R65 million the project cost at the
time, but the spending increased after that.
Zuma violated the Executive Ethics Code
by failing to contain state spending and
benefiting from it. He wore two hats.”
Referring to the high levels of corruption
in the public sector, the Public Protector
asserted that“the corruption in this country
has reached crisis proportions there is no
two ways about it”(Madonsela, 2013)
Organisations all over the world, regardless
of size, are at some time or other faced
with unethical business practices. Business
ethics are compromised by upper and
lower management alike and, owing to
the prevalence of the problem, the need
for organisations to deal with ethical issues
has become a global priority.
Ethical behaviour lies at the roots of the
corporate scandals we read about daily.
However,despitetheimmenseeffortsmade
by corporations to distinguish between
what is acceptable and unacceptable, right
and wrong there are often practices that
enter the grey areas.
Very often management is faced with
choicesthatrequirethemtomakedecisions
that have no clear cut resolution and are
extremely problematic. Consequently, they
are likely to find themselves confronted
with ethical dilemmas (Ehrich, Cranston, &
Kimber, 2003, p. 4).
Despite the mammoth ethical challenges
faced by organisations, ethics issues are
not given the platform they deserve; as a
result they are often addressed reactively
after the incident has taken place. At times,
but unfortunately not always, perpetrators
have to face the costs and consequences of
their misconduct (Schoeman, 2011, p. 10)
Having said this, one does not need to
occupy the CEO’s chair to realise that there
is a problem with ethics in general and,
to assume that the public sector alone
is corrupt to the exclusion of the private
sector, would be inaccurate.
Ethical issues occur in both the public and
the private sector in South Africa, although
it some areas they are perceived to be
subtle and more pervasive. Whatever the
case, the extent of the problem cannot be
denied; news reports of corporate scandals
and fraud are testament to the pervasive
nature of the problem in both sectors.
Identifyingtheproblemisonlythefirststep,
however equally important is to critically
analyse the root causes of this problem and
to identify the influencing factors.
Potential Causes of the Ethics
Dilemma
Hofstee (2009, p. 162) points out that when
proposing a sound argument, related
questions often arise and it is in this way
that new research is developed.
What one needs to ask here, perhaps, is
whether organisations are creating an
environment that is conducive to an ethical
culture and whether business is essentially
a crucial element of the problem. To be
more precise, one should ask whether the
board and management have instilled the
right ethical culture.
The following are some of the common
reasons why employees breach ethical
standards:
• Lack of ethical standards – Some people
make unethical choices because they
are not certain about what really is
the right thing to do. Often, ethical
problems are complicated, and the
proper choice may be far from obvious.
• Inadequate recruitment process – Hiring
of employees should be based on
rigorous selection processes including
background and reference checks. The
feedback received from this process is
fundamental to identifying the kind of
candidate an organisation is looking to
hire.
• Tone at the top – The effects of bad
leadership cannot be over-emphasised.
Employees look up to their leaders
and when they model a wrong ethical
behaviour sooner or later employees
inevitably begin to drop their ethical
standards and model the unethical
behaviour being projected by leaders.
• Pressure to perform/succeed in order
to be incentivised notwithstanding the
ethical challenges – A bonus/incentive-
driven culture may also impact on how
ethicallyindividualsperformtheirwork.
Are businesses setting realistic targets
or are they setting targets that are not
easily achievable?
• Unrealistictargets–Thereisaperception
that once employees perceive
the targets set to be unrealistic or
unattainable, the default behaviour is
that employees begin to breach ethical
boundaries to somehow reach targets
in order to be incentivised.
• Self-interest/personal gain – Some
people do not just do something wrong
in a weak moment or because they are
not sure about what the right thing to
do is. Self-interest and personal gain is
just two of the reasons for a great deal
of the unethical activity in business.
• Lack of or poor consequence manage-
ment – This plays a role in raising the
ethical bar or dropping it. Failure by
management to act decisively and hold
employees accountable for their un-
ethical conduct projects an incorrect
message.
21. IA ADVISER April/May 2015 | 21
ADVISERTHEGREYMATTERSONETHICS
The Role of Internal Auditors in
creating an Ethical Culture
Edmund Burke, the Irish political
philosopher, once said“All that is necessary
for the triumph of evil is that good men do
nothing.”
