1. The Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Telecommunications and Postal ServiceS, dated 23 October 2018
The Portfolio Committee on Telecommunications and Postal Services (PCTPS), having considered the financial and non-financial performance for the year 2017/18 of the Department of Telecommunications and Postal Services (DTPS) and entities reporting to it, reports as follows:
One of the policy goals of the Department of Telecommunication and Postal Services (DTPS) is to make telecommunications services accessible and available to the widest number of people at affordable prices. To this end, the Electronic Communications Act (No.36 of 2005) introduced a converged, unified licensing regime and witnessed the surge of hundreds of alternative service providers. Other technologies have since emerged including the Internet of Things (IoT).
Although broadband is defined differently in various countries given the level of bandwidth provided in these countries, it is, however, commonly defined as “always on access, at work, at home or as provided by a range of fixed-line, wireless or satellite technologies with higher bandwidths capable of supporting genuinely new and innovative interactive content, applications and services and the delivery of enhanced public services".
- Mandate of Committee
Chapter 4 of the Constitution of the Republic of South Africa gives Parliament the right to initiate, pass or amend legislation, to conduct oversight over the Executive and also to facilitate public participation during the law-making process as determined by Parliament. The Portfolio Committee on Telecommunication and Postal Services serving as the “engine room” of the legislative process may also investigate any matter of public interest that falls within its scope of responsibilities especially within the ICT sector.
The Committee is also guided by the Rules of Parliament to conduct an oversight role over the Department of Telecommunications and Postal Services and its entities; facilitates the passing of legislation; and approves annual departmental budgets. Moreover, the role of the Committee is to consider the Budgets, Strategic and Annual Performance Plans of the Department and its entities.
- Purpose of the BRRR
Section 42(3) of the Constitution of the Republic of South Africa (No. 108 of 1996) bestows the oversight function over the national executive to the National Assembly (NA). The National Assembly Committees are required in terms of Section 5 of the Money Bills Amendment and Related Matters Act, 2009 (Act No. 9 of 2009) to annually assess the performance of each national department and thereafter submit a Budgetary Review and Recommendations Report (BRRR) that will provide an assessment of the Department’s service delivery performance given available resources as well as an assessment of the effectiveness and efficiency of the Department’s use and allocation of available resources.
The purpose of this report is to account in accordance with Rule 166 of the Rules of the National Assembly for work done by the Committee in considering the 2017/18 Annual Report of the Department which was submitted in accordance with Section 40(1) of the Public Finance Management Act ( No. 1 of 1999) and as referred by the Speaker of the National Assembly to the Committee in terms of Rule 338.
The BRRR should be considered by the Committee on Appropriations when it is considering and reporting on the Medium-Term Budget Policy Statement (MTBPS) to the House in November of each year and should be submitted to the Minister of Finance and the relevant portfolio Minister.
The Act also requires Committees in the National Assembly to annually submit their BRRR after the adoption of the Appropriations’ Bill and before the adoption of the reports on the Medium-Term Budget Policy Statement (MTBPS). The BRRR and the reports on the MTBPS serve as a performance assessment of the department that will determine whether amendments are necessary in terms of budget increases or not it is introduced the following financial year. In fact, when the Minister of Finance introduces the Annual National Budget, a report to Parliament is submitted setting out how the Division of Revenue Bill and the national budget gives effect to, and the reasons for not taking into account, the recommendations contained in the BRRR and the reports on the MTBPS.
The purpose of this report therefore is also to provide an account of the work done by DTPS and its entities during the 2017/18 financial year. The focus is to highlight key achievements as well as challenges encountered as reported in the 2017/18 financial year, to establish whether the Department and its entities have achieved their aims and objectives as set out in their Annual Performance Plans, such as:
- Medium-Term Estimates of expenditure, its strategic priorities and measurable objectives;
- Expenditure reports relating to such departments published by National Treasury in terms of Section 32 of the Public Finance Management Act;
- Financial statements and annual reports of such departments;
- Reports of the Committee on Public Accounts relating to the department; and
- Any other information requested by or presented to Parliament.
Furthermore, the report also includes reference to the recommendations made in the BRRR of the previous financial year 2016/2017 to indicate whether the Department and its entities did implement the committee’s recommendations contained in the BRRR.
Finally, it summarises the observations made by the Committee after considering all the necessary and supporting documents as well as presentations and observations made during oversight visits and/or public hearings.
The Annual Reports of the Department and all entities were submitted to the Speaker, in terms of section 40(1) of the Public Finance Management Act, Act 1 of 1999, as amended. The Committee held meetings on 9, 16 and 23 October 2018 to deliberate the annual performance report and financial expenditure of the Department and its entities.
Since the tabling of the annual reports, the Committee invited the Auditor General of South Africa (AGSA) to make a presentation and this was followed by meetings with the Department and its entities which were South African Post Office (SAPO), the State Information Technology Agency (SITA), Broadband Infraco (BBI), and the Universal Access and Services Agency (USAASA). The committee did not call SENTECH, National Electronic Media Institute of South Africa (NEMISA) and .ZADNA but requested these entities to send written submissions.
The Committee consulted various sources to make objective and informed assessments and recommendations on the Department’s performance during the 2017/18 financial year. The source documents consulted are:
- The 2017 State of the Nation Address (SoNA);
- The DTPS Strategic and Annual Plans 2017/18;
- The Annual Reports and Financial Statements for 2017/18 for entities reporting to the Department;
- The Strategic Plans and Annual Performance Plans of the entities that fall under the DTPS, as well as their Annual Reports and Financial Statements for 2017/18;
- Auditor-General of South Africa reports presented before the Committee on the audit outcomes of the Department and entities reporting to it;
- The National Development Plan;
- National Treasury Section 32 Reports;
- The 2016/17 BRRR; and
- Minutes and Reports of the Committee
- Department of TELECommunications AND POSTAL SERVICES (DTPS)
5.1Overview of DTPS
The Department of Telecommunications and Postal Services is mandated to develop ICT policies that create conditions for an accelerated and sustained shared growth for the South African economy and to ensure the development of a robust, reliable, secure and affordable ICT infrastructure. The policies must contribute to the development of an inclusive information society in which information and ICT tools are key drivers of the country’s economic development.
The Electronic Communications Act (No. 36 of 2005) allows the Minister of Telecommunications and Postal Services to draft policies to fulfil South Africa’s obligations under bilateral, multilateral, international treaties and conventions. The Act sets out guidelines for the determination of certain licence fees by the Independent Communications Authority of South Africa (ICASA); that promote universal service and electronic communications services in underserviced areas; the participation of small business in the ICT sector, and also enhances the capacity of and exercises oversight over State-owned companies. The department also contributes to building an ICT skills base in the country to ensure equitable prosperity and global competitiveness.
In addition to the Electronic Communications Act (No. 36 of 2005), the department’s mandate is derived from the following legislation:
- the Electronic Communications and Transactions Act (2002);
- the Sentech Act (1996);
- the Postal Services Act (1998);
- the South African Post Office SOC Ltd Act (2011);
- the South African Postbank Limited Act (2010);
- the State Information Technology Agency Act (1998); and
- the Broadband Infraco Act (2007).
