Independent Communications Authority of South Africa: Interrogation of 2012 Annual Report

Meeting report

Absence of Minister and DG
The Chairperson sought clarity as to why the Minister, Ms Dina Pule, and the Director General (DG) Ms Rosey Sekese, were not present at the meeting, despite having been invited. He indicated that an apology had been received from the DG, but it had not indicated reasons for non-attendance.

Mr Sam Vilakazi, Deputy Director General (DDG) Administration, Department of Communication (DoC), replied that the Minister had indicated the day before that she would engage the Committee’s Chairperson about attendance.  The DG’s reasons for non-attendance were not known, but an apology had been sent to the Minister.

The Chairperson said the apology should have come straight to the Committee.

Mr N Singh (IFP) said that a few weeks ago the DoC had been sent back by another Committee because of the non-availability of officials.  Given the kind of transfers involved between the DoC and the Independent Communications Authority of South Africa (ICASA), it was important that the Department be present so it could answer questions that might require its attention. For how long would the DoC continue not to have a DG and, as a result, Parliamentary Committees be subjected to a situation where there was no accountability?  Sending these delegations amounted to fruitless and wasteful expenditure and this was unacceptable.

Dr D George (DA) commented that although he accepted the explanation by the official, this was not an isolated incident by the Department in its relationship with Parliament. Members were not happy at all with this kind of attitude. Consideration needed to be given on the next course of action the Committee could take. Members could not keep on saying  that they were unhappy, as that would change nothing. There had to be action and subsequent consequences.

Dr P Rabie (DA) concurred and said the Committee should insist on attendance by senior officials and the Minister.

The Chairperson said the Committee needed to discuss the matter in some other forum. The Committee was aware of the challenges confronting the DoC.  Although this did not justify the absence of officials, the Committee was aware that all might not be well at the Department. The Committee’s unhappiness would be communicated to the Minister. It was hoped that the official would also pass on the sentiment to the concerned officials. The behaviour raised doubts on the kind of institution that Parliament was.

Back in 2010, the Committee had been happy with ICASA’s unqualified audit opinion. The Regulator appeared to have made strides in improving its financial management. That meeting had been meant to assist in consolidating the momentum into the future so that there would be no regression. However it appeared from the current report that regression had taken place.

The Committee was unhappy about the qualified audit.  Members would want to see continuous progress until the entity was also one of those which received clean audits. From then on, a shift could be made toward issues of value for money. As things stood, the discussion was on compliance issues. The Committee had been impeded from looking into that element of value for money by regulatory audit issues that continually cropped up.  ICASA was one of the most critical and important entities, and its health was of concern to the Committee.

Compliance issues
Dr George sought clarity on closed litigation matters, especially as they related to an ex-employee on debt collection. The employee had left the regulator and had not returned a laptop, and now there was a pending legal case. He asked why this had happened, especially as there needed to be a procedure on returning assets issued for employees to use while in the employ of the entity.

Mr Themba Dlamini, ICASA Chief Executive Officer (CEO), replied that progress had been indicated in the report.

Dr George said he saw that, but the gist of his question sought to establish whether there was a policy or procedure that regulated the return of property issued to employees for use while in the employ of ICASA.

Ms Clarinda Simpson, ICASA Chief Finance Officer (CFO) replied that there were such policies and procedures. She clarified that this had been a regional staff member whose last day of service had not been at head office. The relevant checks and balances might not have been complied with.

Dr George commented that the procedure that had been there neither worked, nor had it been complied with. He sought clarity on the contingent liability on legal cases that seemed to be on the rise, and amounted to R1.3 million. Was this figure sufficient?

Ms Simpson replied that the figure had been an estimation of what ICASA would pay out in the event it lost the cases. The R1.3 million had been not lawyers’ fees, but what ICASA would lose in the event that employees were successful in litigating against the entity. The only case that had been settled had been against Mr Lincoln Goliath, where ICASA had been ordered to compensate him for an amount of R700 000.  Other matters were pending.

Dr George sought clarity on why key performance indicators (KPIs) were not achieved, if there had been set objectives?

Mr Dlamini replied that some of the non-achievements were either internally or externally related. External achievements related to those KPIs determined by a ministerial policy directive. There were nine achievements that were internally related, and those cases pertained to procurement of services. This had been just a general response to the question.

Dr George sought clarity on bonuses and said a number of people were paid when leaving the entity, despite objectives not being achieved. How could bonuses be paid if a majority of the objectives had not been met?  Had been there a disconnection between the payment of bonuses and performance?

