Investigation Reports

PUBLIC PROTECTOR
REPUBLIC OF SOUTH AFRICA

REPORT IN TERMS OF SECTION 8(2) OF THE
PUBLIC PROTECTOR ACT 23 OF 1994

REPORT NO 7
(SPECIAL REPORT)

REPORT ON THE AFFAIRS OF THE INDEPENDENT BROADCASTING AUTHORITY

Madam Speaker and Honourable Members of Parliament

I have the honour to submit a special report in terms of Section 8(2) of the Public Protector Act 23 of 1994 regarding my investigation concerning the affairs of the Independent Broadcasting Authority.

Adv. S A M Baqwa, SC
Public Protector of the
Republic of South Africa

2 November 1998

TABLE OF CONTENTS

REPORT

INTRODUCTION
BACKGROUND

The hearing of the Standing Committee on Public Accounts
The resignation of 5 Councillors and the suspension of the Chief Executive Officer
Immediate steps taken by the IBA to rectify the shortcomings
The Report of the Standing Committee on Public Accounts

THE INDEPENDENT BROADCASTING AUTHORITY
THE COMPLAINT
THE INVOLVEMENT OF DELOITTE & TOUCHE
THE CORRECTIVE ACTION IMPLEMENTED BY THE IBA WITH THE ASSISTANCE OF DELOITTE & TOUCHE
THE REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF THE IBA FOR THE YEAR ENDED 31 MARCH 1998
THE DISCIPLINARY ENQUIRY INTO THE CONDUCT OF THE FORMER CHIEF EXECUTIVE OFFICER, MR H GXAWENI
INCIDENTS OF FRAUD AND THE RECOVERY OF MONEY INVOLVED
THE OUTSTANDING DEBTS OF FORMER COUNCILLORS AND POSSIBLE PROSECUTION
THE MERGER OF THE IBA WITH SATRA
LACK OF FINANCIAL CONTROLS IN THE PUBLIC SECTOR IN GENERAL
RECOMMENDATIONS 13

ANNEXURE A

FIRST REPORT OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA), DATED 28 MAY 1997

ANNEXURE B

REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF THE INDEPENDENT BROADCASTING AUTHORITY FOR THE YEAR ENDED 31 MARCH 1998

REPORT ON THE AFFAIRS OF THE INDEPENDENT
BROADCASTING AUTHORITY

1. INTRODUCTION

This Report is submitted to the National Assembly by virtue of the provisions of section 182(1)(b) of the Constitution, 1996 and section 8(2) of the Public Protector Act, 1994. It deals with investigations by my office and the office of the Auditor- General following complaints regarding the administration and operations of the Independent Broadcasting Authority (IBA).

2. BACKGROUND

My office was initially approached by staff members of the IBA by means of a letter dated 11 October 1996. This letter contains a number of serious allegations of maladministration, misappropriation of public funds and misconduct by the then Chief Executive Officer, Mr H Gxaweni. It was also submitted to the media and became the subject of several reports in newspapers, such as an article in the Weekly Mail and Guardian of 11 October 1996.

My office liaised with the office of the Auditor-General as the Auditor-General was at the time considering an investigation into the financial affairs of the IBA. During November 1996 a meeting took place between Councillors of the IBA and staff of the office of the Auditor-General regarding financial problems that appeared from the financial statements. The Councillors requested time to rectify the shortcomings and it was decided that the office of the Auditor-General would evaluate the situation again during December 1996. In December it was decided that the Auditor-General would conduct a special investigation into the financial affairs of the IBA. This special investigation covered the period 1 April 1994 to 31 December 1996. The Special Report of the Auditor-General on the Shortcomings in Management Measures and Financial Control and the effects thereof at the Independent Broadcasting Authority was tabled in Parliament on 7 May 1997.

In matters where the Auditor-General is already conducting an investigation I do not duplicate the investigation. We have developed a policy where I co-operate with his investigation or vice versa. His report revealed certain structural and procedural weaknesses. I deemed it appropriate to follow these up to ensure that appropriate remedial action was taken.

In his conclusion and opinion in the Special Report the Auditor-General stated:

"The contents of this Report indicate a serious lack of management measures and financial controls to ensure that resources allocated are utilised economically, efficiently and with probity. This has undoubtedly, and justifiably, contributed to the concerns of staff and other role-players. Various matters require further investigation. It is clear that these matters, and the effects thereof, call for a fundamental review of the manner in which the IBA conducts it finances and that comprehensive corrective action, under appropriate and strong leadership, will have to be instituted." (See page 20 of the Report)

The hearing of the Standing Committee on Public Accounts

On 14 May 1997 the Parliamentary Standing Committee on Public Accounts held a hearing in connection with the findings of the Auditor-General as contained in the Special Report. Several of the Councillors of the IBA and the Chief Executive Officer were questioned by the Committee.

