Companies & Intellectual Property Registration Office (CIPRO) Auditor General Report on findings of Procurement Investigation
Public Accounts (SCOPA)
08 November 2006
Meeting Summary
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Meeting report
STANDING COMMITTEE ON PUBLIC ACCOUNTS
8 November 2006
COMPANIES AND INTELLECTUAL PROPERTY REGISTRATION OFFICE (CIPRO) AUDITOR
GENERAL REPORT ON FINDINGS OF PROCUREMENT INVESTIGATION
Chairperson: Mr T Godi (PAC)
Documents handed out:
Companies and Intellectual
Property Registration Office (CIPRO) Annual Report 2005/2006 [available shortly
at www.cipro.gov.za]
Auditor General's Audit Report on CIPRO
Auditor General's Report: Findings
of Investigation into Procurement of Companies and Intellectual Property
Registration Office
SUMMARY
The Companies and Intellectual Property Registration Office as well as the
Department of Trade and Industry were called before the Committee. The Office
had received a disclaimer from the Auditor-General for its financial
statements. The Members raised concern about irregularities in the procurement
of goods and services. Questions were asked about the Office’s old debts,
sponsorships, inadequate IT systems, irregular and wasteful expenditure, staff
turnover rates and large numbers of unfilled positions. The Director General of
Trade and Industry was told that he has to turn the Office around by the end of
January 2007. Should this not happen, the Committee will institute criminal
proceedings against him.
MINUTES
The Chairperson noted that the Standing Committee on Public Accounts
(SCOPA) takes the financial management of all departments and public entities
seriously and that it would be no different with the Companies and Intellectual
Property Registration Office (CIPRO). SCOPA believed that CIPRO was not
fulfilling its mandate. The performance report received from the
Director-General: Trade and Industry and the disclaimer from the
Auditor-General Shauket Fakie was not good. The recent media coverage about
CIPRO was an embarrassment to the government.
Mr D Gumede (ANC) wanted to know what had been done about the disclaimer which
CIPRO had received from the Auditor General. He added that the internal audit
Committee of CIPRO is not functional. He wanted to know why outside help had
not been sought.
Mr Keith Sendwe, Chief Executive Officer for CIPRO, replied that he had only
been recently appointed and that Mr Kobus Pienaar would be able to answer the
question, as he was the Acting CEO of CIPRO at the time.
Mr Kobus Pienaar, Executive Manager, replied that CIPRO had had an Acting CEO
for almost two years. The previous Acting CEO was offered the position but had
declined and had taken up another position in government. During the two years
there had been much instability at CIPRO. The company had lost 13 managers. He
added that the internal audit Committee had since become fully functional.
Various consultants had been employed to help with the internal audit
Committee.
The Chairperson asked for how long the consultants would be helping the
company. He also wanted to know from the Director-General why a Chief Executive
Officer had not been appointed.
The CEO replied that they had contracted the consultants for the next two
years.
Mr Tshediso Matona, Director General: Department of Trade and Industry (DTI),
commented that the situation with CIPRO was beyond their control. The previous
Acting CEO, who was put in place after the CEO resigned, had been offered
another position in government. The delay in the latter part of this process
was with the Department of Public Service and Administration. He reminded
members that CEOs are appointed with the approval of Cabinet.
Mr Gumede wanted to know if CIPRO had asked for any assistance from National
Treasury.
Mr Pienaar replied that they had not asked National Treasury for assistance.
CIPRO had developed a strategy to improve the internal audit structure, which
was in place.
Mr Gumede commented that the process of internal auditing was ongoing. He
wanted to know if they had simply decided to put this process on hold because
they are restructuring.
Mr Pienaar replied that CIPRO had a severe shortage of senior managers and
other staff. CIPRO was growing at a fast pace and they had improved the time it
takes for registration from six weeks to two days for a close corporation.
Mr Gumede wanted to know if CIPRO regards controls as being critical.
Mr Pienaar replied that they see control as being important.
Mr E Trent (DA) wanted more clarity on the fraud and corruption investigation
which was currently taking place at CIPRO
The Auditor-General asked CIPRO why there had been such a huge exodus of staff.
Mr Sendwe replied that in 2002 there were a lot of challenges facing CIPRO,
which had still not been overcome. He said that the organisation is still
extremely traumatized. In the last few years there have been seven CEOs. Six
CFOs and 14 managers have left.
Ms Astrid Ludin, Deputy Director General: Management and Organisation, DTI,
replied that the DTI had put together an advisory Committee to deal with some
of the challenges at CIPRO. Most of the staff had left because the CEO had
left.
