SA Broadcasting Corporation 2012 Annual Report briefing

Meeting report

Chairpersons’ opening remarks
The Chairperson noted apologies from Dr Ben Ngubane, Chairperson of the Board of the South African Broadcasting Corporation (SABC), and from the Minister and Deputy Minister of Communications. He said that whilst he fully appreciated that other commitments may intervene, there were nonetheless some members of the SABC Board (the Board) who seemed not to appear regularly, or who failed to attend the entire meeting. He asked the Deputy Chairperson of SABC to look into that to ensure that the absences did not become habitual. He also noted apologies from Board members Mr C Gina and Mr D Golding.

Ms W Newhoudt-Druchen (ANC) noted that some of the figures in the presentation document were not clear and requested that these be amplified during the presentation.

The Chairperson suggested that the highlights only be mentioned, to save some time.

South African Broadcasting Commission (SABC) Annual Report 2011/12
Mr Thami Ka Plaatjie, Deputy Chairperson, SABC Board, quipped that the Board appeared before this Committee with some sense of trepidation. He also noted apologies for Board members Prof Pippa Green, who was assisting the Sisulu family, and Dr Patricia Makhesha, who, although she had travelled to Cape Town to appear at this meeting, had taken ill and was presently receiving medical treatment.

He noted that the SABC had a sound foundation and had or was busy with filling the posts of the Chief Executive Officer, Chief Financial Officer and Exco posts. There had been a moratorium on filling the vacancy for Chief Operations Officer, due to the litigation that was pending, but the Board had just received instructions to proceed. From the technical point of view,  SABC was ready for the infrastructure of the move to Digital Terrestrial Television (DTT) and was ready for the 24-hours news channel. The internal business processes had been aligned. SABC had managed to strengthen stakeholder relationships with government, regulatory bodies, and enterprise development. It had achieved sound corporate governance and internal controls were improved as part of the turnaround. From a financial point of view, it was liquid, with good cash reserves.

The Chairperson asked if the information now being submitted had gone through the normal processes.

Adv Cawe Mahlati, SABC Board Member, said that the documents submitted had not been discussed at Board level. There was a meeting scheduled for 2 October, but it was summarily cancelled, and she was not told why the Board had met only on the previous day. She submitted that the documents did not have the authority of the Board, or, if they did, she was not present at the meeting that had approved them.

The Chairperson said that he had raised the question deliberately, as the status of the documents should be settled before proceeding further.

Ms R Morotua (ANC) pointed out that the Annual Report was submitted to Parliament, as a document approved by the Board of SABC. This Committee did not know what led to absence of Ms Mahlati, but the fact of the matter was that the Annual Report (AR) report was received from the relevant entity in Parliament. She pleaded that the Board try to agree on moving forward.

Ms R Lesoma (ANC) agreed and requested that the SABC “family”- an expression that she used deliberately – be allowed to continue. Whether certain processes had been followed in approving the presentation was water under the bridge; the point was that the AR was properly tabled. Questioning those processes would lead to problems.

Ms J Kilian (COPE) asked if the Directors’ report had been completed and endorsed by he Board (although the Board must realise there were some contradictions on which questions would be raised). She asked if the presentation differed from the Annual Report, or sought to summarise it. She thought that if the Directors’ report was adopted by the Board, there was no problem.

Mr D Kekana (ANC) said that as long as there was proper adherence to procedures, including a quorum, for adoption of the Directors’ report, it should be accepted.

Mr G Schneemann (ANC) said that the presentation read as a summary of the independent Auditor’s report, which appeared on page 83 of the AR. If this was so, then he saw no problem.

The Chairperson reiterated that all those present at the meeting must understand that the purpose of the meeting was to deal with the AR. He did not want later to be faced with questions about what had been presented.

Mr Ka Plaatjie noted that the minutes of 10 August clearly reflected the adoption of the AR, and its submission to the Shareholder, Minister and National Treasury.

The Chairperson asked that this be noted formally.

Ms Lulama Mokhobo, Group Chief Executive Officer, then tabled the summary of audit findings. She read through the presentation (see attached document) from pages 1 to 8. She summarised the basis for the qualified opinion, which included:
- programme, film and sports rights were amortised and impairments were reversed, but although management had maintained lists to support the amortization and impairment, the auditors were unable to obtain sufficient appropriate evidence to substantiate the reconciliations, or determine the accuracy of the carrying amounts
- fruitless, wasteful and irregular expenditure were incurred in the year
- The SABC had no formal process in place to assess the completeness of these disclosures
- Impairments of the programme, film and sports rights were included as fruitless and wasteful expenditure. The same comments applied to the accuracy of the figures.

Ms Mokhobo tabled schedules detailing the issues raised by the auditors, the description of the problem, the findings, management comments and progress and the due date for completion of the rectification (where applicable).

She noted that 30% of the 66 planned objectives were achieved and 20, or 70%, were not achieved. This was disclosed on pages 37 to 41 of the AR, with the reasons. The Board was addressing each of the findings as the business went along, and board and committee meetings had now been arranged to allow for better coordination. Policies and procedures were only drafted in the last quarter, and the Shareholder Compact was only approved on 20 April 2012, after the end of the financial year. Both of these had been corrected in the current year.

She said that SABC was required to undertake numerous activities in addition to those set out in the shareholder compact. No quarterly reports were prepared, approved and submitted to the shareholder, and the AG was unable to find evidence that quarterly assessments were done. This had now been refined and corrected. The terms of reference of the Audit Committee (AC) were revised and approved in July 2012.

