Independent Communications Authority of South Africa (ICASA) on its 2013 Annual Report

Meeting report

Dr Stephen Mncube, ICASA Chairperson, thanked the Portfolio Committee for helping ICASA cultivate human excellence in its work and to follow processes and procedures. ICASA was running on a very tight schedule. He singled out the Chief Financial Officer (CFO) of ICASA, the only woman on the executive team, for the commendable work she had done. He noted that ICASA had eight strategic objectives which had been consolidated into five through the guidance of the Committee. He explained that ICASA had transitioned to an interim organizational structure in which regulatory programmes report directly to Council who did oversight as opposed to the Chief Executive Officer. Due to this new structure, ICASA managed to accomplish goals more efficiently. ICASA also introduced a dashboard to monitor every activity in the organization and so far it had worked and all audit matters had been enlisted for resolution. ICASA had five programmes: Governance & Administration, Licensing and Compliance, Engineering and Technology, Markets and Competition, and Consumer Affairs. The number of targets was reduced from 43 to 26 and a consultant was hired to facilitate the organizational realignment process to move ICASA forward.

Mr Themba Dlamini, ICASA CEO, introduced the ICASA team present at the meeting.

Ms Clarinda Simpson, ICASA CFO, presented the financial statements and Auditor-General report. ICASA achieved an unqualified audit report. The Auditor-General (AG) drew attention to certain notes on the financial statements. The restatement of corresponding figures for National Revenue Fund (NRF) receivables and payables to reflect supported balances for previous years was one of the notes. A significant number of lawsuits were in progress against ICASA – the exact number was unknown – and the impairment of NRF receivable were two other notes. Ms Simpson referred to the Statement of Financial Performance Main Account and explained that the revenue was funded by a government grant and interest on investments. Most of the expenditure went to salaries and wages and operating expenses. The finance costs were due mainly to the finance lease. ICASA had a R14 m surplus from the previous financial year. She referred to the Statement of Financial Position saying the R798 m worth of NRF receivables were from industry debtors. The cash and cash equivalents of R155 m were made of the balance brought forward from the previous year and the ring fenced funding not spent. Under liabilities was the finance lease. The NRF payables consisted of money owed to National Treasury and the Department of Communications (DoC). The Provisions line item was provision for bonuses. In the Cash Flow Statement, the cash received from DoC amounted to more than R405m. The Finance income was interest on investments. The R969 m was cash received from industry. In the Statement of Comparison of Budget and Annual Amounts, the 17m in the Comparative Statement line item was cash flow from investment activities. The Reconciliation of cash budget was the difference between cash basis and accrual basis in investment in property, plant and equipment. Under findings of the AG on compliance with laws and regulations, material misstatements were identified in the financial statement submitted on 31 May 2013 and these were corrected. The AG found that no effective steps had been taken to prevent irregular, fruitless and wasteful expenditure. Employees responsible for circumventing supply chain management systems were being dealt with. The final finding was that the internal audit function did not evaluate and develop recommendations on effectiveness and efficiency of controls and this was now under review.

Mr Themba Dlamini, CEO of ICASA, presented the performance report. ICASA performance was linked to the budget. Out of R411m allocated budget, 85% was spent. The R63.4 m not spent was related to an allocation to ring-fenced projects surrounding the purchase of broadband equipment and systems development software. Savings worth R2m were made due to cutting down on unnecessary consumables. The capital expenditure (CAPEX) was actually 71% less than the budget mainly due to challenges with the relocation of the head office and procurement challenges for postal services equipment. The under-expenditure also related to the challenges with broadcasting and postal services equipment. Slow spending was also affected by procurement of the spectrum management software. In the AG report, the bulk of fruitless and wasteful expenditure was attributed to the previous financial year. ICASA needed to deal with condonation of that expenditure. A process of corrective measures had been embarked upon and some of the persons responsible had been handed over to the audit and risk committee. Others had been put forward for investigation. So the process was not complete and ICASA would provide the Portfolio Committee with a progress report. The internal audit was approved by the audit and risk committee. The supply chain manager who was suspended on allegations of possible fraudulent activities and charged with alleged misconduct had decided to resign before the hearing. ICASA contracted an external official to look after the internal audit function for six months and the official did the job well. Under litigation, one settlement agreement was reached on capital debt with Sentech, there were four allocations where a trial date still need to be issued, one case awaited withdrawal and one matter was for re-instatement for hearing. Under Complaints and Compliance Committee (CCC) matters, there were 11 cases, two of which had been postponed, one was still pending, three had been settled, and three warnings had been issued and two were for ICASA to review its process.

