2010/11 Annual Reports of the Universal Service Access Agency of South Africa and the National Electronic Media Institute of South Africa

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Communications and Digital Technologies

13 October 2011
Chairperson: Mr S Kholwane (ANC)
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Meeting Summary

Members of the Board of the Universal Service Access Agency of South Africa informed the Committee that the Board had passed a resolution in November 2010 to establish a Project Management Office.  The purpose of the office was to manage all the projects of the Agency.  The Agency lacked technical capacity and a database of experts was compiled, with the intention to access the necessary expertise required to complete projects on an ad hoc basis.  The appointment of the Project Management Officer to head the office was subject to review after six months. 

In May 2011, the subcommittee responsible for overseeing the projects of the Agency received a report from the audit and risk management committee that indicated irregularities in the Project Management Office.  The subcommittee was concerned by the inordinately large amounts that had been disbursed to the Project Management Officer and to external experts.  The matter was referred to the Board and an internal investigation was undertaken.  The outcome of the internal investigation confirmed the suspicion that irregularities had occurred.  The Board was briefed by the internal auditors and obtained legal advice.  The Board decided on 9 September 2011 to place the Chief Financial Officer, the Project Management Officer and one other senior official on precautionary suspension.  The Board subsequently received objections from the lawyers representing the suspended officials. 

Two members of the Board had met with the Minister of Communications and the Department of Communications on 14 September 2011 to discuss the matter.  A joint task team was appointed by the Minister to deal with the matter.  The task team appointed an external forensic audit firm to conduct a forensic audit.  On 6 October 2011, the Board decided to place the Chief Executive Officer on precautionary suspension to avoid hampering the forensic investigation.  The Chairperson of the Board was not present at the meetings of the Board on 9 September and 6 October or at the meeting with the Minister and the Department.

The Agency was not immediately forthcoming with the full details of the matter.  The questions asked by the Members of the Committee were aimed at obtaining all the necessary factual information pertaining to the matter.  The questions asked about the role of the internal audit function; the role of the Board member responsible for the internal audit function; whether the Auditor-General had been informed of the irregularities; why the Auditor-General had not reported on the irregularities; if formal agreements were in place with the external experts; if the Performance Management Officer had a performance contract and if the suspended officials continued to receive full pay were not responded to.

The Agency proceeded with presenting the briefing on the 2010/11 annual report to the Committee.  However, it soon became apparent to Members of the Committee that the representatives from the Agency were unprepared for the briefing and that the Board and the management of the organisation were not operating as a team.  After holding a closed discussion with the delegates of the Agency, the Committee decided to release the Agency from presenting the briefing.  The Chairperson of the Board of the Agency was urged to display leadership and the Board and management was instructed to resolve their differences before returning on 20 October 2011 to brief the Committee on the annual report.  A comprehensive report on the irregularities and the responses to the unanswered questions were requested.

Members queried the list of international trips that was included in the briefing document and asked that the briefing included the cost of the trips, the objectives and the benefits that were derived.  Members were critical of the decision of the Agency not to send any delegates to the forthcoming conference of the International Telecommunications Union.

The Chairperson of the Board, the Chief Executive Officer and the Chief Financial Officer briefed the Committee on the 2010/11 annual report of the National Media Institute of South Africa.  The briefing included a report on the performance of the entity on the key performance areas of governance, training and development, marketing and business development, organisational sustainability and content development.  Total revenue amounted to R34 million.  Total expenditure was R39 million.  The deficit of R4 million was attributed to the implementation of the new accounting policy, requiring the classification of deferred income as surplus.  The Institute had total assets of R15.5 million and liabilities of R6.1 million.  The Auditor-General issued an unqualified audit report but made a cautionary comment concerning deficiencies in the internal audit function.

Members asked questions about the corrective action taken to address the Auditor-General’s comment; the deficit; the filling of vacancies; the strategy to attract trainees; the progress made in achieving gender equality, the National Digital Repository project and the motivation for the request for additional funding.

