SA Post Office & Brand South Africa Annual Reports & 1st Quarter Performance 2012

Meeting report

Opening Comments
The Chairperson noted apologies from the Minister and deputy Minister who could not attend the meeting.

Ms J Kilian (COPE) said she understood that the Minister was abroad, but the Deputy Minister was unavailable yesterday and today. The Chairperson explained that the Deputy Minister had suffered a bereavement.

South African Post Office (SAPO) briefing on its 2011/12 Annual Report
Mr George Mothema, SAPO Board Chairperson, informed the Committee that the new board was appointed on 1 March 2012, just one month prior to year end. He stated that the board had appointed a Group CEO, Mr Chris Hlekane.

Mr Hlekane gave the Committee a brief summary of his background, saying that he was grateful for the opportunity to work for SAPO. He graduated as a chemist from Rhodes University where he worked in the construction space for a while before moving on to Colgate, Nampak, Coca-Cola, MX Health and Airport Company South Africa (ACSA). After a successful stint at ACSA, he was asked to join SAPO.

Mr Mothema was pleased to announce that the positions of CFO and COO were in the process of being filled.

The Chairperson asked the SAPO to give the Committee the highlights of their presentation. Members did not want the entire presentation.

Mr Molefe Mathibe, Managing Director: Logistics, informed the Committee that 2011/12 was the fourth consecutive year of decline in mail volumes. Mail volumes dropped by 3.7%. There was an increased focus on governance and corporate citizenship, as well as the commercialisation and regulation of SAPO's financial services.

Some of SAPO's strategies included growing revenue at an acceptable cost, delivering on their shareholder mandate, improving efficiency and effectiveness, satisfying its customers and entrenching a high performance culture in the organisation.

Performance Highlights
Mr Prakash Mangrey, Acting CFO of SAPO, stated that the Group profit before tax increased by 32.6% to R251 million. Group revenue increased by 1.8% to R5.9 billion and Postbank deposits grew by 6.9% to R4.3 billion. 2.7 million motor vehicle licences were renewed at post offices and 1 199 273 addresses were rolled out to first time address owners.

Looking Forward 2012/13
Mr Mathibe stated that SAPO hoped to address declining mail volumes and the loss of social grant payouts. The 2012/13 financial year would see the phasing out of funding from government with high costs of servicing universal service obligations. The focus would also be on diversification of revenue streams, and the Postbank corporatisation for financial inclusion. SAPO noted that investment in IT infrastructure would be a key enabler for business growth.

SAPO Briefing on their First Quarter Performance
Ms Marietjie Lancaster, General Executive for Strategy in SAPO, explained that tough trading conditions continued for the first quarter of the new financial year with depressed revenues. The negative impact of the labour broker strike contributed to the Group revenue missing its budget by R31 million.

Operational expenses of R1.5 billion were below budget by R15 million and increased by R98 million from the prior year. The final result was a net loss of R76 million which would have been lower had the R52 million subsidy claim for marginal post offices been processed during the first quarter. The claim would only be processed once SAPO receives the approval of National Treasury of the rollover of the R95 million unspent subsidy funds from the 2012 financial year.

Discussion
Mr G Schneemann (ANC) noted that the Annual Report did not show a target for SAPO upgrading their post office branches. Many post offices were outdated and were not attractive at all. This was something that SAPO had to address. He needed clarity on this. The rolling out of addresses and the paying of motor licences should have had clear targets as well. It was difficult for the Committee to measure the success of projects if they were devoid of targets. He noted that the external auditors were quite positive about the work of the internal audit committee of SAPO compared to the other State Owned Entities that the Committee had dealt with this month. He noted that approximately 44% of the targets that SAPO had set itself had not been achieved, which was worrying. It seemed to be a trend that entities were setting themselves targets that they could not achieve. The Committee would have to look at this matter closely when they made their recommendations later. He wanted to tell entities to set targets that were achievable; they were not supposed to set “wish lists”. He stated that there were entities that were not performing well that were being carried by SAPO, such as the Courier and Freight Group (CFG). This was a concern and he wondered how SAPO was going to rescue the situation going forward. The declining postal volumes was probably going to continue unless SAPO came up with initiatives to get people to use postal services. However, this was difficult when people were utilising SMSes and emailing services. He suggested that SAPO introduce campaigns during special holidays such as Christmas that would encourage people to use postal services.

