NRCS update on implementation of its turnaround strategy

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Trade, Industry and Competition

16 February 2021
Chairperson: Mr D Nkosi (ANC)
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Meeting Summary

26 Nov 2019: NRCS &SABS on their turnaround strategies; Committee Programme: discussion

The Portfolio Committee on Trade and Industry met on a virtual platform for a briefing by the National Regulator for Compulsory Specifications on the progress of its turnaround strategy.

The National Regulator had seen an improvement in audit findings at the end of 2019/20 with findings reducing from 84 to 26 and from four qualifying findings to only one finding that had led to the qualification in its audit report. The critical positions of Chief Financial Officer Manager, Head of Human Resources, Chief Information Officer and Project Manager: ICT modernization had been filled. The entity was currently shortlisting for the General Manager Legal Metrology. The entity was addressing the time taken in providing Letters of Approval for high risks goods such as foods and building material, where most of the challenges related to responses to findings by clients, but low and medium risk goods were being dealt with timeously. The entity had set up a task team to look into the time that it was taking to provide approvals and to consider whether any adjustments could be made without risking the thoroughness and integrity of the process. Resources would be dedicated to e-commerce surveillance and improvements in sanctions would ensure that non-complaint businesses were identified and sanctioned timeously.

The Regulator indicated that Covid-19 was having an impact on business in that the Electro-Technical Unit which had, in previous years, received 2 400 applications per month was currently receiving 1 200 per month. The Electro-Technical Unit usually processed almost 74% of the Letters of Approval at the entity, so the impact on work and income was significant.

Members were concerned about the Enterprise Resource Planning system that was being introduced. What was it costing to roll out the programme, who was the service provider and what was the length of the programme? What was the impact of the long turnaround times on the business of the entity? How long had the entity been using the Generally Recognised Accounting Practice, GRAP 23?  

Members asked for information on the outstanding13 audit findings that had not yet been resolved. They further asked how were fake or harmful sanitisers being eliminated and prevented from coming on the market, why were poor quality N95 and K995 masks being allowed to come into the country from China, putting frontline workers at risk, how far was the NRCS in getting its own buildings, so that it could function in a proper manner, when would the Committee see results from those who had been employed in critical positions and what was ballpark date for the completion of the turnaround

Meeting report

Opening remarks
The Chairperson opened the meeting and welcomed Members to the meeting. He indicated that he would begin with a discussion on the Portfolio First Quarter Programme and once that had been discussed and approved, the Director-General (DG) of the Department of Trade, Industry and Competition and the team from the National Regulator for Component Specifications to make a presentation. He noted that the South African Bureau of Standards had requested additional time before making its turnaround presentation to the Committee.

Discussion on First Quarterly Programme 2021 for the Committee
The programme was flighted and presented by the Committee Secretary. The planned meetings were presented.

Mr M Cuthbert (DA) raised concerns about the delay in finalising the National Lottery Commission (NLC) Chairperson appointment process as members’ training took place before the interviews were to be held. That meant that the process would only be finalised towards the end of March which defeated the timeline agreed upon by the Committee at the end of the previous year. The Sunday Times had reported that there was almost civil war in the NLC and there was controversy surrounding the identity of the Minister’s representative on the board. He appealed for a rework of the programme to restore some sort of balance to the NLC so that work could be done on restoring the institution. It would be best if the NLC were given a clean slate.

The Committee Secretary indicated that the processes between determining the shortlist and getting candidates to the interviews involved several complex issues, including the logistics of travel arrangements, which was the reason for the apparent delay in the commencement of the interviews. It was just not possible to hold interviews any sooner after the finalisation of the shortlist.

The Chairperson agreed that the NLC Chairperson appointment was a very important issue and requested the secretariat to present a programme showing what processes had to take place in relation to the appointment process, and to update the Committee at each meeting on actions completed.

Resolution
The Portfolio Committee unanimously approved the Committee Programme for the First Quarter, 2021, subject to any tweaks required.

The Chairperson welcomed DG Lionel October of the Department of Trade, Industry and Competition (dtic) and all officials present. He requested the DG to introduce his team and to make opening remarks on the turnaround strategy at the National Regulator for Compulsory Specifications(NRCS) and any other ongoing matters.

Presentation by the National Regulator for Compulsory Specifications on the Implementation of the Turn-Around Strategy
The introduction by DG October was interrupted by poor connectivity and the CEO of the NRCS, Edward Mamadise, was requested to proceed.

Mr Mamadise introduced the team from NRCS that was online with him: Ms. Abigail Thulare, Chief Operations Officer; Ms. Rebecca Ramcharran, Chief Financial Officer; Mr. Bongani Khanyile, General Manager; Mr. Edward Matemba, Manager Strategy and Risk; Ms. Nomathemba Majola, Chief Information Officer.