- During the 2017/18 financial year, the Department focused on the following strategic programmes:
5.2.1 Implementation of the National Integrated ICT Policy White Paper
As part of implementing the National Integrated ICT Policy White Paper, the Department focused on the development of priority Bills which included the Electronic Communications Amendment Bill, Postal Services Amendment Bill, iKamva Digital Skills Institute Bill, ICT Sector Commission and Tribunal Bill and Digital Development Fund Bill. Cabinet approved the publication of the following bills for public comment: Electronic Communications Amendment Bill, Postal Services Amendment Bill and iKamva National Digital Skills Institute Bill. There was only four submissions for public hearings for the iKamva Digital Skills Institute Bill. The committee processing of this Bill is nearing conclusion. Invitations have gone out for public comment on the Electronic Communications Amendment Bill with a deadline for written submissions of 20 November 2018.
5.2.2 National e-Strategy
The Department focused on finalising the National e-Strategy through extensive public consultations in all nine provinces following which the National e-Strategy was presented to Cabinet and approved in December 2017. Furthermore, the National e-Strategy Implementation Plan was also developed in March 2018.
5.2.3 ICT SMME Development Strategy
The Department focused on finalising the ICT SMME Development Strategy. The ICT SMME Development Strategy was presented to Cabinet and approved in the 2017/18 financial year. Furthermore, the ICT SMME Development Strategy Implementation Plan was also developed in March 2018.
5.2.4 e-Government Strategy
The Department focused on finalising the e-Government Strategy. The e-Government Strategy was presented to Cabinet and approved in November 2017. Furthermore, the e-Government Strategy Implementation Plan was also developed in March 2018.
- Overview of the relevant policy focus areas
- 2018 State of the Nation Address
The President, Mr Cyril Ramaphosa in his State of the Nation Address (SoNA) 2018 put emphasis on Information Communication Technology (ICT) to revitalise the country’s economy. The President pointed out that Government would soon establish a Digital Industrial Revolution Commission, that will include the private sector and civil society, to ensure that South Africa is in a position to seize the opportunities and manage the challenges of rapid advances in ICT.
According to the President’s SoNA, the drive towards the digital industrial revolution will be underpinned by the availability of efficient networks, and government in this regard will finalise engagements with the telecommunications industry and other stakeholders to ensure that the allocation of the spectrum reduces barriers to entry, promotes competition and reduces communication costs for the benefit of consumers.
5.4 NATIONAL POLICY FRAMEWORKS
The discourse around the digital divide typically refers to socio-economic inequalities in access to, and use of ICT services. The assumption is that the use of ICT services, particularly the Internet, might result in several beneficial outcomes and that non-use automatically excludes people from full participation in any contemporary society. In the past decade, digital divide discussions have moved from the use or non-use to a nuanced recognition of different types of access, motivation, skills in a discourse that centres on digital inclusion and equality.
Internet access is now considered in terms of quality, ubiquity, and mobility; skills as having technical, social, critical, and creative elements; motivation and awareness of the benefits as determined by both individual and social circumstances; and engagement as driven by the everyday life needs of individuals through content created by and for them so that engagement is effective and sustainable .
At the same time, the National Development Plan and the 2017 SoNA pronounced the goal of 100% connectivity in South Africa by 2020. Therefore, as the Internet and Broadband make their full presence felt in high-impact areas such as healthcare, education and government services, access to digital services will only become more essential for everyone in the years to come.
5.5 THE NATIONAL DEVELOPMENT PLAN (NDP)
The NDP is government’s development plan which aims to eliminate poverty and reduce inequality by 2030. Also, it identifies the ICT sector as one of the main contributors to job creation by reducing the cost to communicate, as well as putting policies and regulations in place. Chapter Four of the NDP, entitled Economic infrastructure - the foundation of social and economic development, focuses on three pillars where the ICT sector has a critical role to play. These are:
- South Africa needs to maintain and expand its telecommunications infrastructure to support economic growth and social development goals;
- Social services and wage goods should be affordable so that the majority can achieve a decent standard of living; and
- There should be channels to influence factors that influence citizen’s well-being.
The underpinning factor to achieve these objectives is a capable state with skilled personnel able to set and implement the state development agenda.
5.6 THE 2014 -2019 MEDIUM-TERM EXPENDITURE FRAMEWORK (MTSF)
The 2014-2019 MTSF, which is a five-year strategic plan of government, forms the first five-year implementation phase of the NDP. The aim of the Framework is to ensure policy coherence, alignment and coordination across government plans as well as alignment with the budgeting process. The MTSF is structured around 14 priority outcomes, which cover focus areas identified in the NDP and Government’s electoral mandate. The BRRR process also includes an assessment of the performance of the Department and entities against the Medium-Term Expenditure Framework (2014-2019).
- EVALUATION OF RESPONSE BY THE DEPARTMENT AND THE MINISTER OF FINANCE
In tabling the Medium-Term Budget Policy Statement (MTBPS) in 2016/17, the Minister of Finance raised the following generic issues and agreed with recommendations made by all Committees’ BRRR:
- Plans to intensify efforts to carry out expenditure reviews aimed at increasing efficiency of spending and combating waste should be supported. In particular, in-house reviews should be complemented by independent expenditure reviews;
- Serious concern should be expressed concerning reduced national efforts to facilitate economic growth through infrastructure-led growth. Reflecting this, growth in the percentage of gross fixed capital formation is lower than the last period; and
- In the medium-term, managerial interventions (controls on automatic pay progression and performance bonuses, reduction in the rate of hiring in non-critical areas) may assist government in its commitment to ensuring that the upward trend in the wage bill does not adversely impact its budget deficit targets.
- 2018/19 COMMITTEE BUDGET REPORT
The Committee considered the Strategic Plan of the DTPS and its public entities for the 2018/19 financial year, and it was satisfied with the Annual Performance Plans for 2018 – 2019 of the Department; USAASA; .ZA Domain Name Authority; SAPO; SENTECH; Broadband Infraco; SITA and INeSI. The Committee, however, recommended that the Minister ensures:
- That guidance is provided to entities such as USAASA, Nemisa and SAPO so as to enable them to deliver on their public mandates;
- That all vacant positions are filled within the required timeframe;
- That all entities under the department’s jurisdiction are held accountable to the Specific, Measurable, Attainable, Relevant and Time-based (SMART) performance criteria;
- That the Supply Chain Management policies and procedures are revised to align them with new regulations and that all expenditure deviations are justified in accordance with National Treasury regulations;
- That Standard Operating Procedures are developed to outline key deadlines and processes to be followed in order to ensure overall alignment between reporting units;
- That all entities comply with strategic risk assessments and continuously update their risk register;
- That the department’s role in the Broadcasting Digital Migration programme is more defined and that a proper assessment of procurement processes is undertaken;
- That an efficient partnership and collaboration between Broadband Infraco, USAASA, Sentech and SITA is established for the planning and delivering of the necessary infrastructure to fast-track the delivery of the SA Connect project;
- That the implementation of the e-Government Strategy caters the needs of people with disabilities;
- That investigations pertaining to irregular expenditure take place, and this is done expeditiously and all those found to be in breach of the PFMA are held accountable;
- That there are continuous engagements with the Minister and National Treasury to resolve operational and funding requirements of the South African Post Office;
- That the department provide guidance and leadership to entities facing financial or any other challenge with a potential to compromise their financial sustainability including fulfilling their public mandates, and
- That all efforts are made by stakeholders in the ICT sector to prepare the country for the Fourth Industrial Revolution.
