SABC & MDDA 2017/18 Annual Reports; with Minister & Deputy Minister

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Communications

11 October 2018
Chairperson: Mr H Maxegwana (ANC)
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Meeting Summary

Annual Reports 2017/18

The Committee met with the Media Diversity and Development Agency (MDDA) together with the South African Broadcasting Corporation (SABC) for a briefing on the annual reports and financial statements for the 2017/18 financial year. The Minister and the Deputy Minister were present.

The MDDA achieved targets for 20 (45%) of 44 Key Performance Indicators (KPIs). Targets for 24 KPIs (55%) were not achieved mainly due to the Board being unable to form a quorum for a significant part of the year. The period under review’s achievements in respect of media diversity were as follows: R69 million disbursed to qualifying projects; funding approved for eight community broadcast projects (R 17.5 million); funding approved for five Small Commercial projects (R4.2 million) and one community print project (R700 000), including enabling projects to go digital; and 104 direct jobs created from community broadcast projects funded. However, some of the funding approvals were restricted due to Board not quorating for most part of the year. On personnel information, MDDA has 39 funded posts and 10 which were still vacant. The posts had been advertised and recruitment was in process. R5 million was spent on consultancy services during the period under review. An unqualified audit opinion was received from the Auditor-General. There were 26 findings for 2017/2018, the bulk being on financial management as well as supply chain management. A total of R3.2 million of irregular expenditure was incurred in the 2017/2018 financial year. This was mainly attributed to changes in the National Treasury’s procurement process through introduction of the Central Supplier Database. As part of consequence management, measures had been taken to ensure a parallel process of supplier evaluations is implemented and disciplinary action will be taken if employees were found to be responsible. MDDA incurred R82 000 fruitless and wasteful expenditure in the 2017/2018 financial year. However, measures have been put in place to recover amounts that are deemed recoverable from the respective employees. On contingent liabilities and litigations, there was a legal dispute between MDDA and Johannesburg Post in respect of the funding agreement signed between the two parties. The financial exposure was R384 600 depending on the outcome of the dispute, and the case was currently being heard by the courts.

The Deputy Minister of Communications said the message from the Department has always been clear and consistent- that entities under its ambit should account fully before the Committee. The need to stabilise entities to ensure that the level of accountability is up to standard was also well-understood. She expressed the Department’s commitment in supporting the MDDA board, particularly in the filling of vacant posts. Pursuant to this, a CFO had been appointed and was expected to be equal to the task. The Department hoped to see operational improvements going forward.

Members were satisfied with the approach being taken by the MDDA in trying to address the challenges identified by the Auditor-General in the last audit. The major problem was inadequate funding. The withdrawal of funding from print media was problematic and stakeholders and Parliament should look into relevant legislation to address this. He emphasised the need for local municipalities to advertise on local media to ensure the survival of community radio stations as well as print media. There should be a directive to that effect if need be.

The Chairperson pointed out concerns about lack of monitoring of projects by the MDDA, which resulted in their collapse. This was witnessed particularly in KwaZulu-Natal during the Committee’s oversight exercises. He added that as vacancies were being filled, there should be value for money and the delivery of its mandate should not be negatively impacted. He commended the MDDA team for a job well done given the past the entity was coming out of.

The SABC, in presenting its annual report, said the 2017/18 financial year was a demanding one for the board, its employees and many of its stakeholders. The SABC had to overcome many daunting challenges and the pattern might continue with even greater severity in the year ahead. However, these challenges will also be overcome. Salient points for the 2017/18 financial year’s performance include: the appointment of the permanent SABC Board; improved leadership stability with the appointment of COO and four Group Executive positions; exceeded ICASA’s local content and genre quotas on television and over performance on local music quotas on radio; coverage of numerous News, Current Affairs and Sporting events nationally and internationally – many of them live; review of the SABC’s Editorial Policies; culture and climate survey to obtain a view of the SABC’s working conditions; implementation of performance management and driving the culture of consequence management more rigorously; and focused efforts to reduce internal and external audit findings. The threat of commercial insolvency increased significantly as a result of the inability to settle debt when it becomes due. Total revenue was R6.6 billion against a budget of R7.3 billion - underperformance of R709 million. Year-on-year performance showed an improvement of R56 million, and expenditure was R7.269 billion compared to budget of R7.279 billion. Notably, the SABC’s performance resulted in a total net loss of R622 million. As a result of all of this, the ability of the corporation to continue as a going concern became a real threat. The Auditor-General issued a disclaimer audit opinion mainly attributable to following core areas: uncertainty regarding the SABC’s going concern assumptions; Property, Plant and Equipment; and irregular expenditure. Implications of the significant uncertainties to continue as a going concern were being considered by the Board as part of their fiduciary duties. Extensive engagements have been had with the shareholder given the status of the corporation. Financial support from the shareholder was a critical imperative for the financial sustainability of the corporation.

