Department of Communications & Sentech Annual Report 2011/12

Meeting report

The Chairperson noted the apologies of the Minister and Deputy Minister of Communications. 

The Committee was briefed by the Auditor-General of South Africa (AGSA) on 9 October 2012 on the audit outcomes for 2011/12 of the Government Communication Information System (GCIS), the Media Development and Diversity Agency (MDDA), the Department of Communications and the State-owned entities in the Communications portfolio.  The Auditor-General had made certain recommendations to the Committee.  The Committee had requested the entities concerned to include a detailed response to the audit outcomes in the briefings on the annual reports.

Briefing by the Department of Communications (DOC) on the 2011/12 Annual Report
Ms Rosey Sekese, Director-General, DOC presented the briefing to the Committee (see attached document).

The current Minister of Communications, Ms Dina Pule was appointed in October 2011.  The briefing included an overview of the mandate, mission statement and vision of the DOC; a general overview of the priorities and performance of the Department; the key challenges in achieving certain targets and the progress made in fostering collaboration with the Information, Communications and Technology (ICT) industry.

Progress reports on the Department’s six flagship projects were provided, i.e. the provision of broadband services; Broadcasting Digital Migration (BDM); e-Skills; rural connectivity and the Postbank. 

The briefing included a detailed overview of the Department’s six programmes, i.e. Governance and Administration (Programme 1); ICT International Affairs and Trade (Programme 2); ICT Policy Development (Programme 3); ICT Enterprise Development (Programme 4); ICT Infrastructure Development (Programme 5) and the Presidential National Commission on Information Society and Development (ISAD) (Programme 6).  The Department had achieved 70% of the targets set for 2011/12.  Achievement of the targets was adversely affected by the review of the organisational structure during the year.  The National Treasury had approved the implementation of the new organisational structure in 2013/14.  Details of the targets, achievements, status and reasons for variances were provided in the annexure included in the briefing document (see pages 59 to 112 of the attached briefing document).  The annexure was not covered in the verbal briefing.

Mr Sam Vilakazi, Deputy Director-General: Administration presented the report on the financial performance of the DOC for the 2011/12 fiscal year.  Total revenue amounted to R4.33 billion.  Total expenditure was R1.79 billion.  The total amount transferred to the National Treasury was R2.54 billion, including an amount of R211 million which was under-spent on the broadband, Digital Terrestrial Television (DTT) and other projects.  The final appropriation for 2011/12 was R2 billion, of which R1.4 billion was transferred to the subordinate State-owned entities (SOE’s).  Details of the transfer payments to each entity were provided.

Ms Sekese presented the Department’s response to the briefing on the audit outcomes for 2011/12 by AGSA to the Committee on 9 October 2012 (see pages 48 to 55 of the attached briefing document).  The additional information provided pertained to the findings concerning governance; irregular expenditure; Operation Clean Audit; leadership and human resources.

Discussion
The Chairperson acknowledged that the Committee had not adequately addressed the issue of vacant posts in the Communications portfolio over the previous three years.  The issue had remained unresolved since 2009/10.  The relatively recent appointment of the current Minister was not at issue.  The Auditor-General had allowed a period of two weeks for errors and omissions to be corrected and the Department could not claim that the findings were unfair or incorrect.  The Committee had previously requested the Department to provide data on geographical coverage, not only the percentage of population coverage, so that the status of rural connectivity could be assessed.

Ms R Morutoa (ANC) asked for clarity on the statement made by the Director-General that the Auditor-General had created the impression that the DOC had not submitted corrections to the annual financial statements on time.

Ms Sekese withdrew the statement. She said that the intention of the DOC was to have a good relationship with AGSA.

Ms L Van der Merwe (IFP) found that the briefing by the DOC did not include sufficient details of recruitment efforts and the filling of vacant posts.  The Appropriations Committee had reported that the targets set by the DOC had not been met.  She asked what the timeframe was for implementing the new organisational structure.  She asked if the DOC monitored the expenditure rate of the SOE’s and if any measures were in place to prevent ‘fiscal dumping’ at the end of the financial year.  She wanted to know what plans were in place to address the ongoing problems at the South African Broadcasting Corporation (SABC) and the Independent Communications Authority of South Africa (ICASA).

Ms J Killian (COPE) asked for comment on the report of the Appropriations Committee that the DOC had failed to attend meetings of the Committee.  It was important to consider the audit outcomes of the prior year when assessing the performance of an entity.  The Director-General had stated that progress had only been made after the appointment of the current Minister.  She asked what action had been taken by the executive management of the DOC to address the audit findings for previous years.  The Auditor-General had reported serious management deficiencies.  Only 70% of the targets set had been achieved.  She asked if the objectives were measurable, if the targets were clearly formulated and what the benefits were for the country if the targets were met.  She noted that a number of international conferences and workshops were attended but it was not clear what the outcomes were and what the benefits were for South Africa.

