Companies and Intellectual Property Commission (CIPC) on its 3rd Quarter performance

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Trade and Industry

28 February 2012
Chairperson: Mr B Radebe (ANC) (Acting)
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Meeting Summary

The Companies and Intellectual Property Commission (CIPC) gave an overview of their organisational performance for the Third Quarter of the 2011/12 financial year in the context of the objectives of their three year Strategic Plan and their current Annual Performance Plan. There had been significant improvement in their primary objective of ensuring efficient and effective end-to-end operations in their core functions such as registrations of companies and co-operatives, and applications for trademarks, patents, designs, and copyright. There had been 54,554 company registrations in the first three quarters of the year, which exceeded the expected annual target of 40,074. They were registering 1000 companies a day, their backlogs were decreasing and they were meeting their delivery standard of 25 days for a company registration. Similarly, more applications had been received for the registration of co-operatives than anticipated historically. Their target for the year had 7,924 but by February 2012, they had registered 13,000. Trademark application and the area of intellectual property reflected increased activity but this was indicative more of international influence than local growth. It had been difficult to anticipate for business rescues and 412 such notices had been received for the year to date with an increase noted in January 2012.

A key project outlined in the Strategic Plan had been Business Process Re-engineering and the target for the year had been to review their core business including all the processes for Companies, Co-operatives and Intellectual Property. This review had commenced in the first quarter and would be completed by the fourth. They had standardised the processes and adopted best practices across the organisation to ensure consistency and quality control. A further objective was to ensure that their database was accurate and up-to-date and that the information was relevant. In anticipation of the establishment of the Commission in 2011, their predecessor, the Companies and Intellectual Property Registration Office (CIPRO) de-registered a large number of entities that were dormant and not renewing themselves annually by filing annual returns. Cleaning up of the historical data to ensure that the information in the database was updated and that inaccuracies were corrected was a priority and a tender would be awarded soon. They worked closely with the Department of Home Affairs (DHA) in order to check the identity documents of applicants and this verification was necessary because fraud in corporate registers was a problem internationally.

An Education and Awareness Strategy had been developed and implemented and in the Third Quarter the emphasis was on counterfeit goods, They had worked with partners such as the courts and the South African Police Service (SAPS). CIPC reported that they were working towards achieving their target of developing a Compliance Strategy in line with their mandate on compliance and enforcement of the relevant legislation. They had resolved 23 investigations, which represented complaints that had been escalated into investigations in the first three quarters. They were implementing a research framework and had targeted the establishment of a research unit. They attended advisory meetings at Ministerial level and meetings of the Standing Committee on Trade Marks, Designs and Patents in Geneva and intellectual property was increasingly on the agenda.

In terms of financial management, good governance and sustainability, they had gone through the process of developing a business model that sustained their operations and aligned their fees to their mandate. ICT governance was a major consideration and they had been investigating off-site disaster recovery and hosting as they needed to be able to replicate their database. Human capital capability and capacity was a major consideration and they had implemented a recruitment plan, a remuneration framework, and emphasis was placed on a skills audit, performance management and staff morale. These initiatives would be finalised in the fourth quarter and in the interim they had used the existing CIPRO staff structure and filled posts on a 12-month contract basis to give them flexibility. They would be concentrating on substantive staff training moving forward and were elevating issues such as intellectual property and the impact of social media and the internet on intellectual property.

The financial performance of CIPC showed that they had performed very well in terms of revenue. The target for the year had been R336 million, the target for the first three quarters was approximately R260 million and they had received close to R320 million in revenue. In terms of operating expenditure, they had expected to spend approximately R240 million in the first three quarters but actual expenditure had been approximately R174 million. There had been a big budget for projects but they had only spent R80 million of this budget. At the end of the Third Quarter they had generated a surplus of R127 million. A lot more close co-operations registered and this had generated close to R74 million. In terms of their expenditure management, the area of greatest variance (R28 million) was for the compensation of employees, which reflected the budget for the establishment of a new structure.

