Week 38 to 21 September
Ben Pieters - the Business Support Specialist
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Welcome to 'Navigating GRC' your guide through the intricate landscape of Governance, Risk, and Compliance.
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Please note that we identify the author and the name of the publication the article appeared in, and directly extract aspects we believe would reflect the idea or thought expressed therein.
The new currency for South Africa, China, and India makes no sense
An opinion expressed in BusinessTech discusses the talk of a so-called ‘BRICS currency’ which has been cropping up for several years, largely as part of a wider discussion—and push—for ‘de-dollarisation’ and to no longer be subject to the dominance of a single economy (the United States).
Think tank the Free Market Foundation (FMF) says South Africa has little in common with its partners in the BRICS bloc, and talk of a unified currency for those inside it makes no sense.
For a unified BRIC currency, various ideas have been put forward, including a gold-backed currency and a digital currency—the latter being the most recent to create some waves.
Speaking on the sidelines of the New Development Bank’s annual general meeting in Cape Town in August, Finance Minister Enoch Godongwana described the currency and common payment system question as a “complex issue”.
Godongwana previously dismissed the talk of establishing a physical currency as well.
FMF economic analyst Nicholas Woode-Smith says: "A BRICS currency would be used only by its members and is very unlikely to be adopted by any but the most minor economies. The Euro makes sense because Europe is effectively a single economy broken up into more localised economies."
Woode-Smith said that looking at the BRICS countries, there is little to no commonality between them. In terms of trade, South Africa is also consistently drawing the short straw, trading at a deficit with each of the main members.
Hopefully, sense would prevail and South Africa will not become another Zimbabwe.
Why being ‘smart’ isn’t enough to land a job
Luke Fraser writes in BusinessTech that a high Intelligence Quotient (IQ) is often seen as a critical indicator of potential personal and professional success, but other factors must be considered.
Social Quotient (SQ) and Cultural Quotient (CQ) are emerging as additional factors when hiring and promoting candidates.
“Modern understanding recognises the crucial roles the various intelligences play in determining how effectively one navigates your educational and career journey,” said Talita van Wyk, Head of Programme?at?The Independent Institute of Education:
"SQ and CQ are increasingly significant differentiators in the employment arena, and therefore, individuals should also endeavour to develop these intelligences when building their brands,” said Van Wyk.
“The good news is that both SQ and CQ, together with the other intelligences, can be developed over time – particularly as awareness of these important qualities grow.”
Research on the National Rural Youth Service Corps noted that soft skills are incredibly important for getting a job in South Africa.? The researchers noted that improving soft skills, including problem-solving, networking, and leadership skills, was essential in getting a job.
Being smart is not enough. Developing your soft skills from an early age is the key.
PwC Faces Unprecedented Penalties in China
Chinese authorities have imposed severe penalties on PricewaterhouseCoopers (PwC) for its role in auditing the collapsed property developer Evergrande. The punishment, including a six-month ban and fines exceeding 400 million yuan ($56.4 million), marks the heaviest sanctions yet for international accounting firms operating in China.
The Ministry of Finance accused PwC of issuing "false audit reports" for Evergrande, citing "serious defects" in audit procedures and design. The regulators also criticized PwC for failing to maintain "professional scepticism" and not highlighting errors and lack of information disclosure by Evergrande.
The investigation uncovered alarming discrepancies that paint a picture of systemic failures in the audit process.
A staggering 88% of the records kept by PwC regarding Evergrande's real estate projects were inconsistent with their actual implementation. The depth of these inconsistencies became even more apparent during on-site investigations conducted by regulatory authorities.
These findings underscore the severity of the audit failures and have far-reaching implications.
The significant discrepancies between reported figures and physical reality suggest that auditors may have relied too heavily on information provided by Evergrande without conducting sufficient independent verification.
Mohamed Kande, Global Chair of PwC, acknowledged the gravity of the situation saying, "The work performed by PwC Zhong Tian's Hengda audit team fell well below our high expectations and was completely unacceptable."
Regulators and investors alike are likely to demand more stringent audit practices, increased transparency, and enhanced due diligence processes across the board. PwC has publicly committed to fully complying with all administrative penalties imposed by Chinese regulators.
