National Consumer Commission & National Credit Regulator on their 1st Quarter Performance for 2014/15

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Trade and Industry

16 September 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The National Consumer Commission briefed the Committee, with particular focus on overview of annual report, strategic objectives, achievement against planned targets, financial management and key challenges and financial projection. There was an investigation into the meat “scandal” labelling which led to meat labelling regulations being promoted by the Minister and other recommendations being followed up. With regards to complaints backlog, the Commission has resolved to unpack the backlog up to 92% by December 2014. The Annual report indicated a total of 20 product recall notifications issued. These products were recalled because they touched on security of the consumers or did not meet security standards. Some medical devices were recalled. Some motor vehicles were internationally recalled and the Commission decided to contact the motor industry in South Africa concerned about the recalled motor vehicles. With regard to achievement against the targets, 49 out of 72 officials, including managers, were involved in operations. This was not a large number that could effectively carry out the Commission’s functions, work, and mandate. In terms of annual performance plan, the NCC had 12 measures for indicators, which included 20 targets. The Commission fully achieved on eight measures and 16 targets. Four targets were not fully achieved but more than 50% were achieved on target. Plans were put in place to ensure that all targets would be achieved in the future. The Commission was challenged by lack of personnel and was facing a major skills shortage. Other challenges included complaints backlogs and irregular expenditure. With regard to workforce, 110 positions out of 182 were, as from 31 March 2014, vacant. Of the 182 positions, only 82 were funded posts. Of 82 funded posts, ten were vacant.  

Members appreciated the progress that was made under the supervision of the new Commissioner and stated that more needed to be done to turn around the NCC. Clarity was sought on skills shortage, skills audit, recruitment, unfunded posts, under-funded problem, recalled products, issues raised by the Auditor General’s report, measures in place to ensure criminal liability, and irregular and fruitless expenditure.

The National Credit Regulator (NCR) briefed the Committee on the issues of performance against annual targets, first quarterly performance report, financial information and key successes and challenges. There were successes in terms of enforcement action and consumer education. In terms of enforcement action, there were 23 referrals to the National Consumer Tribunal; fines of R1.8 million were imposed; and raids were conducted in three provinces. With regard to consumer education, advertising value was equivalent of R200 million across all media channels. Forty nine exhibitions were conducted including activations and road shows. Education workshops were conducted. Credit Industry Forum was established and the third Learnership Programme was rolled out. Its challenges included matters relating to funding, office space, and consumer education, especially for those in rural and semi-rural areas.

Members stated that the Regulator had performed poorly and noted that it had governance issues which needed to be solved. Members sought clarity on various governing board operations and on whether there were mechanisms to solve the problems that the Regulator was undergoing. Clarity on how absenteeism was dealt with, how many credit service providing investigations were conducted, on why investigations were conducted in three provinces only, on the nature of the complaints received from consumers, on the meaning of professional fees, and on the high deficit, were sought. 

Meeting report

Briefing by National Consumer Commission (NCC)
Mr Ebrahim Mohammed, Commissioner, NCC, introduced the team that and proceeded to take the Committee through presentation. The presentation focused on inspections, findings and way forward. The last time the NCC made the presentation to the Committee it had received “a qualified audit.” It was delighted to announce that the NCC had received “an unqualified opinion” in the financial year under review. 

There was an investigation into the meat “scandal” labelling which led to meat labelling regulations being promoted by the Minister and other recommendations being followed up. Meat scandal labelling widely appeared in the media, investigations were conducted and the DNA report was produced by the Stellenbosch University and University of the Western Cape. The reports were handed to the Minister of Trade and Industry. Included in the report was how to mitigate the loose contamination of meat. Horse meat investigation was conducted. In Europe, particularly in France, horse meat was discovered in various products. What the NCC did was to contact importers, exporters, and distributors of meat products in France to talk about the situation regarding horse meat. They conducted a DNA test and found that only one product contained horse meat.

