Annual Reports 2016/17
Debt Relief: National Credit Amendment Bill – Draft Framework Bill [not yet available to public]
The meeting initially dealt with responses to questions put by Members to the National Regulator for Compulsory Specifications (NRCS) and South African Bureau for Standards (SABS) at the 12 September meeting at which their Annual Reports were presented. NRCS reported that the investigation into the Ford Kuga engine fires had been completed and the legal team was reviewing documentation before the matter could be finalised. The testing of compulsory specifications only, i.e. partial testing, had been resolved with SABS but challenges with timeframes, test laboratories and capacity at SABS, remained. NRCS had developed an action plan for all audit findings and the ICT project plan had been amended and submitted.
SABS reported that the Annual Report had been adjusted to reflect the corrected reasons for SABS audit regression, as agreed by the Auditor General. Plans to generate new business had been drawn up and two new service lines were in place. SABS disputed that NRCS had a variance of R5.6 million because SABS had been unable to test for the entity. NRCS had signed up with other testing houses to allow them to test outside of SABS. As regards the partial testing, SABS had to comply with legislation so all testing had to be tested according to a regulation standard or South African standards. SABS would only test partially if NRCS indemnified SABS.
The Chairperson stated that SABS had not made it clear how they were going to raise revenue and that was what she had wanted to see. She also wanted a report on the Medupi Power Station Cooling Towers. After a long and complicated explanation on the difference between testing for specifications instead of testing for standards, the Chairperson told the entities to present the information in writing and they should go away and resolve the differences between them and not bring their bickering into Parliament. The entities would always be invited to present to the Committee together in future, so they had better start getting on together.
The National Consumer Commission (NCC) Annual Report for 2016/17 noted a key challenge was the Opt-out Register, a massive project as it sought to allow people to opt-out of direct marketing agreements. It was a cost prohibitive project but a transactional advisor had been appointed and paid for via National Treasury funding. NCC had received an unqualified opinion with findings on its Programmes 1 and 2, and a qualified audit opinion with findings on Programmes 3 and 4.
Members said that NCC was the worst performing of the entire DTI stable and asked about NCC’s response to the Auditor General’s concern about leadership and management. The NCC Commissioner said that he would be retiring shortly and that he had promised the Minister a clean audit before he retired.
The National Credit Regulator (NCR) Annual Report made mention that action had been taken against, inter alia, Lewis Stores and Wesbank for contraventions of the National Credit Act. The methods of enforcing compliance with the Act were to be changed as they had not proved effective and had put too much pressure on a single department, which had resulted in the NCR not achieving its enforcement targets in 2016/7. The NCR had received an unqualified audit with findings of a technical nature.
Members noted that the Auditor General had indicated that key controls in the NCR had drastically reduced in the past year. Of concern to the Committee, in relation to leadership, was oversight and responsibility, policy and procedures and ICT governance. The Chairperson asked for written responses to problems with the GRAP Accounting System and the new investigation policy.
The parliamentary legal advisor presented a Framework for the Debt Relief: National Credit Amendment Bill. She suggested the involvement of the National Credit Regulator and the National Credit Tribunal (NCT) and put forward two forms of debt relief – one would be immediate and prescribed and the other would be determined by the Minister. The criteria for debt relief would require debate. The least disruptive intervention in the debt should be applied, as required by the Constitution. Debt forgiveness was one option and suspension of debt was another. The intention was not to encourage people to go into debt regularly. She had therefore come up with the term “Once-off”. Reckless lending and unlawful lending would have to be addressed. The legal advisor explained that she had used the New Zealand Debit Relief legislation to guide some points in the Bill. She urged the Committee to consult with those engaged in the review of the Credit Act to ensure that the Bill was aligned to any changes.
A monitoring system was proposed to monitor people after debt relief. The Chairperson stressed that it was a Committee Bill and that the Committee would have to reach sufficient consensus on the content so that the Committee could go forward on it. The following two days were set aside for deliberations on the Bill.
The Chairperson noted that the Committee would be dealing largely with the Budget Review and Recommendations Report in October which was an important process as it took into account not simply the Annual Report, but also what had informed the Annual Report, the quarterly work that the entities had done, the implementation of the Strategic Plan, and the Auditor General’s Report. The Committee would look at what the performance was then and the implementation and impact of the work of the entities; the challenges and how they had been addressed in the financial year under review and that would inform the Committee as to whether or not they were making progress.
In a period of over a decade the Auditor General had been improving its approach so that the information available from its mandated work was effective in alerting the Committee to issues. There would be occasions where audit reports that had been acceptable a couple of years ago, would no longer be acceptable. The bar had been raised and a more effective understanding had been achieved to allow the Committee to undertake its oversight work more effectively.
National Regulator for Compulsory Specifications (NRCS) response to Committee Questions
Mr Edward Mamadiso, NRCS Acting CEO, presented the responses sent in writing to the Committee after the Committee meeting of 12 September 2017 at which NRCS had made a presentation.
Good progress had been made in respect of managing applications for evaluation and six inspectors had been appointed who, after training, would be able to evaluate applications. The risk based approach had been fully implemented. 2 955 applications had been carried over from the previous financial year. 78% of applications had been approved within 20 days.
NRCS had met with Ford Motors after the last meeting to discuss the problems with the Ford Kuga as, despite the recall and replacement of coolant systems, cases of fires continued to be reported. The Stage Two recall was in process it had also been alleged that the fires could be attributed to the vehicle electronics system. Ford Motors assured NRCS that they would be following up as they had concerns about the Kuga. NRCS would be initiating its own investigation into the cause of the fires in the Ford Kuga model.
NRCS was a member of the United Nations European Commission for Europe World Forum for Harmonisation of Vehicle Regulations (UN ECE WP 29) which provided for international medical regulations. One of the biggest topics was a regulatory framework to support the introduction of vehicle systems technology that sought to take control of the vehicle during emergency situations. The current technology was overtaking regulators in terms of vehicle technology. Technologies such as Anti-Lock Braking System (ABS), Electronic Stability Program (ESP), and Pedestrian Safety all preceded technical regulations. Some of these technologies were yet to be specified in the Compulsory Specifications in South Africa.
