ICASA, Sentech, SITA, Broadband Infranco, USAASA, USAF, SAPO, ZADNA, NEMISA, FPB & SABC 2018/19 Annual Reports

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Communications and Digital Technologies

15 October 2019
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

Annual Reports 2018/2019

The Portfolio Committee on Communications was briefed on the annual financial and performance reports of the South African Broadcasting Corporation (SABC) and other entities. These included the Independent Communications Authority of South Africa (ICASA), Sentech, the State Information Technology Agency (SITA), Broadband Infraco (BBI), the Universal Service Access Agency of South Africa (USAASA), the Universal Service Access Fund (USAF), the South African Post Office (SAPO), the .za Domain Name Authority (ZADNA), the National Electronic Media Institute of South Africa (NEMISA), and the Film and Publications Board (FPB). This reflected the finalisation of the annual Budgetary Review and Recommendations Reports (BRRRs) which needed to be completed before the end of October 2019, ahead of the Medium Term Budget Policy Statement.

Most of the matters discussed related to the entities’ strategic priorities, their level of achievement against measurable objectives, and the relevant findings made by the Auditor General of South Africa (AGSA).

The SABC had registered a loss of R482 million, which was better than in recent financial years, according to executive board members’ assessments of its improved annual performance. The SABC had shown a progression from over R1 billion in losses in 2017 and R744 million in 2018. The Corporation was buoyed by the Treasury financial bail-out it had received.

SITA officials voiced concern that they were being grouped incorrectly with Bosasa regarding statements of the Department of Home Affairs (DHA), which was seeking a divorce from the entity due to service delivery, and supply chain and procurement management issues. Officials said that despite this, SITA maintained a good relationship with the DHA, and would engage further on the matter. Criticisms had been mounting over SITA’s unreliable network infrastructure, resulting in system down times.

SAPO addressed concerns regarding its upgraded security since taking over payments of the South African Social Security Agency (SASSA) grants, in light of increasing cash in transit and other cash related heists in the country. SAPO was increasing electronic and physical security, as well as working towards a more electronic based system of disbursement in order to increase reach, efficiency and security.

Meeting report


Opening remarks

The Chairperson said the Committee would be receiving presentations from entities that reported to the Department, as well as a presentation from the Independent Communications Authority of South Africa (ICASA).

He also wished to indicate that the Committee met at a time when there had been matters in the public domain pertaining to the Committee a week or so ago, regarding one of the entities and the Deputy Minister. The Committee was concerned about that and needed a report on it in order to answer questions adequately and empower the Members to conduct oversight.

It was also important to clarify that the Committee was using the budget review and recommendations reports (BRRR) process as a way of assessing what was being delivered in terms of targets, as well as the Auditor General of South Africa’s (AGSA) direction. This was just one of many mechanisms available. Members would have received the presentations, and there was a reasonable assumption that they had been through the presentations. The presenters would therefore need to focus on the key matters in their presentations.

Apologies were noted from the Minister of Communications, Ms S Ndabeni-Abrahams, who was attending a conference in Durban, and the Deputy Minister, Ms P Kekana, was attending a Pan African Parliament conference in Johannesburg.

The Chairperson said the presentations would begin with Sentech, followed by the State Information Technology Agency (SITA), the South African Post Office (SAPO), then a discussion, then ICASA, the Film and Publication Board (FPB), the South African Broadcasting Corporation (SABC), and then break for lunch, before taking the remaining presentations.

Mr L Molala (ANC) raised a concern about congestion in the venue. He proposed that those who were presenting remained in the room, while the others waited outside.

The Chairperson said that the proposal had an issue, in that there were linkages between the presentations. The important aspect of the proposal was that the key people who were to make presentations be given priority space in the venue. The movement should not disrupt the proceedings.

Sentech report

Mr Mlamli Booi, Chief Executive Officer (CEO) and Executive Director: Sentech, introduced the delegation and began the presentation.

Sentech had fallen short on revenue and customer satisfaction, the former growing by four percent to R1.4 billion, and the latter at 65%. 78% of key performance indicators (KPIs) had been achieved.

Earnings before interest and taxes had amounted to R142 million.

Sentech’s transformation spending amounted to 11.4% of net profit after tax. The Broad-Based Black Economic Empowerment (BBBEE) Level Two accreditation had been maintained.

It was the seventh consecutive year that Sentech had received a clean audit outcome.

Strategy Overview

Sentech’s strategy was to deliver content to South Africa and connect its customers.

Its vision was to be a global leader in digital content delivery. Its mission was to connect customers anywhere through innovative solutions. The value proposition was premised on keeping Sentech’s customers connected all the time, anywhere.

Sentech’s strategic imperatives were to build a profitable wireless broadband business; the pursuit of inorganic growth through mergers and acquisitions (M&As), strategic alliances and partnerships; to develop and offer innovative digital content delivery solutions; and to pursue pan-African business opportunistically.

Sentech’s growth strategic pillar had the objectives of reaching the maximum company value, diversifying Sentech’s income, and increasing profitability. The strategic initiatives to enact these objectives were to pursue M&As, form strategic alliances and partnerships, establish wireless broadband business, and pursue opportunities in pan-African markets.

The strategic pillar of growth had the objective of production and platform innovation. Its strategic initiatives were a lean start-up programme, 5G connectivity trials, and the establishment of a Sentech Innovation Centre.

The customer centricity strategic pillar had the objectives of providing the best customer experience, and achieving new customer attraction and retention. The strategic initiatives included customer engagements, innovation initiatives, an e-commerce channel initiative, tariff reviews, conduction of the market and customer intelligence operations, and ensuring network availability.

The culture change strategic pillar sought to achieve a high performance culture with engaged employees at Sentech. Its associated strategic initiatives included leadership excellence training, the development of digital skills in line with the Fourth Industrial Revolution, and ensuring creativity time initiatives.

Transformation’s objective was to contribute to industry transformation goals. Its strategic pillars were enterprise supplier development, corporate social investment (CSI) initiatives, socio-economic development, skills development, and the formation of an employment equity plan.

The operational excellence strategic pillar’s objectives were to improve service delivery and efficiency, ensure an available network, and improve cybersecurity. Strategic initiatives included workplace digitisation initiatives, Digital Terrestrial Television (DTT) network stabilisation, a cybersecurity initiative, and the development of project management capabilities.

The Sentech reputation strategic pillar objective was to increase brand equity. Its strategic initiatives included stakeholder management initiatives, performance information management, provision of external and internal communications, brand management and ethics training.

Business Model

The Sentech business model faced challenges with new technologies. Sentech was pushing the connectivity side of business in collaboration with Broadband Infraco (BBI). Core functions of the business model included technology, operations, broadband, and marketing and sales. These were augmented by supporting functions which included strategy, finance, human resources (HR), legal, information technology (IT), risk management, and internal auditing. Research and innovation was a third pillar of the business model.

Content and multimedia services provision spanned radio and television analogue digital services, content platform applications such as Direct-To Home (DTH) and the Play-out centre, business applications, on demand services, value-added services and consultancy services.

Infrastructure management services involved third party facility management, facilities leasing, managed network infrastructure services, and consultancy services.

Connectivity services included broadband wireless spanning very-small-aperture terminal (VSAT) and fixed wireless services, and consultancy services.

Performance Against Objectives

Mr Tebogo Leshope, Chief Operations Officer (COO): Sentech, said that there were nine key objectives. Sentech had not achieved its growth target due to the economic climate. Good governance and performance, as well as a clean audit, were highlights. There were opportunities for improvement in respect of value for money dimensions.

Meeting sales revenue target of R1 290 million had not been achieved, but increasing earnings before interest and taxation (EBIT) to R125 million had been achieved. It was contributing to socio-economic transformation through spending 5% of Sentech’s allocated budget on enterprise and supplier development (ESD), 1.5% of net profit after tax (NPAT) on socioeconomic development, and 3% on skills development. It had ensured network availability met service level agreement (SLA) requirements across all of Sentech’s platforms by seeking a weighted average availability based on product revenues of 99.8%, and this had been achieved. Enhancing customer orientation by achieving an 80% customer satisfaction level had not been achieved. Enhancement of human capital development through at least 85% of training interventions on digital skills being implemented had been achieved. Enhancing innovation through the development of two digital products had been achieved. Supporting South Africa Connect through the delivery of the ‘Internet for All’ project had been achieved by connecting over four broadband sites.

Financial Performance

Mr Siphamandla Mthethwa, Sentech CFO, said then entity’s financial performance had taken place in the context of a tough economic environment. Sentech’s turnover versus profit had been achieved through cost optimisation strategies. The net asset value of total equity had increased due to the re-evaluation of land and buildings every three years, as well as the operating profit.

The return on equity figure of eight percent was acceptable in the current economic market.

Sentech had no debt; it was funding operations from cash generated as a company.

Sentech was, however, a business exposed to volatility of currency, as satellite fluctuations were in dollars. The volatile currency and slow economic growth would continue to hamper the performance of Sentech.

The revenue outlook had decreased in anticipation of Sentech’s analogue switch off.

Sentech was continuing to streamline processes, strengthen business development, execute capital projects aimed at revenue growth, and containing costs and diversification of revenue. There were African growth opportunities in terms of acquisitions and management, as well as an attractive balance sheet for borrowing and the managed infrastructure business. A long term funding plan would be reviewed in light of the funding requirements for the growth of Sentech.

Strategic Priorities for the MTEF Period

Mr Booi said that revenue and profitability growth, as part of Sentech’s growth strategy, meant that it would pursue organic and inorganic growth strategies through the building of a broadband business, strategic partnerships and acquisitions to release revenue diversification.

Sentech was to build a broadband business in fulfilling its mandate, and had invested in multiple refresh technologies in order to enhance the performance levels of its connectivity services to serve its existing and future client base.

Innovation and digitisation would be pursued through innovative means in order to meet customers’ expectations, which entailed the building of digital skills and capabilities within Sentech.

In order for it to be part of the digital convergence and innovative solutions delivery, it would invest in its human capital and capabilities in order to enable the workforce to drive innovation.

Sentech was also prioritising a South African-based pan-African satellite through participation in the development of a national satellite communication strategy for a pan-African communication satellite as a means to address the cost of communication and achieve South Africa’s broadband objectives. This process was under way in the form of government stakeholder consultations. Once the Cabinet approvals were in place, the project would be officially launched.

Mr Booi said Sentech was a healthy organisation, but was challenged by the market place. These chjallenges included the proliferation of drones and artificial intelligence (AI), which also provided potential diversified revenue stream opportunities.

State Information Technology Agency report

Mr Zukile Nomvete, outgoing Chairperson of the (SITA) , introduced the delegation.

Mr Ntutle Tshenye, Acting CEO: SITA, said the entity prided themselves for the provision of IT services to the South African government. On SITA’s 20 year anniversary, it had been the backbone of the South African government and had helped propel the country into a positive trajectory of development.

SITA was committed to leveraging IT as a strategic resource for government, managing the IT procurement and delivery process to ensure that government got value for money, as well as using IT effectively to support the delivery of e-government services to all citizens.

The 2018/19 financial year had marked the second year of SITA’s implementation of its new business model, which was intended to transform internal operations to offer value-added and innovative service offerings in order to address the long standing customer service delivery challenges that were faced, and to improve the provision of government services to citizens.

SITA was expected to deliver services with the context of tight government cost containment measures, the impending state-owned company (SOC) rationalisation, and persistent systemic and institutional challenges.

SITA aligned its business operations to government imperatives that enabled service delivery to citizens by focussing on key strategic priorities which included electronic government, ICT security, procurement, and core IT services.

