The Committee met on a virtual platform to interrogate the State Information Technology Agency (SITA) on its 2019/20 audit, specifically irregular, fruitless and wasteful expenditure. The Auditor-General (AG) flagged, among other things, irregular expenditure, consequence management, procurement and contract management and material misstatements in annual financial statements as the cause of the regression. The Committee was concerned by the regression in the audit outcomes from unqualified with findings in 2017/18 and 2018/19, to a qualified audit opinion in 2019/20.
The Minister of Communications and Digital Technologies stated that SITA had been plagued by service delivery challenges. The Minister noted that the failure of SITA to execute its mandate had resulted in some departments seeking exemptions to procure services elsewhere. The failure of SITA had a knock-on negative impact on the attainment of goals and targets that the departments had set for themselves. The Minister said that she was pleased that the findings of a performance assessment revealed that the performance of SITA had improved from 42% to 60+% in the third quarter.
The Committee questioned the appointment of officials, misstatement of the listing of irregular expenditure, the control environment, condonations and the basic failure of contract management. Members also probed the vetting of qualifications, management of tangible and intangible assets and dismissible offences.
There was concern around the composition of the board and the delay in the appointment of a fully fledged board. Members stressed the matter of accountability and real consequence management.
Opening remarks from the Chairperson
The Chairperson welcomed Members and said that the Committee could proceed with the hearing into the financials of the State Information Technology Agency (SITA) for the 2019/2020 financial year.
The Chairperson welcomed the Minister of Digital Technologies and Communication, Ms Stella Ndabeni- Abrahams, to the meeting and reiterated that the hearing was in response to the postponed hearing from the previous week. He also pointed out that purpose of having the Minister present at the meeting was because there was no Board and that a representative of some sort was required for SITA. The Chairperson emphasised the point that before any intervention was rendered regarding the financials, it was important that the Minister be present.
The purpose of the meeting was to address the regression of the financials with a specific emphasis on seven findings by the Auditor-General (AG) from four of the departments in the 2017/2018 financial year.
The Chairperson raised the point that it was a serious concern that that an audit outcome could shift from an unqualified to a qualified audit. He said that he wanted to give the Minister an opportunity to make remarks and then Mr S Somyo (ANC) and Ms B Van Minnen (DA) would proceed and then afterwards the Minister would be given another opportunity to respond. The Chairperson mentioned that the Minister could also respond also throughout the course of the meeting if she felt the need to.
The Chairperson proceeded to welcome the Ministry of the Department of Communications and Digital Technologies (DCDT) as well as SITA who was present at the hearing on the evening of 26 May 2021.
Opening Remarks by the Minister
The Minister started off by apologising for not being present the previous week and proceeded to explain that the reason why the Department could not make it was because it had been delayed by a Budget Vote debate and that it had some interviews thereafter. The Minister acknowledged that the apology was sent late and proceed to offer an apology to the Portfolio Committee.
The Minister echoed the sentiments that the reason for the Department’s presence at the hearing was that SITA had no Board, however, within her delegation there were Deputy Directors-General (DDGs) present that are responsible for State-Owned Enterprise (SOE) oversight.
The Minister stated that SITA had been plagued by service delivery challenges which stemmed from its inability to provide the mandatory ICT goods and services as obligated in law in relation to the public service it served.
The Minister noted that the failure of SITA to execute its mandate had resulted in some departments seeking exemptions from the Minister, in accordance with Regulation 17 of the SITA regulations, so that they could be able to procure directly themselves. These were the departments of Police and Home Affairs.
The Minister further reminded Members that the reason why SITA was established was to promote efficiency in departments and not to constrain departments from delivering on their respective mandates. The failure of SITA had a knock-on negative impact on the attainment of goals and targets that the departments had set for themselves.
The Minister explained the implications of Regulation 17 meant that departments could not timeously deliver on their Annual Performance Plans (APPs) due to SITA’s shortcomings. A consideration had to be made on the potential impact and thus proceed with approving exemptions which the Minister felt would have had an impact on the ability to deliver on the goal of achieving economies of scale.
