DTPS, NEMISA, USAASA and USAF 2016/17 Annual Report; with Auditor General input

Meeting report

Briefing
The Chairperson noted her unhappiness that documents were not submitted timeously to Members and that this had occurred many times.

Ms J Kilian (ANC) said it was unacceptable as some presentations were only given to Members that same morning. She proposed that the Chairperson write to the Speaker regarding the distribution of documents.

Ms M Shinn (DA) and Mr C Mackenzie (DA) supported the proposal.

Auditor General of SA (AGSA)
Ms Makhai Motshekga, AGSA Audit Manager, spoke to the 2016/17 audit outcomes and the key messages arising. In terms of the overall audit outcomes Sentech had a clean audit for the past four years while SA Post Office (SAPO) and he National Electronics Media Institution of SA (NEMISA) had regressed with qualified findings on Property, Plant and Equipment (PPE). Intervention was needed at SAPO to ensure that working internal controls were monitored. There were also high vacancy rates. In terms of compliance with key legislation, financial statement preparation remained a concern while there was inadequate monitoring of Supply Chain Management (SCM) legislation. In terms of the quality of the Annual Performance Plan (APP) and the annual performance reports, USAF had regressed through the non-attainment of its broadband goal because the Office of the Auditor General (AG) could not audit what it was supposed to audit. As a value add, the AG also did a performance audit on the Post Office. The AG felt that as cash resources at the PO had consistently been diminishing, as the expenditure had been consistently higher than revenue, and because of the large gap between receivables and payables, it was a strong indicator of going concern challenges. The Department and SAPO were found to have material findings on non-compliance with legislation on consequence management. The AG identified three root causes for non-compliance and they were the slow response of management, instability or vacancies in key positions, and the lack of consequences for poor performance and transgressions. Key commitments made by the Minister were being implemented, but the implementation was slow. The AG requested that the Committee
- request management to provide feedback on the implementation and progress of action plans
- receive quarterly feedback on the status of key controls
- receive quarterly feedback on the status of the filling of vacancies
- track and monitor initiatives to prevent irregular and fruitless and wasteful expenditure of all entities.
- receive a list of all actions taken against transgressors especially of irregular expenses
- monitor the financial viability of SAPO and BBI through quarterly feedback and turnaround plans

Discussion
Mr Mackenzie asked if the entities were obliged to follow the AG’s recommendations and did the AG have any powers to make entities comply. On ‘going concerns’, he asked what the AG could do or recommend. On ongoing monitoring, he asked if the AG engaged with the entity on the recommendations.

Ms Shinn asked why the AG had to assist entities every year to attain compliance. Was the staff inadequately trained? Were the commitments of the Minister the same as that of the previous year?

Ms Kilian said the DG needed to take firm action as the Department was inefficient and not setting the right tone. Slides 11 and 12 showed that there was regression and the recommendations of the AG had to be taken forward and the leadership role of the Department had to be improved.

Ms N Ndongeni (ANC) asked if the AG had standards of accountability. When did the AG do their monitoring, was it at the beginning or the middle of the year?

The Chairperson asked if there was certainty that all officials had the necessary qualifications and had been vetted. She asked if there were monthly meetings with the officials and how often the interaction with the Minister was.

Mr Wikus Janise Van Rensburg, a Senior Manager at AGSA, said that AGSA did not have powers to enforce the recommendations. The recommendations related to accountability and consequence management.

On the question on a ‘going concern’, he said that at SAPO it was clear what needed to be done. SAPO was hampered by high borrowings and the consequent interest payments on that and it needed new revenue streams but this would require an injection of investment funds.

The AG did have regular engagements with management and also had interim audits.

The SAPO group head of finance resigned in the middle of an audit and this year the manager of accounting resigned in the middle of the audit. There were a number of vacancies in SAPO in the finance section and they had not been filled, so it was difficult to expect improvement.

On consequence management, it would be inappropriate for him to give details on those issues.

The Minister had made commitments and a number of vacancies had been filled. The AG engaged at least twice a year with the Minister.

On the framework of accountability or consequences, recommendations needed to be implemented or else consequence management had to kick in.