The Auditor General (AG) had predetermined objectives with findings, requiring changes to SITA’s performance results.

The annual performance results had shown a 50% achievement. Challenges leading to this performance included delays in the finalisation of the organisational design programme which had resulted in the lack of skills and capacity to deliver on planned targets; SLA metrics not being achieved primarily due to the power outages which had taken place in August 2018, negatively impacting SITA’s metrics; capacity constraints and the procurement function; corporate and structural changes affecting the ICT acquisition at SITA; and significant investments, which had been made in strategic projects as part of operationalising the business model, had resulted in cash flow constraints.

Achievement of 50% of targets was due to factors such as the planned organisational design, corporate and structural changes. There was a need to invest in strategic projects, such as cloud foundation infrastructure (CFI). Successes were in e-government and services. There was also a robust infrastructure modernisation initiative.

A procurement readiness programme had seen framework agreements made with original equipment and software manufacturers, with SITA leveraging multinational companies (MNCs) to work in South Africa in order to save money.

Performance Information

Strategic projects at SITA had seen it effectively support South Africa’s e-enablement and digital transformation drives which were aimed at transforming the public service through digital technologies. It had deployed 55 e-services to external clients in various provinces, and four had been deployed for its internal use. These included the SITA compliance website, SITA Varsity, the national development plan (NDP) 2030 Hackathon, and the SITA skills audit.

The overall benefits of these strategic e-service projects had positively impacted the end-users through improved access to services, decreased operational costs, improved efficiencies and accessibility, while bolstering SITA’s internal business operations.

SITA had embarked on an infrastructure modernisation journey to re-engineer the current environment into modern state-of-the-art facilities, which included the introduction of cloud computing capability. SITA had launched its new government cloud infrastructure for South Africa. The rollout of broadband connectivity was very capital intensive, and was flagged as a critical focus areas by the Executive Authority (EA), as South Africa was challenged by issues of accessibility, usability, and affordability.

SITA had advanced the national economic transformation agenda in the ICT sector by providing a platform for the development of emerging suppliers in order to advance their businesses. It had also implemented a procurement readiness programme aimed at increasing the skills and diversification potential of the SITA supplier base by rolling out training to five provinces. It had graduated off two small, medium and micro enterprises (SMMEs) from enterprise development to supplier development, creating jobs.

SITA had developed framework agreements by adopting a strategy that fostered public and private partnerships in order to ensure the government achieved economies of scale, and that products and services were of the best quality and value for money.

Service Delivery

The service delivery programme’s purpose was to provide high-quality IT services in order to enable government to deliver efficient and convenient services to citizens using ICT, as well as optimising the provision of SITA’s IT infrastructure services in order to increase availability, flexibility, scalability, predictability and security. These included e-governance initiatives.

The purpose of the infrastructure programme was to optimise the provision of SITA’s IT infrastructure services in order to increase availability, flexibility, scalability, predictability and security.

The procurement programme’s purpose was to address all issues relating to delayed procurement turnaround times, operational inefficiencies, the removal of customer pain points, cost ineffectiveness, and transforming the procurement function’s ICT acquisition spending through SMME entities.

Procurement was the elephant in the room. There were efforts to deal with procurement at SITA. It had been a casualty and culprit in the cleansing of the organisation from previous years.

The purpose of the financial sustainability programme was to ensure its effective and efficient financial management, growth and sustainability. There was an issue/challenge over engagement with clients and the signing of service level agreements (SLAs).

Organisation, Governance and Administration

The purpose of the organisation, governance and administration programme was to build and maintain organisational capability in order to enable SITA to achieve its strategic imperatives. It aimed to provide leadership, strategic management, governance, risk and resource management in line with government’s accepted norms and standards.

SITA had initiated a process of implementing the micro organisation redesign which was intended to address its skills deficit and build the appropriate competencies required to deliver on its mandate and customer expectations, with minimal reliance on external service providers. It was initiated to design a new micro organisation structure into which employees would be migrated. This could not be concluded as planned, due to the impending SOC rationalisation and the moratorium on recruitment which was introduced by the new SITA administration, since the development jointly had a significant impact on the finalisation of the organisational structure.

In order to ensure ongoing service delivery to its clients and meet the annual performance plan (APP) commitments, there was a skills augmentation process which entailed sourcing external skills to cover the capability gaps that existed within the core functions of the business.

SITA had implemented its succession management plan policy, identifying 203 successors who would be groomed to fill the identified core, critical and scarce skills positions. Two non-executive SITA board members had resigned in the year under review. in order to maintain stability at the leadership level, internal restructuring would be undertaken to act in the positions of CEO and CFO.

The SITA board of directors regarded corporate governance as fundamental to the success of the business and were fully committed to ensuring good governance was practised in order for SITA to remain viable and sustainable. It had a functional board and sub-committees for the period under review which continued to exercise oversight, leadership and direction within the company.

Forensic investigations into a number of sole supplier contracts had continued, with the assistance of the Independent Police Investigative Department (IPID) and the Hawks. The findings of these investigations had been shared with the Standing Committee on Public Accounts (SCOPA).

SITA had prioritised the management of fraud risk as per the Public Finance Management Act (PFMA) and other fraud-related regulations. There was zero tolerance for acts of fraud and corruption. Fraud prevention, detection and response plans were in place, and fraud awareness campaigns had been rolled out in order to sensitise SITA employees to the promotion of ethical behaviour.

Financial Information

Mr Andre Pretorius, Acting CFO,presented the statement of SITA’s financial position, and said there was pressure on its gross surplus.

There had been investment in digitisation of the SITA business model towards cloud computing, which was cash intensive. While there remained cash available to cover operational costs, investment into digitisation projects would be problematic. Moreover there were staff replacement challenges. Stabilisation at SITA would mitigate the risk.

SITA had received an unqualified audit report, with findings on the audit of its performance information and compliance with legislation. This same audit opinion had been received for the past three consecutive financial years. Issues were constrained within irregular expenditure, local content issues, and PFMA compliance, as well as challenges with contract management.

Closing

Mr Tshenye said that a deep dive into the turnaround had resulted in a knock-on effect at SITA. Procurement issues were holding them back; particularly regarding collusion with other departments. The executive team had done some form of cleaning up. This could be seen with the e-Government efforts to remove the human element at SITA, but the issues remained very stubborn.

South African Post Office report

Ms Lindiwe Kwele, Acting CEO: South African Post Office (SAPO), introduced the delegation and said that SAPO had received an unqualified audit result for the previous financial year.

Operational highlights for the year were the mail carryovers that would be reduced to less than one day’s volume by the end of the financial year. They had successfully piloted a customs declaration system (CDS) for countries, which included Eswatini (Swaziland), Russia, and Uganda. Regional management structures had been strengthened in order to implement SAPO’s strategy.

The South African Social Security Agency (SASSA) grants had been paid to beneficiaries in the national payments system from 1 June 2018, and these had resulted in unintended progress for the corporatisation of Postbank. Progress had also been made in the corporatisation of Postbank. This included the Financial Matters Amendment Bill, which had been approved and allowed state-owned enterprises (SOEs) to register a bank, and the transfer of the operations of the Postbank division to the Postbank SOC Ltd, which had been gazetted in March 2019.

Human resources highlights included the reduction of the permanent employee headcount by four percent as part of the staff optimisation effort to reduce the ridiculously high wage bill.

There had also been an improvement in the governance reporting structures as part of the rationalisation of board committees and replication at the executive committee level.

Financial Results

Mr Jabulani Dlamuka, CFO, said that revenue had increased by 20% due to the SASSA project in particular. There had been a decline in mail volumes which had resulted in a corresponding decline in mail revenue. Motor vehicle licensing revenue had increased by five percent.

Expenses had increased by 18%. Expenses, excluding SASSA project costs, had increased by six percent. The SASSA project expenses had included additional staff that had been recruited, the Postbank card costs, security costs, transportation and banking costs, and other operational costs. The loss for the year had increased by R95 million, to R1.1 billion.

There was need for diversification of revenue through growth in e-commerce.

Ms Kwele said that revenue and expenses going forward would focus on revenue growth and cost containment. Revenue growth initiatives included e-commerce and digital mail.

Staff costs would see a rationalisation of staff. SAPO would deal with unnecessary wastages in areas such as overtime. There would also be rationalisation of post-retirements benefits. Security costs would be reduced through the replacement of guarding services with physical security infrastructure. There would be a rollout of a cashless solution for SASSA.

Property costs would see a rationalisation of the branch network through merging and a focus on loss-making urban branches. IT costs would be rationalised through the IT software portfolio decommissioning of software. Logistics costs would see optimal utilisation of the fleet and the routes that were used.

There would be a rollout of network infrastructure by December 2019. Network roll out connectivity with Telkom would be undertaken. There would be property infrastructure refurbishment projects. These included smart post offices, with three pilot projects.

There would be stabilisation with organised labour and provision of tools of trade to staff.

There would be mitigation of audit findings, with a special audit committee in place to interrogate audit findings. The AG was working with SAPO management to identify the root causes, a management letter action plan was being implemented, and there was a focus on consequence management.

Discussion

Sentech

Ms A Mthembu (ANC) encouraged Sentech to make sure a clean audit went with service delivery.

Ms P Faku (ANC) said it was important to congratulate Sentech for their high performance achieved in the past financial year. It was what was wanted from government entities.

On the revenue growth of 4%, some entities should seek to grow like this. However, Sentech had achieved only a 78% target attainment. The Committee’s goal was 100% target achievement. There had been a customer service shortfall of 12%. A clean audit was wanted by the administration. It laid the foundation for other entities going forward.

Mr C Mackenzie (DA) echoed the sentiment of his colleagues on the good performance. Regarding money owed to Sentech by the SA Broadcasting Corporation (SABC) of around R700 million, was there any indication of when this would be settled? At one stage it had been proving difficult to collect revenue from community broadcasters -- was this still the case and was there a way out of that? Regarding the concept of a state infrastructure company, would Sentence be part of this venture? In terms of a clean audit, the AG would often arrive at entities and sit with internal audit teams and assist them, leading to an improvement in audit outcomes. Had Sentech’s clean audit been achieved with internal staff or with AG assistance?

Under strategy and vision, Sentech had spoken about building a “profitable wireless broadband network”, and normally this was associated with Broadband Infraco (BBI) or Bosasa. What shape would it take, and could there be some more information provided? Were government grants received associated with dual elimination, and when was this expected to end?

Ms Z Majozi (IFP) congratulated on Sentech on their performance and clean audit – it showed quality leadership in the institution. How far was the digital migration process? In the risk management review, the issue of aging infrastructure was identified -- had Sentech deployed an intervention for this? Support was needed for community media institutions, as these were the basis of grassroots communities. How far was Sentech with this, and what was the process? There were challenges that were not outlined. Where were they?

Mr W Madisha (COPE) agreed with his colleagues and welcomed the targeted achievements, including financial stability and growth. Upon conclusion of Sentech’s presentation, it had been mentioned that there were “growing concerns”. These needed to be explained. What were they?

Ms N Kubheka (ANC) congratulated Sentech on its clean audit. Revenue was growing at 4%. BBBEE levels had been maintained. Customers were satisfied. This was what was wanted. The clean audit needed to be balanced with the issue of service delivery. Sentech was raising the bar in terms of governance and innovation. Its success tips needed to be shared with the Committee in order to be sent to other institutions. Sentech was carefully following the AG’s directives.

Mr L Molala (ANC) congratulated Sentech. He voiced concern surrounding the gender representation in the delegation. He was not speaking “on behalf of ladies, because they could speak on their own behalf”. He was happy that there were young people in the delegation. Overall, Sentech must continue working hard in order to keep up the standard.