Members received the 3rd quarterly report positively and were impressed by the CIPC's financial performance. However, they registered concerns about the lack of response from the call centre; delays in the application process for registration of companies and patents; the formalisation of informal trading and business operators; the deregistration of companies when CIPRO became defunct and whether people had reregistered; the support given to women at the lower levels of business; patents and the need to stimulate innovation to grow the economy; ICT issues around online access, interfacing with the Department of Home Affairs, biometrics, and the use of cell phones to make applications online.

Meeting report

Companies and Intellectual Property Commission (CIPC) on its 3rd Quarter performance
Ms Astrid Ludin, Commissioner of the CIPC, was accompanied by Mr Lionel October, Director General of the Department of Trade and Industry (dti) and their delegations. She said the Third Quarterly Performance Report had to be seen in the context of CIPC's three year Strategic Plan, approved by the Committee a year ago. It was the first of its kind and addressed the challenges which the Committee were familiar with and it had been difficult for everyone involved to anticipate everything that would happen in the current year. The objectives of the Strategic Plan, operationalised in their current Annual Performance Plan and against which they were reporting were:
▪ efficient and effective end-to-end operations;
▪ maintenance of accurate up-to-date and relevant information;
▪ promotion of education and awareness about legislative requirements;
▪ ensure efficient and widest possible compliance and enforcement of relevant information;
▪ ensure best practice developments in Company and Intellectual Property (IP) law and
ensure reporting and public information;
▪ establish and entrench financial management, administrative compliance and sound governance throughout the CIPC;
▪ build the human capital capability and capacity to meet the strategic objectives of the CIPC;
▪ establish world-class customer service delivery that met the needs of the customer and delivered consistently against a customer promise.

▪ On the first and most important objective, efficient and effective end to operations, Ms Ludin reported on the activities engaged on by the CPIC, the targets set for the for the year, the performance in the Third Quarter, the actual performance to date (as at 15 February 2012) and the backlogs (as at 15 February 2012). Activities included registrations for companies and co-operatives; applications for trademarks, patents, designs, and copyright, which represented the core activities of the CIPC. Their other responsibilities involved business rescue and investigations into irregularities. Ms Ludin noted that there had been 54,554 company registrations in the first three quarters of the year, which exceeded the target of 40,074 which had been set for the entire year. This would give the Committee an indication of the volumes which were coming in and this had been quite difficult to predict for the institution when the Strategic Plan had been developed.

In January they had reported a backlog of 15,000 and at present there were approximately 9,500 transactions outstanding. They were registering applications that were coming in everyday and they were dealing with the backlogs at the same time. The backlogs were coming down at a steady rate and currently, in terms of company registrations they were meeting their delivery standard of 25 days. They registered about 1,000 companies per day and they were hopeful that they would be down to around 1,000 companies by the end of March 2012, with a maximum waiting period of two weeks.

Similarly, more applications had been received for the registration of co-operatives than anticipated historically. In previous years they had registered about 6,000 to 7,000 co-operatives per year. Thus their target for the year had been 7,924 but by the end of December 2011, they had already registered 9,000 and as at the 15 February 2012, they had registered 13,000. These shifts would be reflected in their planning for the next financial year.

Trademark applications reflected an increase which was an international phenomenon and it might be indicative of economic activity. In the area of intellectual property, the application for registrations followed international trends, and international rather than local growth was responsible.

It had been difficult to anticipate for business rescue and their expectation had been for 400 notices, which were notices that companies were entering into business rescue, rather than application for business rescue. By the 15 February, they had received 412 such notices and an increase had been noted in January 2012.

In terms of investigations, they had received a lot of complaints but not all of them resulted in investigations and accumulatively over the first three quarters they had concluded 23 investigations.

A key project outlined in the Strategic Plan had been Business Process Re-engineering which was important from two perspectives. Firstly, to continually improve the performance of the organisation and this included finding efficiencies and benchmarking both internationally and internally. The target for the year had been to review their core business i.e. all the processes for Companies, Co-operatives and IP. This review had commenced in the first quarter and would be completed by the fourth. As a first step, they had standardised the processes with the understanding that each of them was different and they had adopted best practices for IP across the organisation to ensure consistency and quality control.