Ms A Dreyer (DA) asked the Director General how long he had been in his
position.
The Director General replied that he was the Acting Director General from April
2005 and was appointed as a full Director General in July this year.
Ms Dreyer said this was part of the problem. Even thought the Director General
was only appointed in full in July this year, the Committee will still hold him
accountable. She wanted to know if the DTI believed that the CIPRO mandate
applied to them.
The Director-General replied that the mandate does apply to the Department as
well.
Ms Dreyer wanted to know why two board members and some of the senior officials
in the Department did not declare their interests.
The Director-General replied that he is not sure if the two board members knew
that they had to declare interests in companies.
Ms Dreyer commented that if they knew about the section in the Public Service
Act that says they should declare all interests in companies affiliated to the
Department, it means that they had knowingly broken the law.
The Director-General replied that in an environment like CIPRO where there are
no strong controls in place, people would do things that they normally would
not do.
Ms Ludin said that the two board members who did not declare any of their
interests were asked by CIPRO to do some work for them. She felt that the
Auditor General’s report was a bit misleading.
Ms Dreyer wanted to know what action was taken against the senior officials who
did not declare their interests.
Mr Pienaar replied that everyone from post level thirteen upwards had to
declare financial or commercial interests. This process has already begun and
everyone who should be filling in the form will be asked to do so.
The Auditor-General commented that there may have been an internal discussion
about the interests of board members, but his office had not received any official
documents.
Ms Dreyer commented that she had come across an advertisement in the newspaper
from CIPRO asking for the public to comment on a register which would have a
list of all people who have been convicted or declared insolvent. She wanted to
know if this register would also apply to the Department. She said that the
lack of policies and procedures could be traced back to the high level of
vacancies in CIPRO. She wanted to know if this staff turnover is not a cause of
concern to the Auditor General.
The Director-General replied that the vacant positions are for senior managers.
The Department felt that it would be best to first fill the vacancy of CEO
after which the other vacant positions would be filled.
Ms Dreyer wanted to know why all the staff was leaving.
The Director-General replied that a large organisation needed a strong top
structure. There was low staff morale in the organisation, which needed to be
addressed. No survey or research was conducted to find out why the people were
leaving.
Ms Dreyer commented that she hoped that CIPRO had developed a staff retention
process.
Mr Sendwe replied that they needed to establish where the gaps in the
organisation were. He said that they are about to appoint a new Chief
Information Officer (CIO). The IT strategy of CIPRO is about to take off and
checks and balances will be put into place.
Ms Dreyer wanted to know what surety CIPRO has that the Chief Financial Officer
will not leave. She also wanted to know how CIPRO would cope with registrations
with the 2010 World Cup looming.
Mr Sendwe replied that the registration process is up and running and meeting
all the deadlines.
The Chairperson commented that the financial statements had received a
disclaimer.
Ms Dreyer commented that a disclaimer was the worst form of opinion from the
Auditor General. She said that one should look at quality and not quantity.
Ms Olga Hattingh, Chief Financial Officer, replied that they had adopted the
Department’s policies and procedures. All accounts from April-October 2006 have
been reconciled. All managers had signed a performance agreement.
Mr G Madikiza (UDM) wanted to know what the telephone policy of CIPRO is.
Ms Hattingh replied that each staff member receives R40 for private calls. If
the calls exceed this amount the staff member is required to pay the excess.
Blocking certain numbers enforces this policy.
Mr Madikiza commented that a large sum of money for the telephone account had
not been recovered.
Ms Hattingh replied that they are in the process of sending letters out to
staff who owe CIPRO money for the phone bill. They would be required to sign
the letter, which would enable CIPRO to deduct the money from their salary.
The Auditor-General asked that the Committee be given an indication about the
age of the debt.
Ms Hattingh replied that the debt is a year old. CIPRO is in the process of
identifying how many of the involved staff members still work for them and how
many have left.
Mr Madikiza wanted to know if any of the staff had been paid a performance
bonus and on what basis this was done.
Mr Pienaar replied that performance bonuses had been paid. He said that they
could not penalise staff who had met their performance targets.
Mr T Mofokeng (ANC) commented that IT related goods and services were procured
by CIPRO. There was no consultation with the State Information and Technology
Agency (SITA) and no compliance with the Public Finance Management Act (PFMA).
Millions of rands were spent on the IT systems and yet no tender process was
followed. He wanted to know why SITA was not consulted.
Mr Pienaar replied that the people involved in the IT transactions were no
longer working for CIPRO. CIPRO is currently in consultation with the legal
department to see if there was a way to take legal action against those
responsible. SITA was not cooperating at the time when the IT systems were
procured. Currently CIPRO is using SITA for a lot of transactions.