Mr Mathibe replied that the strategies for branch refurbishment and the roll out of addresses could be found in the Annual Report. In terms of dilapidated post offices, this was an area of concern, especially in rural areas. One of the things SAPO was doing was to quantify how much money they needed to refurbish post offices across the country. The amount was already “scary”, and was a major worry. He personally visited post offices, and the sight was quite depressing.

He agreed that the issue of targets was very concerning. The SAPO management and board were very concerned that they only managed to make 44% of their targets.

Mr Mothema noted that CFG had accumulated losses for the last financial year. SAPO decided that they could not just support CFG without doing something about their business. At the time, management started a process of integrating CFG's business units. SAPO requested that management of CFG come back to the board with a turnaround plan. One of the issues that they were going to look at was to create targets that were achievable and could drive the behaviour of the business to get what they were looking for in terms of performance.

Mr Mathibe acknowledged the matter of declining mail volumes. Unfortunately, most of the revenue came from business to business or business to consumer transactions. This made it difficult to find ways to stimulate mail usage, especially given the competition from cell phones and other technology.

Ms M Shinn (DA) noted that there were many missed targets. The Committee needed to know which programmes SAPO put in place to address this problem. SAPO had had a 13.5% increase in workplace accidents. When SAPO set this target, did they have some sort of campaign internally to tell employees they wanted to reduce the injury rate? Leave liabilities or payments increased by 24.5%. Leave payouts for 2012 amounted to R143 million, whereas the previous year it was R115 million. She noted that there was a 42% increase in the use of paper. This was quite astounding. Brief mention was made (page 87 of the Annual report) about an investigation into apparent non-compliance of certain policies and procedures of the SAPO Group pertaining to contract and procurement matters. She wanted to know if the Eco Point leasing matter had to do with this investigation. She had a look at the executive pay on page 161 of the Annual Report and noticed that two people that were implicated in the Eco Point matter had been paid high salaries. At the time the then CEO received a R2.8 million salary and the then COO received R1.3 million. What she was worried about was that the CEO received an extra benefit of R384 000 and the COO received an extra benefit of R122 000. She asked what the benefits were for and hoped they were not golden handshakes. She noted that SAPO's spending on IT decreased this year by half from the previous year. She asked them to comment on this, especially given current cyber threats. There did not seem to be any results for SAPO's eco programmes.

Mr Mathibe addressed the question on leave liabilities. This was a matter that was debated quite regularly. It took into account the number of leave days an employee received every month. It was something like 1.8 days per person per month. This tied in with the vacancy rate. If posts were not filled, it meant that people were unable to go on leave as there was a shortage of staff. This caused the amount for leave liabilities to grow. SAPO wanted to reduce this to 10%. It was one of SAPO's major challenges.

Mr Mathibe focused on the usage of paper, saying that SAPO unfortunately, was a paper-using organisation. However, it was scary that paper usage increased by so much. SAPO was trying to reduce its use of paper, while at the same time focusing on recycling initiatives.

Mr Maphutha Diaz, General Executive: Human Resources for SAPO, explained that the increase of workplace accidents could be attributed to the increase in staff members involved in postal services being bitten by dogs. This was the biggest contribution to workplace accidents and was a global problem.

Mr Mathema replied that the Eco Point matter was still under investigation by the Public Protector. The board awaited the outcome of that investigation and would come to the Committee once the report was completed.

Mr Mathibe explained that one of the challenges that were shown on capital expenditure was the timeliness of spending money on IT projects. Some of the IT projects were very customer focused. For example, SAPO had to increase the number of IT stations in branch outlets so customer service can improve. However, if the network was not ready, even if you put a PC there, it would be useless. He understood that SAPO had to drive its IT projects.

Ms Maggie Modipa, Chairperson of the Postbank, answered that no golden handshakes were given. The fees that were disclosed related to outstanding payments that were due to them, which were approved a year later by the Minister.

Mr Schneemann stated that one of the targets that was not achieved was the employment of persons with disabilities. He thought SAPO's efforts in this regard were dismal. He understood that there was hacking into SAPO's IT system and that a lot of money was lost as a result. He asked if the Committee could get an explanation on this and what they were doing to improve IT systems and controls.

