Independent Communications Authority of South Africa 2008/09 Annual Report and Financial Statements: Hearing

Meeting report

Introduction
The Independent Communications Authority of South Africa (ICASA) had received an unqualified audit report from the Auditor-General for the 2008/09 financial year. However, the Auditor-General had emphasised the following matters: basis of accounting, fruitless and wasteful expenditure, and irregular expenditure. The Auditor-General had also drawn attention to the following matters: the Public Finance Management Act 1999 and Treasury Regulations, the Independent Communications Authority of South Africa Act 2000, governance framework, and key governance responsibilities. (Annual Report 2008/09, pages 110-115).

The Chairperson noted that ICASAs legal mandate was very clear and that ICASA played a most important role in South Africa.

Fruitless and wasteful expenditure
Mr R Ainslie (ANC) said that it was almost a pleasure to deal with this report, after dealing with qualifications and disclaimer after disclaimer, and walkouts. It was quite a pleasure dealing with a report that had only a few matters of emphasis. His section of the report would be quite straightforward. Mr P Pretorius (DA)’s section might be more difficult.

Mr Ainslie’s questions were to relate mainly to irregular expenditure (Report, page 111). However, he would first ask about the small amount of fruitless and wasteful expenditure (Report, page 111; and note 10, page 133). He asked in particular about the interest charges levied because of late payment of suppliers’ accounts. These interest costs amounted to R16 444. He asked why these had been incurred. He noted that suppliers should be paid within 30 days of the date of invoice. He would be concerned if suppliers were not paid within that time. In his constituency a number of small, emerging black businesses were suffering badly because Government departments and entities did not pay their accounts on time. Why had it happened, and was it still happening?

Mr Paris Mashile, Chairperson, ICASA, acknowledged that suppliers should be paid on time, otherwise their cash flows would be endangered, and their survival put at risk.

Mr Tubane Mosia, Chief Financial Officer (CFO), ICASA, explained that the service provider had usually given invoices directly to the end-user, the project manager, instead of taking them directly to supply chain. When ICASA wrote the offer letter, it had indicated to the service providers and suppliers that all invoices must be sent to the supply chain. There had been a ‘good improvement’ in terms of paying within 30 days and ICASA expected that this would be reflected in the financial figures for 2009/10. ICASA made special efforts with the small and medium enterprises (SMEs) to pay on time. The Department of Trade and Industry (DTI) specified that payment to suppliers should be effected within 30 days, but ICASAs internal policy was to pay within 14 days. ICASA had made ‘good progress’ on adhering to its own 14 days’ timeframe.

Mr Ainslie asked how ICASA made its suppliers aware of where they should sent their invoices.

Mr Mosia replied that suppliers were required to sign the offer letter and return it to ICASA. ICASA made sure that it gave suppliers the order number. ICASA had also communicated that policy internally.

Mr Ainslie asked if ICASA had noticed an improvement.

Mr Mosia replied that it had.

Mr Mashile added that when supply chain received invoices, it was necessary to cross-check them with project leaders to ensure that the work had actually been done; otherwise invoices might be paid with no work having been done. This cross-checking was necessary to avoid irregular expenditure.

The Chairperson said that ICASAs responses seemed to be at a generic level. He asked if the interest penalties of R16 444 had been paid because suppliers had sent their invoices to the wrong section of ICASA.

Mr Mosia replied in the affirmative, adding that there had been a delay in the processes. Supply chain captured the invoices, and then sent them to the relevant department to obtain a signature approving payment of the amount.

The Chairperson observed that ICASAs original response had given him the impression that ICASA was not in the wrong. Therefore he wondered how ICASA ended up paying interest when it was the suppliers who were wrong because they had sent their invoices to the wrong section. However, Mr Mosia had then indicated that there was in fact a delay in ICASAs own processes which had led to it incurring interest penalties. He asked Mr Mosia if that was so.

Mr Mosia replied in the affirmative.

The Chairperson asked what happened to those people who had to pay R16 444. Did somebody forget about the invoices? It seemed that somebody had received those invoices, put them in a tray and forgotten about them for days or weeks. If nothing happened, he asked ICASA just to say so, so that Members could move on to other matters.

Mr Mosia replied that nothing happened.

Mr Ainslie asked who would be responsible for holding on to the invoices.

Mr Mosia replied that this would be the senior managers or the project managers.

Mr Ainslie asked what steps ICASA was taking to ensure non-recurrence of such delays.

Mr Mosia replied that supply chain had held a workshop to ensure that senior managers and project managers fully understood the importance of processing invoices promptly and the relevant procedures to be followed.

