ATC201202: Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Communications, Dated 1 December 2020
The Budgetary Review and Recommendation Report (BRRR) of the Portfolio Committee on Communications, dated 1 DECEMBER 2020
The Portfolio Committee on Communications (PCC), having considered the financial and non-financial performance for the year 2019/20 ofthe Department of Telecommunications and Postal Services (the Department),Sentech, State Information Technology Agency (SITA), Broadband Infraco, National Electronic Media of South Africa (NEMISA),and .ZADNA on 4, 6, 17 and 18 November 2020,reports as follows:
In terms of Chapter 4 of the Constitution of the Republic of South Africa, Act 108 of 1996 (the Constitution) gives a mandate to Portfolio Committees to legislate, conduct oversight over the Executive Authority and also facilitate public participation.
1.1 Purpose of the Report
The Money Bills Amendment Procedure and Related Matters Act 9 of 2009 sets out the process that allows Parliament to make recommendations to the Minister of Finance as well as the cabinet Minister responsible for the vote to ensure the effectiveness and efficiency of the use of resources to ensure optimal service delivery.
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 the Department as it falls under its oversight responsibilities, for tabling in the National Assembly. This process happens every October of each year where the Committee assesses service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on the forward use of resources.
The BRRR also sources documents from the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process. The Standing Committee on Appropriations (SCOA) should consider these when it is considering and reporting on the MTBPS to the National Assembly.
Lastly, this performance report is also in line with Section 195 of the Constitution and other legislative prescripts that guide performance management in the public sector to display and promote transparency and accountability to stakeholders and the general public concerning matters under their control.
2. Role and Mandate of the Committee
As part of fiscal accountability, government departments have to table their annual reports before Parliament to account for fiscal expenditure and service delivery performance. The accountability of public officials, the transparency of public decision-making, access to information, and the implementation of enforceable ethical standards and codes all have significant impacts on democratic institutions and poverty reduction strategies.
Accountability is the pillar of democracy and good governance that compels the state, the private sector, and civil society to focus on results, seek clear objectives, develop effective strategies, and monitor and report on performance. It implies that Parliament must hold individuals and organisations responsible for performance, measured as objectively as possible. Therefore the general role of the Committee is to:
- Consider legislation referred to it;
- Exercise oversight over the Department and its entities;
- Consider international agreements referred to it;
- Consider Budget Votes of the two Departments;
- Facilitate public participation process; and
- Consider all matters referred to it in terms of legislation, the Rules of Parliament and resolutions of the House.
3. Organisational Environment
In November 2018 President Cyril Ramaphosa pronounced a merger between the ministries of Communications and of Telecommunications and Postal Services into a single Ministry of Communications and Digital Technologies (DCDT) under new Minister Stella Ndabeni-Abrahams. This, as he indicated in his 2018 State of the Nation Address, is ‘to initiate better alignment and coordination on matters that are critical to the future of our economy in the 4IR context.’ He further pronounced that the departments would remain as separate departments until the end of the fifth administration.
For this reason, during the reporting period, both Departments worked closely together on identified projects as well as undertook resource sharing from both a financial and human resource perspective in the spirit of the pending merger of the Departments in line with theNational Macro Organisation of Government (NMOG) objectives. The DCDT strategy as well as the start-up structure for the DCDT was jointly developed and approved by the DPSA. The transfer of employees from the DCDT and the DOC to the newly established DCDT was also concluded.
As of 01 April 2020, the Department of Telecommunications and Postal Services and the Department of Communications merged to form the Department of Communications and Digital Technologies.
In his 2019 SoNA, the President appointed a 30-member Presidential Commission on the 4th Industrial Revolution (PC4IR) in order to ensure that South Africa effectively harnesses technological change in pursuit of inclusive growth and social development.The Commission is envisaged to serve as a national overarching advisory mechanism on digital transformation and was established and administered through the Department.
The 2019/20 financial year was also the last year for the implementation of the Department’s strategic goals and strategic objectives as committed to in the 2015-2020 Strategic Plan.
As mentioned above, the DTPS has been in a state of transformation for the majority of the reporting period which in essence required the Department to collaborate with the Department of Communications in terms of jointly undertaking specific projects.
The sharing of such resources was formalised through the development of a Cooperation Agreement which was signed by the relevant principals of both Departments. Furthermore, during the reporting period, all staff members from the DOC physically relocated to the premises of the DTPS where they were accommodated.
During the reporting period, the Departments also worked together on developing the DCDT Strategy as well as a start-up structure that accommodated staff from both Departments as an interim measure while the revised organisational structure, aligned to the new DCDT mandate, will be developed in the 2020/21 financial year. This transformational journey required extensive internal communications and change management due to the disruption that was caused to both Departments.
The Presidential Proclamations in Government Gazette dated 14 August 2019 (President Minute: 372) confirmed the transfer of administration, powers and functions entrusted by legislation to the Minister of Communication in terms of Section 97 of the Constitution.
Based on the Presidential Proclamation, the Department of Telecommunications and Postal Services no longer exists in the 2020/21 financial year. The revised legislative mandate is applicable to the newly established Department of Communications and Digital Technologies, which became operational from 01 April 2020, and will inform the operations of the DCDT going forward.
For the period under review, the Committee, in exercising its oversight role, considered the 2019/20 Annual Reports and Financial Statements of the Department; Sentech and .ZDNA, SITA, BBIand NEMISA on 4, 6, 17 and 18 November 2020.
The Auditor-General of South Africa (AGSA) also presented the audit outcomes of the Department and its entities for 2019/20 financial years, and the outcomes are considered herewith.
The Committee also considered the 2020 State-of-the-Nation Address (SoNA), the National Development Plan (NDP), Committee meetings recommendations, oversight reports (from other committees of Parliament),and the 2019/20 Estimates of National Expenditure (ENE). There was no report from the Standing Committee on Appropriations (SCOA) norwas there a report from the Standing Committee on Public Accounts (SCOPA).
4.1 Outcomes of the Report
This report is aligned to broader government policy framework, New Growth Path (NGP), NDP and the governing party’s priorities (job creation, poverty alleviation, combating crime and corruption, rural development, education and health). It reviews the initiatives taken by the Department to ensure that the priorities of the plan are realised. Furthermore, this report will review and seek to track fulfilment of recommendations emanating from the 5th Parliament’s Legacy Report.
The report also assesses the financial performance against service delivery performance to ascertain whether the budget allocated to the Department was spent as envisaged and annotated in the APP for the period under review. Finally, it summarises the observations made by the Committee after considering quarterly and annual reports, all other necessary documents, as well as presentations generated using oversight instruments, before making service delivery recommendations.
5. Legislative Framework of the Department
The legislative mandate of the Department of Telecommunications and Postal Services is embedded in the legislation as reflected below:
The Sentech Act No. 63 of 1996,Former States Posts and Telecommunications Act No. 5 of 1996, Former States Broadcasting Reorganisation Act No. 91 of 1996, Postal Service ActNo. 124 of 1998, Department of Communications Rationalisation Act No. 10 of 1998, Electronic Communications and Transactions Act No. 25 of 2002, Electronic Communications Act No. 36 of 2005, Independent Communications Authority of South Africa Act No. 13 of 2000, South African Post Bank Limited Act No. 9 of 2010, South African Post Office SOC Ltd Act No. 22 of 2011, State Information Technology Agency Act No. 88 of 1998, Broadband Infraco Act, Act No. 33 of 2007.
In relation to the Independent Communications Authority of South Africa Act, No 13 of 2000 and the Electronic Communications Act, No 36 of 2005 mentioned in the table above, the MoU between the Minister of Telecommunications and Postal Services and the Minister of Communications comes into effect. The MoU was entered into to implement certain matters relating to the transfer of powers and functions under the Independent Communications Authority of South Africa Act, No 13 of 2000 and the Electronic Communications Act, No 36 of 2005.
The MoU was concluded with the aim of creating a framework, within which both Ministers can co-operate regarding implementation of certain matters relating to the assignment of powers and functions, to regulate their relationship and mutual co-operation regarding the laws assigned to them, and to assist both Ministers in: giving effect to the constitutional obligation of implementing national legislation; developing and implementing national policy; and coordinating functions entrusted to them.
In executing its role, the Department is also guided, amongst others, by:
- The Constitution of the Republic of South Africa Act 108 of 1996;
- The Public Service Act 103 of 1994 as amended; and
- The Public Finance Management Act 1 of 1999 as amended.
5.1 Key Policy Developments and Legislative Changes
In an effort to implement its 2019/20 legislative programme, in line with the National Integrated ICT Policy White Paper, the Department focused on developing its priority ICT legislation and policies. In an aim to ensure the development of the sector, the Department developed the Digital Development Fund Bill to establish a fund to support innovation. The Department also developed the Data and Cloud Policy which will review mainstream technology and methods in data management and storage.
With regards to the State ICT Infrastructure Company Bill and the State IT Company Bill, the Department was not able to fully achieve the planned targets due to challenges experienced with regards to finalising the revised business cases. The Department, however realises the significance of these pieces of legislation as they will ensure the consolidation of broadband infrastructure for delivery of the electronic communications networks and services, as well as repurposing SITA, respectively. Therefore, the finalisation of thislegislation and submission to Cabinet for approval will be expedited early in the 2020/21 financial year.
6. Strategic Outcome-Oriented Goals
Broadband connectivity that provides secure and affordable access for all citizens to education, health and other government services and stimulates economic development.
In delivering the strategic objective of coordinating broadband connectivity to achieve 100 per cent population coverage, the Department is contributing to Outcome 6 (“An efficient, competitive and responsive economic infrastructure network”). The Department was able to coordinate and monitor the roll-out of broadband to the identified sites, of which 154 sites have end-to-end services activated.
The Department has established an interim Rapid Deployment National Coordination Centre (RDCC) in line with the implementation of the Rapid Deployment Policy. The operations of the centre weremaintained and all the resolutions referred to the RDCC were resolved, with feedback provided to relevant stakeholders.
The Department made important strides with regards to the monitoring of the operations of the Cybersecurity Hub. The operations of the Virtual Cybersecurity Hub contributes to Outcome 3 (“All people in South Africa are and feel safe”). The Department has taken bold and ambitious approaches to tackle many threats our country faces in cyberspace. The Department recognises its responsibility to lead the national effort related to mitigating cyber threats through the monitoring of the operations of the Virtual Cybersecurity Hub. The Department monitored the Cybersecurity Hub operations and produced quarterly monitoring reports on its service offerings.
South Africa has a modern, sustainable and competitive postal and telecommunications sector.
With regards to the focus area related to developing and implementing ICT Policy and legislation aimed at improving access and affordability of ICTs, the Department has developed priority ICT legislation and policies, in line with the National Integrated ICT Policy White Paper, which included the development of Digital Development Fund Bill and the Data and Cloud Policy. The Framing Document for the Review of the National Integrated ICT Policy White Paper was also developed as informed by the outcomes of the PC4IR Report. The development of the Bills and the policy contributes towards the achievement of Outcome 6 (“An efficient, competitive and responsive economic infrastructure network”).
The Department continued with facilitating the implementation of the ICT SMME Development Strategy focused on the growth and sustainability of ICT SMMEs, which directly contributed towards Outcome 5 (“A skilled and capable workforce to support an inclusive growth path”). Key interventions included capacity building programmes as well as a focus on the international competitiveness of ICT SMMEs aligned to the ITU programme which contributes towards Outcome 11 (“Create a better South Africa and contribute to a better Africa and a better world”).