The resignation of 5 Councillors and the suspension of the Chief Executive Officer

Subsequent to the hearing by the Standing Committee on Public Accounts, the Council of the IBA met on 15 May 1997. It was unanimously decided that Mr Gxaweni, the Chief Executive Officer, be suspended with full benefits pending an inquiry into his failure to perform adequately. 5 Councillors, including the co-chairpersons, Mr P De Klerk and Dr S Makone-Matabane resigned during this meeting.

Immediate steps taken by the IBA to rectify the shortcomings.

On 19 May 1997 the IBA Council announced that a firm of auditors, Deloitte and Touche, had been appointed to take over the running of the Finance and Administration Department of the IBA and to undertake a number of tasks in order to bring financial control within acceptable standards within the IBA. The Departments of State Expenditure and Communication also provided their support in this effort. Ms B Keene-Young was appointed as the acting Chief Executive Officer. The Council and management also started negotiations with representatives of the staff to address their concerns.

The Report of the Standing Committee on Public Accounts

In its Report, dated 28 May 1997, the Standing Committee on Public Accounts endorsed the steps that had been taken, but furthermore recommended comprehensive measures that had to be taken to address the issues in question. These recommendations appear from pages 4-6 of the Committee s report, which is attached to this Report as "Annexure A". The IBA had been instructed by the Committee to report on progress made in this regard not later than 30 September 1997.

As far as my office is concerned, the Committee recommended that I "investigate the matter further with a view to possible prosecution. Transactions on credit card accounts, certified as business-related expenses, should be included in this investigation." (Paragraph 8 (e) of the Report).

3. THE INDEPENDENT BROADCASTING AUTHORITY

The IBA was established by statute to provide for the regulation of broadcasting activities in the public interest. In terms of section 3(3) of the Independent Broadcasting Authority Act, 1993, the IBA is an independent institution that functions separate from the State, the government and its administration or any political party. The IBA is funded under the Vote of the Minister of Posts, Telecommunications and Broadcasting. The budgeted and actual expenses for the 1995-96 financial year amounted to R30 and R25 million respectively.

The Council normally consists of a chairperson and six other councillors that is appointed by the President on the advice of the National Assembly. The Council has the authority to appoint staff to assist the IBA, including a Chief Administrative Officer.

4. THE COMPLAINT

Except for the complaints pertaining to financial mismanagement that have been investigated by the Auditor-General, the letter of complaint submitted to me by staff members of the IBA referred to further misconduct by the Chief Executive Officer, Mr H Gxaweni, such as nepotism and favouritism in the appointment of staff and general lack of proper management in connection with the affairs of the IBA.

5. THE INVOLVEMENT OF DELOITTE & TOUCHE

During their initial investigation into the financial affairs of the IBA in order to establish the deficiencies that had to be addressed, the teams from Deloitte & Touche found that the problems in financial management were significantly more serious than was evident from the Special Report of the Auditor-General. As a result of this chaotic state of affairs the IBA had to take urgent steps to stabilise the financial management system and to introduce procedures and controls that would ensure effective management and accountability of the institution.

The details of the brief of Deloitte & Touche have been referred to in the report by the Acting Chief Executive Officer to the Standing Committee on Public Accounts, dated 18 September 1997. Briefly, it can be stated that Deloitte & Touche was requested to manage and staff the Finance and Administration Department of the IBA and to ensure that immediate financial controls were implemented. The brief also included the identification of recoverable expenditure that was referred to in the Special Report of the Auditor-General. In this regard, my office was in regular contact with that of the acting Chief Executive Officer and the forensic team of Deloitte & Touche, mindful of the recommendation by the Standing Committee on Public Accounts pertaining to investigation by my office.

In her report of 18 September 1997 to the Standing Committee on Public Accounts, the acting Chief Executive Officer dealt with this part of the investigation, as follows (see pages 18-20 of the report):

"In seeking to recover the expenditure incurred by Councillors outside the ordinary course of business the priority was to ensure that the IBA was placed in the position that it would have been in had proper financial and management measures been in place.

5.1 Categories of Expenditure

In particular, we looked at the recovery of:

5.1.1 Hotel costs and daily allowances paid to Councillors in instances where they were residents of the region in which hearings were held;
5.1.2 All costs, including interest, that relate to transactions incurred on IBA credit cards for private purposes; and
5.1.3 Duplicate payments of allowances.

5.2 Additional Categories of Expenditure

In addition, the following categories of expenditure by Councillors were investigated:

5.2.1 Per diems - local and international
5.2.2 Air travel - local and international
5.2.3 Car hire - within Gauteng and surrounds as well as elsewhere in the country;
5.2.4 Excessive rates for travel in personal vehicles;
5.2.5 International sponsored trips;
5.2.6 International trips for partners/spouses;
5.2.7 Telephone/cell phone allowances; and
5.2.8 Televisions, satellite dishes and decoders installed at Councillors homes.

