Minister of Communications & South African Broadcasting Corporation on progress report on the Government guarantee and other matters

Meeting report

Progress report on the government guarantee for the South African Broadcasting Corporation (SABC)
The Honourable Dina Pule, Minister of Communications presented a progress report on the government guarantee of R1 billion that was provided to the SABC in 2009 (see attached document).

The guarantee allowed the SABC to secure a term loan from Nedbank to relieve the financial crisis experienced by the public broadcaster.  The ability of the SABC to repay the loan was dependent on the successful implementation of a turnaround plan.  A monitoring task team comprising representatives of the Department of Communications (DOC) and the National Treasury was established to monitor the progress made in implementing the turnaround plan and the financial position of the SABC.

Although elements of the turnaround plan were in place, there was no comprehensive document that covered all the turnaround initiatives at the SABC.  The shareholder’s compact for the 2011/12 fiscal year had not been finalised. The SABC had submitted a request for the revision of the original government targets.  Key executive positions remained vacant and certain operational inefficiencies had not been addressed.  There were challenges concerning the capacity of the monitoring task team to ensure continuity and consistency.  Target dates to address these challenges had been set and a ‘war room’ was established within the DOC to develop recommendations concerning the issues of governance and other areas of concern facing the SABC.

The Minister was appointed two weeks earlier and requested additional time to familiarise herself with the situation at the SABC.  She was aware of the concerns of the Committee over the Corporation and would be in a position to present a more detailed progress report before the end of the fourth quarter of the 2011/12 financial year.

Discussion
Mr N Van den Berg (DA) observed that much remained to be done at the SABC as a matter of urgency.  There had been several changes in Minister of Communications in recent years and he asked what the impact had been on the ability of the SABC to reach the turnaround strategy targets that had been set.

Ms A Van Wyk (ANC) suggested that the Committee granted the Minister’s request for additional time to familiarise herself with the issues concerning the SABC before engaging further on the matter of the government guarantee.

Mr J Killian (COPE) said that the frequent change in leadership was unfortunate. The Committee needed to conduct oversight over the SABC and ensure that the deadlines and targets set for the turnaround strategy were met.  There appeared to be a difference of opinion between the DOC and the National Treasury with regard to the extent of the progress that had been made. She wondered if new proposals needed to be made.  She asked if the conditions of the loan agreement were on target and if the process was being managed satisfactorily.

Ms Pule thanked the Committee for allowing her request for more time. She was not able to ascertain whether the timeframes would change.  The SABC had requested a review of the original government guarantee targets.  She gave the assurance that she would ensure that the targets would not be exceeded and that the Committee’s expectations would be met.  The Ministry and DOC also conducted oversight over the SABC.  She was not aware of any disagreements between the DOC and the National Treasury but would investigate the matter.

The Chairperson agreed to postpone the detailed progress report to the Committee to the first quarter of 2012.  The Committee had noted the target date of March 2012 that had been set to fill the vacant Group Chief Executive Officer (GCEO), Chief Operations Officer (COO) and Chief Financial Officer (CFO) positions and the target date of mid-December 2011 to finalise the shareholder’s compact.  It was critical that these deadlines were met.

Mr Van den Berg applauded the establishment of a ‘war room’ in the DOC.  He was confident that the necessary action would be taken and that the turnaround strategy would be implemented by the SABC.

Ms Pule agreed to meet with the Committee before the end of March 2012.  The date of the meeting would be advised by the Committee.

Ms Van Wyk suggested that the meeting was scheduled for early 2012 as March 2012 was the end of the financial year and would be too late.

Ms Killian suggested that the Committee met with the Minister and the Department by the end of February 2012.

The Chairperson advised that the date of the meeting would be advised.  The Committee had queried the role played by the DOC in managing the SABC and the Department’s monitoring and evaluation function.  He thanked the Minister for her input.

Ms Stella Ndabeni, Deputy Minister of Communications welcomed the input of the Committee in addressing the challenges faced by the SABC.  As a former Member of the Committee, she was fully aware of the concerns that had been raised during previous engagements with the SABC and the DOC.

Mr Van den Berg pointed out that there had been ongoing engagement with the SABC since 2009.  He was concerned over the number of times that the turnaround strategy had been re-started and the lack of progress that had been made over the preceding three years.