 

Meeting report

2010/11 Annual Report of the Universal Service Access Agency of South Africa (USAASA)
Mr Louis Muahlodi, Chairperson of the Board of USAASA introduced Mr Winke Lamani (Acting Chief Executive Officer), Ms Linda Ngcwembe (Acting Chief Financial Officer), Ms Thandeka Mngadi (Executive Manager: Performance Management), Dr Shaun Pather and Mr Vusi Ngcobo (Members of the USAASA Board) to the Committee.

Mr Ngcobo referred to the briefing on the first quarter performance of the Agency to the Committee on 14 September 2011.  The only member of the executive management of USAASA present at the briefing was the Chief Executive Officer (CEO).  The Board had met on 9 September 2011 and decided to place members of the executive management on special leave because certain irregularities had occurred.  The Board was briefed by the Agency’s internal auditors on irregularities in the Project Management Office (PMO).  The Chairperson of the Board was not present at the meeting on 9 September 2011.  Subsequently, the Board received letters from the lawyers representing the suspended officials, objecting to their being placed on special leave.  The Board obtained legal advice and appointed forensic auditors to investigate the allegations of irregularities.  The Board met again on 6 October 2011 and passed a resolution to place the CEO on special leave, pending the outcome of the forensic investigation.  The Chairperson of the Board was not present at the Board meeting on 6 October 2011.

Discussion
Ms S Tsebe (ANC) asked for clarity on the nature of the action taken against the officials concerned.  She asked if the persons concerned were suspended, placed on special leave and continued to receive their salaries.  The Committee must be informed of any irregularities at the Agency.  She wanted to know why the Chairperson of the USAASA Board was absent from the Board meetings.

Ms T Ndabeni (ANC) asked who had convened the USAASA Board meetings.  She understood that meetings of the Board were convened by the Chairperson of the Board but he had not attended the meetings on 9 September and 6 October 2011.  She asked who was responsible for setting the agenda for Board meetings.  The decision to suspend the officials had resulted from the internal audit report.  She asked what had informed the internal audit investigation.  She asked if incorrect information had been given to the Auditor-General or if the Board had subsequently initiated its own internal audit investigation.

The Chairperson asked USAASA to provide the Committee with factual information.  The irregularities at USAASA were reported in the media but the Committee wanted complete and accurate information from the Agency.

Mr Muahlodi explained that he was unable to attend the meetings of the Board because he was at a funeral on 9 September 2011.  He was out of town and only became aware of the meeting on 6 October 2011 very late in the day.  Notice of Board meetings and the agenda was issued by the Board Secretary after consultation with the Chairperson of the Board.  He had not received any notice of the meeting on 6 October.  He had a telephone conversation with Mr Ngcobo and tendered his apologies.

Ms R Morutoa (ANC) observed that one of the delegates from USAASA was laughing while the Chairperson of the Board was speaking.  The matter under discussion was of a serious nature and she asked delegates to refrain from body language that indicated a lack of respect.

Dr Pather concurred that the matter was serious.  He was the Chairperson of the subcommittee responsible for overseeing the projects of the Agency.  The Board had requested reports on projects on 10 November 2010 and on 10 February 2011.  The reports were not received.  A number of projects needed to be undertaken but USAASA lacked the necessary capacity.  The Board had passed a resolution in November 2010 that a Project Management Office was established and that a database of experts was compiled.  The experts would be drawn on an ad hoc basis when certain technical expertise was required for a project.  The intention was to appoint a full time Project Management Officer to coordinate and manage the projects within six months.  Funding for the external expertise would be made available from the budget for the project.  The subcommittee received a report on the disbursements to the external experts in May 2011.  The subcommittee was extremely concerned by the substantial amounts that were paid to the experts and the PMO.  The subcommittee was concerned that the delegated authority was being exceeded.  There appeared to be a discrepancy between the objectives of the subcommittee and what was actually happening.

The Chairperson asked that no information was divulged that would compromise any legal action that was being taken by USAASA.

Ms Ndabeni asked if there were formal agreements with the panel of experts and where these experts were based.