5.3 Recoverable Expenditure

After the above investigation, the following categories of expenditure were identified as recoverable:

5.3.1 Non-business expenditure on Diners Club Cards;
5.3.2 Per diems claimed by Councillors within Gauteng;
5.3.3 Hotel accommodation within Gauteng;
5.3.4 Car hire within Gauteng and surrounds;
5.3.5 Rates for travel in personal vehicles
5.3.6 Local trips for spouses/partners;
5.3.7 International trips for spouses/partners
5.3.8 Miscellaneous, e.g. Pavarotti tickets.

In terms of the investigation we estimate that the total amount claimable from Councillors, inclusive of interest and after deduction of amounts already paid, totals R241 722.

5.4 The process for the Recovery of Expenditure

The process for the recovery of expenditure from Councillors involved:

5.4.1 Identification and analysis of expenditure by Councillors;
5.4.2 Consultations with Councillors on the expenditure they were alleged to have incurred as well as any policy on which the expenditure could have been based;
5.4.3 An evaluation of Councillors responses;
5.4.4 The determination of amounts due and payable by the Councillors to the Authority;
5.4.5 A request to Councillors to repay the amounts which are due and payable;
5.4.6 Where no policy could be determined, for example, on cell phones, the possibility of recovery was not pursued; and
5.4.7 Councillors were given until 30 September for their final responses or payment of the amounts considered to be due and payable. Amounts recoverable include interest at 17.5% which is the approximate average prime overdraft rate enforced for the period.

5.5 The Non-Recovery of Certain Expenditure

The principle adopted throughout the investigation was that where the prospect of success for the recovery of money was reasonable, claims were pursued. However, where the recovery of amounts owing was disproportionate to the costs involved in such recovery, no further action has been contemplated. For example, because of inadequate financial records, the reconciliation of per diems for foreign travel with the number of days spent on each trip would have involved many hours of investigation and the costs of the investigation would have far exceeded the amounts recoverable."

6. THE CORRECTIVE ACTION IMPLEMENTED BY THE IBA WITH THE ASSISTANCE OF DELOITTE & TOUCHE.

The Delloitte & Touche Special Services Group was briefed by the IBA to attend to the matters raised in the Special Report of the Auditor-General and to implement corrective action. My office was in constant contact with the acting Chief Executive Officer in this regard and I have been provided with regular progress reports during this period.

In her report of 18 September 1997 to the Standing Committee on Public Accounts, the acting Chief Executive Officer referred in detail to the corrective measures that had been taken in connection with the findings of the Auditor-General. It was reported that proper financial and accounting systems had been put in place and that regular financial and management reporting to senior management and the Council had been implemented. The fixed asset register had been verified together with transactions relating to fixed assets. Recovery of expenditure by Councillors with respect to non-business related expenses had been pursued and the 1997/98 budget had been reconstructed to reflect real operational costs. Austerity measures had been implemented to off-set the cash flow difficulties arising out of overspending on the 1996/97 budget. It was also reported that interim financial policies and procedures had been implemented. A detailed financial policies and procedures manual, including policy on travel, reimbursive expenditure, telephone limits, travel by spouses and gifts and favours had been finalised. The use of corporate credit cards in the names of Councillors had been terminated and all Diners Club facilities were cancelled at the end of May 1997. A policy with regard to the contracting of consultants was adopted as well as standard rates for the reimbursement of motor vehicle claims.

From this report and my information it was clear that much had been done by the end of September 1997 to rectify the problems in the financial administration and management of the IBA.

7. THE REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF THE IBA FOR THE YEAR ENDED 31 MARCH 1998.

From this Report by the Auditor-General it appears that the measures that have been introduced by the IBA with the assistance of Deloitte and Touche to rectify the shortcomings that have been identified have been recognised, but that the effect thereof would only be evident from the next audit. A copy of this Report is attached as "Annexure B".

8. THE DISCIPLINARY ENQUIRY INTO THE CONDUCT OF THE FORMER CHIEF EXECUTIVE OFFICER, MR H GXAWENI

Mr Gxaweni was charged on several counts of misconduct at a disciplinary hearing. However, shortly after the commencement of the proceedings, the presiding officer advised that the possibility of a settlement between the parties should be considered as it was evident that the hearing would be a prolonged process and that the legal costs would exceed the costs of a settlement. The IBA took legal opinion on the matter and the Auditor-General as well as my office were consulted. Eventually it was decided by the IBA that the expenditure involved in proceeding with the disciplinary enquiry coupled with the effect that it would have on the operations of the IBA could not be balanced against what stood to be gained from the enquiry and the matter was settled on the basis of the termination of the services of Mr Gxaweni as from 31 October 1997.

