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Opinions of Tuesday, 22 November 2005

Columnist: Isaka, David A .

Corporate Governance And The Public Sector

In light of recent financial and management scandals rocking the public sector such as the GBC and the Ghana Law School, this writer attempts to throw more light on the issue of corporate governance and whether or not some of these scandals (financial loss to the state) could have been prevented. The bulk of academic material on corporate governance is from the ACCA web site (

Corporate governance is a recent management system for direction and control of companies. The code having gained wide acceptance in the corporate world after the adoption of the Cadbury recommendations, the adoption of the Smith report on Audit committees in 2003 and other best business practices code recommended by the Organisation for Economic Co-operation and Development (OECD) is commonly referred to as the combined code of best practice. Even though its use is not compulsory it is encouraged by the International Federation of Accountants (IFAC) following high profile corporate scandals in the corporate world in the 1980s and 1990s which led to the collapse of hitherto profitable (or were thought to be profitable) entities. The introduction above should make it clear by now what the code of conduct seeks to do. Its aim is to improve management practices in the business so as to make it less likely to collapse. Some of the specific recommendations of the code of conduct and its role in preventing financial loss to the state are discussed below.

One of the basic recommendations is the separation of management and the board. So that management?s activities can be scrutinised to ensure they don?t pursue their interests to the neglect of those of shareholders (owners/tax payers). The board of directors will meet regularly and monitor the executive management. The board chairman should not be the same as the chief executive and where this is the case there should be as many independent members as possible. The fact is that while most public organisations are managed in line with this recommendation they perform so poorly due to politicisation of the appointment process. Example. Dr Brobbey (Tarzan) was appointed by the president to head VRA including most of the board members. While it is true some of the members were independent it is also true some were there merely because of their political affiliation. One should not be surprised as to why he run VRA as if it was his private company. If the president appoints all the top men in a country like Ghana where we have a winner-take-all type of democracy how can we have effective and efficient management?

The emoluments of executive directors and their service conditions should be disclosed and salary must be related to performance. Again non-executive directors who make up the remuneration committee must decide the salary of the executive directors. Mr Tsatsu Tsikata headed GNPC for over a decade during which he also served as the chairman of the board of GNPC. How do you ensure corporate governance in this situation? The truth is that things haven?t changed much with the current government either. After Kufour came to office he appointed party loyalists, in-laws, nephews, cousins, brothers, ?gutter-to-gutter? playmates etc to head some of our public organisations. Remember St Gyimah Kesse and co? Others include Kwame Pianim (securities regulatory commission), and the embattled Kweku Ansah-Asare (director of Ghana School of Law). The truth is that merely changing the heads of organisations anytime a new party comes to power is not the best form of management because it does not ensure continuity and long term planning. For this country to forge ahead we cannot allow everything to be dictated by partisan affiliations.

One very important aspect of the recommendations that can really enhance accountability and go a long way to stem corruption and get ride of the ?Ali Baba?s? in our public organisations is auditing. In addition to regular external audit checks, our organisations must have strong internal audit units as well as audit committees. While the internal audit unit is made up of the organisations own staff, the audit committee will comprise a team from the board with the requisite background. This makes the audit committee very important as they are very independent and therefore can really check the activities of executive management and thus prevent corruption and graft in the public sector. A few examples will suffice. It came out in the Akamba committee sittings that there was no internal auditor for the Ghana law school. This suggests that for a very long period the director has run a one-man show. It?s therefore not surprising that procurement procedures were thrown to the wind, his personal company become an extension of GSL, a clear breach of the related party transactions rule as stated in International Accounting Standard 24(related parties).

As a people I think we are not asking too many questions we ought to be asking. If we pay taxes to the government then we have every right to demand accountability for the use of our money. How many of our public organisations have internal audit units? How many have audit committees and how many of them make their operations very transparent as recommended by the codes of best practice. Look at the big time scandals exposed at the Controller and Accountant General. The figures run into billions of cedis. How can a few people siphon so much money into their private pockets? Is this not reminiscent of the break down of internal control mechanisms? Does it not also indicate that there might be a wider network of ?Ali babas? out there? Other examples are the GBC, the mismanagement of STEP funds that has forced the government to slow its implementation and the recent statements by the finance ministry that it cannot account for a huge amount of HIPC funds. In all these cases it is clear that there is no proper internal control and if there is, the control environment is not sound. The time to act is now instead of waiting for another government to come to power before some of these culprits are put before fast tract courts. If you manage a huge organisation like GBC or VRA and monies disappear under your watch or you negotiate reserve plants that cost the tax payer huge sums and yet is never used, is that not causing financial lose to Ghana? The government has a duty to put in place measures to stem the tide and to safe the poor taxpayers money. Some of these measures are enumerated below.

First is to make the appointment process non-political and very competitive. This means they must go through the normal rigorous procedures we all go through when looking for jobs rather than the current situation where party fanatics in self-imposed exile are brought in to take such positions. To borrow the words of uncle Ebow of Joy FM, we need to fix the ?non-system? system. And put a rigorous system in place to recruit the best for our public companies and government run institutions. Best here refers to those with intellect, experience and high moral discipline not the type who cannot keep their zip up.

Secondly the government needs to put in place effective internal control mechanisms not only for effective use of resources within government institutions but also to ensure that our public organisations apply them in managing the tax payers money. This means they have to recruit qualified auditors and accountants. Perhaps the starting point is the non-politicisation of the appointment of board members. This will make them independent and be more effective at checking the excesses of management as well as set up good audit committees. Lets stop creating ?job for the boys? and create jobs for the people. Little drops of water they say make the mighty ocean. The monies involved in the GBC and Controller Accountant General cases are not little drops. They are huge drops!

Thirdly we need to take a second look at the role of boards. Over the years board members have virtually sat and watched if not aided the collapse of some of our organisations. While Ghana Airways was going down, the board members sat and drank coffee! What measure did they implement to stop the ?Ali babas? from pocketing monies that should have gone to the company? I suggest we begin to hold board members more and more accountable for the mismanagement of their organisations. If all the time executive directors are fired or punished and the board members are allowed to go free, then they will continue to drink coffee while our organisations collapse. Where they are found to be ineffective in their role as monitors then they should face the same music as the executive directors. This has to be done because often time?s board members do nothing and yet take huge bonuses at the end of the year.

Fourthly the use of IT and information systems in enhancing internal control and making auditing more effective can not be over emphasised. Computers though not full prove against such flaws and mismanagement can go along way in ensuring that corruption is minimised and internal control is strengthened. The use of access codes, passwords, well-designed software that prevents manipulation by staff is very important. While some of our public organisations use computers, it is also true that most do not. There is the need to improve information systems in corporate governance in the government sector to improve management and reduce corruption. It might seem very expensive to introduce computers and the related software but evidence shows that the benefits will far outweigh the cost, at least in the long term. The thieves are happy with the current bad system because stealing is made easy.

In conclusion am happy the president talked about the Procurement Act and the Financial Administration Act in Abuja. It is important our president also notes that the mere existence of laws do not wipe out corruption. Otherwise the local publishers will not be crying foul about the GES and Mcmillan deal. In addition to the laws, government must be firm and resolute and in that direction many of you out there apart from the political fanatics will agree with me that more needs to be done.

Good bless our motherland.

David A Isaka
LCA- London.

Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.