ATC220301: Report of the Portfolio Committee on Communications on the Annual Report and Financial Statements of the State Information Technology Agency, dated 1 March 2022

Communications and Digital Technologies

Report of the Portfolio Committee on Communications on the Annual Report and Financial Statements of the State Information Technology Agency, dated 1 March 2022:

 

1. Introduction

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.

For the Portfolio Committee on Communications (the Committee), it considered the performance and submission to National Treasury for the medium term period of the two Departments reporting to it, namely the Department of Communications and the Government Communications and Information Systems (GCIS).

Furthermore, the Committee is mandated to assess all the entities reporting to the departments and as such, the following entities’ financial performance for the 2020-2021 financial year was scrutinised: (i) Film and Publications Board (FPB); (ii) the Independent Communications Authority of South Africa (ICASA); (iii) Sentech; (iv) Broadband Infraco; (v) National Electronic Media of South Africa (NEMISA); (vi) the South African Broadcasting Corporation (SABC); (vii) USAASA/USAF; and (viii).ZADNA, on 9 and 10 November 2021.

The State Information Technology Agency (SITA) tabled its report only after the BRRR process was concluded while SAPO has yet to table its annual report for the period. The Committee met with SITA on 15 February 2022.

 

1.1       Organisational Environment

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 the 2020 State of the Nation Address, which drives the national agenda of the country, the President Cyril Ramaphosa projected that the digital economy would increasingly become a driver of growth and a creator of employment, noting global developments and the commendations from the Presidential Commission on the Fourth Industrial Revolution.

This report is the summary of reporting of SITA who tabled on 30 November 2021, after the BRRR process was concluded by the Committee as indicated above.

The 2020/21 financial year (FY) was the first year of the implementation of the newly developed and approved five-year SITA Strategic Plan through its FY2020/21 Annual Performance Plan (APP). SITA complied with the Department of Planning, Monitoring and Evaluation (DPME) guidelines on the Revised Framework for Strategic Plans and APP and other government legislation for planning processes. This section of the report provides an analysis of the significant developments that affected SITA’s performance during the financial year.

To give effect to the implementation of the SOC rationalisation process, SITA embarked upon a repurposing exercise to deliver effective and efficient ICT services and drive digital transformation in government in line with the key focal areas identified by the shareholder, namely e-government, research and development, innovation, localisation, cyber- security, and IT service management.

 

1. SITA

The State Information Technology Agency (SITA) SOC Ltd was established in terms of the SITA Act, 88 of 1998, and listed as a schedule 3A public entity in terms of the Public Finance Management Act (PFMA). Government is the sole shareholder of SITA, and the Minister of Communications and Digital Technologies exercises the custodian rights attached to the shareholder on behalf of the State.

The mandate of SITA is 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 using 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 overarching government goals.

In keeping with the NDP2030 and the 4IR commission perspectives on digital transformation, SITA fulfilled a pertinent role by enabling government departments to deliver public services. Furthermore, the rate of digital transformation was accelerated and a compelling case was made for the greater use of digital technologies. To this end, SITA, as the ICT agency of government, enabled government and its departments to operate remotely and seamlessly, making available more digital platforms while remaining cost-effective. In addition, more e-services were developed, capacity on cloud was optimally utilised, and the backlog on the certifications for higher education was incrementally reduced for the convenience of the citizens.

 

2.1       Performance Information

The 2020/2021 financial year being dominated by the disruptive Covid-19 pandemic created an ideal opportunity for SITA to enable government and its departments to operate seamlessly by making available digital platforms, developing e-services and providing readily available cloud capacity, all for the convenience of citizens.

In response to the SOC rationalisation process driven by the Shareholder, SITA continued to repurpose itself to deliver effective and efficient ICT services and drive digital transformation in government as per key focal areas namely; e-government, research and development, innovation, localisation, cyber-security, and IT service management.

Despite the tough economic climate SITA followed governments’ lead by quickly implementing cost containment measures and adjusting its budget, amongst other, thereby creating a financially resilient organisation.

The impact of the pandemic however, limited operational expenditure and the outlay of capital investments which inevitably affected the overall performance of the organisation.

The severe strain on the supply chain delayed the implementation of some digital transformation projects as well as affected external client service delivery resulting in a rise in customer service delivery complaints and escalations.

As the pace of digital transformation accelerated SITA sequenced its priorities and strategic projects in order to advance government digital transformation to enable government service delivery as well as prioritised external client requests.

SITAs’ preliminary annual performance results reflect an achievement of 72.22 percent on its annual targets.