Dr Pather explained that the Board had decided that one full-time person would be appointed to coordinate the projects.  The position would be reviewed after six months.  The database of experts would be utilised when necessary to access expertise when needed so that projects would not be delayed.  The subcommittee’s concerns regarding the excessive payments to the experts were referred to the Board.  The Board requested the independent audit and risk committee to investigate the matter.  The report of the audit and risk committee confirmed the suspicion that there had been irregularities.  A meeting of the Board was called to consider the report and the implications of the outcomes of the investigation.  The decision was taken to suspend the implicated officials and to appoint an independent forensic auditor to further investigate the matter.

Ms W Newhoudt-Druchen (ANC) asked when the PMO commenced operations.

Dr Pather replied that the Board decision to establish the PMO was taken in November 2010, after which advertisements calling for responses would have been placed.  He was not sure exactly when the PMO commenced operations as the records he had requested had not yet been received.

The Chairperson asked for confirmation that the Project Management Officer, the CFO and one other official had been suspended in addition to the CEO.

Mr Ngcobo explained that he had been laughing at an SMS message and apologised.  He was chastised by the Chairperson of the Committee for reading SMS messages during the meeting.

Mr Ngcobo explained that the CEO was placed on special leave after the forensic auditors were appointed.  The concern was that the CEO might be implicated as well and that his presence could compromise the forensic investigation.  The legal opinion obtained was that tangible evidence of wrongdoing had to exist before a person could be suspended.

Ms Ndabeni asked if there was sufficient evidence of wrongdoing to support the suspension of the officials concerned.

The Chairperson explained that officials could be placed on precautionary suspension, pending completion of an investigation.  The suspension was lifted if no evidence of wrongdoing was found else charges were laid against the official.  The Committee needed to understand if the four officials concerned were currently on precautionary suspension.

Mr Ngcobo confirmed that the officials were on precautionary suspension.  The report of the forensic auditors was expected by the end of October 2011.

Ms Tsebe asked who was appointed to conduct the forensic investigation.

Mr Ngcobo replied that three companies were invited to submit bids.  The Firm was appointed on the basis of price and skill.

Dr Pather advised that the issue was reported to the shareholder (i.e. the Department of Communications).  The Board met with the Minister, the need for a forensic audit was discussed and a joint task team comprising the shareholder and the Board was established to deal with the matter.

The Chairperson asked what role was played by the audit committee and the responsible Board member in the period November 2010 to May 2011.

Ms Ndabeni wanted to know what role was played by the internal audit function of the Agency.  She asked if the Auditor-General had been informed of the matter.

Mr Ngcobo confirmed that the internal audit and audit committee were functional.

The Chairperson explained the general responsibilities of the Board and asked for an explanation of the processes followed by the responsible Board members.

Dr Pather explained that there was an independent audit and risk management committee.  A member of the Board sat on the committee, which was chaired by Mr Hopewell Mpungose.  The Agency had an internal audit function, headed by Mr Jimmy Mashiane.

The Chairperson wanted to know if the irregularities were uncovered by the internal audit function.

Dr Pather replied that the matter was brought to the attention of the Board by the report of the audit and risk committee.  The role of the internal audit function was not clear and was one of the reasons why the forensic audit was requested.  As far as the Board was concerned, proper controls were in place and there was a delegation of authority.  The outcome of the forensic investigation would indicate where things went wrong.

Ms Ndabeni asked if KPMG had been invited to submit a bid for the forensic audit.

The Chairperson hoped that the forensic investigation report would clarify the role played by the internal audit function.

Ms Morutoa wanted to know why the irregularities had not been detected by the Auditor-General.

Ms Tsebe asked if the Board and the management of USAASA were working together as a team.  She had noticed that there was tension between the members of the Board and the executive management of the Agency.  She requested that the delegates from USAASA responded fully to the questions asked by the Members of the Committee.

Ms Ndabeni asked if the findings of the Auditor-General were disputed by USAASA.

Mr Ngcobo confirmed that KPMG was not invited to submit a bid.