Mr T Gumbu (ANC) commended Sentech. They had a clean audit and profit as well as a healthy balance sheet. They were doing well.

The Chairperson said that before the Sentech responses, he wanted to return to the point about keeping the clean audit over a seven year period. Was this linked to persons or systems/procedures put in place? Other entities were able to be clean at some point, but were unable to maintain it.

He supported Mr Mackenzie’s question. There would be other entities involved in broadband. He wished to indicate that the Committee knew the presentation was based on the previous financial year, but plans had to be expanded to reconfiguration in terms of financial and service delivery. It was good to be looking at other revenue sources. It may not be enough to focus on the national broadcaster in terms of being the main source of revenue, as there could be changes in the future.

Sentech response

Mr Booi said the gender composition of the team came up every year. He wished he “could put on a skirt and makeup, but that wouldn’t help”. The board was looking into the issue. However, the executive committee was comprised of 50% female members. It was at the executive director level that there was a gender balance issue. This would be looked at in the next round of appointments. Directors were appointed by the ministry and the board. Previously it had not been like that, it was cyclical. There was a focus on inclusion and diversity.

Sentech’s performance was a team effort. There was a focus on key performance indicators that were tackled on a quarterly basis. Alarms would be raised at the halfway mark in order to identify issues. There was focus on areas with the highest impact. Sentech worked together with sister companies, looking for assistance and providing assistance.

Sentech continued to improve systems; sharpening focus on issues such as supply chain management (SCM). Turnaround times needed to be quick. No corruption was tolerated within the organisation. It was a team effort and he thanked the staff of Sentech for their contributions. The clean audit was a result of achieving key performance indicators.

The digital migration progress was a process driven by the Department of Communications (DoC). There were strategies for fast tracking digital migration. Sentech were participants in the space but were not fully responsible. They stood to lose if it was not undertaken and fast tracked, which was the reason for assisting.

Mr Mashigo said the issue of gender balance was noted and taken seriously. In previous financial years, at levels below the executive committee, significant measures had been taken to ensure female leadership.

Regarding the profitable wireless business model; there were three focal areas for Sentech -- content, media infrastructure, and management and connectivity. Profitable wireless business fell into the portfolio of connectivity. The business existed inside Sentech and the portfolio was being expanded through broadband wireless acquisitions and internationalisation. This provided good merging opportunities going forward.

In regard to dual elimination and digital migration in the process, Sentech was ready for digital migration. They were working with the Department to optimise the migration model.

Mr Mthethwa emphasised that the clean audit had been achieved through capable and robust processes involving all employees, as well as the leadership of the organisation, together with good communication and a strong internal audit system. Any tender above R5 million was audited before it was approved.

Regarding the debt owed by SABC and community broadcasters, the former was improving year on year in terms of cash collection. There had been shareholder assistance to improve the situation. Community radio debt collections were more challenging. There was a sustainable long term model around community radio to arrest the debt situation.

The auditors were looking at financial standards regarding company viability and cash flow sustainability exceeding 12 months.

Mr Booi addressed the issues of growth concerns raised by Mr Madisha. These related to the organisation being able to continue business in the next financial years, and involved the reconfiguration of state entities and fitting in with the state-owned broadband company. There were synergies with Broadband Infraco.

Sentech was able to continuously conduct business in part due to its governing body being focused on accountable corporate governance in relation to the executive chain.

SITA

Mr Gumbu raised concerns about the presenter referring to “acting CEO” and “acting CFO”. When would the positions be permanently filled?

The SITA board Chairperson had been introduced as “outgoing.” When was the term of the board coming to an end?

Ms Faku was unhappy with the 50% achievement of targets. Out of 18, SITA had achieved only nine. SITA had not met the organisational design programme. It needed to come up with new ideas and strengthen itself. 50% was unacceptable -- expectations should be around 70%.

Capacity constraints regarding procurement had been raised by the AG. What were the plans for SMMEs? This had not been addressed in the presentation.

Forensic investigations were taking place, so could the Committee be provided with more clarity regarding contracts sent to IPID? What were the reasons for revenue reducing? Liabilities had increased. Irregular expenditure had increased. An unqualified audit had been received, particularly flagging procurement. Inadequate systems and processes had been identified. IT weaknesses were part of its core business, and were major issues raised by the AG. What was the way forward? Why were there such findings?

Ms Majozi echoed Ms Faku’s main concerns regarding the AG findings. SITA could not reach if full performance capability if it did not manage strategic priorities. Performance monitoring tools for contacts were needed for SLA monitoring tools. Security systems were always needed to protect what the institution did. There seemed to be a lack of Departmental policies regarding firewall management controls, for example. Action was needed.

There needed to be a findings page that explained how / what happened to get to this point? Who would be held accountable? What further steps would be taken? The Committee had only heard the other parts.

Mr Mackenzie said that he had been following SITA’s journey over the past six years. He knew that SITA had some special difficulties to deal with within the organisation. These included legacy issues dating back to apartheid in terms of security, personnel, and systems. It would be disingenuous on the part of the Committee to underestimate this. He had seen how Dr Setumo Mohapi had aged during his tenure as CEO. Taking this into consideration, there would also assumedly be vacancies at board level. Putting these into consideration, he had more sympathy for SITA than his colleagues. There was an environment of instability and uncertainty, and he was sure that this impacted on performance. Regarding security issues and physical threats, had the threats dissipated?

There needed to be a plan going forward. He had read in the media a few days ago that the Department of Home Affairs was seeking a divorce and a new partner, and SITA had been mentioned as one of these. How were things looking with this? What was the relationship with Home Affairs and how would this play out going forward? Were there any problems with other government entities?

Procurement targeting needed to be smart. If it was not smart, the impacts on the organisation would ripple through the Department, so SITA needed to look at its performance plan.

He was interested to see the work that was being done with the Free State Department of Education and the digital curriculum and coding programme that government had spoken about. Had the National Electronic Media Institute of SA (NEMISA) been engaged?

In the annual report, under irregular expenditure on page 155, mention was made of irregular expenditure related to contracts with existing suppliers – all was around supply chain. Was the figure in thousands or millions? There was a similar problem on the previous page. There was a perennial problem that had not been addressed at the source, despite its detection as irregular expenditure. What was this, and how would it be fixed?

On page 133, there was a number under 2019 -- did this have four zeros? He needed to show that Members did pay attention to detail. On page 139 of the annual report, what was the reason for the directors’ remuneration falling?

Mr Madisha said that when he was working as a school teacher in 1983, he would have taken the Members and put them on the table, because that was what “we did then,” and take a cane and whip them. Albeit his colleagues had indicated that there was good work, he wished to say that there was not. He did not see improvement. Going back to the areas of poor performance identified by the AG, he said these repeated five key areas had been there for a long time. What was the programme to correct all of this? It had not been elaborated on in the presentation.

These entities belonged to the people of South Africa. What was going to be done next to correct identified problems? They were not doing their work. It was unfortunate for the Committee to have to listen to it. Financial irregularities were theft. What had been done? What would be done?

Ms Kubheka said the CFO had mentioned an unqualified audit, but had not spoken about ‘with findings’. The Committee wanted it to be unqualified. It was clear that when the heart bleeds, it was having a problem, and the results would not come right. There were serious challenges with the supply chain, procurement, and governance. Supply chain was the difficult part to rectify -- it could not just be massaged, as the AG had raised 72 findings. It was not enough to be trying to correct just 25 of them. They needed to go back to the drawing board and formulate plans to rectify the situation. Was the board assisting the entity to push in a correct direction?

Mr Molala wanted to follow on from Mr Madisha about the key issues from the AG’s findings. There were serious challenges with the finance unit, not only supply chain. To follow up on Mr Gumbu, it needed to be indicated who was in an acting position and what was really happening. It had implications on outcomes. The AG report had mentioned “material compliance findings”. These were issues that could not be ignored by the AG. It had said these were due to non-compliance with procurement and contract management. The Committee needed to be told about remedies and timelines. It involved the entire finance unit in terms of preparation of financial statements which were also material in terms of what the AG was raising on all the finance pages. These were recurring issues. The issue was maybe not what was going to be done, but what had not been done – because these were the same findings of the AG. What had been done after the report from the AG? It should not be similar going forward.

In terms of performance, there was a management issue. Employees were not performing, or providing the correct information. The administration had spoken about consequence management. There was an issue regarding the performance of employees in not providing information. What was the problem? Was there no leadership? The Committee needed to be shown if there was leadership or not.

The Chairperson said delivery was key not only for SITA, but for the entire department. Once the clients in the department were failed, the system failed. The new business model had been implemented for two years. Had the reconfiguration been helpful? Cosmetic measures could not be used as a cover in order to raise morale under situations like this. The reality of the matter was a decline in human resources, for example, so one could not expect the result to be high performance. The team needed to take seriously what it was faced with in order for the challenges to be addressed.

The contingency plan had not indicated anything other than a process of “fumigation,” and clean-up processes came with an understanding that people would be taken out and there would be internal resistance. A contingency plan had not been indicated, despite knowing there would be this internal resistance. Maybe consequence management had been introduced too quickly, resulting in the backlash mentioned.

Mr Molala said the main clients were the departments. Could SITA indicate whether they were getting the necessary support and cooperation from their clients?

SITA’s response

Mr Nomvete said SITA was not necessarily receiving the requisite compliance from other departments -- there appeared to be some collusion in the resistance. They were facing IT professionals, ex state employees, and invariably there would be collusion resulting in systematic issues. SITA delivered services to Departments but had not delivered SLAs and this had cost a lot of money.

Responding to Mr Molala, he said the term of the CEO had ended in March 2019. Due to other factors, they had not been in a position to advertise timeously and had asked to the CEO to stay for another six months due to the change of administration. The recruitment process was under way. Equally the CFO had left in 2018 by resigning. This recruitment process was under way. The chief procurement officer (CPO) had also left in the middle of 2018, leaving a very thin procurement department, particularly because of the deep dive clean out. The board term would end in the first week of December 2019. It had been advertised in the ministry. SITA needed a fully capacitated board.

Irregular expenditure had resulted in the need for a strengthened internal audit function. There had been some traction and improvement, which was particularly important as the external auditor was reliant on internal audits. They had been able to find irregular expenditure happening in prior years reflected from previous financial years in 2011-2013.

Regarding threats to SITA employees, they were trying to resolve this through e-government and the use of technology to prevent similar issues reoccurring. This would eliminate the human factor for transparency and traceability. It remained difficult to fully eradicate, however. Threats would never dissipate in the SITA environment. His laptop had recently been stolen from his car prior to a meeting with SCOPA. This was the environment. Upon the receipt of sensitive documents, emails immediately bounced, in order to hinder progress. People would take the suppliers head on, saying that they knew everything that was done. This was meant to create panic within the organisation and ensure that no one trusted one another. There were long term relationships, both within the organisation and outside. SITA had brought together experts from forensics, police etc. after the 1999 presidential commission, which made such operations difficult to combat.

There were fewer directors because of cash flow constraints, leading to the minimisation of costs without compromising the ability to emphasise oversight. In the finance Department, the challenge had been there since the day he had joined. SITA had been unable to invoice key clients. Whether this was deliberate or not, was unknown.

Regarding corrective action, there now needed to be reskilling following the deep dive clean out in human capital management and procurement. There was an opportunity to build scale and capacity by reskilling and re-capacitation. This was taking longer than expected. SITA was trying to look towards technology, but it still faced issues.