▪ The second objective was to ensure that the database was accurate and up-to-date and that the information was relevant. In anticipation of the establishment of the Commission in 2011, the Companies and Intellectual Property Registration Office (CIPRO) de-registered a large number of entities that were dormant and not renewing themselves annually by filing annual returns. The other issue was to ensure that the information they had received was accurate particularly in terms of the identity of individuals lodging with them. They had to have a very close relationship with the Department of Home Affairs (DHA) in order to check the identity documents (IDs) of people who wanted to register. This verification was necessary because fraud in corporate registers was a problem internationally. It was intended to set up a live link with the DHA so that they could verify IDs on an ongoing basis. This had proved difficult from both sides primarily because their IT systems could not interface.

A further project was the cleaning up of the historical data to ensure that the information in the database was updated and that inaccuracies were corrected. An assessment of the data was undertaken by StatsSA and that gave an indication of the number of records that were missing. A tender would be awarded to an outside party soon, to cleanse the database and the process would take approximately six months.

CIPC had also targeted increasing their revenue from data sales, given the information they had at their disposal. Their predecessor, CIPRO had sold some of the data to entities such as to credit bureau and banks. The expectation was that this could be an increasing source of revenue for the organisation. Their experience in the Third Quarter was that the sale of data had decreased and this could be attributed to an error in some of the data.
 
▪ A number of activities had been undertaken to achieve their third objective and an Education and Awareness Strategy had been developed and implemented. Instead of having general campaigns as had happened under CIPRO, they were doing targeted information sessions and workshops. In the Third Quarter the emphasis was on counterfeit goods, which was part of their mandate, and they had worked with partners such as the courts and the South African Police Service (SAPS).

▪ In terms of their fourth objective, which focussed on compliance and enforcement of the relevant legislation, they were working towards achieving their target of developing a Compliance Strategy. The standardisation of the resolution of complaints and agreements with regulators were other priorities in harmonising company law with the mandate of the CIPC. They had resolved 23 investigations, which represented complaints that had been escalated into investigations in the first three quarters. In terms of Agreements, CIPC had fairly strong relationships with regulators and there did not seem to be the need to establish formal Memoranda of Understanding (MOUs) with them. Recently, the Reserve Bank had expressed an interest to conclude a formal arrangement.

▪ The fifth objective was best practice, and they had attended scheduled advisory meetings (largely related to IP) internationally and locally, as envisaged in the Strategic Plan. These included committees that advised the Minister on policy issues, that is, the Advisory Committee on Company Law, Intellectual Property, and the Financial Reporting Standards Council. They had participated in meetings of the Standing Committee on Trade Marks, Designs and patents in Geneva and would report back on these meetings if requested to by the Portfolio Committee. The other target under this objective was to implement a Research Framework. This had not been prioritised in the current establishment phase of the Commission but would be in the future.

▪ The sixth objective was to entrench financial management, administrative compliance and sound governance. The three focal areas were: sustainability of the organisation which was a legislated mandate for the CIPC; IT Governance and Continuity Plans to ensure that there was a backup system if anything went wrong; and Risk Management, which was a major concern given the critical functions of the institution.

In terms of sustainability, they had gone through the process of developing a business model. They had evaluated some of the options as they were not a 'for profit' organisation but they had to sustain their operations and their fees had to be aligned with that objective. ICT governance was a major consideration and they had been investigating off-site disaster recovery and hosting as they needed to be able to replicate their database. They approached risk management from a high level and had identified the key strategic risks and were cascading that down throughout the organisation.

▪ The seventh objective was on human capital capability and capacity and they had implemented a recruitment plan, a remuneration framework, and emphasis was placed on a skills audit, performance management and staff morale. They had concentrated on understanding what the real requirements were for staff and developing new structures. These initiatives would be finalised in the fourth quarter with the concurrence of the Director General and the Minister. In the interim they had used the existing CIPRO staff structure and what was in place of the new structure and they had filled posts on a 12-month contract basis to give themselves flexibility. The strategic plan they would be presenting to the Committee would elaborate on remuneration and other details. In terms of the skills audit, there had been individual training interventions and they were improving skills in areas that were already operational. They would be concentrating on substantive training moving forward. They were elevating some of the more intellectual engagements of the organisation around issues such as IP and the impact of social media and the internet on IP.

