Broadband Infraco, SITA, NEMISA, ICASA & FPB 2019/20 Annual Report

Meeting report

The Chairperson welcomed Committee Members, departments present, delegations from the entities present, and other participants to the meeting. He repeated the rules guiding meetings on a virtual platform, which included the muting of microphones and video cameras until a participant wanted to speak. Participants were to communicate intention to speak or contribute to the Chairperson, who would then grant permission.

Apologies & Agenda

Apologies were tendered for Committee Members, the Minister and Deputy Minister, to which Mr C Mackenzie (DA) asked for the reasons behind their absence.

The Committee Secretary said the Minister had to attend a departmental meeting that morning, while the Deputy Minister sent in apologies for the entire week, as she was involved in a BTM project in the Northern Cape.

The Chairperson clarified that the Committee was meeting outside of the usual number of days for meeting, due to the number of entities it was dealing with. Apologies would therefore, be accepted from the Minister and Deputy Minister based on the explanation given.

He went on to outline the programme agenda, while noting that Members had previously received the presentations from various entities and have gone through same for the purpose of engagement at the current meeting. Entities would therefore, be given an opportunity to highlight core issues within a timeframe allocated by the Committee. This should be done in a way that would convey the main message of their presentation. BBI and NEMISA would be given 15 minutes each, while ICASA and FPB would be given 25 minutes each to make their presentations. This would then be followed by engagements from the Committee. Entities were implored to stick to the allocated time to allow ample time for engagement by the Members of the Committee.

Ms Nomvuyiso Batyi, Acting Director-General (DG), Department of Communications and Digital Technologies (DCDT), tendered apologies in advance for the partial attendance of Deputy Director- General (DDG), Mr Omega Shelembe, who would not be able to stay for the entire meeting, due to the distribution of staff for the attendance of the South African Broadcasting Corporation (SABC) annual general meeting (AGM).

The Chairperson accepted the apologies tendered.

DDG Shelembe began his introductory remarks by acknowledging the Committee and the entities present. He indicated that the Minister had had the opportunity to interact with the Annual Reports which were to be presented in the meeting at its AGM and that it was happy to present it to the Committee. He handed over to the chairperson of the board.

Broadband Infraco (BBI) 2019/20 Annual Report

Mr Mandla Ngcobo, chairperson, BBI board, introduced members of the BBI delegation. It comprised of: Mr Mike Mojapelo, Executive: Compliance, Risk and Audit; Mr Andrew Matseke, Chief Executive Officer (CEO); and Mr Ian Van Niekerk, Chief Financial Officer (CFO). The CEO and CFO would make the presentation.

As mentioned by the DDG, BBI has already held its AGM and presented its Annual Report to the Minister, and was therefore, happy to present same to the Committee.

CEO Matseke, began the presentation by noting that he would go through the high-level overview of the presentation, while the CFO would address the financials.

Performance report

In the 2019/20 financial year, BBI achieved 68% of its targets on shareholder compact. However, it had an unqualified audit opinion with some findings which the CFO would further expound on.

Targets were not met in the following areas:

-Sales: Targets of R227 million new sales contracts were achieved against a target of R350 million.

-Revenue: only 14% of the 34% target year-on-year increase was achieved. Part of the 34% growth included an allocation of SA connect.

-Profit target was not met as a ripple effect of not meeting the revenue target. The CFO would go into this in greater detail.

-333 SA Connect Sites were connected as against a target of 400 sites. However, the target of 400 sites was eventually met, but only after the end of the financial year under review.

-The target to improve B-BBEE level was not met. Although BBI was able to achieve a B-BBEE Level 6, it was later downgraded to Level 7 against a target of Level 6. However, after the closure of the financial year under review, another audit was carried out and BBI was rated at Level 4.

-External Audit Findings: There were four repeated external audit findings, which were being addressed and consequence management in use for areas where investigations have revealed and deemed to be necessary.

Performance overview

An overview of the progress on SA Connect at the end of the financial year was highlighted (see slide 7 of the presentation.) Mr Matseke noted that the Department recently reported to the Committee on SA Connect, indicating that it has now been completed.

Attendance of members of the board to board meetings from a governance perspective was highlighted (see page 8 of the presentation.) Overall, the rate of attendance was high, and where members could not attend meetings, valid apologies were sent.

Financial Performance

Mr Ian Van Niekerk, CFO, BBI, said the tax year for BBI posed many challenges, not only from a macroeconomic point of view, but also from a pricing perspective as well. As alluded to by the CEO, in terms of the revenue line, there was a 14% increase in the year on year revenue but the target was 34%. The price pressures that BBI realised after shopping around at the lead times, between identifying opportunities in the pipeline and actually realising to resell the revenue, was becoming longer. The organisation therefore, adjusted its strategy during the year to meet with objectives and risks that have been identified in the market. Although its customer base has improved, as indicated in the slides, BBI has now moved its focus from increasing its customer base to retaining its customers during these difficult times.

It has continued its strategy in retaining its core customers, while ensuring that it delivers on what its customers expect of it.

Although BBI was expecting more, it still had a revenue increase of 14% for the year, and ended up with R469 million in revenue. However, there was a decrease of R227 million worth of new sales, which reflected a shift in BBI’s customer base from big charging top businesses to small ISPs. This has stimulated the market, the SMME, and the environment, thereby assisting with dealing with BBI mandate for service areas.

On the impact of the financial performance, the organisation’s year on year cost of sales increased by 20%. Despite the inability to meet the target on revenue, BBI was able to maintain its gross profit percentage.

Another anomaly is that there was other income operating (see slide 9 of the presentation), which relates to the discounting of a large share of the loans which has not yet to be converted into equity.

From the operating point of view, there was an increase of 10%. To put this into perspective, in the previous year, BBI’s loss was R14 million, compared to this year’s R111 million. However, if both figures are normalised, it would be noticeable that two extraordinary items occurred in the previous financial year where BBI corrected spares that it had worth R70 million, which went to the operating expenses section. If this was normalised, BBI’s year on year operating expenses would have only increased by 4%, mainly due to repairs, maintenance and insurance because of the increase in vandalism that the organisation experienced in the previous year, leading to repairing and maintaining the ops site specifically, where lots of battery thefts have been recorded. If this was taken out, there could have been a year on year decrease.

BBI had an amount of R89 million sponsored to it, and if this is compared to the year on year basis, it would be seen that BBI maintained its operations, despite making a loss of R111 million under difficult conditions, and also compared to the loss of R114 million in the previous year. The remaining cash flow positive being is R21 million.

Mr Mackenzie sought clarity on the figures showing on the slide as R14 million as opposed to the R114 million stated as losses for the previous financial year.

To this Mr Van Niekerk explained that the accurate audited figure was R14 million. However, there were two anomalies that occurred in the previous financial year leading to a loss of R114 million, but which had now been normalised.

He continued by giving a practical explanation of BBI’s revenue and financial performance, for the purpose of indicating that the organisation’s gross profit percentage remained in the positive. From an expenditure point of view, BBI was predominantly an infrastructure company that generates its own money. Money generated is spent on investments in infrastructure to enable the BBI to deliver services to its customers. This is what defines the capital expenditure because of the decline in cash available to invest in its network.

Assets remained very static even though there was a depreciation that needs to be taken into account. BBI has increased its assets by R66 million in the previous year, and the ROU is due to the increase in BB’s asset base by R52 million. It’s cash resources at the end of the year increased to R110 million, with 90% of this being money that was received upfront for its implementation. On the equity side, some of the loans have not been converted yet, which speaks to the R1.8 billion as per slide 22.

In terms of irregular expenditure, most of the irregular expenditure recorded, reflects from previous years. Unfortunately, once irregular expenditure is identified, it is reflected as such and BBI is in discussion with National Treasury to condone those. The new irregular expenditure highlighted in slide 13 of the presentation was basically R5 million that emanated from contracts. Approval was requested National Treasury to which Treasury indicated that based on the Treasury instruction issued in 2017, it was not possible it to approve an already irregular contract as BBI should have approached it in 2017 in terms of the instruction to request the expansion of agreements.

However, BBI had to continue with those contracts because they were of critical importance for the organisation as it relates to land and areas where all its customers are co-locating. The organisation has normalised the process by requesting approval from National Treasury, and this was is in process, and also by applying for condonations for those expenditures.

In terms of its audit findings, BBI only had 15 findings for the year, part of which one relates to was a going concern. This was one of the reasons why the organisation could not get a clean audit report. Although it was an unqualified audit, it was not clean. One of the findings was a going concern and the second one was in relation to the two irregular expenditure items that it did not identify itself but which were identified by auditors. Unfortunately, the repeat audit findings emanate from very technical accounting standards that BBI did not to comply with. In its book entries, where it discounts debtors and creditors or accounts payable or accounts receivable. If the money is not collected within the terms specified, it would need to include interest received or interest was paid because of the auditors raise the finding. It fought hard not to include it but the auditors insisted that BBI show it. He handed over to the CEO.

Mr Matseke continued by highlighting an issue that has been outstanding for a while, which was the need for the shareholder loans to be converted into equity. There was currently a stumbling block with the shareholding of the Industrial Development Corporation (IDC) which required the approval of the Minister of Trade, Industry and Competition to whom the IDC responds.

A snapshot of BBI’s merger with SENTECH was also highlighted (see slide 23 of the presentation). BBI was currently at a stage where consultants have been hired to help with the development of strategy. The merged entity and shareholder department now have a business case that was compiled for them by G TECH and the National Treasury.