Ms Ndabeni asked what the terms of reference of the bid committee that decided on which bid would be accepted were.

Mr Ngcobo advised that a meeting was held with the Minister and the DOC on 14 September 2011.  Members of the USAASA Board attended the meeting.  A task team comprising two representatives from the DOC and two USAASA Board members was formed.  The task team decided on the appointment of the forensic auditor.  The terms of reference was confidential but would be made available to the Committee.

Mr Muahlodi acknowledged that the relationship between the Board and the executive management of the Agency had broken down after January 2011.  Currently the Board and the management were not working together as a team.  Managers approached Board members directly, which was problematic.  He had raised his concerns in a meeting of the Board.

Ms Ndabeni said that the absence of cooperation between the Board and the management meant that the Committee needed to intervene in the matter.  She asked if the Chairperson of the USAASA Board was involved with the meetings with the Department and with the Minister.  She suggested that USAASA proceeded with the briefing on the 2010/11 annual report and that the outstanding matters raised by Members were responded to during the briefing.

Dr Pather listed the six key projects of USAASA.  The projects included the administration of Set-top Box (STB) subsidies; increasing broadband access; handing over community access centres and school cyber laboratories to local authorities; establishing new public access centres; developing a universal access and service strategy and developing standard operating procedures for the application of the Universal Service and Access Fund (USAF).  The latter three projects started late as a result of a request from the DOC in November 2009 to suspend the projects.

The Chairperson asked for more information on the instruction from the DOC to suspend the projects.

Dr Pather advised that the Board had received a letter from the Director-General of the DOC in November 2009, requesting the suspension of the projects until the new USAASA Board had been stabilised.

The Chairperson pointed out that there had been three different Directors-General and two different Ministers since November 2009.  He asked if USAASA had contacted the DOC to verify if the decision of the previous Director-General still applied.  The crux of the matter was that the country needed the services and the mandate of USAASA was to deliver these services.

Dr Pather explained that the projects were subsequently re-advertised and had been resumed, although later than was planned.

Ms Morutoa asked if the Board supported the report that was being presented to the Committee.

The Chairperson agreed with Ms Ndabeni‘s suggestion that the Committee met with the delegates from USAASA in a closed meeting to discuss how the briefing should proceed.  Members of the Committee and the USAASA delegation left the venue to confer at another location.  On their return, Ms Ndabeni informed the meeting that the Committee had decided to release USAASA from presenting the briefing on the annual report.  USAASA was requested to return only when the Board and the management had resolved their differences and had agreed to work together as a team.

Ms Ndabeni added that USAASA was under the leadership of the Chairperson of the Board.  The Chairperson and the CEO was responsible for briefing the Committee.  Any other representatives attended in a supporting role.  The Committee had to ascertain that USAASA applied the principles of good governance and did not want to hear about any internal strife.  The Committee must be informed if the Chairperson of the Board was unwilling to provide the necessary leadership.  The lack of leadership had a negative impact on the operations of the organisation.  The Committee deplored the waste of time and taxpayer’s money because the delegates were unprepared for the briefing.  She said that USAASA could not expect the Committee to approve additional funding unless it could prove that the money would be properly spent.

The Chairperson requested that USAASA prepared a presentation to the Committee on the matter of the irregularities in the PMO in addition to the 2010/11 annual report.  The briefing was postponed to Thursday, 20 October 2011.  The Committee would be tabling a report on USAASA and would be considering the continued existence of the Agency and the request for additional funding.

Ms Morutoa referred to a list of international trips between October 2010 and July 2011 that was included in the briefing document.  The report omitted the total cost of these trips.

The Chairperson requested that the cost of overseas traveling was included in future reports.

Ms Ndabeni asked what the objectives of the trips were.  She asked how many delegates would attend the upcoming ITU conference.

Mr C Kekana (ANC) asked what had been learned and how the country benefited from these international trips.

Ms Mngadi advised that USAASA had decided not to send any delegates to the ITU conference because of financial constraints.

