SABC on irregular, fruitless & wasteful expenditure: hearing

Public Accounts (SCOPA)

14 November 2018
Chairperson: Mr T Godi (APC)
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Meeting Summary

VIDEO: SABC appears before SCOPA

In its meeting with the South African Broadcasting Corporation (SABC), The Standing Committee on Public Accounts (SCOPA) emphasised that the political leadership within the Department of Communications can and should do more to assist with the crisis at the SABC.

The Committee was told that the SABC was struggling to meet its monthly financial obligations with a debt of about R1.3 billion. It talked to the broadcaster’s ability to pay service providers that provided content and drove maintenance. If the SABC was not able to procure quality content, it was not able to attract audiences and generate revenue.

According to the SABC, one of the biggest cost drivers was the R3.1 billion wage bill and the second biggest related to the content. This was critical, because if there was no investment in content there was no revenue generation. It was unsustainable that 42% of the budget went to salaries, because ordinarily about 50% of the budget should be spent on content. 

A government guarantee has been requested over a year ago and it was meant to help with three things: 1) pay the debt; 2) invest in content; and 3) maintenance of the infrastructure. The SABC was given was a borrowing letter of R1.2 billion which basically allowed the organisation to approach banks, but with a disclaimed audit opinion, banks are reluctant to assist without a government guarantee.

As a solution a turnaround strategy has been put together with key elements and this included legacy and governance issues. The SABC has actually approached the Labour Court to declare irregular appointments and salary increases invalid to see if some of the money can be recouped – over R60 million has been lost as a result of irregular appointments and promotions. The second element talked to regulatory and policy issues, e.g. the SABC did not get paid by those carrying its channels. In addition, for the past seven years the SABC has lost about R2.3 billion as a result of sports rights that were not commercialised. Thirdly, it was not sustainable for South African to pay 72 cents a day for TV licenses. A submission has been made on what should be done on TV licenses.

The Committee heard that the SABC was basically insolvent and if there was no financial injection, the SABC will collapse, because the projections are that “day zero” will be in March 2019.

The Committee was of the view that the public broadcaster should be creative enough to find ways of avoiding “day zero”, when it comes to retrenchments. The Committee requested the SABC to furnish it with all the names of those that signed off on the contracts that led to the irregular expenditure of R4.9 billion. SCOPA also raised the issue of standardisation across all SABC’s platforms and requested the public broadcaster to provide a schedule of the salaries of all TV and radio show anchors. In addition, the Committee has also has also requested monthly reports from the SABC on irregular, fruitless and wasteful expenditure.

Meeting report

The Chairperson said the Committee had a brief encounter with the SABC last week, but could not engage substantively. SCOPA has demonstrated its support for the SABC by engaging to try and identify and isolate issues, offer support and sought to find solutions. He said it was a pity that the political leadership was not present.

Hearing

Ms V Mente (EFF) referred to the solvency status of the SABC and asked for a clarification of that status so that the Committee can get a clear perspective.

Mr Bongumusa Makhathini, Chairperson of the SABC board, said the financially dire situation of the SABC was highlighted to the Communications Portfolio Committee the day before. The SABC was struggling o meet its monthly financial obligations with a debt of about R1.3 billion. It talked to the broadcaster’s ability to pay service providers that provided content and drove maintenance. If the SABC was not able to procure quality content, it was not able to attract audiences and generate revenue. One of the biggest cost drivers was the R3.1 billion wage bill and the second biggest related to the content. It was critical, because if there was no investment in content there was no revenue generation. It was unsustainable that 42% of the budget went to salaries, because ordinarily about 50% of the budget should be spent on content. 

A government guarantee has been requested over a year ago and it was meant to help with three things: 1) pay the debt; 2) invest in content; and 3) maintenance of the infrastructure. The SABC was given was a borrowing letter of R1.2 billion which basically allowed the organisation to approach banks, but with a disclaimed audit opinion, banks are reluctant to assist without a government guarantee. The board decision was informed by facts and numbers. This board inherited an organisation in dire straits well documented by the Public Protector’s report and by the Ad Hoc Committee’s report. The board and the executive team have to implement the remedial action recommended by the Public Protector and the recommendations by the Ad Hoc Committee. It was a crisis that developed over 10 years.

As a solution a turnaround strategy has been put together with key elements. This included legacy and governance issues and this was where the remedial actions and recommendations came. The SABC has actually approached the Labour Court to declare irregular appointments and salary increases invalid to see if some of the money can be recouped – over R60 million has been lost as a result of irregular appointments and promotions. The second element talked to regulatory and policy issues, e.g. the SABC did not get paid by those carrying its channels. In addition, for the past seven years the SABC has lost about R2.3 billion as a result of sports rights that were not commercialised. Thirdly, it was not sustainable for South African to pay 72 cents a day for TV licenses. A submission has been made on what should be done on TV licenses. It was very important for the future of the SABC to migrate to the new platform was actively driving the Digital terrestrial television (DTT) agenda with the Minister. As part of the turnaround strategy, 15 initiatives are being driven to increase revenue and reduce costs.

SABC was basically insolvent and if there was no financial injection, the SABC will collapse, because the projections are that “day zero” will be in March 2019. SABC needed a R3 billion injection urgently and a government guarantee of R3 billion will allow the SABC to approach banks. 

The Chairperson asked the Department to comment.

Ms Dikeledi Thindisa, CFO, Department of Communications (DOC), said there was a scheduled meeting to take place between the Minister and the Minister of Finance on the turnaround strategy and the government guarantee. Several meetings have also taken place between the Department and the Sports Department on the sports rights matter. DOC has been engaging with the SABC to make sure that it met National Treasury requirements. The Committee will be engaged as soon as matters have been finalised.

The Chairperson said his concerns remained on the lack of ‘forward looking’, because all these actions are reactive.

