SABC Irregular, Fruitless and Wasteful Expenditure: update with Minister

Public Accounts

17 May 2017
Chairperson: Chairperson: Mr T Godi (APC)
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Meeting Summary

The South African Broadcasting Corporation (SABC) gave an update on its irregular, fruitless and wasteful expenditure, particularly the contract with the auditing company, Sekela Xabiso. Sekela Xabiso (SkX) was engaged to detect irregular, fruitless and wasteful expenditure from financial year 2010/11, and to implement sustainable improvements to the Supply Chain Management (SCM) control environment. SkX was roped in due to lack of internal capacity and because document and record-keeping was a challenge at SABC. The value of the SkX contract was R25 million. SABC would be submitting its 2016/17 financial statements to Auditor-General South Africa by the end of May, and it is expected that by end of July the Auditor-General would have expressed an audit opinion.

SABC indicated that it was in a difficult financial crisis. However, SABC staff was a priority and would be paid on time. The board was in continual discussions with a host of service providers to ensure content could be supplied before payments. Also, the board took a decision to suspend its salaries until such a time when the SABC financial situation is regularised. Vacant posts had been advertised and were expected to be filled soon. Five matters were referred to the Special Investigating Unit (SIU) and SIU was still waiting for a presidential proclamation, indications were that investigations would commence in June.

The Minister said challenges at the SABC related to financial mismanagement, poor archiving of documents, bleak skills capacity and the need for innovation. She emphasised that the Interim Board’s scope of work was not limited to the implementation of the Ad Hoc Committee Report and the Public Protector’s Report. The board had to ensure the implementation of Section 51 of the Public Finance Management Act, which requires the board as an accounting authority to take effective and appropriate steps to prevent irregular, fruitless and wasteful expenditure. Engagements with National Treasury emphasised the need to strengthen financial management systems in the SABC, before exploring guarantees and bailouts as options for a viable turnaround strategy. Also, the board was looking into determining assets that could be disposed of, coupled with other cost-cutting measures to ensure financial sustainability.

Members said that SABC’s record-keeping was flawed and it was clear that the lack of records was meant to destroy incriminating evidence. Members found it hard to reconcile the R25 million Sekela Xabiso contract and the SABC presentation on wasteful expenditure. SABC had to explain why it engaged private auditors for R25 million, instead of utilising the internal capacity of its forensics unit and supply chain management. It was problematic that SkX was appointed to ‘find missing documents’.  Everything to do with the contracts was against all prescripts. No documents had been made available to indicate the SkX contract was through an open tender process. Some Members were devastated to learn that the value of the SkX contract amounted to R25 million when the initial indication made by the SABC was R5 million.

Members expressed dismay at the absence of Acting CEO, Mr James Aguma. As the accounting officer, Mr Aguma had to appear before the Committee as per the Public Finance Management Act (PFMA). He had also excused himself during their visit to the SABC in March. They called for his dismissal. However, SABC indicated that Mr Aguma was still Acting CEO. However, Group Executive for Media Technology Infrastructure, Tsheliso Ralitabo, had been appointed as stand-in Acting CEO on 15 May, for the duration of Mr Aguma’s absence. Mr Aguma had taken a week-long leave of absence, citing ill-health.

Meeting report

The Chairperson in his opening remarks said the Committee was taking the challenges at the SABC very seriously. Members were not left with a good impression during their last visit to the SABC offices in Johannesburg. They were convinced that they were ‘hitting their heads against a brick wall’. The board and administration should assist in creating a good impression as the leadership of the SABC. Members should not be seen as ‘an unwelcome intrusion into its exclusive space of maladministration and corruption’. Members have a constitutional and political responsibility to ensure SABC is well-functioning – these responsibilities must be reflected in the way the Committee interacts with the SABC leadership. It was unquestionable that the Committee would deal with the ‘rot’ at the SABC; obfuscations merely delayed the inevitable.

Mr M Booi (ANC) asked about Acting CEO Mr James Aguma’s whereabouts, and why he had ‘disappeared’. He is an accounting officer and must appear before the Committee. He did the same thing when Members visited the SABC. It seems Mr Aguma was not prepared to interact with the Committee to solve the SABC crisis. He was adding to the negativity and perceptions Members have about SABC.

Mr C Ross (DA) also expressed his displeasure about Mr Aguma’s absence. There was a total disregard for the Committee in what it sought to achieve. He viewed Mr Aguma’s actions as deliberate and asked the Committee to take action. Mr Aguma was instrumental in the total collapse of corporate governance in the SABC, and was compromising the expeditious resolution of the SABC crisis.

Ms N Khunou (ANC) agreed with other Members. He pointed out that when Members visited the SABC, Mr Aguma had excused himself alleging that he had to undergo an operation. She felt Mr Aguma’s excuses were insincere. She pointed out that Mr Aguma, as the accounting officer, must appear before the Committee as per the Public Finance Management Act (PFMA).