Legal Metrology interim requirements for electronic and road tolling points had been approved by NRCS. There was no reference point for the e-tolling system so NRCS was starting to develop a system from scratch.
The CEO stated that there was an agreement with SABS about testing but it was a fact that there were testing challenges, ranging from long waiting periods for results to unavailability of test laboratories. In 2015, SABS had insisted on doing full testing instead of partial testing. There was now testing to the compulsory specifications (partial testing) which had resolved that issue but the challenges with time and test laboratories remained. There had been engagement with SABS, trying to find a solution to the problems, which had led to the amendment of the Service Level Agreement (SLA) to allow for submission of products to SABS for testing as per NRCS requirements. The SLA had been signed off at the end of February 2017. That had solved the testing challenge, but the time and capacity problems remained.
NRCS had developed an action plan for all audit report findings. Some interventions had been completed while others were work-in-progress and the NCR was trying to identify some of the issues raised by the Auditor General. Supply chain controls had been tightened and only the CEO and CFO could approve deviations. A number of Human Resources policies had been completed and approved but the Information Technology policy would only be ready by the end of January 2018. The entity was tracking payments and paying invoices within 30 days. NRCS would be meeting with AGSA shortly to decide whether the interventions would resolve the problems in the audit findings. The CEO informed the Committee that he was fully aware of the amendments to the regulations that had taken place in September 2014 but that the amendments had not resolved the cut-off period issue for the levies. The financial year and the levy periods were not aligned, resulting in levies being accounted for in an incorrect financial year.
The ICT project plan had been amended and submitted. The CEO reinforced the commitment of NRCS to the modernisation of the ICT environment, both for the entity and for its customers. Challenges included the resignation of key personnel involved in the project. The entity was appointing a consultancy to assist with the process mapping. The Bid Committee would sit on 6 October 2017 to decide on a consultancy.
South African Bureau of Standards (SABS) response to Committee questions
Apologies were presented on behalf of SABS CEO, Dr Boni Malekulu, and Ms Boitumelo Mosako, SABS CFO, presented the responses to questions raised at the Committee meeting of 12 September 2017 and which had been submitted in writing to the Committee. The Auditor General had drafted a letter stating that they had made an error about the reasons for the poor audit. The Auditor General agreed that the problem was not related to a change in accounting principles but due to the error relating to Group Transactions and disclosure. The Annual Report had been adjusted to reflect the corrected reasons for SABS regression. She stated that the error had no impact on the group results. SABS Commercial had obtained a clean audit. In addition, SABS was reviewing cost allocations. In respect of Performance Information, the revenue target was split in the Annual Financial Statements, the Shareholder’s Compact was adjusted to include Key Performance Indicators, and deviations had been requested from National Treasury on required disclosures that could impact the competitive advantage of SABS. Supply chain matters and the Preferential Points System had been addressed. Policies and procedures had been updated according to Instruction Notes and the revised Preferential Procurement Policy Framework Act (PPPFA) regulations. R38 000 in fruitless and wasteful expenditure related to penalties on late payments, and adherence to payment terms was being enforced. Municipal account payments were being closely monitored.
Mr Ian Plaatjies, SABS Executive: Corporate Services, informed the Committee that plans to generate new business had been drawn up and two new service lines were in place. SABS had centralised the sales section. Previously, SABS had an inbound sales capability but it had been revised to engage in outbound sales to counter the foreign businesses that had been drawing business away from SABS. The entity was doing real time tracking. Laboratories were being upgraded in conjunction with industry. The business had been digitised. The Business Plan had been revised to include the various growth plans.
He said NRCS had stated that it had a variance of R5.6 million because SABS had been unable to be test for the entity. SABS disputed the statement as NRCS had spent a declining amount of money on testing at SABS. NRCS had spent 87% of the funds allocated for spending at SABS, so SABS could not be responsible for the variance of R 5.6 million. NRCS had signed up with other testing houses to allow them to test outside of SABS. National Treasury had approved testing by SABS without tender but NRCS had gone out on tender to other entities.
As regards the partial testing, Mr Plaatjies stated that SABS had to comply with legislation so all testing had to be tested according to a Regulation Standard or South African Standards. He quoted the Consumer Protection Act. SABS would only test partially if NRCS indemnified SABS. There had been court cases where SABS had been sued for not testing fully.
Mr A Williams (ANC) noted that the two entities had very bad key controls in the Auditor General’s Report. 10 out of 14 key controls at NRCS were of concern to the Auditor General. At SABS, 9 out of 14 key controls were a concern. Both entities had reassured the Committee that they would be changing in the current financial year. However, that meant that, fundamentally, all the Committee could do was to wait for the end of the year.
Ms L Theko (ANC) referred to the statement by NRCS that the capacity of SABS was inadequate. What was inadequate? Was it the building or personnel, or what capacity was inadequate? If NRCS was appointing service providers, were the service providers testing against SABS standards? How could they best work together and find common ground without blaming each other?
Mr G Cachalia (DA) noted the challenges faced around capacity, high turnover of staff and the overlap between NRCS and SABS. Given that government funding was down by 40% and they would be focussing on outbound sales, what plans were in place to ensure that they were closing the gaps where there was a reduction in government funding? How were they going to achieve that? All other challenges in terms of capacity and so on hinged on that.
Ms S van Schalkwyk (ANC) stated that, when looking at the audit findings on human resources, it was indicated that the vacancies existed in critical positions. Did the entity have a plan for when those posts would be filled or was it an open-ended process? Service delivery needed to happen and it was vital that critical posts were filled.
