The Institute (formerly NEMISA), Sentech, SABC 2012/13 Annual report briefings

Meeting report

The Institute (formerly NEMISA) 2012/13 Annual Report presentation
Dr Molatelo Maloka, Chairperson, The Institute (formerly NEMISA) opened the presentation by giving a broad summary of the year. Mention was made of the integration process of the three institutes, which was now completed, save for a few outstanding matters. These had to do with the moving of assets, transfer of funds from the other two institutes into the new Institute and the human resource matters. The board of directors had finalised and signed off the new business model for the new institute. The new human resource policies had been approved. The integration process was problematic because integration was being handled simultaneously with the ongoing teaching commitments. National Treasury had, with approval from the Department of Communications, funded the new Institute with R15 million. The Institute received an unqualified report from the Auditor-General but there were some regressions in some areas, with wasteful and fruitless expenditure. This was an unavoidable issue, dealing with past errors. In a few weeks The Institute would finalise the strategic plan for the new institute.

Mr Harold M Wesso, Acting Chief Executive Officer, The Institute, commended the work of the Chairperson. There were no corporate government challenge. Initially The Institute had to deliver 134 targets.. Ten (29%) were not achieved, four (24%) were partially achieved and 16 (47%) were achieved. The Institute had been advised to take out some targets that it had had the previous year, which were unattainable, and because of the budget and capacity problems it had  failed to deliver mainly in the areas of research and development. The Minister had granted permission to remove some targets that were not achieved. He repeated that this was a difficult environment of integration, trying to manage ‘NEMISA’ and ‘ISSA’ thus could not fully succeed in achieving its mandate.

85% of The Institute’s equity programmes were approved and assessment had been done by the ‘MICT SETA’. Although The Institute strove for a 100% success rate it could not achieve this. He spoke to the target, not achieved, for registration with the Higher Education Commission (HEC), which was anticipated by the previous board of directors; this had been put on hold until later because this was a difficult and expensive process.

The Institute was able to raise small amounts of funds, by, for example, signing of Memorandums of Understanding (MOUs) with the Gauteng Film Commission, MICT SETA and Grounded Media, raising about R2.7 million. A proper and  well thought through funding model had been delivered to the Department of Communications (DOC or the Department), with a full understanding that it would not be financed at 100% so The Institute would have to seek other funding. It had been quite successful in working with other government departments, such as the Department of Public Service and Administration, where it had been  contracted for administrative work in a pilot scheme to train about 8 000 community development workers in Kwa Zulu Natal and Northern Cape, with a later national rollout.  However the transition period did not create a conducive environment in which funds could be sought. Arising out of a previous NDR Project, The Institute had been promised R8.5 million from the Department of Communications. R5 million was paid off and it was still engaging for the balance of payment. He noted that thirteen episodes could be found on Google, addressing heritage, culture and other related issues being experienced by our people in rural areas.

Due to the new human resource model approved by the board, work was under way to improve and populate the organisation. An IT strategy was needed for the National Office and the CISCO labs, looking into the old one and then integrating the new model in previously developed systems, such as the  ‘virtual hub’. A learner management system to consolidate all the information of the organisation had been done. The new environment demanded an upgrade of technology. Considerations had to be made to get into a new building, but had stalled due to budgetary constraints. The Institute was trying to extend the lease of the premises currently occupied because there was no money for new buildings.

Services did not exclude persons with disabilities, although only one person was being accommodated at the moment, although the new disciplines added to the new Institute meant that an increase in persons with disabilities was likely. The Institute worked with the School for the Blind in Salt River. It wanted to achieve a 50% ratio of women but it was still at 40%. The new strategy included regional delivery of the services and because multi media was required in every province the co-lab environment provided for this. A national e-skills development plan was distributed to the board as well as the Minister, after consultations, and other departments would be collaborating.

Mr Wesso said that he would provide a separate list of information on new students.

Ms Moira Malakalaka, Chief Financial Officer, The Institute, presented on the audit and risk committee structures and the financial statements. The Audit and Risk Committee was chaired by Mr Gaitsiwe Lenepa. It had adopted the Audit Risk Committee charter, evaluated the annual financial statements, adopted a risk management strategy, and strategy around internal controls and had a functioning internal audit. There was a combined effort to build a proper internal and external audits in compliance with the King lll corporate governance principles.

The Directors’ report indicated that The Institute had a net deficit of about R900 000. This was quite an improvement from the deficit of R5 million from the previous year. Income totalled about R14 million. Extra revenue of about R5 million was made from the signed off contracts like the NDR, and community radio. The Institute kept its operational expenditure the same as the previous year, to try to become more profitable. However, it recognised the need to raise  more income to supplement deficits arising from inflation and increase in tax rates.

The Auditor-General (AG) had given an unqualified report but there were findings in respect of pre-determined objectives, as the targets were not specific, as well as findings on non-compliance with laws and regulations and internal controls. A new strategy was then adopted and the targets were changed to be more specific. Compliance with laws and regulations was effected. She explained the irregular expenditure; two suppliers were companies owned or operated by state-paid employees. The supplier data base then revised to ensure more quality assurance was done on suppliers before they were accepted.

The Institute was a small organisation and the new mandate required more staff. Its procurement department only employed two people but with the new checks needed, a third person was brought on board to try and resolve the matter. Suppliers were being subjected to vetting and if they failed they could not be included on The Institute’s supplier data base. This was the first time the organisation had fruitless and wasteful expenditure. This arose from one supplier. The company required a tax clearance certificate, but when SARS did the re-assessment of tax returns between 2000 and 2008 it discovered an outstanding amount of about R400 000, as well a about R172 000 in penalties and taxes. Electronic rather than manual assessments were also now required.  All SARS payments and assessments were being loaded electronically to ensure the same mistake was not repeated. There was, however, an audit trail that allowed for tracking.

A material adjustment was needed on the revenue for receivables, and The Institute was told to be more specific in future on how revenue was recorded. The Institute engaged more robustly with its internal audit in reviewing the financial statements and making sure it complied with the requirements. A 6 month “dry run” testing of the financial statements was done. The Institute had only three audit committee members and half way into the year one audit member resigned, creating a vacancy which was only replaced later by the Department of Communications.

Discussion
Ms R Lesoma (ANC) asked what was the process within The lnstitute, when it presented its business plan and output, and what was done when the outputs were changed. She was asking this question because of the comment that some targets were later revised with the permission of the Minister. She made the point that something “partially achieved” meant that there actually was the potential for full achievement. Ms Lesoma wondered why NEMISA was getting special preference from the Department of Communications, and to write off some unachievable targets, something she had not experienced with any other entity.

Ms Lesoma asked about integration on the policies.

Ms M Shinn (DA) requested a break down on the income of the Institute. She asked why it had such a large staff. She wondered why it was doing consulting, and whether this formed part of the Sector Education and Training Authority (SETA) income. She asked if NEMISA had been paid for training in the Department of Higher Education, and, if so, whether this was reflected in the income statements. She also asked, in respect of the income statements, where the R300 000 for training students from Gauteng was shown, as well as whether sponsorships to fund students from telecommunications companies were reflected, or whether they were paid directly from company to student. She wanted to know, in light of the staff costs of R17 million, how many people were employed, and whether the staff of NEMISA had been paid for 11 or 12 months. She also wanted to know about leave pay, since recently there was a practice where leave pay was commuted into gross national annual salary. She needed clarity on whether staff received 12 months pay, plus leave pay, plus a 13^th cheque. She was concerned that the figures seemed to indicate that The Institute only existed to pay salaries.

Ms Shinn asked if there was a repayment requirement for students who had been given grants to study, how successful the programmes were, whether industry valued the courses and employed the students after graduation, and how many were still in employment.

Mr A Steyn (DA) asked why a legal opinion was needed on the integration process now, instead of at the start of the process. He asked if the directors had sought any outside assessment of whether there was compliance with the fiduciary duties, because he noted, in the Annual Report, that they were entitled, at NEMISA’s expense, to access professional advice on whether a proposed course of action was compliant with King III duties.

Mr Steyn said the document was clear and concise.