- Overview and assessment of financial AND NON-FINANCIAL performance OF DTPS
The Department achieved 82% of its 17 planned 2017/18 annual targets (14 out of 17) while spending 95% of its budget allocation. Key targets achieved include the following:
- Drafting of the ICT legislation (White Paper)
- Development of the National e-Strategy & e-Government Strategy
- Development of the ICT SMMEs Strategy
- Development of the e-Government Strategy
- Rationalisation of SOCs
- Preparations for World Radio Conference – 2019
- Implementation of Climate and Culture Survey recommendation
- Advancing South Africa’s ICT Agenda
- Automation of Business Processes
The Department did not achieve 3 of its 17 planned 2017/18 annual targets, as reflected below:
- Revision and implementation of the organisational structure
- Securing of two partnerships for the Digital Economy
- Project Managing the roll-out of the Broadband connectivity
The broadband roll-out was delayed largely due to inability of the Department to finalise the appointment of implementing agents due to the need for extensive consultations with the National Treasury. The Department could not secure partners for the digital economy as such engagements were delayed due to the need for prolonged legal scrutiny and extensive stakeholder consultation. The progress on the review of the organisational structure was seriously hampered by initial delays in finalising the Service Delivery Model as well as the need for extensive consultations with relevant stakeholders.
- department’s Financial performance 2017/18
- Expenditure Trends of the Department for 2016/17 – 2017/18
2. International Affairs
3. ICT Policy Development
4. ICT Enterprise
3 950 288
3 949 056
5. ICT Infrastructure Support
1 176 277
5 174 377
4 892 055
2 417 412
2 075 692
9. DTPS EXPENDITURE TRENDS 2017/18
The department was allocated R5,2 billion for the 2017/18 financial year. Transfers to entities amounted to R806,7 million, and compensation of employees totalled R219, 8 million compared to R205,2 million the previous year. Expenditure on goods and services (consultants) amounted to R152,3 million compared to R153,6 million the previous financial year, in terms of economic classification.
The merger of the National Electronic Media Institute of South Africa, the e-Skills Institute, and the Institute of Satellite Software Applications to form the Ikamva Digital Skills Institute was initiated to address the overlap, duplication and gaps in digital skills development within and between government departments, the education sector, business and civil society. The process of establishing the institute is supported by increased funding of R126,4 million over the medium- term transferred to the National Electronic Media Institute of South Africa in the ICT Enterprise Development and Oversight programme.
To ensure the growth and sustainability of the postal sector, the department will support the implementation of the South African Post Office’s turnaround strategy. An additional R3,7 billion is allocated to the 2017/18 budget for the recapitalisation of the entity, which accounts for the large increase in the budget of the ICT Enterprise Development and Oversight.
Information and communications technologies are a key driver of socio-economic development and an important tool for improving productivity and efficiency across all business sectors. The National Development Plan aims to accelerate the creation of a connected society and an inclusive knowledge economy and the Department of Telecommunications and Postal Services contributes to realising these goals by ensuring accessibility to affordable ICT. Over the medium-term, the department will focus on the ongoing roll-out of the department’s broadband policy, supporting the roll-out of broadcasting digital migration, finalising the amendments to the Electronic Communications Act for deliberation in Parliament before this Parliament’s term ends, and the finalisation of the legislation to establish the Ikamva Digital Skills Institute.
9.1 First Quarter Expenditure
The DTPS was allocated a total budget of R1,6 billion for the 2017/18 financial year. However, during the adjustment estimates, an additional R3,6 billion was allocated to the Department which increased the allocation to R5, 2 billion during 2017/18 financial year.
Transfers to Entities and International Organisations amounted to R806,7 million and of this amount the department had transferred R249,3 million, or 31%, mainly to departmental agencies and accounts as at the end of the first quarter. An amount of R19,8 million was transferred to USAASA for its operations; R149,5 million was transferred to Sentech for Dual Illumination costs (R96,5m) and for migration of digital signals (R53m); R25,1 million to NEMISA for its operations; R30,4 million to Universal Service Access Funds (USAF) for its operations (R10,6m) and the payment of subsidies for BDM project (R19,8m).
9.2 Second Quarter Expenditure
The department had, at the end of the second quarter, transferred a total of R550,5 million, or 68%, mainly to departmental agencies. An amount of R40,3 million was transferred to USAASA for its operations. SA Post Office received transfers of R120 million for the broadcasting digital migration project. R246 million was transferred to Sentech for Dual Illumination costs (R193m) and for migration of digital signals (R53m); R50,2 million to NEMISA for its operations; R68 million to Universal Service Access Funds (USAF) for its operations (R28,5m) and the payment of subsidies for BDM project (R39,5m).
9.3 Third Quarter Expenditure per programme
The department had, at the end of the third quarter, transferred a total of R748,7 million, or 93%, mainly to departmental agencies. An amount of R58,2 million was transferred to USAASA for its operations. SA Post Office received transfers of R240 million for the broadcasting digital migration project. R246 million was transferred to Sentech for Dual Illumination costs (R193m) and for migration of digital signals (R53m); R75,3 million to NEMISA for its operations; R103,3 million to Universal Service Access Funds (USAF) for its operations (R44m) and the payment of subsidies for BDM project (R59,3m).
9.4 During the financial year under review (2017/18) the Department’s budget was structured around 5 programmes:
9.4 (i) Programme 1: Administration – R209,6 million
The purpose of this programme is to provide strategic support to the Ministry and overall management of the Department. The Programme consists of the following six (6) sub-programmes:
- Departmental Management
- Internal Audit
- Corporate Services
- Financial Management
- Office Accommodation
In the 2017/18 financial year, programme one (1) has been allocated R209,578 million compared to R211, 582 million in the previous financial year.
9.4 (ii) Programme 2: International Affairs – R51,7 million
The purpose of this programme is to ensure alignment between South Africa’s international activities, agreements in the global ICT sector and the country’s foreign policy. ICT International Affairs Programme consists of the following sub-programmes:
- International Affairs coordinates the functions and responsibilities of the Department to meet South Africa’s international ICT obligations through bi-laterals, multi-laterals and tri-laterals; and
- ICT Trade/Partnerships develop and advance the country’s interests in international trade forums through participation in World Trade Organisation ICT-related initiatives and other international trade agreements, such as South African-European Union Trade Agreement and bilateral agreements with counterpart countries. South Africa’s national interests are also promoted in these forums.
9. 4 (iii) Programme 3: Policy, Research and Capacity Development – R84,5 million
The programme develops policy that supports the development of an ICT sector which, in turn, creates favourable conditions for accelerated and shared growth of the economy. It also develops strategies that increase the uptake and use of ICTs by the majority of the South African population to bridge the digital divide. The Policy, Research and Capacity Development Programme consist of the following sub-programmes:
- ICT Policy Development drafts legislation, regulations, policy and guidelines that govern the broadcasting, telecommunications, postal and IT sectors, thus ensuring broad-based economic development within the ICT sector;
- Economic and Market Analysis is responsible for economic analysis and growth projections. This sub-programme also undertakes market research to explore areas that require policy intervention;
- Research is responsible for understanding the ICT landscape and delivering a National ICT Strategy;
- Information Society Development renders delivery management services in support of an ICT information society, development and usage; and
- Capacity Development provides direction for the advancement of e-Skills graduates and society in general to function effectively in the emerging information society.