Mr Ainslie asked if ICASA would not consider disciplinary measures against those who had incurred such liabilities. Was it not serious enough, in ICASAs view, to warrant such measures? Moreover, ICASA would have paid these penalties only if ICASA had been at fault, not if the supplier had been at fault.  It appeared that ICASA perhaps did not really know, in this instance, where the fault laid. But perhaps, to be on the safe side, ICASA paid the R16 444 penalty interest in any case. If the senior managers and project managers were responsible, then ICASA would have to go beyond workshops and letters, and take firmer measures.

ICASA agreed, if indeed that were true.

The Chairperson, addressing Mr Mashile, said that surely it was a simple matter that did not require recourse to workshops. It was a matter of work ethics. The delays indicated that there was no prioritisation of work. Perhaps managers were not properly monitored, or not sufficiently focused in their work. It did not require a workshop to teach a manager that an invoice should be processed within a day or two.

Mr Mashile admitted that the fact that ICASA had incurred penalties indicated that the fault was on ICASAs side. ICASA would not easily have admitted to guilt if it had felt confident in its interaction with suppliers. The fact that ICASA had paid this penalty interest was inherently an admission of wrongdoing on its part. Either there was laxity on ICASAs part, or the managers concerned did not know the procedures for processing invoices, which was no excuse, to say the least, since it was part of their job as project managers to see that invoices were processed. He acknowledged that due action should be taken in that regard.  

Mr Ainslie asked if the ICASA Board had condoned it.

Mr Mashile replied that the Board had not condoned it. The Board had asked the operational leader to rectify the situation. The Board could only cite the difficulties and challenges.

Mr Ainslie asked if in this whole process negligence had been determined.

Mr Karabo Motlana, Chief Executive Officer (CEO), ICASA, replied that ICASA took the position that at the time, it had been very difficult to determine attribution.

Mr Ainslie said that he was very happy and very surprised that the figure was only R16 000 and not much more, since ICASAs procedures seemed to be very lax.

Mr M Mbili (ANC) believed that Mr Mashile had given a good account of what had happened, as compared to Mr Motlana and Mr Mosia, whose responses were unfortunate and seemed to be ‘opening up a can of worms’.

Ms A Muthambi (ANC) said that Mr Motlana must go ahead and identify the individuals concerned and act against them. The Committee viewed this matter as important.

Mr S Thobejane (ANC) said that ICASA should have already investigated this matter. It had happened before, in 2007/08. ICASA should have been worried about it. The individuals at fault should be identified and measures taken against them. If the individuals at fault could not be identified, then the Chief Financial Officer should be blamed.

Mr Mashile conceded that there had been wrongdoing on ICASAs part. When ICASA had found out about it, it had tried to find out more. He admitted that it was laxity on his side not to resolve this matter before. Henceforth it would be incumbent upon him to pursue the matter, at his level, and, in the final analysis, the responsibility would be his. ‘Finally, I am the lightening rod [conductor] in this matter.’ It was not the amount of money involved; it was the principle that was of concern.

Mr Ainslie said that Mr Mashile was quite right, and agreed with him that one was not exaggerating the matter. He was ‘not making mountains out of molehills’.

Mr Thobejane asked about other penalties – these included the reimbursement of bank charges incurred by staff due to late payment of salaries as a result of load shedding (Annual Report, page 133). Why did ICASA have to suffer the consequences of the bank’s loss of electricity supply?

Mr Mosia said that ICASA did not have a backup system, and when it had wanted to link to the bank, ICASA had suffered load shedding and payment of salaries had been delayed.

Mr Thobejane replied that ICASA itself was at fault because it did not have systems in place in case such events occurred.

The Chairperson said that it was clear that ICASA had no backup system. In terms of risk management, this was most unsatisfactory. Once again it was not so much the amount as the principle that was of concern.

Ms M Mangena (ANC) asked why motor vehicle licences had not been renewed on time (Annual Report, page 133).

Mr Mashile explained that there would be mitigating circumstances.

The Chairperson said that he did not want a response because in terms of substance there would not be one. It had to be because somebody was missing deadlines for renewal.

Ms Mangena asked what happened to the individual or individuals concerned. She asked about other penalties.

Mr Mosia explained that in one case ICASA had owned a vehicle that had been transferred from Gauteng to Durban.

The Chairperson asked ICASA to check the specific details and send a written explanation to the Committee.

M Mbili asked about non-compliance, in so far as ICASA had not prepared and signed a performance agreement with the Chief Executive Officer for the year 2008/09 (Annual Report, page 112, paragraph 11)

Mr Motlana replied that these matters had been addressed.

