DCDT, GCIS, MDDA & SABC 2020/21 Annual Reports; with Ministry

Meeting report

The Chairperson said the current climate with the pandemic demanded a lot of energy, especially with the local elections which were now finalised. This should inspire Committee Members and public representatives to continue to work in the best interests of South Africa. The Committee looked at the work done in the previous financial year and also the interventions made.

Auditor-General of South Africa (AGSA) on the Audit Outcomes and Recommendations Report 2020/21

Mr Andries Sekgetho, Business Executive, Auditor-General of South Africa (AGSA), gave an overview of what the audits entailed. The annual audits dealt with three areas, as per slide eight: fair presentation and absence of significant misstatements in financial statements; reliable and credible performance information for predetermined objectives; and compliance with all laws and regulations governing financial matters. He explained how AGSA expresses the different audit opinions.

The AGSA audit outcome report revealed the overall outcomes of nine auditees. It regressed, as SENTECH and the Department of Communications and Digital Technologies (DCDT) did not maintain its unqualified financial audit opinion with no findings, meaning it was not a clean audit. SENTECH regressed because of inadequate controls. DCDT, which is the merged department of Department of Telecommunications and Postal Services (DTPS) and the Department of Communications (DOC), regressed because material non-compliance findings were raised in the new Department. The Universal Service Access Fund (USAF) regressed from qualified to a disclaimer. USAF entered into an implementing agent arrangement with SENTECH in the current year, to install the set-top box (STB). There were no controls over the number of STBs, and there was no supporting documentation. This resulted in qualification areas which were material and pervasive. The South African Broadcasting Corporation (SABC) showed stability in leadership and strengthened internal controls, which reduced the number of qualification areas. The one qualification which remains is on completeness of irregular expenditure, resulting from opening balances. This remains a matter of ongoing concern. The predetermined, objective material findings of the DCDT and USAF resulted from there being no adequate internal control processes implemented by the role players.

Recommendations

SENTECH must implement daily and monthly closure controls and controls over payments. The action plans implemented must be followed up on.

DCDT must implement daily and monthly closure controls and implement consequence management processes. USAF must implement proper record keeping and monthly reconciliations.

The AGSA said there are key matters to note and there are outstanding audits on the South African Post Office (SAPO), Postbank, and the State Information Technology Agency (SITA). SAPO failed to manage a healthy financial position. The South African Social Security Agency (SASSA) contract and the split between the Postbank and Post Office resulted in the entity receiving a disclaimer of opinion, with 17 limitations on scope issues which formed the basis of the audit in 2019/20. The current annual audit for SITA started late because of the late sign off of the prior year’s audit and availability of the audit team. As part of the audit process, management is awarded an opportunity to correct material misstatements identified. The auditors are auditing the material corrections and adjustments which were effected by management.

The prior year’s audit of Postbank was also signed off late on 5 July 2021, resulting in significant delays in the 2020/21 audit. The auditors are currently auditing the material adjustments to financial statements. Key matters include: SAPO is invested in surviving the next salary run due to its insolvency situation. This results in it missing opportunities to turn around its business. The entity does not have sufficient resources to build capacity to plan and implement its turnaround strategy and proper internal controls. Postbank is still in the process of applying for a banking licence. The extension of the audit period was successful in improving the 2019/20 audit outcome from a potential disclaimer to a qualification. This was also as a direct result of the lack of planning for the split from SAPO in the previous year. Despite addressing many areas, the entity was still qualified in the current year due to inadequate controls on the other deposits and corresponding liabilities.

Recommendations

To ensure the entities within the portfolio receive a clean audit outcome, good practices must be implemented. This includes leadership culture, committed to taking action to address any findings identified and supported by adequately resourced and skilled staff; leadership oversight to be entrenched in the organisation; and continuous implementation and monitoring of internal controls over financial and performance reporting. The Portfolio Committee should enhance annual monitoring processes to ensure good practices are implemented and maintained by all entities in the portfolio. The accounting officers or accounting authorities must ensure strengthened preventative controls to identify noncompliance, effective monitoring and oversight by the audit committees, and review the actions plans thoroughly to ensure it addresses the root cause.

Ms Surette Taljaard, Senior Manager, AGSA, presented a detailed analysis on credible financial reporting, credible performance reporting, and compliance with legislation. She reported on the quality of annual financial statements (AFS). The Independent Communications Authority of South Africa (ICASA) and Broadband Infraco SOC (BBI) submitted financial statements which did not contain material misstatements and this is commendable. The SABC and USAF submitted financial statements which contained material misstatements and was qualified, or disclaimed.

