Minister & Companies and Intellectual Property Commission report on progress

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Trade and Industry

12 September 2011
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Minister and Companies and Intellectual Property Commission (CIPC) briefed the Committee on the progress of the CIPC since July 2011. The problems which CIPC faced at inception included weak administrative systems, growing backlogs and problematic IT systems, and inability to respond to queries and calls from the public. A decision had been taken to close the existing Companies and Intellectual Property Registration Office (CIPRO) and to move immediately to establishing CIPC, and this move had been vindicated. Although there were still some challenges, the CIPC had managed to achieve a substantial turnaround, particularly in clearing backlogs, having embarked on an intensive campaign in August 2011 which seconded extra staff, established incentives, extended office hours to 19h00 and weekends, and focused on particular areas. In particular, CIPC was investigating exactly what ICT systems it would need and proposals would shortly be made to the Minister. Schedules were tabled, showing the numbers of requests lodged and completed, and all areas showed 97% completion save for company registrations, partially because many registration applications came in at the end of the month, once the name registration procedures were cleared. Some other remaining backlogs were relatively small and should be cleared by September, and the CIPC was gearing itself up for about 15 000 company registrations in September. The CIPC was attempting to benchmark itself around other similar institutions in other countries. It had taken an in-principle decision to outsource the call centre in the short term although in the long term it would be desirable to bring it back under the control of CIPC, but financial implications were still being considered. Service delivery commitments would be announced in early December

Members expressed their appreciation for the substantial efforts made. They questioned how CIPC was attempting to address disparities between rural and urban areas, to what extent communities were being made available of tools for development, asked what problems there were in the call centre and how these would be addressed, and discussed likely countries against whom to benchmark. Members asked if the incentive scheme was considered as a one-off, what further evaluations would be done and what was being done to assess the exact number of staff needed. They also questioned the vacancies, and what “normal staff” would comprise, noted that the ideal staff component could not be housed in the existing call centre, and asked if a designated team would focus on the outstanding e-mails. Members were also interested to hear what quality control measures had been implemented to ensure that the problems with CIPRO did not happen with the CIPC. The problems of intermediaries offering to help people in return for a fee, and fraud, were raised, and the Minister stressed that the CIPC would adopt a zero-tolerance approach, that as far as the CIPC knew, no security breaches had occurred during the backlog clearance process, and that new firewalls would be instituted to guard against fraud. The court case in which CIPC was involved was explained. Members finally asked about the registration of business rescue practitioners and the number of business rescue cases, the time frames for outsourcing and finalising the ICT issues, and cautioned that alternative systems must also be in place to guard against risks, particularly of cable theft. 

Meeting report

Companies and Intellectual Property Commission (CIPC) progress report
The Chairperson welcomed the Minister of Trade and Industry and representatives from the Companies and Intellectual Property Commission (CIPC or the Commission), who would give a report on progress of the new CIPC since July 2011.

Dr Rob Davies, thanked the Committee for accommodating the Commission. There had been progress but there were still some significant challenges in turning around the processes for company registration to the point where they should be. When he took over in the Ministerial portfolio, it became apparent that the Companies and Intellectual Property Registration Office (CIPRO), which was then dealing with these matters, was in crisis, as evidenced by the Auditor-General’s investigation into the tender for ICT systems. However, the Chief Executive Officer went on sick leave, was suspended during that time, and subsequently passed away, while the Chief Information Officer was also suspended. Problems with efficiency and leakages in the system were apparent. Some stability was achieved with the appointment of the Acting Chief Executive Officer, to whom the Minister was grateful, but there were still a number of substantive issues to be dealt with, and there was also a need to build more efficiency, better controls, and to ensure that technical infrastructure was upgraded. The question then facing the Minister was whether an attempt should be made to resolve the problems under the existing structure, or to risk a move into a new Commission. The latter option was chosen, and his report today would vindicate that decision, albeit that it had placed a huge task on the new Commission leadership. Some of the immediate challenges and backlogs had been addressed. Longer-term improvements were still needed, and in the next stage competitiveness targets would have to be set, which would meet international benchmarks. The new CIPC was given an open mandate to investigate what ICT package it needed to develop, and it would come back to the Minister with proposals. Future competitiveness reports should feature CIPC in a positive light.

Ms Astrid Ludin, Commissioner, CIPC, agreed that there was a positive message, but some work was still to be done. She noted that she had brought a large team of staff with her, because they were the people who attended to the registration and she thought it important that they hear the concerns and address some of them.