Referring to the 2011/12 annual report, Ms Killian observed that the Auditor-General had commented that proper records to support the annual financial statements had not been kept (see paragraph 20 on page 102 of the annual report).  The same finding was made for the previous year.  The finding concerning expenditure management was that the accounting officer did not take adequate steps to prevent irregular and fruitless and wasteful expenditure as required by the applicable legislation.  Disclosure note 30.2 on page 148 listed incidents of irregular expenditure but the status of all disciplinary steps taken or criminal proceedings undertaken was shown as “in progress”.  Note 30.1 indicated that irregular expenditure of R116.7 million (R115.4 million incurred in 2011/12) awaited condonation.  She was concerned that no further action would be taken once the irregular expenditure item had been condoned.  She wanted to know why charges were not laid against officials responsible for legal transgressions.  The failure to take action jeopardised foreign funding for projects and sponsorships.  She asked who had approved the irregular expenditure of R31.3 million (note 30.3).  The expenditure was regarded as irregular because procurement procedures were not followed and was condoned by the Departmental Bid Adjudicating Committee.  Note 31.2 gave an analysis of fruitless and wasteful expenditure, including R34,000 for duplicate air tickets, R128,000 for the cost of no-shows, R429,000 for damaged rented vehicles and R467,000 for security for the 112 emergency call centre.  She asked why officials were allowed to incur such wasteful expenditure.  The Auditor-General had cited a lack of leadership, setting the wrong tone and the unwillingness to prosecute officials as the reasons for irregular and fruitless and wasteful expenditure.

The findings of the Auditor-General concerning human resources management and compensation listed contraventions of the Public Service Regulations, including the failure to fill funded vacant posts, overtime compensation to employees in excess of 30% of their monthly salaries, making appointments to unfunded and unapproved posts and the failure of senior managers to sign performance agreements.  She asked for an explanation for the findings.  She asked if criminal charges were laid against the four senior managers who had resigned before disciplinary action could be taken against them (see page 52 of the briefing document).

In her overview of the Department, the Director-General referred to “some of our detractors” (see page 14 of the annual report.  The Committee had an oversight responsibility over the Department and she hoped that the Members of the Committee were not regarded as “detractors” when questions were asked of the DOC.

The findings of the Auditor-General concerning financial and performance management found that action was not taken to reduce the risk of non-compliance with supply-chain management regulations (see paragraph 32 on page 102).  She asked what the consequences were for non-compliance.  It was necessary for senior management to take the lead and ensure that action was taken against officials implicated in financial misconduct and that officials accepted responsibility for abiding with the laws and regulations.  There were previous findings concerning irregular expenditure and corrective action had not been effective.

The human resource management report on page 176 of the annual report indicated disturbing trends in human resource management.  Employees must be held accountable for their performance and should not be rewarded with bonuses for simply doing their jobs.  She asked why 53% of senior management staff had received bonuses when there was no evidence of exceptional performance by the Department.  The population continued to suffer poor and interrupted communication services and had not experienced any benefits from improved service delivery by the Department.

Ms M Shinn (DA) asked if any effort was made to recover the irregular expenditure of R31.3 million before it was condoned.  She wanted to know how many employees were involved in the incidents of fruitless and wasteful expenditure.  She asked for details of the amount of R1.069 million paid to an irregularly appointed special adviser (see note 30.2 on page 148 of the annual report).  She asked where details of senior management remuneration, performance awards and service bonuses were provided in the annual report.  She was amazed that any performance awards were granted to employees in view of the poor performance of the Department.  Table 7.3 on page 190 of the annual report listed performance awards by critical occupations.  She asked what the benefit was if a beneficiary received a reward of no value.  The statement of contingent liabilities on page 172 of the annual report listed possible legal claims against the State totaling R381.1 million.  She asked for details of the single claim for R375.5 million included in the list.  The statement of transfers on page 160 indicated substantial amounts transferred to firms of attorneys.

Table 5.3 on page 183 listed the reasons why staff left the Department.  She asked if any exit interviews were conducted and how the reasons for leaving were established.  She asked why 34.5% of contracts were not renewed despite the high number of vacant posts.  The report on the utilisation of consultants on page 198 of the annual report did not explain the acronym “PSP”.  She asked why the non-executive directors of the Department’s SOE were consultants.

Mr B Steyn (DA) said that the DOC was not delivering on its mandate.  For example, the Department had under-spent on ICT infrastructure development (programme 5), which was a key delivery item and more important than participation in various international conventions.  The breakdown of license fees collected by ICASA on page 23 of the annual report (R782.983 million) did not add up to the total amount of license fees of R899.569 million.  The discrepancy between the two figures was R116.5 million.  AGSA had reported that there were problems with the reconciliation of license fees collected by ICASA and transferred to the National Treasury.  He asked why the ICT indaba hosted by the DOC had not gone out for tender.  He asked how bonuses and performance awards were awarded when the human resource management report on page 181 indicated that only 14 jobs out of 430 posts had been evaluated and few individual performance appraisals had been done.  Only 190 of the targeted number of 800 students were achieved.  The provision of study opportunities was one area where a real difference could be made in improving the lives of people.

The performance report on programme 4 (ICT enterprise development branch) listed a target to establish two ICT hubs but no funding was made available.  There should be a link between the budget and the objectives that had been set.  Ms Janice Meissner was listed as the chairperson of the audit committee on page 83 of the annual report.  The report of the audit committee was signed by Mr William Huma, who was the chairperson of the risk management committee.  He noted that donor funding had been transferred to the National Treasury and asked if there had not been any conditions attached to the donor funding provided to the DOC.  He asked for details of the under-spending on the 112 emergency call centre project and the payment of R5 million to consultants.

