ICASA progress report on Committee recommendations about its 2009/10 Annual Report

Meeting report

ICASA chairperson’s comments
Dr Stephen Mncube, Chairperson of ICASA, welcomed the input made by the Committee on the challenges reflected in the Auditor General's Report for 2009/10. It had helped them in the progress they had made thus far in re-engineering ICASA and in formulating their Strategic Plan. Issues such as ensuring that there was effective participation by the industry were being addressed and they were receiving submission from stakeholders constantly. ICASA was also visiting sites to ensure that they were conversant with where industry was going and also what consumers wanted. They were looking at persons with disabilities and taking a positive and holistic approach to their needs.

With regard to the concerns raised by the Committee, ICASA had adopted a short-term intervention to expedite corrective action. On the Corporate Governance issues that had been problematic they had appointed an excellent Corporate Secretary, Ms Maximilian Loate. The role clarification of the governance structure had been undertaken. The harmonisation of Head Office and the regional corporate offices had also been done. They had developed a matrix on the Auditor General’s Report and the progress report had been submitted on 20 December 2010 which they would unpack fully in the presentation.

ICASA's long-term Intervention Strategy included ramping up funding based on an Activity Based Costing (ABC) Model which was in the development phase. The strategy on the allocation of the frequency spectrum to support development goals was underway. There would be the appointment of an international research entity to look at the spectrum as it would be at the epicentre of matters that dealt with convergence and it was incumbent on ICASA to fully understand the issues involved.

They were also positioning ICASA in the Southern African Development Community (SADC) region and Dr Mncube noted that most of the operators ICASA regulated, operated in the SADC region and he emphasised the importance of co-operation in the region. He informed the Committee that as from 31 March 2011 he would be chairing the Communications Regulatory Authority of Southern Africa (CRASA ) Annual General Meeting which combined all SADC regulators and postal regulators. He invited the Portfolio Committee to attend this momentous occasion at which ICASA would be assuming this leadership role.

On the progress on the Audit and Risk Committee (ARC) Chairperson's Report, Dr Mncube said that initially there had been a refusal to utilise ARC members as part of a technical team to address any challenges identified during the Auditor General's audit process. However they were working together and a member of the Committee Mr Tsediso Gcabashe was present. ARC had been requested to provide the necessary support and the first technical team meeting was held on 23 February 2011.

Dr Mncube introduced Mr Themba Dlamini, the Chief Executive Officer, and ICASA Councillor Dr Marcia Socikwa. Mr Dlamini introduced the Chief Financial Officer, Mr Tubane Mosia.

Mr Dlamini said the presentation was divided into two parts, firstly a progress report on the Audit and Risk Committee's Chairperson's Report. The second part of the presentation was a matrix dealing with the issues raised by the Auditor General and the corrective action taken by ICASA and the progress that had been made to date. The two documents could be reconciled with each other and the first document covered issues not dealt with in the accompanying matrix.

Progress report on the Audit and Risk Committee's Chairperson's Report
Mr Themba Dlamini, the Chief Executive Officer, referred to the Annual Report 2009/2010 which alluded to the role of the previous CEO and his problematic relationship with the Audit Risk Committee (ARC). With the departure of the CEO at the end of August 2010, that chapter had been closed. Subsequent to his appointment as CEO from 1 November 2010, ICASA had adopted a new path to sort out the issues that had been raised by the ARC Chairperson such as poor leadership in the finance component, concerns about the CFO and the internal audit. The Executive Management team had attended courses on corporate governance and also an Executive Development Programme.

Mr Dlamini reported that the intervention included harmonising the relationship between the ARC and the finance committee. To improve the quality of the financial reports and anything that pertained to finances. A verification process had been instituted for quality assurance purposes. The Risk General Manager would look at the finances and it would also go to the ARC before being presented to Council for approval

Further interventions were the establishment of a budget and finance sub-committee of EXCO to review financial reports. Mr Dlamini reiterated that the Compliance, Risk and Audit General Manager would carry out a quality assurance check on all financial issues prior to approval by ARC and Council and emphasised that this would include the pre-determined objectives. He noted that the Auditor-General had raised the matter of the pre-determined objectives in that they were not clearly defined or measurable. The General Risk Manager would be looking at all the objectives in ICASA's core divisions and support services and ensure that they were measurable and time bound and that if the Auditor-General wanted to verify the information, it could be verified. The Internal Auditor would be responsible to execute risk based operational plans as approved by ARC and that would improve the internal problems that had been experienced.