The Chairperson reminded the entities that when they had previously presented to the Committee, there had been evidence of a communication breakdown between the two, and she had hoped that the matter would have been resolved by the time they returned to Parliament. However, from the sub-text of their responses, she heard that there had not been a compromise. SABS had explained the regulation constraint but NRCS clearly did not understand it. There needed to be a robust working relationship between entities whose work interfaced so directly so that they had a clear understanding about the constraints. She wanted the relationship resolved before they appeared before the Committee again. She did not believe that the notes from SABS had indicated how they would raise revenue. The entity had not submitted a comprehensive or effective business plan. SABS had not made it clear how they were going to raise revenue and that was what the Chairperson wanted to see. It had to be specific. Management should stop using sales terminology and should write a proper business plan for the marketing of SABS by Monday 8 October 2017. The business partnership to develop laboratories was good, innovative and effective but the Technology Report was pure jargon. Addressing NRCS, she insisted that the entity work more closely with SABS. She also required clarity about the partial testing process. She asked for an example that would make the Committee understand. She referred to the Legal Metrology process. She asked who the supplier was and who was going to do the verification. Verification made her think of localisation. What did NRCS understand by verification?
The NRCS CEO noted Mr Williams’ comment. The entity was not waiting until the end of the year but would be monitoring the internal control environment. NRCS was referring to inadequate testing capacity at SABS. It was work in progress in filling critical positions. By the end of the financial year, all critical posts should be filled. They would be advertised in the coming weeks. On the issue of communication, NRCS believed that there should be a closer working relationship with SABS and he would initiate such an engagement with the CEO of SABS.
In explaining the difference between testing to standard and testing to specific requirements, Mr Mamadiso replied that the concept of testing to 50% was foreign to NRCS. A standard was usually a voluntary standard. Specifications were regulated. The Chairperson asked for an example. Life jackets was suggested as an example. If they were looking at life jackets that were compulsory, the standard for testing would talk to the quality of the material, visibility etc. NSRI was concerned about safety but there were other aspects of health and safety that were legislated in terms of which testing had to be done. The voluntary standards were not relevant to the Regulator. NRCS only tested for regulatory specifications. In 2016, SABS laboratories were not ready, which had impacted on the ability of NRCS to test and to utilise the budget. There were no testing laboratories in South Africa to test the energy effectiveness of air conditioners.
Mr Plaatjies replied that SABS tested fully according to South African standards and would give the customer a report. Using the example of the lifejackets, Mr Plaatjies explained that it could fail SABS test even if it had passed safety standard regulations. That prevented the dumping of sub-standard products in South Africa.
Mr Plaatjies wanted the Committee to understand that SABS only tested R3 million of the R9 million NRCS testing budget which meant that the majority of NRCS testing was done by other companies. SABS had done a lot in closing the gaps between SABS and NRCS and the professional disagreements did not impact on their working relationship. In response to the questions on seeking business, SABS had a formal business plan that had been approved by DTI. There was a formal, signed off Business Plan.
Mr Williams asked if it was possible for one entity to approve a product and the other entity to reject a product. In other words, did they both do the same job?
Mr Cachalia wanted to pursue the issue of partnership as it was necessary for SABS to be not only a brake, but also a spur to the economy in facilitating access to new markets and creating jobs. He wanted to see concrete plans, when SABS came back to the Committee, as to how it would leverage partnerships and to unpack process that so that the Committee could understand it. In terms of revenue contribution, it would be crucial.
Dr Tshenge Demana, DTI Chief Director: Technical Infrastructure, noted that page 32 of the SABS Annual Report explained exactly how the entity did testing and that seemed to contradict the explanation given to the Committee. The Report stated that SABS tested in terms of the user’s requirements. SABS was serving the client and so what the client asked for, was what the client got.
Mr Jeff Molobela, SABS Board chairman, was of the opinion that two issues were being conflated and confused. He had been a board chairman of NRCS for more than a year and was now on SABS Board, so he understood the issues. He had arranged a meeting between the two entities in 2005. An agreement had been put together and had recently been signed. The issue was one of quality and safety. The two were related but could be separate. SABS was the guarantor of standards, quality and safety. SABS want to prevent the dumping of products in the country that met specifications, but were not quality products in terms of the Consumer Protection Act. It was broader than the mandate of SABS; it was about the economy. Specifications had a narrow focus whereas the SABS mark indicated quality. He pointed out that SABS could not keep laboratories that were not self-sustaining, particularly now that the World Trade Organisation (WTO) required a free economy. Hence NRCS had stated that they could use any laboratory that they chose. But how could NRCS expect SABS to have a suitable laboratory available at whatever time they chose to use SABS? It was unprofitable to dedicate a laboratory to NRCS when that laboratory was not fully utilised. National Treasury had given approval to allow SABS to enter into an agreement that meant that planned laboratories could be given work without the need to go out on tender. It was a matter of economics and not mandates. He felt that the DTI should have been ahead of the game and should have resolved the issues between its entities. The constraints should be noted and taken into consideration.
The Chairperson thanked Mr Molobela for his input.
Mr Mamadiso felt that it was unfair to criticise NRCS on procurement as it was legally obliged to engage in an open and fair procurement process. NRCS had not been absolved of that obligation. However, National Treasury had approved the deviation to allow NRCS to use SABS for testing, although the issue of capacity remained. NRCS utilised other laboratories only when SABS was unable to test. It was not a case of irresponsibility.
Mr Thomas Madzivhe, General Manager for Legal Metrology at NRCS, stated that NRCS had more than 100 designated laboratories to do work on behalf of NRCS, employing about 1000 verification officers. For example, garage owners had to have their liquid oil dispensers tested at one of those designated laboratories. NRCS verification offices would, now and again, check that the laboratories and the garage owners were maintaining the standards required. The instruments used for measuring the dispensers had been submitted to NRCS for approval. Each designated laboratory acted as a business to perform a particular function.