Mr Diaz acknowledged that SAPO's performance regarding the employment of persons with disabilities was not good. SAPO had now identified three specialist organisations that they would work with to help improve upon this matter.

Mr Mathibe answered that the reduction of theft from the Postbank was an ongoing effort and process. The issue of having proper controls had been raised as well. SAPO was looking at a number of interventions from an audit point of view where more regular audits would be held in this area to ensure that control systems within the bank were more secure.

Ms R Lesoma (ANC) stated that something had to be done about the fact that SAPO was not meeting its targets. She noted problems with supply chain management as well. She suggested that the post office branches needed a “facelift” as they were completely outdated. She hoped to hear that SAPO was extending its services to rural areas.

Mr Diaz replied that they were working with the Group CEO very urgently to find two competent persons to stabilise the performance of supply chain management.

Mr Mathibe told the Committee that the extension of SAPO's services into rural areas remained a prime focus.

Mr A Steyn (DA) said that it seemed to be a pattern that most entities were achieving below 50% of their targets, but they were spending most of their budgets. He assumed that targets were linked to budgets, so if you do not reach your targets, it should mean that most of the money was not spent. He warned that SAPO's targets should be more aligned to their budget. The Committee appreciated SAPO's environmental initiatives and recycling project. It was already mentioned that mail volumes were declining. One of the things that boosted volumes in the past year was the 4000 copies of the census. This was not going to be there during this financial year or the next year, so what was SAPO going to do? Linked to this was that even though volumes were declining, revenue from mail was increasing, which told him that SAPO was starting to charge more for this service. He was concerned that SAPO was going to start charging amounts beyond which people could afford.

Mr Steyn referred to Page 43 of the Annual Report that looked at board meetings. He had a query about Mr S Adam, who did not seem to have attended most of the meetings? SAPO was involved in an e-rural programme which seemed similar to the Thusong Centres. Who monitored the programme and were they working with the Universal Service and Access Agency of South Africa (USAASA) to ensure that projects were not duplicated. It seemed that SAPO's internal audit committee was performing better than most other entities. He noted that there were a lot of findings in the Auditor-General's Report that were very similar to previous years. The Committee did not want to see the same problems from previous years that were not being addressed. The Annual Report showed that the internal audit department issued many reports highlighting material deficiencies in internal control systems. These reports went back a number of years and most of the reportable matters had not been addressed satisfactorily. He wanted SAPO to take note of this. He understood that the new board could not be held responsible for what happened in the past, but these matters had to be addressed now. SAPO received R750 million from the shareholder in 2005. Why was this only recorded in the 2011/12 financial statements? The financial statements also showed R1.3 billion for “Other expenses” which he thought was quite excessive. He did not even know what “Other expenses” were. He also noted a large amount of money put towards a telephone allowance for retired employees. He asked if this amount was capped or if a certain amount of money was allocated to each ex-employee per month. This was worrying because it was quite a large sum of money. On page 142 of the Annual Report, there had been fruitless and wasteful expenditure for rental incurred on leased property before it was occupied. He asked how SAPO ended up paying rent for property that was not occupied. Page 145 of the Annual Report showed that SAPO was in receipt of a summons in which NASASA Cellular (Pty) Ltd claimed R1.3 billion in damages arising from an alleged breach of agreement concluded between the two parties in 2004. Although he understood that there could not be a contingency for R1.3 billion, there did not seem to be a contingency at all. He wondered if SAPO was confident of winning this battle.

Mr Mothema answered that declining volumes of mail were a concern especially since it contributed to approximately 60% of SAPO's revenue. One of the initiatives undertaken by the board was to ask management to start with a cost compilation exercise. This was critical for the business, especially when costs were growing way above revenue. This forced SAPO to act immediately. They were also looking at areas where they could save. In order to address declining mail volumes, SAPO was looking toward the diversification of services and developing new products that would allow the entity to cross-subsidise some of their universal obligations – such as rolling out their retail programme. It was noted that SAPO would have to come to the Committee to present a full strategy on how they were going to turn around their business. The new CEO was told that a new programme was needed as well as a team that would focus on this turnaround plan.

Mr Mathibe added that there were multiple categories of mail items and each one was processed differently. What happened was that customers had consolidated towards using more expensive mail options. Instead of mailing five separate items, customers were now consolidating items, which needed bigger packages and cost more.