Ms Mente said if SABC collapsed it would not look good for the whole country and the Department needed to intervene in a better way than what the Committee has just been told. There should be a political decision and the Committee should get feedback on what was decided by the two Ministers. That guarantee, if the accruals are considered, was ‘a drop in the ocean’. She said she did not feel the required sense of urgency from the Department. She referred to the reports that the SABC has approached the Labour Court to nullify some of the irregularities, but there has also been the issue of retrenchments. Note 40 of the Annual Report talked to the salaries of the top and lower structures and it was clear more money was paid in the top structure. She asked who the targets of the retrenchments are. The country already had a 27% unemployment rate and the aim was to save jobs.

Mr Madoda Mxakwe, CEO, SABC, said before he addressed section 189, it was important to note there was a basket of cost reduction measures at the SABC. Year to date, the SABC has been growing, quarter on quarter at about 6.6%, because the focus had been on revenue generation. The focus had also been on organisation wide cost cutting measures. A lot has been done in terms of film and production which had been reduced which was not strategic, because content was key. The same was done for marketing and these measures have resulted in savings of about R463 million to date. The projections showed a net loss of about R803 million for this financial year and the 2017/18 net loss was about R622 million and it warranted a look at the biggest cost drivers at the organisation. Currently, the SABC had a very bloated structure, particular at middle and senior management level. The organisation had 495 managers and annually it cost the organisation about R630 million. Annual cost of freelancers amounted to R510 million annually. Irregular appointments amounted to about R60 million and all the irregular payments that have been made stood at about R321 million. The idea was to look at all these monies and how it can be recouped. In terms of section 189, the projected number was about 981 permanent employees. The idea was to create a modern structure more in line of where the SABC needed to be. The board’s mandate was to make the SABC a financially sustainable and high performing organisation. As an example he said the station manager of Radio Metro’s turnover was R530 million. TruFM in Bhisho had an annual turnover of R 3 million, but the two station managers are at the same level. These are all the things being looked at. In addition, skills are also considered, i.e. functional capabilities, experience and qualifications. Currently at the SABC there are general managers with only one or two people reporting to them. The retrenchments are not targeted at the lower levels, but at the six tiers of management. The 3.1 billion wage bill was just not sustainable and if 45% of net income went to salaries it exposed the inefficiencies in the system.

The Chairperson said the percentage of the wage bill was relative to turnover and the combination of cost cutting and increasing revenue might be another way of looking at it. It was important to have a staggered approach and shifting ‘day zero’ as things get better.

Ms Mente spoke to the findings of the Auditor-General and the irregular expenditure and quoted the report that said the SABC ‘was unable to identify irregular expenditure’ and it was only disclosed on 31 March 2018. She asked if there was now a tool or mechanism in place to identify irregular expenditure.

Ms Yvonne Van Biljon, CFO, SABC, said the organisation had two tools: registers that are being maintained in the different department and the SAP system that has been configured to identify the various categories of irregular expenditure. As an example she said the updated information submitted to Members was information from the SAP system.

Ms Mente asked if t was an assurance that when doing its financials for this financial year, the system would be able to pick up irregular expenditure and this will not be a repeat finding.

Ms Van Biljon said she was hesitant to give 100% assurance, but she was cautiously optimistic.

Ms Mente said during the first interaction with the interim board, there was mention made of manual documentation that has disappeared. She asked if those documents have been found.

Ms Van Biljon said specifically in the supply chain department, a project team had been in the records management department for the past six to eight months and their contract has just been renewed for another year. They were put on the project solely to identify and categorise supply chain documentation. The project has recently concluded and there was much better control and an understanding of the documents the organisation did and did not have. There are still gaps which meant there was information that could not be found. One of the biggest obstacles was that all information needed to be scanned into an electronic system and right now the records management department had a serious capacity constraint.  A critical position was about to be filled in the records management department and this person’s presence there will be a great help.

Ms Mente said the reports on accumulated irregular expenditure started from 2013/14 and she asked if could be written off based on the recovered documents.

Ms Van Biljon said part of the reason the SABC could only present the seven items for condonation today, was because of the search for documentation that went as far back as that. Some of those items went as far back as 2011 and it was a struggle to find documentation that went back that far. The plan was to start with 2017/18 items where the information was more readily available, then focus on the 2018/19 year to show that work has been done and then look at the opening balance, because the effort will be tremendous and manual - the information was not easily available.

Ms Mente referred to the condonations and asked if there had been any investigations. As much as it was good to clear the irregular expenditure off the system, people had done wrong things and there should be consequences.

Ms van Biljon said in terms of the PFMA, you can only present for condonation if the State has not suffered any losses and if there was not a person being held liable. The updated submission provided more detail around the seven items – two of those cases are with the SIU and the aim was to bring the information together to see what can be condoned and if not, who should be held responsible. The cases in the SIU environment were the Lorna Vision and the Asanta Sana contracts. The other cases related to cleaning services, a security company and there was a company that came in to assist with the evaluation of assets in the television department. For these, there was value for money and because of the nature of the irregularity, e.g. Umhlanga talked to a fraudulent tax certificate. No one at the SABC was responsible, but the case will proceed in another manner. Because no official can be held responsible, the investigations had been done and it can be presented for condonation. The report also included top themes in the irregularities and when people can and cannot be held responsible.

Ms Mente asked if no one detected a fraudulent tax certificate until it was identified by the Auditor-General.

Ms Van Biljon said the fraudulent certificate was discovered by the SABC’s forensic department when the whole procurement process was investigated.

Ms Mente said it was not comforting that a fraudulent tax certificate was only discovered by the forensic department after the contract has been flagged by the Auditor-General for irregularities. There should be s system to detect it.

Ms van Biljon said the central supplier database (CSD) was activated at National Treasury in 2014. Currently, every single tax certificate was reported on through the CSD before any award or recommendation for an award. Unless the risk was further up in the value chain, a recurrence of this item was limited going forward.

Ms Mente referred to the SABC’s finding in 18 categories of irregular expenditure talking to the SABC’s inability to investigate. She acknowledged that this team was not responsible for the findings, but she wanted confirmation that the capacity to investigate was now in place. As an example she referred to the SABC document that spoke to the top five contributors to irregular R4.9 billion. In one area there are 280 cases with 80 just about done; 160 still outstanding; and 22 overdue and that only talked to one area. The findings on investigations lacked consequences – it did not indicate if people are still in the system or suspended. She said her focus was on the speed of investigations and the progress report talked to a lack of capacity.

