Presentation to the Portfolio Committee on Trade and Industry NRCS Annual Report FY 2012 11 October 2012

In attendance from NRCS Mr. Nico Vermeulen (Apology) Chairperson of NRCS Board (Acting) Mr. Katima Temba Chief Executive Officer (Acting) Ms. Reshma Mathura Chief Financial Officer Ms Trish Pillay Chief Financial Officer (Acting) - Outgoing

Purpose To brief the Portfolio Committee on Trade and Industry on the Annual Report of the NRCS for financial year ending 2012

Scope Organisational mandate Background Organisational challenges Overview of strategic outcomes Performance against strategic plan Report of the Auditor-General Control framework and high-level action plans Financial overview

Organisational Mandate

Organisational Mandate Mission and Vision To Protect the interests of South Africans by developing and ensuring compliance with a system of compulsory specifications and technical regulations NRCS Mission A safe, competitive and prosperous South Africa in which we collaborate with our partners to promote environmental sustainability and contribute to a world class technical infrastructure. NRCS Vision

Organisational mandate Legislative mandate Mandate of the NRCS is derived from the following Acts. National Regulator for Compulsory Specifications Act (Act No. 5 of 2008) Trade Metrology Act (Act No. 77 of 1973) National Building Regulations and Building Standards Act (Act No. 103 of 1977) The Foodstuffs, Cosmetics and Disinfectants Act (Act 54 of 1972) The Public Finance Management Act (Act 1 of 1999)

Background

Background Pre 2008 FY 2009 FY 2010 FY 2011 FY 2012 Functions of NRCS housed within the SABS as Regulatory Division Pre 2008 NRCS formed on 1 September 2008 Schedule 3A Public Entity in terms of the PFMA Appointment of the Interim Management Committee FY 2009 Interim Management Committee became the NRCS Board Interim Structure for NRCS, Appointed a CEO FY 2010 NRCS Regulations came into effect on 1 January 2011 Appointed new Acting Board Chairperson Implementation of IPAP2 FY 2011 Suspension of CEO, Resignation of other key staff (CFO, SCM) Implemented updated 5-year strategic plan DTI, Public Protector and other investigations initiated Industrial Action FY 2012

Organisational Challenges

Organisational Challenges Current challenges faced by NRCS include: Organisational maturity as NRCS is still in infancy stage Organisational transition from SABS to stand-alone entity Delivery of NRCS mandate and achievement of performance targets for operational units Internal stability resulting from investigations and uncertainty iro outcomes of these investigations. Stability of organisational structure and staff turnover Generation of revenue reliant on trends and markets Internal control weaknesses including procurement, asset management and HR Labour relations and a range of staff and HR issues

Overview of strategic outcomes

Overview of strategic outcomes Per the Strategic Plan FY2012-FY2017 Goals Adopt a risk based approach to maximise compliance with all specifications and technical regulations falling under the mandate of the NRCS Optimise the scope of NRCS’s regulatory activity to protect people and the environment on South Africa Inform and educate industry and customers regarding their rights and obligations wrt. Specifications and technical regulations Ensure that highly engaged, competent people are in the right place at the right time to enable effective execution of the NRCS strategy Ensure that the NRCS is a capacitated organisation with “fit for purpose” resources available to support decision making and action

Performance against strategic plan

Performance against strategic plan (1) Strategic Goals Outcome Division Targets Actual performance Achieved Comments To Maximise compliance with all specifications and technical regulations falling under the mandate of the NRCS Maximum coverage Perishable Division 100% of all production & consignments inspected for compliance to the minimum compulsory specification requirements Local products: 100% Imported products: 100% Exported products: 100% Non-Perishable Division CMM: 8160 Inspections Automotive: 7650 Inspections Electrotech: 7600 Inspections CMM: 7288 Inspections Automotive: 5408 Inspections Electrotech: 6419 Inspections Resignation of staff Staff suspensions Strike action by staff Other Border enforcement project Legal Metrology Division 5438 Inspections 5621 Inspections Ensure common understanding and application of NBR by industry and authorities National Building Regulations 100% of all Review Board cases requests, investigated and recommended to the Review Board within 60 Days 11 Cases submitted to Review Board. 77.8% of these cases were investigated and recommended to the Review Board within 60 days External factors, including awaiting documents from stakeholders

Performance against strategic plan (2) Strategic Goals Outcome Division Targets Actual performance Achieved Comments To Maximise compliance with all specifications and technical regulations falling under the mandate of the NRCS Finalise and publish informative research RRD 2 research papers published No research papers produced, 3 impact assessments conducted Impact assessments are pre-cursors to research papers Prosecute non-compliances in accordance with NRCS Act Special Investigation Unit 50% of cases investigated No cases investigated Unit not properly resourced Unit in the process of being resourced To extend the scope of the NRCS regulatory activity to increase the protection of South African Citizens Build a regulatory framework that is sustainable and that protects South African citizens 11 compulsory specifications / technical regulations approved by the Board 2 compulsory specifications approved by the Board 8 awaiting Board approval Timing difference between Board approval and preparation of specifications To implement a Risk Based Approach to regulation that informs all regulatory activity Effective and efficient inspections and resource utilisation All Operational Business Units Board approval of the Risk Based Strategy Risk Based Approach was not approved by the Board, however the project plan was approved by the Board Approval of the plan allowed the approach to be piloted.