Ms J Kilian (DA) asked Mr Dlamini to point to the relevant pages as he presented to make it easier for the Committee members to follow.

Mr Dlamini agreed and continued with the presentation. In the AG’s report, there were no material findings on annual performance report concerning usefulness and reliability of information. Of 42 targets, 28 were not achieved for the year, i.e. 67% of planned targets were not achieved. He skipped the details of achieved targets and highlighted the unachieved targets. With the target to improve operational efficiency, the main challenge was primarily with Human Resources (HR) organizational realignment. The objective to develop regulations on ownership and control had not been achieved in the year under review but had been achieved this year. With the objective to provide greater access to mobile telecommunications spectrum, the National Radio Frequency Plan had not been dealt with during the year under review but had now been completed. With the plan to issue seven radio frequencies in the 2.6GHz and 800MHz bands, the deliverable was deferred to 2013/14 to allow finalization of Ministerial Policy Directive. With the objective to increase connectivity for South Africans, the Government Information Systems (GIS) map of broadband coverage maps was now online. On the objective to provide universal broadband connectivity, the Rapid Deployment Guidelines (RDG) report had been submitted. Draft regulations had also been submitted for reduction in PC prices. Under the objective to bridge the digital divide by promoting an efficient and effective postal sector, reports had been prepared. The Universal Service And Access Obligations Final Report was completed and ready for approval. The report had been done to meet the objective of providing availability of choice and diversity in broadcasting activities. Funding documents had been concluded on migration of broadcasting services. The introduction of comprehensive compliance had had complications because the equipment was abroad and thus ICASA was seeking approval from the Minister first. The improvement of operation process and performance migration of existing systems to new spectrum management systems would be achieved through the licensing spectrum (LS) system that would identify licence holders and billing authentication. The customer relationship management (CRM) system was not yet ready at the time of closing the books but was now up and running. Under organizational realignment, ICASA had a contract with one consultant to look at entire organisation in terms of how to realign the Information and Communications Technology (ICT) structure. ICASA was attending to the implementation of the Flowcentric and the Clickview systems to provide improved financial governance systems. ICASA was also awaiting feedback on proposed self-funding alternatives following submission of all documentation by DoC and Pygma consultants and hope to have a proposal by the end of the financial year. There were issues around gaining subscription broadcasting service and Information - Electronic Communications Network Service (I-ECNS) licences in order to promote diversity and choice of broadcasting services. This matter was postponed because it depended on a policy directive. For the analysis report on applications for commercial sound broadcasting services, ICASA had come up with policy interventions. An analysis report for primary and secondary markets licence applications had been provided. In terms of draft regulations for signal distribution market including price control framework, draft regulations were published in September 2013. The research report on the skills audit had been postponed to 2014/15 due to lack of funds. On the objective for improved levels of competition in the ICT sector to lower costs, a benchmarking report on pricing was due in June 2014.

Dr Mncube said there were “a lot of things ICASA was doing” and the organization was going through a lot of changes as the organization tried to interweave policy and regulation. ICASA had levelled the playing field and would not compromise the consumer component. The “Person with Disability Access Programme” would bring people together globally to change things for the better. For number portability they worked with the Communications Regulatory Association of Southern Africa (CRASA). This drive to push down prices was not only for South Africa, but the entire SADC region. He concluded saying that if people work with a spirit of collegiality, nothing could beat South Africa.

Discussion
Ms J Kilian (DA) said she saw improvement in some respects but ICASA was still not performing its function, especially compared with other African countries. Mentioning that the only way South Africa could lead Africa was by example, she asked whether ICASA could have an impact out there to turn industry around when only 33% of its targets were achieved. If ICASA was a fast-moving train as Mr Mncube described, then ICASA might crash, as it did not have the systems and controls in place to drive fast. She noted that some of the targets not achieved were due to ministerial and policy delays. She asked what ICASA had done about the delays considering that ICASA could give policy directives to the Minister. She asked if ICASA had done this. She added that if ICASA failed to manage internal affairs, ICASA could not take away responsibility from the CFO for things that go wrong, just because functions had been shifted according to the interim structure. Dr Mncube could not turn ICASA around if ICASA did not abide by the Public Finance Management Act (PFMA). She explained that the PFMA system kept the train on the rails. Referring to slide 29 on the internal audit, she asked if the skills audit review was still lacking since last year. She asked what was being done to the staff who committed misdeeds and then fled. She asked if a follow up was done on such people. She mentioned the CAPEX and the equipment sourced from abroad expenditure being 29% of the allocated CAPEX budget. She asked what ICASA would do to speed up CAPEX to get a better score. The R2 m in savings was welcomed by the Members but mentioned that Human Resources (HR) management needed to be worked on. ICASA must conduct a skills audit because if ICASA was not moving with industry regulatory functions and if ICASA did not move with industry, they would go out of business. She added that even Rwanda was doing better without an independent authority. She referred to expenditure management on slide 28 which showed that fruitless expenditure had increased compared to the previous year and asked why this had happened. She asked if ICASA was working with the Auditor-General. If processes were not followed, ICASA could be wiped off the map via litigation. She asked if ICASA had a figure for under-recovery of licence fees. She ended by saying she was not comfortable with ICASA’s progress.