Mr Steyn asked why expenditure on salaries was exceeding the income although there were many vacant posts – this should have culminated into a save on this budget, even up to the 50% which was the vacancy rate. He asked why there was such high vacancy, specifically in critical areas like finance.

Mr Steyn asked why the Committee had not been informed earlier of the fact that targets were changed, and wanted comment from the DOC on this. The Institute had presented a strategic plan to the Committee, and the Committee had spent time going through the targets, determining whether or not they were achievable, assessing the budget, getting approval from the NA, only to find that the Minister had permitted a change. He would have thought that NEMISA should have approached Parliament, not the Minister, to request that targets be removed. He remarked that the budget was awarded in the context of the targets. He did appreciate that there were budget cuts, but if targets were not realised, then equivalent savings should have been shown.

Mr Steyn said that the financial statements were very difficult to follow. He asked for more explanation on the following: the huge increase in staff training, other costs of staff, the figure of R172 000 set a side for fines and penalties, whether there was a tax clearance certificate and whether the SARS calculation of amounts owing was correct. He asked why NEMISA had regressed in respect of supply chain management. In conclusion, he believed that the way to get clean audit reports and do good work was to have a small budget, but NEMISA had proved him wrong.

Ms R Morutoa (ANC) requested an exact description of The Institute / NEMISA mandate to allow Members to understand exactly what it was doing.

Ms S Tsebe (ANC) said it was difficult to read the slide presentations. She asked for clarity on the current position of Dr Wesso who was described both as “Acting” and as full-time Chief Executive Officer. She asked in which category of employment the 33% vacancy rate applied. She asked about the work and cost of the consultants at NEMISA and if they were transferring skills. She wanted clarity on gender and persons with disabilities.

The Acting Chairperson asked what measures had been taken to resolve the issue of irregular expenditure. She asked about the appointment of the Chief Executive Officer. She wanted to know how disciplinary matters were dealt with. She asked if NEMISA had an alumni strategy, to follow up on students who graduated.

Mr S Kholwane (ANC) took over as Chairperson at this point.

Dr Molatelo Maloka, Board Chairperson, answered the question on the legal opinion. Prior to integration, the Institute had sought advice on how to proceed because the three bodies, NEMISA, ESI and ISA were on different standing, and it was unsure of the effect of integration on their finance and HR processes. The legal opinion was sought early, not towards the end of the process, and the integration had followed the opinion.

He noted that an external company was procured by the Department of Communications to interview all the directors of the Institute, even doing peer review of them, to satisfy that they qualified for the fiduciary duties assigned to them.

Dr Maloka confirmed that Dr Wesso was Acting Chief Executive Officer. The Institute was still facing challenges in the process of appointing a Chief Executive Officer. The post had been advertised and people interviewed, and a suitable candidate identified. The Minister, however, needed to approve the post. The position of CEO was urgent as The Institute was nearing a critical point of adopting a strategic plan.

Dr Wesso spoke to the partially delivered and non-achieved targets. He said The Institute  had inherited a strategic plan where there was in fact no proper planning around budget, capacity and delivery. A whole section was devoted to research and development but there was no capacity in NEMISA, no budget for this and thus it was impossible to deliver, which was an embarrassment. The then-Minister had been informed of this and had approved the deletion of some targets. He added that although The Institute had intended to deliver on the targets that were “partly-achieved”, it realised, mid-way, that it did not have the budget and requested that it be given permission not to deliver on those targets. It was very ambitious to budget for a 100% success rate.

Dr Wesso said The Institute was trying to impact on other students in collaboration with other universities that were offering new studies – such as PhD. Skilled research was being done there. In Gauteng, and KwaZulu Natal, there were over 230 PhD students in the electronic communications studies fields.

Dr Wesso said that when considering staff, it must be remembered that these included lecturers and teachers. Most of the spending was on staff and the lease, and this would have to be changed in future.

Dr Wesso confirmed that there was an alumni strategy; for example, video clips were done in collaboration with the former students who were establishing small businesses, and during these projects they would be given further training. Alumni met once a year, to find out how and what they were doing, and to offer on going skills development.

Dr Wesso commented on vacancies. The Institute was in a situation where they were moving into a new institution hence decided not to fill positions, but to first finalise the strategy and then deal with the structure. It was trying to develop a new model of a streamlined office at the national level, with collaboration, to reduce overheads and to transfer media to the co-labs. There would be high level collaboration with senior staff at national level.

Dr Wesso said that the mandate, which was received from the DOC, was to ensure access, availability, update and usage of information. The National Development Plan recognised the need for e-skills.

Dr Wesso apologised if any slides were unreadable and said it was due to printing problems.

Dr Wesso noted that The Institute was striving to 50/50 gender representivity, and disabled representation was also important but proved more of a challenge because of the multi-media environment. E-literacy provided much hope for different technologies for people with disabilities, and provided the opportunity to invest. Some members of management at The Institute had visited Korea, and had seen  and wanted to adopt wonderful and advanced technologies available for people with disabilities to utilise ICT.

Dr Wesso said another fundamental tool of The Institute was to get people into jobs, which was often done through the meetings with alumni. A programme in Mpumalanga took SMEs and offered them a cyber leadership course, which led to about three cyber pioneers and an increase in the quality of learners passed out. The Institute’s work all over the country was successful. In Cape Town, there would shortly be an awards ceremony to reward young students at the Tech Lab who had developed mobile applications. In the Gauteng Pro Lab there was a programme with Blackberry which was developed by students, which The Institute wanted to commercialise. He said that, with the right funding, The Institute could grow into a large national initiative.

Ms Malakalaka dealt with questions on the finances. The Institute received R34 million from government. The Accrual Basis of accounting was used for funds in training and management which was challenging, because of the way the financial year operated: the institutions ran a student calendar year from February to December, yet the financial year ran from April to March, so it was difficult to determine what to reflect where. Revenue was recognised on services rendered.  Funds received from different organisations for the funding of students were grouped under “training development”, but were shown for two months of the year. Some students did not pay full costs, but minimal administration costs, and this would be reflected in a specific period. Income came from hiring of studios, and project transfer receivables were at the cost of the company for the multi-year projects. Most of The Institute’s projects were multi-year, hence the overlap in financial years. Contracts would be reflected at a certain value, but this was shown on the accrual basis, similar to student fees and the colleges, so some would be recognised in one financial year while others would show up in another financial year.

The Institute received a tax clearance certificate in January. Fines and penalties were about the fruitless and wasteful expenditure resulting from the tax clearance issue.

Ms Malakalaka said that all employees were salaried at a “cost to company” basis, so they got a basic salary but could structure the rest according to their requirements; they could opt whether they wanted a 13^th cheque, or payment over 12 months. Most opted for the latter. Leave pay was forfeited if, three months after the financial year, the individual had not taken his or her leave. The Institute had about 47% of the employees listed on the staff structure, and 11 others, and there were some who were part-time, and who might later take on work from the vacancies. About half The Institute’s money went to employee costs.

Cost training costs actually went down from R92 000 to R58 000 due to the moderation and assessment costs, as a requirement from the MICT SETA, The Institute paid these to ensure the lecturers were in compliance with SETA standards. Skills training was done to ensure that the lecturers had competent skills to train students and met SETA standards to deliver on the programmes.

Ms Malakalaka explained the findings around irregular expenditure. R700 000 was budgeted for the supply chain management. R250 000 related to money from the previous year, but quotations were not obtained from three suppliers. The procedure followed was being investigated. The Institute wanted to avoid a repeat finding, and was hoping to avoid this because of the training last year, and getting the documents in order.

Ms Malakalaka said that the areas where vacancies were highest were Chief Executive officer, Senior Manager and the new development and marketing areas, and other vacancies related to support staff, comprising lecturers and administrative staff.

Dr Maloka confirmed that the post of CEO for The Institute had been advertised. This was unique in its nature in South Africa, and there were few comparable institutes internationally. Very specific skills were needed. The Board had recommended a candidate who was strongly supported, had the right vision, and knew matters, but the one problem was that this individual had in the meantime been appointed to the Board of the SABC. He was not sure how DOC would solve this; The Institute desperately needed this individual, full time.

Ms Malakalaka said that no disciplinary action was recorded in this year. 