The Chairperson wanted Mr Ainslie to complete his part of the hearing.

Ms Muthambi asked about paragraph 12 on page 112, which referred to lack of a performance management system.

Mr Mashile replied that according to the ICASA Act, the initiative for the performance agreement was with the employer, but unfortunately, there had been laxity on the part of the Department of Communications at the time. ICASA had repeatedly pointed it out, but it had not been addressed. ICASA did what it could but was unable to enforce it until addressed by the Department.

The Chairperson inferred that the performance agreement had not been addressed.  

Mr Mashile replied that this matter had now been addressed. The Authority had made enquiries in the present financial year (2010/2011) year as to when it would sign the service level agreement.

The Chairperson said that he fully understood what Mr Mashile was saying.

Mr Sam Vilakazi, the Acting Deputy Director-General, Finance and Information and Communications Technology (ICT) Enterprise Development, Department of Communications (DOC), said that as Mr Mashile had indicated, the matter had been addressed. This matter had almost been taken care of.

The Chairperson inferred that the matter had not been taken care of within the 2009/10 financial year.

Mr Vilakazi acknowledged that was so.

Mr Mashile said that ICASA had submitted its performance agreement to the Minister, but the Minister would have to submit it to Parliament for moderation, in terms of the ICASA Act, to ensure that the agreement met the needs of the country.

The Chairperson said that he wanted to move on, since the Minister was not present, nor was the Director-General. It was some consolation to hear that the process was underway, but it had taken far too long. He wished that the Director-General was present to account for why ICASA had been without a performance agreement for the whole financial year. It was a breach of the ICASA Act.

Mr Thobejane asked if Mr Vilakazi was speaking on behalf of the Department.

The Chairperson confirmed that was so.

Irregular expenditure
Mr Ainslie asked about irregular expenditure of R387 081 because supply chain management processes were not complied with (Annual Report, pages 111 and 134). There were nine items which added up to that figure. He asked why no comparative quotations had been requested for at least three of those items. He was most surprised that an entity of ICASAs stature had failed to comply with such a basic requirement. Who was responsible?

Mr Mashile said that he would ask the accounting officer, Mr Motlana, to explain these, item by item.

Mr Motlana said that there had been a failure of management in all these instances. ICASA had started to determine the exact nature of the transgressions and to follow the necessary steps to take corrective action.

Mr Ainslie asked Mr Motlana to confirm whether the individuals concerned had been identified. For how long were they investigated?

Mr Motlana replied that the individuals concerned had been identified.

Mr Ainslie asked what action ICASA had taken against those individuals.

Mr Motlana replied that there was an ongoing legal process.

Mr Ainslie said that it was reported that these matters were being investigated (Annual Report, page 134, at the bottom).

Mr Motlana confirmed that was correct.

Mr Ainslie asked how long the investigation had been in progress. Was there a timeframe? The matter was surely quite straightforward. One either asked for a second or third quotation or one did not. Who went ahead without the second and third quotations? What action would be taken? Why ICASA had to have an investigation that was still ongoing was beyond his comprehension.

Mr Motlana explained that ICASA had wanted to make known in the Annual Report what had happened thus far, and said that ICASA would provide the Committee with a written report as to the outcome.

Mr Ainslie said that he was beginning to suspect that there was a pattern of non-compliance which appeared to be tolerated, without any action taken against wrongdoers. He asked if ICASAs records would show which individuals had been identified, what they had done, and what action had been taken against them.

Mr Motlana replied that this would be so where fraud was identified.

Mr Ainslie said that he was not talking about fraud. The problem started with small amounts. One had to begin with the ‘first broken windowpane’. If one let small violations go unpunished, bigger violations would occur. It was necessary to rectify small violations immediately. He had spoken of a matrix earlier on. He asked again if ICASAs records would show that disciplinary action had been taken. He was satisfied that ICASA would have taken action if larger violations had occurred, but he remained unconvinced that ICASA was seriously concerned enough to take action against these small violations.

Mr Motlana replied that he was under the impression that the records would show that the Authority had taken disciplinary action. He added that these were matters that ICASA was trying to rectify.

Mr Ainslie asked if ICASA had so far, in all of these nine instances, not identified the individuals concerned.

Mr Motlana replied that as he had said earlier it was part of a legal process, but when it was concluded ICASA would give the Committee a comprehensive report.

The Chairperson asked when ICASA had become aware of these violations.

Mr Mashile replied that the Board became aware when the Annual Report was compiled.

The Chairperson asked when management became aware.

