DoC, DTPS, GCIS Audit outcomes: AGSA briefing

Meeting report

The Committee received apologies from the Minister and the Deputy Minister in the Presidency, and the Minister and Deputy Minister of Communications. An apology was also received from a Committee Member.

The Committee expressed its condolences to the family and friends of the late Auditor-General, Mr Kimi Makwetu, and said to honour his memory, we must ensure public funds are properly appropriated. The Chairperson noted the Committee’s role in ensuring and reinforcing the Auditor-General (AG) Office’s recommendations.

The Chairperson noted the Committee received the presentation material the day before, so Members may not have had sufficient time to apply their minds to it, but Members will do their best.

AGSA Briefing on the audit outcomes in the communications and telecommunications portfolios
Ms Jolene Pillay, Senior Manager, Office of the Auditor-General, briefed the Committee on the 2019/20 audit findings of the communications and telecommunications portfolios.

Ms Pillay said there were adjustments made to the slides. This was why it was sent to Members later than anticipated.

In the communications portfolio, the 2019/20 audit outcomes were as follows:
-Government Communications and Information System (GCIS): Unqualified with no findings (maintained)
-Media Development and Diversity Agency (MDDA): Unqualified with no findings (improved)
-Department of Communications: Unqualified with findings (remained the same)
-Independent Communications Authority of SA (ICASA): Unqualified with findings (remained the same)
-Films and Publication Board (FPB): Unqualified with findings (regressed)
-South African Broadcasting Corporation (SABC): Qualified (remained the same)

The audit outcomes for the entities under the Department of Communications show overall, the communications portfolio remained stagnant over the past five years.

In the telecommunications portfolio, the 2019/20 audit outcomes were as follows:
-Department of Telecommunications and Postal Service: Unqualified with no findings (improved)
-Sentech: Unqualified with no findings
-National Electronic Media Institute of SA (Nemisa): Unqualified with findings (remained the same)
-State Information Technology Agency (SITA): Qualified (regressed)

The SA Post Office (SAPO) and Universal Service and Access Fund (USAF) did not sign their reports. Broadband Infraco (BBI) and the Universal Service and Access Agency of SA (USAASA) have not tabled.

Ms Pillay took Members through the credible financial and performance reporting for the portfolios. The top five non-compliance areas included:
-Quality of financial statements (SABC, FPB, SITA, Nemisa)
-Management of procurement and contracts (DoC, SABC, ICASA, SITA)
-Prevention of irregular, fruitless and wasteful expenditure (SABC, FPB, ICASA, SITA, Nemisa)
-Consequence Management (SABC, ICASA)
-Strategic planning and performance management (SABC)
Members were taken through the internal controls of the portfolios and assurance provided.

The financial health of the SABC was discussed. The SABC was a matter of going concern: the public entity incurred a net loss of R511 million and net cash outflows from operations of R1.2 billion for the financial reporting period to 31 March 2020. These conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on the public entity’s ability to continue as a going concern. Continuing operating losses and net cash outflows are forecast over the next three years. The financial bailout (R3.2b) is earmarked for specific spending on capital projects, acquisition of content and settlement of other operational liabilities. Insufficient cash may be available for employee costs and other operational expenses

Fruitless and wasteful expenditure decreased significantly in the communications portfolio from R244m in 2018/19 to R27m in 2019/20. 99% relates to fruitless and wasteful expenditure incurred by the SABC mainly as a result of late payments to suppliers.

Irregular expenditure (IE) decreased in the communications portfolio compared to the previous financial year – R286m in 2019/20 and R358m in 2018/19. The SABC contributed 82% (R233m) to the total IE incurred in 2019/20.

Fruitless and wasteful expenditure increased in the telecommunications portfolio – the majority was caused by voice over internet protocol

Irregular expenditure decreased in the telecommunications portfolio compared to the previous financial year – R1.067m in 2019/20 and R1.133m in 2018/19. The majority related to SITA and BBI.

Ms Pillay noted the regression in supplier chain management compliance in the communications portfolio. The most common findings include:
Uncompetitive and unfair procurement processes (SABC, DoC)
Supplier with highest points or lowest quotation not selected with no justification (SABC)
Three quotation not obtained and deviation not approved (SABC, ICASA, FPB, DOC)
Non-compliance with procurement process requirement (FPB, ICASA, SABC)

There is however an improvement in supplier chain management compliance in the telecommunications portfolio - most common findings of SCM deviation related to SITA.

Ms Pillay advised the Committee of the key expansion of the AG’s mandate. This includes referring material irregularities, taking binding remedial actions, and issuing a certificate of debt.