Mr Mamadise presented the turnaround strategy and the current status of business at the NRCS.

There had been 84 audit findings during the 2018/19 financial year audit. Four audit findings led to the qualified audit opinion. Audit findings were reduced to 26 during the 2019/20 Financial Year and only one of findings, the exchange revenue, had led to the qualified audit opinion. The NRCS was satisfied with the level of improvement.

The critical positions of Chief Financial Officer Manager, Head of Human Resources, Chief Information Officer and Project Manager: ICT modernization had been filled. The entity was currently shortlisting for the General Manager Legal Metrology. Amendments to the Micro Structure had been finalized and were awaiting approval.

Regarding the Letters of Approval (LOAs), all applications above 60 days had been reviewed, and all applications above 120 days were awaiting applicant responses to findings raised. 100% of all Measuring Instruments Type approvals were finalised within 120 calendar days

Mr Mamadise stated that the NRCS would dedicate resources towards the ICT Modernisation Project and the Revenue Qualification Business Improvement would continue. The NRCS was working on mechanisms to improve efficiency in processing LOAs and reducing turn-around times and would improve efficiency in managing applications where applicants failed to address findings timeously. Resources would be dedicated to e-commerce surveillance and improvements in sanctions would ensure that non-complaint businesses were identified and sanctioned timeously.

Ms Thulare added that the impact of Covid-19 was affecting the revenue of the NRCS as the number of applications received had been reduced, and that, in turn, reduced the income of the entity. The Electro-Technical Unit had been receiving 2 400 applications per month and that had been reduced to 1 200 per month. The Electro-Technical Unit usually processed almost 74% of the Letters of Approval (LOAs) at the entity, so the impact there was significant.

Input by the Department of Trade, Industry and Competition
Mr October stated that he was covered by the presentation and noted that substantial progress had been made in the turnaround of the NRCS. The finances were stable, operations had been stabilised and the entity had employed the necessary critical staff, including the COO, the CFO and the CIO for IT.

Looking to improve things, the only major concern of the NRCS was the 120 days that it took the entity to approve applications. However, while there was a task team looking at ways to reduce the amount of time taken, he noted that the entity should not be put under too much pressure to reduce the time taken. It was important that goods, especially food and beverage and building components that related to health and safety, met the necessary standards. Food products, especially, should be safe for consumption. Likewise, electrical goods had to meet safety standards. Making reference to buildings that had collapsed, the DG pointed out the need to have the correct specifications for building materials, such as cement.

The Chairperson stated that the Committee also needed to look at the turn-around strategy of the South African Bureau of Standards (SABS) and that normally the Committee would look at the two entities together.

Discussion
The Chairperson noted the officials accompanying the CEO online. He said that the Committee wanted to see the progress points in the strategy since the previous presentation. He asked if the NRCS was stabilising and whether there was growth in the NRCS. He would come back to the DG to comment on where the entity was at that time and what steps were required to get out of the situation and to move towards stability and growth.

Mr Cuthbert asked about the ERP (Enterprise Resource Planning) system. What was it costing to roll out the programme, who was the service provider and what was the length of the programme, as signed up with the service provider, to provide for the various modules required by the NRCS?

Mr W Thring (ACDP) appreciated the presentation and recognised the progress made. On slide 7, the CEO had spoken of expired leases as well as irregular expenditure which had resulted in the audit finding by the Auditor-General. He asked the CEO to elaborate on the expired leases and the amount of irregular expenditure incurred. He also queried the impact of the long turnaround times on the business of the NRCS.
Referring to the Generally Recognised Accounting Practice (GRAP), he asked when the entity had transitioned to GRAP from the previous system?

Mr Thring addressed the concerns regarding the pandemic.  There had been complaints about excess amounts of ethanol used in sanitisers. Ethanol carried a health risk. How was the NRCS eliminating fake or harmful sanitisers and preventing them from coming on the market? The University of Cape Town had undertaken a study and there were N95 and K995 masks coming from China that were of poor quality and were putting frontline workers at risk. What progress had been made in reducing the poor quality of masks that put the lives of frontline workers at risk?

Ms Y Yako (EFF) said that the Committee had received the same apologetic report from the NRCS on the previous occasion that it had presented. She thought the strategy would take forward those issues that the Committee was concerned about. The current report was still apologetic. Slide 6 referred to delays in modernising the IT system. How far was the NRCS with that issue? Slide 7 spoke of an external auditor – possibly the Auditor-General – that had made 26 findings in the 2019/2020 audit. What was the plan regarding the buildings for NRCS? During the last oversight visit, NRCS had been residing in the SABS buildings and the Committee had observed a lot of breakdowns. How far was the NRCS in getting its own space so that it could function in a proper manner?