Mr M Hlengwa (IFP) asked about Mr Aguma’s status currently within the SABC.

Ms N Mente (EFF) said it was ‘painful’ to go through the very same exercise again. Mr Aguma was the focal person and his continued absence was worrying.

Mr V Smith (ANC) said the board was ultimately accountable for the running of the SABC and must be answerable in the Acting CEO’s absence. The Committee deserved an answer why Mr Aguma was not in attendance.

Minister of Communications, Ayanda Dlodlo, acknowledged Members’ concerns and indicated that Mr Aguma had said he was unwell. That he coincidentally took ill before SABC was to appear before the Committee was a different matter altogether. She was taking the challenges within SABC seriously and had initially asked the board to appoint a caretaker CEO.

The Minister agreed that having personnel in acting capacities posed an untenable governance and accountability risk, and was looking into addressing the matter within the shortest possible time. The process to appoint a new executive in the SABC was underway and would be expedited.

The Chairperson indicated that Treasury had requested documentation from the SABC pursuant to the Public Protector’s report, but SABC was not forthcoming.

The Minister replied that some of the requests made to the Department had not been brought to her attention as she had just been appointed, but reaffirmed the Department’s commitment in ensuring that problems in the SABC are addressed. Challenges at the SABC relate to financial mismanagement and poor archiving of documents, amongst others. The skills capacity was also bleak, and there was need for innovation. Events around the SABC have seen it become the subject of news rather than the producer of news.

She emphasised that the Interim Board’s scope of work was not limited to the implementation of the Ad Hoc Committee Report and the Public Protector’s Report. The board had to ensure the implementation of Section 51 of the PFMA, which requires that the board as an accounting authority must take effective and appropriate steps to prevent irregular, fruitless and wasteful expenditure. The board had to understand the implications of non-compliance in terms of Section 50, 51 and 55 of the PFMA.

She had not directed the Interim Board to investigate the previous Minister, Ms Faith Muthambi, or any other minister because it was neither the board nor her mandate. The lack of supporting documents for SABC procurement and tender processes was a matter of serious concern. It was difficult to get documentation from the SABC, partly because there were no smooth personnel handover-takeovers within the SABC. Also, some of the staff did not understand the value of properly archiving documents, coupled with weak internal controls and document management systems to enable it to store and retrieve information as required by law. She instructed the Interim Board to urgently engage with the Department of Arts and Culture to assist in the proper archival and management of records as accountability was of paramount importance.

The Chairperson asked if SABC would be able to pay its employees at the end of the month.

The Minister said the Department was in continual discussion with National Treasury on SABC’s funding model.

Mr Mathatha Tsedu, SABC Interim Board deputy chairperson, said SABC was in a difficult financial crisis. However, SABC staff was a priority and would be paid on time. The board was in continual discussions with a host of SABC service providers to ensure content could be supplied before payments. Also, the board took a decision to suspend its salaries until such a time as the SABC’s financial situation is regularised.

He indicated that the SABC board chairperson was attending a disciplinary hearing instituted against Mr Hlaudi Motsoeneng. The lawyers of Mr Motsoeneng had provided an affidavit in which Mr Aguma stated that he had given permission to Mr Motsoeneng to hold his controversial press conference last month.

He clarified Mr Aguma’s status at the SABC. Mr Aguma was still Acting CEO, but the Group Executive for Media Technology Infrastructure, Tsheliso Ralitabo had been appointed as stand-in Acting CEO on 15 May, for the duration of Mr Aguma’s absence. Mr Aguma had taken a week-long leave of absence, citing ill-health.

Mr E Kekana (ANC) asked if the Minister and the board had a well-defined plan to fill the executive positions at the SABC permanently.

Mr Smith noted the Minister’s concern that SABC’s record-keeping and archives management was flawed. However, it was clear that the lack of records was purely malicious and meant to destroy incriminating evidence. Moving from this premise will enable stakeholders to address challenges at SABC.

Mr Hlengwa said there was need for clarity on ‘who was who’ in the SABC top management. There is a ‘mafia’ operating in the SABC and the Minister had to be firm in her efforts to root it out. SABC has become a ‘rogue entity’ and Members’ frustrations emanated from that. Accountability is absent, and for as long as Mr Aguma was with the SABC, the rot would continue.  

Mr T Brauteseth (DA) remarked that Mr Aguma had lied to Parliament that he had not authorised a press conference in the SABC in his previous appearance before the Committee. He had to be suspended as a matter of urgency pending a disciplinary enquiry.

Mr Ross said upon the Committee’s visit to the SABC on 28 March, Mr Aguma was in complete denial that SABC was in a financial crisis. He was happy that Mr Tsedu admitted that SABC was in dire straits financially. He asked about the extent of engagements with Treasury in terms of guarantees or loans to sustain the SABC.