Some of the root causes for entities’ poor audit outcomes were outlined and identified. It includes slow response to improving key controls, addressing risk areas such as supplier chain, inadequate consequences for poor performance and transgressions, instability or vacancies in key positions, and so forth.

Recommendations to department and its entities:
-The department and its entities should develop an effective action plan. The action plan should cover the financial statements, compliance with legislation and performance reporting. These action plans should be adequately monitored and consequence management should be implemented. These action plans should also form part of the performance contracts of key officials. In addition, a task team within the department should monitor the implementation of each entity’s action plan.
-Key vacancies should be prioritised and filled with competent officials.
-Consequence management should be prioritised and implemented as and when transgressions and/or poor performance is identified and addressed effectively and timeously.
-The department and its entities should review and improve systems and controls to ensure quality of the financial statements, compliance with legislation and quality performance reporting.
To the Portfolio Committee:
-Request regular feedback on action plans and implementation thereof. Effective monitoring by the portfolio committee should ensure that officials are held accountable.
-Monitoring of appointments for key vacancies.
-Unauthorised, fruitless and wasteful and irregular expenditure should be regularly followed up to confirm that all instances are adequately investigated and that adequate consequence management is implemented.
-Request and monitor the review and implementation of systems and controls to ensure quality financial statements, compliance with legislation and quality performance reporting.
Discussion
The Chairperson asked about outstanding information regarding BBI in the Auditor-General’s presentation, as the item was included in the Committee’s programme.

Ms Pillay said her understanding was BBI did not table its Annual Report. The Office of the AG was asked to remove the entity from the presentation. The convention is, the Auditor-General’s office will only discuss audit outcomes after an entity or a department tabled its annual report.

Ms P Faku (ANC) expressed her condolences for the family and friends of former Auditor-General, Mr Kimi Makwetu, and wished President Ramaphosa a happy 68th birthday.

She highlighted some of the key issues raised in the AG’s presentations, such as fruitless expenditure, lack of consequence management, critical position vacancies, and so forth. She urged the Committee to pay attention to these issues. She said SITAs lack of capacity resulted in its bad audit outcomes and irregular expenditure. She urged the Department to take responsibility for filling up vacancies.

Employees temporarily filling in acting positions do not have the full authority and cannot take full responsibility for the work. This will result in an entity’s lack of capacity. She named the lack of consequence management identified at ICASA as well as the SABC and SITA.

Ms Faku moved on to highlight the Committee’s role in monitoring the implementations of recommendations stipulated by the AGs office. She urged Members to work harder to ensure proper oversight. She commended the decrease in irregular expenditure for certain entities.

Mr C Mackenzie (DA) made reference to the zero-based budgeting included in the President’s announcement. He asked if the Auditor-General’s office had any plans to incorporate this zero-based budgeting into its auditing process.

Mr Mackenzie said AG employees very often face an uncooperative and hostile attitude when performing its mandate at various municipalities. He asked if the AG office encountered this level of hostility when performing its mandated work at entities under the communications portfolio.

Mr Mackenzie also asked about the BBI outstanding audit, and asked if there was any reason why its Annual Report was not tabled.

Ms Z Majozi (IFP) said the Committee ought to be more involved in the operation of many entities in the Department, as those entities are not doing well with compliance. She nevertheless commended those entities which improved its performance, such the MDDA, among others.
Ms Majozi noted grave concern over the deep crisis in which SITA finds itself. She said the Portfolio Committee of Communications must make sure struggling entities account properly to the Committee, and the Committee must interrogate these entities on its action plans to address the AGs findings.

Ms Majozi further asked the AG’s office if it engaged with and worked with these entities internal audit teams. She wanted to know if those internal audit teams were cooperative, for example if it provided documents to the AG’s office when requested.

Ms Majozi noted the Committee’s oversight role and said the Committee cannot allow entities to do its presentations, without taking follow up action. The Committee must be more proactive in performing its oversight responsibility.

Ms P Van Damme (DA) noted deep concern over SITA’s bad performance. She said proper investigations into struggling entities are needed from the Committee’s side.

Ms Van Damme asked if the Auditor-General’s Office worked with Special Investigating Unit (SIU) in the investigation around the irregular Personal Protective Equipment (PPE) tenders. She noted the SABC continued to have procurement issues. This Committee will attend to this issue once its Annual Performance Plan is tabled.

Ms N Khubheka (ANC) noted the poor performance of entities such as ICASA and SITA in the Auditor-General’s presentation. She urged the Committee’s greater involvement in the matter.
She noted the need to strengthen and train staff on standardised procurement procedures.