In relation to the financial affairs, material misstatements were identified during the audit, some of which were corrected, but others contributed to the qualified opinion. In addition the annual financial statements for 2010/11 were submitted late. The processes had been amended and the 2011/12 financial statements were submitted on time. Automation of stock figures, which was the main problem, had been instituted.

The AG had been unable to find evidence that the AC had reviewed certain processes and controls, that internal audit reports were not consistently tabled at AC meetings, and that evaluation of that AC was needed. The AC also failed to monitor and review controls to safeguard assets, or to evaluate the accuracy of financial and performance information. The internal audit unit (IAU) was now required to report quarterly to the AC and give quarterly reports also to management on performance against predetermined objectives.  

In relation to strategic planning and performance management, SABC was supposed to maintain an effective efficient and transparent system of risk management, but had failed to do so. Now, SABC was attending to governance, nomination and remuneration committees, had developed an ethics policy. Risk management was being embedded into operations and monthly tracking of programmes was being done. Ms Mokhobo noted that this was an ongoing process and all decisions were now subjected to a risk analysis process. She added that policies and procedures for management of performance planning, monitoring and evaluation were drafted, and should be finalised by October 2012.

Ms Mokhobo noted that the Shareholder Compact for the 2011/12 year was not signed during the year. The Compact for the 2012/13 year was approved by the Board during May 2012, an was submitted to the Minister, but revisions were needed in light of the changed plans for 2012 to 2015, and these would be approved by the Board in October 2012. She reminded Members that this Compact had been written on the assumption that National Treasury would relax some conditions of the government guarantee, but this was not done.

In relation to procurement and contract management, there were instances of premature procurement, or premature broadcasting, before appropriate legal contracts were signed with suppliers. The procurement of contracts was now being adjusted to fall in line with the standard procurement guidelines and Treasury Regulations. The Acting Chief Operations Officer and Sports Team were reviewing the sports matters and would report on them soon.

In relation to human resources, the AG had found that several senior management positions were vacant at end March. She reiterated that the Chief Operations Officer position could not be filled, pending finalisation of litigation. The Company Secretary position was filled in May 2012. Other positions were being filled.

The AG had found that numerous SABC employees had interests in companies but there was no centralised register of interests. This had since been corrected, with the creation of comprehensive declaration forms, coupled with a full communications process to employees.  

The SABC had failed to submit to the AG any schedule of disciplinary hearings, criminal charges and names of offending employees. Ms Mokhobo assured the Committee that all records were being subjected to a thorough legal process. It was expected that this could result in further disciplinary or criminal charges.

The AG reported that irregular, fruitless and wasteful expenditure of R22 million was incurred as a result of inefficient operational policies, and lack of effective, efficient, economical and transparent use of financial resources. All findings would be reported, in future, to the AC, and disciplinary action, which may include reporting to other legal agencies, would be taken.

The AG had further found that no full assets or stock counts were completed. A tape count was now being done. There was, however, a huge backlog, but it was hoped to complete this with student assistance, by November 2012.

Ms Mokhobo also noted that another finding was that the automated management of programming, film and sports rights management was not fully implemented, and a reconciliation was done only at year end. This was another matter that was currently receiving attention. Measures were now in place to identify and clear live events on the TV Broadcast Management System.

Slide 12 outlined the ways in which information presented was deficient, and this was another huge job requiring substantial focus. The areas identified would be added to the next Corporate Plan.

The AG had found that poor IT governance structures meant that line management were allowed to operate at their own discretion, but corrections had been made, and in future IT would speak directly to the scheduling systems so that recording and advertising were aligned.

The AG also noted lack of effective oversight responsibility for performance reporting against predetermined objectives, and lack of compliance with laws and regulations. These had been due to the fragmentation of the compliance function, but was being addressed and should be regularised by January 2013.

The AG also found that HR management was not effective. Staff lacked capacity to perform the duties assigned, and there were delays or inaccuracies in information. SABC had now advertised five senior financial positions, and the financial procedures and controls would be reviewed to ensure proper segregation of duties. A plan to clear all internal and external audit issues was in place and was monitored at monthly financial review meetings.

Presentation on financial statements
Mr Tian Olivier, Acting Chief Financial Officer, SABC, said that there were a number of errors in the AR, and the SABC planned to reprint some pages. He highlighted changes needed to the dates on pages 88 and 89.

Ms Lesoma interjected to note that presumably the AR had gone through some processes, and questioned why these corrections were made only now.

Ms Kilian added that Members had received a single page (Errata page), which also reflected changes to pages 33 and 35. However, these changes could not be effected without also affecting the financial statements.

Mr Schneemann had similar concerns, and said that although the changing of the headings did not affect the figures, there were instances where amendment of incorrect figures would materially affect other figures. Even the Errata document was not consistent with the AR.

Mr A Steyn (DA) agreed that there was a problem, unless another document were to follow. The profit figure on page 89 was also stated again, as a carried-forward figure, on page 90, and changing this would affect the income figures.

The Chairperson asked what exactly had been submitted to Parliament. This Committee could deal only with those documents.

Ms Morutoa requested a short break to allow officials to sort out what was needed.

