AUDITOR-GENERAL ON AN INVESTIGATION AT SATRA

SPECIAL REPORT OF THE AUDITOR-GENERAL ON AN INVESTIGATION AT THE SOUTH AFRICAN TELECOMMUNICATIONS REGULATORY AUTHORITY

1. PURPOSE AND CONTENT OF THE REPORT

The purpose of this report is to inform Parliament on the findings of an investigation at the South African Telecommunications Regulatory Authority (SATRA) as recommended in the report of the Portfolio Committee on Communications dated 9 November 1999.

The investigation was done in terms of section 3 of the Auditor-General Act, 1995, and it is reported on in terms of section 4 of the said Act.

2. AUDIT APPROACH AND SCOPE

2.1 In the report of the Portfolio Committee on Communications, dated 9 November 1999, the Committee recommended that the Auditor-General urgently conduct an audit of SATRA's activities for the period 1998 to date, with special attention to allegations made during a fact-finding exercise by the Committee into alleged irregularities, corruption and maladministration amongst councillors of SATRA.

In a letter dated 16 November 1999 the above report was forwarded to me by the Office of the President for the necessary attention.

Following the referral I also had preliminary discussions with the Minister of Communications (Minister) and the chairperson of the Portfolio Committee on Communications to obtain further clarity on the scope and the recovery of the cost of this investigation. It was agreed that the cost of this investigation would be recoverable from SATRA.

Arising from the above report the objective and scope of the investigation were originally to report on the following allegations:

Media report leaks.
Correspondence from concerned staff, ranging from corruption and nepotism to sexism and favouritism.
A number of substantive issues arising from the Gobodo Incorporated report and the further probing of these by Gobodo Incorporated.
Defective decision making at council meetings.
Vague tendering procedures.
Insufficient guidelines regarding the appointment of staff.
Allegations on the third mobile cellular telecommunication service (3^rdcellular) licensing process.
Various other issues.

A preliminary review was conducted early in December 1999 to determine the exact nature and extent of the above allegations and to determine the extent and scope of the investigation.

This review mainly entailed interviews with all six councils and certain staff members.

2.2 After discussing the preliminary findings with the Minister on 11 December 1999, I considered the limitations on the scope of the investigation in terms of time and financial constraints. Therefore, the following amended approach had to be adopted in conducting the further investigation into this matter. This approach was discussed and consensus reached with the Minister on 4 January 2000 and it entailed the following:

To have follow-up interviews with all six SATRA councillors and record their sworn affidavits, endorsing therein that they had no vested interest since being appointed as councillors, in any of the six consortiums applying for the 3^rd cellular licence.
To conduct a high-level review of the 3^rd cellular licensing process by interviewing relevant SATRA staff, and scrutinising relevant documentation detailing the process.
To review information supplied to SATRA by each of the six applying consortiums relating to companies and individuals having direct ownership and control interests in these consortiums.
To review documentation and other information, available at the Registrar of Companies (Registrar), relating to company and director registration details of individuals and companies having direct ownership and control interests in the said consortiums based on the information supplied to SATRA.

2.3 The remaining issues/allegations were not included in this investigation. However, these issues/ allegations may be subjected to further investigation by me during the normal course of the regularity audit and the outcome thereof may be included in the report on the financial statements of SATRA.

3. AUDIT OBSERVATIONS

Audit observations relating to the investigation as mentioned in subparagraph 2.2 above, revealed the following:

3.1 INTERVIEWS AND SWORN AFFIDAVITS

These interviews were found to be particularly time consuming especially because of the non availability of councillors during the festive season and the duration of the interviews which in certain instances lasted several hours and sometimes required more than one appointment. At times the situation led to a duplication of efforts in that matters discussed at previous appointments had to be recapped at the next appointment.

From the interviews conducted with, and affidavits secured from, each of the six councillors they all confirmed that they had no interest (either directly or indirectly), in any company that forms part of the consortiums that are applicants for the 3^rd cellular licence for the period that each of the councillors has been employed by SATRA in their current positions. However, in my opinion, the following aspects need to be noted:

3.1.1 In a sworn affidavit secured from the founder director of a certain company, it was confirmed that one councillor was a former business partner in a company that apparently became dormant after it had failed in an earlier bid for a cellular network licence during 1993.