There was a merger investigation conducted into the timeshare industry which had been completed. The matter was at the time of briefing, taken to the National Consumer Tribunal, because the NCC was of the view that the conduct was unconscionable and requested the Consumer Tribunal to declare that the conduct was unconscionable and therefore prohibited. A discussion was held on this and the NCC expected a draft Code to be submitted in October 2014.

With regards to complaints backlog, the NCC has resolved to unpack the backlog up to 92% by December 2014. There would be no backlog in the first quarter of 2015. Some backlog was developing but the NCC had put some measures in place to avoid any further backlog.

With regard to the relationship of the NCC and the National Consumer Tribunal, the NCC had good working relations with the Tribunal. The NCC and the National Consumer Tribunal hosted the first consumer protection summit. The idea of the summit was to bring the various stakeholders together and to see where the industry was, encourage consumer protection in South Africa and to ensure collaboration among the stakeholders. The NCC hosted 17 workshops targeting women, people living with disabilities, SMMEs and community members in Gauteng, Kwazulu Natal, Free State and Western Cape. In 2014, the focus was on rural areas with regards to expired goods.

The Commissioner referred the Committee to page 23 of Annual Report, which listed the 20 product recall notifications issued. These products were recalled because they touched on security of the consumers or did not meet security standards. Some medical devices were recalled. Some motor vehicles were internationally recalled and the Commission decided to contact the motor industry in South Africa concerned about the recalled motor vehicles. Toyota and BMW recalled certain models of their vehicles on the safety issue and the recall had dire consequences to consumers if not addressed.

The NCC participated in the revising of the United Nations Guidelines on Consumer protection. It also secured returns, refunds and replacements for consumers and a Motor industry code was submitted for accreditation. The Department of Trade and Industry was custodian of consumer protection policy and the NCC was established in terms of Section 85 of the Consumer Protection Act (CPA) and its core mandate drawn from the CPA. The CPA sought to promote a fair, accessible and sustainable marketplace for consumer products and services and for that purpose to establish a national norms and standard relating to consumer protection. NCC had concurrent jurisdiction on consumer protection in South Africa. It shared its jurisdiction with Provincial Consumer Protection Authorities.
The NCC had two strategic objectives, namely: to promote compliance with the CPA and to be well governed and capacitated organisation. It had the following divisions in order to give effect to the above strategic objectives: Enforcement and Investigation; Advocacy, Education and Awareness; Research; Legal and Corporate Services.

With regard to achievement against the targets, 49 out of 72 officials, including managers, were involved in operations. This was not a large number that could effectively carry out the NCC functions, work, and mandate. In terms of annual performance plan, the NCC had 12 measures or indicators, which included 20 targets. The NCC fully achieved on eight measures and 16 targets. Four targets were not fully achieved but more than 50% were achieved on target. Plans were put in place to ensure that all targets would be achieved in the future. As regards auditing, deviation and invoice registers had been implemented as internal control measures to combat irregular, fruitless and wasteful expenditure. To improve on service delivery, each division had introduced standard operating procedures.

With regard to financial management, the expenditure stood at R41 317 million compared to the approved budget of 44 516 million, reflecting the under spending of R 3 199 million (or 7%). Under-spending was mainly on goods and services, where creditor invoices totalling R 1 708 million were only received and paid after the financial year end, whereas expenses relating to lease office space decreased following negotiations with the service provider to that effect. The Auditor General’s Report stated that there were no material findings on the usefulness and reliability of the reported performance information and indicated accumulated surplus without the approval of National Treasury, in contravention of Section 53(3) of the PFMA. Accordingly, annual financial statements were unqualified. However, the NCC experienced fruitless and wasteful expenditure of R3 575 439 in 2013 and R3 601 857 in 2014. Referring to Note 23 of the financial statement, the Commissioner explained that the NCC received legal claims amounting to R2 310 875. The ultimate outcome of these matters could not be determined and no provision was made in the financial statements for any liability in this regard, the NCC disclosed a contingent liability of R5 224 237. That amount included the surplus of the year ended 31 March 2013, which was awaiting approval from National Treasury.  The AGSA report raised the matters of procurement and contract management. The preference point system was not applied in respect of all procurement of goods and services above R30 000, as required by section 2(a) of the Preferential Procurement Policy Framework Act and Treasury Regulation 16.A6.3(b).

