Proclamation & establishment of new Department of Telecommunications & Postal Services: Departmental briefings; Audit Outcomes: AGSA briefing

Meeting report

Election of Acting Chairperson
The correct procedure was followed, in terms of the NA Rules, to elect an Acting Chairperson, and Ms D Tsotetsi (ANC) duly took the chair.

Briefing by Office of the Auditor-General (AGSA)

Ms Z Nkosi, Representative, AGSA, first showed a short video clip giving an overview of the basic mandate, role and responsibilities of the AGSA. She noted that this presentation would provide Members with the necessary information and guidance on the audit outcomes for the portfolio of Telecommunications and Postal Services to enable this Portfolio Committee to effectively execute its oversight function:

She noted that the Department of Telecommunications and Postal Services (DTPS or the Department)  was previously known as the Department of Communications, and this report by AGSA would also cover the State Information Technology Agency (SITA), which was new to the portfolio. The audit outcomes of the South African Post Office (SAPO) would not be included as they were not yet finalised.

Ms Nkosi noted that in this year, the entire portfolio audit outcome was unqualified audits with no findings - in other words, clean audits, for the first time. However, there were other issues with matters of non-compliance and issues to do with predetermined objectives. In 2012/13 there had been a mixed picture with the portfolio for the Department of Communications (DoC), with SENTECH improving to a clean audit outcome, and one entity which was qualified for the year. This year thus represented a great improvement on the previous two years. She repeated that there had been some issues of non-compliance with laws and regulations, and briefly outlined these (see attached slides for details).

There were several root causes for the outcomes and key controls. There was instability across the portfolio, caused by vacancies in key positions, slow response by management and the lack of consequence management. There should be increased stability within the portfolio, which meant that vacant positions should be filled, and a swift response to issues that had been identified already. Officials also need to be held accountable for not performing their duties adequately. There was also a need to assess capacity building, and the Strategic Plan and APP alignment with the National Development Plan (NDP), as well as assessing the resources needed to actually go through with the plans.

Discussion

Ms J Kilian (ANC) asked for clarity on SAPO, which was said to have been excluded from the audit, but was included under page 10 of the presentation, most likely in error. She noted with appreciation that AGSA's efforts were instilling confidence in the country's ability to review budgetary expenditure as well as to identify weaknesses in the systems. It was encouraging that the interventions by AGSA to clean up some of the outstanding issues made a huge difference, particularly to the financial statements. However, she wanted to understand why there were still so many problems that occurred in the first place, although they had been resolved by the time the statement had been prepared. She asked if this was not an indicator of weaknesses in the control environment. She asked whether AGSA ever checked the performance contracts of staff, or do a sample to identify whether key officials, who carry additional responsibilities, were part of the performance contracts?

Ms Kilian was concerned that the lack of consequence management had been raised as a common these in the findings of all portfolios in which she was involved. She asked why, given the excellent legislation of the Public Finance Management Act (PFMA), with its clear outline and the clear understanding also by the Department of its requirements, there were still instances of non-compliance, and supply chain management issues. The worst transgressors appeared to be SITA and the DTPS, who were responsible for R79 million of irregular expenditure incurred. She asked for how long this would continue to be raised as an issue, without consequences for the officials involved? Sanctions should have been imposed, or at the very least transgressors should have been given a warning, depending on the severity of the offence.

Ms Kilian referred to the last proposal, where it was suggested that the portfolio committee should approve and track changes to strategic planning and annual performance reports. She argued that it would be complex for the Committee to do so, because it was not the executive authority and therefore did not have direct control over the Department. She asked on what basis that suggestion was made, and whether it was not contrary to Constitutional principles of the separation of powers.

Mr C Mackenzie (DA) asked for clarity why the Auditor-General did not measure performance, merely reported on the outcomes. He asked whether, as the media had alleged, a certain audit report did in fact exist, as the media had suggested that it had been leaked, and quoted certain statistics. He also asked when the finalised report for SAPO could be expected, and the reasons why it was delayed, highlighting that the Post Office was clearly an important part of the portfolio. He also asked about irregular expenditure and whether or not that included SAPO.

The Acting Chairperson asked for the exact number of the vacant posts and whether AGSA could verify the available information. She also highlighted that the PFMA stipulated clearly the actions that were to be taken, and asked if these actions were indeed taken when accounting officers failed to perform these duties. It was important to know how to improve on the current situation, although she appreciated that it was already showing some improvements.

