Independent Communications Authority of South Africa & National Electronic Media Institute of South Africa: interrogation of Auditor General's Report 2005/6

STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
21 February 2007
INDEPENDENT COMMUNICATIONS AUTHORITY OF SOUTH AFRICA & NATIONAL ELECTRONIC MEDIA INSTITUTE OF SOUTH AFRICA: INTERROGATION OF AUDITOR GENERAL'S REPORT 2005/6

Chairperson: Mr N Godi (PAC)

Relate documents
ICASA’s Report of the Auditor-General for the year ended 31 March 2006
ICASA Annual Report 2005/06 (available at www.icasa.org.za)
NEMISA’s Report of Auditor–General for the year ended 31 March 2006

Audio Recording of the Meeting

SUMMARY
Members interrogated the Independent Communications Authority on the audit report They indicated concern at the adverse publicity surrounding ICASA. Specific matters addressed included the salaries, over insurance of assets, insurance on the motor fleet and the premiums. The AG had reported that there was insufficient reconciliation between the fixed asset register and the general ledger. The deficit in operations roll over of funds, and non-compliance with National Treasury Regulations were questioned. The Committee asked if the Council was playing its role effectively, and commented that the control environment was a problem. There were many questions in relation to disciplinary matters and the situation with the former CEO. Fruitless and wasteful expenditure as identified for several matters was discussed in detail. Procurement processes were questioned and the issue of Council and management roles examined, with input also from the Department of Communications. Discrepancies in a contract with a security company, controls in the IT environment and lack of proper processes in another contract were raised. The supply chain management report had identified irregularities. The role of the Bid Committee was questioned, as was the level of approvals. It was noted that most of the problems were systemic and administrative problems and that there seemed to be lack of monitoring. Further questions were directed to travelling and its value-add, performance bonuses, long service awards and leave payouts. Certain details were requested in writing. It was hoped that the Department and ICASA could address the problems in the segregation of duties. 

The National Electronic Media Institute of South Africa was questioned on the incorrect treatment of leases, property, plant and equipment identified in the report, the historic lack of policies, the non compliance with accounting standards, the theft of equipment and subsequent insurance claim, the costs of insurance, the increased rental and the staff and salary levels. Further questions addressed the strategic plan, monitoring and plans and processes. In answer to all questions it was clear that the issues had to do with historic capacity problems, and had arisen at a time when there was lack of leadership and lack of understanding by the Acting Chief Financial Officer as to what was required. It seemed there had now been turnaround and the performance wound be assessed in the next year. The current and future position of the Institute was clarified by the Department. The audit committee was urged to develop greater synergy with the Board and the management.

MINUTES
Independent Communications Authority of South Africa (ICASA): Interrogation of Audit Report 2005/6
The Chairperson indicated his concern at all the adverse publicity surrounding ICASA, which had not projected a positive image to the public.  The Committee would be concentrating on financial matters but wished to note its concern about the unhelpful publicity.

Mr P Gerber (ANC) noted that many other public entities would, in their Annual Report, include a report of the Minister. He hoped this would be rectified in the next report. He also noted that it would be useful in future reports to tidy up the presentation of the 112 pages of licences, which were not listed alphabetically or chronologically.

Mr Gerber asked that the increases on salaries be explained.

Mr Paris Mashile, Chairperson, ICASA Council  replied they should be seen in the context of pro-rata amounts that were paid. Some salaries were not paid for a full year due to members having resigned or having been dismissed. The particular salaries under question were full year's salaries and therefore did seem higher.

Mr Gerber noted that the Auditor General (AG) had commented that while management had started the process to determine valuation costs, it appeared ICASA might be over insured. It had insured assets for R2.7 million which did not agree with the net book value. The assets did not agree with the fixed asset register. R973 000 was paid by way of premiums to Glenrand MIB.

Mr Stanley Mameregane, CEO, ICASA indicated that ICASA was revaluing its asset register. The equipment was highly specialised and was not easy to replace, and the insurance premiums and valuations had reflected this. The equipment was used in the monitoring and regulatory activities. There was not in fact a need to regularise the asset register and the insured amount.

Mr Tubane Mosia, CFO, ICASA added that the equipment was mostly imported. At a stage the insurance was reduced according to ICASA's own valuation, but professional evaluators were currently busy with work on replacement values. This would be completed by mid March. There had also been interaction with National Treasury (NT) on this issue.

Mr Gerber noted that there was a fleet of 64 vehicles, with a value of R5.6 million, yet the insurance value was only R300 000. He asked whether this was not reckless.

Mr Mameregane replied that the fleet consisted of old cars, which had been effectively written off in the books. The insurance related mostly to the new cars.

Mr Gerber noted that this was probably only enough cover for two cars.

Mr Mameregane confirmed that there were only two new cars,  and the rest were seven to ten years old.

Mr Gerber noted that the policy was paid annually in advance but ICASA had not called for tenders from other insurers. He also noted that the premium was paid in advance, and pointed out that prepayment was . not in compliance with Treasury regulations.

Mr Mameragane said that ICASA was calling for tenders. It had requested permission to allow the existing insurance to run to the end of the year. The agreement for prepayment had been altered so that payments were now made monthly.

Mr Gerber noted that R250 000 was the maximum premium permitted for payment of insurance premiums  under Treasury Regulations. He asked if ICASA had applied to National Treasury (NT) for approval.

Mr Mameregane confirmed that ICASA had applied, and the approval ran until the end of March 2007.  ICASA would interact with NT again in terms of the values.

