National Consumer Commission; National Regulator for Compulsory Specifications 2011/12 Annual Reports

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Trade and Industry

10 October 2012
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The National Regulator for Compulsory Specifications, previously a division of the SA Bureau of Standards, provided an overview of the events which had influenced the performance reflected in the Annual Report. The Chief Executive Officer had been suspended, key staff had resigned, investigations had been initiated by the Department of Trade and Industry and the Public Protector, and the NRCS had also to deal with industrial unrest. This had resulted in the NRCS facing a wide range of challenges in the areas of organisational maturity and stability, achievement of performance targets, internal control weaknesses, and labour relations issues. Tension among staff members had arisen following management’s decision to sell the idea of transforming the organisation, using such terms as “re-structuring”. This had caused uncertainty, and it was acknowledged that when talking about change in an organisation, one needed to be prudent. The unions had also become involved, objecting to some of the proposed changes. The NRCS saw itself as the “strategic partner” of the National Consumer Commission, as their activities overlapped and they were in the process of working together. A Memorandum of Understanding was being developed to ensure they strengthened each other.

The Chairperson said she was asking herself when did an entity become an “intensive care” case. Was it a major accident, or a series of events? It seemed to her that the job of the Standing Committee on Public Accounts was almost “a posthumous one”. The Committee’s task was to look out for warning signs, but these were apparent “only after the death”. She found this very strange, and perhaps something had been missed by the Portfolio Committee last year, which might have averted the current problems. She urged the NRCS to take the Committee into its confidence in future, so that it did not make the same mistakes again.

The National Consumer Commission gave an overview of the Commission’s highlights during the year under review, including consumer rights awareness campaigns, consumer education, research projects, redress to consumers who had lodged complaints, pro-active investigations in specific sectors, and the drafting of industry code accreditation guidelines.

Three sectors had been identified for proactive investigations, with a view to protecting consumers from unethical business practices and misconduct – medical aid schemes, the information and communication technology (ICT) sector, and the retail and manufacturing sector. In the first instance, the focus was on open medical aid schemes, with the aim of the investigation being to determine whether the scheme rules, as well as membership application forms and contracts complied with the Consumer Protection Act (CPA). Various clauses, which were not compliant, had been identified, a common problem being the 12-month waiting period. Discussions with the medical schemes indicated that this excluded pregnant women, which violated the rights of women. The schemes had not provided any reasons why pregnant women should be excluded, so the matter had been referred to the Equality Court. Investigations had been conducted into the subscriber agreements of the mobile phone operators, Telkom, SABC and the pay TV service providers, and this had resulted in major improvements in contracts and revisions to terms and conditions. The final sector – retail and manufacturing – had been confined to 48 sample inspections in the Pretoria area, where emphasis had been placed on the disclosure of prices of goods and services, the right to return goods, and lay-byes. There had been some initial resistance to taking down the “No Refunds, No Returns” signs, but a lot of changes had taken place, particularly at major supermarkets. Investigations had also been conducted at Gautrain, where the time limitation on the use of utility vouchers had come under scrutiny. The NCC had found, in investigating the
SA National Roads Agency Limited (Sanral), that about 18 clauses of the E-tag terms and conditions contravened the provisions of the CPA. Sanral had amended them to comply, but an outstanding issue related to tariffs was still being addressed with the Department of Transport.

Research had been carried out to see if the terms and conditions of the contracts of the airline industry were in line with the CPA, and the study had shown they were not. Problems that had been identified included the non-disclosure of prices before purchasing tickets, different prices being paid for adjacent seats, passengers being “bumped off” planes (a major international problem), and the length of validity of tickets. Clarity was being sought on these issues. In the banking sector, it had been found that disclosure of ATM fees was inadequate, but the banks had now rectified this situation. However, no justification could be found for the high fees charged by banks for returned credit orders – this was their “cash cow”, and they wanted to keep it that way as far as possible, but there had been a positive response to proposals that the fees should be reduced. In the auction sector, the focus had been on “ghost” bidders, as highlighted in the Auction Alliance case. A compliance notice had been issued, but this had been turned down by the Competition Tribunal.