The challenges that SITA faced were due to systematic failures. As the shareholder representative, the Minster deemed it prudent to appoint an Executive Caretaker that was tasked with an in-depth assessment of the challenges to assist the Executive Authority to appoint new members and suitably qualified persons with the competencies to turn SITA around. A performance intervention meeting was held with all the Executive members and Board members that were present and available on 8 November 2019. Their term came to an end in January 2020.
The Minister spoke to Cabinet’s frustration that appropriate action had to be taken by SITA and that as the Minister, she had been vocal about requesting Cabinet to provide an opportunity for her to repurpose SITA to be responsive to the current challenges.
The Minister explained why an intervention to exclude legacy projects was necessary and she also drew the Committee’s attention to the fact that the SITA Act does not stipulate what is supposed to be done by SITA. She felt that these challenges did not align with the modern technologies that SITA is expected to deliver on, with regards to driving the digital economy as well as the digital transformation of the public service critical to SITA’s responsiveness.
She stated that it was necessary to compare what other countries were doing and to also be aware that the primary focus was not around procurement but rather to consider SITA as a digital services agency which affords local innovators an opportunity and thus leads to a level of sector transformation. She explained the challenge of sector transformation and the need to involve all the relevant stakeholders and to have a targeted approach of localisation.
On 19 March 2020, the Minister explained that she appointed an interim Board using legislation to guide the process. She mentioned that the interim board was led by Mr Omega Shelembe, who is the DCDT DDG of Entity Oversight, Mr Keyise, who is the current Executive Caretaker, and the Acting CFO, Mr Andrew Pretorius.
The Minister stated that the first order of action was to verify the legal standing of the adopted decision that was made and to ensure that these were in line with the intended output that the Entity wanted to achieve. A legal opinion was sought, whereby on 27 December, the office of the State Attorney was instructed to appoint senior counsel to finalise the Executive Authority and to advise the Department on the requirements and processes that were to be followed in order to undertake this process. The Minister went on to explain the recommendations of Adv Baloyi after she had been appointed.
According to the Minister, Adv Baloyi explained that SITA has been established in terms of s2(1) of the State Information and Technology Agency Act 38 of 1998 and incorporated as a private company in terms of the Companies Act of 1998 where s4(1) provided the provisions of the Companies Act that apply to the Agency except where otherwise stated in the Act. The second condition that had to be complied with was that SITA was to be governed under the control of a Board of Directors that has been appointed by the Minister after consultation with Cabinet, responsible for the approval of the business operations and as representatives of SITA whom the majority must be non- executives. It was explained further that SITA was listed as a National Public Entity in terms of the Public Finance Management Act (PFMA) 1 of 1999 and in accordance with s49(11) that the Board is the accounting authority for PFMA purposes.
The Minister went on to explain that Adv Baloyi had advised that the functions and responsibilities of the Directors are described in the Act under s8 and s9 of the PFMA and s49-51 and s66 of the Companies Act. Section 66(1) of the Companies Act provides that the business and affairs of the company must be managed by or under the direction of its Board which has the authority to exercise all the powers and perform any of the functions of the company, except to the extent that this Act or the company's MOI provides otherwise. Neither the Act, the Companies Act nor the MOI provide for the shareholder to appoint an administrator to administer the affairs of SITA in place of the Board and Managing Director. Nevertheless, nothing precludes the amendment of the MOI to provide for, and permit the shareholder, to place SITA under administration and under the control of the administrator. Accordingly, the Minister stated that she may Act in terms of s16(1) of the Companies Act, read with article 4 of the MOI, to pass a special resolution amending the MOI accordingly. She further emphasised to the Committee that neither the Act, the Companies Act nor the MOI preclude a shareholder special resolution to place SITA under administration and to appoint an Administrator with such powers as the Minister may determine.
The Minister further elaborated that a decision must be based on valid reasons, and in a manner that is procedurally fair to the incumbent Directors, and that the decision must accordingly be rational. The appointment of an Administrator is an alternative arrangement to appointing a Board, should the Minister so elect. The reasons for placing SITA under administration must be valid, failing which the decision to do so is likely to be found irrational.
