The Standing Committee on Appropriations was briefed by the Department of Telecommunications and Postal Services (DTPS) on its fourth quarter expenditure patterns for the 2015/16 financial year and the first quarter of 2016/17.
The spending for the 2015/16 financial year had amounted to R1.3 billion, which was 92.5% of the adjusted budget of R1.405 billion, resulting in under-spending of R105.2 million. The spending rate had been 5% below the previous financial year’s expenditure, and the under-spending had been mainly due to delays in filling vacant positions and the implementation of the South Africa Connect Broadband project.
In the April to June quarter of 2016/17, 31% of the total budget of R2.4b had been spent. There had been no progress on the 2015/16 information communication technology (ICT) enterprise development target for mandates and review of funding models for state-owned companies. This had been due to human resource capacity constraints, and was a challenge which would be addressed in the new financial year. There had also been no progress on first quarter target of the Broadband Connectivity Implementation Plan for connectivity to 675 identified sites due to the pending tender process finalization. The SA Post Office’s (SAPO’s) main challenge was leadership instability. Progress had been made with the appointment of the Board and Group Chief Executive Officer (CEO). The filling of other critical senior positions such as Chief Financial Officer (CFO) and Chief Operating Officer (COO) was being fast-tracked. Governance structures had been put in place so that SAPO maintained records of fruitless, wasteful and irregular expenditure, and material losses, as well as tracked progress of investigations and outcomes.
Members asked how many vacant positions were critical for the Department, and how these vacancies had impacted on the annual performance target. What efforts were being made to get a clean audit, and what consequence management was in place to deal with irregular expenditure? The asked about progress made on the appointment of Telkom as a lead entity to implement the South Africa Connect Broadband Project, and why its implementation and tender processes were taking so long. They said SAPO should be an institution of pride, and expressed concern about its turnaround, staff morale and working conditions. They questioned why R7m had been spent on Special Investigating Unit (SIU) investigations, the conditions attached to the R2.5b bail out of the Post Office, plans to prevent irregular, fruitless and unauthorised expenditure, and the effect of under-spending on the achievement of the medium term strategic framework (MTSF) and National Development Plan (NDP) targets.
The Chairperson said the primary objective of the meeting was to ascertain whether the Department of Telecommunications and Postal Services’ (DTPS’) spending pattern was in line with the voted budget and the tabled strategic and annual performance plans. The Committee wished to gain clarity not only for the sake of its Members but also to ensure that taxpayers’ money was being spent with equity, efficiency and effectiveness. The DTPS was one of the departments which had been identified for a hearing on their spending and service delivery patterns, with the overall aim of turning its performance around.
Mr Joe Mjawara, Acting Director General, DTPS, briefed the Committee on the Department’s fourth quarter expenditure patterns for 2015/16 financial year, as well as for the first quarter of 2016/17. Spending for the 2015/16 financial year had amounted to R1.3 billion (92.5%) from the adjusted budget of R1.405 billion, resulting in an under-spending of R105.2 million. The spending rate had been 5% below the previous financial year’s expenditure, and the under-spending had been mainly due to delays in filling vacant positions and the implementation of the South Africa Connect Broadband project. The latter issue had arisen because the Department was exploring various options to implement the decision made by the Cabinet lekgotla in February 2015. The Broadband project funds had been diverted with the transfer of R100 million to Sentech for Digital Terrestrial Television Migration Project Dual illumination, and R50 million to the SA Post Office (SAPO) for the National Address roll-out project.
In the April to June quarter of 2016/17, 31% of the total budget of R2.4b had been spent. Compensation of employees had been 22%, the variance being the result of vacant positions that had not been filled. Goods and services were 8% behind target, while payments for capital assets had amounted to 58% of the budget. There had been no progress on the 2015/16 information communication technology (ICT) enterprise development target for mandates and review of funding models for state-owned companies. This had been due to human resource capacity constraints, and was a challenge which would be addressed in the new financial year. There had also been no progress on first quarter target of the Broadband Connectivity Implementation Plan for connectivity to 675 identified sites due to the pending tender process finalisation.