Mr L Molala (ANC) referred to some entities oversight role which remains stagnant. He named ICASA, SABC, and SITA. He said, according to the Public Finance Management Act (PFMA), accounting officers of entities have the responsibility to prevent irregular expenditure. He was bewildered by how COVID-19 became a common scapegoat for irregular expenditures.

Regarding the huge irregular expenditure at the SABC and SITA, as presented in the AG’s report, Mr Molala concurred with Ms Van Damme’s view. There was a need for the Committee to investigate irregular expenditure after the annual reports are tabled. He urged the Committee to monitor where the public funds went. He noted the importance of consequence management. He guaranteed consequences for misconduct, from this financial year onwards.

Response
Ms Pillay noted Ms Faku’s remarks, and replied to Mr Mackenzie’s question around the President’s zero-based budgeting noting the AG focuses on entities financial statements and provides an opinion on it. The AG also bears in mind legislative compliance, and will consider if budgets were prepared or approved in relation to those requirements, as set out by National Treasury. However, the Office of the AG does not specifically go into detail on how the budgets were prepared. So far there is no indication from the Office to include zero-based budgeting as part of the audit process. The Office has not encountered any form of hostility during its auditing work for entities under the Portfolio Committee of Communications. Entities provided adequate cooperation to the Office.

Ms Pillay replied on the question of why some entities annual reports were not tabled. She said although some audit reports were concluded internally in the Office, this question should be directed at those entities for it to explain why its Annual Reports were not tabled.

Ms Pillay replied to Ms Majozi’s question on entities submissions of its required documentation. She said management in those entities was cooperative. It supplied the Office with required documents. However, some entities have challenges in proper record keeping. This may affect its document submission, but she did not think it a significant factor.

There were regular meetings between the AG and entities internal audit units. She highlighted the important contribution entities internal audit teams made to the AG. The AG determines if internal audits can be used for its own audit process. The assessment of entities internal audits was included in the presentation. The AG still has to do more audit work, in addition to the internal audits provided by those entities.

Ms Pillay replied to Ms Van Damme, saying the AGSA was often involved with the SIU’s investigations. For instance, on the matter of the South African Broadcasting Corporation’s procurement process, the Office of the AG itself did not identify contracts for investigations, but it did raise alarms and flagged the SABC’s internal control environment weakness which is susceptible to fraud. There could be various other issues the AG Office did not pick up, but Ms Pillay believed it should be the management’s responsibility to determine those ill intentions within the entity.

The AG includes tracking how bail-out money was spent in part of its audit process. There were specific conditions attached to bail-out. For the SABC, those conditions are prerequisites to be satisfied prior to any bail-out payment can be made. The AG did not specifically look to see if the SABC satisfied all those prerequisite conditions or not, but as part of the audit process, the Office did review all the documents.

Regarding bail-out, Ms Pillay said the SABC is required to report to National Treasury on its use of bail-out fund, which the AG includes as part of the audit process.

An official from the Office of the Auditor-General replied to Mr Mackenzie’s questions regarding if the entities under the Department of Telecommunications and Postal Services (DTPS) were cooperative with the office of the AG - the AG did not experience any major push-backs from any of the entities under DTPS and the working environment was conducive.

Regarding outstanding audits, the audits from the Post Office and Universal Service and Access Fund (USAF) were still outstanding. USAF expected its audit completion around the end of November.

The official replied to Ms Majozi’s question, which asked if entities under DTPS engaged with the AGSA and were willingly and cooperatively providing requested documents. There were engagements between entities internal audit units and the office of the AG. There is also missing information for some entities such as SITA. This resulted in the AGSA being unable to complete audits. SITA’s lacking documents resulted in the AGSA not being able to complete and indicate the total figures which should have been reported as irregular expenditure. This was caused by record keeping and internal control processes.

The official replied to Ms Van Damme’s question around the AGSAs role in the PPE tender issue which was referred to the Special Investigating Unit. Since the AG’s Office did not start with the new audit, Ms Van Damme’s question must refer to the new financial year. Generally, any issues referred for investigation would lead to the AG’s Office expanding its audit process to include the investigation matter. Then the Office of the AG would assess the matter using audit methodology. Depending on the process of an investigation, the Office of the AG will see what it could do to provide assistance with its auditing expertise. Currently, the AG cannot confirm if it was involved in the tender investigation.

The Chairperson thanked the Office of the Auditor-General for making itself available to the Committee.

The meeting was adjourned.