In response to Members’ questions, the Commission indicated it would consider launching an investigation into the car-towing industry to deal with “exorbitant” charges, and it was developing a training programme to assist community-based organisations to promote consumer rights in rural areas. It was holding discussions with the Competition Tribunal to resolve the difference of opinion over the NCC’s areas of jurisdiction.

Meeting report

National Regulator for Compulsory Specifications (NRCS)
Mr Katima Temba, Acting NRCS Chief Executive Officer, opened the presentation by providing a background of events since the formation of the entity, which previously functioned as a regulatory division of the SA Bureau of Standards, in September 2008. By 2011, NRCS regulations had come into effect, an acting board chairman had been appointed, and the Industrial Policy Action Plan (IPAP) was being implemented. However, in 2012, the CEO had been suspended, key staff had resigned, investigations had been initiated by the Department of Trade and Industry (DTI) and the Public Protector, and the NRCS had also to deal with industrial unrest. This had resulted in the NRCS facing a wide range of challenges in the areas of organisational maturity and stability, achievement of performance targets, internal control weaknesses, and labour relations issues.

The NRCS’s first strategic goal was to adopt a risk-based approach to maximise compliance with all specifications and technical regulations falling under its mandate. Its perishable division had achieved its targeted inspections of local, imported and exported products, but the non-perishable division, which handled CMM, automotive and electro-technical inspection, came short owing to staff resignations and suspensions, and strikes. The application of national building regulations was monitored and 11 cases had been submitted to the Review Board, but progress had been delayed in some cases through having to wait for documents from stakeholders. There had been no prosecutions for non-compliance, as a unit was still in the process of being resourced to conduct investigations.

The second goal was to extend the scope of NRCS’s regulatory activity, to increase the protection of citizens. Of the 11 compulsory specification and technical regulations targeted for approval, only two had so far been approved, although a further eight were awaiting board approval.

Another objective was to ensure the appointment of competent and motivated staff, to enable the effective execution of NRCS’s strategy, and although the board had approved the organisational structure, labour unrest had played a part in its implementation being placed on hold.

The final strategic goal dealt with communicating NRCS’s obligations in respect of specifications and technical regulations, so that there would be increased consumer and industry awareness, and the entity would be recognised as an effective regulator by stakeholders. This had to be held in abeyance owing to budget limitations, and would now be integrated into a consumer industry awareness initiative.

The Auditor-General’s report had highlighted a wide range of areas of concern. These included revenue issues, the accuracy of the asset register, annual financial statements (AFS) needing to be corrected, predetermined objectives not clear or specific, 80% non-achievement of planned targets, and the AFS performance and Annual Report not submitted in accordance with prescribed reporting frameworks. Other areas of concern were non-compliance with procurement thresholds, lack of internal controls and leadership oversight, and irregular, fruitless and wasteful expenditure. Mr Temba said all these issues were being addressed through the implementation of a model specifying action in four areas – policy and process, systems and controls, accountability and responsibility, and people, structure and capacity.

Discussion
Mr G Hill-Lewis (DA) said the qualified audit was a “sad blemish,” as this was the first time the NRCS had been audited. He asked how many investigations had been conducted into instances of misconduct, and whether this had resulted in internal disciplinary processes or criminal prosecution.

Mr Temba said a number of investigations had taken place, including the involvement of the Public Protector, and reports had been received in the past month. These had been given to NRCS’s lawyers so that appropriate action could be taken. He confirmed that the board had started the process of disciplinary proceedings against the suspended CEO and other staff members. One case involving the theft of funds had been reported to the police.