Mr Steyn noted, from the financial statements, that there was a saving of R10 million on compensation of employees but that saving was being used in goods and services. He recalled that if an entity wanted to due virements, it had to get permission from National Treasury to exceed a certain amount. He asked if this permission was sought from National Treasury. Savings did not necessarily have to be moved elsewhere.

Ms Malakalaka said that in this case no permission was required. The budget adjustment process had taken care of the matter. The figures had been increased to accommodate more income, so no permission was needed to fill the deficits, from the surpluses.

Dr Moloka thanked Members for the questions, which helped the Institute to reflect on its work and meet targets, and expressed the hope for close team-work in the future.

The Chairperson thanked the team and hoped, for the sake of The Institute, that the CEO matter would be speedily resolved.

Sentech 2012/13 Annual Report briefing
Ms R Lesoma (ANC) inquired whether the document which was being circulated was the same as given out earlier.

The Chairperson noted that Parliament did not have colour copiers, and asked Members to use the documents they had received in their pigeonholes.

Mr Thabo Mongake, Chairperson of the Board of Directors, Sentech, gave a brief introduction to the presentation.

Mr Setumo Mohapi, Chief Executive Officer, Sentech, began by introducing newly-joined staff and the team supporting him. He noted that the Annual Report (AR) was presented in the context of the mission statement which was that Sentech should enable affordable universal access to communication services, in the context of South Africa’s socio-political imperatives as a developmental state.

In the year ended March 2013, Sentech achieved 80% of its key performance indicators. As requested by this Committee, he would focus on areas where the targets were not achieved. He noted that the external auditors accepted the financial reports, without material modification, and there were no material findings on performance objectives, compliance to laws and regulations or internal controls. Sentech thus had a clean audit, the first time for a decade. In previous year, the AG had qualified on issues of liquidity.

Sentech’s main task was to implement the digital threshold network and it had set a target for 80% population coverage, and achieved over that, before the end of the year. The 80% was based on the frequency plan worked on during the year, and the final target seemed to be 84% coverage of the nation. The remaining 16% needed to reach 100% digital geographical coverage would be done by satellite. Sentech undertook, together with the SABC, to implement the low power low cost services in the areas affected by poor terrain, to access free television or radio services. These targets were met and even exceeded. A specific emphasis was put on the self- help sites. These had been traditionally outside of the determination process. Sentech, together with SABC, had adopted some sites. In relation to broadband it had, for internal reasons, resolved to increase the spectrum for broadband to the regular data. Sentech would still be continuing to participate in the development of the Department of Communications industry at large, particularly with respect to policy and the implementation plans. In general, with respect to connectivity, Sentech continued to use its VSAT product to implement interventions, particularly for education. As part of its mandate, it had provided all the contribution services for the AFCON 2013, in the first part of the year, so just about everyone watching AFCON around the world was doing so from Sentech feeds.  This was delivered with 100% availability, as confirmed by the Local Organising Committee.

This year celebrated the 50^th year of the Sentech Tower, and this provided a specific symbolism for Sentech in dealing with the problems of the past and also preparing for the future. Sentech achieved most of the targets set for network services and availability of its services. It expected to take part in the development of SMMEs, and had set a target based on a journey to a specific level of participation. It had, for instance, achieved 50% of the infrastructure fund spent on level 4 or more data. 1% of the infrastructure spend was spent on qualifying SMMEs, but this had exempted micro enterprises. Sentech was hoping to revise its  enterprise development plan to be more encompassing, and not just look at supply side of goods and services to Sentech, but also the usage of the Sentech platform for creation of businesses for entrepreneurial development. In fact, the enterprise development systems plan had been brought in, significantly to deal with matters beyond the supply of goods and services for Sentech.

Sentech had set a time line of the fourth quarter of the financial year to complete the target model for digital terrestrial television (DTT). However, this was not achieved, because of the many things happening around DTT. Negotiations were still under way with the broadcasters and Sentech had made specific headway with the APT, and was in discussion with SABC and MNET. On behalf of  the community broadcasters, it had approached the Department of Communications to make sure they were aware of the negotiations and implications of the MTC tariff for community broadcasters and were being supported.

The targets for HR security were not achieved. The succession planning was not fully achieved. Sentech had planned to have 100% of all the jobs profiled and graded. It soon became clear that these were quite extensive, and in order to do this properly, more systems needed to be adopted, with the jobs profiling and determination following a skills audit. That, however, could not be done before it was understood exactly what Sentech required. Skills and job requirements needed to be matched, to then compile a development plan for all staff, and this would lead to continuity. 

The core of the Sentech mandate related to television and radio broadcasting and so this business accounted for 93% of Sentech’s revenue. The analogue television tariffs went up by 8% during the financial year, largely driven by the expansion of the universal access by the low power project. Sentech erected 52 new low power sites and self-help sites, and also continued with the roll out of the DTT network. The SABC and some of the community broadcasters were also confirmed to be the DTT network, although other entities operating on temporary DTT licences were still being researched. Alex Community Television and Siyaya Television were granted test licences. In the radio arena, FM accounted for 21% of the revenue. This portfolio grew by about 5%, compared to the previous year, and was also driven by the extension of the universal access to broadcasting services. There was a new tariff margin implemented for community broadcasters. Sentech continued to do the normal upgrades on its FM radio services. Two programmes were developed: one around SABC, on which there were still discussions, and another which was internal, dealing with the replacement of all FM old transmitters. This should reduce the cost of operating services.

South African Broadcasting Corporation (SOC) LTD 2012/13 Annual Report
Ms Ellen Zandile Tshabalala, Chairperson, SABC Board, made some opening remarks on the mandate of the new Board of Directors.

Ms Lulama Mokhobo,  Group Chief Executive Director, SABC, started to present her Annual Report briefing, but this was delayed to try to resolve some issues over which documents Committee Members should use.

Although she proposed that Members use the hard copies of a report with similar context, for the moment, some Members questioned whether she was not intending to give an abridged presentation.

Ms S Tsebe (ANC) and the Chairperson suggested that the SABC should proceed straight to a discussion session.

Ms R Lesoma (ANC) objected, suggesting that it would be unreasonable to deviate from the approach adopted with all other entities.

Ms J Kilian (COPE) suggested that questions be asked on each chapter of the AR in turn, but noted that these could related to the Auditor-General’s whole report.

Ms R Morutoa (ANC) supported Ms Lesoma, and suggested a short recess to allow the proper documents to be circulated, and this was done.

The Chairperson said, on resumption of the meeting, that the fault with the documentation confusion did not lie with the SABC, but with the Committee’s support staff.

Ms Mokhobo then gave an overview of performance and said that the 2012/13 year was premised on trying to ensure that the SABC remained a going concern. Despite considerable challenges this was done. She reminded Members that the broadcast environment was highly competitive. By end of March 2013, the SABC group of companies showed an after-tax profit of R330 million, 4% lower than the previous financial year, but it also had exceeded some targets.

The Chairperson interjected to say that SABC should limit its presentation to 45 minutes and Ms Mokhobo said that in that case she would skip some of the slides.

Ms Mokhobo noted that that the annual returns figure was R6.567 billion. SABC had met the overall targets, as specified in the Government Guarantee, and was operating under the National Treasury’s Government guarantee requirements. Notably, while SABC was afforded the ability to raise R1.73 billion in bank loans, it had only raised R1 billion and out of that it had managed to repay R833 million of the capital portion, and interest of R216 million against the Guarantee. This left R167 million and interest of R3 million still to be paid.

SABC was s very advanced in terms of DTT planning, it was demonstrably able to broadcast on DTT and what was left was for the system to switch on. On an important note, SABC was equally fully complaint with Direct To Home (DTH) policies. Furthermore, SABC had entered into a relationship with Sentech to help it reach areas that were initially inaccessible. In relation to universal access to radio and television, SABCs’ weekly audiences on radio had grown from 26.6 million in June 2011 to 28.2 million in June 2012. This attested to the power of the radio medium in South Africa. Prime time audiences, however, remained stagnant at 57%.

Mr Tian Olivier, Acting Chief Financial Officer, SABC, presented on the financial performance (see attached presentation). He drew attention to differences between the last and current financial years. In the previous years explanations were not given on the variance of the budget expenditures, but it had been done this year. The statements had been brought in line with National Treasury requirements. 