Mr Dlamini replied that the observation was correct. There had been a legacy issue in so far as the payment of bonuses was concerned. This had been done, based on an old policy that did not make the attainment of clean audits a condition for receiving bonuses. There had been a policy gap when it came to the payment of bonuses.

The Chairperson wondered if the money had been paid as a result of a policy vacuum, and Mr Dlamini replied this had indeed been the case.

Effectiveness of internal controls
Dr George sought clarity on the audit committee’s assertion that it had been less satisfied with the effectiveness of the internal audit function, even though it had been outsourced. The committee had also highlighted as a challenge management’s lack of commitment to address the shortcomings. This had been a strong statement – what was the background to it?

Mr Rob Theunissen, ICASA Audit Committee Chairperson, said that the audit committee was currently comprised of members appointed after January in 2012. This was a fairly new audit committee. Throughout last year, the audit committee had indicated it had been dissatisfied with the function of internal audit within ICASA. This had led to the council deciding in October 2012 that the audit chief executive had not been performing to the required level. The committee had not been getting intelligible reports. It had been agreed that the committee could no longer continue working with the official. There had been a suggestion that the internal audit function be outsourced. The function had not been outsourced; it had merely been a suggestion in order to make the unit effective.

The Chairperson said the Committee hoped the function was not being outsourced.

Mr Theunissen replied that the recommendation from the audit committee had been to have it outsourced in order to address challenges of effectiveness. There had also been a proposal that the responsibilities of the employee be assumed by whoever the function had been outsourced to.  This had been a recommendation.

The Chairperson said the Committee was not impressed with unnecessary outsourcing of services. If people hired incompetent people, this was the kind of result one could get.

Options for failed executives
Dr George sought clarity on the whereabouts of the audit chief executive.

Mr Dlamini indicated that the person had moved on, after being provided with several options before her employment had been terminated. When she had failed to accept any of the options, ICASA had been compelled to terminate her employment.

Dr George sought clarity on the kind of options that had been given to the official. He commented that the options given to incompetent officials frustrated the public service, especially as they were highly paid individuals. This allowed officials to just swap departments and continue with their incompetence. He asked why disciplinary action had not been taken on their inability to perform.

Mr Dlamini replied the performance of the official was assessed by the audit and risk committees. A decision had been taken to remove her. Subsequent to this, and as a means of avoiding a labour dispute, she had been offered various options where her skill could be utilised.  The options included allowing her to work in the compliance risk unit, or to look at a settlement of three months. Both options had been refused, and the only available option had been to terminate.

Dr George commented that he found it strange that nothing had been done about a highly paid official who had failed in her duties, and yet a lowly level public servant would be pursued for a menial issue such as returning a laptop, at a considerable cost in legal fees. It seemed as though there was a challenge in taking action against senior employees who underperformed, whilst lowly-ranked officials were easy picking for disciplinary proceedings. This was a matter that the Committee needed to look at, especially as it cropped up continually at meetings.

Dr George sought clarity on whether, as part of the evaluation of annual financial statements, the remuneration and bonuses paid to directors were subjected to the same process.

Mr Theunissen replied that the remuneration was not evaluated in terms of whether the directors were being appropriately paid or not. The committee had been given an assurance by service providers that the disclosures were correct. He was not sure what the Member meant by “evaluate”.

Dr George clarified that his question meant to check if there had been a re-look at how benefits were paid to the directors, if objectives were not met. This was what audit committees looked at.

Mr Theunissen replied that this had not been done. However, the audit committee had asked for a response from management as to why those benefits were paid in prior years.

Dr George asked why the future would be different as a result of the audit finding, and how satisfied the officials were that there had been an improvement in financial management.

Mr Theunissen replied that the major qualification pertained to debtors, the reconciliation between the spectrum and JDE systems, as well as changing the licensing regulations. The audit committee had engaged with management on how the licensing fees should be handled. The law had been unclear in terms of licence fees -- it had been left to the licensees to determine how much they wanted to pay.  Licensees were able to change if they wanted to, and deviations resulted, as these were not audited and based on gross profit.  The regulation had nevertheless been changed to address this aspect, but there were still challenges relating to prior years. Although an opinion could only be passed by the AG on findings, another qualification was likely for the coming annual financial report.

The systems challenge
Dr George sought clarity on the national revenue fund receivables and payables. The AG had been unable to make an opinion on this and amounts were not accounted for. Why were the amounts so substantially different?  He asked if ICASA knew what needed to be paid and, if so, why it had not been appropriately accounted for.