Members were referred to a case law of Hlubi and others vs. USASA and the Minister of Communications case at the Labor Court of South Africa in Johannesburg. In this matter, the applicants being, Andrew Hlubi, Molefi Mollo and Archie Mbatha, sought an order from court declaring that the appointment of Mr Themba Phiri and Mr Sam Vilakazi as caretakers of USASA was invalid.
The Minister, in this context, reiterated that this was unlawful and thus rendered null and void for failure to comply with the provisions of the Electronic Communications Act. The Executive Caretakers instituted disciplinary proceedings against the applicants, and the applicants contended firstly that their suspicion was not justified, and secondly that they were not afforded an opportunity to be heard prior to their suspension. In respect of the decision by the Executive Caretakers to subject them to a disciplinary inquiry, the applicants further contended that this action was ultra vires in that the decision was taken and communicated by the third respondent, whose appointment as Executive Caretaker by the Minister was unlawful and invalid. Applicants based their argument for stating that the action was ultra vires on the fact that the Minister is a creature of statute and therefore the lawfulness of the exercise of power by the Minister must be assessed against the provisions of the Electronic Communications Act. The applicants submitted that the appointment of the third and fourth respondents by the Minister was unlawful in that the only power conferred upon the Minister, in terms of s18 of the Electronic Communications Act, is to appoint the Board of the first respondent.
Minister Ndabeni-Abrahams said she wanted to make the Members aware of the process that had been followed and to also explain the legal opinions that had been provided before undertaking the process. She explained that upon acquiring this legal opinion she had called a shareholders’ meeting wherein a resolution was taken to amend the MOI and that the resultant action was the Interim Board that was formed as well as the appointment of the Executive Caretaker. The Board Chairperson and the interim body will serve for two years as approved by Cabinet because they had to give an opportunity for proper processes, including the legislative amendments that need to be made. A performance assessment of members was planned in January 2021 and the Minister said that she was pleased that the findings revealed that the performance of SITA had improved from 42% to 60+% in the third quarter. The Minister mentioned that the decision that was taken yielded results. She reiterated that it was important that she deal with the policy matters because with regards to administrative processes, boards should deal with those as accounting authorities.
Mr Somyo welcomed the introductory remarks that the Minister had made on the strategic nature of SITA and said it was critical that SITA function in an optimal condition given that it was defined as a technology agency which is supposed to offer a full spectrum of ICT services to the South African government and public bodies in order to improve service delivery to the public generally especially at a time when government is seeking to drastically pursue the Fourth Industrial Revolution (4IR). However the AG’s findings have shown that there is glaring instability.
Mr Somyo offered an example of how appointments had been made thus far and that the appointments had not yet been fulfilled, looking into the Authority itself because of what the Minister has outlined on the caretaker-ship. He also raised the point that having a Board constituted of the SITA’s acting CEO, CFO, and interim Chairperson, who is the DDG in the Department, was a matter of concern.
Mr Somyo asked why there was delay in terms of the appointment of the fully fledged board if the institution was doing as well as the Minister had alluded. The appointment of a full Board could benefit the institution in terms of improving the sense of required governance, looking at the committees required in terms of functionality and accountability, which could steer the institution to high success levels. He questioned the Minister on whether or not she had timelines toward the realisation of a fully fledged board which is going to be independent in terms of its own functionality.
Minister Ndabeni-Abrahams responded by making reference to her opening remarks – she explained that a Board had been appointed. She further expressed that she was satisfied with the performance of the Agency right now even though it does not have a fully-fledged board.
Mr Somyo raised the point that although he acknowledged that there was now a permanent CFO, the signing off of financials were signed by the Acting CEO and the Chairperson.
Mr Luvuyo Keyise, SITA Executive Caretaker and Administrative Authority, confirmed that Mr Molatlhegi Kgauwe had been appointed after 31 March, so the signing of the financials included the then acting CFO who was acting during the period of the financials.