Ms Mngadi disapproved of the decision.  She felt that USAASA had much to gain from an international telecommunications conference.  Attendance at the conference should have been budgeted for.

(The presentation document prepared by USAASA was withdrawn.)

2010/11 Annual Report of the National Electronic Media Institute of South Africa (NEMISA)
Mr Tsediso Gcabashe, Chairperson of the NEMISA Board introduced the delegates to the Committee and presented an overview of the corporate governance report (see attached document).

Mr Ndivhoniswani Tshidzumba, CEO, NEMISA took the Committee through the human capital report and the detailed performance report.  The key performance areas were governance, training and development, marketing and business development, organisational sustainability and content development.  Details were provided of the key performance indicators (KPI), success indicators and achievements as at 31 March 2011.  The briefing document inadvertently omitted mention that a memorandum of understanding with the Sekukune Municipality had not been signed for the National Digital Repository (NDR) project.

Ms Moira Malakalaka, CFO, NEMISA presented the annual financial statements for the 2010/11 fiscal year.  The Institute had total current assets of R7.9 million, non-current assets of R7.6 million and current liabilities of R6.1 million.  Total revenue amounted to R34 million.  Total expenditure was R39 million.  The deficit of R4 million was attributed to the implementation of the new GRAP 23 accounting policy that required the reclassification of deferred income as surplus.  The Institute received an unqualified audit opinion from the Auditor-General, with no emphasis of matters.  A cautionary comment on the need to strengthen internal controls was made.

Discussion
The Chairperson requested clarity on the Auditor-General’s comment concerning the internal controls.

Ms Newhoudt-Druchen asked that the acronyms used in the presentation document were explained.  She asked if NEMISA anticipated that there would be no future deficits if the deficit was solely caused by change-over to a new accounting policy.  It was reported on page 20 of the annual report that NEMISA had a vacancy rate of 20%.  She asked if the vacant positions had been filled.

Ms Tsebe asked if NEMISA had a recruitment strategy for new learners in place.  She asked if previous concerns regarding the representation of females had been addressed by NEMISA.

Mr N van den Berg (DA) asked what the average cost per student was and if the cost included accommodation.  He asked if NEMISA was abreast of the latest developments and requirements in the broadcasting sector.  The ICT sector was subject to rapid change and students need to be equipped for the latest technology.

Ms Malakalaka explained that the extent of the deficit declared each year depended on the number of multi-year projects the Institute had, when the projects commenced and the duration of the projects.  Costs were incurred up front but the funding was spread over the duration of the project.  During the year under review, only the NDR project was a multi-year project and most of the expenses were incurred during 2010.  A deficit of approximately R100,000 was anticipated for the 2011/12 fiscal year.  NEMISA was developing a funding strategy to reduce the deficit.  The strategy aimed to increase the reach of NEMISA beyond the public broadcaster and to become the eminent provider of training in the broadcasting sector.  The most expensive training programme was the animation course, which cost R60,000 per student per annum.  The average cost of accommodation per student was R3,400 per month.  The cost of materials and equipment must be added.

The Chairperson asked for more information on the NDR project.

Mr Tshidzumba explained that the project entailed the digital recording of the culture of the nation.  The stories of people were recorded in digital format and posted to the ndr.org.za website.

Mr Peter Ramatswana, Head of Training, NEMISA explained that the recruitment strategy covered both electronic and print media.  NEMISA held exhibitions and distributed applications to visitors.  Open days were held at schools to inform learners of the training opportunities offered by NEMISA.  The Institute had formed a partnership with the SABC whereby the SABC solicited applications for training from prospective trainees and forwarded some to NEMISA.  Application forms were mailed to prospective trainees when enquiries were received.  The application form could also be downloaded from the NEMISA website.  NEMISA also participated on radio talk shows, engaged with regional education authorities and were invited by communities to present a talk on the training programmes on offer.

Ms Tsebe asked if Members of Parliament could approach NEMISA when enquiries were received at constituency offices.

Mr Ramatswana replied in the affirmative.