National Electronic Media Institute of South Africa (NEMISA) 2019/20 Annual Report

Ms Molebogeng Leshabane, Chairperson, NEMISA, introduced the NEMISA delegation present, namely: Mr Trevor Rammitlwa, Acting CEO; and Mr Thilivhali Ramawa, CFO. She handed over to the CEO to make the presentation.

Mr Rammitlwa began by highlighting the strategic position of NEMISA, as captured in its vision and mission (see slide 2 of the presentation). This was followed by the 2019/20 highlights and challenges as seen in slide 3 of the presentation, with the successful launch of the Ya-Rona Digital Ambassadors Programme in KwaZulu-Natal being particularly highlighted. The programme is aimed at going into rural areas to provide digital literacy for communities.

Summary of performance

NEMISA faced major challenges in the sense that even though it did quite well in terms of reaching out as well as in the delivery of programmes in the period under review; it hit a major challenge during the audit in terms of the evidence that was presented. Despite doing a lot to surpass its targets, the audit challenged NEMISA in terms of evidence and it ended up with only 55% of the planned targets achieved, while 45% was not achieved.

Performance by programme

Programme 1: Administration

The target was to develop a transformation and change strategy for NEMISA. This speaks to the fact that going forward, NEMISA will not only focus on broadcasting and media skills but rather; bringing in 4IR (Fourth Industrial Revolution) as the main focus whilst still focussing on the others. The target was to increase its training and skills development in that space. The target was to get the transformation and change strategy approved but by the end of the financial year, only a draft has been developed. The organisation saw it fit to defer the approval to the next financial year so that more consultations can be undertaken. In essence, the target for Programme 1 was not achieved.

Programme 2: Multi Stakeholder Collaboration

NEMISA was constituted to function and work in collaboration with government and private entities. The target for programme 2 was to be able to conduct 24 advocacy and awareness campaigns. However, NEMISA was able to conduct 34. This over-performance was due to various opportunities granted NEMISA through invitations to participate in events and campaigns.

Programme 3: e-Astuteness Development

This programme is the core of NEMISA’s objectives and targets. However, it was under this programme that NEMISA faced major challenges during the audit. This led to the revision of most of the targets due to the evidence that was presented.

To put this issue in proper context, it was explained that every year, on a quarterly basis, reports are submitted to look at the performance. These reports are eventually audited and submitted to DCDT after board approval. In the year under review, the report seemed alright until the Auditor General did the final audit, and highlighted major issues with the report. The core of the problem has been identified to be the operating model used by NEMISA, which involved working with various universities, with the latter being the ones to reach out to the various communities. This collaborative model has not helped NEMISA in any way. For instance, in the first performance indicator which is the number of e-literacy learners trained per annum, the target was to train 6 500 learners; NEMISA actually trained 7 805 learners, but this figure had to be revised to 5 836 due to inadequate tools of recording trainees in attendance, which then resulted in underachievement of that target.

This problem flows into the other targets as well in the sense that NEMISA’s partners in the form of those universities tweaked some of the tools used. For some, NEMISA logo was not accepted, and this hampered the acceptability of such evidence by the Auditor General.

A similar trail continued in the targets for programme 3 (see slides 7-9 of the presentation).

However, there was an outright underperformance for the target of 60 senior employees to participate in a training workshop on the application of data, data analytics and artificial intelligence for strategic decision making. Only 25 senior employees were trained. This underperformance was attributed to the planning of the trainings for quarter 4, which was disrupted by the COVID-19 pandemic.

The target for training 60 government employees on enhancing the understanding of the nexus of privacy, data protection and regulation was also not met due to the COVID-19 pandemic.

Programme 4: Knowledge for innovation

The targets for programme 4 were met. (See slides 10 and 11 of the presentation).

There was an over-performance recorded under the target for the number of formal engagements held with ICT thought leaders. The target was 6, while 13 were done. This over-performance was attributed to the opportunities that arose for NEMISA in the course of the financial year.

Programme 5: Aggregation Framework

The target set for programme 5 was to develop a monitoring and evaluation framework to be submitted to the board. This target was achieved.

Financial performance

Mr Thilivhali Ramawa, CFO, NEMISA, explained that NEMISA’s allocation for the financial year was R95 million. The institution ended up spending R116 million, which was due to the spending augmented by projects that were reinforced and approved in terms of surplus commitments. In other words, this variance in expenditure was due to the commitments approved through National Treasury. There was nothing to be alarmed about the deficits, as they were a result of funds that were rolled over.

With regard to key notes to the Annual Financial Statements (AFS), there was a 100% increase in property planting equipment (PPE). This was due to NEMISA’s expansion of its delivery model in terms of training. As explained by Mr Rammitlwa, NEMISA’s traditional training sources used to be from universities only, but it has now expanded its internal capacity to prevent sole reliance on the traditional mode of training. As such, it now has its own computer labs so that training can also be done at NEMISA’s site internally. NEMISA would also continue its TV and Radio trainings. For this reason, it has revamped its studio for the purpose of facilitating those trainings. Overall, the 100% increase in PPE amounted to an expenditure of R6.6 million.

Commitments

The Committee was reminded of NEMISA having about R33 million in commitments in the previous year. In the current financial year, the Institute ensured that those commitments in terms of projects, were approved and as such, it ended up spending about R18 million in commitments in the financial year under review. Some of the commitments are still running, one of which is the Ya-Rona programme

Irregular, Fruitless and Wasteful Expenditure

The irregular expenditure for the current year was R425 523.

In the 2017/18 financial year, NEMISA had issues of irregular tenders, quotations, contracts management. In the 2018/19 financial year, NEMISA resolved the issues of the tenders, and was left with only the issues of request for quotation (RfQ) and contract management. In the current year under review, NEMISA managed to resolve those pending issues from the previous financial year, and although the irregular expenditure recorded was not material, this was a huge achievement for NEMISA. The target in the coming financial year is to ensure zero irregular expenditure.

As for the prior year identified in the current year (see slide 16 of the attached document), it was explained that these were the contracts that were signed in 2017. The unfortunate part was that the irregular expenditure emanating from these contracts will continue to reflect until the contract finally ends on 13 May 2022. NEMISA would however, carry out an investigation of the R425 523 irregular expenditure and necessary consequence management would be taken.

As for the fruitless and wasteful expenditure, it was also recalled that NEMISA had a lot of challenges in this regard in previous financial years. In the current financial year, NEMISA’s fruitless and wasteful expenditure has reduced drastically to only R10 482. Nevertheless, proper investigation would be carried out and necessary consequence management would be taken.

It was pointed out that some of the issues of irregular expenditure were as a result of incapacity. NEMISA only just appointed a procurement manager to assist with achieving a target of zero irregular and fruitless and wasteful expenditure, in August 2020.

Key AGSA Audit Matters

Mr Ramawa noted that without these audit matters, NEMISA would have achieved a clean audit. Some of the issues have already been dealt with by Mr Rammitlwa, such as the validity of reported performance information; to which the Auditor General said those reports did not align to the TDISI), and could therefore not be admissible. However, measures have been put in place to ensure improved collection of training evidence.

With regard to the financial statement on disclosure adjustments, the issue of the disclosure of lease commitments was highlighted (see slide 17 of the presentation). This issue has now been addressed.  Measures have been implemented to ensure that NEMISA has panels of attorneys to attend to all service-level agreement (SLAs) that it signs. NEMISA was also looking into ensuring that such agreements are vetted, as the root cause of the problem was the lease agreements being too ambiguous and open to many interpretations.

Governance

Ms Leshabane noted that the NEMISA board was committed to ensuring the practice of good governance, as well as ensuring that the integrity of the institution was upheld in maintaining shareholder confidence. The current board, which she currently chairs, came into effect on 01 October 2019. The previous board’s term ended by on 30 September 2019, and there was a gap period between that time and 01 October 2019 when she took over. However, no decisions were required to be taken within that gap period, and so, there was no noncompliance in terms of governance.

The board was constituted by four subcommittees aimed at ensuring that board members were participating at all levels of business, and were engaging to ensure that the mandate of shareholders were upheld.

The subcommittees are as follows:

-The audit and risk committee, led by Mr Melvyn Lubega;

-The Human Resources, Remuneration and Nominations Committee (HRRNC), led by Ms Nomonde Htlatshaneni;

-The Programmes and Academic Committee, led by Prof Christian Adendorff; and the Social ethics; and

-The Transformation Committee, led by Mr Lionel Adendorf.

As far as attendance of board meetings were concerned, regular board meetings were held on a quarterly basis.

NEMISA also has a new mandate and the board was saddled with the responsibility of providing strategic directions to the organisation to adopt and implement the new mandate of the 4IR emulsification agenda for the country. The board was actively hands-on in ensuring that the institution was on board with regards to the new mandate.

Independent Communications Authority of South Africa (ICASA) 2019/20 Annual Report

Dr Keabetswe Modimoeng, Chairperson of ICASA, began the presentation by highlighting ICASA’s organisational mandate (see slide 3 of the presentation).

Performance summary

In the year under review, ICASA had 38 targets. 33 of those targets were achieved, while five were not achieved. This meant that ICASA achieved 86.8% of its targets and 13.2% were not achieved.

Areas of non-achievement included issues such as the implementation of the organisational structure; the review of the broadcasting national sporting events regulations; the document on must-carry obligations as well as the subscription broadcasting services market inquiry.

