SABC 2009/10 Annual Report and SABC 2009 Investigation Report by the Auditor-General: interrogation

Meeting report

The Chairperson welcomed the South African Broadcasting Corporation (SABC) Board and the Deputy Minister for Communications, Ms Dina Pule, to the meeting. The Committee had requested to meet with the Board because it was their responsibility to oversee both government departments and state owned entities (SOEs). The Committee had looked at the SABC’s audit report and wanted clarity on some of the points.

Non-compliance with regulatory and reporting requirements, and usefulness and reliability of information given to the auditors
Ms L Mashiane (COPE) referred the Committee to page 64 of the Annual Report. She noted that the SABC did not have a formal, approved policy or procedure in place to monitor and report performance information. She asked why this was so and what they had done to address this situation. 

Dr Ben Ngubane, Chairperson of the SABC Board, replied that the SABC hoped to never have a qualified Audit Report ever again. All the non-compliance issues would be addressed to the best of the SABC’s ability. The Turnaround Strategy would address all the issues mentioned in the Report and would speak to performance targets and indicators set out in the SABC’s corporate strategy. The corporate plan was revised constantly in order to address new issues that arose. The SABC was still in the process of formulating a policy that would monitor and report on the entity's performance information.

Ms Mashiane noted that the quarterly reports presented by the SABC during the course of the year did not enable ongoing monitoring and evaluation of performance objectives, as not all measures and targets that were achieved were reported on a quarterly basis. She asked what the SABC had done about the situation so far.

Dr Ngubane answered that the Board was part of a ministerial monitoring task team that comprised of the National Treasury and the Department of Communications (DoC). The performance objectives had been fully reported on to the task team in the last two quarters. These documents were available to the Committee.

Ms Mashiane addressed the matter of the usefulness and reliability of information given to the auditors. The independent auditor's report showed that more than 50% of the SABC’s planned and reported targets were not specific in clearly identifying the nature and the required level of the entity's required level of performance. She asked how the SABC had addressed this problem.

Mr Desmond Golding, SABC Board Member and Chair of the Audit Committee, acknowledged that there was a lack of effective and transparent internal controls for performance management. The SABC was in the process of formulating a performance policy and framework.

The Chairperson asked why the policy and framework was not in place all along.

Mr Robin Nicholson, Acting Group Chief Executive Officer: SABC, answered that the SABC had a performance management system in place. However, the system did not comply with the Auditor-General's standards that were issued last year. This was the first audit of the SABC’s performance management system against the Auditor-General’s standards for performance reporting.

Mr N Singh (IFP) said that one of the ways to measure the efficacy of a public entity was to evaluate the targets that they set. The targets were supposed to be set by a department or the entity itself. If one looked at the SABC’s performance measurements, one would see that a number of targets had not been achieved and a number of them did not have timeframes. On page 19 of the Annual Report, under Technology, it said that the process for implementing support structures for systems was taking longer than expected and the completion of integration was due to end by September 2010. Has this been achieved? It was concerning that so many targets had not been met.

Dr Ngubane acknowledged that it was true that the SABC may have “overshot” itself in terms of trying to set too many binding targets. In the case of Digital Migration and the supporting technologies, it was still under consideration in the DoC. This affected the SABC’s ability to move forward with the programme.

Mr M Steele (DA) directed the Board's attention to the figures supplied on page 111 and 112 of the Annual Report, and specifically to remuneration paid to the staff collectively. The total remuneration paid to the staff for the years ended 31 March 2009 was R45 979 000 and the total amount paid to staff for the year ended 31 March 2010 was R36 708 000. He asked why there was a radical decrease in staff remuneration. 

Mr Nicholson referred the Committee to page 112, which showed that there was a settlement paid to Adv Dali Mpofu of R8 936 000 in the year ended 31 March 2009. This was a non-recurrent expenditure. The SABC’s executive team did not receive any increase in their basic remuneration in the course of the 2009/10 fiscal year.

Ms M Mangena (ANC) noted that Mr Hlaudi Motsoeneng had been appointed as a General Manager in the SABC. The SABC office was in Auckland Park, yet his office was in Bloemfontein. She wanted to know what Mr Motsoeneng was doing in Bloemfontein. What qualifications and skills did he have, given that the SABC had failed to develop the turnaround strategy that was promised to the Committee?

Dr Ngubane answered that the Group Chief Executive Officer (GCEO) was in a position where a lot of the senior management and regional management were in acting positions or in positions that were not fully established. The GCEO was put into a situation where he had to intervene in a number of areas within the SABC. He expressed the need to have people in regional offices so he did not have to go to different places to deal with stakeholder issues. This was why Mr Motsoeneng was placed in Bloemfontein.

Ms Mangena clarified that the problem was that when he was hired, it was said that he would be working in Auckland Park, but he clearly was not. Also, what were his qualifications?

Dr Ngubane replied that Mr Motsoeneng had always been working in Bloemfontein at a senior management level; he had not been appointed to Auckland Park specifically. Mr Motsoeneng had a very deep understanding of stakeholder issues. The SABC was not looking for academic qualifications; they were looking for people who could stabilise the entity's workforce.

Non-Compliance with Sections 50 and 51 of the PFMA
Mr M Malale (ANC) referred to page 64 of the Annual Report, saying the chairperson of the SABC Board acknowledged that certain systems were not in place and they did not have an approved policy in place to monitor and report performance information. The Public Finance Management Act (PFMA) required the chairperson, as the Accounting Officer, to set up certain systems. Either non-compliance was based on dereliction of responsibilities by the chair of the Board, or the lack of capacity within the SABC did not allow him to do what he was supposed to do. The SABC could not be expected to improve given the lack of policies and systems.

