Companies and Intellectual Property Commission & Companies Tribunal on their 2014/15 Annual Report & 1st Quarter 2015/16 performance

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Trade and Industry

14 October 2015
Chairperson: Mr M Kalako (ANC) (Acting)
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Meeting Summary

The meeting was a presentation of the Annual Report for 2014/2015 and the first quarter financial and non-financial performance of the Companies and Intellectual Property Commission (CIPC) and the Companies Tribunal (CT).

The CIPC said that the organisation had moved online and had become more automated.  Company registrations had increased from 81% of online transactions in 2013/2014, to 94% in 2015/2016, while patent applications had gone from 9% to 79% online. Self-service terminals had been established in Pretoria, Johannesburg, Cape Town and Saldanha, and banks were being brought on board to assist with registrations via a third party programme. There had been 236 673 company registrations and 35 753 trade mark applications submitted. 20 396 co-operatives had been set up in 2014/2015. 108 cases of irregularities had been received between January and March 2015. The most common type of complaints received had been failure to prepare annual financial statements.

14 out of 16 performance targets had been met in the first quarter. The call centre within the CIPC had been re-introduced and a Unstructured Supplementary Service Data (USSD) service implemented to alleviate the call centre and query resolution. Critical positions had been identified and advertised. The CIPC was the sole issuing authority of Black Economic Empowerment (BEE) certificates for exempted micro enterprises. From September 2014 to August 2015, 14 599 applications for BEE certificates had been received.

The CIPC was looking to roll out self-service technology (SST) to third parties such as auditors and lawyers, which had fingerprint technology. It would roll out SST to Limpopo, KwaZulu-Natal (KZN), the Eastern Cape (EC) and Northern Cape (NC) and expand the BEE certificates’ automation of services.

The CIPC had received an unqualified opinion in 2014/2015, with no matters of emphasis and no significant matters identified within laws and regulations. Overall, there had been a R201 million surplus for the period under review. Revenue had risen from R379 million in March 2014, to R413 million in March 2015. There had been a R45 million surplus in the first quarter.

The main discussion points were on the Auditor General’s (AG’s) findings, vacancies, and the in-house versus external information technology (IT) issue. The CIPC responded that it was dealing with the AG’s findings, which revolved mainly around presenting the data better and in an easier format. The critical vacancies would be filled, based on service delivery and not on meeting the budget. The legacy programmes which formed the core of the CIPC systems would be looked at in November to see how they could be transferred to in-house systems. All new IT programmes were in-house.

The Companies Tribunal then presented, and told the Committee it dealt with adjudication and compliance, and not governance. 80% of the CT decisions had been issued within 30 days from date of hearing and 90% had been issued within 30 days from allocation -- up from 69% in the previous year. The CT served as an alternative dispute resolution (ADR) forum. It had received an unqualified audit report for the past three years. A number of court cases would be passed on to the CT going forward. 326 ADR cases had been handled in 2014/2015. Companies’ disputes needed to be resolved swiftly as they were the bedrock of the economy. The CT reviewed the decisions of the CIPC. Most of the cases revolved around finance, IT, construction and home owners’ associations.

A three year strategic internal audit plan covering all areas of the Tribunal had been developed. It had dealt with a number of the concerns raised by the Auditor General. Actual expenditure for 2014/2015 had been R13.5 million, against a budget of R14.6 million. The revenue budget for the 2015/2016 year was R15.6 million. The discussion revolved around how to help the Tribunal to generate its own revenue going forward. The Commissioner would submit a proposal in writing to the Committee.

Meeting report

Companies and Intellectual Property Commission (CIPC): Annual Report and first quarter performance

Adv Rory Voller, Acting Commissioner: CIPC, said the Commission had an indexing automation system. There were system challenges due to it being built in-house, and with trying to get all employees on to the system. The scan-to-image process had posed numerous problems. There were delays due to the high volumes of transactions with the new e-services. The organisation had moved online and become more automated.  Company registrations had moved from 81% of online transactions in 2013/2014, to 94% in 2015/2016. Patent applications have increased from 9% to 79%. Additional self-service terminals had been established in Pretoria, Johannesburg, Cape Town and Saldanha. Banks were also coming online to facilitate company registration, including FNB, Nedbank and Standard Bank.

The CIPC catered for the unique requirements of listed companies. 236 673 company registrations and 35 753 trade mark applications had been submitted, and 20 396 co-operatives had been set up in 2014/2015. The CIPC was setting up a Business Rescue Forum to assist companies requiring business rescues. From this initiative, 413 business rescue proceedings had been started in 2014/2015. 10 676 patents had been received, and 1 859 received in design for 2013/2014. The number of applications for copyright in films had been 60 in 2014/2015.  The CIPC played a meaningful role in enforcing copyright in films and music. Local artists were now receiving royalties to the value of R117 million from users of sound recordings.