Mr N Gcwabaza (ANC) gave credit to the entity for its “frank and honest” approach, and asked whether reasons could be given for the high turnover of staff, and what labour issues had led to employees embarking on industrial action. What was the relationship between the NRCS and the National Consumer Commission?

Mr Temba said tension among staff members had arisen following management’s decision to sell the idea of transforming the organisation, using such terms as “re-structuring”. This had caused uncertainty, and it was acknowledged that when talking about change in an organisation, one needed to be prudent. The unions had also become involved, objecting to some of the proposed changes.

The NRCS saw itself as the “strategic partner” of the NCC, as their activities overlapped and they were in the process of working together. A Memorandum of Understanding (MoU) was being developed to ensure they strengthened each other, although the NRCS did not get involved in consumer redress.

The Chairperson said she was asking herself when an entity became an “intensive care” case. Was it a major accident, or a series of events? It seemed to her that the job of the Standing Committee on Public Accounts (SCOPA) was almost a posthumous one. The Committee’s task was to look out for warning signs, but these were apparent “only after the death”. She found this very strange, and maybe something had been missed by the portfolio committee last year, which might have averted the current problems. She urged the NRCS to take the Committee into its confidence in future, so that it did not make the same mistakes again.

Mr X Mabasa (ANC) agreed that the Committee needed to establish a closer relationship with the NRCS. He asked whether it was the duty of the NRCS to ensure products were properly produced, such as food meeting health regulations, and whether the NRCS was involved in dealing with counterfeit goods.

Mr Temba said it was correct that the NRCS regulated products, particularly in the area of manufacturing, but this was guided by the scope of the Act, which focused on health, safety and environmental issues. The issue of counterfeit goods did not fall within its mandate.

Ms Reshma Mathura, Acting Chief Financial Officer, said a detailed action plan had been drawn up, based on Auditor-General’s findings, to address the issue of accountability and responsibility. Target dates had been set and reports were submitted to the board on a monthly basis and circulated to the audit committee as well. The performance agreements of executives were being aligned with the organisation’s performance targets. A lot of measures had already been put in place to ensure future compliance.

The Chairperson asked for a copy of the action plan to be forwarded to the Committee, so it could provide assistance with oversight, and suggested that the NRCS should engage with the Committee on a least a quarterly basis.

National Consumer Commission (NCC) briefing
Mr Ebrahim Mohamed, Acting Commissioner of the National Consumer Commission, gave an overview of the Commission’s highlights during the year under review. Aspects covered included consumer rights awareness campaigns, consumer education, research projects, redress to consumers who had lodged complaints, pro-active investigations in specific sectors, and the drafting of industry code accreditation guidelines.

Ms Phumeza Mlungu, Head: Education Awareness and Advocacy, said one of the strategic objectives of the NCC was to protect consumers from hazards through creating awareness of their rights as laid down in the Consumer Protection Act (CPA). The NCC’s advocacy, education and awareness campaigns, had reached an estimated 22,6m consumers via the media, which was far above its 10m target. Fact sheets about consumer rights had been developed, focusing on the right to choose, the right to privacy, the right to disclosure of information, the right to fair and responsible marketing, to fair and honest dealings, reasonable terms and conditions, and to fair value, good quality and safety, and supplier accountability. A booklet providing a graphic depiction of the messages in story form had also been developed, but budgetary constraints had delayed printing.

She said direct contact had been made through education workshops at stokvel clubs, churches, schools, taxi associations and government departments, and three imbizos had been hosted in order to reach rural communities. Challenges had been encountered, however, as provinces lacked the resources to assist with cost-sharing, and attempts to reach certain areas sometimes created political tensions. A continuous evaluation of audiences who participated in six workshops was undertaken to establish whether they found them of value, and 77,2% said they found the information useful, and 93,2% said they would attend a similar workshop again.
The terms of reference for three standing advisory committees, which would represent the interests of vulnerable groups, stakeholders and provinces, had been drawn up. The intention was that these committees would identify issues affecting them, and engage with the NCC.