Mr Mathibe spoke to audit findings from previous years. In some cases some of the findings took a number of years to be resolved; however, most of the ones that could be resolved quickly, were resolved within a year.

Mr Mangrey responded to the question of the R750 million cash injection received from National Treasury. The money was received by SAPO and was classified as a “ring-fenced” investment. So, on the balance sheet it shows as both an investment as well as part of equity. Since the money was received in 2005, it had been an investment.

He stated that insofar as ‘Other expenses’ were concerned, SAPO acknowledged that was an opportunity for more informative disclosure. More detailed notes could be found on page 141 of what other expenses were. Some of the key elements that made up ‘Other expenses’ included depreciation, service and agency fees, consultancy fees, licensing fees and audit fees.

Mr Mangrey explained that telephone allowances were capped and were based on a certain percentage of the retired employees' packages. They varied from employee to employee.

He replied that as far as the litigation with NESASA was concerned, it was currently still reflected as a contingency and the matter was sent to court; however, a new date was being agreed upon by both parties.

The Chairperson interjected, saying that the critical issue regarding the litigation was that SAPO's balance sheet should not be hit hard if they lost the case.

Mr Mangrey addressed the matter of property contracts. During the financial year, SAPO discovered that some of the property contracts were not compliant with procurement policies. A Financial Misconduct Committee was established with a framework that complies with the Public Finance Management Act (PFMA). The Financial Misconduct Committee would look into the issues regarding these contracts, ensuring that action would be taken where contracts were non-compliant or irregular.

Ms Modipa dealt with the issue relating to Mr S Adam. She explained that he only started attending board meetings this year in his capacity as the acting managing director of the Postbank. This took into account the transitional governance arrangements that were presented to the Committee last year.

Mr Lungile Lose, General Executive at SAPO, replied that the e-rural access programme was in partnership with the Department of Rural Development and Land Reform. The project was also being done with the co-operation of USAASA.

Ms Kilian congratulated SAPO for taking the initiative to create a Financial Misconduct Committee (Page 95 of Annual Report). This was the type of initiative that the Committee liked to see in public entities. With reference to SAPO's predetermined objectives and non-financial performance, she was happy to see that the institution had already rolled out 75% of their performance management targets. SAPO had approximately 50 500 employees. How did they manage those employees working in the outlets? How did SAPO know that they served the public well? She noted that postal services were very important for rural areas that did not have access to email. She wanted to know what SAPO was doing for rural areas and how they ensured that post offices were operational.

She continued saying there was a suggestion that State Owned Entities should look at the composition of their audit committees, which should constitute people with the necessary skills and knowledge. SAPO's audit committee looked good; however, she questioned the selection of the chairperson. According to National Treasury's regulations, it seemed that the chairperson was not supposed to be a non-executive board member. She asked them to check this with the Auditor-General. This was an important compliance issue. SAPO had received an unqualified audit but some concerns were expressed. One of these was about material losses, which was linked to IT and the concerns expressed by the Auditor-General (AG) about IT weaknesses and risks. This was identified as one of the major factors that could present serious problems for the public sector. What was SAPO doing about this? It was obvious that hacking had taken place with complicity from inside SAPO. How was SAPO going to prevent this from happening again?

Ms Kilian said internal controls, expenditure management, procurement and non-compliance were identified as problems by the Auditor-General. These seemed insignificant within the bigger picture; however, she warned that these were systemic problems that could surprise SAPO in the future. Another concern was that management initiated a review of all procurement and property contracts. It appeared that there could be non-compliance with certain policies and procedures of the SAPO Group. The approximate value for the Group under further review amounted to R831 million. She asked for more clarity on this and what the impact was on SAPO.

Mr Mathibe replied that SAPO had to try to find ways to keep critical IT skills. SAPO could not compete with the salaries offered to IT employees by other companies. In terms of hacking of SAPO's IT systems – this formed part of initiatives to address the entity's internal controls.

Ms Modipa assured the Member that the appointment of the new Board and the chairperson of its audit and risk committee complied with the necessary regulations.

Ms W Newhoudt-Druchen (ANC) stated that SAPO noted that cyber crime was an emerging threat to the institution. She asked what they had done so far to address this matter. The Department of Communications (DoC) told the Committee that there was legislation in place to address cyber crime. Was SAPO working with the DoC to address this matter?

