Auditor-General's Report on SABC Investigation

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Communications and Digital Technologies

21 September 2009
Chairperson: Mr I Vadi (ANC)
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Meeting Summary

The Auditor-General South Africa (AGSA) briefed the Committee on the findings of the Report on the Investigation at the South African Broadcasting Corporation (SABC). AGSA noted that most of the allegations made by some former board members and labour unions focused on supply chain management, fruitless and wasteful expenditure, and human resources related matters. The underlying causes that affected sound financial management could be summarised under three key areas of quality of reporting, effective governance arrangements, and adequate leadership oversight.

The interim SABC Board had
looked at the findings regarding supply chain management, and was committed to introducing a control register for all approvals for employees undertaking outside work. Notices would be issued to all employees to declare business interests outside the SABC. Disciplinary actions would be taken, where appropriate, to deal with incidents of non-disclosure and awarding business opportunities contrary to the SABC Supply Chain Management Policy Framework. The Board also noted the areas of misconduct regarding fruitless and wasteful expenditure. The Board would look into disciplinary measures following from double payments made to suppliers, over-payments made to suppliers, material paid for but not received, agreements that were to be renegotiated and titles acquired more than once from the same supplier. The Board would be issuing Letters of Demand to the relevant suppliers to claim amounts overpaid by the SABC, the delivery of outstanding content, termination of specific contracts and re-negotiation of the deals. Summons would be issued against those who failed to comply.

The Committee
resolved that, together with the Standing Committee on Public Accounts, it would closely monitor the disciplinary, civil and criminal cases that emanated from this meeting. The Office of the Auditor-General and the interim board jointly constituted a working team to process disciplinary cases. The Committee would be informed of employees who were undermining the investigation by refusing to provide the interim board with information and records. Members stated that there was a need to establish a joint task team between the Office of the Auditor-General, the Commissioner of Police and the National Director of Public Prosecutions to deal with criminal investigations. They said that the interim board should continue with current investigations and unresolved investigations listed in the Auditor-General’s report. The Committee urged the Department of Communications and the National Treasury to provide the interim board with additional resources so that investigations could proceed. Members would ensure that criminal and disciplinary cases were taken to their logical conclusion.

Meeting report

Opening Remarks
The Chairperson stated that the meeting had been closed for the first two hours because Members wanted to familiarise themselves with the South African Broadcasting Corporation’s (SABC) situation. The intention was not to hide any information stemming from the Auditor-General’s (A-G’s) report. The report would be made public, and it would be handed to the President and Deputy President. When the Committee started the enquiry into the SABC board, it had an inkling that the SABC was not being properly managed. Members also had a gut feeling that “the rot had set in”. After the briefing from the A-G on the findings in the report, Members were shocked at how far the matter had deteriorated. The A-G and the SABC board would have to work together to reassure the public that the institution and its finances were in order. There would be a number of actions that would look at the SABC’s operational activities, disciplinary actions, and cooperative governance, and the Committee would oversee the process to its conclusion.

Briefing by Auditor-General South Africa
Mr Terence Nombembe, Auditor-General, stated that the Committee had asked Auditor-General South Africa (AGSA) on 1 July 2009 to conduct an investigation at the SABC into certain allegations made by some former SABC board members as well as by labour unions. These allegations concerned supply chain management, fruitless and wasteful expenditure, and human resources related matters. The report provided AGSA’s conclusions on the allegations investigated and also indicated those allegations that had not yet been investigated.

The findings in the report had to be addressed decisively by the Interim SABC Board (IB) with the support of the executive management of the SABC and the Department of Communications (DoC). It was important that the underlying causes contributing to the deficiencies be properly understood and addressed as part of the corrective actions to be taken. The underlying causes that affected sound financial management could be summarised under three key areas. These areas were quality of reporting, effective governance arrangements, and adequate leadership oversight.