Ms Van Biljon said the document also highlighted functional responsibilities in group finance or HR and those findings are tracked on a monthly basis and are being overseen by the finance team. It has been slow, but the audit was only completed in August and the findings could only be addressed after that. The related consequence management has been initiated for all the supply chain findings. Each of the otter items would have to be considered whether to proceed in terms of disciplinary processes or whether to educate and monitor and ensure that the internal control system has been put in place to avoid a recurrence. The governance and monitoring assurance department also tracked progress on cases. Some of the items are inexcusable and it needed to be corrected and a big failure by SABC and a theme among those items was that information was not provided on time. Line managers should be held to account. There are over 20 000 items on irregular expenditure and capacity was a problem for those investigations. It needed a dedicated team of skilled and qualified individuals and currently there was a caretaking team in place and that was why it was taking so long. A solution needed to be found in the systems and possibly look at categories of irregular expenditure to see if it can be dealt with in a category manner.

Ms Mente asked for comment from HR on the 22 overdue cases.

Ms Van Biljon clarified that it was not limited to HR – it could be a number of departments and whichever department that did not deal with their findings on time should be held responsible.

Ms Mente referred to the resolved and re-started cases and said although the action plans and departments are included, there are no names of individuals. She also wanted clarity if every case had a different responsible individual. 

Ms van Biljon said the names are on the system and the SABC preferred not to publish the names or discuss it in a public forum.

The Chairperson said it should not be a problem to submit the names as long as it was true, because it essentially just named a person who signed off whether there was justification for the sign off was the subject of the investigation.

Ms Van Biljon said the names will be provided to the Committee.

Mr T Brauteseth (DA) added the Powers and Privileges Act protected everyone in the room.

Ms Mente agreed with the Chairperson. She referred to the minimum number of quotations and commented that still no one has been suspended or dismissed. Except for those that resigned no other action has been taken by SABC.

Ms Van Biljon agreed, but said action was being taken in supply chain. This specific document was a draft report from the forensic department that investigated this specific theme of irregular expenditure. Once it was done it will stipulate the appropriate actions.

Ms Mente said the most contributing component in irregular expenditure was the delegation of authority framework and she asked what has been done on that.

Ms Van Biljon said other than the investigations, where the framework needed to be enhanced to accommodate the process in the business it will be done. The delegation of authority was a living document and was being adjusted to suit the business purpose.

Ms Mente said it should not be contributing to irregular expenditure at all and that talked to the monitoring.

Ms Chiloane referred to the disclaimed audit opinion and this was new management. She asked who the CFO was and for a comment on the audit opinion.

Ms Van Biljon said the audit opinion was concerning, because it impacted the organisation’s ability to raise funds and it sullied some of the good work that had been done in the last 12 months. The main contributor to the audit opinion related to the going concern issues and it related to the SABC’s ability to settle its debt. This meeting started with the liquidity issues and it cannot be fairly laid at the feet of the CFO of that year, because these kinds of things are bigger than what the position was. Since then, the board and management are all involved in addressing the going concern issues and it also created the platform for the strategic turnaround plan. Another big item that contributed to the opinion related to assets - useful life, impairment of assets and the completeness of the asset register, transfers, etc. A tremendous amount of effort went into improving asset management the past year to the extent that the remaining qualification was focused on the assets under construction, specifically the technical assets. The assets are made up of components and each of the components was meant to have a number. Another issue was the ability to adjudicate the useful life and the impairment on the technical assets. An individual was needed with a very specific set of skills and experience to be able to do that. At the time the conversation was that an expert would need to be appointed to assist. The SABC was looking at beefing up the policy and procedures to adhere to the accounting policy practices to be able to allow experts within the SABC to proceed with the assessment of useful life and impairment of assets. Issues from 2017 have been a large extent been attended to. Other good work that has been done was on trade and payables. On programme, film and sports rights – the technical issue around it was how repeat broadcasts were evaluated.

Ms Chiloane said last year the SABC had an adverse audit opinion that pointed to the issue that led to this disclaimed audit opinion. It looked as if nothing has been done. The current liabilities are problematic sitting at R291 million and it should be corrected and cash flow forecasts were not prepared timeously. Someone should be accountable. She referred to the SIU report and asked what will be done to address the issues in the report. All of these things happened under the watchful eye of somebody.

Ms van Biljon said the major difference between the adverse and the disclaimed audit opinion was the view on the going concerns. During the 2017 financial no assessment was done on the going concern and in the 2018 financial year it was not complete enough, i.e. the absence of a detailed cash flow statement. Since then a detailed cash flow model has been developed taking into account the suggestions from the Auditor-General and that resulted in the SABC’s ability to now say what the next six months will look like. On liabilities, the main contributor was the trade and payables and the SABC needed sufficient resources to be able to pay. The amount was increasing and the liabilities will eventually exceed the assets and the organisation will be factually insolvent. There was a cash management plan in place in terms of certain priorities just to keep being operationally active, but other than that there was simply not enough money for the demands. On the SIU report and the previous CFO, she said the previous CFO was permanent at the time and subsequently dismissed and the SABC was engaging via the appropriate legal resources. The person that oversaw the finances for this financial year was in an acting position.

Ms Chiloane asked who the ‘acting’ person was.

Ms Van Biljon replied that it was Ms Thabile Dlamini and she was not implicated in any wrongs in the SIU environment.

Ms Chiloane asked what Ms Van Biljon’s opinion was of Ms Dlamini in terms of the Auditor-General report.

Ms Van Biljon said she thought Ms Dlamini did a lot of good work under very complicated circumstances.

Ms Chiloane said it seemed SABC has accepted its insolvency. The Auditor-General mentioned that the SABC did not have adequate risk management strategies around the going concern issues. She asked if there was an established risk management unit, who was heading it and if it was fully capacitated.

