National Credit Regulator & National Gambling Board: 4th quarter 2014 performance

Meeting report

National Credit Regulator (NCR) briefing on Fourth Quarter 2014/15 (Q4) performance.
NOTE: The time of the meeting was changed without notice and PMG was unable to be present for the first hour

The National Credit Regulator (NCR) tabled its performance report on the Fourth Quarter (Q4) of the 2014/15 financial year (see attached presentation for full details).

NCR programmes included work on responsible credit-offerings, quality and accuracy of the credit bureau information, protection of consumers from abuse and unfair practices, improvement of NCR operational effectiveness and implementation of the National Credit Act. To this end, three workshops were held for affordability assessment regulations, and a study was conducted to review current levels of credit, which was completed in April 2015, and four compliance notices for reckless lending were issued in Q4. NCR conducted four credit provider raids in four provinces, credit bureaus were investigated, three compliance site visits were conducted, and IT recommendations were implemented. 20 learners were recruited and trained. NCR conducted seven workshops and eight radio interviews on the new National Credit Act's amendments, along with two exhibitions/activities. Three investigations were conducted on large credit providers.

Describing the annual enforcement statistics for this financial year, the NCR presentation indicated that there had been 29 referrals to the National Consumer Tribunal (NCT), including two South African banks (ABSA and Standard Bank). 23 compliance notices were issued. Various online credit providers were investigated. R235 million was spent on consumer education. 92 credit providers were raided, with 17 individuals arrested and criminal cases opened against them.

Finally, it was reported that the total budget for 2015/2016 was R123 million, but the NCR had income of R103 million and there was thus a deficit of R14 million. (See attached presentation for full details)

National Gambling Board: Fourth quarter 2014/15 performance briefing
Ms Caroline Kongwa, Administrator, National Gambling Board, stated that the National Gambling Board (NGB) was set up to look at the impact of gambling - legal and illegal - on society, and monitored the legislation. The legislation set out that any unlawful winnings must be appropriated to the state. There was a register and licensing for gambling machines and operators. The NGB had recently started to gather statistics from the different operators. It was auditing the Q4 figures at the moment.

The report set out that gross gambling revenue (GGR) decreased in respect of bingo over the financial year. Total GGR for the country was R17 billion, of which Gauteng had R7 billion and the Western Cape R2 billion. There were 38 casinos country wide.

The main challenges were described. The NGB lacked legal skills and there were capacity constraints. The NGB Trust was de-registered and confiscated winnings were transferred to a NGB Bank, but the proper  allocation of these confiscated winnings had proven difficult, due to lack of documentation. In response to this, the NGB had filled some key roles, including appointing a Chief Financial Officer and a Gaming Officer.  It had also requested the Auditor-General to help with documentation and had requested the Department of Trade and Industry (dti) to help with public outreach and capacity constraints.

The current research plans for the NGB had to be amended, due to duplication at the dti. The NGB had managed to improve its ICT network and servers to improve data protection.

The NGB received an unqualified audit report, but there were 134 findings, of which 121 had been resolved, four were still in progress and nine had not been addressed for the year. For the year to date, NGB was showing a budget surplus of R3 million. Savings were made due to cost containment measures, travelling was cut down and  new management took over.

By the end of Q4, the NGB had achieved 62.5% of its targets, and for the whole year, it had achieved 69.2%. The NGB spent 92% of its budget and had a surplus of R1.060 million for the year. Irregular expenditure was reduced from R3.6 million to R1.9 million. Irregular contracts were cancelled. GGR growth was 9.6% in 2014/2015 compared to 4.3% in 2013/2014. Employment in the industry was around 19 994 permanent and temporary employers. The average BBBEE level for casino operators was level 2.

Discussion
NCR issues
Mr G Hill-Lewis (DA) reiterated that once a target had been met, institutions should up their stakes and should continue to push forward. He suggested that the NCR should set more aggressive targets. He asked the NCR to provide more detail on the Lewis and JD Group credit cases, and what exactly had happened here, and whether certain limits had been ignored. He asked how long the Tribunal process would usually be. He suggested that the NCR should not reduce the fines for these big groups.

Mr A Williams (ANC) asked how much power the NCR had in regard to enforcement, and whether it "had teeth" to implement the Act properly. He agreed that some matters were so important that the NCR should strive as hard as it could and keep pushing beyond its targets. South Africa was still a highly-indebted nation. He wondered whether any the offenders repeated their conduct - particularly the banks. He agreed that fines should not be reduced, as they were relatively small amounts for such huge companies to pay.

The Acting Chairperson congratulated the NCR on the clean audit and asked who the three large creditors were, as mentioned in the presentation. He also wanted to know what challenges the NCR had identified, what were its main achievements, and what had been highlighted in terms of any problems with the Act. He too commented that offenders should not be let off with lighter sentences.

Ms Nomsa Motshegare, Chief Executive Officer, NCR, responded that the fees and regulations were published for public comment and these figures were being reviewed, in conjunction with National Treasury. For the court case, credit agreements were gathered, and the NCR would be working together with the lawyers and farmers on the issues. Commenting on the huge drop in fees, she said that the NCR had been hoping to register the small credit providers and dispute resolution agents, but this did not happen so the target was not achieved. She pointed out that in the past, once a target had been achieved, the NCR would usually then channel its resources and attention to other work that had to be done. Speaking to  questions of enforcement, she said that the first step would be the sending of an instructional letter, then a compliance notice and finally the matter would go to the Tribunal. This was the process for enforcement and regulation.

