September 2015 (Q3) Audi-Wire 1

2015 SEPT CAE CORNER: CORPORATE GOVERNANCE IN THE PUBLIC SECTOR ... 1

CHAPTER MEETING .... 3

LOCAL CIA TRAINING . 5 DATA SECURITY ........ 7 Audi Wire T H E I NS T I T U TE O F I N T E R N AL AU D I T O R S

T R I N I D AD & T O B AG O C H AP T E R N E W S LE T T E R

Corporate

Governance in the

Public Sector – a

Trinidad and Tobago

Perspective INTRODUCTION

When the term corporate governance is

used, it is more generally understood to

refer to “for profit” organisations or

companies in the Private Sector. One

can surmise that this is because the

principal to agent relationship which is

inherent in the concept of governance is

more readily discernible in that Sector

and the study of corporate governance

had its genesis in that sector.

This premise has been recognised inter

alia by the Hong Kong Society of

Accountants or HKSA (Hong Kong

Society of Accountants, 2004)

“The origins of corporate governance

can be found in the desire to improve

transparency and accountability of

financial reporting by listed companies

to their shareholders, it has since

developed far beyond this”

The HKSA publication goes on to state

the development of corporate

governance in the public sector has

recognized a more diverse range of

stakeholders (both internal and external

to organisations) on a wider range of

issues. This development is due to the

expectation of greater efficiency and

economy in the deployment of public

resources and higher expectations in

respect of openness and accountability

in that sector.

In Trinidad and Tobago in collaboration

with the Trinidad and Tobago Chamber

(Continued on page 3)

Visit us online easier!

Finding us online has now become easier. Simply visit

www.iia-tt.org and you will be brought to our website!

September 2015 (Q3) Audi-Wire 2

WASA In-House Training on Root Cause

Analysis and Report Writing

Facilitator: Mrs. Claire Gomez-Miller

Congratulations to

Ms. Lesliean Charles—

VP Government

Relations!

Lesliean gave birth to a boy,

Kairi Sheldon Ethan James,

on August 04, 2015

September 2015 (Q3) Audi-Wire 3

November 26, 2015 — 4th Chapter Meeting

December 3, 2015 — Christmas Cocktail

Thanks to all who attended the 3rd chapter meeting on September

22nd Audit Committees - Get It Right.

Our panellists were:

Ms. Jacqueline Syms—Chairperson IGOVTT

Mr. Shiva Sinanan—Representative, Auditor General’s Office

Mr. Mariano Browne—Managing Partner, Browne & Company

Ms. Dawn Callender—Finance Director, POWERGEN

It was a highly attended, insightful and thought provoking session.

A special thank you to ACCA for collaborating with the Chapter to

make this event possible.

of Industry and Commerce (TTCIC) and the Trinidad and Tobago

Stock Exchange (TTSE), the Caribbean Corporate Governance

Institute (CCGI) has issued a Corporate Governance Code in 2013.

Although primarily aimed at listed companies on the TTSE. It

therefore primarily addresses the needs of the private sector in the

improvement of corporate governance to supplement the existing

legal requirements for corporate governance.

However the principles of corporate governance are equally pertinent

to the achievement of objectives in both sectors. This is so, with

particular reference to developing economies such as that of Trinidad

and Tobago where the State is the primary driver of economic

activity, through state enterprises and utilities operating as Statutory

Boards or Commissions. It is therefore useful to examine the degree

to which Corporate Governance in the Public Sector has been the

subject of research and has been applied in the improvement of

governance in the Public Sector.

This paper will therefore examine the discipline of Corporate

Governance in the Public Sector, contrast it with the Private Sector,

and suggest how the Public Sector in Trinidad and Tobago can

benefit by adopting some of the lessons learnt in the application of

improved public sector governance in other countries.

CORPORATE GOVERNANCE AS A DISCIPLINE

It is useful to begin with an exploration of Corporate Governance and

follow it with a discussion of what constitutes good governance.

Selected definitions follow.

“Corporate Governance is concerned with the structures and

processes for decision-making, accountability, control and behaviour

at the top of the organisations (Spiller, 2002)”.

“Corporate Governance involves a set of relationships between a

company’s management, its board, its shareholders and other

stakeholders. Corporate governance also provides the structure

through which the objectives of the company are set, and the means

of attaining those objectives and monitoring performance are

determined.” (OECD Principles of Corporate Governance, 1999)

It can therefore be seen from the above definitions that there are two

key dimensions in defining the concept:

1. The rules and protocols that regulate how decisions of the Board

of Directors govern the affairs of a business or other entity, and

2. The rules and protocols of how the Board relates to the

shareholders, executive management, the employees, creditors

and other relevant stakeholders.