9. INCIDENTS OF FRAUD AND THE RECOVERY OF MONEY INVOLVED

During December 1995 a cheque in the sum of R215 320 was stolen from the IBA and deposited into a bogus bank account. R115 000 of this amount was fraudulently withdrawn the very same day. The balance is still held by the bank concerned. The matter was reported to the South African Police Service and the investigation could not be finalised to date as a result of a lack of evidence. A civil action based on negligence has been instituted against the bank concerned and the matter is likely to be heard during February/March 1999.

An amount of R810 000 has been transferred from the IBA bank account to a bogus account. However, prior to any withdrawals, the IBA became aware of this transaction and the bogus account was frozen. The amount concerned was re-deposited into the bank account of the IBA and a complaint has been lodged with the South African Police Service. A suspect has been identified and an arrest should be made soon.

10. THE OUTSTANDING DEBTS OF FORMER COUNCILLORS AND POSSIBLE PROSECUTION

The investigative audit conducted by Deloitte and Touch revealed that an estimated amount of R 241 722 is recoverable from former councillors of the IBA as being expenditure that was incurred outside of the ordinary course of business. The IBA has attempted on several occasions to persuade the councillors involved to reimburse the IBA, yet without success. The only option that remains seems to be legal action, which will be an expensive venture.

The Public Protector does not have the authority to institute legal action or to force the former councillors in another way to reimburse the IBA.

The Special Investigating Units and Special Tribunals Act, 1996, provides for a Special Investigating Unit to investigate the unlawful appropriation or expenditure of public money or property and to refer a civil dispute following such an investigation to a Special Tribunal that has powers similar to that of a court of law.

I am of the view that a Special Investigating Unit is ideally suited to deal with the issue of the outstanding debts of the former councillors without any further expense to the IBA and I have made a recommendation below that such a unit should be established for this purpose.

As a result of the chaos in the financial administration of the IBA during the period under consideration in this regard as well as the lack of proper records of minutes of meetings of the Council where issues pertaining to expenses were discussed and the fact that no proper policy existed, I am of the view that it would not be possible to prove any criminal intent, beyond reasonable doubt, by any of the former Councillors in connection with the expenses incurred that have been identified as unauthorised and/or of a personal nature. Consequently, I have accordingly not pursued the option of criminal prosecution. Referral for recovery to a Special Investigating Unit and Special Tribunal seems to be the only viable option.

11. THE MERGER OF THE IBA WITH SATRA

Section 192 of the Constitution, 1996, provides for the establishment of one independent authority to regulate broadcasting in the public interest and to ensure fairness and a diversity of views broadly representing South African society. Chapter 11 of the White Paper on Broadcasting Policy, dated May 1998, proposes a merger between the IBA and the South African Telecommunications Regulatory Authority (SATRA). Appropriate legislation enabling the merger of the two bodies will be enacted during the 1998 parliamentary session and, according to the White Paper, the new regulatory body will commence operations in the 1999/2000 financial year. In the Report of the Auditor-General, referred to in paragraph 6 above, concern is expressed that the process of the intended merger has not progressed significantly. I have also found during my investigation that the proposed merger presently has the following detrimental effects on the operations of the IBA:

the possibility of retrenchment as a result of the restructuring of the two institutions following the merger has a very negative effect on the morale of the staff which impacts on the effectivity of the IBA;
the uncertainty of the future of the IBA makes it almost impossible to recruit professional staff for vital functions of the IBA;
the restructuring of the IBA is already resulting in costly litigation;
the costs of the restructuring cannot be afforded by the IBA in terms of the present budget without having a devastating effect on its normal operations.

In my view, the process of the merger should be expedited to minimise the costs and the detrimental effect that it will have on some of the staff and the operations of the IBA. Additional funds should also be allocated to the IBA to enable it to give effect to the merger without jeopardising its normal obligations.

12. LACK OF FINANCIAL CONTROLS IN THE PUBLIC SECTOR IN GENERAL

The lack of financial controls by the IBA is one of a number of cases of financial mismanagement that have recently been reported. I am extremely concerned about the failure of governments, at all levels, and state organs to take effective and urgent steps to address incidents of chaos in financial administration. The Standing Committee on Public Accounts has recommended in it's First Report (Annexure A) that: "An ad hoc committee of the National Assembly should be established to formulate procedures to be followed by institutions such as the IBA and other similar constitutionally or statutorily independent bodies with regulatory or oversight functions (already in existence or established in future), to ensure that proper financial policies, procedures and guidelines are adopted."

I fully support this recommendation. However, I am also of the view that measures to ensure the proper training of officials in financial administration, to regulate and control the functions of these officials, to minimise the risk of abuse of the system and to improve the efficiency of financial administration as a whole, should be developed and introduced as a matter of urgency.

