CIPC & SABS on their 2015/16 Annual Report & 1 Quarter 2016/17 performance

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Trade and Industry

07 September 2016
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Annual Reports 2015/16 

The Companies and Intellectual Property Commission (CIPC) told the Committee that in the last 17 months, it had stabilised its labour environment and had had the highest number of company registrations in history. The digitisation of its highly demanded services may have been one internal factor, as the CIPC had improved its efficiencies. The increased automation had made it easier for people to transact with it. However, the registration of co-operatives had declined by 32% compared to the previous reporting period --the lowest number of co-operatives registered in the history of the Commission -- which could be attributable to a number of factors, and the withdrawal of the incentive schemes could be one of them. There had been 37 000 new trademark applications, which was the highest number recorded, though a lot of work still needed to be done in this space. The period it took to register a patent had dropped from 12 to13 months, to ten to 11 months. It had brought in trademark examiners, hence the decrease in the turnaround time.

The CIPC was working on reducing the number of days it took to register a company from date of receipt of a completed application. It was on a drive to educate companies to file their annual returns, and despite media campaigns to promote this issue, it had not met its targets because it was up to the companies to file their returns. It had conducted investigations which had seen it have its first criminal conviction of a director of a large company which had failed to submit its financials..

The CIPC had received an unqualified audit opinion for the financial year under review. As part of its corporate education and awareness campaign, it had taken part in a youth-dedicated business kick-start programme to encourage youths to become entrepreneurs. It had rolled out self-service terminals in most provinces, but was struggling to get cooperation from Mpumalanga and North West.

Members said it was a concern that there was still an Acting Commissioner and an Acting CFO, and the Chief Financial Officer had also been suspended not so long ago. How long would it take for these positions to become permanent, and how had it affected business? What was the completed timeline for the roll out of the self-service terminals? What was the status of being able to register one’s business and do one’s South African Revenue Service (SARS) applications for tax certificates and clearance? What was the relationship between company registrations and the transformation imperatives of the country? How did the CIPC relate its principles of business rescue with the transformation imperatives which were related to the Broad-based Black Economic Empowerment (BBBEE) codes? Were the companies which the CIPC was rescuing complying with the country’s laws?

The South African Bureau of Standards (SABS) said its key focus was to ensure the integrity of full conformity assessments to eliminate the exposure of consumers to non-compliant products by conforming to the Consumer Protection Act, which stipulated that the South African consumer had the right to receive goods that complied with applicable standards set under the Standards Act or any other public regulation. In pursuit of this objective, the SABS was establishing sustainable partnerships with various regulators.  The operational highlights of the SABS were that it had achieved 825 of predetermined performance indicators. All targets in the entrepreneur and enterprise development interventions for small, medium and micro enterprises (SMMEs) had been met. It was recognised for excellence by the international consulting firm, Bain & Company. The SABS had achieved a clean audit for the fourth consecutive year.

A Member asserted that there were many companies in SA that claimed or displayed the SABS mark of approval without passing the SABS’s protocols, and there were a lot of financial implications. There were also a lot of companies that claimed that the SABS had failed to perform according to their mandate. The SABS should assist manufacturers and not block them. Maybe this showed the inadequacy of the SABS testing labs. Discussion about local content verification had raised the issue of the capacity constraints affecting the SABS’s capacity to do the tests required. Was this correct? Would it be in the country’s interests to outsource that task to an accredited verification agency, outside or in SA, which met the SABS’s standards? How many new standards had been developed by the SABS in the financial year? Which products had it found which continued to default and not comply? Was the fact that the SABS had highlighted that it had been given a reduced grant, a prayer for more funds? 

Meeting report

Companies and Intellectual Property Commission

Advocate Rory Voller, Acting Commissioner: Companies and Intellectual Property Commission (CIPC) said that in 2015/16, the CIPC had the highest number of company registrations in history, it had collaborated with the four major banks, appointed patent examiners, automated its services and increased the uptake of online services both in the companies’ and IP environments.

