CORPORATE GOVERNANCE. Umgeni Water Annual Report

Transcription

1 CORPORATE GOVERNANCE INTRODUCTION Umgeni Water operates under a three-tiered management structure: The Board of Umgeni Water, which is the official Accounting Authority in terms of the Public Finance Management Act No. 1 of 1999 The Executive Committee (effectively the organisation s executive management) and Senior Managers. The 14-member, non-executive Board provides strategic policy guidance to the executive team. Various Board committee meetings took the time to address specific areas in detail in order for the Board to make informed decisions. This has improved the corporate governance systems in the organisation. The Board is governed by a code of ethics and the work of the committees is guided by specific terms of reference. Board meetings have been well attended and the details of activities during the year under review are disclosed below. Members of the Board consider and authorise strategic issues in accordance with laid-down Umgeni policy and procedures. Responsibility for the efficiency and effectiveness of operations, the optimum utilisation of Umgeni s resources, legal compliance, the safeguarding of assets and the existence of sound and effective internal controls rests ultimately with the Board. Accordingly the Board approves all corresponding policy, and monitors and guides the organisation s overall performance. The Chief Executive (CE) is assisted by four General Managers in implementing the policies, decisions and strategies adopted by the Board. In addition, the CE is responsible for fostering a culture of compliance and also ensuring that all employees support and abide by the Umgeni Water Code of Ethics. The General Managers attend all meetings of the Board to report on the activities of their divisions. Executive Management meetings are held fortnightly. SHAREHOLDER COMPACT In accordance with the Treasury Regulations issued in terms of the Public Finance Management Act 1 of 1999 (PFMA), the Board of Umgeni Water, as the accounting authority must, in consultation with its executive authority, the Minister of Water Affairs & Forestry, annually conclude a shareholder compact. The shareholder compact reflects the key performance measures and indicators to which Umgeni Water is committed. Refer to page 24 for the main key performance indicators. The Board continues to inform its executive authority on all major developments affecting the organization through: Quarterly reporting against key indicators Annual Sustainability Reports Detailed five-year Business Plans Direct contact between the Chairman, the Minister of Water Affairs and Forestry and the Portfolio Committee Frequent communication at executive level on industry performance and policy issues. 15

2 GOVERNING BODIES Umgeni Water is fully committed to sound corporate governance. It actively embraces the King Report on Corporate Governance 2002 (King II), which advocates the need for institutions to be governed in accordance with its principles. Umgeni Water is driven by the values of customer focus, integrity, developmental approach, respect for people, environmental sustainability and excellence. Business relationships, characterized by ethical behaviour, require compliance with the set values, applicable legislation and business practices. Key initiatives during the period to ensure continued compliance with good corporate governance included: Alignment of the terms of reference of Board committees Further refinement of the delegation of authority document to confirm alignment to legislation, regulations and internal policies Formal incorporation of existing risk management initiatives into an Integrated Risk Management Framework to address and implement Enterprise-wide risk throughout Umgeni Water Development of a corporate business cycle to improve efficiency and effectiveness Refinement of the corporate Balanced Scorecard to assist with meeting corporate objectives, using measurable targets. THE BOARD In terms of the Water Services Act of 1997, the Minister of Water Affairs and Forestry appoints the Board of Directors. The Umgeni Water Board consists of fifteen non-executive members and the Chief Executive. The term of office of a non-executive director is determined by the Minister of Water Affairs and Forestry and is for a period not exceeding four years. Non-executive directors may be re-appointed for a period not exceeding three consecutive terms of office. The composition of the Board of Umgeni Water is reflected on pages 8 and 9. Having an independent non-executive member of the Board as Chairperson Having all Board Committees chaired by independent non-executive members. The Chairperson is responsible for the overall leadership of the Board and is also a primary linkage between the Board, the executive authority and the Chief Executive. Disclosure of Interest On an annual basis and at every Board and Board Committees meetings members declare any interests and commit to non-disclosure of information that could unfairly advantage or disadvantage a party. Code of Conduct The Board Code of Conduct and Committees Terms of Reference set out the operational and other responsibilities of the Board. In effect, the Board Code of Conduct and Committees Terms of Reference serve to guide the Board and Committees in discharging their duties in order to ensure that the Board s independence is upheld. Role and Functions of the Board The key functions of the Board are to provide strategic direction and leadership, ensure good corporate governance and be accountable for performance. Directors of the Board fulfil their roles through attendance of and participation at Board meetings. The Board of Umgeni Water meets in accordance with the Corporate Business Cycle to hold discussions and take decisions on matters relating to the organisation s business plan, budget, major capital expenditure, strategy and policies. The independence of the Board is maintained by adhering to certain key principles: Limiting the number of hours per month that a Board member and chairperson work on Umgeni Water business to 40 and 50 hours respectively Keeping separate the positions of Chairperson and Chief Executive 16