13. RECOMMENDATIONS

In terms of the provisions of section 182(1)(b) and (c) of the Constitution, 1996 and section 8(2) of the Public Protector Act, 1994, I recommend that:

13.1 The President by proclamation in terms of the provisions of section 2(1)(a)(i) of the Special Investigating Units and Special Tribunals Act, 1996, establishes a Special Investigating Unit in order to investigate the improper or unlawful appropriation or expenditure of public money by former Councillors of the IBA, alternatively, that the President, by proclamation, refer the matter to an existing Special Investigating Unit in terms of the provisions of section 2(1)(a)(ii) of the said Act;

13.2 The National Assembly takes appropriate steps to ensure that:

the process of the merger of the IBA and SATRA is expedited, and
sufficient funds are allocated to the IBA to give effect to its responsibilities in terms of the merger without jeopardising its normal functions.

13.3 Parliament urgently develops and introduces appropriate measures to:

ensure the proper training of officials of organs of state and of public administrations at all levels of government,
to regulate and control the functions of these officials,
to minimise the risk of abuse and mismanagement of financial systems, and
to improve the efficiency of financial administration in general.

ANNEXURE A

FIRST REPORT OF THE STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA), DATED 28
MAY 1997

The SCOPA, having considered and examined the special report of the Auditor-General on the shortcomings in management measures and financial control and the effects thereof at the Independent Broadcasting Authority: April 1997 [RP66/97], begs to report as follows:

The Independent Broadcasting Authority (IBA) is one of the bodies provided for in Chapter 9 of the Constitution, which establishes "State Institutions Supporting Constitutional Democracy".

It is of the utmost importance that, as independent and impartial regulators of broadcasting in the public interest, the IBA and its Councillors enjoy the confidence and respect of the public, and are seen to be capable and of unquestionable integrity.

The Committee was not able to investigate in detail all the issues and shortcomings identified in the special report. However, it did obtain sufficient reliable information to make the recommendations contained in this Report. In the light of the events (referred to in paragraph 6 of this Report) in the week following the Committee's hearing on 14 May 1997, no useful purpose would be served by the Committee investigating the matter further at this stage.
The substance of the Committee's investigation was to evaluate the financial affairs of the IBA. Therefore, the Committee did not investigate the IBA's regulatory functions, the assessment of which is the responsibility of the relevant portfolio committee. There were no submissions or evidence suggesting that these regulatory functions had been compromised or impaired.
Recognition should be given to the responsible and constructive role played by the staff of the IBA in drawing attention to, and calling for an investigation into, problems within the IBA.
From the evidence heard by the Committee on various aspects concerning the above-mentioned special investigation of the Auditor-General, it was evident that financial administration and control at the IBA were severely lacking, the following being examples:

Corporate credit cards were issued and used for private expenses.
Supporting vouchers for business and private purchases on credit cards were submitted very late or, in some cases, not at all.
Staff loans were made without contractual agreements or due consideration of the interest and tax aspects.
Duplicate claims for certain allowances were submitted and paid.
Duplicate payments to certain creditors occurred.
The policy and procedures for travelling expenses were not always adhered to.
Monthly financial statements were seldom available and bank reconciliations were not up to date.
Hotel accommodation costs and daily allowances were in some instances paid to Councillors despite the fact that they were resident in the particular area concerned.
Budgetary control was severely lacking.
Staff appointments were made without proper evaluation of the requirements of the positions being filled.

These financial, administrative and control problems can, inter alia, be attributed to the following:

Inadequate knowledge and skills regarding financial management.
Formal policies and guidelines not always being laid down, and where they existed, not being revised and not always adhered to.
Overall management and accountability arrangements were not given proper consideration at the time of the establishment of the IBA and the appointment of the Councillors.
The appointment of staff without appropriate qualifications and experience to positions responsible for finance and administration, coupled with a general lack of appropriate recruitment policies.
A generally lax attitude towards and low priority given to proper financial management.

The lack of these and other appropriate measures contributed to the effects described in the report of the Auditor-General.

Subsequent to the Committee's hearing, five IBA Councillors resigned after the Council had suspended the Chief Administrative Officer. The Councillors will serve the three months' notice stipulated by section 6 of the IBA Act.

After meetings on 19 May 1997 with officials of the Departments of State Expenditure and Communications, as well as with the management and staff of the IBA, the IBA Council issued the following media statement:

"1. EXTERNAL ACCOUNTANTS APPOINTED

The IBA Council today appointed the firm of Deloitte and Touche to take over the running of the IBA's Finance and Administration Department with immediate effect and to undertake a number of tasks, including:

Stabilising the current financial management position to obtain a clear picture of the present financial position and results of the IBA;

Providing management and Council with relevant and reliable financial information to enable them to manage the authority effectively, and to make sound business decisions based on accurate and up-to-date information; and

Ensuring implementation of defined financial controls and procedures to the extent that these are considered appropriate, and developing controls and procedures where these are deemed to be lacking.

