PC Communications: SITA financial statements, governance challenges & operational action plan to respond to matters raised by AG; Department on ICASA Councillor Performance Agreements, with Minister

Meeting report

Opening Remarks by the Chairperson
The Chairperson implored the Members to be cognisant of the 16 Days of Activism initiative and encouraged them to actively participate in addressing this societal issue, starting from their constituencies.

He then introduced the agenda for the day. This meeting was at the Committee’s instance, flowing from the engagements related to the Budget Review and Recommendations Report (BRRR). The Committee would be appraised by SITA and the Department with presentations that would respond to the issues of concern which were raised by the Members.

Briefing by State Information Technology Agency (SITA)
Mr Zukile Nomvete, Chairman, SITA Board, indicated that the entity received an unqualified opinion with material findings. The Auditor-General (AG) had found that there was R13.6 billion expenditure on State Information Technology (IT) for the 2018/19 financial year. In the previous year there had been close to R19bn spent by government, with almost R5bn of that expenditure going through SITA.

Out of all the auditees – various government departments and entities – 63% were found to have weak IT governance and about 88% had inadequate IT control systems. 80% of SITA’s IT expenditure for the year was used to service legacy projects. The entity was servicing about 16 of the 32 government departments excluding the 115 provincial departments and 257 municipalities across the country.

Since the beginning of his tenure at SITA, he had seen the departure of three chief procurement officers (CPOs), two chief executive officers (CEOs) and two directors. It had become difficult to recruit executives to the entity; some rejected firm offers that were made to them. Fortunately, the Acting CEO was successfully attracted from the private sector and would be officially filling the CEO vacancy by the end of November 2019. The entity also moved swiftly to employ a CFO and a company secretary. An internal auditor was also employed in 2018 to process and fast-track remedial action for the AG’s findings. The major challenge would be to capacitate the organisation invariably.

The entity was unable to refresh the legacy partly because there had not been a tariff increase for about 10 years. The entity was struggling to consistently provide its services while meeting its obligations. SITA was contemplating changing its Schedule 3A status in order to find other ways of generating more revenue. The aim was to change the public’s perception of the entity – from being a procurement agency. Over a period close to three years SITA had procured the Special Investigation Unit (SIU) to conduct an investigation on the agency and paid about R3 million for the service. The SIU found that there had been several internal employees who were doing business with the entity. The procurement division was hollowed out – disciplinary action was taken and people were dismissed where warranted. This process was disturbed by the change from the 5th to the 6th Administration but the path ahead had since been cleared by the shareholder.

Mr Ntutule Tshenye, Acting CEO, SITA, said that the entity was on a path to show value to government and to contribute to the country’s development through the smart use of ICTs. Since its inception, it had been grappling with a number of systemic and institutional challenges that prevented it from fully achieving the objectives as defined in its mandate. In response to the systemic and institutional challenges, the agency implemented a new business model supported by a new macro-organisation structure; however, the full implementation of the business model was still to be concluded.

The successful implementation of the model compelled the agency to take action to root out fraud and corruption. However, this inevitably resulted in the substantial loss of critical core and scarce skills in key functions of the organisation. The subsequent reduced organisational capacity had resulted in the agency not being able to fully meet the customer demand and its annual performance plan (APP) targets. This also led to the agency capacitating itself with existing employees who did not necessarily possess the required leadership competencies to drive a turnaround in organisational performance. In general, these employees were acting for extended periods in senior and executive management levels; these levels required the appropriate digital skills and thought leadership to propel the agency forward in the Fourth Industrial Revolution (4IR) age.

The agency had a sound financial position. It continued to fast-track initiatives to recover its revenue base and had implemented stringent measures to minimise operational expenditure. While all interventions were undertaken, it was imperative that budgeted revenue could remain self-sustaining.