Dr Ngubane explained that the new SABC Board had taken over from the interim board in January 2010. The interim board had given the new Board a report, which showed that many processes had been started within the SABC, but had not been finalised. The new Board then tried to look at all the policies and systems that were in place to see if they were in line with compliance requirements and National Treasury (NT) regulations. A lot of work had been done in this area. It was incorrect to say that there were absolutely no systems and policies in place to monitor and report performance information. The Board was trying to upgrade the system. The Committee had to keep in mind that the new Board had taken over from the interim board in January and the financial year end was 31 March 2010. 

Mr Malale said that it did not matter when the new Board took over from the interim one. When a board was appointed they had to take the good and the bad of that entity. They could not say that they had just been appointed. They had to tell the Committee what they had done to address the matter.

The Chairperson replied that the Committee had to note that the interim board had not done its job and that was why the new Board had not found any policies when it took over from the interim board.

Mr M Mbili (ANC) asked how the lack of systems and timeframes affected the SABC’s vacancy rate. There were so many employees in acting positions.

Dr Ngubane replied that there were some employees that had been suspended and were involved in ongoing disciplinary cases, which meant that their positions were still occupied. Therefore, the positions could not be replaced yet. The SABC appointed employees quickly when the positions became available.

Mr Cedric Gina, SABC Board Member, added that the Labour Relations Act compelled entities not to appoint people until disciplinary hearings were finalised.

Mr P Pretorius (DA) referred to page 113 of the Annual Report. There were fourteen cases where losses were incurred through criminal conduct or irregular expenditure. Case 1 involved incorrect procurement procedures for an amount of R89 800 000. He asked if there were grounds for litigation in this case. He was concerned about the other cases where no action was taken against the financial losses incurred. These cases amounted to a total loss of almost R16 million. Why was no action taken?

Mr Nicholson explained that the first case reflected an irregular procurement process where debt collecting agencies were appointed to collect defaulting TV licence fees. The SABC believed that these were revenue generating contracts but the Auditor-General’s report pointed out that the procurement policy that was in place in 2007 defined them as “procurement of services”. Disciplinary action was taken against the manager in charge of procurement policy. There was no fruitless and wasteful expenditure and the SABC did get the revenue it anticipated it would get from the contracts. This was why there was no revenue recovery listed in the report on page 113. However, the person responsible for the transaction was given a written warning for six months.

The Chairperson noted that the amount of R89 800 000 was listed as a loss that was written off.

Mr Nicholson answered that it was “more or less” the way the report read; it was a question of the structure in which the SABC was required to report. He could say it was an irregular expenditure, but it did not lead to a loss in the corporation.

He continued saying cases 3, 4 and 5 were losses due to acquisitions for small items on productions such as boxing rights where matches were broadcast before the contracts were finalised. No disciplinary action was required because the process itself was fixed. Case 10 related to a contract with the National Broadcasting Company (NBC) in respect of certain procurements of foreign content. There was a renewal clause in the contract that allowed the NBC to extend its contract with the SABC for two more years without the approval of the Board. This was a deviation from the approval that the Board gave for the first three-year contract.

The Chairperson wanted to know who had signed the contract in the first place.

Mr Nicholson replied that Mr M Mbebe had signed the contract at the time.

Mr Pretorius asked if any employees had been fired or required to pay any money back to the SABC.

Mr Nicholson answered that some staff members' positions had been terminated and there were others in the process of having disciplinary action taken against them.

Mr Malale referred to page 16 of the Annual Report. The Report showed that one of the SABC’s goals was to optimise TV licence funding and to achieve a R987 million cash target for the 2009/10 financial year. This had not been achieved. Also, the Audit Report said that SABC’s marketing division had failed in reporting revenue correctly. Why was this so?

Dr Ngubane replied that the SABC had tried to resolve this matter by using a system that would capture the revenue from all divisions within the SABC simultaneously.  This system had not been in operation in the past. Therefore, revenue reporting had been very faulty.

Mr Nicholson added that the SABC achieved revenue of R868 million from TV licence funding, which was just short of the R987 million target. This information was contained in the financial statements. The economy was a lot worse than the SABC expected and households were under pressure, which meant that many could not pay their TV licences.

Mr Malale noted that the digital approach that the SABC was involved in was irreversible, yet they cancelled a contract with Digital Horizons for approximately R400 million.

Mr Nicholson explained that the SABC had issued a tender for the acquisition of a number of high definition broadcasting vehicles. At the end of the selection process there were two contenders; the first one was Sony and the second was Digital Horizons. The case was subject to litigation so he had to be careful about what he said.

Mr Malale assured Mr Nicholson that anything he said at the meeting could not be used against him by anyone.

Mr Nicholson replied that the Digital Horizon tender was R85 million more than the Sony tender. When the tender was awarded by the Board, they reviewed the tender process and found that there were procedural irregularities with the company that had tendered as Digital Horizons. The Board then decided to award the tender to Sony. This was subject to a number of forensic investigations and audits. Digital Horizon then took the SABC to court twice and failed both times. The SABC did not know how far Digital Horizon would take the matter but the SABC believed that it had a strong case against them.

The Chairperson asked the SABC to forward a report on the investigations to the Committee.

