FORMATIVE ASSESSMENT $1[100$ MARKS$]$

Read the Case Study below and answer ALL of the questions that follow.

In the intricate realm of corporate governance, the Board of a company emerges as a cornerstone, tasked with guiding the

company towards sustained growth while ensuring the interests of shareholders and other stakeholders are protected. A

glaring indication of a Board's potential shortcomings is the emergence of financial irregularities. Such discrepancies arise

when individuals in pivotal roles act in ways that could lead to significant financial setbacks.

The Horizon Bank Scenario

Internal auditors at Horizon Bank SA unearthed alarming financial discrepancies for the fiscal year ending $2021.$ Insider

loans were extended to Mr$.$ Mthembu and his associated entities, Crestfin SA and Marketex SA$.$ This action not only

contravened the South African Banking Regulations but also transgressed Horizon Bank's stringent code of ethics.

To address the situation, the Board of Horizon Bank SA engaged Stellar Audits SA$,$ a reputed auditing entity, to undertake a

meticulous review of the bank's dealings. The audit's revelations confirmed the initial apprehensions, highlighting financial

misrepresentations in Horizon Bank's ledgers and a blatant disregard for the Banking Regulations. This resulted in a spike

in non$-$performing loans, raising questions about the integrity and capability of the financial director, Mr$.$ Van Wyk$.$

Given the potential repercussions, which could jeopardize the bank's liquidity position, the Board is now deliberating on the

future of Mr$.$ van Wyk within the organization.

Objective

This fictitious case is designed to underscore the pivotal role of a company's Board in hypothetical scenarios. It emphasizes

the interconnected dynamics of directorial responsibilities, corporate governance, risk management, and compliance,

especially within the financial domain. Through this case, students will delve into the intricacies of regulatory compliance in

South Africa and the imperative for stringent corporate governance to pre$-$empt potential challenges.

Background of Horizon Bank SA

Horizon Bank SA stands as one of the emerging banks among the locally owned financial institutions in South Africa,

gauged by its total assets. Established before $2010,$ it proudly holds a spot on the Johannesburg Stock Exchange. The

bank boasts a shareholder equity approximated at R$250$ million, aligning with the minimum capital prerequisites for

commercial banks in South Africa.

From its inception, Horizon Bank SA has demonstrated resilience and growth, navigating through the competitive financial

landscape and the broader economic challenges that South Africa has faced. From its modest start, the bank has expanded

its footprint with branches in Johannesburg, Durban, and Cape Town, mirroring its accelerated growth trajectory.

Horizon Bank SA is driven by its core objectives:

$$ To foster unparalleled customer satisfaction and loyalty.

$$ To optimize shareholder returns.

$$ To cultivate a contented and motivated workforce.

$$ To epitomize the ideals of a responsible corporate entity.

The bank's cherished values encompass collaboration, expertise, mutual respect, and unwavering integrity. As part of its

commitment to societal welfare, Horizon Bank SA is actively involved in Corporate Social Responsibility $($CSR$)$ initiatives.

These endeavours not only reflect the bank's intent to contribute positively to the community but also to bolster its

esteemed reputation.

Risk management at Horizon Bank SA is anchored in a robust framework. The bank has its insurance coverage with

SunShield SA$,$ a leading insurance entity in South Africa. The bank's deposit operations are safeguarded from $8$ am to $3$

pm$,$ dictating its operational hours. While SunShield SA provides insurance against potential credit defaults, it explicitly

excludes coverage for defaults stemming from imprudent lending. Comprehensive insurance is$,$ however, extended in the

unfortunate event of a debtor's demise. For standard loan defaults, a comprehensive report is mandated, confirming the

exhaustion of all recovery measures.

Board Committees and Meetings of Horizon Bank SA

Horizon Bank SA is governed by a Board under the leadership of Mr$.$ Mokoena as the Chairperson. Mr$.$ Naidoo, the CEO,

serves as an executive director on the Board. Notably, Mr$.$ Naidoo is also the most significant individual shareholder of

Horizon Bank SA$,$ possessing a $37\mathrm{.}8\%$ stake. The Board's composition includes other distinguished members: Mr$.$ Van Wyk$,$

Mr$.$ Mthembu, Mr$.$ Dlamini $($all executive directors$),$ and Mr$.$ Botha and Mr$.$ Sithole $($non$-$executive directors$).$

To accommodate Mr$.$ Botha, who resides in Cape Town and has a tight schedule that limits frequent travels to

Johannesburg, the Board convenes biannually $($Refer to Exhibit $1).$ The audit committee is steered by Mr$.$ Sithole, a

seasoned professional with nearly a decade of expertise spanning accounting, taxation, and f