The misstatements mainly affected are:

-SABC: the completeness of the irregular expenditure in the opening balance.

-USAF: accounting by principals and agents and the completeness of related parties, provisions, commitments, and inventory.

The material misstatements on the AFS were because of inadequate reviews by management prior to submission for audit. The majority of the material misstatements identified were on disclosure notes, lack of adequate action plans to address internal control deficiencies, and preventive control measures not effective to reduce repetitive findings.

Recommendations

-To continue work through audit committees to ensure management implements and enhances processes of review of the financial statements.

-The internal audit must review the AFS disclosure notes effectively.

-The developed actions plan must be thoroughly reviewed to ensure it addresses the root cause. -Effective monitoring and oversight by the audit committee is also critical to ensure these repeat findings are prevented in the next financial year.

-On legislation compliance, seven auditees received an unqualified audit opinion, whereas SABC was qualified, and USAF was disclaimed.

-There is an overall improvement in supply chain management (SCM) compliance. All SCM findings should be investigated.

The total irregular expenditure incurred during the year amounts to R311million for the nine auditees identified in the current year. The irregular expenditure mainly relates to non-compliance with Preferential Procurement Regulation 2017, failure to follow a competitive process, and payments made without contract. R21million of debt was incurred by the SABC, which mainly relates to interest and penalties on late payments, and rental paid for unoccupied office space. R2.9billion relating to the SABCs irregular expenditure balance awaits condonation, subject to further investigation. The SABC is currently engaging National Treasury (NT) to determine the process going forward. Disciplinary steps were not taken against officials from DCDT, USAF, and Universal Service and Access Agency of South Africa (USAASA) for incurring irregular expenditure, as investigations were not performed

The total fruitless and wasteful expenditure which was identified during the financial year for the nine auditees combined amounts to R41million. In the current year, the SABC contributed to 50 percent of the total fruitless and wasteful expenditure. It was investigated because material non-compliance in consequence management was noted in the audit report. Disciplinary steps were not taken against officials from USAF and USAASA who incurred fruitless and wasteful expenditure, because investigations were not performed. The presentation also looked at material irregularities, governance, and controls.

Mr Sekgetho provided a going concern analysis for the SABC and SAPO as at 30 September 2021, and a turnaround plan for financial sustainability and governance for SAPO. The audit outcomes for GCIS and MDDA reveals clean audits for both entities. MDDA met 16 out of 18 targets, which amounts to a percentage of 89 percent, and GCIS had set 48 annual targets of which 42 was achieved. This amounts to 88 percent. For recommendations to entities within the communications and digital tech portfolio on how to deal with poor systems of internal controls preventing improvement in audit outcomes, see attached presentation.

Discussion

The discussion was disrupted by poor connection because of load shedding. The Chairperson thanked the AGSA for appearing before the Committee and clarifying matters. The Chairperson reminded Members to complete the satisfaction surveys from the AGSA to the Committee Secretariat as this will guide the AGSA on how to improve reports and presentations to Committees.

While waiting for the Minister to connect, the Chairperson reminded the Committee about the draft programme being amended to accommodate SAPO and SITA. SAPO and SITA will present on Wednesday. The appointment for the vacancy on the SABC board needs to be finalised and the interviews for the vacant posts at the MDDA are finalised.

Overview by Minister in the Presidency, Minister Mondli Gungubele

Minister Gungubele said he is following in the footsteps of two predecessors in the year under review. He said former Minister in the Presidency of South Africa, Mr Jackson Mthembu, who passed away in January 2021, was an outstanding and admired leader, a dedicated, exemplary Member in the National Executive, and leader of the GCIS.

The first day of April was far from an ordinary start to the financial year. There was a nationwide lockdown because of the corona virus. Thousands of lives were lost during the pandemic, businesses closed, and the poor were getting poorer. The government responded with comprehensive and innovative health and social assistance to support and protect livelihoods. As Chairperson of the African Union, South Africa played a significant role alongside government in mobilising continental and global resources to protect lives and livelihoods.  At the heart of these changes in the South African economy and society was the GCIS, who coordinated the national and international programme of communication. The pandemic impacted all set targets of government and brought unprecedented challenges. This demanded responsiveness and responsibility. The GCIS responded to these challenges with a range of innovative ideas and coordinated government communication on all platforms. It focused on ways to help South Africans understand the seriousness of the threat of an unseen virus.