In terms of online transactions, there had been an increase in the percentage of company registrations, trademarks applications, patent applications and copyright in film applications from the 2013/14 financial year to the 2015/16 financial year. In the 2015/16 financial year, company registrations had increased to 95% from 81% in the 2013/14 financial year. Copyright in film applications had increased from 14% in 2013/14 financial year to 95% in the 2015/16 financial year.

The CIPC had been trying to improve its turnaround times when it came to the average number of days to register a company from the date of receipt of a completed application. This fell in line with its goal of improving the competitiveness of the South African business environment. It had not reached its target of companies that had filed returns, as it was up to the company to file the annual returns. It had been involved in various media companies to promote the filing of annual returns for companies with ‘active business’ status. This was part of its strategic objective to encourage the maintenance of high standards of corporate governance, transparency and brand protection.

CIPC’s second goal was to promote innovation, creativity and indigenous cultural expression by increasing the knowledge and awareness of patents, design registration and the commercialisation of IP assets innovation. It had conducted a number of education and awareness events on patents and design registration, and the commercialisation of IP. The CIPC’s awareness campaigns, under its strategic objective to protect SA’s cultural heritage and support a strong competitive South African creative industry that provided benefits for local artists, had been strengthened. It had done a lot of work within the indigenous space. It had reached its target of reducing the average number of days to issue an application number for a copyright in film from the completed application date, due to better monitoring.

The registration of companies had increased by 34% in the year under review. This was the highest number of registrations ever achieved since the establishment of the Commission. The digitisation of its highly demanded services may have been one internal factor, as the CIPC had improved its efficiencies. The increased automation had made it easier for people to transact with it. The registration of co-operatives had decreased significantly during the year under review. There had been a decline of 32% compared to the previous reporting period. It was also the lowest number of co-operatives registered in the history of the Commission. The reduction in co-operatives’ registrations could be attributable to a number of factors, and the withdrawal of the incentive schemes could be one of them.

There had been 37 000 new trademark applications, which was the highest number recorded, though a lot of work still needed to be done in this space. The period it took to register a patent had dropped from 12 to13 months, to ten to 11 months. The CIPC had brought in trademark examiners, hence the decrease in the turnaround time. The copyright and films application number had improved from the two previous reporting periods by just above 28%. This was also the highest number of copyright and films applications processed since the establishment of CIPC, and in the last eight years. This could be attributed to the simplified registration process.

Between May 2011 to 31 March 2016, a total of 2 148 business rescue proceedings had started, and 1 034 had ended within the same period. The CIPC had conducted numerous investigations between April 2015 and 31 March 2016, and had had its first criminal conviction of a director of a very large company. The company had failed to submit financials, and there had been complaints.

Ms Fundi Malaza, Acting Chief Financial Officer, CIPC, said that it had received an unqualified audit opinion from the Auditor-General (AG), which had been an improvement from March 2014 but was consistent with March 2015. In terms of compliance with laws and regulations, it was found to have taken inadequate steps to prevent irregular expenditure. The annual financial statements for 2015/16 year end showed that the CIPC was insolvent. There had been a 16% increase in revenue from March 2014 to March 2016.

Adv Foller continued with the presentation of the first quarter performance, and said that about 90% of targets had been met, but there had been an underperformance in the average number of days to register a company from the date of receipt of a completed application due to system challenges. The CIPC was in the process of looking at new hardware in the information technology (IT) space.

The CIPC had made a number of achievements in the first quarter. 47% of companies had filed annual returns against set target of 39%. It had established a partnership with the Department of Small Business Development. A pilot project was under way to make self-service technology, including fingerprint identification, available to interested third parties. The CIPC had attended a ministerial launch of the Nedbank collaboration, and E-services had been enhanced.

The CIPC had increased the accessibility of its services through banks, third parties, self-service terminals and partner organisations like Transnet. It had collaborated with the Department of Home Affairs for its self-service terminals. It had extended services through a different channel and it had registered 17 third parties for services, and agreed on terms and conditions.