Regarding whether the board was pushing, they had signed framework agreements over past the past three years and taken a deep dive with the report. They would be asking whether the money they were spending was reflected in the returns. People who were advising on these framework agreements were supposed to deliver on the results. He did not want to pre-empt what may emerge from this. For example, in contract management, were the challenges because people could not do the job because of technology, or was it deliberate? Threats regarding the need for emergency board meetings would be held against them, due to the importance of SITA. For instance, in the hosting environment, they had been given a large contract at short notice. A deep dive had been taken to investigate down to the manager level. The manager had been told 11 months before the contract was coming to an end and reminded almost monthly of its expiry, but he had still not acted. Whether this was collusion or not, the issue was of SLAs and contracts. This could not continue.

Reconfiguration was trying to assist wit the perception of SITA. It was seen as a procurement agency. The people who wanted to rid themselves of SITA often had a worse procurement record, but they did not consider who would take over the procurement. SITA had embraced the spirit of the sixth administration of zero tolerance for corruption. It was disappointing to find those who were trusted often displayed a lack of ethics.

From a security point of view, all the members had lost weight and were careful about their cell phone usage. This reflected the situation where they could be told by service providers that they knew what their plans were. No matter what was considered confidential, it was almost immediately effectively in the public space. However, they were creating traction and hoped to leave something to inherit that could be worked on.

Regarding departments saying they wanted to divorce SITA, it spoke to reducing silos between government entities so that it was understood what the implications would be. The money was coming from the same fiscus; they needed to be cross-cutting. It reflected a culture in the public service. Some disciplinary matters were taking place and had been referred to the Hawks, but one never knew how far to go. One could not spend the whole time investigating the organisation, because that would destroy it. There were very good people within the organisation.

Mr Nomvete said there were good policies in place. These were approved at board level day in and out, but at the end of the day it was people who had to implement them.

Mr Tshenye said performance programmes looked at five key areas, including service delivery, where SITA had delivered. Infrastructure -- broadband rollout, SA Connect -- had also done well. However, the issue was procurement, and this would have an impact on the financial sustainability of the organisation. Organisational governance was the fifth area looking into people issues.

Service delivery, where there was a look into e-services and e-government, and infrastructure rollout networks, was the core ICT business of the organisation. There were talented people brought in from the private sector as well, who were passionate about the impact technology would have in digitally transforming service delivery. The work really depended on talented people within the organisation, and seen from performance evidence where people had got the opportunity to do the work, they had indeed delivered. The problem was on the complex dynamics within and around the organisation.

He had been acting since April 2019, and was passionate about technology and what it could do. He was from the private sector, having held senior positions at companies like Samsung Electronics and Microsoft. However, since joining he had not been able to tap into the passion for the work that he was doing because he suddenly had to deal with the issues mentioned by Mr Nomvete, where it was dealing with various suppliers, which spoke to deeper factors. In leadership and executive roles one had to abandon the technical inputs that one should be making to due court appearances, etc.

He was disappointed in the 50% performance achievement. They were spending time with shareholders who had been checking on the performance. There needed to be a turnaround by moving from problems to solutions. Areas had been identified such as SCM macro issues. The question was, could SITA deliver? They were searching for a CPO. A robust process of SCM reforms had begun. This was the focus for them on the critical issues in this sector. This was where SITA wanted to go and what digital transformation meant for them. The speed at which decisions were made was very important. There were legislative processes constraints, but he would not dwell on these because they were further in the distance. There were immediate issues that were being dealt with through the implementation of a vendor management office to ensure that SITA had the framework agreements in place in order to be involved in the action through service delivery and with suppliers.

Action was being taken. Colleagues were being placed under precautionary suspension.

They had set up an out of that. Entrepreneurship was critical. There were politics around the sector, so it did need to be engaged with an energised approach. They had set up an SMME ICT forum that had become industry transformation unit to ensure that they were getting people to work. This was looking at engagement with multinational companies and building a strong and vibrant SMME sector coming the mouthpiece for engagement with it. They were beginning to see results. These internal processes had to be reconciled with historical issues that were emerging as they were beginning to scratch the surface. They had underperformed on the SMME spending, which had been targeted at 40%. There were the procurement challenges, so turnaround plans were being executed.

Regarding the collection of payments, they were moving towards a stage where if departments or provinces did not pay, they would cease to be provided with the service. This was a bold step, where there was thinking that departments would seek exemption from working with SITA. It was somehow a very fragile space, meaning it was wrong to think there was a monopoly of business because the client environment was constantly wishing to divorce. This raised the issue of legislative imperatives. It touched on the reconfiguration that was planned to move towards a service company, based on the business that was already being conducted. Reconfiguration needed to accompany legislative tweaking.

Moreover, infrastructure was the backbone of the business, so the question was reconciling services with networks. On top of that, security needed to be built into data services. SITA felt comfortable with services -- they did not want to fail on the back of legislation.

In terms of governance, there were a number of forensic investigations being conducted. A lot of work had been done on the internal audit issues.

Reskilling and re-training was an issue that shareholders had requested be addressed. Core skills were needed for the digital transformation journey. This was particularly important in the service provider space, where there were legacy systems. The reality was that one could not move very quickly with digital transformation while remaining on old legacy systems. 56% of employees were in the application maintenance are, and this left fewer staff working on developing applications, security operations and networks. Yet these were the people defining the future. This was where re-skilling and training components came from, as well as technology innovations to move the 56 percent up to the top quadrant. Therefore, from a strategic and management perspective, they were constantly looking at this, mapping in terms of shareholder priorities.

Contract management was crucial. An operating model had been set up to ensure that it would be a customer-facing organisation in relation to lines of business. There would be customer consulting functions and lines of business solutions. Additionally there needed to be a central capability to ensure service delivery management. Given the challenges, service delivery management capability needed to be enhanced by contract performance elements as part of the service delivery.

They had continued to engage with the Department of Home Affairs on the “divorce.” They had been equally surprised when the article came out. There was a lot of focus on the Department of Public Works, and SITA was maybe unfairly being thrown into the mix. They were probably at their best point in the relationship with Home Affairs.

Having uninterruptible networks was something noted at the end of 2018, and gaps and challenges were being identified. They had brought in an external service provider for Home Affairs to map where the challenges were. These included slow networks. Systems were not standardised and aligned. These differing layers decreased speed.

They were looking at expanding the model of the Free State school of software engineering into KwaZulu-Natal. It was a good model to bring software engineering into a school environment. It was not necessarily a base for the coding environment, but played crucial role.

Areas of poor performance became frustrating when one was able to be pinpointing exact areas. The issue was how to ensure a cascading down to heads of departments and senior managers from the changes at the top, through a culture of performance management.

Mr Andre Pretorius said they were in agreement that the revenue decrease that was more than had been anticipated.

Framework agreements had allowed customers to transact directly with service providers, which meant some transactions were not processed.

There was a debt collection drive under way.

Cash flow constraints stemmed from service level agreement issues with the largest customer, which could not be billed. This was a concern.

The AG’s report had related to SCM functions. These were hindered by capacity constraints and a skills deficit, which required a stabilisation project. Preventable issues were related to non-compliance.

Mr Molala said there were many issues for which justice could not be done at the meeting. He had nine follow up issues. The CEO had papered over issues. Another session was needed. The CFO had begun to voice what type of assistance was needed, but it required more detail. The threatened entity needed to say what assistance was needed -- whether it was political in nature. The Committee could help.

Ms Majozi seconded the proposal. She asked SITA to have an institutional structure for its presentation next time, and to have the other reports necessary for the Committee.

The Chairperson said he had taken note of the recommendations for what had to be done, but it would take more time, given the challenges. The Committee needed to be presented with an action plan. They had received the presentation and interrogated it. South Africans had heard and understood the legacy problems, as mentioned by Mr Mackenzie, but they needed to hear what solutions were being proposed to change the narrative. He said the outgoing chairperson of SITA needed to attend the follow up session regardless.

SAPO

Ms Mthembu said the effort made by SAPO had been noticeable. She requested that they make a double effort in rural areas where people did not manage to access government grants due to the vastness of areas and poor infrastructure. She commended the attempts to move towards clean audit outcomes. SAPO had absorbed staff -- how long would it take integrate them? She did not want to see regression. Was absorption happening in all provinces, or was this in certain provinces only?

Ms Faku congratulated SAPO on the piloting of the customs declarations system, and expressed excitement over Postbank being in the process of registration.

She questioned the 4% reduction in permanent workers, but commented that there had been an increase in temporary workers. This was often more expensive. She asked for clarity.

The revenue increase of 20% had been accompanied by an expense increase. The issue of security services had been mentioned. Regional management structures had been threatening to introduce responses to cash system issues. Measures were needed to reduce current expenses

The qualified audit outcome needed to be improved – it showed careless mistakes.

Ms Majozi also asked about the 4% reduction in human resource employees and their replacement with temporary workers. What was different between the SAPO and SASSA project? She wanted to know if SAPO was getting full support, and what problems had caused the qualified audit opinion.
What consequence management was being implemented? Regarding the partnerships with spaza shops for SASSA grants, what other risks had been considered?

Mr Gumbu said the Committee had previously been presented with a report from the former CEO of SAPO. It was a clear report, with a programme of what was to be done. The presentation now seemed to be different from the report that had previously been received. There was no continuity.

Mr Mackenzie had seen SAPO move from a completely broken organisation, with Dr Simo Lushaba to the strikes, to where it was now. People had come and gone, but when would the post office be profitable? Billions were thrown at it every year. It was impossible to say it was not being provided with money.

He asked where the board was. Most of the information came through the media -- the Committee was not presented information through official channels. Who was the chairperson of the board? How many directors were left? The bargaining unit did not know who to bargain with. The organisation was in the middle of a crisis.

He was sorry to see Mr Mark Barnes leave on principle – he had been driving in the correct direction. The passion he brought to the job had been good. Six years later, the post office still operated at a loss of over R1 billion. When would it be profitable? There had been the grants transition and the Postbank profitability angle, but it continued to be a drain on the fiscus.

Had 100% of the performance management contracts been signed by all senior management?

Regarding the way forward on page 11 of the presentation, there had been talk of rolling out a network structure by the seventh month of 2019 -- had they been involved with SITA on this?

He understood that one of the reasons for the CEO’s departure had been the potential taking of Postbank out of the post office group. Postbank had added to the post office’s solvency. With separation, would the post office be bankrupt? How did the acting CEO feel about the Postbank/post office split?

Was the conveying and automation system up and running? This was a way to reduce costs, in line with the fourth industrial revolution. At the Johannesburg international mail centre he had witnessed people working manually five year ago. He could see that would be a possible big revenue growth factor. There had been a definite improvement in capital expenditure.

Was parcel revenue a big growth factor? What was the R29 charge? Was it on all parcels, or just some of them?

The Chairperson suggested the Committee receive answers by Friday, to be circulated with follow up questions to be included in part of the engagement. The Committee needed proper answers.

Mr Mackenzie said that when he had looked at the programme allocated for the BRRR, he had been very concerned that the Committee was rushing the process. He realised it was an election year so there were constraints. To rush the process unnecessarily would be a big mistake, and he wanted to hear the answers.

Mr Gumbu said the principle that was being raised by Mr Mackenzie was correct -- there were other presentations to be dealt with. Other entities were waiting. Key issues needed to be presented, but if the Committee felt the post office was needed to return, they could be called back. He thought it best to clarify this around the Chairperson’s proposal regarding a focus on critical issues.

The Chairperson said the point was about the details of the questions and time constraints, otherwise they would impact on other presentations.

SAPO’s response

Ms Kwele referred to rural development, and said post offices provided the only government infrastructure that was visible across the length and breadth of the country. It was therefore important for refurbishment and visibility to be undertaken, and to prioritise branch infrastructure. They were encouraging the Department of Home Affairs to be involved in offering government services in that regard. The branch profitability matrix showed that many of the most profitable branches were in rural areas. It was important for local leadership to be worked on.