3 Table 3: Board Meeting Attendance BOARD MEETING ATTENDANCE SPECIAL MEETING ATTENDANCE MEMBERS 26 July 21 Sept 29 Nov 7 Mar 24 May Risk Workshop 6 October 06 Board Strategy 31 January 07 Mr N Gasa (Chairperson) Mr V Gounden Ms T Shezi Mr N Dlamini Mr S Dlamini Mr B Mathebula Mr. Z Dube Mr N Macleod Ms R Manning Mr H Buthelezi Ms J Armstrong Ms N Medupe Ms N Afolayan Ms M Lesoma Mr J de Kock * Mr M Msiwa (Chief Executive) *Financial specialist only by invitation Indicates attendance Indicates absence with apology Board evaluation Umgeni Water recognises that the Board is the focal point of the corporate governance system in the organization and therefore assessment of the structure and processes of the Board is vital to achievement of strategic objectives. A Board evaluation was held in December. Remuneration Directors are remunerated for their input, that is, for the time they devote to their duties as Board members. Their remuneration is calculated at an hourly rate determined by the Minister of Water Affairs and Forestry in April of each year. Different hourly rates apply to the Chairperson, Vicechairperson and Directors. Company Secretariat Function The directors have unrestricted access to the advice and services of the company secretary. Directors may seek independent professional advice at the expense of Umgeni Water. Mr Matome Mashao was appointed company secretary on 4 September and resigned on 31st December. The post remained vacant until Ms Marlene Hilton was appointed as Company Secretary on 1st July. Board committees The Committees assist the Board in the performance of its duties and also in enabling effective decision-making. In terms of the Water Services Act, the Board is authorised to delegate powers to the Committees established by the Board. The functions and powers delegated to Committees are set out in the Committees Terms of Reference. Terms of Reference for all Committees have been reviewed and approved by the Board during this reporting period. The Board of Umgeni Water had three formally constituted Committees. Audit and Risk Committee This Committee comprises six non-executive directors and the chief executive. It is chaired by Ms N Afolayan. Most of 17

4 the members of this Committee have financial backgrounds and the necessary skills and experience that ensure the effective functioning of the Committee. The Committee has been established in terms of the requirements of sound corporate governance practices (King II), the PFMA and its regulations and operates within that framework. The objective of the Committee is to assist the Board in fulfilling its oversight responsibilities for: The integrity of Umgeni Water s financial statements Compliance with legal and regulatory requirements The external auditor s independence and qualifications The performance of Umgeni Water s internal audit function and that of the external auditors Internal controls over financial reporting and compliance with ethical standards adopted by Umgeni Water The adequacy and effectiveness of Umgeni Water s financial, operating, compliance and risk management controls Reviewing the management of risk and monitoring control effectiveness. The Committee is responsible for meeting with the joint external audit team of Ngubane & Co. and Deloitte & Touche, and reviewing accounting and auditing concerns identified by both the external and internal audit. This Committee is supported by two management committees, namely the Corporate Risk Management Committee and the Fraud Prevention Committee. The Fraud Prevention Committee is chaired by an independent professional. The chairpersons of both management committees attend all meetings of the Audit & Risk Committee and report on matters relating to risk and fraud prevention. Table 4: Audit and Risk Meeting Attendance MEMBERS 26 July 25 Aug 14 Sept 16 Nov 7 Feb 3 May N. Afolayan (Chairperson) V. Gounden N. Dlamini J. Armstrong Z. Dube N. Medupe M. Msiwa (Chief Executive) M. Lesoma N/A 1 N/A N/A N/A N / A N. Gasa N/A 1 N/A N/A N/A N/A 1 By invitation Indicates attendance Indicates absence with apology Remuneration and Human Resources Committee This Committee comprises six non-executive directors and the Chief Executive. It is chaired by Ms Mina Lesoma. The Committee reviews and recommends to the Board all matters relating to: Human Resources policies, organizational structure and compliance with the Employment Equity Act, 55 of 1998 Conditions of employment of executive management Appointment of the Chief Executive and members of executive management Remuneration packages for the Chief Executive Officer, members of executive management and staff Succession planning for executive management Policies and practices for Performance Management Special rewards recommended by the Chief Executive. 18