Ms Simpson replied the difference had been due to cash in the bank. ICASA had been required to transfer money collected from debtors to the Department within 30 days. The 30-day period allowed ICASA to generate interest and supplement that with the money generated on interest. This had been the difference between the receivables and the payables.  ICASA had been qualified in three areas, and all instances this was not because of an inability to account correctly. On spectrum debtors, two systems were being used. The data that was on the spectrum system `had been fairly accurate and fairly complete. The JDE financial reporting system had been used to report and generate a trial balance.

The two systems were not interfaced, meaning there had been no real time transfer of data between them.  ICASA had made use of service providers on a monthly basis to upload data from the Spectrum to the JDE. This had been done incorrectly and invoices had been duplicated, and receipts had not been matched correctly to the open invoices. This had occurred about four years ago, and service providers had been unable to correct the overstated amounts. This had been the area where ICASA had been qualified on. The challenge had been more with the transfer of data. ICASA was currently in the process of developing the interface.

The Chairperson asked if the interface was still in the process of being developed, or if it had been developed already.

Ms Simpson replied it would be finalised by the end of the month (June 2013), and a measure would be the opinion the AG had indicated in the current figures.  It would only be then that ICASA would proceed with the electronic transfer of data between the two systems. If the transfer happened now it would compound the issues on the financial reporting systems. Another area where ICASA had received a qualified opinion had been on the accuracy of licence fees generated from the telecoms debtors.  Licensees had an option to calculate and determine what their revenue and licence fees should be.

The Chairperson sought clarity on whether that option came from the regulations or the Act.

Ms Simpson replied it came from the general licence fee regulations. The regulation on this aspect had been ambiguous and subject to interpretation.

The Chairperson commented this was a challenge posed by the absence of political leadership. The Committee would surely want to understand the rationale behind this deliberately vague position, which prejudiced the entity.

Dr George asked if the matter had been raised with the Minister.

Ms Simpson replied that there had been numerous consultations with the DoC, and this had been mentioned in detail to the Minister in one of the bi-laterals. The matter had also been raised with other departments, such as the National Treasury (NT) and the AG’s technical department.

The regulations challenge
The Chairperson asked where the problem was.

Ms Simpson replied new regulations had been compiled and had already been published. Revenue was being used as the basis to calculate.  After consultation with stakeholders, including the AG and the audit committee, it was believed that revenue was more verifiable, and easier to calculate. There had also been input from the industry players. In the new regulations, it was now a requirement that the licensee provide ICASA with audit certificates.

The Chairperson asked whose responsibility it had been to compile the regulations.

Ms Simpson replied it had been ICASA’s.

The Chairperson commented that the Minister had had nothing to do with the dilemma. It had been the leadership of ICASA that crafted regulations that promoted the interests of business. This had nothing to do with the political leadership.

Dr George sought clarity on whether the revenue generated by ICASA had been sourced from the interest earned on money in the bank.

Mr Simpson clarified that the interest was paid to the Receiver of Revenue, and also calculated from the finance levy.  It had not been interest generated from money in the bank. The interest generated on surplus funds had been alluded to in page 93, note number 4.

Dr George asked why the interest had been declining, as such a variance had been not expected. He pointed out that unidentified receipts had gone up substantially, while interest had fallen.  Was it correct to conclude that ICASA did not know where the money came from?

Ms Simpson replied the R81 million reflected in the report as unidentified receipts had been as a result of upload errors in the system. The amount could not be relied on -- there were unmatched receipts that had not been allocated for invoices for debt collection. The amount of unidentified receipts, where ICASA did not know which licensee had paid, had been R600 000. The balance had been errors that could not be justified. The income had decreased because of the interest rate, but had also been dependent on the money that had been in the account. ICASA had no control over that.

Dr George commented he had read the statements in a matter of hours, and it was not difficult to pick up when something was faulty with the financial statements. Such a variance in the system because of some upload error was a major problem. The opportunity for leakage was substantial. He asked what was being done to manage the risk.

Ms Simpson replied that ICASA was working on the problem. There were service providers who assisted the Regulator. The 2012/13 financial statements had been completed; ICASA had been able to reflect what the debtors’ balance ought to be. The spectrum management system had been relied on.  Corrections had been made and reloaded on to the JDE system, which was more reliable. Currently, ICASA was working on correct information.

Missed targets
Mr S Thobejane (ANC) commented that the report emphasised under-spending as a challenge for ICASA, and yet the entity claimed it had insufficient resources to meet its targets. He sought clarity on how ICASA could claim to be under-resourced if it could not spend what it had been allocated.

Mr Dlamini replied when looking at targets that were set, there were specific aspects that were related to policy directives.