An Inclusive Information Society and Knowledge Economy driven through a comprehensive e-Strategy and access to Government services.
As part of continuing with facilitating the implementation of the e-Government Strategy, the Department developed a draft National Smart Communities Framework and an e-Government Programme for Smart communities to guide the implementation of e-Government at local government level, which contributes towards Outcome 12 (“An efficient, effective and development-oriented public service”). The Department formalised a partnership with the IOT Council and the DBSA through a Memorandum of Understanding (MoU) thatallowed for the implementation of the e-Government Programme for Smart Communities to guide the implementation of e-Government at local government level.
In an effort to continue facilitating the implementation of the National e-Strategy, the Department developed the National Digital and Future Skills strategy, which underwent stakeholder consultation and was submitted to Cabinet for approval. This initiative contributed towards Outcome 5 (“A skilled and capable workforce to support an inclusive growth path”).
The Department also coordinated and supported the work of the PC4IR, which resulted in the development of the PC4IR Country Report. Given the cross-cutting nature of the PC4IR Country report, it is related to multiple Outcomes, including Outcome 6 (“An efficient, competitive and responsive economic infrastructure network”), Outcome 3 (“All people in South Africa are and feel safe”), Outcome 5 (“A skilled and capable workforce to support an inclusive growth path”), and Outcome 12 (“An efficient, effective and development-oriented public service”).
7. Description and Core Functions
The mandate of the Department of Telecommunications and Postal Services is to develop ICT policies that will contribute to an inclusive information society. The Department has a responsibility to modernise the economy and economic infrastructure through: facilitating the rollout of ICT infrastructure, applications and services; enabling the rollout of postal and banking services; developing e-strategies to roll out e-government and e-sectoral services; promoting cybersecurity and the security of networks; and promoting universal service and electronic communications in underserviced areas.
The Department also sets guidelines for the determinations of the Independent Communications Authority of South Africa, and oversees and strengthens the capacity of state-owned companies and public entities within its portfolio.
The Department derives its legislative mandate from the Electronic Communications Act (2005) and the Electronic Communications and Transactions Act (2002).
The activities of the Department are structured into five programmes, which are:
Programme 1: Administration
Programme 2: ICT International Affairs and Trade
Programme 3: ICT Policy Research and Capacity Development
Programme 4: ICT Enterprise Development and Public Entities Oversight
Programme 5: ICT Infrastructure Support.
7.1 Performance Information
During the 2019/20 financial year, the Department achieved 77 per cent of its planned targets as outlined in its 2019/20 Annual Performance Plan, see graph below:
During the period under review the Department of Telecommunications and Postal Services was able to deliver on 17 of its 22 predetermined targets. The Department spent 96.2 per cent of the budget allocation. Advance payments made amounting to R128 million made to BBI (R75m) and SITA (R53m) for SA Connect project as projected on graph in next page:
From the graph above, it is evident that the expenditure of the Department exeeds the targets achieved. Such key achievements as well as challenges can be summarised as follows:
7.1.1 Legislative Programme
In an effort to implement its 2019/20 legislative programme, in line with the National Integrated ICT Policy White Paper, the Department focused on developing its priority ICT legislation and policies. In an aim to ensure the development of the sector, the Department developed the Digital Development Fund Bill to establish a fund to support innovation. The Department also developed the Data and Cloud Policy which will review mainstream technology and methods in data management and storage.
With regards to the State ICT Infrastructure Company Bill and the State IT Company Bill, the Department was not able to fully achieve the planned targets due to challenges experienced with regards to finalising the revised business cases. The Department, however, realises the significance of these pieces of legislation as they will ensure the consolidation of broadband infrastructure for delivery of the electronic communications networks and services as well as ensure the repurposing of SITA, respectively. Therefore, the finalisation of these legislation and submission to Cabinet for approval will be expedited early in the 2020/21 financial year.
7.1.2 Presidential Commission on the Fourth Industrial Revolution
In April 2019, President Cyril Ramaphosa appointed a 30 member Presidential Commission on the Fourth Industrial Revolution (PC4IR) to assist government in taking advantage of the opportunities presented by the digital industrial revolution through the identification of relevant policies, strategies and action plans that will position South Africa as a competitive global player. In order for the PC4IR to deliver on its mandate of developing South Africa’s national response action plan to deal with the 4IR, the Department coordinated and supported the work of the PC4IR which resulted in the development of the PC4IR Diagnostic Report followed by the Country Report for the Fourth Industrial Revolution that was submitted to the Minister and the Presidency. Going forward, the Department will, together with relevant stakeholders, facilitate the implementation of the relevant recommendations stemming from the PC4IR Country Report.
7.1.3 Broadband Connectivity
The Department, during the reporting period, monitored the provisioning of broadband services to 570 connected sites. Through the State Information and Technology Agency (SITA) and the Broadband Infraco (BBI), the Department facilitated the activation of end to end services in 154 planned sites. Due to challenges related to power supply interruptions, technical difficulties as well as COVID-19 restrictions, connectivity to the remaining sites wasnot fully completed and will be expedited early in the 2020/21 financial year.
7.1.4 National Digital Skills Strategy
As part of continuing with the implementation of the National e-Strategy, the Department developed the National Digital and Future Skills Strategy, which was subsequently approved by Cabinet, following extensive stakeholder consultation. Going forward, the Department will focus on facilitating the implementation of the National Digital and Future Skills Strategy which is aimed at ensuring that citizens are able to benefit from enhanced digital skills, thereby contributing to a significantly enhanced quality of life, improved education and higher economic growth.
7.1.5 Implementation of the e-Government Strategy
In terms of continuing with the implementation of the e-Government Strategy, the Department developed a Draft National Smart Communities Framework and an e-Government Programme for Smart Communities to guide the implementation of e-Government at local government level. Accordingly, the Department formalised a partnership with the IOT Council and the DBSA which allows for the implementation of the e-Government Programme for Smart Communities. The Department, together with SITA, will continue with the Implementation of the National e-Government Strategy focusing on digitisation of government services with specific focus on frontline services supported by a fully functional and accessible e-Services portal.
7.1.6 ICT SMMEs
The Department continued with the implementation of the ICT SMME Development Strategy through targeted interventions focused on supporting, sustaining and growing existing ICT SMMEs. Such interventions included capacity building programmes and increasing international competitiveness of ICT SMMEs.
7.1.7 ICT International Agenda
During the reporting period, the Department developed and advanced two country positions. The first being the Country Position Paper for ITU-WRC-19 which was advance at the WRC-19 that took place in November 2019. The Outcomes of the WRC-19 will inform the review of South Africa’s National Radio Frequency Plan in the 2020/21 financial year. The Department also developed and advanced the Country Position Paper at the 5th BRICS Ministers of Communications Meetings in Brazil.
7.1.a Service Delivery Improvement Plan
The Department of Telecommunications and Postal Services (DTPS), with the assistance of DPSA, developed a Service Delivery Improvement Plan (SDIP), in line with the requirements of the Public Service Regulation 2016 and the White Paper on the Transformation of Service Delivery (Batho Pele). The SDIP of the Department, which focuses on the main services offered by the Department to the identified beneficiaries as well as the actual and the desired standards of such services, was approved.
The key service that was identified in the Service Delivery Improvement Plan is the roll out of Broadband services. During the reporting period, the Department not only monitored the provisioning of broadband services to 570 connected sites but also coordinated and monitored the roll-out of broadband to newly identified sites. Progress against the SDIP was submitted to the DPSA.
Given that the DTPS no longer exists from 01 April 2020 due to the establishment of the Department of Communications and Digital Technologies (DCDT), a new SDIP will need to be developed for the new DCDT, which will then be implemented and monitored accordingly.
7.2 Performance by Programme
7.2.1 Programme 1: Administration
The purpose of Programme 1 is to provide strategic leadership, management and support services to the Department. For the period under review, this programme had one strategic objective which is to create a high performing organisation to enable achievement of the Department’s mandate.
The Programme consists of the following 5 sub-programmes:
- Departmental Management;
- Internal Audit;
- Corporate Services;
- Financial Management; and
- Office Accommodation.
The Department achieved all but one of the planned targets (Strategic Risk Assessments conducted and Risk Register updated)for the reporting period. This was due to the implementation of the lockdown related to COVID-19, the 2020/21 Strategic Risk Assessment of the 3 outstanding branches could not be completed in time. All assessments were subsequently concluded in Quarter 1 of 2020/21 financial year.
The Department delivered of the following targets:
- Departmental Budget, and the Procurement Plan developed and monitored, according to Departmental priorities;
- One additional identified DTPS business process digitised;
- Implementation of approved Workplace Skills Plan in line with DTPS mandate facilitated; and
- Reconfigured department established to deliver on the new mandate.
7.2.2 Programme 2: ICT International Affairs
The purpose of Programme 2 is to ensure alignment between South Africa’s international activities and agreements in the field of ICT and South Africa’s foreign policy.
The strategic objective for the financial year under review is to advance South Africa’s National ICT interest in Regional and International Forums towards attaining partnerships for economic growth and development.
The Programme consists of the following 2 sub-programmes:
- International Affairs coordinates the functions and responsibilities of the Department to meet South Africa’s international ICT obligations; and
- ICT Trade/Partnership develops and advances the country’s interests in international trade forums by participating in the World Trade Organisation’s ICT-related initiatives, and other international trade agreements such as the South Africa-European Union trade agreement and bilateral agreements with counterpart countries.
The Department achieved all the planned targets for the reporting period and therefore there are no issues to address with regard to under-performance.
Within this programme, the Department reported the following achievements:
- One (1) RSA Position Paper advanced for ITU-WRC19 focused on spectrum management and allocations for future technologies to support the digital development agenda;
- One (1) RSA Position Paper developed for BRICS ICT Ministerial 2019 meeting; and
- Two partnership programmes secured towards the development of 4IR in South Africa.
7.2.3 Programme 3: ICT Policy Research and Capacity Development
The purpose of Programme 3 is to develop ICT policies and legislation that support the development of an ICT sector that creates favorable conditions for the accelerated and shared growth of the economy. Develop strategies that increase the uptake and usage of ICT by the majority of the South African population, in order to bridge the digital divide.
The Strategic Objectives for the 2019/20 financial year are listed below:
- Develop and implement ICT policy and legislation aimed at improving access and affordability of ICTs;
- Promote growth and sustainability of ICT SMMEs through development and implementation of the ICT SMME strategy; and
- Develop and implement a National e-strategy that will give priority to e-government services.
The Programme consists of the following 5 sub-programmes:
- ICT Policy Development drafts legislation, regulations, policy and guidelines that govern the telecommunications, postal and IT sectors to ensure broad-based economic development.
- Economic and Market Analysis conducts economic analyses of the telecommunications, postal and IT sectors to determine trends and make growth projections. This subprogramme also undertakes market research to explore areas that require policy intervention; and is responsible for the issue of the reduction of the cost of communication.
- Research is responsible for understanding the ICT landscape and delivering a national ICT strategy.
- Information Society Development supports the effective and efficient functioning of the information society; and the development of institutional mechanisms. These include the interministerial committee on information society and development, the information society and development intergovernmental relations forum, the forum of South African directors-general for information society and development, and the intergovernmental relations forum technical committee.