Ms Prudence Moilwa, Head: Enforcements and Investigations, said complaints needed to be processed timeously and successfully resolved in order to improve consumer redress, as envisaged in the CPA. During the review period, 73 959 calls had been attended to through the call centre, 16 831 matters received, 16 831 complaints processed, 374 compliance notices issued, 2 937 consent agreements concluded, 3 597 conciliations conducted, and there had been 206 referrals. All complaints received had been processed by the end of the year.

It had been intended to appoint a number of accredited Alternative Dispute Resolution (ADR) practitioners. However, it was found that in terms of the CPA, the Commission was not empowered to make such appointments. It was also considered premature to provide accreditation to non-government organisations (NGOs).

Three sectors had been identified for proactive investigations, with a view to protecting consumers from unethical business practices and misconduct – medical aid schemes, the information and communication technology (ICT) sector, and the retail and manufacturing sector. In the first instance, the focus was on open medical aid schemes, with the aim of the investigation being to determine whether the scheme rules, as well as membership application forms and contracts complied with the CPA. Various clauses, which were not compliant, had been identified, a common problem being the 12-month waiting period. Discussions with the medical schemes indicated that this excluded pregnant women, which violated the rights of women. The schemes had not provided any reasons why pregnant women should be excluded, so the matter had been referred to the Equality Court. Investigations had been conducted into the subscriber agreements of the mobile phone operators, Telkom, SABC and the pay TV service providers, and this had resulted in major improvements in contracts and revisions to terms and conditions. The final sector – retail and manufacturing – had been confined to 48 sample inspections in the Pretoria area, where emphasis had been placed on the disclosure of prices of goods and services, the right to return goods, and lay-byes. There had been some initial resistance to taking down the “No Refunds, No Returns” signs, but a lot of changes had taken place, particularly at major supermarkets. However, a lot still remained to be done. Product safety recall guidelines had been revised and finalised, and guidelines for genetically modified organisms were being developed.

Investigations had also been conducted at Gautrain, where the time limitation on the use of utility vouchers had come under scrutiny. The NCC had found, in investigating Sanral, that about 18 clauses of the E-tag terms and conditions contravened the provisions of the CPA. Sanral had amended them to comply, but an outstanding issue related to tariffs was still being addressed with the Department of Transport.

Mr Oatlhotse Thupayatlase, Head: Legal, said hundreds of consumers had received legal advice from the NCC’s legal department, even though it was highly under-resourced. No consumer would leave without receiving a legal opinion. However, the Commission was not receiving many requests for clarification from the business sector. What had been disappointing was the action of a large law firm requesting legal advice, which it then passed on to its clients – and charged them for it.

Mr David Railo, Head: Research, described a research project carried out in order to develop a Consumer Affordability Index. This was intended to track the ability of consumers in various socio-economic groups to cope with increased prices for certain essential goods and services without incurring financial difficulties or risking undesirable consequences. This had shown that the most vulnerable consumers – those whose sole income was a government grant – were most affected by rising prices, especially for basic foodstuffs. Households in the lower Living Standards Measure (LSM) group were also hit hard by severe economic conditions, but the upper LSM groups were easily able to afford all the goods and services they had purchased previously. The index would provide information to government on how price changes on various products impacted on different population groups.

Research had been carried out to see if the terms and conditions of the contracts of the airline industry were in line with the CPA, and the study had shown they were not. Problems that had been identified included the non-disclosure of prices before purchasing tickets, different prices being paid for adjacent seats, passengers being “bumped off” planes (a major international problem), and the length of validity of tickets. Clarity was being sought on these issues.

In the banking sector, it had been found that disclosure of ATM fees was inadequate, but the banks had now rectified this situation. However, no justification could be found for the high fees charged by banks for returned credit orders – this was their “cash cow”, and they wanted to keep it that way as far as possible, but there had been a positive response to proposals that the fees should be reduced.