Therefore, having identified the extent of the
ethical challenge and its influencing factors
it is perhaps also prudent to ask what value
internal audit can provide in ensuring that
organisations have the right ethos.
In an attempt to answer this question,
Elmore (2013, p. 51) points out that ethics
influences everything else, such that
while an audit finding may have nothing
to do with fraud or illegal behaviour,
the audit may still have a positive effect
on the organisation’s ethical culture.
Elmore further argues that ethics is not an
isolated issue which is exclusive of other
things. Just the mere fact that employees
see their management implementing
recommendations from internal audit can
influence their behaviour.
Internal audit can therefore assume a
number of roles as a champion for ethics.
Theserolesincludeethicsofficers,members
of the internal ethics council or assessors of
the organisation’s ethical climate.
It is thus necessary to understand that
internal audit as a profession has a crucial
role to play in ethics. A number of surveys
conducted by internal auditors have found
that companies focus little attention
on the issue of ethics, which has been a
fundamental contributor to some of the
recent corporate scandals.
According the IIA 2010 Global Internal Audit
Survey, in response to this challenge internal
auditors are now required to focus less on
internal controls, operations and compliance
and to place greater emphasis on corporate
governance,riskmanagementandethicsaudits
(Boyle,Hermanson,&Wilkins,2011,p.3).
Accordingly, internal auditors are required
to play an active role in support of an
organisation’s ethical culture, in the main
because they possess high levels of trust
and integrity in the organisation and have
the skills required to be effective advocates
of ethical conduct (Verschoor, 2007, p. 20).
Moreover, there are sound arguments to
support the idea that internal auditors are
uniquely qualified to play a critical role
in performing ethics audits, as they are
well positioned within the organisation to
maintain independence and objectivity
(Boyle et al., 2011, p. 3).
Taking all the above factors into
consideration, internal auditors have the
competence, capacity and independence
necessary as well as being positioned to
appeal to enterprise leaders, managers and
other employees to comply with legal and
ethical responsibilities.
What is an Ethics Audit and why is
it Important?
Unlike a number of audits performed
by internal audit, ethics audits are
somewhat different and more complex.
The challenge is that the actual test is not
based on common controls and providing
management with an idea of how effective
they are, but rather such audits involve an
assessment of much“softer”controls which
are rooted in intangible yet critical things
such as integrity and ethics that steer
people in the right direction.
An ethics audit primarily assesses an
organisation’s ethical climate, which
includes the tone at the top and the
effectiveness of the organisation in
achieving the desired level of legal and
ethical conduct (Boyle et al., 2011, p. 4).
Verschoor(2007,p.21)pointsoutthatatthe
very least the internal audit activity should
periodically assess the state of the ethical
climatebyreviewingtheeffectivenessofthe
strategies, processes and communications
that are geared to achieving the right level
of ethical compliance.
Making an equally valid point, Schoeman
(2012) argues that in order to make an
impact ethics needs to extend beyond a
mere “tick box” compliance aiming only to
meettheminimumrequirements;insteadan
organisation should strive to build genuine
commitment to doing the right thing.
In support of the ethics efforts being
undertaken by organisations, Verschoor
(2007, p. 21) highlights that internal audit
should evaluate the effectiveness of the
following features which are indicative of a
highly effective ethical culture:
• A formal code that is clear and
understandable
• Frequent communication and
demonstrations of expected ethical
attitudes and behaviours by leaders
• Explicit strategies to support an
enhanced ethical culture with regular
programmes to update and renew
commitment to an ethical culture
• Several easily accessible ways for
people to report allegations relating
to the ethical code, policies and acts of
misconduct confidentially
• Regular declaration by employees,
suppliers and customers that they are
aware of the ethical requirements
• Clear delegation of responsibilities to
ensure that ethical consequences are
evaluated, confidential counselling
provided, allegations of misconduct
investigated and case findings properly
reported
• Easy access to learning opportunities
to enable all employees to be ethics
advocates
• Positive personnel practices that
encourage employees to contribute
towards the ethical climate
• Regularsurveysofemployees,suppliers
and customers to determine the state
of the ethical culture
• Regular reviews of formal and informal
processes that could potentially create
22. 22 | IA ADVISER April/May 2015
ADVISERTHEGREYMATTERSONETHICS
pressure and bias that could undermine
the ethical culture
• Regular reference and background
checks as part of hiring procedures
In addition to the Verschoor’s views, Boyle
et al. (2011, p. 5) highlight seven practical
steps for complete an ethics audit:
Step 1 – Educate top management, as well
as the board and audit committee on the
value of an ethics audit and obtain their
support. Though there may be some level
of resistance it is important that senior
management be informed throughout the
process to ensure they are comfortable and
supportive.