However defined, corporate governance should make it possible for

an enterprise to optimise outcomes or results in the interest of all its

stakeholders, without undue benefit to any one or some of them. It is

the system by which an entity's affairs are planned, directed and

controlled, and it should facilitate each of these activities. Fairness,

transparency, and accountability are key inherent concepts

In theory it should lead to the following benefits:

1. Adequate disclosures and effective decision making to achieve

corporate objectives.

2. Transparency in business transaction.

3. Statutory and Legal Compliances

4. Protection of shareholder interests

5. Commitment to values and ethical conduct of business

(Continued from page 1)

(Continued on page 4)

September 2015 (Q3) Audi-Wire 4

CORPORATE GOVERNANCE IN THE PUBLIC SECTOR

Corporate Governance in the Public Sector has not received as much attention

as it has in the Private Sector. However, in recent times, this imbalance has

begun to be redressed. The British Chartered Institute of Public Finance and

Accountancy (CIPFA) was the first to develop a public sector corporate

governance framework in 1995. This has recently (July 3, 2014) been updated

in collaboration with the International Federation of Accountants (IFAC) with

a publication entitled International Framework: Good Governance in the Public

Sector. This was further enhanced with a supplement in July 2014, which

provides more detailed explanatory material for each principle included in the

main Framework document. It provides helpful questions to evaluate the extent

of compliance with its guidelines in different constitutional and legal

environments.

Governance is defined therein as “the arrangements put in place to ensure that

the intended outcomes for stakeholders are defined and achieved”. It then goes

on to state that “the fundamental function of good governance in the public

sector is to ensure that entities achieve their intended outcomes while acting in

the public interest at all times.”

Acting in the public interest is then further explained in terms of what it entails:

A. Behaving with integrity, demonstrating strong commitment to ethical

values, and respecting the rule of law.

B. Ensuring openness and comprehensive stakeholder engagement.

The two requirements above are considered the overall or overarching

components to achieving good governance. The framework then suggests five

more components:

1. Defining outcomes in terms of sustainable economic, social and

environmental benefits

2. Determining the interventions necessary to optimize the achievement of

the intended outcomes.

3. Developing the entity’s capacity, including the capability of its leadership

and the individuals within it.

4. Managing risks and performance through robust internal control and

strong financial management.

5. Implementing good practices in transparency, reporting, and audit, to

deliver effective accountability.

It emphasises that the five principles are logically related in a sequential

manner from 1 to 5. It then explains that they overarching principles (A and B

above) “permeate” the five named above.

Good governance in the public sector places greater emphasis on outcomes or

results of the operations of public sector bodies and agencies and the their

impact on the public at large, or in other words the public interest, hence Item

one above: Defining outcomes in terms of sustainable economic, social, and

environmental benefits. Some of the principles listed above are equally

applicable to the private sector, as is evidence by reference to Items 2 to 5

above. Initiative to achieve intended outcomes is equally applicable, however

the definition of outcomes is clearly at variance, in the Private Sector,

maximisation of shareholder wealth, in the Public Sector optimisation of public

welfare. Development of capacity and capability is equally applicable in terms

of human resources numbers and competence, technology, and fixed assets.

The same applies risk management including internal controls, and financial

management.

CORPORATE GOVERNANCE OF STATE ENTERPRISES

The OECD has provided guidelines for corporate governance for a sub-set of

the Public Sector, namely state-owned enterprises or SOEs, in a document

(Continued from page 3)

(Continued on page 6)

Unlock Your Door to Opportunity with IIA

Global Certifications

The IIA offers a comprehensive certification portfolio

for internal auditors that can serve as the key to

unlocking your next opportunity within the profession;

enhancing your credibility and adding clout to your

resume. By earning your Certified Internal Auditor®

(CIA®), Certified Government Auditing Professional®

(CGAP®), Certified Financial Services Auditor®

(CFSA®), Certification in Control Self-Assessment®

(CCSA®), and Certification in Risk Management

Assurance™ (CRMA®) certification, your clients and

employer know that you are a valuable team asset who

is highly motivated, knowledgeable, and committed to

ensuring quality is part of everything you do. IIA

certifications set you apart from other professionals,

unlocking your full potential and opening up countless

doors of opportunity for career growth and success. See

what awaits you on the other side of the door.

Visit: http://www.theiia.org

Contact us for more information if you are

interested in pursuing any certification.

September 2015 (Q3) Audi-Wire 5

Certified Internal Auditor (CIA) - Part 1 and ACCA CIA Challenge

Examinations Training was held on September 26th and 27th 2015 at

UWI's, Learning Resource Center. The program was conducted by Mr.