Ms M Shinn (DA) asked about the highest contributors to irregular expenditure, particularly SITA, and whether it was part of the Special Investigating Unit (SIU) investigations. She wanted clarity on whether the DTPS was the department in question. She asked to which entity the remarks about the internal controls referred. One area was said not to have been assessed - that of ICT governance controls - and she asked why this had not been assessed.

Ms  Nkosi firstly conceded that there should not have been mention of SAPO in the presentation, and apologised for its inclusion. In relation to the remarks about issues with the financial statements, which had to be corrected by management, she said that the root cause was linked to the lack of stability in some departments - for instance, the DTPS had no Chief Financial Officer for some time. There were indeed problems with the Department's performance contracts, although there were improvements in that the process had been carried out and the contracts attended to timeously. This was not a problem with the rest of the entities such as SITA.  Speaking to the process itself, it was clear, on an examination, that there was definitely room for improvement. when there was a sit down and assessing of the whole process there was definitely room for improvement. There was a need to look at how people could get paid bonuses, and samples of the contracts were checked for whether they were signed and submitted on time.  It was recommended that the daily independent reviews of financial information be used to prevent financial problems at year end, but in fact the problem might in fact lie with the controls and the day-to-day processes.

The fruitless and wasteful expenditure did not involve SAPO, at this stage, because AGSA was not reporting on the financial statements of this entity. Speaking to targets, she said that in previous years the reports showed what percentage was not achieved but that in this year that information was not included. From the Committee's side there could be investigations as to why the targets were not achieved but from the AGSA's side its role was merely to assess whether the systems were in place, and to even get to a point where the Department itself could tell if there were problems in a particular area. She clarified that SAPO as not included because it was not in fact audited by AGSA, but by a private firm, and the audit discussions were ongoing, with no agreement reached and with no finality at this time.

Mr C Mackenzie (DA) asked for clarity on the meaning of the statement that there was no agreement reached.

Ms Nkosi said basically the audited report should have been finalised, and issues sorted out between the auditors and the entity on the audit.

Ms Nkosi moved on to the question of irregular expenditure, giving examples that this included expenditure from not only one year, where something could have been discovered in the current year but incurred in the previous year. The same was true of SITA: some of the problems there happened with the previous years. The majority of the issues here related to procurement issues and quotations that were not obtained properly, along with procurement processes that were continued when they should not have been. She also answered the question about IT controls not being assessed, saying that the assessment was focusing on departments that were generating the financial statements, which was why AGSA did not look at systems for compliance with legislation. IT governance did play a role,not only in relation to disaster recovery but also on how the Department or an entity operated in terms of the day-to-day issues. However, because of the nature of the financial statements, this was more likely to affect the entity.

Noting the question on the role of the Auditor-General in taking action where senior staff members continued to fail to perform their roles as required by the PFMA, she pointed out that this was an area to do with consequence management. The AGSA did constantly isolate where there were problems and raise them, and AGSA would meet, before the engagements with Parliament, with the different stakeholders and role players, reminding them of the problems. There were also quarterly interactions, where there were internal reports that discussed the controls and how well they were working. That was the role that AGSA could play in order to try to achieve a turnaround.

Ms Kilian asked for an explanation on SAPO being a Schedule 2 and not Schedule 3 entity, and why it was entitled to use private auditors, but yet still obligated to submit the audit outcomes in the Annual Report. She also highlighted that there were strict timelines that should be adhered to, and urged that there was a need for the Committee to get the PriceWaterhouseCoopers and Deloitte & Touche financial statements, as well as their comments on the audit findings. The Auditor-General should have also reported on that. It was apparent that there had not been compliance on the timeframes, and she asked if anything had been received, and whether AGSA was aware of any further progress.

Ms Nkosi responded that whilst it was necessary to get the reports on those entities, it must be remembered that AGSA, in terms of a directive, decided, for capacity reasons, that certain entities could be left to be audited by firms with whom AGSA would contract. Those auditors would indeed submit all the information to AGSA, and AGSA interacted with the auditors to understand what was happening in certain entitles. The process of the audit was still under way, and the documents could only be accessed once that was finalised.

Proclamation and establishment of new Department of Telecommunications and Postal Services
Department of Telecommunications and Postal Services briefing
Ms Rosey Sekese, Director General, Department of Telecommunications and Postal Services, gave a brief background to the establishment of the new Department, noting that this was done by the signature of a Presidential Proclamation in July 2014. After this, there had been a process of identifying the different legislation that needed to be considered. She listed the different Acts that were moved to the new portfolio (see attached presentation for full details).