Highlights of the financial year were outlined. These included the growth of its revenue by 4% from the previous financial year. Some targets were missed, specifically with television advertising. The main reason behind this failure was the decrease of finances from the audience viewers, which went from 57% to 53%. This was related to the difficulties in the measurement of its viewers, which had previously been raised. SABC was now looking to setting up separate and more accurate methods of measuring its audiences. Radio performed well in generating revenue, especially for advertising, and all stakeholders were happy with this performance.

 Sponsorships remained under pressure, especially sports sponsorships. This had been attributed to the after effects of the World Cup 2010, as large corporations were pulling out of sports sponsorship. TV licences were lower than budget but had managed the Corporation’s net revenue by R21 million. Other revenues, such as SMSs, merchandise sales and other related items were all lower than budget. Contributional revenues attained from DVDs and CD sales had decreased over the years as people have moved away from that type of content; they would rather download the merchandise than buy CDs and DVDs. Overall, SABC had grown its revenue by 4%.

Expenditure increased by 6% in comparison to the previous financial year. Cost increases, however, were contained, equal to that 6%. Amortisation costs for TV programmes and sports under spent by R103 million, but under-expenditure had to do with the clean up from the previous years’ pending matters. Correcting journal entries were passed in this year. This had caused several headaches; for the current and previous year’s movements had to be reconciled.  This was the main reason for the qualification on the TV statements. Cash investment in new content was also below budget, because SABC had not published its usual book, although one was pending at the moment.

The salary budget shows increases, specially on the valuation of gross retirement funds, medical aid and pension fund benefits. There was also a 9.5% salary increase, although SABC had budgeted for inflation plus 1%, which was not substantially different in the end.

Marketing expenditure was more or less contained. After a lengthy tender process, the SABC appointed a marketing agency to help put its marketing message out, and it would be expecting more growth in that field in the coming year. Revenue collection costs now included the cost of advertising fees and SABC had to set right the way it recorded the advertising agency collection costs to comply with the IFRS requirements. TV collection was R40 million below budget, because revenue was lower, but postage costs for licenses were contained by bulk-buy of pre-paid envelopes. 

The pressure SABC had in terms of meeting the Government Guarantee related purely to the revenue side. He reiterated that SABC had missed its revenue targets by R600 million, because of decline in TV advertising and sports sponsorship. However, costs were well contained. For Government Guarantee purposes, a surplus of R377 million was attained by the end of the financial year. However, he hastened to add that the Government Guarantee calculations did not look at post retirement, medical and pension fund liabilities and tax, so this was the reason why two different figures appeared.

Cash management was well managed and he referred Members to the financial reports at pages 80 to 88 of the Annual Report. In April, when presenting the corporate plan, SABC had noted that it was not chasing super-profits, but hoping to make sufficient profits to keep its cash flow healthy. Cash in hand at the end of the financial year was R1 billion, after it had made an accelerated payment on the Nedbank loan, to clear this debt, on 13 September 2013.

Ms Mokhobo spoke to Delivery of the Mandate, noting that against this, SABC fared quite well. It continued to delivery the TV mandate, although it continued to struggle in relation to use of marginalised languages on prime time. The production sectors were dealing with this. More producers were being encouraged to produce in the lesser-used languages. SABC News and Current Affairs provided content for 18 radio stations, three television channels, the digital media and also at this point the 24 hour news channel. The production output of the news division was shown (see attached presentation). All content would also be aggregated on to the 24 hour news channel. SABC news on YouTube acquired over a million hits, so the digital strategy was looking at that.

Ms Mokhobo was asked by the Chairperson to highlight the achievements.

Ms Mokhobo said that SABC continued to receive excellence awards in the previous year. It was voted the best television station by the ‘‘annual Styles Readers’ choice award’’, its marketing department was awarded best directing for ‘‘MAMA AFRICA awards’’, it had also been awarded three silver awards at the prestigious ‘‘Promax/BDA’’ Africa award. Further, SABC content hub continued to produce excellent programmes. Two awards went to ‘Jam Sandwich’ and ‘Noot Vir Noot’, and Andrew Wessels received one for ‘Sobukwe: A great soul’ as Best Editors of documentary feature. Its religious programmes had also been awarded, including ‘I AM WOMAN’ in an out-film festival. Drama programmes had also scooped several awards with ‘Erfsondes’ emerging the great winner with the best cinematography award. Best television design on television series in this category was awarded to ‘Zone 14’. Soapies equally obtained awards with ‘Isidingo’ being the leading soapie from a quality perspective as well as an award perspective, and ‘7de Laan’ falling in second place. This was refreshing for SABC because this showed the recognition amongst its peers in the industry. Furthermore, UKHOZI Radio Station  still remained the prime radio station in South Africa with a listening base of over 7 million people, and was still growing. This shows loyalty and appreciation of the people on the delivery of content in their own languages.

Ms Tshabalala Chairperson Board of Directors (SABC) summarised that SABC was not happy with the qualified audit. It had publicly acknowledged the existence of some challenges in their business and was dealing with them vigorously. Measures were being taken to resolve the problems, working with the AG. SABC had done an interim audit and this team was in interacting with the office of the AG to find solutions to the concerns. She repeated her pleasure on achieving against the Government Guarantee. The payment ahead of time meant that SABC had managed to save R45 million, which could now be put to moving forward on its own plans.

Discussion
Ms L Van Der Merwe (IFP) started with the issue of the AG report and how it played out in the media. Equally, the reports on TV licences as played out in the media had caused unhappiness to the population who initially believed paying a television licence was not the right thing to do, then woke up to media reports of television licence money missing. She asked what happened and whether SABC was caught on the wrong foot when it hit the media. She thought that the television licences were part of the cash and accrual reports and believed SABC should have communicated this to the Portfolio Committee before it went to the media. The damage was done, and the public believed that there was a problem. A critical issue appeared in the report on the raising of the licence collection fee, against the public’s perception that the licence fees disappeared and she doubted whether the public would be willing to pay the increased rate. If the media had given inaccurate reports, then this should have been addressed and appropriate damage control done.

Ms van der Merwe asked where the R1.5 billion went, as well as comment on the journals that could not be produced. Whilst she accepted that SABC was a huge corporation with many offices, the AG had alleged that sufficient time had been given to get the documentation. She asked who in SABC would be held liable for this incompetence.

Ms van der Merwe asked about the incorrect citation of staff and other editorial mistakes in the AR. She asked if one staff member held two posts, and whether he was getting a double salary.

Ms van der Merwe noted inaccuracy in viewership statistics and asked how SABC would minimise the revenue losses from these mistakes.

Ms van der Merwe asked how R800 million budgeted for local content had been apportioned, whether on local or international content, or sporting rights.

Ms van der Merwe asked how the new leave policy was to be implemented.

Ms van der Merwe was aware of the appointment of the new board and therefore would not ask  about board meetings, save to mention that some of the current board, when on the previous board, did not attend meetings.

Ms M Shinn (DA) congratulated SABC on paying back its Government loan. She requested for an assurance whether the initial Treasury requirements underlying the loan would be implemented, pointing out that the repayment did not mean that the ship was on course yet.

The AG’s remarks showed no change in management style, and indeed even some regression.  The list of qualifications raised the old issues again, and some new ones.  belonged to the same batch of old issues with a few new ones, and she mentioned property, licensing, revenue and trade and other receivables, taxation expenditure, post retirement valuation as problems.

Ms Shinn said that SABC lacked skilled staff in divisions like finance, leaving a huge gap, but was over-staffed in others. She asked what was being done to balance this skills imbalance appropriately, because at the moment the Corporation was still going backwards. The process had been initiated three to four years ago and should have been sorted out.

Ms Shinn said that the presentation did not touch on any pending law suits. She wondered if there was provision for contingencies, reminding SABC of the incidents of 2009, when it had spent nearly R11 million resolving staff disputes. Many of the disputes listed on page 121 of the AR were staff who were unhappy about the way they had been handled, although the courts must decide on the merits. The fact that staff were ‘so enthusiastic’ to sue the SABC could be impacted by the way it failed to  resolve matters internally, in an amicable manner.  She thought the claim where an ex-staff was claiming R 120 million from SABC need not be condoned, because of the amount, and noted that it was not reflected further on in the financial statements.

