Department’s Risk Management Framework: briefing

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
23 May 2007
Department’s Risk Management Framework: BRIEFING

Chairperson: Mr Y Carrim (ANC)

Documents handed out:
Department Risk Management Framework Presentation

SUMMARY
Members met with the representatives from the Department in order to discuss the
Department’s risk management framework. The Department’s presentation outlined the risk management processes, the imperatives of the risk management oversight on the State Owned Enterprises (SOE’s), the risk management frame work, risk management levels, and the risk governance structures.

The discussions largely focused on the co-operate oversight evaluation process. Members asked the Department to state why the SOE’s had not provided enough information about the processes. They were informed that the oversight process was still new and most SOE’s were busy with their plans; the Department stated that the members concerns will be raised at the next risk management forum. Members then asked the Department to provide feedback on the SOE’s responses to the responses by the members.

MINUTES
Department of Public Enterprises Risk Management Framework Presentation
The presentation was made by Mr Joseph Makoro and Mr Suleman Badat. In their presentation they outlined the risk management processes, the imperatives of the risk management oversight on the SOE’s, the risk management frame work, risk management levels, and the risk governance structures (See document).

The SOE’s have begun with the implementation of an enterprise-wide risk management process, which helps to ensure that all risks are timeously and systematically identified, analysed and mitigated on a continuous basis. This is done in order to protect the reputation and image of the SOE. The Department has also developed a new risk management framework which provides a more robust oversight approach to risk management which is proactive as opposed to reactive. The purpose of the Department’s risk management framework focuses on three different levels, which include the stakeholder level, the enterprise level and decision support. The shareholder level focuses on identifying, managing and monitoring specific risks that are of concern to the shareholder (includes SOE cross-cutting risks). The enterprise level focuses on facilitating a process that would continuously improve the SOE’s risk management practices whereas the decision support focuses on improving the SOE’s internal decision making activities. In terms of governance structures, the SOE boards bear the responsibility of ensuring that there is an efficient risk management process within SOE, as well as forming an opinion on the effectiveness of the process.

Discussion
The chairperson stated that a lot of money had been entrusted to the SOE’s, and it is important for the Department to look at ways in which corruption can be stopped. The Department’s presentation however did not directly addressing the issues, but merely provided an intellectual glance of the issues and would not be allowed in future meetings. The Chairperson also stated that it was unacceptable that the pages in the presentation were not numbered.

Mr P Hendrikse (ANC) asked for clarity on the Department’s oversight evaluation plans.

Mr Makoro replied the Department consults regularly with the SOE in order to determine what can be done in terms of fraud prevention. The boards are essentially responsible for ensuring fraud prevention, as the Department role is not to tell the SOE’s what to do, but merely to meet with them and discuss key issues.

Mr E Kholwane (ANC) asked the Department to state why the South African Airways (SAA) requirements had not been provided by in the oversight evaluation table.

Mr Makoro replied that the evaluation of the co-operate plan was done in March 2007, and all SOE’s have to submit their co-operate plans to the Department. Members should be aware that SAA is going through a restructuring period and asked for an extension for the submission if their co-operate plan.

Mr Hendrikse asked the Department to state whether the co-operate oversight had been performed in previous years.

Mr Makoro replied that the oversight evaluation process was a new trend on which work had begun in May of 2006. The Department had to undergo a process of approvals, and during the process of approvals the SOE’s were already in their co-operate planning cycles. It is important to note that if the process had begun much earlier the situation might have improved.

Mr Hendrikse asked the Department to state whether there was a point in which all SOEs had complete risk management plans.  

Mr Makoro replied that the oversight was the first time the Department has had to sit down and define what SOE’s have to submit without a prescribed format. In evaluating the co-operate plans the Department effected the requirements that were to be submitted, and also took cognizance of the fact that the SOE’s were party to the process, but were busy with their co-operate plans at the time.

Mr Hendrikse stated that as far as Eskom is concerned they believed that they were “green” in terms of the requirements, however the Department does not receive enough information in order to fully analyse the situation. The Department should therefore state whether Eskom will be up to date with their requirements when the Department appears before the Committee again.

Mr Moloko stated that when the Department appears before the Committee with the oversight report then all SOE’s should have provided the necessary information.

Mr Hendrikse asked the Department to state whether the situation at SAA had anything to do with their transfer from Transnet.

Mr Mokoro stated that he could not speculate on the matter; however the Department notes that SAA was going through a difficult phase despite the fact that they were fully aware about submitting their plans.

Ms Kondlo stated that there is no way an SOE can receive a green light if all information has not been provided. The whole thing is very subjective, in that what is presented in the document is what the Department believes to be a reflection of the state of affairs in the SOE, meanwhile the SOE’s have a different perspective.

Mr Mokoro responded that SOE’s may have a different perspective, however using a subjective test one would come to the same conclusion, and using an objective test, it’s a question of how one feels.

Mr Kholwane stated that objectivity and subjectivity do not come into question as the Department sat down with all the SOE’s and told them what was required.

