South Africa Bureau Standards (SABS) & Companies and Intellectual Property Commission (CPIC) on their 2013 Annual Reports

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Trade and Industry

07 October 2013
Chairperson: Mr B Radebe (ANC) (Acting)
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Meeting Summary

The South Africa Bureau Standards (SABS) informed the Committee that nine out of their ten performance indicators were achieved and that a revenue growth of 15% was attained. However, despite the great increase in revenue, expenditures were greater than the revenue, which resulted in a loss of 9%. During the year, the objectives were slightly altered to place the customer at the centre of all aspects, as it would allow SABS to achieve growth targets. A key issue was that of solar water heaters, as companies did not follow the set standards approved by SABS both in terms of the product as well as the installation process. It was noted that SABS placed a great emphasis on the growth of its employees and as such provided them with continual opportunities for learning and improvement.

The Auditor-General audit noted that the following areas required more attention by SABS:
▪ Establish and communicate policies and procedures to enable understanding and execution of internal control objectives, processes and responsibilities
▪ Implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial and performance reporting
▪ Design and implement formal controls over IT systems to ensure the reliability of the systems and the availability, accuracy and protection of information.

Members’ concerns included the following:
- Progress on the building of Pathogen Chain Reaction labs
- Testing on brine in frozen chicken
- Bribery and corruption within the organisational structure
- Labour instability in relation to the current status of the manufacturing industry
- The importation of cheap water geysers from China
- Outreach strategies to promote SABS
- Unintended consequences that were applicable to SMMEs
- Retention strategy for employees
- Relationship between SABS, ISO and local standards
- Role of traditional medicine
- Role of standards in the enhancement of intercontinental trade.

The Companies and Intellectual Property Commission (CPIC) informed the Committee of the progress and challenges that they faced as an agency. The following were highlights of 2012/13:
▪ Increase in hybrid online services
▪ Collaborative efforts with the South African Revenue Service and First National Bank were initiated
▪ An e-filing module was developed for Intellectual Property
▪ Data cleansing exercise
▪ The approval and passing of the Co-operatives Amendment Bill.

Despite progress made, there were two key challenges that the CIPC faced. The first was their ability to respond to customer calls and queries, which was to be addressed through the adoption of a Swedish model and a new service delivery model. CIPC received approximately 46 000 calls every month and only 21%-30% of them were answered. The second was the quality and integrity of CIPC databases still required concerted efforts as there was missing/incorrect data within the CIPC registers of annual reports and close corporation amendments. Another key issue was the vacancy rate increase from 17% to 23% from 2011/12 to 2012/13. This was due to no recruitment efforts undertaken during the year as a result of an agreement made between the CIPC and organised labour to hold the recruitment process during the negotiation, agreement and approval process of an appropriate structure for CIPC.

Members’ concerns included:
- The high volume of calls to CIPC that go unanswered
- No mention of trusts
- The difference between designs and patents
- High vacancy rate
- What companies were included in the 222 146 companies registered in 2012/13
- Lack of communication with the public
- Business rescues and cooperatives
- High surplus for 2012/13.

Meeting report

The Acting Chairperson noted that Ms J Fubbs was in Europe for important meetings and he was assigned as Chairperson during her absence.

South African Bureau Standards (SABS) presentation on 2013 Annual Report
Dr Boni Mehlomakulu, SABS Chief Executive Officer, began with a brief explanation of SABS’ legislative mandate. A review of the five year growth strategy was performed to ensure that SABS was able to meet its goals and address the challenges faced. Nine out of the  ten performance indicators in the 2012/13 business plan were achieved and an over revenue growth of 15% was attained. The strategic objectives had been slightly altered to place the customer at the centre of all aspects, as allow SABS to achieve growth targets.

Strategic Objectives Achievements
Dr Mehlomakulu explained all the targets for the growth objectives were met. Within this objective, the biggest growth area was in the certification business. Over the next three years, the plan was to improve all the lab equipment and to monitor turnaround times based on the reports. A key issue highlighted with regards to this objective was that of solar water heaters. She explained that companies did not follow the standards set and approved by SABS both in terms of the product itself as well as the installation process. This placed a great danger on the lives of customers, as many geysers were faulty. Eskom had taken great initiative to address the issue and had initiated the Solar Water Heater (SWH) project which involved the inspection and verification of 40 000 low pressure SWH installations in households. This project proved to be very successful and of great importance.

