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Presentation to the Portfolio Committee on Trade and Industry on the NRCS’ Third Quarter Performance Report for the 2016-17 Financial Year Mr Edward Mamadise Acting Chief Executive Officer 14 February 2017 1

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Presentation to the Portfolio Committee on Trade and Industry on the NRCS’ Third Quarter Performance

Report for the 2016-17 Financial Year

Mr Edward Mamadise Acting Chief Executive Officer

14 February 2017

1

NRCS representation

Mr. Edward Mamadise Acting Chief Executive Officer

Ms. Elmarie Cornelius Acting Chief Financial Officer

Ms. Meisie Katz General Manager Foods and Associated Industries

Mr. Bongani Khanyile General Manager Electro-technical

Mr. Edward Matemba Manager: Strategy and Risk

2

Scope of Presentation

Status on Portfolio Committee Commitments Electro-technical LOAs Progress on IT commitments

Strategic Overview of the NRCS

Strategic Goals, Mission, Vision Legislative mandate Regulated industries Highlights

Performance against Targets Non-Financial Performance Financial Performance

Challenges

3

NRCS Strategy, Mission and Vision

NRCS Strategic Goals Mission & Vision

4

To ensure an optimally

capacitated institution

To develop, maintain and administer compulsory

specifications and technical regulations

To maximise compliance with all specifications

and technical regulations

To inform and educate our stakeholders

about the NRCS

Mission

• To develop compulsory specifications and technical regulations, and maximise compliance of regulated products and services

Vision

• A credible and respected regulator for the protection of the public, the economy and the environment

5

National Regulator for Compulsory Specifications Act

(Act No. 5 of 2008)

Legal Metrology Act

(Act No. 9 of 2014)

National Building Regulations and Building Standards Act

(Act No. 103 of 1977)

The Foodstuffs, Cosmetics and Disinfectants Act

(Act 54 of 1972)

Mandate of the NRCS is derived from the following Acts.

Legislative Mandate

Industries regulated by NRCS

6

Industry Sector Product regulated / Service rendered Automotive Vehicles, Replacements components, Manufacturers Importers and

Builders Chemicals, Materials and Mechanicals

Building materials (Cement. Treated timber, Safety glass and other safety glazing material). PPE (Safety Footwear, Swimming aids, personal flotation devices, respirators

Electro-technical Electrical appliances and products, Electronic appliances and products

Foods and Associated Industries (FAI)

Fishery products, canned meat and processed meat

Legal Metrology Calibration of measuring instruments, weights, measures and gaming equipment

Building Regulations Ensure uniform interpretation of National Building Regulations and Standards Act, administer review Board

Key highlights

NRCS conducted 10 694 inspections 5 988 fishery and associated products consignment/productions 4 706 inspections for automotive, electro-technical, chemicals, materials and

legal metrology related products.

Non- Compliant Products NRCS found non-compliant products estimated at R69 million.

Automotive – Value of Non-compliance R2m. Brake friction material containing asbestos

CMM – R0,832m. Disinfectants, paraffin stoves plastic bas & swimming aids Electro-technical – Value of Non-compliance R0,987m. CFL’s, lamp holders,

luminaires, cord extension sets, incandescent lamps and adaptors, dishwashers, geysers, cell phone chargers

Foods and Associated Products – Prawns and canned fish - non compliance – mostly pathogenic Vibrio spp and these products were imported. The estimated monetary value of these products is R 47,918,730.00

Legal Metrology - The total monetary value of products tested R 138.6 million. The estimated value of the non-compliant products found is R17.4 million.

7

Progress on Commitments made to the Portfolio Committee

8

BACKLOG SHORT-TERM INTERVENTIONS - UPDATE

9

COMMITMENT Progress to date

Separation of administrative from technical processes

• Separation of Administrative and Technical processes completed - Implementation ongoing

Develop and piloted risk-based approach

• Low Risk & Medium Risk: Manual implementation on going using checklists.