9. 4 (iv) Programme 4: ICT Enterprise Development and SOC Oversight – R3, 9 billion
The purpose of this programme is to oversee and manage government’s shareholding interests in the ICT public entities. This programme also facilitates growth and development of Small Micro Medium Enterprises (SMMEs). The ICT Enterprise Development and SOC Oversight Programme consist of the following sub-programmes:
- Public Entity Oversight provides oversight relating to State Owned Companies by managing Government’s shareholder interests in public enterprises to support the attainment of key national goals and strategic priorities;
- Small, Medium and Micro Enterprise (SMME) Development facilitates the growth and development of ICT SMMEs; and
- ICT Support oversees and manages transfers to public entities and state owned companies (SOCs) responsible for the management and protection of South Africa’s ICT environment.
Programme 5: ICT Infrastructure Support – R878, 2 million
The purpose of this programme is to promote investment in robust, secure and reliable ICT infrastructure that supports the provision of a multiplicity of applications and services. The ICT Infrastructure Support Programme consists of the following sub-programmes:
- Broadband is responsible for developing and facilitating the implementation of the ICT infrastructure broadband strategy and implementation plan and ensures that broadband goals are achieved; and
- Digital Terrestrial Television is responsible for making transfers to Sentech to roll out ICT infrastructure for the migration of signal distribution from analogue to digital.
10. HUMAN RESOURCES – 2017/18 FINANCIAL YEAR
The Department has an approved Service Delivery Model (SDM) and a structure will be finalised during the 2018/19 financial year aligned to the SDM. In the meantime, the Department uses an interim structure and as of 31 March 2018, the total establishment for the department was 292 funded positions, which were captured on the Persal System. Of these 292 funded positions 279 positions were filled and 13 positions were vacant. It is envisaged that some of these positions will be filled by the end of the 2018/19 financial year on line with the allocated Condition of Employment (COE) budget.
10.1 Vacancy rate
As of 31 March 2018, the Department had a vacancy rate of 4,45 %.
11. FINANCIAL ALLOCATION TO Entities of the DEPARTMENT OF TELECOMMUNICATIONS AND POSTAL SERVICES
The following shows the transfer of funds to entities and agencies reporting to the Department of Telecommunications and Postal Services (including international organisations):
1. International organisations
4. Sentech: Dual Illumination
5. Sentech: Digital Signal
USAF: Digital Migration
11.1 South African Post Office (SAPO) – R240 million
SAPO is a Schedule 2 public entity in terms of the PFMA. It is a government business enterprise established to provide postal and related services to the public and derives its mandate from the South African Post Office SOC LTD Act (Act 22 of 2011) and the South African Postbank Limited Act (No 9 of 2010). The Postal Services Act (Act 124 of 1998) grants SAPO the exclusive mandate to conduct postal services. This Act further makes provision for the regulation of postal services and the operational functions of the postal company, including SAPO’s universal service obligations and associated financial services.
In addition, for the 2015/16 financial year, the following were the key focus areas for SAPO:
- Finalise and implement the Strategic Turnaround Plan;
- Create a customer centric organisation to restore customer confidence;
- Position SAPO as a key service partner that delivers government services;
- Corporatisation of Postbank and increase access to financial services;
- Ensure good corporate citizenship and corporate governance, and
- Property evaluation, balance sheet structure, funding solutions, capital adequacy, and the implementation of the turnaround plan.
11. 1(i) Highlights for the 2017/18 financial year
SAPO received an unqualified audit opinion from the Auditor-General of South Africa. Its performance and cost-cutting measures yielded some positive results for the company;
- Irregular expenditure declined by 64% from R308 million to R109 million;
- Mail delivery standards improved by 18% from 73,6% to 87,1%;
- There has been an addition of 655 860 new street delivery addresses totalling 75% from 27%;
- The Postbank has been incorporated as a company;
- Application to register the Postbank has been lodged with the Reserve Bank;
- Postbank Board of Directors appointed;
- Stability between unions and management, and
- Staff members reduced by 610 from 18 729 to 18 119.
During the adjustment budget, SAPO was allocated an additional R3,7 billion for its recapitalisation. It is now working towards the finalisation of funding mechanisms to address cash flow challenges. This includes investment in critical operational infrastructure to support the payment of social grants as well as to fast-track the E-Commerce implementation to regain market share.
11.2 Sentech – R193-m (dual illumination) and R53-m (digital signal)
Sentech's mandate is to provide broadcasting signal distribution for broadcasting licensees, with a particular focus on accelerating the implementation of government ICT interventions within the framework of the NDP and the strategic integrated project for expanding access to communication technology.
Sentech’s strategic goals and the three main priorities for the 2016/17 financial year were:
- Infrastructure Roll-Out
- DTT Network Expansion: complete four greenfield sites;
- Connect and install 300 terminals;
- FM: Connect 33 Community Radio Broadcasters;
- FM: Install 31 transmitters for the South African Broadcasting Corporation (SABC), and
- Digital Media: Connect 1 new customer on Hybrid Broadcasting Platform.
- Organisational Performance
- Redesign the Organisational Structure.
- Financial Sustainability of the Company
- Generate Net Profit Before Tax of R195,7 million, and
- Receive the 3rd clean audit in a row.
11.3 Universal Service and Access Agency of South Africa (USAASA) – R75 million (Operations) USAF R54 million (Set-Top Boxes, subsidies, antennae and installations cost) and USAF ( broadcasting digital – R79 million)
The entity has been allocated in total R208 million for the funding of the set-top boxes, operations for digital broadcasting migration. Following the findings of the Auditor-General in the 2017/18 financial year, USAASA held workshops with affected SITA divisions and other relevant stakeholders. An action plan was developed and implementation dates were identified to address and prevent the same findings in the next financial year. Some of the deficiencies identified by the Auditor-General include the following, among others:
- No established proper systems and processes to measure performance;
- No management system to ensure a proper review process for planned and achieved targets;
- Lack of oversight of the SCM processes, and
- Lack of oversight by the Chief Financial Officer on budget adjustments, assessment of assets in preparation for annual financial statements.
This included monitoring and verifying the resolutions as carried out by Internal Audit, which report regularly to the Audit, Risk and Compliance Committee. Similarly, USAF’s performance revolves around risk management due to lack of internal controls. The entity identified the following risks as critical to fulfilling its public mandate;
- Inadequate sign-off leading to poor verification of electronic infrastructure;
- Limited funding for the rapid deployment of broadband infrastructure, and
- Stock of Set-Top Box kits for the broadcasting digital migration programme is at risk of fire, theft, etc.
USAASA’s sole mandate is to promote universal service and access to electronic communication services, electronic communications network services and broadcasting services. To contribute to the achievement of government priorities and outcomes; USAASA was to pursue the following strategic goals for the 2017/18 financial year.
11.4 National Electronic Media Institute of South Africa(NEMISA) – R85 million
The Department of Telecommunications and Postal Services has transferred R85 million to Nemisa to enable the entity to fulfil its public mandate of offering national certificates and short courses in the areas of television production, animation and radio production. The institute’s programmes are structured to enhance the market readiness of students in a wide range of broadcasting disciplines.