As part of its corporate education and awareness campaigns, it had taken part in a youth-dedicated business kick-start programme, in partnership with South African Breweries (SAB). SAB had a truck which goes into provinces teaching people about entrepreneurship. The focus was to encourage the youth to become entrepreneurs through CIPC online registration, and to assist existing business with their annual return payments. It had rolled out self-service terminals (SSTs) in the Northern Cape, Limpopo and Free State. It was still waiting to launch its SSTs in the Eastern Cape at the Transnet development hub in Mdantsane. As its next project, it was waiting to roll out SSTs to other provinces like North West and Mpumalanga. It was expanding Black Economic Empowerment (BEE) certificates through other channels with banks and was currently in discussion with the Broad-based Black Economic Empowerment (BBBEE) Commission. It had enhanced the automation and digitisation of services in terms of trademarks and company registries.

Discussion

Mr J Esterhuizen (IFP) said that the Acting Commissioner had started off by saying the organisation’s labour environment had stabilised, but it was still a concern that there was an Acting Commissioner and an Acting CFO, and the Chief Financial Officer had also been suspended not so long ago. He asked how long it took for these positions to become permanent, and how that affected business. His other concern was that the turnaround time took longer at CIPC, and that affected businesses and companies. Before, there had been huge problems with the increase in on-line services, with up to a 12-month waiting list. Also the allocation of funds to companies took months. He believed there had been a strike at the CIPC offices and asked how that had affected its work and the daily running, as people had wanted the previous Commissioner out. He also raised concerns over the budget, and said the percentages did not look good. In terms of the CIPC’s corporate and awareness programmes, young people were being encouraged to be entrepreneurs, but they were complaining that the CIPC did not come back to them.

Adv Voller responded that during this time, the organisation had continued to function and it was still acting on its mandate and improving. The impact had not been severe and perhaps the impact was on himself, as the load had increased because he was taking on two responsibilities. The issue of the CFO was still ongoing, and lots of applications had been received. Regarding the issue of turnaround times, the CIPC had consistently met its service delivery standards, but what needed to be worked on was consistency, as well as on how the CIPC interacted with its clients and making sure it had proper feedback mechanisms. He though the CIPC was not consistent in the way it resolved queries, as that was where the problem lay.

The CIPC placed a lot of emphasis on its stable IT platform and would be dealing with something called ‘future view,’ which would encompass a lot of hardware changes. It had had an outage issue which had caused a lot of problems. The CIPC was a customer service delivery agency and it needed to deliver in a stable fashion, and IT was certainly the driver regarding that.

It had started a new process and project to address the allocation of funds issue. It needed to change the billing system and find innovative ways. Part of the media campaign which the CIPC was rolling out was about educating people on the allocation of funds. He disagreed with Mr Esterhuizen that there had been a strike in the last 18 months, and said the last time there had been industrial action was at the beginning of last year.

The completion of a timeline for the roll-out of the SSTs was a tricky one, as the CIPC was reliant on its partners. Many provinces take very long to respond, and asked for a Member’s assistance with Mpumalanga. North West and Mpumalanga were two provinces where the response had not been good.

Mr D Macpherson (DA) said there were certainly areas for improvement and growth. He addressed a question to Ms Jodi Scholtz, Group Chief Operating Officer (GCOO), Department ofTrade and Industry (DTI) saying that the former Commissioner had resigned in April 2015, and still the  post had not been filled -- why we was there an 18-month delay, and what was the timeline to fill the Commissioner’s post?  Adv Voller was bailing the water out of a ship full of holes, and he was desperately trying to plug them, but he thought at some point there needed to be finality.

