sabc presentation to standarding committee on public...

SABC Presentation to

Standarding Committee on Public Accounts

INTRODUCTION

SABC presentation to SCOPA

The SABC acknowledges the request from SCOPA to provide specific information relating to the details of irregular, fruitless and wasteful expenditure, the dates of incidents, the companies involved and responsible officials. The Corporation is currently in the process of investigating and/or ascertaining the root causes of such irregular, fruitless and wasteful expenditure and it is therefore currently impractical, pending the finalisation of investigations, until all the officials involved are:

• positively identified; and

• afforded opportunities to make representations, and/or acknowledge responsibility.

The SABC average transactions per annum amount to:

• Total payments on average: R3 billion

• Total volume of payments: ± 28 000.

• Payments above R2 million (potential RFP): 260 Payments below R2 million (potential RFQ): 27000

BACKGROUND AND HISTORY


The SABC is a Schedule 2 Entity (Major Public) in terms of the PFMA. It consists of 18 radio stations and 5 TV channels, two of the TV channels (Encore and SABC News) are temporary hosted on the DSTV network in preparation for the SABCs transition to Digital Terrestrial TV (DTT). The Corporation has on average 3835 employees and over 1500 freelancers spread across 9 provinces. The SABC has been audited by private audit firms and the AGSA. From 2008/9 to 2011/12 it was audited by private audit firms. The Auditor General of South Africa (AGSA) took over the audit of the SABC in 2012/13 in terms of Sec 4(3)(a). The table illustrates the audit outcomes over the period.



Audits performed by private firms Auditor General

2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Audit opinion Qualified Unqualified Qualified Qualified Disclaimer Qualified Qualified Qualified

Number of qualifications paragraphs

2 0 1 2 9 8 3 1

Movements

regress improve regress regress regress improve improve improve



MATTERS ASSOCIATED WITH QUALIFICATION PARAGRAPHS

Private audit firms AGSA

2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Irregular,

fruitless and

wasteful

expenditure

Ř -

Explanation of symbols Symbol

New qualification paragraph – not in previous year’s

audit report

Previous years qualification successfully resolved Ř

Previous years qualification in process of being

cleared

Qualification paragraph not reported in audit report

of the year -



• What is notable is the increase in the number of serious concerns with the financial and operational management of the SABC as illustrated in the number of qualification paragraphs sighted in the 2012/13 audit report. The audit opinion in that year regressed from a Qualification from 2 material matters in 2012 to a Disclaimer from 9 material matters in 2013.

• The audit letter of the AGSA to management of 2012/13 indicated that the control deficiencies that led to the 9 qualification paragraphs and a Disclaimer of opinion existed prior to 2012/13.

• A comprehensive action plan was put in place, approved by the Board and the Shareholder and presented to the Portfolio Committee on Communications. The Board and the Shareholder have been monitoring its implementation closely with audit committee meetings held monthly from 2013/14 until 2015/16 to ensure that the audit matters are dealt with.



• The table indicates that the action plan and the close monitoring of its implementation by the Board and the Shareholder has resulted in the reduction of material audit findings from nine (9) in 2012/13 to one (1) in 2015/16. The remaining qualification relates to accurate disclosure and presentation of supporting documentation relating to amounts spent that qualify to be disclosed as irregular expenditure or fruitless and wasteful expenditure.



• The SABC recognised that the action plan developed in 2013/14 would not be able to address all of the root causes of the findings in that financial year because of the nature of the root cause of the findings.

• For instance tracing of records that support the disclosure of irregular, fruitless and wasteful expenditure arising from transactions that occurred prior to 2013 is problematic due to inadequate frameworks that would have ensured the security of documentation. In addition the major root cause of the irregular fruitless and wasteful expenditure was the misalignment between the SCM policies and practices and the needs of business and a misalignment between the policies and practices and the PFMA.



• The SCM policies and operating procedures have been developed in consultation with business and in alignment with the PFMA, PPPFA and Treasury Regulations and approved by the Board. These policies are now being explained to staff in all offices of the SABC by the current leadership in the SCM. In addition the current SCM staff are encouraged to study for professional qualifications in SCM and regular workshops on pertinent issues surrounding SCM are being held. Strategic recruitment of suitably qualified staff from other SOEs is in progress.

• The current action plan is addressing the remaining qualification matter in the audit report of 2015/16 and it mitigates the risk that findings that were addressed do not reoccur and new findings do not materialise.

CURRENT STATUS


The SABC engaged the services of an independent audit firm with extensive knowledge in the public sector to expedite the process of identifying and disclosing:

irregular, fruitless and wasteful expenditure;

• root causes;

• responsible officials and

• corrective action required.