Other matters concerning the SABC
The Chairperson advised that the Committee had requested an update on the matters concerning the expenditure of R20 million on luxury vehicles, the appointment of Mr Justice Ndaba (who was also a consultant to the SABC) and the appointment of Deloitte and Touche.  These issues had been widely reported in the media and the Committee wanted accurate and factual information from the SABC.  The Board of the SABC was accountable to the Committee and the issue of the reporting structure of the Board needed to be clarified.  The Committee recommended the appointment of the members of the SABC Board.  Any complaints to Parliament concerning the SABC were referred to the Committee for attention.  The documented evidence requested by the Committee was often not received.  The Committee required factual information, supported by documented evidence, in order to carry out its responsibilities.

Ms Ndabeni said that the SABC Board had to ensure that information was verified before it was released to the media.

Ms Killian pointed out that Members of Parliament had a duty to investigate issues concerning the SABC and to bring the matters to the attention of the Committee.  Members of Parliament had the right to inform the media and could not be muzzled.  Members could be trusted to act responsibly.  She asked for clarity on who had acted improperly when releasing information to the media.

Dr Ben Ngubane, Chairperson of the SABC Board thanked the Minister and Deputy Minister for their support.  The SABC was a large and complex organisation, which faced many challenges.  The process of dismissing non-performing members of staff was difficult and time-consuming.  The findings of the Auditor-General had resulted in certain cases being referred to the Special Investigations Unit (SIU), which was a lengthy process.  He thanked the advertisers for continuing to support the SABC, despite the challenges faced by the broadcaster.  He reported that the SABC currently had a positive bank balance of R1 billion.

The Chairperson interjected that the funds could be used to repay the loan.

Dr Ngubane advised that the Acting COO had dealt with the matter concerning the luxury vehicles and the matter had been finalised.  The labour unions were satisfied that the issue concerning the housing allowances of SABC employees had been resolved.  The SABC recognised prior experience and learning in lieu of formal educational qualifications.  He acknowledged that there had been a two-year delay by the management of the SABC in dealing with the findings of the Auditor-General.  Mr Ndaba had been appointed by the SABC Board as a consultant.  Subsequently, he was appointed by management to perform other functions.  The Acting GCEO had taken action to address the complaints of members of the Board concerning the office of the Company Secretary.  The intervention of the Acting GCEO had not produced the desired results and the matter was currently subjected to the Commission of Conciliation, Mediation and Arbitration (CCMA) processes.

Dr Ngubane had prior experience with the work done by Deloitte and Touche on developing a turnaround strategy for the Land Bank.  The company was on the list of preferred suppliers of the SABC.  The SABC was in dire financial straights and urgently needed a turnaround strategy and a corrective action plan to address the audit findings of the Auditor-General.  He had recommended that Deloitte and Touche was appointed by the SABC to develop the turnaround strategy, which was currently in progress.  The SABC would brief the Minister and prepare a more detailed presentation to the Committee on the progress that had been made in implementing the turnaround strategy.

Mr Phil Molefe, Acting GCEO, SABC reported that the SABC had undertaken to investigate the issue concerning the luxury vehicles during the previous engagement with the Committee.  The Board had instructed the organisation’s internal auditor to investigate the matter and to establish the reasons why the vehicle tender process had taken since 2009 to be finalised.  A service level agreement with the supplier of vehicles had been in place since 2005.  The investigation had not yet been completed but it had been established that a senior manager in the news division had exceeded his authority and had not followed the prescribed procedures.  Disciplinary action had been instituted against the manager concerned.  It was possible that further disciplinary action would be taken against other managers for failing to ensure that the required vehicle support was delivered by the service provider.  The issue had been widely reported in the media but it was incorrectly reported that the Acting GCEO had approved the acquisition of the luxury vehicles.  In accordance with the Service level agreement with the supplier, the vehicles were replaced after a specified period of time.  A total of 86 cars needed to be replaced but the supplier only had 64 of the required Toyota cars in stock.  The supplier had provided 22 Mercedes Benz cars to make up the shortfall, at the same price as the Toyota cars.