The Chairperson said the response needed to be specific, and sought clarity on the issue around market and competitions. Had this been caused by market failures or external constraints, and what were they?

Mr Dlamini replied that page 46 clarified matters on strategic objectives.

Mr Thobejane interjected and said the CEO had been “twinkling and guessing”, because the points he made reference to did not in any way addressed the question. The official had been expected to respond to the question about markets and competition.

The Chairperson cited concerns on data integrity and storage as an internal matter. He sought clarity on what this item was, and why concerns had arisen.
Mr Dlamini replied the particular programme could not come up with anything concrete at the time. There had been a reason for the activity to be postponed to the current year.

Mr Willie Currie, ICASA Councillor, clarified that the objective on data integrity sought to look at the supply elements with regard to delivering broadband. This related to the large networks like Telkom, Neotel, mobile operators, and the large internet providers. Having put this as a strategic objective into the plan, the market and competition division had found that there had been not enough data on the status of the networks to construct a proper supply side broadband from the Regulator’s point of view. This had led to engagement with stakeholders to get them to provide the required information. There was now a project looking into the broadband value chain. Although the project had not been achieved, at least something had been learnt from it through engaging with the network service providers.

Mr Thobejane said he was satisfied with the explanation and asked how the DoC had transferred money to ICASA, while it had been unable to create an enabling environment.

Mr Sam Vilakazi, Deputy DG, Administration: DoC, replied that there were engagements that took place regularly between the DoC and ICASA.  Some of the challenges raised were not new and the Minister had given a view on them and how solutions needed to be implemented.  Implementation, even on the Minister’s instruction, was challenged if there was unwillingness on the side of ICASA to change. All the issues, including qualification, had been repeatedly raised and the Minister had given guidance.

Mr Thobejane interjected and sought clarity on the issue relating to the White Paper.

Mr Vilakazi asked that the issue be deferred while he read up on the issue.

Bonuses
Mr Thobejane sought clarity on how the CEO would have arrived at a situation of giving bonuses in the absence of a policy.

Mr Dlamini replied the vacuum in the policy had been the non-inclusion of a clause that stipulated that if a clean audit was not achieved, there would be no bonuses paid. The current policy, drafted in 2003, gave a blanket approval for bonuses.  Irrespective of whether a clean audit was achieved or not, people qualified automatically for a bonus. A new policy would come to effect in 2014. Management and the council had deliberated at length on the issue.

Mr Thobejane commented that it was puzzling that officials had been given a bonus after there had been under-expenditure.

Mr Dlamini replied the decision had been not easy to arrive at. A policy instrument that would allow management to claim a bonus had been required.

The Chairperson asked what the basis would be for claiming a bonus on the current policy.

Mr Dlamini replied there was a performance management system that had its challenges.

Mr Thobejane interjected and asked who sat on those units which were meant to craft the policies.

Mr Dlamini replied it had been the General Manager for human resources (HR), who had since left.

Mr Thobejane asked if the CEO considered it necessary to approve bonuses for managers who failed in their respective units.

Mr Dlamini replied that when he had joined ICASA in 2010, his stance had been that bonuses would not be paid if the organisation achieved a qualified audit opinion. Unfortunately, such a stance had to be based on some form of a policy.  The policy in place had been old and not reviewed.

Irregular expenditure
Mr Thobejane sought clarity on payments made to the South African Revenue Service (SARS) that had resulted in fruitless, wasteful and irregular expenditure, which according to the report, was because of money being paid into wrong accounts. How had this been possible?

Ms Simpson clarified this had been one of the legacy issues that had taken place three years ago. Money had been paid into incorrect accounts, but internal controls had subsequently been tightened. Data capturing would now be subjected to second and third reviews.

Mr Thobejane asked about interest charged on late payments for rentals of regional offices. These late payments were unnecessary.  Why were late payments made, who was responsible, and what had happened to the individual?

Ms Simpson replied that rental payments at ICASA for regional offices were authorised by the regional staff.  By the time the invoices reached the office they would already be late and were further delayed by the late sign-off. She conceded that the payment of up to R3.6 million in interest was not justifiable; it had indeed been fruitless and wasteful expenditure. Reasons for the delay were nevertheless presented.

Mr Dlamini replied that the responsible manager had been engaged on the matter, and a decision to recoup the money from his salary had been taken. He had been a regional manager.

Mr Thobejane commented that a situation where the state incurred cost at the expense of failure was intolerable. There had to be corrective action taken on these matters. He also sought clarity on why non-compliance appeared to be rife at ICASA. This had resulted in the perception that there was corruption and an element of fraud within state entities.