The direct contributing factors for areas of non-achievement were outlined (see slide 16 of the presentation). ICASA could not proceed with some of the scheduled public hearings due to the COVID-19 lockdown and restrictions around the number of people that could congregate.

Governance

The number of meetings attended by council members was highlighted (see slide 18 of the presentation). Some council members in the slide attached were no longer with ICASA because of expired terms, and new council members had since been added.

An overview of the Council-led regulatory projects was highlighted (see slide 19 of the presentation). These projects were divided into policy, research and analysis; engineering and technology; and licensing.

ICASA also has standing Governance Council Committees, as outlined in slide 20 of the attached document; a Consumer Advisory panel, which deals with consumer matters as dictated by the Act; as well as a Complaints and Compliance Committee (CCC), which functioned as a tribunal to deal with disputes and issues of noncompliance.

Performance on Human Resources (HR) Management

Mr Willington Ngwepe, CEO, ICASA, spoke to the human resource management in the year under review, in light of the implementation of the HR strategy; the accompanying organisational development strategy; as well as the workplace skill plan.

ICASA’s staff complement and the vacancies it had in the year under review was outlined and broken down per occupational level (see slide 23 of the presentation). ICASA managed to keep its vacancy rate at 3.7%. The exact number of vacancies the organisation had during year per occupational level was also highlighted (see slide 23 of the presentation).

ICASA referred to the number of employees in their approved positions, as well as the number of active vacancies. The term ‘active vacancies’ was used as the organisation adopted a pragmatic approach in filling vacancies when the need arises. Due to the financially constrained environment ICASA has found itself in, a moratorium was placed on recruitment. ICASA therefore, only recruits for positions it deems critical for continued operations in the organisation. Where a vacancy arises, ICASA assesses if the organisation can function without filling that position, and if it can, it takes a deliberate decision to save on the employee cost in respect of the vacancy and not fill it.

The HR costs per division (see slide 24 of the presentation) further buttresses the point made on ICASA’s approach to recruitment as and when vacancies arise. Under this, the division of compliance and consumer affairs was highlighted as one in which ICASA had a serious saving in that division in terms of the personnel cost. This was due to the fact that the position of the head of the division became vacant and ICASA resolved not to fill it because it was able to leverage on the coordination and efficiencies from regions and licensing. The decision to not fill this vacant position did not in any way adversely affect the performance of that programme. As a matter of fact, it was one of the programmes that achieved 100% of its targets in the financial year under review.

Employee changes from an attrition perspective were highlighted (see slide of the presentation). There were a number of reasons why employees resign and employees had the choice and or discretion to either conclude exit interviews or not to.

It was pointed out that the number of resignations in 2018/19 and in 2019/20 has remained the same. There have been ten resignations in both years, and these resignations primarily come from the professionally qualified and the skilled category. The reasons for resignations usually revolve around people finding better opportunities, which in turn reflects on ICASA’s inability to provide a counter offer for every resignation. There were instances where ICASA was able to give a counter-offer, but this did not happen all the time. This was mainly due to financial constraints and other parameters set by the organisation in terms of its policies. Unfortunately, ICASA had to let most of these employees leave.

The performance in respect of employment equity statistics and targets was broken down per occupational level and gender (see slide 26 of the presentation for details).

ICASA has to do more in its performance in respect of employees living with disabilities. There was no representation in the top-level management and senior management, while there was some representation in the professionally qualified, skilled technicians, and the semi-skilled category. The total number of ICASA employees living with disabilities was five. ICASA admitted that this was an area that remained a continuous challenge, which it would endeavour to improve on in the coming year.

With regard to employee relations matters, a key area of improvement noticeable in comparison to the previous financial year was that ICASA did not record any Labour or High Court matters. CCMA referrals have also reduced to two. However, the number of internal grievance processes has increased from zero in the 2018/19 financial year to eight in the 2019/20 financial year. This could be interpreted as employees gaining more confidence in dealing with matters through the internal grievance procedures as opposed to opting to external modes of resolving issues as a first port of call.

Financial Performance

In discussing ICASA’s statement of financial position, Mr Tebogo Matabane, CFO, ICASA, highlighted the dateline in terms of the accumulated surplus, noting that the surplus on an annual basis was  decreasing, which was mainly due to the fact that ICASA did not have much cash to retain at the end of the financial year. However, the organisation managed to capitalise some of the assets during the financial year.

The revenue from exchange transactions was also highlighted (see slide 31 of the presentation). The bulk of this amount comes from the interest generated on investments. In the financial year under review, ICASA under-collected by R2 million, due to insufficient funds to invest for a longer period. It solely relied on the income that it collects from operators for licenses. This income was invested for a period of 30 days as required by the Act, As for the employee-related costs, a R2 million reduction would be noticed when compared with the previous financial year. This was because of the moratorium issued in the current financial year due to the financial limitations faced by the organisation. ICASA went on to monitor the expenditure in line with the approved budget, and this resulted in a R3.5 million surplus.

With respect to ICASA’s cash flow, it was pointed out that the organisation closed its financial year with a bank balance of R69 463 458. However, the cash equivalent was more than this amount, with the bulk of it paid as transfer to the national revenue funds on monthly basis. ICASA’s net bank balance was declining on an annual basis, and the recorded bank balance would not be sufficient to honour all expenses that accrued at the end of the financial year. In essence, ICASA would have to finance some of its operational costs from the grant allocation for the 2020/21 financial year.

As for the management of deficit and challenges brought by the budget cuts over the years, ICASA had to reduce its operating expenditure budget to allow sufficient budget for all rolled-over projects from the previous financial year. A moratorium on filling vacancies was also approved for the 2019/20 financial year to help reduce the amount of employee related cost.

In terms of the going concern issues raised by the Auditor- General (AG), the organisation has prepared its financial statement, audited by the AG, on a going concern basis. This was based on the belief that ICASA will still be able to get its grant allocation of R477 721 000 million allocated for the 2020/21 financial year. Nevertheless, the organisation hopes it would be to generate additional revenue from its investments to cater for some of the funds or the budget needed to finance the next financial year.

With regard to the budget versus actual amounts collected in terms of revenue, ICASA budgeted R452 645 000, but collected R456 491 018. This figure was due to the revenue that was recognised from the rollover funds, mainly from the Automated Spectrum Management System (ASMS) that rolled over into the current financial year.

As for budget versus actual amounts collected for expenditure, R505 million was allocated, while R465 million was spent, leaving ICASA with a difference of R39.9 million (see slide 35 of the presentation). This surplus was from the general expenses, which was largely due to reduced spending on some of the budget line items. Details of the reasons for variance between amount budgeted and amount expended was highlighted (see slide 36 of the presentation).

Auditor-General of South Africa (AGSA) findings

Ms Tshiamo Maluleka-Disemelo, Chief Audit Executive, ICASA, pointed out that ICASA’s audit findings has remained stagnant for three years. The organisation received an unqualified audit opinion with findings. However, unlike the previous financial year, no material adjustments were made to the financial statements, neither was there material misstatements that were noted for the organisation’s performance information. This was quite an improvement on ICASA’s part. Although nothing was flagged as a particular improvement, this highlighted that improvement would only be noticed when reading through the detailed audit report from the AG.

There were three matters preventing ICASA from getting a clean audit. These issues were related to the SCM environment, which was an area ICASA was closely monitoring and attending to.

Expenditure management

To put these matters in context, it was recalled that in ICASA’s expenditure management, R3 million was reported as irregular expenditure in the 2019/20 financial year. This amount relates to the contract management side where the spectrum system was being maintained. The AG was of the view that ICASA needed to open up a bidding process for the system. This resulted in a continued contract for the system of spectrum that ICASA has been using, and would be renewing for a number of years. However, there were plans to implement a new spectrum system in the coming financial year, which would eradicate the current problem being faced by the organisation.

Consequence management

The AG raised an issue that was not related to the financial year under review. The issues raised were in relation to the newly amended Public Audit Act, where the AG noted that even though ICASA implemented some actions in terms of taking disciplinary measures, the organisation was yet to fully implement consequence management for prior years.

Procurement and contract management

There were three areas where ICASA could not get competitive quotes. This again, was in relation to the spectrum systems where there were only a few people with expertise in South Africa to help with maintenance, renewal or usage of the system’s management.

ICASA has developed an audit action plan that would ensure that the findings of the internal audit are flagged and dealt with on a quarterly basis. This action plan would be monitored not only by council, but also by the audit committee. A progress of 50% to 75% has been made on matters affecting the audit report. It has introduced proactive assurance to ensure that bids are checked once awarded. It should be recalled that ICASA once prevented a R90 million worth of potential irregular expenditure using the methods that were introduced.

As for progress of other important matters, ICASA was almost at 100% for some; while some recorded progress between 50% and 75%, for which concerted efforts were underway to ensure that full progress was achieved in those areas (see slide 39 of the presentation for details).

Film and Publication Board (FPB) 2019/20 Annual Report

Ms Sarah Mangena, Deputy Chairperson, FPB, introduced the FPB delegation present at the meeting.

Acting CEO, Ms Abongile Mashele, began the presentation by highlighting the constitution of the board, as a Schedule 3 public entity established in terms of the Film and Publications Act of 1996, which was charged with the regulation of the creation, possession and distribution of films, games and certain publications to ensure that children were safeguarded and protected through the provision of age restriction. Another important element of FPB’s mandate was in its legislation, which criminalises the creation of what is now known as Child Sexual Abuse material.