Mr Cedric Gina, Member of the SABC Board confirmed that the Board had received a report on the vehicle issue.  An agreement had been reached with the supplier, Debis Fleet Management, that no further financial claims would be made against the SABC.

Mr Lumko Mtimde, Member of the SABC Board said that the current leadership of the SABC was stable and that the Board was confident that the vacant senior management positions would be filled in 2012.  There had been confusion over the appointment of Mr Justice Ndaba and the Board had appointed a task team to investigate the matter.  Mr Ndaba was appointed by the SABC Board as a consultant for the period 10 May 2010 to 13 November 2011. Subsequently, Mr Ndaba was offered an employment contract for the period January 2011 to January 2012 by Mr Robin Nicholson, the previous Acting GCEO.  The appointment required Board approval but it had not been established that such approval had ever been granted.  Mr Nicholson left the employ of the SABC in June 2011.  There was insufficient information available to establish whether the appointment of Mr Ndaba was finalised.  Mr Ndaba was one of two SABC employees who attended a development programme in London, arranged by the Wits Business School and the London School of Economics.  Mr Ndaba and an employee from another South African company were involved in an altercation in their hotel room and other course attendees had lodged a complaint with the London police.  No arrests were made but the course organisers decided to release both of them from the course and ordered them to return to South Africa.  The investigation had found no evidence that senior officials of the SABC had interfered in the action taken by the British police.  The SABC had received a letter of resignation from Mr Ndaba.  Mr Ndaba had repaid an amount of R229,000, in partial refund of the cost of the course.  A notice period of two months was applicable.  The Board was currently discussing the early termination of Mr Ndaba’s employment and the recovery of the balance of the cost of the training course.

Mr Mtimde explained that there had been a breakdown in the relationship with the Company Secretary.  Members of the SABC Board had complained that the support provided by the Company Secretary to the Board was lacking and that there was a lack of trust in the Secretary.  The decision of the Board to suspend the Company Secretary had been ratified.  The Company Secretary was a key position for compliance with legal and regulatory requirements and a task team had been appointed to resolve the matter as soon as possible.

Mr Gina recalled that the Committee had rejected the turnaround strategy originally developed by the SABC and had insisted that a revised strategy was submitted within two weeks.  Deloitte and Touche was invited to give a presentation to the SABC Board.  The revised turnaround strategy was subsequently accepted by the Committee.  The agreement with Deloitte and Touche included the transfer of skills to SABC employees.  The agreement had expired in March 2011 but was extended to the end of October 2011.  A report was submitted to the Board and a decision would be made at the Board meeting scheduled for 9 December 2011 on whether the agreement with the company would be renewed.  The National Treasury had made a
 team available to assist the SABC with the implementation of the turnaround strategy.  The arrangement was supported by the previous Minister and the Board and the matter would be discussed with the current Minister.

Mr C Kekana (ANC) understood that Deloitte and Touche was well-regarded but the services provided were expensive.  He expected the SABC to have highly qualified staff in its financial department and it should not be necessary for Deloitte and Touche to provide services for such a long period of time.  He welcomed the involvement of the National Treasury.  He understood that the arrangement of transport for SABC staff was not a core function and was best left to the experts.  However, it was clear that procurement procedures were not followed in the matter of the vehicles.  The appointment of a consultant in a managerial position was a further violation of procedure.  He was dissatisfied with the lack of a work ethic at the SABC and the unprofessional behaviour of senior management personnel.

Ms Killian deplored the absence of written reports to the Committee, which made it difficult for Members to follow up on any outstanding issues and avoided any confusion or misunderstanding.  The relationship between the Committee and the SABC needed to be rebuilt and she urged the SABC to be open and honest about any mistakes that were made.  There had been too many errors in judgment in the past, which had resulted in costly golden handshakes.  Disciplinary action must be taken whenever procedures were not adhered to by employees.  She was pleased to note that the Acting GCEO was taking disciplinary action but care should be taken that the suspended member of staff was in fact the responsible person.  She noted that the matter concerning the luxury vehicles had not been finalised and that the Committee would require a further report.  She asked if qualification criteria applied to the executive management positions.  The appointment of Mr Ndaba was a matter of concern.  She understood that Mr Ndaba was the sole director of a human resources consultancy.  She asked if the Board was aware that he had been appointed in a key management position.  The Board needed to provide leadership and ensure good governance.  She feared that the termination of the contract with Mr Ndaba would lead to further wasteful expenditure.  The Committee was previously informed that Mr Ndaba was recalled by the management of the SABC, which differed from the information provided during the current proceedings.  She asked if the Board was satisfied that due process was followed in the appointment of Deloitte and Touche.  She asked if the Board had taken the decision to appoint Deloitte and Touche during a formal meeting of the Board.  She asked if all the members of the Board had supported the decision.  She wanted to know how much had been paid to the firm to date.  She asked what legacy had been left by Deloitte and Touche as it was crucial that adequate financial management skills were in place at the SABC.  She asked why the SABC was not able to provide a progress report on the implementation of the turnaround strategy.