Ms M Lesoma (ANC) expressed disappointment over the poor performance of the executive management of the Department.  The issues highlighted by the Auditor-General were not relevant to the recent appointment of the current Minister of Communications.  The current executive management of the DOC had been in position for a number of years and the Minister and Deputy Minister were not responsible for the administration of the Department.  She asked what role was played by senior management in the assessment of organisational performance.  She asked how effective the audit committee, risk management committee and other governance committees were.  The performance contracts of senior managers should be aligned with the Department’s strategic plans.  She asked if any monitoring took place to ensure that printed information materials reached the target audience.  The reason provided for the variance between the targets and actual performance was not sufficiently detailed.  She hoped that progress would be made in addressing the human resource and capacity restraints in the near future.  The development of adequate capacity was constrained by the extensive use of external contractors.  She asked what the reasons were for the audit findings concerning non-compliance with supply-chain management regulations as the organisational structure indicated that the finance division was adequately staffed.  She asked what was meant by the “highly skilled” production and supervision positions referred to in the human resource management report (page 177 of the annual report).  Table 7.3 – Performance rewards by critical occupations (page 190) was not clear.  The classification of certain occupations listed in the table as “critical” was debatable.  Table 11.7 on page 196 indicated the cost of precautionary suspensions as R3.7 million.  Much detail on the participation in international conventions was provided but little had been said about the achievement of core functions.

Ms W Newhoudt-Druchen (ANC) observed that the Department had under-spent its allocation and had also transferred a substantial amount to the National Treasury.  However, the reason for the failure to achieve certain targets was given as funding constraints.  She asked for clarity on the data provided for the number of posts filled and the number of vacant posts.  She asked how many persons with disabilities had attended the various e-Skills and ICT expositions.  She noted that the Department had appointed only five persons with disabilities and had not achieved the national target of 2%.  South Africa was unable to report on the promotion of the rights of people with disabilities at international conventions because of the dismal performance of the country.  She refused to accept a response from the Department that the requested information would be provided at a later stage.  She noted that the Department monitored the effectiveness of IT systems.  However, a material loss was suffered when the Postbank system was hacked.  She was not aware of a report on the matter and wondered what action had been taken to ensure the safety of depositors’ funds and what preventative measures had been put in place.

Mr C Kekana (ANC) remarked that the criticisms of Members of the Committee were intended to help the DOC to improve its performance.  He asked what was regarded as a good and an average evaluation score.  Officials were legally required to sign performance agreements.  He asked why no action had been taken against those officials who had failed to sign agreements and if the officials concerned had received any salary increases.  He asked what the impact was on service delivery of the high number of suspended officials.  The disciplinary process tended to be of long duration.

Mr G Schneemann (ANC) asked if the core functions of the DOC listed on page 5 of the annual report had been met.  The briefing by AGSA on the audit outcomes of the SOE’s indicated that all the entities had regressed, with the exception of Telkom.  Pages 33 and 34 of the briefing document created the impression that there was strong oversight by the Department over the SOE’s but this contradicted the findings of the Auditor-General.  He asked how the Department explained the overall regression in the performance of the Communications portfolio reported by AGSA.  118 targets had been set for the first quarter of 2012/13.  The report submitted to the Committee listed no progress or a delay for 57 targets (nearly 50% of the total number of targets).  He wondered if too many targets had been set and why targets that could not be achieved were included.  He asked when the disciplinary action in progress would be finalised.

Ms Morutoa was disheartened by the lack of progress made by the DOC.  She expressed disappointment over the performance of the officials in the DOC, who were appointed with high hopes that they would be able to deliver.  She noticed a big difference between the reports of the DOC and AGSA.  The report by the DOC created the impression that everything was in order but this was not a true reflection of the situation.

The Chairperson said that the major issue was the reversal of the regressive trend in the performance of the DOC and its SOE’s and what needed to be done to improve performance.  A financially unqualified opinion with findings was not regarded as a satisfactory audit outcome.  The cost of audits had to be considered as the cost increased if the entity was unable to provide all the supporting documentation required.  AGSA had been requested to disclose the audit cost incurred by an entity in future reports.  The failure of senior management officials was a major concern.  He asked if all ICASA councilors had signed performance agreements.  The ICASA Act specified that the failure to sign a performance agreement was an act of misconduct and the Committee could remove the councilor concerned from office.  He asked for details of the material under-spending reported by the Auditor-General.  The Department had not achieved the objectives concerning the review of policies.  He asked why certain legislative amendments were introduced before the policy review was completed.  The finding of the Auditor-General concerning expenditure management implicated the accounting officer of the Department (paragraph 24 on page 102 of the annual report).  The Director-General was the accounting officer of the DOC.  The Minister of Communications needed to explain to the Committee why a Director-General who had failed to adhere to the Public Finance Management Act (PFMA) and Treasury Regulations was kept in place.

Ms Sekese responded that the Members of the Committee were the representatives of the citizens of the country.  The DOC welcomed the robust interaction with the Committee to address the issues of service delivery.  The Department and the Committee shared a common goal to act in the interests of the country.  The Department encouraged the honest feedback provided by the Committee.  The reference to the recent appointment of the current Minister was not intended to absolve the administration of responsibility for the performance of the Department.  The issues raised by Members were noted and there was agreement that certain critical issues needed to be addressed.

The accounting officer had to ensure that the necessary policies and governance structures to implement the policies were in place.  The accounting officer could not actively participate in all the structures.  The overall responsibility for implementing the legal requirements rested with the accounting officer.  The findings concerning internal controls were recurrent and it was necessary to assess what went wrong before corrective and preventative action could be devised.

Ms Morutoa asked the Director-General to respond to Members’ questions.  The Committee did not require an explanation of the processes followed.