- Capacity Development provides direction for the advancement of e-skills graduates and society in general to function effectively in the emerging information society.
The Department achieved all the planned targets for the reporting period and therefore there are no issues to address with regard to under-performance.
During the reporting period the Department reported the following achievements:
- Development of priority ICT legislation and policies, in line with the National Integrated ICT Policy White Paper;
- Facilitation of the implementation of the ICT SMME Development Strategy focusing on identified priority areas;
- Facilitation of the implementation of the e-Government Programme for Smart Communities;
- National Digital Skills Strategy submitted to Cabinet for approval; and
- Development of the Country Plan for 4IR coordinated through the Presidential Commission on Fourth Industrial Revolution.
7.2.4 Programme 4: ICT Enterprise Development and Public Entities Oversight
The purpose of Programme 4 is to oversee and manage government’s shareholding interest in the ICT public entities and state-owned companies, and to facilitate the growth and development of small, medium and micro enterprises in the ICT sector.
The Strategic Objectives for the 2019/20 financial year areto improve performance of SOEs through proactive and stringent oversight.
The ICT Enterprise Development and Public Entities Oversight Programme consists of the following 2 sub-programmes:
- Public Entity Oversight provides oversight on public entities and companies by managing government’s shareholder interests in them. This includes facilitating their corporate plans and strategic plans, and ensuring that planning cycles are aligned with legislation and comply with guidelines; and
- SMME Development facilitates the growth and development of, and hosts an e-commerce platform for, SMMEs in the ICT sector.
The Department achieved only one planned target for the reporting period. Within this programme, the Department reported only the achievement for a total of 28 Quarterly SOE Performance Reports analysed and submitted to Minister.
The Department reported non-achievement in the followingtargets:
- State IT Company Bill submitted to Cabinet for approval;
- State ICT Infrastructure Company Bill submitted to Cabinet for approval; and
- Corporatisation and licensing of the Postbank facilitated through undertaking an Amendment tothe South African Postbank Limited Act;
This is owing to public consultation prcesses not taking place because the final business cases could not be concluded. However, the business cases have been subsequently developed. On the PostBank corporatization, due to the extensive engagements which took longer than envisaged with the OSCLA, the Postbank Bill was not published for public consultation. The Postbank Bill has been subsequently developed and submitted to the Cluster system.
7.2.5 Programme 5: ICT Infrastructure Support
The purpose of Programme 5 is to promote investment in robust, reliable, secure and affordable ICT infrastructure that supports the provision of a multiplicity of applications and services.
The Strategic Objective for the 2019/20 Financial Year is listed below:
- Coordinate the Broadband connectivity to achieve 100 per cent population coverage; and
- Develop and implement ICT Policy and legislation aimed at improving access and affordability of ICTs.
The ICT Infrastructure Support Programme consists of the following 3 sub-programmes:
- Broadband is responsible for developing and facilitating the implementation of the broadband policy, strategy and implementation plan, and ensuring that goals for broadband are achieved;
- Digital Terrestrial Television is responsible for supporting the conversion from analogue to digital television transmission technology, with the ultimate goal of making the frequency spectrum available for next generation mobile broadband and other applications; and
- ICT Support is responsible for the management and protection of South Africa’s ICT environment.
The Department acknowledges its under-performance on the target related to coordination and monitoring of the rollout of broadband services to an additional 400 sites. Instead, the Department was able to connect only 154 sites with end-to-end services activated, mainly due to:
- Lack of reliable power supply at the sites, which delayed network installations and testing; and
- Technical challenges such as network misconfigurations and Covid-19 lockdown restrictions, which delayed service activations at the sites where infrastructure had been installed.
The Department reported to have achieved the following targets during the financial year:
- Provision of broadband services to 570 connected sites, monitored;
- Operations of Deployment Coordination maintained the Rapid Deployment National Centre;
- Operations at the Cybersecurity Hubmonitored; and
- Draft WRC-19 Outcomes report developed to inform the revision of the National Radio Frequency Plan.
7.3 Overview and Assessment of Financial Performance of the Department
The overall spending at 31 March 2020 was 96.2 percent of the allocated budget. Advance payments made amounting to R128 million made to BBI (R75m) and SITA (R53m) for the SA Connect project.
The Departmental revenue received in 2019/20 amounting to R663.9 million is mainly from the Telkom investment andcomprises mainly of dividends received from Telkom and the R26 millionsponsorship/donation received from MTNfor the ITU conference hosted by the Department during 2018/19 financial year. Income from the sale of goods and services, other than capital assets, consisted mainly of commission received from the deduction of interest and other premiums from employees’ salaries and administration fees. Income from Sale of Capital Assets is mainly from the auction of assets that was held in March 2020.
The Department had a total adjusted appropriation of R1.684 billion for the 2019/20 financial year. The adjusted allocation for 2019/20 was decreased by R2.322 Billion (57,9%) as compared to the previous financial year allocation of R4.006 billion. Of the total allocation, transfers and subsidies amount to R1.053 billion (62.5%) of the budget. These transfers were mainly to departmental agencies and accounts, as well as allocation for digital broadcasting migration, see table below:
As reflected in table above, the spending for the 2019/20 financial year amounts to R1.620 billion (96.2%) of the adjusted budget of R1.684.5 billion.
7.4 Spending Trends Per Programme
The under-spending of R63.6 million (3.8%)was mainly due to capital assets on development of an online e-identity application utilising Digital ObjectArchitecture. Further underspending on compensation of employees is due tocritical vacancies not filled timeously during the financial year as a result of a moratorium that was in place during the MNOG processand the announced merger of the Department of Telecommunications and Postal Services and the Department of Communications. Subsequent to that, the NMOG process also had a major impact on the identification and filling of critical vacancies.
The increase under Consultants: Business and Advisory Services (R231 million) is due to an increase in the allocated budget for 2019/20 to implement the SA Connect project. All the allocated budget was advanced to SITA and BBI for the SA Connect Project. Property payments reflect an increase in expenditure (R18 043 million) mainly from Security and Electricity expenses. The decrease in Travel &Subsistence and Venues &Facilities (R33 962 million) is mainly because previously the Department hosted the ITU during the 2018/19 financial year. The Goods and Services expenditure reflects a significant decrease in expenditure on most of the other line items.
Administration – Underspending mainly due to posts not filled during the financial. Delays in the delivery of orders placed for laptops by suppliers which was affected by the COVID-19 lockdown. Capacity augmentation project – Delays in procurement process not finding the suitable service provider, National Treasury did not approve IFMS for the purpose of Integrated workflow management system inclusion of HR and finance processes.
- Policy & ISAD – Underspending due to planned Digital Government Transformation Summit on Smart City which did not take place and reduction of international travel and local travel.
7.4.1 Programme 1: Administration
The programme had a final budget of R256.4 million and expenditure amounted to R215.2 million (83.9%) in the current financial year, compared to R235 million expenditure in the 2018/19 financial year.
7.4.2 Programme 2: International Affairs and Trade
The programme had a final budget of R54.6 million and expenditure amounted to R53 million (97.3%) in the current financial year, compared to R85 million expenditure in the 2018/19 financial year.
7.4.3 Programme 3: Policy, Research and Capacity Development
The programme had a final budget of R88.8 million and expenditure amounted to R78 million (87.8%) in the current financial year, compared to R 85.4 million expenditure in the 2018/19 financial year.
7.4.4 Programme 4: ICT Enterprise Development and Public Entities Oversight
The programme had a final budget of R716.7 million and expenditure amounted to R715.9 million (99.9%) in the current financial year, compared to R3.2 billion expenditure in the 2018/19 financial year. Major reduction of expenditure in the current financial year is due to the transfer of R2.9 billion made to the South African Post Office during 2018/19 financial year for the recapitalisation.
7.5.5 Programme 5: ICT Infrastructure Support
The programme had a final budget of R566.7 million and expenditure amounted to R555.9 million (98%) in the 2019/20 financial year as compared to expenditure of R388.4 million in the 2018/19 financial year.
7.6 Expenditure per Economic Classification
The allocation for good & services amounted to R367.3 million (22%) of the total budget. The allocation for compensation of employees amounted to R241.4 million (14%), while R23 million (1.4%) was allocated as payment for capital assets.
- Infrastructure – Underspending mainly due to delays in the development and implementation of an online e-identity application utilising Digital ObjectArchitecture as the project is dependent on concurrence by the Department of Home Affairs.
- Goods & Services – Underspending mainly due to projects not implemented and overall reduction in international and local travel. Department maintains a reconciliation on advance payments made to BBI and SITA.
- Capital Assets – Delays in the delivery of orders placed for laptops by suppliers which was affected by the COVID-19 lockdown. Lack of implementation of the integrated workflow management system and DOA project during the financial year.
7.7 Transfers and Payments
Transfers are made to Entities according to the agreed schedule with National Treasury at the beginning of the financial year, see table below:
Reallocation of R24 million to ICASA through a virement from USAF for the licensing of the spectrum. International membership fees amounting to R30m were paid in full. Households amounting to R31 million includes settlements paid early during the FY (Draft FCB R26m and Gitshasbaya R3m).
7.8 Virements/Roll Overs
Virements as reflected on the Appropriation Statement were applied in terms of section 43(1) of the Public Finance Management Act, 1999 (Act 1of 1999) which stipulates that virements may not exceed 8 per cent of amount appropriated under that main division. Funds amounting to R26.5 million from Programmes 1, 2, 3 and 4 were transferred respectively to Programme 5 to defray excess expenditure. Programme 5 incurred overspending under goods and service under consultants and business advisory services (for SA Connect project).
No roll-overs were approved by National Treasury during the 2019/20 financial year.
7.9 Unauthorised, Irregular, Fruitless and Wasteful Expenditure
The Department did not incur any unauthorised expenditure during the period under review.
The Department incurred R722 thousand of irregular expenditure during the 2019/20 financial year.
Irregular expenditure of R208 million was incurred in the previous financial years. The Department has referred R114.6 million of cases stemming from previous financial years to National Treasury for condonement after investigations were concluded. Furthermore, the Department is continuing with the investigation to address the irregular expenditure incurred.
7.10 AGSA Report
The Department achieved an unqualified audit opinion for 2019/20 financial year.There was a general improvement in relation to compliance matters as reflected in AG outcomes:
- Two AG Findings in Audit Report in 2018/19 versus zero in 2019/20
- 25 AG Findings in Management Letter in 2018/19 vs 18 in 2019/20
The Auditor-General did not raise any material findings on the usefulness and reliability of the reported performance information for this audited programme:
- Programme 5 – ICT infrastructure support.
The Auditor-General did not identify any material findings on the usefulness and reliability of the reported performance information for this programme. The Auditor-General did not raise any material findings on the usefulness and reliability of the reported performance informationand equally did not identify any material findings on compliance with the specific matters in key legislation set out in the general notice issued in terms of the PAA.
At the end of the financial year the Department addressed 86 per cent of audit findings raised by the AGSA. Overall the Department addressed 70 per cent of integrated findings (AGSA and Internal Audit findings).
- Future Plans of the Department
The 2020/21 financial year is not only the first year of the new Medium Term Strategic Framework (MTSF), but more significantly the first year of existence for the new Department of Communications and Digital Technologies (DCDT). The Department of Telecommunications and Postal Services (DTPS) will cease to exist on 31 March 2020; therefore, the future plans highlighted below are aligned to the mandate of the DCDT which will come into existence from 01 April 2020.