Mr Gerber noted that ICASA had stated that asset management was done in a certain way. However, the AG had reported that regular reconciliation between the fixed asset register and the general ledger was not performed. He asked how this discrepancy would be rectified.

The Chairperson noted that the CEO had been answering all the questions so far although it was the responsibility of the Chairperson to deal with the issues.

Mr Mashile said that all financial matters were handled administratively by the CEO, so he would be  better versed with the issues. He requested permission for the CEO to respond.

The Chairperson indicated that the CEO, in reporting to Mr Mashile, would also be reporting on matters that he himself was not dealing with daily, yet on which he would have knowledge. In the same way he would have expected Mr Mashile to have the knowledge to be able to report as the ultimate accountability was with the Chair of the Council..

Mr Mameregane said that the problem had been recognised.  ICASA would be dealing with it thought the  asset verification process that was currently being undertaken, which would allow for correct reflection of all assets in the asset register.

Mr T Mofokeng (ANC) noted that there was a deficit from operation and roll over of funds. Section 28 of PFMA required the Accounting Officer to manage available working capital effectively and economically. However the AG had reported a deficit of R33.8 million from operations for the financial year, and a net deficit of R5 883 078. Deferred grants of R16.7 million were released into income. This was a contravention of Treasury Regulation 60.1. R10.1 of the funds earmarked for capital projects were used to defray operational expenditure. The roll over of unspent funds should have been authorised by NT. Mr Mofokeng also noted that there was lack of control over the preparation and monitoring of the budget. He wondered if Senior Management was consulted in the preparation of the budget. Because budget was exceeded on operations during the year, the R10 million was released from the deferred grant. He said that ICASA might have to repay these funds to the national revenue. He asked for an explanation of the root cause.

Mr Mashile noted that he did recognise and realise the defects in systematic running of the organisation. He added that in terms of the PFMA the CEO or the accounting officer was responsible for all activities in running the organisation and the Council, of which he was the Chairman, performed an oversight role. The Board were aware of these instances only after the fact. The accounting officer could give a better picture how this had occurred.

The Chairperson asked why there had not been compliance with National Treasury Regulations. He noted that this was not a personal view but the response of the entity.

Mr Mashile said that some corrective measures had been taken. Policies had since been put in place to ensure that areas of weakness did not repeat themselves. Budget policies and procedures were now approved and used to manage the budget. There were monthly Council and Executive Budget meetings to monitor the situation and the CEO and Council would hold quarterly meetings.

The Chairperson asked if Council was playing its role effectively and ensuring that matters were being done in accordance with expectations. He would have thought that the discrepancies would be picked up earlier.

Mr Mashile said that once the problems were identified the monthly meetings had been able to ensure that there was better control and a tighter rein on the budget.

Mr Mameregane confirmed that the control environment was problematic and measures had been taken to address the shortcomings.

The Chairperson said that non-compliance was not acceptable and was a poor reflection on management.

Mr Mameregane said that the approval to roll over the funds had come after the audit had been finalised.

The Chairpersons asked why there was a problem and whether the application had been done in time. National Treasury could really do little other than give approval when a problem had already affected the funds. This Committee was not happy with such late approvals.

Mr Mameregane said there must be a request for rollover before the end of April. This was done timeously but the approval had been delayed.

Ms A Dreyer (DA) noted that there had been three Acting CEOs after suspension of the CEO. The Chairperson had been in office all along. ICASA was a regulatory body, yet had a problem in complying with rules itself, and was not leading by example.

Mr Mashile agreed the authority should lead by example.

Ms Dreyer asked whether there had been good leadership from the Chair. Mr Mashile had described himself in the press as "an anarchist". She asked what he had meant.

Mr Mashile explained that he used this term as meaning a participatory democrat, supporting government by the people, for their own lives. This was his political philosophy.

The Chairperson noted that this interpretation was very different from the generally accepted meaning of "anarchist". He said that Ms Dreyer had put the question as it seemed strange that an anarchist, as generally understood, would run a regulatory body.

Ms Dreyer noted that R6.7 million had been incurred in fruitless and wasteful expenditure. A contract had been cancelled due to its onerous nature. She asked whether the contract was scrutinised beforehand.

Mr Mashile noted that there was a procurement process undertaken at management level that was then sent through to Council for approval. Motivations and recommendations were made by the CEO and on the basis of those the Council would approve the contracts. Council had no independent understanding, and also could not anticipate whether the activities and tasks to be performed would be up to standard. Mr Mashile said the Council should not interfere with the inner workings of management on procurements, but should be able to rely on the report by the CEO who would have investigated and made a report on matters such as price, reputation, ability and compliance with empowerment principles.

The Chairperson queried whether Council had capacity  to look beyond what was presented to it by management. It sometimes seemed that Councils would always merely endorse without using their own discretion in monitoring and checking risk for themselves. If the Council merely relied on information then this was a challenge to its monitoring function. He suggested there was need for Council to look beyond what was presented to it.

Mr Mashile commented that this was a governance issue. The Council did examine the recommendations and look at the efficacy of the processes. It wound be remiss of it not to query matters but equally this could be interpreted as interference. There was a delicate balance between enquiry and meddling.

Ms Lyndall Shope-Mafole, Director General, Department of Communications (DOC) noted that when DOC had looked at the dynamics of the ICASA Act this was raised as a controversial issue. The role and responsibility of the Council and the CEO was an issue that was problematic and it needed to be further addressed.