After a brief recess, Mr Ka Plaatjie said that Mr Olivier had been asked to re-look at the figures, and any discrepancies would now be explained. Some of the errors had taken place under the watch of the former Chief Financial Officer (CFO), now suspended, and Mr Olivier had been asked to try to identify the anomalies. The Errata page listed the first set of errors that were discovered, and others would be explained, including typographical reversal of figures that did not affect the final totals.

Ms Mokhobo confirmed that the former CFO was not as vigilant as she should have been. She confirmed that bullet point 3 on page 33 should be changed, in line with the Errata document.

The Chairperson, noting that Ms Cawe Mahlati was attempting to interject, asked that she should not raise queries while Ms Mokhobo was speaking. Any comments that she might have could be made later.

Ms Mokhobo continued by noting that page 35 also referred to the same figures. The figure of R343 million was the government guarantee target. The figure of R228 million was the one affected by the change.

She noted that after preparing the Errata document, further discrepancies came to light. One of the mis-statements was a swopping of numbers in the typesetting, but it related to the past financial year and therefore did not affect the totals. Although the column figures thus did not add up, the totals were confirmed as correct. 

Mr Olivier noted that on page 110 of the AR, the second row of numbers, for the net bank loan, was reflected for both years as R888 889. The next column, for 2012, should also reflect the total as R888 889.

Mr Olivier then took Members through a summary of the Group results, stressing that SABC was part of a number of companies. SABC Ltd was the company on which he was now reporting, but the Group also included some dormant companies, a travel company, and a company through which programmes were purchased. A summary was given of the group results on slide 16. The majority of profits, however, came from SABC Ltd.

The income statement referred back to the Annual Financial Statement on page 89. Revenue was R5.7 billion, with a variance of 1%, and the revenue had grown in comparison to the previous year. Expenses were R238 million lower than budget, and SABC had kept them in line with the previous year. Depreciations were lower than budget. The net income and losses related to interest charges, and the comparison to the previous year was shown on slide 15. Income tax was greater than the previous year. For the group, there was a profit of R344 million, in excess of the budget. The profit of SABC also showed a 363% improvement, although this would be reduced if the pension and other liabilities were taken into account.

Mr Olivier explained that liabilities had reduced because SABC had started to pay back the loan. It was liquid, and there was just over R1 billion of cash held at the bank.

The rest of the presentation focused on the management accounts of the SABC. Any changes between figures were attributable to the different accounting systems used. Slides 19 and 20 set out the revenue, and he pointed out that both TV and radio advertising exceeded budget. However, sponsorship revenues continued to decrease. Some of the money had moved from sponsorships to television. Licence revenue was quite good, but fell short of the budget, and the SABC did not get the tariff increase it had expected during the guarantee. Cash collected from TV licences (including VAT and penalties) was more than R1 billion. Government grants were received for technology projects (Digital Terrestrial Television) and education. Advertising made up about 70% of revenue, and sponsorships brought this figure up to 80%. , He stressed that this meant that any withdrawal of advertising had significant effects on SABC. Revenue from commercial stations had been increasing, but the percentage of sports sponsorship had dropped dramatically over the last few years.

In relation to the penalties collected, Mr Olivier pointed out that it was intended that debt collection charges would be covered by the penalties. If tariffs were increased, those charged would be covered in full.

SABC had other innovations to try to reduce its costs, including using bulk post, and more use of SMS messages. The institution of a system allowing users to buy their licences from TV retailers had brought in more revenue, at a more efficient cost. The net revenue was increasing over time, by improving collection processes and keeping the costs down.

Operational expenses were set out on slide 23. Amortised impairment was below budget. The broadcast costs were summarised in this presentation at R479 million, which differed slightly from the AR, because of the line items into which they fell. He explained that there were unrealised profits in the balance sheets, where external productions used the facilities, but these had to be adjusted at the end of the year. Some business units had managed to cut back on their business expenses in the 2011/12 year, to meet the guaranteed targets, but these could not be entered in the books as productivity gains and were instead noted under the units. He highlighted a 18% drop on professional and consulting fees, compared to the previous year, whilst personnel costs rose slightly. Other profits and losses related to impairment of debtors or write-backs. The total operational expenses were almost the same as the previous year.

Mr Olivier reminded Members that the Programme, Film and Sport rights had led to the qualified audit, as the auditors were unable to verify the stocks. In previous years, there had been an over-purchase of foreign material and this was now being written back. Amortisation was where the material had been used. The major change related to sports rights. Most of the R58 million in the previous financial year was a provision for impairment and expiry of that material. During the next year, SABC would try to use that material. It had expected to write off R26 million but had only written off R22 million, which the AG classified as fruitless and wasteful expenditure.

In relation to broadcast rights, royalties for music rights on radio had increased beyond expectation, and although SABC had made provision for it, these rights ended up R137 million higher than the budget. The signal distribution costs were detailed on slide 26.

The permanent staff component accounted for R1.5 billion, a 7% increase on the costs of the previous years. The non-executive directors’ fees were R1 million higher than budgeted. He noted that the independent contractors and temporary staff costs related to the presenters. News and technology accounted for about 50% of the salary bill. R79 million was included at the end of the financial year, for pension and adjustments, but this could not be budgeted for at the beginning of a financial year, as the figure could only be reached by actuarial calculation. Because it did not have a permanent marketing component, this function was outsourced by SABC, but it had managed to cut back on costs in this area by about 50%. The professional consulting fees included the audit fees, which were R2 million lower than the previous year. The majority of the management fees dealt with the turnaround. Project fees related to SAP accounting transactions, and he would like to have that included under broadcast costs in future.