Currently a detailed verification of the amounts reported as irregular, fruitless and wasteful expenditure in the corporation’s annual financial statements for the year ended 31 March 2016 is underway to ensure completeness and accuracy. The verification exercise spans the last six (6) financial years – 2011/12 to 2016/17 in order to resolve prior qualifications relating to disclosures in the affected years. The process has been agreed to with the Auditor General of South Africa (AGSA) and is expected to be finalised by 31 May 2017.

CURRENT STATUS


The notes to the annual financial statements for the year ended 31 March 2016 reflect cumulative balances of irregular, fruitless and wasteful expenditures as follows: The figures disclosed as at 31 March 2016 were possible irregular, fruitless and wasteful expenditures subject to the finalisation of the verification process.

ACTION PLANS – Irregular, Fruitless &Wasteful Expenditure


A cumulative irregular expenditure balance of R1.1 billion has been verified and validated to date. Based on this verification exercise, we have reliably established that most of the irregular expenditure is attributable to:

• The Corporation's previous SCM policy and procedures were not aligned to National Treasury guidelines with regards to minimum number of required quotations;

• The previous SCM policy and procedures were not aligned with the Delegation of Authority Framework (DAF). As a result procurement for amounts below R100 000 were not approved at the appropriate management level as per the DAF;

• The previous SCM Policy was not aligned to PPPFA requirements regarding original Tax Clearance Certificates (TCCs). Previously, copies of TCCs were accepted by the Corporation as per the policy which was in contravention of the PPPFA;

• The Corporation not applying the PPPFA requirements consistently throughout the financial periods;



• Inadequate contract monitoring controls leading to new tender processes not being initiated timeously resulting in several contract extensions with current suppliers and/or the Corporation appointing suppliers through a closed bid/deviation process;

• Inadequate records management capacity;

• Content bids were not effectively evaluated and reviewed prior to awarding of bids in terms of the policy and procedures of the Corporation;

• All impairments of content rights were previously disclosed as possible fruitless and wasteful however through the current validation process has determined that the impairments do not meet the definition of fruitless and wasteful expenditure; and

• All travel and accommodation cancellation fees/charges were previously disclosed as fruitless and wasteful expenditure however some of the expenditure has been validated as justifiable based on the nature of the business.



To address the above issues, the SABC is implementing various action plans such as: • Conducting investigations over the identified irregular expenditure to initiate the

appropriate measures, including disciplinary actions, where necessary;

• Preparation of submissions for the purposes of condonation as appropriate;

• Identify any amounts that, in the best interest of the SABC, are deemed to be irrecoverable and formally motivate for write off as permitted by the National Treasury prescripts;

• Steps to recover any financial losses incurred by the Corporation due to such expenditure;



• Updating the SCM policy and procedures to align with legislation and regulations;

• Training of all employees on SCM policy and processes;

• Professionalisation of SCM division through up-skilling and recruitment;

• Establishment of a fully-fledged records management division to ensure compliance with the National Archives Act; and

• Establishment of a probity review team for all procurement above certain threshold (to be determined by management).

IRREGULAR EXPENDITURE SABC presentation to SCOPA

South African Broadcasting Corporation SOC Limited

Notes to the annual financial statements for the year ended 31 March 2017

Expenditure and losses through criminal conduct, irregular, fruitless and wasteful expenditures

(i) All losses through any irregular expenditure

Section 1 of the Public Finance Management Act, No. 1 of 1999, as amended, defines irregular expenditure as expenditure, other than unauthorised expenditure, incurred in contravention of or that is not incurred in accordance with a requirement of any applicable legislation. The following amounts have been determined as being irregular expenditure, in terms of section 55(2)(b)(i) of the Public Finance Management Act, No. 1 of 1999, as amended:

GROUP AND COMPANY 2017 2016

Notes R'000 R'000

Opening balance 5 148 526 4 385 138

Reversal of qualified balance - initiation of new project - 5 148 526 Add: Irregular expenditure - identified in the current year relating to the prior years 520 127 322 282

Financial year 2012 Financial year 2013 17 489 Financial year 2014 61 176 Financial year 2015 148 756 Financial year 2016 292 706

Expenditure previously disclosed as irregular verified as regular in the current year -

Balance as restated 520 127 4 707 420

Add: Irregular Expenditure - current year 586 482 441 223 Less: Irregular Expenditure condoned - - Less: Irregular Expenditure recovered - (117) Less: Irregular Expenditure recoverable (included in Receivables) Less: Irregular Expenditure written off - -

Not recoverable (bad debt) Not recoverable and Not condoned (no financial loss)

Irregular Expenditure awaiting condonation subject to further investigation 1 106 610 5 148 526

IRREGULAR EXPENDITURE SABC presentation to SCOPA Analysis of expenditure awaiting condonation per age classification