In terms of employee satisfaction, there had been a strong focus on the organisational culture and they had engaged extensively on this and an initial high level assessment had been done. The philosophy they upheld was that if they had engaged employees that understood and appreciated what they had to do, they would improve service delivery.

▪ CIPC‘s eighth objective included a world-class customer service delivery model, a customer service satisfaction report, and a customer service and marketing strategy. They had developed a business model which included a service delivery component. They conducted a customer satisfaction survey in the first quarter and another was to be completed in the fourth quarter to ascertain progress. In terms of marketing, they had hosted marketing events in conjunction with dti to create greater awareness of CIPC and they had concentrated on service delivery issues such as online registration.

Ms Ludin reported on the CIPC's financial performance for the financial year to date and the 3rd quarter in particular. (See financial tables in presentation) In terms of revenue, the target for the year had been R336 million. The target for the first three quarters was approximately R260 million and they had received close to R320 million in revenue.

In terms of their operating expenditure, they had expected to spend approximately R240 million in the first three quarters but the actual expenditure had been approximately R174 million. There had been a big budget for projects but they had only spent R80 million of this budget. Overall, what was anticipated was that the institution would be using a large amount of its surplus (its retained earnings) for projects. At the end of the Third Quarter they had generated a surplus of R127 million. Most of the CIPC's sources of revenue were derived from annual returns and they had anticipated that in the first three quarters of the financial year, R163 million would be generated from annual returns. Most of this was expected to come from companies but a lot more close co-operations registered and this had generated close to R74 million. They had also received more revenue than expected from trademarks because of the increased applications for registrations.

In terms of their expenditure management, the area of greatest variance (R28 million) was for the compensation of employees which reflected the budget for the establishment of a new structure. Historically, there had been a lot of reliance on consultants and whilst they could not move away from using them, they had scaled back from large projects and this was reflected in the financials. Large scale projects done by the organisation had not been successful in the past and they proposed spending on preliminary testing to establish the quality standards they needed before implementing projects, to ensure that they could use all the information that they contemplated spending their money on.

Other sources of revenue were data sales (although this was minimal), the sale of tender documents, internal income from staff phone calls and bursary debt. They also received an amount of R4,8million from the dti as a contribution to the establishment of the CIPC and interest from the Reserve Bank.

CIPC had substantial retained earnings, and the amount approved by National Treasury (NT) up to 31 March 2011 amounted to R907 million. Out of this, R453 million had been approved by the NT for special initiatives/projects over the three-year period, primarily for a new building and expenditure on IT. In their next Strategic Plan, it was anticipated that they would use their retained earnings and revenue on capacity and increase their staff. They anticipated that there would be a revenue shortfall and they would not be generating an operating surplus but an operational deficit. They would use the retained earnings over the next five-year period and they would have to continue to be sustainable after that period. CIPC planned to reduce fees and restructure them and some fees might be removed completely while others would increase, marginally.

In conclusion, Ms Ludin noted that CIPC had reached many of the milestones that were outlined in the Strategic Plan and she anticipated that they would be fully met by the end of the financial year. She emphasised that this had been the first Strategic Plan for a new institution and in some respects it had been an ambitious one. Some of the projects outlined were multi-year projects that would be concluded over time. Their other deliverables had been the redesign of the Commission and ensuring service delivery in the process. Ms Ludin noted the concerns and scepticism of the Committee when the call centre strategy was presented previously and she addressed the improvements that had been made to get higher query resolution. They had also launched an on-line company registration capability on 16 January 2012. The turnaround time for on-line company registration was approximately two days but there were systems constraints and they had to increase their bandwidth as the organisation would be doing more of their transactions on-line. CIPC appreciated that the institution was of critical importance to the economy and they were committed to getting things right and improving service delivery.

Discussion
Mr X Mabaso (ANC) noted the remarkable progress CIPC had made in eliminating the backlogs in registrations while also dealing speedily with new applications. He welcomed their close relationship with the DHA and stated that this would benefit the DHA as they would be able to identify shortcomings in their systems. He was concerned about informal businesses that were not officially registered and the many people who were trading and running businesses unofficially. What could be done to encourage them to come into the formal fold without them fearing that they would be punished? He had a sense that the outreach programme was not going very well and small, medium and micro-enterprises (SMMEs) did not respond to the information they was given as it was geared to big businesses.