Mr Dlamini stated that the heart of the qualifications in the Auditor-General's report for the past two years had been revenue issues around spectrum and the other issues were mostly Emphasis of Matters. He had introduced a dedicated Internal Project Management Team focussed on spectrum revenue and in consultation with the ARC technical team, they were investigating how to manage the matter. The Auditor-General's finding had been that no reliance could be placed on the information supplied or it was inadequate and as a result, he could not express any opinion. Mr Dlamini noted that there had been some improvement and this was reflected in the matrix document.

On matters raised about the CFO and the Finance Department, Mr Dlamini reported that an audit of the control environment of the Finance Department conducted by the Department of Communications (DoC) had been kick-started prior to his taking office. This had been initiated before ICASA could implement an internal process to assess the competence levels of management. The audit had been completed and they were awaiting the final report from the consultants appointed by the DoC. An individual development plan had been compiled for the CFO which would strengthen his financial skills and enhance effective leadership. Human Resources were assessing competence levels in the finance department and advising on appropriate interventions.

On the matter of the internal audit raised in the Annual Report, Mr Dlamini stated that they had strengthened that particular component to increase its effectiveness. Managers had undergone the corporate governance and executive development programme as indicated earlier. There had been problems in reporting but the reporting lines had been cleared.

In response to the Leadership and Governance issues raised in the Annual Report, Mr Dlamini said Council had created the position of Corporate Secretary to ensure compliance with good corporate governance and compliance with legislation governing the execution of their fiduciary duties.

Mr Dlamini noted that at the time that the ARC Chairperson had made the comments, the CFO had a draft action plan that had not been properly implemented. The Technical Task Team had a look at the technical plan of the CFO which had focussed on the control environment. At present there was an Action Plan that they had endorsed. The Technical Team would play the supportive role of monitoring and evaluating the progress made and if there were any red flags, they would convey this to the CEO and the Council.

Progress report on corrective action taken by ICASA on issues raised by Auditor General
Mr Dlamini noted that a progress report had been submitted to the Committee in December 2010 on the Auditor General's Management letter. The Auditor-General had made 37 findings and 95% of those findings had been completed and resolved. The remaining 5% could be attributed to policies that needed to be finalised before the end of the financial year and the issues involving spectrum. He emphasised that they were zooming into the spectrum revenue issues and the preliminary letters from the Auditor-General would indicate to what extent the problem had been dealt with. The auditors had looked at the closing balance of the previous year, as the debate had centred on the closing and opening balance, and they had been able to verify that the closing balance was accurate.

Mr Dlamini then introduced the matrix dealing with the specific findings of the Auditor-General, the internal control deficiencies that had been identified, the corrective action applied, the progress to date, the timeframes and the responsible persons (see details in matrix document).

Issues included problems with Supply Chain Management controls involving payments made later than 30 days after receiving the invoice. Transactions had also been recorded in the incorrect accounting period and Mr Dlamini stated that the corrective action adopted was that the financial year would close at the end of February to avoid invoices being received late.

Mr Dlamini noted the Auditor-General's finding that the auditors had been unable to verify the valuation and existence of the spectrum trade receivable opening balance at the beginning of the financial year and the corresponding payable to the National Revenue Fund (NRF) amounting to R24,4 million. Information in respect of the opening balance had not been supplied in time to the Auditor-General due to delays in the transfer of spectrum debtors. The Auditor-General had verified the closing balances as at 31 March 2010. Mr Dlamini commented that there were still some challenges involving spectrum.

Mr Dlamini noted the non-compliance with Treasury Regulation 17 which referred to uncleared revenue suspense accounts. Controls had been implemented to ensure that these accounts were closed on a monthly basis. They had also instructed Nedbank to reject customer deposits unless the correct reference number had been quoted as money had been received with no reference.