The Chairperson noted that the challenges around the segregation of duties between management and Council and he asked what DOC was doing in this regard.

Ms Shope-Mafole confirmed that this matter would be discussed again with ICASA as no finality had been reached on the issue before.

Ms Dreyer noted that this was not a single incident. Whoever was accountable, there were several instances. She noted that recruitment fees were paid for positions that were not filled and asked how this had happened.

Mr Mashile noted that when the expenditure was incurred it was done at the behest of the accounting officer and Council had no hand in it.

Ms Dreyer asked if the responsible people were held accountable.

Mr Mashile said that the accounting officer was held responsible. It was the former CEO and this was one of the charges laid against her.

Ms Dreyer asked if the charges had been withdrawn.

Mr Mashile said that finally the CEO had offered to resign after the charges had been laid. The question was then whether the Council should permit her to resign and therefore not deal with the issues, or whether it should proceed.

The Chairperson asked why there was a dilemma.

Mr Mashile said that the Council was advised that it could not say that she must stay until the charges were finalised. The Council was advised that there was nothing that could be done, and hence had allowed her to go and not pursued the matter.

Mr V Smith (ANC) said that if the person had offered to resign. it did not necessarily follow that the chapter had been closed. This was not acceptable because if there had been a contravention of the law, the individual could still be pursued. Otherwise it would simply happen that employees would resign every time there was an irregularity. The principle must be that a person should be pursued if he or she had broken the law, unless he or she was no longer alive or unable to be extradited.

Ms Shope-Mafole said that on a daily basis there were a number of challenges and perhaps the capacity of a Council to take advice was tricky. This particular CEO-issue was stretched long and was controversial.

Mr Mofokeng asked if the former CEO had resigned from the DOC.

Ms Shope-Mafole explained that ICASA was an independent authority. On this matter DOC was not involved. The CEO had written to the Director General and the Minister, but neither had the authority to become involved.

Ms Dreyer noted that the CEO who was suspended was permitted to return to work at a stage, and had then later resigned. The whole incident had stretched out over several months. She asked if it was correct that the previous CEO had lodged a CCMA case in regard to the suspension and that ICASA had then permitted her to return.

Mr Mashile said that the previous CEO was suspended in November as a precautionary measure to enable  investigation of two charges. As the Council was preparing for the final hearing other matters emerged and further charges were added. Under normal circumstances she would have returned when the case was finally concluded. There was no Council resolution for a further suspension once the investigations were completed but before the hearing date. The former CEO believed that she was entitled to return and she had returned to the workplace before conclusion of the hearing.

Ms Dreyer said it appeared that the case was adjourned more than once and the charges were changed several times. It seemed that ICASA was incurring further fruitless and wasteful expenditure in postponing matters and running its own case incorrectly.

Mr Mashile said there were logistical problems in the hearing. The role-players had had difficulty in to set dates on which they were all available and this exacerbated the delay. Mr Mashile was not involved. He suggested that the risk manager could explain further.

Mr Bruce Jooste, Risk Audit Manager, ICASA said in terms of HR policies the CEO was entitled to external legal representation. The two charges were laid in November. A provisional date was set for February. The legal representative requested documents, which ICASA refused to provide. When the disciplinary hearing commenced there was immediately an application on procedure not on merits, and an in limine ruling was  sought to the effect that the former CEO had been prejudiced by the delays and the failure to provide documents. The bulk of the documents were provided in February and hearings were held in April, June, and August. In October the hearing moved on to the merits of the matter. The presiding officer changed twice. ICASA had tried to have the matter concluded sooner but Counsel representing  both sides had difficulty in matching their dates. Postponements were also requested by Ms Manche's representatives. 

Ms Dreyer asked whether it was true that Ms Manche had lodged a complaint with the CCMA.

Mr Mashile said she had, and it was settled. She was allowed to return to work after that. She alleged that she was now unfairly suspended. The suspension was specifically so that there would be no interference while the charges were being formulated, and once this had been done she said that she should no longer be suspended.

The Chairperson asked why she had gone to the CCMA if she was aware of her options.

Mr Mashile said it was possibly a matter of the parties not having properly communicated with each other. It was perhaps assumed that she was aware of her rights and the situation.

Ms Dreyer remarked that it was still unknown whether the charges would have been proven, but there was a clear impression that the case had been badly managed, that charges were not clearly formulated, that the matter was allowed to drag out and that it had cost a great deal in legal fees.

Ms Dreyer noted that the AG had reported that service charges were paid although services were not rendered.

Mr Jooste reported that this was a different matter. Disciplinary action was pending against the individual concerned. He added that a few disciplinary processes were currently under way. A case had been concluded against the Senior Manager IT. This case took about six months and there were no suggestions that the hearing had been  prejudicial. This employee was dismissed. In another matter a hearing would be held on 7 March. He noted that disciplinary processes were time consuming and expensive on resources as ICASA had to ensure that the disciplinary process was fair and transparent. After the CCMA, employees could go to Labour Court.

Ms Dreyer noted that the AG had reported that interest had to be paid because of late payments. She asked what had happened and what steps had been taken to ensure this did not recur.

Mr Mosia said there had been a problem in the processing of this matter. The Human Resources section of ICASA had been asked to recover the money paid out from the individual concerned.

Ms Dreyer noted that a month-to-month contract was awarded to a security company without formal confirmation that the company had been accredited. She asked how that had arisen.