He asked Adv Voller what the completed timeline for the roll out of the self-service terminals was. What was the status of being able to register one’s business and do one’s South African Revenue Service (SARS) applications for tax certificates and clearance? That would go a long to assisting business -- the easy part was definitely registering the business, but it was the follow up on tax clearance that was needed. The issue of “runners” had been long outstanding, and Adv Voller had been going to do an investigation into who at CIPC was the access point for these runners. The big issue was the labour issue, and he knew it predated Adv Voller’s acting appointment, and he would like to believe that things had got better. He asked for Adv Voller’s honest and frank assessment of where he was with the unions. He also requested an update on the business rescue practitioners’ matter. He was concerned with the CIPC’s slide on business rescue, as there had been only one proceeding during the current financial year. He asked if that was correct.

Adv Voller responded that regarding the tax clearance certificate, Mr Macpherson had made a good point. He said that the CIPC had a good relationship with SARS.  As far as additional services, the CIPC had not gone that route yet. It was trying to rebuild its relationship with SARS, but it was difficult because the team the CIPC had dealt with was not there anymore. Regarding the issue of runners, when one came to the CIPC and DTI campus, one would not see crowds of people standing outside. The CIPC had moved the Pretoria service centre out of the campus and put it in Sunny Park, where the management did not allow people to tout. Secondly, what the CIPC had done in order to deal with the issue of access to the system, was that where previously an application could be brought directly to a staff member to access, that was no longer allowed. The system now allocated randomly to any staff member in that area. The CIPC did not allow people in the building or people on the floor. It had curbed that by allocating online security measures in order for it to allocate online applications.

Regarding the issue of business rescue, and the regulation and compliance, he said the Committee would be pleased to know that the CIPC had struck off some business rescue practitioners. The CIPC gave applicants applying to be business rescue practitioners a set of rules with which they needed to comply. In the past six months, it had received complaints about business rescue practitioners not being compliant. The CIPC had written to them and asked them to submit their reports, and some had not and their licences had been suspended. He would not want the business rescue practitioners to go down the same route as the liquidators.

Regarding the issue of labour stability, the one thing he encouraged was to have continuous engagements with the labour unions. He agreed that labour stability was one of the issues one needed to engage with constantly.

Ms Scholtz responded that the approach taken by the DTI was that the DTI needed to make sure there was adherence to the strategy, that the organisation was stable and had worked with leadership to ensure there was labour stability. She said the process of filling the posts was in its last stages of approval and the DTI was hoping to get an announcement.

Mr A Williams (ANC) brought up certain issues that had been raised as concerns by the Auditor General, and asked what CIPC was going to do about them. His other concern was the 14% under-spent from the previous financial year, as the CIPC was not there to make profits but to deliver a service. In light of the AG’s concerns, why had the 14% been under-spent? When would the SST roll out be complete, particularly in Mpumalanga?

Adv Voller responded regarding the issue of the AG and the oversight, and said he did not think that it had flowed through in the report. How the CIPC tackled the AG’s concerns was to dashboard them and report them as part of its internal audit function, and they kept a register. There was certainly a watch on the issues.

Ms Malaza said that previously the AG had been concerned about the CIPC’s reliance on consultants, and it had converted those consultant positions into more permanent roles. Another area that had had an impact was the self service terminals, as it had become more efficient to collaborate with government institutions already there. Service delivery had therefore not been affected, but the CIPC had saved on rental and operating costs. In summary, the impact on service delivery had been minimal. She agreed that the allocation of funds was a long outstanding matter. Five years ago, the CIPC had tried to procure a revenue management system, and the matter was still under litigation. Its spending patterns for capital expenditure had remained the same. Its capital expenditure had been on computers.

Mr B Mkongi (ANC) said the current Parliament’s agenda was to accelerate radical transformation both socially and economically, and part of the duties of departments and entities was to make sure they planned in line with the national goals, based on the medium term strategic framework (MTSF). What was the relationship between company registrations and the transformation imperatives of the country? How did the CIPC relate its principles of business rescue with the transformation imperatives which were related to the BBBEE codes? He asked if the companies CIPC was rescuing were complying with the country’s laws? If they were not, why was the CIPC still rescuing them? The CIPC was going to investigate the decline in the registration of cooperatives, yet he still made that proposal, as he believed the reason for the decline might not be the incentives only. He brought up the issue of copyrights in line with the SABC’s decision to play 90% local content, and asked what the CIPC’s plans were, as there could be an increase in people registering copyrights.