The entity faced legislative challenges but managed to identify and began instituting the required interventions to address them. Amongst these was the lack of a defined ICT procurement framework. In order to properly support and advance government objectives – the advancement of small, medium micro-enterprises (SMMEs) and Broad-Based Black Economic Empowerment (B-BBEE) – the agency proposed that an ICT Procurement Framework be developed to deal with specific ICT-related procurement matters. Another challenge was that the utilisation of public-private partnerships (PPPs) as a tool was very onerous and yielded suboptimal results. The agency planned to review the existing PPPs and to simplify their use in order to facilitate effective and efficient collaboration between government entities and the private sector.

Also, the settling of SITA invoices by government departments was often a year behind schedule. For example, the services rendered by SITA during FY2017/18 were paid for by departments using their FY2018/19 budget. To address this, government departments must align their budget for the financial year in which they would be consuming SITA services so as to not negatively impact the agency’s sustainability.

Mr Andre Pretorius, Acting Chief Financial Officer (CFO), SITA, highlighted that under current assets, the Agency’s cash and cash equivalents decreased drastically from around R1.173bn to about R623 million. The available cash balance of R500.2m as at 31 October 2019 enabled SITA to be financially sustainable for 20 working days. The recovery of critically overdue debt, delayed signing of service level agreements (SLAs) – resulting in no billing for services delivered and the lack of Capex funding – all negatively impacted the cash flow. Consequently, for the third quarter of FY2018/19 the Agency made a loss of about R80 million and had a cumulative loss of about R122 million for the year. The cash flow levels were monitored on a daily basis to ensure there were proper controls over the collection and disbursement of cash. Also, some projects were delayed and in turn this delayed revenue.

Trade and other receivables generated about R1.694bn, of which R898 million was from debtors and the rest was from accruals. There had been some extensive debt collection measures that were put in place to recoup the R898 million but further improvements of these measures were still needed. A total of about R956 million was allocated to pay creditors. There was a need for an increase in the Agency’s cash levels because although there was enough money to cover operating expenses, the agency could not afford infrastructure investments. This hampered SITA’s revenue stream and its ability to reposition itself in modernisation of the organisation. One of the ways of generating more revenue would be to apply for conditional grants that would require imperative service delivery and performance targets.

For the year, SITA managed to achieve cost-saving for non-essential expenses, realising a decrease of 13% in actual costs. This indicated that the Agency was not only saving costs during the current year compared to the budgeted amount but there was also a clear decrease from the previous financial year. Management implemented measures to decrease travelling by recommending that employees should use telecommunication services such as telephones, conferences calls and remote resolutions. This saw a decrease of 0, 22% in actual costs.

SITA detected 27 cases related to irregular, fruitless and wasteful expenditure for FY2018-19 and 10 other cases which were detected in the year but had occurred in previous financial years. The Loss Control Committee had been established to effectively manage these expenditures incurred by the Agency. This included the initiation of investigations where there was suspicion of fraud or corrupt activities; the recommendation of disciplinary action where appropriate and the recommendation of condonation where all required processes had been concluded. Since the establishment of the committee, disciplinary action was recommended for 55 cases (out of 107 cases), with 44 officials being implicated. Of the 37 cases that were finalised, 15 written warnings were issued; there were four dismissals, three resignations, two mutual agreement separations and two retirements. Three employees were found not guilty following disciplinary hearings and eight cases were withdrawn.

Mr Tshenye reported SITA’s most notable service delivery successes during the first two quarters of FY2019/20. The agency established an e-recruitment platform which would enable government departments to publish advertisements for employment vacancies, digitalizing the entire process of the Z83 form. Citizens would conveniently apply for government jobs online and save costs related to travelling and paper-based application processes, with quicker turnaround-times. The platform was currently implemented within SITA as the first site, with the plan of rolling it across the entire public service. Another development was the data-sharing platform that would enable government departments to integrate and share data for enriched data analytics. The platform would collect data from different data sources across government into a consolidated government-wide data warehouse, where government-wide analytics could be performed. The platform would produce visual representation of government information and dashboards, enabling government to make evidence-based decisions. The platform would also be used to deliver data analytics for Use Cases such as the Early Childhood Development (ECD).
An e-participation platform was also delivered. It would enable online interaction between citizens and government. South Africa, being part of the Open Government Partnership (OGP), needed to advocate for the principles of the OPG to be an accountable, open, transparent, and responsive government. Such OGP principles could be achieved by providing citizens with an online digital platform that would enable them to participate in governmental matters that impact them, for their voice to be heard.
Mr Freddie Mitchell, Acting CFO, SITA, indicated that SITA received an unqualified audit opinion with material findings on compliance and performance. SITA Management developed an action plan to address control deficiencies noted by the AG and the internal audit unit. The action plan and follow-up of audit findings were independently monitored by the unit monthly, reported to the executive committee monthly and to the Board quarterly. The unit conducted a workshop on the AGSA management report with all SCM managers to ensure that they understood the findings. The Audit, Risk and Compliance Committee, SITA Internal Audit and management team were to review the annual financial statement (AFS) and performance reports before submitting them to the AG for audit. SITA would report the progress made on the implementation plan to the Department of Telecommunications & Postal Services (DTPS) monitoring division. By November 2019, 47 out of 72 findings remained open.

