SABC Presentation to Standarding Committee on Public Accounts

Transcription

1 SABC Presentation to Standarding Committee on Public Accounts

2 INTRODUCTION 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: ± Payments above R2 million (potential RFP): 260 Payments below R2 million (potential RFQ): 27000

3 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.

4 BACKGROUND AND HISTORY Audits performed by private firms Auditor General Audit opinion Number of qualifications paragraphs 2008/9 2009/ / / / / / /16 Qualified Unqualified Qualified Qualified Disclaimer Qualified Qualified Qualified Movements regress improve regress regress regress improve improve improve

5 BACKGROUND AND HISTORY MATTERS ASSOCIATED WITH QUALIFICATION PARAGRAPHS Irregular, fruitless and wasteful expenditure Private audit firms AGSA 2008/9 2009/ / / / / / /16 Ř - Explanation of symbols New qualification paragraph not in previous year s audit report Previous years qualification successfully resolved Previous years qualification in process of being cleared Qualification paragraph not reported in audit report of the year Symbol Ř -

6 BACKGROUND AND HISTORY 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 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.

7 BACKGROUND AND HISTORY 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.

8 BACKGROUND AND HISTORY 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.

9 BACKGROUND AND HISTORY 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.

10 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.

11 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.

12 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 R 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;

13 ACTION PLANS Irregular, Fruitless &Wasteful Expenditure 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.

14 ACTION PLANS Irregular, Fruitless &Wasteful Expenditure 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;

15 ACTION PLANS Irregular, Fruitless &Wasteful 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).

16 IRREGULAR EXPENDITURE 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 Notes R'000 R' Opening balance Reversal of qualified balance - initiation of new project Add: Irregular expenditure - identified in the current year relating to the prior years Financial year 2012 Financial year Financial year Financial year Financial year Expenditure previously disclosed as irregular verified as regular in the current year Balance as restated Add: Irregular Expenditure - current year 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

17 IRREGULAR EXPENDITURE Analysis of expenditure awaiting condonation per age classification Current year Prior years Details of irregular expenditure Incident Payments without contracts Broadcast without Contract Procurement policy/process not followed Disciplinary steps taken/(criminal proceedings) progress Minimum number of quotations not obtained a Bids advertised for less than minimum number of days Incorrect evaluation criteria applied to bids b Irregular awards due to lack of planning c Bids made to prohibited suppliers Bids awarded to suppliers not registered with CIDB Content acquisition process not followed d Delegation of Authority Framework contravened Awards made to suppliers without obtaining valid Tax Clearance Certificates Inadequate monitoring of contracts / Split Orders Unauthorised overpayment of contracts Other e progress f progress progress progress - - progress

18 IRREGULAR EXPENDITURE Responsible Person/Body a 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 b The Corporation did not apply the PPPFA requirements consistently throughout the financial periods. Head of SCM c d e f 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. 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 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. 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. Group Executives of affected Divisions Group Executives of affected Divisions Accounting Authority Accounting Authority

19 FRUITLESS & WASTEFUL EXPENDITURE 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 R'000 R'000 Opening balance Add: Fruitless and wasteful expenditure - current year a Add: Fruitless and wasteful expenditure - relating to prior years identified in the current a - - Less: Amounts condoned - - Fruitless and wasteful expenditure not condoned Less: Less: Less: Expenditure recovered Expenditure recoverable (included in Receivables) Expenditure written off (516) - - Fruitless and wasteful expenditure awaiting condonation Analysis of expenditure awaiting condonation per age classification Current year Prior years

20 FRUITLESS & WASTEFUL EXPENDITURE Details of fruitless and wasteful expenditure Incident Disciplinary steps taken/(criminal proceedings) Impairment of foreign content Travel & Accomodation cancellation fees and penalties Interest, penalties and fines on late payment of contracts Impairment of sport productions - not broadcast No show charges on training Expenditures relating to HR matters Other progress b progress progress progress b - - progress Verification exercise & consultation with Treasury in progress a progress a b The Corporation is in the process of identifying and validating the expenditure/spend to date. Due 31 March 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

21 SABC 2 nd QUARTER REPORT THANK YOU