Mr Dlamini referred to the Predetermined Objectives or Performance Information. The Auditor-General had found that the indicators disclosed in the business plans had not been well defined and that variances between targets and actual achievements had not been explained in the annual performance report. He reported that the Auditor-General had conducted a workshop on the Audit of Performance Information (AoPI) to ensure compliance in the current year. They had to be measurable and achievable and there had to be a framework that informed its design. A policy on the management of Performance Information had been approved in January 2011 to guide the organisation moving forward. Mr Dlamini noted that in future, finance would not be audited alone but also performance information and if the performance information was incorrect, it would result in an automatic qualification.

Other corrective actions that had been undertaken were that bank reconciliations were now done on a daily basis and controls were in place to ensure complete and accurate disclosure of commitments, a consolidated strategic plan was in place for 2010/2011 and there was an approved policy on performance information. Problems with the assets has been resolved as were problems in the capturing of leave. The cell phone policy was being reviewed.

Mr Dlamini noted that ICASA did not have a pay progression system in place and this could affect their ability to retain experienced and knowledgeable staff and lead to poor service delivery. This issue was being addressed by the adoption of a total cost to company approach and negotiations to migrate to this system were underway. The issue of non-compliance with the petty cash policy was also being addressed.

Discussion
Ms N Michael (DA) congratulated the CEO on a job well done and stated that the work he had done thus far had been impressive. She added that it was a pleasure to receive a briefing document in time and that was set out so clearly. She enquired about the problems with the asset confiscation and the fixed asset register where it had been thought they were stock items but the items were actually confiscated stock. She assumed there was a special registry for those items and that they were kept separately. What regulations were in place as the items were not in the fixed asset register any more?

Ms Michael also wanted to know what checks and balances were in place when Nedbank rejected deposits when they did not have the correct references. Was ICASA informed as people were legitimately paying and there should be a follow up?

Mr N Van Den Berg (DA) echoed Ms Michael's in congratulating the CEO and commented that it was elementary managerial stuff that should have been implemented in the beginning at ICASA and that in a few months’ times it would be apparent from the industry whether ICASA was independent and effective. He also shared the concern expressed by Ms Michaels on Nedbank declining payments made without references.

Ms A Muthambi (ANC) commended the entire ICASA team for a sterling job and she hoped they would report a 100% resolution of the issues raised in the Auditor-General's management letter soon. She referred to the reference to the control weakness identified around the capturing of leave in the matrix document and said that there had been an error with regards to the date which stated that leave was being electronically made effective as from the First December 2009.

Ms Muthambi referred to the matrix again and raised cell phone allowances to staff who did not qualify and inconsistencies in the way in which the policy was applied. Her understanding was that a review of the policy was not necessary and the allowance should just be taken away from those who did not qualify for the allowance. This amounted to irregular expenditure and the cell phones should be recovered from those who did not qualify.

Ms Muthambi referred to the irregular expenditure disclosed in the Annual Report and she asked what processes had been implemented to address the issues. If there was irregular expenditure, someone had transgressed the law. There were huge amounts involved and she had expected a progress report on the matter .

On the material losses due to criminal conduct, Ms Muthambi noted that a criminal case had been made against the person and that the money had been recovered from the individual’s pension fund. She requested feedback on the matter and asked if the money had been recovered.

Ms Muthambi also enquired about the contingencies and liabilities in terms of the court cases against ICASA reported in the Annual Report. She wanted clarity on the nature of the R4 million recorded and the number of the losses in order to link it to ICASA's Performance Indicators. She questioned why there had been that many lawsuits.

The Chairperson commented that a broader issue he was interested in, related to the Risk Committee and the fact that they had identified transgressors but they lacked the authority to deal with that particular problem. He asked how that was being managed as the structures had been in place but no action had been taken.

The Chairperson referred to the matrix document and that Mr Dlamini had noted that challenges remain. He wanted greater clarity on what the challenges were especially those referring to the spectrum revenue. This was important in order for the Portfolio Committee to perform its oversight role and to monitor whether progress was being made.

