ATC101022: The Budgetary Review and Recommendation Report of the Portfolio Committee on Communications on the Performance of the Department of Communications for the 2009/10 financial year, dated 20 October 2010

The Budgetary Review and Recommendation Report of the Portfolio Committee on Communications on the Performance of the Department of Communications for the 2009/10 financial year, dated 20 October 2010

The Portfolio Committee on Communications, having assessed the service delivery performance of the Department of Communications, reports as follows:

1. Introduction

1.1. Mandate of the Committee, including provision of Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No. 9 of 2009.

According to Section 5 of the Money Bills Amendment Procedure and related Matters Act, the National Assembly, through its Committees, must annually assess the performance of each national department. The Committee must submit an annual Budgetary Review and Recommendation Report (BRRR) for each department that falls under its oversight responsibilities for tabling in the National Assembly. These 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. The Portfolio Committee on Communications considered the Budget of the Department of Communications on 09 March 2010. The Committee considered the Department’s Annual Report 2009/10 on 13 October 2010.

2. The Department of Communications

2.1. Mandate, Vision and Mission

Mandate

􀁸 To create a vibrant ICT Sector that ensures that all South Africans have access to affordable and accessible ICT services in order to advance socioeconomic development goals, support the African Agenda and contribute to building a better world.

Vision

􀁸 South Africa as a global leader in the development and use of Information and Communication Technologies for socio-economic development.

Mission

􀁸 Building an inclusive information society through a sustainable world class information and communication technologies environment to enhance the knowledge economy.

The aim of the Department is to develop ICT policies and legislation that stimulate and improve the sustainable economic development of the South African first and second economies and positively impact on the social wellbeing of all South Africans. The Department also aims to oversee the performance of state-owned entities within its portfolio.

2.2. Strategic Priorities and Measurable Objectives of the Department

The Department’s core functions are to:

􀁸 Develop ICT policies and legislation that create conditions for an accelerated and shared growth of the South African economy, which positively impacts on the well being of all our people and is sustainable;

􀁸 Ensure the development of robust, reliable and affordable ICT infrastructure that supports and enables the provision of a multiplicity of applications and services to meet the needs of the country and its people;

􀁸 Strengthen the Independent Communications Authority of South Africa (ICASA), to enable it to regulate the sector in the public interest and to ensure growth and stability in the sector;

􀁸 Enhance the capacity of, and exercise oversight over, State Owned Enterprises (SOE’s) as the delivery arms of government; and

􀁸 Fulfill South Africa ’s continental and international responsibilities in the ICT field.

2.3. Measurable Objectives of the Department

􀁸 Enable the maximization of investment in the ICT sector;

􀁸 Ensure that ICT infrastructure is robust, reliable, affordable and secured to meet the needs of the country and its people;

􀁸 Accelerate the socio-economic development of South Africans by increasing access to, as well as the uptake and usage of, ICT’s through partnerships with business and civil society and three (3) spheres of government;

􀁸 Build an effective information age organization that contributes to the efficient functioning of the Forum of South African Directors’ General (FOSAD) Cluster and the building of a Single Public Service;

􀁸 Enhance the role of ICT state-owned enterprises as the delivery arms the Government; and

􀁸 Contribute to the building of an inclusive Information Society globally, prioritizing Africa ’s development.

3. Departmental Allocations and Expenditures 2009/10

The Department of Communications (DoC) approved budget allocation for the 2009/10 financial year amounted to R2 470 ,5 billion, made up of baseline allocation of R2 266,9 billion and adjusted estimates allocation of R203,6 million.

The adjustment estimates include an additional allocation of R200 million for immediate liquidity requirements of the South African Broadcasting Corporation and R3 ,6 million for higher salary increases.

Spending for the 2009/10 financial year amounts to R2 301 ,9 billion and underspending of R168,6 million that represents 6.8% of the total budget is made up as follows:

􀁸 R8 ,8 million for compensation of employees due to the resignation and promotion of staff members as well as the moratorium on staff appointments in the Department;

􀁸 R18 ,2 million for goods and services which arises for the delay in finalising tender processes as a result of the new administration having undertaken a reprioritisation exercise during the year under review;

􀁸 R139 million for transfers and subsidies for Telkom: 2010 FIFA World Cup (R20 million) and Sentech: 2010 FIFA World Cup (R96 million) as a result of the savings realised due to fixed price agreements; Programme Production; Broadcasting Digital Migration Awareness (R20 million); and NEPAD transfer funds re-planned for transfer to NEMISA (R3 million); and

􀁸 R2 ,5 million for payment of capital assets in relation to the procurement of test equipment.