In the auction sector, the focus had been on “ghost” bidders, as highlighted in the Auction Alliance case. A compliance notice had been issued, but this had been turned down by the tribunal.

Discussion
Mr Mabasa said that the more successful a country became, the more counterfeit goods found their way into the market, and asked if the NCC had a role to play in this regard. He also wanted to know what could be done about car-towing companies “ripping off” customers, and vulnerable groups being sold inferior goods at inflated prices in the townships.

Ms Moilwa said the NCC had been made aware that car-towing charges were a problem throughout the country. So far, the matter had been handled on a case-by-case basis, but it might be possible for the Commission to include it as a focus for proactive investigation in the coming year.

Ms Moilwa said the closest the CPA came to dealing with counterfeiting related to labelling – issues such as country of origin and correct information on labels – but when it came across counterfeiting during its investigations, it worked closely with the policing agencies to deal with the matter.

Ms S van der Merwe (ANC) said the figure of 22m people reached through the NCC’s advocacy efforts was impressive, but if this was based on newspaper circulation statistics, it might be advisable to conduct further research to assess the impact of the advocacy. She also drew attention to the “difficult relationship” which had developed between the NCC and the Competition Tribunal, and asked if this was being resolved.

Ms Mlungu said the 22m figure had indeed been derived from readership, listenership and viewing statistics, and described the potential audience of the NCC’s advocacy programme. She agreed that a more accurate system of measurement was needed to gauge its impact.

Mr Mohamed said talks with the Competition Tribunal had already begun, and the NCC was serious about settling the matter.

Mr G Selau (ANC) said ATMs at Gauteng filling stations were being targeted by criminals using devices to “skim” bank cards. Both he and his son had been victims. Could the NCC do anything about this? He referred to the three standing advisory committees, and asked whether these would be voluntary bodies, or whether members would be asking for financial support to cover expenses.

Ms Moilwa said there was a thin line between protection of consumers and issues of criminality. Dealing with matters of fraud and theft did not fall within their mandate, however, and where this was identified, the NCC worked closely with the Hawks or police.

Ms Mlungu said it would be necessary for members of the advisory committees to be compensated for their expenses. People with disabilities, for instance, needed helpers to participate in proceedings. She could not say if the Commission had set aside funds to cover these expenses.

The Chairperson asked her to advise the Committee of the funding arrangements.

Ms Mlungu also elaborated on why it had been considered premature to provide accreditation to non-government organisations (NGOs). The CPA was new legislation which was not easily understood in rural areas, where community-based organisations were expected to provide a wide range of services on a shoe-string budget. In order to train specialists, so that the provisions of the CPA could be properly conveyed to communities, it was designing a five-day course on the legislation, in collaboration with an academic institution.

The Chairperson commented that allowing an airline ticket to remain valid for three years posed problems for airlines, particularly with volatile fuel prices and rates of exchange, and some sort of balance was required when protecting the rights of consumers.

Mr Railo said the Chairperson had “hit the nail on the head”. The provisions of Section 63 of the CPA had led to the airline industry complaining that they would be required to change their business models in order to comply. This was why more research on the situation in other parts of the world was necessary.

The Chairperson said the Committee had been made aware that the NCC had received an unqualified audit report, but she had then been surprised by the findings. Where compliance with laws and regulations was recognised in some areas, the exact opposite appeared to be the case when dealing with financial statements.
There seemed to have been a “cavalier attitude” to financial compliance. She was sure this was not deliberate, but due to a lack of knowledge. However, the matter needed to be taken up with the Auditor General, and it was hoped that with new control measures in place, the NCC would be able to “tighten up” and put in the right processes and procedures.

The Chairperson said she was pleased to see the NCC and Consumer Tribunal were taken steps to settle their difference of opinion over the NCC’s areas of jurisdiction.

She thanked the delegation for their presentation and encouraged them to continue their efforts to champion consumer rights.

The meeting was closed.


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