On material misstatements happening year after year, Ms Motshekga said action plans were not being implemented. She said internal audits were also not taken seriously.

Mr Robert Nkuna, Director General, responded that the Department did have people with integrity and capability. There had been a lot of tension between the accounting officer and the DDGs and this affected the systems of the organisation which could result in people leaving.

He had asked the Department to develop a checklist of key compliances as an early warning system including the wording of tender specifications, and he was setting up a compliance unit.

A lot had been done in terms of governance at state entities and he continually called on boards to exercise oversight. The Department had assisted the State Information Training Agency (SITA) to improve its service offering to government departments.

SAPO was making losses of around R120m per month and the Department was driving the restructuring of SAPO. SAPO’s infrastructure was a policy issue and the Department was engaging with SAPO and National Treasury on the issue.

The Department was happy with Sentech’s performance and continued to engage with them on their satellite project. The Department was working with NEMISA on its eSkill’s plan. the Department had dealt with BBI as a going concern. BBI would get a direct transfer from Treasury for the purposes of SA Connect. BBI had debts of R2b owed to the Department and the IDC. The Department was engaged in discussions to close this matter. The Department was aware that. ZADNA had not filed its annual report on time which was because of a current conflict between them and ZACR and a letter had been sent from the Minister to the Speaker on the matter. The Department was working on the transformation of USAASA to a digital development fund which would allow USAASA to take the lead in an SMME strategy.
The Department had called a meeting of all CEOs to discuss performance and compliance and commitments were made. The Department would be focusing on the implementation of the white paper on ICT and this formed the basis of the transformation to the fourth industrial revolution by creating an enabling environment. The Department had attended the annual ITU conference in Korea and there had been proposals that South Africa host a conference. If it happened, then the Department saw it as an industry wide event and not just a Department event.

Department of Telecommunications and Postal Services (DTPS)
Mr Nkuna then spoke to the audit report on the DTPS.
The Department had received an unqualified audit opinion. Issues that had been raised were on deviations, procurement and contract management, irregular expenditure, corrected material misstatements, irregular appointment of staff, expenditure management, internal audit, and performance agreements. The Department had developed an integrated action plan focused on providing systemic solutions and ensuring that root causes were resolved. Significant achievements had been the drafting of the ICT White Paper, the national e-strategy and the e-government strategy, the ICT SMME strategy, SOC rationalisation, the national frequency radio plan, advancing SA’s ICT agenda, enterprise document management, and a climate and culture survey.

The Department had not achieved its organisational structure target because of delays in the finalisation of the Service Delivery Model. The RSA position for BRICS could not be concluded. The national e-strategy, was only gazetted after the reporting period. the Department was not able to develop the connectivity implementation plan or connect any of the sites related to the roll out of broadband.

Ms Joy Masemola, CFO, said total revenue was R3.2b, total expenditure was R2b or 85.9% of the budget allocation of R2.4b while R1.17b was transferred to Treasury.

Discussion
Ms Kilian wanted clarity on performance agreements of officials and assurance that those that had not completed them did not receive bonuses. She asked if there were effective management of sick leave. Did the Department implement proper supply chain management as per Treasury regulations?

Mr Mackenzie said the 4th industrial revolution would need a skilled workforce. The Department’s budget was not close to what was needed to effect the 4th industrial revolution. He was extremely disappointed that .ZADNA had not filed its annual report on time. A set of financial statements as a contingency measure should have been prepared for .ZADNA. Was anyone disciplined regarding a cleaning tender won by an intern. What were the four draft bills to be presented to Cabinet?

Ms Shinn said slide 4 talked of a central database. Was that database on all public servants in the country? Regarding the cleaning contract, did that applicant omit to fill in the page where they had to confirm that they were not working for the state. On the irregular appointment of a person without their formally being approved, she asked how they could be paid without having been approved. The DDG responsible for oversight of the four entities and for the irregular transfers. Who was placed on the global ICT governance institutions?

The Chairperson asked what the procedures were when officials applied for leave. What was the difference between ‘achieved and fully achieved’ when discussing targets?

Mr Nkuna responded on persons who had not completed their performance report, there would be difficulty assessing the person because there was no report and the first thing would be to institute disciplinary procedures. If the disciplinary procedure outcome was in favour of the person then someone else would bear responsibility.

It was important that the work of the Department did not stop when people took leave

On the SCM issue, there was no doubt that it had to be done according to National Treasury regulations. The compliance committee was instituted to watch the watchers.

On the 4th industrial revolution, this was not a matter that the Department did alone. It saw itself as playing a coordinating and facilitating role. The private sector was also involved and it was not an exclusively DTPS plan.

There would be two postal services bills. One dealt with the future role of the post office, the other with the broader postal sector. The other two bills were the ICT Regulator bill and the ICT Development Fund bill.

Irregular expenditure was a serious matter and he could not see how someone guilty of this could receive a bonus or any other reward.

Mr Farhad Osman, CD: Strategic and Performance Management, explained that the term fully achieved meant that all the quarterly targets had been attained. Achieved was used when an annual target did not have quarterly targets.

Ms Thulisile Manzini, DDG Administration, on certifications, said the Department had completed a report on the profiling of the Department’s employees which had been finalised. The Department had highly qualified staff and screening and vetting was done.

No bonuses were given or considered to those whose documentation was incomplete

On taking leave, there was a leave plan for the organisation, but the leave could only be taken if the work was up to date. For sick leave, doctor’s notes had to be produced and beyond the allowed number of days of sick leave, the matter was referred to Alexander Forbes and their PILAR programme to check the validity of the sick note.

On the irregular appointment, both parties were not in the employ of the Department anymore but the matter was being followed up. The person who had given the go ahead for a person to start work before employment had been finalised was now working for another government Department but the matter was being followed up.

On the cleaning contract, consequence management actions were being followed. At the time of awarding the contract the intern was not working for the Department.

Only one person had not provided the performance agreement document and action was being taken against that person.

Mr Omega Shelembe, DDG SOC Oversight, acknowledged the absence of the .ZADNA report. This could not be finalised without the finalisation of the audit because of a dispute with the ZACR. This would have had a serious impact on the audit outcome because of the inability to collect revenue. The Minister had written to the Speaker requesting a delay in the submission of the report.

On the accounting for transfers, this related to firstly, the material misstatement of R288m interest which SAPO had already paid but was included as interest yet to be paid. This reflected the poor performance of the system covering the handover between the branch and the finance division. The second was not disclosing contingent assets. Here the R650m was awaiting a certificate from the Post Office. The Department was putting together an action plan and it was identifying the root causes of the findings to ensure that they were not repeated.

Mr Nkuna said there was a commitment to get things right.

Ms Shinn asked if the wrongful appointment of someone to a post went onto the record of the person who had left to join another Department.

The Chairperson asked whether leave could be taken when there was a backlog of work. She asked how long it took before disciplinary measures were applied.

Mr Nkuna said that there were instances where leave was declined. The DDG: Infrastructure was refused leave because the work was not completed even though he had submitted leave papers. He could not delegate the work because he had to be present. This affected holiday plans and families.

Ms Manzini said that the work would determine whether leave could be taken.

The Department tried to do disciplinary measures within the reporting period but sometimes it overlapped into the next financial period.

NEMISA
Prof Walter Claassen, Board Chairperson, said the organisation was in a transition period. The composition of the board had changed midway in the year, a CEO and a CFO had been appointed in November, there had been a change in the mandate and objectives and in the nature of the funding of the organisation as well as a change in the physical facilities. It was one entity but was also responsible for Inesi Ikamva National eSkills Institute. The challenge was to find a balance of being NEMISA while moving forward to the new institution. The Annual Report contained some issues regarding the scope for digital skills and the issues around the fourth industrial revolution play a role.