She also noted that discussions were under way on the transfer of functions for the Departments of Telecommunications and Postal Services, Communications, Public Service and Administration and Public Enterprises.

The proposed legislation emanating from this Department during the 2014/15 financial year would be the Electronic Communications and Transactions Amendment Bill, since the principal Act required amendment in order to clarify and expand on certain important matters; it had not been reviewed in over a decade. This would create legal certainty on the online environment.

Other matters for consideration included the transfer of staff, along with the affected units, now that they had been identified. The process of amending Estimates of National Expenditure (ENE) had commenced and oversight of all entities was also under way. Part of this would involve the clarification of confusing issues, roles and responsibilities, along with alignment with national legislation and policies.

Department of Public Service and Administration briefing
Mr Mashwahle Diphofa, Director-General, Department of Public Service and Administration, said that he would omit most of his presentation, since it was a duplication of what had already been outlined by Ms Sekese and she had covered most of the areas he wanted to address. He said he would put more emphasis on other aspects.

Mr Diphofa highlighted the approach that the steering committee had used, which had included ensuring that all the proclamations of the President were addressed. This was to ensure that the departments would not be able to prioritise their own desired processes, but that there would be sufficient attention paid to all the proclamations, transfers and establishments with equal priority. He then addressed the legal matters, saying that these had included the facilitation of the transfer of functions and resources within a financial year. He briefly addressed the issue of overall progress. The ministries had realised that they would have to cooperate on certain areas to fulfill the mandate. In line with that, they had a process whereby there was a Chief State Law Advisor addressing the potential overlaps.

Discussion

Ms M Shinn (DA) acknowledged that this was a presentation on the administrative aspects and not on the political decision-making behind the split. She asked if either of the presenters could give an indication of the time the staff spent on managing the split of the department and the integration, and how this had detracted from their normal jobs, and whether this whole process had been budgeted for, and costed, in financial terms. She asked if the integration process would achieve any efficiencies in terms of reduction in staff or duplications of roles, and if there was a likelihood of more staff employment.

Ms Shinn alluded to reports of a document about the legislative changes that had to take place with regard to the split, asking if this was in fact available, and, if so, when the Committee would get it, but also asked if, in the meantime, the Committee could get some idea of what changes to the law there would be. She wondered if there would be duplication and crossing of turf between the two Ministers, whether this was dealt with in a Memorandum of Understanding. She asked whether the placement of Independent Communications Authority of South Africa (ICASA) in another Department had been considered. She wanted to know some timelines for the amendment of the Electronic Communications and Transactions Act, and when the final drafts would be available.

Ms Shinn commented that the National Cyber Security Framework had not been available for the last two years and she asked for a copy of that document. She also asked for an indication of where the digital migration or costing was residing, given that the entire process came to a halt.

Mr C Mackenzie (DA) commented that before presenting a progress report it would have been helpful for the Committee to be told the starting point, what the end goal was meant to be and how far along that process had gone. He wished Ms Sekese well in .sorting out the overlaps between the ministerial mandates, saying that this was a real challenge.

Mr M Ndlozi (EFF) also thought that it was key to get a proper breakdown of the costing. He too felt that the costing of the split was important, and he wanted to hear more on the political argument as to whether the Department of Communications had to do with propaganda. He was also interested in hearing more about the possible move of ICASA, although he acknowledged that this could have been more of a political question than an administrative one. He questioned what exactly was the problem around the ministerial mandate, and why there seemed to be a problem with sharing between two departments, rather than one. He felt that the advantages and disadvantages of splitting the functions needed to be outlined.

Ms N Ndongeni (ANC) asked if the Department would still be in charge of issuing policy directives related to telecommunications, as well as on Chapter 9 functions, noting that ICASA dealt with commercial, independent and community broadcasting.

The Acting Chairperson also asked if there was any intention to amend the Electronic Communications Act, and, if so, when that was likely to take place. She also asked if there were any new proclamations expected in the process.

Ms Sekese said that some of the questions were better answered by Mr Diphofa, since he was part of the whole reconfiguration process.

Ms Sekese said that the Department was in the process of taking the proposals on the Electronic Communications and Transaction Act to Cabinet, and approval was still required from that side, although the draft Bill was ready. In relation to cyber security there was a framework in place but it was classified, which meant that this prevented its distribution. On digital migration, the Minister was supposed to be in attendance to brief the Members and she had raised this point, when he expressed his commitment to dealing expeditiously with this and the SAPO issues; she suggested that both stand over until the Minister was present for the briefing.

