ICASA's missing millions

The Independent Communications Authority of SA (ICASA) has received another qualified audit opinion from the Auditor-General, after incurring R5 million in irregular expenditure.

ICASA's financials were also qualified because the AG could not verify the correctness of the amounts due for licence fees, or what was payable to Treasury. The authority yesterday presented to Parliament its annual report for the year to March.

ICASA, which is the regulatory authority over a sector worth about R50 billion, also received a qualified audit report last year, as the AG found it had no control over recording outstanding invoices, and did not have satisfactory audit procedures.

The regulator agrees with the qualified audit, and says it is putting measures in place to ensure better controls over revenue collection and to prevent further irregular expenditure.

In the year to march, ICASA generated revenue of R296.8 million, up from last year's R285.4 million. However, it was left with a deficit of R10.97 million, a leap from the 2010 shortfall of R4.7 million.

ICASA has previously told Parliament it needs more money to carry out its mandate as it faced a budget deficit of 36% of its current budget.

ICASA collects licence fees from operators, which it must pay over to Treasury's National Revenue Fund (NRF) within 30 days. It collects these payments from broadcasters, telecoms operators and for the use of spectrum.

However, the AG says it could not verify NRF assets of R899.9 million and payables balances of R906.8 million. The AG writes that this was “due to lack of control over the invoicing and collection of licence fees”.

ICASA's “records did not permit the application of alternative audit procedures regarding the amount receivable and resulting payable”, notes the AG's report.

The NRF assets of R899.9 million are fees that should have been collected by ICASA during the last financial year, but were not brought in on time. The NFR payable of R906.8 million is due to Treasury.

The AG notes the “accounting officer did not take effective and appropriate steps to collect all money due to the entity”. ICASA did not pay over all fees held on behalf of National Treasury within the stipulated 30 days, he says. The authority also earned interest of R3.5 million that was not paid over to Treasury's National Revenue Fund.

In addition, ICASA incurred irregular expenditure of R5 million. This is a significant increase on the previous year's R655 627, and was incurred because it did not follow proper procurements procedures, says the AG's report.

In addition, notes the AG, the entity also incurred fruitless and wasteful expenditure of R707 413 in the year to March. “The accounting officer did not take effective and appropriate steps to prevent irregular and fruitless and wasteful expenditure,” writes the AG.

Chairman Stephen Mncube, who took over from Paris Mashile in July last year, writes in the annual report that ICASA faces “daunting challenges in ensuring an unqualified audit opinion in future”.

In a statement, ICASA says it “continues to address all the findings identified by the Auditor-General”. The authority says it will develop a two-year turnaround strategy to make sure that revenue management is effective and transparent.

CEO Themba Dlamini, who joined ICASA last November, says the shortcomings relating to the NRF assets and payables had been highlighted during presentations to Parliament's Portfolio Committee on communications before the end of the financial year.

“A practice note will be issued to supplement existing General Licence Fees Regulations to ensure the effective and efficient collection of revenue,” Dlamini writes in the annual report.

ICASA explains it is currently using a few models of the LS system to capture licensing data. LS is a radio propagation modelling system for issuing frequency spectrum licences.

“Once the LS system has captured the licensing data, this has to be transferred to JD Edwards, a financial system, so as to capture and reflect financial information such as invoicing and payment details,” says ICASA.

Dlamini says nine out of 10 interfaces between the JDE financial system and LS system have been completed, with the remaining interface to be finished this year. “This will address the weaknesses identified in spectrum debtors and enable the authority to manage spectrum debtors on JDE.”

A turnaround strategy is being drafted to address shortcomings and to overhaul the entire finance function to create a sustainable control environment, says Dlamini. He says risk and control policies are being established, and ICASA has developed financial models to address internal control weaknesses.

ICASA has also automated customer contracts to improve client management and revenue collection, says Dlamini. “The road ahead is to ensure that the authority is well resourced financially and technically so that it can deliver on its own statutory obligations.”

ICASA has previously been accused of being toothless, as it has not always been able to carry out its mandate and ensure telcos and other licensees comply with the law.

Chris Gilmour, Absa Investments analyst, says it is worrying that the oversight body does not yet have its house in order. He says it is happening at a bad time when so many other government bodies have improved their financial status.

Gilmour says: “It's a lot of money, it doesn't just go walking, it must be verified urgently.” He says the AG's inability to verify the amounts calls into question ICASA's ability to have oversight of the sector.

ICASA should not get any more funding until proper systems are in place to track revenue and payments, says Gilmour.