Human Resources • Recruitment and Selection process underway, incumbents to start beginning April 2017. Interviews conducted 9 and 10 February 2017

Applications process during intervention period (Dec to Jan 2017)

• Applications Processed – 6 636 • Applications above 120 days - 2 716 • LOA issued - 2 075 • Since Feb 2017, number of capturers has been increase 3 to 7 to

deal with the backlog on LOA issuing stage. • Applications cancelled - 145 • Applications awaiting capturing – 1 404 • Applications unassigned – 73 • Applications in progress - 635 • Applications pending awaiting industry response – 2 377

NRCS Systems Improvements Progress – SHORT TERM INTERVENTIONS

• The NRCS appointed a service provider to improve current CRM system for a period of six months.

• Business requirements received from business and built into the system

• The building was completed and ICT is currently doing quality assurance before testing.

• Delays experienced in User Testing which was planned for December 2016 due to user availability.

• Testing started on the 23rd Jan 2016 after the holiday recess and expected to be finalised by the end of February 2017

10

NRCS Systems Improvements Progress – LONG TERM INTERVENTIONS

• Both Modernization and ERP specification were finalized in November 2016 but could not be advertised during December 2016 due to holidays recess period.

• The ICT steering committee met on the 17th of January and advised the CEO that the two specifications be combined. The CEO approved.

• Both specification were referred back to the BSC in line with SCM requirements. A new committee was appointed to combine and finalize the RFI Bid (BSC sat on the 2nd of February 2017 and document finalized & circulated for inputs to the ARC and ICT Steering committee.)

• The RFI will be finalized and advertised before the end of February 2017

11

Project Current Status • The e-EXCO resolved that the committee will now be headed

by the CIO assisted by Mr Riyano after the resignation of the CFO.

• The e-EXCO also resolved that the project teams be dissolved and the functional areas as identified be dealt with by the main committee.

• The CEO emphasized that business must sign off on their business requirements for the project as part of the business reengineering process.

• The NRCS will also appoint an external Project Manager to manage the project due to its size and impact.

12

13

NRCS Systems Improvements Progress – SHORT AND LONG TERM INTERVENTIONS

Document NRCS processes and identify areas of Improvement

Benchmark with similar entities for best practices

Re-Engineering of NRCS processes in line with

NRCS Strategic Objectives

& Implement an ICT Solution that meets NRCS

requirements

6 Months – 18 Months 88% Complete

08/1

6

09/1

6

12/1

6

01/1

7

11/1

6

10/1

6

06/1

7

01/1

8

12/1

7

10% Complete Completed Tasks

-Appointment of Service provider (6 Months period) System Optimisation -Fix Errors on system -Allocate user roles System Enhancement -Gather Requirements -Document and Sign off

Completed Tasks -Project Approval

-Engagement with Local vendors

Actual Performance Against set targets (Non-Financial performance)

14

Strategic Goal 1: To develop, maintain and administer compulsory specifications and technical regulations

15

Performance Indicator / Measure

Annual Target Quarter 3 Target Quarter 3 Actual Performance

Variance Reason for Variance

Number of new VC’s/Tech

Regulations submitted to the

dti for approval.

10 Compulsory

Specifications/

Technical

Regulations

4 Compulsory

Specifications/

Technical

Regulations

1 VC/TRs submitted to the dti for approval/1st gazetting

-75% Inadequate capacity within the Regulatory Research and Development area

Administer Review Board: % of

Review Board decisions

finalised within 30 calendar

days

100% 100% 100% None

Compulsory Specifications submitted to the dti

VC 8076, Safety of Lighters ( First gazette)

VC 8054, Chemical Disinfectants ( Final gazette)

VC 8056, Pneumatic Tyres for passenger vehicles and their trailers ( Final gazette)

VC 8059 , Pneumatic Tyres for commercial vehicles and their trailers ( Final gazette)

VC 8013, Hydraulic brake and clutch fluids (Final gazette)

16

SG 2: To maximise compliance with all specifications and technical regulations: Automotive

17

Performance Indicator / Measure

Annual Target

Quarter 3 Target

Quarter 3 Actual

Variance Reason for Variance Corrective Action

Number of

Inspections

conducted by the

NRCS – Automotive,

Electro-technical,

CMM and Legal

Metrology

18 900 4 345 4 706 +8,3% More retail inspections were conducted due to the need to respond to non-compliant products in the marketplace.