Step 2 – Interview the senior management,
boardandauditcommitteetodeterminethe
ethical values desired by the organisation.
Internal Audit should be mindful that some
of these values may be contained in the
organisation’s code of conduct.
Step 3 – Identify and assess the organisa-
tion’s risk associated with non-compliance
with the desired ethical values.
Step 4 – Plan the ethics using a risk-
based approach consistent with the COSO
Enterprise Risk management framework.
Step 5 – Conduct a structured entity
level interview or entity-wide surveys to
evaluate and assess whether values set by
top management align with the views of
employees at all levels of the organisation.
Step 6 – Report the results to the
appropriate accountable parties.
Step 7 – Monitor actions and plans put in
place to address areas of improvement/
remediation.
Conclusion
It would be naïve to conclude that the
ethics problem is not pervasive. It is
furthermore undeniable that the world at
large is facing many ethical challenges.The
ethical scandals highlighted in this article
are just some examples attesting to the
extent of the problem globally. However,
although the challenge is immense, the
internal audit function is well positioned
to partner with organisations on this
journey.
Winston Churchill said “To each there
comes in their lifetime a special moment
when they are figuratively tapped on the
shoulder and offered the chance to do a
very special thing, unique to them and
fitted to their talents. What a tragedy if
that moment finds them unprepared or
unqualified for that which could have been
their finest hour”.
In light of these words, it is worth
mentioning that internal auditors are the
gatekeepers of ethics. They are the moral
compass of an organisation and very often
they are presented with a rare opportunity
not granted to many; that is, to have the
right audience and be provided with a
platform to raise critical ethical concerns
– failure to seize this moment would be a
tragedy.
Thapelo Modisagae CIA, CRMA, CCSA
Boyle, D. M., Hermanson, D. R., & Wilkins, A. (2011, November/
December). Ethics sudits: Implications for internal audits. Internal
Auditing, pp. 3–8.
Du Plessis, C. (2014, March 19). City Press. Retrieved May 5, 2014,
from www.citypress.co.za: http://www.citypress.co.za/politics/10-
things-worth-knowing-madonselas-nkandla-report/
Ehrich, L., Cranston, N., & Kimber, M. (2003). Griffins University.
Retrieved March 25, 2014, from www.gu.edu.au: http://eprints.qut.
edu.au/1388/1/1388_2.pdf
Elmore, T. P. (2013). The role of internal auditors in creating an ethical
culture.The Journal of Government Financial Management, 49–53.
Eye Witness News. (2014, March 27). Eye Witness News. (C. Wynn,
Editor) Retrieved March 28, 2014, from www.ewn.co.za: http://ewn.
co.za/2014/03/27/Pinnacle-CEO-says-bribe-claims-a-surprise
Hofstee, E. (2009). Constructing a good dissertation: A practical
guide to finishing a master’s, MBA or PhD on schedule. Sandton:
EPE.
IIA SA. (2013, November 11). www.iiasa.org.za. Retrieved April 23,
2014, from Institure of Internal Auditors South Africa: http://www.
iiasa.org.za/?page=Opinion_pieces
Madonsela, T. (2013, October 14). ENCA. Retrieved March 26,
2014, from www.enca.com: http://www.enca.com/south-africa/
madonsela-warns-sa-corruption-crisis-levels
Schoeman, C. (2011, October-November). Recovering from ethical
failure. Directorship, pp. 10–11.
Schoeman, C. (2012, June). Ethics Monitor. Retrieved August 29,
2014, from www.ethicsmonitor.co.za: http://www.ethicsmonitor.
co.za/Articles/saying-and-doing.pdf
Schoeman, C. (2014, February/March). Why corruption costs?
Business Brief, p. 17.
Verschoor, C. C. (2007). Ethics and compliance: Challenges for
internalauditing.Florida:TheInstituteofInternalAuditorsResearch
Foundation.