Adv Voller responded that the CIPC worked closely with the BEE Commission regarding fronting. Many of the fronting allegations ended up at the CIPC’s door, as it had an investigation wing for compliance. The relationship between the CIPC and the BEE Commission was very strong, and they tried to coordinate their efforts regarding the matter. The one issue that disturbed him a lot was about the same business practitioners getting the work all the time. The CIPC now had the ‘Terms of Reference’ for the bodies to undertake a transformation programme. It dealt with supervision, mentorship and training to ensure there were new practitioners. The CIPC also worked closely with the Black Lawyers’ Association (BLA) to bring about transformative imperatives. Regarding the decline in cooperatives’ registrations, cooperatives were no longer the responsibility of the DTI, but fell under the Department of Small Business Development. The Department had agreed to undertake a study, and the CIPC was working closely with them.

The Chairperson said the low targets for the call centre management seemed to remain low, and there were challenges at the call centre.  She asked if the CIPC had implemented the recommendation made by the Committee, of including the work of attending to calls in the job description as a performance indicator. She asked when would there be a rationalisation of the posts.

Adv Voller said that the call centre was not at the level he wanted it to be, but in the last few months the CIPC had employed about 13 new call centre agents and two managers. Now there had been an increase in the number of calls, and that had made a difference. The job description for the call centre agents was there, and the new call centre agents had been employed in terms of those descriptions. He was not happy with the number of calls answered. Regarding the rationalisation of posts, he said the CIPC needs a re-deployment of staff where there was efficiency into other areas, and because it was moving towards automation, it would never fill all of its 634 posts.

Mr  Williams asked about the irregular expenditure of R6 million paid to employees, and what steps were being taken to reverse these payments.

Adv Voller responded that the CIPC had had a major dispute with the AG regarding this, as the irregular expenditure was the result of an incorrect interpretation.

Mr Macpherson said that it was concerning what the acting commissioner had told the Committee about the CIPC’s relationship with SARS. He thought there should be active engagements, maybe facilitated by the Committee with SARS or Treasury, as the one thing that really burdened new businesses was getting their tax clearance.

Mr Mkongi said he worried about the decline in the registration process. It was important that the Committee received a plan or a list of all those companies registered or those applying for registration in order for the Committee to monitor them, as there was a serious problem. He wanted the Acting Commissioner to commit to the CIPC going rigorously and purposefully to recruit black business rescue practitioners, train them and build them for the purposes of transformation. He also proposed that the Committee call a joint meeting with the Department of Small Businesses development to discuss the decline of cooperatives. He asked if the CIPC, because of the SABC’s 90% local content policy, had a plan should floodgates open regarding copyrights.

South African Bureau of Standards (SABS)

Dr Boni Mehlomakulu, CEO, SABS, who said the SABS offered a full value chain of services. Its work was divided into three -- stakeholder management, standards development and international standards engagement. Under standards development, there were standards sales, testing, certification, training and the design institute. The SABS received 23% of its income from a government grant, and it had a government-funded mandate. It received 77% of its income from services and other income. The testing laboratories contributed a major proportion of income.

In terms of pursuing lasting partnerships with regulators, a key focus for the SABS was to ensure the integrity of full conformity assessments to eliminate the exposure of consumers to non-compliant products by conforming to the Consumer Protection Act, which stipulated that the South African consumer had the right to receive goods that complied with applicable standards set under the Standards Act or any other public regulation. In pursuit of this objective, the SABS was establishing sustainable partnerships with various regulators. 

The operational highlights of the SABS were that it had achieved 825 of predetermined performance indicators. All targets in the entrepreneur and enterprise development interventions for SMMEs had been met. It was recognised for excellence by the international consulting firm, Bain & Company. The SABS had achieved a clean audit for the fourth consecutive year. Its primary responsibility was to ensure that the employees did not decline, as well as achieve the performance indicators. SABS wanted to be accessible throughout the country.

