SABC and Brand South Africa on their 2014/15 Annual Reports, with Minister

Meeting report

Briefing
Brand South Africa (BSA) briefing on its 2014/15 Annual Report
Mr Kingsley Makhubela, Brand South Africa CEO, who had been appointed on 1 August 2015, said BSA had three strategic focus areas. These were a coordinated marketing strategy approach, communication and reputation management. The entity attained 82% of its set targets.

The AGSA had said that BSA had not made all service provider payments within 30 days. BSA had been in discussions with the Department of Communications because the cause had to do with delays in the transfers from the Department to its entities. A second issue had been that of vacancies at the BSA. At the time of the audit, the CEO and chief marketing positions had been vacant. BSA was in the process of filling the chief marketing position. A third issue was that of ICT. This matter was being addressed. There were also issues related to the audit performance of the Board. This issue was being addressed and an internal audit committee was being set up and capacitated. He said the 18% of target not achieved related to challenges raised when there had not been a smooth transition in replacing the USA country manager, resulting in poor performance.

Domestically BSA had educated the public through the “Play Your Part” (PYP) programme. With regard to reputation building which was part of the fundamental performance of the organisation, Mr Makhubela said BSA dealt with the department of transport on the issue of safety on South African roads, it worked with the dti on BRICS and how South Africa should be positioned, it dealt with communication and the National Planning Commission where it did a few outreach programmes, it ran civil society programmes, it was working with the Nelson Mandela Foundation on the cleaning of schools and key events like May Day and it had dialogue with youth communities.

Ms Alice Puoane, CFO, said that at the end of 2014/15, the vacancies stood at six employees after 45 out of 51 posts were filled. There were two senior manager positions open then, chief marketing and director of corporate services but the latter had been filled in the meantime. Consultancy fees had grown but they were once off fees and related to consultants hired in the UK offices and two permanent country managers had been appointed in the UK and the USA. The other cost driver was legal services on how to regularise BSA in the UK, USA and China. BSA continued to experience cash flow problems because it had reprioritised to fund prior year accruals during the current year totalling R11m. BSA had tendered to get an Enterprise Resource Planning (ERP) system.

South African Broadcasting Corporation (SABC) briefing on its 2014/15 Annual Report
Mr Frans Matlala, SABC Group CEO, said any objective review should take into account the organisation’s delivery against its mandate, it should take growth and retention of market share as well as the financial health and governance of the organisation into account. In addition it should look at the SABC with a three to five year view rather than on a year to year basis. The SABC employed 3 900 permanent and 1 000 contractors and remained the primary medium for people to engage with news and entertainment. Through sports, it built social cohesion and had invested R516 in sport and R873m in local content. It had broadcast elections for which it had to forgo commercial advertising revenue. He then spoke to the SABC’s performance.

On financial performance, he said the SABC had R1b in cash reserves and could service its debt obligations. Total revenue was R7.49b and total expenditure was R8.09b resulting in a loss of R395m. The loss was due to underperformance in TV licence collections and sponsorships, the amortisation of film and sports rights and substantial investments in film and sports rights. Revenue growth was 4% year on year. License fee collection was a drag on revenue as it had dropped by 2%. On the Balance Sheet, the SABC had R4.9b in assets of which R2.9b were current assets making the SABC very solvent. Operational expenses had increased by 19% through the amortisation of film and sports rights. He then spoke to audit matters raised by the AGSA and to Human Capital matters.

Discussion
Ms P Van Damme (DA) said the SABC was not honest regarding licence fees claiming it was because of a post office strike and the way money was accounted for on a cash basis. The AGSA said in the Annual Report that it was because the AGSA could not get assurance that all licence fees payable were received from independent collection agents. Was the SABC sure that all licence fees were correctly paid over by agents? The Annual Report and the AGSA report implied the organisation appeared to have poor financial controls and the CFO needed to be held accountable for this. The AGSA mentioned, for example, that there were no supporting documents for expenditure of R23m. What was that spent on? The SABC overpaid a vendor by R2.9m. How could this occur, who was overpaid and why was there an overpayment? Debt of R93m was written off. Whose debt was written off. Could the increase in salary of the suspended COO be explained and on what basis was it approved?