Mr Dlamini replied that controls had been put in place. He cited the example of a service provider that was appointed without going through the normal processes would be flagged ahead of time by the supply chain management (SCM) unit.

The Chairperson sought clarity on what had happened in the case quoted in the report, as it painted a picture of an entity that was not in control. What happened to the people who were involved in the process of appointing contractors, long before the process had been finalised by the bid adjudication committee?

Ms Simpson replied that the cases pertained to the procurement of computers. Normal procedures had been circumvented by the supply chain supervisor. Subsequently, the official had been issued with a written warning.

Mr Thobejane disapproved of the sanction, and said it did not appear proportional to the transgression, especially as R500 000 had been involved in this instance.

Mr Dlamini commented there was already a decision on the procurement of computers.

The Chairperson interjected, and said the Committee understood the processes, but had sought to understand if the sanction had been appropriate to the nature of transgression.

Mr Dlamini replied management had assessed the situation at the time and considered the written warning had been sufficient.

Mr Thobejane disagreed and said this was the kind of an attitude that should not be condoned. This brought into question leadership. Why did it fail to put in systems that could monitor reporting performance monthly?  This was a leadership failure.

Mr Dlamini replied that how the executive had sought to address the issue, was to sit on a monthly basis and look at all matters pertaining to non-compliance.

Mr Thobejane said ICASA had not put in place the procedural systems that were supposed to be in place to ensure predetermined objectives were easily monitored. That had not happened; there were no guidelines.

Mr Dlamini replied he had been responding to the issue of dealing with fruitless expenditure.

Mr Thobejane retorted that the issues were related. There were no systems in place and the Public Finance Management Act (PFMA) called on the officials to put in systems that would improve performance.

Mr Dlamini said ICASA had put processes in place to deal with the overall performance of the organisation.

Mr Thobejane interjected and said the Committee was less interested in what would happen in the future, as that was the work of the Portfolio Committee. The Committee dealt with the past -- exactly what management had failed to do.

Mr Dlamini said management acknowledged its non-compliance in the year under review.

Dropped calls, termination rates, and planning
Mr Singh said he also agreed there was a general lack of control and leadership, including the ICASA council. The arrangement that managers reported to councillors, and not the CEO, was rather strange. He sought clarity on the audit committee assertion that management had failed to consider the budget in order to avoid variances between actual and budgeted capital expenditure in 2011/12. This was a serious indictment.  Why had that happened and what was going to happen with the new arrangement of reporting to councillors?  He also sought a comment on the AG’s observation on the lack of skill in the licensing division.

Mr Dlamini replied that there were challenges in terms of planning and budgeting, and as a result it had been agreed that units presented on their progress quarterly.  In the event where a particular deliverable had to be postponed to a following year, there would be a process that would have to be followed.

The Chairperson said the explanation talked to the quality of planning, and quality of implementation.

Mr Dlamini replied that he acknowledged there were challenges with implementation, but systems would address those issues going forward.

Councillor Currie said ICASA had been over-ambitious in setting performance targets. ICASA had learned from this and tried to adjust the targets as it moved along. The new CEO had engaged the then CFO strongly on these issues, and this had resulted in the CFO’s contract not being renewed. The strategic plan had been too ambitious, and the leadership had been too slow in dealing with the chaos in the finance department.

Mr Singh sought clarity on the performance awards, periodic payments amounting to R8 million, and the rise in the use of temporary staff. He also requested that leave expenses be elaborated on.
Ms Simpson replied that the periodic payments related to amounts paid out as part of a funeral policy that ICASA had for employees and their immediate family members. The increase in the temporary staff had been mainly due to the temporary staff used in the finance division due to a lack of skills in the administrative revenue section and to a lesser extent in the line department. Leave expenses related to a provision for a number of leave days at the end of the year that had remained unused.

Mr Singh requested finer details on the funeral policy periodic payments by next week. He asked for a comment on whether collusion occurred between mobile operators and the fixed line operator. This pertained to consumer protection. The rate at which dropped calls occurred was alarming and it was clear it had been deliberately used to make profit.  Were the mobile operators held accountable for this, because they still charged a fee? He asked what was being done to ensure signal poles were well distributed in order to ensure reliable service.

Councillor Currie replied that the mobile termination rate had been dealt with. ICASA had reduced the termination rate from R1.26c to 40c, and was looking to get it even further down. A programme on a cost to communicate had been released. There had been no evidence of collusion among the mobile operators, but they hopefully watched each other’s packages and cost mechanisms.

