Independent Communications Authority of South Africa 2009/10 Annual Report; Adoption of Committee Report on the Shortlist of Candidates for the Vacancies on the ICASA Council

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Communications and Digital Technologies

08 November 2010
Chairperson: Mr E Kholwane (ANC)
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Meeting Summary

The Chairperson and Chief Executive Officer of the Independent Communications Authority of South Africa briefed the Committee on the organisation’s annual report for the 2009/10 fiscal year and the performance report for the first six months of 2010/11.

The Chairperson gave an overview of the achievements during 2009/10 and gave details of the number of licenses issued, the number of complaints resolved, the regulations that were issued and the guidelines, frameworks, procedure manuals and charters that were finalised.  A new Chief Executive Officer, Chief Financial Officer and Council Chairperson were recently appointed.

The Auditor-General had issued a qualified audit opinion and raised a number of concerns.  The issues raised by the Auditor-General concerned accruals, opening balances of accounts receivable, commitments, irregular expenditure resulting from improper procurement procedures, fruitless and wasteful expenditure, restatement of corresponding figures, compliance with rules and regulations, control over the suspense account, daily bank reconciliations and inadequate internal financial controls.  An action plan to address the audit findings had been developed and details were provided.

The Chief Executive Officer presented a detailed briefing on the financial and non-financial performance of the Authority during 2009/10 and the report for the first six months of 2010/11.  Total revenue for 2009/10 amounted to R280.7 million.  Additional finance income was R4.6 million. Total expenditure was R279.2 million.  A surplus of R6.2 million was declared.  Total assets were R687.3 million and total liabilities were R554.6 million.  For the period April to September 2010, total revenue amounted to R146.9 million and total operational expenditure amounted to R130.1 million.

The non-financial performance indicators and achievements for licensing, compliance, engineering and technology, markets and competition, consumer affairs, complaints, compliance and litigation were provided.  The briefing included information on the management of income, expenditure, transfers and cash; asset management; financial systems; capital expenditure and the Medium Term Expenditure Framework (MTEF) requirements.  The briefing concluded with a summary of the strategic goals and objectives for 2010/11 and the strategic regulatory projects in progress and the short-, medium- and long-term interventions planned for the future.

Members complained that the briefing documents were not received on time, resulting in inadequate time to prepare for the briefing.  Members were critical of the lack of urgency in implementing the action plan to address the issues raised by the Auditor-General and strongly recommended that the planned action was implemented well before the end of the current financial year.  A progress report on the implementation of the action plan was requested by the end of December 2010. 

Members were highly critical of the report of the Chairperson of the Audit Committee, which refused to accept any responsibility for the comments made in the audit report.  Members wanted clarity on the statement in the report of the Audit Committee that the 2former Chairperson was afraid to discipline the CEO and the CFO”. Members suggested that the Authority focused more on achieving its vision, mandate and strategic objectives and less on administrative issues.  Members reported a number of complaints received by them concerning the lack of response to messages and complaints.

Other questions were asked about the items of fruitless and wasteful expenditure, the losses through fraudulent activity and the disciplinary action taken against the responsible employees; the reason for the delays in the payments to suppliers; the adequacy of the training provided to personnel in the finance department; the involvement of disabled persons in the advisory committee and what action was taken to improve the access of the disabled community to broadcasting services; what was done to protect children from cyberspace pornography and when the regulations for Digital Terrestrial Television would be issued.

The Committee unanimously approved the report on the shortlist of candidates for the upcoming vacancy on the ICASA Council.  The five short-listed candidates were Dr M Socikwa, Ms K Berman, Dr S Peruma, Ms NP Gongxeka and Mr CI Dauds.


Meeting report

Briefing by the Independent Communications Authority of South Africa (ICASA)
Dr Stephen Mncube, Chairperson, ICASA gave an overview of the performance of ICASA during the 2009/10 fiscal year.  The qualified audit opinion of the Auditor-General was regretted but had to be seen in the context of the challenges experienced by ICASA during the preceding years.  The presentation to the Committee included the corrective action plan developed to address the Auditor-General’s findings as well as the financial and non-financial performance of the organisation.