In line with its mandate of “Leading South Africa’s digital transformation to achieve digital inclusion that must result in economic growth through creating an enabling policy and regulatory environment”, the DCDT has identified four specific outcomes for the medium-term which focus on (1) Enabling Digital transformation policies and strategies, (2) Increased access to secure Digital Infrastructure, (3) a Transformed digital society and (4) a High performing Portfolio to enable achievement of their respective mandates, all of which will contribute to achieving the desired impact of digitally enabled citizens with secure and affordable universal access.
Following the appointment of the PC4IR, the Commission released its Diagnostic Report followed by the Country Report for the Fourth Industrial Revolution which will inform key prioritise of the Department going forward. The DCDT will facilitate the implementation of the relevant recommendations of the PC4IR Report through a dedicated 4IR Project Management Office (PMO) which has been established within the Department.
In terms of its Legislative Programme, the DCDT will largely focus on creating a conducive policy environment through the development and review of relevant enabling policies, legislation and strategies including those that are targeted at improving the capacity of our State Owned Entities (SOEs) such as the South African Post Office SOC Ltd Amendment Bill, the South African Broadcasting Corporation SOC Ltd Bill, the State Digital Infrastructure Company Bill and the State Digital Services Company Bill. The Department will also prioritise the development and implementation of the Digital Economy Masterplan as well as issue Policy Direction on 5G Spectrum.
The Department will also pay specific focus to increasing access to digital infrastructure through accelerating the implementation of its two critical infrastructure related projects which have been dogged by legacy challenges. These are specifically the roll out of Broadband Connectivity and the Broadcasting Digital Migration projects. The Department will prioritise the sourcing of funding for Phase 2 of Broadband roll-out while facilitating subsidised digital television installations in identified provinces to enable analogue transmission switch-off. Another key focus will be on the revision of the National Radio Frequency Plan in line with the WRC19 Outcomes.
In an effort to move towards a transformed digital society, key focus will be on continuing with the implementation of the National e-Government Strategy and Roadmap, towards digitisation of government services with specific focus on frontline services supported by a fully functional and accessible e-Services portal. Priority will also be given to addressing the digital skills gap through the implementation of the National Digital and Future Skills Strategy together with identified stakeholders. With regards to fulfilling our international ICT agenda, the Department will prioritise the development and advancement of three Country Positions to support the Digital Economy which will focus on BRICS, Universal Postal Union (UPU) and World Telecommunications Standardisation Assembly (WTSA).
The role of our State Owned Entities (SOEs) is critical in delivering our mandate. The Department will therefore ensure stringent and proactive oversight of their service delivery performance and compliance against plans and relevant prescripts. In terms of optimising the operations of the DCDT itself, the development and implementation of a fit for purpose organisational structure which is aligned to the mandate and strategy will be a priority. Focus will also be on capacity development of staff members in line with the skills requirements of the new mandate. The Department will also move towards a paperless organisation through the implementation of a Digital Transformation Strategy which will allow for seamless and efficient implementation of our policies, process and management decisions through digital platforms.
10. Entities of the Department
The following shows the transfer of funds to entities and agencies reporting to the Department of Telecommunications and Postal Services (excluding international organisations):
The.ZA Domain Name Authority(.ZADNA) is a not-for-profit organisation that manages and regulates the.ZA namespace.The .ZADNA is statutory regulator and manager of .ZA Namespace. The Authority must enhance public awareness on the economic and commercial benefits of domain name registration and it complies with international best practice in the administration of the .ZA domain name space; license and regulate registries and registrars and publish guidelines on .ZA domain namespace. .ZADNA is therefore the custodian of the Internet Governance in South Africa.
.ZADNAis accountable to theSouth AfricanDepartment of Telecommunications and Postal Services, but does not receive government funding which means it is exempted from complying with thePublicFinance Management Act.
Section 65(1) forms the core mandate of .ZADNA, but in addition to it, Section 68 gives .ZADNA an ability to make wide-ranging regulations. In addition, Section 69 of the Act mandated the Minister to promulgate Alternative Dispute Resolution (ADR) Regulations for the resolution of .ZA domain name disputes. .ZADNA is mandated to:
- Comply with international best practice in administration and management of the .zanamespace in compliance with international best practice;
- Licensing and regulate registries;
- Licensing and regulate registrars for respective registries;
- Publish guidelines among others; and
- There was a total of 120 targets for the year, and .ZADNA achieved 118 (98%) of the targets. There were 2 targets (2%) that were not achieved are deferred to 2019/2020.
10.1.1 Operational Highlights
.ZADNA’s performance during 2019/20 has been satisfactory, with 82 per cent of .ZADNA’s annual targets achieved under the then prevailing conditions.
There were some over-achievements in some targets. Particular over-achievement is in the area of communications and awareness, where .ZADNA achieved substantially more than set targets.
The targets that were not achieved are as follows:
Annual evaluation report on SLR registrar experience completed
This target was not achieved as the SLR has not yet been implemented. Even though the target was not achieved there has been some work done towards the achievement of the target. The .ZADNA has conducted benchmark studies to determine the best approach suitable to implement the project. The Board resolved to review the SLR project during 2021/22 Financial year.
The utilisation of 100% training budget
The ZADNA did not achieve the target due to less interest on domain name courses by employees. It was established that some of the employees selected courses/ programmes that were not in line with the mandate of the organisation and it was decided that ZADNA will engage NEMISA as they are offering training that is in line with its mandate.
The annual salary % job grading review
The target was not achieved because of the absence of the Human Resource officer. The salary survey was conducted but could not be finalised.
Quarterly & annual employee performance assessment completed
The target was not achieved due to two employees who had labour related matters with the employer. These employees were therefore not available during the assessments period.
A total of 29 disputes reached actual adjudication, with twenty-nine (29) of the decisions resulting in the transfer of the disputed domain names to the complainants. Only one (1) dispute which was refused and no appeal or withdrawal.
There were 7 mediation cases that were resolved during 2018/2019. Two (2) out of the five (5) matters were successfully mediated. The impact of the successful mediation is that the matters do not proceed to adjudication and the settled disputes are cost-free to the parties.
During the reporting year, .ZADNA attended the African Internet Governance Forum: The African Internet Governance Forum is a regional event focusing on the area of Internet Governance.
.ZADNA hosted the hosted the inaugural meeting of the 1st South African School of Internet Governance. It also hosted the South African Internet Governance Forum in October 2019in Mbombela, Mpumalanga, under the overarching theme “ Connecting the Unconnected”.
.ZADNA collaborated with Progressive Blacks in Information Communication Technology (PBICT) to host the first Youth Internet Governance Forum in Durban, KwaZulu Natal. The meeting was held on the 15th of November 2019. The focus was on Digital Economy and Digital Inclusion.
Furthermore, ZADNA formed part of the South African delegation led by the honorable Deputy Minister Pinky Kekana at the global Internet Governance Forum in Berlin, Germany. The forum ran from the 25 to the 29 of November 2019 under the overarching theme “One Net, One Vision, One Nation”.The meeting was attended byover 10000 global delegates. The main emphasis and focus wason the United Nations Sustainable Goals.
There were 834 domain names registered in April 2018 and 2 673 by March 2019. In March 2020 there were 3093 registered on this platform, contributing to the total growth of 1 257 983 commercial SLDs. By 31st of March 2020 (FY: 2019/20), commercial SLDs amounted to a net total of 1 257 983.
The number of accredited registrars continued to grow steadily. Registrar growth by 2018/19 was 585, an increase of 81 new registrars from 504 in the 2017/18 financial year. However, in 2019/20 financial year, only seven (7) registrars were accredited totalling 592.
DotCities growth has not progressed as fast as initially anticipated and this is largely because of passive marketing and awareness and much higher registration pricing than .ZA (Figure N). There is significant growth potential in the number of domain name registrations in .joburg, .durban and .capetown because these TLDs are uniquely South African and are more pointed in terms of geographic location. The dotcities domain experienced a decline in total domains when compared to previous financial years:
- In 2019/20 - Joburg decreased by 246 domains.
- In 2019/20 - Capetown decreased by 357 domains.
- In 2019/20 - Durban decreased by 124 domains.
10.1.2 Financial Performance
.ZADNA managed to keep its expenditurewithin budget, and collected revenue on time. .ZADNA is funded from the co.za,net.za, org.za and web.za per domain name revenue, which revenue modelbecame effective from 1 April 2012. The 2019/2020 budget was based on theR12.00 per domain name fee and Revenue of R14 926 000 was realised for thefinancial year. Furthermore, additional revenue as detailed in the Audited FinancialStatements has been collected during the 2019/20 financial year from ZACR as partof the settlement agreement.For the period ended 31 March 2020, the Authority generated the total revenue amounting to R15.290 million. This comprised revenue received from central registry to the amount of R14 926 000 interest received to the amount of R354 849 and R8 571 from Central Registry Fees (R5) Arbitration. The Total expenses for the year amounted to R12 755 596 resulting ina surplus for the year, which amounts to R2 533 824.
10.1.3 Audit opinion
.ZADNA is not a State entity and therefore audits are not conducted by AGSA. No further information is provided in this regard in the report except to emphasize that .ZADNA achieved another clean (unqualified) audit with no matters of emphasis for the financial year 2019/20 and consistent for the past two years. This is indicative of the financial prudence of .ZADNA.
10.2 Broadband Infraco (BBI)
BBI is established in terms of the Broadband Infraco Act No. 33 of 2007, and the objects of the Act are aligned with the Electronic Communications Act No. 36 of 2005 and commensurate with international best practice and pricing, through the provision of electronic communications network services and electronic communications services.
Its objectives are to expand the availability and affordability of access to electronic communications including, but not limited to, under-developed and under-serviced areas. The The MTSA Outcomes, the Nine-Point Plan and the SIP 15 (Sub-Outcome 15) guide the work of the Agency in terms of alignmet to the NDP2030.
The Company is owned by the Government, as represented by the Minister of Communications and Digital Technologies, and the Industrial Development Corporation. The Company’s Memorandum of Incorporation (MoI) – approved by the Shareholder Minister on 20 September 2017 - aligns with the provisions of the PFMA, and the Companies Act. As an SOC, the PFMA is our primary legislation. It is a Schedule 2 public entity in terms of the PFMA.
BBI signs an annual Shareholder’s Compact with the Minister of Communications and Digital Technologies that details strategic objectives and key performance indicators and targets in terms of the following key Focus Areas:
- Financial and Operational Sustainability;
- Organisational Enablement;
- Enable Digital Transformation and Infrastructure; and
- Enable Last Mile Connectivity.
BBI offers long-haul connectivity and various broadband communication services. Its mandate is in line with the National Development Plan (NDP) of establishing national, regional, and municipal fibre optic networks to provide the backbone for broadband access, particularly in underserviced areas of the country.
The services are based on the provision of high-capacity bandwidth from point to point on the national network. BBI is geared to connect the nation through the implementation of SA Connect Phase 1 in the new financial year.
The impact of the work of BBI is realised through the following:
- Increase availability and affordability to communication services including, but not limited to, under-developed and under-serviced areas;
- Implemented innovative, efficient, and cost-effective communication services;
- A state supported through broadband connectivity; and
- A strategically positioned, reputable, competitive and profitable industry player.