Ms Sekese said that there were many good reasons for the split into two departments, but she did not want to get into debates as to why this might or might not work. There would definitely be a policy issued on telecommunications. She noted that ICASA was the regulator for postal, broadcasting and telecommunications services and that there were already policy directives that were being finalised for submission to the regulator, who would deal with the matters in an interactive process.

Mr Diphofa dealt with the broader cross-cutting issues, referring firstly to Ms Shinn's question on the time that officials spend on shifts of function and how this related to their normal work. The Department of Public Service and Administration (DPSA) supported departments that  asked for support to do the reviews, and allocated officials to do that. Other departments had, for instance, asked for assistance with issues of transfers of staff on an on-going basis, and again, DPSA allocated officials. That meant that the officials within the affected departments were not necessarily taken away from fulfilling their normal duties and responsibilities, but in fact other efficiencies were being introduced in the process. For instance, DPSA had put in place generic functional structures for some sector departments, such as within education, to ensure that new or split departments would not have to start from scratch, but would be given assistance because their functions were similar. This generic system could be tweaked here and there, for purposes of alignment, taking into consideration the contractual challenges. There were a number of these generic functional structures introduced for certain sectors, and that enabled DPSA to move much quicker when supporting departments. In the individual departments themselves there were official project teams that were assigned, and naturally there would have to be some kind of rearrangement to accommodate shifts of staff internally to make sure that there would not be an impact on the work. In regard to staff numbers, he noted that at the beginning, the issue was not so much reduction of staff but rather to identify the functions and make sure that the people who were responsible for those functions followed, although over time departments could revisit their resources and make further changes. The focus had been particularly on discussions between the Presidency, the DPSA and the Chief State Law Advisor around resolving possible areas of overlap. He agreed with Ms Shinn that some of the issues could be dealt with by way of a Memorandum of Understanding.  There were drafts already on the table, and the principals were consulting to resolve all issues. In his assessment, the primary decision on the transfer had already been taken and now the discussions were around the implications, and particularly to ensure that no other department or Ministerial mandate was adversely affected.

Mr Diphofa turned to the questions on costing, and said that DPSA worked from the starting point that appropriations that had already been approved, and these were split in a manner that linked with the functions. There were currently two National Treasury processes on-going, which were  designed to quantify these costs due in March 2015, but outside of those processes, quantifying the actual costs would be difficult, until the strategic planning and Treasury processes were brought together.

Ms Sekese noted that the DTPS did not at this stage have an intention to amend the Electronic Communications Act as a result of the reconfiguration. However, the DTPS was busy with the ICT policy review, and once the White Paper was on the table it would initiate the legislative changes. Previously, only certain technical amendments had been made, leaving the substantial amendments to be incorporated after the ICT Review process. The Department was now completing that review process, and the White Paper would follow.

Ms Shinn noted the comments on costings, but said that usually enterprises would specifically cost their projects. If the money now spent formed part of the appropriations approved last year, then surely this had taken money away from the budget for work that was not being done now. She wanted to know the impact of the split on the actual operations, in terms of both cost and time. She also asked why it was deemed necessary to split the DoC before the policy review process was finalised, and what was the logic behind that split. She described the impact on digital broadcasting as "horrendous", to the point where companies were pulling their investments away from South Africa to Kenya, and repeated that one day, it would be necessary to sit down and do that costing.

Ms Sekese said that in terms of the cost and work there was a need to do some work outside of the
normal day to day operations, but it was more a case of supplementing, and achieving more in terms of the time than the normal work mandate demanded. She declined again to enter into any debate about the split, saying that from her perspective it seemed to make sense as the two ministries had quite distinct roles.

Mr Diphofa noted that the Chief State Law Adviser was involved in the current process, and was assisting with mechanisms to regulate the officials' work.

The Acting Chairperson noted that the Committee was encouraged by the improvements that had taken place, although it was concerned about the irregular and wasteful expenditure, as well as the vacancy rate, because there was a need to have sufficient capacity to implement, and it would be unfortunate if there had to be any investigations into whether people were suitable and adequately qualified for the offices they were holding. The Committee hoped to see more improvements. Some of the pressing issues were related to policy, and these would have to be addressed by the ministers, and the Presidency, and a report must be made at some point to the Committee.

The meeting was adjourned.