There were nine investigators within the CIPC and the turnaround time was around 20 days from the determination of a complaint to a closed case. 108 cases of irregularities had been received between January and March 2015. The most common type of complaints received had been failure to prepare annual financial statements. In 2013/2014, 160 compliance notices had been issued to companies where they had contravened the Companies Act. A social and ethics committee regulation was established, and from this, 252 out of 263 listed public companies had confirmed compliance with the establishment of this committee.

Quarter 1 performance

14 out of 16 targets had been met. A moratorium on recruitment had resulted in only 70% of positions being filled.  Fewer than 90% of transactions had been processed within the set turnaround times. There had been a re-introduction of the call centre within the CIPC.  Further education and awareness on deregistration and the status of companies had been made. An Unstructured Supplementary Service Data (USSD) service had been introduced to alleviate the call centre and query resolution. One could now sms the CIPC to find out the Black Economic Empowerment (BEE) status of a company. Critical positions had been identified and advertised.

The CIPC was the sole issuing authority of BEE certificates for exempted micro enterprises. It had a direct link with SARS. There was stability within the information communication technology (ICT) systems. There had been automation of the auditor, company secretaries and name reserve functions. Corporate awareness campaigns had been run in most provinces. There had been “webinars” – where a seminar is held online. From September 2014 to August 2015, 14 599 applications had been received for BEE. The CIPC was looking to roll out self-service technology (SST) to third parties, such as auditors, lawyers, etc, which had fingerprint technology. The CIPC was making a central suppliers’ database aimed at reducing red tape between departments. On the complaints side, 35 complaints had been received, six had been investigated and 28 had been closed or referred to more appropriate authorities. The next steps for CIPC were to roll out SSTs to Limpopo, KwaZulu-Natal (KZN), the Eastern Cape (EC) and and Northern Cape (NC) provinces, and expanding BEE certificates’ automation of services.

Ms Fundisiwe Malaza, Acting Chief Financial Officer (CFO): CIPC, said that the Commission had received an unqualified opinion in 2014/2015, with no matters of emphasis and no significant matters identified with regard to laws and regulations. The current assets had risen from R1.39 billion in March 2014, to R1.57 billion in March 2015. Total income had moved from R455 million in March 2014, to R508 million in March 2015 -- a 10% increase. The CIPC was funded by its own income, and there was no government support. Total expenditure had dropped from R309 million in March 2014, to R306 million in March 2015. There had been a R39.2 million under-expenditure on employee costs, which had been due to a high vacancy rate. Overall, there had been a R201 million surplus for the period under review. Revenue had increased from R379 million in March 2014, to R413 million in March 2015.

In the first quarter, R116 million had been budgeted for revenue, and the actual revenue had been R132 million. R113 million had been budgeted for operational expenditure, but actual expenditure had been R87 million. R60 million had been budgeted for employee costs, but actual costs had been R55 million.  There had been a R45 million surplus. Computer hardware expenditure had been R441 000 compared to a budgeted amount of R3.7 million.

Discussion

Mr J Esterhuizen (IFP) said that South Africa needed to look at adding value to services, which was where jobs could be created, and should not over-regulate the economic environment.

Mr N Koornhof (ANC) asked what the turnaround time was when one did not use the online registration process. What was the meaning of business rescue termination? What was happening with the call centre process? What critical positions had not been filled? Service delivery was more important than meeting the employment budget. Employment should be made on this basis. The third party model was exciting. He asked if the Finance Intelligence Centre Act (FICA) system could not be centralised so that they could all talk to each other, rather than having to FICA 10 or 12 times a year. Why was there such a variance in “other income”?

Mr A Williams (ANC) commented on the Auditor General’s (AG’s) report, which showed that reported performance information, record keeping and managing plans were inadequate.  What was the CIPC going to do about that? The AG had also said that there was a high reliance on outsourced companies for IT services, but the CIPC had said that it was in-house, and should clarify the situation.  The critical IT functions were still carried out by outside companies – what was the CIPC doing to make this an internal function?

Mr M Kalako (ANC) asked what the nature of the investigations discussed had been. What was the CIPC doing about complaints from overseas countries, such as Japan, regarding slow turnaround times.

Mr Voller said that Waymark and Sword were central legacy IT companies that they had to keep running, and they were outsourced. All the new programmes were in-house. There had been discussions about moving over to a content-based system. The CIPC was looking at how it could reduce its reliance on these two companies. It was getting advice and analysis from an international IT company in November on how they could move away from these legacy programmes. The AG did not place reliability on certain dates and website availability. The software was too advanced for the AG to follow the algorithms. The CIPC would be changing certain dates.

There were actual documents that were required for amending companies. The turnaround time was 25 days. Termination of business rescue resulted from liquidation or if a company managed to resurrect its operations. The call centre, in the traditional sense, had been decided upon and would be established. Critical positions needed were in IT, finance, supply chain management and the call centre. The CIPC was looking at delivery of service when filling posts, and rationalisation of recruitment would take place. All a company needed was a finger print scanner and the software for the third party model. It was very exciting.