10.2.1 Operational Highlights
The Company achieved 68 per cent of its annual targets, which is lower than 95 per cent achieved in the previous financial year. The inability to raise capital funds in the market due to the weak balance sheet, which is a direct result of the non-conversion of the shareholders’ loans, contributed significantly to the non-achievement of the financial sustainability targets of the Company.
The revenue is impacted in the main by dropping of contracted links, price pressure due to fierce competition in the industry and self-provisioning by major players. The debtors’ collection period has improved significantly to 28 days and the entitywasable to increase the targeted procurement through designated groups, thus achieving all the targets for B-BBEE.
In terms of sales, the 2019/20 financial year presented growth of 3 per cent compared to the previous financial year, albeit a missed target by 36 per cent. The performance was delivered under a challenging macro-economic environment, with growth of less than 1 per cent, a price-pressured industry environment, as well as twothirds of sales capacity due to the moratorium on recruitment that was in place in FY2019/20. This year was, as a result, very much focused on retention of the customer base as there was a vicious battle for total ownership of key accounts.
During the year under review, four end-to-end processes that impact onrevenue generating operations, were reviewed and modelled using the “Brown PaperModel”.
Other highlightsfor the financial year include the following:
- Only 333 of the 400 target number of Government sites connected to Broadband Infraco network for SA Connect Phase 1;
- Network performance rebates paid as a percentage of gross revenue was 0.15 per cent of quarterly gross revenue;
- Actual Time to Restore core network faults was 5:68 hrs;
- Four SMMEs were allocated installation work during the financial year under review;
- The target of 70 per cent spend on B-BBEE was up to 122 per cent of total discretionary budget spent during the financial year under review;
- The target of 40 per cent spend on B-BBEE for black-owned entities was exceeded by 4 per cent to 44 per cent annually;
- A total 34 percent overachievement to 44 per cent from a target of 10 per cent was realised in the performance target on percentage spend on black women-owned entities annually;
- There was a downgrade in the improvement of B-BBEE level from level 6 to level 7; and
- There was overachievement relating to the 1 to 1.96 per cent of the wage bill spent on targeted training and development during the financial year under review,withfive new interns employed.
10.2.2 Financial Performance
The Company remained cash positive throughout the financial year, with cash resourcesincreasing from the year-end position.The revenue increased by 14 per cent year on year. Cost of sales increased by 20 per cent year on year, partly as a result of the increase in number of billed customers from 61 to 79, and mainly due to higher fibre costs and access providers for the provisioning of SA Connect, when compared to the previous financial year.
Amid this increase in cost of sales, the gross profit margin increased to 54 per cent for the year under review. Operational expenses increased by 10 per cent year on year and operational losses increased by R97 million to R111 million (normalised loss in 2019 to an amount of R114 million).
Operational expenses for the year are 4 per cent higher than the normalised operating expenses (after considering the capitalisation of spares in the 2019 financialyear) for the previous financial year. This increase is mainly due to an increase in maintenance activities and related insurance costs as a result of an increase in vandalism and fibre line breaks, as well asco-sourcing of critical services.
The gross profit percentage increased, and the EBITDA margin only decreased slightly, making for a positive outlook.
Although the Company had a positive EBITDA and generated cash from its operations, itremained under severe cash constraints. This position was worsened by the fact that the entity was unable to raise funding during the past year as a result of the non-conversion of shareholders’ loans and very few cash upfront deals (IRU).
As a result, all capital expenditure - mainly to provision services to customers - had to be funded from own funds generated during the year. This, together with the lower revenue growth outside of SA Connect, placed us under severe cash flow constraints.
The total capital spend for the year is R66 million (excluding IFRS 16 adjustments for right-of-use assets). Most of the capital spend was for the provisioning of specific strategic customers and rolling out of SA Connect.
Three targets were not met for the financial year under review as follows:
- Only R227 million new sales contracts signed contrary to the target of R350 million;
- A mere 14 per cent revenue year-on-year growth (including SA-Connect) as opposed to the target of 34 per cent was acieved; and
- Operating profit before depreciation after interest decreased by R84 million.
Targets were met and some over achieved in the following:
- The gearing ratio target of 125 per cent was achieved with a debt to equity ratio of 53 percent (shareholder loans are treated as equity);
- R109 million cash balance;
- SMME invoices paid within 19 days as opposed to the 30 days target;
- Debtors collection days per outstanding customer invoice were reduced to 28 days in contrast to the 45 days per contract plus 15 days; and
- Implemented improved contract management processes to prevent further irregular expenditure.
10.2.3 Audit Opinion
The external auditors are responsible for independently auditing and reporting on the Company’s Annual Financial Statements. The Annual Financial Statements have been examined by the Company’s external auditors.
The external auditors evaluated the usefulness and reliability of the reported performance information in accordance with the criteria developed from the performance management and reporting framework, as defined in the general notice, for the following selected objectives presented in the report for the directors of Broadband Infraco SOC Limited annual report for the year ending 31 March 2020.In terms of the Key Performance Area, Objective 1 – Ensure long-term Financial Sustainability was audited. No material findings on the usefulness and reliability of the reported performance information for the objectives was identified.
The external auditors’ opinion was that the financial statements present fairly, in all material respects, the financial position of the company as at 31 March 2020, and its financial performance and cash flows for the year then ending in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act no. 1 of 1999) (PFMA) and the Companies Act of South Africa, 2008 (Act no. 71 of 2008) (Companies Act).
Attention was drawn to note 28 which indicates that the Company made a loss of R111 001 million for the current financial year and the accumulated losses amounted to R1 317 428 million as at 31 March 2020. As at that date, the company’s total liabilities exceeded its total assets by R1 317 428 million. As stated in note 28, these conditions, along with the other matters as set forth in the note, indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern.
Lastly, on Internal Control Deficiencies, the external auditors concluded that the accounting authority did not exercise adequate oversight responsibility regarding compliance with applicable legislation and related internal controls that resulted in the lack of proper procurement and contract management processes. Action plans developed to address internal control deficiencies were not, in all, instances adequate.
Sentech derives its mandate from legislation, particularly the Sentech Act and the Electronic Communications Act. In 1992, Sentech was corporatized as a wholly owned subsidiary of the South African Broadcasting Corporation (SABC). In 1996, Sentech Act, No. 63 of 1996 was amended, converting Sentech into a separate public entity responsible for providing broadcasting signal distribution services as a common carrier to licensed television and radio broadcasters. As holder of Individual Electronic Communications Network Services (I-ECNS) and an Individual Electronic Communications Services (I-ECS), Sentech can provide international voice-based telecommunications and multimedia services.
Policies have been put in place to ensure that there is compliance with all relevant legislation. The organisation is further guided by the principles embodied in the King IV Report on Corporate Governance for South Africa and the Protocol on Corporate Governance in the Public Sector 2002.
Sentech is a South African State-Owned-Company and leading provider of electronic communications network services to the country’s broadcasting and communications industry. Itsownership of the largest infrastructure in the country for terrestrial signal distribution for both TV and radio enables the organisationto offer wholesale services on an equitable, non-discriminatory and non-exclusive basis (i.e. as a common carrier). Sentechprovides broadcast transmission services to all public broadcasters - (SABC) radio and television stations, commercial radio and TV stations, and over 150 community radio stations countrywide daily. Sentech’s180 sites enable the organisationto provide connectivity and infrastructure services to the retail, telecommunicationsand public sectors.
The strategic value offering of Sentech revolves around three key aspects of itsbusiness, namely Content and Multimedia, Managed Infrastructure Services, and Connectivity. The strategy is to efficiently deliver content while growing connectivity and digital businesses through dynamic capabilities, strategic partnerships and acquisitions.
10.3.1 Operational Highlights
Sentech achieved 100 per cent achievement of predetermined objectivesas approved by the Shareholder.Customer satisfaction index has improved from 68.25 per cent to 73 per cent due to customer engagement and by becoming more customer-centric.
Sentech service products yielded a positive and above inflation growth of 6 per cent across all products. This growth was mainly driven by the Direct-to-Home (DTH), Television and International business portfolios. Business growth strategy has expanded with an additional 61 broadband sites - up from 37 in the previous financial year to 98 in the 2020 financial year.
An over-achievement of 98.38 per cent of planned digital skills training interventions were implemented against an annual target of 85 per cent. The IoT and e-Learning digital products were launched for Sentech customers.
A Smart Village 5G trials access node was developed and deployed for a commercial customer in the North West province.
Performance network infrastructure management refers mainly to the competent operation and maintenance of technical and civil infrastructure on all Sentech highsitesandTeleport.Timeousrefreshingofageinginfrastructureensuresahighlevelofcustomerassuranceandservicequality.
Sentech investedcapitalprimarilyforinnovation,technologyenhancementsandcontinuityofbusinessoperations. Thishasyieldedpositiveresultsinboththeinternalandexternalenvironments.TheseincludetheestablishmentofaSolarEnergySolutionsatthe Sentech STPandensuringnetworkavailability.
For the year under review, the media and connectivity core services platforms were successfully managed, leading to achievement of the 99.88 per cent against the corporate network availability of 99.8 per cent. SENTECH improved the Information Technology governance and control environment during the year to achievea six-year high, with 85 per cent overall improvement on the IT control environment. Sentech achieved 99.87 per cent weighted network availability during the past Medium-Term Expenditure Framework (MTEF) period 2016-2019 across all platforms.
Sentech continued to stabilise the DTT platform and served in an advisory capacity to the Department of Communications and Digital Technologies, as well as being appointed as the Head of the PMO for the Broadcasting Digital Migration Programme to expedite SouthAfrica’s transition to the already established DTT infrastructure network.
Digital Radio as a future growth path for radio content distribution and has developed a comprehensive strategy for next-generation radio services. The Digital Radio pilot now has presence in Gauteng and WesternCape.
Over-The-Top (OTT)implemented a live streaming platform for multiple events such as GovTech, EastLondon ICT Summit and others.
During the year under review and in response to COVID-19, Sentech implemented our Business Continuity Management Plan to ensure business continuity; provided payment holidays to our customers to address their liquidity challenges; engaged with our major suppliers, especially overseas based ones, in order to address a continuous supply of good and services; donated to Solidarity Fund to the tune of R4million; provided a free Disaster Recovery site to SABC valued at R5million; and food parcels vouchers were provided to our internal contractors(cleaners and maintenance), which positively impacted about 100 families.
COVID-19’s Impact on Sentech SOC Ltd
In the late 2019, the world woke up to a disruption that was declared a pandemic by the World Health Organisation (WHO): Covid-19 or Coronavirus, whichled to an almost complete global economic lockdown. For Sentech, a lack of economic growth will impact the company’s revenue as some of its major customers will be affected by declining sales and the need to cut costs. The fall of the Rand against the US dollar has increased the company’s costs of paying its dollar based foreign suppliers. A rising unemployment rate and the increased budget deficit will erode the Governerment’s tax base, which may affect Government funding for dual illumination.
The above will also affect implementation of national strategic projects like digital migration, Communications Satellite and SA Connect.
Sentech’s Strategic Response
- Invoked and implemented our Business Continuity Management Plan to ensure business continuity;
- Reviewing our corporate strategy and plan to ensure liquidity and sustainability;
- Engagement with our customers to address their liquidity challenges;
- Engagement with our major suppliers, especially overseas based ones, to address a continuous supply of good and services; and
- Support government to provide social relief, donation to Solidarity Fund, and assist with connectivity for learners.