Dr Ngubane assured the Committee that they would forward the information.

Mr Malale asked the SABC to explain what international content acquisition entailed. He noted that some of these transactions happened without any approved business plan or adherence to procurement procedures. Who were these employees that did not adhere to the rules?  

Mr Golding answered that it related to the acquisition of content. He reminded Members that the SABC was a content driven organisation and they sourced their content domestically as well as internationally. This was an issue that related to policy, procurement and supply chain management. It was also an issue that SABC had been following up on through its internal audit systems. The SABC discovered that there were a few discrepancies and breach of policy around international content acquisition. The issue was also picked up by the Auditor-General. The matter has been referred to the Special Investigations Unit (SIU). 

Mr Malale noted that the SABC had entered into a contract with Trustco for R24 million. He asked the SABC to elaborate on this.

Mr Nicholson explained that when a mobile campaign was held on TV, there were normally three parties that were involved. This included the broadcaster, the service provider and the cellular company. The SABC had run a number of campaigns that were in violations of the Lotteries Act. They were unaware of this at the time.  One of the campaigns was Winikhaya on SABC 1. Trustco entered into a similar agreement with SABC 2, but SABC 2 decided not to continue with the campaign. The SABC felt that it was entitled to terminate the contract, which was for three years. Trustco contended this. The arbitrator felt that the SABC did not have a valid argument because they had continued with other premium rated SMS services. This was how the SABC lost R24 million. The SABC deliberated upon whether they should accept the loss or dispute it. The ongoing legal fees and SABC’s weak case against the judgement convinced them to settle with Trustco. He did not think that the line managers, at the time, understood how much risk was involved in that transaction.

Mr Malale noted that several former members of the Board did not declare their interests to the SABC. He asked who the people were that did not follow the laws of the country.

Mr Golding reminded Members that in the financial year under review, there had been three different boards.

The Chairperson asked Mr Golding to give the names of the board members that had not declared their interests.

Mr Golding referred Members to page 53 of the Annual Report.

The Chairperson noted that the page listed the members of the Board, but it did not say whether or not they had declared their interests to the SABC.

Mr Nicholson explained that Mr Golding was trying to tell the Committee that at various points in the year there were various levels of compliance across all three boards. At the end of July 2010, the new Board had five members that had not finished their declarations.

The Chairperson asked who the Board members were that had not declared by 31 March 2010. He wanted the names of old board members as well as new members.

Mr Nicholson replied that the audit findings as at 31 March 2010 listed Mr Nkomotana Motsepe, Mr David Niddrie, Mr Desmond Golding, Ms Felleng Sekha, Ms Pippa Green, Mr Cedric Gina, Ms Charlotte Mampane and Mr Solly Mokoetle as members of the Board that had not yet declared their interests to the SABC. At the end of July 2010, Mr Mokoetle and Ms Green had not declared their interests. Three of the members had resigned without completing their disclosure. This included Ms Barbara Masekela, Mr Niddrie and Ms Sekha. The other members completed their disclosures after the year end.

Mr Malale asked who was responsible for the SABC’s asset stock count.

Mr Nicholson answered that the SABC was a large organisation. Its assets consisted of furniture, art collections, computers etc.

Mr Malale interrupted Mr Nicholson saying that the PFMA was clear. It said the Accounting Officer or any other head of division within an entity was responsible for assets.

Mr Nicholson explained that the SABC had two critical areas for counting assets. One was that there was an annualised account of all the SABC’s technology equipment. Much of this was done on an IT system that recognised laptops and computers, but there was no physical count that was done. The other area of assets included equipment that was moved around a lot such as cameras in the newsroom. All of this equipment was Radio Frequency Tagged. The big challenge was taking stock of the SABC’s Intellectual Property (IP) assets. The SABC had never had a complete listing of all the assets they owned. This issue had since been addressed and the SABC was starting to handle its IP assets properly.

Mr S Thobejane (ANC) noted that the SABC had still not answered the question of who was responsible for the asset stock count and asset management within the SABC. Who failed to keep these records?

Mr Nicholson answered that each group executive was responsible for keeping track of the assets in their own division.

Mr Malale asked why the SABC had never had an approved fraud prevention plan in place.

Mr Peter Harris, SABC Board Member and Head of the Risk Committee, replied that when the new Board came into office, there was no fraud prevention plan in place, but there was a policy that was not being implemented. The Board was in the process of developing a comprehensive risk management strategy as well as a disaster recovery plan, disaster management plan and a broadcast continuity plan. The Board hoped to complete the risk management strategy by the end of January 2011.

Mr Malale noted that the Annual Report said it would take two years to complete this. He asked if this had perhaps been given too much time.

Mr Harris agreed that two years was too long. This was why the risk management plan would be presented to the Board by the risk committee in January. The SIU would also be assisting the SABC in developing the fraud prevention and risk control strategy.

Mr Malale said that the Committee was of the understanding that the SABC’s internal audit unit had undertaken its own investigations into employees using state resources for their own private use. He asked who these people were, what they were doing and where the investigation report was.

Mr James Mathebula, Acting Head of Internal Audit: SABC, replied that various forensic investigations had been conducted and it had been found that there were people using the SABC’s assets for personal use. A report had been issued and given to the SIU for further investigations.