Ms Shinn commented on asset management. As presented on Page 83 of the AR, no proper safeguards or control systems had been established and there were equally no accounting records for non current assets, despite the fact that the asset value was huge, specifically the creative content.  There was no measure of value for what SABC’s archives were worth, even though some referred to it as a national treasure, and it must be  properly evaluated and managed.

Ms Shinn noted the data showing R181 million outstanding for more than 121 days, and asked who owed this, and for what. She commended SABC for writing off bad debt to R35 million, but wondered why it was not collecting monies due to the company.

Ms J Kilian (COPE) asked whether there was any human resource firm involved in some of the initial restructuring, to make provision for certain divisions reporting directly to the Chief Operating Officer. It was evident that there was a skills audit to get more qualified skills in specific departments. The Committee did not want a piecemeal approach, but also a complete overhaul of the structure.

She was concerned by the note on page 62, that the SABC internal control function resided within the operational division, instead of having a separate division – this posed a specific risk, and she said that urgent attention would have to be paid to proper reporting lines.

Ms Kilian asked what the Board would be doing about the declining audiences, mainly blamed on a scheduling problem. There had been persistent problems with scheduling which impacted on advertising revenue, and the whole operation suffering. People would have to understand what they were sponsoring and where to focus their advertising.

Ms Kilian noted the increase in the cost of non-permanent staff, which grew 70% year on year, and was R20 million higher than budget. It was relying on some freelancers to fill some slots, yet the headcount had not actually decreased. This supported the comment by her colleagues that there was a disjuncture between skills available and skills required. This situation was not sustainable, particularly in view of declining revenue. SABC had previously had a bail out from government in 2009/2010 and had to watch this in future.

Ms Kilian said that a number of units did not use the allocated budgets, although the turnaround strategy had ended in the previous year, and she asked why it was ended or abandoned, after the November 2010 presentation. Ms Kilian agreed with previous remarks that it was one matter to pay the loan, but another to make sure that the operational structure and operations were on track. She also wondered why the editorial review process was halted. She had asked questions on this at earlier meetings this year, and she still believed that she was owed an answer. People were invited for an Editorial Policy Review, through the Sea Point office, but it was clearly a national project and should not be run through the provinces. The Committee needed to know what the provinces were doing.

Ms Kilian said that although the current board was not responsible for the past year’s financial report,  she requested an undertaking that it would take seriously the matters raised by the AG. She had been shocked by several matters, especially that the Audit Committee only sat four times. The Risk Committee, mandated to look at the risks of the organisation was equally lacking in checking contingent liabilities. The legal costs were huge, because of irresponsibility. The current Board would be failing in its fiduciary responsibilities if it did not identify the weaknesses, face them head on, stop trying to deny them, and tackle them one after another. She described the current AR as akin to reading a thriller, although it was actually very worrying, because undertakings had been given about ensuring good corporate governance. A disclaimer – the worst of its kind – was given. Parliament would have to engage with the SABC regularly after the elections. Everyone wanted to see the SABC perform. Parliament could not be fooled any longer on what had been identified now as very serious weaknesses.

Mr Steyn congratulated SABC for the YouTube hits, but hastened to add that of course SABC really needed to concentrate on getting an award for a clean audit. Following up on Ms Kilian’s remarks, he said that the SABC should not be proud of taking the prize for the worst-performing entity. He wondered if the financial statements were even worth the glossy paper on which they were printed. SABC financial statements sounded well and good, with the mention of a surplus, and paying off the bank loan, but the income and the expenditure showed why it had achieved a surplus – it had simply not spent. For SABC to spend only 20% of the taxpayer’s budget was simply unacceptable. He said that surely a target to increase viewership should be linked to having better content. Every target was under-achieved.  The company’s revenue was also below target and this was not a rosy picture. All of what had been said would have to be taken with a large pinch of salt.

Mr Steyn said that there was a mention of the skills audit, but this was not completed or made available to the members of the Committee. He wanted to know when it would be made available or even when the preliminary findings could be released, to tell the Committee what percentage of the staff had the right qualifications for their job, and what level of mismatch existed.

Mr Steyn emphasised the need to state what went wrong; a failure to do so would be neglecting responsibilities. Careful attention must be paid to the basis for the disclaimer. He was shocked and saddened to see the AG unable to verify findings. Every single feature on the income statement, like property, plant, tangible assets, trade, other receivables, expenditure and possibly time and evaluation all needed attention. The entire organisation was in disarray. This had not happened yesterday or last year, it had come over a period of years and he wondered why there were never any improvements, with the audit regressing to a disclaimer. This was simply unacceptable. He acknowledged the new board of directors who could not really talk to the previous matters, but also noted that since management had not changed, they should be able to answer the Committee.

Mr Steyn asked why SABC wanted the Committee to accept the presentation, and he personally needed convincing that the financial statements were correct, and could not support what had been said.

Ms W Newhoudt-Druchen (ANC) welcomed the new board of SABC. She questioned the statements around DTT readiness, saying that SABC had indicated that it would comply with the request for information to submit for subtitling, in TV programmes, but wanted to know why, still, there was only a Request for Information attended to. This Committee had held public hearings, with the DOC, and confirmed that SABC standards required adherence with subtitling. This meeting needed information on preparation for the subtitling service. Previous presentations noted that research had been done, at a cost of R41 000, of the cost of subtitling for a person watching TV all day, one day a week. The total viewing hours watched were 240 over four days for a hearing person, whilst the deaf only had access to about 39 captioning hours. A request had been made to increase this, but no confirmation given. Every time SABC came to the Committee, the same requests for information had to be made.  She enquired if the Deputy Chairperson had been provided with Braille material of the presentation, or an audio text, and sincerely hoped that the SABC Board would start by assisting him, and take that example to other minority groups. She advised SABC to liaise with other organisations doing well in providing Braille information.

Ms Lesoma welcomed the new board of directors of SABC and assured them of support from the Portfolio Committee on Communications. She acknowledged the successes of SABC, in regard to the payment of the loan, and said that this was one good thing. However, on a far more serious note, the AG had noted matters that were disrupting the operational process of the SABC, and these were very similar to those raised in the previous years. One thing remained constant – management. She wondered if the SABC would have performed differently with another management composition. She asked if there had been any oversight on this.

Ms Lesoma referred to Mr Steyn’s remarks and said that it was unfortunate, because it was not for the Committee accept or not accept the report from the SABC, which was water under the bridge. The Committee would have to  deal with the problematic issues raised in that report. She repeated a question asked last year of the dissolved board, and hoped the new board might answer on the  revenue collection strategy, which seemed very weak, and did not appear to ensure that SABC received what was due to it. This related not only to licences but also other revenue, as SABC seemed to fall short of collecting. She asked why, and how this related to the surplus and the increase in licence fees.

Ms Lesoma wondered why the presentation had not spoken to unachievable targets, which indicated that the SABC was moving back instead of forward. Some matters had been outstanding for years, and were definitely not going to be achieved. She asked what mitigating factors were put in place, and where SABC had gone wrong. She asked about the spending on consultants and what they did. Performance issues should rest in HR. She asked if SABC had an internal assessment, or organisational performance tool, to help it pick up on any issues. The AG had again questioned the usefulness of information, and this was a matter that concerned not so much the Board, but management. She noted that the financial reports noted that some individuals were to get bonuses, and asked how these could be justified on the current performance. She continued to hope that the SABC would see change.