Mr G Hill-Lewis (DA) said that he had received a number of complaints about the call centre and people had complained that they could not get through after weeks of trying. He had asked his constituents to contact CIPC via email and he noted that there had been a disclaimer on their website for some time. Did they have a clear plan to improve the response time for emails? People had informed him that they had met with no response from this route as well and they needed to improve their response time.

Mr W James (DA) asked a series of questions about applications for patents, noting that patent applications were a measure of innovation in a society and the growth in the knowledge economy. What volume of applications were they receiving over the time period? Could they provide comparative data from countries of a similar level of development? Interesting countries for this kind of analysis would be the BRIC countries (Brazil, Russia, India and China) and Africa. What were the origins of the applications? Did they come from the private sector, in which case, what kinds of patents were being applied for, where they in the field of biotechnology? He noted that most of the research and development money was spent in the private sector. How many patent applications came from universities and non-governmental organisations? Did they track applications, they granted patents but what happened to those patents? Are they applied or executed in the value chain and were there commercial applications that derived from them?

Dr M Oriani-Ambrosini (IFP) commented that the presentation made him reflect on the value of parliamentary oversight. While the presentation had been magnificent and reassuring, speaking from his extensive experience in international corporate law, it did not reconcile with how bad the system in South Africa was. He accepted that things were much better than they were a year ago but his concern was how to make progress and how to benchmark it. Registration of companies occurred almost immediately in other countries and while the Commissioner had said that application for registration turnaround time was 25 days, this was not happening in practice. He knew of cases where the papers had been lost four times. What were the difficulties?

Dr Oriani-Ambrosini identified the IT interface as an area of concern and he queried why CIPC did not have direct access to the government’s IT system. He queried the role of the Commission in certifying the accuracy of information and said they were moving beyond international standards and this caused delays. The primary role of the Commission was registration of companies and placing it on public record. It was not their role to verify the accuracy of the information. If they moved into that terrain they were overburdening the system and it created a responsibility on the side of the State that could not be fulfilled.

Dr Oriani-Ambrosini queried why the registrations of patents took so long as all they should be looking at was the formal requirements.

Mr G McIntosh (COPE) stressed that South Africa should have the fundamentals, especially modern technology, in place to be part of the global world and he encouraged workplace training in the CIPC. He noted that an increasing element in South African business life was Trusts and most of them were done through the Master of the High Court. Trusts were extensively used currently for owning property and trading and he queried why they were not covered by the CIPC. A recommendation should be made to the Minister to conduct an enquiry into Trusts.

Ms S Lebenya-Ntanzu (IFP) congratulated CIPC for the progress they had made thus far. She referred to the staff complement and asked what percentage of the workforce were women, youth and the disabled.

Ms Lebenya-Ntanzu enquired about the close co-operations that were deregistered when CIPC took over CIPRO. There had been talk of re-registering people. What progress had been made and how many people had they reregistered? 

Ms Lebenya-Ntanzu asked what were the official turnaround times for new registrations.

Ms Lebenya-Ntanzu said the commissioner had alluded to the fact that they were moving towards on-line transactions. While they appreciated that, they had to bear in mind that the majority of South Africans did not have access to the Internet yet and she hoped that they balanced the two systems.

Mr A Alberts (FF+) congratulated CIPC on their good progress. He referred to their business model and asked if the Committee could have access to it especially their benchmarking and service delivery components.

Mr Alberts enquired about the private industry assistance they were receiving and asked if their ICT policy provided for backups and data storage through these companies or if they did their own.

The Chairperson asked if CIPC was interacting with the Intelligence Agencies in South Africa as there was a serious problem with people running away from their countries overseas and starting businesses here to continue with their crime.