Mr Bongani Khanyile, NRCS General Manager Electro Technical, stated it was very difficult to pin down the specific problem of capacity. One example was the testing of energy efficiency which had been delayed from 2015 to 2016 as testing facilities were not available. In fact, SABS laboratories were only ready in August 2017 to test for energy efficiency. That had had implications for the NRCS programme and budget expenditure. There were no laboratories in South Africa that could test energy efficiency for air conditioners. It therefore became a challenge for NRCS to test air conditioners.
Mr Plaatjies, SABS, asked the Committee to understand that NRCS budget line for testing showed that about 60% of the work went to laboratories other than SABS, so laboratory capacity referred not only to SABS laboratories. He suggested that the Committee should not confuse the particular issues mentioned with the working relationship between NRCS and SABS as they had done a great deal of work in closing the gaps in the working relationship. They had professional disagreements but that did not affect their working relationship. The Chairperson asked whether professional relationships were not working relationships. He believed that the two entities disagreed on the issue of full and partial testing but there were no problems between individuals.
On the question about SABS plan and the reduction of government spending, Mr Plaatjies stated that SABS had a business plan that had been agreed upon with DTI. Furthermore, they were working on a business plan for the following year and he had highlighted various points from that plan. He also explained how the new IT system worked. Previously, clients had to go onto SABS site and download an application form, fill it in and fax or email to SABS, whereas, in the new system, they would be able to enter the application form online and receive real-time feedback on where the item was in the testing process. The process enhanced customer relations but also speeded up the process so that SABS could increase revenue. In response, to a question as to whether test results would differ, Mr Plaatjies stated that no matter who tested, if one tested to the same standard, the results would come out the same. He disagreed with Mr Demana’s statement as SABS tested according to the legislated standards under which the test fell.
The Chairperson asked SABS to engage with DTI about the testing outside of the Committee. She did not want internal disagreements aired in the Committee. The Chairperson pointed out that in the NRCS presentation there were a number of issues that the entity was “working on”. For example, NRCS was working on payment within 30 days. She required deadlines and exactly when things would be happening.
NRCS CFO, Ms Mimi Abdool, said that NRCS had not had a plan to address audit findings and that there were therefore repeat audit findings. Therefore, NRCS would not have everything in place by the end of the financial year, but they were working on internal controls and were putting plans in place to mitigate the audit findings.
The Chairperson informed NRCS that the Committee wanted to see a audit plan with targets and deadlines for implementation and that it was to be submitted on Monday 8 October. For 23 years the Committee had been asking for progress and monitoring. It appeared that there had been consultation with internal audit; internal auditors had to be instructed, not consulted. She assured NRCS and SABS that they would never be invited on their own again. They would always be invited together so they had better start getting on together.
Mr Jeff Molobela, SABS Board chairman, stated that he and his colleague, the chairperson of the audit committee, were there as the accounting officers. He raised the corporate plan which had fallen through the cracks. The Board had approved a corporate plan and it did not want the impression created that they operated outside of the business plan. The Board was aware of some of the legal issues and so asked for a time to brief the Committee on some of the legal constraints, such as the 2008 Act, that was impacting on the efficiency of SABS.
The Chairperson acknowledged the positive approach of the SABS Board chairman but did not want to see any more cracks and hoped that the cracks were not so wide that everything would through them. She wanted more than an acknowledgement of issues the next time; there had to be action. The inputs for 8 October 2017 should be in writing and the Committee would call the two entities back early in the new year. The entities should send news of their successes to the Committee. She understood that there were challenges at NRCS and that there were 100 laboratories accredited by the South African National Accreditation System (SANAS). She asked about the work at Medupi. She hoped that the cooling towers at Medupi had not been accredited by SABS. She wanted a report on Medupi. She also wanted the names of the 100 accredited laboratories.
SABS Board member, Mr Guy Harris, informed the Committee that SABS worked under a Shareholder Contract with DTI and he presumed that the same applied to NRCS. There was a planned session between SABS and NRCS at board level in December. There they would ensure alignment. He added that SABS was working on growing the economy.
The Chairperson noted some changes to the Committee programme for that week. She noted that in September, the Committee had had a very serious meeting dealing with localisation, procurement, job creation and promotion of the Black Industrialists Program. Members had been very concerned at the ineffective responses which the Committee was getting from Transnet and had agreed that localisation and procurement was not being properly handled by all of the state-owned companies. The Committee staff had been asked to prepare terms of reference to deal with the matter.
National Consumer Commission (NCC) Annual Report
Mr Ebraham Mahomed, NCC Commissioner, presented the Annual Report, assisted by the CFO, Ms Ntsobe Nkoane, Ms Prudence Moliwa, Divisional Head of Enforcement and Investigation, and Mr Babs Kuljeeth, Company Secretary.
A key challenge was the Opt-out Register which was a massive project as it sought to allow people to opt-out of direct marketing agreements. It was a cost prohibitive project but a transactional advisor had been appointed and paid for via National Treasury funding. NCC had been unable to commence with the procurement of the Opt-Out Register, but the feasibility study had been completed.
A panel had been appointed to deal with the Timeshare industry in South Africa. It was an important industry but abuses of the worst kind had been reported. The expiry of unused data was a huge matter that affected millions of people across the country. The compliance issue had been addressed, but not the data problem. NCC was working with the Internet Service Providers’ Association (ISPA). NCC was concerned about the on-sale of unused data which seemed to be in contravention of the Consumer Protection Act. The unused data remained the property of the consumer and so companies could not keep the funds from expired data. It was not in compliance with the Consumer Protection Act. The regulations had been published and some issues such as “bill shock” had been addressed but expiry dates remained a concern. NCC had agitated for a separate committee at SADC to deal with consumer protection and South Africa had been appointed chairperson of that committee. NCC also chaired the South African Consumer Protection Forum which sought to streamline and coordinate consumer protection in South Africa. Product recalls were huge. NCC had had a very large number of product recalls. The Ford Kuga was the most well-known in the past year. The Consumer Protection Act did not make any distinction between new and second-hand vehicles. Inspections were conducted in the retail sector, mainly in connection with food labelling and expiry dates.