The Licensing and Compliance Division had issued a total of 164 broadcasting and postal services licenses.  A summary of the number of licenses issued per class was provided.  3,390 complaints were received, of which 62% were resolved.  A draft Compliance Procedure Manual was issued and the Universal Service and Access Obligations (USAO’s) were reviewed.  The Guidelines, Processes and Procedures in terms of Chapter 10 of the Electronic Communications Act were released. The frameworks for competition in the broadcasting sector and for interconnections and facilities leasing were finalised.  The tariff regimes of Telkom and the South African post Office (SAPO) were reviewed.  A number of regulations, guidelines and charters were issued.  The National Radio Frequency Spectrum Plan was published.

ICASA participated in several technical committees and collaborated with universities.  More than 400 workshops were held in addition to media interviews, meetings with stakeholders to respond to enquiries and site visits.  The reports on access to services for people with disabilities and consumer perceptions of broadcasting services were available to the Committee. 

The report from the Auditor-General had implicated the former Chief Executive Officer (CEO) and ICASA had sought legal advice to address the grave concerns that had arisen.  Operations were aligned with the King III principles and austerity measures to reduce expenditure were introduced.  ICASA participated in the amendments made to applicable legislation during the year.  A new CEO, Chief Financial Officer (CFO) and Council Chairperson were appointed.  Changes were made to the operational structure of ICASA.  An improvement in staff morale and renewed confidence in ICASA were observed.  ICASA had become more transparent and welcomed visits from the local and international Information Communication Technology (ICT) sector.

The vision and mission outlined in the presentation document remained applicable.  Eleven strategic objectives were identified and an organogram depicting the new organisational structure was provided.

Mr Themba Dlamini, Chief Executive Officer, ICASA presented the remainder of the briefing document to the Committee (see attached document).  The presentation included the demographic spread of the 363 ICASA employees and the non-financial performance indicators and achievements.  Details of the objectives, targets and achievements for licensing, compliance, engineering and technology, markets and competition, consumer affairs, Complaints and Compliance Committee (CCC) and litigation were provided.

Total revenue for 2009/10 amounted to R280.7 million.  Additional finance income was R4.6 million. Total expenditure was R279.2 million.  A surplus of R6.2 million was declared.  Total assets were R687.3 million and total liabilities were R554.6 million.  A breakdown of the revenue generated by the broadcasting, telecommunications, frequency spectrum and postal service sectors in the National Revenue Fund (NRF) was provided.

The briefing included a detailed explanation of and the action taken to address the audit findings, audit opinions and the Emphasis of Matter of the Auditor-General.  The issues raised by the Auditor-General concerned accruals, opening balances of accounts receivable, commitments, irregular expenditure resulting from improper procurement procedures, fruitless and wasteful expenditure, restatement of corresponding figures, compliance with rules and regulations, control over the suspense account, daily bank reconciliations and inadequate internal financial controls.

The Committee was briefed on the financial performance during the first six months of the 2010/11 financial year.  Year-to-date (April to September 2010) revenue amounted to R146.9 million and total operational expenditure amounted to R130.1 million.

The presentation document included annexures outlining the management of income, expenditure, transfers and cash; asset management; financial systems, capital expenditure, Medium Term Expenditure Framework (MTEF) requirements; the strategic goals and objectives for 2010/11; the strategic regulatory projects in progress and the short-, medium- and long-term interventions planned for the future.

Discussion
Adv J De Lange (ANC) thanked ICASA for the detailed presentation.  He complained that the presentation documents were received late and Members did not have sufficient time to study the information before the briefing.  One year ago, ICASA had a number of problems and the Members of the Committee were under the impression that the situation was improving.  He noted that a turnaround strategy was in place but he was very concerned over an apparent lack of a sense of urgency displayed by ICASA.  The problems at ICASA had existed for some time and it was vital to the communications industry that the Authority was functional.  The private sector cannot be blamed if ICASA was slow in issuing the necessary regulations.