SABC had also managed to cut back on foreign and local travel, which was R4 million lower than budget. Most of the travel related to making purchases from overseas markets, and this also included the news teams in other countries.

Mr Olivier gave a brief description of what was included under the line items for other operational expenses. Personnel costs had come down in some areas (see slide 32), but SABC was concerned about the failure to use the full training budget, some of which included training for executives, but the posts were still vacant.

Legal claims had included a R36 million credit in 2010, which was a reversal of a prior credit. However, in this year, there had been an increase.

Mr Olivier noted that slide 34 related to the performance of SABC against the government guarantee. The red line represented the projected loss that would have been incurred had the guarantee not been given. The guarantee was intended to turn around the SABC, and the projections for this turnaround were shown as a green line. In both the previous and current financial year, there were improvements in excess of the guarantee projections, as shown in blue and summarised on slide 35. Again, he highlighted discrepancies in relation to sponsorships, tariffs, sales of CDs and music, which had decreased dramatically in the market, but noted that overall, SABC was within 7% of targets. Impairment costs were reduced by SABC using the material it had acquired in 2004 and 2005.

There was difficulty in having the marketing agency tender concluded. The guarantee did not anticipate the operational expenses for the turnaround plan, and it was difficult to forecast costs accurately. He noted that the interest being paid on the loan was less than anticipated, because less was borrowed from the commercial banks. The Board had also paid off five months of interest in one instalment, which had led to a 67% increase in the profits. There were some items excluded from the guarantee statement. He was therefore doing an analysis on investments (the amounts that drove productivity and revenue) compared to overheads (currently at about 55% of the costs, which must be brought down). All units of the SABC were expected to drive investments.

The capital expenditure figures were shown on slide 37. Over R100 million had been spent in the last two years. Some of the technical project managers had been lost, but they were being brought back in. The overall debtor days, in respect of Working Capital, had been improved. Cash management was improved by dropping of stock days, but accruals for music rights had skewed the creditor days payments.

The Deputy Chairperson summarised that the SABC was mindful of the challenges and was confident that it was turning matters around, with more rigorous discipline and greater emphasis on meeting the targets of the government guarantee.

Discussion
Mr Steyn noted that much of the information in the financial presentation did not appear in the AR. The presentation explained many of the matters he had raised, and he wondered why fuller information – including the comment on the government guarantee – was not in the AR. In addition, information such as the foreign costs was difficult to understand from the summary of the statements, as the reader was not told how the figures were calculated and where the savings occurred.

Mr Steyn referred to slide 19, and wondered if there was a budget set for the R145 million mentioned there. He was concerned, in relation to slide 23, that employee compensation should be kept in check.

Mr Steyn commented that surely provision should be made for legal claims. It made no sense to budget for nothing, and then end up having to pay R36 million. The figure from the previous year should be used as a guide.

Mr Steyn commented that he would have expected purchase of content to increase, year on year, but it appeared to have declined. If the SABC had purchase content regularly, and if it had spent more on capital expenditure, which was unacceptably low, then it should not be sitting with so much in the bank. He commented that SABC seemed to be incorrectly cutting down on expenses that were in fact necessary to drive the business, in order to improve the bottom line.

Ms Lesoma shared the concerns of Mr Steyn. She wanted to know what the borrowing position was of the SABC.

Ms Lesoma also wanted to raise her continuing concerns about the dissension within the SABC ranks; it was of concern that Ms Mahlati should claim that she had not received documents.

Ms Lesoma expressed appreciation for the way in the which the AR was presented. She wondered whether the areas of performance should have been addressed by the Group Chief Executive, to indicate what the institution should have been doing.

Ms Lesoma noted that pages 28 to 61 dealt with the performance indicators and targets. Whilst she noted the remarks about improvements, she commented that some of the issues raised had been repeats of concerns in the previous financial year, and she therefore wondered what was needed to ensure a complete turnaround. She was pleased that the Acting Chief Financial Officer was appointed from within the organisation.

Ms Lesoma raised questions around the internal controls, on page 28, the failure to reflect these in quarterly reports, and the role of the internal audit unit and AC, particularly the non-executives. Paragraphs 5, 6 and 7 on page 85 also related to internal audit issues. She questioned the professionalism of the audit unit.

Ms Lesoma referred to pages 59 to 60 and asked if the Board members themselves were assessed, and what tool was used.

Ms Lesoma did not think that training of staff (page 68 of the AR) should fall under HR, but not under the “Touching Lives” subheading. Skills and capacity building should not be lost.

Ms Lesoma commented that the SABC must follow its core business, and it was not appreciated when government entities did not perform properly.

Ms M Shinn (DA) referred to page 37 of the AR, and commented that several items were not achieved. However, she wanted to focus on the issue of the migration to DTT. Contrary to what Mr Ka Plaatjie had said she did not think that SABC was ready to move on this. The business plan was still being completed, and, by its own admission, SABC’s TV division had capacity constraints. She understood that SABC did not have sufficiently qualified staff to handle the transition. The Committee still did not know where SABC should be, where it was, and the total picture of the transition to DTT.

Ms Shinn referred to page 85, saying that she was disappointed that the Chair of the Audit Committee was not present. Many of the matters raised were fairly routine in nature, but they were critical to an organisation in crisis. If the Board was not doing the work of supervising the entity, then the entity could not perform.