Ms Van Biljon said the SABC made significant inroads the past eight month on risk management. The finance department did not have a risk registry – it had one now. It spoke to the liquidity issues on a strategic level and it was being monitored. A report had been included on its latest status and it was slowly getting the attention in the organisation it needed to have. It was not as capacitated as needed, but risk management was not just the department’s responsibility, but rather every employee and the department just monitored and reported on it.

Ms Chiloane said the SABC has forecasted creditors payable for the next financial year from R1.1 billion to R1.7 billion, but in terms of the organisation’s current financial health, she wanted to know how this will be dealt with. She asked if the SABC was currently able to pay creditors on time and if it affected services.

Ms van Biljon said the SABC was not able to pay its creditors on time. A payments committee had been established under the interim board that met monthly to determine the priority payments for the month which typically started with salaries, followed by rent, electricity and water to keep operationally active. There are payment arrangements with SABC’s biggest service providers and because of the strategic nature of the relationships they have been able to support the organisation. The SABC has started to curtail its content acquisition, e.g. on average it has been about R140 million per month and in November the organisation will only be able to pay about R60 million of that. That will have knock on effect – the inability to put programmes on air and the ability to generate revenue. There have been more and more instances where suppliers are demanding payments in advance or did not want to work with the SABC due to its history of not being able to pay or what was in the media. There was a plan for December as the SABC has been trying to build a little bit of a buffer, but the reality was that the cash will be dipping tremendously in January, likely to barely make the salaries.

Ms Chloane said the sports rights matters are at the gist of the SABC’s operational woes. The Auditor-General report said the automisaton of programmes on films and sports rights was R236 million. She referred to the small businesses that relied on these payments from SABC and the soapie that was stopped because of lack of payment. It was an issue that affected all South Africans.

Ms Van Biljon said smaller to medium sized businesses have been prioritised in the SABC’s cash flow plans. She said she was not sure about where the R236 million was referred to, but the films and sports rights are treated like assets and are impaired or written off in terms of license agreements and because of the financial situation, the SABC had to broadcast more and more repeats. As a consequence, in terms of accounting, that asset needed to be revalued and that was where this specific finding came from (paragraph 11 in the audit report). The value has been immaterial up until a year or two ago where the SABC was confronted with its liquidity issues and had to air more and more repeats.  It was an item where SABC had a difference in opinion with the Auditor-General, but was working towards finding common ground.

Ms Chiloane said an amount of about R34.8 million was incurred through deviations. What are those contracts?

Ms Van Biljon said she did not have the spreadsheet in front of her where it will be visible, but she did submit a document with the top five identified deviations. It was potentially flagged as irregular that now needed to be confirmed.

Ms Chiloane cited a few contracts that included the new website completion project where the supplier, Creative Spark was paid R482 000. National Treasury did not support this, but the SABC went ahead without Treasury’s approval and she wanted to know why.

Ms Van Biljon said each one will have specific circumstances. Creative Spark was busy working on the website and the decision was that when the contract value was depleted and the work could not be sensibly handed over to another service provider, they should continue with the work. Each of those needed to be confirmed whether proceeding without Treasury’s support was allowed.

The Chairperson said it can never be allowed to proceed without Treasury’s concurrence. It was just part of the lawless within the financial processes at the SABC. National Treasury will nt say no without giving a reason and the question became who okayed it, i.e. was it at board level, management or executive management level.

Ms Chiloane referred to Ultimate Media and Blackface contracts that were not approved and asked who provided the services.

Ms Van Biljon said it was a National Treasury document that she did not have and was unable to respond to.

Mr Booi (ANC) said Ms van Biljon should have read the document and asked what she was being paid for. He also said she has been very evasive throughout the meeting.

Ms Chiloane said it was a National Treasury document that came from the SABC and it was embarrassing. The six contracts were suspicious and the preference for a single provider where it was an unapproved deviation.

Ms Van Biljon said it looked like the reports submitted by the supply chain department on a quarterly basis to Treasury and are not part of the document pack today. She said she has before her the register SABC submitted and she would be able to respond if she had the information in front of her.

Ms Chiloane asked how much senior management was earning.

Mr Makhathini replied that the top three executives (CEO, COO and CFO) has a combined annual income of about R12 million which was 0.4% of the total wage bill (R3.1 billion) and a significant reduction if compared to previous executives.  The current CEO earned R5.1 million (previous CEO earned R7.2 million).

Mr Brauteseth interrupted and said the previous CEO was stealing and that should be made clear.

Mr Makhathini continued and said the CFO earned R3 million and the COO earned about R4.1 million per annum.

Ms Chiloane asked if the top three were permanent employees.

Mr Makhathini confirmed that they were permanent employees and all were on a five year contract.

Ms Chiloane asked if they were headhunted.

Mr Makhathini replied that the SABC used all the avenues to attract top executives – it was gazetted and paired with headhunting. The board was very happy with the results so far and with the turnaround strategy that has been put together in a short space of time. He acknowledged that the SABC was still in trouble, but the executives are doing a great job to get the organisation out of that situation.

Ms Chiloane said she was speechless if considering the position the SABC found itself in referring to the retrenchments. She asked if they are given performance bonuses as well.

Mr Makhathini replied that there are performance bonuses built into their contracts if the targets are hit.

Mr Kekana (ANC) referred to the handover report of the interim board and he asked where it was.

Mr Makhathini said the report was part of the pack.

Mr Kekana said the board was guided by the annual Strategic Plan that would talk to the strategy of the instition.

Mr Makhathini agreed.

Mr Kekana asked if the SABC was aware that the Auditor-General in its finding said that the shareholders compact was not concluded prior to the start of the financial year in consultation with the executive authority as required by Treasury regulations and was only approved in February 2018. He asked what guided the SABC before that approval.

Mr Makhathini said there was a change in political leadership and it was approved by the new Minister when she came in.

The Chairperson wanted confirmation that the draft was there and only awaited a signature.

Mr Makhathini confirmed that.

Mr Kekana asked what guided the SABC.

Mr Makhathini said the SABC was working with the unsigned draft.

Mr Kekana asked if this was a disagreement with the Auditor-General.

Mr Makhathini said he did not disagree with the Auditor-General, because the document was not signed at the time of the audit review and was approved in February 2018 by the new Minister.

