Governance overhaul needed at NSSF
Sep 13, 2009
EDITOR—The National Social Security Fund (NSSF) has been the subject of various media reports following revelations of financial impropriety emanating from a forensic audit report by KPMG.
EDITOR—The National Social Security Fund (NSSF) has been the subject of various media reports following revelations of financial impropriety emanating from a forensic audit report by KPMG.
It is clear the fund has critical governance problems that have existed since the promulgation of the NSSF Act of 1985. The problems are directly linked to the governance structures laid out within the Act which give excessive powers to the line ministry.
The primary feature of the law is that there is a lack of clear demarcation of the operational and oversight responsibilities of the board of directors, the line ministry and management.
As a consequence, the line ministry has participated in operational matters, thus impairing its ability to effectively exercise the oversight function and to protect the interests of the fund members.
There is also a gross misperception on the part of the Government to think that NSSF is a government-owned entity which can be run in any manner that they deem fit, even if the interest of the fund members are compromised.
The results of this governance deficit have included gross mismanagement of the fund’s assets, excessive operational costs and negative returns to the members.
To remedy this unacceptable state of affairs, the following steps, in line with international best practice, should be implemented urgently:
- An independent regulatory authority should be established to oversee all public and private retirement schemes with a focus on protecting savers’ interests.
- The board of directors should be directly elected by fund members without any political involvement. The newly-appointed trade union and employer representatives are not likely to enhance fund democracy.
Therefore, the members must have the right to directly elect the board. The board must be vetted by the independent regulator to ensure integrity, competence, professionalism and experience.
- Public disclosure of all financial information to the fund members in an accurate and timely manner. The quarterly publishing of the financial statements in the public media should be made a legal requirement.
In the case of NSSF, the last publicly-available annual report is for 2005 and these delays in reporting point to a possible fear by management to reveal all the financial skeletons.
The above-mentioned measures should be considered urgently as part of the unending pension reforms and the new legislation needs to be finalised to enable workers to have a right to choose managers that are competent, credible and that act in the interest of the savers.
John Rukundo
Kampala
It is clear the fund has critical governance problems that have existed since the promulgation of the NSSF Act of 1985. The problems are directly linked to the governance structures laid out within the Act which give excessive powers to the line ministry.
The primary feature of the law is that there is a lack of clear demarcation of the operational and oversight responsibilities of the board of directors, the line ministry and management.
As a consequence, the line ministry has participated in operational matters, thus impairing its ability to effectively exercise the oversight function and to protect the interests of the fund members.
There is also a gross misperception on the part of the Government to think that NSSF is a government-owned entity which can be run in any manner that they deem fit, even if the interest of the fund members are compromised.
The results of this governance deficit have included gross mismanagement of the fund’s assets, excessive operational costs and negative returns to the members.
To remedy this unacceptable state of affairs, the following steps, in line with international best practice, should be implemented urgently:
- An independent regulatory authority should be established to oversee all public and private retirement schemes with a focus on protecting savers’ interests.
- The board of directors should be directly elected by fund members without any political involvement. The newly-appointed trade union and employer representatives are not likely to enhance fund democracy.
Therefore, the members must have the right to directly elect the board. The board must be vetted by the independent regulator to ensure integrity, competence, professionalism and experience.
- Public disclosure of all financial information to the fund members in an accurate and timely manner. The quarterly publishing of the financial statements in the public media should be made a legal requirement.
In the case of NSSF, the last publicly-available annual report is for 2005 and these delays in reporting point to a possible fear by management to reveal all the financial skeletons.
The above-mentioned measures should be considered urgently as part of the unending pension reforms and the new legislation needs to be finalised to enable workers to have a right to choose managers that are competent, credible and that act in the interest of the savers.
John Rukundo
Kampala