Within the control environment, the supply chain management (SCM) division was currently not capacitated to handle procurement requests and this resulted in unnecessary customer complaints. The current SCM employees were handling high volume of tenders, resulting in errors that were not detected timely - some of which remained undetected resulting in tender cancellations or irregular expenditure. Also, procurement processes were not initiated timely. To address this, SITA the SCM division was placed under the SITA Stabilisation Programme to capacitate the division. The Board members and management team were also working on an alternative plan to resolve SCM capacity issues. The Oracle ERP module project was in progress to automate contract management activities. This would ensure effective and efficient contract management and procurement processes.

Mr Tshenye highlighted that SITA has reported the investigation findings to, amongst others, the SAPS, Independent Police Investigative Directorate (IPID) and Directorate for Priority Crime Investigation (Hawks) and will continue to follow up regarding the progress made in respect of these investigations.

Discussion
Ms A Mthembu (ANC) welcomed the presentation and said that it showed progress in a positive direction, albeit there had been exorbitant irregular expenditure. A lot of work needed to be done, including the filling of vacancies. It was comforting for the Committee to know that there were measures in place to achieve a clean audit.

Mr C Mackenzie (DA) asked if it was the government moratorium that was preventing the Agency from filling its vacancies or recruits kept on rejecting the job offers. Are the acting executives remunerated as if their posts have been confirmed? Have their salaries been adjusted to account for any additional responsibility? What is the average period of their acting role? What is preventing the Agency from finalising their appointment in their respective posts?

He reckoned that the reason why the Agency was not meeting its revenue targets was because it entered into contracts with government departments but had not signed the SLAs with these departments. Why did the Agency start providing services before finalising the imperative paperwork? Are there any measures in place to address this?

Is SITA recommending that government should bring its entire ICT budget, for all its departments, under the administration of the Agency? There was reason to believe that the departments would not oblige to this proposal because it was interfering with their areas of responsibility. SITA’s relationship with the Department of Home Affairs (DHA) seemed to be fraught. Has it been reconciled? Does this relationship cause some reluctance from other departments to work with the agency?

There was a report that Dr Mohapi and other senior executives at SITA received threats of physical assault. Does this threat still exist or has it been managed?

SITA had indicated during its annual performance plan briefing that it was planning to digitalise its procurement processes to decrease human intervention. How much progress has the agency made with procuring and implementing this e-portal?

The late payments by government departments were inexcusable. Has the Agency ever assessed and projected how these payments would help the agency’s cash flows and income streams if they were paid timeously.

There was a successful collaboration between SITA and Western Cape (WC) government. The agency rolled out a system, connected the facilities and got the network working impressively. The WC was not on SITA’s list of debtors. Does this mean that the Agency did not work with the government or that the payments were made accordingly? Why are other provinces not following suit after the good example being set by the WC?

In terms of the Agency’s ethics line, how many allegations were received in any given period?

Mr T Gumbu (ANC) asked if there were any cases that had been withdrawn. How many are they? Were the disciplinary actions taken only against officials or were there other Board members and executive committees that were subjected to it? Was the Loss Control Committee (LCC) established only after SITA appeared before the previous Portfolio Committee on Communications?