The Chairperson enquired about the persons who were on the procurement committees and how often they were rotated. He commented that the tendency was for these people to stay and end up having businesses themselves. Abuse of these positions had become a problem in departments and government entities.

Mr Dlamini said that he would respond to the high level issues and the CFO would respond to the details. He commented that ICASA used a supply chain management policy that was derived from National Treasury and the role of the bid evaluation committee was clearly given. There were two types of committees and membership was not permanent. Secondly, all the supply related bids came via his office. What he would normally do, was to look at the composition of the committee not on the basis of their role but on the basis of their technical expertise in relation to a particular bid. He rejected bids on the basis of the people not having the expertise to express an opinion and this he had done in the case of a bid on software for example. There was a further control in that he as CEO had a particular threshold and anything above went to the Council.

In terms of transgressions, under normal circumstances the Labour Relations Act was followed and National Treasury had rules for handling financial misconduct. There was a legal division in ICASA from which legal advice could also be received. Once a transgression had been identified, there was a timeline in which to address that transgression. If it was not addressed in that specified period of time, it would become something that could not be managed and this had to be avoided.

In terms of the lawsuits against ICASA, he did not want to speculate till he ascertained the correct information. He made a commitment to analyse the remaining 5% of issues raised by the Auditor-General and to submit a report to the Portfolio Committee.

On irregular expenditure, Mr Dlamini said there were Treasury regulations enabling them to deal with irregular expenditure. There was a mini SCOPA in ICASA and all the divisional managers could identify an irregular expenditure and bring it to the executive, chaired by the CEO, who would analyse the misconduct and give a directive on that basis. If it meant immediate suspension of an individual, a recommendation was made and there was a collective approach when dealing with irregular expenditure. In basic cases where it could be deducted from a person's salary, the law allowed this to be done.

On the cell phone allowances, Mr Dlamini stated that it was a matter of inconsistencies but the inconsistencies could also be about how the policy had been crafted and how it had been implemented. The review of the policy would deal with the issue comprehensively and address the inconsistencies. Where this had happened, individuals had to reimburse the organisation and this was standard practice everywhere. He gave an example of people doing fieldwork in the regions who needed to be accessible at all times. The policy had to be reviewed to increase their allowance and not done as a stop gap or the Auditor-General would object as it was not in the policy.

In response to the queries about Nedbank, Mr Dlamini said they received such communication but they had also proactively developed a Pro Forma to inform people of the problem so that ICASA did not lose out on potential revenue that it had to receive.

In terms of the confiscated assets, Mr Dlamini stated that a register was kept. Some of the assets that had been confiscated had been due to the irregular behaviour of some individuals. There was a disposable committee within ICASA as the assets had to be disposed of, after a certain time. The assets were not recorded on ICASA's books and were not reflected in the annual report.

The CFO, Mr Tubane Mosia, gave further details as requested. He said that the date of the First December 2009 for the electronic capturing of leave was correct. The Audit period had commenced from the first of April 2009 and in between there had still been transactions that were done manually.

On the progress on the criminal case, Mr Mosia said they were working with the police who were doing the investigation and once the paperwork was completed, the full claim would be submitted.

With regards to the rotation of the bid allocation committee, Mr Mosia stated that the policy said it was two years and they were appointed by the CEO via the executive. It was rotated in April 2009 but three members of the previous committee had been retained, including himself, for the purpose of transferring skills.

The Chairperson asked if the CEO had said that he did not have the details of the lawsuits and that he would report back on that.

Dr Socikwa replied that the General Manager: Legal was not present and that he would have the exact figures of court cases. She said that many were rollover cases from previous years that had not been concluded and had accumulated over time. The General Manager: Legal, would submit a report with all the details.

The Chairperson indicated that this would be useful.

Mr Mosia reminded the Committee that there were legal matters and sometimes the costs could not be pre-determined. It was not easy to estimate costs but a figure had to be disclosed for audit purposes and that  resulted in contingencies and liabilities.

Ms Muthambi said the Committee was mindful of that but they wanted to understand the nature of what was happening as it had been recurring in the Annual Report and they wanted to know why there was so much litigation.

The Chairperson observed that it was part of the Committee's oversight role to understand what was happening.