5 Table 5: Remuneration and Human Resources Committee meeting attendance MEMBERS 18 July 19 Sept 21 Nov 6 Feb 2 May M. Lesoma (Chairperson) T. Shezi N. Dlamini S. Dlamini N. Macleod R. Manning M. Msiwa (Chief Executive) Indicates attendance Indicates absence with apology Procurement, Fixed Assets and Capital Projects Committee This Committee comprises five non-executive directors and the chief executive. It was chaired by Mr H Buthelezi until 19th October 06, following which Mr Macleod assumed chairmanship on 5th February. The Committee was established to assist the Board in its duties relating to the management of capital expenditure for expansion and diversification programmes, compliance to supply chain management and safeguarding of Umgeni Water s assets. The Committee reviews and recommends to the Board all matters relating to: The five-year capital expenditure programme Proposed investments having a value greater than authorized limits Transfer and/or disposal of assets within specified limits. Table 6: Procurement, Fixed Assets and Capital Projects Committee Meeting Attendance MEMBERS 11 July 19 Oct 5 Feb H. Buthelezi Chairperson until 19/10/06 N. Macleod Chairperson effective 05/02/07 Z. Dube B. Mathebula T. Shezi M. Msiwa (Chief Executive) Indicates attendance Indicates absence with apology 30 April CODE OF ETHICS The Board of Umgeni Water has approved an Ethics Policy which provides guidelines for executive management and employees at all levels to conduct every business activity with integrity, honesty, morality and in an appropriate manner. RISK PROFILE AND MANAGEMENT The Board of Umgeni Water, assisted by the Audit & Risk Committee, is ultimately accountable for risk management. The aim of Integrated Risk Management is to ensure that in all Umgeni Water activities, opportunities are maximised and adversity minimised through adequate management of multidisciplinary risks. In recognising risk as all sources of uncertainty that could affect, positively or negatively, the organisation s ability to achieve its strategic and business objectives, Umgeni Water has developed and maintains policies and procedures to provide a systematic view of the risks faced in the course of its operations, business and administration activities, and institutes effective control mechanisms to mitigate the impacts of risk, to ensure organisational sustainability. Through iterative risk assessment Umgeni Water has identified and rated 27 strategic risks. A Priority Scale guides both the risk accountability and the risk appetite of Umgeni Water. 19

6 Table 7: Umgeni Water s Top Strategic Risks ISSUE Water resources to meet development demands. Availability of skills & loss of skills impacting on current business and future growth. Credit risk: Customer's ability to meet financial obligations. Delays in supply chain management process could impact on delivery of strategic objectives. Development and execution of capital expenditure and maintenance programme. Climate Change manifestation through changes in temperature and rainfall affecting run-off, land use and water consumption patterns. Mechanical/physical failure of strategic infrastructure. RISK MITIGATION Joint collaboration in planning and liaison with DWAF and customers. Link the Integrated Water Resources Management Strategy to the relevant Catchment Management Agencies' frameworks/priorities. Modelling of hydrological systems to determine levels of risks and required changes to operating rules. Improving efficiency through water conservation initiatives, identifying wasteful processes and streamlining these. Timely planning of new technologies, e.g. wastewater recycling and desalination. Make use of opportunities offered through JIPSA & ASGISA for the International skills exchange programme. Establish networks with other water utilities. Approved Human Capital Strategy and broad banding framework for critical skills to be implemented. Contractual relationship with legal recourse. Legislative protection to appeal to National Treasury. Affordable/negotiated tariffs. Forge closer relationships at all levels with customers. Review of current supply chain management processes with Treasury Regulations. Employees to be trained on supply chain management. Procurement Plan to be developed and aligned to Capital and Operating Expenditure Programmes. Re-align policies for selection of suppliers with BBEE codes and criteria of price, ownership and quality. Long-term Plan has been developed taking lead time into account. Capital Approval process defined. Asset management strategy and service delivery strategies. Water demand discussions with all customers. Alignment to Spatial Economic Development Strategy nodes. Marketing mix and marketing strategy for each customer to integrate planning & implementation of bulk and reticulation projects. Quantify potential hydrological impacts of climate change on the Mgeni catchment by modelling numerous scenarios. Disaster management plans for floods, droughts and water quality. Continual monitoring of water resource information and assessment of short-and long-term risks. Keeping abreast with global and regional research information. Development of a drought management plan. Total asset management strategy in place. Planned maintenance and inspection programmes. Asset assessments. The operation & maintenance of dams is well managed and is in compliance with relevant legislation and standards. Servitude maintenance reinstated on an annual basis. Approved operating rules. 20