Annual Performance

In the year under review, FPB achieved 75% of its planned target, while 25% of the targets were not achieved.

Achievement of targets for five strategic objectives (SO)

SO 1

Effective Regulation and Compliance of Films and Gaming distribution value chain.

100% of the targets were achieved.

SO 2

Outreach and awareness communications target.

Only one outcome was achieved. The under-achievement of targets was due to the postponement of planned activities scheduled for March, which was halted due to the state of disaster regulations that came into place early in March, placing restrictions in terms of gatherings that could be held as an institution.

SO 3

Six of the seven planned targets were achieved. The one target that was not achieved was with respect to the implementation of the workplace skills plan (WSP). The under-achievement was largely due to the delay in finalising and approving the WSP. A number of skills gaps had been identified earlier in the year and the FPB staff had been asked to look into their personal development plans to ensure that these identified gaps were closed and skills development programmes were aligned to the movement and development of the organisation, which titled more to the direction of online regulation.

SO 4:

The target set here was to ensure 100% implementation of the ICT plan. However, FPB was only able to achieve 93.5% of the plan. This was largely due to capacity challenges in ICT.

The moratorium implemented in the previous financial year in respect of equipment, had an impact in terms of filling the vacancies in the organisation, especially in the ICT division. The position of the ICT manager and Systems Administrator was vacant, and technical skills were needed to fulfil the obligations in the ICT plan. However, FPB has subsequently recruited and filled the two positions.

SO 5

The two targets under this strategic objective were not achieved, as they were negatively impacted by the COVID-19 regulations. Plans were in place in hold a workshop with certain regulators similar to the FPB, as well as with other regulators in the African continent. FPB has been working towards developing the African continent to make it easy for global streaming companies to come into the online market, and opt for its regulations as the preferred content regulation or classification model for the African continent.

Some of the work done by FPB as an entity

In terms of registrations and renewals received, FPB processed a total of 3 853 applications received from the industry for registration purposes. It was important to note that a decline has been noticeable in physical store registration. This was largely due to the absence of Mr Video at local malls. FPB has therefore, identified the gradual decline in physical distribution points in the South African market in as far as film, games and other publications were concerned.

In the online distribution market, a total of 17 online distributors operating in the South African market have been identified. Nine were international and eight were local. FPB has managed to license five of them and they have adopted the South African content classification model on their platform, in order to ensure the identification of content that has been flagged as harmful, and also to ensure that content is reflective of the South African system. The organisation has been making some progress in this regard, and the Amendment Act has also helped in regulating content on over the top services.

There has also been a decline in terms of submissions of content that has been received by FPB, up to 37%. This decline would have an impact on the financials. It already impacted on the revenue generation, as FPB charges for the classification process, while recording a year-on-year decline in content submitted for classification.

The type of content FPB has received over the years, as well as the nature of the content being distributed in a South African market was highlighted. It was worth noting that year on year FPB sees an increase in strong language and violence, especially in games and it felt that this is something which should be noted by the Committee and by the public as it has a strong impact on societal values and norms.

Child protection programme

From the child protection perspective in the year under review, the cases where FPB assisted the South African Police Service (SAPS) to analyse were highlighted. Cases were received from Gauteng, Western Cape, KZN and the Free State. FPB’s child protection officers analysed content to enable the police use them in the docket in the prosecution, especially for the possession of child sexual abuse images in South Africa.

A total of 15 cases were received in the financial year under review. It should be noted that the images found were not generated by the perpetrators but they were in possession of the images. These images are largely collected from different websites for the purpose of creating a collection.None of 15 cases were concluded in the year under review, but some had been concluded in the current financial year. An example was one in the Western Cape where the perpetrator was recently sentenced. FPB contributes to prosecution of these cases in the background.

The compliance monitoring statistics were highlighted. It showed that FPB conducted 10 953 physical and online compliance inspections, and issued 679 notices. These notices were largely evidence of non-compliance, which included classified material, unregistered distributors and failure to renew distribution.

Although FPB is not an institution charged with dealing with piracy, through its compliance monitoring activities, it has been able to pick up a number of distributors, and confiscate the material. Most times, the confiscated material is pirated. These were the goods that it destroyed to the value of R13 million in the year under review. The stores involved were closed, through the involvement of SAPS who ensured that such stores were closed across the country for non-compliance to the Film and Publications Act.

Film and Publication Regulations

In the 2019/20 financial year, FPB finalised the draft regulations. The organisation was currently undergoing public engagements and should be publish the second draft of the regulations soon. It was hoped that FPB would be able to finalise the regulations in the current financial year to enable the Amendment Act provisions come into effect in the new financial year.

Outreach and awareness

Some of the activities carried out FPB in the year under review include:

-Its flagship programmes, including the particularly noteworthy Internet Day, which is a programme embarked on at the beginning of every year, where FPB focuses on safer internet and cyber safety tips, especially for young people and increasingly older people on how to protect themselves online.

The FPB has tried to establish its presence in all provinces of the country, and has reached number of learners throughout the country; but being a small entity, it has been unable to reach each and every province. However, the organisation visits schools and talks to children about digital literacy, safe consumption of media content and online protection.

Media Traction and Human Resources

FPB’s media traction and penetration statistics were highlighted. Worthy of note is that its committee focuses a great deal on community media platforms, which has assisted FPB to getting known in certain communities.

From a human capital, the statistics in terms of the staff at the FPB were presented. A closer look at the vacancy rate at the support staff showed a 14% vacancy rate; with 8% at senior management; and 40% at executive level. In the year under review, it had one dismissal for misconduct.

Financial performance

Mr Mahomed Chowan, CFO, FPB began by greeting the Committee and his colleagues. He proceeded to highlighting FPB’s financial position performance of the entity for the financial year as well as audit outcome and compliance matters.

In terms of the assets of the entity, FPB’s receivables decreased from R4.5 million to R3.1 million due to data collection. It disclosed statutory receivables separately, as there was a change in the standards of Generally Recognised Accounting Practice (GRAP)). A noticeable increase was highlighted. This was the result for mainly online distributors who were yet the FPB annual fee at the end of the financial year. However, these fees have been subsequently collected in the new financial year.

FPB’s reserves were healthy as at year end, standing at R23.5 million.

Attention was also drawn to FPB’s intangible assets which were about R10.5 million.

There was a small decrease in FPB’s regulation fees, which was due to the decrease in the content sent for classification. Regulation fees dropped from R7.9 million to R6.3 million. However, there was an increase in terms of investment income, which was mainly interest received. This increase was due to better planning and depositing of funds.

There was also a slight increase in FPB’s grants and subsidies, from R94.5 million to R99.3 million.

In the end, FPB recorded a surplus of R4.3 million for the period under review.

In terms of FPB’s performance against approved budget, it was pointed out that FPB always carried out a midterm review in each financial year. In the financial year under review, this midterm review was held in half year of 2020, and it was estimated that more fees would be gotten from classification and FPB’s line of content. Hence, an adjustment of R1.3 million was implemented. However, some of the estimated fees did not come to fruition at the close of the financial year.

With regard to the performance on expenditure, and under-spending was recorded in administration costs. This was due to the various cost containment measures implemented by management on items such as travels and workshops.

Audit outcome

FPB regressed in the current financial year by having an unqualified audit, as opposed to the clean audit achieved in the 2018/19 financial year. Some material findings responsible for the audit outcome are as follows:

-The audit team was changed very late into the audit process. This change was affected from the manager down to the actual trainee clerks. Hence, the team that did the planning for the audit was totally different from the team that came in to conduct the audit.

-The audit findings touched on the aforementioned issue of intangible assets, which mainly related to the computer software being developed by FPB in the online content space. So far, FPB has spent about R9 million to date on that software. This information was disclosed in the audit notes, as was done in the previous financial year. However, the new audit team interpreted it differently and opined that the organisation needs to distinguish between intangible assets in use and intangible assets under development. This finding was however, rectified by end of the financial year.

-On the disclosure of statutory receivables, which is any income still outstanding due to its statutory nature at year end, FPB disclosed this as income received in advance and yet to be earned. However, the audit team requested this should be disclosed as deferred revenue.

-The last finding was with regard to compliance matters in terms of the irregular expenditure. The total irregular expenditure for the financial year under review was R1.1 million.

Achievements on BBBEE targets

FPB’s BBBEE target was 75% contribution level of 3, but it achieved 81%. It also had a target of 30% on all transactions assigned to priority groups, but achieved 47%. The composition of this 47% is as follows:

-26% for female-owned businesses;

-19% for youth-owned businesses; and

-4% for businesses owned by persons with disabilities.

The organisation was actively trying to grow this last component of persons with disabilities. FPB has been working with National Treasury to better identify companies owned by persons with disabilities on the CSD, as part of playing its role in growing the economy as per the targeted groups.

Irregular, Fruitless and Wasteful Expenditure

With regard to irregular expenditure, one of the broad issues that arose was when payments were made beyond the contract value. FPB battled with capacity constraints. It therefore resulted to advertising before the expiration of contracts. Some of these contracts could not be closed due to capacity constraints.

FPB also battled with the challenge of the directive not to enter into long-term contracts. It therefore, included a clause in its terms of reference (TOR) to the effect that contracts could be terminated prior to the end of three years without incurring any penalties. However, this had an effect on the quality of the suppliers it got.