The Chairperson said that the Auditor-General had found that the accounting officer did not take the necessary steps as required by the applicable regulation and legislation.  The Director-General had to ensure that daily checks and balances were in place to prevent recurrence of the same findings.  He asked what the consequences were of the non-compliance to the legal requirements applicable to the accounting officer.

Ms Sekese acknowledged that there had been a violation of the provisions concerning internal controls.  The matter was under investigation.  The investigation had to be concluded before any consequences could be considered.

Ms Killian pointed out that the Auditor-General was guided by the provisions of the PFMA, Treasury Regulations and the other legislation governing AGSA.  Section 38 (g) of the PFMA was clear and required that effective corrective action was taken.  The responsible person had to be identified, the matter had to be investigated and action must be taken.  Suspensions had cost the Department more than R3 million and the disciplinary process had to be accelerated.

The Chairperson pointed out that the accounting officer was the senior authority and was responsible for the actions of subordinates.  For example, there were policy guidelines for overtime payments.  Someone had to approve overtime payments and the official concerned had either followed the procedure or not.  It was not clear what further investigation was necessary.

Ms Sekese replied that a number of officials were involved and the role of each individual needed to be considered to ensure that appropriate action was taken.

Mr Vilakazi explained that the Director-general and senior management of the DOC had commenced the process to recover irregular and fruitless and wasteful expenditure from the responsible officials.

Ms Lesoma said that Members understood administration and the concept of accountability.  The Director-General had to acknowledge if the senior management of the Department was capable of carrying out their responsibilities.  The Committee expected the representatives of the Department attending the briefing to have all the facts and figures at their fingertips.

Ms Killian insisted that action was taken against officials who had resigned rather than facing disciplinary action.  There had to be serious consequences for financial management transgressions even if the officials had left the Department.

Mr Farhad Osman, Chief Director: Strategic Planning and Monitoring, DOC responded to members’ questions regarding performance management.  The majority of key interventions had been implemented but certain objectives stretched over more than one year.  The DOC had applied the SMART criteria devised by the National Treasury to the objectives that had been set for the 2012/13 financial year.  The Auditor-General had evaluated the actual performance information and supporting documentary evidence to determine what percentage of targets had been met.  The detailed score sheet could be made available to the Committee if required.  The targets included in the strategic plan were aligned to the Department’s core functions.  70% of the 99 targets set for 2011/12 were met, which was an improvement over the 51% achievement rate for the prior year.  29 targets across all the core functions were not met.  The reasons for the failure to meet all the targets were listed in the briefing document (see page 5).  The Department had developed an action plan to address the areas of weakness. 

Ms Killian pointed out that the target concerning ICT systems were reported by the DOC as “fully achieved” but this was one of the major areas of concern raised by AGSA (see page 69 of the annual report).  The level of implementation was the major consideration, for example, the DOC had participated in several international conferences but the benefit to the country was not clear.

Mr Vilakazi explained that the irregular expenditure item of R20 million in 2011/12 related to the payment of salaries for unfunded, unapproved posts.  This had been corrected by the review of the organisational structure.  Improved internal control procedures had resulted in a reduction of the amount of irregular expenditure.  The forensic investigation into irregular expenditure during previous years had uncovered an amount of R95 million, which was declared in the 2011/12 financial year.  Items of irregular expenditure were condoned if the Department had benefited but the officials concerned were subject to disciplinary action if the rules were transgressed.  The findings concerning supply-chain management referred to instances where goods or services were not procured in accordance with the procedures.  An investigation was underway to determine why procedures were not followed so that appropriate preventative action could be taken.  ICASA had not reconciled the direct exchequer receipts of R8.427 million plus interest of R3.2 million.  The legal liability referred to lawsuits brought against the DOC or its subordinate entities by certain suppliers.  The acronym “PSP” referred to professional service providers appointed by the DOC to render certain professional services.

The Department had realised that there were gaps in the plans for the provision of broadband services.  The project was halted while a review took place.  The funding for the broadband project could not be spent.  The matter was discussed with the National Treasury.  The Treasury had agreed that the national broadband policy had to be finalised before the project resumed.  The 112 emergency call centre project was a public/private partnership (PPP) over a period of 18 months.  The consultancy fee of R5 million was paid to Deloittes, who was appointed to coordinate the entire process.

The strategic plans and budgets of the SOE’s were submitted to the DOC for approval.  The quarterly expenditure reports of the SOE’s were compared to the draw-down schedules provided.  Any deviation was followed up by the Department.  The Minister had appointed a task team to investigate the Postbank fraud incident, to identify the perpetrators and to recommend improvements to the IT system.

The matter concerning the irregular appointment of a special adviser in 2009/10 had been addressed.  The Department had received donor funding from the government of Finland for specific projects.  The projects were completed and the remaining funds were returned to the National Treasury.

Ms Kedibone Sekwele, Chief Director: Human Resource Management, DOC explained that the DOC did not have any personnel in the lower skilled salary band.  Table 3.2 provided information on the vacancy rates applicable to the various salary bands.  The most significant vacancy rate was 40% for the senior management levels.  The finding concerning overtime remuneration was the result of the discrepancy between the length of the work day in terms of the Public Service Regulations (10 hours) and the Basic Conditions of Employment Act (BCEA) (8 hours).  The DOC had applied the provisions of the BCEA and paid overtime when more than 8 hours was worked per day.  Officials on precautionary suspension were entitled to full pay for the period of suspension.  The four employees who had resigned had elected an external hearing process, which was not under the control of the DOC.  The review of the organisational structure had commenced in 2010 but approval was delayed by the appointment of three successive Ministers.  Approval for the new structure was finalised by Minister Pule in August 2012.  The vacant posts could not be filled prior to finalization of the organisational structure.  She expected most of the vacancies to be filled by the end of November 2012.  Seven senior management officials (including several Chief Directors and the Director-General) had not signed performance agreements.  Table 7.3 on page 190 of the annual report provided details of the number of employees in each category of occupation; the number of beneficiaries of performance rewards in each category of occupation; the total cost of the awards per occupation category and the average amount of the performance award per beneficiary.