Mr Somyo asked for confirmation that the CFO had been acting at the time.
Mr Keyise could not confirm the period.
Minister Ndabeni-Abrahams confirmed that by the time the financials were signed off, Cabinet had not undertaken the process of filling vacancies.
Mr Somyo reiterated that all the questions that will be posed towards the Minister would be based on the current audit for the 2019/2020 financial year and reference would be made to the outcomes of that audit as confirmed by the AG.
He asked for the focus to be placed on the area that relates to the gross misstatements and the failure to follow the GRAP 31 and GRAP 3 in terms of the determined public entity assets which were somewhat listed outside that format, which has shown insufficient and appropriate audit evidence to support the assumptions made by the public entity.
Mr Keyise asked that the question be posed to the CFO, especially the question on the GRAP implications and what actions had been taken since then.
Mr Kgauwe said that in terms of qualifications, it was normally regarded as a management judgment. In terms of the process of irregular expenditure, the Supply Chain Management had appointed a service provider to assist.
Mr Somyo asked for the reasoning and misstatement in as far as listing irregular expenditure reported as well as clarity on how the CEO was planning to rectify this. He further asked if there was a service provider that had been appointed to help with FAIS mining.
Mr Keyise clarified that a company had been appointed to assist with reviewing all the documentation and that going forward, SITA had implemented controls to prevent irregular expenditure. He went on to explain that it had already appointed a Contract Management Discipline including a Manager and Head of Department (HOD) who is responsible for the management of contracts. Another intervention that SITA had made was to not issue payments for suspicious invoices and understanding the contract of the issued invoices.
Mr Somyo asked whether Mr Keyise was satisfied with the improved control environment.
Mr Keyise confirmed that he was satisfied and that currently there was real consequence management.
Mr Somyo raised the question of the R2.2 billion wasteful expenditure and whether the delay was from SITA’s side on it issuing a condonation. He asked what the impediment was towards holding such a functional administrative process.
Mr Keyise responded by saying that part of the process was the work SITA was doing to review all of those irregular contracts. The presentation submitted to the Committee provided half of that irregular expenditure which has already been condoned by National Treasury, who also confirmed that SITA had implemented all the necessary consequence management around that irregular expenditure. R1 billion has already been condoned and an additional R553 million has been submitted for additional condonement to National Treasury as it had finalised all the work-related irregular expenditure.
Mr Somyo raised the point that although the breakdown of irregular expenditure was given, the names of the service providers involved were still not provided and also going forward, how was SITA planning to ensure that there were measures in place for accountability?
Mr Keyise confirmed that SITA had changed the reporting structure to ensure that the full names were included, and that the consequence management is also conducted.
Mr Somyo proceeded to list the questionable contracts which had been highlighted to be lagging behind on the accountability system. He further went on to explain what the criteria was for contract renewals and the tendering process.
Mr Keyise responded that the contracts being referred to were the broadband contracts which accounted for 45% of the total cases of irregular expenditure. There were problems of contract management and how mch was spent in the masterplan agreements with the broadband service providers. SITA has now changed its visibility on the contracts.
Mr Somyo raised a question related to capacity or on direct unreliable managerial practice in relation to services provided – he wanted to hear SITA’s opinion on this poor management and failure of consequence management.
Mr Keyise explained that on the telecoms business or the network services business, these contracts were being run by techies with the lack of proper project management, contract management discipline and expertise. SITA had been assisting government departments and connecting them but failed to manage the basics of contract management – this has since been implemented. These are basic practices which should have been implemented. Basic project managers and finance people have been made available to do this work of contract management to delivery services.
He stressed that SITA was now enforcing real consequence management instead of just issuing warning letters – an HOD was demoted to senior manager and others had salaries docked as a way of real consequence for these glaring failures. Some of the executives in this space have also resigned as a result. People need to be fired and where this is loss, it needs to be recovered.
Mr Somyo pointed out that giving an individual three written final warnings, and then proceeding to demote the individual, did not seem like an appropriate consequence.
