ATC110209: Second Report on Auditor-General on 2009/10 financial statements of SABC & report of Auditor-General on an investigation at the SABC, dated 09 February 2011

Public Accounts (SCOPA)

Second report of the Standing Committee on Public Accounts on the report of the Auditor-General on the 2009/10 financial statements of the South African Broadcasting Corporation and report of the Auditor-General on an investigation at the South African Broadcasting Corporation, dated 09 February 2011

 

1. Introduction

 

The Standing Committee on Public Accounts (SCOPA) heard evidence on and considered the contents of the Annual Report and  Report of the Independent Auditors on the 2009/10 financial statements of The South African Broadcasting Corporation (SABC). The Committee also heard evidence and considered the contents of The Report of the Auditor-General on an investigation at the South African Broadcasting Corporation.

 

The Committee noted the unqualified audit opinion, highlighted areas which required urgent attention by the Accounting Authority and reports as follows:

 

2. Non-compliance with regulatory and reporting requirements

 

The Independent Auditors identified the following:

 

a)       There was no formal approved policy or procedure in place to monitor performance information; and

b)       The quarterly reports presented during the course of the year did not enable ongoing monitoring and evaluation of performance objectives as not all measures and targets achieved were reported on a quarterly basis.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)      Policies and procedures related to financial reporting are established and communicated; and

b)      Ongoing monitoring and evaluation of performance objectives take place as required by applicable legislation.

 

3. Usefulness and reliability of information

 

The Independent Auditors identified that the Corporation had not reported on all predetermined objectives in the annual report as required by section 55(2)(a) of the PFMA and Treasury Regulation 28.2.2.

 

The Committee recommends that the Accounting Authority ensures that :

 

There is compliance with section 55(2)(a) of the PFMA and TR 28.2.2 as a matter of urgency. The Committee views this non-compliance very seriously and therefore calls for the relevant managers to be held accountable.

 

4. Non-compliance with the Public Finance Management Act No. 1 of 1999 (PFMA)

 

The Independent Auditors identified the following:

 

a)       Several members serving on the SABC Board during 2009/10 did not disclose in the standard “Disclosure of Interest” register kept by the office of the Company Secretary whether they had any direct or indirect personal or private business interests in any matter, as required by section 50(3)(a).

b)       Management did not always follow approved policies and procedures as required by section 57(b).

c)       A group-wide procurement policy existed within the corporation. However, there were instances where international content acquisition could not be supported by an approved business plan or signed contracts. Instances of premature procurement (i.e. ordering taking place without appropriate legal contracts with suppliers, or without the required signature by the appropriate delegated authority of the SABC having been obtained) were identified. Both these examples demonstrate that the supply chain management policies and procedures were not appropriately adhered to as required by section 51(1)(a)(iii).

d)       The Board of the SABC did not take responsibility to manage and safeguard the assets, revenue, expenditure and liabilities of the SABC, as required by section 51(1)(c) .

e)       The system to prevent the unauthorised, irregular, fruitless and wasteful expenditure was not always complied with during the 2009/10 financial year, and as such was not always effective, as required by section 51(1)(b)(ii).

f)          The SABC Board did not have effective processes in place to collect all revenue due to the SABC. These processes and systems were not operating effectively as required by section 51(1)(b)(i) and section 51(1)(c).

g)       The SABC’s Treasury Policy allows, with the prior written approval from the Minister of Finance, for the delegation of transaction powers from the Board to management individuals within the SABC Treasury. However, the SABC did not have the Minister of Finance’s written approval to delegate this power to borrow money, issue guarantees, indemnity and securities or enter into any other transactions that may bind the entity to future financial commitment, as required by section 66(6).

h)       The SABC did not in the period under review have a centralised compliance control or process in place to ensure the monitoring and reporting of the overall compliance with applicable legislation, as required by section 51(1)(h).

i)         The SABC did not put in place a formal risk assessment procedure throughout the organisation.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       Members of the Board disclose any direct or indirect, personal or private business interests in the standard “Disclosure of Interest” register and appropriate stern action is taken against any board member who fails to disclose his or her interests;

b)       The Corporation improves its internal control environment in order to avoid misuse of financial and other resources;

c)       The Corporation has an updated Supply Chain Management policy complying with all the legislative requirements, including the PFMA and the Treasury Regulations, the Preferential Procurement Regulations and the Preferential Procurement Framework Act;

d)       The Corporation has an updated asset register and strengthens its internal control environment in order to avoid loss of assets, and a full asset stock count should be conducted annually; and

e)       Strict rules and regulations are implemented to ensure that the Corporation is compliant with applicable legislation, and that appropriate disciplinary steps are taken against any transgressors.