In contribution to this broader mandate of DTPS, NEMISA provided skills training at an advanced level for the broadcasting industry. It is accredited by the Council for Higher Education and offers diploma courses, short courses and internships in three subjects: Television production, radio production and creative multimedia. The entity received an unqualified audit opinion from the Auditor-General for the 2017/18 financial year.
The Institute’s key objectives are to promote the entity’s brand and visibility by developing partnerships and collaborations with business, government, educational institutions and civil society partners. For the first and second quarter the institute had set for itself a target of 20 and managed to achieve nine targets in leveraging brand visibility.
In terms of performance Nemisa failed to achieve twelve of its quarterly targets. In the fourth quarter the entity failed to review the national e-skills curriculum competency framework. In the same quarter Nemisa managed to establish only four out of ten of its targeted smart community centres. The entity also under-achieved the provision of online courses, managing only seven out of ten.
In the previous two quarters Nemisa had vacancies in critical positions including that of the Chief Financial Officer, the National e-Skills Director as well as that of a Specialist in Risk and Compliance Management.
11.5 Broadband Infraco (BBI) – no allocation from Government
Broadband Infraco received no funding from the Department of Telecommunications Postal Services for the 2017/18 financial year as it is meant to be self-sustaining.
The company’s revenue target of R89.2 million was not achieved. The company achieved R48.8 million instead of the R89.2 million targets due to delayed sales in the billing cycle. This performance put the company at risk of liquidity as projected figures show a possibility of making a loss come end of the 2018/19 financial year. The company has however implemented a turn-around strategy to cut costs and return the company to profitability. Highlights for the 2017/18 financial year include the following achievements:
- Revenue paid rebates remained under 0,2% and within target;
- Actual time to restore network faults was under 5,5 hours;
- Average service availability was 99,73%;
- Three small Broad Based Black Economic Empowerment companies were trained in OHSAS;
- B-BBEE discretionary spend was 98%;
- Expenditure on Black Women Owned Companies was on target at 16%;
- Cybersecurity installed, and
- 77% of interns completed Phase 1 and Phase 2.
BBI interventions are focused on two areas; namely long-distance fibre optic cable and participation of BBI in the international connectivity projects. The long-distance fibre optic network provides high capacity communications services to the main metropolitan areas that will, over time, be expanded into the previously under-serviced areas. The company participates in international connectivity projects, most particularly the cable project that will connect South Africa to the United Kingdom along the west coast of Africa.
11. 6 State Information Technology Agency (SITA) – no allocation from Government
The Department’s budgets show no indication of any transfers to the State Information Technology Agency (SITA) for the 2017/18 financial year as it is self-sustaining.
The entity set 11 targets for the third quarter but only managed to achieve one target. On the fourth quarter the state entity achieved 57,14% of its planned targets. The highest performing programme being finance at 67% and for the first time in five years SITA managed to generate positive cash flow. Other targets that were not achieved include the following:
- Out of 15 government services supported the entity achieved 8;
- To improve security of data assets the entity could not assess the targeted number of departments;
- The entity under-achieved customer satisfaction level by 51% instead of the targeted 70%, and
- SITA managed to spend only 15,84% on SMMEs instead of the targeted 30%.
The entity had challenges in complying with the Public Finance Management Act (PFMA, No. 1 of 1999). The supply chain management division of the entity is plagued by lack of transparency of supplier selection and business plans are not in place. There’s also lack of strong internal controls to ensure compliance with regulatory legislation leading to the Auditor’s findings on irregular and wasteful expenditure with one case above R10 million.
Highlights for the 2017/18 financial year
- The entity has inserted 8 preferential procurement clauses to enhance SMME ICT sector participation;
- The entity launched an SMME readiness programme to equip SMMEs with ICT business skills;
- SITA employed 81 interns in software development in an effort to develop skills among the youth;
- SITA awarded 75 of its employees with bursaries to increase its skills capacity, and
- The entity achieved an overall employee satisfaction of 6,.25% .
SITA is governed by its founding legislation, State Information Technology Agency (SITA) Act (Act No 88 of 1998), as amended by the SITA Act (Act No 38 of 2002). Section 6 of the Act states the following as the objectives of the agency:
- To improve service delivery through the provision of information technology, information systems and related services, in a maintained information system security environment, to government departments and public bodies, and
- To promote the efficiency of government departments and public entities through the use of information technology.
Also, the Act separates SITA’s services into mandatory services (services that SITA must provide) and non-mandatory services (services that SITA may provide). SITA’s strategic goals and the three main priorities for 2018/19 are:
- Drive modernisation of the public sector;
- Improve government business processes, and
- Enhance access to government services by the citizens.
- Data Security
- Safeguard and protect government information.
- Value-added (IT) Procurement
- Generate Net Profit Before Tax of R195,7 million, and
- Receive the 3rd clean audit in a row.
12. THE AUDITOR-GENERAL of SOUTH AFRICA’S FINDINGS 2017/18
The Auditor-General of South Africa has a constitutional mandate and, as the supreme audit institution of South Africa, exists to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing whilst also building public confidence in government institutions.
The department received an unqualified audit opinion, however the Auditor-General drew attention to the following matters:
- Material underspending of the budget 2017/18
The Department underspent the budget on ICT infrastructure support by R273. 834 million due to delay in implementing the SA Connect project.
- Annual financial statements
Financial statements were not prepared in accordance with the prescribed financial reporting framework as required by Section 40 (1)(b) of the PFMA. Material misstatements of contingent liabilities and assets identified were corrected resulting to unqualified audit opinion. On compensation of employee benefits, irregular expenditure and tangible assets identified by the auditors in the submitted financial statements were corrected.
- Procurement and contract management
Invitation for competitive bidding was not advertised for a required minimum period as required by Treasury Regulations 16A6.3c.
- Expenditure management
Effective steps were not taken to prevent irregular expenditure amounting to R228 000.
- Consequence management
Disciplinary steps were not taken against some of the officials who had incurred irregular expenditure as required by Section 38(1)(h)(iii) of the PFMA.
- Internal control deficiencies
The leadership did not exercise its oversight responsibility to ensure that consequence management was fully implemented in the department and that adequate controls were implemented to prevent non-compliance with supply chain management regulations.
- The SIU investigation
An investigation by the Special Investigation Unit was initiated in terms of Presidential Proclamation No. R. 10 of 2014 into the broadcasting digital migration process project. The investigation was still in progress at the end of the financial year.
13. REPORT OF THE AUDITOR-GENERAL ON AUDIT OUTCOMES AND RECOMMENDATIONS FOR IMPROVEMENT
- The overall audit outcomes of the Telecommunications and Postal Services portfolio for 2017-18 shows an improvement at SAPO, NEMISA and BBI when compared to the prior financial year. Sentech maintained its clean audit opinion and DTPS, USAASA and SITA remained stagnant.
- The overall audit outcomes over five years shows that the situation has not improved as the majority of the entities still experience material findings on the audit of performance information and compliance with applicable legislation.
- The auditor general noted that the audit report of SAPO was signed late on the 19 September 2018 due to outstanding supporting evidence on the going concern assumption.