Ms Ludin reminded the Committee that on 18 July CIPC had highlighted a number of challenges, including weak administrative systems, growing backlogs and problematic IT systems, and inability to respond to queries and calls from the public. The situation was now much improved, although not fully corrected. The initial challenges had included backlogs in registrations of companies, close corporations (CCs) and cooperatives, as well as in approval of names and amendments to details on documents. There was a demand for restoration of deregistered entities, coupled with teething problems with the Annual Return systems and billing. There were also systems problems. To address these, CIPC established a project to clear backlogs, with targets set in key areas, and staff reallocated to areas of greatest need. Additional capacity was sought. An incentive scheme was introduced for staff, and the hours of operation were extended to 19h00 each night. The systems were changed where necessary, including a reversion to the old system for name registrations. CIPC obtained the commitment of its staff to clear this backlog by end August, with staff working longer hours and weekends. Team leaders and staff were asked what they needed and they indicated a number of areas, including administrative support, and systems. External assistance was obtained from South African Institute of Chartered Accountants (SAICA) and additional data capturers were sourced. The Department of Trade and Industry (dti) made call centre agents and team leaders available. The Minister had also assisted in building morale.

Ms Ludin tabled a schedule showing the numbers of requests lodged and completed. All backlogs had been cleared, with everything, save for company registrations, showing more than 97% completion. She noted that the figure for company registration was slightly misleading because many of the registration applications only came in at the end of the August, once the applications for name registration had been cleared. Originally, over 20 000 e-mail queries were backed up, but by the end of the month, 1 400 queries remained. These were generally more complex matters. Ms Ludin also tabled graphs of numbers of calls to the call centre. The number of calls had declined between May and July. The increase in August resulted from extending the hours. There had been an improvement in the percentage of calls answered, and the absolute number of calls answered had been increasing. However, there was still work to be done in this area.

Ms Ludin then outlined the plans for the future. The remaining backlogs for the CC and Company amendments were relatively small and should be cleared in September. The CIPC was expecting to see many registrations of companies in September, probably around 15 000, as it had already received 5000 applications. It would be launching electronic registration from 1 October. She hoped that the situation would be well under control by end October. During this time the capturing errors would also be corrected.

Another challenge was to achieve turnaround time in regard to cooperatives registration and name reservations and registration. Currently, cooperatives took about two days to process, and names about one day, but this would be monitored closely and there would be work with supervisors and managers to develop non-financial incentives for staff. A special project was started in September, to be concluded by October, to deal with historical queries. The outsourcing of the call centre had been investigated, and the preliminary indications were that it would make sense, but the costs were being fully explored and a final decision would be taken on this shortly.

Ms Ludin summarised that CIPC had made substantial progress but that work remained to be done. Service delivery commitments would be announced in early December, once all the work in the organisation had been cleared, and once the CIPC had set delivery standards that it could be held to, and that were deliverable. More fundamental work was needed on strategy, organisational design and ICT systems, and that would continue to the end of the financial year and beyond.

Discussion
The Chairperson was impressed with the size of the delegation, noting that their attendance would enable them to get first-hand experience.

Mr X Mabaso (ANC) noted the disparities between urban and rural areas (including informal settlements) and asked to what degree CIPC was taking initiatives and making communities aware of the availability of the CIPC tools for development.

The Minister commented that if a business organisation wished to have the benefits of limited liability, it would need to apply for registration, and the CIPC wanted to use key tools of e-lodgment to bridge the urban and rural divide. This was now provided for in the Companies Act. As yet, the targets had not been set, but once the teething problems had been corrected, then benchmarks would be set.

Ms Ludin noted that a number of applications for registration had been received from the CIPC partners, and from surrounding and rural areas, including applications for cooperatives.

Mr B Radebe (ANC) asked what the main problem was that had caused so many calls not to be answered.

Ms Ludin replied that the major problem was the disparate ratio between numbers of calls and numbers of staff to attend to those calls. Although, ideally, 60 people were needed in the Call Centre, it was not possible to accommodate that number. Another problem in the past had been access to the systems, because if the call centre was not linked directly to the system, the questions could not be answered. CIPC believed that this could be resolved. CIPC believed that outsourcing of the call centre would be an interim solution. In the longer term, it would be preferable for CIPC to own the call centre, but at the moment it could not, without outsourcing, achieve the target of 95% calls being answered.

Mr Radebe asked the Minister against what countries it was intended to benchmark the CIPC. He noted that in some other countries companies could be registered within 48 hours.

The Minister said that in fact some countries in Africa – such as Zambia- measured their turnaround time in hours, not days, and there was no reason why South Africa should not benchmark against them. South Africa’s own Companies Act was at the cutting edge of similar global legislation, and for that reason South Africa had to be competitive with the rest of the world, and aim high. The purpose of the Companies Act was to reduce red tape. It was possible for companies to operate once they had received a registration number, but many still chose to wait until they had a name confirmed.


