Marcopala was incorporated on 28 October 2018 as a business to-business (B2B) company and was listed on the Lusaka Stock Exchange (LUSE) in 2019.

In 2022, Marcopala added the real estate and related sector to the Groups core business, with an emphasis on the Zambian property market. Through its subsidiaries and associated companies, Marcopalas businesses spanned property development, project management and customised housing in Zambia, Zimbabwe and Botswana. The companys three main areas of investment are development projects for both commercial and industrial purposes, corporate capital investments (which also includes investing in the provision of human resources and technical/management know-how), and provision of management services, including cash flow management, procurement, development and operations.

Board of Directors

Marcopalas board is made up of seven members, five of whom are non- executive directors. Of the five non-executive directors, one is a Chief Financial Officer at Marcopalas subsidiary company, two are currently suppliers to Marcopala and the other two are major shareholders of Marcopala. The board is chaired by Mwango Zinco who is the current Chief Executive Officer of Marcopala. Mwango has over 25 years of broad and in- depth experience in the financial industry and property development and has held roles with Zambias Ministry of Finance and Securities and Exchange Commission.

Remuneration Committee

The board of directors at Marcopala are compensated in the form of basic directors fees, committee, attendance fees and share options. The board of directors set their own fees, including directors fees, attendance fees, share options and re-imbursements. Executive directors do not receive director fees, but instead receive a mix of salary, allowances, bonuses and share options. Similarly, executive directors set their own .remuneration which include salaries and allowances. The proposed directors fee for 2022 was K6 million, which covered a period of 12 months, whilst executive directors had increased their salaries to K350 thousand per month in 2022 from K200 thousand in 2021.

Audit and Nominating Committees

As at the end of its 2022 financial year, Marcopalas audit committee (AC) comprised two non-executive independent directors and two executive directors. However, the chairman of the AC is the Chief Financial Officer at Marcopala. Apart from Chief Financial Officer, members of the AC do not have a background in accounting and finance, and AC meetings are typically held several times during the financial year. According to the companys corporate governance report, the AC reviewed a wide range of reports and relevant papers from the management and external auditors. Management staff and the companys auditors, who could provide additional insight into the matters to be discussed, were also invited from time to time to attend such meetings. The current External Auditors were nominated by the executive directors and their audit fees were recommended for approval by the executive management. In addition, the

Chief Internal Auditor reports to the Chief Executive Officer and his remuneration including for his Deputy is determined by executive management.

An excerpt of the detailed External Auditors Report to Management for the year ended 31 December 2022:

(a)Financial Performance: the audit revealed that the company recorded a drop in profit by 60% before tax from the previous years profit; if this situation continues, the company may not be able to pay its liabilities.

(b)Completeness of Income: the audit could not fully verify the completeness of some income streams because supporting documents were not provided. In addition, there was no proper invoicing system; without a proper system of invoicing, some incomes can easily be lost.

(c) Statutory Obligations: the audit established that for the past three years, the company has been defaulting on statutory obligations such as NAPSA, Workers Compensation, NHIMA and Pay As You Earn (PAYE); failure to honour statutory obligations could attract high penalties and fines.

(d)Payment of Allowances: the audit revealed that executive management was paying employees various hefty allowances without the approval of the board; there is a risk of fraud and theft.

1. (e) Bank Reconciliation Statements: the audit established that there were huge differences between ledger balances and the amounts in banks. In addition, bank reconciliations for some bank accounts were not availed to the auditors.
2. (f) Missing Payment Vouchers: payment vouchers amounting to K500 million were not made available by management; missing payment vouchers may result in fraud and theft.

(g)Asset Register not updated: the audit revealed that the Asset was not regularly updated;

(h)Absence of Key Written Policy Documents: the audit established that the company did not have key written operational and strategic documents including the human resource policy, financial regulations, risk management policy, information management policy and strategic plan.

In our opinion, except for the effects of the matter described in the Basis for the Qualified Opinion, ................

In terms of the Marcopalas nominating committee (NC), it comprises three executive directors and three non-executive independent director, including

the chairman. The NC makes recommendations to the board for the re- election of directors and the appointment of potential candidates as directors and members of the committees, and evaluates the performance of the board.

REQUIRED

1. a) In line with the relevant corporate governance codes and best practice, assess the composition of Marcopalas board of directors, remuneration committee, audit committee and nominating committee. And to what extent do you think the composition of these committees could undermine corporate governance in this company?
2. b) In line with the corporate governance codes, explain the best way of selecting board members and what contributions do you think independent non-executive board members could make to corporate governance structure in an organisation?
3. c) Based on the External Auditors Report, identify the irregularities that the audit has revealed and as board of directors, what remedial measures or corrective actions are you going to take to address the specific irregularities and to what extent do you think the proposed measures or corrective actions will strengthen internal controls?
4. d) Inyourview,whatdoyouthinkcouldhavebeentheExternalAuditorsbasis for the Qualified Audit Opinion? Provide detailed justification for your response.
5. e) In your opinion, what could be the main distinctive features and roles between External Auditors and Internal Auditors, and to what extent do you think internal auditors and external auditors help to enhance internal controls and manage financial risks, and ultimately contribute to good corporate governance?