- The financial health and financial management of entities indicate a material uncertainty exists as to whether 25 percent of entities could continue to operate in the future. In this regard, the Auditor-General noted that some entities prepared financial statements on a going concern, however a number of events and conditions have been identified that cast significant doubt on in these entities to continue as a going concern. The following key concerns were raised:
- On SAPO (a material uncertainty on going concern has been reported for the past five financial years) adverse key financial ratios of poor liquidity and recurring operating losses was raised;
- SAPO’s inability to pay creditors on due dates;
- Fixed-term borrowings approaching maturity without prospects of renewal or repayment;
- Inability to obtain finance for essential operational and strategic initiatives in the absence of a guarantee;
- Decline of a major mail revenue market;
- Pending legal or regulatory proceedings against the entity that may if successful, result in claims that the entity may not be able to deal with financially. Contingent liabilities as at 31 March 2018 at R328 million;
- SAPO faces serious liquidity challenges with limited cash resources and experiences an inability to pay creditors;
- Although the entity shows a positive cash balance, a significant portion of the cash relates to Postbank cash reserves of R1,8 billion and funds collected on behalf of third parties;
- SAPO has a high cost base regarding the compensation of employee accounting for 75 percent of revenue. Revenue generation plans have not yielded the desired outcomes;
- Mitigating factors revolve around the signing of a new contract especially the distribution of grants, continued distribution of set-top boxes, group restructuring, public service mandate funding, guarantee and support obtained from shareholders;
- On BBI (there’s a material uncertainty on BBI as a going concern that has been reported for the past four financial years) recurring operating losses and total liabilities exceed total assets by R1 192 995.
- The audit report noted no material findings were incurred by entities in respect of fruitless and wasteful expenditure. Fruitless and wasteful expenditure amounted to R19 million which was incurred by SAPO (R1 million), SITA (R2,8 million) and NEMISA (R,5 million).
- Irregular expenditure showed a decrease from R1,7 billion to R706 million, which amounted to a 60 percent decrease. The amount of R706 million was made up as follows, SAPO (R109 million), USAF (R208 million), SITA (R380 million) and the remaining R 9 million was incurred by other entities. SAPO, SITA and USAF incurred 99 percent of the total irregular expenditure.
- The Department and SAPO were the two entities that had material findings on allegations of financial and/or fraud and SCM misconduct. In this regard, the Department had a number of allegations that were not investigated. SAPO failed to institute disciplinary steps against an official who incurred UIF expenditure. Also, the investigations by the Department and SAPO had taken longer than three months to be completed.
- The following root causes must be addressed:
- Lack of accountability of personnel at SITA, NEMISA and SAPO resulted in a slow response to findings by management (accounting officer and senior management) and action has not being taken against transgressors;
- Instability or vacancies in key positions at SAPO, NEMISA and SITA had an impact on audit outcomes for the current financial year;
- Lack of consequence for poor performance and transgressions within SAPO and the Department; and
- Ineffective contract management and lack of capacity within the SCM unit leading to numerous deviations at SAPO and SITA.
- The following key commitments by the Minister which were slow or in progress should be addressed:
- Filling of key vacancies;
- Implementing consequence management within each portfolio;
- Tracking of irregular and fruitless and wasteful expenditure;
- Tracking of SAPO and BBI as going concern;
- Tracking of DTT project; and
- Mechanisms to ensure that financial and performance reporting were not implemented.
14. SUMMARY OF THE BRRR PROCESS
- In respect of the Department of Telecommunications and Postal Services (DTPS) the committee made the following observations:
- The department obtained an unqualified audit opinion with matters of emphasis. The department achieved 14 out of 17 planned annual targets which is an overall 82 percent achievement;
- The committee highlighted the procurement and contract management and observed that SCM policies and procedures were not revised timeously in line with new regulations;
- Compliance management procedures were impacted in that there was slow progress on investigations pertaining to irregular expenditure which impacts the implementation of consequence management;
- The committee further observed that in terms of human resource management, vacant posts were not filled within 12 months and leave taken was not captured timeously;
- The committee highlighted IT management and noted that weaknesses were identified in general controls such as change control, service continuity, security management, user access management and environmental controls;
- The financial health of the department was impacted due to significant underspending by R273 834 000 on the broadband rollout target on SA Connect;
- The committee observed that quarterly review submissions were lacking and further noted that feedback on quarterly reports was vital to ensure that poor audit outcomes are addressed;
- In addition, quarterly feedback on status of key controls especially around project management was also needed;
- The committee observed that the issue of the filling of key vacancies was important and therefore noted that quarterly feedback on the progress of filling vacancies would have to be supplied to the committee.
- The committee noted that effective and appropriate steps were not taken to prevent irregular expenditure amounting to R 228 000 and requested that a list of action taken against transgressors for all irregular, fruitless and wasteful expenditure incurred should be provided;
- The committee noted with concern that 12 audit items received an inadequate and inefficient audit opinion;
- The committee noted with concern the high amount of overtime in excess of R1 million that was paid;
- The committee observed that in respect of consequence management that disciplinary action was also not taken against officials who incurred irregular expenditure as required by the Public Finance Management Act (PFMA). This was due to a lack of complete and proper records that were not maintained;
- The committee observed that in respect of procurement and contract management the invitation for competitive bidding was not advertised for the required minimum period;
- The committee observed that sick leave in the amount of R4 361 000 was excessive in nature and that the issue of mismanagement of sick leave would have to be addressed;
- The committee wanted clarity in respect of costs incurred for sponsorship and gifts and noted that accountability was needed in this regard; and
- The committee wanted an update in respect of the Media Corner matter wherein the appeals panel ordered the Minister of Communications to pay an amount of R45 064 990.84 million. The Department noted, as was agreed by the former Minister of Communications, that this matter falls under the ambit of the Department of Communications. The Department and Department of Communications, on the advice of National Treasury, entered into negotiations to pay the judgment debt on or before 31 January 2019, subject to the conclusion of the financial adjustment processes in Government, as both Departments lack the financial means to execute the final arbitration award.
14. 2 In respect of State Information Technology Agency (SITA) the committee made the following observations:
- SITA received an unqualified audit opinion which remained unchanged from the last financial year;
- The committee commended the turnaround of the culture of impunity to a culture of performance within the entity with a strong emphasis on social responsibility;
- The committee commended the overall financial health of the organisation, which has improved resulting in a positive cash flow;
- SITA incurred irregular expenditure in the amount of R351 649 000. Of this amount R278 613 000 relates to non-compliance with legislation relating to prior years and the remainder was due to lack of effective contract monitoring measures to track expiry of contracts timeously;
- The agency incurred fruitless and wasteful expenditure amounting to R2 886 512 due to outstanding invoices and contracts that was unlawfully terminated;
- The committee noted that the financial and performance management targets were of concern in that there was a lack of effective implementation of contract monitoring measures to track expiry of contracts timeously;
- The committee noted that the procurement and contract management targets were not achieved due to the fact that bid documentation did not meet the minimum threshold for procurement of commodities;
- The committee commended the entity for its progress in respect of fraudulent activities within the supply chain management division. The committee notes that the investigations are ongoing and that it resulted in a number of employees, including senior management implicated and dismissed or some resigned;
- The committee noted with concern that the Chief Financial Officer, Ms Rudzani Rasikhinya has resigned due to the extreme and dangerous work situation, where senior executives and board members were threatened with their lives during the forensic investigation into supply chain management irregularities. The committee pledged its full support for SITA during these challenging times;
- The committee noted that an additional two directors have resigned and that there are now four vacancies on the Board;
- The committee commended SITA for its initiatives to attract quality people to the organisation and noted that there was a need to maintain stability in the leadership of the organisation. The quality of the leadership should be addressed by attracting qualified people to work for the entity and a retention strategy that also prevent qualified and skilled people from leaving the employ of the entity;
- The committee noted that the training and development target was low and noted that the proper training should be supplied to employees;
- The committee stated that the internship process within SITA was commendable and that most interns were absorbed in various fixed term contracts. The culture of training and growing its own people was encouraged; and
- The committee wanted clarity in respect of fees for legal disputes which amounted to R 9,7 million whilst R 46 million was spent on legal contingency fees. These amounts were incurred as a result of the investigations into fraudulent activities within the supply chain management division and there was an indication that as soon as the process was completed, these amounts would decrease. Legal costs were also incurred as a result of disputed performances with suppliers.