He noted that resignation of two directors from the Agency. Were these resignations voluntary?

Ms P Faku (ANC) pointed out that the presentation had improved from the previous one, during the 5th Administration. It responded to the bulk of the questions that were posed by the previous committee. It was important to state problems but even more important to come up with solutions. The agency was clearly in a position to rebrand itself, starting with finalising the vacancies in order to stabilise the organisation.

The Committee, along with other parliamentary committees, had to form bilateral structures with their respective departments who were not paying. The SLAs also needed to be enforced for the payments to be fast-tracked and consequence management had to be instituted firmly.

The Agency needed to engage tertiary institutions to recruit young talent who could be hired for their technical skills to advance the agency. The proposed partnerships with entities such as Sentech – which had good performance standings – would come in handy in uplifting SITA towards stability.

Mr W Madisha (COPE) thanked SITA and commended the Agency’s progress over the last few years, most notably in FY2018/19. Despite this, there were still some identified problems such as the inadequate business accruals and low cash levels. The lack of SLAs perpetuated these problems.
These needed to be alleviated for the condition of the agency to improve. What does SITA propose to the legislatures and Parliament, including the oversight work that could be exercised by the Committee to assist the agency?

The Agency indicated that it formed a LCC to address the irregular and wasteful expenditure within SITA. The objectives of this committee were not clearly outlined, including the measures that would be efficiently used to recover and repatriate the funds from the culprits.

Mr L Molala (ANC) appreciated the briefing and pointed out the significant difference from its previous appearance before the Committee.

Mr Molala asked if the Agency had an internal legal advisory that would process the legislation needed to accompany the proposals. At this stage the agency should have submitted the Bill to the Minister.

The agency indicated that its operational expenses were around R2bn. The organogram did not balance with the expenditure that was incurred; the organisational structure needed to be reviewed to meet the work demand. The Agency should account for the difference between the cash balance and the debt of the agency.

There was still a huge backlog of the cases regarding irregular expenditure; the finalised cases appeared to be far more than the detected cases. Page 30 of the presentation indicated that there were 15 written warnings issued to members of staff. These warnings should be justified and there should be a follow-through in the process of recovering the funds. What are the actual processes that were used to recover these funds?

The Agency said that its SCM Unit was incapacitated to handle procurement requests. Was this because of the staff shortages or the incumbents did not have the requisite skills? Human capital appeared to be cause for concern throughout the organisation. He asked the Agency to elaborate on the identified risk of operational inefficiencies.

If SITA’s debtors did not pay for a certain period, would it not be just to charge them interest?  The money could have been used and invested in other ways.
 
The Chairperson asked SITA to clarify whether the legislation relating to the development and maintenance of ICT systems amongst the departments was imperative or optional for the agency’s proposals to be effectively implemented. Given that SITA is appealing for the implementation of an integrated procurement framework within government, who would be responsible for championing it?

The Chairperson pointed out that the Agency contradicted itself by first proposing that ICT budget allocations of all departments should be managed by SITA and then stating that these budgets should be centralised under National Treasury (NT). The Agency should clarify this contradiction for the Committee to know exactly what to support. It was surprising to find out that even the NT owed the agency.

The questions that were asked by Members were not aimed at collapsing SITA but to help strengthen the agency. The instability of SITA would threaten state security and it was critical for it to be functioning effectively.

Responses
Mr Nomvete indicated that through the help of the internal audit unit, the Board discovered irregular expenditure of about R370 million but was found to be R1.1bn, dating back to prior years. There were ongoing investigations to recoup the funds wherever possible. Thanks to the Minister, the agency had already managed to set up bilaterals with government departments to recoup funds from its debtors. The agency had not been working with all the departments but more of them were now coming on board.

During the disciplinary hearings, two Board members and a non-executive director voluntarily resigned from the agency. The LCC had been in existence for over two years.

The tripartite agreement between SITA, DHA resolved on an investment plan to ensure an uninterrupted provision of service to the clients of SITA but procurement processes often presented challenges.

There had been no recent threats made to officials since the last reported incidences.