SAPO’s main challenges were leadership instability. Progress had been made with the appointment of the Board and Group Chief Executive Officer (CEO). The filling of other critical senior positions such as Chief Financial Officer (CFO) and Chief Operating Officer (COO) was being fast-tracked. Governance structures had been put in place so that SAPO maintained records of fruitless, wasteful and irregular expenditure, and material losses, as well as tracked progress of investigations and outcomes.
Dr C Madlopha (ANC) said the underspending in the 2015/16 financial year had been reportedly mainly due to the delay in filling vacant positions. Why had the positions not been filled? How many others had not been filled, and were they critical positions?
Mr Mjawara replied that only four positions had not been filled. He was the Acting DG. There were three other DDGs who had challenged their dismissals and the disciplinary processes in court. The DTPS would spend more money if it rushed to fill those positions, as it had to wait for the outcome of the litigation. The DTPS was going through a process to redefine its structure and to align it to its new mandate. The delay was not just as a result of finding the right persons, but also to align to the new mandate of the Department. The public sector had to be involved. Overall there were no other posts that had not been filled.
Dr Madlopha asked how the Department would ensure that there was no delay in the attainment of the digital migration project in 2020. What steps had the DTPS taken to ensure that the transfer of R100 million to Sentech for the Digital Terrestrial Television Migration Project did not have a negative impact on the 2020 deadline?
Mr Mjawara replied that the DTPS was not the department driving this project. It had gone across to the Department of Communications. The DTPS had agencies acting to support this project, and would like a joint Committee for this project going forward.
Dr Madlopha asked how far matters had gone the appointment of Telkom as a lead entity to implement the SA Connect Broadband project.
The Acting DG replied that the parties involved had to find each other. There had been lots of discussions that had taken place in the first quarter of the current financial year. By the end of the first week in October, the results would be known.
Dr Madlopha said the DTPS had reported that it had spent 100% of its transfer budget, but the National Treasury had said that R882m had been transferred, which represented 121.1% of the budget. Could the Department explain this, as it exceeded the stated amount?
Ms Joy Masemola, CFO, DTPS, replied that the reports the DTPS had were from the annual report, and these had also been agreed to by the AG. It was possible that the difference may have arisen by referring to the initial amount allocated, compared to the adjusted allocation. The adjusted allocation was the final figure that had been used.
Dr Madlopha remarked that the Department had said it had spent 72% of the budget for goods and services in the fourth quarter of 2016/17, while the Treasury report said it had been 55.2%.
The Acting DG replied that the DTPS would get back to the National Treasury to clarify that issue.
The Chairperson added that when the National Treasury had presented its report, it had said it was a preliminary one. That may have been the reason for the disparity. She added that the explanations from the DTPS were accepted.
Dr Madlopha congratulated the DTPS for having an exemplary, unqualified report. What efforts were in place to get a clean audit? In 2014/15, the Department had headed in the direction of irregular expenditure. What had been the causes and the consequences for those responsible, as it was the duty of the DG to prevent it?
Mr Mjawara replied that the DTPS was dealing with the irregular expenditure, and would like to have a clean audit. There were a number of areas which were problematic. Those were areas the Department had been told over the last three years that had not been performing. Performance measurement charts for every employee had been introduced to ensure that they were performing.
Mr A McLoughlin (DA) asked why there had been under-spending of 7.5% overall in the 2015/16 financial year. What policies were under way for a change? How long would the Department take to implement the South Africa Connect Broadband project and explore various options, as the decision had been made since February 2015? He had not been convinced by the explanation.
Mr Mjawara replied that the implementation was taking a long time as a result of the need for the Department to take the most appropriate action. The DTPS also had to get information technology agencies’ data, as well as proposals from viable service providers. It was an awesome responsibility to connect all the government offices in the various areas of South Africa. This was why it took such a long time. Hopefully, it should be rolled out by the first week in October.
Mr McLoughlin said his mind boggled when he read things about the Post Office. It should be an institution that was looked upon with pride. The CFO had not given any explanation as to why 58% had been spent on payment for capital assets. What was the problem there? Transfers and subsidies had been 0% across the board. The economy was in dire straits and could not afford this kind of thing. What had been the cause of the delay in the implementation of projects under goods and services in the first quarter? 31% being spent out of the final budget was not good enough. Having a financial misconduct committee in the Post Office meant that there had been a lot of financial misconduct. What had happened with this Committee? There had been no progress in the first quarter on the target for the Broadband Connectivity Implementation Plan and connectivity to 675 identified sites project due to the pending tender process finalisation. How long would the process take?