Mr Mosia answered that this particular Company had bought over another company, so that there was a transfer of ownership and certificates. Although there had not been formal registration by the time the contract was awarded, ICASA had been given information that the transfer was in the process. The AG's report was not incorrect because the formal registration had not existed at the time. However this information was provided later.

Ms Dreyer asked how ICASA would prevent this from happening in future.

Mr Mashile said that there was adherence to policies, processes and procedures in terms of how services were acquired. Although this might delay the process it was accepted that the rules had to be followed to ensure that such events were not repeated.

The Chairperson stated that effective monitoring by management would be a key issue. He hoped that the Council would tighten up its work.

Ms Dreyer moved to the report that general controls in the information technology environment were found to be weak. Most of the controls were not implemented and the IT manger was suspended, charged with 16 counts of fraud, and found guilty on eight charges of improper procurement. She asked if criminal charges had been laid.

Mr Mashile confirmed that charges had been laid.

Ms Shope-Mafole noted that one of the amendments put forward to the ICASA Act related to performance agreements, but not in respect of management. The CEO and DOC were trying to find some way in which the matter could be properly put in alignment.

Mr E Trent (DA) said that that it was equally important for ICASA to account for revenue collection. The revenue collection represented around R1.4 billion and this money that belonged to the people of South Africa. ICASA should therefore be most careful about the way it handled the funds. The AG had said that ICASA was responsible for collection and administration of fees, but disclosure was made only of the cash received. The AG said that it would enhance accountability if separate financial statements were presented. This comment had also been made in the previous financial year. Mr Trent pointed out that the AG was trying to assist in improvement of systems and asked why ICASA had not responded to his advice.

Mr Mashile said the general administration of ICASA was a day-to-day function that was handled by the CEO.

Mr Trent asked if Council was responsible for accounting policy.

Mr Mashile said the CEO was responsible in terms of the PFMA.

Mr Mameregane said this issue had been settled and cash was received and being transferred to National Treasury. Management were working on enhancing the reporting systems and were developing a policy detailing how funds should be dealt with.

Mr Trent did not think this was a direct answer. He asked if ICASA was going to present separately administered revenue financial statements.

Mr Mameregane confirmed that this would be done for 2007.

Mr Trent indicated that the notes to the financials indicated that the revenue collected had escalated by 19%, but the amounts payable to National Revenue Fund had increased from R24 to 42 million, representing about 60%.He asked why there was such a difference between the figures.

Mr Mameregane said the collection depended on the financial year of the operators. At ICASA's year end the receivables might be high. This was not controllable on the part of ICASA..

Mr Trent noted that National Revenue Fund allowed ICASA to invest and keep the interest, and he wondered if it was not in its interest to hold on to funds.

Mr Mameregane said that the amounts would be transferred within 30 days and were therefore not being accumulated.

Mr D Gumede (ANC) referred to the supply chain management report. The AG had identified irregularities in procurement and tender processes that were contrary to the PFMA and NT Regulations. It was not possible to determine whether goods and services were procured in a transparent and cost effective manner. He asked what ICASA had done to try to ensure that procurement did comply with requirements.

Mr Mashile said that charges had been laid in relation to these infractions, and an individual was dismissed.  There was now a supply chain management process. A policy had been developed as required by NT and different Committees had been established so that the process could be properly checked.

Mr Gumede asked why bid specifications were not approved by the Bid Committee.

Mr Mashile said that there was separation of roles, and this was governed by the legislation. He stressed that the administration of the organisation, and financial and risk management vested with the accounting officer. Council was to have an oversight role. Some of matters found their way to Council after the fact. In this case an individual, and not the Council, did not follow the processes required to bring the matter before the Bid Committee. Action was taken when this was identified.

Ms Shope-Mafole said that the explanation highlighted that ICASA did have a procurement policy but that the actions were not aligned to it.

The Chairperson indicted that this was then again a question of monitoring to ensure that individuals were not allowed to deviate.

Mr Mashile said that this would also help with ensuring that the organisation was as transparent as possible.

Mr Gumede asked whether there were monitoring mechanisms over matters after the Bid Committee had made its decision.

Mr Mashile said that matters would progress on to Council for reports once the Bid Committee had made decisions.

Mr Gumede asked if there were time lines.

Mr Mashile confirmed that matters must be reported both in terms of progress and time lines. A report was given month by month.

Mr Gumede asked how this particular discrepancy then could have occurred.

Mr Mashile said that the reporting mechanisms did not apply at the time, but now applied in an attempt to correct the situation.

Mr Gumede asked whether anyone had checked whether there was conflict of interest in the tender processes.

Mr Mashile said there was a whistle blowing mechanism. Until this was used it would be very difficult to identify conflicts. ICASA could check with the Companies and Intellectual Property Registration Office (CIPRO) to see if there was conflict.

The Chairperson asked if there was a register of members' interests for Council members in general and for the Bid Committee.

Mr Mashile said that interests were declared; this related to the procurement side but forms were also signed.

Mr Gumede asked if any verification was conducted especially after a problem involving millions of rand.

The CEO stated that normally in procurement processes the bids would be sent to the audit unit for that unit to do the verification and pronounce on any possible conflicts.

Mr Gumede referred to the AG's report that in a contract of R4 million, there was no proper audit trail, no signature of contract and no service level agreement. This resulted in R1.2 million of fruitless expenditure. He asked whether corrective action had been taken, and asked for details.

