International Telecommunications Union Final Acts; 2009/10 Annual Reports of the South African Post Office and the National Electronic Media Institute of South Africa: briefing

This premium content has been made freely available

Communications and Digital Technologies

01 November 2010
Chairperson: Mr I Vadi (ANC)
Share this page:

Meeting Summary

The Director: Multi-Lateral Affairs of the Department of Communications briefed the Committee on the International Telecommunications Union and the Final Acts of the ITU Plenipotentiary Conference held at Antalya, Turkey in November 2006.  The Final Acts had to be ratified by the South African Parliament and the Committee was required to formally approve the ratification in accordance with Parliamentary procedure.  Confirmation that the Final Acts were not in breach of any international agreements or legislation were obtained from the Office of the State Law Adviser and the Department of Justice and Constitutional Development. 

The Committee Report recommending the ratification of the Final Acts was adopted, without amendment.

The Chairperson of the South African Post Office Board, the Chief Executive Officer, the Chief Financial Officer and the Chief Operations Officer of the Post Office briefed the Committee on the 2009/10 annual report of the South African Post Office and the performance for the first six months of the 2010/11 fiscal year.  The Post Office achieved an unqualified audit report for the fifth consecutive year.

The balance sheet of the Post Office Group reflected continued growth and financial stability.  The net asset value was R2.2 billion (an increase of 15% over the previous year).  Depositors’ funds in the Postbank had increased by 11% to R3.651 billion.  Capital expenditure amounted to R356.6 million, of which R230 million was invested in property and R115 million in information technology.  The total subsidy allocation amounted to R684.3 million, of which R435.3 million was applied to projects and R249 million was rolled over.  The total revenue of the SAPO Group was R6 billion. Mail revenue accounted for 63% of total revenue (R3.6 billion).  Staff costs accounted for 50% of total expenditure (R2.9 billion).  Transport costs had declined by 11% to R591.7 million but accommodation costs had increased by 10% to R417.6 million.

The key aspects impacting on the financial performance of the Post Office were the decline in interest rates and the decline in postal volumes.  Interest income had declined by 27% and mail volumes by 7.7% in 2009/10.  Total revenue was R5.953 billion (a decline of 1%), total expenditure was R5.378 billion (a decline of 2%) and a net profit of R293 million was declared (a decline of 20% compared to the previous year).  The rising cost of medical care resulted in an increase of 338% in the provision for the post-retirement medical benefits of SAPO employees, amounting to R197 million. 

The combined revenue of the two SAPO subsidiary companies (Courier and Freight Group and Document Exchange) was R662.9 million, expenditure was R515.4 million and the net profit amounted to R37.5 million.  The Postbank accounted for the bulk of the profit declared by the Group (R274 million).

For the year to end September 2010, total Group revenue amounted to R2.6 billion (an increase of 3% over the previous year).  The forecasted net profit for the SAPO group was R90.7 million (a decline of 69% over the previous year).  The subsidy allocation for 2010/11 was R306 million, reducing to R180 million in 2011/12, R52 million in 2012/13 and zero thereafter.  The funding requirement for the Universal Service Obligation was in excess of R300 million per annum during the same period.

Members congratulated the Post Office for its good performance during the previous year.  Questions asked concerned the equipment available at post offices, the cost of services, the attitude of staff, the high staff costs, the performance reward system, the rolling over of a substantial portion of the subsidy received, the post-retirement medical aid benefit, safety and security at post office premises, the effects of the corporatisation of the Postbank, the plans to expand services to other African countries, the provision of internet access services and the investigations into allegations of fraud.

The Acting Chairperson, Chief Executive Officer, Chief Operations Officer and Chief Financial Officer of the National Electronic Media Institute of South Africa briefed the Committee on the 2009/10 annual report and the performance of the Institute for the first six months of the 2010/11 fiscal year.  The strategic objectives of NEMISA included the provision of ICT services to all South Africans and contributing to the ICT skills base in the country.  NEMISA had trained 2,500 students during the preceding ten years.  The target for the number of students trained in 2009/10 was not achieved.

The premises occupied by the Institute were inadequate and sufficient training facilities were not available.  NEMISA had approached universities and media companies in the private sector to enter into agreements to provide assistance with training courses and facilities.

Total revenue in 2009/10 amounted to R36 million and total expenditure amounted to R40.5 million.  A deficit of R4.4 million was declared.  The deficit arose as a result of the implementation of the Standards of Generally Recognised Accounting Practice (GRAP 23) accounting policy. NEMISA achieved an unqualified audit report from the Auditor-General.

