SABC broke and broken: How billions in TV licence fees go up in smoke

We would like to bring to our readers’ attention that a graphic published in the cover story “Double Vision” of March 9 - 15 could potentially have misled readers about the amount the broadcaster spends on recovering TV licences.

This follows a complaint to the Press Ombud by LornaVision, run by Frans

Basson and Kuben Moodley, which collects licence fees for the SABC.

They alleged 15 problems with the article. The ombud and a panel of adjudicators dismissed all those issues, except for one, involving the graphic and its headline, which read: “Good for the Collectors: SABC revenue and collection costs of TV licences”.

The adjudicators said it was potentially misleading to say that licence revenue was consumed entirely by collection expenditure, of which LornaVision was paid the bulk. This was not our intention.

Visit www.presscouncil.org.za for the full finding.

—  CORRECTION

Among the findings of a probe into the SABC’s dire financial state that parliament is about to act on, are dubious contracts — including one to collect R1.7bn/year in unpaid licence fees awarded to a company with a distinctly convoluted mode of operating.

James Aguma was in fine fettle when he appeared before parliament last week. The urbane acting chief executive of the SABC batted away awkward questions from MPs like flies on a hot summer’s day.

Was the SABC teetering on the brink of insolvency, as parliament’s ad hoc inquiry has suggested? Rubbish, he said. The SABC boasted a net asset position of R2.7bn and a cash balance of R881m. Against these numbers a net loss of R411m could be considered almost trifling.

Aguma blamed increasing losses on rising pension fund costs, growing competition from new media for advertising spend, a downturn in the global economy and lack of government funding.

The SABC derived 85% of revenue from advertising, 12% from TV licences and only 2% from government. Its public mandate meant it often made poor "economic returns" on investments that yielded high "social returns", he said, citing high rights and production costs to screen unprofitable sports events that were nevertheless important as they promoted "social cohesion. The economic return might be negative but the social return is positive," he said.

What about the auditor-general’s (AG) finding that the SABC had incurred cumulative irregular expenditure of R5.1bn? Legacy issues, said Aguma.

What he failed to mention was that the SABC’s own budget review in November 2016 (seen by the Financial Mail) shows the broadcaster was planning for a loss of R1.1bn in 2018 and expected revenue to decline from R8bn in 2016 to R7.3bn in 2018.

Confidential documents show the SABC’s cash balance had fallen from R1bn in 2015 to R330m at the end of January 2017. And it spends R650m/month on operational costs.

The inquiry blamed mismanagement by the board and executive for the precarious finances. Implementing a 90% local content and 70% "good news" policy had led to a loss of audience share "without having considered the impact on the SABC’s finances".

The report makes it clear that Aguma cannot duck responsibility entirely for the AG’s R5.1bn irregular-expenditure finding.

Aguma and former chief operating officer Hlaudi Motsoeneng have, in effect, controlled the SABC’s finances since March 2014, after former CEO Lulama Mokhobo quit three years before her term expired. When she left, the SABC was profitable. It then incurred irregular expenditure of R990.7m in 2014, R389.3m in 2015 and R441.2m in 2016.

Uncollected SABC income is big business for debt collection agencies, which charge commission for arrears collected

During the inquiry it became clear that irregular expenditure continued unabated under Aguma and Motsoeneng. Witnesses said they had abused their power to commit the broadcaster to a number of dubious deals and spent tens of millions on consultants that duplicated work of staffers.

Aguma’s contention that the SABC’s net asset position was an indicator of its robust financial health doesn’t hold water either. A source with detailed knowledge of the SABC’s finances described it as "a cheap and unconvincing argument. If you start selling your operational assets it means you are not a going concern — you are closing down.

"They are technically insolvent already. If you sell your buildings, where do you go? If you sell your OB (outside broadcasting) vans, how will you broadcast?"

Another bugbear for MPs was television licence collection, a huge source of untapped revenue. By conservative estimates only a third of 10m South Africans who own a television set pay the annual R265 licence fee. That amounts to R1.7bn/year in uncollected income. It also represents a huge opportunity for debt collection agencies, which charge commission for arrears collected.

Collection is costly and inefficient. The SABC spends about R1bn/year to collect R1bn in licence fees. Clearly there is a dire need to increase licence fee revenue while decreasing collection costs.