NCC published a newsletter three times a year to extend its reach and to improve dialogue. NCC had moved permanently to the SABS building and the Commissioner thanked the Committee for assisting in the securing of accommodation. A highlight was the regular appearance of reports on the work of NCC in the media and that contributed to the visibility of NCC and its work. Tens of thousands of consumers had been assisted by the two Ombuds Schemes funded by the business sectors in the industry. They reported regularly to NCC. Initially NCC had been overwhelmed with work but was currently able to attend to its core business as the Ombuds Schemes dealt with individual consumers. The most important areas of consumer concerns were car engines and services of vehicles.
Another key challenge was the industry code for the franchise industry which had taken much longer than expected. The Commissioner was concerned that NCC would not be able to meet the expectations of the Committee and consumers, owing to the budgetary constraints. There were also issues of remuneration as entities generally paid higher than Department of Public Service and Administration (DPSA) and so the staff at NCC was agitating for higher salaries.
80% of the ICT strategy had been implemented. 90% of complaints were referred issued with referrals within an average of 17 days of receipt. Quarterly reports from accredited Ombuds were received and assessed, compiled and submitted to the Executive Authority as part of the quarterly reports. To comply, industry codes were submitted to the Minister for accreditation. A code of good practice on Alternative Dispute Resolution norms and standards was developed in terms of Section 93 of the CPA. 33 investigations were conducted, reports with recommendations produced and approved by the Commissioner which exceeded the target of 12 investigations. 36 inspections were conducted, which exceeded the target of 22 inspections. Two applications were made to the National Consumer Tribunal to declare investigated conduct as prohibited conduct, which exceeded the target of two applications. Four product recall reports were published, which exceeded the target of one report. The target of finalising the appointment of a transactional advisor was not achieved. The target of a survey of Consumer Protection Awareness was conducted. NCC identified acts and practices that affected the welfare of consumers, which met the target. 100% of registered requests for explanatory notes and/or opinions was provided within 20 days. The target of achieving one application for a clarity order was achieved. The target of 24 consumer awareness workshops was not achieved as only 10 workshops were conducted. The targets of 12 business compliance workshops, three external newsletters and the compilation of an Affordability Index were achieved. 17 out of 19 targets were achieved, i.e. 89%.
The financial performance report showed an adjustment in the final budget as a result of the baseline reduction during adjustments of estimates of the national expenditure process. The interest received exceeded budget as a result of early transfers of excess funds to the investment account. Personnel costs were slightly overspent as a result of the annual cost of living adjustment and general expenses exceeded the budget by 3%. 76% of the irregular expenditure of R5.4 million related to irregular expenditure incurred in the prior financial years. 24%, or R1.7 million related to the 2016/17 financial year, including R174 918 for lacking three quotes. R1 477 545 was applicable to minimum values and R38 000 was spent on tax clearance verification.
NCC received an unqualified opinion on its financial statements in Programmes 1 and 2 but certain material misstatements were found. The Auditor General found that financial statements were not prepared in accordance with the prescribed reporting framework and several sections of GRAP standards were not applied. Contracts were awarded to bidders based on preference points that were not allocated in accordance with requirements of the PPPFA. NCC received a qualified audit opinion on usefulness and reliability in Programmes 3 and 4. NCC had not placed all matters on the register. Insufficient audit evidence was provided on complaints analysed, trends established and reports produced, resulting in a misstatement.
Mr Williams thanked the Commissioner for the input. He referred to the Auditor General’s Report which noted that a number of control areas had dropped in performance and required intervention. The entity was the worst performing of the entire DTI stable. The audit action plan was not being addressed so he wished to know whether NCC had plans in place to change the position that they were in. Two of the major concerns had been about financial and performance management. NCC had come to the Committee asking for additional resources but Members were unable to see whether it was reporting correctly on financial and performance management, so it was problematic for the Committee. In general, intervention was required. He had not heard a lot about improvement of matters raised by the Auditor General.
Ms S van Schalkwyk (ANC) asked for elaboration on the 16 disciplinary cases, as well as the consequences. She was concerned about the vacancy rate as eight vacancies had been reported. Were they critical positions and what timeline did they have in place to fill the vacancies?
The Chairperson asked about the kind of training anticipated. Initially NCC had the numbers but not the skills. How was NCC managing training and development of skills? There was a moratorium on the filling of posts – did that mean that they could not fill the posts?
Commissioner Mahomed pointed out that since the end of March 2017, all the posts had been, or were about to be, filled. He stated that consequence management was the term that should have been used and not disciplinary inquiries. Warning letters had been issued. The problem had been poor work performance, not other misconduct. There was still an investigation into the auditor’s comments which would probably be followed by some form of consequence management.
Ms Ntsobe Nkoane, NCC CFO, replied that the Audit Action Plan had been developed and dealt with the Auditor General’s three key areas of concern: firstly, the system of internal control would be addressed to create a seamless system. Stabilising the IT system had had a negative impact on their financial systems. It had affected some of the key controls. NCC was working with its IT system provider and already the IT environment was much more stable. Progress had been made to address the findings on the quality of information presented to the Auditor General. NCC review processes had not been effective. NCC was ensuring that information would, in future, be of the highest quality. On compliance with regulations, some of the issues had already been addressed. The UIF matter had been attended to and the Supply Chain Management (SCM) policy had already been reviewed to accommodate the new Practice Note and regulations from National Treasury. Indicators had been addressed for the new financial year. There was a plan for monitoring through monthly and quarterly reports and filing of evidence. 75% of the recommendations had been implemented. The Internal Auditors would check in October to make follow-ups and to tests areas raised by the Auditor General. Training was mostly skills development. A needs analysis was done but mostly general management training was conducted. In 2017/18, they would be addressing job training.