Mr Motlana replied that management became aware, in some instances, as part of the audit process.

The Chairperson inferred that therefore management was not sure which instances it had discovered by itself, and which instances had been discovered as part of the audit process.

Mr Motlana replied that management had identified them, and referred them to the auditors.

The Chairperson asked when.

Mr Motlana replied that management referred them to the auditors before the audit process.

The Chairperson inferred that since the end of the financial year there was still an investigation, and that when the next annual report was published in September 2010 there would be an answer. 

Mr Mashile replied that ICASA would give the Committee a detailed report.

The Chairperson said that if an individual failed to obtain quotations for comparison, there was hardly any basis for a long and detailed investigation. Week after week the Committee heard about the slowness of departments and entities to act swiftly and decisively. This was another such instance. The Committee was not convinced that twelve months after the transgressions, any tangible action had been taken. Was ICASA informing the Committee that the persons concerned had left ICASA?

Mr Mbili asked about the performance bonuses (Annual Report, page 144).

The Chairperson suggested that Mr Ainslie’s questions about ‘the nine items’ be completed first.

Ms Muthambi asked if ICASA had a disciplinary code. It surely did not take so long to complete such a matter. If there was such a code, why did the Chief Executive Officer not implement it?

Mr Motlana confirmed that ICASA did have a disciplinary code. ICASA wanted to be as thorough as possible. The code was in the process of revision. As he had indicated earlier, ICASA would provide a detailed report.

Mr Ainslie assumed that there was an Audit Committee.

Mr Mosia confirmed that there was an Audit Committee and that these matters had been detected in the supply chain.

Mr Ainslie said that the internal audit function was very important. He asked what the Audit Committee was doing. He sought to relate the internal audit function to the discovery of these wasteful and irregular expenditures.  Was the internal audit effective or not? He asked if the Chairperson of the Audit Committee could comment.

Mr Sandile Swana, Chairperson, Audit Committee, ICASA, replied that there were certain areas of focus that the Audit Committee gave to the internal unit, supply chain being one of them. The difficulty was that if one was to go through the annual audit reports, and examine the action that management had taken, in relationship to those issues, then one would find a huge backlog of implementation. The Audit Committee could not do the work of management. Management must tackle those issues on its own. The general audit records could be made available to the Committee. The Audit Committee had raised a number of issues to the extent that it had now called for an investigation of the whole finance function. However, ‘I don’t want to open cans of worms here.’

The Chairperson replied that Mr Swana was indeed present to ‘open cans of worms’.

Mr Swana said that, from his perspective as Chairperson of the Audit Committee, those issues had been discussed several times.

Mr Ainslie asked if those issues raised by the Audit Committee had been ignored.

Mr Swana replied that if one did not institute controls, all kinds of things would go wrong. He would be surprised if all those issues could not be traced to the lack of controls that had been identified in the past few years.

Mr Ainslie asked why management was ignoring these very important issues raised in the internal audit reports. The fact was that ignoring these internal audit reports was resulting in this irregular expenditure, which might in the future be much more.

Mr Motlana replied that he would not necessarily say that ICASA management ignored the internal audit reports.

Mr Ainslie was of the opinion that the ICASA management read and filed the audit reports, but ignored them.

Mr Motlana replied that ICASA management had tried hard to ensure that each process was examined at each level and had endeavoured to ensure that corrective action was taken.

Mr Ainslie understood that these reports were submitted to management. Were they also received by the ICASA Board?

Mr Swana replied that each manager received a copy of the internal audit report before it was tabled in the meeting of the Audit Committee, at which the Auditor-General was represented, the management was represented, and the ICASA Board was represented by two Board members (councillors).

Mr Ainslie confirmed that the ICASA Board was aware of these audit reports. He asked why management was not acting upon them.

Mr Mashile confirmed that the ICASA Board certainly received these reports, and thereafter asked for a follow-up. However, if the Board asked for a follow-up, there were proper processes to be followed, so it became very difficult when one was faced with processes and procedures. Sometimes one became exasperated when one tried to hasten the process.

Mr Ainslie said that, as a Board, ICASA had reached the stage at which it had to take corrective action. No action was being taken by the Board year after year. If these things were left unattended, ICASA might well expect a qualified audit opinion from the Auditor-General for 2009/10. These were red flags. There was something seriously wrong with the whole governance of ICASA. He was ‘generally happy with the report’; these were small sums of money but it was the principle that was important. The Board had failed to take decisive action on the recommendations of its internal audit committee.