The Commissioner noted the matters that were successfully dealt with, arising from 2012/23 audit. These matters included:
Disciplinary steps taken against officials who incurred and/or permitted irregular and/or fruitless and wasteful expenditure and payments were made in advance of the receipt of goods and services.
Resignation of Chief Financial Officer
10 disciplinary actions which were still underway, including 4 senior managers

The NCC was challenged by lack of personnel and was facing a major skills shortage. Other challenges included complaints backlogs and irregular expenditure. With regard to workforce, 110 positions out of 182 were, as from 31 March 2014, vacant. Of the 182 positions, only 82 were funded posts. Of 82 funded posts, ten were vacant. To deal with the vacancy challenge, the Commissioner said that a formal restructuring would be undertaken and that it was envisaged that most of the vacant or unfunded posts be abandoned.

Discussion
Adv A Alberts (FF+) sought clarity on workforce and under-funding. It appeared that the NCC had a very broad jurisdiction and that it was, in itself, problematic. Due to the small workforce, the NCC was flooded by complaints. How many personnel did the NCC need to carry out its mandate effectively and sufficiently?

Mr B Mkongi (ANC) appreciated the NCC report stating that it was informative and progressive.  Clarity was sought on the motor industry and various issues the Auditor General had flagged. On fruitless and wasteful expenditure, particularly, legal fees of personal nature, spent by former commissioner, how should the NCC recover such fees? Referring to slide 24 of the NCC report, why did the financial account, refer to unspent money as “surplus of the year”? Did the regulations of the Treasury and PFMA allow this?  Finally, on skills audit, it was reflected in the report that the skills audit was not conducted. However, the Commissioner, in his briefing, said that the skills audit was not finalised. The phrase “not being conducted” and “not being finalised” were totally different. Was there a skills audit or not?

Ms P Mantashe (ANC) sought clarity on skills, particularly, how recruitment was done and what skills were lacking in the NCC to address skills shortage as well as measures put in place to resolve the problem. What kind of skills did the NCC need? What were the causes of backlogs? With regard to vacancies, how would the NCC cope because only 82 out of 182 positions were funded and of the 82 funded posts, 10 were vacant?

Mr D Macpherson (DA) commented that there were several issues that raised a number of questions and sought clarity on disciplinary measures, whether such measures included criminal liabilities (or whether criminal cases were identified) and funds recovery measures put in place. Should the underspent money not be referred to as “savings”? Although the NCC was an important entity that protected the consumer, it appeared to be on the wrong side and worked against consumers. If the NCC was to be fully capacitated, what was required to do so? It was in the interest of everyone to have the NCC act in the interest of consumers not against them. What was it going to take the Commissioner to achieve this and what kind of intervention was required from the Committee to do this job appropriately?

The Chairperson sought clarity on what measures  were in place to ensure that the NCC was on track and did not experience the previous hiccups,  as well as what control measures were in place to improve on NCC services and to respond to issues of procurement and supply chain management and irregular expenditure. In the Commissioner’s previous brief, he stated that he was going to restructure the NCC - the Committee would like to be briefed on that progress.