With regards to customer centricity, this was new for SABS and very important, as it was key to assess the satisfaction of customers and to measure the impact that SABS was having on people. Progress for this objective was measured against commitments made with the Department of Trade and Industry (dti) and the result was that two out of three targets were achieved. A survey conducted by SABS indicated excellence on performance with an average score of eight out of ten but it also indicated that more innovations were demanded of SABS.

Moving onto productivity, Dr Mehlomakulu noted that this was a difficult objective when dealing with an institution as old as SABS in terms of old technologies as well as a mindset of a certain time for activities. The new infrastructure for ICT and the new strategy were well on track and the target was surpassed. She indicated that there was a big focus on re-accreditation. SABS wanted to achieve high quality, trustworthy results and guarantee that the testing was up to standard.

Lastly, Dr Mehlomakulu said SABS sought to provide employees with the opportunity for constant growth and learning through various ways. For example, SABS had 20 students enrolled in the Da Vinci Internship Programme with high academic successes. In this objective, both targets were surpassed.

Financial Highlights and Audit Finding
Ms Elis Lefteris, Chief Financial Officer, noted that it was a good year for SABS in terms of revenue with 15% growth. She explained that expenses were greater than revenue due to the fact that SABS was investing more and more in the people of SABS and the country at large. Employee benefit expenditure increased by 15% and other operating expenditure increased by 18%, which resulted in a -9% net profit. With regards to the audit findings, Ms Lefteris noted that the following three areas required more attention:
▪ Establish and communicate policies and procedures to enable and support understanding and execution of internal control objectives, processes and responsibilities
▪ Implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial and performance reporting
▪ Design and implement formal controls over IT systems to ensure the reliability of the systems and the availability, accuracy and protection of information.
The presentation provided a detailed list of all the audit findings, with the above three the only ones not on par (see document).

First Quarter Performance
Ms Lefteris outlined the areas where the quarterly target was not met. With regards to growth, the revenue from sales only reached R113.1 million as opposed to the targeted R132.7 million. She explained that this was the result of low revenue from SABS Mark Scheme and new business that did not materialise. Moving on to customer centricity, zero out of four SMMEs began with the implementation of improvement projects. She stated that 25 SMMEs had already been registered and were in different phases of implementation. Also within the sphere of customer centricity, the target for the percentage of SABS committees fully using installed modules of e-committees had only reached 8% as opposed to the targeted 15%.

Discussion
Dr W James (DA) asked what progress was made on the building of Pathogen Chain Reaction (PCR) labs. How successful was the testing on protein? Was there any testing being done on brine in frozen chicken? These were all very important concerns for the benefit of consumers.

Dr Behlomakulu replied that SABS was unable to force people and companies to conduct testing. The laboratories in question were in place but not a single client had come for testing because it was not mandatory to do so. SABS had no mechanisms that enabled them to make testing mandatory. As for brine testing, not much work has been done in that area due to uncertainty on the potential success of such an investment.

Mr G McIntosh (COPE) asked if there were any examples of bribery or corruption that were taking place at SABS. He commented on the current happenings within the manufacturing industry, in particular the automotive industry, and argued that labour stability was a requirement of all the agencies and that the Committee should not ignore these matters. The labour instability within SABS was an urgent matter that had to be dealt with.

Dr Behlomakulu replied that there have been a few experiences of corruption with employees not adhering to the actual test results. However, these matters were under control as they were often caught. On average, there were three attempts at corruption per year, which was often reflected in the Annual Report as financial losses.

Rev W Thring (ACDP) commented that the importing of cheap water geysers from China needed to be curtailed. How did the standardisation of salaries emerge at the SABS?

Dr Behlomakulu replied that there was a certain standard for the quality of water geysers and SABS used a certain process to ascertain the quality of the water geysers to that standard. However, government was procuring products without conforming to the standards. As an agency, SABS was not able to intervene unless it was a regulated product and water geysers were not a regulated product. Eskom was working towards making it a requirement for these products to be SABS approved. There was a need to enforce standards when government was procuring products, otherwise service delivery would always be an issue. In addition, in other developing countries like India and Brazil, products brought in from other countries had to undergo testing and standardisation procedures. Unfortunately, that process had been let go of in South Africa and imported products were no longer required to undergo testing.

Mr X Mabasa (ANC) asked if SABS had an outreach strategy for schools in order to get learners’ interest in the agency at an early level. He congratulated SABS on a well done report and appreciated its ability to raise their own revenue. Was there any unintended consequences applicable to SMMEs that could exclude them from the services of SABS?

Dr Behlomakulu replied that the schools programme was unsuccessful but SABS had initiated a programme where learners visit the SABS premises on Saturdays to learn about the agency.