Aguma assured MPs this was being dealt with as a matter of priority, especially because he wanted licence fees to fund the SABC’s 90% local content policy. "External consultants" hired to clean up the SABC’s database resulted in a R17.7bn write-off of outstanding fees and penalties from 1m accounts, he told MPs. This included prescribed debt (an old debt that hasn’t been acknowledged or paid) and deceased or foreign national account holders.

A new approach to licence fee collection was initiated, aimed at "changing the mindset of people". Instead of issuing threatening notices to defaulters the SABC was "sending positive messages", offering rewards such as airtime and funeral cover to those who paid and allowing defaulters to pay in instalments.

What Aguma didn’t mention is that contracts with the two firms he hired to clean up the database and spearhead his new collections initiative — Lezaf Consulting and LornaVision — were both red-flagged in the ad hoc committee’s reports.

LornaVision was created by Frans Basson, a founder of collections company MBD. He was joined as co-director by Kuben Moodley, a former special adviser to mineral resources minister Mosebenzi Zwane.

Moodley was linked to the Guptas in former public protector Thuli Madonsela’s state capture report. She said he had helped fund the Guptas’ purchase of the Optimum coal mine. Moodley declined to be interviewed for this article. "My attorneys will respond to your harassment over me [sic]," he texted.

Since its appointment in 2015 LornaVision has, in effect, captured the SABC collections market, with other industry players crying foul because the contract was never put out to tender. Basson insists this was justified because no other company offers the same product, a claim that competitors dispute.

Rewards for paying your TV licence (such as free funeral cover) are offered through another of Basson’s companies, Axon.

SABC procurement, collections and finance officials objected to the contract but were overruled by Aguma, sources said. Madoda Shushu, the head of procurement at the SABC, who has since left, told the committee there was no justification for deviating from normal procurement processes in awarding the contract to LornaVision.

"Supply chain management deviations were approved for transactions which did not warrant the use of an emergency clause — for example, the LornaVision contract which was sourced to collect TV licence fees," he is quoted as saying in the committee’s final report.

"This contract did not meet the requirements of a deviation: for a deviation to apply, it must be proven beyond reasonable doubt that it is a sole-source situation or it was impractical to source the goods. Tests are done to verify impracticality or sole-source situations. This did not apply to this contract."

Basson retorted that as Shushu hadn’t attended any of LornaVision’s presentations he wasn’t qualified to say whether procurement rules had been broken.

A copy of LornaVision’s proposal to the SABC indicates it was done "in conjunction with Lezaf Consulting". Shushu said Lezaf’s contract "may also be of a questionable nature".

Documents obtained by the Financial Mail reveal SABC staff had raised several red flags about both deals.

Lezaf was paid R4m for the database clean-up, "business process design" and to help clear the qualification from the auditor-general related to TV licence collections.

Concerns were raised soon after Aguma signed the Lezaf contract. In e-mails a procurement official pointed out that Aguma had approved the purchase requisition without a financial manager’s signature and before the services were delivered.

"In compliance point of view [sic] Mr J Aguma cannot be a requester, contract negotiator, approving PR [purchase requisition] and payment," the official wrote.

Lezaf CEO Fazel Ismail says his company "followed the required supply chain management and procurement procedures that they were asked to". Lezaf had seconded several senior chartered accountants for what he described as a rigorous and gruelling job that successfully cleared the AG qualification. "To be frank, we probably underquoted."

He was puzzled how his company’s name landed up on LornaVision’s proposal.

"Lezaf worked independently from LornaVision and was contracted to deliver independently. I understood LornaVision to perform debt collection services. We had our own separate proposal. I don’t know why they put it like that."

A paper trail obtained by the Financial Mail and the Organisation Undoing Tax Abuse (Outa, which has also investigated the company), reveal that Lorna-Vision’s tax clearance certificate was issued on June 23 2015. The next day a board resolution authorised Aguma to bypass normal procurement processes and award the contract to LornaVision without going to tender.