The certificate backlog was reduced from around 180 000 to only 30 000 certificates. It was not only due to printing delays but some people would often write half of the subjects and it would be a problem between SITA, Umalusi and the Department of Education when people want to add more subjects.

One of the solutions that SITA had on its G-platform was flawed by the inherent problems of the framework agreements between the agency and NT.

Mr Tshenye appreciated the recognition of the Agency’s progress and this was encouraging.

Mr Tshenye indicated that the remuneration model for the acting incumbents was based on an acting allowance – which was about 10% of nominal salary – rather than increasing the salary base. The acting period varied on the criticality of the role and the time it took to appoint a full-time incumbent. The repurposing and redesign involved skills audits and reviews of the skills required to facilitate a digital transformation entity.

The revenue levels were influenced by SLAs being signed late and the government orders that follow after the signing. Some departments would also commit revenue levels and then start doing ICT budget cuts and this would impact SITA’s revenue cycles. The Agency had started putting measures in place to fast-track the processing of SLAs.

In attempt to mend the relationship with DHA, SITA had developed an investment plan. Since the delegation’s last engagement with the Committee, the Agency was able to meet the operational level of the organisation to strategise on an action plan for the different entities.

The Agency had been working with both local and international external service providers on some of its G-commerce initiatives. Contract management would be automated through some of these initiatives and smart procurement would also be implemented. There would be new broadband models through partnership with other state-owned companies (SOCs) to ensure quality service delivery at the periphery. Rebranding would have to be cognisant of the rationalisation of the agency and digital transformation. It would have to reflect a quantum leap towards a progressive direction and this could be as drastic as a name change. The SCM processes would be strengthened to continue prioritising customer centricity. The agency was also engaging other SOCs to accelerate the recruitment of graduates with relevant skills and the development of 4IR skills.

Mr Pretorius indicated that if SITA’s debtors were to pay their debts timeously it would have added an additional amount of about R531 million to the agency’s cashbooks. If SLAs were signed on time, based on accruals, there would be an additional revenue of R795 million. Debtors would usually refuse to sign the SLAs once the agency introduced interest charges in the contracts and this would cause delays in the processing of the agreements.

The consolidation of the budget was an option that should be considered on a broader sector level, given the reprioritisation of the organisation. Driving the digitisation of government had to be aligned with the individual plans of the different departments, for the interventions to be effective and efficient.

Fruitless and wasteful expenditure cases were handed to the legal department; cases of fraught and corruption in criminal conduct would be handed to the internal audit unit for extensive investigation.

In terms of cash balance versus debt, the agency managed to conduct intensive debt collection procedures over the last few months. The LCC case backlogs were partly perpetuated by inefficient consequence management processes before the establishment of the committee. Since it was instituted, many of the old cases had been resolved and finalised.

SITA explained that it had to be careful in how it would go about filling its vacancies because the organisation was undergoing a redesigning and repurposing process. About 70% of the staff profile was working within the maintenance division but the agency was trying to change its organisational operating model into consultancy services. SITA could not just retrench workers and so resorted to conducting skills analyses to evaluate and determine growth areas; this would be followed by a programme aimed at reskilling and upskilling labour. The agency was also handing out bursaries and hosting internships; running hackathons and opening academies to also support government’s strategy on driving the Fourth Industrial Revolution (4IR), as part of the National Development Plan (NDP). The agency also worked in collaboration with the Department in rolling out these and other initiatives.

Ms Stella Ndabeni-Abrahams, Minister of Communications and Digital Technologies, insisted that the centralisation of the ICT budget to SITA or NT was needed to help reduce the wastage of the public purse within government and improve the national economy. Part of the remodelling and restructuring of the organisation would involve the establishment of a project management office (PMO) that would specifically focus on customer-related matters. Another goal was to improve contract management, starting with pleading with other parliamentary committees to form bilateral agreements with the respective departments. The Department was currently working on the structural challenges in relation to the law and would report the amendments to Parliament in 2020.