The Chairperson observed that it appeared that the ICASA Board was relying on management to take corrective action. Mr Mashile appeared to be at his wits’ end as a result of being told by management that the Board would have to wait for management to complete its processes.  He stated that management must act on the reasonable directives of the ICASA Board. He did not think that ICASA management should set the timelines for themselves.

Mr Ainslie called for decisiveness from the ICASA Board.

Mr Mashile replied that this impasse left the ICASA Board hobbled. It could not allow this kind of thing to go on and on.

Mr Ainslie advised Mr Mashile to use the Public Finance Management Act (PFMA) and pleaded that the ICASA Board not ignore the internal audit reports. Moreover, the ICASA Board must not allow its management to take no action.

Mr Mashile replied that one learnt from experience in the previous dispensation to be cautious. He reported that he had been censured as ‘dictatorial’, and adversely reported and ‘lampooned’ in the media. His experience had been a lesson not to be 'aggressive’. No one had come to his rescue. He had been bitten before.

The Chairperson joked that Mr Mashile had been ‘once bitten twice shy’.

Members laughed at this remark.

The Chairperson said that, in Mr Mashile’s exercise of his authority as conferred by the law, the Department of Communications should come to his rescue. In addition, he gave the assurance that the Committee would also come to his rescue if the need arose. This situation had created inertia and the Board had to take control and act. The Board must instruct management. From the Committee’s side, Members would support Mr Mashile in so far as he acted to apply the law. He now wanted the proceedings to move forward.

Mr Ainslie asked about the payroll project (Annual Report, page 134).

Mr Mosia replied that there was now a contract.

Mr Ainslie asked who was responsible for engaging in these actions without a contract. Was action taken against that person or those persons? He understood Mr Mosia’s reply to mean that action had been taken. He asked for confirmation.

Mr Mosia replied that there was a service fee paid on an annual basis. He confirmed that ICASA had now taken action by signing a contract. His reply to Mr Ainslie’s question on whether action had been taken against the person or persons responsible was not clear.

Mr Ainslie observed that as with the other matters the investigation would inevitably take a long time, and that the people concerned would redeploy themselves elsewhere, and in the end no action would be taken against them. This was the wrong kind of message that ICASA was sending to people in the organisation.  

The Chairperson asked for a report within two months on the matter. One could not appoint a service supplier on employee wellness and then take 12 months to find out what he had done wrong.

Mr Ainslie objected to the word ‘notwithstanding'. The PFMA and Treasury Regulations had been contravened. The use of this word meant that these issues did not matter since the project was successful.

The Chairperson asked what was meant by employee wellness. 

Mr Motlana replied that it was a lifestyle management programme to improve employees’ health by preventive measures.

The Chairperson observed that this was compassionate, but wondered if ICASA had a medical aid scheme. He was doubtful if the programme represented value for money, but did not want the Committee to enter more deeply into the subject. 

Performance contracts and bonuses
Mr Mbili noted a lack of performance contracts and asked again about performance bonuses (Annual Report, pages 112 and 144). On what were these performance bonuses based? In the absence of the performance contract with the Chief Executive Officer, there could hardly be performance contracts with other members of senior management. How did ICASA measure performance?

Mr Pretorius asked if a performance bonus was seen as a right (Annual Report, page 131). Or did employees merit performance bonuses? Was it their right to receive a thirteenth cheque?

The Chairperson observed that the entity had not signed a performance agreement and contract with the Chief Executive Officer.

Mr Mashile replied that the ICASA Board had been able to have an engagement with the Chief Executive Officer. It was the Board’s belief that the performance agreement and contract should be predicated by what should apply to the Board (council). It seemed that the Board (council) did not have a performance agreement. So the Chief Executive Officer thought that there would be a disjuncture, since he, the CEO, felt that what applied to the Board should ‘cascade down to him’ in respect of what he had to undertake with regard to his performance. It became ‘a kind of cul-de-sac again’.

The Chairperson detected again in the Board a sense of powerlessness when it dealt with management. Maybe there were other factors which made it so reluctant to exercise its authority? He asked Mr Mashile to continue.  

Mr Mashile replied that it meant that the Board needed to find a way to resolve this impasse. It was again a matter of being cautious rather than arbitrary. He did not deny that he should not have taken that approach, but he asked himself if he would be proven right.  He thought that lawyers might take the view that the Chief Executive Officer had been right.

Mr Mbili asked what informed the performance bonus.

Mr Mashile asked Mr Motlana to explain.  

Mr Motlana replied that on taking office in September he had a contract and had asked the Board for a performance agreement. However, the Board itself did not have a performance agreement in place. This was needed to inform his agreement. This resulted in the ‘to-ing and fro-ing’ and his apparent refusal to be party to signing a performance agreement in the absence of a performance agreement for the Board.