AGSA found, in its investigation, that there were problems with supply chain management in the SABC. These deficiencies were due to non-adherence to policies, directives and delegated authority by senior management. This meant that there was inadequate monitoring and oversight by the leadership of the SABC and there was a culture where management was not focused on public accountability or acting in the best interest of the SABC. The deficiency was amplified by a number of instances where the internal audit function had alerted leadership of serious concerns. These were not acted on timeously or decisively. There were various allegations raised regarding possible or perceived conflicts of interest. This was indicative of a lack of confidence that the procurement and provisioning system of the SABC was fair, equitable, transparent and competitive. This perception could be strengthened by the number and level of employees who had other commercial interests and the nature of business in the entities in which there was interest. Prevalent risks facing the organisation were compounded by non-compliance with procurement policies and the lack of decisive and effective action by those responsible for oversight. One of the risks was that some employees were devoting much of their attention to other commercial interests at the expense of the SABC. Another risk was that decisions might have been influenced in favour of individual interests rather than on the basis of sound business practices.

AGSA’s findings also focused on fruitless, wasteful and irregular expenditure. The lack of leadership oversight was evident in this category of findings, as there were contraventions of policy and/or alleged mismanagement of funds by executive management. A legal firm appointed in August 2007 concluded, in its August 2009 report, that there were irregularities amounting to approximately R111,746 million relating to double payments, overpayments, material paid for but not received, agreements that had to be renegotiated, and programme titles acquired more that once from the same supplier during the same license period. These concerns were brought to the attention of the acting Group Chief Executive Officer and the group Chief Financial Officer, as well as the former SABC board (the board) in September 2008. No evidence was provided that corrective actions were implemented by the board or executive management.

Excessive petrol card expenditure was incurred by some employees at top and senior management levels. The validity of the costs was yet to be investigated, but the SABC was still exposed to potential abuse due to deficiencies in the policy governing the usage of petrol cards. The oversight by leadership of petrol card expenditure was also deficient, partly due to the non-availability of quality management information.

In terms of human resource related issues, although the suspension of the SABC employees was not investigated in detail, it was noted that on average, employees were on suspension for longer than ten months. In two instances, employees were on suspension for 39 months. This created an environment where management and those responsible for oversight were perceived to be indecisive. This contributed to an organisational culture of impunity.

The SABC recommended that the Interim Board and executive management of the SABC compile and implement a proper corrective plan to:
- Improve the quality of management information and reporting, so as to facilitate proper continuous monitoring by the leadership
- Strengthen the effectiveness of governance arrangements. This also meant tightening internal controls and risk management, as well as updating policies
- Enhance the adequacy of leadership oversight.

The SABC’s strategic risk assessment required a thorough examination to address the risks that impacted negatively on the integrity of the supply chain management system and to avoid exploitation by other role players. AGSA recommended that the Interim Board consider disciplinary actions against individuals still in the employ of the SABC and also consider legal proceedings against individuals who had left the SABC. They also recommended that the SABC reform certain policies and practices as well as schemes, and do a further review of specific potential irregular expenditure.

Further details can be found in the report attached to this minute.

Submission by the interim SABC board
Mr Leslie Sedibe, Member of SABC interim board, briefed the Committee on a summary of the A-G’s report. He noted that some of the general findings in the report showed that
there was lack of accountability, lack of fiscal discipline and adherence to National Treasury regulations, a lack of policies and procedures governing the acquisition of content, a failure to conduct needs analysis from channels, acquisition of content from unauthorised suppliers, wastage and inefficiencies, appointment of different service providers to provide similar services, and a failure to declare business interests.

The interim board looked at the findings regarding supply chain management and was committed to introducing a control register containing all approvals for employees undertaking outside work. Notices would be issued to all employees to declare business interests outside the SABC. Disciplinary actions would be taken, where appropriate, to deal with incidents of non-disclosure and awarding business opportunities contrary to the SABC Supply Chain Management Policy Framework.