Overall, Sentech has succeeded in providing broadcast transmission services to all the public broadcaster’s (SABC) radio and television stations, commercial radio and TV stations, as well as over 150 community radio stations country-wide on a daily basis.
10.3.2 Financial Performance
The portfolio performance grew by 5 per cent with revenue of R1.329 million compared to R1.261 million for financial year 2018/19. EBIT margin of 17 per cent per cent or R261 million was realized. However a net loss of R72million was mainly due to the fluctuations in the foreign exchange rate, where a major part of the lease liability is foreign currency dominated. This was the first recognition of the liability due to adoption of a new according standard, namely IFRS 16 Leases.
As illustrated in graphic above, revenue increased by 6 per cent (R81 million) in a challenging economic environment. The increase was a result of the inflationary increase in the content and multimedia services as well asa once off sale of smartcards to USAASA. In addition, Sentechmanaged to write R2 millionrevenue from its international business.
Despite the marginal growth in revenues, SENTECH managed to report an operating profit of R261 million as a result of cost containment measures, negotiated satellite costs and an increased investment income. However, due to the foreign exchange difference on Lease liability and adoption of IFRS 16 Leases, the company incurred a net loss for the year of R72million.
Sentech’score operations generated positive cash flows whilst maintaining profitability. The balance sheet has improved with cash resources reported exceeding R1.5 billion. Accounts receivables have improved in the year with settlement of a long outstanding debt by a customer.
On initial recognition at 1 April 2019, a Right of Use asset and corresponding Lease Liability of R1.35 billion was recognised. As at 31 March 2020, the Lease liability grew to R1.58 billion due to the significant fluctuations in the foreign exchange rate between the spot rate at initial recognition and the reporting date as required in terms of IAS 21- The Effects of Changes in Foreign Exchange Rates. The foreign exchange difference (loss) is recorded under profit and loss at an amount of R315 million.
A trend analysis as illustrated below, indicates the company performance over a five year period from financial year 2015/16 to financial year 2019/20.
Financial year 2020 Net loss was due mainly to the foreign exchange loss incurred upon adoption of the IFRS-16 lease accounting. A total R1.335 million (cumulative) against a target of R1.265 million sales revenue was achieved. Earnings before Interest and Tax (EBIT) were R261 million (cumulative) and against an annual target of R116 million as illustrated above.
The movement in financial year 2020 in comparison to financial year 2019 was regarding the adoption of the IFRS-16 lease accounting in respect of:
- non-current assets -recognizing the right of use assets; and
- non-current liabilities -recognising the finance lease liability.
Cash generated from operations dropped in financial year 2018 due to a main customer being unable to pay for services provided and requested a payment holiday.
The financial year 2018 debt has since been settled in full, although the Covid 19 pandemic restricted customers ability to pay in financial year 2021.
Enterprise and Supplier Development (ESD): enterprises were supported with grant funding of R6,1million for some of theirinitiatives.
10.3.3 Audit opinion
For the 7th consecutive year, Sentech has received a unqualified audit with no findings (clean audit).However, external auditors raised expected credit losses of R56 159 000 on the trade debtors balance. More than 80 per cent of the ECL pertains to community broadcasters. Sentech has been experiencing challenges in the collecting amounts owed by these community broadcasters.
Interms of Financial And Performance Management as a function of internal controls of Sentech, the Auditor-General found that Daily and Monthly Controls as well as Review And Monitor Compliance were of concern. No adequate second-level assurance was provided by Sentech in relation to the Internal Audit unit.
USAASA and USAF had not tabled by when the Committee considered this report.
The Broadcasting School of South Africa was established in 1988 as a Section 21 Company in terms of the Companies Act, Act 61 of 1973, to deliver the requisite skills for the broadcasting industry (radio and television). The school was renamed in 2001 as the National Electronic Media Institute of South Africa (NEMISA), and re-launched in 2006 with an expanded scope to include qualifications in animation and graphic design.
The Institute derives its mandate from the Department of Communications and Digital Technologies (DCDT), previously known as Department of Telecommunications and Postal Services (DTPS), to promote the development of digital skills among our citizens in South Africa.
NEMISA’s mandate is further embedded in the following national policies recognising the need for the development of digital skills in South Africa:
- National Development Plan 2030;
- National Skills Development Plan;
- 2014 SA Connect Broadband Policy;
- 2016 National Integrated ICT Policy White Paper;
- White Paper on Post-School Education and Training;
- Digital Skills Strategy;
- Medium-Term Strategic Framework; and
- National Human Resources Development Strategy.
- Operational Highlights
Ten(10) of the eighteen (18) planned targets were achieved, being 55 per cent of the total planned targets, and eight (8) of the eighteen (18) planned targets were not achieved, being 45 per cent of the total annual planned targets.
One of the major projects that were undertaken in Programme 1 during the financial year under review was to do away with outdated ICT infrastructure and devices. These were a stumbling block for the organisation in moving towards a digital NEMISA. This also changed the way ICT utilises and allocates resources, moving away from capital expenditure to operational expenditure. Three-year service agreements have been entered into for key ICT infrastructure including cloud services, telephony and other key suppliers.
NEMISA’sin-house training department recruited students for the digital and creative media programmes that commenced in January 2019. Furthermore, connectivity in the training labs has been upgraded to include fast ethernet connectivity and a Wi-Fi access point for the students. This will further support the sharing of knowledge and transmission of data among the students and facilitators.
A comprehensive ICT Business Plan 2020/21 has been drafted for approval. It provides a blueprint for achieving the ICT mission and draws from the NEMISA Strategic Plan, Annual Performance Plan, consultations with business units, risk management, institutional challenges and opportunities, as well as ICT priorities for the 2020/21 financial year.
In the period under review, advocacy and awareness work, graduations and launches of CoLabs, were activities undertaken by the Institute to realise their strategic objective. Other highlights of the year include offering qualifications to full-time students at its Parktown campus with outcomes in interactive media, film and television production, graphic design, animation and radio production qualifications.
In alignment with Government’s directive, all NEMISA courses were suspended on 18 March 2020. This precaution aimed to mitigate the risk of student exposure to COVID-19. Resident students vacated the CitiQ residence within 48 hours of suspending classes. To support students travelling back to Mpumalanga, part-stipends were advanced for public transport and shuttle services. All students were returned home safely.
The disruption of COVID-19 meant not all academic objectives and curriculum outcomes were completed. All teaching and learning staff worked from home. Not all course outcomes could make the switch to online learning since courses are outcomes-based and highly practical. However, facilitators kept in touch with students through revision of exit level outcomes, direction to virtual exhibitions, marking of written assessments and providing cross-media consumption. Not all students could make the switch to online learning.
To resume face-to-face classes and support for online learning, a Business Continuity proposal was drafted to give students a fair chance to finish their qualification and perhaps graduate on time. A phased-in return has been undertaken in line with government regulations and the practice of strict health and safety requirements. Classes resumed on 29 June 2020.
NEMISA offered specialist competence in disciplines related to film and television production, interactive media and radio production to 30 learners from the Gert Sibanda District Municipality.
In 2019/2020 NEMISA increased its target to reach 6500 people, which was higher than the 2018/19 achievement of 4884 trained in e-literacy. At the close of the 2019/20 FY, the target was exceeded as a total of 7805 people were trained, therefore the digital skills roll-out was effective as the 2019/20 target was exceeded by 1305.
A total 5451 sector users were trained, exceeding the annual target of 2500 during the 2019/20 financial year compared to 4445 sector users trained in the 2018/19 financial year. A total 1074 ICT practitioners were trained, exceeding the annual target of 800 during the 2019/20 FY compared to 812 ICT practitioners trained in the 2018/19 FY.
Through the Minister of DTPS (now DCDT), an acting-CEO had been seconded on 1 October 2019 until a permanent CEO is appointed, provided that the period of secondment does not exceed 12 months. The secondment is in terms of Section 15(3) of the Public Service Act, 1994, as amended, read together with Regulation 62 of the Public Service Regulations, 2016. The position of the CEO was advertised and the Board interviewed the candidates. The Board forwarded the top three preferred candidates to the Minister of Communications and Digital Technologies.
During the period under review, NEMISA and its training partners participated in various nation-building initiatives. From 1 to 12 April 2019, NEMISA partnered with the DTPS and other government departments, SoCs and private stakeholders for the annual “Walk and Economic Opportunities EXPO” to expose youth in schools, unemployed youth and entrepreneurs to an array of academic, career and business opportunities. The event in Ntabankulu was aligned to the commemoration of 25 years of freedom.
The Ya Rona Digital Ambassadors Programme was successfully launched in KZN, which brought excitement and hope to the rural communities in the area. This initiative would provide the much needed intelligence forthe development of a blueprint to be rolled out nationally. NEMISA together with its NC/SG CoLab, HCLS, Love Life, Vaal University of Technology (VUT), Centre for Entrepreneurship and Department of Economic Development and Tourism launched the first ICT SMME container (a cell phone repair shop) in Groblershoop on 3 December 2019. This beneficiary was part of a group of learners who undertook training offered by the NC/SG CoLab in cellphone repair and entrepreneurship.
- Financial Performance
The main related party with whom the entity interacted is the Department of Telecommunications and Postal Services, who is the sole shareholder and provides finance to fund the operational overheads of the institute. The Minister of Telecommunications and Postal services is the Executive Authority of NEMISA. NEMISA is ultimately controlled by the National Executive. NEMISA received transfer payments of R48.4 million (2019: R46.3 million) funding for its administrative activities, R46.9 million (2019: R44.4 million) as funding for its strategic objectives from the Department of Telecommunications and Postal Services.
NEMISA total revenue in 2019/20 increased by 16 per cent to R115 489 911 compared to 2018/19 revenue of R99 385 880. This is largely due to commitment projects (roll over funds from prior year surpluses) from prior years being realised in the current year. Commitments of R16 919 904 were realised as revenue the current year in addition to the normal budget appropriation of R95 347 7000.
Total expenditures in 2019/20 increased by 15 percent to R116 949 347compared to 2018/19 expenditure of R101 427 518. This is due to e-Skills projects that were being financed from funds rolled over from prior years (commitments).
As at year-end, NEMISA net assets were R5 091 821 compared to R6 551 257 of 2018/19. At year-end, NEMISA had a cash and cash equivalent bank balance of R21 804 963. To increase the roll-out of training, NEMSIA spent about R6 million in capital expenditure on training equipment and studios.
NEMISA was able to meet all its obligations during the financial year and will, based on the forecast for 2020/21, be able to meet its future obligations. Approval was granted by National Treasury to retain surplus funds amounting to R1.6 million from the 2018/19 financial year.
10.5.3 Audit Opinion
NEMISA received an Unqualified audit opinion from the Auditor-General of South Africa (AGSA). We have also reduced the AGSA audit findings from 44 in 2018/19 to 30 in 2019/20 financial year audit.
AGSA raised material findings on the usefulness and reliability of the reported performance information. Material misstatements of disclosure items identified by the auditors in the submitted financial statements were corrected and the supporting records were provided subsequently, resulting in the financial statements receiving an unqualified audit opinion.
Effective and appropriate steps were not taken to prevent irregular expenditure amounting to R43.6 million as disclosed in note 23 to the annual financial statements, as required by section 51(1)(b)(ii) of the PFMA. The majority of the irregular expenditure was caused by non-compliance with supply chain management legislation.