Non-Compliance with Section 57 and 63 of the PFMA
Mr Pretorius referred Members to pages 64 and 65 in the Annual Report. He asked how the SABC was structured to handle compliance with certain legislation such as the PFMA and NT regulations. Was he correct in saying that there were various financial managers in all sections in the SABC that had to report to the Chief Financial Officer (CFO)? Was it correct that the “buck stopped there” when it came to compliance with NT regulations and the PFMA? Was it the CFO’s duty to ensure there was compliance?

Mr Nicholson answered that it was not the CFO’s duty according to the operating system that the SABC had been running for the past eight years. The finance heads reported to the group executive in the division. A proposal to change this system was before the Board currently.

Mr Pretorius asked if Mr Nicholson was implying that that the CFO did not have to take responsibility for what the laws had prescribed.

Mr Nicholson replied that he did not say that at all, he was merely referring to the type of operating system that the SABC used. He was responsible for the overall compliance with the PFMA.

Mr Pretorius clarified that Mr Nicholson, as the CFO, was accountable for the non-compliance issues that the SABC was guilty of.

Mr Pretorius said that Section 57(b) of the PFMA provided that officials within a public entity were responsible for the effective, efficient, economical and transparent use of financial and other resources. The independent auditors found that management did not always follow policies and procedures, and therefore did not use financial resources in an effective and transparent manner. He asked if the SABC would agree with this assessment.

Mr Nicholson answered that this question was also answered by the external auditor's report.

Mr Pretorius asked why the SABC had not complied with Section 57(b) of the PFMA.

Mr Nicholson explained that there were three fundamental factors that caused the non-compliance. Firstly, unless there were consequences for actions, they could not force people to comply. If disciplinary actions took eight or nine months to get off the ground, it was very difficult to have an effective deterrent. Secondly, the business that the SABC was in was a very fast-paced business. If business processes were slow, it would cause friction between compliance and running the business. This did not excuse many of the violations. Third, when the new accounting system came into use, it changed all of the work processes in the SABC. Since then, there has been transparency, but not compliance within the entity. The staff of the SABC knew what they had to do to ensure that the entity could become compliant; they had been trained on the PFMA.

Mr Pretorius referred to the NT regulation 33.3 on page 66 of the Annual Report. The auditors reported that although cases of financial misconduct were found, no submissions were made to the Auditor-General, the NT or the Executive Authority. He asked why this had not been done.

Mr Nicholson replied that information on disciplinary cases was not always available. Registers were kept by internal auditors on all these matters and were regularly submitted to the audit committee through the internal audit process. Subsequent to this finding, all submissions were made to the NT on a quarterly basis and were being forwarded to the Auditor-General. He admitted that the non-compliance with regulation 33.3 had been a reporting oversight on the SABC’s part.

Mr Pretorius referred the Committee to page 67 of the Annual Report. The auditors identified certain unlawful acts or omissions committed by persons responsible for the management of the SABC, which constituted reportable irregularities in terms of the Auditing Profession Act of South Africa. The matters were reported to the Independent Regulatory Board for Auditors. The irregularities related to instances and alleged breaches of fiduciary duties by certain members of management, and in failure to follow supply chain management. He asked who the members of management were and what had been done to address the issues.

Mr Nicholson answered that the reportable irregularities related to all of the matters where there had been irregular expenditure, fruitless and wasteful expenditure, and criminal acts. There was a process within the SIU where action would be taken against all cases.

Mr Pretorius referred to page 111 and 112 of the Annual Report, which looked at staff remuneration for 2008/09 and 2009/10. He noted that huge bonuses had been paid to the staff members in 2008/09. The bonuses for the financial year amounted to R3 732 000 in total. Fortunately, only one of the senior management and absolutely no executive directors received bonuses for 2009/10. However, the salaries in general seemed to have been inflated. At least nine people in the SABC received the amount of remuneration a Director-General would receive in public service. Have these salaries been benchmarked? Were they similar to salaries paid to staff in other government institutions? A remark was made on page 42 of the Annual Report that said the SABC had to balance the need to use remuneration and benefits as a means of becoming the Employer of Choice and the need for the sustainability of the SABC in the future. It was no wonder that people wanted to work at the SABC, as its salaries were very high.

Mr Nicholson replied that the SABC’s bonus system was designed to create a sustainable position where performance endured over a period of time. In order to do so, the SABC had to finalise and audit its financial statements before any bonus could be paid. The SABC’s performance had to be measured against its performance objectives and the financial output of the organisation. Part of the bonus was put away as a bonus that the employee would receive in future years. The SABC had been asked by the Portfolio Committee on Communications to provide Members with a list and breakdown of all the salaries. They would forward this to the Standing Committee on Public Accounts. He said that the SABC benchmarked their salaries and remuneration against the market place regularly. They used the Deloitte and Touche benchmark. Based on these benchmarks, the SABC’s remuneration was comparable to other public entities. He noted that the SABC’s performance had not been great for the past three years and this was why no bonuses had been issued. 

Mr Mbili noted that Mr Nicholson was saying that there were proper systems in place and that personnel had been trained accordingly in terms of the PFMA and NT regulations. However, there were still issues of non-compliance. There was a serious lack of leadership within the organisation. What was the SABC doing about it? What was the SABC doing to change employees’ attitudes?

Mr Golding answered that one of the fundamental points that he wanted to make was that the Board, including the compliance and governance architecture of the Board such as the audit and risk committee, had a duty to ensure there was adherence with policies and procedures that had proper corporate governance. They wanted to build capacity within the organisation. In the past, there was more focus on the assurance function. Now, the Board wanted to include the element of capacity building within the SABC. They wanted to focus on building a value-based organisation that was compliant with the PFMA and NT regulations. The Board would also take stern and strong decisions regarding those that transgressed the policies of the SABC.