The total revenue for the period March to September 2010 amounted to R17 million and total expenditure was R18 million.  The deficit of R1 million was attributed to the implementation of the GRAP 23 accounting policy.

Members asked questions about the action taken to address the challenges concerning the premises and facilities, the employment of disabled persons, the standard of the equipment available, the reasons for the financial deficit, the delay in delivery of equipment ordered and the comments of the Auditor-General concerning the effectiveness of internal controls.  Members suggested that the training targets were reviewed.

Meeting report

Briefing by the Department of Communications (DOC)
Mr Jim Patterson, Director: Multi-lateral Affairs, DOC, briefed the Committee on the Final Acts of the International Telecommunications Union (ITU) Plenipotentiary Conference held at Antalya, Turkey in November 2006 (see attached document).  The Final Acts had to be ratified by the South African Parliament and the Committee was required to formally approve the ratification in accordance with Parliamentary procedure.

The briefing included background information on the ITU and the plenipotentiary conferences convened every four years.  The Final Acts of the conference held in 2006 contained amendments to the ITU constitution and convention as well as the resolutions taken during the conference.  The Final Acts were referred to the Office of the Chief State Law Adviser and the Department of Justice to confirm that the Acts were not in contravention of South African legislation or international treaty obligations.

An explanation of the structure and mandate of the ITU was provided.  The key outcomes of the Final Acts included the review of the International Telecommunications Regulations, Internet issues, the strengthening of the role of the ITU in building confidence and security in the use of Information and Communication Technology (ICT), strengthening the regional presence of the ITU and increasing the size of the contributory unit to 330,000 Swiss Francs.  South Africa had elected to increase its number of units from three to four.

Discussion
Ms W Newhoudt-Druchen (ANC) asked who represented South Africa at the ITU.  She wanted to know what role was played by the ITU in combating cyber crime.

Mr Patterson replied that South Africa sent a delegation to attend ITU meetings and conferences.  The delegation included Ministers, senior Government officials and representatives from the Regulator and the private sector.  The Ministers generally attended the first week of the conference only and the officials took part in the more detailed discussions.  He agreed that cyber crime was a major international problem.  The role of the ITU was somewhat contentious, with certain countries supporting the expansion of the role played by the ITU while others preferred that the role of the ITU was limited.  The ITU mainly provided technical support and issued guidelines that allowed member countries to deal with the utilisation of the Internet.

At a later stage of the proceedings, the Chairperson read the Committee Report on the ratification of the Final Acts of the ITU Plenipotentiary Conference held in Antalya, Turkey, in November 2006.  The Committee recommended that the Final Acts were ratified by Parliament.

Adv J de Lange (ANC) asked if the Committee was required to approve the Final Acts or pass a resolution recommending its acceptance.

Mr Patterson replied that the Final Acts included a resolution.

The Members of the Committee unanimously accepted the report, without amendment.

2009/10 Annual Report of the South African Post Office (SAPO)
Ms Vuyo Mahlati, Chairperson of the SAPO Board, gave an overview of the framework in which SAPO operated, the mandate and strategic imperatives, the governance framework, the historical context of the Post Office, the strategic approach and priorities of the Board and the critical challenges and opportunities faced by SAPO (see attached document).

Ms Motshoanetsi Lefoka, Chief Executive Officer, SAPO, presented the vision, mission and values of the Post Office and the group business model.  A summary of the achievements in the key performance areas of financial performance, Government mandate, environmental plans, customer service and developmental programs was provided.  A total of 40 legal cases were brought against SAPO since 2007, of which 22 cases were resolved and 18 were outstanding.  SAPO was accused of monopolistic practices in most of the cases.  The overall review of the 2009/10 period focused on the key issues concerning financial growth and sustainability, the human capital requirement, the operational model and the organisational culture.

Mr Nick Buick, Chief Financial Officer, SAPO, presented the financial performance of the SAPO Group in the 2009/10 fiscal year.  The two key aspects impacting on the financial performance of the Post Office were the decline in interest rates and in postal volumes.  Interest income had declined by 27% and mail volumes by 7.7% in 2009/10.  Total revenue was R5.953 billion (a decline of 1%), total expenditure was R5.378 billion (a decline of 2%) and a net profit of R293 million was declared (a decline of 20% compared to the previous year).  The Postbank accounted for the bulk of the profit declared by the Group (R274 million).  The rising cost of medical care resulted in an increase of 338% in the provision for the post-retirement medical benefits of SAPO employees, amounting to R197 million.  The provision for 2010/11 was expected to be R300 million.