The increasing expenditure issue had arisen because of the cash in transit heists and security at cash pay points.

The reduction of employment was related to one of the aforementioned key elements of organisational sustainability, which was the high wage bill. It needed to be reduced by 40-50%. The temporary employment was for the cash payment clerks to make payments in different areas. 1 000 of these had been absorbed following a recruitment process afterwards. The post offices needed physical infrastructure upgrades, as well as ensuring that the requisite skills and warm bodies were able to service the people as part of customer centricity.

Revenue was increasing, but so was expenditure. Innovative ideas to mitigate this were forming around the cashless infrastructure that was being spoken about. This also related to the spaza shops and local economic development. The post office wanted to roll out point of sale devices so people did not rely on physical cash so as to power local economic development, by encouraging money to revolve within the local regions.

A financial misconduct committee and a management action planning committee had been formed to deal with issues related to financial misconduct, recovery costs and discipline, as well as coordination.

Regarding automation, they were piloting e-commerce Africa as part of operational arrangements. There was a clear matrix, and the operational readiness for e-commerce spoke to the core turnaround strategy.

Customers had been frustrated by differing international and domestic tracking numbers for post, and this was being standardised. They were dealing with one tracking system. This was integrating Global Positioning System (GPS) and Short Message Service (SMS) tracking and notifications. Post.net had been integrated in 192 countries. The implications meant a balancing act between technology and warm bodies.

Regarding the ecoupling and integration of the post office and Postbank, international best practice showed that integration was essential. All global postal operators used it to have logistics, financial services, and e-commerce integration. Superficial profits would soon be uncovered by decoupling costs.

Mr Dlamuka said that decoupling would mean that Postbank was unable to provide rural services at affordable costs without the Post Office subsidies. The ongoing viability of the two entities was linked to integration. Profitability for the group was expected by 2021.

Automation in international postal centres would overcome the inefficiencies of manual labour processes.

Ms Kwele said a report would be shared on voluntary severance packages (VSPs). The current workforce was old and would be workable towards reducing the wage bill.


Independent Communications Authority of South Africa report

Dr Keabetswe Modimoeng, Acting Chairperson: Independent Communications Authority of South Africa (ICASA), said the organisation was mandated to regulate electronic communications, broadcasting and postal sectors in the public interest, and t ensure affordable services of high quality for citizens. Its vision was an inclusive digital society, and its mission was to ensure that all South Africans had access to a wide range of high-quality communication services at affordable prices.
Stakeholders were central to what ICASA did, and it welcomed their feedback in order to sustain consistent and effective partnerships.

ICASA’s strategic orientated outcome goals for the period of 2016-2020 were investment in and access to broadband infrastructure, through investing in broadband infrastructure and increasing access to broadband spectrum from 566 megahertz to 958 megahertz by 2020; promotion of competition, by reducing costs of electronic communication, networks, and postal and broadcasting services by 2020; achieving a common national identity and social cohesion, by increasing television broadcasting platforms from three to seven; being an independent and credible regulator, by adhering to regulatory principles of transparency, accountability, independence, integrity and predictability in the public interest; and improving stakeholder and consumer experience, by monitoring the quality of services provided and improving stakeholder engagement by 2020.

ICASA had come from a dark space, and this had informed the strategic goals. Its strategic alignment was to government priority outcomes four, six, 12 and 14.

Outcome four -- inclusive economic growth -- involved licensing and regulation that facilitated investment in the ICT sector, contributing to job creation, and promoting and advancing the participation of previously disadvantaged individuals in the ICT sector.

Outcome six -- economic infrastructure -- involved the promotion and facilitation of deploying ICT infrastructure, undertaking market reviews, competition assessments, and prescribing pro-competitive remedies to encourage efficient infrastructure investment, and promoting competition in the ICT sector.

Outcome 12 -- empowered and inclusive citizenship -- was through the implementation of transparent and fair processes by adherence to administrative due process, promotion and enforcement of consumer protection, and building capacity and developing employees.

Outcome 14 -- social cohesion and a common national identity -- was aligned through the promotion of diversity and plurality of views through licensing of community, commercial and public broadcasting services, as well as broadcast content regulation, and the implementation of regulation that contributed to democracy and nation building.

Performance Highlights

Mr Willington Ngwepe, Acting CEO: ICASA, said that KPIs for the financial year were access to broadband spectrum, promotion of competition, social cohesion and national identity, institutional credibility, and stakeholder and consumer experience.

Access to broadband spectrum had seen a revision of frequency migration plans, the revision of the International Mobile Telecommunications (IMT) roadmap, the production of radio frequency assignment plans, and the publishing of notices on the second phase of licensing for the IMT spectrum.

Promotion of competition had been highlighted by the licensing process for free to air television broadcasting services, which had been completed, the publication of a findings document on the inquiry into priority markets for ICASA, the implementation of the amended regulations on end-user and subscriber service charter regulations, and the publication of the biannual tariff analysis reports.

Social cohesion and national identity highlights had seen the regulations on the broadcasting of the 2019 national elections, the revised regulatory framework of community broadcasting services, a position paper on equity ownership by historically disadvantaged people in the ICT sector, and the execution of all National Joint Operations and Intelligence Structure (NATJoints) requests.

Institutional credibility highlights were the opening of additional offices in the Northern Cape, the roll out of additional service to regional offices, the improvement of the compliance maturity level from one to two, and the collection in excess of R1.5 billion for the National Revenue Fund.

Stakeholder and consumer experience highlights included 94% of consumer complaints being resolved within the set turnaround times, the monitoring of more than 100 electronic communications service (ECS)/electronic communications network services (ECNS) and 60 broadcasting service licences, and more than 2 000 high site investigations and type approval inspections being conducted respectively.

Key Achievements for Programme 1

Key achievements for administration included an ICASA satisfaction rating increase from 30% to 40%, the number of regional offices increasing from eight to nine provinces, the payment of 90% of suppliers within 30 days, the reduction of staff vacancies from 7% to 2.5%, the completion of 28 internal audits, the maintenance of the risk maturity level two, the successful assessment for adjudication of 100% of the cases referred by the Complaints and Compliance Committee (CCC).

Key Achievements for Programme 2

Key achievements for licensing included the publication of a notice for phase two of the IMT licensing process, the finalisation of the licensing process for free to air television broadcasting services, the finalisation of the licensing process for 45% of the MUX4 for subscription television broadcasting, and the publication of a position paper on equity ownership by historically disadvantaged people in the ICT sector had been finalised.

Key Achievements for Programme 3

Key achievements for policy research and analysis included the completion of a study on the SAPO annual tariff increase, the completion of the review of the 2014 call termination regulations, the development of regulations on community broadcasting, the review and amendment of regulations on broadcasting of national elections, the completion of a study on the role of the Authority on Cybersecurity, and the completion of one regulatory impact assessment study.

Key Achievements for Programme 4

Key achievements for engineering and technology included the quality of service monitoring being increased from six to eight provinces, the frequency migration plan being revised, the frequency assignment plans being produced, the report on South Africa’s readiness for 5G connectivity being completed, and the findings document on the use of digital sound broadcasting being completed.

Key Achievements for Programme 5

Key achievements for regions had been the 99% resolution of all frequency interferences cases, the conducting of 226 broadcasting compliance inspections compared to 191 in 2018, the completion of 2 029 high site investigations compared to 1 250 in 2018, the execution of nine NATJoints instructions compared to four in 2018, the processing of 96% of pre-assigned frequency applications within 15 working days, and the processing of 100% of ECS/ECNS and unreserved postal licence applications, compared to 60% in 2018.

Key Achievements for Programme 6

Key achievements for compliance and consumer affairs were the receipt of one consumer advisory panel report after the panel had been established in 2018, the resolution of 94% of consumer complaints in 2019 compared to 85% in 2018, the monitoring of 60 broadcasting licencees compared to 50 in 2018, the resolution of 100% of inter-licencee disputes compared to 60% in 2018, and the review of 93% of interconnection and facilities leasing agreements, compared to 80% in 2018.

Non-Achievement

Areas of non-achievement included the development of a findings document on subscription broadcasting services, the market review in terms of section 67(4) of the Electronic Communications Act (ECA), the review of regulations on broadcasting of national sporting events, the processing of applications for renewal, amendment and change of control of individual licenses, the implementation of a training a development strategy, and the payment of suppliers within 30 days.

Contributing factors had been the extensions granted on consultation processes, the verification of delivery of services / goods prior to payment, and the modest operational disruption due to relocation.

Financial Performance

Mr Tebogo Matabane, CFO: ICASA, said ICASA’s bank balance of R45 million recorded at the end of March 2019 would not be sufficient to fund the total amount of R94 million required to meet all expenses accrued by the end of the financial year. This meant that ICASA would finance a budget deficit of R32 million from the 2019/20 budget allocation.

In order to mitigate the adverse impact of a budget deficit, management had implemented a reduction in the operating budget expenditure for 2019/20 in order to allow sufficient budget for both rolled over and new projects; the implementation of a moratorium on recruitment for vacant positions for the first nine months of the 2019/20 financial year to manage the employee cost budget; and the proposal of a budget reprioritisation to assist ICASA to achieve its targets as per the current APP for 2019/20 within the limitations of the MTEF allocation.

The annual financial statements for 2018/19 had been prepared on the basis that ICASA would continue to operate in the foreseeable future based on it being wholly dependent on the grant allocation from Treasury through the Department of Communications in order to continue to operate. There were currently no indications that the approved grant allocation of R425 million for 2019/20 would be discontinued. This presumed that funds would be available to finance future operations and the realisation of assets and settlement of liabilities.

The actual variance in revenue amounts was due to income from investments declining during the financial year. ICASA did not have the amount of funds in reserve at its disposal following a request from Treasury to surrender surplus funds. The total grant allocation for the financial year had been received from the Department of Communications. An amount of R1.5 million had been realised from deferred grants for the financial year, and insurance claim settlements had also been received during the financial year.

The actual variance in expenditure amounts was due to the 2018/19 financial year having seen ICASA freeze most vacant positions due to budget constraints, and not all assets that had been envisaged to be procured had been procured, leading to a decrease in depreciation and amortisation due to funding constraints. This had negatively impacted on the procurement of critical ICT infrastructure required for the new building. There had also been a significant increase in expenditure for the demolition of the previous ICASA head office in Sandton, while savings in travel management costs were due to significant cost containment measures. Some consumer activation programmes had been done jointly with other divisions in order to reduce the costs and to realise savings in the general expenditure budget.

AGSA’a audit findings had indicated that effective and appropriate steps had not been taken to prevent irregular expenditure. Disciplinary steps had not been taken against officials who had incurred or permitted irregular expenditure and fruitless and wasteful expenditure, as was required by the PFMA. Some of the losses resulting from fruitless and wasteful expenditure were not recovered from the liable people, as was required by Treasury regulations. Some goods and services with transaction values below R500 000 were procured without obtaining the required price quotations, while other contracts had been extended or modified without the approval of a properly delegated official. Some contracts and quotations had been awarded to bidders that did not score the highest points in the evaluation process. as required by section 2(1)(f) of the Preferential Procurement Policy Framework Act and the Preferential Procurement Regulations.