Juan Lorenzo Martinez Colon.

September 2015 (Q3) Audi-Wire 6

entitled “OECD Guidelines on Corporate Governance of State-Owned Enterprise. This is in recognition that such enterprises, though

operating in an environment that is part of the business or profit making sector, are nevertheless funded in whole or in part, by the public

through government revenue, and are subject to certain governance principles akin to those above for the public sector as opposed to

private sector corporations.

The key principles are reproduced below.

I. Ensuring an Effective Legal and Regulatory Framework for State-Owned Enterprises

The legal and regulatory framework for state-owned enterprises should ensure a level-playing field in markets where state-owned

enterprises and private sector companies compete in order to avoid market distortions. The framework should build on, and be fully

compatible with, the OECD Principles of Corporate Governance.

II. The State Acting as an Owner

The state should act as an informed and active owner and establish a clear and consistent ownership policy, ensuring that the governance

of state-owned enterprises is carried out in a transparent and accountable manner, with the necessary degree of professionalism and

effectiveness.

III. Equitable Treatment of Shareholders

The state and state-owned enterprises should recognize the rights of all shareholders and in accordance with the OECD Principles of

Corporate Governance ensure their equitable treatment and equal access to corporate information.

IV. Relations with Stakeholders

The state ownership policy should fully recognize the state-owned enterprises’ responsibilities towards stakeholders and request that they

report on their relations with stakeholders.

V. Transparency and Disclosure

State-owned enterprises should observe high standards of transparency in accordance with the OECD Principles of Corporate

Governance.

VI. The Responsibilities of the Boards of State-Owned Enterprises

The boards of state-owned enterprises should have the necessary authority, competencies and objectivity to carry out their function of

strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.

Further detailed guidelines are provided for each of the

six principles. These should be used as a basic

framework to develop a Public Sector Governance Code

that is in alignment with the legal and constitutional

arrangements to Trinidad and Tobago.

COMPARISON OF PUBLIC AND PRIVATE

SECTOR GOVERNANCE

Corporate governance in the public and private sectors

has certain common features. The core principles are

equally applicable to both: accountability; transparency;

integrity; and leadership; a focus on performance as

well as conformance; and a recognition of shareholder/stakeholder rights. (Edwards, M and Clough R, 2005).

The Australian National Audit Office (ANAO, 2002) likewise posits:

“Regardless of which framework is used, good corporate governance in both the public

and private sectors requires:

1. a clear identification, and articulation of the definitions of responsibility;

2. a real understanding of relationships between the organisation’s stakeholders and those entrusted to manage its resources and deliver

its outcomes; and

3. support from management, particularly from the top of an organisation.”

There are however some differences which need to be observed in the application of governance principles which are common to both.

An examination of the respective (private sector and public sector) definitions will demonstrate that both refer to structures, rules, or

protocols that optimize the possibility of achievement of objectives (i.e. mission, vision and short term goals). The key difference is the

importance or weight given to different classes of stakeholders. In the private sector, the key group is the shareholders or proprietors of

the capital, whereas the general tax-paying public takes pride of place. In addition the Public Sector Boards have stringent behavior and

reporting obligations to the Integrity Commission which are not applicable in the Private Sector.

In the OECD definition above reference is made to the relationships between management, the Board, shareholders and other

stakeholders. Those relationships set out the responsibility and accountability in a hierarchical structure that in theory makes the

organization perform in the interest of its major stakeholder, i.e., the shareholders. It also focused on the structures that permit the setting

(Continued from page 4)

(Continued on page 8)

September 2015 (Q3) Audi-Wire 7

September 2015 (Q3) Audi-Wire 8

of objectives, measuring there degree of success, and reporting of the results.

The key role of the Board (responsible for direction and the delegated authority of the Executive (responsible for operational control)

stands out. The concept of ultimate accountability of the Board to the shareholders is also emphasized.

When one examines the CIPFA definition of public sector corporate governance, we see the common element of leadership and control

in that the “fundamental function of good governance” is expresses as ensuring that “entities achieve their intended outcomes, while

acting in the public interest at all times”. The key stakeholder is the public as opposed to a narrower stakeholder group in the private

sector, and the key objective is the achievement of their intended outcomes. As stated above this means that greater priority is therefore

given to social and environmental objectives and there is a different type of accountability.

State enterprises which are incorporate companies under the Companies Act present a special challenge since both private and public

sector guidelines may be applicable especially where there are minority shareholders in companies that compete in markets with fully

private sector companies. The Boards of such companies are expected to fulfill public policy social or environmental objectives that may

be set by the State in the person of the Corporation Sole in Trinidad and Tobago, while at the same time not prejudicing the interests of

minority private sector shareholders. Where such apparent conflicts arise, the State should ideally meet any profit shortfalls arising by

transfers to the SOE.