Ms V van Dyk (DA) asked BSA what method of measurement was used to obtain the performance results. How did BSA counter negative views such as xenophobia? What was the negative impact of the new visa regulations and was it doing damage? The AGSA report referred to tenders that were advertised for less than the prescribed time of 21 days, could this be explained? The AGSA said BSA did not have a proper system in place to monitor SCM policy and regulations, how would this be addressed? On risk areas and compliance management, it was said that intervention was required. On financial health, what remedies have they put in place to address this? Fruitless and wasteful expenditure increased and there was an investigation into this. What were the results of the investigation? What was the progress on the discussions on the overinflated board who were not getting paid? SABC royalties had not been paid to actors in the programme ‘Encore’. Would they now be paid?

Mr R Tseli (ANC) said BSA targets were vague and needed to be improved and be measurable. He was not pleased that the BSA only had 20% female representation especially at executive level.

He said the SABC TV licence issue was critical and needed urgent attention and the SABC should share with the Committee the strategies they have put in place so that the matter did not arise again. He recognised that the SABC had reduced matters of emphasis from nine to three but said they could not be proud of the qualification by the AGSA.

Mr M Kekana (ANC) said he was concerned that the BSA did not report on people with disability in the organisation. Could this be clarified? The ratio of 20% female staff at senior management level was not good enough and did not meet the 50% requirement and this gap needed to be closed. He asked what the entity was going to do about irregular expenditure which was more than R10m which was a concern. It should ensure that people be held accountable and criminal charges should be pursued to recover monies. Who would raise funds for the two new SABC channels to be launched after digital migration? Who was leading the SABC team during sports rights contract negotiations? What measures were in place to ensure that financial targets in the current year were met?

Ms N Ndongeni (ANC) asked what role the BSA would play given that the country was vulnerable to economic slowdown in the current global context. She appealed to the Minister that all entities, especially the BSA, should have the same reporting format because it appeared the BSA were thumb sucking their information.

Ms D Tsotetsi (ANC) asked what the specifics were regarding the ‘Other income’. Regarding TV licence income, she said alternatives had to be in place to counteract the effects of the Post Office strike and this was indicative of poor planning and not being proactive enough.

She asked the BSA what the worst perception was that the organisation had changed. She asked for an explanation for what had happened regarding the manager changeover in the USA. Did BSA have any programmes to enhance the image of the country?

The Chairperson said the AGSA findings had to be followed up and BSA would need a concrete action plan on how they would follow up on the AGSA’s findings. The Committee would engage directly with the audit committees of all the entities in the Communications portfolio. BSA did not say what its programme of engagement would be with civil society to love their country.

At this point the Minister joined the meeting.

SABC Group CEO response
On TV licences, Mr Matlala replied that South Africa had 15m households and if each paid R265 it would amount to R4.5b but the SABC was only collecting R1b. There was a significant default rate. The SABC had to know what the issues at play were and what interventions they could make. He said it was understood that there was a huge indigent population in SA, so it was working with municipalities on getting indigent lists so the indigent could apply for a concession rate of R70. He acknowledged that the SABC has not communicated and marketed the concession rate and its processes well enough and that indigent people might have to have the amounts owing by them written off. There was a question around whether the debt of defaulters of many years standing should be prescribed after three years or thirty years. It was a debt for a service and so should be within three years. There needed to be a way that people could negotiate their debt with the SABC. A moratorium like this needed to be approached with care and would require Board, Shareholder and Treasury approval. The SABC was not visible on the ground although it used to have an inspectorate doing house visits. A possible solution was leveraging unemployed youth to engage with the community rather than an inspectorate, as well as using celebrities to engage with communities. He knew
it was contentious, but every government employee should be able to show that they had paid their TV licence. There were initiatives on improving the quality of the database.

On the increase of the COO, he said the SABC followed a structured process and the salaries of all executives fell within the salary scales.

On how sports rights were acquired, the COO and the team were tasked with having the right content and ideas as to how these could be funded.

On third party TV licence collection agents, Mr James Aguma, CFO, said the SABC used a cash basis accounting method which meant that it did not have debtors as it only accounted for the revenue received. The AGSA said the SABC had to change to an accrual basis according to international accounting practices, this meant revenue had to be recorded to the value it should have received. However the SABC used third party collection agents which then needed to provide assurance certificates for the revenue received. The SABC model was built around cash basis accounting. So the SABC and the Post Office systems have to be integrated.