The AG identified two items on FPB’s irregular expenditure register, namely a deviation of R166 000 for the placement of an advert that was not approved by the appropriate level of authority and the absence of an SLA being in place of services of employee benefits administrator. The latter was an old ongoing item that was related to fees paid for the administration of the retirement benefits and stabilities for the entity. This has been corrected through the adoption of a tender process during the year under review. Through this process, a service provider has been appointed with effect from 01 April 2020.

It should be noted that all matters are referred to FPB’s theft and loss committee for investigations. Consequence management is then implemented for matters which have been concluded by the committee.

With regard to fruitless and wasteful expenditure, FPB was pleased to state that there were no new cases of fruitless and wasteful expenditure in 2019/20 financial year. The organisation recovered R6 800 from employees that missed flights; and there was an amount of R9 000 that FPB had to write off, due to an inability to recover.

Discussion

Ms P Faku (ANC) apologised for turning off her video camera due to network issues. She appreciated the presentations. She posed clarity seeking questions to the entities as follows:

To BBI:

-Whether DCDT can give a specific timeframe for the finalisation of the merger between BBI and SENTECH, as the Committee hoped that it would be finalised before the end of March 2021.

-She congratulated the good work done by the BBI, especially during a merger process. Although there were a few areas of improvement, but under the circumstances of COVID-19, BBI has done exceptionally well, especially in relation to its revenue generation of 14%.

-The payment of SMMEs with 19 days; as well as the good work done in terms of SA Connect Sites was appreciated. Even though the targets were not fully achieved, the achievement recorded so far was commendable, considering the fact that there was a national lockdown. She noted that government had plans to invest in local businesses. Hence, the applause for creating job opportunities for SMMEs to carry out local installations.

-The achievement of 44% of female black-owned businesses was also appreciated, especially in light of the fact that other entities struggled in this regard. It was expected that this target would be increased and achieved in the next financial year.

-Achievements made in cost of sales were good, especially when compared with other entities.

She urged the Committee to congratulate BBI on the good work done.

To NEMISA:

She expressed dissatisfaction with the performance of NEMISA, noting that the audit findings were not encouraging.

-In terms of the irregular expenditure, NEMISA failed to meet the target in programme 3 because of inadequate tools of reporting and recording. This should not be taken lightly by the Committee, because taxpayers’ money was involved. If money was given to train people, it should be used for that purpose only. NEMISA’s argument that the auditors did not agree with its standards was not tenable, as it was responsible for setting the standard of how trainings should be conducted. If the reporting tools of the organisation do not speak to its policies, then there will always be a problem, and the audit will disclose this.

-Clarity was sought on why CCMA litigations were always reviewed, and has become a recurring issue. Why is the organisation wasting taxpayers’ money to proceed on reviewing cases lost at CCMA, instead of using the litigation costs for something else?

To ICASA:

-She noted that even though ICASA had regressed from 91 to 86%, the achievements recorded were commendable, considering the circumstances surrounding the organisation’s operations. There was a period when there was no board. However, the Committee had high expectations for ICASA.

-There was also a high expectation on the high spectrum demand. The Committee was aware of a set date for the release of the spectrums, and was hoping this date would not change. It is believed that this would create job opportunities for South Africans.

-Clarity was sought on the under-achievement recorded in public hearings. Although an explanation has been given to the effect that this was due to COVID-19, she wanted to know if ICASA would be able to meet the set targets for the public hearings.

-Explanation was requested on why the target on the national sports review broadcast was not met.

-She noticed that all entities, including ICASA struggled with the issue of contract management. This was an area that needed to be improved on, because the audit finding alluded to this like it did in the previous financial year.

To FPB:

She expressed disappointment in the performance of FPB, noting that this was one entity that performed exceptionally well in the previous financial year. Although their performance was not all bad, they have the capacity to perform even better than they have done in the financial year under review. This issue of lack of capacity should not be an excuse, as there was a hand-over period even for employees planning to leave the organisation. There should never be an excuse when people pay more for tenders than what was expected.

-Explanation was sought on child protection. How does FPB analyse cases received from SAPS or other sources? How long does it take to analyse cases?

Mr Mackenzie said Ms Faku had touched on most of the things he wanted to say. He however, emphasised some of the things she said, while posing clarity seeking questions to the entities as follows:

To BBI:

-It was very good to see BBI’s involvement in SA Connect; he applauded BBI on the great work that has been done in this regard. 99.76% of network availability was excellent achievement. It was a pity that some financial penalties were imposed, and this was a pity as it had quite a good record, which he wanted to congratulate it on.

-He asked if BBI to give him an idea as to whether it has benchmarked its network against other companies in the sector both locally and internationally, and if so, how does its network compares—either favourably or not against those benchmarks?

-BBI’s 19-days settlement of SMMEs invoices was applauded, especially because small businesses depend on those payments. It was this type of thing that keeps businesses alive.

-The reduction of debtors’ days from 54 to 18 was also applauded.

-It was interesting to see 1.83% of BBI’s payroll on training. She asked whether it is generally the standard of the payroll percentage spent on training by other organisations in the sector.

The overall trends for BBI were quite commendable, and the organisation should be proud of its achievements.

To ICASA:

He started off by congratulating the newly appointed councillors, noting that the Committee fought hard to get them elected. He urged them to keep their Chapter 9 status and the independence of their entity at the forefront. He also congratulated ICASA on its surplus as well, and the Committee was very pleased to see that.

-Confirmation was requested on when ICASA’s market review would be completed. Given the competition, he asked what kind of impact the market review will have and if there is still space for it.

-With regard to computer equipment rental, he asked if ICASA takes advantage of the services offered by SITA to source its software, computer hardware and other communication equipment.

-In terms of revenue from electronic communication licenses, and existing spectrums out there, he asked if there is any other revenue stream that comes that comes directly to ICASA or does this revenue go straight to National Treasury.

-Clarity was sought on the process involved in the spectrum auctions and the release of spectrums. He asked for assistance in clarifying the process, which begins with the Minister issuing a policy directive to ICASA. ICASA then looks at the policy directive and seeks comments from the public. These comments are then incorporated and an invitation to apply (ITA) would be issued. He wanted to know if this was the process, such that after comments are received, they are incorporated directly to the ITA without giving feedback on the public comments received.

To NEMISA:

He also echoed Ms Faku on the disappointment of the report from NEMISA, while recalling the previous presentations and deliberations on the CoLabs, which seemed to be working perfectly at the time, but were now collapsing. If NEMISA could not keep a basic attendance register for people attending its trainings, what was the institute doing? Trainings were a core part of NEMISA’s business. The number of people trained was part of its mandate. The problem of keeping attendance registers was a recurring incidence, and a horrific indictment on the way the organisation was run.

-Details of two out of the 34 advocacy and awareness campaigns carried out for NEMISA was requested: where they held, what they were about, the rough cost of conducting the campaigns, and the number of people reached.

-He recalled that NEMISA used to have a lot of broadcasting equipment in its premises in Auckland Park or that sort of area. It then had a burglary and items were stolen, NEMISA did not even have an asset register to assist with Police enquiry on items taken from the premises. He therefore, wanted to know if NEMISA had an updated asset register that details all assets owned by the institution.

-He asked if there were any SIU investigations or disciplinary actions currently taking place in NEMISA, especially in terms of disciplinary measures on staff.

-On the issue of postponement of training due to COVID-19, he noted with respect that NEMISA was a national electronic institute that did not require a physical room to conduct training. The institute should be able to conduct trainings online. It should be equipped, responsive and efficient enough to be able to turn paper offerings to digital offerings very quickly, and roll out online training. After all, other companies and entities have been doing this. He asked why NEMISA cannot offer its training online.

-More information was requested on the research reports alluded to by NEMISA.

To FPB:

-He agreed with the FPB chairperson on the growing incidences of sex, nudity, violence, strong language in all the offerings. There was barely any recent movie where actors and actresses do not get naked. He agreed that this makes the work of FPB crucial.

-Attention was drawn to one of the logos in FPB slides, noting that the internet was full of conspiracy theories about the illuminati and free maces, and so on. So having a logo of one with a triangle in the middle of it, could create all kinds of troubles for the organisation, amongst the conspiracy theories that are out there, except there is an intention to draw attention.

-In terms of the computer software and equipment purchased, he asked if FPB uses SITA to purchase its equipment.

-The concern around the censorship of information posted via internet was highlighted. Clarity was sought on how far FPB has gone in sorting this issue that seems to be worrying lots of people, and whether or not it was FPB’s intention to censor the internet from enabling people to use its power to communicate with each other.

Ms N Khubeka (ANC) acknowledged all entities present. She noted that some entities present managed to receive unqualified audits, while some others had findings to be attended to.

She posed clarity seeking questions to the entities as follows:

To BBI:

-She appreciated BBI and said that the Committee did not make a mistake in showing interest in its merger with SENTECH. Obvious progress has been made, despite a few hiccups.

-While appreciating the achievement of 68% on targets, she emphasised the need for more work to be done.

-The achievements made under the governance relations was also appreciated. This was proof that the leadership of the entity through its board and executives, prioritised and conducted meetings in an orderly manner. This type of commitment would help in achieving other targets, as well as address challenges that have been encountered.

-BBI was urged to work on the 15 audit findings it had in order to ensure a clean audit at the end of the current financial year.

-Despite the fact that some other targets were not met, the efforts put into achieving what was presented so far could be seen from the presentation. The effort put into connecting rural areas was also appreciated, as issues of service delivery is always a challenge for rural areas.