Mr Kekana read the Auditor-General’s finding as “as a result of the above the key performance measures and indicators included in the sharehoders compact were not agreed between the accounting authority and the executive authority prior to the start of the financial year as required by Treasury regulations”. Is that correct?

Mr Makhathini confirmed that it was.

Mr Kekana asked if there were no plans.

Mr Makhathini confirmed that there were no plans.

Mr Kekana said the Auditor-General also noted that trade and payables were not accounted accurately and as a result payables are overstated by R706 million. He asked if there were systems in place.

Mr Makhathini confirmed that the systems re now in place.

Mr Kekana asked what systems were in place to record payables correctly.

Ms Van Biljon replied that the SABC now performed monthly reconciliations on all creditor accounts and as a cross check payment was not executed if the reconciliation was not in place. This specific finding related to the 2017 financial year and it did not prevail in 2018 and the systems are sufficiently in place now.

Mr Kekana asked if the finding will not be repeated in the next report.

Ms Van Biljon said yes, there was not supposed to be such a finding.

Mr Kekana asked for a yes or no answer.

Ms Van Biljon said yes.

Mr Kekana asked if the leadership was stable now.

Mr Makhathini said one of the key things needed to be done was filling up the top three positions. The COO joined in February 2018; the CFO in June 2018 and the CEO in July 2018. All the critical vacancies have been filled. From the board’s perspective, there are four vacancies due to board members resigning and the Portfolio Committee on Communications was busy with the process of filling those vacancies. The leadership was stable and the induction process of the board members has also been done.

Mr Kekana said the Auditor-General identified a lack of responsible risk management activities at a strategic level and he asked if that has been resolved.

Mr Makhathini said the board has established sub-committees of the board. There was a finding on the risk and audit sub-committee, because that committee should be led by a chartered accountant which it did not have although people with the relevant experience have been put in the committee. There was also a technology and digital sub-committee, because this was one of the key outcomes of the 2013 skills audit. The board has set up enough sub-committees to focus on the critical areas. From an operational perspective, the CFO did mention the risk department and although not fully staffed, the risks are now being managed and projections of what will be happening in the next three months are now possible, because those systems have been put in place.

Mr Kekana said the interim board has put in a lot of work, but the SABC report showed that the situation has gotten worse. He wanted to know if the interim board report has been considered.

Mr Makhathini said for the purpose of this meeting, the delegation was also made up of members who were part of the interim board.

Mr Kekana clarified that it was not what he wanted to know, because if that report has been considered, the SABC would not be dealing with the issues it was dealing with now.

Mr Makhathini replied that the permanent board was made up of five members of the interim board and there was no loss in terms of skills and experience. The report tasked the new board with developing a turnaround strategy which has been done. It listed the need to fill critical positions and it was done. The interim board listed following up on government guarantees and that has always been done. The report listed wage negotiations and for the first time since last year salary increases could be given that are linked to performance indicators. There was a shareholders compact that needed to be signed and that was completed.

The Chairperson interjected said the SABC responses should be limited to what was immediately relevant to this meeting such as internal control and audit qualification issues. He explained that Mr Kekana’s question also related to the continuity aspect that was raised in the previous meeting.

Mr Kekana said the audit outcomes raised a number of issues that were raised whilst the interim board was still in place. The report indicated that management did not implement adequate review procedures to ensure that indicators and targets included in the corporate plan were useful; and that information reported was adequately reported with appropriate evidence. That was raised with the interim board and the interim board took a decision that it would be focused on.

Mr Makhathini confirmed that there was focus on that.

Mr Kekana asked why the Auditor-General made a finding on the same issue.

Mr Makhathini said the report evaluated 2017/18 and a number of the things the interim board was dealing will still form part of the report under review.

Mr Kekana asked if there was confidence going forward that te findings will not be repeated.

Mr Makhathini said he was confident, because lack of stability and critical leadership was cited as one of the main contributors.

Mr Kekana said Mr Makhathini was on record and these issues will be raised with him in future.

Mr Makhathini agreed.

Mr Booi (ANC) referred to the high vacancy rate highlighted by the Auditor-General. He asked how filling these critical positions connected with planned retrenchments. These positions are not internally recruited and he said that was why SABC was now a bloated structure with new people coming in constantly. When the Committee visited in 2016 it was made aware that they were not recognised by management and treated as useless and that was why there was so many auditing companies flooding and taking from the fiscus of the SABC. He asked what informed the SABC’s approach.

The Chairperson also wanted clarification on the SABC’s use of consultants.

Mr Makhathini replied that there were critical vacancies that needed to be filled and skills sets and experience were considered. On the CEO, he said the SABC has never ran things business or commercially minded. It was important to get someone with experience in running a commercial entity to improve the financial situation. There are vacancies that have been filled by experienced in-house individuals. About 85% of of the SABC’s revenue was commercial revenue and the organisation had to compete with other players in that arena and needed well equipped individuals. A lot of the vacancies have been filled, but both the Public Protector and the Ad Hoc Committee reports talked to the fact that a lot of people had been employed without the need for those skills and people were promoted without looking at their contributions or value. There was a genuine bloated structure in certain areas - there were over 490 managers at the SABC and that led in some cases to one person managing one or two people. It cannot be allowed and it created a top heavy structure. There are about six managerial layers at the SABC and the focus was on taking out some of those layers. The wage bill and expenses should follow the revenue and right now the broadcaster was consuming more than it was making. Optimising the structure to become fit for purpose was unavoidable. There was also now a focus on digital and technological skills and the SABC needed to be properly equipped to compete with other players in the space. There has been a significant reduction in the use of consultants at the SABC and the current consultants were the Auditor-General, legal services and to some extent, the SIU. All the work done by the SIU was paid for by the SABC and it was categorised as consultancy. When the channels had to be evaluated, there was no in-house expertise and properly experienced people had to be contracted to evaluate the channels to be able to negotiate from an informed position.