Moodley and Aguma signed the contract on July 10 2015. It stipulated the SABC would pay LornaVision R2.135m to develop a pilot platform for collecting 10,000 renewed licences a month for a 10% commission. The company would also be paid 40% commission for collecting fees from unknown "pirate" viewers in the first year and 35% in the second, with an additional 27% for arrears collections.

Almost a year later, in May 2016, the SABC, through a round-robin resolution, cancelled its contract with collections company MBD (which by then had been bought by Transaction Capital and was no longer associated with Basson) and amended LornaVision’s contract "to extend the scope of the services". They would henceforth include monthly updates on cleaning up the SABC’s accounts database and vastly increase the number of licence renewal collections: from 10,000 to 330,000 a month.

This didn’t sit well with other collection firms left out of the loop, such as Transaction Capital Recoveries. "We lost the work along with the other collection companies and the contract was awarded to another company without another tender being issued," says Transaction Capital CEO David Hurwitz. "We are perplexed how that happened."

His views are echoed by an executive of another collection company, who spoke on condition of anonymity. "We lost 120 jobs because of the LornaVision contract, and we never saw a tender advertised," he said.

He claimed his company had developed similar hi-tech collections systems to those used by LornaVision. "What those idiots are doing I’ve been doing for years," he said, describing LornaVision’s contract amendment as "the start of a gold rush".

Outa became interested in LornaVision after receiving complaints about another of Basson’s companies that has dealings with the SABC, Pritchard & Associates (P&A). "After weeks of investigation, following numerous complaints we were receiving from the public about threatening SMS and e-mail messages they were receiving from P&A, Outa laid a complaint against P&A with the Council for Debt Collectors," says chairman Wayne Duvenage. "We found that up until December 23 2016, P&A was not even registered with the council. Neither was LornaVision; and they are still not."

The messages threatened defaulting SABC customers with "adverse consumer listings".

"We have handled similar cases of mass SMSes which contained threats by debt collectors to consumers and we were successful with these complaints in the past, so we have some understanding of what behaviour is unacceptable in these matters," he says.

Tekani Mabasa, head of the legal department at the Council for Debt Collectors, says: "We are investigating that particular complaint but the investigation is not complete."

If the council finds sufficient evidence of wrongdoing it can charge the company and summon it for a hearing. If found guilty, the company can be fined up to R100,000 for every offence and have its licence to operate withdrawn. Failure to register was also a criminal offence "that carries a maximum penalty of three years in jail", he says.

Basson says the complaint will go nowhere. "LornaVision is not a debt collection company," he insists. It provides the SABC with "systems, data, and processes" to collect its own debt.

Outa doesn’t buy this. "Our view is that whenever any person or entity collects debts, in other words, arrears TV licence fees in this instance, such an entity must be registered as a debt collector as per the Debt Collectors Act," says Duvenage.

He believes the name Pritchard & Associates is problematic. Complaints on consumer websites suggest most people who receive threats believe they are being handed over to a law firm. Duvenage believes this is a deliberate, cynical ploy by Basson to bully SABC’s customers who fear they will be held liable for hefty legal fees.

Basson described Outa’s allegation as "a strategy to create smoke and mirrors (fake news) in order to get more members."

He says neither he nor LornaVision derives any income from Pritchard & Associates, which was "just a name our marketing team came up with. It’s the SABC collections alter ego, I guess.

"It’s an SPV [special purpose vehicle] for the SABC to collect debt."

Despite Pritchard & Associates proclaiming on its website "our founder is Frans Lodewyk Munnik Basson", he appears at pains to distance himself from the company. "Pritchard is not our company. We are only standing in as directors till the SABC is trained to take over all the roles and responsibilities. We did the website and made it very generic and we think the SABC is going to nail it, thus making it the ideal vehicle to collect for other government departments."

None of this is apparent on the company’s website portal, which lists its services as early and late-stage collections, legal collections, in-house collections and debt purchasing. It has the same physical

and postal address in Parktown, Johannesburg, as Basson’s other companies.

On Tuesday the national assembly adopted the ad hoc committee’s report on the SABC. This means an interim board can implement its recommendations as soon as it’s appointed. These include launching an investigation into the "questionable and irregularly awarded contracts" it identified and taking steps against officials found complicit. Whether Basson and Moodley’s convoluted and controversial collections scheme will stand up to official scrutiny remains to be seen.