The irregular expenditure of R21 million identified during 2019 had been investigated, and disciplinary steps had been taken against relevant officials where it was proven that they had led the irregular expenditure incurred. The irregular expenditure of R66 million identified in previous year had also been investigated in 2019, and a detailed report had been prepared and submitted to Treasury for condonation. Irregular expenditure of R2 million relating to previous years had been identified by the Public Protector, and had been included in the current year’s disclosure. The fruitless and wasteful expenditure identified during 2019 had also been investigated and disciplinary steps had been taken against relevant officials where it had been proven that the officials had led the fruitless and wasteful expenditure that had been incurred.

Training on supply chain management for the public service had been provided to executives, council members and managers involved in supply chain processes. A new supply chain management policy had been approved and implemented during the current financial year. Current controls were also reviewed and compliance had been monitored on a monthly and quarterly basis.

Mr Ngwepe closed the presentation by saying ICASA was seeking the licensing of spectrum in the third quarter.

Film and Publications Board report

Ms Thoko Mpumlwana, Chairperson: Film and Publications Board (FPB), introduced the delegation, and said the Board was undertaking a harmonisation programme with the continent and the Southern African Development Community (SADC) in particular.

Dr Maria Motebang, Acting CEO: FPB, said it was the entity’s first time presenting with a clean audit. The FPB regulated the content of films, games and certain publication through classification, by maintaining relevance to the values and norms of South African society through scientific research, balancing the right to freedom of expression with an obligation to protect children from exposure to potentially disturbing, harmful and inappropriate materials, and protecting children from sexual exploitation in media content in order to educate the broader South African society to make informed choices.

Over the next five years, the FPB would focus on technology-driven content regulation, public education, create a technologically neutral legislative environment, with international and local partnerships, research and compliance monitoring, resource mobilisation and strategic institutional alignment.

In spite of operational challenges, the FPB had achieved 79% of its annual performance targets. It remained focused on its mandate, the dictates of the constitution and the NDP, underpinned by the principles of ubuntu and batho pele.

Performance Overview

There was a 3.8% increase in the number of renewals that had been achieved. The number of new distributor applications had been reduced year on year as a result of the number of players who wished to trade in the cinema and DVD market.

Film festivals and the FPB contribution to the industry had seen a 50% increase in the number of film festivals that had been compiled. This amounted to more than 427 individual titles being screened during 12 film festivals, with a running time of 17 757 minutes.

Industry compliance monitoring had seen 1 896 online inspections conducted, 9 946 inspections conducted on physical distributors, 533 publications inspected, 101 notices and warnings issued, 668 social network platform inspections conducted, 736 quality assurance inspections on online distributors conducted, and 1 267 internet service providers inspected.

On-line child protection services had seen 101 cases referred through the FPB hotline, 18 cases referred to other International Association of Internet Hotlines (INHOPE) affiliated hotlines, 16 cases where the FPB had assisted law enforcement, and 23 cases had been referred to the FPB by law enforcement.

Client queries and client satisfaction had seen of 2 113 queries received, with an 88% regulatory compliance, an 8% regulatory non-compliance, and 4% general enquiries / internal enquiries.

Reviewed classification guidelines had been undertaken, including the removal of the ten age restriction category of distribution, as well as the removal of blasphemy as a standalone classifiable element, as it was already included in the prejudice category.

Public education had seen multi-unit activations in communities and schools conducted in the Western Cape (Citrusdal on Freedom Day), the Eastern Cape (Quru on Women’s Day), and the Free State (Bloemfontein on Safer Internet Day, and Botshabelo on Human Rights Day). The beneficiaries of FPB outreach activities included 5 876 learners, 970 educators, and 1 296 parents.

Skills development training had seen close to R1.4 million spent on training and capacitating staff in 2018/19.

Audit and Risk Report

2018/19 was the FPB’s first clean audit. It was unqualified, with no findings, whereas 2018/17 and 2017/16 had been unqualified with findings. Unusually high sick leave was an unforeseen risk area associated with this, due to the hard work that employees had put in to achieve the clean audit outcome.

The FPB was encouraged to focus on processes to ensure that information supporting the quarterly reports and annual performance reports was accurate and that the annual performance report was consistent with the annual performance plan. The FPB was further encouraged to ensure record keeping controls were strengthened, as that would enable easy retrieval of information that would be readily available when requested for audit.

The FPB would focus on an action plan to address findings on the financial statements in order to maintain a clean audit outcome in the next financial year.

Financial Performance

Mr Vuledzani Matdiza, Acting CFO: FPB, said that government had been cutting budgets year on year. Cost saving measures had been undertaken in consulting fees due to a reversal of a litigation provision in 2019 relating to the Inxeba film, recruitment fees being reduced because the recruitment process was being done in-house and not through agencies, and local travel costs had been reduced as a result of cost containment by management.

Cost increases could be seen in the FPB Council members’ payments for attendance of meetings and travel claims, the increasing costs of advertising and branding in the FPB’s public relations campaign, and ICT expenses related to Online Content Regulation (OCR) maintenance and licence fees.

Irregular expenditure had declined in 2018/19 compared to the previous financial year due to the reversal of the amount related to the contract for after-hours call routing. The FPB had negotiated a lesser settlement amount than what was initially reported.

The additions to irregular expenditure were due to website maintenance of R114 912 that had arisen from an error between the proposals, as they were for 12 months yet the actual signed service level agreement had been for 24 months, and expenditure incurred without approval relating to training, catering, travel and ICT services recruitment, amounting to R226 941.

Fruitless and wasteful expenditure increases were due to the payment of interest and penalties to the South African Revenue Service (SARS) for late submission of the EMP201, amounting to R93 780, and the payment of acting allowances for non-vacant posts to the value of R469 988. An amount recovered was related to missed flight expenditures incurred in 2018.

Dr Motebang said that all the audit findings raised by the AGSA in 2017/18 had been addressed. The FPB was in the process of investigating new irregular and fruitless expenditure and, where necessarily, implementing necessary disciplinary measures. Internal controls would be tightened to avoid these expenses.

South African Broadcasting Corporation report

Mr Bongumusa Makhathini, Chairperson: South African Broadcasting Commission (SABC), said it had been a difficult financial year for the SABC. However, key indicators were showing improvement, and net losses and irregular expenditure were going down

The SABC was one of the key institutional pillars of South Africa’s democracy, delivering essential content to millions of South Africans on multiple platforms and in 14 different languages on a daily basis. It remained one of South Africa’s biggest national treasures.

The SABC was going through a process of change and recovery towards ultimate financial sustainability. The broadcasting landscape was evolving rapidly. There were numerous new technologies in the market. Opportunities to adapt were available and there were constant changes in audience behaviour and the manner in which content was consumed. The SABC had to participate effectively in a complex competitive environment. There was a need to take on the great challenges faced by public service broadcasting across the globe. It was essential that the SABC transformed itself to meet its vision of becoming the leading credible voice and face of the nation and the continent.

The SABC’s dire financial situation had worsened in 2018/19, and it had ended March 2019 with a cash balance of R72 million. Its cash flow was depleted and consequently the SABC could not honour payments to service providers, adhere to its committed contract, nor commission local content productions. It had ended the financial year with a loss of R482 million.

Losses had decreased over the past number of years from R1 billion in 2016/17, to R744 million in 2017/18, and R482 million in 2018/19 – a 35% improvement. The SABC’s financial position remained dire, however. Revenue had declined by 3% to R6.4 billion, further impacting SABC’s liquidity constraints. Total expenses had declined by 6% (R475 million). The under-spending was mainly due to the liquidity constraints that had resulted in the curtailment of investment in content, infrastructure, repairs, and maintenance and marketing.

The SABC had actively pursued cost containment measures and was encouraged by the commitment to, and achievement of, the various identified initiatives.

The main contributors to the losses were reduced coverage of sporting events, and the decline in revenue and interest incurred as a result of the liquidity constraints. The liquidity constraints had resulted in an increase in total liabilities, of which the main contributing factor had been the increase in the trade and other payables amounting to R1.6 billion at the end of March 2019, with creditor payments nearing 143 days.

During the year under review, the SABC had placed extraordinary effort into the improvement of internal controls and ensuring that governance was restored. There had been an encouraging decline in irregular expenditure by 41% (R336 million). Though fruitless and wasteful expenditure had increased, the majority (over 60%) of the amount reported for the 2018/19 financial year was related to transactions that had incurred in prior years. Of the remaining R83 million, R81 million had been incurred as a result of interest and penalties due to late payments associated with liquidity constraints.

Of significant importance was the SABC’s audit opinion that had improved from a disclaimer opinion in 2017/18, to a qualified opinion in 2018/19/

During the year under review, the SABC had performed very well in contributing to nation building and social cohesion by acquiring and scheduling content that reflected the South African story on radio and television. Local content quotas had been achieved on all three television channels. 74% of local music was played on the SABC’s public service radio stations. The SABC’s television programmes still demanded the highest audience share during prime time, and radio stations commanded an over 70% share.

Digital media platforms were gaining traction, and the SABC had developed an app and elections website in time for the national elections. Social media platforms were attracting millions of followers.
SABC1 and SABC3 had started broadcasting in high definition (HD) on DSTV and DTT in June 2018.

The SABC had initiated two commissions of inquiry, one into sexual harassment and the other into the editorial independence of the SABC. Recommendations were being implemented where required.
Various investigations by the Special Investigating Unit (SIU) had also been conducted to root out wrongdoing within the SABC. This had led to a number of disciplinary hearings and the subsequent dismissal of employees who were found guilty of misconduct.

The SABC had been able to clear over 80% of the external audit findings prior to the year end.

Mr Madoda Mxakwe, CEO: SABC, said that the SABC was tasked with informing, educating and entertaining South Africans. There had been a 35% fiscal improvement, but revenue was declining. The R400 million lost was attributed to investment in sports rights areas. The key priority was to improve internal controls.

Ms Sylvia Tladi, Acting COO: SABC, said the television platforms had three terrestrial and two satellite channels, averaging 27.9 million monthly viewers. All had exceeded targets. Radio platforms consisted of 18 stations and Channel Africa, averaging 28.9 million listeners a week. Digital media consisted of internet, podcasts and streaming, online video, mobile, and social media. The SABC would begin monetising and commercialising this content.

Financial Performance

Ms Yolande van Biljon: CFO: SABC, said that the SABC’s loss for the year was R482 million – a 35% improvement. Revenue had declined by R166 million (3%) due to a drop in advertising revenue from TV. Government grants had increased by R27 million, while trade exchange growth had increased by R43 million. Total assets amounted to R5.3 billion – an increase of R1.1 billion from 2018.

Total expenses of R7 billion had declined by R475 million. Expenditure reduction was due to liquidity challenges and adecline in revenue. Broadcasting and employee costs had declined. Other operational costs had grown by R34 million.

Mr Mxakwe said the SABC was seeking to stabilise and instil sound business principles. It would need 18 to 24 months to break even, but it had a solid strategic road map.

Broadband Infraco report

Mr Sydney Mabalayo, Board Member, Broadband Infraco (BBI), introduced the delegation and said that BBI had a 95% achievement of targets, but had not met the revenue target.

Mr Andrew Matseke, CEO: BBI, said that revenue targets had not been achieved. Despite the historical challenges of BBI, the past two financial years had seen a positive operating profit of the company achieved, and the generation of net cash from operations. BBI had seen underachievement of revenue. It required access to capital to invest in infrastructure.