Mr Michael Ntshingila, Chief Director: Internal Audit and Risk Management, DOC explained that Ms Meissner’s contract had expired before the annual report was finalised.  Mr Huma had taken over as chairperson of the audit committee and signed the report of the audit committee included in the annual report.  Mr Huma had relinquished the position as chairperson of the risk management committee.

Mr Alfred Mashishi, Chief Director: Operations (PNC), DOC advised that the amendments to the ICASA Act were technical changes intended to strengthen the Regulator.  The amendments to the South African Post Office (SAPO) Act resulted from the Constitutional Court judgment concerning the pension benefits of divorced members of the pension fund.

The Chairperson understood that amendments to legislation arising from Constitutional Court judgments were referred to Parliament and did not emanate from the Department concerned.

Mr Jabu Radebe, Acting Director-General: ICT Infrastructure Development, DOC provided details of the percentages of the population in each province that had access to broadband services.  The Department had participated in the formulation of the National Cyber-security Policy Framework, which was approved by the Cabinet in March 2012.  The Council for Scientific and Industrial Research (CSIR) had commenced the implementation of the policy.

The Chairperson remarked that there was no ICT security measures in place in Government departments.  The matter required urgent attention.

Ms Nonkqubela Jordan, Chief Director: Africa Desk, DOC explained that international interventions included reducing the cost of international roaming charges, finalising the cyber-security regulations and promoting business-to-business relationships.  The Department participated in international forums with the intention of improving the standing of South Africa and the African continent.

Dr Harold Wesso, Deputy Director-General: e-Skills Institute, DOC was unable to provide data on the number of persons with disabilities who had attended expositions arranged by the Department.  He assured the Committee of the Department’s commitment to assist the disabled community, for example the use of technology to develop the skills of the blind.  He undertook to provide more information in a written response.

Mr Steyn was not satisfied with the response to his questions about the 112 emergency call centre project.  He insisted that the breakdown of the ICASA license fees in the annual report did not add up to the total amount indicated.

Ms Shinn said that the Department of Science and Technology had made information on the salaries and bonuses paid to senior officials available to Parliament.  There was no reason why the same information should not be made available by the DOC.

Ms Killian noted that an amount of R425,000 for damage to rental vehicles had been written off.  There appeared to be no consequences for the officials responsible for the damage.  She asked for an explanation of the high percentage of highly skilled production and supervisory staff claiming sick leave (see table 9.1 on page 192) and the pay-outs for unused leave entitlements (table 9.5 on page 193).

Ms Lesoma asked how the Department justified the payment of bonuses and performance awards in the light of the adverse opinion of the Auditor-General.

Mr Schneemann asked if the National Treasury had granted approval for the roll-over of unspent funding and when the delayed projects would be finalised.

Mr Kekana asked for a response to the overall assessment of AGSA that the performance of the Department had regressed.

Ms Newhoudt-Druchen was not satisfied with the response to her questions regarding the delivery of services and benefits to persons with disabilities.  She noted that all the programmes related to the youth, women and persons with disabilities listed in the report on the first quarter of 2012/13 had been either delayed or indicated no progress.  She insisted on the Department providing a detailed report on these issues.

Ms Morutoa was not satisfied with the explanation provided for the table on page 190 of the annual report.

The Chairperson asked for an explanation of the Department’s failure to attend a meeting of the Appropriations Committee.

Ms Sekese advised that she could not attend the meeting because of a conflict with another engagement.

Ms Killian asked that the Committee was provided with a copy of the written submission to the Appropriations Committee.

Mr Schneemann asked why the Director-General had not nominated a delegate to attend the meeting in her place.

The Chairperson understood that the Appropriations Committee had insisted that the meeting be attended by the accounting officer.  The delegation from the DOC was turned away because the Director-General was absent.

Mr Vilakazi advised that the utilisation of donor funds was reported on page 94 of the annual report.  Donor funds surrendered to the Reconstruction and Development Programme (RDP) Fund included R1.76 million from Vodacom, R32,000 from SAPO and R240,000 from the government of Finland.  The funds were conditional but the projects had been completed and the excess funds were surrendered in accordance with the RDP Act.  The matter concerning the ICASA license fees was being addressed by the process involving ICASA, AGSA and the Minister.  Incidents of fruitless and wasteful expenditure were investigated and the Department attempted to recover the amounts concerned where there had been negligence on the part of the responsible official.  The DOC had not applied to the National Treasury to roll-over unspent funding because the broadband project required extensive review.  The Department would apply for funding once the review process was completed.  

Ms Sekwele undertook to provide the Committee with a list of employees who had received bonuses.  Accumulated leave entitlements were paid out when the employee left the Department or when the employee was unable to take leave because of pressure of work.  Where an employee took more than the number of days allowed for paid sick leave, the matter was referred to the Health Risk Manager.  She acknowledged that more employees had left the Department than anticipated but hoped that the retention policies put in place would reverse the trend.  36% of employees were female.  She again explained the table on page 190 but Ms Morutoa remained dissatisfied with the response to her question.