14.3 In respect of Broadband Infraco (BBI), the committee made the following observations
- The committee noted that the financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by the PFMA and the Companies Act;
- BBI received an unqualified audit with findings. The entity achieved nine out of 14 targets;
- The committee notes with concern that effective and appropriate steps were not taken to prevent irregular expenditure amounting to R 1 603 000 and that 87 percent of the irregular expenditure was caused by the entity not following State Owned Enterprise remuneration Guidelines as required by the Companies Act;
- The overall audit outcomes indicate an improvement at BBI when compared to the prior financial year.
In respect of its annual performance results, areas of under-achievement include the following:
- There was a revenue decrease by 5 percent year on year. BBI indicated that the signing of new contracts would improve this result in future;
- The current ratio was at 87%, less than the target set;
- The EBITDA (Earnings before interest, tax, depreciation and amortization) to measure the company’s operating performance, has increased to R28 million but remained below target;
- The debtors’ days was below target and ended at 57,2 days; and
- The total spent on black-owned entities remained below target at 24 percent.
- The financial and performance management targets were of concern. Management did not implement adequate controls over daily and monthly processing and reconciling transactions. Action should be implemented to improve the financial health, budget management and control and turnaround plans and interventions at BBI;
- The Auditor-General found that there was a material uncertainty related to the entity’s ability to continue as a going concern. The company incurred a net loss of R113 471 000 during the year ended 31 March 2018. Further, the entity’s total liabilities exceeded it total assets;
- The entity’s non-compliance with legislation could have been prevented had compliance properly been reviewed and monitored;
- The committee questioned the amount allocated for directors’ fees and also performance bonuses, taking into account that the entity’s ability to continue as a going concern.
14.4 In respect of South African Post Office (SAPO), the committee observed the following:
- The overall audit outcomes at SAPO showed an improvement when compared to the previous financial year. SAPO received an unqualified audit opinion for the first time since the Auditor-General took responsibility for this function;
- The committee observed that irregular expenditure declined by 64 percent from R308 million to R109 million, mail delivery standards improved by 18 percent from 73 percent to 87 percent and the performance of KPI’s measured improved by 75 percent from 27,8 percent to 48,6 percent;
- The committee observed that SAPO received a capital injection of R3,7bn which was used to settle historical debts with commercial banks. A relatively low capital expenditure of R44 million was still of concern;
- SAPO is facing serious liquidity challenges with limited cash resources to support its operations. Its inability to pay creditors on the relevant due dates adversely affected the creditors payment days;
- The committee observed that although the entity was showing a positive cash balance, a significant portion of the cash relates to Postbank cash reserves (R1,8 billion) and funds collected on behalf of third parties;
- There was a material uncertainty for the past five years as to whether the entity could operate as a going concern. This is due to poor liquidity ratios, recurring losses, its inability to pay creditors, fixed-term borrowing approaching maturity, its inability to obtain financing for operational and strategic initiatives, the decline of its mail revenue market and pending legal and regulatory proceedings against the entity;
- SAPO was commended on its continued attempts to improve its financial position by signing new contracts, the distribution of social grants, continued distribution of set top boxes, group restructuring, public service mandate funding and guarantees obtained from shareholders;
- The entity has a high cost base with employee-costs amounting to 75 percent of the revenue. Revenue generations plans have not yielded the desired outcomes;
- Key performance areas were still low at 48,6 percent;
- The entity is a defendant in a number of lawsuits. There was uncertainty relating to the future outcome of litigation and that no provision for any liability have been made in the financial statements;
- In respect of its MTEF submissions for 2018/2019, SAPO said that funding requests have been submitted to the Department and National Treasury and that a Management Letter Action Program (MLAP) has been implemented to resolve audit findings and improve control environment;
- Critical vacancies are still an issue at SAPO. The committee commended SAPO for the appointment of 10 new middle management level positions which indicated that the right people are attracted to work at the organisation. The lack of filling of critical vacancies had an effect on the increase in overtime claimed;
- SAPO leadership failed to adequately establish policies and procedures in respect of key finance business processes, timeously implement human resource management and performance management systems;
- Although the entity developed a plan to address internal and external audit findings, management failed to monitor adherence to the plan in a timely manner, resulting in material adjustments to the financial statements;
- The financial and performance management was affected by the failure of management to implement proper record keeping, regular reconciliations were not adequately prepared, accounts are not regularly reviewed and reconciled, and the implementation of formal controls require improvement; and
- There was a need to SAPO to clear its postal backlog.
14.6 In respect of Universal Services and Access Agency of South Africa (USAASA) and the Universal Services and Access Fund (USAF), the committee made the following observations:
- USAASA/USAF received an unqualified audit opinion, with findings;
- Fourteen of the 24 planned targets were not achieved. This resulted in a 58 percent non-achievement for the financial year;
- Three annual performance indicators subject to internal audit function and review were not achieved:
- Percentage compliance with PFMA and Treasury regulations. SCM processes were not effective resulting in the non-achievement of 100 percent compliance with PFMA and Treasury regulation;
- Management failed to implement audit action plan on a quarterly basis; and
- Number of repeat findings in the audit action plan. Management failed to monitor the audit action plan on a quarterly basis.
- Other areas of under-achievement include the following:
- Utilisation of local skills and service providers by awarded bidder;
- Beneficiary brand awareness was not measured as planned;
- Stakeholder satisfaction level was not measured;
- Non-compliance with performance standards;
- Reliability and usefulness of the reported performance;
- No research papers produced on national and global ICT trends;
- Delays in developing conceptual framework and business case on Digital Development Fund Bill by target date;
- No impact evaluation study conducted as planned; and
- SMART Community Masterplan was not developed.
- Non-compliance was due to poor planning, incompetence, lack of skill, poor selection of service providers, poor management of human capital, poor consequence management, under performance of line management amongst others. The committee noted that the leadership should be held responsible for the non-achievement of targets as the non-compliance happened under his leadership. In addition, the committee was also of the opinion that the Board has to improve its work and noted that salaries and increases should be dependent on the work performed;
- Serious procurement irregularities, especially in respect of the distribution of set-top boxes, was committed by USAASA which led to litigation and the committee requested an update on action to be taken following the High Court judgment;
- The theft of set top boxes from SAPO warehouses was concerning as was the lack of action in pursuing possible criminal charges;
- Seven funded posts are vacant - one is for a senior managers, three professionally qualified posts and three for skilled workers;
- The top five risks that the entity is subjected to include the ability of the entity to effectively recover should a disaster occur, inadequate change management processes, inability to produce financial statements in a timely manner, going concern status. the development of the Digital Development Fund Bill and the failure to implement output processes;
- Irregular expenditure amounted to R5,5 million which was made up of R3 million for the current year and R2,5 million for previous years;
- In USAF, seven of the 10 planned targets were not achieved. This resulted in a 70 percent non-achievement for the financial year;
- Under-achievements included:
- The SMART masterplan was not developed;
- The low number of underserviced local municipal areas provided with electronic communications infrastructure;
- Only 27 of the 40 planned free public Wi-Fi hotspots were deployed;
- Only 23,5 percent of the planned 60 percent set top boxes were distributed to qualifying users; and
- Of the total of 38 ICT centers, 93 clinics and 129 educational institutions to be connected, none of the 38 ICT centers had consistently connectivity with only 20 clinics and 77 educational institutions having reliable were connectivity.