Ms Yako noted that 19 interns had been assimilated into the structure. What qualifications did the interns have and what were the intentions of the entity in terms of those interns? The NRCS had spoken about the impact of Covid-19 on the lives of their staff but Covid-19 had been around since 2020, so she felt that it should not be a factor in the lack of performance by staff members. Most companies had adapted to the Covid-19 conditions. What strategy had been put in place to work within that environment to ensure staff were equipped to deal with the intake?

She added that the CEO always seemed to have an attitude of apology. He should not be apologetic. She wanted him to be very aggressive before the DG and the Minister so that the NRCS was taken very seriously. It was a very important entity in the Department of Trade, Industry and Competition but it had lagged behind and the Committee had seen the same thing time and again. The CEO had to empower his position to ensure that the entity was prioritised.

Finally, Ms Yako referred to the filling of critical roles. That had only happened in early 2021. By when would the Committee see results? Would the next report be the same as the past or would the next report present a new approach that showed how concerns had been addressed?

Ms N Motaung (ANC) acknowledged the presentation. There had been a lot of progress since the previous meeting, especially in respect of LOAs, ICT and Human Resources. There were 13 audit findings remaining that needed to be addressed. What were the 13 findings? What qualifications did the interns have and how were they dealing with the application process? Was the NRCS giving opportunities to the poor to train as interns? She was happy with the progress made.

Ms J Hermans (ANC) appreciated the progress made by NRCS and the appointments made but she wanted to see how a reduction could be made in the turnaround time of 120 days for the approval of products; what was the NRCS’s goal in terms of the number of days? It would be useful if the next presentation could include a slide showing the organisational structure, especially in the light of the reduced work and reduced income. The Committee was looking at a turnaround strategy: what was ballpark date for the completion of the turnaround?

The Chairperson thanked the Members and requested the NRCS to respond to issues raised.

Mr Mamadise responded to Mr Thring’s enquiry concerning the leases. There were five regional offices –Durban, Port Elizabeth, Bloemfontein, Cape Town and Hermanus. The challenge was that most of the leases had expired and processes to renew them had not been completed timeously, resulting in irregular expenditure. The entity had dealt with the matter decisively and had implemented consequence management for the official responsible who had been issued with a final written warning and had been demoted. The entity would expedite a process to appoint a specialist to manage facilities. He explained that the person who had been the Facilities Manager had originally been appointed as the Records Manager and she had been asked to take over facilities without training. That had been addressed with the intended appointment of a specialist Facilities Manager.

Mr Mamadise informed the Committee that sanitisers were not regulated by the NRCS but by a unit in SABS. Ethanol in sanitisers occurred because there were no compulsory specifications for sanitisers, although specifications could be requested. The National Consumer Council would be an appropriate body to investigate the issues relating to irregular hand sanitisers. He explained that there was a lot of misunderstandings about masks, particularly the K95 mask. The K95 mask was intended to offer protection from dust penetration but did not protect from viruses. If used for medical purposes, one needed to involve a second process to prevent biological penetration and that needed the approval of the South African Health Products Regulatory Authority (SAHPRA). Because of that misunderstanding, people relied on the SABS approval of a mask, but if used for medical purposes, it had also to have SAHPRA approval. The SABS mark of approval on the mask referred to the penetration of particles. The masks could therefore not be used for preventing biological infiltration purposes without an SAPHRA approval.

An open system had been followed to process the IT tender. Mr Mamadise stated that the CIO would provide details.

In responding to Ms Yako about the delays in the IT system, Mr Mamadise noted that the Committee was well aware of the major issues that had contributed to the various delays. Irregularities in the tender process had resulted in the NRCS twice cancelling the contract and the person responsible had to be dealt with before the matter could go forward. However, the entity had now started the implementation of the programme and requirements were being assessed for a suitable system. A service provider had been appointed and the entity was looking at a “go live” date of March 2021 and the completion of the project by May 2021. He assured Ms Yako that he was not giving the Committee the same report. There had been some progress and he was convinced that the programme would shortly be implemented.

Regarding the 26 audit findings, Mr Mamadise suggested to Ms Yako that it was a huge improvement from the 2018/19 year-end when the entity had had 84 audit findings, four of which had contributed to the qualified opinion. In 2019/20, the narrative had changed significantly. There was only one ground for qualification and that was not about governance or control. It was purely a legal-technical issue related to the Accounting Standards and could only be resolved by National Treasury. If that issue could be resolved by National Treasury, the entity could resolve the qualification. Of the 26 audit findings, there were only 13 unresolved findings and they were related to the revenue qualification.

He added that the other irregular expenditure findings were not major findings but medium risk housekeeping findings regarding the IT system and would be resolved by the end of September with the implementation of the ERP system. The other findings were also housekeeping findings and could not be resolved until the preparation of financial statement as they had to do with the preparations for the Annual Financial Statement.