Adv De Lange said that the report of the Auditor-General was a severe indictment of the executive management of ICASA.  The ICASA Council was responsible for the management of the Authority.  He noted that the Chairperson of the Audit Committee had stated in his report that the Auditor-General had placed no reliance on the information provided by the Audit Committee and admitted that the Committee had not been effective.  The Chairperson of the Audit Committee had not taken any responsibility and had blamed everyone else for its failure.  He considered the Audit Committee to be seriously deficient and incompetent.

Adv De Lange noted that many of the actions taken to address the matters raised by the Auditor-General would only be implemented in March 2011.  This would be too late to avoid another qualified audit report for the 2010/11 financial year.  Many of the proposed actions were relatively simple to implement.  The lack of financial control was a serious concern and ICASA could not expect to be respected by the industry if the organisation’s accounts were in a mess.  He suggested that the Council and management of ICASA focused on implementing the action plans as a matter of extreme urgency and requested a report to the Committee on the progress made by the end of December 2010.

Ms S Tsebe (ANC) said that it was difficult for Members to determine which of the 13 documents included in the information pack provided were relevant.  The summary of the briefing excluded mention of the challenges and problems and only listed the achievements.  The comments of the Auditor-General concerning the lack of financial control were a serious concern.  A number of issues raised by the Committee during oversight visits were not addressed.  Most of the blame for the lack of performance was placed on the former CEO and CFO.  She wanted to know what action had been taken before the report of the Auditor-General was received.  She noted that the former CEO had not signed the CEO’s report included in the annual report (see page 8 of the annual report).  She asked for a more detailed explanation on the fruitless and wasteful expenditure reported on page 155.  The Chairperson of the Audit Committee had stated in his report on leadership and governance that “the previous Chairman was afraid to take disciplinary action against management and the CFO” (see page 112 of the annual report.  She wanted to know exactly what was meant by this statement.

Ms M Magazi (ANC) noted an improvement in the format of the annual report.  She observed that certain of the matters raised by the Committee during earlier engagements with ICASA had been addressed.  She said that the ICASA Council had to ensure that all the financial concerns were effectively addressed.  The members of the ICASA Council had specific duties and responsibilities in terms of the ICASA Act, including conducting oversight over the management of the organisation, ensuring that policy was implemented and reporting to Parliament.  She asked for an explanation of the late payment of accounts payable.  Payment to suppliers had to be made within 30 days and late payments had severe consequences on smaller suppliers.  She asked for more information on the fruitless and wasteful expenditure reported on page 153 of the annual report.  She asked if any progress had been made with regard to the planned move to new premises.

Ms R Morutoa (ANC) asked if any disciplinary action had been taken against the persons responsible for the fruitless and wasteful expenditure items.  She asked what action had been taken to ensure compliance with rules and regulations.  She asked if the CEO had signed a performance agreement with the Council.  She observed that the presentation indicated an intention to address the issues but the Committee needed confirmation that the necessary action had in fact been taken.

Ms J Killian (COPE) acknowledged that ICASA had taken some steps towards addressing the weaknesses identified in the organisation.  She agreed with Adv De Lange’s statement that ICASA had to earn the respect of the players in a very competitive industry.  It was essential that ICASA exercised adequate control over its finances.  She questioned whether ICASA was measuring the desired outcomes as opposed to the activities.  An example was the large number of complaints received (3,390).  It was necessary to determine the reason for the complaints and consider if the regulations were at fault.  She questioned the need to hold more than 400 workshops.  She suggested that ICASA went back to basics and identified where the biggest impact could be made with the least amount of effort.  ICASA had a major influence over the delivery of ICT services, which was essential to meet most of the service delivery objectives of the country.  She felt that more emphasis should be placed on achieving the vision of ICASA instead of focusing on administrative matters.

Ms Killian asked who the members of the Audit Committee were.  She requested clarity on the comments of the Auditor-General concerning the leadership if ICASA.  She asked what action was taken against the persons responsible for the loss of R195,522 resulting from fraudulent activities (see page 116 of the annual report).  She asked for an explanation of the related parties controlled by ICASA referred to on page 141 of the annual report.