No Action Required

Percentage of Inspections conducted on locally produced, imported and exported canned fishery and meat product consignments

100% of inspections conducted on all declared produced canned fishery and meat products

100% of inspections conducted on all declared produced canned fishery and meat products

Inspected 100% of all declared consignments and productions Total Inspections conducted 5988

No Variance N/A No Action Required

SG 2: To maximise compliance with all specifications and technical regulations: Chemicals, materials and mechanicals

18

Performance Indicator / Measure

Annual Target

Quarter 3 Target

Quarter 3 Actual

Variance Reason for Variance Corrective Action

Number of inspections conducted on locally produced Frozen products and fishery and canned meat processing factories and vessels in accordance with the compulsory specification and procedures

2 135 inspections

511 inspections

529 3,5% Land based facilities are inspected by the NRCS on request by the Industry. The number of requests received in this quarter were higher than expected.

No action necessary at this stage.

Percentage of approval applications processed within the set timeframes

90% of all approval applications processed within 120 calendar days

90% of all approval applications processed within 120 calendar days

47% (1 742 out of 3 739) of all approval applications processed within 120 calendar days

-43% 1) Backlog within the Electro-technical domain

2) Inadequate Capacity 3) Applications submitted without all required documents or unacceptable Test Reports

4) Delays in implementing dormant VCs within CMM

Implemented overtime

Appointed new employees

Utilizing field inspectors to eradicate the backlog

Implemented the 30 days cancellation policy for applicants who fail to respond to NRCS findings

Breakdown of Approvals per Industry (Business Unit)

19

Opening Balance

Applications received during the quarter

Processed and Finalised within 120 days

Processed and Finalised over 120 days

Total Approvals Finalised

Applications carried over to Quarter 4

% Within 120 Days

Legal Metrology Gaming Applications

102 356 250 0 250 208 100%

Legal Metrology Type Approvals

73 49 58 1 59 63 98%

CMM Approvals 423 54 38 70 108 369 35%

Automotive Approvals*

1802 1037 888 31 919 1882 97%

Electro-technical Approvals**

5170 2919 508 1895 2403 5583 21%

Total 7570 4415 1742 1997 3739 8105 47%

SG 3: To inform and educate our stakeholders about the NRCS

20

Performance Indicator / Measure

Annual Target

Quarter 3 Target

Quarter 3 Actual Performance

Variance Reason for Variance

Number of stakeholder consumer education events

or campaigns

12 NRCS consumer education events or campaigns

3 NRCS consumer education events or campaigns

4 Consumer Awareness Campaigns were conducted

+33% The variance was due to the Poultry workshop that was organised by the Department of Agriculture, Forestry and Fisheries

Strategic Goal 4: To ensure an optimally capacitated institution

21

Performance Indicator / Measure

Annual Target Quarter 3 Target

Quarter 3 Actual Performance

Variance Reason for Variance

Corrective Action

Percentage (%) of vacancy rate

6% - 9.62% vacancy rate as of 31December 2016

.

Resignations and retirements coupled with a moratorium on filling of vacancies as a measure to manage Human Resources costs

Filling at least 5 vacant posts during Quarter 4

Developed, approved and implemented ICT Master System Plan (MSP)

Develop and approve ICT Master System Plan

Draft concept for MSP finalised

Draft Master Systems Plan (MSP) developed and circulated for IT Steering Committee in January 2017

MSP was referred back to take into consideration the need to modernize the NRCS

Human Resources

Staff Complement – Total 300 comprising of 293 permanent staff and interns. One appointment was made during the quarter Five terminations

Three resignations One dismissal One by mutual separation

Vacancies

29 budgeted vacant positions Vacancy Rate 9,62% NRCS prioritising the appointment of the Deputy CEO and CFO

Staff training

NRCS awarded bursaries worth about R370 000 to employees commencing studies at

various higher institutions of learning in 2017 calendar year

22

Financial Performance

23

Financial Overview: Income Statement

24

Budget Actual Budget Actual Budget Actual Budget Actual Full year Budget

Transfers from the dti 42,959 25,926 43,459 60,492 - - 86,418 86,418 86,418

Interest Income 3,125 2,368 900 5,321 4,985 4,870 9,011 12,558 13,600

Levies from Compulsory Specs 14,024 6,791 77,028 72,798 19,114 15,024 110,166 94,613 181,178