Ms Rehelda Williams, Acting Head of Strategy, CIPC, responded to the queries about the call centre and the progress they had made in resolving the complaints that had been registered by members. The strategy the Department had adopted was to decentralise the call centre to get a higher resolution rate. In practical terms, queries were to be resolved immediately by the relevant official. If the query was on new registrations and a caller wanted to know at what stage their application was, the call would be routed directly to the supervisor responsible for that area of work who would look it up on the system. If they were not satisfied with the response from the first tier, the call would be transferred to the next tier, until it reached the senior manager responsible. Together with decentralisation, they had introduced service delivery standards and clients were issued with a brochure, which informed them of these standards. For example, for company registrations, the standard was 25 days. They also provided information on what steps to take, if the service delivery did not meet the standards. They had provided for four escalations and the names and contacts details of the responsible person was given for each stage. The service standards were put in place on the 16 January 2012 and the call centre decentralisation had commenced on the 27 February 2012 and they would report on its effectiveness soon.

Mr McDonald Netshitenzhe, Chief Director, dti, responded on the issue of Trusts. He noted that the dti had been engaged in legislative reform recently such as the Company's Act and Close co-operation s Act. There had been an agreement from Cabinet that Trusts should not be incorporated in that law reform. There was another process that involved The South African Revenue Services (SARS) that was being engaged upon that would include Trusts.

Mr Kganetsi Marotola, Business Performance specialist, dti, responded on the questions on patents and noted that it took longer because the patents had to be published and people had to be given a chance to object.

Ms Ludin responded to the question of informal businesses and how to encourage them to register. She noted that they had tried to address the formalisation of informal businesses in their strategic planning. There had been a survey and it was estimated that there were about 5.5 million small business owners but only 8% were registered. 
There was thus a need for the formalisation of small businesses and they had discussions with SARS They had to ensure that there were incentives for people to formalise their business and also improve on the ease of registering. They had been thinking about the value proposition that they offered businesses for registering and access to capital could be an incentive.

Ms Ludin agreed with members that their outreach was not what it should be. The two things they needed to do was, firstly, to give existing businesses more information and, secondly, to reach their potential applicants for registration, and they were thinking of partnerships to do this with.

Ms Ludin acknowledged that the call centre had challenges and one of the ways they were changing this was through individual accountability and by directing people to the source of the answers. When people submitted documents they were serviced with the standards and contact details of the responsible officials. They were allowing for escalation to higher levels for follow-ups if there were problems. She was also receiving a lot of emails and it was helping her to understand where the problem areas were. She was not receiving that many on applications for registrations but there were still a few that were getting lost in the system and as an institution they were becoming more accessible.

In response to the queries on patents, Ms Ludin noted that they had the data and they were doing an assessment on the applications. There had been an average increase of between 1-2 % in patent applications over the last two years, which was very little. There were also few local applications and this was something that they thought had to be reviewed strategically, as a country. They were also trying to establish how many of the patents were used commercially and the figure available currently was 0.28 %. There was a need to track this and there was also a challenge of innovation versus imitation. They could provide some of this information to the Committee or alternatively they could amplify it in their forthcoming engagement with the Committee in March 2012.

In terms of their reliance on the interface with intermediaries Ms Ludin stated that 70% of their transactions across the board came through intermediaries and in the patent area it was higher and was 90%. Time had been lost with CIPRO's attempts to upgrade the system and what they had to do was to look at both the processes and the system and any big changes would have to be managed carefully to minimise the fallout. Risk management and backups were critical as they could not afford not to be up and running.

In response to the formal requirements for patents to be registered, Ms Ludin said the service standard was five days but the actual turnaround time was about one day. They were not aware that there were problems, there was a publication period but the actual examination they did not take that long to do. They had no backlogs in the area of patents and in trademarks. Ms Ludin noted that there were policy issues around patents that had to be debated in a broader context.

On statistics for the gender, youth and the disabled employees, Ms Ludin responded that at the lower levels the percentage for women was 60% and about 40% at higher levels and they could supply the exact statistics.

In response to the query about the deregistration of close co-operations when CIPC was established, Ms Ludin noted that they had deregistered about 1.5 million close co-operations and companies in the previous financial year and about 20,000 had been restored. It was still very low and the impression was that there were many which were still operating and were not dormant. They had engaged with SARS and their estimate was that there were some that had to be restored urgently as they continued to operate and were not taxation compliant. CIPC realised that they had to think about the deregistration process and find a balance between ensuring the integrity of their register, that the data in the register was accurate, and that there were not too many dormant entities in the register and ensuring that those which were operating were registered. They had found that closed corporations were happy to be deregistered and then wanted to be restored quickly when they wanted to participate in a tender.