Mr Tshidzumba provided further information on the Institute’s technology plan.  The cost of upgrading the studios used for training purposes with the latest technology was prohibitive.  The cost of animation and graphics software in particular required regular upgrades and was very expensive.  NEMISA attempted to ensure that the equipment used for training was on a par with the equipment used in the industry.  The most urgent need was to replace the mixer equipment in the recording studio.  The software was outdated and could no longer be supported.  A costing exercise had been done and submitted to the DOC to support the request for additional funding from the National Treasury.  The DOC accepted the costing.  The decision of the Treasury was awaited.  The latest video editing suites were used.  The number of females in the organisation had been increased to 21 and details were provided on page 19 of the annual report.  The vacancy situation had changed as the decision was made to focus on appointing staff to the core training function and to recruit female members of staff.

Ms Newhoudt-Druchen asked for a detailed breakdown of the deficit.  She referred to the Auditor-General’s comment concerning the deficient internal control function over the management of strategic plan performance.  She wanted to know what action had been taken by NEMISA to address the inefficiencies.

The Chairperson asked for more information on the request for additional funding.  The DOC had requested funding of more than R2 billion for capital projects but it was doubtful if the fiscus would be able to provide the amount requested.

Ms Malakalaka replied that the issue of the internal control deficiencies was discussed with the Auditor-General.  The comment arose because the processes and policy were not adequately documented.  The request for additional funding was to cover escalating expenditure.  Expenses had increased by 5.5% but revenue had only increased by 3%.  The most pressing need was the upgrade of the animation software, which was expensive and affected by the weak Rand.  Funds were required for new training equipment and the establishment of a student affairs office.  The deficit was increased by the depreciation of aging equipment.

Mr Gcabashe pointed out that depreciation and amortization accounted for a total non-cash expense item of R2.8 million.  There was a net cash surplus of R4.2 million, which indicated that NEMISA generated sufficient cash revenue.

Mr Tshidzumba said that NEMISA wanted to establish its own campus and required R50 million for this purpose.  There was a need to appoint a professional psychologist to deal with student affairs.  Students came from rural areas in all nine provinces and many experienced social problems in an urban environment.  These students needed professional counseling.  NEMISA wanted to extend its reach and increase visibility.  The Institute would like to establish offices in East London (Eastern Cape), Mafikeng (North West) and Polokwane (Limpopo province).  Discussions were being held with the SABC to utilise the public broadcaster’s facilities in outlying areas.

Ms Tsebe suggested that NEMISA provided a written motivation for additional funding to the Committee.  NEMISA should establish a presence in the rural areas in order to reach the disadvantaged communities.  The planned campus should not be situated close to existing universities or colleges.

Mr Tshidzumba replied that the planned campus was the ideal but NEMISA was considering alternatives in the interim.  NEMISA’s mandate was to provide services to rural communities and it was understood that the new campus would not be situated in an urban area.

The Chairperson advised that the DOC had not included a breakdown in its request for additional funding.  Additional information was required by the Committee on how the funding would be spread over the three-year Medium Term Expenditure Framework (MTEF) period and what the priorities were.  He suggested that NEMISA discussed the matter with the DOC as soon as possible as the Committee needed to finalise its reports before the end of October.

Mr Tshidzumba agreed to discuss the matter with the DOC.  Two submissions had been made and the MTEF spread had been provided.  The Deputy Minister was responsible for the project concerning the transfer of NEMISA to the DOC and had appointed a task team to deal with requisitioning.  The task team had met at the end of July 2011 but no feedback had been received.

The Chairperson asked if NEMISA or the DOC was responsible for the requisitioning.

Mr Gcabashe replied that both entities were involved in the process.  The Department wanted to integrate all the assets of NEMISA.  If NEMISA was a part of the DOC rather than reporting to the Deputy Minister, the Institute would be subject to the Department’s processes.

The Chairperson understood that the issue was complicated.  He undertook to take up the matter with the DOC and with the Deputy Minister.  He thanked the participants for their input during the proceedings.

The meeting was adjourned.


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