Mr Mbili added that the Committee needed timeframes for when this would be completed. When would these policies be implemented? The Committee wanted to have a functional organisation. It was important for the SABC to be functional as they were using taxpayer’s money.

Mr Golding replied that the turnaround strategy would be presented to the Portfolio Committee on communications in two weeks time. The turnaround of the SABC would depend on whether the entity stabilise, rebuild its functions, and sustain itself. It would take approximately eighteen months to see if the entity was stabilising.

Mr Mbili asked the external auditors were helping the SABC to turn its strategy around.

Mr Golding explained that the external auditors were part of the SABC’s audit committee. The auditors helped the SABC to understand the complexities of governance issues. He added that the SABC was in the process of discussing whether they needed to have three external auditors or if they really only needed one.

Auditor-General’s Special Investigation Report
Mr R Ainslie (ANC) noted that in September 2009 the Auditor-General published an investigation into three matters within the SABC. The matters concerned supply chain management, fruitless and wasteful as well as irregular expenditure, and human resource related issues. It has been over a year since the report was published and it was time that the Committee received feedback from the Board as to what actions they had taken to address the concerns. He understood that many of the problems did not happen on the new Board’s watch, but the new members still had to account for what happened under the previous Board.

Supply chain management and the conflict of interest issues
There were various allegations that there were employees within the SABC that had business interests in other companies. The Auditor-General found that there were 1 465 employees that had interests in companies and close corporations as of March 2009. The rules were strict about employees having business interests outside of the SABC. Employees could neither directly nor indirectly have interests in another business or profession, nor do any other work part time or otherwise without the prior written permission of the GCEO. He asked if the Board had established how many of the 1 465 employees had received written permission from the GCEO.

Mr Gina replied that a turnaround sub-committee of the Board had been given the task to look at the issues raised by the Auditor-General. The sub-committee found that some of the matters were too sophisticated. They then recommended to the Board that the SIU should be invited to the SABC to help the Board understand the details of the Auditor-General’s findings. The SIU’s investigation was still in progress.

Mr Ainslie noted that Mr Gina’s answer implied that the Board had not established how many of the 1 465 employees had received permission from the GCEO to do business with other companies.

Ms Charlotte Mampane, Acting Chief Operations Officer: SABC, answered that an investigation had been conducted by the SABC and it was found that there were twenty cases that needed further investigation.

The Chairperson intervened, saying that the question was simple. The Committee wanted to know how many of the 1465 employees had received permission from the GCEO to do business with other companies.

Dr Ngubane replied that the Board did not have the information for the Committee, as they had not seen the report.

Mr Ainslie commented that unless the Board took immediate and concise action against employees and Board members that contravened regulations or broke the law, they were contributing to the culture of impunity, which already existed at the SABC.

Mr Mbili noted that Dr Ngubane had said that he had not seen the Auditor-General’s report. He asked if the Board was aware that the report existed at all. It was worrying that the Board has never seen the report. It forced the Committee to once again look at the leadership within the SABC.

Dr Ngubane replied that there was a report issued by Ms Mampane that looked at similar cases. However, the SABC had not specifically investigated whether the 1 465 employees had been given permission to have interests in other businesses.

Ms Mampane explained that the management team within the SABC had worked with the internal audit committee to look at the issues as per the recommendations in the Auditor-General’s report. Action had been taken against employees that had not received permission to do business with companies outside of the SABC. This happened immediately after the report had been published by the Auditor-General when the interim board was still in place.

Mr Ainslie asked how many of the 1 465 had contravened the regulation and what kind of measures had been taken.

Ms Mampane answered that twenty employees had contravened the SABC’s regulations. Out of the twenty cases, seventeen were being followed up by the SIU. The other three employees had already left the organisation.

The Chairperson asked if the rest of the 1 465 had received permission from the GCEO.

Ms Mampane replied that it was not a matter of whether they had received permission from the GCEO to do business with other companies; it had to do with whether they declared their interest.

Mr Ainslie told the Committee that it seemed that they were not going to get a clear answer from the Board. This was a bad start to the Committee’s interrogation of the Auditor-General’s investigation report. He wanted to proceed with the rest of the report.

Mr Gina asked the Committee to give the Board an opportunity to submit the information to them in a report.

The Chairperson said that he would allow the Board to submit a report.

Mr Ainslie clarified that the Board wanted a report on the 1 465 employees that had interests in other businesses, as well as a separate report on the twenty employees that the SABC had identified.

Mr Ainslie continued with the interrogation of the Auditor-General’s investigation report. He noted that the Auditor-General had identified two SABC board members that were directors or members of two companies that had received approximately R17 million as payment for work done for the SABC. This could be in contravention of section 50 of the PFMA, which stated quite clearly that a member of an accounting authority had to disclose any direct or indirect personal or private business interests. He asked whom the two board members were and if they disclosed their interests to the accounting authority.

Mr Gina replied that the SABC had confirmed that one of the board members did not have any conflict of interest. The other member was still under investigation.

Mr Nicholson added that the two members were himself and Mr Peter Vundla. Mr Vundla’s case was still under investigation. Mr Nicholson was declared free of conflict of interest.