The Deloitte and Touche team will also immediately commence an evaluation of what the structure of the Finance and Administration Department should be and its needs and in terms of staff skills and qualifications. The team will make staffing recommendations and will also be training people, so that when the team leaves, the department will be adequately resourced.

It is not known at this stage how long the Deloitte and Touche team will be at the IBA, but it is expected to be a number of months. Before they complete their project, the team will draw up a complete report on the finances of the organisation, including a trial balance.

2. SUPPORT FROM DEPARTMENTS OF STATE EXPENDITURE AND COMMUNICATIONS

A seven-person team arrived today from the Ministries of State Expenditure and Communications and immediately began working with the IBA to safeguard proper utilisation of public funds and financial accountability. The team is led by Mr Boet van Loggerenberg, a Senior General Manager in the Communications Ministry, and will report to the IBA's Council. The brief of the team is not to take over the running of the IBA, but to focus on financial and administrative issues. They will not involve themselves in regulatory, licensing or policy issues.

In meetings with IBA management and the Staff Steering Committee, the State Expenditure and Communications Ministries began discussing an agenda which will include:

Control of public funds
Financial systems
Budgetary process
Monthly financial statements
Administrative procedures
Delegation of duties and authorisation levels

3. APPOINTMENT OF THE ACTING CEO

The Council appointed with immediate effect an acting CEO. She is Ms Bronwyn Keene-Young, who is the head of the IBA's Monitoring and Complaints Department.

4. NO UNNECESSARY DELAYS IN WORK OF IBA

It is the Council's intention that there should be no unnecessary delay in the scheduling of the IBA's major projects.

5. STAFF NEGOTIATIONS

All negotiations with staff representatives at, for instance, the Workplace Forum, will continue as previously planned."

The Committee endorses the steps which have been taken and which are in accordance with the interim resolution adopted by it on 19 May 1997. The Committee however recommends as follows:

The Acting Chief Administrative Officer (referred to in the media statement of the IBA as CEO), together with Deloitte and Touche, should, as a matter of urgency, take all the necessary steps to -

implement adequate management measures to ensure proper financial control, and secure sound management practices;
take all steps necessary to limit potential losses arising from the existing situation; and
undertake a more comprehensive and in-depth investigation into the affairs of the IBA, including a thorough verification of all its fixed assets and transactions relating thereto.

The mandate and/or terms of reference of the consultants, Deloitte and Touche, should be specific and clearly defined, and the costs arising from the use of consultants should be closely monitored.

Emphasis should not only be placed on corrective action pertaining to future activities. Areas where deficiencies have already been identified should also be further investigated in detail, and action should be taken to put the IBA in the position that it would have been in, had proper financial and management measures been in place. These include, for example, the recovery of

hotel costs and daily allowances paid to Councillors in instances where they were residents of the region concerned;
all costs, including interest, that relate to transactions incurred on IBA credit cards for private purposes;
duplicate payments of allowances;
duplicate payments of creditors; and
overdue accounts and interest on staff loans.

The IBA should report to this Committee on progress made by not later than 30 September 1997.

The Public Protector should investigate the matter further with a view to possible prosecution. Transactions on credit card accounts, certified as business-related expenses, should be included in this investigation. The Auditor-General may assist the Public Protector in this regard to prevent duplication of activities.

The Committee further recommends as follows:

An ad hoc committee of the National Assembly should be established to formulate procedures to be followed by institutions such as the IBA and other similar constitutionally or statutorily independent bodies with regulatory or oversight functions (already in existence or established in future), to ensure that proper financial policies, procedures and guidelines are adopted.

These could refer, inter alia, to the following:

The use of public funds or credit for financing private expenditure.
The issuing and use of corporate credit cards.
A code of conduct for members of governing bodies or councils and senior staff.
Guidelines in respect of all aspects of travel and office accommodation and equipment.
The inclusion of one or more persons with appropriate management skills on governing bodies or councils.
An obligation on a member of a governing body or council to report material irregularities or serious financial mismanagement to the Public Protector or Auditor-General.
Staff loan policies.

Overall accountability arrangements must define the fiscal position of the accounting officer clearly.

Legislation pertaining to all the institutions referred to in paragraph (a) should be reviewed to ensure that the wording is clear and unambiguous, that the provisions are practical and that there are contingency provisions which cater for a situation in which there is no quorum in the governing body and no properly authorised accounting officer in place.

The Auditor-General should give priority to the auditing of the accounts of existing but recently created institutions, and in future to newly created institutions.

Portfolio committees of the National Assembly should initiate steps to give effect to these recommendations in respect of institutions falling within their areas of responsibility.

ANNEXURE B

REPORT
of the
AUDITOR-GENERAL

on the financial statements of the independent Broadcasting Authority
for the year ended 31 March 1997. 31 March 1997.

1. Audit assignment:

The attached financial statements, as set out on pages 8 to 14, have been audited in terms of the provisions of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996). Although these financial statements and the maintenance of effective control measures are the responsibility of the Council, it is my responsibility to audit and report on them.