Mr Mangrey explained that between 31 December 2011 and 3 January 2012, Postbank experienced an e-crime type fraud that led to a financial loss of R31 million (page 143 of the Annual Report). An investigation led to the arrest of four persons, three of whom were successfully prosecuted and imprisoned to 55 years in jail. The fourth suspect had been in police custody since April this year. His requests for bail had been refused by the court and the suspect's bank accounts and assets have been frozen. The investigation established the modus operandi that was employed to perpetrate the crime, guiding the reinforcement of IT security to avoid repetition. IT protection had been reinforced.

The Chairperson stated that according to the AG's report, a new problem for SAPO was the lack of leadership, which the entity had dealt with for now. The problem emanated from when they did not have top executives in place. He noted that SAPO also seemed to be missing their targets for the first quarter of the current financial year. It was important for SAPO to find ways to achieve their targets. He thanked the SAPO for their presentation.

Afternoon session
The Chair welcomed Brand SA, saying that Members had already read the submitted reports, thus presenters should only give a brief summary of their report to allow time for discussion. Apologies were received from Brand South Africa’s Board Chairperson who was currently in Ghana, and the Deputy Chairperson who was ill.

Brand South Africa (BSA) Annual Report 2011/12 briefing
Mr Miller Matola (CEO: Brand South Africa) said the report highlighted the areas of significant accomplishment by Brand South Africa. He stated that 23% of targets had not been achieved. This was largely because they had to go through the process of repositioning and getting the new marketing slogan for the country approved. This was done at the end of the financial year in March, so the activities which were not implemented would have been related to the pay off line. Brand South Africa had received an unqualified audit report with some findings which they would address. The unauthorized expenditure reported on was caused by BSA having to wait for Treasury to respond to their request for retention of a surplus as was allowed by Treasury regulations; and having not received a response after repeated requests, BSA invoked section 64 which stated that if they did not receive a response within 30 days they could stop trying. However, even after reporting the situation to the auditors, the auditors felt that the expenditures should be reported as such. The procurement issues experienced were due to the fact that, as a small organization, BSA had no experience with Supply Chain Management (SCM). The board approved the creation of such a unit and the employment of an SCM manager. Mr Matola reported that they had achieved 54 out 71 targets and acknowledged that they had fallen short of expectations on employing persons with disabilities. They would welcome suggestions on how to rectify this.

Discussion
Ms L Van der Merwe (IFP) noted that pages 11, 12 & 13 on performance of board members showed that some members only attended two out five meetings, or none at all. Could BSA give clarity on the attendance behaviour of board members? She quoted the Auditor-General’s remark from a previous meeting that it was very concerning when departments overspent, yet they had not met their targets. What actions would be taken against those who contravened the Public Finance Management Act (PFMA)? Chapter 10 of the PFMA clearly stated the disciplinary procedures that could be executed.

Mr A Steyn (DA) commented that a lot of the explanations given for the unmet targets was the new marketing slogan. This led one to believe that when the BSA was setting those targets, the new marketing slogan had not been part of the targets for that particular year. Was it wise to introduce something that would almost disrupt their processes and push forward with it at the expense of other targets? Page 38 on vacancies stated that the posts for communication manager and regional managers for Asia and the Middle East were vacant. How come this was the case, yet these were priority areas for South African branding? Page 45 on wasteful expenditure stated that BSA had spent funds on a contract for photocopiers that did not work. Typically, in a contractual agreement, if the product was faulty, the buyer should be able to return it and not have to pay for it. Were not there proper contracts in place that gave BSA some security? In addition, the department had paid for a venue but did not have enough participants. How did the department get itself into such situations? He asked for an explanation for the deficit of R28 million. Page 46 on internal controls showed that the Auditor General (AG) had found weaknesses in internal controls. Why was this a perpetual weakness in state-owned entities? On page 62, it appeared that a director employed by BSA was also earning a consultancy fee. How was this possible? They either had to have a consultant or an employee, not both.