Ms N Michael (DA) jokingly observed that the delegation from the SABC had flown first class to Cape Town while she occupied an economy class seat on the same flight.  She agreed that the challenges faced by the SABC were major and of a complex nature.  The Committee did not expect all the problems to be resolved overnight but was becoming frustrated by the lack of progress.  The Committee wanted to see that the SABC was successful and would provide the necessary support.  She noted that the Acting COO did not have a matriculation certificate.  Mr Motsoeneng’s extensive experience was acknowledged but his lack of formal qualifications negatively impacted on public perception of the leadership of the SABC.  Mr Motsoeneng also had a reputation for his failure to adhere to procedure during his ten-year tenure at the SABC.  She congratulated the SABC Board for improving advertising revenue.  She pointed out that the matter concerning the vehicles supplied to the SABC included other luxury vehicles in addition to the Mercedes Benz cars.  The matter did not have a positive impact on the perception of the public, who was aware that the SABC had to be bailed out by taxpayer’s funds.  She agreed with Ms Killian that the Corporation needed to be more transparent and that the public should have been provided with the facts without delay.  She expected that the consultants appointed by the SABC would be considered to be expert in their field.  It was not acceptable that the SABC had provided training for a consultant.  The cost of the course attended by Mr Ndaba in London would be regarded as fruitless and wasteful expenditure.  The length of time taken to finalise tender processes required further investigation.  She suggested that the harshest possible disciplinary action was taken against employees that failed to carry out their responsibilities.  It was necessary to set the example that transgressions would not be tolerated and to assure the public that action would be taken when required.

Ms W Newhoudt-Druchen (ANC) asked for a breakdown of the tuition, travel and accommodation costs incurred for the training course attended by Mr Ndaba.  She asked why Mr Ndaba had been sent on the course when his contract was due to expire within a few months.  She wanted to know what benefit the SABC had derived from the attendance of the two delegates.

Ms Van Wyk criticised the lack of communication concerning the matter of the vehicle leases.  She noted that the matter was being investigated by the head of the internal audit function.  She asked if the investigation would be considered to be sufficiently independent to avoid any accusations of bias when disciplinary action was taken against the employees involved.

Mr Van den Berg observed that Dr Ngubane had stated that the issue of the vehicle leases had been finalised but Mr Molefe had stated that the matter was still being investigated.  He asked if the 86 vehicles referred to in the briefing comprised the entire fleet of the SABC.  He asked what the total cost of the leases was.  He wanted to know what the cause was of the incident in the London hotel room, which had resulted in the matter being reported to the British police.  The matter was widely reported in the media and he doubted that all the reports were based on erroneous information.

Ms S Tsebe (ANC) said that the SABC was the public broadcaster and needed to be seen to be open and transparent.  The Committee only became aware of problems at the SABC through reports in the media.  She asked when the investigation into the vehicle leases would be finalised.  The Committee required briefing documents and a verbal briefing was not acceptable.  She asked what transfer of skills had taken place in terms of the agreement with Deloitte and Touche and what had been done to ensure that it would not be necessary to extend the contract again.

Ms R Morutoa (ANC) asked if the briefing to the Committee on the preliminary findings of the investigation into the vehicle issue would compromise the outcome of the full investigation.  She did not understand how a Toyota car could have been replaced by a Mercedes Benz car as there was a substantial difference in the value of the two types of vehicles.  She asked for a detailed explanation of the breakdown in the relationship and the lack of trust in the Company Secretary.