7 Divisional and operational risk assessments are undertaken, identifying risks which limit divisions in achieving strategic objectives, and subsequently mitigations are implemented to manage these risks. Results of risk assessments and mitigations implemented are monitored by the Corporate Risk Management Committee and reported to the Board via the Audit & Risk Committee. FRAUD PREVENTION A fraud prevention plan has been developed by the Fraud Prevention Committee in accordance with the Public Finance Management Act. An external non-executive director chairs the Fraud Prevention Committee. The principle focus of the Fraud Prevention Committee is to proactively fight fraud and action the fraud prevention plan. The Committee has unlimited access to the Chairperson of the Audit & Risk Committee and the Chief Executive. Umgeni Water continues to operate the fraud prevention hotline, which is administered by KPMG. The whistle-blowing facility has assisted in ensuring that the risk of fraud is minimised and monitored. In order to direct Umgeni Water s Disaster Risk Management efforts in alignment with the provisions of the South African Disaster Management Act, No 57 of 2002, Umgeni Water has formulated a multidisciplinary framework. The organisation currently has implementation guidelines and plans for High River Levels and Dam Break disaster scenarios, as well as engagement protocols for water quality emergencies. AUDIT AND CONTROLS The Board is responsible for the maintenance of effective and efficient systems of internal control. The internal control systems are designed to provide reasonable assurance that assets are safeguarded and that liabilities and working capital are efficiently managed. Principal features of the organisation s internal finance controls are: A system of financial planning, budgeting and reporting which allows continuous monitoring of performance A materiality and significance framework Clearly-defined delegations of authority The establishment of a short, medium and long-term funding strategy The tariff model which determines the financial impact of capital expenditure and the bulk water tariff on Umgeni s debt curve Established policies and procedures. To assist the Board in the discharge of its responsibilities, Internal Audit undertakes an independent assessment of the internal control systems and business risks and reports to the Board through the Audit and Risk Committee. The audit plan covers major financial and commercial risks and responds to any changes emanating from Umgeni s integrated risk management process. The internal audit function was outsourced to the Gobodo/Sizwentsaluba consortium until their contract expired in April. A new internal audit consortium consisting of Price Waterhouse-Coopers and Thabani Zulu & Co. commenced a three-year contract in May. The external auditors are responsible for independently auditing and reporting on the financial statements in accordance with the International Financial Reporting Standards. COMPLIANCE TO WATER SERVICES ACT 108 OF 1997 & PFMA As a good corporate citizen, Umgeni Water complies with the laws of the country. The organisation s policies are continually reviewed to ensure it responds to relevant legislation. The Water Services Act 108 of 1997, as amended, and the Public Finance Management Act set out the exact operational and fiduciary duties of the Board. In order to increase the Board s understanding of the legislation, Board members are kept abreast of developments in legislation through presentations and memoranda. During the current year a Compliance audit and review of adequacy of the systems, policies and procedures at Umgeni Water for the period July June was undertaken. The purpose of the audit was to provide assurance to DWAF in respect of compliance to sections relevant to the business in terms of the PFMA, Treasury Regulations, Water Services Act, Preferential Procurement Policy Framework Act, various labour legislation, and leading practices such as Supply Chain Management. There were areas of non-compliance which the Board is managing and ensuring that they are immediately addressed. 21