The Chairperson asked if Council had known about the contract and had approved it. and how the defects escaped its attention.

Mr Mashile said that the tender was brought before Council and a broad decision was taken that the tender was acceptable, and therefore should be processed so that work could begin.

Mr Gumede said that the problem was the audit trail. He would like a response on this aspect..
The Chairperson asked if the Council would be unable to detect defects in the process at that stage.  This once again returned to the difficulties in monitoring and the roles of the management and Council. Clearly there was a problem if the processes were not followed.

Mr Mashile said that once the services in terms of the procurement process had been approved, the CEO was delegated to deal with the procurer of services, and it was in that process that the discrepancies had arisen. He stressed that the Council would not deal with the day-to-day management and that the CEO was delegated to carry out the operational functions. This matter had been discovered during the suspension of the former CEO.

Mr Gumede asked whether measures were now in place to detect such irregularities in time.

Mr Mashile said that the risk department did now do audits to find whether matters were following policies and that where there were infractions they were brought to the fore. Much of what had been identified in the report was the task of that department.

Mr Gumede noted that most organisations would set levels of authority. He asked if there were not interventions required at certain levels, as the higher the value the greater the potential problem.

Mr Mashile said there were limits for authorisation of funds. The tender process required a certain way of dealing with differing amounts. Tenders above a certain amount would be brought to Council, and the Council had recommended on this particular one. However, from the operational point of view they would stay in the hands of the accounting officer. Council would only hear of matters when they were brought to its attention, and the risk department would bring matters to the audit Committee.

The Chairperson again stressed that most of the problems had arisen on processes at an administrative level and therefore the Council should not only look at form, but also at the processes at each stage.

Mr Mashile said normally the Council would not want to second-guess unless warned of potential problems. When this particular matter was dealt with the Executive Manager and CEO were present and both recommended the contract. Council had no information, nor reason to suspect that there could have been something wrong at the lower level. 

The Chairperson noted that trust was good but control was better, and that ICASA should perhaps be probing into the processes.

Mr Gumede noted that there could be differentiation between smaller and larger contracts. This one involved  R4 million and he did not get a sense that there was effective intervention on major amounts. He asked whether any other of the disciplinary processes in ICASA, apart from the former CEO's matter, had involved financial misconduct, and what processes were pending.

Mr Mashile said there was one case that was still pending at the time of the annual report. There had been two matters finalised, one person had been dismissed and one matter was currently being processed. 

The Chairperson said that the fact of the pending cases should have been in the annual report.

Mr H Bekker (IFP) aid that from the AG's report it appeared that controls had been shambolic, if not non- existent. Although the CEO was responsible to a large extent it seemed the Council had failed in its oversight duty. The Committee accepted the difficulties caused by resignations. senior IT management failure and acting appointments but was looking at the holistic picture. For six months the previous CEO was paid a salary. Disciplinary actions had cost more than R2 million. This was not described as fruitless expenditure, although it amounted to almost 3% of the total salary package, and was quite shocking.

Mr Mashile said that the R2 million was historical, dating back to the Independent Broadcasting Authority (IBA) days and that it had unfortunately culminated in the last year.

Mr Bekker asked whether every Council meeting was presented with the running financials at that date, showing the budgeted amount and the progressive spending.

Mr Mashile assured him that this was done and there was a monthly progress report on financials and projects.

Mr Bekker then asked if ICASA could give a guarantee that in future there would not again be a report that estimates had been overrun by massive amounts, and that ICASA would have to be bailed out

Mr Mashile said that the Council was doing its best to ensure the accounting showed exactly how the money was spent. There might be difficulties but he would try to pull it into control. A zero budget, or spending on the dot, was not feasible but ICASA was trying to ensure that any variables were not serious.

Mr Bekker said that salaries were paid on time, but the Receiver of Revenue had had to levy penalties for late payment of PAYE.  He pleaded that the Receiver should be treated with the same dignity as staff. Mr Mashile noted the point.

Mr Bekker said that it had already been explained that the new legislation last year had meant that there were increased travelling costs. However, he noted that the travelling costs of the Council, especially when measured against their salaries, were very high.

Ms Shope-Mafole said that this had already been raised with the Chairperson. The nature of the work did require the presence of both Councillors and specialised staff. The Department would be seeking an increase on travel, particularly international travel.

Mr Gerber asked if there was any policy in terms of business class flights and asked who took the benefit of the voyager miles. He suggested that ICASA could do what the AG had done, and call on the airlines for tenders, in order to get the lowest prices.

Mr Mashile said that for trips of five hours and more Councillors were entitled to use business class, but for shorter trips they would fly in economy class. Voyager miles accrued to the individual Councillors.

The CEO added that senior managers kept their own voyager miles, but staff below a certain status would accumulate their miles in a staff pool. He would investigate the tender suggestion.

The Chairperson believed that the voyager miles situation should perhaps be reversed.

Ms Shope-Mafole said that travel policies in ICASA did not align with Public Services Commission policies at the moment and that this would be aligned in due course. In fact ICASA Councillors were not travelling enough. In relation to matching to Public Services Commission, she noted that the Councillors equated to the level of Deputy Director Generals, whereas the Chairperson was at the level of Director General.

Mr V Smith noted that R7 million for travel was substantial. He felt that there should be a breakdown given. there was no indication who was travelling, where they went, and what value-add there was to the travel. He suggested that this information should be given within 14 days so it could be included in the Resolution.