Ms Shinn also noted the recent comment that a skills audit was to be done internally, after a decision not to use KPMG, and then an apparently contradictory statement that there were requests for proposals. Although this was quite a basic issue, it was of huge importance.

Ms Shinn referred to pages 114 and 115 of the AR. She was pleased to see consulting fees dropping but questioned the R60 million on employee incentives.

Ms Shinn noted that although some of the predecessors at the SABC had been paid far more, she questioned why the Acting Chief Operating Officer was receiving double the salary of the Chief Executive Officer, who was the Accounting Officer, and why Mr Heunis should receive a bonus of R1.2 million, when he had already earned R1.3 million.

Ms Shinn asked how the advertising revenue had been raised.

Ms L van der Merwe (IFP) wanted to focus on the news issues. “Hot talent” had been lost and she asked if this was in any way linked to salary. In the SABC, there appeared to be consensus that the required skills were not in place to launch the 24-hour news channel successfully. She asked about current viewership for news.

Ms van der Merwe noted that SABC had said that the 2% disability target had been achieved. However, the National Empowerment Agency disputed this and also commented that skills development was not provided to black employees with disabilities, in particular. Similar problems were apparent with the stating of targets for local content. Although SABC had complained about the manner of calculation, it must be noted that the Media Monitoring Africa report had asserted that local content targets were not reached, and Independent Communications Authority of South Africa had also raised concerns on this point.

Ms Kilian reiterated Ms van der Merwé’s concerns around local content and said it was vital to drive local employment by using local content.
 
Ms van der Merwe commended the reduction of spending, but, like Mr Steyn, was not sure that it was correctly focused. She questioned the rationale of many journalists being required to share access to too few newspapers. Although several copies of the New Age were distributed, it was not widely read. Failure to provide sufficient access to sources was not providing journalists with the tools of the trade, and that may also explain the drop in viewership.

The Chairperson questioned why SABC was not gathering news itself, rather than following other print journalism.

Mr Kekana agreed that the journalists in SABC should find their information first-hand, not second hand from other newspapers.

Ms Kilian said that the SABC’s integrity and unbiased approach must be preserved. That meant that all news reporters must have wide access to a range of sources, and should not be forced to read only one paper. She too had seen a pile of New Age newspapers in SABC offices that were not being used. She agreed with Ms van der Merwe that this related to dropping of advertisements and coverage. Companies having their logos displayed were willing to pay handsome amounts. That brought into question the relationship with TNA media and the coverage of live breakfast shows.

Ms Kilian agreed with Ms Lesoma that virtually the same issues recurred this year as in previous years, particularly supply chain management problems. She was not disputing that the Deputy Chairperson was honestly trying to turn matters around. However, the question must be asked whether there had actually been a significant different. In the previous year, the Committee was told that the performance management was being negotiated with the unions, yet the government guarantee targets were not met. Even on SABC’s own scoring, there was less than 50% achievement on the seven pillars of the turnaround strategy. Advertising revenue and licence collection targets were not met. Delivery of public service broadcasting, on page 38, showed achievements in only one out of eight areas. The headcount reduction was also not achieved. Ms Kilian asked if the positions were deliberately not being filled, to meet the new organisational structure, but it was of concern that top and senior management vacancy rates were at 55%.

Ms Kilian noted that despite all of these problems, SABC was actually still gathering and delivering on different platforms, because if had excellent reporters and newsroom staff. She wondered if this was not a prime indicator that new stewardship was needed, and questioned if the problem did not lie with the Board and executive management. The minutes provided to the Committee were only approved after several months, and she feared that serious governance issues would render a turnaround impossible.

Ms Kilian said she would not deal in detail with the audit report. However, the summary showed that in most critical respects, SABC had regressed in the 2011/12 year. She agreed with Mr Steyn that the profit was probably the result of reductions in crucial fields, including marketing and capital spending. She reiterated some of the repeated audit concerns, and noted that despite the clear provisions of the Public Finance Management Act (PFMA), disciplinary steps were not being taken, or were taking far too long.

Ms Kilian shared other Members’ concerns about the AC. She did not think it correct for a Board Member to chair the AC, as this would give rise to conflicts. All issues should be dealt with in a transparent way. The internal audit had also not functioned properly. The continuing vacancies of senior managers exacerbated the problem, and asset management was another problem. She commented that it was impossible to try to operate a manual counting system that did not talk to the IT system.

Ms Kilian urged that the Committee must insist upon a report on the actual steps being taken to improve the situation. The Committee wanted to see the SABC succeed, but it was very disconcerted by reports from the AG. She reiterated her fear that this entity may not be able to be turned around.

Mr Schneemann noted that the current board had taken office on 10 January 2010, in a financial year in which an unqualified report (but with findings) was given. The Board was thus in place for the 2010/11 and 2011/12 financial years, in which qualified reports were given, and the SABC had deteriorated, with many repeated transgressions. That alone should be a cause for concern. He pleaded with the Board for a forthright report on what it was actually doing to turn the organisation around.

Mr Schneemann agreed with other Members’ concerns on the AC. Page 79 of the AR detailed attendance of the AC meetings. Not one member of the AC had attended all meetings, and some had attended only two. Poor attendance was likely to lead to failure. The AC had tried to detail what it had done, but the AG’s comment on page 85 of the AR report effectively said that the AC had not done its work. He agreed that this Committee may need to deliberate on whether this AC was correctly constituted, and the Board too should re-think the composition of this Committee, which it appointed.