The GCIS worked with technologists and behavioral scientists to empower the nation. It provided information on how best to protect oneself. Information sources were developed for economically vulnerable citizens to gain access to the broad range of economic and social relief measures. All communication extended to global communication to ensure people could understand this national state of disaster. Partnerships were formed with mobile networks, global social media companies, communicators, and civil society, including organised labour, businesses, faith-based communities, and traditional leadership. This ensures messages were relevant, clear, and consistent. GCIS explored the possibility of working and communicating remotely. The year 2020/2021 impacted on communication not only on the demand side but also the human side. During this period communicators were lost at national and provincial level and throughout South Africa. GCIS was active with the Inter-Ministerial Committee, the network publication stream on the Covid-19 programme, head media briefings, and public hearings. The GCIS coordinated virtual platform engagements, facilitated technical support to the President, and the Deputy President. GCIS profiled the actions of government through its own communication platform and mobile communicators across government. This includes showcasing the launch of new infrastructure projects, new investments in the country, the fight against gender-based violence (GBV), and the spectrum of economic opportunities to young South Africans. These were all done with the backdrop of GCIS campaigns and editorial agendas. The GCIS coordinated a national communications partnership and brought communicators from government and civil society together during the pandemic. GCIS provided oversight on media development and diversity aimed at growing the media sector in South Africa. This is to ensure the media sector is not greatly disrupted by the pandemic.

Government Communication and Information System (GCIS) on its 2020/21 Annual Report and Financial Statements

Mr Michael Currin, Acting Deputy Director–General (DDG): Intergovernmental Coordination and Stakeholder Management, GCIS, said the video presented was a visual representation of the year. It was no ordinary year and adaptability and flexibility was necessary. The GCIS achieved 40 of 47 planned targets, which is an 85 percent performance.  In programme one, a performance of 90 percent was achieved, in programme two a performance of 75 percent, and in programme three, an achievement of 100 percent.

Ms Gcobisa Soci, Chief Financial Officer (CFO), GCSI, gave an overview on finances. GCIS spent R7.12 110million of the total budget of R7.25 140million. This was 98.2 percent of the total budget. Programme One resulted in 99,1 percent spending of the total budget, Programme Two resulted in 98.6% in total spending, and Programme Three resulted in 98,2 percent of total spending. The vacancy rate was reduced from 1.49 percent in 2019/2020 to 8.44 percent in 2020/21.

Mr Tyrone Seale, Acting DDG: Content Processing and Dissemination, GCIS, gave an overview of the underachievement. GCIS achieved 92 percent of its target to process payment of invoices within the stipulated 30 days.  This was because of SCM being affected by Covid-19, resulting in the closure of the whole section, more than once.

Speaking on the annual production plan of 15.4 million copies of Vuk’uzenzele Publication, GCIS was short by 850 000 copies. This was because of total lockdown during production. On the online print of the Public Sector Magazine (PSM), GCIS managed to produce 10 issues for the period.  The outstanding issue was only approved after the end of the financial year.

The planned photographic assignment of 450 only reached 366, a total of 81 percent assignment.  This was because of less outdoor activities during this period. The appointment of Members of the Matabeleland AIDS Council (MAC) was finalised after the end of the financial year. The under-achievements highlighted were largely occasioned by Covid-19, which impacted negatively on a number of areas.

[See attached presentation for details]

Media Development and Diversity Agency (MDDA) on its 2020/21 Annual Report and Financial Statements

Mr Hlengani Mathebula, Chairperson, MDDA, was present at the meeting.

Ms Zukiswa Potye, Chief Executive Officer (CEO), MDDA, said regarding governance, the MDDA was awarded a clean audit outcome for the 2020/21 financial year.  Parliament appointed four board members in September 2021, and by the end of the year the 27 percent vacancy rate for 2019/20 decreased to 7.3 percent. MDDA paid over R18 million to SENTECH, towards beneficiaries signal distribution costs.

MDDA staff ended 2020/21 working remotely from home, in line with government’s national lockdown requirements. There were no fatalities and three positive cases were reported. COVID-19 messages were sent to rural communities. The MDDA achieved a clean audit for the year 2020/21 with a performance of 89 percent, with two targets not met; this includes the launch of the sustainability model.