2. Regularity audit

(1) Nature and extent

The audit was conducted in accordance with generally accepted government auditing standards. These standards require the audit to be planned and performed so as to obtain reasonable assurance that, in all material respects, fair presentation is achieved in the financial statements. An audit includes an evaluation of the appropriateness of the accounting policies; an examination, on a test basis, of evidence supporting the amounts and disclosures included in the financial statements; an assessment of the reasonableness of significant provisions, where applicable; and a consideration of the appropriateness of the overall presentation of the financial statements.

Furthermore, an audit includes an examination, on a test basis, of evidence supporting compliance, in ail material respects, with the relevant legislation.

I consider that the audit procedures were appropriate in the circumstances to enable me to express the opinion presented below.

(2) Qualified audit opinion

In my opinion, except for the effect on the financial statements of the matters referred to in paragraph 3, these financial statements are a fair presentation of the financial position of the Independent Broadcasting Authority as at 31 March 1997 and the results of its activities for the period then ended, in conformity with the prescribed accounting practice.

The Authority's transactions, which came to my attention during the course of the audit, were in my opinion made in accordance with the relevant legislation and were, in all material respects, in accordance with the Authority's mandate.

3. Audit observations

The following matters, which arose during the audit, are reported on in terms of my mandate:

(1) Lack of financial management and control measures

As reported in the previous audit report, the general lack of financial management and control measures was also evident in this financial year by the following:

Bank reconciliations were not performed and reviewed.
All creditors' transactions were not posted properly, which resulted in large debit balances. Duplication of payments compounded the problem
Late submission of VAT returns.
Proper job descriptions for staff did not exist.
Lack of a cash management system, resulting in interest being incurred on overdrawn bank balances.
A lack of control and co-ordination by Head Office over provincial offices.
No proper, written contracts existed for staff loans, which were granted interest-free and tax on fringe benefits were not paid.
In several instances supporting documentation for expenditure could not be produced. The procedures contained in the approved financial manual were not complied with and cases of unauthorised orders, purchase requisitions and cheque requisitions were found. No indication of actual receipt of goods or services could be found for a number of transactions.

The fact that some of these items also appeared in the previous audit report does not mean that no corrective action was taken since the previous audit, but was to be expected given the late completion of the previous audit. Subsequent to the tabling of the 1995/96 audit report in Parliament and the resolutions by the

Standing Committee on Public Accounts (SCOPA) to improve the financial management and control, the Chief Executive Officer was suspended and an acting Chief Executive Officer appointed.

The Authority also appointed an audit firm, whose main objectives, as stipulated in their engagement letter, included inter alia:

Stabilisation of the financial management position.
Finalisation of the accounting records for the 1996/97 financial year.
Providing management and the Council with relevant and reliable financial information.
Ensuring implementation of defined financial controls and procedures where these are considered appropriate and development of controls and procedures where these are deemed lacking.
Addressing and rectifying problems and difficulties experienced with the day to day running of the IBA from a financial and information system's point of view.
Assistance with the compilation of the 1997/98 budget and aggregation of the 1998/99 to 2000/01 budgets.
Evaluation of the staffing and organisational structure of the finance and administration department.
Verification of all fixed assets of the IBA and proper reconciliation to all relevant books and records.
Consideration of appropriate action to investigate identified financial impropriety and pursuance of recovery of lost funds.

Corrective action was consequently only taken after these appointments. In the acting Chief Executive Officer's Report on Corrective Action at the Independent Broadcasting Authority after the Special Investigation by the Auditor-General and the Recommendations of Parliament's Standing Committee on Public Accounts dated September 1997, the then acting Chief Executive Officer indicated that the following corrective measures were being or have been taken:

A consolidated three-year budget was prepared with the assistance of the appointed audit firm.
Reconstruction of the 1997/98 budget.
Implementation of various austerity measures.
Adoption of budget control and planning.
Implementation or financial policies and procedures, including the draft of a comprehensive Policies and Procedures Manual.
Implementation of interim financial policies and procedures for the eight provincial offices.
Reconstruction of the financial records for the 1996/97 financial year and preparation of 1996/97 financial statements.
Development of a management information pack.
Preparation of proper job descriptions for staff and re-organisation of Finance and Administration Department.
Appointment of staff members from the audit firm to act as financial accountant and Head of Department (Finance).
Review of the computerised accounting system.
Implementation of proper procurement procedures.
Implementation of interim cash management system.
Update of VAT position.
Implementation of proper procedures to control debtors and creditors.

Whilst an effort was made to ensure the proper presentation of the financial statements, the audit firm was obviously unable to correct lapses in internal control. W4h the exception of the steps necessary to finalise the 1996/ 97 financial statements, the effectiveness and application of the above measures will only be tested during the next audit.