The accounting authority did not exercise sufficient oversight responsibility regarding financial and performance reporting and compliance as well as related internal controls to ensure that the financial statements and annual performance report are free from material misstatements. As well as the lack of dedicated resources to execute best practices resulting in inadequate documented processes and systems implemented for the collection, collation, monitoring and reporting of financial and performance information.
Management did not adequately implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial and performance reporting; furthermore, they did not adequately prepare regular, accurate and complete financial and performance reports that are supported and evidenced by reliable information. In addition, management did not adequately review and monitor compliance with applicable legislation.
Attention was drawn to the fact that at 31/03/2020, the entity had an accumulated surplus of R5 091 821 and that the entity’s total assets exceed its liabilities by R5 091 821.
10.6 State Information Technology Agency(SITA)
SITA was established in April 1999 through the SITA Act 88 of 1998 and is registered as a Schedule 3A Public Entity, which is self-sustaining and self-funding, withgovernment asthe sole shareholder. The Minister of Communications and Digital Technologies exercises the custodian rights attached to the shareholder on behalf of the State.
The Agency was established with a core mandate to provide IT services to government and arose from the amalgamation of a number of entities, listed below, which had different operating methods, procedures, skills sets, infrastructure and technologies that had to work together seamlessly in order to deliver on its mandate:
- Infoplan (Pty) Ltd, the ICT service provider to Department of Defence;
- Central Computer Services of the Department of State Expenditure; and
- Sub-component information systems within the Department of Safety and Security.
In executing its role, SITA is also guided by all public services legislation and regulations in executing its role, including but not limited to the Electronic Communications Act, 36 of 2005; Public Finance Management Act, 1 of 1999; Companies Act, 71 of 2008; Public Service Act, Proclamation 103 of 1994; Broad-Based Black Economic Empowerment Act; Electronic Communication and Transactions Act, 21 of 2002; National Key Points Act, 102 of 1980; Preferential Procurement Policy Framework Act, 5 of 2000; Government IT House of Values, as contained in the e-Government Policy; The Machinery of Government (May 2003); Minimum Interoperability Standards (MIOS); and Minimum Information Security Standards.
The mandate of SITA as stated in the Act is as follows:
- to improve service delivery to the public through the provision of information technology, information systems and related services in a maintained information systems security environment to departments and public bodies; and
- to promote the efficiency of departments and public bodies through the use of information technology.
The underlying operational principle of SITA is to be a self-funded and financially sustainable public entity. The SITA Act however, makes provision for negotiation on this underlying principle, for the achievement of the overaching government goals.
The NDP petitions SITA to “…make services more accessible, reduce the cost of accessing services, streamline administrative processes and improve turnaround times, and strengthen accountability and responsiveness. To achieve these objectives, it is important that IT systems are tailored to specific areas of service delivery. Government will therefore identify and prioritise those areas where IT has the greatest potential to improve access to services.” Furthermore, outcomes of the NDP 2030 were established with the values and principles as enshrined in the Constitution and this is central to SITA’s strategic intent to utilise ICT as a tool to solve the socio-economic challenges and improve the lives of citizens.
10.6.1 Operational Highlights
To contextualise SITA performance, there was a serious downturn inthe economy, which resulted in government issuing directives to all public entities to limit operational expenditure and curtail capital investments. This snowballed into cash flow challenges becoming prominent and declining revenues, which had a negative impact on the performance of the organisation.
This was also the first year of the implementation of the new digital transformation strategy which required SITA to ready its internal environment and acquire requisite skills. There were delays in the execution due to the financial constraints.
The annual performance results point to the achievement of 60 per cent on annual targets, as illustrated in figure on next page.
The 2019/20 financial year was characterised by SITA playing a pivotal role in supporting the smooth running of the national election and supporting the integrity of the voters roll by hosting voters’ data on behalf of the Department of Home Affairs (DHA).
The performance of SITA for the year under review was informed by its new Medium-Term Strategy and Annual Performance Plan (APP). It was aimed at supporting government service delivery amid heightened pressures to digitally transform its way of doing business while concurrently, the SOC rationalisation process gained momentum. In addition, there were changes at shareholder level, revised planning frameworks were implemented aimed at improving overall organisational performance, and an Executive Caretaker was appointed to repurpose SITA.
These changes had implications for strategic planning processes and the tabling of the new medium-term strategy and APP. These legislated documents were tabled later than the planned dates, which resulted in delayed contracting on corporate objectives and subsequently a late start on the execution of the predetermined objectives.
The non-achievement of planned targets for some measures within the different programmes reflected in figure above has impacted the overall corporate performance outcomes in different ways.
The infrastructure and organisation, governance and administration programmes achieved 100 per cent performance, followed by service delivery with 66.7 per cent and financial sustainability with 33.33 per cent, while procurement and industry programmes registered 0 per cent performance against planned targets. Although SITA was unable to register optimal performance for all its planned targets, pertinent key foundational building blocks were achieved and in certain instances exceeded.
SITA still managed to implement key strategic projects which were aimed at enhancing digital service delivery by government and has successfully enabled government departments to deliver on their planned initiatives. These includedelivery of an enhanced presidential hotline, provision of secure digital platforms for firearm monitoring, migration of websites to the SITA cloud, and implementation of a master insolvency system, among others.
Challenges leading to unsatisfactory performance in some indicators, among others, are as follows:
- Delays in clients signing SLA annexures and disputes regarding renewal of SLA annexures;
- Delays in clients accepting proposals and SITA costing model for some services, leading to delays in approval of technical designs and implementation thereof;
- Outstanding payments from some clients for services rendered and objections to services consumed versus billing leading to loss of revenue;
- Numerous power outages and in certain instances old infrastructure that is incompatible with Cloud capability which hindered the ability to offer DR services;
- High rate of bid cancellations due to poor specifications, inadequate supply market intelligence and procurement administrative errors;
- Limited skilled and resource constraints hinders SITA to respond speedily to client requests; and
- Delays in the appointment resources due to the moratorium on recruitment and cash flow challenges.
Although the Agency did not achieve 100 per cent performance on its predetermined objectives, the following are some of the key successes:
- SITA improved service delivery to clients, thereby enabling government departments through relevant ICT solutions to positively impact their internal business operations thatultimately enhance the citizens’ experience;
- The Agency successfully reclaimed key client business which is partly reflected in its improved market share statistics that grew from 13.3 per cent for financial year 2018/19 to 18.1 per cent for financial year 2019/20 for designated services;
- SITA partnered with DHA to increase the points from which citizens can apply for and receive their identity documents, including the use of bank systems in the country whose networks are provided and maintained by SITA;
- SITA executed on its mandate through the development and deployment of e-service products and has deployed various e-services such as the Presidential Inauguration mobile application, license and permit platform and data-sharing platform (open source), among others;
- In an effort to alleviate the scourge of crimes committed with firearms,SITA designed, developed and implemented a reliable digital system i.e. SAPS Firearm e-Submission solution, which allowed firearms dealers and commercial agents to submit their firearm-related information and documentation electronically to the SAPS;
- SITA, through its streamlined systems, has enabled faster capturing of data, verification and quality checks for the release of the national matric examination results thereby enabling Umalusi to release verifiably accurate results ahead of schedule, with almost zero comebacks;
- SITA partnered with BBI to rollout the Phase 1 implementation of the SA Connect programme to municipalities at bandwidths of 10 MBPS. SITA ensured that 3,451 sites across various provinces were successfully connected; and
- SITA has, through its CSR programme, launched a software engineering school in KZN province thereby supporting government’s broader objective of ensuring a state of readiness for the4IR by equipping learners with software-development, coding and other ICT skills.
10.6.2 Financial performance
The group financial performance is summarised as follows:
31 March 2020
31 March 2019
5 121 934 670
1 417 427 692
Net surplus for the year – before tax
188 885 768
4 190 464 943
2 887 224 373
Cash generated from operations
443 860 537
From the table above, it is evident that SITA has improved its performance from the previous year despite some of the challenges it faced during this financial year. The company continues to be sustainable and financiallysound.Revenue performance for the year was below target as a result of a tough trading environment. A number of proposals submitted to prospective clients did not yield the anticipated service take-up. Furthermore, the entity experienced unforeseen challenges in the implementation of some programmes that were planned to be revenue generating. The graph below depicts the variances between the actual and budget for the agency and service revenue as well as the actual shortfall of the different revenue streams against the actual sales targets.
Consequently, the company turned its attention towards cost containment as a strategy to preserve cash in an environment of revenue underperformance. This was enforced through extending some of the cost-containment measures already prescribed by National Treasury which required line mangers to certify the absolute necessity of procurement requests before bids were awarded. The graph in 10.6.2.1depicts the variance between actual costs (split between costs of sales and operational expenses) as compared to the budget year-to-date.
SITA underperformance in revenue is due to budgeted business that did not materialise as planned. This was counteracted by a concerted effort to contain costs to ensure the financial sustainability of the entity. The year-to-date capital expenditure incurred for the financial year 2019/20 amounted to R309.6million against the approved budget for Capex of R500 million.
Performance links to financial resources
The year under review saw the Agency functioning in an ever-underperforming economy where growth lagged behind globally as well as locally. SITA had a moral obligation to heed the national call to enforce transparent and effective management of its revenue, expenditure, assets and liabilities and ensure that spending was undertaken efficiently with a focus on the right priorities.
SITA developed an inventory management policy and implemented measures towards sound inventory control; enforced cost-containment measures to ensure that the wage bill remains within the existing compensation ceiling - including developing a financial sustainability plan; addressed matters pertaining to disputed and old invoices; accelerated efforts to ensure optimal debt management and collection; tightened controls and managed irregular and wasteful expenditure; and mitigated negative cash flows by deferring some planned infrastructure projects while concurrently revisiting its financial model to enable digital transformation and 4IR initiatives.
10.6.2.1 Expenditure by Programme
The table below provides summary details of payments per programme for the financial year under review.
Programme 1: Service delivery
Programme 2: Infrastructure
Programme 3: Procurement
Programme 4: Industry
Programme 5: Financial stability
Programme 6: Organisation, governance and administration
- Audit Opinion
SITA’s audit opininon regressed to a qualified opinion during the financial year in review. The Auditor-General identified findings against the Agency relating to irregular expenditure, property plant and equipment and intangible assets.
SITA was the biggest contributor of the regression to the portfolio in the financial yearunder review. This is as a result of the qualification identified in (i) quality of financial statements; (ii) management of procurement and contracts; (iii) prevention of irregular, fruitless and wasteful expenditure; and (iv) consequence management. The Auditor-General found that the public entity did not have adequate systems in place to identify and report all irregular expenditure incurred.
Most common findings on Supply Chain Management
- Goods above R500 thousand not procured through a completive bidding process;
- No declaration submitted;
- The bidder with the highest points not appointed;
- Failure to comply with local contact requirement;
- Advertisement duration not met; and
- Modifications to contracts not approved at the appropriate level.
In addition to others, the public entity did not perform an adequate impairment assessment for intangible assets in accordance with GRAP 26. In impairment of assets, there was no adequate system of internal controls to produce reliable data to calculate the recoverable amounts of the public entity’s assets.
An amount of R3 365 273 represents maintenance and support payments made for VOIP equipment procured that is not in use. A further R1 036 124 000 was identified and attributed to SITA’s irregular expenditure by the Auditor-General.
Lastly, with regards to disregard for compliance with legislation, the AG found that SITA’s quality of financial statements, management of procurement and contracts, prevention of irregular, fruitless and wasteful expenditure and consequence management were not compliant withlegislation.