Mr Mokoro responded that when the reporting was finalized the SOE’s were still busy with their co-operate planning cycle. It was important to emphasis the fact the oversight on co-operate plans were still new and that the Department did work with the SOE’s through risk management and came to specific agreements. It is also important to note that think should not be seen differently.

Mr Badat added that the member’s issues raised by the members were valid, and that the issues raised will be tabled when the Department meet with the SOE’s at a risk management forum to be held on the 24^th of May.

The Chairperson stated that there seems to be no adequate consensus between the SOE’s and the Department. The Committee recognizes that different SOE’s are faced with different challenges; however despite the challenges the general standards that apply across the board. The Department however has not provided clarity on how the information is obtained and also whether proper oversight is done when meeting with the SOE’s

Mr Van Dyk (DA) asked for clarity regarding SAA, and asked the Department to state whether SAA was still a part of Transnet, and stated that SAA was still a part of Transnet as the SAA bill has still to be singed by the president. With regards to the co-operate oversight plan, the department should state whether the sections that are marked red are sections that haven’t been submitted by the SOE’s.

Mr Mokoro the sections that are marked red are sections in which the SOE’s have to report on, in order for the Department to monitor or execute oversight, and issues should be cover to a sufficient degree as stated in the framework.

Ms Kondlo stated that SOE’s have their own risk management systems and frameworks. The Department should state why SOE’s have problems submitting risk management frameworks.

Mr Mokoro replied that the Department does go to the SOE’s to see what is being done. It is however important to note that there is a fine line between performing oversight and intervening with the risk management of an SOE what to do.

Mr Van Dyk then stated that the sections should be referred to as plans and not aspects

Mr C Gololo (ANC) asked the Department to provide clarity on what happens to SOE’s when they fail to submit plans.

Mr Mokoro replied that when an SOE fails to meet the requirement, a decision memo was given to the
Minister, which included a letter to the Chairperson of the Board. The letter would highlight the areas that need improvement and also provide recommendations on what is to be done.

Mr Hendrikse asked the Department to state how the Committee would be assured that their questions would be raised on 24 May. He suggested that there should be an independent body, such as the Parliamentary Monitoring Group (PMG), present at the meeting so that members can actually see that the correct questions were raised.

The Chairperson stated that the committee has engaged with the Department on several occasions in order to sort out risk management issues; however one could still see that there were several problems that need to be sorted; this was very worrying.

Mr Kholwane stated that during the previous years there had been several reports by the SOE’s that they have strategic plans in place which are near completion. This is in contradiction with what the Department states and it needed to be clarified.

The Chairperson stated that the Committee needed to be strict in keeping a proper record of what had been stated by the SOE’s, the meetings and the recommendations that the Committee has made.

Mr Mokoro replied that in terms of risk management plans, the Department could confidently state that Eskom and Transnet are ahead with their risk management plan. There is a cordial interaction with the SOE’s where issues have been discussed and recommendations have been made. The Committee should also note that the SOE’s take the risk management issues seriously.

The Chairperson state that Eskom’s fraud prevention plan is not very positive and the matter should be raised at the risk management forum on the 24^th of May.

Mr Van Dyk stated that according to the presentation the SOE’s risk management forum, comprises the risk managers of the SOE’s and the risk unit, however it is shown later in the document that there is no link between the risk unit and the risk forums. There also should be a situation where all the reds are turned to green in the co-operate oversight report.

Mr Mokoro stated that it is very difficult to state when an SOE will meet certain requirements, however the Department will continue to engage with the Committee on the progress that has been made.

Mr Hendrikse stated that the Department should provide a report back of the SOE’s responses to the concerns raised by the Committee, after their risk management meeting.

Ms N Kondlo (ANC) asked the Department to comment on whether the co-operate oversight system acted as an early warning system.

Mr Mokoro stated that the co-operate oversight system could be seen as an early warning system and that the Department is getting there in terms of resolving the issues.

Ms Kondlo asked whether there was any follow ups when they discover that some thing goes wrong in the SOE’s. Comment on how the risk management units were structured also an explanation of how the unit operates.

Mr Mokoro stated that there is continuous interaction with the SOE’s, and the Department uses tools of intervention through the legal governance risk and secretariat.

Ms Kondlo asked for clarity on the staff complement of the unit.

Mr Mokoro replied that there was only one vacancy in the unit and it was for the post of Director.

Mr Hendrikse asked whether the Department physically went to the SOE’s and saw that that their risk management plans were in place.

Mr Mokoro stated that it was correct that the Department did not physically go to the SOE’s to monitor the risk management, however the Department did not depend entirely on what was stated by SOE’s. Surveys were regularly taken and sent to the various SOE’s. The Department then continuously engaged with the SOE’s in order to make sure that the necessary processes are in place.

Ms Kondlo stated that the next time the Department appears before the Committee she would like to engage them on the notion of risk and what it entails.

Mr Gololo added that when the Department next appeared before the Committee he would like to engage with them in order to discuss issues regarding the fronting of companies.

The meeting was adjourned.