Ms N Khunou (ANC) agreed that Mr Aguma had to leave but would need to appear before the Committee before departure, to account for his actions.

Minister Dlodlo clarified that her mentioning record mismanagement was not to water down the criminality that existed in SABC in terms of obfuscating evidence by way of mishandling documents. Record-keeping was largely a challenge she identified even at junior levels within the SABC. Also, upon assuming her ministerial role, she had pointed out the need to appoint a caretaker CEO from outside SABC to deal with matters. Regularising appointments was crucial.
 
The Minister said engagements with Treasury emphasised the need to strengthen financial management systems in the SABC, before exploring guarantees and bailouts as options for a viable turnaround strategy. Also, the Board was looking into determining assets that could be disposed of; cost-cutting and other measures to ensure financial sustainability.
 
She remarked that SABC was always in the habit of withholding information. The fact that SABC was in serious financial challenges to the extent that it might not be able to pay employers was not divulged voluntarily. It could be due to fear or deliberate deceit on the part of accounting officers. It had to be made clear that the Department and the Committee were there to assist the SABC resolve its challenges.

The Minister said she could not call for the suspension of any executive of a public entity in a public forum. She acknowledged Members’ concerns and assured the Committee that the board would act accordingly.

Mr Tsedu said vacant posts within the SABC had been advertised and were expected to be filled soon. On the call for Mr Aguma’s suspension, he said the Committee needed to allow the Board to act legally always. It would be amiss for the board to make pronouncements abruptly.

The Chairperson interjected that was not the expectation. The Committee was not directing the board to act illegally.

Mr Tsedu indicated that the board was confronted by a limping entity. The atmosphere was filled with fear and a culture of rule by decree. There was need to address these issues as they permeated even into the handling of finances. The board was looking into SABC contracts thoroughly, and had called in the Special Investigating Unit to carry out forensic investigations. Also, the Board was looking at ways of rolling back detrimental consequences of decisions that have been taken before. This would include even things like 90-10 local content on radio and 80-20 on television where radio has lost R29 million and TV has lost R183 million. SABC spent R72 million additionally for insourcing new local content to displace the non-local content that it could no longer use. 90-10 was not really a policy because it was never debated at any board meeting. It was just a directive that from now this is how you are going to do it. It is a good policy in that it promotes South African products but its implementation has to take cognisance of the fact that it must not threaten the existence of the institution itself, which is what it is doing.

Mr Krish Naidoo, SABC Board member, said the board had stressed the need for consequence management strongly. Management had to take personal responsibility in terms of the PFMA. 

Ms Audrey Raphela, Acting CFO, SABC, explained why SABC engaged Sekela Xabiso auditors. Sekela Xabiso (SkX) was engaged to detect Irregular, Fruitless and Wasteful Expenditure (IFWE) from financial year 2010/11, and to implement sustainable improvements on the Supply Chain Management (SCM) control environment. SkX was roped in due to lack of internal capacity and because document and record-keeping was a challenge within SABC. The value of the SkX contracts in the three years (2014-17) was R25 million. SABC would be submitting its 2016/17 financial statements to the Auditor-General by the end of May. It is expected that by end of July the Auditor-General would have expressed an audit opinion. 

Mr Smith said he was finding it hard to reconcile the contract documents at hand and the presentation on wasteful expenditure which indicated that SkX contracts were valued at R25 million. SABC had to explain why it engaged private auditors for R25 million, instead of utilising internal capacity. It was problematic that SkX was appointed to ‘find missing documents’.  Everything to do with the SkX contracts was against all prescripts.

The Chairperson indicated that the Committee would need to go by the R25 million mentioned in the presentation as SABC had not sent all contract documents for the Committee’s perusal on time. SABC had to explain why decisions were taken to engage SkX for such huge amounts of money. No documents had been made available to indicate an open tender process.

Mr Hlengwa said the impression Members got during the previous engagement with SABC in Johannesburg was that SkX was roped in to investigate irregular expenditure. He asked if SkX actually undertook what it was paid to do.

Mr Ross said the Committee was devastated to learn that the value of the SkX contract amounted to R25 million when the initial indication made by SABC was around R5 million. It was a deliberate attempt to mislead the Committee. Appointing SkX was duplicating the Auditor-General’s work and plunging SABC into a deeper crisis. The Committee was dealing with unimaginable criminality. 

Ms Khunou agreed and said ‘heads had to roll’. Accounting personnel were hiding something. Mr Aguma was a problem but he was not the only problem. Senior management had to own up as well.

Mr Booi said Mr Aguma ‘ran away’ because he knew that the Committee had facts about goings-on at the SABC. The Acting CFO was misleading Parliament, and was moving away from the initial commitment. The SkX appointment was clearly irregular.