References
23. IA ADVISER April/May 2015 | 23
QUESTIONSTHEAUDITCOMMITTEE
SHOULDASKABOUTIT
Gary Hardy is the owner of IT Winners, an IT
company that is based in Cape Town. Gary
has got over 30 years of experience in the IT
industry,isrecognisedgloballyasathought
leader and expert in business and IT perfor-
mance improvement. He is a long standing
and past board member of ISACA, is one of
the originators of the COBIT® framework
and has been a contributor to COBIT since
its inception in 1992. He is a lead developer
of COBIT 5. Gary started off the presenta-
tion by explaining the pervasiveness of
IT as it is part of every strategic objective,
critical to support business operations and
integral to all business activities. IT extends
beyond the enterprise to stakeholders and
business partners.
He shared his observation that most peo-
ple wonder how success can be achieved
with IT demands resulting from changes in
culture and mind-set. This is the case with
even executive and senior management,
they employ consultant to carry out IT
technicalities and just hope that those con-
sultants know what they are doing. He cau-
tioned that this approach is not correct as it
compromises the quality of oversight that
the audit committee ought to provide. He
put emphasis on the necessity to change
the attitude that ‘IT is enterprise-wide and
not just for the IT function or just for IT Au-
dit’. Explaining about the pervasiveness of
IT, he shared insight on how the informa-
tion systems are not only being used as
enablers to business but are built into the
strategy of the business. The relevant ques-
tions to be asked at this level in order to en-
able management and/or audit committee
make informed decisions are as follows:
• Who is accountable for business and IT
alignment?
• How flexible and reliable are the informa-
tion systems in enabling the organisation
reacts timely to new opportunities?
• Is the service levels acceptable (quality,
reliability and availability)?
• Is the network security adequately pro-
tected?
• Is the organisation compliant to the
POPI Act?
• Is the organisation compliant to other
Regulations?
• Is the organisation making efficient use
of the resources (budgets, information
systems)?
• Is the organisation making the right de-
cisions and generating a ROI?
In the 21st century, it is really about time
that IT is not done at the level of scratch-
ing the surface but to the deepest level.
This can only be achieved if IT is collectively
embraced by auditors, management and
the IT department. Findings must be scru-
tinised, unpacking the root causes and not
just symptoms. Real causes of the findings
that auditors raise must be analysed, ac-
countability for addressing the root cause
must be allocated; the real business impact
of the finding must be quantified and/or
illustrated. It is pointless to raise findings
that do not serve stakeholders or just low
level impact on business objectives. When
IT audits are conducted, the recommenda-
tions must be practical and solution-driven
to the buyer of the solution (audit clients).
Imagecourtesyofwww.freegreatpicture.com/
24. 24 | IA ADVISER April/May 2015
ADVISERQUESTIONSTHEAUDITCOMMITTEESHOULDASKABOUTIT
Accountability for IT
The business should take ownership for IT-
related decisions and key role players for
strategic IT decisions should be known and
accountable. King III places IT governance
in the hands of the board of directors. This
makes sense as this is where the strategy,
investments, architecture, service levels
are managed. It also shows how much of
a strategic partner IT should be. Decisions
should be made on whether the CIO and
IT management team may make decisions
by default. The adequacy of governance
structures should also be evaluated. There
should be adequate governance of IT struc-
tures in place; these include committees,
policies, frameworks, processes and proce-
dures. The governance structure should be
effective as well; this means that the Board
and Exco must have IT on their agenda.
The organisation must also implement a
certain framework when it comes to IT gov-
ernance. The adoption of the COBIT5 has
been noted in the past few years by many
organisations. However, adopting COBIT
framework is not all; the organisational
leadership should ensure that IT risks are
understood in an organisation. IT-related
risks must be recorded in the business risk
register and be expressed as business risks.
The risk committee must monitor IT-related
business risks the same way it manages
other business risks and understand likely
IT risk scenarios. It has been noted in the
past that IT is treated as a special area and
management often shy away from asking
questions that are IT related. This should
not be happening at this time as most busi-
ness processes are being automated. IT
risks are just a subset of a business risks and
are becoming more and more relevant as
the technology is being the centre of busi-
ness. There should be adequate IT financial
controls, acquired in a cost-transparent
manner.