Performance against strategic plan (3) Strategic Goals Outcome Division Targets Actual performance Achieved Comments To ensure the “right people are in the right place at the right time” to enable effective execution of the NRCS Strategy Appropriate organisational structure Competent and motivated staff Corporate Services Organisational structure approved by the Board 50% implementation of the HR strategy 25% implementation of HR strategy Structure placed on hold Job grading and profiling currently at tender stage To inform and educate stakeholders, industry and consumers regarding obligations of the NRCS with respect to specifications and technical regulations Increase consumer and industry awareness 5% increase in benchmark survey score Benchmark survey was not conducted Quotations received higher than amount budgeted To be combined with reputational model Enhance consumer education Operational Business Units 100% of all confiscations and product recalls covered 100% of alerts on non-compliances, confiscated products and recalls were issued NRCS recognised as an effective regulator by stakeholders Develop reputational model Reputational model not developed No quotations were received. To be combined with consumer industry awareness initiative Conduct a survey for the benchmark Benchmark survey not conducted

Report of the Auditor-General

Action Plans: Auditor General report (1) Area of audit concern Detail Management interventions Revenue from services rendered from exchange transactions Non-accrual for revenue Inspections conducted not translated into revenue within the reporting period A manual weekly report on certification is in the process of being implemented. This will be reviewed weekly for revenue completeness. Property, plant and equipment Useful life of assets not reviewed Accuracy of asset register Full asset count will be conducted by February 2013. A reconciliation is in process between the Asset Register and the General Ledger Restatement of FY 2011 figures Correction iro. depreciation on investment property. Correction of bonus provision recognised as accrual. Figures were corrected in the AFS. A financial manager is being appointed and will add integrity to the AFS. In the process of procuring an AFS software to ensure accuracy of AFS

Action Plans: Auditor General report (2) Area of audit concern Detail Management interventions Predetermined objectives Usefulness of information Performance indicators not well defined Performance targets not specific Reliability of information Reported performance not valid, accurate and complete Achievement of planned targets 3 of 15 planned targets were achieved – 80% non-achievement NRCS 2012/13 – 2014/15 Annual Performance Plan has addressed some of the identified problems. The NRCS 2013/14 – 2015/16 Annual Performance Plan will ensure that all identified performance targets are clearly defined NRCS has also defined an inspection and is in the process of documenting processes to ensure uniformity and clear understanding All responsible Heads are now required to sign-off their performance information reports NRCS is in the process of recruiting to enhance capacity in areas that has insufficient human resources

Action Plans: Auditor General report (3) Area of audit concern Detail Management interventions AFS, performance and annual report Not submitted in accordance with prescribed reporting frameworks A financial manager is being appointed and will add integrity to the AFS. In the process of procuring an AFS software to ensure accuracy of AFS Asset management Systems not in place to safeguard assets An asset accountant will be appointed to manage the recording of all assets. Policies and procedures related to assets will be reviewed. NRCS is in the process of commissioning a health check on JD Edwards, financial system to determine the root cause of the ICT problems on the asset register. In the meanwhile, a manual reconciliation between the fixed asset register and the GL is being conducted.

Action Plans: Auditor General report (4) Area of audit concern Detail Management interventions Procurement and contract management Non-compliance with procurement thresholds, processes, requirements Awarding of contracts in accordance with legislative requirements The organisation’s procurement processes have been improved to ensure compliance to Treasury Regulations and Frameworks. The SCM policy has been revised and updated to incorporate all legislative requirements. The appointment of a SCM Manager has enhanced compliance and reporting of non-compliance. For all transactions initiated after 30 September 2012, the NRCS is now compliant to policies. The NRCS is further in the process of appointing a contract specialist who will both assist with management of contracts and assist in tender-related matters. The filing system will be upgraded, secured space for Procurement Department will be explored, and document movement to and from procurement will be managed more carefully.

Action Plans: Auditor General report (5) Area of audit concern Detail Management interventions Internal control Leadership oversight Material misstatements in financial and performance reporting The appointment of a CFO has strengthened the Finance Department and general financial controls. Furthermore, the capacitation of the finance department with competent staff, will further enhance its effectiveness. The NRCS is in the process of consulting employees on the organisational structure. This will bring stability and ensure clear lines of responsibility All Acting Executives are required to sign-off their divisional reports. NRCS is in the process of aligning all performance agreements are in-line with the NRCS annual performance plan. Expenditure management Irregular, fruitless and wasteful expenditure An SCM Manager has been appointed. In addition, communication of the revised procurement policy is an ongoing initiative to the management and staff of NRCS. Instances of irregular, fruitless and wasteful expenditure are recorded by procurement and relevant controls are being put in place to deal with these instances.

Control framework and high-level action plans

Actions to address issues Enforce accountability Maintain responsibility Appoint capable staff Review adequacy of current systems and related controls Implement controls where necessary Monitor non-compliance Review and implement new structure Appoint competent leadership and staff Manage labor relations issues Reduce number of vacancies Implement policies and procedures Review for compliance and relevance Comply and report non-compliance Policy & process People, structure, capacity Accountability and responsibility Systems and controls

Financial overview

Financial Overview: Revenue (3) Composition of revenue for FY 2012

Financial Overview: Revenue (1) Monthly revenue collection trends reflect peak periods for revenue collection

Financial Overview: Revenue (2) Cumulative revenue collection for the financial year show the total revenue collected in the year

Financial Overview: Expenditure (1) Expenditure makeup for FY 2012

Financial Overview: Expenditure (2) Expenditure makeup for FY 2012 – FY 2009

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