In response to a question by Mr Kekana, Mr Osman explained that the Auditor-General had determined that the Department had not met 70% of the targets that had been set.  The percentage was not a performance score.

Ms Sekese declined to comment on the briefing by AGSA to the Committee on 9 October 2012.

The Chairperson said that the AGSA briefing was understood by the Committee.

Ms Killian observed that the Auditor-General had not audited the content of the objectives that had been set.  The finding was based on the information and documentation made available in support of whether or not the target had been met.  The problem was that the targets that had been set were not clearly defined.

The Chairperson pointed out that the Committee had approved the strategic plans, which included the targets that had been set.

Ms Lesoma observed that the SOE’s reporting to the DOC played a role in achieving the mandate of the Department.  If the SOE’s failed to perform adequately, the Department failed too.  She did not detect any discomfort by the DOC over the lack of performance of the SOE’s.

Ms Sekese thanked Members for highlighting the issues requiring attention from the Department.

Mr Phuti Phukubi, Senior Manager, AGSA declined to comment on the briefing.

Mr Vilakazi disagreed that the breakdown of the license fee revenue was incorrect but Mr Steyn insisted that the figures did not add up.  Mr Schneemann supported Mr Steyn on the issue.  The Chairperson agreed that the breakdown of the license fees did not add up to the total of the license fees collected by ICASA.  As a result, the accuracy of the figures provided in the annual report was under question.

Ms Lesoma suggested that the Director-General was allowed 24 hours to verify and confirm that the information included in the annual report was accurate and complete.

Ms Killian asked that a written response was provided on the performance agreements that had not been signed.

The Chairperson agreed to allow the DOC to verify the information.  The Committee was not able to comment on the annual report until the accuracy of the content was confirmed.  The Committee had to finalise the annual report of the DOC by 19 October 2012.  The Department would be advised of the date of the briefing on the report on the first quarter of 2012/13

Briefing on the 2011/12 Annual Report of Sentech Ltd
Mr Thabo Mongake, Chairperson of the Board of Sentech Ltd introduced the delegates.  Dr Setumo Mohapi, Chief Executive Officer, Sentech presented the briefing to the Committee (see attached document).

The briefing included an overview of the corporate status; the vision, mission and values of Sentech; the report of the Chairperson of the Board and the report of the CEO.  The operational review included an overview of the performance of the entity in meeting its objectives and targets; a product review (i.e. broadcasting signal distribution and telecommunication services) and the key national projects for Digital Terrestrial Television (DTT), Low Power Transmission and the National Wireless Broadband Network (NWBN).  The sustainability report covered human resource management and corporate social investment.  Additional information was provided on the status of the transmitter network for each province.

Total revenue for the 2011/12 financial year was R812.5 million.  Total operating expenditure was R605.4 million.  Net profit after taxation was R134.2 million.  Total assets were R2.1 billion and total liabilities were R1.2 billion as at 31 March 2012.

A separate briefing document on the findings of the Auditor-General was submitted.  Sentech had received a financially unqualified audit opinion, with findings.  Details were provided of the audit outcomes for 2011/12 and 2010/11.  The report on the legal and regulatory requirements included details of the findings and the planned corrective action.  The findings related to pre-determined objectives; strategic planning and performance management; internal audit; the audit committee; expenditure management; human resource management; annual financial statements; internal control and forensic investigations.  New findings concerned the evaluation of the effectiveness of internal auditors by the audit committee and the failure to achieve 51% of the targets that had been set for 2011/12.

Discussion
Mr Kekana asked what impact the theft of copper wire had on operations.

Mr Schneemann said that the Auditor-General had noted a general regression in the performance of all the SOE’s reporting to the DOC, with the exception of Telkom.  He noted the recurrence of incidents of irregular expenditure and supply-chain management violations.  He asked what action had been taken to ensure that the matters raised by the Auditor-General would not recur.  Of the 40 targets that had been set, 19 were not achieved or were partially achieved.  The reasons for the failure to achieve the targets were not explained in detail.  He asked how much had been spent on corporate social investment (CSI) initiatives and asked for more information on the CSI projects.  He asked what the target was for the number of low power transmitters to be installed, how many transmitters were installed and how many were outstanding.

Ms Lesoma noted that representatives of the DOC had not attended the briefing by Sentech.  She asked what the reasons were for the regression in the audit outcomes for 2011/12.  She asked when Mr Mongake was appointed as the Chairperson of the Board.  She asked for more clarity on the reasons for the variances in the achievement of objectives.  The achievement of only 49% of the targets that had been set was not acceptable.  Most Government entities appeared to have problems with adhering to supply-chain management requirements.  She asked what the role was of non-executive directors and if the performance of these directors were monitored.  She asked for clarity on the subsidiaries of Sentech.

Ms Killian was concerned over the deterioration in the performance of the entity.  Sentech had good intentions but had not achieved the desired results.  She asked for details of the composition of the Board and the roles of Board members.  She asked what the current status was of the matter concerning the broadcasting of signals to Botswana.  She understood that the judge had issued an adverse ruling but the reasons for the judgment were not made available.  She asked what the cost was of resolving the matter involving Altech.