NCR was looking to grow its office space around the country, and at the moment only very few, about five or six staff members, moved around the country although it was looking to increase this. The NCR tried to keep the legal work within the organisation. Standard Bank and ABSA had not been referred to the Tribunal previously. She reported that there were no caps in place.

Ms Ayanda Mafuleka, Chief Financial Officer, NCR, stated that the NCR was funding the deficit through budget cuts and holding back on spending. The NCR tried, in particular, to avoid excessive spending on transport and had implemented National Treasury's requirements to comply with the spending decreases. It had also looked at limiting external consultants as much as possible.

Mr Obed Tongwane, Deputy Chief Executive Officer, NCR, responded that the NCR had found that consumers who were in receipt of government disability grants were being charged for disability premiums by a certain company. In addition, unscrupulous corporate entities were often suing in courts far away from the clients, and this was the kind of dishonest conduct that the NCR was finding. During the credit amnesty period, around 100 000 judgements were set aside,  and the debtors did not have to pay legal fees for this credit clean-sweep. The NCR would continue to fight against overzealous credit companies. Lewis Stores was found to be selling occupational disability cover to pensioners who could not claim, whilst another company, JDG, sold occupational disability cover to people who were already under disability cover from the government. These cases were being investigated. Finbond had excessive premiums; and generally many of the credit life premiums were very high.

National Gambling Board issues
Mr D Macpherson (DA) stated that Parliament still did not know who bore the responsibility, from a criminal angle, for the mess in which the NGB had found itself in previously, and the expensive leases to which it had been committed. He asked when Parliament would receive the forensic report.

Mr Macpherson asked why the involvement of the NGB in the Gambling Act and drafting of policy had been limited, and he also asked why the provinces were continuing to use their own legislation. He commented that many of the provincial gambling boards were acting as "cowboys", and felt that NGB should be at the centre and in control of the situation.

He asked if the NGB was intending to carry on with the research it had already started. He asked why the Request for Proposal (RFP) was cancelled or withdrawn. He wondered if the  NGB would  recommend to the dti that a percentage of turnover for the RFP should be put back into the NGB, to make it self-funding. He commented that whilst the service provider has R1 billion contract, the NGB was receiving only R100 000 of this, and this needed to be addressed. He said that the situation must be sorted out now, as the IT system may take a long time to build. Finally, he asked by what date the forensic report was to be provided.

Mr Williams asked why the savings achieved on consulting fees were not spent on legal services, if the latter was a constraint. He questioned why only less than 70% of the targets had been achieved. He commented that there was a need to bring down the irregular expenditure. He asked for an update on the BBBEE compliance.

The Acting Chairperson asked the NGB to explain the self-funding model, and asked what specifically the NGB had done to tackle the challenges highlighted.

Ms Kongwa stated that the NGB still needed to discuss, with the dti and the Minister, the constraints and the fact that the NGB was still under administration. NGB had engaged with the provinces to make sure the proper procurement processes were embarked upon. The dti would help provide skills to evaluate and measure future bids. The NGB had a small staff currently. The forensic report was in a draft stage. By December 2016, the current contracts would have ended and new contracts could be taken up. Each machine needed to be checked on the floor, and it was a lengthy process. The NGB was discussing standards with SABS, and was intending to put these in place, in consultation with the industry. The research had already been conducted by the dti, and so by stopping its own research, the NGB had now avoided duplication. She commented that NGB would always like to move at the same pace as dti, as it was  the regulator in the industry. The self-funding model was conceived in order to garner three times the amount that the NGB had received from the dti, but this would entail going out on tender and appointing the next operator as a service provider for revenue collection. The legislation allowed the NGB to use money from self-generating fees.

She noted that the NGB was definitely an implementer, in terms of the general laws and its own legislation. In relation to the proposed national gambling policy, in instances where provinces were recommending changes to their own laws, these would be sent through to the provincial legislatures. The NGB used forums and met quarterly, to discuss pertinent matters, and the National Gambling Policy would eventually be guided from what had come out of these discussions.

She commented that the previous RFP had been withdrawn, after consultations with the Minister, and this had been put in place before the administrators took control. She added that linking the RFP with a self-funding proposal would require that every licensee should pay a monitoring fee. This current contract was worth R120 million a year, and only provided around R200 000 revenue, and the new RFP will deal with this.

Ms Kaveshka Mackerduth, Chief Financial Officer, NGB, stated that there were savings due to the NGB using state lawyers rather than private lawyers. The positions that needed to be filled were mainly in the legal departments. The NGB had now filled five  of the vacant posts. She confirmed that the NGB often engaged in forums in order to gather the statistics. There had been an improvement in getting information from provinces. She clarified that the R1.9 million irregular expenditure was incurred in relation to the previous management, and in relation to contracts that were put in place at that time. These had now been cancelled. In the future, 6% of GGR would be received for services rendered, going forward according to the new RFP.

Ms Jodi Scholtz, Group Chief Operations Officer, dti, stated that the dti had requested the forensic report from the service provider, and it would be provided. The dti had already set deadlines, but these had been missed, and the matter had now been escalated to the Chief Executive Officer of the service provider.

The meeting was adjourned.