In my first article, I laid out what I considered to be the underlying problem in the fight between Frances Essiam and her board – a complicated and confused legal regime and the absence of clear corporate governance guidelines. I also explained the nuances in the appointment of Boards and CEOs of ‘public services established by law’.
In this second article I will maintain the focus on public services established by law (public entity) and applicable laws governing corporate governance at these entities.
The Board of Directors of a limited liability company are appointed by its shareholders with the authority to hire and fire the CEO, develop strategy, establish policy, approve the annual budget, approve major procurements and contracts, monitor financial and operational performance, recommend the appointment of auditors to shareholders, and sign off the annual audited accounts among others.
The governing board of a public entity does not have such wide-ranging authority.
Hiring and Firing the CEO
The President in consultation with the Council of State hires the CEO. I am not too sure a President consults the Council when firing anyone. Consultation with the PSC when hiring is symbolic otherwise a lot of persons will not get appointed CEOs in the first place.
Policy and Strategy
The supervising Ministry of a public entity has a major influence on policy and strategy. For instance, Section 12 of the establishment law (Act 721, 2006) of the Gaming Commission provides that “The Minister may give to the Board directives on matters of policy and the Board shall comply”.
There are variants of this clause in the establishment law of every public entity. In some cases, the establishment act will indicate that the Board advises the Minister on the formulation of policy and action programmes relating to the functions of the public entity.
Budgets and Financial Management
The financial management of every public entity is regulated by the Public Financial Management Act, 2016 Act 921.
The Act states that the Minister of Finance “is responsible for the policy and strategic matters
related to the efficient operation of the public financial management system of the country subject to policy guidance from Cabinet”. It gives wide-ranging powers to the Minister of Finance.
Whilst the ultimate authority for approving the budget of the public entity is Parliament, the Ministry of Finance reigns supreme. It sets spending priorities, and through the budget hearing process at the Ministry, reviews and revises revenue and expenditure allocations presented by public entities.
It is not uncommon for the CEO of a public entity to submit financial estimates (annual budget) to the Ministry of Finance without the review of the governing board. The Ministry of Finance budgeting calendar typically requires financial estimates to be submitted around July with budget hearings held in August and September.
Procurement and Contracts
Public sector procurement is governed by the Public Procurement Act 2003, Act 663 and Public Procurement (Amendment) Act 2016, Act 914.
The law charges the Public Procurement Authority (PPA) with the responsibility to “harmonize the processes of public procurement…to secure a judicious, economic and efficient use of state resources…”
PPA operates as an agency of the Ministry of Finance with the Minister exercising considerable powers under the Act.
Section 14 of Act 663 (as amended by Act 914) defines the scope of the Act and the wide range of institutions it applies to. It calls them “procurement entity”. They include subvented agencies and “state-owned enterprises to the extent that they utilize public funds”.
A procurement entity is required by the Act to establish an Entity Tender Committee (ETC) to oversee the entire procurement process in the public entity. The composition of the ETC is defined in Schedule I of the Act. Except for constitutional bodies like the Bank of Ghana, Electoral Commission, National Commission of Civic Commission whose Chairpersons chair the ETC, the governing board of the procurement entity has no representation on the ETC.
Per the procurement law, the CEO of a subvented agency like the Gaming Commission has authority to approve procurements up to GHS100,000 for goods and services, and GHS150,000 for works. The ETC approves procurement up to GHS800,000 for goods and services, and GHS1.5 million for works.
Approval for procurements above the ETC’s threshold rests with the Central Tender Review Committee hosted by the Ministry of Finance.
The governing board of a public entity has no legal authority to approve procurements.
The procurement law also requires the procurement entity to appoint a Tender Evaluation Panel which may not necessarily include a board member. Once at the Gaming Commission, my colleague board members nominated me to serve on a Tender Evaluation Panel for a major procurement as the ‘eyes and ears’ of the Board.
Article 187 (2) of the 1992 constitution provides that “the public accounts of Ghana and of all public offices, including the courts, the central and local government administrations, of the Universities and public institutions of like nature, of any public corporation or other body or organization established by an Act of Parliament shall be audited and reported on by the Auditor-General”.
The powers of the Auditor General are further enumerated in the Audit Service Act, 2000 (Act 584). Under Section 11(2) the Auditor General can authorize or appoint another person or entity to carry out an audit of a public entity.
In practice, the Auditor General extensively uses the services of private audit firms to carry out audits of public entities. Typically the fees and expenses of the audit firm are paid by the public entity being audited.
Once again, the governing board of the institution has no defined role in the audit process.
At best, the establishment act of the agency will indicate that the Board is responsible for the formulation of general policies for proper management of the affairs of the agency, and for ensuring that those policies are implemented by management.
In the case of the Gaming Commission, Act 721 does not even specify the functions of the Board, much more define a specific audit role.
The internal audit function in a public entity is regulated by the Internal Audit Agency Act, 2003 Act 658. It requires every institution to establish an internal audit unit. Internal audit reports of an agency shall be submitted to the Director General of the Internal Audit Agency and its “management body and such other persons as it is required to submit the report”.
Act 568 does not assign specific internal audit management responsibilities to the governing board of an entity.
In conclusion, the governing board of a public entity, unlike that of a limited liability company established under the Companies Code, Act 179, does not have the requisite powers to exercise its fiduciary responsibilities. Those powers are exercised by bodies and persons outside the public entity.
In Part III, I will focus on state-owned enterprises and the emerging trend of public entities going off government subvention.
Part IV will propose a way forward to resolve this national dilemma of instituting effective corporate governance in our public entities and state-owned enterprises.
Nicholas Issaka Gbana
The writer is a Development Worker and Management Consultant
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