Erasibo Consulting

Here’s whats being said on twitter about South African media freedom and the ANC’s  moves to “deter” the media.
http://search.twitter.com/search.atom?q=%23zamediafreedom

http://supportpublicbroadcasting.co.za/

SABC CRISIS DEEPENS – PARLIAMENT MUST INVESTIGATE, BOARD CHAIR MUST RESIGN OR BE REMOVED

6 AUGUST 2010

The SOS Campaign representing trade unions (including Cosatu, Fedusa and Bemawu), NGOs (including Media Monitoring Africa, the Freedom of Expression Institute and Misa-SA), CBOs, industry related bodies (including SASFED), academics and freedom of expression activists notes with dismay the seemingly endless governance problems at the SABC.

From media reports it appears that the Chair of the Board, Dr Ben Ngubane and the CEO, Mr. Solly Mokoetle are again involved in decisions that flout good corporate governance practices and procedures. It appears that the CEO, Mr Solly Mokoetle, without Board approval, has authorised additional bonuses to staff. These discretionary bonuses related to the World Cup are reportedly costing the public broadcaster R4.5m – and this at a time of great financial strain for the broadcaster. Further, there seems to be some controversy around whether these payments were in fact in lieu of overtime.

The interim Board of the SABC arranged a R1.47bn government guarantee in 2009 to pay back the SABC’s debts and further to assist with the implementation of a much needed turn-around strategy. The understanding from National Treasury was that the starting point was that all unnecessary spending would be strictly curtailed. So even if the CEO did not require specific Board approval for the World Cup bonuses, the wisdom of the decision must surely be questioned.

The Coalition believes that the ongoing crises at our public broadcaster have become so serious that urgent intervention from Parliament is, sadly, once again required.

We believe the following interventions should be undertaken by the Board:

1)    First, the Board needs to pass a resolution of no-confidence in the Chair for non-compliance with Board procedures and decisions.
2)    Second, the Board needs to pass a resolution to send a formal letter to the Speaker of Parliament requesting the National Assembly to initiate an enquiry into the alleged misconduct of the Chair with a view to removing him from the Board on the grounds of misconduct in terms of the sections 15, and 15A of the Broadcasting Act.

If the Board is effectively paralysed and cannot act in the ways we suggest, then we call upon Parliament to act. Parliament must (as it is legally entitled, indeed required, to do in times of crisis involving the SABC) initiate its own enquiry into what appear to be serious violations of corporate governance processes involving the Chair of the SABC Board. If after due enquiry it is clear that such violations have taken place, then Parliament must act to remove the Chair. Parliament cannot afford to drag out these crises in the same way it did over the crises that plagued the previous SABC Board.

SOS notes that the Board has been in office for the last seven months and yet we have little to show for this.  No new vision for the SABC appears to have been crafted and the much-talked-about turnaround strategy is still not forthcoming.  Further, communication with the general public in terms of its numerous corporate governance breaches and crises has been grudgingly scarce. For the most part the public has been forced to rely on media leaks.

SOS reiterates once again the critical importance of the SABC fostering a culture of transparency and communication. As a public broadcaster, the SABC’s main stakeholder is the public. Hence the SABC needs to ensure that its decision-making and governance processes – and the details of the crises and how they are being handled – are effectively communicated to the nation.

Further, SOS is considering taking up the numerous corporate governance breaches with the Public Protector. It is critical to restore the credibility of the SABC and this may be one important way.

Finally, SOS notes the comments made in today’s Mail & Guardian newspaper that there are further crises around the appointment of the Head of News and that allegedly divisions have arisen in terms of the disciplining of the CEO, Solly Mokoetle. SOS believes that this further confirms the need for the proposals we have outlined above.