Sentech had reported that action had been taken to address previous findings concerning supply-chain management violations but AGSA had issued a repeat finding.  The previously separated audit and risk management committees had been combined.  The members of the audit and risk committee were mostly members of the Board.  She asked if the chairperson of the committee was an independent person as the Board could not be held accountable if it controlled the audit function.  The report of the independent auditor gave a financially unqualified opinion, with findings.  The findings of the Auditor-General had highlighted certain weaknesses in internal controls, risk management and expenditure management.  She asked what action had been taken to address the findings.  She asked if criminal charges had been laid against the employees implicated in the instances of fraud.  She asked if any attempt had been made to recover irregular expenditure from the employees concerned.  She asked for clarity on the matter concerning new licenses on page 127 of the annual report.  She asked if a staff retention strategy was in place that allowed the entity to benefit from the employee bursary scheme.

Ms Shinn asked for an update on the action that had been taken to address the audit findings for the previous year.  She asked for details of the investigation into allegations of fraud and misconduct.  She noted that the targets for DTT had not been met and that the targets had been revised during the year.  She asked for details of the supply-chain management challenges cited as the reason for the failure to meet targets.  She asked what the status was of the technical skills capacity of Sentech.  The additional information on the status of the transmitter network was appreciated.  She asked what the status was of the lawsuits involving ICASA and the unfair dismissal claim of a former executive.  She asked if any bonus payments had been awarded to employees.

Mr Steyn asked what action had been taken by the Board to address the Auditor-General’s findings concerning irregular expenditure.  The planned action to resolve the finding concerning the annual financial statements was the appointment of a Chief Financial Officer.  The same finding and corrective action was reported for the previous year.  The statement in the report on compliance with the ICASA licensing requirements that the requirements had been “generally met” was not acceptable.  He noted that Sentech had appealed the judgment of the Botswana Court despite the fact that the reasons for the judgment had not been provided.  He asked what the justification was for the appeal.  He noted that a number of targets related to financial management were not achieved.  He asked if a remuneration committee was in place and how the salaries and benefits of senior executives were determined.  He asked what progress had been made in implementing a performance appraisal system.  The estimated cost of CSI projects was R500,000 per school.  Projects were planned at five schools but only four schools were mentioned in the annual report.  He asked what the reasons were for resignations.  The annual report covered the period 1 April 2011 to 31 March 2012 and should not include reference to incidents that occurred beyond the period (for example the resignation of the secretary in July 2012).  He asked for details of the contingency of R19 million for an onerous contractual obligation.  He asked for details of the increase in post-retirement benefits referred to in the disclosure notes.  The amount of the ICASA license fee under dispute was R43 million, plus interest.  Provision was made for a contingency amount of only R8 million.

Ms Morutoa asked where the low power transmitters were sited.  She asked what the supply-chain management challenges were that had resulted in the delay in implementing the DTT programme.  She asked what progress had been made in achieving the national universal access objectives.  She asked if Sentech recruited graduates.  She asked if Sentech collaborated with the SABC and ICASA on the expansion of the broadcasting coverage.

Mr Mongake advised that he was appointed as chairperson of the Board of Sentech with effect from 1 August 2012.

Dr Mohapi admitted that the theft of copper wire had a negative impact on the availability of services, particular in the Johannesburg area.  The stolen copper was replaced with a low-value alloy.  Sentech worked closely with the police services in an attempt to stem the theft of copper wire.  Previous audit findings related to the internal audit function referred to the absence of a three-year risk-based internal audit plan.  The plan had been developed and approved by the audit committee in May 2012.  The finding related to strategic planning and performance management required formal policies and procedures to be approved and implemented.  The necessary policy and procedure documents would be submitted to the Board for approval before the end of the second quarter of 2012/13.  Corrective action had been taken to address all the other findings before the end of the financial year.

Sentech should have formally adjusted the targets when the five human resource management targets were consolidated in a single Human Resource Intervention project.  Although Sentech had engaged with the National Treasury on the revision of the NWBN targets, the original objectives were not adjusted accordingly.

Sentech worked closely with the provincial authorities to identify potential CSI projects.  An amount of R4.8 million was spent on the CSI projects at four schools.  The target for 2012/13 was 14 schools.  Sentech had also provided a bursary for a young man from a village in KwaZulu Natal, who had built a community broadcasting station from scratch.

A remuneration committee was established and became operational in March 2012.  The committee conducted performance reviews of executives.  Skills audits were included in a broader programme, which included the identification of skills requirements, establishing where skills were lacking and developing a skills development programme.  Sentech did not award any bonuses to employees during the year.  Any future bonus payments would be dealt with by the remuneration committee.

Sentech had to undertake an extensive procurement programme in order to meet the coverage targets.  There had been instances of mismanagement of the procurement process.  The Board had insisted that policies, procedures and control measures were put in place and that all violations of supply-chain management regulations were addressed.  He was confident that there would be no findings related to SCM violations for 2012/13.

The previous subsidiaries were dormant and the process of de-regulating the companies was underway.  The composition of the Board had undergone several recent changes.  Ms R van Wyk was the independent chairperson of the audit committee.  The previously separate risk committee had been incorporated in the audit committee.  An interim committee was established to implement policy changes.

Sentech felt that it was unfair to hold the company liable whenever somebody took a decoder over the border into Botswana and had appealed the judgment.  The security system had been upgraded and the new decoders available on the market were capable of coping with the security system.  The reasons for the judgment had not been provided to date.