8 STAKEHOLDER COMMUNICATION, ENGAGEMENT AND PARTNERSHIPS In the Financial Year Umgeni Water continued to give meaning to its commitment to engage with and, where possible, exceed the expectations of its customers and stakeholders. The stakeholders of Umgeni Water comprise groups within and outside government that have a direct interest in and/or are affected, in one way or another, by the activities of Umgeni Water. There are congruent relationship management strategies for each category of stakeholder. In broad terms, the information Umgeni Water shares with its stakeholders relates to: Its primary business activities determined by Section 29 of the Water Services Act Its secondary business activities sanctioned by Section 30 of the Water Services Act The environmental impact of its activities Proposed bulk water tariff adjustment, as a requirement of Section 42 of the Municipal Finance Act (Bulk Water Tariff Consultation process) Financial performance of the organisation in the year under review. The organisation employs an array of communication tools to engage with its stakeholders, among them meetings, briefing sessions, media conferences and statements, seminars, workshops, internal hard-copy publications and focus groups (a form of survey). Alternate platforms for the provision of feedback are correspondence to members of staff, internal publications of Umgeni Water and stakeholder surveys that are conducted at least once in two years. Umgeni Water responds timeously in instances where comment, clarity or answers are sought. In the year under review, stakeholder engagement occurred at various levels, reinforcing Umgeni Water s commitment to provide information of interest and relevance to all its stakeholders. Engagements and consultations with stakeholders were undertaken by the Board and by the five divisions of Umgeni Water the Office of the Chief Executive, Operations, Engineering and Scientific Services, Finance and Corporate Services on different topics and at different times. In the course of these interactions, many new stakeholders are also identified and new relationships developed, to the mutual benefit of Umgeni Water and affected and/or interested parties. Umgeni Water considers itself to be proactive and progressive in terms of stakeholder engagement, so much so that it has set up a Stakeholder Management Unit, which is based within the Office of the Chief Executive, to promote and manage relations with stakeholders. The organisation also has membership of a range of organisations, among them being: Water Institute of South Africa, Engineering Council of South Africa, South African Institute of Race Relations, Durban and Pietermaritzburg Chambers of Commerce, Public Relations Institute of South 22

9 Africa, South African Association of Water Utilities, South African Council of Natural Science and Water Environment Federation. During the period July June, the following stakeholder engagements occurred, categorised here as activities by the Board and various divisions of the organisation ( Table 8 ). The Stakeholder Management Unit often engages stakeholders separately. Its activities in the period under review included meetings with some members of traditional leadership, on whose land a new pipeline runs. It was a goodwill visit intended to grow relations between UW and traditional leaders. Other interactions included: Sponsorship of some events arranged by the shareholder and customers. This presented an opportunity for representatives of UW to interact with stakeholders Meetings with internal stakeholders, as part of an initiative to streamline communication and address specific communication needs Interaction with the media and investors at the presentation of the annual Financial Statements The development and release of media statements on a range of issues raised by newspapers The hosting of the media at UW sites for the purposes of relationship-building and research The hosting of a National Water Week function in Durban, which drew the shareholder as a partner. There were many highlights in the past financial year accomplishments that resulted from the commitment and hard work of members of the Board and staff of Umgeni Water. The future holds promise for enhanced relations that can only have the effect of making the operating environment of Umgeni Water a more pleasant and enabling one. For their part, the Board, Executive and Corporate Stakeholder Management Unit will continue to play an active and strategic role in ensuring that stakeholder interactions stay in focus and are in line with Umgeni Water s objective to remain customer-and stakeholder-oriented. As this objective is achieved, year after year, more muscle is added to Umgeni Water s position as a caring organisation that delivers a costeffective product and service. Table 8: Meetings with Stakeholders BOARD EXECUTIVE MANAGMENT DIVISIONAL Department of Water Affairs and Forestry Portfolio Committee on Water Affairs and Forestry Budget Vote presentation of the Minister of Water Affairs and Forestry, Lindiwe Hendricks World Economic Forum meeting in Cape Town General meeting held by Minister of DWAF Networking session during Golf Day hosted by the Minister of DWAF Meeting at which Chairperson of DWAF Portfolio Committee was present Meeting with National Treasury Courtesy visits to customers (ethekwini Metropolitan Municipality, Ugu District Municipality, umgungundlovu, IIembe District Municipality) and Uthukela Water Quarterly meetings with ethekweni MM, meetings with Msunduzi Local Municipality, umgungundlovu DM, IIembe DM and Sisonke DM, OR Tambo Municipality Umhlatuze Water, South African Association of Water Utilities, Regional Land Claim Commission, Engineering Council of South Africa Internal Stakeholders, organised labour and nonunionised staff, Staff Information Sessions SAAWU, schools and communities Media and investors National Water Week function in Durban IIembe DM, Siza Water, Ugu DM, umgungundlovu DM, Msunduzi LM KZN Provincial Water Liasion Committee Department of Agriculture and Environmental Affairs, Communities, general public, civil society bodies 23