For more information please contact:

Kate Skinner – SOS Coordinator – 082-926-6404
William Bird – Executive Director Media Monitoring Africa – 082-887-1370
Siphiwe Segodi – Freedom of Expression Network – 072-655-4177
Matankana Mothapo – Spokesperson Communications Workers Union – 082-759-0900
Hannes du Buisson – President Broadcasting Electronic and Media Workers Union – 082-920-8669
Marc Schwinges – Communications SASFED – 083-901-2000
Ayesha Kadjee – Executive Director FXI – 083-500-7486

Whether you are considering buying a business for a few thousand rand or for a few million rand or whether you are considering starting up a business, a due diligence exercise will prove most useful in providing you with a degree of peace of mind prior to putting pen to paper on the business agreement.

I want to stress that regardless of the size of the deal and regardless of who the parties to the deal are, make sure you undertake a due diligence. I will always advocate for the most thorough due diligence you can afford, this is money, time and effort you should spend in order to save you money, time and effort later. Also remember, you often get the value of service you pay for, so don’t cut corners.

In researching this article I have been staggered to see how little information is readily available on public platforms on the subject of due diligence. What is available is very pricey and usually only talks to high level issues. This is worrying considering how vital a due diligence exercise is, especially to the first time business owner.

What is Due Diligence?

For the purposes of this article, Due Diligence should be understood as an exercise to be undertaken as part of the purchase of a new business. Simply put, due diligence is an investigation into a business with the purpose of proving to the initiator of the due diligence (typically the buyer) whether the facts offered up by the other party to the deal (typically the seller) are in fact a true reflection of the business.

Who should do the Due Diligence?

In order to do a due diligence well you will need two key role players:

1. Professional Assistance: Due Diligence’s exercises are technical in nature and if you have the funds available make use of a professional firm that has done these types of exercises before. Apart from all the certificates and client references that you will get from the firm you hire, check to see if any of the people who will work on your due diligence have ever run businesses before – you cannot under estimate the value of experience.
2. You: Your personal involvement in the due diligence process is vital. The professionals you bring on board work for you, but will not always understand, amongst other issues, precisely what your vision is for the business, what your appetite is for risk is and how you would deal with problems that will be encountered.

I would encourage a more hands on, engagement with your team so that at the end of the day you are getting a due diligence report that will allow you to take an effective decision. You don’t just want a report that says, “Yes do it” or “No don’t do it”. A due diligence is not simply a synopsis on the business you want to acquire or startup. In fact your due diligence report (which will be a detailed report on all aspects of the investigation) can serve as a great tool for guiding your future business plans and strategies for the business should you acquire it.
Some finance houses and banks will offer to do a due diligence for you. Be wary of this service; be wary of any due diligence exercise where the companies doing the exercise for you will profit from your deal outside of the fee you pay for the due diligence.

A Due Diligence Model

Non-Disclosure Agreement

The due diligence exercises should always start with a Non Disclosure Agreement (NDA). Characteristics of the NDA that you should be aware of are:

• The NDA is to be signed between yourself and the seller.
• This agreement essentially protects both parties from the having their confidential business information made public.
• A confidentiality period must be specified. Please remember that the confidentially clause does not apply to illegal activity.
• The NDA should talk to you requiring a Due Diligence and it should specify the high level areas that the Due Diligence will cover. The seller must agree to this. If the seller does not agree to this, walk away.

Due Diligence Areas

A good due diligence exercise will cover the following nine areas1. In addition you (or your team) will need to acquire from the seller the following documents for your due diligence exercise. These documents should be made available to you quickly as the seller should already have these available. If the seller is unable or unwilling to provide this information this would be a cause for serious concern. The fundamentals of running a good business are record keeping.

: *please note the Due Diligence Item column is not exhaustive*

Due diligence is your safety belt, often you only realize that you need it, when the deal has gone sour and your business is in crisis. Do not make that mistake and overlook this process.

This is a new research report on income trends in South Africa.