Addressing the qualifications of interns, Mr Mamadise explained that the NRCS was mostly a technical institution and technical staff had to undergo a two-year training programme to become qualified inspectors. No interns had been appointed to the technical side of the business as the training programme was the equivalent of an internship or on-the-job training. Interns had been appointed to support the Administration, Human Resources and Finance. The interns were required to have at least a National Diploma. The process followed had been to advertise in national newspapers and to follow the normal recruitment process. Only people who had never been involved in an internship programme had been appointed.

Mr Mamadise informed Ms Hermans that there was a rationale behind the 120 days that it took to approve products. The NRCS had to ensure that the products were of a high standard and good quality. One had to tread carefully when talking about a reduction in time. The NRCS had appointed a committee in February 2021 to look at the possibility of reducing turnaround time. He could only respond to Ms Hermans when that process by the internal task team had been concluded. He also promised to present the organisational structure to the Committee.

In response to Ms Yako’s comments about him not taking an apologetic stance, Mr Mamadise was adamant that he was not apologetic but humble. There had been a number of challenges in the NRCS when he had started working there and he had brought stabilisation to the entity and could now focus on long-term strategic objectives to support the economy and the dtic which had a mandate to promote industry.

Ms Majola responded to Mr Cuthbert’s question. The entity had received and considered 13 tenders which had ranged from R13 million to over R90 million. The NRCS had gone with SAGE 300 supplied by Arctic IT. The total cost of the solution, including five years’ support was R29 million. The implementation phase, which had begun in October 2020, would take nine to ten months. Twelve modules would be developed. The focus was on Finance, Human Capital Management (HCM), Supply Chain Management (SCM), payroll, fleet management, case management, fixed assets and document management. The entity had prioritised the payroll which was to be implemented in March 2021, financial and SCM modules had also been prioritised. May 2021 was the goal line for the system to be fully implemented. Thereafter, June had been put aside for addressing any issues.

Ms Thulare stated that the NRCS was committed to creating an enabling environment for the industries that it supported and it worked hard at not becoming a barrier to trade. The NRCS had heard industry crying out about turnaround time and so the matter was being investigated so that the entity could unlock those areas that had been a challenge. So far, evidence showed that applications that took 120 days did so mostly because of outstanding documents required for high-risk reports. She reminded the Committee that there were differentiated timeframes according to risk level: low risk took a maximum of 60 days; medium risk took 90 days and high risk took 120 days. The NRCS would report back to the Portfolio Committee on the findings of the task team as the information gathered in that report would inform the way forward in respect of the turnaround time.

Ms Ramcharran stated that the irregular expenditure totalled R2.2 million, the majority of which related to the lease contracts as earlier explained by the CEO. She added that GRAP 23 had had been in use since the inception of the NRCS, so that was not an issue in that it was new. The qualifications had been made for the last seven or eight years. Initially, there had not been a problem with the revenue because it had not been looked at in totality with the Act and Regulations. Now, the Auditor-General was looking at the Act, the Regulations and GRAP 23 and, in conjunction with one another, the technicality and the compliance aspect had arisen.

The Chairperson commented that it was one of only two institutions with which the Committee had challenges in respect of a turnaround strategy and the Committee would have to follow up with both NRCS and SABS.                                                       

There being no further questions, he requested the DG to make his closing remarks.

Closing remarks by dtic
The DG thanked the Members of the Committee for their guidance and advice. He stated that when the turnaround strategy had been put in place by the dtic, the NRCS had been in crisis and Mr Mamadise had been seconded to the NRCS. There had been labour unrest, conflict within management, no IT systems in place, and so on but, even though there was still work to be done, the institution had been stabilised, the key skills had been put in place and it was financially sound, so a lot of work had been done but more would be done to take the entity to world class standards.

The DG stated that a report would be made shortly on SABS. That entity had also successfully addressed its audit findings and it had been brought back to operations and proper testing and proper accreditation was being done. The only reason why the Department had requested an extension for SABS was because, unlike the NRCS which was financially sound and had clear targets for the next three years, SABS had to undertake some cost reductions. The operation at SABS was sound but the audit team had said that there had to be some cost reductions and some critical decisions had to be taken by the turnaround team and management. When one embarked on cost reduction, it inevitably impacted on staff, necessitating an engagement with labour, the bargaining chamber and the trade unions. SABS had to attend to that first. After the engagements with trade unions and labour, SABS would report to the Portfolio Committee. He asked the Committee to allow SABS that time as things were going smoothly at the entity.

The Chairperson thanked the DG and concluded the agenda item.

Closing remarks
The Chairperson reminded the Committee Members that the following three days would be busy with State of the Nation (SONA) sittings. The Portfolio Committee would meet the following morning to receive the dtic financial and non-financial Reports on the Second and Third Quarter Performance but he released Members to go and prepare for the SONA debate that afternoon.

The meeting was adjourned.

 

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