Mr Williams asked about the NCC response to the Auditor General’s concern about leadership and management. What was being done about leadership oversight, policy and procedures? The Auditor General had informed the Committee that, generally, audits action plans were not been implemented so he wanted an assurance that the Committee would not be talking about the same thing the following year over and over again. The entity had gone down since the previous year.
Mr Cachalia believed that the DTI was looking at the rationalisation of some of its entities. How would that play out on NCC and what information was the Commissioner privy to?
The Chairperson asked about pie chart about complaints, which was informative. She noted that 24% of complaints were related to Agreements. Looking at problem areas, she asked how NCC classified poor service. What were they looking at in that area? What was being done to ensure customer satisfaction? On complaints about engines which had increased in 2017, could she assume that these were motor vehicle engines? Did that include the Kuga? Where was that investigation?
Mr Babs Kuljeeth, NCC Company Secretary, agreed with the Auditor General about the slump in the leadership oversight responsibilities. The NCC leadership had met with the Minister and plans had been put in place in the past two weeks to seek a general improvement going forward and those plans had been given to the DTI Director General. The Commissioner would be retiring soon and had given the Minister an undertaking that he would retire with a clean audit. As far as rationalisation was concerned, NCC was not privy to any discussions by the DTI. He was concerned that that information would sow panic and therefore hoped that it would be cleared up by the DTI representatives present.
Ms Nontombi Matomela, Acting Group Chief Operating Officer at DTI, informed the Committee that the rationalisation process had been finalised and it had done away with the Boards of the Regulators.
Ms Prudence Moliwa, NCC Head of Enforcement and Investigation, explained the complaints on Agreements. It was the analysis of the complaints dealt with by the Consumer Goods And Services Ombud (CGSO). They related mostly to disputes about what was expected and what the consumer had received. Those required mediation using the Consumer Protection Act. South African consumers were becoming alive to their rights in terms of Section 4 of the Consumer Protection Act. Consumers complained about the quality of service and how they were treated when they went to the market to consume, which was encouraged by NCC. A lot of engine overhauls were being done. Consumers had engines overhauled and paid a large amount of money, without improvement to the vehicle. Complaints related mostly to second-hand vehicles. On the Kuga, Ford had required time to familiarise itself with the investigation and had then requested time to engage a legal firm to assist with the responses. The Commission had received the responses from Ford Motors. The information was quite technical and NCC was sitting with its legal team to finalise the investigation. It was at an advanced stage.
The Chairperson was pleased that NCC had moved offices and given up the costly lease. She determined that Members would go through the NCC First Quarterly Report themselves.
National Credit Regulator (NCR) Annual Report
The NCR CEO, Ms Nomsa Motshegare, presented, assisted by the CFO, Ms Ayanda Mafuleka. Key enforcement highlights included the referral of 39 matters to the National Credit Tribunal (NCT). This included retailers, small credit providers and debt counsellors, as well as Lewis Stores, Allied Capital and Wesbank. The main alleged contraventions were unlawfully extended warranties and club fees. Numerous raids were conducted on microlenders who retained consumers’ bank cards and identity documents. Following an NCR referral, the NCT ordered an independent audit on all credit agreements entered into by Lewis Stores and that had resulted in consumers being reimbursed for premiums paid for the associated insurance. Payment Distribution Agents had distributed a total of R8.5 billion to credit providers. Refunds to consumers as a result of successful enforcement totalled more than R100 million. The Wesbank system of persuading consumers to “pawn their cars and to drive them” was prohibited. Important to the NCR was education and communication and in this sphere, there were 490 workshops, exhibitions, activations and roadshows, community outreaches and extensive media coverage.
The NCR had set 15 targets for the year. The achievement of nine of the targets was divided into compliance, investigations or monitoring, and enforcement. Not enforced were compliance matters pertaining to the total cost of credit and to reckless lending. In all cases, compliance, investigations or monitoring was achieved or exceeded but in four targets, enforcement was not achieved or partially achieved. In all other cases, targets were achieved or exceeded.
Actual income for the year was R120 406 069 of which R118 898 987 was spent, resulting in a surplus of R1 507 082. Fees from registrants had been revised so that all fees were due on 31 July 2017, instead of individual renewal dates, but the budget had not taken into account the revised due date. The allocated budget had therefore been revised. Savings had been made, especially on travel costs. Total assets were R80 635 055, which exceeded the total liabilities of R75 377 650.
The NCR received an unqualified audit opinion with findings. The findings were technical in that there was a material adjustment on the PDA interest as GRAP 1 had been utilised instead of GRAP 23.
In the first quarter of 2017/18, all targets had been achieved.
Mr Cachalia was impressed by the presentation and commended the NCR.
Mr Williams noted that the Auditor General had indicated that key controls had drastically reduced in the past financial year. Of concern to the Committee, in relation to leadership, was oversight and responsibility, policy and procedures and ICT governance. With regard to financial performance, the Committee expected proper record keeping, and design and implementation of IT controls. What had happened that the NCR had dropped down so badly and what were they going to do remedy the situation? He suggested that there should be consequences for entities that did not obtain green blocks for key controls. He suggested that it should be raised in the BRRR.
The Chairperson noted that the recommendation could not be taken forward as a recommendation as the Committee did not meet the minimum requirement of 7 Members at the meeting. It would be held in abeyance until the following meeting in the hope that there would be a full quorum.
Ms Theko asked if the NCR was becoming relaxed. Was that why the controls had dropped? Were the systems not in place? What had changed? She was sure that the entity was heading towards an unqualified report. What, in the view of the NCR, was the problem? What measures had they taken because they were not performing?
Ms van Schalkwyk asked about the vacancy rate and requested an update. Had they dealt with the accommodation issue.
The Chairperson asked about the difference between the projected income and the real income. The renewal date had been changed from July to August so was that how come they had not received the full amount. She asked DTI if it had had any discussion with NCR before changing the date and discussed the impact on the budget of NCR.