Ms R Morutoa (ANC) said ICASA was working hard but everything just seemed to be “in the pipeline” in terms of achieving targets – many issues were still lingering within the programmes. She noted that one or two councillors administered activities of the four regulatory programmes. In her view, strategy challenges had been perturbed by this. She asked why this was so. Her other concern was the ICASA governance structure which overstepped the oversight responsibility. The interim structure misdirects responsibility which causes confusion. She asked what ICASA was doing about this confusion. She asked why the position of the chief audit executive who was released during year under review was not filled. An interim audit official was appointed on a contractual basis until August 2013. She asked why the position had not been filled since then and when it would be filled. ICASA did not have approved risk register so the internal auditor could not perform this function. Why was this so? Finally she asked about the status of the supply chain manager who had resigned and whether any money was recovered.

Ms M Shinn (DA) said she was disappointed that the strategic objectives in which ICASA failed were the most critical objectives. She understood that the role of the Minister was key in ICASA’s decision-making and many of the ICASA policies were awaiting ministerial reviews. She asked if there was any indication from the Minister about having the same sense of urgency about the reviews and the purchase of equipment. She was concerned about ICASA HR - that they did not have skilled resources. She mentioned that the request for quotations went out three times for the HR requirement and only one company responded. She asked why ICASA struggled to get the people they require. She asked what happened to report from ICASA on Recommendations for introduction of electronic postal services and achieving universal service obligations. She heard that implementation of local loop unbundling was apparently not needed anymore because of broadband and asked ICASA what should be done in this situation then.

Mr A Steyn (DA) said no additional funding was requested by ICASA and this was no wonder because of ICASA’s under-spending. CAPEX being 71% less than the budget was serious given the role that ICASA had to play. ICASA must do better. Looking at the report from last year, a lot of the targets were rolled over to the following year and it was the same problem this year. These were steps backward and the overall picture was not a good one. He was dissatisfied, especially with the matter of equipment. On the settlement agreement with Sentech, he asked what the original debt figure was. What would happen with the 105 outstanding complaints? The delegation of certain powers from CEO to Council needed to be rethought, because according to the PFMA, it was not legal to out some responsibilities. He discussed the wasteful expenditure where VAT was paid to unregistered suppliers who would not pay back within 14 days, which constituted theft. He asked why it took years for such issues to be resolved. The message ICASA was giving was that ICASA simply wrote off such expenses. There was not enough information on human resources in the Annual Report. He asked what the ICASA vacancies were, particularly in the skilled section.

Ms Morutoa echoed Mr Steyn’s concern on HR and recruitment, job grading and performance appraisals for staff. Last year ICASA reported 346 staff members and 10 short-term employees. This was incomplete. She asked ICASA to elaborate on this.

The Chairperson interrupted to announce that the meeting had to end 30 minutes earlier than scheduled because the Deputy President was launching HIV counselling and testing at Parliament at 12:30pm.

Mr Steyn referred back to the CAPEX issue. 70% of technical equipment and 30% of computers were in a poor state. Surely CAPEX could be reallocated even if it was ring-fenced to meet such needs. He added that R8 m was spent on temporary staff and asked if there were any vacancies to appoint skilled staff instead. He referred to page 123 of the Annual Report where there was wasteful expenditure for procurement of storage facilities, although internal facilities were available to store the vehicles. Someone must be held accountable and responsible for this. What type of management and leadership existed in ICASA when resources that were not needed were being procured.