Mr Booi said the SABC was an old institution that should have experienced individuals and capabilities should have been built from the inside in terms of modernising the institution. He asked why retrenchments are used to address this problem. He referred to Werksmans and SekelaXabiso and said these were outside institutions. The Auditor-General on the going concerns said ‘management and the board must develop and implement an appropriate strategy to move the entity towards profitability incorporating growth strategies for revenue and decreasing costs where necessary. Have you read the Auditor-General’s report?

Mr Makhathini replied that he has read the report and he asked the CEO to expand.

Mr Booi said the PFMA expected Mr Makhathini to respond, because he made the decisions on behalf of everyone at the SABC.

Mr Makhathini said in terms of developing human resource capabilities, the board can give strategic guidance, but implementation was done by the CEO and COO.

The Chairperson agreed, but said he expected Mr Makhathini to talk to other initiatives to address the cash flow problems.

Mr Makhathini said he shared at the beginning of the meeting the other initiatives that can unlock more revenue. Dealing with legacy and governance issues are key in trying to recoup or recover monies lost. In trying to implement the public Protector recommendations it was found that about R60 million was lost through irregular promotions and appointments and the Labour Court was approached in this regard. The SIU was assisting in investigating a number of contracts. There were also a number of things from a regulatory perspective that has made it impossible for the SABC to be financially viable and there are billions that can be generated from just this one area.

Mr Booi said the arguments for retrenchments and insolvency are not convincing. The SABC was prioritising capital   above individuals and he said more foreigners have been recruited then South Africans. The Auditor-General raised concerns that the organisation was not able to settle its liabilities; that it did not have an adequate model to forecast cash flow; a concerning increase in creditors payable; and the stage of the roadmap. The retrenchment strategy seemed to be outside of what was happening at the SABC. There have been progress and the Committee sympathized, but the Committee was guided by the Auditor-General report and the SABC was not doing what the report ordered.

Mr Makhathini said no foreigners have been appointed by the SABC. There are a number of initiatives being driven other than retrenchments.

Mr Booi referred to the Committee’s visit to the SABC and said it was confirmed by human resources that there were duplications and difficulty in stabling who was and was not employed at the SABC.

The Chairperson said there was a problem around the authentication and verification of people’s records, background cjecks, criminal records, etc.

Mr Makhathini said the vetting issue was raised by the interim board and it was rejected by organised labour in terms of the constitutionality and legality. He said there was about 15 initiatives being driven around commercial and operational efficiencies. Out of those cost sutting measures over R400 million had been saved already. Looking at labour cost consumption it was unsustainable for the SABC to be able to operate in a sustainable manner.

Mr D Ross (DA) referred to the absence of the Minister. There was a new board and a new CEO and a commitment to turn this around, but the Minister has not been present at the last two meeting citing an apology of being ‘indisposed’. The SABC was facing a complete blow out and political leadership was needed and it was a problem if the executive was not present at these meetings. He asked if there had been any recent engagement with the Minister on the crisis at the SABC, when it took place and if it was recorded.

Mr Makhathini said the SABC has dad a number of engagements with the Minister of the financial situation. On 31 October a letter was sent to the Minister, the President and the Minister of Finance requesting an urgent meeting to engage on the fact that the sat with a debt of R1.3 billion and was not able to meet its monthly obligations. There has not been a response yet.

Mr Ross asked how imminent the crisis was in terms of not paying the staff.

Mr Makhathini said in terms of the projections, the SABC needed over R600 million per month to meet its obligations. January projections showed a collection of about R300 million which was not enough and ‘”day zero” was anticipated for March 2019 when the organisation will bot be able to even cover salaries.

Mr Ross said the executive authority should play a leading role in terms of the guarantee. He asked what the engagement. He asked if the Minister has engaged with the Minister of Finance.

Mr Makhathini replied that the Minister had engaged with the previous Minister of Finance that resulted in the SABC getting a borrowing letter for R1.2 billion.

Mr Ross said if there was an improved audit outcome, the efforts of the SABC borrow money might have worked. He asked if the turnaround strategy has been presented to banks and financial institutions and he noted that the Committee has not even seen the document.

Mr Makhathini said it will be shared with the Committee and it had been what the executive has been using to negotiate with the banks.

Mr Ross asked how much was needed in terms of the guarantee.

Mr Makhathini said R3 billion to help with content, liabilities and the maintenance of the infrastructure.

Mr Ross asked if this was the first guarantee.

Mr Makhathini replied that SABC was given a guarantee in 2009 (R1.4 billion) and that guarantee came with conditions the SABC was trying to implement now, i.e. cut the salary bill, increase revenue, etc.

Mr Ross said the guarantee was important and wished the organisation luck with the efforts. He referred to the human resources, governance and nomination sub-committee.  He asked if the members served on the committee in past years.

Mr Makhathini indicated that two members served on the interim board and there was one new member.

Mr Ross said there were nine people on the committee.

Mr Makhathini said that was the old committee and the committee had only four members now.

Mr Ross asked if the committee approved the “excessive salaries” being paid to executives.

Mr Makhathini confirmed that.

Mr Ross asked if it the social and ethics committee was still active and who its chairperson was.

Mr Makhathini confirmed that it was still active and it was chaired by Mr Krish Naidoo.

Mr Ross asked if the internal controls framework has been established and if so, could it be provided to the Committee.

Mr Makhathini confirmed that it has and that it will be forwarded to the Committee.

Mr Brauteseth referred to annexure called “final report: forensic disposition”.  He asked how the SABC thought the people being retrenched would feel about the Metro FM Music Awards and after party cost R14 million and that the CEO earned R5 million a year.

Mr Makhathini said these are part of the cost cutting initiatives that was implemented and resulted in savings of about R44o million and he agreed that if people did not see those efforts to cut costs and drive efficiencies, they would be disappointed.

Mr Brauteseth reminded Mr Makhathini that section 83(2) of the PFMA said that all board members of an entity are responsible for an entity. The SABC inquiry said ‘the interim and new board needed to urgently engage AGSA to assess all the irregular expenditure and fruitless and wasteful findings’. Nothing has been done to anyone in terms of irregular expenditure. The SABC reaction has been incredibly slow while the instruction was to urgently engage.