The Commissioner addressed Adv Alberts question on underfunding and complaints backlogs. He noted that Adv Albert was absent when the restructuring of organisation was addressed earlier on in the meeting. The NCC needed 182 personnel due to the situation it was facing at that time. The Minister approved a structure of 132 persons. The former Commission had appointed 30 members who were not part of the structures. They were drawn from the youth and not necessarily with tertiary education, even those with grade 12 were taken in order for community and sustainability of the organisation. The Minister had advised the Commissioner to ensure that no job was lost in the restructuring of the organisation. That was in 2012. In the restructuring, the Commissioner considered the needs of the NCC. The employees who were falling out of the structures were encouraged to apply for internally advertised jobs. The Commissioner had revised the turnaround strategy. The NCC no longer dealt with reconciliation, rather it collaborated with industries. Code of industries were established and submitted to the Alternative Dispute Resolution (ADR) mechanism. Once these codes are accredited they would have the force of law and the industries would fund these mechanisms. As a result, the Commissioner would no longer have to deal with some complaints. Taking this into account, some significant improvement is observed. There was a need to restructure the NCC’s core purpose and the NCC needed to increase its investigation. It was difficult at that stage to say what plans the NCC had but it was aimed to get there. With reference to recovering the legal fees of personal nature, the NCC had instructed attorneys to recover funds that appeared to be recoverable.

Mr Anton Van der Merwe, Acting Head of Corporate Services, NCC, explained that terminologies such as surplus, underspending, and savings usually lead to confusion. Surplus is used in accordance with the structure the NCC had in place. It can be attributed to funds set aside for certain activities and the fact that these activities may be not be irregular as such but the money was not spent on the particular activities at the end of the financial year. It was for that purpose that such funds should be surrendered. Savings would refer to the circumstances where such money were directed to other activities that an organisation could see were important to be implemented. . Whether it was general or specific statement, the NCC had put an action plan in place to deal with these various issues that went back to the previous financial year. The NCC had also specific actions that were monitored on the monthly basis. With regard to penalties, there were some isolated incidents so far as the NCC had to pay on monthly basis some recoverable taxes to SARS and the specific debts collection were effected in subsequent months. Some payments were not made on time, and when it was it was paid, it was paid late. With regards to procurement and supply chain management, the NCC had all financial and supply chain management processes that ought to be followed. The NCC implemented check list where every transaction had to meet.

The Commissioner reminded the Committee that the former CEO was very problematic and that he was currently facing 27 charges. His disciplinary hearing was set aside. The former CEO resigned and left the organisation.  The Commissioner disagreed with the observation by Members of the Committee that the backlog was due to the lack of required skills. He said that complaints backlogs were due to lack of human capacity to deal with the influx of the complaints. To deal with complaints expeditiously, the NCC worked with partners who were expert in the field. With regards to recruiting personnel, the NCC used the same process that was used by and prescribed by the government. Vacancies were not filled and the NCC was facing the high rate of vacancies because there were certain unfunded posts. Owing to disciplinary measures, the Chief Financial Officer and other two senior management staff had resigned. With regards to criminal liability, criminal complaints have been lodged with the police and the prosecution would depend on the National Prosecuting Authority. Some prosecutions were underway.

Mr N Matiase (EFF) sought clarity on the motor vehicles that were called and asked how the NCC received a clean audit whilst it was facing the irregular and fruitless expenditure. 

Mr Macpherson expressed concern that if the CEO was not held to account, he would head another public entity. Measures should be put in place to allow justice take its course. 

Mr Mkongi highlighted that there were action plans in place and monitoring mechanisms however the Committee should ensure that it conducted an oversight visit.

Ms Mantashe sough clarity on why the NCC had no development of skills plan in place and why funds were being requested for such purpose.

The Chairperson sought clarity on the divergences concerning the personnel to be held criminally accountable. Were they three or 12? 

With regards to criminal charges, the Commissioner replied that they were a number of staff that were implicated and that made it difficult to say who would be prosecuted or not.

The Chairperson on behalf of the Committee requested that the NCC should, within 10days send an explanatory note concerning disciplinary measures, including a list of who would be disciplined and who might face criminal liability.

With reference to clean audit, the Commissioner replied that irregular expenditure was caused by the former CEO. Investigation revealed some irregular lease agreements. The audit was unqualified because the NCC revealed all information and nothing was found hidden and there was nothing under Mr Mohamed’s supervision that appeared to be unusual or irregular.