Mr Siphamandla Kumkani, Policy and Legislation Director at DTI, noted that the changed date had been a decision made by the DTI together with the NCR, following consultation with the stakeholders. They had wanted to ensure compliance by introducing a common renewal date. In the next financial year, there should be an improvement because the stakeholders were aware of the change of date.
The Chairperson did not understand how the renewal date made any difference as the period was in the same financial year. The explanation did not explain why there had been a dip in income. DTI noted that previously, there had been a history of non-compliance. In previous years there had not been a single renewal date. The DTI should provide a response in writing.
Mr Cachalia asked for clarification of the targets dealing with the enforcement process.
The Chairperson asked for an explanation regarding the dismissal of two persons.
The NCR CEO explained that the vacancy rate was at 18.4%, of which four vacancies were critical positions, including two junior legal advisers and one HR supervisor. Other vacancies were for data capturers, call centre agents and other support positions. The NCR had lowered the level at which officials were appointed as banks poached trained senior officials. Officials brought in at lower levels were found to stay with the NCR longer. NCR had a Complaint Department, a Compliance Department, a Debt Counselling Department, and an Investigations and Enforcement Department. The Investigations and Enforcement Department had been solely responsible for enforcement action but had only about 13 legal advisors for the entire country. The system had been changed and all Departments could send a standard compliance letter to an offender. Only if an investigation was required, was the matter sent to the Investigations and Enforcement Department The NCR had always had funding challenges and so they had utilised offices where they were available.
The CFO replied about the audit concerns. The concern about leadership related to methodology. The Auditor General held leadership accountable for errors. The financial management comment related to the GRAP methodology but the Auditor General saw it as a management issue because an incorrect statement had been submitted. The Auditor General had found an error of principle in GRAP 1 and GRAP 23. Compliance monitoring was also affected by that transaction. On policies, the CFO did not see the concerns about policies and procedures as a real material area of concern. The budget process policy, the cash and investment policy and the strategy policy had been approved by the Board more than nine years previously so the NCR had been unable to provide proof that the policies had been signed off by the Board. There had not been a contravention, but simply that the signatures could not be provided.
On IT controls, there was a concern because the Internal Auditors had audited the areas as prescribed by the Auditor General and had taken the findings of the Internal Audit made in February. The IT matter had been resolved by the end of the financial year but Auditor General had to confirm for itself that the matter had been resolved. GRAP 1 was the Accounting Framework that talked to the basic accounting of all transactions. But there were different GRAP standards for different transactions. The NCR had raised a receivable in March and had intended to note it as a liability in April but the Auditor General stated that NCR should have raised the transaction as a liability in March, so they should have used GRAP 23.
The Chairperson suggested the NCR submit a report on the GRAP matter in writing.
Ms Theko asked about the Board. The NCR no longer had a Board so were the policies of ten years ago applicable?
The CFO explained that the policies were valid as they had been presented to the Board when it had existed in 2007. The review of the policies was done in 2014 but at that point, the Auditor General had wanted to see the originals as the NCR memorandum did not clarify that the reviewed policies had been based on the 2007 policies. Since that time, NCR had reviewed the policies and the Accounting Authority had approved them.
The Chairperson asked for written responses to GRAP, the new investigation policy and all unanswered questions to be sent to the Committee by 6 October 2017, including the problems with accommodation, as the Chairperson had visited the NCR and it seemed that there was adequate space. She also wanted to know about the collaboration with the SETA. There seemed to have been a breakdown with the shareholder. The Committee did not want to see regression. The Committee would engage with the Auditor General to ask about the different interpretations of GRAP.
The CEO of NCR assured the Committee that the NCR was aiming for a clean audit.
Debt Relief Bill Draft Framework: briefing
Adv Charmaine van der Merwe, Parliamentary Legal Advisor, presented a Framework for the Debt Relief: National Credit Amendment Bill. She believed that an initial draft was necessary for the Committee to move forward with the Bill. She would put forward proposals which the Committee would have to consider and adopt or change. She was suggesting the involvement of the National Credit Regulator (NCR) and the National Credit Tribunal (NCT), but other bodies could possibly fulfil the functions. The Committee would have to debate both bodies and functions. She was putting forward two forms of debt relief – one would be immediate and prescribed and the other would be determined by the Minister. The criteria for debt relief would require debate. Debt Relief suggested that the least disruptive intervention in the debt should be applied, as required by the Constitution. Debt forgiveness was one option. It meant extinguishing the debt. A suspension of debt was another option. The intention was not to encourage people to go into debt regularly, expecting government to bail the person out. She had therefore come up with the term “Once-off” to indicate that it was not intended to be repeated but she had used the term in the absence of a suitable term. She had used the New Zealand Debit Relief legislation to guide some points in the Bill.
A Preamble would give reasons for the Bill, i.e. because it filled a gap in legislation. The Bill contained a debt relief process outside of the current existing debt review process and outside of the existing debt relief measures.
Adv van der Merwe discussed who would qualify and what debts would be included. The allowable assets of a person needed to be determined, i.e. pension funds, furniture and a motor vehicle. The income of those seeking debt relief, as well as the amount which could be relieved, had to be decided by the Committee. This would only be unsecured debt. Small credit agreements would be up to R15 000. Did the Committee want to include medium credit agreements?
The Committee would have to assess the capacity of the National Credit Regulator and whether they would be able to manage the Bill. Credit providers would be given an opportunity to provide input to the credit application. That would avoid the need for hearings before the Tribunal. Reckless lending and unlawful lending would be addressed.
Debt relief fees was discussed as there had been support for reduced debt relief funding, but the question was from where the subsidy would come. Adv van der Merwe warned the Committee that if creditors had to pay a levy, the Bill would become a money bill.