Mr Michael Markovitz, Board Member, SABC, said the SIU took over a lot of the key investigations in terms of the irregular expenditure where a detailed report has been provided to the Committee. To be fair to the previous Acting CEO there was a lot of acting positions and a lot of capacity issues in terms of investigations outside of the SIU. The SABC has not been able to follow up on all the matters, but systems have been put in place since the new CFO has been appointed. The board takes it extremely seriously and the opinion shared with the Minister, the President and the Minister of Finance was that the board was personally liable. All board members are aware of their responsibilities in terms of the Companies Act and the people working at the SABC.

Mr Brauteseth referred to section 51(b) of the PFMA and said it was the board’s responsibility to recover money and he asked how much money this board has recovered since its establishment.

Ms Van Biljon said no monies have been recovered yet.

Mr Brauteseth said there was R4.9 billion in irregular expenditure, the CEO earned R5 million a year and millions are spent on after parties. He asked if this was put to the SaBC by an employee that will be retrenched what their response would be.

Mr Makhathini said a lot of these matters are currently in court driven by the work done by the SIU.

Mr Brautesth highlighted one of the cases that showed a production coordinator in the Western Cape had gotten involved by doing additional work as an independent contractor with another broadcasting outfit. Disciplinary action was recommended and he listed all the policies that were contravened. The recommended monies to be recovered was just under R60 000 and the case was completed with the person signing a final written warning and R4 400 recovered. It was glaringly obvious the SABC did not have the capacity to do the work. A lot of people are going to be retrenched, not one cent has been recovered and the SABC was not acting hard against people who steal money.

Mr Mathatha Tsedu, Board member, SIU, said investigations had been done, both by the internal forensic unit and the SIU and those processes are underway. Some of those matters are in court already and pensions have been impounded so that when the process was over, the SABC could recover its money from those pensions.

The Chairperson said the SABC should avoid the ‘slap on the wrist’ approach to wrongdoers because it sent the wrong message.

Mr M Hlengwa (IFP) confirmed that the meetings the Committee had with the interim board were parliamentary meeting and fell within the ambit of the Powers and Privileges Act. At those meetings the Committee was told that the board members have not been remunerated and he said he was shocked to discover that the board has indeed been paid. He referred to the bonus received by Mr T Mulaudzi (group executive) and he asked ‘what great things he did for the SABC’.

Mr Tsedu explained that when the interim board came into office, realising the financial predicament the SABC was in, took a decision to defer payments until the institution was in a better position. Those payments were made during the last days of the interim board. At no point was there a decision or statement by the interim board that they would not be paid.

Mr Jonathan Thekiso, Group Executive: Human Resources, SABC, said the bonus incentive paid to Mr Mulaudzi would have been paid on the premise of key performance indicators as well as targets set with him at the beginning of the financial year. At the end of the financial year he would have achieved what was agreed on and the bonus would be paid based on that premise.

Mr Hlengwa said it was a substantive bonus and he asked what he was doing.

Mr Thekiso said the Commercial Services Group Executive’s key performance areas included among other things sales and marketing and the acquisition of advertisers.

The Chairperson said Mr Thekiso was speculating and said Mr Mulaudzi was the only one who got a thirteenth cheque.

Mr Tsedu said Mr Mulauzi was the Head of Commercial Enterprises that dealt with advertising. Targets are set that has to be met and once it was met and exceeded, a bonus was awarded. It was a deal cut with people in that division, including sales people who go out and find advertising.

Mr Hlengwa said it sounded irregular, because this person got a salary (R1.5 million) and a bonus in excess of R400 000 while the institution was in chaos. He referred to the ‘infamous’ bonus of the R11.5 million rand to Mr Hlaudi Motsoeneng and he asked on the efforts to recover that money.

Mr Makhathini said the R11.5 million was part of the bonus given to Mr Motsoeneng on the SABC/Multichoice contract and was part of the R21 million the institution are trying to recover. That matter was already in court.

The Chairperson asked how Mr Motsoeneng’s bonus differed from that of Mr Mulaudzi. 

Mr Makhathini said Mr Mulaudzi’s bonus was target driven while in Mr Motsoeneng’s case there was no provision that he entitled to such a bonus in the course of doing his normal work and that was why the matter has been taken to court. An additional R10 million related to decisions made by Mr Motsoeneng that led to the SABC losing money.

Mr Hlengwa asked if everybody else performed below target.

Mr Makhathini explained that the bonus only kicked in once the target was exceeded.

Mr Hlengwa asked if there was a standardized process for appointments, because he would hate to see people retrenched on the basis of an irregular process.

Mr Makhathini highlighted the same example about the two station managers raised by the CEO earlier in the meeting and said the SABC wanted to look at the value of each role and that can talk to salary benchmarking.

Mr Hlengwa referred to the reappoint of TV and radio personality and the reported three tear R5 million deal he was offered. He said Ukhozi FM drew the most listeners and asked if those anchors were offered the same deals.

Mr Thekso said there was standardisation of remuneration at SABC. It was based on salary structures that were put together with the assistance of Deloitte consultants. The organisation’s financial status has not allowed the SABC to review remuneration structures since 2016 and offers made to new executives or management are based on those 2016 processes. He added that SABC was looking at job evaluations in terms of decision making, the consequences of those decisions and complexities as per the respective radio stations. There was an element of unfairness comparing bigger and smaller radio stations in terms of revenue generation and that will be addressed through job evaluation systems.

Mr Hlengwa said the Annual Report showed no such standardisation across group executive salaries.

Mr Thekiso said that spoke to issues of tenure where some have been with the organisation for longer than others.

Mr Hlengwa asked if positions have been advertised for or even filled while working on these planned retrenchments.

Mr Thekiso said yes and that the vacancy committee of the SABC considered the motivations although most motivations have been declined. In October three critical positions (a climatologist, the head of legal and an account executive) were filled. There are 10 advertisements current of which seven are in the Media Technology Infrastructure (MTI) division. There are robustness in as far as looking at the motivations.

Mr Hlengwa referred to the fruitless and wasteful expenditure, consequence management and deviations and said the Committee needed to zoom into this matter. He also said he was not convinced about the standardization of salaries. He wanted a salary schedule of SABC anchors and said a comparative study should be done.