IT resources must be sourced cost-effec-
tively, the most effective and efficient
sourcing options should be identified and
as such; the IT operational budget must be
challenged and optimised. Establishing the
frequency and extent to which IT-related
projects go over budget. The amount of IT
effort that goes to firefighting rather than
enabling business improvements must be
quantified and substantiated. Businesses
need to learn to get more value from IT for
less cost “more for less” through simplifica-
tion, standardisation and maturity. It is not
incorrect to state that one of the greatest
advantages of IT is cost reduction and in-
creased agility.
IT Operations - reliable and
secure
Even when one is not an IT expert, there are
some factors that can be looked at to assess
IT Operations for reliability and security.
Firstly, the robustness of the IT operational
processes, how well reliable the infrastruc-
ture is and whether the organisation has
got an old legacy systems. It is not good to
hang on to old systems even when there
are better ways to maximise efficiencies.
It is also not particularly good to always
acquire new systems for the sake of early
adoption. The IT systems are very expen-
sive and should be changed when it is ben-
eficial to do so. There sometimes is heavy
reliance on modified systems such as SAP
and vendors; this too should be managed
as there could be a downfall to it. The or-
ganisation should have adequate technical
skills in order to support and maintain the
IT systems. Each year the business depends
more and more on IT, yet many enterprises
under invest in maintenance, processes,
knowledge management and training;
leadingtodependencyonotherbusinesses
for these critical processes. When IT invest-
ment is being made, all aspects must be
carefully analysed. Businesses can acquire
the best system but if there is inadequate
training of IT specialists, there is not much
support that the IT function may provide to
the organisation. The same goes for main-
tenance, the IT systems do need ongoing
maintenance which includes removing
program and design errors, updating docu-
mentation and test data and updating user
support. This is particularly important as it
allows the IT function to adapt the IT system
to suit the functional needs. The leadership
must understand IT otherwise tracking IT
performance becomes overwhelming. The
IT performance report must also be under-
standable to the business, to enable EXCO
to monitor IT performance. IT strategy
must be linked to the strategic objectives
of the business. IT performance should be
monitored through service levels, invest-
ment returns, incidents and costs that have
been saved. The CIO must be able to act as
a bridge to business management and not
be a barrier to business understanding.
Managing Supplier or third
party Risk?
The audit committee must scrutinise the
balance in dependence on external IT ser-
vice providers (Black Box Management). IT
outsourcing agreements should be man-
aged well, just like any other contractual ar-
rangement; ensuring that the organisation
obtains assurance over the performance
of the external IT service provider. The
provider’s operations should be tested for
security and reliability as the organisation
still has to comply with applicable rules
and regulations. Questions about security,
privacy and reliability of the IT processes
of the business partners should also be
raised; these have the potential to expose
risks on business transaction and compro-
mise integrity and confidentiality state of
information. It is quite shocking to hear in-
cidents where the service provider’s system
was down and that business could not be
carried out. The contractual terms should
mention system availability as basic; it does
not make any business sense to pay for ser-
vices that are not able to support the conti-
nuity of the main business.
25. IA ADVISER April/May 2015 | 25
ADVISER
Risks
Trust
Costs
Benefits
Failures
ROI
Transparency
Incidents
What IT is all about
QUESTIONSTHEAUDITCOMMITTEESHOULDASKABOUTIT
He concluded by remarking that IT Audit
should delivering value and must be evident
that it is yielding positive ROI. There must be
businessimprovementsasaresultofITaudits;
these may be defined IT Audit performance
goals and metrics that are used as perfor-
mance measures. IT Audit procedures must
also be integrated into general or business
audits. Communicating audit reports must
be done using the business language and
the findings must be evident that auditors
aremeasuringtherightthings.Repeatingthe
same findings every year serves no purpose
when the same IT issues are reported on but
are not being measured.
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26. 26 | IA ADVISER April/May 2015
Country is woefully slow to transform its
corporate boards and is not taking into
consideration research that shows that
when you have women on boards, deci-
sion-making improves
Activists campaigning for the greater par-
ticipation of women on the boards of listed
companies have lowered their sights and
are now fighting for 30% female represen-
tation in South Africa.
This month, Germany became the latest Eu-
ropean country to pass legislation requir-
ing major companies to allot 30% of seats
on nonexecutive boards to women.