18 of the 19 targets had been met, with a 95% achievement. Financial sustainability had not been achieved. Significant achievements included:

quarterly performance reports had been submitted on time,
the current ratio achieved was at 117% in comparison to the 55% target,
SMME invoices had been paid within 15 days in comparison to the target of 30 days,
debtors had collected within 54 days, as opposed to the target of 60 days,
313 SA Connect sites had been installed and 258 tested, versus a target of 166,
0.15% of network performance rebates as a percentage of revenue were paid versus the target of 0.3%,
core network faults had been restored within 6 hours on average versus the target of 7.5 hours,
three SMMEs had been allocated original equipment manufacturer (OEM) installation work against a target of three,
the discretionary spend on BBBEE had totalled 104% versus a target of 70%,
49% of the total discretionary spend was with black-owned entities, versus the target of 40%,
44% of the spend on these had been with black women-owned entities, versus the target of 10%,
8% of the spend on these was with youth-owned entities versus the target of 5%,
2% spend on these was with people with disabilities-owned entities, versus the targeted 1%,
one school selected in the North West province had had telematics on its distance platform connected, as well as computers provided and educators trained,
1.80% of the total salary bill had been spent on training, versus the targeted 1%,
six new technical interns had been appointed versus the target of six, and
progress had been made on resolving external audit findings assessments and reports had been submitted.

Areas of underachievement included revenue increasing by 8.4% versus the targeted 40%. Non-achievement was due to the cancellation of links, and long sales-to-billing cycles. It was expected that revenue would increase in 2019/20 due to major contracts being provisioned.

Financial performance

Mr Ian van Niekerk, CFO: BBI, said the company had increased revenue by 8% year on year. The cost of sales had been reduced by 3% year on year. Operational expenses had increased by 5% year on year. Operational losses had decreased by R99 million to R14 million. Revenue consolidation was taking place, with 16 new customers and several good new sales. BBI needed to free up equipment to upgrade the network. An increase in assets was due to the conversion of shareholder loans into equity.

Mr Matseke said BBI received an unqualified audit with findings due to irregular expenditure. This was due to issues with the infrastructure at Transnet and Eskom. BBI was seeking alignment with the PFMA, and had sought the assistance of Treasury to train a supply management team.

The total number of installed sites was 573, and BBI had successfully tested 454 sites. The target date to complete layer two connectivity of 713 sites, was the end of March 2020.

BBI was seeking allocation of responsibility for providing connectivity. SITA provided internet access as a sister company. BBI had been urged to provide temporary internet access while SITA caught up at certain sites. BBI looked forward to an allocation of a bigger share of 6 000+ sites and were geared up for the implementation of SA Connect.


The future outlook would focus on the implementation of the remaining SA Connect sites for phase one continuing, participation in the National Broadband Network Company, review of corporate strategy, and network expansion and exploring the merger between BBI and Sentech. This was tied to recapitalisation of the shareholder loan convention and the pursuit of profitability before the merger. Mr Mackenzie had asked the Fifth Parliamentary Committee about whether it was a sly way for government to subsidise BBI, hence the drive to achieve a profitable status before the merger.

Universal Service and Access Agency of South Africa/ Universal Service and Access Fund report

Advocate William Huma, Chairperson: Universal Service and Access Agency of South Africa (USAASA) said it would be a joint presentation regarding the Universal Service and Access Fund (USAF).

USAASA faced governance challenges. The interim board had members whose terms were set to expire, leaving USAASA with no executive management team as a result of consequence management within the company. Moreover, the supply chain management governance committees were not functioning effectively.

USAASA’s mission was to facilitate the rollout of adequate ICT infrastructure in order to enable universal access to under-serviced areas in South Africa, to facilitate ICT services to under-serviced areas, contributing to the reduction of poverty and unemployment in South Africa, and to promote and pursue the goal of universal access and services, contributing to the sharing and preservation of information in order to build South Africa’s sustainable knowledge. Its vision was universal access to ICT and service for all.

For the first time, no material findings had been received on the audit of predetermined objectives.
USAASA had achieved an unqualified audit for the past four years. There had been a reduction in the number of findings raised by the AG, compared to the previous financial year.

There had been adoption and embedding of effective governance principles -- the meaningful recognition of the contribution by assurance providers that had led to the commissioning of two forensic audits on broadband and the SAP Economic Recovery Programme (ERP) system. There had been collaboration with ICASA on the audit of broadband and connectivity.

Performance

There had been a 50% achievement against the planned targets in the 2018/19 annual performance plan. There had been challenges with the SAP ERP system, including support and maintenance.
Leadership instability had affected business continuity. Procurement processes and contract management had been unresponsive to business requirements. Strategic challenges were due to the changing mandate, with USAASA transitioning into a fund management entity. Operational challenges were due to a lack of competencies and skills in project management and procurement.

Solutions to the poor performance of USAF had seen the application of consequence management (shown by vacancies). Those who had occasioned fruitless and irregular expenditure had seen a report finalised the following Thursday, to conclude consequence management.

Dr Mashilo Boloka, Acting CEO, said that risk management structures and processes were being implemented.

Mr Mahomed Chowan, outgoing CFO, USAASA, said that the R23 million deficit was mostly due to legal fees and labour consultants. Because inventory was managed by SAPO, there were challenges in getting information from SAPO. Stock had been issued to installers but not installed at beneficiary homes. Irregular expenditure had been flagged by the SIU report commissioned in 2014 for 2012/13. The report had been sent to Treasury, and the AG had concurred with the internal legal advice.

.za Domain Name Authority report

Advocate Josephine Ralefatane, Chairperson: .za Domain Name Authority (ZADNA), introduced the delegation.

Mr Peter Madavhu, acting CEO: ZADNA, said the entity was in a positive cash position. It had achieved 98% of its targets for 2018/19. Those that had not been achieved had been deferred to 2019/20. Its priorities in the policy and regulation work arena focused on the review of the ‘.za general policy’ and the draft Second Level Registration (SLR) plicy. The review was focussed on issues relating to direct registration.

ZADNA had published alternative dispute resolution decisions within stipulated timelines, resolving 33 during the year.


Advocate Ralefatane said ZADNA’s financials had to be restated in order to take into consideration the effect of the ZA Central Registry (ZACR) settlement agreement which had been awarded, where ZADNA would be ignoring the legal fees costs, settling to be rewarded with only the monthly repayments.

National Electronic Media Institute of SA report

Mr Treveen Rabindhanath, Acting CEO: National Electronic Media Institute of South Africa (NEMISA), said that as acting CEO, he would hand over much of the presenting to the CFO.

Mr Thilivhali Ramawa, CFO: NEMISA, said NEMISA’s vision was for South Africa to be an e-skilled society by 2030. Its mission was to provide a national integrated e-skills development approach for sustainable socio-economic development in South Africa and to radically advance the human capacity development in digital skills.

NEMISA had performed well throughout all quarters of 2018/19, achieving an unqualified audit. It had resolved the strategic planning finding in the audit report. Strategic and annual performance plans had been prepared in line with an envisaged mandate. NEMISA was represented at the International Telecommunication Union (ITU) and the Brazil-Russia-Incia-China-SA (BRICS) meeting in Durban.
There had been an in-house training unit roll out of full SA Qaulifications Authority (SAQA) qualifications and skills programmes.

Challenges included budget constraints and the implications of the term of the current board ending on 30 September 2019.

Financial Performance

The budget versus actual variance was related to income generated by the sale of motor vehicles that had not been included in the budget, interest earned from the rolled-over funds that had not been included in the budget, and under-spending due to unfilled vacancies. An overspending deficit was due to the previous financial year’s commitments that had been realised as expenditure in 2019.

The previous year’s irregular expenditure had been identified in the current year. This amounted to R11.2 million for a current rental agreement and insurance contract that had been concluded in previous years. An internal audit was being conducted on internal investigations of irregular expenditure. Consequence management processes would be initiated upon its conclusion.

Discussion

Mr Madisha said he was satisfied and the entities had done very well, except for one where he would like to raise two questions.

Mr Mackenzie said the people of South Africa paid the Committee a lot of money to conduct their work -- over R1 million a year for houses, food and cars etc. To have a BRRR process where people flew in to present and then left and responded to written questions at a later stage did not make sense. Why spend all the money to get the delegations to the Committee to present their annual reports? He wanted to do his job properly and ask questions based on the presentations.

Ms Kubheka said Mr Mackenzie would have a chance to ask questions. Most of the presentations had made it clear that the entities were works in progress.

Ms Majozi said they needed to be fair to the Committee. The structure had been that the Committee would take all seven presentations, and then ask questions. This was the agreed upon procedure on what needed to happen. The trend had been followed before, and Members should not be “wishy-washy” about it.


Mr Mackenzie said he wanted to make a progressive suggestion; he did not want to interrogate all the entities, he had questions for the SABC and NEMISA and the rest could leave. Members could make a round robin suggestion of which entities they had questions for.

The Chairperson said other Members may have other priorities. To avoid disruption they would go through all the entities. Immediately after ICASA they would get the SABC.

ICASA

Ms Faku said in their previous meeting she had been very harsh on ICASA, but she was filled with excitement after the day’s presentation. Liabilities had decreased, revenue had increased. She was happy. She hoped the next financial year would see a clean audit.

Ms Majozi asked whether the Committee could be sure that in November the licensing spectrum would be released. The Committee had not received the areas where ICASA needed its help. Financial problems had been highlighted. She suggested dealing with the issue of retrieving money from irregular expenditure as had been laid out, and see how much could be retrieved.

The Chairperson said the ICASA response should speak about skills. The presentation had indicated there were nine vacancies. In the report; there were red flags on key skills. ICASA needed to take the Committee into its confidence about what was being done on those issues. The engineering skills were important in relation to the spectrum release.

ICASA’s response

Dr Modimoeng said that by the first week of November 2019, ICASA would have the spectrum release information memorandum. This was not prescribed in law, however, due to the contentious nature of the process. ICASA was opening an avenue for industry, members of the public and other interested stakeholders to give inputs. This would be followed by an invitation to apply, which was in law.

Mr Ngwepe dealt with skills-related questions. As at the end of the financial year, there were nine vacancies. Critical vacancies in this pool were the COO, and the general manager (GM) of engineering and technology. Highly experienced people were looking after these roles until the next financial year, when hopefully the places would be filled.

Mr Tebogo Matabane, CFO, responded on the recovery of irregular expenditure and the request for additional funding. ICASA did need additional funds to open the spectrum. Treasury was attending to this. The main issue with the recovery of irregular expenditure had been that cost containment measures had not been aligned to expenditure regarding travel costs. This made the money difficult to recover. They were focusing on the implementation aspects of the AG’s report. Where possible, funds had been recovered, but this was insufficient.

The Chairperson said the Committee would need to trace ICASA’s actions going forward, and thanked them for their attendance.

SABC

Ms Faku said it was important to give feedback. She had been impressed with the presentation, particularly the reduction of expenses. There had been an emphasis on increasing internal controls on irregular expenditure. Regarding the qualified audit, in the next financial year the Committee wanted a clean audit.

Revenue increases in online and radio advertising were potential promising avenues of strength. The declining revenue, as explained by the group CEO, was understood. However, in light of the bailout, the Committee wanted to see an increase in the revenue. Independent contractors were creating high costs for the SABC -- how was this going to be rectified?

Mr Mackenzie asked about the 3% decline in revenue attributed to TV advertising. Given the decline in viewership, and the lack of content attributed to that, what steps were being taken to reverse it? How was the picture looking after two quarters at the SABC? What was Radio 2000 doing differently in a “depressed media market” to realise a 142% increase in advertising sales? He urged them to learn from that.

The best way to run a business was to pay creditors within 143 days and collect debt within 54 days -- the numbers needed to be turned around. How much revenue was being raised from digital platforms? How was the SABC leveraging online platforms to generate revenue? He had never understood how Facebook, for example, had made money until he had it explained that they were delivering specialised targeted advertising.

In clearing 81% of audit findings before the audit was finalised, how much assistance had come from the AG? Would the SABC say there was sufficient capacity and capability in its financial management skills, specifically in middle level of the finance Department? He also asked for clarification of licence fee figures.