Mr Singh commented that while mobile operators watched each other, the consumer’s pocket got empty. Poor consumers felt the pinch of the operators and were taking strain on the cost of dropped calls.

Dr Marcia Socikwa, ICASA Councillor, replied that the issue of dropped calls was central to the Regulator’s work. Recently, ICASA had been asked by the Portfolio Committee what kind of infrastructure it needed to manage the quality of service. If one looked at an exemplary country such as Ukraine, South Africa was completely under-investing in the infrastructure required to monitor the quality of service.

A memorandum had been prepared on this aspect and would be shared with the Portfolio Committee and National Treasury (NT) to motivate the kind of budget required to set up the equipment. On policy, the Minister might need to decide whether this needed to reside within ICASA or a coalition of institutions. In Ukraine, operators had to contribute a certain amount of funds towards infrastructure. There were different models that required huge investments.

Despite limitations on investments, ICASA had field workers who daily went to do quality service monitoring in the field, and also published reports on the website. This was not sufficient; more could be done. In Nigeria very recently, the regulator had withheld the ability of MTN to continue with promotions until the company had demonstrated that it had upped its commitment to a better quality of service to the citizens of Nigeria. The legislative tool was very strong in Nigeria, and was something SA could copy.

Inadequate skills
Dr Rabie asked what proactive steps had been taken to rectify non-compliant financial statements.

Ms Simpson replied the finance unit was challenged for skills in the administrative revenue section. A number of staff were found not to possess skills that were compatible with the requirements of the finance unit.  Six staff members were not performing at the level they were required to in terms of their job description. Hearings had been held, and it had been resolved that they be deployed elsewhere in the organisation. The unit had been unsuccessful in trying to redeploy them to other departments. This situation had necessitated the increased use of temporary employees.

The Chairperson said this was the kind of challenge which the high turnover of senior leadership posed. The Committee should be asking how those people had become employed at ICASA, but no one could account for these individuals. The current leadership sat with incompetent employees, with the only option being to outsource. Yet ICASA employed people to do the same function it was outsourcing. . It was a pity the political leadership had been not at the meeting, as this question ought to have been directed at them.

Dr Rabie commented the Minister ought to have been at the meeting to clarify what would happen to the six officials right there. The entity needed to be fixed.   SA’s cost to communicate was the fourth highest in Africa, and cost the economy billions of rands.

Weak responses from ICASA
Mr R Ainslie (ANC) commented that all the responses in almost all the aspects – internal controls, human resources, financial statements, and service delivery – had been “so weak”. He was not surprised that SA’s cost to communicate was among the highest in the world. Why not learn from Nigeria?

Mr Ainslie pointed out while the audit committee had gripes about deviations and weak internal controls; it had concluded the quality and content of management’s quarterly reports were satisfactory. How could it be that deficiencies with major controls were found, and the monthly reports that should address the deficiencies were found to be adequate? Could someone explain this disjuncture?

Mr Theunissen replied that on reflection, the observation did appear to be a disjuncture. At the time, the audit committee had been satisfied with the quarterly information presented, but the ramifications arising from the information were problematic.

Mr Ainslie interjected and said ICASA did not get the information in a vacuum. The important consideration was whether reporting in the quarterly reports addressed the problems; if so, this finding could not have been arrived at. The organisation was lost if it functioned on weak internal controls, and it would repeatedly get a qualification. It was preferable if all ICASA’s management committees could use a “tick-box” of the things they performed. The report had not been adequate and had not been honest enough.

Mr Theunissen replied he accepted the point. He apologised if it appeared as though he had been protecting any official, because the insinuation had been that this was indeed the case.

Mr Ainsilie dismissed the claim and said there had been no insinuation.

The Chairperson said the Committee had gone through a number of reports and had been more interested in the reports of the audit committees. The explanation had been understandable but without the official giving it, it would have been difficult to understand the contradiction of adequate quarterly reports against weak internal controls and deviations. This was the reason that the audit committee reports needed to be detailed. The Committee would prefer if audit committee reports were as expansive as possible, so that they assisted on oversight.  Departments needed to copy how the Department of Home Affairs (DHA) went about its audit committee report, which gave adequate details that were very useful to the Committee.

Mr Ainslie sought clarity on the National Research Foundation (NRF) licence fees. The finding had been that the information on the NRF licence fees seemed to be inadequate. He asked why ICASA was not independently verifying the information it got on licence fees, as such information was important for invoicing.

Ms Simpson replied the information had been correct and accurate “to some extent.”