The global financial community will be watching closely to see how these sanctions impact the broader landscape of auditing and financial reporting in China. Non-compliance with agreed standards is costly.
Good news for Smart IDs
Home Affairs Minister Leon Schreiber says the next phase of the Smart ID rollout will allow naturalised citizens to apply for the card, followed by permanent residence permit holders.
Both these categories of residents in South Africa have previously been unable to apply for Smart IDs, creating a major stumbling block in the DHA’s plans to modernise the ID system in the country.
Until earlier this year, the Smart ID was only available to born citizens.
As a result, naturalised citizens or permanent residents who had lost, stolen, or damaged green ID books could visit only a handful of offices that still support the issuing of the older document.
In addition, naturalised citizens and permanent residents could not use the Home Affairs online booking system, eHomeAffairs, to apply for passports.
The Department of Home Affairs (DHA) introduced smart ID cards in July 2013 to phase out green ID booklets from 2018 to 2022. However,?only 21 million Smart IDs had been issued by the end of 2023. This means that?42 million people in South Africa would still need to be processed.
Processing 42 million smart ID cards after it was introduced 10 years ago, is incredulous but not surprising, given the ANC's record of achievements.
The new administration delivered the latest budget vote for the department in July. It said it was aiming for 2.5 million smart ID cards to be issued during the 2024/25 financial year.
Schreiber has committed to a broader digital-first strategy for the DHA, moving to modernise its systems to be more in line with tech-forward institutions like SARS.
Reserve Bank makes the first rate cut in years
Bianke Neethling reports in the Daily Investor that the South African Reserve Bank (SARB) has cut interest rates for the first time in years, signifying the end of an almost four-year cycle of the highest level of interest rates in the past 15 years.
On Thursday, 19 September, the Monetary Policy Committee (MPC) decided to cut South Africa’s interest rates by 25 basis points. From 20 September, the repo rate will be 8%, and the prime lending rate will be 11.50%.
The SARB has been in a hiking cycle since November 2021, as it has attempted to bring South Africa high, sticky inflation within its target range of 3% to 6%.
This mission saw the SARB hike rates by a cumulative 475 basis points in a series of rate increases.
The decision is also in line with most expert predictions, who expected the SARB to start its cutting cycle in September.
In his statement on Thursday, SARB Governor Lesetja Kganyago said the risks to inflation are assessed as balanced. The forecast sees rates moving towards neutral next year, stabilising slightly above 7%.
This rate cut will bring much-needed relief to struggling South Africans – particularly those with car and home loans – who are under significant pressure from the country’s high cost of living.
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Fines levied in prepaid electricity meter crackdown
Eskom’s data has revealed that nearly 40% of prepaid meters in some South African cities aren’t vending power. This indicates significant meter fraud and guilty customers could face hefty fines and disconnections.
These customers have either bypassed their electricity meters or purchased recharge tokens from illegal vendors.
Eskom spokesperson Daphne Mokwena said the state-owned power utility fines illegally connected customers around R6,050 and disconnects them until they pay the penalty.
“The process is that we disconnect the customer. We will fine the customer depending on what the customer is consuming. If it’s a 60amp or 20amp customer, we fine the customer about R6,050.” says Mokwena.
Mokwena noted that, in some instances, Eskom has disconnected entire areas as it found that 90% of customers in a neighbourhood are using illicit connections.
Eskom and municipal electricity distributors are currently running their key revision number (KRN) rollover projects. The updates are essential for prepaid electricity meters to accept recharge tokens from 24 November 2024.
Eskom announced that it had precoded roughly 6.6 million prepaid meters nearly two months ago. However, almost 2.8 million customers still need to recode their prepaid meters.
Eskom estimated that it loses about R5 billion each year to electricity theft. However, a recent analysis by MyBroadband based on the KRN rollover data showed that Eskom’s losses could be significantly higher.
Every homeowner using pre-paid electricity should avoid the financial risk of no-vending power, leading Eskom to disconnect the home.
Major red flags over the two-pot system
Luke Fraser reports in BusinessTech that South Africa’s two-pot retirement system has seen billions fly out of retirement funds, and data from Momentum shows that the most financially vulnerable could be at risk.