Incidents of irregular expenditure were investigated and the root causes determined.  The Board would decide what appropriate action would be taken.  The number of incidents and the extent of irregular expenditure and fruitless and wasteful expenditure had decreased significantly.  The issue was extensively discussed with the Auditor-General.  The audit committee would submit quarterly reports to the Board on irregular, fruitless and wasteful expenditure.  Sentech aimed to reduce irregular and wasteful expenditure to zero.  Civil action was taken against anybody implicated in fraudulent practices.  The cases reported in the annual report had not yet been finalised.  Employees implicated in fraudulent activities were charged even if they had resigned from the company.

The SCM challenges that had prevented the achievement of several targets included the establishment of policies, procedures and systems, documentation, demand-management processes, committees and aligning the culture of the organisation.  Much progress had been made but a number of issues remained outstanding.

The most significant skills gaps were in the operational environment, particularly the DTT programme.  Two interns were engaged for each operating centre.  Sentech had a bursary scheme and successful graduates were offered permanent positions after graduation.  The bursary scheme targeted female students.  Sentech employees were sought-after by the industry.  A staff retention scheme was in place to encourage employees to remain with the company.

ICASA was claiming R43 million in unpaid transmitting license fees since 1996.  Sentech disputed the claim.  The matter was under discussion and provision was made for unpaid license fees in the financial statements.  The unfair dismissal claim by the former executive was currently with the Commission for Conciliation, Mediation and Arbitration (CCMA).  Sentech did not consider the claim to be valid.

Sentech had hoped that the appointment of a new CFO would prevent the recurrence of findings concerning financial management.  The performance management system was aligned with a training programme for each individual employee.  A balanced scorecard system applied to each division and was taken into account in the assessment of the performance of divisional managers.  The annual report was issued in July and included information on relevant occurrences after the end of the financial year.

The universal access target was coverage for 60% of the population.  Targets were set for provincial, urban and rural coverage.  ICASA had not commenced with the allocation of the new spectrum but disputes over the licensing of the spectrum had already arisen.  The decision was taken to expand FM radio and digital television broadcasting coverage instead of installing low power transmitters.

Disclosure note 15 referred to the company’s post-retirement benefit obligations.  The extent of the liability was evaluated and no new members were entering the scheme.  The Board was considering restructuring the existing post-retirement liability.  The legal contingency provision was in accordance with the prescribed accounting practices.

Ms Lesoma appreciated the acknowledgement by Sentech of the shortcomings.  She wondered if the members of the Board appreciated that limited time was available for doing the necessary work that allowed an organisation to meet its mandate.  She observed that the actions of the Government entities (the DOC and the Committee in particular) also had an impact on the ability of an entity to meet its mandate.

Mr Kekana asked for more information on the bursary scheme.  Skills development was critical for the country’s ability to meet challenges.  It was difficult to retain skilled staff in the public sector as higher salaries were paid by the private sector.  Services in rural areas were provided to white farm owners but not to black villagers.

Mr Steyn asked the chairperson of the Sentech Board to comment on the oversight activities of the DOC.

Ms Morutoa asked if Sentech was involved in the Square Kilometer Array (SKA) project.

The Chairperson remarked on the need to expand the coverage of indigenous language radio broadcasts.  The attendance record of members of the Board was acceptable but he would like to see a report on the performance of Board members.

Mr Mongake advised that the shareholder compact with the DOC included guidance on the deliverables required of Sentech.

Mr Steve Molala, Non-executive Director, Sentech advised that a committee was established in April/May 2012 to oversee the restructuring of the organisation.  Executive directors and members of the Board were excluded from the performance management and appraisal system.  The recently established remuneration committee had located a consultant to undertake an appraisal of the Board and governance committees.  The process had commenced but it would be necessary to have a framework in place.  The following report submitted to the Committee would include more information.

Dr Mohapi explained that the bursaries covered the cost of external training courses.  Sentech had an internal training facility and worked closely with the Sector Education and Training Authority (SETA).  He acknowledged that it was a challenge for the entity to compete with the higher salaries paid by the private sector.  The most common reason for leaving the company was higher salaries and more benefits.  There was much demand for persons with at least five years’ experience.  The racial composition of communities was not considered when coverage targets were set.  Satellite technology allowed for simultaneous broadcasts in more than one language.  The imbalance in language services was taken into account by the SABC when decisions were made to expand broadcast services.  Sentech’s involvement was limited to the provision of data on the target audience.  Decisions on the expansion of services were made at the provincial level and Sentech participated in the provincial committees with the SABC and ICASA.

Mr Kekana asked what skills were in short supply.  He wanted to know if there were any training opportunities in rural areas.

Dr Mohapi replied that Sentech had established a new planning division and required people with planning skills.  Sentech provided planning services to broadcasters before the broadcasters approached ICASA.

The Chairperson asked that updates on the corrective action taken to address the findings of the Auditor-General were included in future quarterly progress reports to the Committee.  The overall impression of AGSA was that the entities in the Communications portfolio had regressed.  The Committee needed to take action to reverse the trend.  The DOC and the SOE’s in the portfolio was required to submit quarterly progress reports to the Committee and consideration was being given to request reports from the internal audit and audit committees as well.  In addition, copies of the management reports had to be provided to the Committee.  The Director-General of the DOC was requested to ensure that a representative from the Department attended briefings by the SOE’s to the Committee.

The Chairperson thanked Sentech for the information provided.  He observed that the entity appeared to have difficulty in retaining CFO’s.

Ms Morutoa complained about the manner in which officials from the Department had responded to questions from Members.  The Chairperson asked that senior executives briefed delegates on the protocol for addressing Members of Parliament.

The meeting was adjourned.