The interim board noted the areas of misconduct regarding fruitless and wasteful expenditure. It would look into disciplinary measures. Section 57 of the Public Finance Management Act (PFMA) spoke to responsibilities of officials employed in public entities. Officials had to ensure that the system of financial management and internal control established for their entity was carried out within the area of responsibility of that official, and were responsible for the effective, efficient, economical and transparent use of financial and other resources within that official’s area of responsibility. Effective and appropriate steps must be taken by a relevant official to prevent any irregular expenditure and fruitless and wasteful expenditure. 169 suppliers and contracts were distributed. It was recommended that 13 cases be prosecuted.

Mr Sedibe also noted that the report also showed that double payments to the amount of R1 330 000 were made to suppliers. Over-payments made to suppliers amounted to R2 316 545. Material paid for but not received amounted to R88 410 090. Agreements that were to be renegotiated amounted to R14 495 075. Titles acquired more than once from the same supplier had cost R5 194 280.

The interim board proposed that different disciplinary approaches be adopted for junior employees and senior employees. Junior employees would be subject to informal disciplinary action, chaired by the line manager, while senior employees would undergo formal disciplinary action, chaired by an independent, external Chairperson.

The interim board had decided that it would draft and finalise the charges as recommended by the Auditor-General’s Report, obtain the mandate of the full board on final charges and initiation of the disciplinary hearings, appoint the chairpersons of the formal and informal disciplinary hearings, convene the hearings, finalise all outstanding disciplinary matters, including cases pending at the Commission for Conciliation, Mediation and Arbitration (CCMA), and agree on the timelines and the scope of the mandate. 

The interim board would be firstly sending out letters of demand to the suppliers claiming the amounts overpaid by the SABC, the delivery of content, termination of specific contracts and re-negotiation of the deals. Summons would be issued against those who failed to comply with the demands.

The interim board was of the view that there was a prima facie case of generally corrupt practices within the SABC which required investigation by the South African Police Service (SAPS), the South African Reserve Bank (SARB) and the South African Revenue Service (SARS). Meetings were scheduled with the appropriate authorities to frame the charges and the prosecution of the claims.


Discussion
Mr J De Lange (ANC) thanked the A-G and the interim board for doing such good work in such a short time. He warned that the Committee had to be careful in its response to the report. It was vital that the Committee supported the processes that would take the issues in the report to a logical conclusion, whatever this conclusion might be. There were no answers yet to any of the problems that were found. It was also important that the media respond appropriately to what was contained in the report, so that the processes would not be undermined. It was important that the Committee must know what due processes were going to be put in place. It was also vital that the new board, when taking over from the interim board, must be supportive of any decisions taken. He noted that investigations were usually dealt with in fragments. He suggested that the investigation and the findings be dealt with holistically. He urged the interim board and the A-G’s office to form a task team to implement due processes to deal with the findings. He stated that there were managers within the SABC who were making the investigation very difficult for AGSA. He asked the A-G to let the Committee know who these people were. He further said that it was a mistake to deal with junior executives informally, as they were also involved in criminal offences.

Mr L Mkhize (ANC) asked for the view of the interim board on the allegations that had not yet been investigated.

Mr Sedibe stated that these cases were still going to be investigated. He had reported on just the first stage of investigations.

Ms J Kilian (COPE) agreed that the names of employees within the SABC who were making the investigation difficult had to be handed over to the Committee. She was satisfied that a control register would be put in place and that those guilty of fruitless and wasteful expenditure were going to be charged. The Committee supported the idea of further investigations, as more transparency and openness were needed. Criminal matters had to be resolved with speed. More resources needed to be given to the SABC.

Ms R Morutoa (ANC) thanked the interim board for their contribution, and for doing such a thorough job in such a short space of time.

Mr N Singh (IFP), Member of the Standing Committee on Public Accounts (SCOPA), noted that many transgressions were identified in the report. This showed that the SABC's internal auditors needed to be interrogated. There also needed to be a close working relationship between SCOPA and the Committee. The interim board's presentation showed an excellent plan to move forward. He said that previous board members had received undue benefits. The A-G, the interim board and the Committee needed to look in to this. The Committee should support the allocation of additional resources to the SABC and the interim board so that matters could be resolved quickly, and should consult with National Treasury.