Mr Ainslie interjected and said again that the response “was weak and wimpish”. In his understanding, the Act allowed ICASA to request more information when there had been inadequate submission of financial information.

Ms Simpson replied this was indeed correct to some extent, as ICASA could not impose obligations on licence fees. There were severe disadvantages that could result in licensees incurring additional costs. If one looked at the regulations effected for the current financial year, they were based on gross profit to calculate the licence fee.

The Chairperson cited the old Diamond Act, that had been crafted in such a way that the mining companies could decide on what happened to them. This went back to his earlier question as to who drew up the regulations. It appeared that the regulations served the interests of the industry.

Mr Ainslie said given that ICASA relied on information provided to them by operators, it was likely that certain licensees produced zero returns. The end result could be that operators could claim to owe nothing to ICASA.  He asked if this observation was correct and, if so, how many operators exploited the weakness. This meant these operators did not pay any licence fees because they were able to manipulate the financial statements they submitted.

Ms Simpson replied this was indeed correct and quite a few operators submitted zero returns. She said such operators included Neotel and Cell C.

Mr Ainslie said ICASA was too weak to take these operators on, or had been unprepared to do so and had hidden behind regulations.

Ms Simpson replied ICASA did not have the resources to do take the operators on.

The Chairperson said this was indeed a weakness.

Councillor Currie replied that licensing regulations had been made in 2009. They reflected the dimensions of the Electronic Communications Act. The idea had been that by basing licence fees on profits, those operators who did not make a profit could have a competitive advantage against the dominant players like Vodacom and MTN.  Logic had been to allow the smaller players who were coming into the market not to pay so much or not at all when they entered the market. This had been stopped by the new regulations in 2012.

Ms Simpson said the regulation was ambiguous, because it said license fees were allowed to deduct direct cost, but at the same time it did not include an exhaustive list of what the direct cost should be. How could this be verified or properly explained?

Mr Ainslie retorted that it was ICASA that drew up the regulations. He suggested the council visit Nigeria and see how the Nigerians were doing it.

Ms Simpson said in the new regulations, ICASA had included the requirement for a licensee to submit an audit certificate or confirmation, to indicate that what was submitted was accurate and complete.

Mr Ainslie voiced dissatisfaction and said even the new regulations were just too weak.

Finance unit stuck with the Six
Mr Singh said that ICASA was challenged for human resources (HR), and yet there were six people who could not perform at the entity. What was going to be done to those who did not add value to the organisation? These officials had been accorded all the benefits.  He asked if there had been a performance agreement between the entity and the CEO. Did monitoring and evaluation of these contracts happen?

The Chairperson sought clarity on the six officials, and what was being done. It had been noticeable that the managers for the human resources and legal departments still functioned in an acting capacity. These were the main people who could address the challenge of the six incompetent officials.

Ms Simpson replied they had been accommodated in positions that were less risky within the finance unit. There had been not a division that could absorb them.

Mr Dlamini replied there was an agreement between him and the council. A process was also underway to cascade these agreements down to the managers. Monitoring and evaluation had not yet started with the actual assessment process.

Mr Dlamini said the HR and the legal managers were still in acting capacities. The council had agreed that it would realign certain positions, and then following the realignment process, it would be decided at what level certain positions needed to operate on. The process had not been concluded due to issues of funding, and because a service provider had to be appointed.

The Chairperson wanted to know why the process had not even begun.

Mr Mncube replied the process should have started, but due to lack of funding and the AG’s report, ICASA had had to expedite crisis management. When that had been done, interviews had taken place for the HR position.  ICASA was also looking for someone who would help with the re-alignment process. The HR policies were now in place, but things could not be done at the required speed.

The Chairperson commented he struggled to understand how ICASA was stuck with people who could not perform. How did the HR policies relate to the matter involving the six officials?

Mr Mncube replied the organisation operated in an environment that was “union driven”, and people could not be easily discarded.

The Chairperson said he did not suggest that, but he also understood that labour relations laws did not block the firing of non-performing officials.

Mr Mncube replied that a better way of dealing with the officials would come out when the realignment process had been finalised.

General items
Ms R Nyalungu (ANC) sought clarity on the consultant employed for uploading information on the systems. How long would the consultant be with ICASA? How much had been being paid out, and had there been a skills transfer clause in the contract?

Ms Simpson replied the consultant had helped ICASA for four months until it had submitted financials at the end of May 2013. The value of the contract had been under R1million, and skills transfer had been a condition in the contract. The consultant had had to ensure that a similar situation did not occur again during the course of the next year. There had also been a skills transfer within the IT department.
The Chairperson sought clarity on the supply chain manager.