Mr Ainslie noted that the Auditor-General found that there was a lack of a centralised register of employees’ interests. He asked if a register had been implemented.

Mr Gina answered that a register had been established as of 31 May 2010.

Procurement
Mr Ainslie stated that the Auditor-General pointed out that, in terms of section 51 of the PFMA, the accounting authority of a public entity had to ensure that the entity maintained an appropriate procurement and provisioning system. The Auditor-General found that since 2007 the SABC did not have a procurement policy in place. Had this concern been addressed?

Ms Mampane replied that the SABC had a procurement policy in place. The policy indicated processes that had to be followed by every procurement transaction undertaken by the SABC. There were different committees in place to ensure compliance with the policy.

Mr Ainslie stated that the Auditor-General’s investigation report showed that there was a list of 51 tenders that were awarded during the time the investigation was being conducted. The Auditor-General found that seven of the 51 tenders had not been approved in terms of the Delegation of Authority Framework (DAF). Out of those seven, four were for the Head of Audience Services that gave approval for the tenders to the amount of R112 million. He had not authority to do this. In two of the cases, it was the Group Executive Committee that should have given the authority. In the other two cases, it was the SABC Board that should have given authority for those tenders. The Head of Audience Services clearly exceeded his authority. Was any action taken against him?

Mr Golding replied that action had been taken and the person had been given a warning that was effective for six months.

Mr Ainslie asked if the person was still employed by the SABC.

Mr Golding answered that he was currently the Acting General Executive for Commercial Enterprises. This was a horizontal move from the position he had been in previously. It was done after the warning had expired. The person had the appropriate skills to lead the commercial enterprises division of the SABC.

Ms Mashiane said that it boggled her mind that certain people were still employed by the SABC and given extra responsibilities. It could not be possible that this person was the only person in the country that could do that job. The person should have been dismissed immediately.

Mr Thobejane added that it seemed that there were elements of corruption within the matter; it had to be properly investigated by the law enforcement of the country. The SABC had to open a case against this employee.

Mr Nkomotana Motsepe, SABC Board Member, explained that when the new Board came into the entity they were shocked at some of the things they saw. However, the Board had been constrained by time and could not resolve many of the issues that were identified. The case that was being discussed was about an employee, Mr Anton Heunis. At the point when the new Board came into place, the sanction on Mr Heunis had already been lifted. This happened five months before the new Board was implemented. The Board received a legal opinion on what would happen if they reviewed the sanction. The Board’s prospects at the time were not good.

Mr Ainslie continued his interrogation of procurement processes within the SABC. The Auditor-General noted various allegations about the appointment of consultants within the SABC. He referred to the establishment of a technology programme management office. The Group Executive Committee of the SABC approved the awarding of a contract for R10 million for this service. However, the former GCEO and the former head of legal and business advisory services signed off a contract in excess of R326 million. He was aware that action had been taken against the former GCEO. Was any action taken against the former head of legal and business advisory services?

Mr Gina replied that action had been taken against the former head of legal services. A criminal case had been opened, but unfortunately it had been dropped. The SIU had now been able to revive the case and they were ready to go to court.

Mr Ainslie noted that the group internal audit committee had also investigated the matter. They found that the former GCEO and head of legal services had contravened the PFMA, and that the former Chief Technology Officer had also contravened the PFMA. Was any action taken against the Chief Technology Officer?

Mr Gina answered that when the new Board came into place the Chief Technology Officer had already left the SABC, but the case had been handed over to the SIU.

Mr Ainslie stated that an investigation had been conducted on the matter and it had been found that there were other SABC employees that had also contravened the PFMA. He asked if these employees had been identified, how many there were, and if action had been taken against them.

Mr Mathebula replied that he was unable to comment on the questions posed by the Member.

Mr Ainslie wondered if this meant that the Board had not taken any steps to identify these employees.

Mr Gina answered that he wanted to reply honestly and say that no action had been taken by the Board to identify the employees.

Mr Ainslie asked if they had any idea how many employees had been involved in the matter.

Mr Gina asked if the Board could submit a report to the Committee that would provide the answers to the questions posed by Mr Ainslie.

Mr Ainslie commented that he was very disappointed that the SABC had not taken any steps to find out who the employees were and what the contraventions were.

Mr Nicholson replied that he had to apologise to the Committee as he was not aware of the legal opinion that the Committee was referring to. He could only comment on the awarding of the tender. There were a number of Group Executives involved in the process.

Mr Ainslie interrupted Mr Nicholson saying that regardless of whether he knew of the legal opinion gathered by the internal audit committee, he was still in possession of the Auditor-General’s investigation report. The Board should have been alarmed at the information contained in the report.

Ms Mangena advised the Board to read through the report the next time Auditor-General published one and to take note of the concerns raised in the report so they could be prepared for the Committee’s questions.

Mr Malale commented that if the Board did not want to give the Committee the names of the employees, then the Committee would find the names on its own.

Mr Ainslie stated that there was a serious lack of leadership within the SABC. Leadership, tone and attitude started at the top of the organisation, not at the bottom. It was mind boggling that the senior members of the SABC did not rush into an investigation as soon as they read the report. This had set a very poor tone from the top. Therefore, he was not surprised at the attitudes employees had at the lower levels of the organisation.

Mr Gina replied that there were two more employees that could possibly have been involved. These included Mr Ronald Jones, Mr Jan van der Velde.

Mr Nicholson added that the former GCEO and head of legal services were the two people that actually signed the contract. Mr Jones had left the SABC about a year ago, but Mr van der Velde still worked for the organisation.