(2) Fixed assets

A portion of the amount of R4 750 201 being written of in the financial statements is the result of differences between the accounting records and the fixed asset register. This amount does not necessarily relate to the present financial year only, but could also include errors relating to prior years. An acceptable explanation for the difference could not be provided to this Office.

A sample of assets selected for physical verification could not be verified completely, apparently as a result of poor control over the movement of assets within the Independent Broadcasting Authority.

The Independent Broadcasting Authority has indicated that it is in the process of a complete physical verification of all assets, which will include reconciliation with the general ledger. This exercise will only be completed in the 1998/99 financial year.

(3) Exceeding of budget

Evidence could not be produced that a statement of the Authority's estimated income and expenditure in respect of the 1996/97 year was ever approved by the Minister of Posts, Telecommunications and Broadcasting with the concurrence of the Minister of State Expenditure, as required by section 15(3)(a) of the Independent Broadcasting Authority Act.

Nonetheless, an amount of R33 million was appropriated to the Authority by Parliament. The actual amount received was R35 million. An explanation for the difference could not be provided.

Total operational and capital expenditure amounted to R44 140 890. This excludes adjustments of R5 769 774, some of which is applicable to prior years. The total income for the year was R37 202 446. The excess expenditure of R6 938 444, in the opinion of this Office, is regarded as unauthorised expenditure.

(4) Fruitless expenditure

An amount of R227 849 in interest was paid as a result of the late payment of creditors and VAT and the utilisation of an overdraw facility.

4. General

(1) Staff turnover

The high turnover of key staff, the low staff morale and the lack of commitment, in all departments, continued during the year under review as well as into the 1997/98 financial year. The uncertainty surrounding the continued adequate funding of the Independent Broadcasting Authority and the intended merger with the South African Telecommunications Regulatory Authority are possible reasons for this.

The state of this situation is of serious concern to this Office.

(2) Internal Audit

An internal auditor was appointed during the year. The focus of Internal Audit was on the execution of performance audits. Therefore we were unable to place any reliance on the work done by Internal Audit. The internal auditor also resigned during the time of finalising this report. Although accepted in principle, an audit committee has not been established as yet.

(3) Amounts due from Councillors

The audit firm assisting the Authority performed a forensic investigation of all travel and entertainment related expenditure paid since the inception of the Independent Broadcasting Authority. Included in debtors are amounts totalling R208 636 of expenditure deemed to be of a personal nature incurred by ex-Councillors and still outstanding at the time of writing this report.

In response to the resolution of SCOPA, the Independent Broadcasting Authority has issued letters of demand to those ex-Councillors concerned and has indicated that it will take all necessary steps to recover these amounts.

(4) Items from previous Reports

Theft

The Independent Broadcasting Authority has not yet recovered the amount of R115 000 that was withdrawn after fraud of R215 000 occurred, owing to theft of a cheque. Legal representatives have been instructed to commence action against the financial institution.

Remuneration of councillors

The Independent Broadcasting Authority has still not been able to ascertain whether the increase in the remuneration packages of councillors has met the requirements of the Act. This Office will raise the matter with the Minister of Posts, Telecommunication and Broadcasting.

(5) Suspension of and settlement with Chief Executive Officer

After the hearing of the previous audit report by SCOPA, the previous Chief Administrative Officer was suspended with full pay for a period of about six months, during which legal representatives were appointed to conduct a disciplinary inquiry into his actions. On the advice of legal counsel, the matter was eventually settled by mutual agreement. Legal expenses incurred for the case is expected to amount to between R250 000 and
R300 000.

(6) Appointment of consultants

The Authority has indicated that the audit firm was appointed in terms of section 27 of the Independent Broadcasting Authority Act, which allows the Authority to appoint experts. Although not specifically a requirement of the Act, this Office recommends that tender procedures also be used in the appointment of experts.

(7) VAT

Vat expensed in the income Statement amounting to R754 153 is in respect of VAT paid to the South African Revenue Services after a VAT audit. It was not considered cost effective to analyse the amount for allocation to the correct accounts.

(8) Merger with the South African Telecommunications Regulatory Authority

The intended merger with the South African Telecommunications Regulatory Authority (SATRA) is at discussion stage. A subcommittee consisting of staff from the Department of Communication, the Independent Broadcasting Authority and SATRA has been established. No significant progress has been made in this regard which is having a detrimental impact on staff morale. It is of utmost importance that this issue progresses speedily.

(9) Impact of the year 2000 on information systems

The Authority has indicated that guarantees in respect of year 2000 compliance have been obtained from all suppliers of hardware and software. This Office recommends a full systems test of all computer systems and equipment to obtain a satisfactory level of assurance.

5. Appreciation

The courtesy, co-operation and assistance shown by the Authority's personnel during the audit are greatly appreciated.

Johannesburg, 27/3/98.

for Auditor-General