The Chairperson said that he had not commented on the size of the ICASA delegation because it was important that as many Councillors as possible should be present to appreciate what the Committee expected, and to try to avoid the unfortunate public spectacle that had happened in the past. It was a large delegation but in the circumstances of this particular meeting this was probably useful.

Mr G Madikiza (UDM) noted that R2.4 million  performance bonuses were paid to staff in equal measures. He asked if this was a result of a performance evaluation, and if not, who took the decision to pay in equal proportions.

Mr Mashile said that management had discussed the issue with the unions and laid out how performance bonuses would be awarded. ICASA indicated that a certain amount would be available. When the time for evaluations came staff were not happy with the manner of evaluation. Management had said that below a certain level of evaluation there would not be a bonus. The discussions became stalemated. The equal- proportion pay out was the result of a deal to settle the situation.

Mr Madikiza asked the current situation.

Mr Mashile said that now there was a general manager for Human Resources. There would be an agreed formula next time.

Mr Madikiza said that R39 000 had been budgeted for long service awards yet around R2 million was paid out.  R1.9million was paid in leave gratuities, which had not been budgeted for. He asked if this arose through lack of capacity or negligence.

Mr Mashile said that the long service awards were intended as incentive to staff to stay in the system, and some were still from the old order, being based on 5, 10 or 15 years of service. It was decided that the policy should be amended. The payments were the result of the changes in policy.

The Chairperson said that this seemed to reflect bad planning. The amendments had not come out of the blue. There was no planning at the time that the budget was made. It was not a question of whether it was right or wrong, but the disparity was enormous.

Mr Mofokeng asked if staff who might have worked only for three months and the suspended staff received equal bonuses.

Mr Mashile said this was not so. Those who had been dismissed or were on suspension, including the former CEO, did not receive bonuses.

Mr Madikiza asked why there had been no budget for the leave gratuity.

Mr Mashile said this related back to the Telecommunications Regulatory Authority (SATRA) and IBA staff who, at the time of moving across to ICASA, had accumulated leave. At the time it was decided that it was not operationally possible to let them take the leave, as this could have created several vacancies at a crucial time. A decision was taken to bring the matter to closure in this year, and this was done by paying out the accumulated leave from merging organisations. It would not be a continuing problem. Leave not used would be forfeited in future.

Mr  Madikiza said that there was lack of reconciliations and asked how this had occurred.

Mr Mameregane said this was both a system error, which was rectified subsequently, and also a human error. The HR appointment was intended to address any HR issues.

Mr Madikiza asked whether it was correct that the CEO was paid a severance package and asked where she was now.

Mr Mashile said that she was not paid severance. He did not know where she was.

Mr Trent said that the performance of staff related to the performance of the institutions. There were 80 objectives set out. Very few were measurable. He asked how a person would be assessed against a tentative time line and whether the information was available for the AG to audit.

Mr Mashile said that the objectives would be quantitative and not qualitative in future. This would avoid the problem of disputes.

The Chairperson noted that ICASA would be moving to quantifiable goals. He asked whether this process had commenced. .

Mr Mashile said that this process had commenced.

Mr Smith referred to the fact that consultants, contractors and special services had cost R8 million in the last year, an increase from R3.5 million in the previous year. He asked for a full breakdown, in writing, of who was being paid for what services.

Mr Gerber asked for a written list of assets that were sold and written off, with details of who bought them, and at what price. He also requested in writing what portion of the internal audit was outsourced, and to which suppliers and at what cost.

The Chairperson called on ICASA to reply to the requested matters within fourteen days.

Ms Shope-Mafole noted that there should now be performance management agreements under the new Act.
The Chairperson said that the position of the Chair of the Council was accompanied by high responsibility and it was hoped that ICASA and the DOC would address the segregation of duties to ensure effectiveness and harmonisation. 

National Electronic Media Institute of South Africa (NEMISA): Interrogation of Auditor General's Report 2005/6
Mr Madikiza stated that the AG had reported on incorrect treatment of leases, property, plant and equipment. Finance leases were not capitalised in terms of International Standard (IS) 17 and that they were not straight lined. He asked the cause and the plans to remedy.

Ms Rizelle Sampson, Chairperson, NEMISA said the problems arose through lack of leadership. NEMISA had had an Acting CEO, COO and CFO. The previous CEO had left in 2005 and the current CEO had been seconded across to an acting appointment before being finally appointed. The Board regularised the situation by going through an interview process and the CEO was appointed in November 2006. The interview and selection process had only just been finalised for the CFO, who would commence on 1 March 2007. Many of the problems stemmed from lack of leadership. The Acting CFO did not have the competency to deal with the issues relating to the accounting standards, in particular generally Accepted Accounting Principles (GAAP) and Treasury Regulations.

Mr Madikiza asked how this person was appointed Acting CFO.

Ms Sampson stated that prior to the acting appointment she had been the financial manager of NEMISA. It was a stopgap measure until a suitably qualified person could be found.

Mr Madikiza asked whether there was lack of policy framework and controls over the correct accounting treatment.

Ms Sampson said the audit committee was better suited to deal with this question.

The Chairperson asked whether there were policies in place or not.

Ms Sampson said that there were policies and with the change to the new accounting standard of GAAP there was lack of competency identified by the AG. He had termed the problem as "inability to understand" what the accounting processes should be. This highlighted the need to appoint someone with suitable qualifications to deal with PFMA, Generally Recognised Accounting Practice (GRAP) and GAAP.

Mr Madikiza asked if the problems would recur.