Mr J Smalle (DA) wished to congratulate the Minister and Commissioner for their efforts. He noted that the incentive scheme for staff had run for a month, and he asked whether this was to be a once-off, or whether there would be further evaluations as the process developed.

Ms Ludin answered that in the CIPRO, there had been a history of working overtime. CIPC believed that this could not be allowed to continue as a matter of course, and there needed to be a realistic number of staff to do the work. A once-off incentive was therefore introduced for the month. In the future, there needed to be a proper incentive-based remuneration framework – including non-financial incentives - and in the new financial year, once sufficient research had been done and a policy had been compiled, this could be introduced.

Mr Smalle asked whether a designated team or specialist unit would focus on the 1 400 outstanding complex matters.

Ms Ludin replied that there was already a team dealing with Annual Returns, but a special project team, comprising staff from ICT, finance and customer interface had been appointed to deal with this.

Mr T Harris (DA) echoed his colleague’s congratulations on the turnaround process. He enquired about the current number of vacancies, reporting that in July the Committee had been told of 47 vacancies, and 30 call centre agents short. He noted that then 18 people were seconded from SAICA, and asked if there was an ongoing relationship with SAICA.

Ms Ludin said that the numbers of vacancies had changed over time. The CIPC had 606 positions , of which 114 were not permanently filled, but many of those posts were currently filled with contract workers. CIPC had to date filled 58 positions, and 56 were currently vacant. These vacancies were not in critical areas, but the CIPC was evaluating them, and deciding what posts needed to be re-allocated to areas of greatest need. The ideal numbers for the call centre would be 65 agents, but CIPC currently had 34, and the dti had allocated a further 9 people. Ten of the 34 contracts would expire in the next month. CIPC was likely to retain about 35 people until it took the final decision on outsourcing. There were 15 or 20 SAICA secondments in the first round, and there was a now a second round, who were likely to be critical in dealing with the deadlines.

Adv A Alberts (FF+) asked about the e-lodgement process, asking if this was based on an existing system, and how quick and effective it was likely to be. One of the comparisons made was to Canada, where it was possible to set up a company in one or two days.

Ms Ludin said e-lodgement of companies would be a hybrid lodgement – because a person could make application on line and then submit documents for a physical verification. The information, once verified, would not have to be captured. CIPC was working towards doing more electronically.

The Chairperson noted that company registration was dependent on the prior completion of name reservation queries. She also noted that there had been late lodgements, and she wondered if some of the backlog figures were occasioned by abandonment of calls or late lodgement.

Mr Emmanuel Mangelo, Team Leader: Name Reservations, said that he did not see that there would be any difficulty in the future, and it was likely that the current impetus could be maintained.

Ms Ludin added that in July the CIPC was receiving around 200 applications per day, but currently it was receiving around 600 applications per day. Originally, people had applied to register CCs, but the current demand had now shifted to registration of companies.

Mr Radebe asked what quality control measures had been implemented to ensure that the same problems as had occurred in CIPRO did not happen with the CIPC.

Ms Ludin noted that the most important step instituted was a regular check of numbers, so that CIPC knew exactly how many transactions were coming in and how many were being processed. That had been introduced, and it would continue. Everyone, including the immediate supervisors, must ensure that their teams were processing the required numbers. There also had to be quality control measures for the data. As a first step, the current inaccuracies had to be rectified, in the same way as the backlog was cleared, and then CIPC could move forward in a different way. It would be extremely difficult to try to achieve a turnaround while the backlog still persisted.

Mr G Selau (ANC) noted the use of extra staff and overtime, but asked what the projections were for the future, and whether it was likely that CIPC could return to using normal staff numbers and hours. He also asked what “normal staff” would comprise.

Ms Ludin noted that in some areas, such as name reservation, the current numbers of staff would be sufficient if the systems were working well. However, more staff might be needed in other areas, such as company registration, depending on volumes. In the past, the numbers of cooperative applications had increased, but the number of staff had not, but the processes worked well enough still.

Mr Mabaso thought that the CIPC should face the challenge of working with other departments, with the objective of creating IT infrastructure in the country. There had been a danger, while CIPRO was in place, of self-created intermediaries “helping” people and claiming money for doing so, and this posed huge potential for corruption. He asked how CIPC would guard against this in future.

Ms Ludin noted that partnering was important, because CIPC could not replicate its infrastructure everywhere. Agents, also called intermediaries, could play a valuable role here. However, she conceded that difficulties would arise if they acted improperly. CIPC would take action against those who submitted incorrect information. The difficulty was that the CIPC itself had no mandate in most cases where the “intermediaries” had defrauded members of the public. CIPC had recently decided to issue its staff with uniforms to make them clearly identifiable to the public. Even within the CIPC offices, she had discovered that people were being approached, and someone had recently been asked to pay R300 for the processing of a transaction. Some intermediaries were offering a “one-hour service” and that was clearly impossible, so it was being done by some illegal means. All cases would be investigated. The public would be made aware of the CIPC’s service commitments in future.