Ms M Shinn asked of the R1 billion ICASA owed by debtors, how much of it would be written off this year? She asked what ICASA planned to do about its debt situation. Half of this had been outstanding for 90 days. Could ICASA not do credit checks on people to whom it gave licences? She referred to page 108 of the Annual Report and asked whether it was the larger or smaller clients that were defaulting on their payments. She asked for detailed written report giving a breakdown of misdeed cases where licence holders who could not produce a licence. She asked ICASA why they had instructed inspectors not to steal assets of unpaid licence holders, and if they had done so.

Ms Morutoa asked in terms of its education and awareness budget, whether ICASA was reaching people with disabilities and people living in rural areas, and how were ICASA going about doing this. She asked for ICASA to provide an equity profile of its staff members with disabilities.

Dr Mncube said that the interim structure was a proposed structure and was temporary. The previous structure had not been changed in 20 years. He acknowledges legal implications of the structural changes and would address them – that was why ICASA was doing an audit. Things would change and become stable after realignment.

Ms Kilian interrupted Dr Mncube with a point of order on the matter of the interim structure.

The Chairperson said the structure of ICASA was being amended.

Ms Kilian said ICASA as a regulator was always under scrutiny and thus needed legal advice before changing structures, otherwise there would be a conflict with the PFMA.

The Chairperson said Members should shelf the issue of the executive council for now and sort it out when doing the amendments.

Ms Morutoa said the Portfolio Committee was aware that the ICASA Act needed to be amended. She would not undermine that the law would be amended. The main concern now was where ICASA was headed.

Dr Mncube said the comments of the Portfolio Committee were acknowledged and the realignment of ICASA would result in amendment of its organizational structure.

Mr Dlamini explained that the executive vacancy was being filled. The rationale for contracting an outsider to check the internal audit function was for stability purposes. The pending Commission for Conciliation, Mediation and Arbitration (CCMA) case with the suspended executive was pending. With fruitless expenditure, the officials who were at ICASA the previous year when the fruitless expenditure had been incurred, had left. ICASA wanted to align with the PFMA in its conduct as ICASA wanted condonation from National Treasury. On capital equipment, ICASA had said at their last presentation that equipment could be delivered to ICASA and this had happened. ICASA was also trying to establish communication with DoC so that the postal monitoring equipment would be procured. ICASA had procurement in place for spectrum licensing. For the last two years, there had been issues with reporting on incompleteness of revenue. The general licence fee which was in implementation would reduce challenges in terms of completeness of revenue. ICASA would be able to recover money from supply chain management but not necessarily immediately. Almost more than R2 m might be recovered by the Hawks. ICASA would provide a written report every quarter on the issues Members had asked about. ICASA had reclustered the strategic objectives to ensure that the objectives were not too dependent on policy directives. The DoC and ICASA would meet to deliberate on this. On the HR vacancy rate, ICASA was in the process of employing a consultant for realignment. Although certain positions were vacant, the most pertinent positions were being filled with immediate effect. ICASA was concluding the employment of general management. The ICASA delegation felt that ICASA was top-level heavy so debates were taking place on what positions were really necessary in the organization and they would provide a conclusive report on these. The ring-fenced funds could not be reallocated according to National Treasury. R20m funds were for relocating. ICASA was allowed to roll over funds and these would be used for accommodation facilities. ICASA had been able to negotiate the renewal of rental which resulted in savings.

Mr Pieter Grootes, General Manager of ICASA, referred to page 48 of the Annual Report saying of the 129 post offices visited, only 16 offered web-to-post services for consumers. Only 69 of these 129 post offices were connected to the internet. ICASA had sent this information to the DoC. On local loop unbundling, ICASA had released a draft set of regulations on 11 September 2013 for licensees to give feedback on what should be done.

Ms Clarinda Simpson, CFO of ICASA, explained that the debt older than 90 days was written off. She referred to page 108 of the Annual Report and said that Spectrum receivables were the only invoiced amount, the bulk of which was related to 2012/13. The other three categories were accrued amounts recognised by the accrual basis of Generally Recognized Accounting Practice (GRAP) Accounting Framework. She explained that licensees must submit their financial statement around September – 6 months after their financial year-end. R377 m of spectrum debt was invoiced. The debt less than 90 days were mostly spectrum debtors and the South African National Defence Force (SANDF) was the main contributor to the spectrum amount. Then came R73m from the Vodacom dispute and R83m for the Wireless Business Solution (WBS) case that had not settled its fees. ICASA included allowance for impairment for 394 m and were assessing recoverability of spectrum debt. ICASA was engaging with National Treasury to assist it in recovering debts related to SANDF. Old legacy debt was 4-5 years old. ICASA received external legal advice and apparently could not recover R245m as per legal and AG advice. R377m was owed by the industry. The big increase in irregular expenditure was because ICASA updated the supplier database and suddenly found suppliers who were no longer registered for Value Added Tax (VAT) two to three years after the contract was awarded. ICASA was recovering the money through a legal process. Some suppliers could not pay so that was disclosed under irregular expenditure. The previous insurance contract came to an end. ICASA concluded a new contract and paid quarterly in advance. The 8 m staff payment was deserved by the staff in all the programmes.