On measures to meet financial targets, he said the TV licensing process had been overhauled and was going electronic. In 2013 the SABC had nine disclaimers while in 2014/15 it had three. The root causes were the structure of the SABC, the skill sets in the finance department, and consequence and performance management. The finance skills had been brought into the organisation through the addition of four chartered accountants, and the organisation restructured so that an operations team established so that content purchases were not done in isolation so that fruitless and wasteful expenditure was reducing.

On the internal control environment, he said that while there was a reduction in audit findings. Structural issues meant the sustainability of achieving unqualified audits could not be guaranteed if internal controls were not improved. There was a project in the SABC to look at the three root causes to ensure internal controls were improved.

On the R94m debt, he said that AGSA in 2013/14 said the ageing of debtors was incorrect and so the SABC reviewed the debtors processes and discovered a number of debtors that were prescribed. There were some instances where the SABC were involved in work where there was no guarantee of payment, for example, assisting the Mozambique with broadcasting the African Games but these were on the books. So the books were cleaned of these types of debt.

On the overpayment of R2m to a vendor, he said the SABC would provide details. This was an indication of internal control weaknesses and the SABC was consolidating procurement and financial processes so that they were integrated because in the past they were separate.

On the R23m payment, he replied that in the past, the SABC did not require original tax certificates from vendors before payment was made which was why it was classified as irregular expenditure and why the AGSA had raised the issue.

In 2014/15 the Acting COO’s salary was benchmarked and found to need an increase. The amount of R912 000 included an amount of R279 000 which was a bonus which had been paid to all SABC employees across the board. This was not for current performance but for historical performance. In 2010 senior management had sacrificed their 13th cheque so in 2014 senior management had been paid two times their monthly salary in recognition of performance from 2010 to 2014, junior management received one month’s salary and others received R8 000.

On the measures to meet financial targets, he said there was a revision in the way TV licences fees would be collected. The SABC was going the electronic route instead of the manual way via letters.

On why there was a reduction on the ‘Other income’ figure, he said it included amounts for special events, like the elections.

On the sports rights negotiations, the COO led the team in negotiations. R970m was raised by the COO and R1b was being negotiated currently. He also led the team regarding sports rights.

On contingency plans, Mr Matlala said that the question was did the SABC have adequate business continuity plans and disaster recovery plans. These plans had been tabled in the current week.

The Chairperson said on the matter of funding there was a need to engage with the SABC because the funding was so little.

Mr Kekana said 2% was not enough for the SABC’s funding.

Ms Van Damme asked how the COO got approval to have a bonus. How was a double bonus decided on and who approved it.

On performance bonuses, Minister of Communications, Ms Faith Muthambi, said the SABC had been in financial distress and management sacrificed a 13th cheque. Since 2010 then there had been progress made, previous disclaimers were improved to drop to the current three. The bonuses were agreed upon. The SABC won public sector awards recently for recognising disabilities and being the best entity for employment equity. The SABC was meeting quarterly with AGSA who was satisfied with the improvements. The SABC had started putting in place an action plan for fruitless and wasteful expenditure, which had to be reported on monthly. The Department had sent letters to all its entities to identify officials involved in fruitless and wasteful expenditure and what disciplinary action needed to be taken against them for non-compliance.

On the payment of royalties for actors, it was more than R190m and was as from 2007.

On the payment of TV licences, it was a law and the SABC would visit Members in their constituency to promote licence payments.

On the audit committee, she said entities had to align themselves with the strategic plan and attend monthly forums for CFOs to share best practices. An audit committee had been established to audit all audit committees in the group.

Ms Van Damme said she appreciated the progress that had been made but that this was not good enough and the following year the SABC should have a clean audit.

Ms Leah Khumalo, Deputy Chairperson of the SABC Board, said the matters to be fixed were outstanding policy issues and were not financial ones.

On Human Resources, Ms Tsotetsi said that many entities had zero disabled staff but the SABC had three out of five staff but the report did not reflect the gender of the disabled.

Mr Matlala said that general workers were outsourced. He said that the trust in and credibility of the SABC was sacrosanct and the SABC would do everything to earn and maintain that trust.

The Minister said the Department would follow up on the AGSA’s call to address the root causes of poor audit outcomes and of consequence management and for entities to deliver on their mandates. The Department would exercise oversight over its entities. She said the funding of the SABC of 2% needed to be relooked at.

The Chairperson noted that the Media Development and Diversity Agency (MDDA) entity had regressed from the previous year’s clean audit.

The meeting was adjourned.