Mr Dlamini replied there had been a disciplinary hearing that had followed his suspension, but the investigation was not complete. The official remained suspended.

The Chairperson sought clarity on how a disciplinary action took place if the matter was still being investigated.

Mr Dlamini replied the official had taken ICASA to the Commission for Conciliation Mediation and Arbitration (CCMA), and had subsequently withdrawn the case to go through a normal disciplinary process.

The Chairperson replied that it appeared that ICASA had lost a number of cases at the CCMA. This reflected the absence of a legal expert. He sought clarity on the process of acquiring a service provider to investigate SCM generally.

Ms Simpson replied ICASA was busy with the procurement process, and had received quotations and would be evaluating those during this week.

The Chairperson interjected and said this was precisely because the internal audit was incompetent.

Mr Dlamini replied that somebody had been employed temporarily in supply chain management.

Mr Theunissen commented that internal audit expertise had been not the right expertise to be used in conducting investigations.  Internal audit were not trained professionals on the laws of evidence, and if they were tasked with leading investigations, it could result in incorrect rulings being reached. Investigation normally led to some sort of a tribunal, or could even end up in court. If the internal audit were to lead an investigation into an SCM, it would look pretty much like a witch-hunt and that could taint any subsequent audits into internal controls.

The Chairperson commented that the horses had already bolted out the stable.  There were people who were meant to be gate-keeping, but they had failed.

Mr Ainslie observed ICASA was increasingly relying heavily on consultants. Was this a correct observation, he asked?

The delegation nodded in agreement.

The Chairperson asked why this was the case, if entities employed people and even paid them bonuses.

Mr Dlamini replied the intention of the realignment had been to address challenges within the organisation. The issue of skills was limited not only to the finance unit, but had been across the board.

The Chairperson said people were employed at the entities to deal with the challenges. What was the point of them being there if they were to rely on consultants? It was not acceptable that institutions would use consultants whilst officials enjoyed all benefits of being employed to resolve issues at these entities. With the Compensation Fund, the Committee even thought it unnecessary to engage officials because consultants were driving the programmes.

Mr Mncube replied that the point was taken. After the re-alignment process, and after the skills inventory had been done, ICASA would know what it required in terms of skills. If this necessitated a budget increase, such a motivation would be forwarded to the DoC. The Department knew ICASA was a weak regulator due to the skills shortage.

The Chairperson sought clarity on how the DoC monitored entities.

Mr Vilakazi replied there was a dedicated unit dealing with oversight.

The Chairperson interjected and said the Committee would have preferred to have had the head of the unit at the meeting so that he could answer questions. He said he would have loved to get details around an earlier statement by the DDG, that the Minister worked hard with the entities but they did not pull their weight.

Mr Vilakazi said performance reports were submitted t to the oversight unit. An analysis would be conducted and all issues were raised with the concerned entities. There were bi-lateral meetings with executives, and the Minister would give directives on how the entities should move forward. Although regulation might be done, implementation became a challenge. Whilst the entities attempted to implement some of the issues raised, it was not always that those things were done. Executives needed to ensure that regulations were implemented. These issues were raised in the annual reports, and precisely to address the challenges at entities like ICASA and the SABC, the Minister had initiated the “clean audits” operation. The issues were raised from time to time, but there was always a challenge with implementation.

The Chairperson sought clarity on a company that accused ICASA of being unable to verify its own information on who owed it money. He also asked how was it possible that ICASA, in a dispute with Vodacom, had had to approach the courts and request that its decision be set aside.

Mr Mncube replied that he had spoken to the CEO of Vodacom and agreed that there could be an amicable solution to the matter. This was not saying anyone was right or wrong. There was still a conflict, but the matter was moving in the direction of being resolved.

The Chairperson sought clarity on the origin of the conflict.

Mr Mncube replied the process of solving the issue was not defined, but was being rectified.

The Chairperson sought clarity on the matter involving Wireless Business Solutions (WBS).

Mr Mncube replied the matter was ongoing but refused to say if the entity had been right or wrong, as the matter was still sub judice.

The Chairperson said the council should give the Committee the comfort that it was in charge and that it could enforce compliance.

Mr Mncube said ICASA had been stimulated and would try to answer all the questions. An informed opinion would be sought on those questions that were technical in nature, including the matter involving WBS. The council would make ICASA a better organisation, despite finding it in a weakened position.  The hierarchical structure was a challenge and could have the potential for conflict. There had been a vast improvement when comparing the ICASA AG report between then and now. The organisation had been weak, but now could not be dismissed that easily.

The meeting was adjourned.