-The only area of concern is the timeframe for the completion of the merger between SENTECH and BBI, and it seems the department would be in a better position to clarify this.

BBI was urged to improve on its performance.

To NEMISA:

-She pointed out that the challenges experienced leading to under-achievements may be linked to issues with the executives and other key positions such as the risk management and SEA manager. These vacancies were only filled recently. This was a critical issue that has had an impact on the performance of the institution, especially in programme 3. NEMISA was urged to accelerate and correct the poor performance recorded in Programme 3.

-The debate about trainings and logistics should be addressed in light of set targets in terms of number of trainees. Since these targets were set by the institution, there should be no excuse for failing to achieve these numbers.

-The efforts put into reducing fruitless and wasteful expenditure was appreciated. However, the problem was with the irregular expenditure, to which she urged NEMISA to work towards to addressing the attendant issues.

-The efforts made by NEMISA to reach rural areas through the launch of the Ya-Rona digital programme was also appreciated.

To FPB:

-She asked what factors led to a regression in the financial year under review, especially since the organisation was able to get a clean audit in the previous financial year.

-Despite justifying the audit findings, she urged FPB to correct the issues raised by the auditors, since those issues were not raised in the previous financial year, neither did they affect the audit in previous financial years.

-Achievements made in terms of the BBBEE were appreciated, particularly with regard to placing focus on businesses owned by women, youth, and persons living with disabilities.

-The challenges faced in meeting the targets for SO 3 and SO 5 were highlighted. However, the efforts put into achieving the targets for SO 3 through proper consideration of the outcome of the skills audit was appreciated, especially because other entities have not deemed it fit to prioritise the skills audit. This could assist the entity to retrain or upskill its employees where need be, and also help to review workforce strength to determine if more staff should be hired or not.

-With regard to the human relations, she appreciated FPB on dealing with most cases internally, noting that only a few cases were litigated in the court. However, FPB was urged to continue dealing with more cases internally, and only resort to courts for matters beyond its jurisdiction.

To ICASA:

-She emphasised the spectrum as a priority to the Committee. Hence, the request for a progress update on the spectrums, as well as a commitment that the timeframe given would be adhered to.

-The achievement of 86.6% of ICASA’s targets was acknowledged. ICASA was asked to follow up and address the issues leading to the failure to achieve the remaining target of 13.2%.

-She appreciated the fact that ICASA was in control of its HR and had a working mechanism in place to deliver services regardless of vacant positions. This was coupled with the fact that the organisation understood the best approach to be taken in recruiting staff.

- She said that it should work hard on the three things highlighted by the AG so that it would get a clean audit.

-Clarity was sought on the Must Carry Regulations.

-ICASA was asked to correct issues raised in the audit findings, particularly with respect to SCM, consequence management and procurement, in order to achieve a clean audit.

The Chairperson posed clarity seeking questions to the entities as follows:

To BBI:

-Clarity was sought on the timelines for the completion of the merger between BBI and SENTECH. He noted that whilst entities may be reporting on a previous financial year, the timing of the reporting may be tricky, as there may be other activities in the current financial year that could help in clarifying the status of some issues.

-Clarity was sought on whether the issue of business case has been agreed on, seeing that the timeline of 31 October stated in the presentation has passed.

To NEMISA:

-Clarity was sought on what the entity referred to as ‘prior year identified in the current year’ in terms of the irregular expenditure. This would enable the Committee have a better understanding of the figures presented.

-He asked what contributions had been made through research reports?

-Further he asked how NEMISA is positioning itself as a training institution, in terms of governance and the education system in the country.

To ICASA:

-Clarity was sought on the consequence management adopted in addressing the three findings of the audit report. In the absence of knowing what is in the management letter, the Committee can only rely on what is presented before it, and the presentation paints a picture that no steps have been taken, neither has any referral been made in previous years to serve as reference points for the efforts the steps that have been taken so far. This would have been useful to show that the issue was not a recurring matter in the financial year under review. The absence of proof of consequence management steps taken raises the question of whether the employees concerned are still in the employ of the institution or have left institution. It was important for the Committee to get an explanation on the reasons behind no action taken in the previous financial year, and clear suspicion of corruption that may arise from ICASA’s refusal to rectify or attend to identified problems.

-Clarity was sought on ICASA’s going concern, which relates to the grants.

He asked where are the grants are and how are they received, and whether it is through transfers from the National Treasury or whether grants come from the Department. If it was through transfers, he asked why have the transfers not been done or whether it was a different grant altogether.

The reference made to a previous financial year complicates the issue, and further raises the question of what is being done now. He asked if the matter has been resolved or whether the same issue will arise in the current financial year. If it is just a matter of transfers, he asked why has that not happened.

To BBI:

-He reiterated other MPs stance on the need for BBI to improve in its performance. He then highlighted BBI’s position on the possibility of improvement if balance sheets are changed, as this would enable the organisation to penetrate into the market and be able to fund some infrastructural programmes.

-The issue of a pending signature by the Minister of Department of Trade, Industry and Competition (DTIC), noting that the department may be in a better position to address this issue from a political and administrative level, so as to clarify the reasons behind the delayed signature. He continued to ask, if the pending signature affected by the pronouncement of the Minister of Finance in the previous year, to the effect that these loans would remain loans and must be paid back as such and not as equities, especially because of the existence of an approval of conversion to equity.

To FPB:

-He asked FPB to respond to issue of reduction in submission for classification, as well as clarify if any strategies have been put in place to address the reality of streaming services.

-Whilst FBP has capacity issues which lead it into contracts which may be a problem, or which do not deliver at all. It asked why has FPB not utilised SITA to close the capacity gaps that has led to problematic contracts, and maximise on economies of scale.

He invited the different entities to respond to questions raised in the order in which presentations were made in order of presentation and invited the Department to begin if it had anything it would like to say first.

Department Response

On the question relating to the timeline of the merger of BBI and SENTECH, DDG Shelembe, said that the business case has been finalised in terms of the APP for the current financial year. The Minister is in the process of sharing it with the Ministers of Finance and Public Service and Administration, who are required to give their concurrence to a business case of this nature. While in the process of finalising the business case, BBI is also drafting the legislation needed to support this merger, as both entities are creatures of statutes. It was therefore, necessary to create a legislation that supports and gives effect to the merger. According to BBI’s APP, the draft legislation would have been approved by cabinet by the end of the financial year, to be submitted to Parliament by the first quarter of the next financial year. Thereafter, the legislation will be in the hands of Parliament, and particularly the Committee for as long as it takes. BBI does not expect it to be a complicated piece of legislation. It is hoped that it would be finalised as soon as Parliament is able to do so. The organisation would be there to support the process.

Notwithstanding the legislation process that is underway, the two entities were already working together. They have since developed terms of reference for a service provider to help develop a strategy for the combined entity; this work is scheduled to be finished very soon.

On the outstanding issue of the conversion of BBI loan from government and IDC, the Committee was updated that the Minister as one shareholder in the entity, has approved the conversion of the BBI loan into equity. However, because BBI has a co-shareholder in the organisation, which is the IDC, and which also requires a conversion of its own portion of the loan for the transaction to be concluded, this matter is yet to be concluded. In terms of Section 54 (2) of PFMA, this was significant transaction for IDC and therefore, requires the approval of the Minister of Trade, Industry and Competition. It was at this point that the matter has been delayed for a while now. However, the Minister of DCDT and Director-General (DG) have both written to the Minister and DG of DTIC, expressing a desire for the expedition of the matter. BBI is awaiting an update in this regard.

Response to the issue of grants and matters of going concern were deferred for the CFO to address. However, the Committee was informed that there were no outstanding transfers from the department due to ICASA. In the previous financial year, additional funding was made available to ICASA to support the spectrum process. This has also been the case for the current financial year. The Minister has announced allocation towards ICASA again for the spectrum process.

BBI responses

On the question of network performance and benchmarking, Mr Matseke said BBI does benchmarking according to the standards of the International Telecommunications Union (ITU) that relates to transmission networks. The standard is from 99% to 99.999% (also known as the five 9s). In terms of that standard, BBI’s performance sits at the top 20%. BBI’s direct competitor in the South African market is Open Serve, which is the network infrastructure part of Telkom. BBI compares favourably against Open Serve, based on the information it gets from BMIT, which is the local research house.

On the question around expenditure on training, BBI was currently spending 1.8%, and its desire is to spend at least 2% of payroll on training. However, it has not been possible because of financial constraints.

As for the BBEEE scorecard for its sector, BBI should be at 6% but this was not yet achievable considering the organisation’s finances. The aim was to make at least 2% in the period post-the merger with SENTECH, after which it will begin to aim for 6%.

The comments made by Ms Khubeka were noted, and the questions posed by the Chairperson have been answered by Mr Shelembe.

NEMISA responses

In responding to Ms Faku, Mr Rammitlwa said that the concerns raised around the challenges faced in Programme 3 have been duly noted. NEMISA itself was not pleased with the situation, as Programme was the core of its business. Measures have been implemented immediately, to address all issues raised by the AGSA. The institute was moving with speed to address these issues raised, in order to prevent a reoccurrence of same in the current and subsequent financial years.

In response to the enquiry made by Mr Mackenzie, two examples of advocacy campaigns are the freedom walk and economic opportunities Expo that took place in Ntabankulu, Eastern Cape, as well as the Eastern Cape E-learning Summit that NEMISA participated in and exhibited at. There was no direct cost for attending those events, as the centres paid the NEMISA team assigned to go down to the Eastern Cape to attend those programmes.