Key challenges underscored by the pandemic which resulted in this performance score include the following reasons:

• Severe economic downturn and uncertainties which resulted in implementation of budget adjustments/cuts and cost containment measures that negatively impacted optimal implementation of planned initiatives;
• Extended time frames for tender processes aimed at ensuring fair and equitable time for submission of proposals within a business unusual environment;
• Increased volumes of procurement requests towards financial year-end and delays in the finalisation of requests due to remote working;
• Unreliable ICT budget data on government’s Business Accounting System i.e. information was not updated by government departments as finances were reprioritised due to Covid-19; this negatively impacted the determination of the actual increase in government market share on designated services and
• Cancellation of some tenders and bids as per SCM policy and processes and timeframes to finalise some bids / tenders which impacted project implementation progress.

While SITA did not achieve 100 percent performance on its predetermined objectives, the following key successes were registered:

• SITA commenced with the deployment of multiple e-government services and established its e-Government portal that serves as a single point of entry to government's electronic services. The portal currently has more than 55 e-services available.
• SITA successfully deployed two big data analytics use cases, one for SITA internal use as part of its supply chain efficiency programme and another within government in order to integrate data and systems.
• SITA reduced the backlog of DHET certificates which dated back to 1992 thereby supporting government service delivery, satisfying the needs of deserving candidates and silencing complaints which surfaced on multiple platforms.
• SITA was instrumental in enabling government during the pandemic i.e.

• seamless and secure communication remote access solutions services were provided to 8 336 officials (Government and SITA)
• provisioning and upgrade of connectivity to members of Cabinet
• upgrading of sites and maintaining over 5000 sites for government in order to ensure that remote working was enabled
• upgrading of Internet bandwidth (by 2.5 Gbps) for government
• increase of onsite/ remote access capability to over 7,500 users (from 4,826 users)
• provisioning of Video Conferencing tools to the Executive and Administration
• provisioning of LAN and Desktop support to the Executive and Administration
• 24 x 7 x 365 customer service response which spanned the length and breadth of the country
• SITA established three digital platforms (i.e. Big Data Analytics Platform, Application Programming Interface Middleware Platform, and the Business Process Management Platform) thereby transforming itself into a platform-driven business.

• SITA supported localisation through enforcing the principle of 30 percent subcontracting of contracts that are > R30 million to Black EMEs and SMMEs; 40.67 percent of acquisition spend was registered through black entities on influenceable spend.
• SITA improved the security of government data assets through its Unified Communication (UC) capability; two service packages inclusive of product pricing were developed under the UC service category, namely video conferencing capability and UC solutions available through SITA contracts.
• SITA supported government's SA Connect project through upgrading of 249 sites bringing the total number of connected sites to 970 (713 new sites and 257 upgrade sites) since inception of the programme in the FY2018/2019 thereby improving connectivity and access of citizens and organisations to government services.

SITA for the first time since inception managed to have 96% of its SLAs signed within the financial year period despite the adoption of remote working practices.

SITA exceeded its planned target of 90 percent performance against measured contracted SLA metrics i.e. a performance level of 95.57 percent was registered thereby positively impacting the management of service-level expectations and contracts.

 

2.2       Financial Performance

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 financially viable.

The financial performance is summarised as follows:

The EBITDA target has been achieved mainly due to the following: -

• There was a substantial savings (and non-spending) under cost of sales mainly in the IT Infrastructure, NGN Core and CFI Cloud, where less than anticipated costs translated into a positive increase in profitability.
• As well as savings and non-spending on OPEX. This is due to the company wide cost containment measures that were implemented as well as savings related to COVID-19 restrictions being in place.
• Additional revenue materialised from DOD (Mainframe revenue) that was not budgeted for and for which there was no costs incurred in the current financial year.

2.3       Audit Opinion

SITA received a qualified opinion on the basis that the public entity did not review the useful lives of the property plant and equipment in accordance with GRAP 17, Property, plant and equipment. In addition, the public entity did not perform an impairment assessment at the reporting date for property, plant and equipment in accordance with GRAP 26, Impairment of asset.

As a result, the AG was unable to determine the correct carrying amount of property plant and equipment, stated at R1 239 million (2019-20: R1 309 million) to the financial statements as well as operating expenses, cost of sales, deferred tax liability and correction of prior period error note as it was impracticable to do so. This also has an impact on the surplus for the period and on the accumulated surplus.

Furthermore, the public entity did not review the useful lives of intangible assets in accordance with GRAP 31, Intangible assets. In addition, intangible assets were not adequately assessed for impairment at the reporting date as required by GRAP 26, Impairment of assets.