The financial performance of the two SAPO subsidiary companies (Courier and Freight Group and Document Exchange) was summarised.  Total revenue of subsidiaries amounted to R662.9 million, expenditure was R515.4 million and the net profit was R37.5 million. The total revenue of the SAPO Group was R6 billion. Mail revenue accounted for 63% of total revenue (R3.6 billion).

Staff costs accounted for 50% of total expenditure (R2.9 billion, an increase of 2% over the previous year).  Transport costs had declined by 11% to R591.7 million but accommodation costs had increased by 10% to R417.6 million.

The balance sheet of the SAPO Group reflected a strong financial position and continued growth.  The net asset value (NAV) of the group was R2.2 billion (an increase of 15% over the previous year).  The presentation included graphs to illustrate the Group revenue and expenditure, pre-tax profit, trading profit, total assets, asset turnover and solvency ratio and trends since 2006.  Depositors’ funds in the Postbank had increased by 11% to R3.651 billion.  Capital expenditure during 2009/10 amounted to R356.6 million, of which R230 million was invested in property and R115 million in information technology (IT).  The total group subsidy amounted to R684.3 million, of which R435.3 million was applied to projects and R249 million was rolled over.  Details of the Post-Retirement Medical Aid (PRMA) liability were given.

Discussion
Ms N Michael (DA) complimented SAPO on the impressive performance of the entity and on the quality of the presentation.  She said that the services offered at post offices were often hampered by equipment that was not working or was missing and by staff who were not adequately trained.  She asked why the cost of PO boxes was so high.  Customers were charged up to R9.95 per page for faxes, which was exorbitant.  She noted that internet access was available only at certain post offices and asked if SAPO planned to extend the service.  She was appreciative of the values of SAPO but customers were still subjected to long queues and unfriendly employees.

Adv De Lange observed that SAPO blamed the global economic downturn for the decline in financial performance in 2009.  SAPO had reported good results in prior years despite the global downturn.  He queried how the effect of the economic downturn was determined and if there could have been other factors at play.  He referred to the slide in the presentation depicting the governance framework and queried the statement that SAPO was accountable to employees.  The fact that staff costs accounted for 50% of total expenditure and the mindset that SAPO considered itself accountable to its employees was a matter for concern and needed to be explained.

Ms S Tsebe (ANC) extended her good wishes to Mr Buick, whose contract with SAPO was ending in the near future.  Referring to the annual report, she queried the rewarding of employees who went to ‘great lengths to offer good service to customers’ (see page 19 of the annual report).  She was of the opinion that the universal service obligation was under-funded and asked SAPO to motivate why an amount of R249 million of the subsidy provided was not utilised (see page 21).  She asked why the medical aid contributions of only certain pensioners were subsidised (see page 22).  She noted that a substantial portion of the cash flow of the SAPO Group was generated by the Postbank and wanted to know what the effect of the Postbank Bill would be on the Group’s financial performance.  She asked for an explanation of an amount of R4 million in salary overpayments (see Note 11 to the Group Financial Statements, page 114 of the annual report).

Mr N van den Berg (DA) was concerned over safety issues in post offices.  There had been several armed robberies at post offices in the Roodepoort area.  The Postbank operated from the same premises and it can be expected that safety concerns would increase because of the substantial amounts of money handled in post offices.  It was not safe to access post boxes after dark because there was little light and the premises were deserted.  He found that long queues formed in post offices because there was often only one person on duty.  He asked if the incidence of lost mail items had improved.  He wanted to know when the post office in Toekomsrus would be established, which he had discussed with the CEO for longer than a year.

Mr K Zondi (IFP) asked for further clarity on the plans to expand the services offered by SAPO to other countries on the African continent.  He asked what the alternatives were to the use of fossil fuels for transport purposes.

Ms Newhoudt-Druchen asked for more information on the extension of e-postal services.  She noted the decline in mail revenue and wanted to know what action was taken to address the short-fall in revenue.  She asked what was being done to provide internet services in areas where people lacked connectivity, in particular in the rural areas.