Services 11,915 13,711 12,854 12,218 12,882 10,950 37,652 36,880 50,205

Levy Audits 1,250 - 1,250 8,184 1,250 1,967 3,750 10,151 5,000

Other Income - (96) 2,225 510 (1,676) (27) 549 387 38,201

Total Income 73,274 48,699 137,716 159,523 36,555 32,785 247,546 241,007 374,603

Compensation of Employees 64,708 57,233 69,130 64,271 69,246 59,167 203,084 180,670 270,778

Goods and Services 27,862 13,877 22,136 14,866 22,719 16,210 72,717 44,953 103,669

Total Expenditure 92,571 71,110 91,266 79,137 91,965 75,376 275,802 225,623 374,447

Surplus / (Deficit) (19,297) (22,411) 46,450 80,387 (55,409) (42,592) (28,256) 15,384 156

Income statement Q1 Q2 Q3 YTD

Financial Overview: Revenue

25

Financial Overview: Revenue

26

Financial Overview: Expenditure

27

Financial Overview: Expenditure

28

Financial Overview: Expenditure

29

Progress on Revenue qualification

30

Recap: Revenue Qualification

31

Grap 23 – Non-exchange Revenue

Revenue recognition based on a taxable event

Taxable event different from the timing of revenue

NRCS Act, NRCS Regulations

Taxable event is the import / manufacture of regulated products

Unclear timing of revenue

Weak on punitive measures

Systems and controls

Systems and processes that allow for timely recognition of revenue

Integrated information

Integration of information internally (Surveillance, Approvals and Revenue)

Third party integration

Recap: Revenue Qualification Plan

32

Internal control improvements

NRCS Modernisation

• ERP system implementation

• Business process re-design

SARS Collaboration

• Information sharing and system integration

Legislative options

Legal opinion re: NRCS Act

• Amendment to the Act, or

• Engage the dti on the NRCS Act

LOA Conditionality

• Quarterly volumes forecast

• Introduce LOA validity period

Revenue Qualification Plan: Progress

33

Plan Progress to date

NRCS Modernisation • ERP system implementation • Business process re-design

• Request for information has been revised to ensure full integration across systems within the NRCS

• Implementation strategy was discussed and agreed with ICT Steering Committee and Audit and Risk Committee

SARS Collaboration • Information sharing and

system integration

• HSS codes project with SARS was finalised • Way forward: Roll out to all NRCS regulated commodities (Planning

phase) to be combined with the modernisation project

Legal opinion re: NRCS Act • To determine if the NRCS Act

needs to be amended

• the dti has indicated that changing the NRCS Act and Regulations will be a lengthy process, therefore the NRCS will proceed with implementing business process re-design based on current legislation

LOA Conditionality • Quarterly volumes forecast • Introduce LOA validity period

• In the process of investigating mechanisms to operationalise • Pending resolution of the LOA backlog

Challenges

34

35

Audit findings

Key challenges Operational challenges

Inadequate capacity and relatively unstable human resource environment The application and regulation of products covered under Compulsory Specifications

that are outdated. High transportation and storage costs for confiscated goods. Long turnaround times and capacity constraints at the test houses compromises the

effectiveness of the Regulator

Border enforcement challenges: Inadequate information supplied on the bill of entry and shipping manifests High number of abandoned goods at Ports of Entry which results in high transportation and

storage costs after confiscation.

Revenue challenges Funding and Expenditure: NRCS performing mandates that are not fully funded, reduction in

funding in the current and prior year and relatively high employee costs. Collection dependent on the industry co-operation Declining economic activity impacting revenue collection

36

Abbreviations and Acronyms

37

AG – Auditor General CMM – Chemicals, Materials and Mechanical DAFF – Department of Agriculture, Forestry and fisheries FY – Financial year LOA – Letter of Authority NBR – National Building Regulations NCC – National Consumer Commission SABS – South African Bureau of Standards SAPS – South African Police Services SARS – South African Revenue Services TR – Technical Regulation VC – Compulsory Specification YTD – Year to Date

38

Thank You