The Acting DDG replied that SAPO had encountered problems because not all the offices were viable. There had been an economic downturn, and post offices were situated in places that were not financially sustainable. What the Department had done was to raise money for SAPO to be financially viable to carry out its mandate. The R2.4b was not a subsidy to the Post Office. The condition was that SAPO had to pay it back. This was to make sure it was in a financial environment where it was healthy and able to look after itself.
On the question of tender, Mr Mjawara replied that the tenders had been issued in June and closed in September. The Department was going into the second phase in October. It was awaiting the results of the tenders.
Mr McLoughlin said over R7m had been spent on Special Investigating Unit (SIU) investigations. Had there been any results? Money should be spent on what was needed. There should be value for money.
The Acting DG replied that the SIU had been asked to investigate a scandal. It had taken a long time for the Unit to finalise this, and this was the reason R7m had been overspent. The litigations were over, and the Department was awaiting the report from SIU. The DTPS was not in a position to provide the outcome until the report was given. The Department hoped for consequence management for those who had done wrong, and to get something out when the report was received.
Ms M Manana (ANC) asked what conditionhad been attached to the R2.5bn bail out. Would the payment objective be met, given the current state of the Post Office? Were invoices being paid within 90 days, as required by the law?
Mr Mjawara said the condition was that the Post Office would repay the money if its financial state was viable. It was not a loan. This was to enable it go to the financial market.
Ms Manana said what plans were in place to prevent irregular, wasteful, unauthorised and fruitless expenditure, as required by the Public Finance Management Act (PFMA)?
An official from the DTPS replied that there were structures in place on how internal policies worked, as well as committees to ensure that policies were followed.
Ms Manana said the Department should clarify the contradictions between the reports of the National Treasury and the Department. What effect had under-spending had on the achievement of medium term strategic framework (MTSF) and National Development Plan (NDP) targets? Why had the DTPS spent only 9% of the allocated budget on ICT international affairs in the first quarter? Had the Department been able to finalise the integrated ICT strategy?
Mr Mjawara said the DTPS had been around 69% in terms of achieving its targets in the first quarter, and was above 80% in the second quarter. Under-expenditure in the first quarter had been because the targets did not have financial indicators. On the ICT strategy, he replied that on 2 March 2016, the DTPS had reviewed the telecommunications and internet centres, as well as all the legislation that was currently applicable. There was a proposal for a new ICT policy. DTPS was directed to work with other departments and EDD was one of such. It was taking longer than anticipated, as it should have been finalised in the last quarter of 2015/16. The DTPS was hopeful that before the end of September, Cabinet would consider the proposals.
Ms E Louw (EFF) said she could not believe that the DTPS could come and report on vacant positions where there were 8.4 million people in South Africa who were unemployed. There should be an approach to go out and look for unemployed graduates. It was mind boggling. How many positions were vacant, needing to be filled, and in what areas of the Department? How had the vacant positions impacted on the annual performance target, and why were the positions still vacant?
Ms Thulisile Manzini, DDG: Administration, DTPS, replied that the Department was in the process of appointing a DG, and it was almost finalised.
Ms Louw asked what capacities were lacking under human resource constraints, and how was this being addressed? Work in progress under ICT infrastructure support in the first quarter had not been given a time frame. When would it start and end, so that the Department could be held accountable? When had the financial misconduct committee been established? If it was there, the Post Office should not be in its current state. The Standing Committee should be furnished with the reports of the financial misconduct committee. What measures were in place to prevent irregular, wasteful, unauthorised and fruitless expenditure? Had the financial misconduct committee assisted in this regard?
Ms Manzini replied the human resource constraints had been the result of the formation of the separate Department of Communications from the DTPS. The Department was in touch with the National Treasury to deal with this, as by law it had to have its own structure, and this was what it was busy with currently. The issue of a Chief Director for Broadband was also critical. The National Treasury had said it was no longer funded. The CFO and human resources (HR) would go to the National Treasury to sort out and finalise all three positions. Chief Directors for both internal audit and Broadband, and the position of an auditor, were the three positions that were lacking.