Ms Mente pointed out the value of contracts in relation to the duration of the services rendered. It seems as if values were just being pasted in with reckless abandon.

Mr Kekana said it was clear the totality of the contract was illegal and it was futile to dissect the contract. SABC had to be investigated and the matter brought to finality. He asked about the timelines on the referrals to Special Investigating Unit (SIU).

Mr Smith said it was not as simplistic as the Committee spelt it out to be. Firstly, the accounting authority would fall foul of the PFMA if the SkX contract continues. Secondly, the financial exposure the contract had caused for the SABC was worrying because in unilaterally suspending the contract, SkX could claim huge amounts of money. He emphasised that if the SABC continues to pay SkX, he would call for the board and executives’ dismissal.

The Chairperson asked SABC to speak to why SkX was hired when indications were that the task at hand was ‘to look for papers’. That could have been easily done using internal capacity. 

Mr Andries Moshigo, General Manager: Forensics, SABC, said the forensics unit had been keeping records of transactions that were likely to be irregular, fruitless and wasteful expenditure. Unfortunately, when SkX was brought into the picture, the forensics unit was not consulted.

Mr Naidoo, SABC board member, said the board referred five matters to SIU and there would be a follow-up meeting with SIU in the coming week. SIU was still waiting for a presidential proclamation, and indications were that investigations would commence in June.

Mr Ross suggested the need for Treasury’s Office of the Chief Procurement Officer to brief the Committee on why they gave SABC the go-ahead to engage SkX.

In response to Mr Moshigo’s input, Mr Hlengwa remarked that the decision to appoint SkX was irregular. He asked if Mr Moshigo believed that the SABC forensics unit had the capacity to carry out the work SkX was engaged to do. Somebody had to account for engaging SkX if there was internal capacity, as the consequences were debilitating.

Mr Moshigo replied it was the mandate of both the SCM unit and Forensics to identify irregular, fruitless and wasteful expenditure. He said Forensics does have the ability to investigate once matters are brought before it for attention.

Mr Tsedu indicated that the SABC Interim Board inherited the bureaucracies of the previous administrations and the challenge was to navigate its way through. Some of the people the board was relying upon were the very people that plunged SABC into a crisis. The board was aware of the challenges and up to the task.

Ms Mente emphasised that stakeholders cannot open up a space where internal audit teams are not up to task and such large sums of money spent on outsourcing. If the SABC audit team was not equal to the task, it had to be rooted out, as a cost containment measure.

The Chairperson pointed out the importance of collaborations between the Forensic Unit of the SABC and the Auditor-General moving forward, as a means of dealing with the challenges.

Mr Brauteseth asked about the amount of bailout that SABC would request from Treasury. Also, had Metro FM awards recipients been paid, and where was SABC in terms of payment of royalties to local artists?

Mr Hlengwa suggested a briefing with the SIU prior to the presidential proclamation, for the Committee to also make inputs on the scope of the investigations. Also, the Committee was not on a witch-hunting exercise, but in a quest to assist the SABC overcome its challenges. Therefore, there was need for honesty and transparency on the part of SABC management.

Ms Mente emphasised the need for the board to ensure that people appointed at the SABC going forward had a clear grasp of public finance, so that the SABC is saved. Political interference should not be allowed. She asked how much SABC needed from Treasury.

Ms Khunou suggested the tabling of a formal SABC skills audit report to ensure that problems to do with outsourcing were done away with. Also, a clear message had to be sent to Mr Aguma that the Committee did not take his absence lightly. It was his responsibility to appear and account before the Committee.

Mr Booi said the Committee understood there were genuine people within SABC and any other entity, however, corrupt elements had to be rooted out as they were ‘collapsing the state’.  The Committee did not have an antagonistic relationship with any of the entities.

In response to Mr Brauteseth, Ms Nomsa Philiso, SABC Group Executive: Television, said SABC was essentially behind in the payment of royalties. The board had instituted a payment committee, and the last payments were made in December 2016. Also, some of the Metro FM awards recipients had been paid. However, there were a number of challenges but the expectation was that awards recipients would be paid in full by the end of May.

Mr Tsedu clarified that SABC had not asked for a bailout but a guarantee from Treasury, so as to get loans from banks. The banks did not trust the SABC anymore. He agreed the SABC had to appoint people who would not only undo the damage, but take the entity forward. SABC is a national asset that needs to be saved.

The Chairperson pointed out that Committee staff had received calls from SABC staff to the effect that management was not paying some of its employees on the pretext of recovering bursaries. He asked Mr Tsedu to look into it.

Ms Basani Baloyi, Acting Director-General, Department of Communications, emphasised the Department’s commitment to implementing Committee recommendations. The Department has an entity oversight unit assisting the SABC on a daily basis.

The meeting was adjourned. 

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