Ms R Morutoa (ANC) asked for information on the Public Internet Terminals (PIT’s) available in certain post offices.  She asked for an explanation of the fines paid for the late payment of taxes under the item fruitless and wasteful expenditure.  She asked for an explanation of the finance costs reflected in the financial statements.  She asked how the performance of the post office situated in Parliament was monitored.  She asked why the report of the Auditor-General was not included in the annual report

Adv De Lange asked for more detail on the audit outcomes.

Ms Lefoka replied that SAPO had a program to modernise approximately 1000 post offices that included the replacement and installation of equipment used to provide services to customers.  SAPO had made PIT’s available in 800 post offices to provide internet access to customers.  The terminals were operational in 700 post offices.  SAPO had found that the business model used for the PIT program was too costly to maintain and was exploring forming partnerships with private internet service providers to take over the service.  She undertook to investigate the cost of sending faxes as the fees charged for services should be reasonable and affordable.  SAPO was upgrading call centres and the customer database in order to improve service delivery.  Post boxes were provided free of charge in areas where mail cannot be delivered to street addresses.  Rental for post boxes was only charged where customers choose to rent a post box in addition to receiving street mail deliveries.  The annual rental fee for a post box was approximately half the amount charged by other service providers.  She agreed that long queues were a problem, particularly on days when social grants were paid out.  A queue management system had been introduced to alleviate the length of time customers had to wait in queues.  SAPO had introduced induction courses for new employees, re-induction courses for existing employees and training courses in customer service principles to reinforce the company’s objective to ensure that customers were treated with respect and dignity.

Ms Lefoka acknowledged that the depiction of the governance framework could have been misleading.  SAPO’s main accountability was to the shareholder but its employees were regarded as the organisation’s most precious assets and the company was very aware of its obligation to ensure that the labour force was taken care of.  The nature of the business of SAPO demands an employee-centric approach as staff had to interact directly with customers.  During the previous year, the staff cost had increased as a result of the need to address existing salary anomalies, which had led to a costly three and a half week long strike.  The target for staff cost was 45% of total expenditure and SAPO expected increased productivity and a high efficiency rate in return.  The reward and recognition process was introduced to acknowledge the efforts of employees who went beyond the call of duty to provide exceptional customer service.  The nominees for the awards were nominated by their peers.  The recognition system was intended to encourage other employees to increase their own efforts to qualify for the awards.

Mr John Wentzel, Chief Operations Officer, SAPO, explained that the e-postal services were intended to develop an alternative source of revenue.  The digital business model had an ICT component and included products and services such as internet-based philately purchases, license renewals, payment of traffic fines and municipal accounts.  SAPO planned to expand the range of services offered.  The decline in the volume of mail was a challenge because the rate of decline in mail volumes was greater than the increase in revenue generated by new revenue streams.  Although SAPO had a monopoly on mail, the company faced stiff competition in the other types of businesses and services.  It was difficult to balance the loss of mail revenue with achieving the mandate and the developmental agenda.  Crime prevention initiatives were in place and there had been an improvement in all categories of crime.  He acknowledged that post offices were considered to be soft targets for armed robberies.  Criminals were prepared to steal relatively small amounts of money.  Post office premises had to be accessible to customers and allow for transactions to be carried out, yet needed to be a secure environment. The Toekomsrus post office was at the planning stage and completion was expected in 2011.  Because of the distances that had to be traveled, there was no viable alternative to the use of fossil fuels and electric vehicles were not feasible.  In order to save fuel, SAPO was making use of smaller vehicles with less engine capacity and piloting the use of electric scooters.

Mr Buick explained that the amount of R249 million that was rolled over from the subsidy received was intended for the upgrade of the IT network.  The process had taken longer than anticipated but orders would be placed in the near future.  SAPO had reached an agreement with the South African Communication and Allied Workers Union (SACAWU) in 2003 that no new employees would qualify for the subsidised medical aid benefit.  The benefit was limited to the pensioners who were entitled to the subsidy at the time and the liability was expected to decrease over time.  The Postbank becoming a subsidiary of SAPO would pose some challenges.  SPO would be the holding company of the Postbank and would be charging a fee for the use of its premises and infrastructure.  It was hoped that the Postbank would be profitable and that dividends would be paid to the parent company.  The item in Note 11 was a pre-payment rather than an overpayment and was reflected in the annual financial statements as an asset.  The fruitless and wasteful expenditure amounting to R146,000 was in respect of penalty charges resulting from the late payment of municipal property rates and taxes in the Eastern Cape and the Free State provinces.  The finance costs referred to in the annual financial statements were the interest paid on money deposited with SAPO.  The audit was conducted by Deloittes, not the Auditor-General and the report from the auditor was on page 80 of the annual report.  SAPO had received an unqualified audit report, as was the case for the previous five years.