As at 31 March 2018, the SABC’s cash position was R131 million. Net cash inflow of R49 million was generated since the beginning of the financial year- an improvement of 60% compared to the previous fiscal. Total revenue for the full financial year was R6.6 billion against a budget of R7.3 billion resulting in an underperformance of R709 million. However, a year-on-year performance showed an improvement of R56 million (1%) driven mainly by commercial revenue. Total expenditure incurred for the 2017/18 financial year amounted to R7.27 billion compared to the budget of R7.28 billion, with employee costs of R3 billion being the highest expenditure item.

The Minister of Communications expressed the Department’s commitment to reposition the SABC, to put in place a multi-pronged turnaround strategy that talks to the SABC of the future; adaptive to the opportunities being availed by the fourth industrial revolution. The financial viability of public broadcaster was paramount thus engagements with Treasury on SABC’s funding model were on the cards. Also, talks in relation to sports rights were already underway with the Department of Sport and Recreation to find long-term solutions. She added the SABC management was exhibiting some semblance of stability at this stage.

Members said there was notable progress at SABC but more still had to be done. The board would be called upon to give updates from time-to-time, if necessary. The Committee undertook to complete the process of filling the four vacant positions on the board of the SABC by the end of this year. They noted that AGSA gave the SABC a disclaimer audit opinion, and hoped financial year 2018/19 would present a much different picture. What was the salary package offered and accepted by the recently appointed CEO, CFO and COO? The state of SABC was not new to the Committee. There were however notable indicators of progress. Other avenues of funding SABC’s broad mandate should be found. A mechanism to directly fund the public mandate should be found by government. Also, it would be important for the board and management to have continual engagements with the workers’ unions. The Committee should be taken into confidence on how staff rationalisation on one hand, and the filling of vacant posts on the other, would be done. The Minister and Cabinet should be commended for the speed at which decisions on DTT migration were being taken. SABC should move with speed towards digitalisation. 

The Committee undertook to complete the process of filling the four vacant positions on the board of the SABC by the end of this year. There was notable progress at SABC but more still had to be done.

Meeting report

Opening remarks

The Chairperson welcomed everyone to the briefing by the Media Development and Diversity Agency (MDDA) and the South African Broadcasting Corporation (SABC) on their annual reports. The Committee would also expect a brief overview on the progress in implementation of the SABC turnaround strategy.

Ms Pinky Kekana, Deputy Minister of Communications, introduced the MDDA board and management. The message from the Department has always been clear and consistent- that entities under its ambit should account fully before the Committee. The need to stabilise entities to ensure that the level of accountability is up to standard was also well-understood. She expressed the Department’s commitment in supporting the MDDA board, particularly in the filling of vacant posts. Pursuant to this, a CFO had been appointed and was expected to be equal to the task. The Department hoped to see operational improvements going forward.

Briefing by the Media Development and Diversity Agency (MDDA)

Mr Norman Munzhelele, Board Chairperson, MDDA, said efforts to stabilise the executive and management of MDDA had been successful thus far. There was a clear commitment that the entity should have a full complement of executive members by the end of the fourth quarter. He invited the Acting CEO to present the annual report to the Committee. 