Ms Ludin noted that the issue of internet and online access was an important concern for the CIPC. She observed that in a country like India, they were 100% online but they were independent on intermediaries. CIPC was debating the role of mobile technology in registering and cell phones were being used and had a lot of potential.

Ms Ludin stated that they would expand on their business model when they met with the Committee again. KPMG had prepared recommendations for a business model for CIPC but they had not adopted everything that was presented.

Ms Ludin noted that there were different ways to approach benchmarking. The gold standard for the registration of companies internationally was the New Zealand office and the Singapore office. In terms of the CIPC 's role in verification, it had to be done to ensure the integrity of their register. They had found that people were using companies and closed corporations to commit fraud and crime. Historically the trend internationally had been to promote the ease of doing business but in the last five years the issue of integrity had superseded this. The gold standard registries around the world emphasised doing business with integrity. In New Zealand they had a system of e-governance and everyone had an identity that had already been checked and verified elsewhere. In South Africa there was a reliance on different sources of data and this was something that had to be taken seriously. In the United Kingdom they reported that, on average every month, they dealt with 50-100 cases of corporate identity theft on their website. This was an international trend and this increase was something they had to anticipate. It was the same as identity theft in the banking sector with people using identity theft for fraudulent purposes.

Ms Ludin reiterated that 70% of their transactions came through the private sector and they had to be careful as most of the fraud in the organisation came from outside and it came from their intermediaries, the agencies. They had to be able to identify whom the reputable ones were and those who were not and in their strategic plan for the next financial year they were proposing a registration system for intermediaries. While intermediaries played an important role they needed to offer alternatives and they had to find partners that did not charge as much so that people had a choice.

Ms Ludin said CIPC did ICT backups internally and they used an independent service provider. They needed to replicate their database and this featured on their ICT programme.

Ms Ludin responded to the Chairperson query about their interaction with National Intelligence agencies. At present they did not but they had identified the need mostly in terms of ICT security and they would build this in future.

The Chairperson allowed members the opportunity for further questions and follow-ups on the CIPC 's responses as some of their questions had not been adequately addressed.

Ms C Kotsi (COPE) said that under CIPRO, in the dawn of democracy when people were unemployed, it was easy to start up a company and there were many lying dormant which were at the lowest level. As the country's democracy matured and with the establishment of the CIPC, one of the major concerns by the DG of the time was the upgrading of businesses of women at the lower economic levels. What had been done in terms of women in business and were women at the lower levels going up in their level of business? Were there still companies going dormant after April 2011 when CIPC replaced CIPRO?

Mr G Selau (ANC) thanked CIPC for the report and the progress they had made. He noted their strategy on efficiency, the establishment of a database and that more emphasis was placed on compliance and legislative requirements. The impression he got was that they would be operating as an enforcement agency and ensuring that people did the right thing. How did they relate with their clients? Was there a way in which the organisation built relationships and did they have some structure for this?

Mr Selau wanted clarity on the support functions, which were a target for business process management under their first strategic objective of efficient and effective end-to-end operations. What were these support functions?

Mr Selau said it had been a high level presentation but it made oversight difficult if there was not sufficient detail and some examples would be useful. Under the fourth objective, which dealt with compliance and enforcement of relevant legislation, Mr Selau noted that the Compliance strategy was noted as an output but this had not been developed in the period under review.

Mr Selau referred to the fifth objective on best practice development and the CIPC 's research framework and asked for more details on the number of research projects they had identified.

Mr Selau wanted feedback on the CIPC 's plans for decreasing the use of consultants.

Mr James commented on the responses to his query on patents noting that the Minister of Science and Technology had spoken of growing the expenditure in research and development to 3% of GDP from the 2% it was currently at. In order to do that, government had to provide incentives to South Africans to register patents when they came across a discovery of note. Those incentives should result in universities having patent registration offices and intellectual property offices so that they could start the chain of events at university level or corporate level and filter it through the system. A practical example was the potential in the area of biotechnology, especially vaccines and carrier molecules, derived from and the unprecedented biodiversity of the Cape floral kingdom. This could be commercialised as pharmaceuticals and to encourage innovation a robust and sophisticated set of data on what the patents were, what they were for and where they came from, was needed. He was asking the Commission to come back with sophisticated data architecture to answer those questions. The Minister of Science and Technology needed such information in the context of growing the expenditure for research and development.

