Telkom Integrated Annual Report 2017

Corporate governance report | Governance at Telkom

Board charter

The board is responsible for directing the group towards achieving the Telkom vision and strategy and is accountable for the group’s strategy, operating performance and financial results. It operates in accordance with a clearly defined, annually reviewed charter that outlines its duties, powers and responsibilities. The charter was last reviewed in June 2017, and can be found under board and committees on our website (www.telkom.co.za/about us). The board met its objectives as outlined in the charter.

Delegation of authority
The board has a formal schedule of matters reserved for it to consider and take decisions on. These include approving:

• strategy
• business plans and budgets
• significant acquisition and disposal of assets
• executive directors’ appointments and remuneration
• the review and approval of significant group-wide policies and frameworks
• dividend policy
• integrated reporting
• interim and financial reporting
• capital expenditure for investment
• granting varying authority levels

The delegation of certain matters to board committees is described in the terms of reference of these committees. The delegation of authority is reviewed as and when necessary.

Delegation of authority

 

Combined assurance

The group adopted a combined assurance approach, which integrates assurance and risk management activities. It aims to embrace the tasks of Telkom Audit Services (TAS); risk and management reviews; and specialised audits that test and validate the internal control environment. The “combined assurance”, or “integrated assurance” approach delivers a planned and holistic approach regarding various assurance providers.

Telkom’s combined assurance framework was compiled on the basis of King III, which recommended three lines of defence. The framework is aimed at improving and monitoring risk management, control and governance, across the business.

Management			Business functions			Independent assurance providers
Owns and manages risks and opportunities and is responsible for setting strategy, performance measurement, and establishing and maintaining risk management, control and governance across the business.			Oversee various categories of risks within a formal, robust and effective risk management framework. These include regulatory, compliance, legal services, group revenue assurance, ethics, business continuity and health and safety, information security, tax and ERM.			Provide independent and objective assurance of the overall adequacy and effectiveness of governance, risk management and control within the organisation as established by the first and second layers of assurance. This comprises the audit and risk committees, supported by TAS and other assurance providers such as the external auditors and others as contracted by Telkom.

 

The audit and risk committees oversees the implementation of the combined assurance model, resulting in combining, coordinating and aligning assurance activities across the various lines of defense, as outlined below, so that the assurance has the right depth and reach.

They oversee that the scope of combined assurance is informed by the risks and opportunities that materially affect the ability of the organisation to create value.

A crucial element of a successful and effective ERM programme is assessing and enhancing its maturity. In this context, as emphasised in the King Code, risk is positioned as a cornerstone of corporate governance and risk governance. Refer to page 50 for our ERM.

TAS coordinates its work with that of the other assurance providers, including the external auditors, to provide the audit and risk committees with the comfort that Telkom’s significant risks are adequately addressed.

Internal audit
TAS, the internal audit function, provides independent assurance on the adequacy and effectiveness of the system of internal controls and risk management to manage the significant risks of the business down to an acceptable level.

Telkom’s corporate governance structure ensures effective internal controls and monitors the management of significant matters. As an independent value-adding assurance provider, TAS provides assurance to the company’s stakeholders on the system of internal control by performing the following functions:

• Evaluating Telkom’s governance processes including ethics, especially the ‘tone at the top’
• Performing an objective assessment of the effectiveness of risk management and the internal control framework
• Systematically analysing and evaluating business processes and associated controls
• Providing a source of information, as appropriate, regarding instances of fraud, corruption, unethical behaviour and irregularities

The group executive: TAS reports functionally to the audit committee and administratively to the chief financial officer, and attends the audit, risk and executive committee meetings by invitation. The function’s activities are governed by the internal audit charter, which is approved annually by the audit committee.

The annual audit coverage plan is developed by applying a risk-based approach, and is reviewed and approved by the audit committee. It is revised regularly to ensure that it remains relevant to the key business priorities and changing risk environment. All work is performed by teams of appropriately qualified and experienced employees, supplemented by co-sourced service providers. TAS subscribes fully to the codes of conduct and ethics that are promulgated from time to time by relevant professional bodies. All work is conducted in line and complies with the internal auditing standards set by the Institute of Internal Auditors (IIA). A summary of audit results, performance against the approved audit plan, and progress on the resolution of management action items, is presented quarterly to the audit and risk committees and monthly to the exco. This enables the committees to ensure that prompt action is taken to address key areas of concern.

The group executive: TAS chairs the Telkom Combined Assurance Forum, which provides a communication platform for the assurance providers in Telkom and key input for the written assessment on the effectiveness of the internal control and internal financial control environment provided by TAS to the audit committee annually.

TAS is subject to a five-yearly independent quality review, either in line with International Internal Audit Standards, or as and when the audit committee determines it appropriate, as a measure to ensure the function remains effective. During FY2017 TAS was subject to such an Internal audit quality assurance review. The review was conducted by the IIA and TAS achieved a “generally conforms” rating, which is the highest level of accreditation in terms of the IIA’s three-tier rating scale.

The IIA validator commended TAS for the role it played as proactive assurance provider in respect of projects of a strategic nature as well as for its real-time continuous assurance of the critical sourcing processes. TAS was also acknowledged for the effectiveness of its management action tracking process, which was considered to be conducted better than most of our peers.

The social and ethics committee report

The Companies Act, 71 of 2008, as amended, requires that the chairman of the social and ethics committee reports on matters within the committees mandate for the period ended March 2017.

The committee met four times during the year. During this time the reports that were reviewed by the committee took into consideration the requirements of the FTSE Russell Index that measures the environmental, social and governance themes of companies.