Mr Schneemann said an explanation was needed as to why only 20 of the 66 key performance indicators were achieved. Pages 37 to 41 of the AR set out performance information as well, listing 90 indicators, of which 61 were not achieved. He commented that many state owned enterprises were setting a broad range of targets that were not achieved.

Ms Newhoudt-Druchen referred to page 27, enquiring whole comprised the audit team, and their qualifications. She wondered if the audit unit and AC were responsible for so many targets not being achieved.

Ms Newhoudt-Druchen noted the cost of programmes, film and sport rights, questioned why the AG was not able to verify this, and asked if the lack of verification indicated that documents were lost.

Ms Newhoudt-Druchen asked for an explanation on the DTT, whether money should have been allocated to it, but had not been, and whether there was still money available.

Mr Steyn noted that page 27 (Group CEO’s report) also needed to have figures corrected.

Mr Steyn commented that the review cost impact policies were related to the government guarantee. The AR stated that leave and travel policy targets were not achieved. Both of these areas had huge potential for corruption.

Mr Steyn added to previous Members’ remarks on the AC, by saying that not only was the Audit Committee appointed by the Board, but it should surely have to report to the Board; and if this was so, then the Board bore responsibility for its performance. He noted also that the internal audit unit had failed to attend to the evaluation of quarterly reports. These were not only necessary to comply with Treasury regulations but were vital to verify information. If they were not being regularly scrutinised, then this brought into question what the Board was doing, as it was ultimately responsible for measuring progress. No effective oversight was exercised on performance against objectives. He agreed with Mr Schneemann that the Board had to accept responsibility for poor performance in this financial year, and he commented that the Portfolio Committee would have to debate, very seriously, how it could “stop the rot”.

Ms Kilian added that the Board had given an undertaking last year to this Committee to correct the situation, and this was a misrepresentation to Parliament.

Mr Kekana added that he wanted to know if six-monthly assessments were done, as anticipated in the Turnaround Strategy; if not, then it appeared that the institution was stagnant.

Ms van der Merwe asked that the SABC must submit the schedule of criminal charges, which should have been available on 5 October to the Committee. It related to the summary of the audit report for 2011/12, and disciplinary proceedings in that financial year.

The Chairperson remarked that the questions were indicative of the reduced trust that the Committee had in the SABC Board and executive. There were concerns that despite assurance in previous years, the same problems recurred, and this called into question the real commitment to the promises made. He also noted the numerous concerns that the Audit Committee had not helped, and even hindered, SABC from moving forward, because of its own weakness. This AC, and members of the Board who served on it, had made undertakings also to the Portfolio Committee in previous years.

The Chairperson urged SABC to get a view, from the independent auditor, on the composition of the AC. Even if it was competent for a non-executive member of the Board to chair the AC, he did not think it was the best option as ideally an outsider should chair the AC. In addition, he suggested that if certain individuals were not helping the work of that Committee, they should no longer be used. A failure to improve the AC would result in failure to improve SABC, and he stated emphatically that the “internal audit has failed SABC”.

Ms Morutoa said that she did not fully agree with the Chairperson’s recommendation, as it was necessary to determine whether it was the Board who was failing the AC, or the other way around.

The Chairperson reminded her that the external auditors had already said that the internal audit unit and AC had failed in their task.

Ms Kilian asked if the Board could respond on whether anything that the AC had presented to the Board had been accepted or recommendations followed. If not then this pointed to Board, and not AC failure.

The Chairperson reiterated the comment of the external auditors, and said the attendance of the AC meetings, as raised by Mr Schneemann, was another indicator of AC problems.

Mr Morutoa understood that, but agreed with Ms Kilian that efforts on the part of the Board also must be questioned.

Mr Sembi Danana, Board Member, SABC, agreed that whilst some of the Board were appointed in 2010, others were appointed in July 2011. There were also “staggered” appointments to the AC, which explained the discrepancy in attendance figures. He reminded Members that from time to time, rescheduling of meetings prevented full attendance. Initially, there was no Head of Audit. However, the Board had taken note of the AG’s comments as to where the AC was lacking. He had chaired the AC in the previous year.

Mr Danana said that the Board members had been assessed, both internally and through their external auditors. Monthly and quarterly matters were being raised and monitoring was being done.

Ms Theresa Geldenhuys, Company Secretary, SABC, commented on the Chairperson’s suggestions for the chairing of the AC, saying that the Companies Act did not allow for independent chairing, and that members of the AC must be appointed from within the Board. At the AGM on 17 August, a suggested AC membership list was submitted, but rejected by the Shareholder. It had to be approved to avoid contraventions of the legislation. She reiterated that now the Board meetings were aligned with quarterly reporting requirements, and the Charter and Terms of Reference for the AC were corrected, to ensure that matters were presented on a quarterly basis. This would include reports on fruitless, irregular and wasteful spending, and ongoing concerns.

Ms Morutoa said that the same issues recurred time after time and she questioned whether these corrective steps would in fact help.

Ms Kilian and the Chairperson reiterated that they believed that SABC should still ask the AG to comment on the appointment. Ms Kilian thought that the AG had given an interpretative opinion as to whether certain sections of the Companies Act applied. It was quite logical to check the statutory framework.

Mr Steyn asked for how long the Charter had been in existence, agreeing with Ms Morutoa that the same issues were recurring.