Ms A Muthambi (ANC) also spoke to bonuses paid in 2011, 2012 and 2013, and said that this was a challenge to the new Board, despite the fact that in those years SABC got two qualified audits with findings and one disclaimer. She singled out one employee, just for example, saying that Mr A Heinz, an executive who was already earning a sizeable amount go additional bonus payments of R2 million, R1.5 million in bonus and R3 million. She suggested that this was rather on the high side! She demanded to know what this man did at the SABC and why this was justified, against the backdrop of the audit results, and the R18 million irregular expenditure. She was aware of disciplinary steps around  irregular expenditure but was worried that this had been condoned by the Chief Financial Officer, and questioned why this person had the power to do that. She demanded a list of names and their roles, of people involved in the condoning. There had now been ample time to resolve the issues. The Public Finance Management Act (PFMA) set out responsibility. She also called for a breakdown of fraudulent expenditure, including what actions had been taken. The SABC was also apparently still seized with the matter of the suspension of the Chief Financial Officer, a matter ongoing for more than a year,  which was very worrisome. This was a simple case, straightforward and with evidence, and it was simply unacceptable that it be dragged out. SABC was paying this person instead of completing the matter. The Committee had to get an update on this as well. Finally, she wanted a list of all investigations, saying that these had been ongoing since 31 July 2013.

Ms S Tsebe (ANC) acknowledged the board of directors as new, despite the interim board process, and hoped the new members were ready for the task ahead of them and had taken note of the challenges facing SABC. The SABC was “the big elephant in the room” and she hoped the new board was up to the task of assisting the Committee in dealing with it.

Ms Tsebe shared the concerns of Ms Kilian around non-permanent staff members, asked how they were employed, and whether it was compliant with the labour laws.

Ms Tsebe said that the annual report showed that the audit committee was not doing its work properly and she enquired if it was functional, what were its challenges and were they addressed. She too reiterated that many of the issues were not new, and had hindered the old, interim and new board. The problems must be addressed.

Ms Tsebe asked for progress on the 300 low power transmitters, how many were erected to date, and what their challenges were. Sentech had earlier reported on this and she wanted to hear from the SABC. She also wanted more clarity on gender employment levels, the criteria for the award of bursaries at SABC worth R4.2 million under the bursary scheme.

Ms Tsebe said that her main concern was about leadership. When a new board took over, it needed to ensure that all important components of SABC were working together, as the AG had raised the point that the leadership was not considering all concerns holistically. If the Chief Executive was not pulling the team together, the challenges would continue. She wondered if there was anything being done at SABC to ensure that the challenges did not recur year after year. On a serious note, she said that the names of the new Board were recommended because their CVs indicated that they were up to the task, and pleaded with the Board not to disappoint Parliament.

Ms R Morutoa (ANC) said that it was a matter of public knowledge that the SABC had had many interim boards, but it was not yet known who did matters correctly, who had effected improvements, and where. She hoped they could address challenges.
She said there had been many leadership failures leading to the dissolution of the former board, and suspensions in key leadership positions. She asked whether the leadership team at SABC was prepared to deal with these problems and improve on its current situation.

Ms Morutoa repeated remarks that there were inadequacies in financial and performance management, reviewing and compliance with applicable laws and regulations. All these had earlier been raised, and she now wanted a progress report, showing exactly how the SABC had improved.

Ms Morutoa quipped that it was not just her age that made her worry about the post-retirement valuation, and the fact that certain employees were omitted from the calculations, because there were material differences in figures. She asked what specifically would be done about this; it had been neglected in the past. She did not want to isolate the Accounting Officer from the rest of the team at SABC and stressed that they all had to work together. 

Mr C Kekana (ANC) asked how SABC staff were rewarded; he thought that rewards, such as remuneration and bonuses, were given for performance, and if an institution had such serious problems they should not be taking home millions by way of rewards.

Ms Tshabalala thanked members for the questions posed which were very profound. Speaking from her viewpoint as previous interim board Chairperson, she said that the interim board had observed certain mistakes on the report but unfortunately could not have these corrected, and she apologised for this. There was also a mistake in the compilation of the list of board members in the report, and one had been excluded, giving the wrong impression that there had been no activity from her side. She was pleased to see the depth of reading done by Members of this Committee.

From the interim board perspective, it had observed that measures had to be put in place to measure the progress and the deliverables of management. The AG was very helpful, both to the interim board and the management. Management perhaps had not taken the AG recommendations seriously; including responding that they did not have the information sought by the AG. The interim board wanted to express strong concerns to the new board about the seriousness of the findings of the Auditor General and the need for transparency of the Auditor General in sharing information with the board, which would allow the Board to decide, if anyone had ignored requests, what disciplinary action was needed. Management had been asked to draft remedial plans, which were work shopped through the Audit Committee. A summary of what the interim board saw as key issues was done. The new Board was prepared to discipline and dismiss employees not complying with the mandate.

She noted that the disability of the Deputy Chairperson of the Board illustrated the capacity of the disabled to deliver in key posts. The Board had discussed with him what resources he needed and an external supplier was used for the braille service, whilst he would have to travel with someone who assisted him in travel and venues.

She noted that the leave policy and skills audit were delayed, being handed to the Board in August instead of May. Management was still dealing with matters highlighted in the skills report, but the new Group Executives were appraised on the existing challenges and the urgency needed in resolving these issues.

Ms Tshabalala said the interim board shared the Committee’s concerns that employees did not rely on the internal structures of SABC to resolve their conflicts, but chose to seek redress from the courts, thinking that they might get better solutions and more money if they followed this route. The new board would have to address the employees on this matter and assure them of measures in which they were confident. There had been low morale, but this had been mitigated.  

Ms Tshabalala confirmed that the concerns about the digital horizon were valid and SABC’s legal team had been asked to list the litigation matters and bring them to the attention of the board, which was assessing the risk and costs. Certain matters would have to await the finding of the courts.  

She noted that the SABC and Minister of Communications were urging early resolution of the action relating to the former Chief Financial Officer. He had exhausted the High Court remedies.

Ms Mokhobo added that there were delays because this individual had chosen to be represented by Senior Counsel who requested several postponements. The few remaining questions should be dealt with on 28 October. Because this was a sitting with external legal teams, it could not be hastened. Two more serious matters with criminal implications had been set down for hearings, and a list would be sent to the Committee on the progress in other similar matters.

Ms Tshabalala said that the AG was very clear about the failure in the leadership structure, and had stressed that had the 2011/12 audit concerns been addressed, it was possible that SABC may not have deteriorated to a disclaimer. The new Board had noted where the bottlenecks were and was dealing with them. There was an acceptance that the situation was wrong and unacceptable. The new Board had the skills, she believed, and was prepared to work hard to remedy the situation.

Ms Mokhobo confirmed that the findings of the AG were nothing to be proud of.

Ms Mokhobo answered questions on the TV licences, and the manner in which the information was publicised, saying that when the AR was filed, certain information had been taken by certain individuals to the media. SABC was wary of going public with a document that had just been filed but not yet interrogated by Parliament, and was caught off-guard. It was trying to mitigate any harmful effects by explaining it through various media platforms.

Ms Mokhobo explained the apparent double-listing of an employee, saying that he had been Group Executive: Stakeholder Relations but was also at one point Acting Chief Operations Officer.

She noted that the revenue losses due to incorrect audience measurements were being addressed by the total broadcast industry. One of the former board members was now working with the entire industry, to ensure matters were properly addressed. Broadcasters had withdrawn contracts with the current service provider, and there was time allowed to complete the programme. Meantime another plan was being made. South African Audience Measurement Organisation was a combination of print and electronic media, which in itself had been problematic. Hopefully, with the new tool, SABC would be able to report better and this should also address the AG comments on insufficient evidence to back up figures.

She confirmed that SABC had difficulties with local and international sports rights, because they tended to happen last-minute, so that contracts were only finalised subsequent to the games, hence were listed as irregular expenditure.

In respect of content, it was clear that dedicated channels were needed for news and sports, and the 24-hour news channel was running content properly and amortising it without writing off.

Ms Mokhobo said that leave policy, and whether leave days could be taken in money, were now sorted out, through a proper policy overseen by the board and discussed with unions. There were some cases where leave might accumulate and the staff member be unable to take it, but the company wanted to not have high provision for leave and deal with it properly through the books.