The Department of Communications budget is structured into six programmes:

3.1. Programme 1: Governance and Administration

The purpose of this programme is to provide strategic support to the Ministry and overall management of the Department.

Final allocated funds are R164 786 000.00 with expenditure as at 31 March 2010 at R163 200 000.00.

3.2. Programme 2: Information Communications Technology (ICT),

International Affairs and Trade

The purpose of this programme is to ensure alignment between South Africa ’s international activities and agreements in the field of ICTs with South Africa ’s foreign policy.

Final allocated funds are R49 274 000.00 with expenditure as at 31 March 2010 at R44 600 000.00.

3.3. Programme 3: ICT Policy Development

The purpose of this programme is to develop ICT policies, legislation and strategies that support the development of an ICT sector, which creates conditions for the accelerated and shared growth of the economy and to develop strategies that increase the uptake and usage of ICTs by the majority of the South African population, thus bridging the digital divide.

Final allocated funds are R93 025 000.00 with expenditure as at 31 March 2010 at R70 112 000.00.

3.4. Programme 4: Finance and ICT Enterprise Development

The purpose of this programme is to oversee and manage government’s shareholding interest in public entities and to facilitate growth and development of Small, Micro and Medium Enterprises (SMMEs) in the ICT sector. Final allocated funds are R2 041 848 000.00 with expenditure as at 31 March 2010 at R1 923 635 000.00.

3.5. Programme 5: ICT Infrastructure Development

The purpose of this programme is to promote investment in robust, reliable, secure and affordable ICT infrastructure that supports the provision of a multiplicity of applications and services. Final allocated funds are R90 244 000.00 with expenditure as at 31 March 2010 at R74 787 000.00.

3.6. Programme 6: Presidential National Commission

This programme is currently under review and is likely to change in June 2010 pending the outcome of the review.

The purpose of this programme is to facilitate the development of an all inclusive information society by promoting the uptake and usage of ICTs for improved socio-economic development and research. This programme is currently under review and is likely to change during the 2011 Medium Term Expenditure Framework process.

Final allocated funds are R31 317 000.00 with expenditure as at 31 March 2010 at R25 578 000.00.

4. Analysis of the Annual Reports and Financial Statements of the Department

4.1 Programme 1: Administration

Administration is Programme 1 of the Department. The Department failed to meet its target on several key performance areas under the operations sub-programme. On Communications and Market Services – no substantial progress made on e-Awareness Strategy and it seems there was duplication between BDM and e-Awareness. There was also no progress made on the Gender, Disability, Youth and Children (GDYC) related issues due to Human Resource constraints.

4.2 Programme 2: ICT International Affairs and Trade

ICT International Affairs and Trade is Programme 2. In March 2009, the Department announced that Uhurunet submarine cable, the Baharicom shareholding structure for the cabling, will be concluded in the near future1. The cable was expected to be in service during the last quarter of 2010. No real progress has been made in this regard.

4.3 Programme 3: ICT Policy Development

The mobile market sector has for more than seven years now been dominated by Vodacom and MTN. Together they control 91% of the market share with Cell C securing 9 %. Some progress has been made in terms of reducing the interconnection rates.

4.4 Programme 4: ICT Enterprise Development

The Programme had identified, as one of its measurable objectives as the promotion of good governance in public entities by undertaking corporate governance reviews and more effective monitoring of state owned entities.

This programme accounts for the highest budget allocation of 82 ,8 % of the total budget of the department. This is mainly due to the transfer payment to entities in the Department’s portfolio. The transfers constitute 95 ,2 % of the programme expenditure. The state of a number of state owned entities are unsatisfactory.

4.5 Programme 5: ICT Infrastructure Development

ICT Infrastructure Development is Programme 5. The Department aimed to roll-out wireless broadband to 500 Dinaledii schools in 2008, but due to insufficient funds this service was to be rolled out to only 233 Dinaledi Schools. The Departments reported that “connectivity at Dinaledi schools was hindered due to HR capacity challenges.