Mr Frank Makamo, Executive: Certification and Acting Executive: Testing and Inspection, replied that with regards to SMMEs, there had been some concern at one stage. As a result, an SMME department had been established at SABS that focused primarily on helping SMMEs succeed and they were charged significantly different rates from what SABS charged big companies. This department was available to SMMEs for assistance in both conducting the necessary tests but also understanding the requirements for the products. SABS had also partnered with the Department of Economic Development in the Eastern Cape to work towards assisting the development of SMMEs.

Mr N Gcwabaza (ANC) noted that majority of the targets were achieved and several even surpassed; as such, was there an upward adjustment being planned for targets? He was concerned that the actual figure for the number of posts filled and the number of vacancies was not provided. While employee benefits and bonuses were understandable, he argued that perhaps it placed some stress on the net profit of the agency. Lastly, Mr Gcwabaza asked what the retention strategy for employees was. He commented that it was great that SABS placed tremendous effort on building the capacity of their human resources; he was just concerned that the employees may leave after all the training.

Mr G Selau (ANC) stated that too many people were unfamiliar with SABS and that it was important for the organisation to engage in a campaign to educate society about the importance of the entity and its standards. What was the relationship between the ISO determination of standards, that of SABS as well as that of local content; who was responsible for what?

Dr Behlomakulu replied that South Africa was a founding member country of the International Organisation for Standardisation (ISO). The ISO was an international body responsible for the harmonisation of standards. All the standards adopted by the ISO originated in a particular country who then raised the standard to the ISO for adoption. Essentially, countries developed local standards that were later suggested for ISO approval and once adopted, they become international standards enforced within the international market.

The Acting Chairperson was appreciative of the level of detail that was included in the full report. There was mention in the report about the standardisation of traditional medicine; where did the metaphysical versus the physical argument come into play? What role did standards play in improving intercontinental trade?

Dr Behlomakulu informed the Committee that SABS had set up a department dedicated to working on the integration of traditional medicine. There had also been a workshop in Durban that invited countries that had already succeeded in this process to inform others about the process.
 
Mr Garth Strachan, dti Chief Director: Industrial Policy, commented on the solar water heater issue. He stated there were substandard heaters imported illegally into South Africa and unfortunately not all the components of solar water heaters fell under the compulsory specifications. A complex and interconnected policy plan between all the institutions involved was highly necessary. While some progress had been made, there was still a long way to go due to several remaining issues. For example, there were many businesses breaching the law who claimed not to have been aware of the laws. Lastly, there were many newly emerging solar water heater producers in South Africa who were working towards inventive technologies.

The Acting Chairperson requested SABS to submit in writing responses to any unanswered questions by Friday, October 11, 2013.

Companies and Intellectual Property Commission (CPIC) 2013 Annual Report
Ms Astrid Ludin, Commissioner, provided an overview of the Annual Report. As part of CIPC’s process, the agency aspired to migrate to an e-filing system, collaborate with innovative partners, achieve proactive compliance and adopt a Swedish customer contact model. In an overview of the report, she indicated the following as highlights of the 2012/13 year:
▪ Increase in hybrid online services
▪ Collaborative efforts with FNB and SARS were initiated
▪ An e-filing module was developed for Intellectual Property
▪ Data cleansing exercise
▪ The approval and passing of the Co-operatives Amendment Bill.

As for challenges, Ms Ludin noted the following:
- Ability to respond to customer calls and queries. This was to be addressed through the Swedish model and a new service delivery model that were in the process of being set up.
- The quality and integrity of CIPC databases still required concerted efforts as there was missing/incorrect data within the CIPC registers for annual reports and close corporation amendments

Actual Performance against Strategic Plan
Ms Ludin noted that in regards to Strategic Goal 1 on Competitiveness of the business environment, 222 146 new companies had been registered in 2012/13; 68% of which were registered via the hybrid online system. In terms of manual transactions, the target of having 85% processed within 25 working days was surpassed as 92% of the transactions were completed within that timeframe leading to an average turnaround time of 15.7 days. The average turnaround time for online transactions was 1.5 days and 99% of these transactions were processed within three working days (target was 85%). As for Registration of Co-operatives, 21 515 new co-operatives were registered throughout the year. However, the turnaround time was not achieved as only 78% of the co-operatives registrations was completed within 21 days (target was 85%) and the average turnaround time was 36.12 days.