The Chairperson moved the discussion to the performance bonuses.

Mr Motlana replied that it had become an expectation of staff that they would receive a thirteenth annual pay cheque and a fourteenth as a performance reward.  ICASA had instituted a remuneration committee that took the award of bonuses outside of management. To date there had been a generalised award across the organisation.

Mr Mbili said that he did not think that his question was being answered (Annual Report, page 144). On what was the performance bonus based in the absence of a performance contract?

The Chairperson said that if one examined the figures it appeared that each person received a similar amount.

Mr Mosia replied that it was necessary to make a distinction between the Board (council) and the management. From the Board’s side there was no contract. However, at the general management level downwards there was a performance contract. Based on an evaluation, a payment had been made.  

Mr Mbili understood therefore that the general managers signed a performance contract with the Chief Executive Officer, but the Chief Executive Officer himself did not have a performance contract. Therefore, how did he earn a bonus? On what was it based?

Mr Motlana said that as he had said earlier he had raised it with the council (Board). The failure to enter into a performance agreement was not a failure on his part.

The Chairperson interpreted Mr Mbili’s question as on what bases Mr Motlana had been appraised in the absence of a performance agreement. 

The Chairperson noted that the Chief Executive Officer could, however, enter into a contract with the Chief Financial Officer.

Mr Mashile said that was really what it was. The performance award given to the Chief Executive Officer was really to reflect, notwithstanding the fact that there was no performance contract between the Board and the Minister and between the Board and the Chief Executive Officer, what he had actually achieved as assessed against the Board’s expectations. For all intents and purposes he had done what he was expected to do.

The Chairperson advised that it would be best to accept Mr Mosia at his word, that there had come to be a general expectation of a performance award.

Mr Barry Wheeler, Corporate Executive: Audit, Auditor-General of South Africa (AGSA), said that the Auditor-General had made it clear that one of the reasons why governmental departments and entities were not achieving clean audit reports was that ‘the tone at the top was not there’. The ICASA Act stipulated that the Minister must enter into a performance arrangement with each member of the ICASA council (Board). If that did not happen at that level, then it would be difficult to apply requirements for performance arrangements further down the hierarchy. This would remain an obstacle for ICASA to obtain clean audit reports in future. The PFMA made it very clear what the duties of a chief executive officer and accounting officer were. So it was not necessary to have a performance contract ‘going up’. With regard to the whole issue of the condoning of fruitless and wasteful expenditure, it was the Board and the accounting authority that had the power to take decisions to condone or not condone. In the process of finally submitting this to the Board, the decision needed to be taken as to who was negligent and should pay in for those incorrect decisions, and where there was carelessness what measure should be taken, before the Board could condone. Otherwise this carelessness would continue year after year. He believed that internal controls were a stumbling block that would prevent clean audits in future. If these issues were not rectified, ICASA would receive qualified audits in future. The focus in today’s meeting had been on the right issues. If these small issues were not rectified, then unclean audit reports for ICASA could be expected henceforth.

The Chairperson observed that the Chief Executive Officer was given a performance bonus without a proper evaluation. This indicated a lack of firm and decisive leadership in the Board (council). He wanted Mr Pretorius to move on.

Mr Steele asked why the total staff costs had risen (Annual Report, page 131, note 5). His arithmetic suggested that 12% to 13% was well in excess of salary increases paid to the rest of the public service and private sector. The increase for the Chief Executive Officer represented a doubling of salary (Annual Report, page 144, item 21). He noted that, because ICASA was a regulatory body, it had a monopoly. Therefore the Board, the executive authority, had an obligation to keep costs in check and comparable to those of the remainder of the public sector.  This was especially so with salaries for these were the one cost that the Board could control. He questioned whether the Board had exercised that kind of responsibility in keeping salary costs under control if these were the percentages that it was allowing.

Mr Mashile replied that he was not sure that the Chief Executive’s salary had doubled.

Mr Mosia said that the Chief Executive Officer had begun his service in September. There had been a comparison with the remainder of the year. The following year was actually the full year. In terms of the cost of staff, ICASA was in line with the public service. It was not really a high increase. There had been a review of the Board members (councillors) in consultation with the Department of Public Service and Administration (DPSA). ICASA’s staff complement had increased.

Ms Muthambi said that the Chief Executive Officer was required by the PFMA to have a performance contract with set performance standards. It was unacceptable to give a blanket bonus.