The Chairperson said that the Committee acknowledged that there was an impressive turnaround progress. However, the Committee would need the history report on that progress and that the reality was that Mr Mohamed had a big task to improve on services, increase workforce, and strengthen the financial team.

The meeting adjourned for a tea break. 

Briefing by National Credit Regulator (NCR)
Ms Nomsa Motshenge, Chief Executive Officer, NCR, took the Committee through the presentation focussing on performance against annual targets for the 2013/14 financial year, first quarterly performance report for 2014/15, financial information and key successes and challenges.

The strategic objectives of the entity were to:
●promote increased access to credit through responsible credit grant;
●protect consumers from abuse and unfair practices in the consumer credit market and address over-indebtedness;
●continually enhance a consumer credit market regulatory
●monitor and improve NCR’s effectiveness in fulfilling mandate

In order to achieve these objectives, targets were established to be delivered by 31 March 2014. Most of those targets were achieved (see attachment).

As regards the first quarter performance report for 2014/15 financial year, five objectives were established, namely: To promote increased access to credit through responsible credit granting; To protect consumer from abuse and unfair practice in the consumer credit market and address over-indebtedness; To enhance a consumer regulatory framework; To improve NCR’s operational effectiveness; To ensure effective implementation of the National Credit Amendment Act (NCAA).

The NCR received an unqualified opinion and there were no findings on compliance and supply chain management and no findings on performance information. The budget of 2013/2014 financial year was R99.2 million but the actual budget was R94.9 million. Expenditure was R124.9 million and actual expenditure was R121 million. The deficit was funded by reserves. The breakdown of expenditure was presented to the Committee (see attachment).

The NCR briefed the Committee on its successes and challenges. There were successes in terms of enforcement action and consumer education. In terms of enforcement action, there were 23 referrals to the National Consumer Tribunal; fines of R1.8 million were imposed; and raids were conducted in three provinces. With regard to consumer education, advertising value was equivalent of R200 million across all media channels. Forty nine exhibitions were conducted including activations and road shows. Education workshops were conducted. Credit Industry Forum was established and the third Learnership Programme was rolled out. The three main challenges related to funding, office space, and consumer education, especially for those in rural and semi-rural areas.  

Discussion
Mr Macpherson referred to the report and noted that Ms Zihle, Mr Khumalo, Mr Gwenye did not attend any single meeting. He asked the CEO to comment on those glaring absenteeism relating to her board. These individuals were government officials. If they were not attending her meetings, the Committee should make a request to appoint individuals who were more interested. Relating to the presentation, further explanation on the terms “objective achieved” and “objective exceeded” were requested because the Annual Report painted a different picture with respect to CEO; the achievements were grossly inadequate.  The NCR was not doing a good work in monitoring because the Annual Report demonstrated that 50% of companies were not responding. On page eight of the Annual Report, the NCR referred to the conduct and reckless investigations, and thus referred to six compliance notices which were issued but the NCR failed to mention how many investigations were conducted. With regard to the annual performance plan and the deficit of 2013/14 why did the total asset of NCR jump from R64 million to R20 million? The NCR could not talk about success when it was unable to conduct investigations in only three out of nine provinces in the financial year. That was quite poor performance. In addition, there were other critical activities that were set below the targets. The CEO needed to take into account that the NCR was supposed to act as a police watchdog.  

Adv Alberts asked whether the NCR’s research recommendations could be accessed as well as investigation on credit recovery. What were the legal costs incurred in the prosecution process relating to people who were in arrears? There should be collaboration between NCR and the Department of Justice for the sake of reducing legal costs. What type of complaints was the NCR receiving from consumers and how was its relationship with the National Consumer Tribunal.

Dr Z Luyenge (ANC) commended the NCR for its clean audit and sought clarity on whether it complied with or what it was doing to comply with equity plan. What was the NCR’s approach on liquidated companies? Was NCR accessible by people in rural areas, if not why?

Mr Mokongi, referring to the presentation, sought clarity on internal control measures and as well as on the professional fees. What did professional fees entail?