NEMISA agreed on the need to move quickly in conducting online training. As a matter of fact, plans were underway, and the institute now has a learning management system (LMS), which was mainly online. The CoLabs were also moving with speed, and were already delivering a row of learning online. The LMS was going through a testing phase. It would be launched as soon as it has been approved by the board.

On the question of research reports, NEMISA has quite a number of research reports as contained in the Annual Report. The first report focused on understanding digital skills in government and the future jobs or the future of work in government. This related to the future skills that government employees may need or require moving forward. There was also a report on NEMISA teams’ digital skills needs, which took into account the need for NEMISA itself to be empowered for the purpose of serving the market it was expected to serve. The institute therefore, required upskilling. Another report dealt with the uptake and mutual recognition of Massive Open Online Courses (MOOCs) in South Africa. Other reports focused on gamification for collaborative learning; re-skilling South Africa’s coal miners in the digital era; as well as enablers and barriers for mobile commerce and banking services among the elderly in South Africa.

In terms of the contribution of these reports to the national strategy, NEMISA has shared the reports with DCDT and has gotten invitations to workshops from time to time. It still received an invitation the previous day to a workshop to look into the implementation of the actual strategy. It therefore, believes that these reports have been taken into consideration, and were contributing to the strategy in a way.

On the question of how NEMISA positions itself to support government and how it should link with the education system, especially the Department of Basic Education (DBE) and the Department of Higher Education and Training (DHET), it was pointed out that there were initiatives underway to do achieve this. These initiatives were led by DCDT and NEMISA was working very closely with the department to finalise partnerships. Discussions were ongoing on getting NEMISA to reach out to schools, but in the form of an agreement with DBE to influence curriculums into basic education. The institute would also have to start working closely with TVET colleges, as they were originally established in most part of the country, and that working with them could NEMISA to reach more people, especially in the rural areas. NEMISA was also looking into working with the national school of government for the purpose of supporting with content, and also to partne with them to reach their audiences in terms of training senior managers in government; entities and government departments; and junior occupations in the government.

On the issue raised around irregular expenditure, Mr Ramawa said NEMISA signed a lease agreement in 2017 for the current building the Institute was situated at. Apparently, the lease agreement did not go through the normal tender process, and was therefore, deemed irregular. Unfortunately, the contract runs for five years, and this means that even though the transgression of the procurement processes happened in 2017, all rental related expenses would continue to be recognised as irregular expenditure till the contract ends in May 2022. Hence the R9.8 million regarded as irregular expenditure in the current year, despite being identified in the prior year. Once there is a transgression with compliance, it cannot be fixed, and such transgression will continually be classified as such till the end of the contract.

On the issue of stolen equipment, he confirmed that it had an asset register, which was part of the audit by the AG. To clarify the issue of auditing of the asset register, it was explained that when the AG issues its audit report, it encompasses the audit of assets, including the asset register. NEMISA assured the Committee of the accuracy of its asset register, while noting that the register had no qualification point.

He also confirmed that equipment was indeed stolen from NEMISA. This theft has been reported to insurance and insurance has settled the claim. The institute has gone on to mount CCTV cameras, biometrics to enhance its control measures in order to prevent issues of theft of assets.

With regard to the question around SIU investigation, NEMISA does not currently have an ongoing SIU investigation. As for disciplinary cases, the last disciplinary case NEMISA had was with regard to tenders in 2017/18 financial year for some of the conferences that held in Mpumalanga, which resulted in irregular expenditure. The disciplinary case eventually held in the 2018/19 financial year, and the then procurement manager was dismissed. However, in the 2019/20 financial year, there has been no disciplinary case.

As for the question on existing litigation, NEMISA had no litigation at the moment, neither was NEMISA paying any legal fees for any matters for or against the institute.

On issues of capacity, NEMISA recognised the fact that capacity was very important in terms of moving forward. It therefore, considered resolving the issues of the risk compliance and procurement manager positions, in order to address the issues highlighted in the SCM audit. The institute believes that the appointment of risk and compliance, and procurement manager would go a long way in ensuring that other remaining minor issues still in existence, relating to irregular expenditure were resolved.

ICASA responses

On the licensing of spectrum, Dr Modimoeng said that on 30 September 2020, the authority issued invitations to apply for both the wireless open access network spectrum, and the high demand spectrum, which will be licensed through an auction. The auction is intended to take place during the last week of March 2021. As matters stand, there were no indications that the said date would change.

The closing date for the applications on the wireless open access network site is at the end of March 2021, but by that time, the auction would be taking place. The network would be licensed through a different process.

On the progress of must-carry obligations, it was noted that at the end of the current financial year, ICASA would have achieved the draft regulations. Those draft regulations would be informed by the findings document. ICASA was on track in this regard.

With regard to the question on the sports national review, the authority earlier this week, published a notice containing the draft broadcasting regulations. This has been published for public input and comments, and the closing date is 15 December 2020. ICASA could not meet its target in the previous year because, amongst other reasons, the Act obliges it to consult the Minister of Sports and the Minister of Communication when making regulations to amendments in this regard. Although these consultations took place, engagement with both Ministers could not be finalised before the end of the financial year due to clarity seeking questions and numerous follow-up meetings, particularly regulatory projects also contained in the APP are ones that NEMISA cannot risk expediting and breaching procedure just to meet the APP targets. Where any such cases arise, the organisation follows the spirit of the Act over and above what is contained in its APP targets.

He accepted the well-wishes given by Mr Mackenzie to the newly elected council members, noting that they took an oath to regulate the sector in the public interest and would uphold this oath.

On the broadband market review and when the process would be completed, last week ICASA held public hearings on this issue. It was expected that the process would be finalised by the end of the financial year.

It should be noted that the relationship between ICASA and the Competition Commission was more complimentary, particularly because the Competition Commission also participates in ICASA’s processes. The commission has made written submissions, and participated in public hearings. The relationship was therefore, more of a collaborative one. A memorandum was signed between both entities in the previous year. Where issues of concurrent jurisdiction arise, both entities respect each other’s space but where is room for participation, they both participate.

The issue of consequence management was contextualised. The AG did not imply that no consequence management had been instituted.  As a matter fact, there was an acknowledgement in the actual AG’s letter, of the fact that some disciplinary steps had been taken to fulfil consequence management. However, the AG requested ICASA to be mindful of revisiting previous years.

It is important to highlight that consequence management is governed by another piece of legislation which is the Labour Relations Act (LRA). There is therefore, a need to be consistent with the LRA and follow it accordingly in the process of fulfilling consequence management. The organisation cannot take on positions of preconceived outcomes.

In the previous financial year, there were certain incidences and matters that were brought to ICASA’s attention, where disciplinary steps were taken on certain officials. These processes have been concluded. What ICASA has done is to improve its compliance environment, members of the executive management, senior managers, supply chain staff and even certain members of council underwent supply chain management training in the previous financial year. A compulsory KPA has been implemented in the performance contract of all divisional heads, and officials assuming a role in the processing of payments. This would enable all staff members carry the responsibilities in the organisation as far as supply chain matters were concerned.

With regard to the issue of moratorium on vacancies, ICASA constantly receives notices from the department about cost containment, and the importance of stretching the limits. As noted by the CEO, every time a vacancy occurs, a careful consideration is taken on whether such vacant position needs to be filled or if there was a way the organisation could reconfigure its existing human capital to fulfil the requirements of that vacancy. In certain instances, the organisation has no other option but to fill the vacancy. However, there are other instances where ICASA has been able to reconfigure its approach. ICASA is mindful of that fact the decision to not fill a vacancy should not in any way hamper its service delivery objective. This required a delicate balancing act, especially because the organisation was really cost constrained.

On the matter of question around revenue collection, the Committee was reminded of a clarion call from ICASA on the need to review its funding model. The organisation collects license fees and annual fees, but can only keep funds generated from these fees for a period of 30 days for the purpose of generating some interest. However, within that period, ICASA is expected to send the money to the National Revenue Fund. There was no doubt that the organisation was cost constrained. ICASA’s mandate was ever-expanding, while its budget allocations have been materially declining over the past few years.

On the process involved in policy directives and whether or not ICASA invites further comments after issuing an ITA, Mr Ngwepe shed more light on the process. The Minister has the exclusive preserve in terms of policy making. Therefore, the Minister would issue a draft policy direction, invite comments on the draft policy direction, and once the consideration of comments is complete, the Minister would then issue a final policy direction. When the final policy direction is issued, ICASA then considers the policy and acts upon consideration of that policy. The key distinction to draw in this regard is that in terms of the ECA, there is a prescribed process for regulation making, as well as a prescribed process for licensing. In terms of the regulation making process, the authority is duty bound to go through a draft and a consultative process. However, when it comes to licensing, the law requires that an ITA be issued. What the authority did with the issuance of the information memorandum and the consultation in this regard was informed by the significance of the process, and the need to take on board all the inputs that could potentially be raised. It was a rather unique consultative window that the authority created which is why it was not even considered as a draft ITA, especially because from an ECA perspective, there is no requirement for a draft ITA to be issued.

The response to question of whether or not ICASA takes advantage of the transversal contract provided by SITA was in the affirmative. Every year, during the organisation’s planning process, ICASA compiles the annual procurement plan, and collates the procurement needs of the organisation. This is then assessed based on the need to optimise the organisation’s resources. Areas where it would make business sense to go through a transversal contract based on the regulatory permission would be assessed. Sometimes, ICASA go through transversal contracts with SITA; some other times, it goes through a transversal contract provided for by the National Treasury.