This report presents a detailed analysis of changes in both poverty and inequality since the fall of Apartheid, and the potential drivers of such developments. Use is made of national survey data from 1993, 2000 and 2008. These data show that South Africa’s high aggregate level of income inequality increased between 1993 and 2008. The same is true of inequality within each of South Africa’s four major racial groups. Income poverty has fallen slightly in the aggregate but it persists at acute levels for the African and Coloured racial groups. Poverty in urban areas has increased. There have been continual improvements in non-monetary well-being (for example, access to piped water, electricity and formal housing) over the entire post-Apartheid period up to 2008.

From a policy point of view it is important to flag the fact that intra-African inequality and poverty trends increasingly dominate aggregate inequality and poverty in South Africa. Race-based redistribution may become less effective over time relative to policies addressing increasing inequality within each racial group and especially within the African group. Rising inequality within the labour market – due both to rising unemployment and rising earnings inequality – lies behind rising levels of aggregate inequality. These labour market trends have prevented the labour market from playing a positive role in poverty alleviation. Social assistance grants (mainly the child support grant, the disability grant and the old-age pension) alter the levels of inequality only marginally but have been crucial in reducing poverty among the poorest households. There are still a large number of families that are ineligible for grants because of the lack of appropriate documents. This suggests that there is an important role for the Department of Home Affairs in easing the process of vital registration.

This report presents a detailed analysis of changes in both poverty and inequality since the fall ofApartheid, and the potential drivers of such developments. Use is made of national survey data from 1993,2000 and 2008. These data show that South Africa’s high aggregate level of income inequality increasedbetween 1993 and 2008. The same is true of inequality within each of South Africa’s four major racialgroups. Income poverty has fallen slightly in the aggregate but it persists at acute levels for the African andColoured racial groups. Poverty in urban areas has increased. There have been continual improvements innon-monetary well-being (for example, access to piped water, electricity and formal housing) over theentire post-Apartheid period up to 2008.2. From a policy point of view it is important to flag the fact that intra-African inequality andpoverty trends increasingly dominate aggregate inequality and poverty in South Africa. Race-basedredistribution may become less effective over time relative to policies addressing increasing inequalitywithin each racial group and especially within the African group. Rising inequality within the labourmarket – due both to rising unemployment and rising earnings inequality – lies behind rising levels ofaggregate inequality. These labour market trends have prevented the labour market from playing a positiverole in poverty alleviation. Social assistance grants (mainly the child support grant, the disability grant andthe old-age pension) alter the levels of inequality only marginally but have been crucial in reducingpoverty among the poorest households. There are still a large number of families that are ineligible forgrants because of the lack of appropriate documents. This suggests that there is an important role for theDepartment of Home Affairs in easing the process of vital registration.

Trends in SA Income Distribution

Cross reference this study against this presentation for more depth.

We are currently working on a Social Cohesion project.

Social Cohesion looks at what brings us together as a community and as a country. South Africa systematically went through a process of reverse Social Cohesion during the Apartheid years, the separation of the races was designed to keep cultural groupings apart deliberately and to maintain a form of Social Cohesivness only within that cultural (racial) grouping.

Under the democratic dispensation South Africa is struggling to rebuild its Social Cohesion. Studies (sanctioned by Government) indicate that South Africans are seeing themselves less and less as South Africans and align themselves more by their racial grouping.

Why does it appear that the Rainbow Nation is splitting along racial lines? Has Government failed at unifying its people?

I would argue that its not Government that has failed the people, but rather the people who have failed themselves and failed their country. Government has put into place the necessary mechanisms and frameworks (our constitution for example) to allow its people to connect and bond and to form that common identity. We as South Africans are still dragging the Apartheid mindset with us.

How best then to start practically rebuilding a nation? Sixteen years since the first democratic election and it appears we are moving away from each other. The foundation institution for starting the process of Social Cohesiveness must be at our schools and this is where we are failing, this is where our teachers and principals and school governing bodies are failing. We no longer view the school as the centre of the community (even more central than a Church, a Temple or a Mosque).

What do you think?