Follow-up questions
Mr Mackenzie noted that both the Chairman and the Acting CEO of SITA mentioned the restructuring exercise of SITA and the skills audits that were conducted; including the legislation necessary to change SITA into a State information technology company. What is the timeline for finalising the remodelling and the legislation?

Minister Ndabeni-Abrahams responded that the Department would bring the amendment Bill to Parliament by the end of March 2020 after taking it through Cabinet and all other processes. The reconfiguration of the organisation would hinge on the SITA Amendment Bill. The filling of vacancies would involve minimising the duplication of responsibility and underuse of skills. The training programmes for reskilling and upskilling would be compulsory and the bursaries would be given to candidates who would be studying towards skills needed by the agency.

The Chairperson thanked SITA for the presentation and encouraged it to continue stabilising because it played a crucial role.

Briefing Department of Communications and Digital Technologies (DoC&DT)
Ms Nomvuyiso Batyi, Acting Director-General, DoC&DT, indicated that the initial Performance Management System (PMS) of ICASA was approved by the National Assembly in 2012 and made applicable to the 4th Administration (2009 to 2014). Although the initial PMS was approved in 2012, performance agreements were not concluded with the then Minister of Communications. The PMS expired at the beginning of the 5th Administration and was not reviewed. The Department invited members of the public to apply for appointment to the Panel, in line with Section 6A(4) of the ICASA Act (Act 13 of 2000).

There were design challenges in measuring both individual and collective performances within ICASA. The entity was trying to determine whether to continue monitoring performance of its officials yearly or to do it for the full term. There was a long lag between time of performance and time of evaluation of performance. There were also complications along the accountability chain – there were misunderstandings with the roles of the Minister and that of the National Assembly. This could have long term implications and cause the need for legislative review. Linking performance to annual remuneration adjustments and incentives was a complex exercise.

The PMS would to be redesigned to take into account the elements above. The Department was working on this in consultation with ICASA. The appointment of the Panel remained a technically challenging aspect. The Department would also finalise the new PMS and the Minister would submit to the National Assembly. Ideally the new PMS would be in place for the financial year commencing 01 April 2020.

Discussion
Ms Mthembu pointed out the shortage of Parliament representation in the constitution of the Panel and suggested that it should comprise of at least two Members.

Mr Mackenzie said that the panel should be attractive enough to attract high profile people that needed to be added. How is the panel remunerated? If the PMS is conducted annually does it mean that the panel convened once a year? How much time commitment is expected from the panel members? How is the entity resolving the technical challenges around the appointment of the panel?

Ms Faku stressed the importance of establishing performance agreements with ICASA because the Committee often struggled to measure the performance of the entity. The deadline for the finalisation of the amendment Bill was too far, considering that it did not have too much work outstanding.

The Chairperson stated that the expectation of the Committee was to receive a draft Bill in order to make inputs before the final Bill was submitted. The Committee was mandated to ensure that there was no contravention of Law in this regard.

Responses
Minister Ndabeni-Abrahams agreed that the Department had sufficient time to complete the draft Bill sooner than the set deadline and indicated that it would come and present it by February 2020. The development of the new performance agreement framework would also be fast-tracked and be finalised by April 2020.

The council had appointed nine councillors on a full-time basis and were also working at DDG level. The Department was reviewing redundancies of work and whether it was necessary to maintain both portfolios. The individuals were given specific tasks in terms of their expertise and a collective responsibility as a panel committee. The participation of parliamentary Members was not disallowed by Law. The remuneration of the panel was subject to evaluation by the Department. The costs would be standardised and correlated across all departments and entities. Councillors could not be reappointed for more than two terms.

ICASA explained that due to time constraints, the presentation was to provide a legacy report, capture the status of the council and the plans henceforth. The panel constitution presented had past requirements and would now be revised to be more effective. The council would maintain the high calibre of skill demanded from panel members.

The elements of the PMS would make a distinction between its policy framework, five-year strategic plan, annual performance plan and the agreements with individual councillors. When one element would expire it would simply be updated instead of reviewing the entire system.

The Chairperson thanked the Department and ICASA for appraising the Committee on the status of the council as well as its remedial action plans to address the challenges moving forward.

The meeting was adjourned.