Current year 586 482 441 106

Prior years 520 127 4 707 420

1 106 610 5 148 526

Details of irregular expenditure

Incident Disciplinary steps taken/(criminal proceedings)

Payments without contracts - 40 932

Broadcast without Contract - 14 934

Procurement policy/process not followed

Verification exercise & investigation in progress 516 259 16 226

Minimum number of quotations not obtained a 52 863

Bids advertised for less than minimum number of days 64 325

Incorrect evaluation criteria applied to bids b 25 536

Irregular awards due to lack of planning c 276 428

Bids made to prohibited suppliers

Bids awarded to suppliers not registered with CIDB

Content acquisition process not followed d 97 108

Delegation of Authority Framework contravened

Verification exercise & investigation in progress

e 215 389 718

Awards made to suppliers without obtaining valid Tax Clearance Certificates


f 374 470 142 316

Inadequate monitoring of contracts / Split Orders Verification exercise & investigation in progress 491 225 980

Unauthorised overpayment of contracts

Verification exercise & investigation in progress - -

Other Verification exercise & investigation in progress - 117

1 106 610 441 106

IRREGULAR EXPENDITURE SABC presentation to SCOPA

Responsible Person/Body

The Corporation’s SCM policy and procedures were not aligned to National Treasury guidelines with regards to minimum number of quotations to be obtained. Accounting Authority

The Corporation did not apply the PPPFA requirements consistently throughout the financial periods. Head of SCM

Due to poor contract monitoring controls, new tender processes were not initiated timeously leading to several contract extensions with current suppliers or the Corporation appointing suppliers through a closed bid/deviation process.

Group Executives of affected Divisions

Request for proposals were not adequately evaluated and reviewed by senior management prior to awarding of bids in terms of the PPPFA, policy and procedures of the Corporation

Group Executives of affected Divisions

The Corporation's SCM policy and procedures were not clarified to effect alignment with the Delegation of Authority Framework (DAF). This has led to procurement not being approved at the appropriate management level as per the DAF.

Accounting Authority

The previous SCM Policy was not aligned to PPPFA requirements regarding original Tax Clearance Certificates (TCCs). Copies of TCCs were accepted by the Corporation as per the policy however in contravention of the PPPFA. Accounting Authority

a

b

c

d

e

f

FRUITLESS & WASTEFUL EXPENDITURE SABC presentation to SCOPA

South African Broadcasting Corporation SOC Limited

Notes to the annual financial statements for the year ended 31 March 2017

Expenditure and losses through criminal conduct, irregular, fruitless and wasteful expenditures (continued)

(ii) Material losses through fruitless and wasteful expenditures

Section 1 of the Public Finance Management Act, No. 1 of 1999, as amended, defines fruitless and wasteful expenditure as expenditure which was made in vain and would have been avoided had reasonable care been exercised.

The following material losses, through fruitless and wasteful expenditure have been identified as being reportable in terms of the materiality framework approved by the Minister of Communications for the year under review:

Notes GROUP AND COMPANY

2017 2016

R'000 R'000

Opening balance 92 460 58 299

Add: Fruitless and wasteful expenditure - current year a

- 34 677

Add: Fruitless and wasteful expenditure - relating to prior years identified in the current a - -

Less: Amounts condoned - -

Fruitless and wasteful expenditure not condoned 92 460 92 976

Less: Expenditure recovered - -

Less: Expenditure recoverable (included in Receivables) - (516)

Less: Expenditure written off - -

Fruitless and wasteful expenditure awaiting condonation 92 460 92 460

Analysis of expenditure awaiting condonation per age classification

Current year 34 677

Prior years 57 783

FRUITLESS & WASTEFUL EXPENDITURE SABC presentation to SCOPA

Details of fruitless and wasteful expenditure

Incident Disciplinary steps taken/(criminal proceedings)

Impairment of foreign content Verification exercise & investigation in progress b

-

11 504

Travel & Accomodation cancellation fees and penalties


-

270

Interest, penalties and fines on late payment of contracts


-

1 697

Impairment of sport productions - not broadcast Verification exercise & investigation in progress b

-

-

No show charges on training


-

246

Expenditures relating to HR matters Verification exercise & consultation with Treasury in progress a

-

19 766

Other Verification exercise & investigation in progress

-

1 195

-

34 677

The Corporation is in the process of identifying and validating the expenditure/spend to date. Due 31 March 2017.

These costs relate to broadcasting rights which are not broadcasted due to scheduling. These costs were previously included as possible Fruitless & Wasteful however during validation in

the current year, the Corporation has deemed them unavoidable as schedule changes are common in the broadcasting inductry

a

b

SABC 2nd QUARTER REPORT

THANK YOU

sabc presentation to standarding committee on public...

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