In June 2009 the Minister of Local Government made this hard hitting statement:

“…I am taking the liberty of sharing this experience with this assembly to argue that if the North West is indicative, in any way, of what is happening in our municipalities in the other eight provinces then we need to declare a national state of emergency on local government in this country…This is a sector that is perceived to be incompetent, disorganised and riddled with corruption and maladministration….During several research surveys conducted regarding public perception on spheres of government, local government has always scored the lowest…..Even the latest research results points to that sad perception. For that matter, the results show that the public rating of municipalities is at an all-time low…”
Minister Sicelo Shiceka – SALGA NMA – 10 June 2009, East London

Apart from heavy hitting speeches there has been action, I thought I’d note one set of investigations that has already taken place:

Investigators submit preliminary report on Mkhondo municipality

3 September 2009

The team of investigators appointed by the Mpumalanga provincial government, in terms of section 106(1)(b) of the Local Government Municipal Systems Act, 2000 (act No.32 of 2000), to investigate allegations of maladministration, fraud, corruption, nepotism, poor service delivery, poor implementation of the Integrated Development Plan (IDP) and lack of proper consultation in terms of resource distribution and infrastructure made against the Mkhondo local municipality has submitted its preliminary report to the provincial government.

The report has indicated the following findings:
On financial mismanagement, the investigation report has revealed that there has been mismanagement of moneys allocated for projects. There have also been municipal officials found to have been paid unduly. Such moneys must be recouped and implicated officials should face disciplinary hearing. Some officials and councillors have been found to have misused municipal credit cards. The use of credit cards has been discontinued by the Administrator. There was no policy to deal with credit cards.

The administrator will immediately set up a policy on use of council credit cards. Disciplinary hearings will be held against the implicated officials. In most municipalities the use of credit cards has been long stopped.

Fleet management

The preliminary report has also indicated that there was a lack of proper monitoring and accountability on municipal vehicles, which led to the misuse of government fleet and wastage of fuel. The administrator has started putting systems in place to minimise the abuse of council resources.

With regards to employment of personnel, the findings have indicated that there have been cases where individuals were employed illegally in breach of the employment procedures. These dubious appointments will be probed further and individuals found to have been wrongfully employed will be dealt with severely.

The municipality has started designing new policies and systems that will ensure that all employees and employees of the municipality are appointed in a transparent manner based on their skills and competencies. Nepotism is a punishable offence. Disciplinary action will commence immediately against all implicated individuals.

The administrator will be given four months to conclude all outstanding matters on the investigations, and MEC Norman Mokoena will oversee the process. The provincial government would like to thank the community for cooperating with the administrator and his team during the period the municipality has been put under administration.

Enquiries:
Mabutho Sithole
Cell: 082 398 3348

Simphiwe Kunene
Cell: 082 413 3931

Vusi Mashabane
Cell: 076 762 6510

Issued by: Office of the Premier, Mpumalanga Provincial Government
3 September 2009
Source: Mpumalanga Provincial Government (http://www.mpumalanga.gov.za/)

We need to start seeing municipal officials being fired or prosecuted, we need to see councillors held directly accountable. There is a lot of talk about this taking place, lets see it happen. Its the only way to get those in power at the municipal level to take their mandates more seriously.

A recent Mail & Guardian investigation claims that almost half of all Director Generals in government have private business interests.

There is no law that prohibits them or any other government officials from having active private business interests. However let us reflect on the following:

• The recent election if anything has highlighted how the quality and pace of service delivery is not meeting citizens expectations. This begs the question, can those charged with driving transformation (and who are remunerated handsomely) afford the time to reflect on anything other than the mandates embedded in their job descriptions?
• Fraud and Corruption is eating away at our democratic state, it takes state resources away from those who need it the most and it creates a disharmonious environment in which communities are angered.
• The departments under the stewardship of these officials are not the best running organisations. Qualified Auditors General reports, failed project implementations, chronic underspending, maverick spending and disjointed policy implementations are just some of the aliments these officials have not cured in their departments, but we must trust they can manage both their private business interests and these complicated institutions of state in their stride?