Ms Mantashe questioned the seriousness of the CEO’s board and sought clarity on the legitimacy of its resolutions if the board members were not attending; citing an example of Mr Tchidi who could have chaired the meetings but who never attended them.

The Chairperson requested that when the CEO responded to this elusive operations, be guided by the legislation that governed the NCR functions and operations. Were there legislative clauses or disciplinary measures in place to deal with the glaring absenteeism or issues of governance and was the issue of absenteeism reported to the executive.

The CEO responded that the executive were represented in the NCR board. However, in terms of the National Credit Amendment Act 19 of 2014, the NCR governing structure had changed in the sense that NCR would no longer have a board. It would rather have a Committee and the NCR was in the process of establishing that Committee. The board would no longer be in existence. With regard to the site visit, the NCR uses a number of tools in monitoring credit providers to see whether they were complying with the National Credit Act. Prior to registration of credit service providers, they were required to appoint a financial credit officer or auditor who would submit a report on annual basis to the NCR on any contravention of the National Credit Act. Those reports were relied on in monitoring exercise. The NCR was facing challenges in procuring the credit service providers on whether they were complying with the PFMA. By March 2015, the NCR would produce the first report in that regard. Research recommendations, could be accessed on the NCR website where they were published. The nature of the complaints that the NCR had received were on over changing of the interest and fees and there were matters that were referred to National Consumer Tribunal where consumer’s charges were not in accordance with the Act.

The Chairperson remarked that the National Credit Amendment Act was not yet in force.

The CEO agreed.

The Chairperson sought clarity on when promises of regulations dealing with hearing could take place. What timing was the NCR was looking at? 

Mr Obed Tongoane, Chief Operation Officer, NCR, responded that the NCR was a young organisation. By June 2014, it turned only 8 years and it had a huge responsibility.  In 2006 and 2007, the main focus was registration of credit service providers and credit bureaux. It was after that exercise that the enforcement regulation came in. The NCR started its work by providing consumer education awareness. The main challenge that the NCR encountered when the enforcement regulations kicked in was that the industry that was well-resourced resolved to take on the NCR. The NCR was taken to court due to some definitions which were ambiguous. An example was the case of NCR versus five banks in which many issues were clarified. Such legal challenges were a blessing in disguise. On the issue of poor performance, the NCR would do its best to cover all provinces as their performances were hindered by the above mentioned challenges. The NCR is based in Johannesburg and relied on other established mechanisms such as the police to reach a wide community. It had a plan to establish satellite offices in the near future.

Ms Fundisiwe Malaza, Acting Chief Financial Officer, NCR, addressed the question on the deficit and said that the deficit was so high due to the ICT Projects and professionals fees, which mainly included legal fees. There were matters that were taken to court and attorneys were hired and paid.

The Chairperson hoped that the National Credit Amendment Act would be addressing these challenges if it came into operation.

With regard to absenteeism, the CEO repied that the dash that were placed in front of the above mentioned names signified that that those officials were not paid but not the fact that they did not attend the meetings. The board was inexistent.

Ms Mantashe objected to this claim and said the report were explicit.

The Chairperson asked why Mr Tchidi did not attend and what reason did he provide,

The CEO replied that he tendered an apology and explained that he needed to attend to other commitments.

Dr Luyenge said that the NCR ought to provide a clear report and not misguide the Committee and asked whether officials were paid only because they attended meetings.

The Chairperson said that Mr Tchidi represented the Department of Finance and that made her presence crucial. There might have been measures that were not taken due to his absence. What were they?

The CEO requested the Chairperson to note all questions down and so as to respond in writing.

The Chairperson agreed and remarked that the NCR administration was established in terms of the NCR Amendment Act which was not yet in operation. On issues of dismissal, an employee can resign provided that he or she served a month notice or was removed by the Minister-the NCR should follow the formal process. The NCR should communicate with the Committee regularly.

The meeting was adjourned.

 

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