The SABS had received total revenue of R815.8 million, and had shown a 3.8% growth year on year. The SABS had made a net profit of R22.4 million, which was 31.6% lower than the prior year. The SABS had a slower intake of local content verifications, and its government grant had been reduced by R45 million.

Mr Ian Plaatjies, Executive: Corporate Services, SABS addressed the entity’s predetermined objectives and said it hand not met its targets. It had targeted R622.6 million for revenue generated from sales, and it actually received R554.7 million. The focus was on reviewing certification and testing processes to improve governance. There had been a low demand for the organisation’s services. It had exceeded its target for the implementation of the road map standardisation. In terms of customer centricity, the SABS had targeted 95% retention of customers in certification, and it had exceeded this target. The set target of 50 small and medium enterprises (SMEs) and new and existing entrepreneurs for which design, innovation and standardisation interventions had been implemented, had been exceeded.

A key finding from RVA, an international accreditations body, highlighted the need for the SABS to implement technology to automate its business processes. Business process automation and the deployment of ICT systems was therefore a key enabler for the growth and sustainability objectives of the SABS. Customer centricity was a key focus area in completing the SABS transformation journey from the previous regulatory paradigm. The SABS’s strategic objective with the wage negotiations was to strike a balance between job security and the union’s demands.

According to the SABS’s predetermined objectives for growth, it had not reached its revenue generated from sales targets because there had been a R68 million reduction in its parliamentary grant this year. There had also been a slow update on local content verification

Discussion

Mr Esterhuizen said there were many companies in SA that claimed or displayed the SABS mark of approval without passing the SABS’s protocols, and there were a lot of financial implications. There were a lot of companies that claimed that the SABS had failed to perform according to their mandate, like the plastic pipe company, and that also affected the industry. The SABS should assist the manufacturers and not block them. Maybe this showed the inadequacy of the SABS testing labs.

Mr Macpherson said discussion about local content verification had raised the issue of the capacity constraints affecting the SABS’s capacity to do the tests required. Was this correct? Would it be in the country’s interests to outsource that task to an accredited verification agency, outside or in SA, that met the SABS’s standards?

Mr Williams said the SABS had done well to have a clean audit for four years in a row, and it should keep up the good work.

Mr Mkongi asked how many new standards had been developed by the SABS in the financial year. How many of those which were existing had been reviewed so far? Which products had it found which continued to default and not comply? What were the challenges with regard to local content verification in which the SABS would like the Committee to intervene? Was the SABS involved in the Lesotho Highlands project?

Ms P Mantashe (ANC) said credit had to be given, looking at performance of entity. She wanted to know whether the fact that the SABS had highlighted that it had been given a reduced grant, was a prayer for more funds. Who had to pay for the work the SABS did for the many items it approves under the constraint of the fiscus?

Dr Mehlomakulu responded that there had been abuse of the SABS mark, and when that had happened, the SABS had an obligation to follow through and send that company a letter. If they continued, the SABS could take that company to court. Under the 1993 regulatory SABS legislation, it could do partial tests. The 2008 Act removed the expediency and power. The mark therefore required full compliance. The SABS had been working together with industry to fill these gaps. It was now left with full protocol testing to work with, and there was testing which the SABS could not do. There was an expectation gap between what the SABS could deliver and what the country expected. In the evolution of the legislation, there had been policy implications that might have been missed. The SABS used to develop 450 standards a year, but the SABS people were just chasing a number, so it had moved from that. It had started working with the DTI to develop local standards that were supporting the Industrial Policy Action Plan (IPAP). The SABS from last year was working with 120 local standards that supported the country.

Mr Plaatjies responded that he needed to clarify the issue raised about blocking the industry. He disagreed, and said that this was voluntary testing ,and the industry could go to other test house if they wanted the test done. The SABS had met with the piping industry, and it had resolved some of their issues.

The meeting was adjourned.

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