The Chairperson wanted to know when CIPRO had discovered the deviations. He
wanted to know why CIPRO had not informed the DTI about the problems with SITA.
Mr Pienaar replied that the system was acquired 3 or 4 years ago.
Mr Trent commented that this is the first time he has seen the Auditor General
recommend that legal action be taken by a Department.
Mr Sendwe indicated that they would provide quarterly reports to the Committee
on the progress of the investigation.
Dr E Nkem-Abonta (ANC) wanted to know what the core function of CIPRO was.
Ms Ludin replied that their core function is the registration of close
corporations and of intellectual property.
Dr Nkem-Abonta wanted to know if they dealt with confidential information.
Ms Ludin confirmed this.
Dr Nkem-Abonta commented that in 2004 a report was compiled which found serious
weaknesses in CIPRO.
Ms Ludin replied that the audit related to the company’s computer system.
Dr Nkem-Abonta wanted to know if the weaknesses identified had been addressed.
Ms Ludin replied that the Department was aware of the report but did not deal
with it.
Ms Hattingh replied that a detailed action plan has been put together to deal
with the findings in the report.
Dr Nkem-Abonta wanted to know if any progress had been made.
Mr Sendwe replied that at the time CIPRO was seriously incapacitated. Currently
CIPRO is recruiting specialists to deal with the problems.
Dr Nkem-Abonta wanted to know to know if CIPRO had received any sponsorship and
if it had been declared.
Mr Pienaar replied that they had received some sponsorship for their year-end
function. The sponsorships had been recorded but were not declared officially
to the Auditor General. The system, which they used did not allow for the
registration of sponsorships.
Mr H Bekker (IFP) commented that there was a payment of over R1million for work
that was never completed.
Ms Hattingh replied that this problem had been corrected. The line managers are
receiving training. They are told to make sure that the work has been completed
before issuing an invoice.
Mr Bekker commented that were indications that there was no tender process in
place. He said that there were three quotations from different companies but
they have the same physical address and telephone numbers. He said that this
was fraud and wanted to know what action has been taken.
Ms Hattingh replied that measures have been put in place so that the service
provider can be verified. She replied that no disciplinary action has been
taken yet as there is still an investigation taking place to see if it was
fraud.
Mr Bekker felt that this was either incompetence or fraud.
Ms Hattingh commented that they have implemented guidelines from National
Treasury.
Mr Bekker wanted to know if the IT systems had been updated. He said that it
was embarrassing to find that the information in the system had not been updated.
Mr Pienaar replied that they are in the process of updating the system. CIPRO
is compiling a list of MPs and senior managers who need to be contacted and
their information updated.
Mr Bekker wanted to know if the new system was operational or if there was a
lack of capacity in CIPRO to update the system.
Mr Pienaar replied that there are different reasons for the backlog. Once the
system has been cleaned up all the information in it will be correct.
Mr Bekker wanted to know if the system that was acquired is able to handle the
information.
Mr Pienaar replied that the system is old and is currently under review.
Mr Sendwe added that there is a constant need to review the system.
Mr Bekker wanted to know if CIPRO is able to give the assurance that only
people who are registered to claim for VAT could claim.
Ms Hattingh replied that they could give the assusrance.
Mr Trent commented that the Committee was told that people were leaving CIPRO
because of the work environment. CIPRO has made R88 million profit. The third
highest expenditure is for the outsourcing of services. He wanted to know why
CIPRO could not solve their problems.
The Director-General replied that they were looking at issues in a wider
context. Low staff morale was just one of the challenges at CIPRO.
Mr Sendwe replied that a huge amount of money had been spent on outsourcing,
but this was mainly for ICT.
The Auditor-General commented that there has been a lot of instability and
vacancies in CIPRO, as well as a lack of skills. He felt that it would be
helpful for CIPRO to share their strategy with the Committee and to provide
quarterly reports.
Mr V Smith (ANC) suggested to the Director-General that he started managing his
Department. He said that there was a failure to comply with any tender process.
He told the Director-General that there has to be improvement by the end of
January 2007 or the Committee will initiate criminal action against him. He
said that there was a recurrence of companies that had benefited from irregularities
in the procurement process.
An official from National Treasury told the Committee that in 2004, the DTI had
asked them to change the CFO. She said that some of the problems that were
highlighted were due to the reporting procedure followed. The approvals needed
by trading entities had to come through the Director General at the DTI.
The Director-General commented that they would be happy to share the turnaround
strategy with the Committee. He said that the irregularities around the
procurement of goods and services have to be pursued.
The meeting was adjourned.
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