Ms Zukiswa Potye, Acting CEO, MDDA, took the Committee through a presentation on the MDDA 2017/18 annual report. She pointed out that the MDDA commissioned Media Monitoring Africa (MMA) to carry out an impact study into the MDDA to reflect and evaluate the extent to which the MDDA is responding to its mandate of community media development; and to describe the impact of MDDA funded projects in terms of how they have made a difference in the communities they serve. Upon completion the impact study provided independent verification that:

  • MDDA has made significant impact on transforming the media landscape through the number of community and small commercial media projects funded, the majority of which are still in existence.
  • MDDA internal challenges such as instability of leadership (Board and Executive Management vacancies) and capacity issues detract from its ability to deliver on its mandate
  • Greater focus is required by MDDA on partnerships and collaboration with sister entities and sector bodies crucial to strengthen the sector
  • MDDA needs to review approaches to raising and disbursing funds
  • External challenges hinder sustainability and further growth of sector
  • Technological changes wreaking havoc in industry mean that MDDA funding regulations outdated

On 2017/2018 performance, MDDA achieved targets for 20 (45%) of 44 Key Performance Indicators (KPIs). Targets for 24 KPIs (55%) were not achieved mainly due to the Board being unable to form a quorum for a significant part of the year. The period under review’s achievements in respect of media diversity were as follows: R69 million disbursed to qualifying projects; funding approved for eight community broadcast projects (R 17.5 million); funding approved for five Small Commercial projects (R4.2 million) and one community print project (R700 000), including enabling projects to go digital; and 104 direct jobs created from community broadcast projects funded. However, some of the funding approvals were restricted due to the Board not quorating for most part of the year. On personnel information, MDDA has 39 funded posts and 10 which were still vacant. The posts had been advertised and recruitment was in process. R5 million was spent on consultancy services during the period under review.

In efforts towards sector capacity building, a memorandum of understanding was signed between the MDDA and the South African Agency for Science & Technology Advancement (SAASTA) which saw 47 interns being placed at community projects to develop reporting on science matters. Other projects recorded as achievements were as follows:

  • Ten community media practitioners attended the Institute of Advanced Journalism, Reporting on Race and Migration Conference and were simultaneously trained on how to write and package Migration stories (R114 180).
  • Grantee Orientation Workshop - contract commitment reporting (R480 000).
  • 41 print and broadcast journalists attended Stigma and Discrimination and Reduction Training workshops held in three provinces and run by the MDDA, in partnership with the Soul City Institute for Social Justice. Community media were selected from areas where HIV and tuberculosis (TB) are heavily concentrated (R30 000).
  • Research commissioned into Glass Ceiling – Gender in South African Media Houses (R960 000).

Audit Report Highlights

Ms Potye highlighted the Auditor-General’s findings for the period under review. An unqualified audit opinion was received. There were 26 findings for 2017/2018, the bulk being on financial management as well as supply chain management. A total of R3.2 million of irregular expenditure was incurred in the 2017/2018 financial year. This was mainly attributed to changes in the National Treasury’s procurement process through introduction of the Central Supplier Database. As part of consequence management, measures had been taken to ensure a parallel process of supplier evaluations is implemented and disciplinary action will be taken if employees were found to be responsible. MDDA incurred R82 000 fruitless and wasteful expenditure in the 2017/2018 financial year. However, measures have been put in place to recover amounts that are deemed recoverable from the respective employees. On contingent liabilities and litigations, there was a legal dispute between MDDA and Johannesburg Post in respect of the funding agreement signed between the two parties. The financial exposure was R384 600 depending on the outcome of the dispute, and the case was currently being heard by the courts.

Discussion
Mr M Kalako (ANC) appreciated the concise presentation. He was satisfied with the approach being taken by the MDDA in trying to address the challenges identified by the Auditor-General during the last audit. The major problem was inadequate funding. The withdrawal of funding from print media was problematic and stakeholders and Parliament should look into relevant legislation to address this. He emphasised the need for local municipalities to advertise on local media to ensure the survival of community radio stations as well as print media. There should be a directive to that effect if need be. During its study tours, the Committee identified a lack of monitoring and evaluation of grant-funded projects by the MDDA. This should be addressed. He was happy there were ongoing efforts to address the plight of workers. This would go a long way in ensuring the smooth performance of the entity.