Mr van den Berg referred to the availability of the spectrum allocation and asked when they would have clarity on those matters. He commented that further developments in the industry showed that people were waiting to get their hands on spectrum and nobody could do anything till then. The big role players were in the starting blocks waiting for things to happen and they all wanted an equal chance. He wanted to know if there was going to be an auction. He observed that spectrum in South Africa was like a ghost that people heard about but no one had ever seen.

Ms A Ndlazi (ANC) commented that only senior management seemed to sign performance agreements and she asked what the DoC's policy was on performance agreements for councillors.
 
Dr Mncube commented that Mr van den Berg had raised something very constructive. They had attended the GSMA Mobile World Conference in Barcelona with the CEO. They had not been passionate about broadband and they had challenged Dr Socikwa as she had been passionate about it. After they had gone to Barcelona they were convinced that she had been right. The process of broadband and whatever permutations that would lead to including an auction of spectrum would take place and he said that Dr Socikwa could elaborate further.

The Chairperson said that Dr Socikwa should also elaborate on the leasing out of spectrum by Sentech which had been reported to ICASA but nothing had been done.

Dr Socikwa said that an auction of spectrum had been intended in this financial year but that there had been many challenges one of which was finding a suitable spectrum specialist to conduct the auction. They did not come cheap and one was eventually found for roughly R3 million but in terms of the law, the Minister of Communications must approve a specialist sourced from abroad in terms of the Electronic Communications Act. This was the process being followed and if all went well a spectrum specialist would be appointed this financial year. In terms of how much spectrum was available, there was 125 Megahertz available in the 2.6 band. That was the one that almost everyone wanted but there was not enough and that was why it had to be subject to an auction in terms of the Electronic Communications Act. In the 3.5 band which was also sought after by industry, there was only 28 Megahertz left. Telkom had 36 as did Neotel. In terms of the 2.6 band Sentech had 15 Megahertz and so did WBS. In total, Sentech and WBS occupy 65 Megahertz on the 2.6 band.

There had been many concerns raised by the 15 Megahertz held by Sentech and ICASA had engaged with them and had transferred the matter to the Technical Task Team. There had been an agreement whereby Sentech leased out the spectrum which was highly illegal and legal papers had been sent to ICASA contesting the claim. ICASA was concerned and had asked the Technical Task Team to expedite the matter and at the same time ICASA had asked for all the documents from Sentech. ICASA had asked a competent tribunal to adjudicate on the matter.

Mr Dlamini contextualised the spectrum issue and said firstly, the world was moving into this space. The heart of mobile broadband services could not take place without the availability of spectrum and as a country we did not have a choice. Secondly, from the Congress in Barcelona it was quite clear that there were challenges in some regions and this was the case in the SADC region. There was a general consensus that one could not have mobile oriented connectivity without honing into the availability of spectrum. In terms of the specialist that would be appointed (as indicated by Dr Socikwa), that would be done through the supply chain management process and this would entail the approval of the DoC and the Minister of Finance. ICASA would also have to justify the rationale for appointing an international organisation above a local organisation. The Minister had raised these issues with ICASA and they were busy with a response.

Mr Dlamini said that performance agreements were in place and the total cost to company would assist in streamlining the deliverables of each and every manager. In terms of the Councillors there was a process underway with the DoC, the Chair and the Councillors to look at what the Minister wants to see ICASA doing and this would inform the Corporate Strategy which would be presented to the Committee in March 2011.

The Chairperson commented that the Committee appeared happy at the improvements by ICASA since their last presentation to the Committee but that the jury was still out moving forward. He requested a full report on the Sentech issue when they presented their Strategic Plan. He said the problem reflected that ICASA still had challenges in terms of licence conditions which they had to monitor. If it took that long for them to resolve the issue, it cast doubt on their ability to monitor effectively. The Committee would also engage with Sentech about their leasing spectrum to other people.

Dr Mncube thanked the Committee for their conviviality and stated that on 15 and 16 March 2011, ICASA would be hosting a conference with persons with disabilities in Gauteng and the Committee was invited to attend.

The Chairpersons thanked the delegation from ICASA and the meeting was adjourned.