Mr Dlamini explained that temporary staff increased due to urgent matters that had to be worked on during the year. ICASA had asked for an additional half a billion worth of funds (50% of which was for engineering and technology). Supply Chain Management (SCM) matters were a high contributor towards under-expenditure. ICASA had introduced a mechanism to resolve the problem. The total debt from Sentech was approximately R43 m. Interest had doubled this debt to R85 m. Sentech settled the capital debt only. With regards to the HR profile, ICASA did not discriminate against disability, but no disabled persons were employed at ICASA.

Mr Phosa Mashangoane, General Manager at ICASA, spoke about the awareness campaign. ICASA had proposed to have a disability centre in the consumer office. For public awareness, the project ICASA was doing consisted of a public representative working with ward counsellors and mobilizing people to attend workshops. The program had five campaigns that run throughout the year. Both able-bodied and people with disabilities were accommodated. ICASA established the Disability Consultative Forum with business, society and disabled representatives that had quarterly meetings and it recommended what needed to be done to address disability. He talked about the International Day for Persons with Disabilities which was introduced in Calvinia, rural Northern Cape, where he and Dr Mncube did presentations. ICASA also would influence legislation on the issue of disability by hosting the International Inclusivity and Accessibility Summit in July next year. The outcome from the Summit would be used to write a report comparing accessibility systems from around the world. He represented ICASA in Nigeria last week where issues of disability were addressed. ICASA also covered disability for senior citizens. He invited the Portfolio Committee members to come and observe public awareness events that ICASA did around South Africa.

Mr Dlamini asked to provide a detailed written response on the issue of unresolved complaints and how ICASA responded to them. He explained that a proposal had been put to the audit and risk committee on fruitless and wasteful expenditure, to be able to recover some of the money. The fruitless expenditure on storage would be addressed. Recouping of fringe benefits was one of the ways of recouping the money, subject to approval of the audit and risk committee. There would be a report for this as well.

Ms Kilian said she would appreciate the outstanding report. On ICASA getting approval from the audit and risk committee, she referred to PFMA regulations. A greater sense of accountability was needed in ICASA. On page 108 of Annual Report, Ms Simpson referred to industry players on spectrum receivables. If ICASA motivated for a write-off, what was the motivation to write off industry debt if it was still owed to ICASA. She asked whether the problem of legal litigation was more serious if ICASA followed up on the debt. ICASA could not keep writing off what was owed to the government and entities in public and private sector.

Ms Shinn asked if it was a good idea to have credit cheques for licensees. She asked about ICASA’s decision not to seal the equipment of unregistered licensees.

Dr Mncube said that things would change after realignment. ICASA had a presence in only six provinces of the country. ICASA now had Memorandum of Understanding (MOU) with the Universal Service Agency of South Africa (USASSA) to share office space. ICASA was now heading to more rural areas of the country. ICASA had accomplished much and would continue to do better.

Mr Dlamini said that through the introduction of General Licence Fee, the issue of risk would be addressed. Engagement with operators was taking place. Around non-compliance in supply chain, ICASA would share the recommendations with the Committee.

Mr Mncube said ICASA had a long way to go and the Portfolio Committee should continue giving feedback to ICASA. There was no failure in a developmental situation and progress was underway at ICASA.

The Chairperson thanked the ICASA executive team. The Members wants a written report on the issue of litigation cases. ICASA had moving forward regardless of challenges. He acknowledged the efforts of ICASA. He commended the five-year unqualified report. He acknowledged that for the first time ICASA had never been more transparent about its irregular expenditure and they were holding people accountable. ICASA had also bought broadcasting and monitoring equipment and just needed to fast track the approval process. Mr Mashangoane should be allowed to come to the next meetings so that his day-to-day difficulties might be addressed. He hoped Ms Simpson would maintain a tight grip on the financials. He thanked Mr Dlamini whose contract was coming to an end, for the good work.

The meeting was adjourned.