- The top five risk factors at USAF include inadequate funding to facilitate rapid deployment, duplication of effort and inefficient utilisation of limited resources, lack of segregation duties, low availability of set-top boxes and inflated costs for broadband projects.
15. BRRR 2016/17: RECOMMENDATIONS BY THE PORTFOLIO COMMITTEE
15.1 Recommendations relating to the Department and its entities
The committee recommends that the Minister of Telecommunications and Postal Services should ensure:
- Procurement policies and procedures are revised timeously and comply with the PFMA and National Treasury Regulations;
- Effective compliance management procedures to impact progress on investigations pertaining to irregular expenditure;
- Effective human resource management with the timeous filling of vacant posts;
- Compliance with IT management procedures and to eliminate weaknesses identified in general controls;
- Effective measures are in place to roll out its broadband target in order to prevent underspending;
- Management provides feedback on the implementation and progress of the action plans to address poor audit outcomes during quarterly reporting;
- Management provides quarterly feedback on status of key controls especially around project management;
- Management provides feedback on the progress of filling vacancies;
- Action is taken against transgressors for all irregular and fruitless and wasteful expenditure incurred;
- Processes are in place to ensure accuracy in the management of audit engagement items;
- Overtime is managed correctly and that overtime claimed is in line with relevant policies;
- Disciplinary action is taken against officials who incur irregular expenditure and that complete and proper records are maintained;
- Procurement and contract management process are complied with;
- Processes are in place to curb the mismanagement of sick leave.;
- Processes are in place to create an environment of accountability in respect of sponsorships and gifts; and
- All legal claims are speedily dealt with and that the issues pertaining to the Media Corner matter are settled with the Department of Communications.
15.2 State Information Technology Authority (SITA)
SITA must ensure that:
- A culture of performance within the entity with a strong emphasis on social responsibility is fully supported;
- Measures are taken to remedy the irregular expenditure incurred due to non-compliance with legislation and that effective contract monitoring measures to track expiry of contracts is timeously implemented;
- Measures are taken to remedy fruitless and wasteful expenditure incurred due to outstanding invoices and contracts that are unlawfully terminated;
- Bid documentation meet the minimum threshold for procurement of commodities;
- Investigations into the fraudulent activities within the supply chain management division is fully supported;
- Senior executives and board members are sufficiently protected during forensic investigations into supply chain management irregularities. This would include the developing guidelines on how best to comply with Parliament’s oversight mandate without impeding the criminal investigations and aggravating the threat to the lives of the senior executives;
- All vacancies are filled, including the four vacancies on the Board;
- Initiatives to attract qualified people to the organisation are supported in order to maintain stability within the leadership of the organisation;
- Measures are in place to achieve the training and development target; and
- There is continued support for the internship process within SITA.
- On Broadband Infraco (BBI)
Management at BBI must ensure that:
- Financial statements submitted for auditing purposes comply with the prescribed financial reporting framework as required by the PFMA and the Companies Act;
- Effective and appropriate steps are taken to prevent irregular expenditure and that the entity comply with the State-Owned Enterprise Remuneration Guidelines as required by the Companies Act;
- All areas of under-achievement are remedied which includes the decrease in revenue, the current gearing ratio, the EBITDA, the debtors’ days and the total spent on black-owned entities, which are all below target;
- Actions are implemented to improve the financial health, budget management and control and turnaround plans and interventions at BBI;
- Measures are in place to address the entity’s ability to continue as a going concern;
- Proper review and monitoring processes are in place to ensure that the entity comply with legislation; and
- Amounts allocated for directors’ fees performance bonuses are reviewed, taking into account that the entity’s ability to continue as a going concern.
- On South African Post Office
SAPO management must ensure that:
- The liquidity challenges are adequately addressed so that SAPO can pay its creditors on the relevant due dates;
- Issues of poor liquidity ratios, recurring losses, SAPO’s inability to pay creditors, fixed-term borrowing maturity, its inability to obtain financing for operational and strategic initiatives, the decline of its mail revenue market and pending legal and regulatory proceedings against the entity are adequately addressed in order for SAPO to do its business;
- SAPO is supported in its efforts to improve its financial position by signing new contracts, the distribution of social grants, continued distribution of set top boxes and group restructuring amongst others;
- High employee costs are decreased and that revenue generation plans are supported;
- Processes are in place to improve key performance areas;
- Provision is made for any future liability outcomes;
- SAPO is adequately supported in its public funding mandate requests submitted to National Treasury;
- Critical vacancies are filled so that the lack of staff cannot have an impact on overtime claimed at the entity;
- Adequate policies and procedures are established in respect of key finance business processes, timeously implement human resource management and performance management systems;
- Processes are in place to monitor a plan to address internal and external audit findings;
- Processes are in place to address and improve on financial and performance management issues; and
- Processes are in place for SAPO to clear its parcel backlog.
- On USAASA/USAF
USAASA management must ensure that:
- It is compliant with PFMA and Treasury regulations to effect adequate SCM processes;
- The audit action plan is implemented and monitored on a quarterly basis;
- Utilise local skills and service providers by awarded bidder, if appropriate;
- Beneficiary brand awareness is measured as planned;
- Stakeholder satisfaction level is measured as planned;
- Compliance with performance standards;
- Proper monitoring for broadband usage in deployed sites and to ensure the production of connectivity monitoring reports to facilitate reliability and usefulness of reported performance;
- Research papers are produced on national and global ICT trends as planned;
- The target date of the development of a conceptual framework and business case on Digital Development Fund Bill is met;
- An impact evaluation study on the Bill be conducted as planned;
- The SMART masterplan is developed;
- Rectify poor planning on the part of the management team and the Board of USAASA to ensure that targets are achieved;
- Properly monitor the top five risks factors at USAASA;
- Criminal action is taken in respect of the theft of set-top boxes at SAPO warehouses;
- Fill the seven human capital vacancies;.
- Processes are in place to address irregular expenditure which amounted to R5,5 million;
- Meet the target of local municipal areas to be provided with electronic communications infrastructure;
- Meet the target of 40 planned free public Wi-Fi hotspots;
- Meet the target of the distribution of set top boxes to qualifying users;
- Consistent connectivity to ICT centers, clinics and educational institutions;
- The leadership of USAASA be held responsible for the non-achievement of targets as reflected in the annual performance report. In addition, also ensure that the Board members improve their performance; and
- Salaries and increases at top management and board levels are dependent on work performed.
Report to be considered.
 Sawyer et al, (2003)
 van Dijk (2005),
 Helsper, (2015).
 SITA Act No 38 of (2002)