The Chairperson asked how much of the target out of the total plan had been achieved in the first quarter, and what mitigating measures were in place. What was the estimated performance forecast for the current financial year? Were the targets appropriate, and were they actually angled internally as targets of the Department?
Mr Mjawara replied that in the course of the year, the target had been 23. 15 had been fully achieved, six partially achieved and two not achieved. The performance had been consistent with the last quarter of 2015/16. He added that the Department was on course.
The Chairperson said partnerships were essential for radical social community transformation. How was the DTPS entrenching partnerships in its work, and how was the public being educated on the value of digital migration?
The Chairperson said the internal audit unit should comment on the status of internal control over all major projects that the Department was involved in, and on the efficiency and effectiveness of the overall operations of the Department.
Mr D Makgwadi, Chief Director, Internal Audit, said the controls in place were adequate and effective, but required an improvement in order to have a good audit.
Mr Mjawara added that the internal audit had met on the areas that were problematic, and was working hard to turn matters around.
The Chairperson asked what aspects of risk management and governance were functioning effectively, and what required attention and needed to be improved on? What was the effectiveness and accuracy of overall budgetary planning and spending projections?
Mr Willy Huma, Chairperson: Audit Committee, DTPS said the whole problem around under-spending would be addressed if the Department could award tenders speedily. There should also be budget management. If an amount budgeted and not spent was not managed properly, funds would be consumed by other operations. Fundamentally, the challenges were around budget management. On risk management, he congratulated the DG and his team on the great improvement in the overall management, and to have had an overall achievement of 55% in the quarter had been a good performance. The yearly report was also very close to the quarterly report, except in four areas where the Department had performed badly. For the report to be clean, it had to be unqualified.
The Chairperson said that Vision 2030 aimed for a connected society, but rural households with access to internet connections remained low in all provinces, particularly in the Eastern Cape. How could this be turned around, given that all South Africans should be able to acquire and use power effectively?
The Acting DG replied that there would be a time when all South Africans could receive the digital broadcast message, but the country had not arrived there yet.
Ms Louw asked what processes the DTPS was using to speed up rectification of the supply chain problems that the internal audit committee had picked up. How many people served on the financial misconduct committee? What were their qualifications? People needed to have a positive view about the Post Office. The Standing Committee would follow up, as the Department could not do it alone.
Mr Mjawara replied that on issues raised by the audit, the DTPS took them seriously and responded to them. The Department was happy with the progress made, even though there was still much to be done.
The Chairperson said the Department should be proactive and look at the bigger picture. It should use its limited resources effectively and avoid fruitless expenditure. The National Treasury should compromise on the funding of critical posts, as the DTPS could not implement its strategies effectively and efficiently without its posts being filled. The Department should make a submission to the National Treasury to reconsider this matter, and could equally make a submission to the Standing Committee if it desired it to help in this regard. The supply chain processes and procurement were time bound. It was the law, and should be followed. There was hope for the Department, based opn what it had told the Committee. As regard the audit committee charters, the DTPS should not work with fear but trust that the people would do their jobs. It should seek advice from the Auditor General (AG), who was also in the in the audit committee, ask the National Treasury to train the people who lack the required capacity, as well as invite such people to enrol for learnership programmes. There had been an improvement in the Department’s financial performance in the first quarter, but the Committee wanted more control of the under-spending, value for money, performance and compliance.
Mr Mjawara welcomed the comments and said the DTPS would be in a better position when it came back to Parliament. On what it was doing to help society, he said that the Department had launched a national ICT forum and the ICT Charter last year and were working efficiently. The latter looked at issues over budget performance. There were inter-governmental projects and public participation at the provincial level on how the ICT could change things.
The Chairperson thanked all that were present for the full participation on the critical briefing by the DTPS on its financial and non financial performance. The Committee had noted that the Department had gradually improved its performance over the years. It welcomed the improvement to 91% in the 2015/16 financial year, but urged the Department to aim for a 100% performance, and a clean audit as well. The important criteria were that there had to be a noticeable impact, the people had to be connected, and the Post Office must function well. The Committee remained seriously concerned about the turnaround of the Post Office. The staff morale and the working conditions should be improved and prioritised. The Committee expected regular reports in this regard, and valued the contribution the DTPS was making towards the realising the NDP’s objectives, which were value for money and good governance
The meeting was adjourned.