On the organisational structure, she explained that the word “executive” had been added to the role, to try to distinguish between board and the executive director. Some companies had looked into structure, including Deloitte Touche and the structure had now to be implemented. This linked into the question of how many staff there were. When she came into the SABC, there were a number of acting appointments at the top. There was no permanent group executive officer, or head of strategy, or head of procurement, or chief of technology, and the Chief Financial Officer was later suspended.  The human capacity service was also headed by an acting person, as were the heads of Television, Radio and News. Even the skills available were insufficient. People did not know what to do, or how to do it. The skills audit indicated that only 40% of people between general management and executive management level had the qualification and the skills to be in their jobs. Her team was trying its hardest, but could not deliver because they lacked the skills and capability to do the work. It was part of the problem that arose from the austerity measures implemented when SABC ran into financial trouble, which had tried to cut down on the cost of human capital, and appoint people on short-term contract, but this led to the situation where at the end of the contract, the person would not be replaced. This situation remained until the interim board came in. Five of the key positions had now been filled, and the staff started on 1 June 2013, although the Head of Strategy had only worked for one month before leaving again. She appreciated the work that the interim board had done in seeing, understanding and acting on the problems. She fully accepted that no explanation would ever be fully satisfactory, but the situation would hopefully now change.

In relation to performance management and payment of bonuses, she noted that a performance management system had been set up and contracts were drawn, with existing contracts being assessed. She said that the executive at the SABC was quite cohesive, but at times the external challenges and difficult circumstances made engagements “robust” and at time not solvable.

The problems at SABC took focus away from delivery on marketing and content, two very important things on which SABC was supposed to deliver. There were, again, inadequate skills. For instance, in the Content hub, many excellent skills were lost and not regained. SABC was now trying, now that its financial situation was better, to bringing those still needed. The SABC had now appointed a series of marketing companies to help on the specific portfolios since the funds were also now available to afford the service.

In relation to bonuses she explained that SABC had a particular agreement with the sales division. Mr A Heinz, whose payments were cited as an example, was Group Executive responsible for the sales team and his contract was unique in that his remuneration was tied in to the revenues brought in. This was an old system established a long time ago, and was being reviewed, and proposals were being made to the board that SABC should migrate from paying set remuneration to commission schemes, which should obviate clearing difficulties. The other two instances cited were acting staff, and when their contract terms ended, they were released, with a parting payout to thank them for their hard work. No further bonuses were paid to executives.

Ms Mokhobo said that it was key to note that when SABC migrated, in around 2008, from using the Generally Accepted Accounting Practices (GAAP) to International Financial Reporting Systems (IFRS) the migration was not done properly, but this was not realised until the AG had done a full evaluation, and he had reported a distortion of the accounting methodology. This resulted in the finding  that the AG could not attest to the accuracy of the figures.

Ms Mokhobo responded to the concerns around access and subtitling by saying that quite a lot of work had been done, and it must be remembered that the Request for Proposals happened in the 2012/13 financial year. By now, the system had now been acquired and was operating. Other than for news and current affairs which were produced externally, SABC had now been able to cover wall-to-wall with subtitling, although she did concede that there was an issue with “Generations” which subtitled only for non-English speech. Issues relating to people with disabilities were taken very seriously and their needs taken into account in all kinds of programming.

She noted that the work on the turnaround strategy was done by the previous board, under Dr Ngubane, and Deloitte had assisted with this. However, there were then issues with that board and a disjunct in how the work should unfold, with the reality being that there were disagreements within the Board. Because of this, it was suggested that the Deloitte work should not continue, although in fact the key principles around the work that had to be done were being applied as far as possible.

Mr Olivier spoke to matters in relation to the audit. An Audit Action Plan had been put in place, as part of the shareholder compact with the DOC. The IFRS matters could probably be solved by year end, as well as others. A company had been appointed to assist the finance department at SABC with IFRS training, which would start in October or November 2013

On assets, SABC had to review the useful life and the useful value of its assets. Mr Olivier explained that many assets were at zero costing, which was problematic as they were still being used, but no value was attached. This impacted on the financial statements and the tax position of the SABC. SABC was still working on programme form and sports rights, as these had to be costed by year-end. A service provider was brought in to check the work of staff. Irregular expenditure needed a long-term fix, as it involved fixing the internal control environment. Intangible assets could be reviewed by year end. There were not many software or computer systems used, and a number of them had depreciated long ago. He agreed that a proper value had to be allocated to television licences, according to the IFRS standard, after which it would be depreciated. An individual review was needed, line by line, of all available data, and compared to the global review.

Mr Olivier said that licence fee revenue was a problem. Here, the SABC had adopted a cash-basis collection strategy, but needed permission from the Minister to continue this. It could only be given for a grace period of three years, after which the accrual basis must be used for collection. The television licence system was designed around receipts and cash, and failed to account for a receipt or deposit in the past financial year. There were now reconciliation processes in place, which would comply with the payment association requirements of the Reserve Bank. Only cash transactions would be recorded in the balance sheet. He said that every cent could be accounted for.  

Mr Olivier spoke to benefits. Over 120 staff qualified for medical aid but did not use it, because they may be included in a spouse’s scheme. Because they were entitled to it, and may choose it on retirement, provision was needed for it.

The tax issues involved two matters. One was withholding tax, the other related to data for television licences. The withholding tax was cleared, but the assessment not finalised. R55 million was due to SARS, but the budget was R68 million, an over-provision.

SABC had not been able to provide and produce all the supporting documents regarding expenditure, such as journals. In future, they would be collected in time to meet AG deadlines. There was a backlog of un-traced documents, which had been problematic at audit time. SABC needed to have a strategy for tracing data older than three years. The AG had given time for documents to be traced but the deadlines were missed. He had been attempting to use volunteer staff, given the huge vacancy rate, and the fact that no financial statements were kept properly for over six months. SABC had a three-year plan for a clean audit, but needed support from all internal units at SABC and the AG. A direct reporting line to the CFO had been implemented between the members of the different business units, and their balance sheets were being cleaned up with the help of a business team. The finance department was also looking at centralising some of the financial processes, like the small amounts for licensing.

Mr Olivier detailed some steps that SABC had to take. It must review its business processes, policies and procedures, a long term issue. A compliance manager post must be created, to help with compliance management at SABC. Depreciation was a problem as SABC was depreciating its assets too fast in the books and using them longer than intended. The value of cash-flow generation had to be investigated

Mr Oliver said that in addition to the work of cleaning up the content of the financial statements, there were also problems in constructing the notes to the financial statements. A gap in internal charges caused difficulty in reconciliations and in future they would be dealt with quarterly. Other receivables would be reviewed on an individual basis, instead of over 120 days, and the impairment policy would also be reconsidered.

Mr Olivier spoke to matters involving SARS. As stated already, the tax clearance and withholding had been settled with the payment of R55 million. This left the SABC with a R13 million surplus as there was an over-budget, which would be credited to the income statement. He noted that although for accounting purposes, SARS dealt with licensing revenue on a cash basis, SARS for tax purposes used the accrual basis, which allowed 100% claims for the TV licences not received. The last ruling on this was in 2007. Contrary to the impression in some media reports, SABC had paid taxes and would pay more when finally assessed.

He added that for the future, source documents have been attached to the journals before they were released for approval, and he was working on getting proper filing systems in place.  However there were problems in getting documents ready for the procurement processes like tenders, and this was also being looked into. Documents that were not able to be given to the AG for the last audit had since been provided and more would be provided for the interim audit.

Mr Olivier commented on the questions around the consultancy fees. The media had reported that R1.6 billion was spent by SABC in consultants. This was false, because it would have involved 1 600 consultants being paid R1 million each, and this did not happen.

The majority of revenue at SABC was used for local productions for new and already existing programmes as broken down in the availed reports. An additional budget had been allowed in the previous year on freelance costs specifically on radio and news. This was to protect its talent in the new radio stations being poached by competitors.

Mr Oliver said that there was under spending on some matters because procurement processes took long, and some required assessment by external firms. Some budget amounts were rolled over to the current financial year.

Ms Mokhobo said that in relation to the comments about scheduling, there was a three-year projection for sports and other similar matters within the control of the SABC. However the Committee must accept that on other news items, and matters such as funerals or screening of the Marikana Commission, it may be necessary to devote time that would disrupt programming of other matters. The SABC, as public broadcaster, was expected to do a lot and cover several events, as well as making money. She said that instant solutions could  not be found, but the SABC would be concentrating on proper paper trails to avoid disclaimers again.