Mr Yaseen Asmal, Chief Financial Officer (CFO), MDDA, gave an overview and summary on the finances for the year 2020/21.[See attached presentation for details]

Discussion

Mr Z Mbhele (DA) and Ms Z Majozi (IFP) applauded the efforts and progress made by the MDDA. Ms Majozi also said the GCIS has never disappointed, and the Committee is pleased and happy with the communication which took place during this pandemic. The communication and messages should continue even if the alert levels are lowered. The momentum must be kept up to ensure there is awareness.

The Chairperson agreed with the Committee Members about the GCIS and the MDDA. The Chairperson referred to transformation, to developments with the appointment of a board member to the MDDA, and the importance of leadership. This was especially challenging during Covid-19. Addressing the Minister, he said the message by Ms Majozi is important to ensure momentum with communication keeps up.

Ms Thembi Siweya, Deputy Minister in the Presidency, said it could not happen without the Committee or without leadership. The Department acknowledged the findings and recommendations as presented by AGSA and will attend to it accordingly. During the pandemic the GCIS was able to stabilise the filling of vacancies. It is important to place skilled people. The country is currently on alert level one, but the communication and momentum must continue. The messages on vaccines and GBV must still be communicated to educate and empower. Support and guidance from the Committee is appreciated.

Department of Communications and Digital Technologies (DCDT) on its 2020/21 Annual Report and Financial Statements

Overview by Deputy Minister of Communications and Digital Technologies, Mr Philemon Mapulane

Deputy Minister Mapulane said his two months in the Department started off with orientation on tasks and getting familiar with the challenges at hand. He was not part of the team leading the Department for the year under review however, 16 out of 32 set targets were met. The Department received an unqualified audit opinion and developed an action plan to address findings. As reported by AGSA, the findings relate to the outstanding issues coming from the Department of Communications. This was a result of the merger between the two departments. The Department got approval for the Digital Economy Master Plan and commenced with the identified priority areas. The Department provided broadcasting services to 970 sites through SA Connect and the feasibility study for Phase Two was finalised with the assistance of Development Bank of Southern Africa (DBSA). On cyber security, he said the Department was able to establish a legal entity which serves as a response team for the mobile operating sector.

The Department is also in the process of developing a cyber security strategy together with stakeholders. With the National Electronic Media Institute of South Africa (NEMISA) the Department was able to develop a Digital and Future Skills Strategy. Organisational structure is an area of under-achievement. There is no formal structure in place which speaks to the new department. This is in the process of being analysed. The Department is working on a new operating model which identifies particular work streams which would inform the new organisational structure. An area of under-achievement in the Department is the tabling of legislation, however progress was made and the legislation will be tabled in Parliament. The other under-achievement is the formalisation of the Performance Management System (PMS) for ICASA councilors. The draft Performance Management System is ready and ICASA requested a final engagement. The policy direction on the 5G spectrum is an area of under-performance. It was not possible to finalise it because of ongoing litigation. The matter was settled now and ICASA is in the process of finalising the allocation of spectrums. The finalisation date for the spectrums is end of March 2022. Another area of under-achievement is the Broadcasting Digital Migration (BDM) programme, but hopefully with the new revised plan it will be met by 31 March 2021. The Department was impacted by Covid-19 and the Director-General will be able to provide further insight on these challenges.

Ms Nonkqubela Jordan-Dyani, Acting Director-General, DCDT, said departments were faced with numerous challenges during the lockdown period and this resulted in a number of delays. The performance of the Department showed only 50% of planned targets were achieved. With the merger of the two departments and the new organisational structure, the Department was able to implement the workplace skills plan (WSP) through both individual training interventions and corporate (in-house) training, in alignment with the DCDT mandate. The Department developed the Integrated DCDT Digital Transformation Strategy and monitored the implementation of priority interventions.

Ms Joy Masemola, CFO, DCDT, said the Department received 28 audit findings. An audit action plan for all the findings was developed. Progress will be monitored on a monthly basis and presented in the relevant governance structures.

The audit findings as presented by AGSA relates to performance information on the BDM project. The achievements reported could not be verified by AGSA. The action plan includes the recruitment of workers to strengthen data collection, monitoring, and reporting. The second audit finding was on the misstatement of financial statements and irregular expenditure.

The total expenditure as at 31 March 2021 was 96.5 percent. Under-spending was mainly due to the vacant posts not being filled, salary adjustments not being paid during the financial year, projects not implemented, and overall reduction in international and local travel due to lockdown restrictions.