 

5. Non-compliance with Treasury Regulations

 

The Independent Auditors identified the following:

 

a)       The Internal Audit Plan was not approved by the Audit Committee, as required by Treasury Regulation 27.1.8.

b)       The three year rolling audit plan presented to the Audit Committee by the Internal Audit function did not comply with Treasury Regulation 27.2.2.

c)       Although cases of financial misconduct were found, no details of disciplinary submissions had been made to the Auditor-General, the National Treasury and the Executive Authority as required by Treasury Regulation 33.3.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)      The Audit Committee has approved written terms of reference and operates in accordance thereto.

b)     Appropriate disciplinary action is taken against transgressors and reported accordingly.

 

6. Non-compliance with the Broadcasting Act No.4 of 1999

 

The Independent Auditors identified that the SABC did not prepare separate Financial Statements for the years ended March 2009 and March 2010 for Public Broadcast Services (PBS) and Public Commercial Services (PCS), as required by the Broadcasting Act of South Africa.

 

The Committee recommends that the Accounting Authority ensures that :

The Corporation strictly adheres to the requirements of the Broadcasting Act of South Africa.

 

7. Internal Audit Unit

 

The Independent Auditors identified that:

 

 Although an internal audit unit was established, it was not in operation throughout the year and did not fulfil its required responsibilities.

 

The Committee recommends that the Accounting Authority ensures that:

 

There is an effective internal audit function that promotes independence, accountability and effective risk assessments and that strategies are maintained, including fraud prevention plans, to address identified weaknesses.

 

 

 

 

 

 

 

 

8. SPECIAL INVESTIGATION REPORT

 

The Auditor-General reported on the undermentioned investigations and identified the following:       

 

8.1 Supply chain management

 

a)       Evidence could not be found that a total of seven tenders awarded for an aggregate amount of R174, 069 million was approved according to the appropriate levels stipulated in the Delegation of Authority Framework.

b)       Deviations from complying with tender processes in respect of contracts to the value of R24,8 million were not approved at the appropriate levels in terms of the approved Delegations of Authority Framework.

c)       There were also further deviations in respect of two contracts awarded amounting to R8,4 million and R8,2 million, respectively, which were not approved in accordance with the Delegations of Authority Framework.

d)       A material agreement for R326 million was entered into by the former Group Chief Executive Officer and former Head: Legal and Business Advisory Services with a consultant on 28 September 2006, although they did not have the authority to do so.

e)       A further eight appointments of consultants were investigated and a synopsis of the deficiencies can be listed as:-

§         The procurement process required by the Group Supply Chain Management Policy was not followed (competitive processes were not followed, contracts were signed after services had already commenced, contract periods were extended without being formalised in addendums to the contracts and payments were made for services not provided for in contracts);

§         There was no segregation of duties as the initiation of the need for services, contract approval and certification of services rendered were done by one individual;

§         Deliverables were not specified in the contracts; and

§         Payments exceeded contract amounts.

f)          Contrary to the provisions of section 51 of the PFMA, there was no approved procurement policy which governed procurement for the period prior to October 2007.

g)       The bid adjudication committee had a delegated authority to procure up to an amount of R7,5 million. However, while the bid adjudication committee made recommendations and took decisions, the bid adjudication committee members were not formally appointed in writing by the Group Chief Executive Officer, contrary to the requirements of the Group Supply Chain Management Policy.

h)       The SABC’s ability to manage and provide quality information and reporting relating to Supply Chain Management had also been impeded.

i)         The SABC operated in an industry which was characterised by networks and interactions. In this regard, the following was noted:-

§         One thousand four hundred and sixty five (1465) employees who had interests in companies or close corporations were identified. There was no central register of approval granted to the employees, which was an example of inadequate management of information, and due to time constraints, the impact of such interests on the SABC could not be evaluated.

§         Of the above employees, twenty (20) were directors or members of twenty companies or close corporations who had received payments from the SABC to the amount of approximately R3,4 million. This finding is a specific contravention of the Group Supply Chain Management Policy.

j)         Non-compliance with procurement policies and the lack of decisive and effective action by those responsible for oversight compounded seemingly prevalent risks facing the organisation which had not been identified in the SABC strategic risk assessment.