On the issues around the going concern, Mr Matabane said the going concern conclusion was purely based on the fact that on an annual basis, ICASA receives its allocation from the department and it relied solely on this allocation from the National Treasury, through the Department. As at reporting date, the organisation had not gotten any indication that its allocation for the next financial year would be reduced. Hence, the indication of R477 million in the presentation, as the organisation’s actual allocation.

Linking this to the question raised on whether ICASA has any other revenue streams, it was pointed out that the organisation has no other revenue stream except the allocation it received from National Treasury. However, it does try to generate income from investments, such as fees collected and invested for period of 30 days. The money collected on average is R1.3 billion on an annual basis, but this money is not kept by ICASA; it goes directly into the national revenue fund (NRF), and ICASA does not get a percentage of it. Hence, the discussions around a reconsideration of ICASA’s funding model.

In terms of correcting the issues raised by the AG, ICASA has started engaging and resolving these issues. Some of the recommendations were implemented with immediate effect, even before the AG’s report was issued, in order to ensure that gaps were closed as soon as possible. Where there were issues raised on contract management, be it legacy contracts or evergreen contracts as indicated by the AG, ICASA engaged with the relevant service providers to remedy those contracts, and progress has been made in terms of resolving those issues.

FPB responses

Before responding to the questions posed to FPB, Ms Mashele communicated the apology of the Chairperson of the FPB Council who was absent from the meeting due to an armed robbery incidence she was involved in the previous day. All her gadgets were taken and she could not join the meeting. However, she sent a request on behalf of council, for the FPB team present at the meeting to convey to the Committee that this would probably be the last meeting where the council would appear before the Committee as their term ends in November.

The FPB team notes the concern raised on the issue of regression. The organisation has embarked on a deep dive into its operations and control environment for the purpose of getting to root cause of some of the issues raised by the AG. An action plan has been put in place to ensure that FPB works consistently towards strengthening its control environment in order to prevent a repeat of the performance of the year under review, and ultimately achieve a clean audit status at the end of the current financial year.

With regard to the issue of child protection and the turnaround times, this depends on the volumes of the cases received by FPB. In the financial year under review, the organisation received 15 cases. The organisation’s target involved responding to SAPS to acknowledge receipt of cases, and provide progress on working on the case, within an 8-day period. FPB indicates how long it would take to analyse all the materials. In most instances, a case could contain about 20 000 or 30 000 images to be looked into by FPB’s child protection officers. These images would be analysed on an individual basis to help with the compilation of the affidavit to be served in court. Therefore, the timeframe for case analysis largely depends on the volume of content provided to FPB. Analysis can take a day or a month or two months, depending on the volume.

On the illuminati symbol, FPB chooses not to stay away from conspiracy theories. The symbol actually speaks to the power of artificial intelligence (AI) and the ability for it to integrate human feeling into technology, which was an important component of what FPB does. The organisation wants to integrate artificial intelligence more and more into online content regulation, particularly because most online platforms are actually making use of AI.

On the question of FPB wanting to censor the internet, it was pointed out that in a democratic dispensation, it would be impossible for to censor or restrict speech beyond what was provided for in the Constitution, especially section 16 of the Constitution. FPB operated within that framework. Even the Film and Publication Amendment Act, and the Draft regulations operated within this framework. FPB has noticed a great deal of misunderstanding in the media, on what the legislation seeks to do and address in terms of the organisation’s mandate. The legislation as passed by this Committee makes no provision for FPB to censor user generated content. There is no requirement for social media platforms to register with the FPB, neither is there a requirement for social media platforms to submit materials to the FPB. The organisation’s preoccupation in this regard is largely focused on streaming service providers that are in the business of distributing films and games on their platforms. The legislation only provides for FPB to take steps only with respect to revenge pornography. In other words, the legislation states that if revenge pornography is brought to FPB’s attention, FPB has a responsibility to ensure that such content is taken down and consequence management and relevant actions are taken against the individual responsible for such.

On staff relation issues, she agreed with the Committee, noting that it was always the organisation’s intention to try and resolve all matters before they get to the CCMA. However, there were some instances where it became unavoidable to go to CCMA or even to have cases reviewed if the organisation believes that the ruling sets a precedence that could have negative consequences for the institution. FPB has settled in some matters; some matters have been averted from going to court, but the matter being referred to in the question was one where the organisation had to take the route that it did because of the belief that the ruling overlooked the policies of the organisation, as well as the steps taken by the institution in dealing with the particular employee in question. All FPB wanted was just confirmation and concurrence from the Labour Court on the matter.

On the question on reduction in submissions, the five-year strategy that FPB just concluded had the foresight to state that online distribution was the future of content distribution in all markets. Five years ago, FPB began the process of reviewing its legislation. As a regulatory body, all actions taken must be informed by the law and regulatory prescripts. The organisation has been working consistently to ensure readiness for regulation once the online market booms in South Africa. As of today, FPB has reviewed its legislation, and is putting in place regulations that would enable an effective regulation of the online market. The organisation has entered into online licensing agreements with some of the big players in the South African market and internationally. Co-regulatory agreements have been entered into with international players, and FPB has commenced training for them on the classification system for the South African market, so that when content is streamed into South Africa, it would reflect South African values and norms.

The organisation has also introduced a new tariff model as a response to the cry about FPB tariffs being a barrier for entry. This outcry was taken into consideration, and the tariff model was reviewed. The Minister published and gazetted the new tariff model a month ago, which provides a cascading fee scale depending on the size of an online portal as a streaming platform. FPB has also been working consistently on its operating environment. It has reviewed its business model, and structure to enable the board to respond to the requirements and the needs of the online streaming market. FPB’s strategy did not just start; it started far back as five years ago.

On the irregular expenditure and use of SITA as a service provider, the items that were listed were actually historical items. In the last two years, FPB has taken cognisant decisions and actions to engage SITA in a number of projects. In the year under review, SITA assisted the organisation with its architecture programme, database consolidation, and its application that is currently being developed. As the board, FPB makes use of SITA’s services when such is available at its disposal.

With regard to the comment made around B-BBEE, Mr Chowan said that he had network issues when the comment was made, and could only pick the support for FPB’s achievement of 47% to the specific identified groups. He welcomed further enquiries on the issue.

Follow-up questions and responses

The Chairperson asked Members with follow-up questions to raise same.

Mr Mackenzie appreciated the comprehensive answers given by Ms Mashele, noting that this was an indication that FPB was in very good hands. He asked if FPB had a programme in place for its classifiers and employees to deal with the psychological effect of viewing many horrendous materials; and if so, what sort of wellness programme or welfare programmes it has in place.

Ms Mashele replied in the affirmative, noting that it is an international standard requirement for content moderators to undergo regular debriefing. For a few years now, FPB has made debriefing a compulsory requirement for all employees who engage in content moderation of any kind, be it the classifiers or child protection officers who actually review sexual abuse materials. It is a quarterly requirement for all content moderators to undergo debriefing with a registered psychologist through FPB’s wellness service provider. Content moderators also have access to the wellness service provider on hand, for instances where materials have been reviewed on any particular day, and a moderator needs to get an individual debriefing session urgently. FPB was a member of the International Association of Internet Hotlines (INHOPE), which is a European Union-based association that has a requirement to for all online monitors to have access to a debriefing room where they can play games or engage in any activity that would assist in taking their minds off their work environment, should the need arise.

Ms Faku asked ICASA to provide the total amount that has been spent on the case against the CFO and whether the case is still ongoing. Additionally, she asked how many cases against employees have been won so far. It was important to get accurate figures and facts in order to address the issue of high-level costs, and to prevent excessive legal costs.

In responding to the question around legal costs, Dr Modimoeng referred to slide 28 of ICASA’s presentation that talks to the number of employee relations matters the organisation had in the current financial year, which also alluded to the reduction in the number of matters. ICASA made use of a principle known as ‘engage as you litigate’, and this perhaps explains the reduction of employee relations matters. The principle simply means that ICASA thoroughly assesses a matter that arises with operators or employees, to determine if such issue can be resolved without going to court. Nevertheless, ICASA can provide a comprehensive report detailing the number of labour and other employee related matters, and the amount spent in the entire financial year.

Chairperson’s closing remarks

The Chairperson welcomed the proposal for ICASA to send a comprehensive report on cost of litigations, as this would assist the Committee in having a better understanding of the application of the above-mentioned principle. The Committee is not only particular about ICASA’s performance and transparency of process. It is concerned about other entities that learn from the pockets of several entities that report to the Committee.

There would never be enough time to engage with all entities. However, the Committee appreciates the qualitative engagement with all entities. This engagement would continue as the Committee carries out its oversight functions. The main issues that emanated from the engagement was the unqualified audit opinions given by the AG to some of the entities, as well as the Committee’s recommendation for all entities to address the issues raised in the audit findings in order to prevent a reoccurrence of those issues, and more importantly achieve clean audits at the end of the current financial year.

He summarised all other issues raised by Members and had been responded to by the entities.

He informed Members that a document would be sent across to review the Committee’s programme as the scheduled date of 11 November was also the date for the by-elections of the country. The Chairperson would work with the secretariat to review that date. At the moment, there is a target for the meeting to be held on 18 November. However, the revised date would be communicated to Members.

The meeting was adjourned.