Ms M Shinn (DA) was concerned that the fruitless and wasteful expenditure on pg 72 & 71 had amounted to over R1 million, but noted that part of that had been carried over from the previous year. Could the department explain how these financial figures added up? Also, the basic salaries for the some of the executives seemed to have been halved. Why? There did not seem to be much generation of money in terms of stakeholder funding as shown by targets that were missed. BSA wanted to raise R6.4 million for branding but only got R1 million, and in Other Sponsorships it wanted to raise R10 million but only got R5.5 million. Was there sufficient buy-in from stakeholders? Did they understand what BSA was? What were the challenges and what would BSA do about them this coming year?

Ms J Kilian (COPE) stated that on revenue and partnership income on page 61, a concern was that there was lower revenue and other income had also declined. Basic salaries and staff costs were on a steep incline and this was unsustainable. What were the plans to contain that in future so as to remain within budget? BSA should be concerned about the AG’s report because it pointed out ineffective expenditure management that was unacceptable. If BSA did not have proper procurement and contract management to manage contracts and ensure compliance with Treasury regulations in terms of bidding, then the situation was totally unacceptable. The audit report also stated that the leadership did not exercise adequate oversight responsibility over compliance with laws and regulations; this was a matter of serious concern. It was important that BSA get the basics right. They had to protect their own brand before they could project the brand of South Africa, or else they would not convince anyone about the brand of South Africa.

Corporate governance was also an issue. There was lack of participation and continuity with the boards and its subcommittees. On pages 11-13, the Audit and Risk Committee, for example, had a membership of seven, but for many meetings, only three members attended. This showed a serious challenge with participation. In addition, a board member was also chairing the Audit and Risk Committee. She urged BSA to take up this matter with the AG because they would benefit significantly from having an external person chairing this committee and reporting to the committee. An observation made to other state owned entities as well was that in many cases, board members, by virtue of being non-executive members, were not always available, and thus were unable to take up the necessary leadership role.

Moreover, there was a vacancy for the PR officer yet this was a key position for BSA. How long had this position been vacant?

Pg 45 on fruitless and wasteful and irregular expenditure, which was a report by the Board Chairperson stated that in addition to the losses incurred on the contract for photocopiers, BSA had incurred irregular expenditure on cancellation of stakeholder summits in Northern Cape and Western Cape. How was it possible for BSA to incur an irregular expenditure of R12 million relating to non-compliance with laws and regulations on supply chain management?

She commented that financial management was weak. Page 45 stated that quarterly management reports were submitted to the Government Communication and Information System (GCIS) and the Presidency before funds were transferred to BSA. Yet how could they release further amounts to BSA if it was clear that the operations were highly inefficient? She urged the Committee to take the matter up with the relevant authorities to ensure that when funds were transferred on a quarterly basis, that quarterly reports were fully scrutinized before the next amount was released. This would ensure that such incidents did not recur.

A member stated that since 11 positions were vacant, BSA could start by appointing people with disabilities. Were the BSA offices accessible to people with disabilities? The main reason why people with disabilities resigned from government employment was inaccessibility of buildings. Page 77 on improvement of media reputation stated that one of the reasons for a declining reputation was rhino poaching. Was BSA working with the Department of Environment Affairs to decrease this problem?

Slide 15 on the PowerPoint presentation stated that there were only 30% of international investors in South Africa, 40% of respondents were not familiar with South Africa and half of the respondents had never done business in South Africa. Was this also due to the media reputation, because of the media being very critical of South Africa? How could South Africa solve this?

Ms M Lesoma (ANC) noted that filling of personnel vacancies had been slow. What relationships did BSA have with other spheres of government? What relationships did BSA have with embassies abroad to augment the shortage of staff and also reduce costs of attending international conferences?

How could BSA restructure remuneration at all levels to ensure everyone was paid appropriately?

Mr G Shneemann (ANC) commended the BSA for sending a small delegation; some departments typically brought many representatives unnecessarily. Page 72 on irregular expenditure showed that no action was taken in areas where a considerable amount had been spent. Could they explain this?

Mr Matola replied that the matters in the Annual Report came as a result of the actions of the board and management to try to resolve other issues. For instance, the former Chief Financial Officer (CFO) was fired as a result of an onerous contract that was later marked as a wasteful expense. The waste on purchased World Cup tickets was also another reason why the CFO was fired.