Mr Ainslie asked if the SABC knew the extent to which Mr Jones and Mr van der Welde’s contravened the PFMA.

Mr Nicholson answered that he knew what both individuals did. However, he did not know they were implicated in the matter.

Mr Ainslie noted that this was because the SABC had ignored the Auditor-General’s report. This was where the SABC’s leadership issues started.  He wanted to move on to the next set of questions.

Fruitless, wasteful and irregular expenditure
Mr Ainslie addressed the matter of petrol cards and asked the SABC to explain its policy on petrol cards. The Auditor-General found that there was a policy in place for those that qualified to use petrol cards. However, use of the cards was not limited. Some of the figures for petrol used by certain employees were alarming. More than R11 million was spent by the SABC paying the amounts used by employees on their petrol cards. He asked if there was a policy in place now to limit and monitor the use of the petrol cards.

Mr Nicholson replied that there was a policy in place. Members of staff accountable for managing fleets of vehicles had high amounts on their petrol cards. These individuals were responsible for outside broadcasting van fleets. These people were using the petrol cards in the production of the SABC’s business of broadcasting. There were also managers that had fuel allowances for their cars. The original policy required that they should have a maintenance policy in place but some employees were including their maintenance plan in their fuel costs. This policy has since been amended and was awaiting final approval of the Board for implementation. The fuel cards would be removed in their totality. Line managers were responsible and accountable for their employees’ expenses. All expenses had to be approved by the line managers.

Mr Ainslie stated that he was confused. The petrol cards were still in use but the interim board had made a decision at the end of July 2009 to withdraw the cards. Why was it that the interim board’s decision had not been executed?

Mr Nicholson replied that the decision made by the interim board was not legally plausible as it was part of a package included in some of the employees’ contracts. He added that the aim was still to abolish the use of petrol cards and to regularise the employees’ remuneration. However, abolishing them now would impact on the employees’ contracts.

The Chairperson was still confused as to why it was taking the Board over a year and a half to implement the interim board’s decision.

Mr Nicholson replied that the employees’ contracts would have to be amended.

The Chairperson asked who the eleven employees were that were mentioned in the Auditor-General’s report when he spoke of the high petrol costs.

Mr Nicholson told the Committee that where there had been areas of abuse, those employees had been charged. He used the example of Mr M Mbebe, who used the petrol card to replace his gears in his car. He was charged for this.

The Chairperson asked the Office of the Auditor-General to assist the Committee.

Mr George Lourens, Business Executive: Performance Audit in the Office of the Auditor-General, replied that there was one member on the Auditor-General’s list that managed a fleet. The rest of the eleven individuals were not fleet managers.

The Chairperson asked if the Committee could be told who the eleven individuals were. He was aware of one employee, Mr Mbebe.

Mr Nicholson was embarrassed to say that he was not prepared for this question. He had the details in his office and would reply to the Chairperson’s question as soon as he had the information.

The Chairperson asked if the Office of the Auditor-General had the list of names.

Mr Lourens answered in the affirmative. The eleven employees included Mr Snuki Zikalala, Mr Amos Mabuza, Mr Ettiene Marais, Mr M Mbebe, Mr T Dlamini, Mr N Bonthys, Mr Kannemeyer (Transport Manager), Mr P Moloatsi, Mr Taunyane, Mr Rafowenzo, and Mr Yeye.

The Chairperson noted that the only fleet manager included in the list was Mr Kannemeyer.

Mr Ainslie asked if any investigations were conducted to see if any of the individuals abused the petrol card.

Mr Nicholson answered that an investigation had been conducted. From a finance point of view they reviewed the reasonability of all eleven individuals. In some instances the Board had discussions with some of the managers about the abuse of their petrol cards. Mr Dlamini had replaced his tyres two weeks before he left the SABC.

Human Resource (HR) matters
Mr Ainslie referred to the termination of the services of the former GCEO. He noted that the SABC decided to charge the former GCEO. He was disappointed that the SABC did not proceed with the charges. Instead, the SABC sat down with the GCEO, came to some sort of agreement, and allowed him to leave with approximately R14 million. The former GCEO was in clear contravention of the PFMA and should have been punished, but was given a golden handshake instead. He asked why the SABC did not proceed with the case.

Mr Golding answered that this was a matter that was resolved by the interim board. The new Board did not know what exactly the interim board and the former GCEO discussed and how they came to that particular settlement.

Dr Ngubane explained that the Board want to clean up and stabilise the organisation. The Board had not finished cleaning up the entity yet.

Mr Ainslie noted that the SABC had a watertight case against the former GCEO. This was a classic case of a contravention of the PFMA. He wondered if the Committee should meet with the interim board to find out what happened.

Mr Ainslie continued with the interrogation. He said that the Auditor-General had not been able finish its investigation. He had listed fifty allegations that not been investigated regarding fruitless and wasteful expenditure, supply chain management, and human resource issues. Had the new Board concluded the investigations into all fifty of the allegations?

Mr Gina replied that the SIU would be continuing with the investigations that the Auditor-General could not complete.

Mr Ainslie could not believe that every single one of the fifty cases mentioned by the Auditor-General had been handed over to the SIU. He did not think that all the cases were so serious that they had to be handed over to the SIU. Surely the SABC could also conduct its own cases?