Mr N van den Berg (DA) thanked the interim board and AGSA for their hard work. He stated that it would be a good idea for the Committee to receive reports on the progress made by the interim board. He asked the interim board if it knew how much would be needed to resolve all matters in the SABC.

Mr Sedibe answered that some of the legal work was being done pro bono by some of the top legal firms in the country. This was being seen as a national project that required national service. He was not in a position to give the Committee the exact amount that was needed.

Mr K Zondi (IFP) asked the interim board members what the morale of the staff at the SABC was like and how the staff viewed the intervention.

Ms Irene Charnley, Chairperson of SABC interim board, stated that one of the first tasks that the board undertook was to work on staff morale. When the interim board was first constituted, it had met with the SABC management and executive teams. The staff seemed apprehensive and did not know what to expect. The interim board explained to them that the SABC was still a great organisation that delivered information, educational programmes and entertainment to 24 million South Africans. The interim board had reminded the staff that they served a greater purpose and tried to make them understand that they worked at a good institution that would keep delivering services to audiences across the country, with the support of the board. However, the interim board would be dealing with people who did not fulfill and deliver on their duties and responsibilities.

Ms Suzanne Vos, Member of SABC interim board, stated that it was the interim board's job to follow up on investigations.

Ms L Mazibuko (DA) asked how the list of allegations that had not yet been investigated would be dealt with. She agreed that the issue of additional resources should be discussed further.

Mr Sedibe stated that the interim board would collate information needed from the SABC staff.

Mr S Kholwane (ANC) urged the interim board to cooperate with the AGSA. He extended his appreciation to labour unions for making the Committee aware of the situation within the SABC. The Committee needed to guard and protect the SABC as the country still needed the institution and its employees. The interim board had the duty of saving the SABC. He called on the Department of Communication to take action and to play its role in the matters at hand, especially in terms of the need for additional resources. Relevant role players had to work tirelessly to ensure that the relevant legislation was adhered to.

Ms Mamodupi Mohlala, Director-General, Department of Communications, assured the Committee that the Department of Communications (DoC) was committed to responding to the needs of the SABC and the board. DoC welcomed the A-G's findings and the recommended course of action proposed by the interim board. The Department had already been engaging with the interim board and AGSA and looked forward to seeing the SABC have better reporting systems and financial mechanisms in place. The Department was concerned with the SABC's financial mismanagement issues, and would indeed liaise with the interim board to resolve the matter.

Mr Sedibe stated that the interim board had to very careful in the way that it approached the allegations that were not yet investigated. It did not want to rush the process and would collate all the input received from staff. There needed to be proper integration between the interim board and the new board so nothing could “fall through the cracks” and so that momentum was not lost.

Mr Sedibe stated that the interim board wanted to hold seminars that would focus on cooperative governance, as most of the issues that were raised in the report focused on governance. There would be a massive education drive to ensure that people understood and could grasp cooperative governance issues.

Closing Remarks
The Chairperson summarised the resolutions of the Committee.

The Committee, together with the Standing Committee on Public Accounts would closely monitor the disciplinary, civil and criminal cases that emanated from this meeting. The office of the Auditor-General and the interim board should jointly constitute a working team to process disciplinary cases. The Committee would be informed of employees who were undermining the investigation by refusing to provide the interim board with information and records. There was a need to establish a joint task team comprising the Office of the Auditor-General, the Commissioner of Police and the National Director of Public Prosecutions to deal with criminal investigations.
The interim board should continue with current investigations and unresolved investigations listed in the A-G's report.

The Committee also urged the Department of Communications and the National Treasury to provide the interim board with additional resources so that investigations could proceed. The Committee would also oversee that criminal and disciplinary cases were taken to their logical conclusion.

Mr Nombembe stated that the proposals were reasonable. AGSA would cooperate in order to take matters to their logical conclusion. The Office of the A-G would deal with the remaining unresolved investigations. AGSA had already completed investigations on 80% of the allegations.

The meeting was adjourned.

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