On the issue of the new payoff line, he explained that some of their deliverables were not met because they had had to wait for a marketing slogan. He reminded Members that the matter of approving a slogan had been two years in the making. That was why they had requested retention of surpluses. It was not possible to launch a marketing communication program without a slogan. It was not prudent to have television commercials without having a payoff line. They had to get all agencies that marketed South Africa to rally behind the new slogan and payoff line. Departments such as Tourism, and Trade and Industry, used the same slogan and pay-off line that was approved by Cabinet in March. All the activities affected by the slogan and pay-off line had to be deferred. In the planning, BSA had been aware of these challenges, but they had not known when the approval would be finalised. However, they had a target to have the approval within this financial year.

He clarified that executives were not earning double salaries. Managers had been fired and consultants hired in their place on a temporary basis. The consulting fees had been pulled from the salaries of those executives who had left.

On vacancies, he said that scarce resources had led to the positions not being filled. Also, specific requirements such as knowledge of a combination of certain languages, like French and Portuguese, had made it impossible to fill certain positions. Brand SA was forced to revise the requirements in some cases.

On the workshop that was cancelled, he stated that the department had organized the event in the same way that it had organized other successful workshops. The poor turnout for this particular event was an exception.

He mentioned that the previous CFO was also fired because he signed off on a contract without passing it to legal advisers to vet it. BSA had since improved on its contract management and use of legal advisers. However, nothing could be done to recover funds lost from the onerous contract.

Ms Alice Puoane (CFO: Brand South Africa) clarified that on Page 62, salaries of executives had not been halved: the executive in question had started working mid-year. She added that the board had approved a Supply Chain Management unit for the coming financial year. They planned to have three positions: SCM Manager, SCM Practitioner and an administrator. Warnings had been issued to various employees at BSA (herself included) with regards to the wasteful expenditure.

Mr Matola stated that the level of contribution of stakeholders was a function of the economic environment. When companies cut down on expenses, they usually scaled down on marketing, thus fundraising by BSA was affected. He explained that 2010 was an exceptional fundraising year due to the World Cup; thus BSA had adjusted its targets to reflect the fact that they were not expecting to raise the same amount this year. He insisted that it was not a matter of stakeholders not buying in, but they recognized that BSA needed to broaden their outreach to stakeholders so as not to have a narrow pool of stakeholders.

He said that spending on salaries had increased due to filling vacancies of positions approved by the board in 2010/11. The board had issued a directive that staff cost as a ratio of total budget should not be over 25%. At the end of the financial year, their ratio had been at 19%.

He acknowledged that attendance of the board was a challenge for some board committees. Committee charters stated that any member absent from three committee meetings without a valid explanation would have to resign from the committee. The chair of that committee would communicate this information to such members. He pointed out that some board members had already reached the threshold of three meetings, but their tenures were almost coming to an end anyway. However, on normal occasions, there would be a process to deal with non-attendance.

Ms Kilian noted that BSA had quite a large number of board members. What was the number for a quorum? If they could not have a regular board meeting and have a schedule, their functions would be crippled.

Mr Matola acknowledged that board members also recognized the problem of size. The board would mention in their exit report that the board was too large and unwieldy to enable effective operations. Currently, a quorum for board meetings was 50%+1.

He stated that the issue of accessibility for people with disabilities had been a challenge. The Human Resource department had been given a directive to address this. BSA occupied the 1^st and 2^nd floors of their building. The 1^st floor was accessible, but the 2^nd floor was not. This was a serious issue that they would take into consideration.

On media reputation and its relation to investment, the 40% of respondents who did not know about South Africa from a business perspective presented a marketing gap. In the past, BSA had marketed South Africa from a tourism, cultural and sports perspective. It was now time to increase awareness of South Africa as a business destination.

He also reported that BSA committed an assessment of the effectiveness of the board and its committees to be able to monitor their progress.

BSA had strong networks with other spheres of government which they worked with, for example, to do awareness and outreach programmes in the provinces. Their representatives abroad also worked with the ambassadors on various marketing initiatives.

They would follow up on the suggestion to have an external party chair the audit committee.

Ms Kilian stated that people must understand that they could not just waste public funds at will. Repeat offenders should be punished. She added that even if they resigned before their formal termination, they should be put on record such that they could not apply for other government positions elsewhere.

In closing, Mr Matola apologised for the absence of the board members. He thanked Members for their support of BSA and reiterated that there were plans in place to address the audit findings.

Meeting was adjourned.