Ms N Michael (DA) noted that ICASA was considering replacing the current payroll system and wondered why the decision to replace the system was not taken.  The audit finding concerning the clearing of the suspense account indicated that staff had failed to adhere to basic procedures.  She asked if the staff in the financial department were properly trained.  Members of Parliament generally received many complaints from constituents and a number of the complaints received were about the inordinate length of time taken by ICASA to respond to complaints and enquiries.  She challenged the accuracy of the claim made that complaints were addressed within 30 days.  She asked what had transpired with regard to the issuing of pre-paid television licenses.

Ms W Newhoudt-Druchen (ANC) observed that a deaf person had last served on the advisory committee dealing with providing access to disabled persons to television broadcasts, cell phones and toll-free numbers in 2005/06.  The advisory committee appeared to be dormant and she wanted to know what action had been taken to resuscitate the committee and to ensure that the disabled community was represented.  No research was undertaken in providing access to the deaf and none of the previous recommendations made had been implemented.  She asked for a copy of the report concerning the provision of universal access services to be provided to the Committee.  The South African Broadcasting Corporation (SABC) was awaiting the regulations on Digital Terrestrial Television (DTT) and she asked when the regulations would be issued by ICASA.  She asked for more information on the partnerships entered into by ICASA referred to in the presentation.  The annual report referred to the need to protect children from the negative aspects of cyberspace and she asked for further clarity on the role of ICASA in this regard as children were still exposed to pornography on the internet and on cell phones.  ICASA had admitted that many schools lacked facilities, that IT skills were lagging and that many communities lacked access to broadcasting, internet and cell phone services.  The Committee wanted to hear what action had been taken to address these challenges rather than excuses and the administrative activities.

Mr N Van den Berg (DA) remarked that State-Owned Enterprises (SOE’s) generally had a problem with attitude.  SOE’s did not take Parliament seriously enough, which was an insult to the people of South Africa.  He was concerned that ICASA was repeating the same mistakes rather than addressing the problems effectively and making progress.  Most of the Councilors and management had been in place for some time and he was not convinced that the persons involved did not know how to carry out their duties.  He mentioned the example of one very important person in the communications sector who had been unable to contact ICASA’s licensing department for longer than four weeks.  None of the messages left were responded to and such lack of service was unacceptable and undermined the trust in the organisation.  He noted that ICASA was subject to a number of lawsuits and he asked what the reasons were for the legal action taken against the Authority.  The broadcasting standard had not been formally announced and he wanted to know if the implementation of DTT was on track.

Dr Mncube thanked the Members of the Committee for their constructive remarks.  He undertook to consider the comments and suggestions when compiling the progress report to the Committee.  He agreed that the sense of urgency had been lacking but he had noticed an improvement in attitude since his appointment.  The previous Chairperson had not left an exit report and it took some time to determine the challenges that had to be addressed with the full cooperation of the CEO and the councilors.  He agreed that the control over the financial aspects had to be related to the operations of the Authority.  The roles of the Council, the CEO, CFO and the Chairperson of the Audit Committee had been clarified and the financial management of the organisation had been improved.  Little actual wrongdoing was uncovered and most problems were as a result of the failure to implement the procedures in place.  Automated systems were not in place and it was time-consuming to ensure that the data was 100% accurate before it was entered into the new system.  The Chairperson of the Audit Committee had appeared before the Council and the former CFO was held accountable for the issues raised by the Auditor-General. He assured the Committee of his personal commitment to resolving the challenges at ICASA.

Mr Dlamini undertook to provide the Committee with a detailed report on the progress made to address the audit findings.  He advised that 80% of accounts from suppliers were paid within 30 days.  He advised that the lease on the premises occupied by ICASA had been renewed to October 2011.  The process to finalise his performance agreement had commenced.  Discussions on the performance targets and measurements were underway.  Complaints received were analysed and classified in order to determine the underlying causes.  A written report on the involvement of and the progress made in providing access to broadcast services to the disabled community, resuscitating the advisory committee, the issue of protecting children against cyberspace pornography and the access to internet services in schools would be submitted to the Committee.