Corrective measures have been set up for every single manager at the SABC, to ensure efficiency in the work done and SABC was filling vacancies, recognising that it was a human capital intensive institution. The latest equipment and technology would not allow it to function if it did not have the right people with the right skills. The fact also that the SABC now had a board with exceptional skills meant that it could steer the Corporation to exceptional performance.

Ms van der Merwe asked how many people with disabilities were  employed by SABC and whether this met the 2% target set by government.

Ms van der Merwe said that the report of 40% of people with the right skills was shocking and asked when the full skills audit was expected.

Ms van der Merwe asked who was earning interest on the settlement amount offered to the former CFO, of R4.2 million.

Ms Shinn needed an assurance from the Board of SABC that the corrective methods put in place would be executed with vigour and that it would continue to adhere to the conditions which came with the Nedbank loan.

Mr Steyn asked what the targets were for TV licences, and when they should be paid.

Ms Kilian asked if the risk management policy at SABC included a thorough scrutiny of contracts in the future.

Ms Kilian asked what deadline was set to resolve disciplinary cases which had been a problem in the company for quite some time, and which were exposing it to unnecessary legal costs.

Ms Kilian asked how the gap in the internal controls within management and the executive would be bridged

Ms Tsebe (ANC) commended the SABC on the responses, which showed that although there were challenges, there was a light at the end of the tunnel.

Ms Tsebe repeated her questions to get clarity on the issue of the low power transmitters and the R4.2 million spent on employee benefits under the bursary scheme.

Ms Muthambi asked why there was no head of compliance in the SABC. She asked if the corporate strategy presented by a former board had been implemented and if the current provisions supported that strategy.

Ms Muthambi  wondered why provinces did not have a budget to allow them to run on their own and deliver at their respective levels.

Ms Muthambi asked about the election strategy.

Ms Muthambi asked if there was a stakeholder management plan to help resolve any problems around bad publicity.

Ms Tshabalala said the transition from interim to new board was going well in terms of handling priority issues. The controls environment and people issues were being handled. She did not want to pre-empt any results from the skills audit, but requested time to present on it, in about a month. That report would give a picture of the previous SABC and what was envisaged for the future; it had become a platform where anyone could air their views. Much time had been spent trying to “put out fires” but SABC was now rising above this and was moving to adopting long term plans.

Mr Hlaudi Motsoeneng, Acting Chief Operations Officer, said that the executive at SABC was busy dealing with the provinces, to empower them take decisions at their own levels. HR had suggested a time line of two months to deal with issues and delegate authority.  All the radio stations in the provinces, if empowered, would become the face of the SABC provincial managers, hence creating an accountability line, which had not existed in the past. He said that strategies were needed on the structure; for instance technology and content fell naturally together because technology enhanced content. SABC would have to produce local content in different native local languages. In future, there would be a national forum to address content for local people, in their own languages. Script writers and producers were being encouraged to write stories in native languages from all provinces.

Mr Motsoeneng answered on contracts and said that SABC had, in the past, been entering yearly contracts although the legislation stipulated a three year budget plan budget for SABC, but this was not sustainable. He was happy that the interim board moved with speed to allow contracts with all producers, including freelancers, for three years to prevent them from moving to the competition. He also said that now marketing and sales and content people would meet together.

Ms Tshabalala said that she could not yet speak to the elections strategy, because although senior officials had attended several workshops, the strategy had not yet been presented to the Board. SABC was involved with the Independent Electoral Commission.

Ms Tshabalala said that the interim and new boards were determined to mitigate negative publicity and were developing a comprehensive development plan, which should be presented very soon. An expert was employed full time, and her work would be presented to the Board shortly.

Ms Tshabalala said that the interim board was pushing hard for the CFO issue to be closed. However, Ms Mokhobo explained that the matter was complicated by his decision firstly to make application to the South Gauteng High Court to stay the decision of the SABC to proceed with the disciplinary process. The High Court rejected that application, but he applied for, and was granted leave to appeal. However, his appeal to the Supreme Court of Appeal was not filed in time. Whilst all of these processes were ongoing, the disciplinary process tat the SABC was held in abeyance. An agreement had been reached to settle his costs, in a figure that would far exceed what remained of his contract, but a decision was still needed on whether the contract amount had to be paid out. When an individual was requested to leave, usually the contract was paid out so that this individual would not be prejudiced. Eventually the decision was made by the interim board to offer an amount in settlement, so that the SABC could proceed to get another CFO, and amounts were tendered in settlement, but there had been no response from his attorneys. In the absence of such a response, SABC then informed the attorneys that it was withdrawing the offer and would proceed, and only thereafter did his attorneys answer that they would reject the offer, so the amount tendered was repaid into a trust account until the matter was settled. SABC had now filed responding papers. At this stage, however, nothing was owed because the matter was still pending. His threats to arrest the Chair would not materialise.

Ms Tshabalala said that SABC had attempted to address the problems of internal controls by appointing an expert in risk and compliance, but she had unfortunately passed on. She said there were attempts to balance gender at top management level. An appointment had been made now of a very capable person who would be making presentations on the attempts to address the issues. SABC was well aware of the weaknesses in internal controls. The internal and forensic audits would be outsourced to ensure greater independence, but this would be presented for approval to the new board. This did not mean that any internal audit staff would lose their jobs, as they were likely to be absorbed, with negotiations, into the outsourced structure. Employees would be better satisfied on whether they were being interrogated during the external audit and would ensure greater credibility of information.

Mr Olivier answered on the transmitters. There were 404 low power transmitters in place, and another 44 were being installed.

Mr Olivier said that if everyone paid their licence, the total revenue would be R1.5 million but there were variances in payments, including those over 70 and pensioners.

Mr Olivier explained that bursaries were paid to members of staff for studies relevant to the work they did at SABC and their children in specific qualifying areas of journalism, technology and similar fields falling within SABC’s work. A foundation was re-established to collect funds to use for specific bursaries which would further the purposes of the SABC. SABC’s employment of those with disabilities was at 2.6%.

Ms Mokhobo confirmed that in regard to DTT, satellites were going to be used to reach areas where even low power transmitters would not work, so they would not be excluded from benefiting from the services.

Ms Muthambi asked what happened to the completion of the Mpumalanga office project, and asked for clarity on the provincial management team and the differences in their salary scales. 

Mr Motsoeneng said that salary differences also happened in Gauteng. HR was auditing people’s work to fix appropriate salary scales. It was empowering the provincial managers to take decisions in the provinces. Most freelancers worked for eight hours every day, and so, by law, were not regarded as freelance but permanent staff, yet did not enjoy the benefits. Some retired after 30 years of working as freelancers for SABC, without a pension, and had to go and live in shacks. This was a poor situation and SABC had to speak clearly on their position.

Mr Olivier said that ample provision was made in the operational budgets for maintenance of buildings and the maintenance plans were being reviewed, to ensure they were fit for purpose.

The Chairperson clarified that Mpumalanga did not have a building to be maintained by the SABC but had a space, where an office facility for SABC was meant to be built.

Ms Mokhobo confirmed that budgetary constraints of the SABC in the previous financial years meant that some of the important projects of the SABC could not be proceeded with. However at present, the plans were being reviewed, and would be presented to the board. Budget had been made available. Internal governance procedures must be followed. SABC was doing own repairs, where it could, on its infrastructure.

The Chairperson commented that the feeing of Members was that SABC’s presentation on the way forward did not really comply with the Committee’s expectations. It was given as a over-arching plan, and he wanted SABC to go back and break it down further, with specific goals, and dates. He was worried that a three-year plan might result in nothing being done until year 3. Specific goals and targets were required in all three years, months and weeks. He appreciated the Audit Action Plan to try to address the AG’s issues.

Ms Tsebe commented that she had not been happy to see reams of questions from Members but then they became impatient and the responses were rushed. Equal time should be allowed for the questions and the responses. She had not been satisfied to the brief response on the R4.2 million on bursaries, but had to let it go because of other time pressures. Members must really try not to be so lengthy on their questions, and should stay to ensure adequate response.

The Chairperson commented that he had not raised a single question. He acknowledged that SABC kept to time in its presentation, but since it was now 18:00 the meeting must end. He agreed that Members should try to shorten their questions, so that sufficient time was allowed for response.  

The meeting was adjourned