Germany joined countries such as Norway,
France and Spain in introducing the quota
system.
According to a report released by Grant
Thornton this month, when it comes to rep-
resentation at board level in South Africa,
only 15% of directors in listed companies
are women.
The representation of women in senior
management roles is at 27%, while only 7%
of CEO and managing director positions
are occupied by women.
A higher percentage – 21% – of women are
found in the positions of chief financial of-
ficer, while 26% of human resource execu-
tive jobs are occupied by women.
The report also showed that 23% of listed
companies have no women in senior man-
agement positions, up from 21% in last
year’s report.
Shannon Smith, director of advisory ser-
vices at GrantThornton KZN, said there was
room for improvement in South Africa.
“The percentage of women in senior
management roles in South Africa is inad-
equate.
“The gender bias is subtle at the beginning
of a career, but it causes a clear separation
of career paths between men and women.
South Africa has a fine tradition of strong
women in business and female political
leaders, but there is still much room for im-
provement,”she said.
The empowerment movement gained im-
petus under previous minister of women,
children and people with disabilities, Lulu
Xingwana, when she introduced the Wom-
en Empowerment and Gender Equality
Bill.
The bill annoyed many, especially those
in business, who called it impractical and
costly.
The bill lapsed when Xingwana left and
was replaced by former minister of mineral
resources Susan Shabangu.
Parmi Natesan, an executive at the Insti-
tute of Directors in Southern Africa, said
there were a number of things that could
be done to improve gender diversity on
boards.
“We need to get the word out to boards
and shareholders about the benefit of hav-
ing women on boards, and not just as a
check list exercise.
“Research has shown that when you have
women on boards, decision-making im-
proves,”said Natesan.
A 2013 report by research firm Catalyst
made a business case for having more
women in senior positions and on boards.
Among the benefits were improved finan-
cial performance and better corporate
governance for companies that had more
women.
“If an economy is only using half of its most
talented people, then it immediately cuts
its growth potential,”said Smith.
“Women also control a large portion of
consumer spending globally. So they have
an understanding of what consumers want
and so should have a representation on
these boards,”added Natesan.
Corporate SA is still failing to
include women
Imagecourtesyofsuphakit73atFreeDigitalPhotos.net
27. IA ADVISER April/May 2015 | 27
CORPORATESA ISSTILLFAILINGTOINCLUDEWOMEN
But she also cautioned that women should
not sit back and wait for opportunities.
“If you [as a woman] think you can add
value to a board, get governance training
and network.”
Meanwhile, women in business have also
started a lobbying effort in the form of the
30% Club. Its objective is to provide best
practices for gender mainstreaming in the
South African private sector.
The organisation also wants to ensure 30%
female representation in senior manage-
ment by 2018.
The 30% Club concept came about as a
result of a conversation between Helena
Morrissey, CEO of Newton Investment Man-
agement in London, and member of the UK
Labour Party Mary Goudie about how few
women were making it into top positions.
South Africa started its own 30% Club
chapter in September 2013 and it has been
endorsed by Business Unity SA (Busa).
“We agree that the level of transformation
is not satisfactory, particularly for black
women and women with disabilities,” said
Vanessa Phala, executive director at Busa.
“What is needed to drive workplace gen-
der transformation are real organisational
transformation interventions that move
away from numbers and percentages, but
emphasise real transformation.
“This includes making sure companies
have proper plans to build their pipeline of
young women, supporting capacity-build-
ing initiatives and most importantly, creat-
ing spaces and an enabling environment
for women to take over senior and execu-
tive positions.”
The Grant Thornton report also showed
that among the South African companies
that were sampled, only 48% would sup-
port the introduction of quotas for the
number of women on executive boards
of large listed companies, a big drop from
60% in 2013.
Although City Press tried to contact Sha-
bangu, she was unavailable for comment
as she was in New York. However, in a re-
cent speech, she said 30% female represen-
tation was not ambitious enough and 50%
was what women should be aiming for.
“If you look at countries that have a sig-
nificant proportion of female representa-
tion on boards it is those countries that
have quotas already,” said Natesan. But
she added that the use of quotas did rep-
resent a unique challenge. “If we don’t
have quotas, we might not come right.