Adv van der Merwe suggested that the Tribunal be given a list of Debt Relief Orders and the Tribunal would determine which Order was appropriate. The orders would include Repayment, Suspension, Extinguish. The consumer had to understand that there were consequences to debt and so the Tribunal could, where necessary, limit the right to apply for credit. One option should be for a person to attend a financial literacy programme.
The Bill suggested that developmental credit for low cost housing or education should not be extinguished because the credit providers were already taking a risk in providing a loan. She suggested that the developmental loans could be continued but that this needed full discussion.
The information on the debt relief had to be recorded by credit bureaus but the Bill had to provide for the removal of names from the credit bureaus. If there was a change in a person’s financial circumstances and the person did not inform the Tribunal, that person could be removed from the Debt Relief programme.
The DA had proposed a monitoring system to monitor people after debt relief.
Beneficiaries would be indigent people, child-headed households and the Minister could also determine that people retrenched in a particular sector or disaster area be included. The Minister could change measures but would have to obtain approval from Parliament. Incidental agreements would be included. Consequence management could remove the right of a person to access credit. Orders would be binding on a consumer and credit provider.
Adv van der Merwe noted that the way forward included receiving input from NCR/NCT, further deliberations and a review of the rest of the National Credit Act. A bigger review of the Credit Act was underway and the Committee should ask the NCR/NCT/DTI about the status of that review. While the Committee was focusing on a narrow aspect of credit, it should not lose sight of any changes proposed in the review.
The Chairperson complimented Adv van der Merwe on the tremendous amount of work that she had done and the Committee would review her presentation overnight and that discussion on the Bill itself would commence the following morning. She pointed out that it was, indeed, a Committee Bill and that the Committee would have to reach sufficient consensus on the content so that the Committee could move forward on it. She appreciated the professional work done by the Advocate, especially taking into account that there had been approximately nine months of discussion on what should go into the Bill.
Mr Williams asked about the Minister’s role in debt relief in the case of natural disasters. There were a lot of requirements that the Minister had to follow before debt relief could be offered. Was the process not too long? Did they not want some immediate relief that the Minister could give in the event of a large-scale disaster? Secondly, the credit provider could put in an affidavit to stop action being taken. Could that clause not fundamentally undermine the entire Bill because the credit provider could continue to put in affidavits so that no action was taken? How could credit providers be prevented from stopping the process?
Ms Theko noted that there should be an enforcement of penalties. The Bill would not just be handing out money. People could not be allowed to think that if they relocated, they could apply again. A monitoring system had to be put in place.
Ms van Schalkwyk looked at the consequences of change of circumstances. She proposed that provision should be made for liaison with the Department of Labour as to whether someone had a job. If a person were employed, that should be reflected in the database of the Department. She wondered whether the Committee could explore that angle.
The Chairperson asked about a pawn shop and how one could be in debt when the pawnbroker had already taken one’s goods. The Committee had been saying all along that it was not just about debt relief, but also about a culture of saving. However, reality was strange. If someone had been on debt relief and a disaster, such as a fire, occurred just before one qualified to apply for a loan, that person would be in a tragic situation. And such situations did occur. Such a situation had to be considered. A court could make an order for the person to be advised to get debt review instead of debt relief. She required clarification. Although she accepted that it could not be a criminal offence, there had to be a mechanism that encouraged people to report when their circumstances changed.
Adv van der Merwe explained that the question of a response to a terrible fire was complicated by the Constitution; the rights of other people were involved. If immediate relief were given, property rights could be affected. However, if the Minister operated quickly, the Minister could complete the process within 45 days. The Minister could commence processes even during the 30 days while the call for comment was out. There was another measure for immediate relief. The Credit Act did provide for public interest loans in the event of a disaster, so a less radical measure was available in the interim.
Adv van der Merwe agreed to put a time limit of 30 days that a credit provider could provide input and put their case forward. There was not much that a credit provider could do if an applicant qualified for debt relief, but it was necessary to provide an opportunity for the credit provider to have his side of the case heard. In respect of penalties and monitoring after debt relief, that point required input from the Credit Regulator.
She replied that offences could be added but maybe it would be better to make the penalties very clear. For example, if information was not provided, the debt relief could be cancelled from the point of order. The problem regarding penalties was that those were people who had no money and therefore would not be able to pay in any case. A possibility was to increase the amount of time during which people, who had not provided information, could not reapply for debt relief from five years to 10 years. The Bill could make it specific as to what they would have to do. There was no point in putting out a Bill without teeth. It was possible to have discussions with the Department of Labour but any involvement by Labour in the terms of the Bill would have to be approved by the Minister of Labour. She would have to see whether there was something that could be considered, or a database that was available. Pawn agreements were included in the Act but she agreed that a pawn transaction would not qualify for debt relief as there was an asset for sale. Public interest loans would not help an individual but it would help in the case of a mass disaster. An individual in such a situation should approach the Credit Regulator and agreements might be suspended.
A credit provider might start civil proceedings or a debt review. If the credit provider had started civil proceedings, the court had to manage the process, although it could direct the case to the NCT. The legislation allowed a person who had started debt review to apply for debt relief. On the matter of monitoring, she believed that if a penalty benefitted the credit provider, the credit provider might monitor the person but the Committee would have to decide whether that was an appropriate approach. Awareness campaigns might address the concerns.
The Chairperson found the presentation very helpful. The Committee Researcher and Content Advisor might seek further advice.
DTI and the NCR were invited to the deliberations on the following day. The Chairperson discussed the problem that the Committee had been having in achieving a quorum to enable the Committee to take decisions on matters such as localisation and to approve minutes. She appealed to all members of the Committee to attend for at least the first hour or so the following day so that decisions could be taken.
- National Consumer Commission 2016/17 Annual report presentation
- National Consumer Commission 1st Quarter Report presentation
- National Credit Regulator on its Annual Report 2016/17 presentation
- Debt Relief: National Credit Amendment Bill presentation
- SABS Responses to questions from Parliament's Portfolio Committee of the dti regarding Q1 report
- NCRS resposne
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