Ms Khunou (ANC) said the names of individuals linked to the irregular expenditure should be made available to the Committee. She asked if the SABC had the reports on the progress made in terms of the Ad Hoc committee recommendations.

Mr Makhathini confirmed that the reports are available and will be sent to the Committee today.

Ms Khunou emphasized the importance of a clean audit and honest responses to work towards saving the SABC. She said the Annual Report contradicted the response given on the use of consultants.

Ms Van Biljon said the use of consultants amounted to R105 million in 2017 and R90 million in 2018 – of which a portion went to the AGSA and specialised skills in the technical and managerial section in the broadcasting environment. The managerial would have been legal in nature at the time – a service the SABC has been trying to bring in-house as much as possible. The aim was to align it as close as possible to the Treasury note on the use of consultants.

Ms Khunou said following National Treasury guidelines was non-negotiable. There was a head of legal, but the SABC was continuingly outsourcing. Also, the contracts she mainly referred to was the contracts that showed deviations and she asked when those contracts are coming to an end.

Ms van Biljon agreed that it was non-negotiable and said why the the departments have been up skilled and following the procurement guidelines. She said she was not aware of any item in the last eight months where the SABC has proceeded without Treasury’s permission.

Ms Khunou asked how far SABC has gone in vetting officials.

Mr Tsedu replied that at first a decision was taken that all staff members have to be vetted by the State Security Agency (SSA). There was resistance and the legal opinion said people cannot be forced to be vetted by SSA, but other vetting can be done using other institutions. The top three and group executives are being vetted by SSA, but everybody else was vetted by other institutions.

Ms Khunou said the SABC was a public entity and she could not understand how outside consultants can be used to vet government officials.

Mr Tsedu said the SABC was confronted by resistance from the unions and the issue of being vetted by SSA. The legal opinion sought stated people cannot be forced. People were already in the system whose contracts did not stipulate that they would have to go through that contract and it was not a condition of their employment.

The Chairperson asked why it would be okay then to use private vetting companies.

Mr Makhathini replied that the main issue was around journalists and how this process might interfere with their work and protecting their sources and independence. The level of vetting by SSA was very invasive and detailed and it became an issue with journalists and the legal opinion was sought.

Ms Khunou asked on the impact of the SCM training and asked for the minutes of meetings on the Atlantic Security contract; and on the allegations of irregularities in the disciplinary processes of Mr Mulauzi and Ms Mkhize.

Mr Makhathini said he was not familiar with the Atlantic Security contract and he thought Ms Khunou meant to say the Mjayeli contract that was explained last week to be part of the second proclamation and was still under investigation by the SIU.

Ms Khunou clarified that she meant to say Auckland Park Security tender and she asked for a report on that process and the lack of adequate record keeping as raised by the Auditor-General.

Ms Van Biljon repeated her previous response and said specifically in the supply chain department, a project team had been in the records management department for the past six to eight months and they were put on the project solely to identify and categorise supply chain documentation. The project has recently concluded and there was much better control and an understanding of the documents the organisation had and did not have. There are still gaps which meant there was information that could not be found. One of the biggest obstacles was that all information needed to be scanned into an electronic system and right now the records management department had a serious capacity constraint.  A critical position was about to be filled in the records management department and this person’s presence there will be a great help.

Ms Khunou said the SABC wanted to retrench people while the top management got exorbitant salaries. She explained the impact those 900+ retrenchments would have on the unemployment rate and thousands of households. She asked who collected TV license fees on behalf of SABC.

Ms Chiloane wanted to know how much was owed on TV licenses.

Ms Van Biljon said she did not have an exact figure to date, but a while back it was R26 billion and initiatives have been implemented to recover. The SABC has an in-house team that collected and also used debt collecting agencies that collected an average of R300 million per annum and was paid about 25% of the collection.

Ms Chiloane asked about the contracts of the agencies and why their dialing codes looked like it was not from within South Africa.

Ms Van Biljon replied that they were appointed in 2015 and the SABC was currently tendering to refresh the contract. She said she would have to find out about the codes.

Ms Mente referred to the irregular expenditure and said most cases were under investigation. She said in a few areas advertisements were made for less than the number of minimum days required – it was a clear breach. She also mentioned the incorrect evaluation criteria and asked for a report on how this was being addressed and she asked the Chairperson for a timeframe for this request.

The Chairperson said the Committed wanted resolutions and actions against implicated individuals. It should not take long, because it was many instances, but there are very few companies.

Mr Kekana agreed that a report should be provided. It really only focused on the R5 million and there was R4.9 billion to deal with.

Ms van Biljon said the R25 million was just one matter – the Auckland Park Security contract and the issues surrounding it. The reference to investigations meant that it was in the SIU environment and all the other items listed in the r4.9 billion are under investigation by the team. The plan was to get to all of it and she said the names will be provided to the Committee.  The plan was to tackle the 2017/18 year, move on to 2018/19 and then work backwards, because the prior years were the most problematic in terms of getting information, supporting documentation, etc.

Mr Kekana asked what the timelines would be.

The Chairperson said a monthly update to the Committee would be better, because then Members would be able to see whether progress was sufficient.

Ms Khunou said she had heard that employees were allowed to fundraise on behalf of the SABC, but there was no policy in place. She asked if that was in place now.

Ms van Biljon said the SABC had a funding unit under the umbrella of the foundation and there are policies and procedures that governed fundraising. It did not follow the strict supply chain processes, but it was regulated.

The Chairperson asked the CFO to relook the document on irregular expenditure where it was found that the SABC got its value for money and the recommendation was that no action will be taken. He said the value was not the point and there should be consequences for people who did not follow the law. He said the ‘qualification’ of fruitless and wasteful expenditure amounts should also be addressed. He asked the SABC to engage with the Auditor-General on this. The political leadership can and should do better in assisting the SABC. he cautioned against the reactionary approach and urged the SABC to start planning. He also talked to the staggered approach to the projected “day zero”.

The meeting was adjourned.

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