Telkom continues to adhere and improve on these responsibilities, with the review and monitoring around the key areas of B-BBEE transformation and skills development, ethics and social responsibilities.

The group has suitable policies and frameworks in place to sustain its commitment to social and economic development, fair labour practices, environmental responsibility and good corporate citizenship.

Compliance with legislation, regulations, as well as codes of best practice were adhered to during the financial year ended March 2017.

Khanyisile Kweyama
Chairman of the social and ethics committee

Ethics

Promoting ethical conduct

Our BCOE sets out our standards for ethical behaviour and together with the supplementary policies, provides a guide to employees on how they should conduct themselves and interact with fellow employees, our stakeholders and the public in general.

Ethics management supports and echoes the King III principle of effective leadership based on an ethical foundation. All initiatives from the ethics office are aimed at creating
an ethical culture.

An in-house ethics survey was conducted among employees. The results of the survey revealed that the state of ethics improved. The survey results are being used to re-design the awareness and training required around ethics in the different business units.

Monthly induction sessions are held with new employees, and these are customised and designed to facilitate separate business unit sessions.

Matters referred to the ethics mailbox consisted mainly of customer complaints, with the view that account and service-related matters are regarded as ethical dilemmas if not resolved satisfactorily. Employees mainly enquired about work outside their scope of duties and guidance around conflicts of interest.

The ethics office continued to provide guidance and advice on ethical dilemmas, with the aim to structure the ethics strategy around awareness and training initiatives in line with the new operating model.

Zero tolerance of fraud and corruption
Corruption in South Africa is perceived to be worsening. According to Transparency International’s 2016 Corruption Index, our country ranked 64 out of 176 nations. Perceived high levels of fraud and corruption could jeopardise South Africa’s standing among foreign investors and negatively affect business confidence. Telkom has a zero-tolerance stance against fraud, corruption and irregular conduct.

A number of policies and interventions are in place to mitigate the risk of fraud and corruption, including the following:

• whistle-blowing policy
• prevention of fraud and corruption policy
• delegation of authority
• ongoing fraud and awareness training by the forensics department
• fraud risk assessments, whereby business units and their respective risk owners are responsible for addressing identified high risks
• suspected fraud or corruption in excess of R100 000 is reported to law enforcement as per the provisions of Prevention and Combating of Corrupt Activities.

Telkom Crime Hotline
In terms of uncovering fraud, hotline tips are at the top of the list of the most effective detection methods. Worldwide, tips received, especially from employees, consistently expose more occupational fraud cases than any other method, and often deliver faster and less damaging results.

Telkom Crime Hotline (0800 124 000) is a powerful tool for combating fraud, corruption and irregularities. External and internal incidents are reported on the hotline. Our hotline number stands out on all Telkom/Openserve vehicles, making it visible and accessible to the public.

The Telkom Crime Hotline, independently managed by KPMG, can be reached 24 hours a day, and issues a reference number to every caller so that all reports can be followed up. Callers may remain anonymous if they wish, although past experience shows that investigations tend to go faster and more smoothly when the tippers identify themselves.

Employees can discuss any suspected fraud affecting Telkom with their line manager or take matters up with legal services, employee relations or ERM forensic investigations.

All employees and contractors are required to report any suspected breaches of the BCOE. During FY2017, a total of 4 469 internal and external incidents were reported, of which 2 031 cases were investigated. The rest of the cases:

• there was no sufficient information to substantiate the case reported
• customer and credit managementrelated queries that came through the Telkom Crime Hotline number as these were referred to the relevant departments
• External cases mainly related to cable theft (34 percent) and subscription fraud (20 percent).
• Internal incidents mainly related to thefts of assets (29 percent) and violation of the BCOE (17 percent).

The increase of cases investigated was due to the increase in cable theft cases. In all 28 employees and contractors were dismissed, 36 employees received verbal and written warnings, and 10 resigned pending investigations. Proactive fraud awareness continues to be conducted.

Among the 2 031 cases was the Trudon fraud case, which received considerable media attention.

Refer to the audit committee report in the consolidated annual financial statements (available online) for the details of the Trudon fraud case.

BCX whistle-blower service
BCX whistle-blower service (0800 003 316) is independently administered by Deloitte. This ensures that all reported matters are confidential and anonymous unless it is specifically requested by the reporting party that her/his identity should be revealed. Information is analysed and forwarded to designated senior officials of the company, who decide on a corrective action to be taken.

Training is limited to awareness of relevant policies, including the BCX code of ethics; conflict of interest policy; prevention of fraud and corruption policy; whistle-blowing policy; and gift, gratification and invitations declaration policy. The curriculum of the SIM Academy included the module of ethics. Employee induction training includes awareness of our response to ethics risk including anti-corruption. BCX developed an online awareness training for the ethics to further enhance its awareness training.

Going forward, BCX will work closely with Telkom regarding politically exposed persons and risk assessments. Due to limited data, BCX’s number of incidents and cases will be disclosed in FY2018.

Telkom Crime Hotline

Conflict of interest
The board of directors understands the need to avoid conflict of interest in all its dealings, and that, in the event of a conflict, the interest of the company comes first. Our directors sign an annual declaration of interests every financial year, which details their directorships and shareholding in other companies. At every board and committee meeting, the declaration of interest is a standing agenda item and directors are required to declare any interests that they may have on the agenda.

Telkom’s conflict of interest policy requires employees to declare details of their business interests and confirm they comply with the requirements of the policy. The disclosure policy ensures that disclosures about the group’s activities meet relevant statutory and JSE Listings Requirements.

ERM has been charged with the responsibility to identify any potential conflicts of interest and investigate the nature and extent of these, if any.