Ms Mymoena Ismail, CEO, said NEMISA had a good business plan but that the personnel it had were not aligned to implementing the plan. NEMISA’s relationships with universities had not been favourable at that time and NEMISA processes and systems were not agile enough to make NEMISA move forward.  The biggest challenge was that the APP had only been approved in September 2016 and the board and CEO and CFO appointments had been made in October and November 2016. This had knock on effects and staff morale had been at its lowest because of staff confusion as to where NEMISA was, what was it supposed to be doing and what was the mandate of NEMISA. Management was trying to bring in a new culture and thinking. She also spoke to the following programmes; Collaboration for Acceleration; Building e-Astuteness Development; Knowledge for Innovation; and Aggregation: Where we need to go.

Ms Rofunwa Ligege, Acting CFO, said a company had been appointed to assist with asset verification. After that the internal audit and the AG would be requested to provide verification of the results. On the issue of receivables, student bad debts for students studying since 2008 had been written off with the board’s approval. If students did pay monies in, that would be reflected in the books. NEMISA would still follow up on corporate debtors.
There had been irregular expenditure of R880 000 and unspent funds totalled R34.9m.

Discussion
Ms Shinn asked what was the value of the equipment stolen after the relocation of premises.  Were there any disciplinary or criminal actions arising from that? Why was the APP approval given so late? Why was money spent on new product development for acne detection?  What was the irregular expenditure of R880 000 and what disciplinary action was taken?

Ms N Ndongeni (ANC) asked how many senior posts NEMISA had. Did NEMISA have a programme or system to collect monies from defaulting students?

The Chairperson asked what the common topic of interest was. How many areas had been reached so far in terms of awareness campaigns. What form did the campaign take? There was a pattern of delays in financial transfers occurring. What were the reasons for this?

Ms Ismail said the acne product was just an illustration of opportunities which was linked to what was happening at universities in terms of research and in terms of how to prepare individuals to become more innovative.

The common topic of interest was with the North-West CoLabs, the North-West premier’s office and the tourism board on how to reposition tourism and agriculture and how the CoLabs could work in the area.

On campaigns in remote areas, in 2016 work was done but there was no alignment with the Department. 2017 was different and it was aligned to the broadband area. The work was more defined and the scope was narrower. This year’s campaigns were mapped in detail so that the impact of NEMISA programmes could be seen.

Ms Ligege said disciplinary steps had been taken regarding assets that had been stolen during relocation and a staff member had been given a final written warning. The matter was taken to the CCMA and the matter had not been finalised. The value of what was stolen had also not been finalised.

There were six senior posts that were all filled and there were two executive posts with the post of CFO being vacant.

On the delay of funds, in May/June R40m for the eSkill’s rollout was withheld by Treasury. This funding only became available in September.

Debt collection had been handed over to a collections agency as NEMISA did not have the capacity.

On the irregular expenditure, Mr Phuti Phukubje, Audit & Risk Committee Chairperson, said the former CFO had requested an increase in the scope of the internal auditors because she was looking for capacity. This request came to the audit and risk and was approved, but it also needed National Treasury approval because the contract variation was above 15%. Hence the additional amount was regarded as irregular expenditure.

Mr Shelembe said when the eSkill’s rollout funds were initially appropriated, they were earmarked for the establishment of Inesi. With the delay in the establishment of Inesi, the Department negotiated that the funds be earmarked for eSkill’s rollout and this approval took longer than anticipated.

Universal Service Access Agency (USAASA)
Mr Lumko Mtimde, CEO, said 67% of the KPIs had been met. Those not met were; the work skills plan training plan was not fully achieved due to poor planning; three outstanding human resource policies which had not been approved by the board and that still needed to be reviewed and implemented; and he recruitment of SAP skills did not take place as planned because there was no budget cost item in the APP. There were 13 posts vacant. The posts of CEO, CFO, Senior Manager: Finance and company secretary had been filled in the year but there had been a number of resignations as well. The operations executive, company secretary, Senior Manager: Broadcasting and BDM and the travel manager and registry officer had all resigned.  Two of these resignations came as consequence management actions were being taken against two individuals.