The Chairperson pointed out concerns about lack of monitoring of projects by the MDDA, which resulted in their collapse. This was witnessed particularly in KwaZulu-Natal during the Committee’s oversight exercises. He added that as vacancies were being filled, there should be value for money and the delivery of its mandate should not be negatively impacted. He commended the MDDA team for a job well done given the past the entity was coming out of.

Mr R Tseli (ANC) sought clarity about the R5 million being spent on paying for the services of consultants. The MDDA should consider acquiring some of these capabilities and having them in-house. He asked for an update on the ICASA moratorium. He made reference to the ongoing engagements between the MDDA management and worker representatives. The Committee had received a number of letters from the unions suggesting all was not well in the negotiations and there was some sort of a deadlock. He urged management to engage with the unions further.  The MDDA executive and management should meet the Committee halfway.

Ms V Van Dyk (DA) said having the use of consultants constituting up to 6% of budgeted expenditure was unsustainable. The filling of vacancies should ensure that this situation is improved. She asked for feedback on the status of the case involving a supply chain management employee that was recently suspended.

Ms M Matshoba (ANC) said much attention should be given to community radio stations and how they utilise funds they receive from the MDDA.

Mr N Xaba (ANC) identified challenges in community radio stations, Karabo FM in Sasolburg, Free State, being a case in point. The MDDA should look into them to ensure their viability.

Ms Potye, in response, said the previous year’s poor performance, as reflected in the AGSAs Report that time, was being taken seriously. The AG was particularly critical about the lack of consequence management. In addressing these concerns, an audit improvement committee had been set up and positives were expected in terms of implementation of corrective measures. The focus was on giving additional support to the underfunded and under-supported areas. Having municipalities advertising in local media was pertinent as it would ensure viability of the latter. The MDDA was engaging the Department of Cooperative Governance and Traditional Affairs on how municipalities could come on board and would be appreciate the Committee’s support in this regard. Monitoring and evaluation is a crucial element of MDDA’s work and three employees were occupying that space. On the ICASA moratorium, it was still in effect and being discussed together with the Minister. The use of consultants owing to inadequate in-house capacity was being addressed through the filling of crucial vacancies underway. Spending on consultants ended up being irregular expenditure as it went beyond the Treasury baseline during the period under review. The MDDA management was willing to have a good working relationship with the unions- it was only through an active union that employee grievances could be addressed. The case of the staff member serving a suspension was meant to be concluded two months ago. The MDDA would give a detailed response on this and other questions in writing.

Mr Munzhelele added that a number of issues needed to be ironed out with the unions. The board was seized with the various matters at issue and an update would be provided to the Committee through the Department in due course.

Ms Martina Togna, Board Member, MDDA, said consequence management had been lacking at the MDDA and was identified by the Auditor-General as a cause for concern. The entire country was grappling with how to do it right, and the MDDA was no different. There has to be consequences for any fraud and irregular expenditure across the board and employee structures. This was being taken seriously. Pursuant to this, improving governance and strengthening the internal audit committee was paramount. 

SABC Annual Report presentation
Ms Nomvula Mokonyane, Minister of Communications, introduced the SABC board and management present. She expressed the Department’s commitment to reposition the SABC, to put in place a multi-pronged turnaround strategy that talks to the SABC of the future; adaptive to the opportunities being availed by the fourth industrial revolution. The financial viability of public broadcaster was paramount thus engagements with Treasury on SABC’s funding model were on the cards. Also, talks in relation to sports rights were already underway with the Department of Sport and Recreation to find long-term solutions. She added the SABC management was exhibiting some semblance of stability at this stage.

Mr Bongumusa Makhathini, Board Chairperson, SABC, said the board and management was appreciative of the support being received from the Committee. The SABC was hard at work in efforts to implement its turnaround strategy. The executive team was busy engaging with unions to ensure any decisions taken going forward would be appropriate and procedural. The filling of vacancies and addressing the going concern challenge were the main items on the agenda. He made an appeal for full support from the Committee, saying that a full complement of the board was crucial to effectively oversee corporate governance at the public broadcaster.