The Chairperson stated that he did not want the SIU to talk at the meeting. If they had something to report, they would tell the SABC and the SABC had to tell the Committee. He warned that the SABC’s Board and management had to do better and not rely on the SIU.

Mr Ainslie asked if the SABC had been able to quantify the amount of irregular and wasteful expenditure that had been found within the entity.

Mr Nicholson replied that he had tried to calculate the amount. In his view, the losses amounted R187 million excluding the loss from the Siemens contract and stock impairments. Stock impairments probably added approximately R200 million to the total loss.

Mr Ainslie explained that Mr Nicholson’s calculations were wrong. He had included the Siemens contract. A cursory look at the Annual Report showed him that there had been a potential loss of approximately R700 million. After listening to the discussions held between the Board and the Committee, he added another R155 million to the total loss.  He reckoned that the total potential loss was well over R800 million. This figure did not even include the losses incurred from the petrol losses. The total loss was enormous and too much to comprehend.

The Chairperson noted that if the SABC added the losses incurred from the fifty cases identified by the Auditor-General that still had to be investigated, the total loss would increase by millions.

Concluding Remarks
Ms Mashiane said that the SABC had to look at the amount of money that had been lost in the context of the number of houses that could have been built with the money. He wanted them to think about this.

Mr Steele commented that the Committee had seen, from the Auditor-General’s report, rampant mismanagement, waste of funds and excess in all kinds of areas. The SABC had been run like a “cash cow” for the benefit of its senior staff and Board Members, and huge amounts of money had been wasted. He had not been assured by the Board that they understood the concept of fiduciary responsibility to their shareholders, or that they were looking for ways to reduce costs and the burden on taxpayers. He wanted to hear more about accountability. The Committee had to address the Deputy Minister and ask her what the Executive Authority’s view was on the accountability of the SABC. The Committee needed to know whether there was going to be accountability and what form it would take.

Mr Pretorius asked if the salary packages would be increased to allow for travelling to accommodate for the withdrawal of the petrol cards.

Mr Nicholson answered that some employees’ salary packages might be impacted negatively while others would be impacted positively. It depended on the distances they travelled.

Mr Thobejane wanted to remind the accounting authority that section 38-40 of the PFMA clearly outlined their responsibility. Section 81 of the PFMA highlighted what would happen if the Board failed to fulfil its duties. If an employee failed to comply with this particular piece of legislation, the Board had the duty to charge him/her. The Auditor-General had already done some of the work that the Board should have done on its own. The facts had been given to the Board. It was the Board’s turn to ensure that the culprits were named one by one and eliminated so that the Board could be left with a good organisation.

Dr Ngubane assured Members that the Board had taken to heart the discussion and suggestions made by the Committee. They would try their best. There were sub-committees that were meeting all the time to clean up the organisation and respond to the Auditor-General’s concerns. The Board was trying to revitalise its commercial enterprises by bringing in advertising revenue, which was improving slowly. The Board was also trying to establish a code of conduct and a pattern of good behaviour within the organisation. He recognised that they were behind schedule, but those initiatives took time.

The Chairperson noted that Deputy Minister Pule had heard the Committee’s discussion with the Board. He was sure that the engagement further emphasised the point that when entities appeared before the Committee, the Executive Authority had to be present at the meeting. At some point the executive authorities had to intervene to tell entities to be completely honest and transparent. He hoped that that Deputy Minister Pule had taken note of all the concerns raised by the Committee. SABC was the “employer of choice” since there was a lot of generosity on the entity’s part, which did not seem to be matched by the quality and timeous delivery on the part of those benefitting from the SABC, especially at the senior level. The SABC was affected by the same “virus” that was present in many entities in the public sector. The virus was the lack of appetite to act firmly and decisively against people who contravened policies, regulations and the laws of the country in the place where they worked. He did not know what the senior management’s problems were. The recent report by the Public Service Commission was reinforced by what was said in the meeting this morning. It was clear that disciplinary actions were no more than a slap on the wrist. He was sure that the Board had a lot of difficulties with the junior staff, especially when they had seen senior managers remain unscathed after being disciplined. With an absence of measures to discourage people from doing wrong, there was no incentive for people to do right. The Board had to take a closer look at SABC’s line managers. He did not think that line managers in public entities were held as accountable as they should be by senior management and the executive authority. This was especially important at the SABC.

Deputy Minister Pule thanked the Committee for the opportunity to address them. She also thanked Members for their questions and advice. She believed the discussion would sharpen the Board’s alertness in dealing with their responsibilities. She noted the lack of “outrightness” from the Board in response to questions posed by Members. From time to time during the meeting, she kept trying to tell them to be a little more forthright. As much as the Board was in its tenth month, there were senior executives that have been at the SABC for long. This was where intervention was necessary. The comments from the Chairperson on the SABC being the employer of choice and their delivery time were something that the Executive and the Board would be addressing. The new Board and the Executive had met at least once a month since the new Board was appointed because of the ferocity of the challenges experienced within the SABC. She hoped that the Board had listened to the Committee very carefully. She promised that they would try to improve the organisation, as some of the facts that she had learned during the discussion were shocking. She also noted the comments on the lack of accountability and leadership within the SABC. The Executive and the Board would work together to improve the entity’s monitoring mechanisms.

The Chairperson replied that this was the kind of tone that the Committee wanted from the Executive. They wanted the Executive to take responsibility for the departments and entities under their control. He thanked the Deputy Minister and the SABC Board, as it had been a fruitful and insightful engagement.

The meeting was adjourned.