Ms Lefoka said that SAPO occupied a leading position on the African continent and was able to offer advisory services to other African countries.  For example, the Universal Postal Union (UPU) had recognised the process developed by SAPO to utilise global positional systems (GPS) to identify addresses.  Other advisory services included the roll-out of infrastructure and the introduction of money transfer services.  Within the Southern African Development Countries (SADC) there were many migrant workers making use of money transfer services.  SAPO had presented programs to the SADC Ministers of Communication, who had adopted certain programs offered by SAPO.  Funding was being sourced from the UPU and other donors.  An oversight and monitoring unit was established in 2009.  The unit visited post offices in South Africa and SAPO was now in a position to identify and address the matters requiring attention.  A branch recognition program was implemented to encourage continuous improvement in the service levels of individual post offices.  The program to make e-mail addresses available to people was being accelerated and SAPO was in the process of rolling out the necessary IT infrastructure.

Ms Mahlati added that the support provided by SAPO to other African countries included hosting a pilot program of the UPU.  Students from other African countries attended courses at the SAPO learning centres.  The services offered to other countries needed to extend beyond merely offering support and had to be linked to actually doing business.  She agreed with the concerns expressed by the Committee over the effect of the global economic downturn on the financial performance of SAPO.  SAPO was not using the downturn as an excuse and had acknowledged the inefficiencies that had to be addresses.  A turnaround strategy was developed to ensure the long term financial sustainability of SAPO and presented to the shareholder.  Because of the change in Government, the strategy had not yet been approved and needed to be presented to Parliament.  The turnaround strategy would ensure stability and growth.

Ms Mahlati said that the issue of the high salary cost was complex and had to be considered in the context of the historical low salary base, particularly with regard to the remuneration of management.  There were a number of challenges that had to be addressed.  SAPO had invested a substantial amount in the IT platform necessary to monitor service delivery performance and was making progress.  SAPO had successfully participated in three share offerings (Vodacom, MTN and South African Breweries).  The issue concerning the conflict between the legislation and Government policy needed to be discussed in more depth with the Committee.  SAPO was the service delivery arm of Government and a Memorandum of Understanding was in place.  However, SAPO was constantly subjected to legal challenges and a clear ruling on how business would be conducted in future was required.

Ms Lefoka agreed with Ms Tsebe that the reduction in the subsidy had resulted in the universal service obligation (USO) being under-funded.  SAPO was not claiming the full cost of implementing USO from Government.  SAPO intended to raise the issue of the subsidy during discussions with the Department of Communications.

Adv De Lange remarked that the Committee was currently dealing with the South African Post Office Bill.  He was not sure if the concerns of SAPO were adequately covered by the amendments to the legislation.  He asked SAPO to clarify what legislative changes were required.

Ms Mahlati replied that she had intended to raise the matter during the deliberations on the Bill, scheduled to be held at a later stage in the proceedings.  Deliberations on the Bill had been postponed.  The issue was one of strategic principle and was a serious matter that required more time than was available during the proceedings.

The Chairperson advised that deliberations of the Bill would continue during the following week.  The Committee needed a thorough understanding of all the issues before proceeding with the Bill.  SAPO would have an opportunity to brief the Committee on the matter before the Bill was proceeded with.

Half-yearly performance to 30 September 2010 of the South African Post Office
Ms Lefoka presented an overview of the performance of SAPO for the first six months of the 2010/11 financial year (see attached document).

The briefing included an overview of the trading conditions and Group financial performance to end September 2010.  Details of the performance in each province of the USO address roll-out and retail outlets programs; the four revenue diversification programs; the philatelic program and the progress made in the crime prevention initiatives were provided.  Employment equity statistics and the achievements in human capital management, environmental sustainability and corporate social investment programmes were summarised.

Mr Buick presented the financial performance during the first half-year of 2010/11.  Total Group revenue amounted to R2.6 billion (an increase of 3% over the previous year).  The financial performance of the two subsidiary companies, the Postbank and the Post Office was included.