4.6 Programme 6: Presidential National Commission

This programme was under review by the Department. The Department has not indicated its review findings during the presentation in the Committee.

5. Rollovers of the Unspent Funds to the 2010/11 Financial Year

Request was made to National Treasury in terms of the applicable guidelines to rollover the under-spending on transfers and subsidies and on capital assets. Rollover request was also submitted for R15 ,8 million of the R18,2 million under-spend on goods and services i.e. to the maximum of 5% of the 2009/10 goods and services budget of R315,9 million.

5.1. Virements and Shifting of Funds

Though section 43 of the Public Finance Management Act (No 1. of 1999)2 makes provision for the virements and shifting of funds from one programme to the other, as well as movement of funds within the programme, there are certain requirements that need to be met by an accounting officer. These conditions are as follows:

Section 43 (2) of the Public Finance Management Act provides that “the amount of a saving under a main division of a vote that may be utilised in terms of (1) may not exceed 8 per cent of the amount appropriated under that main division.”3 Moreover section 43 (4) states that this section does not authorise the utilisation of a saving if:

(a) An amount is specifically and exclusively appropriated for a purpose mentioned

under a main division within a vote;

(b) An amount appropriated for transfers to another institutions and; and

(c) An amount appropriated for capital expenditure to defray current expenditure.

Virement was effected on programmes 1, 2, 3, 4, 5, and 6 to programmes 1 and 5. The virement from programmes 1 and 4 - Compensation of Employees to programme 2 - Goods and Services was to defray excess expenditure in relation to membership fees to international organisations; Broadband Digital Migration awareness and the transaction to unbundle the Telkom shares. Virement to Programme 5 was due to the finalisation of Electronic Document Management System (EDMS). The Virements are in accordance with section 43(1) of the PFMA.

The culture of virements and shifting of funds is of concern to the Committee. Though the Public Finance Management Act allows the conduct, it is subject to abuse in a number of ways. Furthermore, it is indicative of lack of proper financial planning in the Department.

It is also worth noting that for a number of programmes that have under-spent their budget, the Department did not provide adequate information to support the expenditure patterns. It noted that most of under-spending in various programmes was as a result of invoices not being submitted on time, as well as vacant posts not being filled.

The Annual report does not give a clear indication of the state of finances and other troubling lapses in corporate governance in respect of various state owned entities, such as Sentech, SABC and ICASA. However, during the presentation the Department indicated that the Minister instituted a Turn-Around Task Team for both Sentech and the SABC.

6. The First Quarter Expenditure Report for Financial Year 2010/11

In the 2010/11 financial year4, the Department of Communications was allocated a total budget of R2 470 494 000.00.

The Department pointed out that fruitless and wasteful expenditure incurred during the 2007/08 financial year is still recorded under current assets. This expenditure is mainly as the result of interest charged by Universal Postal Union (UPU) to which the Department subscribes annually as a member. The interest charged was due to late payment of membership fees. The interest charged amounts to R520 000. The Department is in discussion with UPU to reverse the interest, based on the outcome of a joint review by the parties around the circumstances of the late payment.

In terms of the Auditor-General’s report there was irregular expenditure incurred as proper procurement procedures were not followed. An amount of R8 501 000 was incurred in the year and R15 701 000 was incurred in previous years, but identified in the current year. As disclosed by the Department, fruitless and wasteful expenditure to the amount of R54 000 was incurred due to interest on the late payment of a Telkom account, cancellation of trips and a duplicate payment for the same service.

7. Auditor-General’s Report

The Department of Communications has obtained a qualified report for the 2009/10 financial year. It incurred irregular expenditure of R8 ,5 million in 2009/2010 and R15 million was incurred in previous years but only identified in 2009/2010.

The Auditor-General Reports on the Department’s compliance with Laws and Regulations, specifically regarding the Public Finance Management Act, No.1 of 1999, noted the following non-adherence to requirements:

􀁸 Contrary to section 38(1)(g) of the PFMA, the accounting officer did not immediately report the particulars of irregular expenditure discovered to the National Treasury; and

􀁸 Contrary to the requirements of Treasury Regulation 9.1.1, the accounting officer did not implement effective, efficient and transparent processes of financial and risk management to prevent and detect irregular expenditure.