The founder director is, however, also a trustee of a development foundation trust which acted in the capacity of co principle in a group of principle companies which collectively, with a prominent business person in the telecommunication industry, have a shareholding of 14% (fourteen per cent) in one of the applying companies for the 3^rdcellular licence.

Due to time constraints and limited funds available for this investigation, I was not able to further verify the exact involvement of the alleged business partner of the councillor concerned in the trust or the exact role of the trust in the application of one of the 3^rd cellular applicants. This factor, as well as the factors pointed out in the paragraphs 3.3 below, made it impossible for me to conclude whether the councillor concerned may have a conflict of interest relating to his alleged position of co-director and consequently alleged business partnership in the companies mentioned above.

3.1.2 The affidavit of one other councillor indicated that she was never a director of a certain company, which has an interest in one of the 3^rd cellular licence applicants. The company's records supplied by the company's director as well as the records supplied by the Registrar supported this. However, I have not conducted sufficient further investigations due to time constraints and financial restrictions and therefore, I am not able to confirm or refute the reliability of the said affidavit, the records supplied by the director or the records obtained from the Registrar.

3.2 THIRD CELLULAR LICENSING PROCESS

A high-level review was done of the procedures and processes followed for the 3^rd cellular licence as prescribed by the Telecommunications Act, 1996 (Act No.103 of 1996), (the Act) and Regulations. Except for the matters outlined in 3.2.1 to 3.2.3 below, no material deviations from the Act or generally accepted good practices, were identified curing the review of the ₃rd cellular licensing process:

3.2.1 Council representation on committees

In order to perform SATRA' s own evaluation of applications, a number of committees, structured according to certain evaluation criteria, were established. The committees were instructed to do an analysis of the applicants and not to rank applicants.

Section 22 of the Act requires these committees to be chaired by a councillor. However, this was not the case, as staff members chaired these committees and thereby contravening sections 21 and 22 of the Act.

3.2.2 Resubmission of CDROM disks

As part of the applications, a CD-ROM disk (CD) containing information had to be submitted by applicants. A number of CDs received, contained certain problems, such as, possible viruses, passwords on spreadsheets, etc. The applicants in question were requested to correct these problems and resubmit the CDs.

It is unclear whether the corrected CDs had been checked to ascertain that it contained only original information submitted.

3.2.3 Approval of lenders

Generally the council allocated the authority to approve the awarding of tenders to one specific councillor. This process had been followed throughout and presented no material problems until the tender (ST0017) to perform the analyses of the applications for the 3^rd cellular licence was awarded to a consultant/consortium.

This approval of tenders by one member of council does not present good practice as the council as a whole remains responsible/accountable.

A possible solution to clear the concerns of all councillors would be to evaluate the work performed by the consultant/consortium and to determine whether this had been adequate and, if so, the council should formally adopt their findings.

3.3 REGISTRAR OF COMPANIES (3^rd CELLULAR LICENCE APPLICANTS)

Although the documents and records of the Registrar may not be completely up to date at any given time, since they only reflect information received from the companies, these were the only official records available which were necessary to review.

The following basis was used to perform searches at the Registrar of Companies:

· The checks were limited to companies registered in South Africa.

The companies that have withdrawn their applications since then were also included in the checks.
The information obtained from the SATRA records as well as that supplied by the applicants, was used as a basis to obtain independent confirmation from the records of the Registrar.
Where a Trust had an interest in the 3^rd cellular licence applicant, no further investigation was undertaken to determine who the trustees of those Trusts were, because it is difficult and time consuming to source this information.

The limited information secured from the Registrar on directors of companies, which have direct interests in the 3^rd cellular licence applicants, indicated that the six councillors of SATRA are not directors in the companies.

I could, however, not secure information on the directorships of all the entities which have a direct interest in the applicants for the 3^rd cellular licence for the reasons indicated in the attached schedule.

Based on the above I am not in a position to draw any final conclusion regarding the question of whether any one of the SATRA councillors holds directorship in any of the entities which have a direct interest in the applicants for the 3^rd cellular licence without conducting further investigations.

4. CONCLUSION

Due to time constraints and financial restrictions, the extent of investigations conducted so far was in my opinion very limited and not detailed enough to draw any final conclusions regarding the alleged involvement of SATRA councillors in any of the entities holding direct interests in the applicants for the 3^rdcellular licence.

5. APPRECIATION

The assistance rendered by everyone concerned during the investigation, is sincerely appreciated.

A FAKIE
AUDITOR-GENERAL.

Pretoria
10/2/2000