Mr McIntosh said there were exciting developments in the application of biometrics coming from the DHA. Biometric testing such as eye or fingerprint scanning was increasing in private companies and elsewhere and he asked whether CIPC was contemplating utilising this.

Mr McIntosh observed that it was comforting to know that CIPC had nearly a billion rand in reserve funds (retained earnings). Where were their new premises in Pretoria?

Ms Ludin responded on the query about businesses controlled by women and said they had not tracked this and analysed whether the situation had improved but it was a good suggestion. They were putting systems in place to improve the efficiency of the extraction of information from the database and this type of business intelligence was part of their ICT plan and they were hoping to provide this information in future.

Ms Ludin responded to the question of how CIPC related to business and if they had a structured relationship by explaining that when they had been established, they had asked who their clients were. They dealt with intermediaries mostly and most of the feedback they got was from intermediaries and not from businesses themselves. They had relationships with different people and business associations were amongst them but they did not have a structured engagement forum with businesses themselves. It was a good suggestion and it was not something they had thought about and they would think about implementing this in the future.

Ms Ludin said that the support functions referred to in Business Process Engineering under the CIPC 's first objective of efficient and effective end-to-end operations were Finance, Human Resource and Procurement. Support functions that they had been looking at was their customer interface and areas such as the mailroom and the various ways information entered the organisation and how it was subsequently distributed, tracked and channelled.

On the CIPC 's oversight function, Ms Ludin responded that because of the new legislation, they thought that it best to allow people to get used to the legislation and changes. They had not placed the emphasis on enforcement but rather on the education and promoting compliance. One of the ways to ensure better compliance was to ensure that people had the right kind of information available at the different registration points and this was part of their business plan for the new financial year. People would receive the appropriate information when they registered and when they submitted their annual returns and this would promote a culture of compliance.

CIPC investigated complaints by shareholders and when they engaged with them it was mostly about company finances, minority rights and the illegal removal of Directors. This was thought about as company hijacking, which was usually about disputes between Directors and shareholders and people who remove each other illegally because of disagreements.

CIPC also had a big role to play in regulating disclosure and historically CIPRO had a lot to do with prospectuses. The Johannesburg Stock Exchange (JSE) scrutinised the prospectuses of listed entities but there was a big gap for other entities and CIPC had to pay more attention to this.

The oversight function inn general was something that had to receive more focus as currently they were investigating but the pro-active part needed to be developed. Research was also an area they needed to expand upon and once service delivery was on track and the databases had better information they would be able to extract the necessary information and progress to research. Ms Ludin noted that the JSE did a lot of work on listed entities but these were few in number. They had to think of the advantages South Africa had and brand South African businesses as reputable and to achieve this, they had to promote compliance.

In response to the follow up comments on patents, Ms Ludin said that part of the constraints they faced as an institution was that of the testing of patents. It was quite costly and this was something that they would be doing with dti in the year ahead. There were different role players in the patent system, the role of the Department of Science and Technology was to promote the development of innovation, the role of CIPC was to register it and the role of the dti was to provide funds to commercialise innovation. CIPC had a core role to play but they had focused mostly on registration and they were trying to shift this emphasis in their strategic plan.

On the query on their use of biometrics, Ms Ludin agreed that biometrics was probably the way to go. SARS, DHA and banks had implemented this system and this digitisation of fingerprints was something they could piggyback onto. This would be reflected in their business plan and their selection of partners and on how accessible they were as an institution balanced by the need for verification.

Ms Ludin noted that CIPC had a problem of shortage of space and bandwidth and had gone out to tender or new premises. There had been a recommendation but she did not want to announce it as she had not signed off on the submission as yet, as there were still issues to be resolved. They were examining all the options to ensure that they made the right decision.

The Chairperson noted that CIPC would be returning in two weeks’ time and further issues could be raised then.

Adoption of Minutes
The minutes of the Portfolio Committee meetings for February 2012 were adopted with amendments

The meeting was adjourned.


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