As a result, the AG was unable to determine the carrying value of the intangible assets, stated at R394 million (2019-20: R367 million) in note 5 to the financial statements as well as operating expenses, cost of sales, deferred tax liability and correction of prior period error note as it was impracticable to do so. This also has an impact on the surplus for the period and on the accumulated surplus.

Lastly, the public entity did not correctly recognise the commitment in accordance with GRAP 1, Presentation of financial statements. Included in the commitment balance disclosed in note 6 were accruals raised and recognised in the current financial year and prior financial year, but not excluded from the commitment balance due to inadequate systems of internal controls. Consequently, the commitments balance is overstated by R313,1 million (2019-20: R125 million).

 

2.3.1     Irregular Fruitless & Wasteful Expenditure

During 2020/21 financial year, SITA reported R820 million (R560m continuing from prior years, and only R260m detected in current year) of irregular expenditure and R18.6million fruitless and wasteful expenditure. In addition to the this, R1.5billion was incurred in the previous years and condoned.

Irregular Expenditure from the prior year mainly relates to access links as a result of a complicated engagement module and the volume of the contracts to be managed. An action plan to simplify the engagement model has been developed and is in the process of being implemented.

Management has made great progress in putting controls in place to detect irregular expenditure and as a result, many cases have been identified.  Management has now changed its focus to the prevention of irregular expenditure.  The following measures, amongst others were taken in response to the cases identified:

• Automated Contract Management module has been implemented for notification of contracts that are about to expired and escalation process on those notifications. 
• Appointment of HoDs and Senior Managers within SCM to provide leadership and management on the SCM operations.
• Implementation of MS Sharepoint for storage of documents.

Review of the SCM policies and procedures

Regular training of SCM Staff and all the role players in the SCM value chain.

An amount of R3 840 represents fruitless and wasteful expenditure resulting from payment of traffic fines. The organisation has initiated the recovery of the monies from the responsible employees. Fruitless and wasteful expenditure amounting to R18 024 258 was incurred in respect of software licenses that were not deployed; and R531 986 relates to SARS penalties and interest.

 

3.         Committee Observations

The Committee noted:

1. its appreciation for the presentation made by SITA;
2. its appreciation for the work done at SITA taking into account its limitations;
3. and applaud the appointment of the Board because it will stabilise the entity;
4. and applaud the overall improvement of performance results which reflect an achievement of 72.22% of its annual targets;
5. and commended SITA for the targets achieved which included the establishment of 3 digital platforms (i.e. Big Data Analytics Platform, Application Programming Interface Middleware Platform, and the Business Process Management Platform) thereby transforming itself into a platform-driven business.
6. and commend revenue increase of SITA;
7. with concern in respect of SITA audit findings;
8. with concern that due to the lack of audit processes, the entity may require further assistance on audit matters;
9. with concern that the root cause for findings is the inadequate IT control environment within the entity;
10. with concern that a strain on the supply chain delayed the implementation of digital transformation projects and affected external client service delivery resulting in a rise in customer service delivery complaints and escalations; and commended SITA on filling the vacancies;
11. with concern about the irregular expenditure and the accountability measures in place to hold persons accountable in respect thereof;
12. its appreciation that its planned target of 90% for SLA metrics was exceeded to 95%; thereby positively impacting the management of service-level expectations and contracts; and
13. its appreciation that to date there has been an improvement in service delivery of SITA towards its clients.

 

4.         Committee Recommendations

The Committee resolved that the Minister should ensure that:

1. all areas of under achievement as indicated by the Auditor-General are addressed expediently;
2. SITA continues to engage the AG in order to improve SITA audit finding;
3. clear action plans are submitted to the Committee in respect of mitigation of challenges;
4. SITA continues to ensure there is no reoccurrence of irregular expenditure;
5. processes are in place to strengthen the role of the Audit Committee and Risk Management Committee, amongst others, in order for SITA to comply with the requirements of the Auditor-General;
6. SITA always emphasizes value for money in new contracts; 
7. there is no duplication of infrastructure;
8. the entity does not depend on external outsourcing but creates internal skills instead to enable the organisation to be self-sustainable;
9. the amount of R1.5 million for non-existent conference fees must be recovered;
10. SITA’s plan to continue to recover all finances obtained illegally by companies for unused software licenses across the state is supported;
11. proper measures are implemented to improve contract and delivery management;
12. proper measures are in place to ensure that payments are made only when valid contracts are being submitted;
13. proper measures are in place to ensure accountability processes are implemented and monitored;
14. proper alignment is made with relevant role players in respect of the cybersecurity work done by the entity;
15. the tender processes have transparency, accountability and integrity using the digital platforms created by SITA for proper communications with all stakeholders, irrespective of the delegation of some SCM responsibilities to departments.

 

Report to be considered.