As for Strategic Goal 2 on Innovation, Creativity and Indigenous Cultural Expression, trademark applications had increased steadily over the past five years. Similarly, applications for patents and designs grew consistently over the past five years. Based on year to year growth, applications for designs grew more substantially at 27% as opposed to patents with a mere 3% year-on-year growth (see document for a visual representation of the growth in trademarks, designs and patents). Of these, 58% of all trademarks in 2012/13 were from local citizens compared to 31% local patents and 45 local designs.

Moving on to Strategic Goal 3 on Economic Participation, Ms Ludin explained that one of CIPC’s biggest challenges remained its inability to effectively deal with its large call volumes in the call centre. CIPC received approximately 46 000 calls every month and only 21%-30% of these were answered. As such, CIPC had begun exploring alternatives such as the Swedish model. Some improvement had been seen from April 2013 – September 2013 as part of the 2013/14 year but not any significant changes. Further, CIPC was working towards the improvement of ease of business and collaboration was part of the strategy. She stated that that CIPC was collaborating with credible and innovative partners to avoid duplication of information. Two of these partners were the South African Revenue Service (SARS) and the First National Bank (FNB). Ultimately, this collaboration was expected to have a huge impact on the South African business environment and was expected to increase the ease of starting a business.

Ms Ludin explained that information and communication technology (ICT) infrastructure had stabilised and experienced improvement with regards to its performance. Data integrity had also been an issue previously; as such, several activities were undertaken to enhance the integrity of CIPC registers. She noted that the vacancy level in the CIPC increased from 17% in 2011/12 to 23% in 2012/13 due to the fact that no recruitment efforts were undertaken during the year under review. The lack of recruitment was a result of an agreement made between the CIPC and organised labour to hold the recruitment process during the negotiation, agreement and approval process of an appropriate structure for CIPC.

Due to time constraints, the entire presentation document was not covered; however, it did include matters that were raised in the Auditor-General Report and assessment of future budget matters.

Discussion
Mr McIntosh was puzzled why CIPC was still having over 60% of its calls not answered - given the great focus that the dti placed on call centres. He was concerned that there was no mention of trusts. Who were business rescue people and what qualifications did they have? He asked why designs grew at a rate of 27% annual while patents were so few? What, then, was the difference between a design and a patent? The high level of vacancies was of great concern. He asked if perhaps it was related to low wages or a poor level of happiness at the CIPC.

Ms Ludin replied that the CIPC had undergone many different scenarios to deal with the call centre. The Swedish model removed the traditional notion of a call centre and rather created a form of a switchboard. This was done to ensure that people in the organisation who were actually knowledgeable of what was being raised in the calls answered the calls. In this model, accountability for answering the calls came down to the individuals. She explained that it had taken two years to perfect the model in Sweden and now all their calls were being answered within 60 seconds.

Mr Rory Voller, CIPC Director: Legal and Regulatory Services, replied that trusts were not administered by the CIPC but rather by the High Court. Some discussion had been raised by CIPC with SARS about the date received and some collaborative agreements were being sought after. With regards to business rescue, he noted that of the 142 practitioners that had been better, all underwent high levels of assessment against a long list of requirements. Moreover, the majority of the practitioners were mostly from legal and accounting professions. He explained that designs were higher because there were two different types of designs: functional and aesthetic. Lastly, vacancies were high due to the agreement made during the restructuring of the CIPC. Efforts were currently being made to address the vacancies. CIPC had advertised for several positions and conducted interviews for three senior positions in the IT department.

Ms S van der Merwe (ANC) stated that there needed to be more energy put towards solving the call centre issue as it had a great impact on all other targets. Who were the 222 146 companies in the last financial year?

Mr G Hill-Lewis (DA) commented on CIPC communication with the public. He explained that communication regarding disruptions in service had to be put out to the public much more efficiently and effectively. He provided the example of the latest service disruption, which was only announced to the public after the fact - but CIPC claimed that it was a planned disruption for a system update.

Ms Ludin agreed that it was important to communicate efficiently and effectively with customers. With regards to the particular scenario raised, she informed the Committee that CIPC had sent out notices about the disruption two weeks before the upgrade.

Dr James asked if CIPC only dealt with registration and recording. If so, who was responsible for enforcement and rights?

Mr Mabasa asked what subsequently happened to 60% of calls that were abandoned. What strategy was in place to promote the CIPC to the different regions and provinces? Did the CIPC also rescue cooperatives or only other types of businesses?

Mr Voller replied that business rescue did not apply to cooperatives but to companies.

The Acting Chairperson noted that the high vacancy rate was not good especially given the high unemployment rate in the country. He also wondered what the Swedish Model involved.

The Acting Chairperson thanked the CIPC for their report and presentation.

The meeting was adjourned.

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