KING III Impact on Government
Contents
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Introduction
Key Principles of King III
Governance Framework and Application
New Requirements
Chapters 1 to 11 of King III
Way Forward
Introduction
• King III released on 1 September 2009
• Represents a significant milestone in the
evolution of corporate governance in South
Africa
• Significant opportunities for institutions that
embrace its principles.
Key principles of King III
King III has broadened the scope of corporate governance
in South Africa with its core philosophy revolving around
leadership, sustainability and corporate citizenship.
These key principles are given prominence:
• Good Governance is essentially about effective
leadership.
• Sustainability
• Innovation, fairness and collaboration are key aspects
to any transition to sustainability
• Social Transformation and Redress
Governance Framework and Application
• King III has opted for an ‘apply or explain’ governance
framework.
• Best interests of the institution, it can adopt a practice
different from that recommended in King III, but must
explain it
• King III applies to all entities regardless of the manner
and form of their incorporation or establishment.
• Principles are drafted on the basis that, if they are
adhered to, good governance is practised.
• Institutions should disclose which principles and/or
practices they have decided not to apply or explain.
New Requirements
Some of the requirements introduced by King III include:
• The need for an annual integrated report that focuses on the
impact of the institution in the economic, environmental and social
spheres;
• A statement by the audit committee to the board and shareholders
on the effectiveness of internal financial controls to be included in
the integrated report;
• The consideration of the strategic role of IT and its importance from
a governance perspective;
• The positioning of internal audit as a strategic function that
conducts a risk-based internal audit and provides a written
assessment of the institution’s system of internal control, including
internal financial controls; and
• The governance of risk through formal risk management processes
Ch1. Ethical Leadership and Corporate
Citizenship
• The responsibility for leadership is assigned to
the EA and delegated to the AO
– The PSR articulates the responsibility of the AO
• Responsibility for effective service delivery is
the AO
– Measurable objectives are established in the
Strategic Plan
• Management of Ethics
– Ethics and Code of Conduct as per PSR
Ch2. Boards and Directors
• Departments do not have boards of Directors
• Corporate Governance Board Functions are performed
by the AO and Executive management team
• The EA approves the strategy and this is tabled in the
Legislature
• Leadership positions are expected to perform their
duties in the best interest of the department
• Executive appointments are regulated by the PSA
• Responsible for establishing Audit Committees
• Governance Responsibilities as per TR
• Remuneration matters are managed by the DPSA
Ch3. Audit Committees
• The Executive should ensure that the department has an
effective and independent audit committee
• Audit committee members should be suitably skilled and
experienced independent non-executive directors
• The audit committee should be chaired by an independent
non-executive director
• The audit committee should oversee integrated reporting
• The audit committee should ensure that a combined
assurance model is applied to provide a coordinated approach
to all assurance activities
Ch3. Audit Committees ….
• The audit committee should satisfy itself of the expertise,
resources and experience of the finance function
• The audit committee should be responsible for overseeing of
internal audit
• The audit committee should be an integral component of the
risk management process
• The audit committee is responsible for recommending the
appointment of the external auditor and overseeing the
external audit process
• The audit committee should report on how it has discharged
its duties
Ch4. Governance of Risk
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Responsibility for RM has been established in the PFMA
RM framework has been established by NT
Prudent RM to be achieve objectives
The RM Committee roles and responsibility is established in RM
framework
Management responsibilities for risk ownership and management
Risks must be assessed on a regular basis
Risk management plans must be regularly assessed
IA to assess the key risk facing the department
Responsibility of IA, AC and AG to provide independent assurance
on the effectiveness of RM processes
Annual Report to disclose on RM arrangements
Ch5. Governance of IT
• PSR Chapter 5 places an obligation for AO to ensure the acquisition,
management and utilisation of IT improves.
• PSR recognises the important roles IT plays to achieve Government
vision
• TR requires IT acquisition or expansion plan in line with IT Plan
• IT Governance Framework, IT Committee, Charter, Policies and
Procedure
• Information Technology Guidelines adopted refers to Control
Objectives for IT (COBIT)
• Minimum Information Security Standards – CIO
• Internal Audit to evaluate the controls in IT
• IT to form an integral part of RM
• SITA to assist with management of IT risks
• Information assets managed properly (PPI, PAIA, MISS)
Ch6. Compliance with Laws, rules,
codes & standards
• The PFMA takes precedence over all other laws
within the public sector environment
• Section 38 requires AO to ensure compliance
with applicable legislation
• Legal services units established to provide
assistance with compliance
• Compliance with laws and regulations articulated
in the RM framework
• Review of compliance delegated to the AC and IA
Ch7. Internal Audit
• The Executive to ensure that there is an effective internal
audit unit
• Internal audit follow a risk-based approach to its plan
• Internal Audit to comply with IIA standards
• Internal audit to provide a written assessment of the
effectiveness of the system of internal controls and risk
management
• The audit committee responsible for overseeing internal
audit
• Internal audit strategically positioned to achieve its
objectives
Ch8. Governing Stakeholder
Relationships
Stakeholder perceptions
• managing stakeholder perceptions and
relationships is an integral part of the day-today operations
• Batho Pele Principles
Stakeholder relationships
• SCOPA, Portfolio Committee, public can attend
Ch9. Integrated Reporting and
Disclosure
Transparency and Accountability
• PFMA requires an Annual report
• Integrity of Annual report
• Annual Report includes financial and nonfinancial information
• Reporting requirements prescribed by NT
• AG to report on going concern / sustainability
issues
• AC to evaluate and report on AR
Ch10. Alternative Dispute Resolution
• All internal disputes are handled in terms of the
regulations set out by the Public Service Commission.
• Presiding officers are appointed to manage the internal
dispute processes together with labour relations units
• Treasury Regulation 16A deals with supply chain
management as it relates to contracts and contract
management.
• The Accounting Officer cannot commit to any liability
for which money has not been appropriated (section
38(2) of the PFMA)
Ch.11 Internal Financial Controls
• Control framework adopted (e.g. COSO)
• Controls in place to manage risks
• Treasury Regulation requires that the AC
comment on the effectiveness of internal control
in the annual report
• The AC include the oversight role over financial
information, internal controls and legal and
regulatory compliance
• IA to subject the information systems
environment to evaluation.
Ch12. Remuneration of Directors and
Senior Executives
• The remuneration structures for national and provincial
government are determined via section 37 of the Public
Service Act (PSA), and articulated in Part V of the PSR.
• Part III and Part VIII of the PSR sets out the performance
management systems to be established and adopted
• Disclosure is limited to number of employees per level and
band within a level.
• The annual report templates issued by National Treasury
require disclosure of employee costs and vacancies
Way Forward
• Managers to be aware of requirements in terms
of King III for their various sections
• Review measures to implement requirements
not yet implemented
• Implement requirements of King III or explain
reasons for non-compliance
• Combined Assurance
• Service Delivery
• RESPONSIBILITY
Thank You
• Questions ???