[See attached presentation for details]

South African Broadcasting Corporation (SABC) on its 2020/21 Annual Report and Financial Statements

Overview by Deputy Minister Mapulane

The Deputy Minister said the SABC stabilised, but shares the AGSA’s concern about poor financial performance. The dispute between the SABC and SENTECH regarding the distribution costs was referred to the Competition Commission and ICASA. The Minister suggested this needs to be resolved internally as it falls within the same portfolio. This process of engagement continues between the SABC and SENTECH.

The AGSA also presented on the going concern status of SENTECH, as it relies heavily on the revenue it obtains from the SABC.

As at the end of March 2021, the SABC implemented 74 percent of the turnaround plan key actions.

By 30 September 2021, 80 percent of the key actions were implemented.

The SABC achieved 11 targets out of 26 planned targets, which is a total performance of 42 percent. This performance is lower than previous years and is the result of the Covid-19 pandemic, with challenges in the Supply Chain Management areas. Another concern under the period of review is that only 73 percent of staff signed performance contracts.

The SABC reported on generating a total revenue of R5billion and a total operating expenditure of R5.6billion as its net loss. It reflected more effort and initiatives should be in place to generate revenue. There are challenges with the achievement of targets, but SABC is in the beginning stages of seeing stability. The SABC can be sustainable if the areas around financial performance can be addressed.

Mr Bongumusa Makhathini, Chairperson, SABC board, said the SABC team is very optimistic, especially with the support from the Minister and Deputy Minister. AGSA reported governance, systems, and internal controls are in place and the SABC is showing stability.

Ms Yolande van Biljon, CFO, SABC, agreed about SABC showing stability. The SABC was able to reduce expenditure, but revenue declined. Advertising revenue was R7.41million lower than the prior year due to the trading restrictions and market anxiety from the Covid-19 pandemic. Total expenses declined by R 6.34million, which is 10 percent, and was driven by employee costs, broadcast costs, depreciation on assets, and direct costs. The SABC put a dedicated team in place to address AGSA audit findings. Initiatives focused on the opening balance and consequence management were put in place.

Irregular expenditure (IE) significantly decreased in comparison to previous financial years. Fruitless and wasteful expenditure decreased by R6.1million. The most significant decrease recorded was for interest, penalties, and fines on late payments, which amounted to R18.1million. The Audit Outcome Analysis showed the SABC regressed as the Performance Information Qualification re-emerged. The main contributor was the deficiencies in the system used to report on percentage of local music.

[See attached presentation for details]

Discussion

Mr L Molala (ANC) said the SABC is making strides but the AGSA report reveals new amounts of irregular expenditure. The SABC cannot ignore this. He asked what action SABC will take against people involved in irregular expenditure, and also asked for an indication of timelines.

The regression in performance at the DCDT is because of the integration of the two departments into one department. He asked why there was material non-compliance, and now that the departments are one, he wanted to know if it can finalise the organisational structure.

Responses

Ms van Biljon said there were consequence management initiatives as well as initiatives undertaken to address the occurrence of irregular expenditure. Lessons were learned from previous audits, committees were formed, and members were appointed. There is regular training on SCM and regular financial reviews are conducted. Training is conducted internally and externally. A Compliance Department has been established

Ms Masemola said non-compliance relates to the assessments not finalised by the previous departments. The assessment is currently finalised and the report will be submitted to the Acting Director-General for the approval of consequence management.

Ms Jordan-Dyani said there is instability with the current organisational structure. There is a revised look into the areas and it should focus on a new operating model.

A draft structure in consultation with the DPSA was developed but the Department cannot provide timeframes as engagements and consultations are still in progress.

The Chairperson asked the Ministers and the Department for timeframes. On paper the departments are one, but it is still operating as two. These challenges are dependent on timelines and Committee Members seek clarity as these gaps need to be addressed.

Deputy Minister Mapulane said the SABC is showing more stability in making sure it executes its public mandate. Consultations took place and were concluded. It is the intention to finalise and get a set date which would inform the strategy. Hopefully the strategy will be completed before the end of the financial year. The revised plan on Broadcasting Digital Migration (BDM) will be reported on at an appropriate time, when the Committee will be briefed on updates, efforts, and progress.

The Chairperson said it is important to monitor action plans with the timeframes as presented. The Committee cannot wait for the findings by the AGSA. There must be monitoring within departments and entities. The Committee gave directions on starting points on progress monitoring, and the implementation of action plans. A new date will be set for the Department to brief the Committee on the turnaround strategy on digital migration.

Consideration and Adoption of Fourth Term Draft Committee Programme

The Committee adopted the Fourth Term Draft Committee Programme with amendments.

The meeting was adjourned.