Since 1 September, one-third of all retirement savings have been placed into a “savings” pot, which can be accessed before retirement. The remaining two-thirds are put into a retirement pot, which will only be accessible upon retirement.
Since its launch, the system has pocketed the South African Revenue Service over R4 billion.
Experts have warned that South Africans who withdraw from the new two-pot retirement system risk being pushed into a higher tax bracket and being taxed at a higher rate.
The Momentum Group has received over 112,000 applications, with a cumulative value of R1.7 billion.
Initially, most requests came from people in the 40 to 49 age group, which made up almost 40% of applications. It is worrying that individuals who are closer to retirement are withdrawing from the savings pot.
As the system progressed, applications from the 30-to-39-year age group also increased relative to other age groups and closely reflected the demographics of national retirement contributors.
By 13 September, 60% of applicants indicated they were from low-income groups, earning too little to pay personal income tax. Only 10% of applications were made by individuals indicating that they earn a taxable income of R500,000 or more per year.
This is most worrying, as the Momentum Unisa Financial Wellness Index showed that only 15% of South African households are financially literate. A lack of long-term financial planning is a huge risk.
Only 20% of Public Works targets were met in 2022/23
The Auditor-General’s office tells MPs that 107 projects were significantly delayed. Members of Parliament’s Portfolio Committee on Public Works and Infrastructure raised concerns that the department failed to meet about 80% of its projects planned in the 2022/23 financial year.
GroundUp reported that it found that Public Works purchased the Telkom Towers complex in Pretoria in April 2016 for nearly R700 million. But eight years later, the complex had been underutilised, and police staff were recently evacuated from the premises due to safety concerns.
Eight of the buildings in the complex were vacant, costing the government at least R592 million. This was flagged by the Auditor-General as a material irregularity.
The Telkom Towers were meant to be the South African Police Service (SAPS) headquarters in Pretoria but were declared unfit for human use after an inspection by labour department officials earlier this year.
Tintswalo Masia, deputy Business Unit Leader at the Auditor-General’s office, said 107 projects were significantly delayed, with a total expenditure of R3.9 billion. “These delays are mainly attributed to the poor performance of the contractors and are not ready to be used by departments.”
The Auditor-General’s report found that Public Works “continues to fail to deliver projects that are of quality, on time and within budget”
Masia added that material irregularities were still an issue in the department, resulting in an estimated loss of R746 million.
Ongoing wastage and failure to deliver on projects by the Department is unacceptable. Stronger action by Parliament is required.
Business Rescue? - A tool for the realignment of capital resources in a distressed environment?
Dr Eric Levenstein - Director and?Head of Insolvency and Business Rescue at Werksmans writes in the September issue of Legal Werks that corporate restructuring and business rescue remains an active area of practice.
The market is seeing financial distress at the SME level and where directors of distressed companies are considering various options to realign their business to ongoing economic challenges. In these circumstances, directors require optionality - be it a consideration of an informal turnaround, a formal restructuring through a business rescue process or a default into liquidation.?
Many of these directors are caught up in the proverbial "rabbit in the headlights" scenario, not knowing which way to turn and where increased pressure from their creditors (mainly trade suppliers) forces them to consider filing for business rescue, and sometimes even liquidation, if the company is too far gone.
STATS SA recently reported (July 2024) that 892 companies have filed for liquidation in the first 7 months of 2024. Many of these companies defaulted into a winding-up process because their directors were not alive to the option of business rescue and where a restructuring professional could have been brought in to possibly turn the company around.
We are seeing some casualties in the retail market. All of these companies had different reasons for financial distress, and their reasons for filing are quite diverse.
What is clear, is that business rescue affects a wide and diverse spectrum of industries and sectors. Financial distress remains an issue out there and where the option of business rescue is a very real?prospect.
The board should be wide awake to the option of business rescue.
SA has a new education law
The Basic Education Laws Amendment (Bela) Act changes several aspects of how schools are managed. It was introduced to address inequalities in the school system by standardising rules on admissions, language policies, discipline, and even the operation of homeschooling.
Education professor Wayne Hugo, Professor of Education and Development, University of KwaZulu-Natal explains:
While the aim is noble – to provide equal opportunities for every child – the unintended consequences could deepen the very educational disparities we’re trying to address. Education of our children remains a key matter for all parents and will always be controversial.
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