The presentation included an indication of the reduction of the subsidy allocation for the period 2010 to 2013.  The subsidy allocation for 2010/11 was R306 million, reducing to R180 million in 2011/12, R52 million in 2012/13 and zero thereafter.  The requirement to fund the USO costs however remained in excess of R300 million per annum during the same period.

Details of the PRMA liability and the outlook for 2010/11 were presented.  The liability was expected to increase to R300 million in 2010/11.  The forecasted net profit for the SAPO group was R90.7 million (a decline of 69% over the previous year).

Ms Lefoka concluded the presentation with the challenges affecting the outlook for the current financial year, including declining mail volumes, lower interest rates, above-inflation salary increases, a reduction in the subsidy allocation, the integration of Speed Services, the corporatisation of the Postbank and increased post-retirement medical aid contributions.  The focus of SAPO would be on the development of the revenue programs, improving efficiencies, improving the services offered to consumers, rolling out the USO programs and improving the monitoring processes.  She thanked Mr Buick for his significant contribution to SAPO over the preceding years.

Discussion
Referring to page 76 of the annual report, Ms Tsebe noted that 3,453 investigations were undertaken by the Security and Investigations Services division.  There were 348 disciplinary enquiries relating to fraud and crime but only 122 cases were prosecuted.  She asked for an explanation of the discrepancy in the numbers reported.  She noted that no additional services or post offices were provided for the North West province during the first six months of this year and asked for an explanation for the apparent lack of service in this province.  She noted that only 45% of the targeted number of addresses were achieved for the North West (see slide 6) and asked for clarity on the information provided.

Ms Lefoka explained that the statistics provided in the presentation were the actual number of new or refurbished post offices completed as at the end of September 2010.  The Northern Cape province only was fully serviced and there would be plans in hand for new or upgraded post offices for the North West province.  SAPO expected to have rolled out 50% of the targeted number of addresses during the first six months of the year, therefore the achievement rate of 45% indicated a lack of performance in the province.  The discrepancy between the number of disciplinary cases reported and the number referred to the South African Police Services (SAPS) arose because not all allegations reported were proven and warranted prosecution.

The Chairperson asked SAPO to forward a detailed breakdown of the investigations to the Committee by the following week.  He added his appreciation to the outgoing CFO, Mr Buick, for his contribution to the improvement in the financial performance of SAPO over the previous years.

2009/10 Annual Report of the National Electronic Media Institute of South Africa (NEMISA)
Mr Tsediso Gcabashe, Acting Chairperson, NEMISA, gave an overview of NEMISA’s mandate to the Committee (see attached document).  NEMISA aimed to provide access to ICT services to all South Africans and a key strategic objective was to contribute to the ICT skills base in the country.  A breakdown of the number of students per province was provided.  NEMISA had trained approximately 2,500 students during the preceding ten years.

Mr Ndivhoniswani Tshidzumba, Chief Executive Officer, NEMISA, presented the performance of the Institute in the five key performance areas of governance, training and development, marketing and business development, content development and organisational stability.  The target of training 782 students in 2009/10 was not achieved.  Only 423 students were trained and the reason for the lack of performance was that the training facilities were inadequate.  NEMISA was addressing this challenge by forming partnerships with media companies that would allow access to the training facilities available in the private sector. 

The achievements and challenges experienced in each of the five key performance areas during the first six months of 2010/11 were summarised.

Ms Moira Malakalaka, Chief Financial Officer, NEMISA, presented the annual financial statements for the 2009/10 fiscal year.  Total revenue amounted to R36 million and total expenditure amounted to R40.5 million.  A deficit of R4.4 million was declared.  The deficit arose as a result of the implementation of the Standards of Generally Recognised Accounting Practice (GRAP 23) accounting policy, requiring that deferred income be re-classified as a surplus.  NEMISA achieved an unqualified audit report from the Auditor-General.

The financial performance during the first six months of 2010/11 was provided.  Total revenue for the period amounted to R17 million and total expenditure was R18 million.  The deficit of R1 million was attributed to the implementation of the GRAP 23 accounting policy.  Accumulated surplus to fund ongoing projects amounted to R13 million.

Discussion
Ms Tsebe asked for more information on the action taken to address the challenge of inadequate space and capacity.  She asked what the target date was for the planned review of the current policies referred to in the presentation.  Referring to page 13 of the annual report, she asked what the reasons were for the failure to meet the employment equity targets for disabled persons.  She asked for an explanation of the comments made by the Auditor-General in his report concerning the amendment of the financial statements, the irregular expenditure amounting to R25,080 and the deficit.  She asked for clarity on the commitment of R2 million for capital expenditure on equipment that had not been received by the end of the financial year.