Mr Tubane Mosia, Chief Financial Officer, ICASA responded to the questions from Members concerning the financial aspects.  The fruitless and wasteful expenditure were incurred when interest was charged by a supplier on the late payment of an account.  Staff were under the impression that equipment costing less than R3,000 did not require that three quotations were obtained.  A committee was established to investigate items of fruitless and wasteful expenditure and advised the CEO on the action that had to be taken.  The procedure allowing for invoices to be traced was not followed in all cases.  The fraudulent activity related to incidents of theft when one employee transferred payments to his own bank account.  Disciplinary action was taken against the employee and he was dismissed.  A criminal charge was laid with the SAPS, which was still under investigation.  The employee’s pension payout was being withheld in an attempt to recover the stolen amount.  He explained that ‘related parties’ meant the business conducted by the subsidiaries of a holding company.  He advised that no member of the staff or any councilor held a conflicting interest in any company.  The suspense account was only utilised under extreme circumstances, usually when license applicants had to deposit the license fee before an account number was allocated and did not provide any deposit reference details.  The process to clear the suspense account on a monthly basis had improved.

Mr Tsediso Gcabashe, Member of the Audit Committee, ICASA explained that he was a qualified chartered accountant and an auditor in private practice.  Two other members of the Audit Committee were qualified chartered accountants but the Chairperson and one other member had no accounting qualifications.  The report of the Audit Committee was included on page 111 of the annual report.  The report included the statement that the Audit Committee had made recommendations to the management of ICASA that were not implemented and had resulted in the audit findings.  ICASA had received a qualified audit report in October 2009.  The report was discussed with the CEO, the CFO and the other members of executive management.  The first meeting of the Audit Committee was only held in May 2010, after the audit for 2009/10 had commenced.

The Chairperson explained that the issue raised by the Members of the Committee was why the Audit Committee had not accepted any responsibility for the comments made by the Auditor General.  He asked that a response to the concerns raised by the Members and the reason why the CEO’s report was not signed were included in the written report to be submitted to the Committee.

Ms Magazi pointed out that there was not enough time to thoroughly explore the issue during the meeting.  She suggested that the Committee studied the awaited report from ICASA before taking the matter further.

Adv De Lange pointed out that the Audit Committee had acknowledged that the Auditor-General had not placed in store by the work done by the Committee and that the Committee had rated itself to be only 30% effective.  The ICASA Council needed to determine exactly where the fault lay and take the necessary action to ensure that a functional Audit Committee was in place.  He reiterated his earlier recommendation that the management of ICASA took urgent action to implement the necessary processes and procedures to address the audit findings.

Ms Tsebe remarked that the Audit Committee did not appear to be helping to resolve the Auditor-General’s findings.  She repeated her question about the alleged fear of the former Chairperson to take disciplinary action against the former CEO and CFO.

The Chairperson acknowledged that there had been a general improvement in the affairs of ICASA but it was essential that the matters concerning the lack of internal and financial control was addressed.  The Committee needed to know what the ICASA was doing about resolving the audit findings.  The Committee had to be satisfied that the Chairperson of the ICASA Council had the necessary authority over the management of the entity and was able to exercise that authority.

Dr Mncube advised that he had immediately become aware of the weaknesses when he took office.  He expressed confidence that the new CEO would effectively all the issues that had been raised.  He thanked the Committee for its input and gave the assurance that the Council will do everything in its power to address the matters that had been raised.

Adoption of Committee Report on the Shortlist of Candidates for the Vacancies on the ICASA Council
The Chairperson advised that the term of office of one of the councilors would expire in March 2011.  The vacancy on the ICASA Council was advertised and 24 applications were received.  The following five applicants were short-listed:
Dr Marcia Socikwa
Ms Katheryn Berman
Dr Sadhasivan Perumal
Ms Nomonde Pearl Gongxeka
Mr Cornwell Ismael Dauds

Ms Michael confirmed that the Democratic Alliance had no objection to the short-listed candidates.

Adv De Lange confirmed that the short-listed candidates were approved by the African National Congress.

The Committee Report was read by the Chairperson and was unanimously adopted.

The meeting was adjourned.



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