Ms Geldenhuys said the policies were approved by the Audit Committee in July 2012. She took issue with Ms Kilian’s comment on the application of the Companies Act, stating that section 194(2) stated that it was applicable to both public companies and state owned companies.

Adv Mahlati said that she was a member of the audit committee and had attended all of its meetings. Some of the AC members had raised fundamental issues about the lack of leadership, lack of responses to issues raised, and other problems, and the full Board had only taken corrective steps shortly prior to the 2012 AGM. She assured the Members that some AC members were independent and non-executive, were conscious of their statutory obligations, and that their activism in threatening to report matters to the Shareholder had finally sparked the corrective action. She said that the AR pointed out some stark and clear conclusions. The obligations of the AC did not rest only with that AC, because all subcommittees reported to the Board. If any blame was attributable to the AC, it must also reflect on the Board.

Mr Schneemann reiterated that page 79 of the AR said that no member of the AC had attended all meetings. He had read the report of the AC and the report of the AG, which clearly stated that the AC members could not absolve themselves from the weaknesses in that committee. The AG had set out clearly, on page 85 some of the matters that the AC had failed to do, which were its direct mandate. Whether or not matters were referred to the Board by the AC was another issue. Page 85 stated clearly that the AC failed to act, but did not say that the Board failed to act. He was pleased to hear that the Board had already recommended changes to the AC, and he stated that the AC had failed.

Ms Lesoma said that some of the matters being raised by this Committee as recommendations should be accepted as genuine suggestions for improvement, and there was no need for the SABC Board to adopt a defensive stance. Other entities had their audit committees chaired by outsiders, and the Members were offering the benefit of their experience to assist the SABC.

The Chairperson confirmed that other state owned entities had their audit committees chaired by external people. He was not making any determination, but was asking that SABC should consult with the AG on this point.

Ms Kilian concurred with Mr Schneemann as to what the AG had said. However, she also agreed with Ms Morutoa that the accounting authority was the full Board. Weaknesses in sub-committee structures would inevitably come out.

The Chairperson agreed that the Board was the final accounting authority, and King III required performance reports from the Board and this would include sub-committee reports.

Mr Lumko Mtimde, Board Member, SABC, said that the Board appreciated the suggestions and wisdom of Members. He noted the concerns of a breach of trust between the Portfolio Committee and SABC. In the current year, the Board ensured that the committees were functional. Audit findings from previous years, the Special Investigating Unit report and other reports had been used to formulate the plans to stabilise the SABC. Three main management positions were filled, and another appointment could now proceed, so that answered the question as to what was now being done that would drive the SABC forward. Greater management stability would enable the Board to deliver, and he commended the appointment of the new Company Secretary, and the implementation of King III recommendations that were leading to better oversight.

Mr Mtimde conceded that the lack of achievements was regrettable, but this must be understood in the context of unstable management at that point. Performance reports  were now required at every Board meeting. He urged that the Committee should trust the current Board, and summarised that although it had inherited challenges, it had now managed to set systems to deal with priority areas.

Mr ka Plaatjie responded to queries about newspapers provided to journalists. He summarised that not only the New Age, but also AVUSA and Independent Newspapers were purchased.

The Chairperson said that this indicated that Members needed to do more research, and he commented that some of the allegations about the sources provided were questioning the integrity of the SABC.

Ms Kilian said it should be recognised that the questions were intended not to impugn integrity, but to solicit answers to specific questions.

The Chairperson said that there was an implication that SABC may have an incorrect relationship with The New Age, given that few other newspapers were allegedly purchased, but this was not supported by the figures on spending.

Ms van der Merwe said that she would be willing to apologise if her comments were seen as casting aspersions on the Board. However, she had visited the SABC offices, and had asked if the cuts in purchasing of newspapers in fact resulted in journalists being hampered. She had not intended to cast any aspersions.

The Chairperson said that Ms Kilian’s question, not Ms van der Merwe’s, was problematic.

Ms Kilian wanted to put the facts straight. The matter was in the public domain, and this was an opportunity for the SABC to put the record straight. She may have been clumsy in her formulation of the question, but she too did not intend to question the SABC’s relationships. It was not correct for the Chairperson to cast aspersions on her own integrity, as she was entitled to ask questions, as a public representation.

The Chairperson said that the question had not only gone to the SABC, but it was suggested that the ANC may have a problem. However, this might be a problem of language.

Mr Hlaudi Motsoeneng, Acting Chief Operations Officer, SABC, confirmed that SABC did have a budget for all newspapers. The New Age was new, and it had offered a huge number of papers as an incentive. There was a relationship to communicate what government (national and provincial) were doing, to keep people informed, and it was important to promote news coverage of provinces, so there was a partnership between SABC and the New Age. He was surprised to hear that people were unwilling to read the New Age.

Mr Olivier noted that of the R1 million paid on newspapers, the majority went to news, and the cutbacks on provision of newspapers related to Head Office.

Mr Motsoeneng added that SABC reached an audience of over 34 million people every day, out of the total population of about 55 million. He believed that these were pretty good audience figures, and it showed that although SABC may be struggling in some respects, it was achieving its core business was to broadcast and ensure that programmes were on air.

Ms Lesoma interrupted to ask that specific questions be addressed.

Mr Motsoeneng said he raised this in the context of matters of content and sport. Mr Steyn had raised the question of whether the cuts led to core business being stifled. SABC was currently buying in content that it knew it would use, such as the sport.