Ms Newhoudt-Druchen asked what the expected deficit for 2010/11 was.  She wondered why the new accounting policy had not helped to prevent a deficit.

Mr Van den Berg observed that equipment used in the media industry tended to change at a fast rate.  He asked if NEMISA was satisfied that its equipment was adequate or if it needed to be upgraded.

The Chairperson asked for further information on the statement that the lack of infrastructure had resulted in a failure to meet the training targets.  He noted that NEMISA intended to form partnerships with companies in the private sector and asked if the targets should not be revised because the Institute would not have any control over the performance of other entities in the sector.  He asked what the future vision for the organisation was of the new leadership at NEMISA.

Mr Takalani Nwedamutswu, Chief Operations Officer, NEMISA, replied that the premises occupied by NEMISA since 1998 were no longer adequate.  The existing available space can not accommodate more studios.  The Board agreed that the Department of Public Works was approached to find alternative accommodation.  A business plan setting out the facilities and additional funding required was in the process of being compiled.  The target date for completion of the review of policies was the end of November 2010, as agreed with the NEMISA Board.  Most of the equipment was installed in 2002/03.  Existing equipment was kept functional and upgraded where possible.  The available premises and facilities were inadequate to accommodate persons with disabilities.  The issue of doing more to accommodate the disabled community had been under discussion at the senior management level.  If necessary, lecturers gave additional attention to disabled students.  The approval of the Board was obtained to widen the doorways of toilets to accommodate wheelchairs.  The technology designed for use by disabled persons was expensive.  Some Braille technology was available and NEMISA was investigating how the environment could be made more suitable to accommodate the disabled community.

Mr Nwedamutswu explained that the equipment could not be delivered on time by the supplier because of the World Cup.  The equipment was since received.  He agreed that the training targets needed to be reviewed.  The target for 2009/10 was set by the shareholder, the Department of Communications.  The Department had an agreement with the Sekukune Minicipality to train a specified number of persons.  However, the municipality had sent fewer students for training.  NEMISA had requested the Department to amend the contract with the municipality and the addendum to the contract was received in June 2010.  The targets for other training programs were exceeded.  NEMISA was entering into partnership agreements with media companies and universities to utilise the skills and facilities available in the private and academic sectors.  NEMISA’s mandate was to develop communities in rural areas and the Universities of Zululand, North West, Venda, Johannesburg and Walter Sisulu were approached with the view to identify the needs of local communities and to obtain assistance with providing training to these communities.  The Board had approved the new approach and memoranda of understanding were in the process of being signed with the institutions concerned.  The target date for implementation was June 2011.

Mr Tshidzumba explained that the comment of the Auditor-General concerning the irregular expenditure referred to the request made by NEMISA to use the services of the Department’s recruitment service provider.  The Board had understood that three quotations from service providers were not necessary but the Auditor-General had disagreed.

Ms Malakalaka explained that the GRAP 23 accounting policies required that income received for specific projects was recognised in the year that the funds were received.  The projects could run over several years and expenses incurred were recovered from the accumulated surplus of prior years.  Currently, NEMISA had an amount of R13 million in accumulated surplus for the Community Radio and National Depository projects.  Most students were from historically disadvantaged communities and many did not have bursaries to fund tuition costs.  Certain students defaulted on their payments for the training received.  The financial statements had to be amended when the new GRAP 23 accounting policy was implemented.  Details of the adjustment were provided in Note 8 on page 52 of the annual report.

Ms Tsebe asked for an explanation of the Auditor-General’s comments concerning the effectiveness of internal controls, leadership and financial performance management.

The Chairperson explained that the Committee required a detailed explanation from NEMISA because the remarks appeared in the annual report.

Mr Nwedamutswu replied that the performance measurements had not been accurate.  NEMISA had requested the assistance of the Auditor-General to resolve the problems with formulating policies, procedures and reporting lines.

Mr Gcabashe added that the performance areas for the previous year were not clearly defined for audit purposes.  The GRAP 23 accounting policy was only going to be implemented in 2010/11 but the Auditor-General had applied the policy in the 2009/10 audit.

The Chairperson thanked NEMISA for the presentation.  He advised that the Members required more time to study the information provided.

The meeting was adjourned.



Share this page: