SABC performance report; SABC Interim Board nominations

Meeting report

Opening Remarks
The Chairperson noted apologies at short notice from Minister Faith Muthambi. The Chairperson said at the end of the meeting they would receive nominations for the SABC Interim Board from each party. Each party was not restricted in the number of names they could provide. The Committee would have to negotiate and agree on a total of five names in the next meeting which would be presented to the National Assembly then to the President. He emphasised that the Committee could not to lag in their decision making on this.

SABC 2015/16 Annual Report
Mr Munzhelele Ndivhuho, Acting Director General: Department of Communications, introduced the presentation saying that technological developments have aided the SABC in delivering a number of programmes such as the Euro Games in 2016. As reflected in the SABC Charter, the SABC makes its broadcasts available to all women, children, and the disabled and in all eleven official languages. Areas that require improvement are due to the rapid developments in broadband internet connectivity; the rise of alternative mobile entertainment options; and the risk exposure around exchange rates as some content is acquired in foreign currency.

Mr James Aguma, Acting Group Chief Executive Officer (GCEO), took the Committee through the Annual Report (see document). The vision of the SABC is to inspire change through enriching, credible, relevant and compelling content that is accessible by all. The mandate of the SABC sets them apart from other broadcasters. The SABC is required by the Independent Communications Authority of South Africa (ICASA) regulations to be accessible to all South Africans, to reflect both the unity and diverse cultural nature of SA, to broadcast national, developmental and minority sports and to provide independent news of high quality. The mandate to provide content accessible to all citizens determines the operating model which it uses as a broadcaster.

Mr Aguma recommended that the SABC be judged in the context of its operating model. SABC audience figures per week were: 28.8 million for SABC Radio, 28.8 million for SABC 1, 26.9 million for SABC 2, 21 million for SABC 3, 1.1 million for SABC News and 1.5 million for SABC Encore. These figures indicate how the SABC is “exceeding normal standards”. There has been a greater need to increase the local content in order to ensure that investors remain interested in funding the broadcaster. SABC would begin to ensure that the local content moves away from being entirely about metropolitan areas and would in future ensure that local content is shared across various provinces. This was illustrated by the requests the SABC received from traditional leaders, wanting more local content. The elections coverage by the SABC was deemed good and received a lot of satisfactory feedback. Concerning technology and infrastructure, the SABC had invested a lot in order to address changes in digital consumption of consumers.

However, the SABC had experienced problems in governance as they needed to identify the factors that would stop them from achieving their objectives. Towards achieving the goals of the SABC, a fraud and corruption strategy was established and was reviewed annually. SABC has a zero tolerance for corruption and fraud. On the finances of the SABC, he emphasised that the irregular and fruitless and wasteful expenditure was an inaccurate figure that also included the opening balances of irregular and fruitless expenditure from previous years. A loss of R41.1 million was incurred by the SABC which was a result of “unforeseen events of national interest” such as bereavements of esteemed persons, expensive rights for sporting events incurred in foreign currencies, the minimal funding from government which is less than 3%, the growth in post-retirement services and the impact of tax adjustments arising from correction of prior year financials. Cash balances dropped to R881 million, from R1.017 billion. Mr Aguma discussed how the SABC had spent about R300 million on infrastructure and experienced an increase in the cost of employment.

He concluded that the SABC could not be understood outside of its mandate to the public.

Discussion
The Chairperson complained that the presentation was too long as it took more than an hour.

Mr M Kalako (ANC) commended the SABC on its presentation as they seemed to have improved compared to their last briefing. He noted however that everyone on the SABC management seemed to be in an acting position. He asked why the SABC was not able to budget for televising cultural events since most South Africans are interested in them. He asked how the SABC budgets and what type of insurance they had for their employees in order to cover legal costs when taken to court. He was concerned that the audit displayed that the SABC had been flouting regulations on supply chain compliance and had not been adhering to set requirements when awarding contracts. He asked why supporting documents to account for irregular expenditure were not supplied to the auditors for the 2015/16 audit. These issues are “the devil of the SABC" as they cloud all their good work. He asked if the lack of big multi-national companies advertising on SABC affects their revenue.

Ms W Newhoudt-Druchen (ANC) noted that Deaf SA held their national quadrennial elections and the Chairperson for Deaf Women works for the SABC which was quite an achievement for her. However, she asked what training SABC offered specifically for disabled staff members. She said that some broadcasts of social national issues such as the last briefing by the Minister of Health had no sign language interpreter or subtitles for deaf citizens. She asked what the SABC policies are for Small, Medium and Micro Enterprises (SMMEs) and contractors who are not paid within 30 days and how they ensure that they are indeed paid.

Ms V Van Dyk (DA) noted that in regards to performance management that former Group Executive: Human Resources, Mr Jabulani Mabaso, testified that the SABC had no proper management system in place which is also displayed in the Auditor-General’s findings. However millions of rand in performance management bonuses were paid to junior and senior employees without seeking the Board’s approval. She asked how the SABC justifies these bonus payments which have doubled since 2014. In view of the mandate of the SABC to provide content in all 11 official languages and make it accessible to all South Africans, what was SABC’s motive in moving such a popular show, 7de Laan to a time when most people are still at work and to replace it with a music show?

Ms N Mazzone (DA) noted that the Minister would have to take responsibility for the irregular awarding of large amounts that were not accounted for and listed as fruitless and wasted expenditure. When items like this appear in the Auditor-General’s report it raises questions because the reputation of the SABC is already in tatters. The balance of R 5.1 billion in fruitless and wasteful expenditure is an extremely large amount which could have been used for many other things. Although it is known that this balance for fruitless and wasteful expenditure includes such expenditures from other periods, it remains a concerning figure. She noted that Mr Aguma during the presentation said: “Unfortunately the business of the SABC is the interest of public broadcast”. She remarked that this is not an unfortunate matter at all as it means that every South African owns the SABC and has the right to know how an amount of R5.1 billion is wasted. She sought clarity on who would be held responsible. She asked about the progress of SABC’s appeal on behalf of Mr H Motsoeneng. She asked if there were contracts signed in December or not, and by whom.

Mr W Madisha (COPE) remarked that Mr Aguma during his presentation said a number of statements which were contradictory and require more explanation, namely: “We find our reserves will at some stage be exhausted”. “We have enough but we don’t have enough therefore we are going to collapse”. He pointed to page 15 on SABC performance management in the presentation and asked if that section does not display improper management.

Mr R Tseli (ANC) noted the improvement in the qualification paragraphs over last three financial years as depicted by the Auditor-General report. However, the growth in irregular and fruitless and wasteful expenditure was indeed worrying. According to the Public Finance Management Act (PFMA), 51 accounting authorities should take appropriate disciplinary action against those who contribute to irregular and wasteful expenditure

Mr M Gungubele (ANC) made a general statement that corporate governance is a result of effective delivery. The 2015/16 Annual Report had no base document by which the Committee could track the progress of the SABC. The report simply articulated the intentions of the SABC. An example was the profitability and liquidity section of the report where there is no base document indicating performance in earlier years. He asked why Mr Aguma said profit was not a key objective whilst profit is required for their performance. The performance of the SABC is hidden behind unreliability. The Committee was at risk of “singing the praises of the SABC” without having the necessary documents that confirm the details of their report.

Ms N Tolashe (ANC) noted how everyone in SABC management is in an acting position. The Committee needed to know who is liable for the affairs of the SABC. She wished that she was as happy as Mr Aguma was about the progress of the SABC but she was not happy at all with the fraud and corruption. The statement of the SABC on fraud is poor. She asked why the SABC could not plan and budget for broadcasting the bereavements of elderly eminent people. This was due to a lack of open mindedness by the SABC management. She sought clarity on whether the funding from government was indeed 3%. She asked what the SABC was doing in order to sustain itself as an entity. She proposed that they could have developed a strategy to fund the R32 million for local government elections as they happen every five years.

Mr Gungubele asked the SABC to clarify the decision making process that led them to participate in litigation as they have been observed doing so in a very reckless manner.

Mr L Mbinda (PAC) noted that every corporation does have a delegation authority according to the Public Finance Management Act (PFMA). In the case of the SABC the Chief Executive Officer becomes accountable as the organisation cannot stop running in the absence of an accounting authority. He is not convinced by the effectiveness of their risk management. He asked if they have a toll free number for fraud and corruption and if they do indeed have one, do they have a delegated department for it. He asked if there are any consequences for those who are responsible for the fruitless and wasteful expenditure. Is the SABC able to pay its creditors? At what stage did they realise that they could not pay bonuses to all staff. He asked if there were any measures used to select candidates for social entrepreneurship.

Ms Tolashe asked if the SABC has been able to cost the public mandate so that it possibly may be funded by the government in 10 to 15 years’ time.

The Chairperson stated that Members had exhausted their time for asking questions. The critical theme in all the questions was about the SABC operating outside of the PFMA regulations. There had to be consequences for this and that the 'bark has to stop somewhere'. According to international finance reporting standards the SABC had submitted a report with many inaccuracies which were picked up by the Committee members. One thing that irritated him is that the SABC in a previous Committee meeting told them that they did not have to account to government because it was only giving them 3% funding. This showed their bad attitude since the SABC belongs to all South Africans after all.

Response to questions:
Mr Aguma explained that in order to bring clarity on the irregular and fruitless expenditure, he would have to refer to a sequence of historical events. The SABC received its first qualification for fruitless expenditure from auditors in 2008. In 2013 the SABC received 9 qualifications from the Auditor-General which included irregular and fruitless expenditure. These figures were carried over into the next financial year, thus having an effect on the opening balances for the following years. Ms Ellen Tshabalala had suggested that the SABC needed to develop an action plan to deal with audit matters. When the Auditor-General qualification was raised in 2013, the irregular and fruitless expenditure figure included the irregular and fruitless expenditure balance of 2012 and of earlier years. This required a review of the financial documents from earlier years so that it could be determined which amounts could be categorised under ‘fruitless and wasteful expenditure’. A number of internal staff were appointed to go back to the records and determine what could fall in the category of ‘fruitless and wasteful expenditure’. The first challenge in implementing an action plan was the internal staff in supply chain management did not have the capacity to deal with the matter at hand as a number of them struggled to grasp the concept of ‘fruitless and wasteful expenditure’ A second challenge was the recruitment of internal staff to review internal documents. The best way to solve this was to get an independent audit service provider. The root causes for the growing irregular and fruitless expenditure balance was the use of defective polices. These policies did not require the supply of documents and did not consult the law. As a result, all the past documents that were gathered did not meet the requirements of the tax regulations and the Delegation of Authority Framework (DAF). They had been dealing with the challenge of unearthing valid documents that in the past were not retrieved. However they had been receiving assistance from the South African Revenue Service (SARS). All this had been done in the spirit of transparency.

On the question of who would be held liable for irregular and fruitless expenditure, Mr Aguma clarified that the accounting authorities in those periods had issues with interpreting the regulations and the Delegation of Authority Framework. This also led to the discovery that tender contracts were not initiated timeously and there were on-going extension of tenders due to a lack of planning. They are dealing actively with independent persons because internal persons have proved not to be able to package information properly. The accounting authorities should have known that there were policies in place that should have governed the auditing process. However, they cannot yet condone any persons since the reviewing and auditing processes have not yet concluded.

Mr Aguma explained that the SABC would cover the court fees for an employee in a situation where he or she did something in good faith and was sued. Concerning advertising space, he explained that advertising spaces vary on every radio station according to the demographics of the listeners. However, the SABC has not been willing to operate on such discriminatory terms. Advertisers often want to post their adverts on English radio stations and channels instead of African language stations.

On sign language interpretation, he said he is concerned about this reality and that they would follow up on it. The SABC does not discriminate against the disabled community in any way and that it should not be an option at all to have a sign language interpreter for national briefings. On Small, Medium and Micro Enterprise (SMMEs), there is a policy which ensures that organisations are paid within 30 days if all their documentation is received in time.

On human resources, Mr Aguma clarified that the HR department had decided to set in place a policy and system that was in line with the required process which led to structural changes. However job specifications and profiles lagged behind and were not updated to suit the structure. Nevertheless, he would ensure that the procedure for job profiling would be finalised in order for it to be passed on to the Board. He said that it was not true that bonuses were paid without approval of the board. Some senior management employees offered to sacrifice their 13th cheque during the financial crisis in 2014/15. This was done to ensure that other employees who were not in senior management would receive a bonus. However, this was not a legal decision and it has been creating confusion.

The SABC is indeed a public broadcaster. However it operates in a highly competitive environment. Therefore constant research is done in order to increase their viewership and potential. The move of 7de Laan was to protect it by placing it in a less competitive time. It is still in prime time. They would constantly be vigilant about how it is performing.

Mr Aguma explained that the SABC cannot grind to a halt because they have no board, instead business ought to continue as normal. The contracts entered into were done according to appropriate measures. The R5.1 billion is a cumulative figure representing a number of years. A great amount of fruitless expenditure arises from the manner in which they buy packages for various shows. These packages often consist of shows which they will not necessarily be able to air because of the lack of available slots. He continued that this is the way in which the industry operates. There has been an R80 million increase in rights for sports which has also contributed to the large irregular and fruitless expenditure figure.

The SABC could not be compared with any other broadcasting corporation since its interest as the SABC is to serve the interests of the public. He clarified that this is what he meant when he said it is an ‘unfortunate business’. This is because it yields certain costs which are often not experienced generally in the broadcasting industry. There are public mandate events that they simply could not budget for. If revenue has not increased higher than the cost of expenditure, the SABC will be insolvent on paper. But they have been able to pay creditors. In regards to the Mr H Motsoeneng, he clarified that he was exercising his democratic right not to respond on this matter as of yet.

Mr Aguma stated that no board had completed its time since 2008. They had been trying to deal with the outcomes of defective policies in order to ensure that the internal control was solid. There were many historical issues that they had been trying to stabilise.

Mr Aguma affirmed that once all the facts had been retrieved concerning the irregular and fruitless expenditure, people would be held accountable and would have to face the consequences. However, they also did not want to create fear as many employees might have contributed to the audit problem unknowingly.

Mr Aguma remarked that it was not a matter of not knowing about sporting events; instead it was about what had to be broadcast and prioritised as per the SABC mandate. Sometimes the need to broadcast various advertised sport events surpassed the funds that were available to do so.

He explained that what was recognised for accounting purposes is that the more employees you have, the more the liability. Cost of employment also affected the costs of services such as post-retirement benefits.

Mr Aguma said that if news is not sponsored, it means that broadcaster will be run without funds. This was a strategic choice because of the funding gap. Similarly, he mentioned that many TV licence accounts were inaccurately rendered on the television licence database. Data was inaccurately recorded because of negligence as some clients were deceased and some were foreign nationals living outside South Africa. To change the public outlook towards TV licences, they had to change their approach. Instead of sending a negative perception to people, they began to send out a positive perception that is linked to a rewards system. As a result, people now link paying their TV licences with a reward system of possibly receiving bursaries, online courses, airtime, and installments. This was after correcting the inaccurate database.

In response to Mr Gungubele question about the SABC's reckless decision-making process to litigate, Mr Aguma said he would ponder more on this statement.

Mr Aguma explained that it would be very difficult to have a baseline for finances since most of them were not credible. The rate of technological development made having a baseline challenging since technology is constantly changing. This was not because of poor planning but mainly as a result of supply chain changes. Operational decisions were raised concerning improvements in reporting measures. On revenue, the SABC could not account for profit whilst it operated according to its public mandate which often exceeds revenue. The SABC had a battle around the defining of ‘provincial content’. This matter would further be reviewed.