Ms Samson said it was a historical problem that should not recur.

Mr Madikiza asked if there was a policy for correct recording of plant and equipment.

Ms Sampson said there would be adherence to policies and regulations of NT and the problem would not be repeated.

Mr Madikiza asked how it had happened and whether the organisation was not aware that it would have to comply with those regulations. He asked if there was adequate capacity.

Ms Sampson said the organisation was aware of the need to comply but did not have capacity. A new CFO had been appointed. Staff to support that person would be appointed as both the Acting CFO and the financial Manager had resigned during the course of last year. NEMISA had merely a financial officer in the finance department at the time.

The Chairperson asked what position was held by Mr de Klerk.

Ms Sampson said he was acting at the time of the audit report, but had been appointed as CEO in November 2006.

Mr Gerber noted that there had been numerous acting appointments. He asked at what level the CFO and CEO had been appointed. He said that this could be reported during the hearings. He asked who the internal auditors were. He also asked the name of the attorneys.

Ms Sampson said that the internal auditors were SAB & T, a Chartered Accounting firm. The legal firm was named.

Mr Gerber pointed out that the firm SAB & T had been the same firm that had done the due diligence check on Fidentia, on behalf of the Transport Sector Training Authority. He noted that the lack of policy framework resulted in non-compliance to GAAP and Treasury regulations, which were listed. The property, plant and equipment were not depreciated to residual value.

Ms Sampson said this was done now. The lease situation had been rectified. There was a plan to address all issues in the AG's report and some others that NEMISA had identified for itself during a risk management process. The Minister of Communications had asked for the plan of action and the Chair of the Audit Committee was responsible for implementing the plan.

Mr Gerber referred to the reported theft of equipment. NEMISA had submitted an insurance claim that paid R4.29 million. He asked what had happened in this case, and why there was a difference of R3.2 million between the recorded value and what was paid out.

Ms Sampson said that the goods stolen were technical equipment. Given the pace of technological change the replaced equipment was more advanced than the goods stolen. The insurance was based on replacement at market related prices, hence the difference. There was a difference between replacement costs and book value.

Mr Gerber said that there had been a substantial rise in the costs of insurance from the previous year. The ceiling set by Treasury for premiums was R250 000. He asked whether the amount paid by way of premiums related to different policies, or one package, and whether there was approval to go above R250 000.

Mr Peter de Klerk, CEO, NEMISA said that he was not sure if permission had been obtained but he could find out. He could confirm that this was one insurance package.

Mr Tsediso Gcabashe, Chairperson, Audit Committee said that this question would be responded to in writing.

Mr Gerber noted that the consultancy fees had risen three-fold and requested a breakdown of this in writing.

Mr Gerber said that the rental of the property was around 25% higher and he asked why this was above the standard escalation clause. 

Mr de Klerk stated that there was a standard lease, giving a set rate of increase. He would report back on reasons why this was high.

Mr Gerber also asked for a breakdown of plant and equipment sold, in writing.

Mr Gerber said that ICASA had reported that the salary levels and staff status had been upgraded. He asked if a similar situation pertained in NEMISA. 

Ms Sampson said that the Board comprised non executive and executive members. A policy framework on remuneration was in the process of being developed. The Board members currently did the work pro bono. The CEO was at the level of Deputy Director General.

Ms Shope-Mafole said that there was a difference between ICASA Council and other Boards. ICASA Councillors were full time members, and were really at executive level. In regard to NEMISA, there had been a major change in terms of what it was to deliver, in order to reposition it, and this was one of the reasons why the appointments were being accelerated. The institution had greater tasks than in the past. The Board would be finalised, and it would consist of  paid members, and remunerations would be properly aligned.

Mr Gerber commented that one of the Board members was a director of the auditing service and was also the Chairperson of the audit committee. The services of the auditing firm had been terminated by the Africa Institute. He asked if this was a healthy situation.

Ms Sampson said that it was the prerogative of the Minister as she chose Board members.

Mr Gerber noted that Treasury Regulation 31.1 and 31.2 were not adhered to as a strategic plan was not drawn. There was no human resource plan in place.

Ms Sampson said that the strategic plan was approved in April 2006 and this year's plan would be finalised with the DOC before the end of the financial year.  In regard to human resources, a review was done and a human resources plan was finalised in September 2006, which included an internal skills audit to be followed by job evaluations, job functions and descriptions. NEMISA was busy finalising those issues.

Mr Gumede noted that the AG had said that Treasury Regulations in relation to supply chain management, were not adhered to and asked why not.

Ms Sampson said NEMISA had historically had a procurement policy in place. Now it had to comply with the supply chain management policy, as set out in the Treasury Regulations, and in the coming year this would be done. The non-compliance in the past was related to the capacity difficulties.

Mr Gumede asked if there was proper capacity in terms of monitoring

Ms Sampson said that the person being appointed would have the necessary skills to deal with Treasury regulations and compliance with the accounting standards.

Mr Mofokeng noted that it seemed that the entity did not have policy and procedure frameworks to finalise the information for audit purposes. He asked why there was a continuous problem of non-compliance.

Ms Sampson said that the issues of non compliance once again had to do with capacity and lack of  leadership.

The Chairperson noted the point but said that it was interested in what steps had been taken to deal with the challenge.

Ms Sampson noted that the first Board meeting would be on 28 February and would seek to approve the performance management system that would be put in place for the first time.

Mr Trent enquired when NEMISA had begun as an entity.