 Company law violation, poor record keeping, and failure to notify shareholders or members were the most common investigations. There had been a lot of in-house disputes regarding the removal of directors, etc. Fronting investigations were also covered. The CIPC had not received any complaints from Japan or the Deputy President. There were only 60 IT staff members. The CIPC had been looking at a content management system which could be maintained in-house. It had not been actioned yet, and it would be following up this line of thought.

Ms Malaza said that the internal audit had been conducted in-house. The findings had been about electronic records -- the CIPC did not have the fields that the AG wanted to see, which they called critical. The Commission did not have manual records for this. The CIPC was looking at this to make sure the IT data fields were what they needed for the audit at year end.

Mr Lungile Dukwana, chief strategy executive, said that the Administration 4 Programme had resulted in a number of AG problems, and these would be tackled through a content management system.

Companies Tribunal (CT): Annual Report and first quarter performance

Adv Simmy Lebala, Chairperson: Companies Tribunal, said that the CT dealt with adjudication and compliance, but not governance. 80% of the CT decisions had been issued within 30 days from date of hearing and 90% had been issued within 30 days from allocation -- up from 69% in the previous year. The CT served as an alternative dispute resolution (ADR) forum. 40% of the cases had been finalised in terms of ADR after the date of hearing. All cases set down had been finalised. 97% of suppliers had been paid within 30 days.

The CT had received an unqualified audit report for the past three years. There had been a reduction in irregular expenditure. A number of court cases would be passed on to the CT going forward.  326 cases had been handled by the ADR forum. The Tribunal had an internal auditor, Price Waterhouse Coopers (PWC). There had been a 53% increase in the number of personnel. There had been 100% compliance with the National Treasury (NT) cost reduction instructions. An intern was assisting with supply chain management.

Companies’ disputes needed to be resolved swiftly, as they were the bedrock of the economy. The CT reviewed decisions of the CIPC. Most of the cases revolved around finance, IT, construction and home owners’ associations. For the first quarter, the piloting of an electronic case management system had been implemented. There were some functions that could be transferred from the CIPC to the CT to demonstrate that the CT could generate its own income.

Ms Agnes Tsele-Maseloanyane, a Tribunal member, said that 28 posts had been approved, 13 permanent posts had been filled, and there were only two vacant positions. PWC had developed a three-year strategic internal audit plan covering all areas of the Tribunal. A number of policies and procedures in the CT had been considered. The audit and risk committee had reviewed and monitored all the areas raised by the internal audit team.  52% of the internal audit risk findings and 73% of Grant Thornton control weaknesses had been addressed. These reports would be presented to the Department of Trade and Industry (DTI). The new auditors would review the control weaknesses raised by Grant Thornton. PWC had confirmed that the internal controls in place were functioning effectively. 

The AG had identified five areas that were being dealt with:

  1. Procurement process not followed in prior years.
  2. Travel policy.
  3. No formal documented process for granting access to the financial system.
  4. No process for IT system upgrades.
  5. Late submission of the Medium Term Expenditure Framework (MTEF) was a problem.

The CT was investigating the procurement process and travel policy, a new IT person has been appointed and the MTEF had since been submitted on time. Some of the members were new, which had led to a 5% under-performance in the first quarter. Wasteful expenditure of R9 696 had been found, and disciplinary processes had been introduced. The staff members were going to pay this amount back to the CT. There had been a 20% under-spending on staff costs. 28 posts had been filled, there had been one vacancy. The challenges had been vacancies in finance and corporate services, and these had been filled. 

Ms Irene Mathatho, CFO, said that the CT had had a R14.6 million budget for 2014/2015. Actual expenditure had been R13.5 million, with an under-expenditure of R843 000. In 2013/2014, there had been an under-expenditure of R2 million. The revenue budget for the 2015/2016 year was R15.6 million. To date, R14.5 million had been received. R2.8 million had been spent to date. The revenue had been transferred from the DTI, as the CT did not generate its own revenue.

Ms Tebogo Mputle, Registrar, said that 85% of the decisions had been made within 30 days during the first quarter, and 75% of the ADR cases had been received.  The CT had had a road show in February and an ethics hotline had been introduced.

Discussion

Mr Koornhof said that if one looked at the 2013/2014 performance compared to 2015/2016, why had the employee and administration costs jumped up so much?

Mr A Williams (ANC) commented that other than creating CT’s own income, how could Parliament assist the tribunal?

Ms Mathatho replied that in 2013/2014, the CT had still been in its infancy, which had kept costs down. Internal audit costs had not been in place then, and costly seminars had been held since then, along with the audit costs. This had increased the administration costs. There had been a number of employees that had come came online only in 2014/2015, increasing the employment costs.

Adv Lebala said that the CT was under-utilised. Courts should focus on civil and criminal cases. If legislation could be changed to enhance the reach of the Tribunal, it would be appreciated. This view would be conveyed in writing to Parliament.

The meeting was adjourned.

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