In response to Ms Tolashe, Mr Aguma responded that liability lies with whoever caused it at that time. For irregular and fruitless expenditure a person would indeed have to face the consequences.

Mr Ndivhuho, DoC Acting Director General, added that in the case where there is no board, Chapter 6 Part 2 of the PFMA states that the CEO becomes the liable authority. The SABC has applied for transmitter licences from ICASA. They applied for 82 and were given 31 licences.

Mr Aguma explained that the SABC does have a fraud hotline and a forensic division that is very busy. Therefore, many changes are needed to be made at the top in order for the model to be effective. On the social entrepreneurship, they have a division in supply chain that researches the candidates for the entrepreneurial division. Freshly Water, as a small successful farm in Heidelberg amidst vast unemployment, was seen as a good candidate. On risk management, he said that the model cannot be effective if internal controls do not exist.

Afternoon session
SABC 1st Quarter 2016/17 Performance Report
Mr Aguma explained that most of the issues discussed in the Annual Report also extend to the 1st and 2nd Quarter report. They had to develop their digital television and radio offerings to meet the demands of the public. The Corporation had made ground breaking changes in the content that it offers. The financial quarter performance was recorded to be adequate taking into account increased infrastructure and content. The SABC was in a state where it could meet its financial responsibilities. One of their achievements was attaining 19 power transmitters. The SABC also received accolades for recording the South African elections, the Premier Soccer League (PSL), boxing, Comrades Marathon, Rio Games and the Two Oceans Marathon. The logo for Lesedi and Phalaphala FM were also changed to resemble Venda colours and now look new and alive. Efforts were also made to revamp the studios in Thohoyandou. The new ways for paying TV licences are in the process of being widely advertised so that consumers are aware.

The financial performance of the SABC, summarised on page 10, indicated that the SABC did not receive much revenue. In the 1st Quarter, R5 million was used to fund the elections which was raised by the former Chief Executive Officer. Targets for local content inserts were exceeded in Quarter 1. In producing streamed digital programmes SABC had a target of 10 programmes and 90 television stations via YouTube. However, what SABC wishes to do in the future is to be able to extract revenue from viewers who watch these programmes via YouTube. Under human resources, the workforce plan was finalised and submitted. SABC wanted the Governance, Risk Management and Compliance (GRC) model to be finalised in order to ensure that a lot audit findings are avoided. In terms of taxes, the SABC paid a figure of R7 million, however the income tax was only reflected to be taxed in the 2nd Quarter. He concluded that the SABC had ended the 1st Quarter of 2016/17 on an operating loss of R124.27 million, which is R154.51 million (511%) below the budgeted profit of R30.24 million.

SABC 2nd Quarter 2016/17 Performance Report
Mr Aguma clarified that during this quarter the SABC had challenges with a lot of unflattering media coverage but finished the quarter on a good note. It covered the 2016 elections well and received accolades. The financial performance was satisfactory as the Corporation increased its cash balance to R66 million. A net loss of R256 million were recorded during the 2nd Quarter and was caused by the fact that it had cleaned the TV licence database during the first quarter. SABC was happy to broadcast all the content of the Olympics. However, revenue fell behind because of advertising budgets that were cut and because of the drive for a new marketing process for TV licences.

Capital expenditure on the other hand was R240 million. He affirmed that the SABC no longer had an audit qualification in regards to TV licences. Nevertheless, the SABC is still struggling with the rate of foreign exchange. Advertisers had requested that there be an advertising package that includes television and radio which is something the SABC is still working on. He commented that the SABC exceeded all advertising targets. In conclusion, he said that the SABC had closed at a net loss of R434.4 million for the financial year to date.

Discussion
Mr Madisha referred to page 4 and noted that the Committee had heard that there had been a number of problems among the 4 000 plus workers at the SABC. He asked who the legends were, that were being paid royalties. He asked Mr Aguma for more on the human resources (HR) division as it was believed that people were being unfairly dismissed and that improper training was taking place.