Ms Majozi said the Committee agreed that the entities were works in progress. The SABC was saddled with a 40% wage bill, and needed to reduce that. One way was offering Voluntary Severance Package (VSPs) to employees willing to leave in order to meet Treasury threshold.

Worryingly, there was a 3% decline in revenues. Maybe there would be an increase seen in the next financial year. Maybe it was because the SABC was still trying to figure out what it did. She was just trying to get a proper explanation of what had happened. She appreciated that there was a plan of action on how to reduce the AG’s findings, and the explanations that had been provided. She was happy with how irregular expenditure was being dealt with, and that it was decreasing.

Mr Madisha commended the SABC for having done their best for the first time over a period of three years. What was being done about the people who had stolen from the SABC? Everyone knew of one or more people who had taken money from the SABC -- more than R39 million in kickbacks. Was anything being done about that? Some former trade unionists on the Committee were worried about the SABC employees. There were about 4 000 of them -- were they being kicked out, or were they being kept there?

Ms Faku asked about the AG’s findings regarding the asset register. This was a target that had not been met. A process plan needed to be in place about achieving this at the SABC.

Ms Kubheka said the SABC had told the Committee that the turnaround strategy was some sort of secret that should not be disturbed. On the issue of sports rights, was the SABC fine? Were there any disturbances? Regarding Sentech tariffs, was the SABC fine? She was happy to say that the SABC was seeing light at the end of the tunnel. It had gone straight and faced things other entities would have shied away from. The SIU process meant the Committee had an interest in the cases referred to the National Prosecuting Authority (NPA) to know how far the cases were. Was there anything positive on the supply chain side at the SABC?

SABC’s response

Mr Mxawe said there was a decline of 3%, equating to R140 million, due to the tough economic operating environment. It had shown throughout the industry. The biggest contributing factor had been a decline in market share due to a lack of investment in content that the SABC had been unable to do. Prime time TV market share was declining, but radio had a 72% market share. They were putting strategies in place to help monetise and commercialise this share of the market.

On the digital side, there was miniscule growth. There had been a lot of investment in digital platforms such as podcasts, but more needed to be done. A lot of conventional advertising had moved away to this. Solid plans been developed for this.

The reduction of the wage bill was a matter that had seen engagement with key partners. There had been a skills audit with the shareholders which would be presented to the unions. They were also looking at the future structure of the SABC as well as the operating model. The R3.1 billion salary bill was heavily impacted by freelancers. They were seeking to align permanent staff.

On the assertion that the turnaround strategy was a secret, this was not the case. He had simply said it was quite competitive, and he would gladly share it with the Committee.

The sports rights issues needed to balance financial concerns and sustainability with fulfilling the public mandate. Long term, there was a strategy for acquisition of sports rights as well as applications for more clarity regarding ICASA. Projections had been done for the next three years. The SABC wanted to broadcast sports of national interest, but not to its detriment.

Sentech had signal distribution, and was the second largest cost driver for the SABC. A hybrid model was needed to minimise costs.

Consequence management was being implemented, and those who had stolen had seen an aggressive process of dealing with those issues. The SABC had implemented most of the recommendations made by the Public Protector’s report, the Parliamentary ad hoc committee, the SIU, as well as the forensic internal audits. They were driving the process aggressively.

Ms Van Biljon said a clean audit was the target. She was unsure about 2020, but certainly soon. Regarding the increase in revenue following the bail out, a large portion had been dedicated to investment in content, and they hoped to see a return on investment after 18 months or so. It took a while for the marketing to attract consumers to the content.

Regarding he high cost of independent contractors, there were initiatives being explored for best practices.

Regarding the clearing of 81% of the audit findings, and how much guidance there had been from the AG, there had been close work with them to determine what the design weaknesses had been. The SABC had taken ownership of the resolution and had worked closely with the internal processes.

The financial middle management team’s capabilities and skills had seen Ms Van Biljon inherit a finance team that had been completely eroded with opportunities for nefarious action. Because of the moratorium on recruitment, the team had been tremendously constrained. They were trying to change this. Capacity was an issue. Capability was fine. She hoped to have a more future-focused finance Department.

There was a plan for dealing with irregular expenditure. Some initiatives had been more successful than others. There was only one permanent member of the team responsible for dealing with the matter, however, and she hoped capacity could be increased. There was a knowledge problem within the supply chain. These were rare skills. The SABC was seeking useful engagement with Treasury. Supply chain was about following legislation and regulations, and was not complicated.

The revenue picture at the SABC had seen the commercial enterprises unit going back to basics. While corrective action was being taken to address issues, the teams’ attention had not been where it was supposed to be. Adding to a troubled global market where advertisers were cutting their budgets significantly, and digital platform competition, revenue was not where it was expected to be at in 2019. Additional initiatives were being explored, but it was too late to recover in this financial year.

Medical aid fraud provisions had been an accounting issue. A year ago, exposure to the fraud was that it could be realised. Then accounting standards would provide for it. A year later, the SABC had won most of the cases at the Commission for Conciliation, Mediation and Arbitration (CCMA) or the Labour Court at that time. So accounting indicators for the certainty of incurring the expense had decreased, and therefore been reversed. These had been provided for under contingent liabilities. The status was being monitored quarterly. It was a credit in the income statement.

The asset register initiatives around assets under construction were to be put on the system. There was a need for refreshment of the entire asset base. There was massive engagement with the entire business unit to ensure the asset department understood their roles. It was a very manual process. Systems and initiatives were being examined in order to address them sustainably.

The Sentech tariff situation was that there was a good relationship with Sentech. They were working closely together to unbundle their accounts to see what the chartered account looked like, to engage on the costs reflected there and engage on the various transmitters, thereafter taking that conversation a step further to the radio stations and how they were generating revenue. One may find that a radio station had countrywide coverage, but its revenue was that of a region, which did not make sense. This was an exercise that had not been done in 25 years.

The government grant was a slight increase, and was an annual engagement matter. Certain productions were committed to. The Channel Africa radio station was included in this, and it was an engagement between the shareholder and the SABC to agree on a number typically reflective of the expenditure incurred.

Advocate Benjamin Lekalaka, SABC Board member, said the issue of consequence management involved a presentation submitted to Scopa three weeks ago. The report would be made available to the Committee. it had dealt with what the SIU had done subsequent to the Parliamentary ad hoc committee and the President having issued a proclamation to investigate shenanigans within the Corporation. It had dealt with irregularly procured services. They had been to court to have the contracts of the service providers who had irregularly procured set aside. In the main there had been a huge success, save for one lost case. The SIU was appealing the matter. The SABC had been party to those proceedings, but had not appealed, not because it did not believe there was no winnable case, but because of financial considerations. The report also made reference to cases that would have been referred to the NPA, where corrupt or unlawful/criminal conduct was referred to the NPA for prosecution. The SIU was working closely with the NPA to prioritise the cases. A special tribunal within the SIU had been re-established. Some of the cases would not go through the court process, but would go to the special tribunal to fast track the proceedings.

They were not fighting people who were without resources. Resources diverted from the company had come to good use in attempting to rebut efforts to recover the money. There were notions that in pursuing the cases, they were being lost. He wished to assure the Committee that in the 29 cases that had been finalised since 2015, 21 of them had been won. The SABC was strengthening the recovery aspect of where the cases had been won, but the legal costs had not been recovered.

The Chairperson said the SABC would need to brief the Committee on clear timelines and progress made in addressing the audit. There were current issues that came up all the time. There needed to be an assurance that even as cases were lost and seen in the media, the turnaround strategy had not been affected.

FPB

Ms Faku said the FPB was not meeting targets, despite being happy that it had received a clean audit after 20 years. There needed to be 100% target achievement. There was an issue of a 15% increase in expenditure -- was this on a quarterly or monthly basis? The increases needed to be stopped.

Ms Majozi said sometimes the bar need not be raised too high, and acknowledged that after 20 years, the entity had achieved a clean audit. She did not even want to fault the FPB and say they needed to keep up the good work and stay on the right path, despite the challenges. They were doing the right things. The FPB was being led by women, and it showed that women had the leadership tendency of doing things right. She hoped that the next time the other challenges would be resolved.

Ms Kubheka said with a smile that the Committee was happy, and the Board should keep up the good work. She supported Ms Majozi. The Committee had wanted the clean audit, but balanced with the service delivery considerations.

The Chairperson said he was not intimidated by women’s issues and he knew that all the people who spoke were on the same side. He re-emphasised the issue of balancing the clean audit outcome with service delivery, and more importantly with being able to sustain clean audits over time. The risk of losing its audit status was a possibility unless irregular expenditure was addressed. The Committee needed assurance that the capability to address this was within the FPB.

FBB’s response

The FPB said it was humbled and grateful for the accolades, and were committed to sustaining the performance. There had been introspection and a realisation that most of the targets that had been missed were because of double-ended targets. When embarking on future strategic plans, this would be addressed through the development of technical strategic indicators.

The increase in council attendance had been because they had sat regularly. In that particular cycle, they had been trying to submit an amended bill to Parliament. This was unlikely to recur.

Some of the past issues had been resolved with an entirely new executive committee, starting in July 2019. Finally the executive committee and the council were speaking the same language, and this would resolve some of the issues raised in the audit.

BBI

Ms Faku said she was very impressed with the entity’s performance. It needed to practice what the AG had told them to do. They had the ability to improve.

The Chairperson said the point to make was a recommendation going forward. The broadband space was being raised. There were a number of sites available to keep the company going moving forward.

BBI’s response

Mr Van Niekerk said BBI was always striving to achieve a clean audit. The big contention was the conversion of shareholder loans into equity, which would make it easier to get a clean audit.

Mr Matseke said that irregular expenditure issues that had been referred to were in the context of a stabilised Eskom environment. The same was being done with Transnet. Once this was done, getting renewals without expiry would reduce irregular expenditure issues.

The roll out of broadband was linked to the SA Connect project approved in 2017, and was in eight district municipalities. Due to funding constraints, the number of sites allocated was small. Where there had been implementation, there had been positive impacts on the province. The shareholder departments had told them they had received larger allocations from Treasury going forward. The 6 135 sites should be completed by 2021. There had been discussions on the roll out of the balance of sites. When funding became available, it would be implemented.

USAASA

Ms Faku said the Committee needed a session with USAASA. The acting chairperson of USAASA had highlighted the issues.

Ms Kubheka said she did not know whether to depress USAASA and USAF. It seemed there were serious issues, and she agreed there needed to be another session.

The Chairperson said there would be another session going forward. There was still discussion over the appointment of boards. This was still a reconfiguration process. They could not be both the funder and the implementer. These issues needed to be addressed, because there were timelines for the reconfiguration.

Dr Boloka said that USAASA would appreciate a full session, during which the unhealthy state of the organisation could be extensively shared. It was an interim board that had beset the organisation and created problems. They were now waiting for the Minister and Cabinet to make decisions that would ensure stability. The appointment of executives needed to be done to ensure stability. The only permanent executive was the CFO, whose term was coming to an end the following day. The terms were for one year.

He hoped the Department would provide legislative guidance on the kind of organisation USAASA would be going forward. The audit had raised the issue of the lack of capacity in the organisation.

.ZADNA / NEMISA

Ms Faku thanked ZADNA for their performance. She said NEMISA had irregular expenditure involved in the rental of offices, and there needed to be consequence management.

Mr Ramawa said gave an assurance about this. The issue of rental contracts had been identified by management and had been disclosed with the Minister during the annul general meeting (AGM) process. An internal audit would soon provide feedback.

The meeting was adjourned.
 

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