Risks for the organisation as at quarter two of 2017/18 were identified as:
- Low organisational performance and risk culture leading to inadequate and/ or slow response in addressing
  performance, audit and risk recommendations aimed at improving internal controls systems and eliminating
  governance risks
- Inability to effectively recover should a disaster occur
- Lack of an ongoing SAP support in line with the IT service level agreement and SAP skills to support the
  ERP
- Inability to produce Quarter One USAASA and USAF financial statements and subsequent months due to
  system related issues.
- Lack of adequate technical skills
- Potential litigation brought against the Agency/ Fund
- Strategic goals, strategic objectives, key performance indicators and targets inconsistent with the "SMART"
  criteria
- Going concern – development of the Digital Development Fund Bill
- Lack of an up-to-date adequate Organisational policy manual
- Failure to derive value from OD process deliverables

Mr Mahomed Chowan CFO, said total revenue was R79.7m, total expenditure was R147.2m. General Expenditure was R97.5m and comprised mainly BDM logistics and warehousing costs paid to SAPO for storage and distribution of R74.4m in 2016/17. The Agency had received funding in the previous year of R146m but the expenditure of it was over multiple years. Other expenses were legal fees of R9.2m and R8m spent on defending USAASA on the BDM project.  USAF received money while USAAASA did not receive monies for costs which it incurred in executing on behalf of USAF on the BDM project.

USAF
USAF was unable to achieve targets relating to broadband connectivity, and in terms of the digital migration project but the legal uncertainties that had existed were almost resolved. USAF had gone to the High Court to set aside the process and the panel that had established that process as well as the suspension of the decision over the existing contract. There were three respondents to the application. USAF only met 33% of its targets as a result of the challenges it faced. USAF was experiencing challenges with the DTH boxes because the contract with the supplier had been cancelled because of poor performance. The supplier was arbitrating the decision. Another risk was the quality of USAF’s research and evaluation.

Mr Chowan said revenue was R753m and expenditure was R96.4m and there was a surplus of R656.7m. The surplus was related to the BDM stock.

Discussion
Ms Shinn said she would like some day to know what the delays in the BDM project had actually cost. Only 43 273 STB were installed. She asked if the 35 000 installed in quarter one was part of the 43 000 or in addition to it. Were there two court cases happening, one in the High Court and one by the supplier?

Mr Mackenzie said the storage cost to SAPO comprised a large part of expenditure. How did the court challenges on BDM affect the stockholding for SAPO? Has the court action stopped the rolling out of distribution? If the court challenges had not happened would USAF have incurred these costs?

Mr N Koornhof (ANC) asked if costs were awarded in the successful defence of a court challenge. Was the poor planning mentioned in the presentation by the institution or by the board?  After having provided data to schools and clinics, was there a way to monitor that it was working?  

Mr Mtimde said the 35 000 referred to was for quarter one of the current financial year.

He said there was only one court case, the review application on the BDM process. The other case was an arbitration over the supply and delivery agreement with a supplier.

On whether set top boxes were still being supplied, he confirmed that it was still being supplied. Currently there was more registrations than installations.

The CCMA commissioner refused to award costs so each party had paid their own costs.

The poor planning was by the Institution, the goals had not been SMART.

On the broadband and Wi-Fi project, the institutions had live access to the network management systems to see first-hand what was happening on the ground. The usage was increasing and was even more than what the service provider had expected.

Mr Mtimde said that there was only one court case, a review application

Mr Mackenzie asked if the R79m in holding costs was a normal expenditure that could be expected to be incurred in the rollout of set top boxes.

Mr Mtimde confirmed this.

Ms Shinn said that given the incoming DDF, what was USAASA USAF’s financial stability until legislation for the DDF was promulgated, which would only be in a few years.

Mr Mtimde said that funding was never enough. It had just connected eight out of 236 municipalities, so the funding was just a drop in the ocean. USAASA and USAF would continue to operate until DDF was promulgated. 

Ms Shinn said this implied that USAASA USAF would continue to rollout the rest of the 5m STB in some other format.

Mr Mtimde said there was a scheduled meeting with the Minister to discuss this issue and so the Minister could pronounce on that issue.

Mr Cawe said that the price of the technologies of STBs had gone down and the challenge would be in the methodologies that would be applied.

The meeting adjourned