Written by Karus Prinsloo

As responsible corporate citizens, it is essential that organisations ensure compliance with the continuously expanding regulatory requirements applicable to business. Consequences of non-compliance include reputational loss, fines and even imprisonment.

Organisations’ compliance responsibility emanates from a number of sources, such as:

• The Companies Act 71 of 2008: The duties of a company secretary include the responsibility to make the directors of the Board aware of any law relevant to or affecting the company (Section 88 (2)(b)).

King Report on Governance for South Africa 2009 (“King III”): Chapter 6 of King III deals with South African entities’ compliance with laws, rules, codes and standards. Companies (including State-owned entities) must comply with all applicable laws. This chapter consists of 4 principles, which focus mainly on board responsibility. Laws should be understood not only in terms of the obligations that they create, but also for the rights and protection that they afford. Therefore the Board should understand the context of the law, and how other applicable laws interact with it. This requires that directors have a general knowledge and practical regard for the requirements and impact of the applicable laws and regulations on the company. The Board is responsible for the company’s compliance with applicable laws and with those non-binding rules, codes and standards with which the company has elected to comply, therefore the Board must manage and monitor the company’s compliance with all applicable laws, rules, codes and standards, by receiving assurance on the effectiveness of the controls around compliance.

Occupational Health and Safety Act 85 of 1993 (“OHSA”): The Chief Executive Officer, Management and Supervisors incur legal liability by virtue of such positions in the Company – OHSA sections 16(1), 16(2) and 8(2)(i).

Environmental legislation: When assessing environmental risk and compliance, Directors, Managers and Employees of organisations must be reminded that in South Africa we have a vast array of environmental legislation which creates numerous obligations for business regarding their environmental management responsibilities. The very same legislation also makes provision for the competent authorities to raise claims against members of an organisation in their personal capacity for non-compliance with the relevant acts or actions which may lead to environmental damage. The concept of vicarious liability also applies with acts of employees resulting in personal liability of directors and /or shareholders – claims can take the form of civil or criminal charges up to R10 million or 10 years in jail or both.

Financial Services Legislation: Legislation such as the Financial Advisory and Intermediary Services Act and Banks Act requires that companies should be registered in terms of the legislation and establish sophisticated compliance functions.

Public Finance management Act (PFMA): The South African public sector’s responsibility to comply with any tax, levy, duty, pension and audit commitments as may be required by legislation is set out in the PFMA. Section 38(1)(e) of the PFMA requires that compliance should be the responsibility of an accounting officer (normally the Director-General or Chief Executive Officer, as applicable) of a department, trading entity or constitutional institution, while it is the responsibility of a public entity’s accounting authority (normally the Board of Directors), as set out in Sections 51(1)(d) and (h). The seriousness of non-compliance cannot be over-emphasised, as set out in Section 51(2), where an accounting authority is required to promptly report any inability to comply, together with the reasons, to the relevant Minister or MEC and the National or Provincial Treasury, as applicable.

Municipal Finance Management Act (MFMA): In terms of section 27(1) of MFMA, the mayor of a municipality must, upon becoming aware of any impending non-compliance by the municipality of any provisions of the MFMA or any other legislation pertaining to the tabling or approval of an annual budget or compulsory consultation processes, inform the MEC for finance in the province, in writing, of such impending non-compliance. Sections 165(2)(b)(vii) and 166(2)(a)(vi) and (vii) set out the internal audit and audit committee’s responsibilities in terms of compliance with the MFMA, the annual Division of Revenue Act and any other applicable legislation.

Benefits of compliance

It is good business practice to comply with regulatory requirements. Some of the positive spin-offs for businesses include customer confidence, customer satisfaction and a reduction in exposure to reputational, financial and regulatory risks.

Please refer to http://eohlegalservices.co.za/services/legal-compliance-services/ for more information about our value-adding compliance services offerings and contact Karus Prinsloo on 087 405 1827 or karus.prinsloo@eoh.co.za for more information in this regard.

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