Ms Newhoudt-Druchen referred to Quarter 1 and asked the number of properties that had been renovated in order to allow disabled persons to access buildings. She asked about procurement of companies owned by disabled persons and requested the names of these persons. She asked if they included the number of viewers who watch programmes via YouTube in their statistics.

Mr Tseli agreed that the SABC successfully covered the local elections. He asked how it had managed to raise funds for the coverage of the elections in the past. The consulting fees were R1.5 million lower than the budgeted amount however his worry was that the SABC had budgeted almost two times more than previous years whilst there are always ways of reducing consultant fees. He asked why staff hotel bookings were included under irregular and fruitless expenditure.

Mr Kalako mentioned that the earlier discussion on irregular and fruitless expenditure was clear but the Committee would seek to be updated further on this matter during the SABC 3rd Quarter performance briefing. He asked if the SABC had finalised matters with the Film and Publication Board (FPB) who is leading the amendment process prior to the finalisation of the Film and Publication Amendment Bill.

Ms Tolashe agreed with Mr Kalako about the required feedback on irregular and fruitless expenditure at the 3rd Quarter meeting. She asked why SABC too so much pride in covering the elections and asked who else would have to do so.

Ms Mazzone noted that she could not see the legal costs incurred by the SABC in their budget.

Mr Tseli asked what contribution the SABC is making to the Digital Terrestrial Television (DTT) project.

Ms M Matshoba (ANC) commented that property development included only deaf disabilities. She asked what about people with other disabilities. She said she accepted both SABC reports.

Response
Mr Aguma explained that in earlier years the SABC had been taken to court for not paying royalties to musical artists whose music they aired. They took a decision in accordance with the court judgment to pay musical legends as from 2006 who had become destitute. The training SABC provided is informed by the skills audit. Therefore, employees nominated the course that they felt best suited their work. The SABC has two categories of workers, permanent and independent contractors who it has on their database for peak seasons.

In the 1st Quarter the SABC acquired two properties from companies run by people with disabilities. The disabled are given first advantage to ensure that they are catered for. He was not sure if the viewership statistics include viewers on YouTube. However this is something the SABC wants to improve because of the rise in digital viewership.

In response to Mr Tseli, Mr Aguma explained that SABC had to revamp their wellness centre. Sometimes there were issues with connecting flights when travelling abroad and additional fees had to be incurred. Further, the SABC is actively involved with the Digital Terrestrial Television (DTT) projects. This had led the SABC to even donate their assets to DTT in order to give to rural areas.

Mr Aguma replied that the SABC takes pride in broadcasting the South African elections as it is a very intricate exercise. This process took long and required much financing in order to improve the democratic process in South Africa.

He explained that legal costs are included under professional accounting fees.

In response to Ms Matshoba, he said that issues of disability are taken very seriously by the SABC. It has two programmes for sign language on SABC 2 and is in the process of producing an African one which
will screen on SABC 1.

The Chairperson assured Mr Aguma that they would be performing oversight at the SABC in the week of the 22nd of March. The SABC was excused from the meeting.

SABC Interim Board nominations
The Chairperson asked the various parties to present their nominees for the SABC Interim Board.  

Mr Kalako said the ANC nominated: Mathata Tsedu, Rachel Kalidass, David Niddrie, Krish Naidoo, Febe Potgieter-Nqubule, Sulungeka Dazana, Khanyisile Kweyama and Steve Motala.

Ms Mazzone said the DA nominated: John Mattison, Tanja Bosch, Mpumelelo Mkhabela, Jack Devnarain and Michael Markovitz.

Mr Madisha said COPE, including the UDM and IFP, nominated Moses Molaradi, Xolisa Beqheka, Dumile Mateza, Pearl Luthuli.

The Chairperson said that the other non-represented smaller parties would have to submit their names as well to the Committee secretary.

This was agreed to by all Members.

The meeting was adjourned.