Mr Madoda Mxakwe, CEO, SABC, said the 2017/18 financial year was a demanding one for the SABC, the board, its employees and many of its stakeholders. The SABC had to overcome many daunting challenges and the pattern might continue with even greater severity in the year ahead. However, these challenges will also be overcome. Salient points for the 2017/18 financial year’s performance include: the appointment of the permanent SABC Board; improved leadership stability with the appointment of a COO and four Group Executive positions; exceeded ICASA’s local content and genre quotas on television and over performance on local music quotas on radio; coverage of numerous News, Current Affairs and Sporting events nationally and internationally – many of them live; review of the SABC’s Editorial Policies; culture and climate survey to obtain a view of the SABC’s working conditions; implementation of performance management and driving the culture of consequence management more rigorously; and focused efforts to reduce internal and external audit findings.

The SABC had a demanding financial year with cash resources stretch to the maximum to ensure continued business operations. The liquidity challenges increased as a result of increasing Trade and Other Payables in the absence of sufficient resources to service the debt timeously. There were efforts to mitigate the liquidity challenges, though in progress, showed limited signs of success. Further, the request for a Government Guarantee was, by all indications, going to be unsuccessful. Little progress appeared evident in engagement to review the funding model for the public mandate and the situation had worsened further post 31 March 2018. However, attempts to address the challenges in both the short and medium term remains ongoing.

Ms Yolande van Biljon, CFO, SABC, highlighted the public broadcaster’s financial position. The threat of commercial insolvency increased significantly as a result of the inability to settle debt when it becomes due. Total revenue was R6.6 billion against a budget of R7.3 billion - underperformance of R709 million. Year-on-year performance showed an improvement of R56 million, and expenditure was R7.269 billion compared to budget of R7.279 billion. Notably, the SABC’s performance resulted in a total net loss of R622 million. As a result of all of this, the ability of the corporation to continue as a going concern became a real threat. The Auditor-General issued a disclaimer audit opinion mainly attributable to following core areas: uncertainty regarding the SABC’s going concern assumptions; Property, Plant and Equipment; and irregular expenditure. Implications of the significant uncertainties to continue as a going concern were being considered by the Board as part of their fiduciary duties. Extensive engagements have been had with the shareholder given the status of the corporation. Financial support from the shareholder was a critical imperative for the financial sustainability of the corporation.

On the public broadcaster’s financial results, as at 31 March 2018, the SABC’s cash position was R131 million. Net cash inflow of R49 million was generated since the beginning of the financial year- an improvement of 60% compared to the previous fiscal. Total revenue for the full financial year was R6.6 billion against a budget of R7.3 billion resulting in an underperformance of R709 million. However, a year-on-year performance showed an improvement of R56 million (1%) driven mainly by commercial revenue. Total expenditure incurred for the 2017/18 financial year amounted to R7.27 billion compared to the budget of R7.28 billion, with employee costs of R3 billion being the highest expenditure item.

Mr Chris Maroleng, COO, SABC, in highlighting aspects on content and platforms, said the SABC performed very well in its objective of contributing to nation building by acquiring and scheduling content that reflects the South African story. Local content quotas on all three television channels were exceeded. PBS radio stations also exceeded all their genre quotas in terms of news, current affairs, and informal knowledge building education, children and drama ensuring that the nation is informed, educated and entertained in the language of their choice. Also, SABC’s PBS TV Network exceeded in delivering on its language quotas (languages other than English).

Mr John Matisson, Board Member, SABC, indicated the current executive and management’s commitment to getting things right. Under the current board, executive pay had been brought down significantly. In the year ending 2018, after the interim board and the current board started, that was brought down from R79 million to R45 million. The board considered that to be very significant and ultimately it does not mean it was very happy with everything it got, but does show its commitment. No executives earned more than R4 million in the year under review. The public broadcaster will now try to recover some of these monies with the help of state law enforcement agencies. For the turnaround strategy to be successful, the filling of the four board vacancies was critical. The success of the turnaround called for multi-stakeholder commitments.
 
Discussion
Mr Xaba welcomed the presentation by the SABC. He sought clarity about the review of its operating model. The expectation was that all employees would be taken on board throughout the rationalisation exercise. 