CONCLUSION

Corporate Governance in the Public Sector in Trinidad and Tobago would benefit from the development and use of a Public Sector code

based on the frameworks discussed above as well as the applicable principles contained in the Trinidad and Tobago Corporate

Governance Code. In the interim the CCGI has been advocating the adoption of the Trinidad and Tobago Corporate Governance Cod,

which as stated above is primarily aimed at listed companies.

In a recent Sunday Guardian Article (Sunday October 11, 2015) entitled “Making government more accountable”, the Caribbean

Corporate Governance Institute or CCGI has advocated adoption of the latter code by public bodies (Statutory and other Government

Bodies, as well as enterprises in which the State has a shareholding). It justifiably claims that this will lead to a “short route of

accountability” of such bodies to their ultimate principals which are the general public and civil society groups. Accountability, which is

one of the main principles of good corporate governance will be improved by a more direct and detailed feedback loop, containing data

on what inputs were used, how they were transformed, what output was achieved and whether they count, on an annual reporting basis.

This would be in contrast to the “existing long route of accountability” which goes from Governing Boards to the line Minister, to

Cabinet and thence to Parliament and its sub-committees (Public Accounts Committee or PAC and the Public Accounts Enterprises

Committee or PAEC), and which largely focusses on total quantity produced and total cost.

In the formulation of our own public sector code, care will have to be taken to modify the broadly applicable international principles to

conform to our local legal and regulatory framework with particular reference to our local Companies Act, the Audit and Exchequer

Ordinance, the Financial Regulations, the Financial Instructions, the Securities and Exchange Act, the Central Bank Act, the recently

enacted Procurement Legislation, and the Integrity Commission Legislation.

REFERENCES

Australian National Audit Office (ANAO) 2002 Achieving Better Practice in the Public Sector Context, ANAO

Edwards, M and Clough R 2005 Corporate Governance Performance An Exploration of the Connection in a Public Sector Context

University of Canberra Australia – Corporate Governance ARC Project Issue Series Paper No. 1 January 2005

Hong Kong Society of Accountants 2004 Corporate Governance for Public Bodies – A Basic Framework Hong Kong Society of

Accountants

IFAC and CIPFA 2014 International Framework: Good Governance in the Public Sector

IFAC and CIPFA 2014 International Framework: Good Governance in the Public Sector Supplement

OECD, 1999 Principles of Corporate Governance

OECD, 2005 Guidelines of Corporate Governance of State-owned Enterprises

Spiller, K. 2002 The journey to community governance - the new bottom line - "Does public political disagreement mean poor corporate

governance?"

—Written by: Wilbert Harris

(Continued from page 6)

Corrections for Quarter 2 Issue:

We would like to extend a special thanks to Deloitte for sponsoring the 2nd Chapter Meeting held at Carlton Savannah on May 28, 2015.

From Quarter 2 Page 9:

The District Advisor was not in attendance at the Workshop. The representative from IIA Headquarters was the Manager - Chapter

Relations, Ms. Donna Wiley.

The District Workshop was led by Ms. Wiley and the two District Representatives from Caribbean East, Larry Kowlessar and West,

Juan Lorenzo Martinez Colon.

September 2015 (Q3) Audi-Wire 9

Professional Centre, Rooms B301/302

#11-13 Fitz Blackman Drive, Wrightson Road Ext.

Port of Spain, Trinidad

Phone: (868) 625-5558 Fax: (868) 623-4560 Mobile: (868) 769-1671

Email: iiatt@flowtrinidad.net

Website: http://www.iia-tt.org

Now you can enjoy Internal Auditor (Ia) magazine in a format that's as mobile as you are. Ia's

mobile app includes everything that appears in the print magazine ... and more, including

convenient access to Ia blogs, exclusive video content, and the latest audit-related news.

Our print issues are married with articles from real-time content feeds for a seamless, engaging

experience on your mobile device. Users can search across more than two years' worth of archives

for topics of interest and bookmark pages for future reference. Each app platform uses native device functionality for optimum

performance and readability. Plus, downloaded issues are available for offline reading, and push notifications let you know as soon as

new issues become available.

Download the Ia app today — free to Ia subscribers. Available for iPhone, iPad, iPod Touch, Android, and Kindle Fire.

iPad, iPhone, & iPod Touch

Google Play (Android Tablets & Phones)

Kindle Fire

Ia Mobile Edition Get Connected

Contact us to submit articles, tell us what training you’re

interested in or ask us about getting certified.