Mr Mashile explained that when ICASA had appointed the Chief Executive Officer there had been an agreement as to what was expected of him. It was on the basis of that particular employment contract (agreement) that ICASA reviewed the Chief Executive Officer’s performance over the year in relation to the Chief Executive Officer’s performance contract.

The Chairperson observed that the Chief Executive Officer should not have been given a bonus because there was no legal instrument by way of a performance agreement in place on which to evaluate him. It should not have happened. The Chief Financial Officer had sealed the matter. There was an expectation of performance bonuses.

Ms Mangena said that the Chief Financial Officer should not be blamed. The person who should pay the money back was the Chairperson of the Board himself.

The Chairperson said that Ms Mangena’s observation seemed like ‘a heavy stone’.

Ms Mangena said that if she were a senior manager herself, and, for example, she had paid out public money wrongfully to, for example, Mr M Malale (ANC), she would expect Mr Malale to accept it, and she would expect to have to repay the money.  

Members laughed.

Mr Malale said that the agreement between the Minister and the ICASA Board, and the agreement between the ICASA Board and the employees were separate issues.

The Chairperson said that Mr Malale was talking like an advocate.

Rental of buildings
Mr Pretorius said that the total budget of the entity from the state was R247 million. R27 million of that total went towards rental of buildings. These rentals amounted to 11% of ICASA’s budget. These buildings were in a ‘larney’ [superior] area such as Sandton. Were these value for money? Did ICASA know what it was paying per square metre?

Mr Motlana replied that ICASA was paying market rates. Part of the problem had been historical. ICASA had taken over Mobile Telephone Networks (MTN)’s offices. A high installation clause had been built into the contract. ICASA had conducted a location study. This had been an independent study which included ICASAs requirements for space. The study had identified cost-effective accommodation. At the end of the lease ICASA hoped to move to more cost-effective accommodation. ICASA had informed the Department of Public Works of its requirements.

The Chairperson asked when the Department of Public Works would respond.

Mr Motlana replied that ICASA hoped to know by June or July 2010. He said that ICASA had four other regional offices, but the bulk of the cost related to the offices in Sandton. 

Mr Pretorius commented that this was way above the norm and in Sandton there was a landlord smiling all the way to the bank.

Ms T Chiloane (ANC) asked on what basis Mr B Jooste, General Manager: Compliance, Risk and Audit, ICASA, had received a bonus.

Mr Motlana elucidated that Mr Jooste was mentioned on page 144 and on page 145. There had been a typographical error in omitting his second initial on page 145.

The Chairperson asked why Mr Motlana had not noticed this error before sending the Report for printing.

Mr Motlana apologised for the error. He further explained that Mr Jooste had served for a time in an acting capacity, and was compensated accordingly. It was however, as explained earlier, a uniform award. ICASA was working towards ‘externalising’ the assessment of awards.

Ms Chiloane asked if Mr Jooste was now permanent.

Mr Motlana confirmed that he was.

Mr Thobejane asked why Mr Jooste had apparently received a bonus twice – R73 000 and R30 000 respectively (Annual Report, pages 144 and 145).

Mr Motlana explained that Mr Jooste had not received a bonus twice. He had received an ‘acting’ allowance of R30 000 while he was a senior manager acting as a general manager.

Ms Muthambi clarified what Ms Chiloane wanted to ascertain. Mr Jooste had been appointed as General Manager: Compliance, Risk and Audit on 01 November 2008. Previously he was a manager at a lower level. The bonuses that were being paid were for 2007/08. She did not understand why he had received a bonus.

Mr Motlana said that the Committee’s understanding was correct. Mr Jooste was confirmed in his permanent appointment on 01 November 2008. Prior to that date he had been serving in an acting capacity and had been paid an allowance of R30 000. 

ICASA Administered Revenue Fund
Mr Pretorius, referring to the ICASA Administered Revenue Fund (Annual Report, pages 151-181), asked why ICASA was not able to provide a detailed analysis of who owed what. There were two accounting systems: J D Edwards and Spectrum Account. Why was ICASA running two separate accounts, J D Edwards and Spectrum for receiving these funds?

Mr Mashile acknowledged that ICASA had two concurrent systems for receiving these fees for the fund. ICASA had a separate fund for receiving radio frequency spectrum fees from that for receiving broadcasting licence fees. Due to certain qualities that the Spectrum System provided, with regards to all users of the frequency spectrum, it had certain qualities that were not inherent in the J D Edwards System, and this did not merit the marriage of the two. It was difficult to transfer all the information that came from the J D Edwards system into the Spectrum System. The Chief Executive Officer would explain the two systems’ merits and demerits. He acknowledged that it was difficult to maintain the two systems. There were serious limitations in terms of accounting in the Spectrum System.  As a result, ICASA was moving everything over to the J D Edwards System. It was safer to have one common system, the J D Edwards system, not withstanding the merits of the Spectrum System.