Mr Harris asked Ms Ludin to confirm the figures of 56 vacancies in the Commission, and 22 in the call centre. He also asked for confirmation of 6 712 transactions outstanding and 1 400 e-mail queries in the queue, with about 45% of call centre calls still being dropped. He asked if this was the total of backlogs and measurements.

Ms Ludin said that the number relating to call centres was not quite correct. She had noted what would be ideal for the call centre, but did not have the space to house those individuals, even if the posts were created.

Mr Harris said that the pace with which the CIPC had resolved the backlogs was impressive. However, he wondered if this pace had in any way compromised security. He pointed out that the CIPC was akin to the “home affairs office for companies”. He asked if there were any attempts to breach security.

Ms Ludin said she was not aware of any security breaches allied with the clearing of the backlog in August, but would investigate any information that came to the notice of the CIPC.

Dr Davies noted that the Ministry was adopting a “zero tolerance” approach to anyone involved in fraud. There had been some internal cases in the past, and anyone involved in fraud would face the full force of the law. Most of the members of the CIPC were honest people wanting to do a decent job of work, and their morale was improving as the performance increased.

Mr Smalle thought the current legal challenges around the electronic system were likely to take some time to resolve. He asked if CIPC was, in the meantime, dealing with the electronic system problems without waiting for the outcome of the legal case.

Dr Davies noted that firewalls would be built in, internally, into larger tenders associated with any entity of the dti. He noted again that the CIPC had been given an open mandate to investigate what type of ICT solution was required, and to take this broader than the initial solution that had been proposed. The entire system should be investigated, from scratch.

Dr Davies added that CIPC did not have to wait for the outcomes of any case. He summarised the history of the matter. The contract with the original supplier had been cancelled, following which the supplier sued, but the Court suggested that the parties should try to reach settlement. A settlement offer was made to, and rejected by, dti. The supplier alleged that dti had tacitly accepted the contract by a payout of several million rands, which dti successfully disputed. It was now up to the supplier to proceed with the main action or a variation on it, if it chose. In the highly unlikely event that any future court actions would be decided in favour of the supplier, the dti had been given the undertaken that specific performance would not be ordered, so dti had no reason not to proceed with investigating and putting in place other systems in the meantime. The Minister noted that in future, more firewalls would be built into the tender process.

Ms Ludin said there was a need to upgrade the infrastructure, applications and systems, all of which were currently being considered.

The Minister added that it was unfortunate that only this aspect of the CIPC seemed to have been reported on by the media. The enormous amount of positive work was never reported.

Mr Smalle noted that nothing had been said about the business rescue practitioners, and he enquired about progress on that aspect.

Ms Ludin noted that the CIPC had met with members of the banking association. 91 practitioners were registered, and two companies had already come out of a business rescue process. At the moment, the CIPC was issuing interim licences, in respect of a particular matter only, until the end of the financial year. CIPC was also doing some international comparisons, and this might involve the setting up of a national examination for business rescue practitioners, because there was substantial risk to practitioners and creditors if this was not carried out properly. A full accreditation scheme would be rolled out in the next financial year.

The Minister agreed that this was something that needed to move ahead.

Mr Harris asked what time frame was envisaged for finalising the outsourcing of the call centre, and the time frame to resolve the problem with the ICT system.

Ms Ludin noted that the ICT system was being upgraded on an ongoing basis, which would take the CIPC through to June 2012. It was enhancing security and replacing infrastructure. This should provide solutions for the next two to three years, at which point the tender for redesign could go out. The initial timeframes for the Call Centre outsourcing had been too short, and a new time frame had now been set for 1 December.

Mr Mabaso said that theft of cables was rampant, and any plans for infrastructure should take this risk into account.

Ms Ludin noted that at present, manual systems were also used as a backup, and Mr Mabaso had raised a very good point. CIPC needed to shift its resources so that more applications were received on-line and it had to design a process that would allow it to keep functioning if the systems were down.

The Chairperson thanked the Minister, Ms Ludin and her team. Members were generally impressed with the rate of progress. The Committee wished to have regular meetings with the CIPC. She was pleased with the Minister’s comment for more stringent fire-walls for ICT, as well as the comment that there would be a “zero-tolerance” approach. She was also pleased to note that the CIPC was assessing the amount of time needed to complete its tasks, and the quality of work, to allow it to do accurate future planning. If this progress was maintained, the Chairperson believed that CIPC could well achieve all its aims. She asked that CIPC should feel free to approach the Committee on any concerns.

This portion of the meeting was adjourned.

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