“However, the risk of quotas is that it will
be about ticking a box and men saying
women were chosen based on their gen-
der and not merit, similar to some of the
effects of BEE.” Phala said: “The Employ-
ment Equity Act provides clear penalties
for noncompliance with measures aimed
at achieving affirmative action; it’s not
our view that additional penalties will im-
prove compliance.
“What would improve compliance is the
commitment from business leadership to
embrace and champion transformation.”
Shabangu also said her department was
planning to convene national and provin-
cial dialogues between now and June to
discuss steps towards the attainment of
female empowerment and gender equal-
ity in the country. This will contribute to
the development of a report on the sta-
tus of women that will be released on Na-
tional Women’s Day on August 9.
Proportion of senior management roles held by women
Source: Grant Thornton International Business Report Graphics24
This article was first published on City_Press, 23 March 2015 7:00 by Mamello Masote
28. 28 | IA ADVISER April/May 2015
feedback from the
2014 National conference
DAY 1 - MONDAY, 11 AUGUST 2014
Nene confirms a “season of great
hopeandpromiseforAfrica”.
Finance Minister Nonhlanhla Nene was the
keynote speaker at the IIA SA national confer-
ence in August 2014, addressing the topic of
Africa’s rightful place in the leadership area.
In a detailed and informative talk, the Minis-
ter explained why he agreed with President
Jacob Zuma that “it is truly a season of great
hope and promise for Africa”. The President
had conveyed that sentiment the previous
week in his address to the national press club
inWashington DC.
Minister Nene focussed at length on the state
of the domestic economy and government’s
planstoimprovethecountry’seconomicper-
formance. In his honest talk, he frankly paint-
ed a somewhat bleak picture of the economy
and the challenges faced by government in
attempting to improve the situation.
Minister Nene pointed out that the global
economy continues to strengthen, albeit that
uneven and downside risks still remain. Very
recently,theIMF revised its globalforecastfor
economic growth from 3.7 to 3.4% for 2014.
Unfortunately,manyeconomiesareperform-
ing below their potential. This depresses de-
mand for local exports, and is adversely af-
fecting SA’s ability to grow.The United States’
so-called ‘tapering’ policies will most likely
increase the cost of borrowing for emerging
economies such as South Africa. Compound-
ing the situation, is the slower growth and
expansion in emerging markets which has
negatively affected the international price of
ourexportcommodities,therebyleadingtoa
deterioration of our terms of trade.
TheMinisteracknowledgedhoweverthatthe
greatest challenges to economic growth are
largely domestic. It is well known that“supply
side disruptions” (read labour unrest) have
plagued the economy over the last few years,
weakening confidence and lowering levels of
investment and household consumption.
Neneadmittedthatcurrenteconomicgrowth
is simply not enough to address the chal-
lenges of poverty and unemployment, which
has increased to 25.5%. Moreover, despite
low economic growth, consumer inflation is
rising and is currently at 6.6% (well above the
Reserve Bank’s target range of 3.26%).
Faced with a sluggish economy, higher infla-
tion, loss of business confidence, and persis-
tent labour strikes, Nene says that govern-
ment continues to work hard “to improve
business conditions by releasing supply side
constraints, improving policy alignment and
policycertainty”.Hecitedgovernment’splans
to improve the socio-economic conditions in
mining towns as one such intervention.
Minister Nene again reminded the audi-
ence that the National Develop Plan is gov-
ernment’s blueprint to address pressing
socio-economic challenges. In this regard,
government has adopted the Medium Term
Strategic Framework (MTSF) in order to align
the work of government at national, provin-
cial and local government behind a single
coherent program. The MTSF is essentially
government’s implementing program for
the first five years of the NDP.The focus of the
MTSF is not so much on new programs, but
rather on improving the implementation of
existing policies.
Shifting focus to Africa, Minister Nene noted
that over the past 20 years SA’s economy has
become inextricably intertwined with that of
the rest of the continent. “Macroeconomic
stability, political reform, favourable demo-
graphics and stronger institutions” he said,
The conference featured several prominent speakers and experts in the fields of internal auditing,
governance, risk management and business. A brief summary of selected topics follows.
Africa’s rightful seat in the Global Leadership Arena
Minister Nhlanhla Musa Nene, Minister of Finance of South Africa