Ms Sampson stated that NEMISA was formed in 1998

Mr Trent asked if performance bonuses had been paid.

Ms Sampson said these had not been paid, but in December 2006 an incremental bonus was paid which was not performance related.

Mr Trent noted that there was now a  new receivable reflected, being named as outstanding project transfers of R14 million that had not appeared in the previous year. He queried what this was for, and whether it was still outstanding.

Ms Sampson noted that this was a project on behalf of the Department of Communications

Mr H Mathobathe, Deputy Director Finance, DOC confirmed that this related to work on animation which was produced together with NEMISA, and work on Community Radio stations.

Mr Trent enquired why it was outstanding.

Mr Mathobathe said there was no problem with the payment. Payments were to take place only on completion of certain milestones. These amounts had subsequently been paid.

Ms Dreyer referred again to lack of capacity and turnover in key positions. She enquired if there was a staff retention plan in place.

Ms Sampson said that the staff retention policy formed part of the new HR policy that was drawn in September 2006.

Mr Mofokeng said that section 55 of PFMA required full and correct financial records, and preparation of financial statements. Residual values and life of assets were not reviewed at year-end. He enquired why this had happened

Mr Gcabashe said was related to the issues around GAAP. There was an oversight on the part of the person preparing the financial statements.

Mr Mofokeng added that there was not proper disclosure.

Mr Gcabashe said there was a list of obligations and once again the people dealing with the matters did not realise that finance agreements were not capitalised. This was partially a historic problem. The agreements relating to finance leases had now been identified and the necessary adjustments made.

Mr Mofokeng noted that this was a gap but he wondered when this would end. He asked why no disclosure had been made of related party transactions.

The Chairperson felt that he must come to the defence of NEMISA. The entity came across as being in the process of recovery and was still pulling itself out of an abyss. This made the job of the Committee more difficult, but there were simply no other answers that could be given.

Mr Gumede asked if perhaps the AG could indicate if he was satisfied that things were moving in the right direction.

Mr Terence Nombembe, Auditor General commented that only at the time of the next audit would the AG be able to give a proper indication. He made the point that the audit committee had a role to play. Comment from the audit committee had not been given. It would be useful to get a sense of whether the audit committee had acted as a buffer to ensure that there was no compromise to the treatment or the way in which the transactions were handled.

Mr Gcabashe said that certified financial statements were given for audit. There was a dispute between the Acting CFO and the AG as to what was the requirement of GAAP, which had delayed the audit.

The Chairperson was amazed that an unqualified Acting CFO had dared to argue with the AG.

Mr Gcabashe said that because of the delay the audit committee did not get involved in the process.

The Chairperson asked how the delay had excluded the audit committee from the process.

Mr Gcabashe stated that this had only been seen in November.

The Chairperson enquired whether this indicated that the monitoring role was not being effectively done.

Mr Gcabashe said this was not so. The audit committee had not been able to play a role in this year but were generally committed and did play a role. The issues around the leases were not examined by the audit committee at the time but only came to light later, when the audit committee did become involved.

The Chairperson pointed out that the audit committee's responsibility was to assist management in picking up on those matters. It might be a challenge at the end of the financial year in terms of the ruining of the entity. He heard the historical position but would want to see improvement in future. He was pleased that the Audit Committee Chairperson was present. It was necessary to establish an enhanced interaction between the audit committee and management.

Mr Trent said that the AG had not raised issues of the entity as a going concern. The revenue comprised grants from government, courses rendered and student fees. He asked whether it was viable to have a stand-alone entity to fulfil this function. He asked whether NEMISA would generate income and be self-sustainable or if DOC would sustain it for ever. A stand-alone entity would incur additional cots.

Ms Shope-Mafole stated that there had been much discussion about skills. This was serious in the IT sector. NEMISA was established to address the skills situation and had been re-vamped. It would probably in the near future be the prime producer of highly skilled people in the country. The IT sector was very small but was growing and many of the broadcasters had been trained at NEMISA. Its growth and development was a matter of time. In regard to projects, the DOC had not advertised what NEMISA could do to other government departments. It played a role in skills development for the digitised environment for 2010 and beyond. It was a strategic entity and was necessary.

Mr Trent noted that NEMISA should be more widely known and perhaps NEMISA should take on the task of promoting itself.

Mr Gerber commented to the DOC that it would be useful, as he had already mentioned to ICASA, to have a short report from the Minister of Communications included in the Annual Report.

Mr Gerber noted that the financial statements were approved on 17 May. The AG only received them on 11 August and only signed off on 24 August. Mr Gerber asked how many times between May and August the statements had gone back and forth and how many changes were made.

Mr Gcabashe said he was consulted on 11 July by the management of NEMISA to assist them with some of the issues raised by the AG. A firm was recommended to assist. The preparation of the financial statements was only partially outsourced. In this year the Audit Committee had not met with the AG. 

The Chairperson asked if the financial statements for next year would be so late again or whether there had been real changes in terms of capacity.

Ms Sampson confirmed that there would not be a repetition of the problems through lack of capacity. NEMISA was making the necessary appointments.

The Chairperson asked for the staff complement and vacancy rates.

M Sampson said there were 31 full time staff and no vacancies except the CFO and the Financial Manager.

Mr Trent noted that this financial year was virtually finished. He asked if the improvement would happen in 2008 or in 2007.

Mr Gcabashe said that the 2007 financial report would reflect the improvements.

The meeting was adjourned.