Mr Mtimde confirmed that Mr Ndaba had invited prostitutes to his hotel room.  Alcohol was consumed and a fight had broken out.  Other delegates had complained about the noise and the police was called in.  No police action was taken but the Wits Business School had taken the decision to release him from completing the training course.  The SABC Board had not been able to obtain a report on the matter from the Wits Business School.  As the delegates had failed to complete the programme, the SABC had derived no benefit.  The cost of the training course was partially refunded.  The Board had questioned the decision by Mr Nicholson to send a consultant on a training course.  The appointment of Mr Ndaba’s consultancy firm (Ndabazabantu People Solutions CC) expired in November 2011.  His appointment as the head of turnaround strategy was for the period January 2011 to January 2012.  The minutes of Board meetings had been checked but no record was found that his appointment was ratified by the Board during a meeting held on 24 January 2011.  The Board had queried whether the former GCEO had exceeded his authority in appointing Mr Ndaba.  Payment records indicated that Mr Ndaba had been paid a salary and had received payment for an invoice submitted by Ndabazabantu People Solutions.  However, there had been overpayments and the matter was being investigated.  Reports would be submitted to the Committee once the matters under discussion had been finalised.

The Chairperson trusted that the Auditor General would not find any instances of irregular expenditure and duplicated payments.

Ms Killian asked if the consultancy contract with Mr Ndaba had been formally suspended.

Mr Lerato Nage, Acting Chief Financial Officer confirmed that the consultancy agreement was discontinued when Mr Ndaba was given and employment contract.  He confirmed that Mr Ndaba did not receive duplicated payments.  The overpayment to Mr Ndaba’s consultancy arose when the SABC did not deduct tax from the R80,000 payment for November and December 2010.  The SABC had paid over the tax amount to the South African Revenue Service (SARS).  Mr Ndaba was informed of the error and requested to repay the overpaid amount but the money had not yet been refunded.

Ms F Muthambi (ANC) observed that the overpayment had occurred one year earlier.  The fact that Mr Ndaba had remained in the employ of the SABC did not reflect well on the governance of the SABC.

Ms Tsebe asked if the issue of the overpayment was under investigation.  She asked that the matter was included in the report to the Committee.

Mr Mtimde advised that Mr Ndaba had offered to resign.  The overpayment to his consultancy was currently under discussion.  The SABC had not received a full refund of the cost of the London training programme.  The terms of the early cancellation of the employment contract was also being investigated.  The Committee would be provided with a detailed report once the matter had been finalised.  The Board was satisfied that due process was followed in the matter concerning the Company Secretary.  Consideration had to be given on the best route to follow to ensure that the SABC continued to comply with the legal requirements.

Dr Ngubane explained that dissatisfaction with the performance of the office of the Company Secretary had resulted in complaints from members of the Board.  The relationship between the Company Secretary and the Board had broken down and the decision was taken to terminate the employment of the person concerned.  The matter was currently in progress.

Mr Mtimde added that the position included important legal responsibilities.  He gave the assurance that the matter would be speedily resolved in a manner that would ensure that all the interests of the parties involved were satisfied.  The complaints lodged by Board members were dealt with in accordance with disciplinary procedures.  The decision to suspend the Company Secretary was ratified by the Board.

The Chairperson said that the Committee needed to determine that internal disciplinary procedures were properly followed and that irregular expenditure was not incurred during the process of terminating the employment of the person concerned.  Any monetary settlement had to be justified.

Mr Mtimde replied that the Board had considered alternative solutions.  Any financial settlement would be made in terms of the employment contract.

Mr Gina explained that the matter concerning the vehicle leases was reported on 26 July 2011 by the Acting Head of the News Division.  The chairperson of the audit and risk committee was instructed to investigate the matter and the report was awaited.  The Chairperson of the Board had queried the driving of Mercedes Benz cars by SABC reporters.  The interim findings of the investigation had resulted in the suspension of the Head of Procurement.  A bid adjudication committee was established in accordance with the recommendation of the Auditor-General.  The employment of the Head of Procurement was terminated and the position was currently vacant.