Ms Van Dyk noted that AGSA gave the SABC a disclaimer audit opinion. She hoped financial year 2018/19 would present a much different picture. What was the salary packages offered and accepted by the recently appointed CEO, CFO and COO? She wanted to know how much they earned. It appears the staff rationalisation exercise was a huge mess. She warned that retrenchments could not be done willy-nilly. She asked how many board meetings had been held within the last two months.

Mr Kalako commended the Minister and the SABC for the presentation. The state of SABC was not new to the Committee. There were however notable indicators of progress. He believed other avenues of funding SABC’s broad mandate should be found. A mechanism to directly fund the public mandate should be found by government. Also, it would be important for the board and management to have continual engagements with the workers’ unions. The Committee should be taken into confidence on how staff rationalisation on one hand, and the filling of vacant posts on the other, would be done. He wanted to know whether Digital Terrestrial Television (DTT) migration would go forwards within set timeframes. The Minister and Cabinet should be commended for the speed at which decisions on DTT migration were being taken. SABC should move with speed towards digitalisation. 

The Chairperson congratulated both the Department and the SABC board for filling the three critical executive positions, namely Group Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. The Committee was confident that the executive will bring the requisite management, corporate governance and financial skills required to effectively implement the strategic roadmap of the SABC. The SABC should compare notes and experiences with other broadcasters around the world on best practises. The annual report presentation was well-taken.

Mr Makhathini, in response, said SABC has had eight board meetings since April. Only five of the eight meetings were paid for owing to affordability issues. The board does meet regularly as part of its oversight and advisory mandate. However, its effectiveness should not be measured on the basis of the number of meetings it holds. The board was not hiding anything but everything should be taken into context. The Companies Act clearly stipulates that disclosure on remuneration packages for top executives and management needed to be done in the financial report. Further, the purpose of releasing these numbers, as requested by the Member, outside the financial report as stipulated by the Act would have to be clarified. Was that going to help address challenges the SABC was grappling with? SABC would not want to accede to ad hoc requests to release information outside prescribed timelines. Further, SABC is not fully funded by government which means it had to go out there to compete for personnel with requisite skills within the market. The Companies Act is clear but the board would want some guidance from the Committee. The team would communicate the timelines for DTT migration in due course.

Mr Mxakwe said the general understanding was that the rationalisation exercise must not negatively affect business continuity and operations. The positions advertised were key to the public broadcaster’s operations. In every single step being taken in this process, the SABC ensured that the process is well-thought out and aligned with legal prescripts. The last skills audit was done in 2013 and a new one would be embarked upon soon. Management was well-aware that all competency gaps should be looked into. 

Mr Maroleng said the SABC has been in the process of sharing aspects of its redefined operating model. There were key operating imperatives and fit for purpose analysis that were looked into, in order to enhance its operations. The cost reduction exercises had also been shared with the executive committee to ensure that there is greater understanding across the board.

Ms Nomsa Philiso, Group Executive: SABC Television, said most of the broadcasters within the African continent were state-owned rather than public broadcasters. This meant SABC occupied a unique position which was somewhat different from its peers within Africa. Repositioning SABC’s licensing was work in progress so as to ensure that people pay for signal access.

Minister Mokonyane said the Department together with SABC has had engagements with Treasury on different funding models for the public broadcaster. The broadcaster’s public mandate was critical and needed a different approach. Broadening the SABC’s societal reach and dealing with the disparities that exist in the coverage of minority and popular sports, and digital migration and opportunities thereof, were some of the focus areas being prioritised. The broadcasting policy review would be quite handy as it would look at the potential and capacity of the broadcaster. Also, the challenges around the collection of licence fees and the culture of non-compliance should be looked at. Reducing the cost of collecting the little that the public broadcaster was able to collect was crucial. She added that the experience and the institutional memory that the Committee has in relation to SABC would always be relied upon.

The Chairperson said there was notable progress at SABC but more still had to be done. The board would be called upon to give updates from time-to-time, if necessary. The Committee undertook to complete the process of filling the four vacant positions on the board of the SABC by the end of this year.

The meeting was adjourned.
 

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