 

 

 

 

These risks were:-

§         Some employees could have devoted attention to their other commercial interests at the expense of the SABC; and

§         Decisions could have been influenced in favour of individual interests rather than on the basis of sound business practice.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       The Corporation has an updated Supply Chain Management Policy encompassing all the elements of the PFMA, the Treasury Regulations, the Preferential Procurement Framework Act, the Preferential Procurement Regulations, and Supply Chain Management practice notes issued by the National Treasury that will ensure an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective.

b)       Early warning reports are prepared listing contracts that will expire soon and there is timeous intervention to invite new tenders when necessary.

c)       The internal audit scope with regards to Supply Chain Management is increased to ensure that day to day controls are implemented and effective, and that all procurement complies with legislative Supply Chain Management requirements.

d)       The total population of expenditure is revisited to determine the full extent of the non- compliance.

e)       Appropriate disciplinary measures are taken against all officials that do not comply with Supply Chain Management legislative requirements.

f)         The SABC board enforces the Delegations of Authority “Non-compliance with any provision of this policy shall be an offence punishable in terms of the disciplinary action of the SABC’s disciplinary code.”

g)       Committee members of the various procurement committees are appointed in writing and that their roles and responsibilities are clearly stated in appointment letters.

h)       Supply chain personnel are trained in all Supply Chain Management policies and procedures.

 

 

 

   8.2 Fruitless, wasteful and irregular expenditure

 

a)       With regard to the acquisition of international programmes, there were irregularities of approximately R111,746 million relating to double payments, overpayments, material paid for but not received, agreements that had to be renegotiated and programme titles acquired more than once from the same supplier during the same licence period.

b)       No evidence could be provided that corrective actions were implemented by the SABC board or executive management to address deficiencies and possible transgressions in the acquisition of international programmes content.

c)       The Delegation of Authority Framework required sponsorship to be managed by means of a business plan. However, no business plan could be provided in respect of the Presidential Golf Day for sponsorship to the value of R342 780.

d)       Contracts with a private travel company were not managed in terms of the agreement signed with the SABC. The business plans should have been approved by the chair of the SABC board. However, contracts amounting to R7,8 million relating to travel arrangements for the Beijing Olympics and Beijing Paralympics were based on plans approved by a group executive.

e)       The former SABC board members and executive managers who travelled with their partners to the Olympic Games were liable for tax on fringe benefits in terms of the Income Tax Act. However, the Human Resources Division was not notified of the benefits and did not levy the tax on the employees and former board members.

f)         Excessive petrol card expenditure was incurred by some senior managers. The SABC was exposed to potential abuse due to deficiencies in the policy governing the usage of petrol cards.

g)       The oversight by the leadership over petrol card expenditure was also deficient partly due to the non-availability of quality management information. Monitoring by the Finance Department took place on an ad hoc basis and structured management information on individual actual costs was not generated routinely.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       Stern disciplinary actions are taken against employees who were responsible for incurring irregular and fruitless expenditure in terms of section 51 (e) (iii) of the PFMA, and where appropriate, criminal charges be laid.

b)       The corporation strengthens its internal control systems in order to avoid incurring further irregular expenditure.

 

8.3 Human resources related issues

 

a)       The former Group Chief Executive Officer (GCEO) resigned from the SABC with effect from 1 February 2009. Settlement and restraint of trade agreements were signed between the chairperson of the interim board and the former GCEO on 14 August 2009. An amount of R7.4 million was due to the former GCEO by the end of October 2009.

b)       Thirty-four (34) employees were suspended with pay during the period April 2006 until August 2009 (one employee suspended twice). They were suspended for different reasons; inter alia, dishonesty, unauthorised industrial action and contravention of the PFMA. It is estimated that the total salary cost of the suspended officials amounted to R8,3 million.

c)       Individuals at Group Executive level were not adhering to internal policies and procedures.

d)       Allegations of nepotism and favouritism in the Sales and Marketing Division, including allegations of unilateral changes having been made to the payment of commission to staff without proper consultation, were reported.

e)       Concerns were raised about the ability and qualifications of management to properly and effectively manage the organization.

f)         Although the SABC and SAPS received evidence under oath that an employee received a cash kickback (corrupt benefit) from a supplier, he remained an employee.

g)       Although an employee was found guilty on serious charges in a disciplinary hearing, certain employees were trying to stop the intended civil recovery against the employee.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       The delays in finalising cases should be investigated. In instances where individuals failed to exercise their management functions in an effective way, they should be held accountable; and

b)       The board and executive management exercise constant leadership oversight, including setting the correct “tone at the top” and leading by example.

 

9. Conclusion

 

The Committee further recommends that the Executive Authority submits a progress report on the implementation of all the above recommendations to the National Assembly within 60 days of the adoption of this report by the House.

 

 

Report to be considered.