PRESS RELEASE: IIA SA launches its first Corporate Governance and Risk Management Index
The CEO of the Institute of Internal Auditors of South Africa (IIA SA), Dr Claudelle von Eck, launched their Corporate Governance and Risk Management Index, which is a reflection of South Africa's performance in corporate governance and risk management from the perspective of senior internal auditors. The Index is the first of its kind and is intended to provide a baseline for the measurement of performance in these areas for the country as a whole.
The King Reports on Corporate Governance have elevated the profile of corporate governance and risk management, and is internationally regarded as best practice guidelines. These principles are fundamental to organisations in both the private and public sectors. The Institute's purpose in undertaking such a survey was to assess how well organisations are performing in the practical implementation of corporate governance principles and also the adequacy of risk management which is closely related to governance.
The main results of the Index survey were released at a breakfast meeting for Chief Audit Executives, who were target group for the survey. CAEs are well positioned to provide an impartial view of the state of corporate governance and risk management, as they typically provide independent assurance on governance, risk and control within the organisations they serve.
Key trends that emerged from the survey included the following:
1. For the most part, internal audit functions across all sectors are sufficiently independent in executing their duties. Three quarters of survey respondents confirm this to be the case. This strongly implies that in most organisations there is no undue influence or interference exerted that could impair the ability of internal audit to provide independent assurance over corporate governance, risk and control.
2. The majority of organisations seem to be under-performing in the area of risk management, with less than half (41%) of respondents feeling strongly confident about the adequacy of their organisation's risk management capability. Given the importance of risk management, it is a serious concern that almost 60% of Chief Audit Executives, who are charged with providing assurance over risk management, have doubts about the adequacy of their organisation's risk management strategies and controls.
3. The area of greatest challenge for South African organisations lies in the field on Information Communications Technology. Not only are ICT strategies poorly aligned to organisational objectives, but CAEs also overwhelmingly rated the management of ICT as a top risk.
4. Adherence to the King III Codes of Governance is not as strong as might have been expected. Less than half of all respondents (47%) feel that their organisations have a strong level of understanding and implementation of the King III governance principles.
5. The aspect of King III recommendations that organisations find most challenging is the full implementation of Combined Assurance, with only 35% of CAEs strongly agreeing that their organisations were competent in using this framework.
According to Dr von Eck, organisations in both the private and the public sectors should be held to the highest standards of performance when it comes to corporate governance and the managements of risks. While the results were not entirely unexpected, she said that "it is rather surprising that risk management emerged as such a weak competence." She added that one would also have expected to see a greater level of adherence to King III, and wondered if there was not "an element of lip service paid to King III".
Despite the weaknesses identified by CAEs, it was nevertheless encouraging that internal audit is enabled to work with a high degree of independence, and that oversight bodies do set the right tone of zero tolerance of unethical behaviours. Furthermore, "these positive indicators could be used to build upon over the coming years, especially if organisations take cognisance of the weak factors raised by the survey, and invest in strengthening capacity in those areas".
The Institute of Internal Auditors of South Africa intends to undertake the survey annually and track the Corporate Governance and Risk Index over time, in the hope that it will become a useful tool for those in leadership positions, from senior and executive management to those serving on oversight bodies.
Issued for and on behalf of Institute of Internal Auditors of South Africa (IIA SA)
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