Mr Olivier answered the questions about digitisation by explaining that SABC received two types of grants. The Education programme was declared as income, when SABC got the cash. The other grant, for technology, was received in advance, and was reflected in the annual financial statements, at page 109, note 16. The balance of that grant was R142 million at year end. It could not be used for any other purpose than that for which it was granted. He noted that some of the digitization projects were not delivered, so the cash could  not be declared, and this was also linked to the lower spending on capital expenditure. He clarified that moneys for digitisation were actually intended for digitisation of the SABC itself, not for the DTT. R58.2 million went to the Henley facilities, where the majority of the digital projects were taking place, under Capital Expenditure.

Mr Olivier said, in response to the budget for legal claims, that this was a valid point, and he would consider how it could be budgeted in future years.

Mr Olivier explained the amortization amounts. Page 108 of the AR showed the amounts spent on new productions. In 2011/12, R1.3 million was spent on programmes, some of which were transmitted, and some not. In the previous year, R643 million was spent on sports rights and on work in progress, but R1.7 billion was spent in all, because proposals had been sent out. He commented that the cash sent out, and not the amortisation side, was the important figure. He was concerned to ensure that SABC would not over-commit.

Mr Olivier responded to Ms Lesoma’s question on borrowings by explaining that although SABC had an overdraft facility of R423 million with the four major banks, it did not currently need to use it. The facilities with the banks were reviewed annually. Long-term loans were long-term facilities, and the SABC could not access again the amounts that it repaid; although he had asked the Board to consider whether this facility could be changed to a rolling fund facility. There were also asset leases, to borrow money for Capital Expenditure. He noted that he had not had time to meet with the banks on borrowing limits of the SABC business, but reiterated that none of the loan facilities were being used, other than as disclosed.

Ms Kilian asked whether National Treasury had not expressed concern about the possible exposure for government if the amounts repaid could be accessed again.

Mr Olivier said that SABC had not approached National Treasury on that issue, since any proposals must first go through internal governance processes.

Ms Kilian said that the Minister had responded on this issue, in relation to the government guarantee.

The Chairperson said that this was actually a new issue; the previous questions related to the amounts that had to be paid back.

Mr Olivier noted that employee incentives were thirteenth-cheque bonuses.

Mr Oliver responded, in relation to queries on slide 24, that the AG had said that some systems were maintained manually, but was not able to verify the list of stock and the amortization of programmes’ numbers to confirm the accuracy of impairments.

Ms Mokhobo summarised that the SABC had tried to outline some of the solutions that the Board believed would help the SABC to turn around. She was keenly aware of the frustration that repeated problems had caused. The executive had a huge task and it was seeing daily improvements. In relation to the substantive discussion about the effectiveness of the internal audit function, she noted that SABC had now designed a proper control framework that would apply throughout the organisation, and proper governance was embedded into every activity. She reminded Members that this presentation related to the period up to end March 2012, an assured them that her own performance contract was built around every single aspect of the seven pillars of the Turnaround Strategy. That illustrated how seriously the Board and executive viewed the strategy. She said that some items would be very difficult to achieve, including increasing audiences, and indeed there was vigorous debate as to whether SABC would ever again return to viewership levels of the past, given the new landscape and new investors. Despite this, the Board and executive were adamant that SABC’s role as public broadcaster must remain sacrosanct, and that SABC would seek always to educate and inform. The new strategic direction had given new energy to the process.

She hoped that the same problems would not again recur. SABC was applying its mind to the cut-backs made in the organisation and had been honest enough to admit that perhaps, in the drive to meet the government guarantee, it may have given insufficient attention to some aspects. However, there had been massive reinvestment in content. The government guarantee had not taken into account the fact that there would be a new digital environment, nor had it taken account of the new channels on the platform, which were critical to taking back the sphere of knowledge economy in education and health. In future, a different picture might emerge.

Mr Ka Plaatjie noted that page 68 of the AR spoke to the relationship with NEMISA, and he assured Members that it was in place. In a well-worded corollary with a medical patient, he said that SABC’s most serious problems had been addressed, and the remainder of its ailments were now being attended to. The advice of the Committee was accepted, and he would like to give his personal assurance that very different results would be seen in the next year. The Acting Head of Procurement had been suspended and arrested, and it was clear that drastic action had been taken. Charges would be preferred against the Chief Financial Officer. Forensic investigations were under way. He assured Members that the Board wanted to turn itself around, and earn the Committee’s confidence and trust.

Mr Steyn said he would hold the Board to its commitments.

Mr Kekana asked if the half-yearly objectives and performance could be presented regularly to the Committee, to allow the Committee to identify any problematic areas, in advance.

The Chairperson thanked the Board and executive. He reiterated that the loss of confidence in the SABC was unfortunate and may not be corrected overnight. The outcomes and issues for the internal audit must be built into the Quarterly Performance Reports, to enable proper tracking, particularly on those matters where due dates were already noted.  He was pleased that the seven pillars of the Turnaround had been incorporated into performance contracts, and agreed with Mr Steyn that this Committee would hold the SABC to its undertakings.

Finally, the Chairperson expressed his disquiet that the SABC’s Board behaviour had not been exemplary, and pleaded that Board members should find some other way to resolve their difficulties, and raise issues through the proper channels, not disrupting the Portfolio Committee meetings.

The meeting was adjourned.