Mr Keyise said that all those disciplinaries were run concurrently for all the irregularities that were found for all of the instances that were in the broadband contract. The person received two written warnings, and one final written warning including a demotion, and a deduction of salary. The challenge is that there already was consequence management implemented for the affected individual, so he was not able to put that individual in another disciplinary hearing, but if there is any additional bad behavior, irregularity, whatever it is, then the individuals would face a full disciplinary hearing and there would be dismissal.
Procurement less than R10 million needs to be explained in context because SITA deals with almost 1 000 requests for procurement in a year's period, so it is prudent to make sure there are efficiencies put in place to make things move quicker.
Mr Somyo asked to be furnished with a list of role players in the online function up to the Executives and their status as far as vetting is concerned. He went on to further ask if clearance certificates were available for each of them.
The Minister responded that Cabinet was still awaiting security clearance and that would be take up to six months.
Mr Somyo asked for a list of the vetting process.
Minister Ndabeni- Abrahams responded that she would revert to the SOE branch which is responsible for administration.
Ms Van Minnen referred to the mandate of SITA and wanted clarity on the issue of property, plant and equipment. She also asked for some clarity on the control systems in place and the valuing of the property, plant and equipment because it was noted that as of 2019, the plant and equipment was stated as having a value of R879 million. She asked for a reaction to the concerns raised by the AG.
Mr Kgauwe explained that the valuation came down to annual accounting standards, that if an asset has eight years for example, useful life must be reassessed. In order to record its assets, SITA is using the Oracle system.
Ms Van Minnen asked for clarity on the Oracle System that is being utilised.
Mr Kgauwe explained that the system is aligned to GRAP compliance.
Ms Van Minnen moved on to ask about intangible assets and what those would comprise of.
Mr Kgauwe explained that the intangible asset is a fixed asset based on access.
Ms Van Minnen asked how intangible assets are recorded and stored.
The CFO responded that with intangible assets, if their useful life is three years, there is a need to apply as much judgment as possible over fixed assets.
Ms Van Minnen asked for clarity regarding intangible assets and plant and the concern around assumptions being made by the public entity, and how it was possible to check up on intangible assets whereas with a physical asset it was possible to go and check the property.
Mr Kgauwe explained that in essence, the AG had said that when it assigns value to an asset, it did not clearly link future cash flows to it. So the AG wanted to audit it and see how it can measure the value against the future cash flows to see if SITA can still actually get the value for the assets in the books.
Ms V Mente–Nqweniso (EFF) pointed out that some companies were not meeting the requirements as per SARS and that this was a matter of concern thus whichever official that had committed those transgressions was well aware of the standing regulations and laws that are governing the expenditure framework in terms of procurement. In terms of contract management, in February, Treasury issued a concerning report, where variations and extensions were requested, and it had to turn down a number of them for a number of projects. She wanted to find out if the SITA chairperson had addressed the officials involved in this malice, as well as create their own laws in a space where there are direct and clear laws to govern where procurement is concerned?
Mr Keyise pointed out that he had addressed the lack of proper contract management and that for the employees that are already within the organisation, SITA had already implemented consequence management. The challenge was that he does not have legal powers to address these officials again as the matters had already been tried or provide harsher sanctions. He believed some of the sanctions that SITA has been handing out over the years were very lax.
The Chairperson asked if there was a list of what would constitute a dismissible offence at SITA.
Mr Keyise said that SITA was taking a stance that it would not defend wrongdoing going forward and that it would not be scared to give documents to law enforcement agencies. Instead, it would partner with these agencies and voluntarily give them the information that they uncover in their investigations. Dismissible offences included wasteful expenditure and that instead of just dismissing the offender, SITA would work towards recovering the funds.
The Minister thanked all the Committee Members for their engagements. She made reference to the request on the security clearance reports and said that the POPI Act might be a factor to consider and that it was important get consent from the individuals concerned. If people were found guilty of corruption, criminal charges would be laid against them.
The Chairperson thanked all the Members and made a clear distinction that the hearing was assertive instead of aggressive.
The meeting was adjourned.
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