Mr Pretorius asked how far ICASA had progressed in moving to the J D Edwards System.

Mr Motlana replied that ICASA could not combine the two systems, so ICASA was now using the J D Edwards system for the receipt of all payments and accounting processes. The migration process would be complete by the end of May 2010. The details could be provided by the operational staff. 

The Chairperson asked why ICASA had come to have two systems.

ICASA responded that the Spectrum System was an old system which was managing the allocation of frequencies in the radio frequency spectrum. However, the Spectrum System did not have a satisfactory financial component.

Mr Pretorius asked if ICASA was confident that by merging the two systems it could correct the shortfall.

Mr Motlana was confident that this was so. The issue of the R41 million had arisen because ICASA had been unable to extract the information from the Spectrum System. 

Mr Pretorius asked if ICASA might expect another qualified audit for the ICASA Administered Revenue Fund for the period 2009/10.

Mr Mashile said that ICASA was working very hard to avoid such an outcome.

Mr Pretorus accepted ICASAs responses.

Mr Swana said that in his opinion ICASA was likely to get a qualification for the Revenue Fund, since as one migrated from one system to another there were big challenges.

Mr Pretorius asked about emphasis of matter (Annual Report, page 156, paragraph 10). Why were there different figures?

Mr Mosia explained a change of method. The spectrum licences ran from January to December, while the financial year ran from April to March.

Mr Pretorius said that this responsibility of the accounting officer was very important (Annual Report, page 157, paragraph 13). It was a basic requirement of the accounting officer to ensure compliance with the law and Treasury regularities. Those responsible must pay for their misdemeanours.

The Chairperson thanked Mr Pretorius. He was talking about things that he knew.

Mr Steele asked Mr Swana about the report of the Audit and Risk Committee. What were those reputational risks to ICASA? (Annual Report, page 109). He was sure that statement was not accurate.

Mr Swana replied that when ICASA issued decisions, it was likely to be challenged one way or the other. It was a fast and constantly changing industry.

Mr Pretorius asked about an employee in the Administered Revenue Fund section who was cautionary suspended on 29 May 2009 for allegedly committing fraud relating to the collection of frequency spectrum license fees, and concerning whom investigations were ongoing (Annual Report, page 161).

Mr Motlana replied that the official concerned had been dismissed and proceedings initiated.  

Mr Wheeler said that one had to be aware that there were a number of leases that required to be renewed on a monthly basis. There was a possibility of fruitless expenditure because furniture had been stored.

The Chairperson asked how many Board members (councillors) there were.

Mr Mashile replied that there were nine, including the Chairperson.

The Chairperson asked if it was true that one of the Board members had conflicts of interest.

Mr Mashile replied that this was correct and had been reported to the employers. In April 2010 ICASA had reported ‘yes’ to the Portfolio Committee on Communications. The ICASA Board had left the matter to the appointing authority.

Mr Vilakazi added that the matter was reported to the Minister towards the end of April 2010 and the Minister was dealing with it.

The Chairperson asked how it had come to this.

Mr Mashile replied that the Board member (councillor) had in this case disclosed in November 2009 certain interests which he had undertaken to dispose of. Such a councillor with conflicts of interest was not suppose to participate in decision-making processes. If he did participate, then all decisions taken by the Board in his presence would be rendered null and void.

The Chairperson asked if the Department was aware of these conflicts of interest when the Board member was interviewed in November 2009.

Mr Mashile was not sure if the Department was aware, but he was confident that the Portfolio Committee on Communications was aware.

The Chairperson said that it was unfortunate that the Chairperson of the Portfolio Committee on Communications was not present, since he would have wished to ask him why that Committee was not alert to the possibility of a conflict of interest. The seriousness of the matter was that in this situation all the decisions that the ICASA Board had taken in the presence of the Board member with conflicts of interest were null and void. Also one was not sure when the Minister would decide on the matter. He just hoped that the ICASA Board had not taken many decisions. 

The Chairperson thanked the ICASA Board and management, the Department and the Auditor-General of South Africa for their participation. Thanking the National Treasury, he noted that risk management required its presence. He noted that the Committee required that the ICASA Board must ensure action was taken and that necessary things were done. The same applied to the ICASA management. ICASA could surely have sought legal opinion if it lacked its own legal experts.

The Chairperson remarked on his personal concern that his telephone bill was not decreasing.

The meeting was adjourned.