SAPO had not tabled at the time the Committee considered this report.
11.1 The Department
It should be noted that for the purposes of reporting, the observations and recommendations of the Department of Communications and the Department of Telecommunications and Postal Services are conjoined even though that during the reporting period 2019/2020 financial year, the Department consisted of two separate departments. Therefore, please referto the Department of Communications BRR Report.
The Committee noted:
- its appreciation that Sentech has achieved a clean audit for 8 consecutive years;
- and congratulated Sentech on sterling work accomplished during the COVID-19 pandemic;
- and applauded the work of Sentech in general;
- and commended Sentech for its COVID-19 response plans, especially the delivery of food parcels to contractors;
- with concern the high costs associated with signal distribution for the SABC;
- that the SABC had requested Sentech to cut signal fees by R500million;
- that the SABC is an important customer of Sentech;
- with concern the general security challenges at Sentech, in particular the securing of copper which was subject to theft;
- with greater concern that remote sites are the most affected by theft because there is no physical security infrastructure provided;
- and commended Sentech for achieving its goals and objectives, with a healthy cash flow on the balance sheet;
- and further commended Sentech in achieving its BBBEE target;
- and commended Sentech Management for overall management of the entity’saffairs;
- and further commended Sentech for exceeding its target in respect of the promotion of youth and women;
- that the cutting of its costs by R500 million in respect of the SABC would have a negative effect on the entity as the SABC was its biggest customer;
- that Sentech iswell prepared for the intended merger with BBI;
- that the merger between Broadband Infraco (BBI) and SENTECH is a business case that is still underway and will be submitted to the relevant Ministers for feedback;
- applauded Sentech for prioritisingcustomer satisfaction and that its success is based on continuous training and development prorammes for staff to ensure a seamless service to Sentech clients in a highly competitive environment;
- that the effective business plan was attributed to committed staff and policies approved and supported by the Board, increased SCM transformation on women and youth owned companies and support for SMMEs, among others;
- and commended Sentech for its payment of SMMEs within 14 days althoughdirectivesrequires a maximum 30-day payment;
- with concern that among the challenges for Sentech is a decline of revenue and therefore the need to cut costs;
- and appreciated Sentech’s participation in the task team also involving ICASA set up by the Department to resolve high signal distribution costs for the SABC;
The Committee noted:
- with appreciation the work done by the Executive Caretaker of SITA to date;
- that 2019/20 was the first year in the implementation of the new digital transformation strategy but there were delays due to financial constraints;
- with appreciation that SITA still managed to enable government department deliver their planned initiatives such as the delivery of an enhanced presidential hotline, provision for secure digital platforms for firearm monitoring and migration of websites to the SITA cloud;
- and commended SITA for doing a good job in maintaining an increase in revenue
- its appreciation that there was an improvement in respect of the industry transformation;
- with great concern that SITA regressed to a qualified audit opinion with findings and that the Auditor-General singled out SITA for criticism;
- however appreciate that SITA has an audit action plan considering the AG opinion;
- with concern that SITA was still experiencing financial challenges due to irregular expenditure;
- with great concern that SITA does not have proper internal controls such as record keeping and audit trails for contract management;
- that SITA was lacking with poor internal controls targets that were not met;
- with great concern that SITA failed to meet targets in service delivery and financial stability;
- that more than forty-five (45) tenders (from a backlog of more than 410 in the last years), are waiting to be evaluated by the police services and this has an impact on the performance of SITA;
- with appreciationthat SITA is developing a centralised electronic procurement system to promote transparency;
- commended SITA for the ability to maintain its revenue during to COVID-19 period;
- welcomed the appointment of the Chief Financial Officer at SITA and the filling of key executive vacancies;
- however with great concern that SITA has capacity challenge as had been raised by the Auditor-General; and
- that SITA played a critical role in digital transformation and that there was a need to accelerate the digitisation programme.
The Committee commits itself to be patient until April 2021 as per the assurance made by the Executive Caretaker when appearing before the Committee that SITA will have resolved the challenges it faces.
The Committee noted:
- its appreciation for the presentation made and congratulated BBI for the good work done;
- that BBI achieved an unqualified audit opinion;
- with concern that in terms of audit findings, BBI had 15 findings for the year in review;
- its appreciation and commended BBI for its turnaround time for payment of SMMEs within 19 days;
- the progress in BBI operations;
- and commended BBI for its good performance during the COVID-19 period;
- and applaud BBI’s involvement in SA-Connect;
- with appreciation and commended BBI for allocating 44 per cent of its business female black-owned businesses companies;
- and commended BBI for the72 per cent increase in its cost of sales;
- with concern that BBI’s loss was R14 million, compared to this year’s R111 million;
- with appreciation that BBI compares well with Telkom’s OpenServe in terms of network offering with 96 per cent network availability as measured by BMI;
- that BBI has raised its targets and managed to achieve 68 percent, although further work still needs to be done;
- and commended the Board and Executive leadership at BBI for its committed work;
- is proof that the leadership of the entity through its Board and Executives, prioritised and conducted meetings in an orderly manner. This type of commitment would help in achieving other targets, as well as address challenges that have been encountered; and
- with appreciation that BBI is also contributing to drafting the legislation needed to support this merger, as both entities are creatures of statutes.
The Committee noted:
- that NEMISA received an unqualified audit finding;
- that NEMISA achieved ten (10) of the eighteen (18) planned targets, that being 55 percent of the total planned targets;
- that there is a reduction on fruitless and wastefulexpenditureto only R10 482, but more improvement in irregular expenditure of the R425 523 for NEMISA caused by contracts that were signed in 2017 and only ending on 13 May 2022;
- with concern the overall performance, poor basic administrative functions and management of the trainees attendance register at NEMISA;
- with concern that it was not satisfied with the audit findings of the entity;
- with further concern that consequence management issues as indicated by the Auditor-General have not been addressed;
- with appreciation that the Institute now has a learning management system (LMS) which currently is going through a testing phase and would be launched as soon as it has been approved by the board;
- its concern in respect of the poor performance of NEMISA compared to other entities;
- with concern the poor performance of Programme 3 as a result of the revision of most of the targets due to the evidence that was presented;
- that there was no excuse for the incompetence displayed by NEMISA;
- with concern that NEMISA postponed its training programmes due to the COVID-19 pandemic; and
- with disappointment that NEMISA, as an digitalinstitution, did not rollout online learning for its training mandate.
The Committee noted:
- the role and importance of the agency;
- with appreciation that .ZADNA achieved a clean audit for two consecutive years;
- that .ZADNA achieved 82 percent of its targets;
- and complimented.ZADNA with appreciation that it accumulated a healthy surplus;
- with great concern that representivity of ethnic diversity at .ZADNA was lacking;
- that.ZADNA has 9 board members to a staff complement of only 15;
- further that the number of board members is a requirement by the Electoral Act;
- that stakeholder membership is diminishing and this does not augur well for a member-centric organisation;
- with further concern that membership fees are the single source of revenue generation for the organisation;
- that there is a decline in domain name registrations by 8 thousand;
- however, that there was an increase in entities registering with. ZADNA; and
- that .ZADNA works in collaboration with NEMISA and the Films and Publications Board (FPB) in order to leverage off these entities by using the same platforms.
It should be noted that for the purposes of reporting, the observations and recommendations of the Department of Communications and the Department of Telecommunications and Postal Services are conjoined even though that during the reporting period 2019/2020 financial year, the Department consisted of two separate departments. Therefore please referto the Department of Communications BRR Report.
The Committee resolved that the Minister should:
- ensure that Sentech’ssecurity measures are tightened so as to combat theft;
- ensure that Sentech success model in achieving its targets year after year and its successful management strategy should be replicated inother entities inthe portfolio;
- increase spending on SCM to ensure larger contribution to BBBE score and integration of SMME’s; and
- process payments within 7 days in support of the 30 days regulation of government.
The Committee resolved that the Minister should:
- ensure that the Department strengthens its oversight role and works to improve monitoring instruments for its entities, especially SITA;
- ensure that the Department implements strategies to improve underperformance of SITA;
- ensure that SITA’s turnaround plan is implemented in totality;
- ensure that SITA maintains proper record keeping and audit trails, and that poor internal controls are addressed;
- ensure that SITA procurement processes are digitised and help improve contractmanagement;
- ensure all outstanding vacancies are filled;
- ensure that the Department strengthens collaboration and partnerships within its entities, especially Sentech, USAASA and SITAfor the purposes of realisation of the Department’s strategic objectives;
- ensure that SITA’sservices are cost-effective and prices are competitive to encouragegovernment business, especially from entities of the portfolio;
- ensure thatall SITA IT systems are transversal in nature, to allow easier adoption across government, such as the eLearning solution provided to Eastern Cape; and
- take note of movement of resources during the revision of plans and the general processes relating to the merging of entities.
The committee will conduct focused oversight with the Department and SITA to engage on, among others, (i) the implementation plan; (ii) contract management and internal controls; (iii) eProcurement System; (iv) irregular expenditure; (v) e-government strategy; (vi) SITA eLearning Platform and other transversal systems; (vii) strategy/plan to improve underperformance of SITA; and (viii) SITA governance.
The Committee will further conduct joint meeting with the Portfolio Committee on Police; SITA and SAPS to focuse on tender irregularities of the entity.
12.4 Broadband Infraco (BBI)
The Committee resolved that the Minister should:
- ensure that BBI work stringently in order to improve its performance;
- encourage BBI to particularly improve on all targets it did not achieve;
- urge BBI to work on the 15 audit findings received in order to guarantee a clean audit at the end of the current financial year;
- further strive towards maintenance of clean audit;
- ensure that all entities reporting to the Department mainitain clean audits;
- ensure that there are processes in place to improve its balance sheet;
- ensure that BBI contributes to the merger between BBI and Sentech; and
- should appear before the Committee with both BBI and Sentech in order to provide specific timeframes for the finalisation of the merger.
- be encouraged by the Committee’s plea for speedy progress to finalise the merger.
The Committee resolved that the Minister should:
- ensure that.ZADNA puts emphasis on promoting the domain name space for the private sector;
- encourage .ZADNA to put measures in place to mprove profits;
- ensure that .ZADNA collaborates with other entities within the portfolio, especially SITA;
- in noting that the agency is working hard to ensure diverse representation of the South African society, itsemployment equity policies policy should be reflective of the South African population demographics;
- encourage the Agency to promote racial balance and diversity in all its work; and
- encourage .ZADNA to procure,regularly if not always, through SITA because massive economies of scale can be used as buying power;as an example, Microsoft licenses would be cheaper if bought through SITA.
The Committee resolved that the Minister should:
- ensure that processes are in place at NEMISA to address all its audit findings;
- ensure that NEMISA improves its poor performance, especially on Programme 3;
- ensure that proper record-keeping systems, including an updated asset registry areimplemented in order to protect the millions worth of equipment at all costs;
- ensure that there are effective plansin place to encourageonline learning at NEMISA;
- further ensure that online learning services for rural areas is prioritised;
- ensure that training offered by NEMISA isaligned with the education system of South Africa in general;
- ensure that NEMISA reports back to the Committee with (i) a detailed litigation costs report; (ii) asset register and audit of equipment report; (iii) plans to address audit findings presentation; and (iv) an online learning platform strategy report.
Report to be considered.
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