Mr Gina advised that a meeting with previous Minister Roy Padayachee had resulted in amendments to the delegation of authority and the qualification criteria of senior executive positions.  The Board had the authority to appoint any person considered to be suitable and had no reservations about appointing Mr Motsoeneng in the position of Acting COO, despite his lack of formal qualifications, allegations that he had submitted fraudulent certificates and accusations of ill-discipline.  The members of the Board felt that Mr Motsoeneng’s prior experience justified his appointment.

Mr Gina admitted that Deloitte and Touche had not delivered on all the promises made.  The contract had expired at the end of October 2011.  On receipt of the final report from the organisation, the Board would establish what benefit had been derived for the cost incurred.  The detailed progress report that would be submitted to the Committee in the first quarter of 2012 would include the implementation of the turnaround strategy and the DTT project.  Minutes of Board meetings could be provided to the Committee if required.

Mr Nage advised that Deloitte and Touche was paid R2.4 million for phase 1, R14.4 million for phase 2 and R23.2 million for phase 3 of the contract (i.e. a total of R40 million).

Ms Patricia Makhesha, Member of the SABC Board advised that the turnaround strategy was based on four pillars.  A Board sub-committee was tasked with familiarizing employees at the SABC’s provincial offices.

Mr Molefe denied that any employees had been unfairly disciplined.  The preliminary findings in the vehicle lease investigation had resulted in disciplinary action being taken against one manager but it was expected that further action would be taken against other implicated employees.  The investigation was undertaken by the internal audit function, which was considered to be sufficiently independent.  He conceded that the SABC would need to deal with the negative perceptions that had been created by the matter.  The training course in London was arranged by the Wits Business School, which had dealt with the incident by releasing the SABC employees from the course.  The SABC had received a partial refund and not taken any further action against Mr Ndaba.  The SABC delegation was able to travel first class to Cape Town because they had frequent flyer status and were upgraded by the airline.

Mr Hlaudi Motsoeneng, Acting Chief Operations Officer, SABC assured the Committee that the executive management and Board worked together, regardless of personal feelings.

Ms Killian appreciated the honest answers that had been provided and that aspects of the various issues were still in progress.  The SABC Board had faced many challenges during the previous two to three years and needed to ensure that functionality was restored and that resolutions were passed formally.  The Committee accepted the decision of the Board to appoint Mr Motsoeneng as Acting COO, provided that due process was followed.  The Committee would hold the Board accountable.

The Chairperson asked if the appointment of Deloitte and Touche had been made in accordance with procurement procedures.  He asked if the Board had ratified or condoned and alternative appointment procedure that would satisfy the Auditor-General.

Mr Gina replied that the Board had considered KPMG as well but the firm was the Corporation’s auditors and was disqualified on that basis.  The Board was satisfied that due process had been followed.  The original contract had expired in March 2011 and the Board had ratified the decision to extend the contract to the end of October 2011.

Mr Mtimde assured the Committee that the Board was committed to work with the executive management, would meet its responsibilities, acted in a unified manner and wished to serve the best interests of the SABC.  The Board had full confidence in its Chairperson and appreciated the support of the Committee.

The Chairperson said that the Boards of organisations had to be removed from involvement in administrative issues.  The Board appointed the executive management, who had to be held accountable for carrying out their responsibilities.  He asked the SABC to submit a written report on all external consultants and what services were being provided.  He suggested that the SABC reviewed the need for external consultants.  The Committee wanted a full report on the implementation of the findings and recommendations of the Auditor-General.  These recommendations were central to the turnaround strategy and must be implemented.  The Auditor-General had identified a policy gap in dealing with matters requiring SIU investigations.  The Committee had to be kept informed of the progress that was being made by the SIU.  He suggested that the Board investigated procurement policies to ensure that previously disadvantaged persons were benefited.  He apologised to Mr Motsoeneng if any embarrassment had been caused by the questions asked by the Members of the Committee.

Ms Morutoa said that the close relationship of certain Committee Members with the SABC was not conducive to the unity of the Committee.

Dr Ngubane said that the SABC, the Ministry, the DOC and the Committee needed to work together.  He appreciated the support provided to the SABC.  He thanked Ms Clare O’Neill (Member of the SABC Board) for her work to ensure that advertisers continued to do business with the SABC.

The Chairperson requested that the SABC Board ensured that the deadlines in the Minister’s presentation document were met.

The meeting was adjourned.