On a promising note the new government does appear to moving on removing senior officials who are not operating as they should. In recent months Director Generals Njabulo Nduli (Forestry and Fisheries), Director General Pam Yako (Water Affairs) who apparently heavily escalated an IT project budget to Arivia,Kom and arts and culture’s acting deputy director-general Tale Motsepe.

Below is a press release from the Public Service Commission on this very issue dated 16th July 2009, the release is damning.

On the Public Service Commission Report: “Overview of the Implementation of the Financial Disclosure Framework: Financial Year 2007/2008”.
16 July 2009

A.  BACKGROUND

The predominant mode of service delivery in the public service is through private sector service providers and while at law nothing prohibits public officials from having private interests, the PSC, in order to minimize the risk of corruption developed a Financial Disclosure Framework which was made mandatory for all Senior Managers to abide by. This Framework requires all members of the Senior Management Service (SMS) in the Public Service to disclose all their registerable interests annually to their Executive Authorities, i.e., Ministers and MECs. The political heads of departments are in turn required to ensure the submission of the financial disclosure forms to the PSC exactly a month after the beginning of each financial year, i.e., by 31 May of each year.

However, since 1999/2000 when the Financial Disclosure Framework was introduced, compliance with it by many members of the SMS in the public service has been far from satisfactory. This in essence means that every financial year many senior managers fail to disclose their financial interests. Because of the mode of service delivery predominantly used by the public service, involving the outsourcing of the functions of the state with vast amounts of taxpayers’ money spent on this, the risk posed by this lack of commitment to a key instrument for inculcating financial probity and combating corruption cannot be overstated.

For example, for the first financial year (1999/2000) the PSC received 61% of disclosures. For the last three financial years i.e. 2004/2005, 2005/2006 and 2006/2007 there was a steady increase in the submission of the financial disclosure forms with a submission rate of 77%, 80% and 87% respectively. However, this improvement in the compliance rates has only been achieved after the due date. The inability to reach the 100% mark remains a serious indictment on the SMS members in the Public Service, and their Executive Authorities, because failure by even one public official can result in significant losses of taxpayers’ money channeled corruptly to private enrichment

As well as being responsible for the custody of the Financial Disclosure forms, the PSC now scrutinizes and verifies the information contained in these forms and periodically overviews the entire Framework to see if it is working as it was intended to. Key findings of the Scrutiny and Verification of a sample of forms for the Financial Year 2007/2008 and an Overview of the Framework as contained in the Report by the PSC show disturbing trends.

B.  KEY FINDINGS OF THE OVERVIEW OF THE IMPLEMENTATION OF THE FINANCIAL DISCLOSURE FRAMEWORK: FINANCIAL YEAR 2007/2008

1. Continued lack of commitment to instrument as indicated by persistent non compliance: The mandatory cut-off date for submission of the disclosure forms to the PSC is 31 May of each year. However for 2007/2008, the PSC only received 48% of the disclosure forms by the prescribed date. For the financial year 2006/2007 only 10% of disclosure forms were received by the due date. This breaks down as follows between the national and provincials departments:
   1. Only 38% of the forms of national departments and 59% of the forms of provincial departments were received by the PSC by the due date of 31 May, meaning that 2791 SMS members at national level and 1663 of the SMS members in the provinces did not submit their disclosure forms by the due date
   2. Of the thirty-seven (37) national departments, twenty (20) submitted their disclosure forms by the due date. Although this is a significant increase from the previous financial year (2006/2007) when the forms of only eight (8) national departments were received by the due date, of key concern to the PSC is that the departments which exhibit laggardly compliance by the nature of their service delivery mandates are those involved in big programmes and therefore having to issue massive tenders. The North West Province with 90% is comparatively the best performing province in terms of submitting the disclosure forms of their SMS members by the due date. The Free State with 29% is the worst performing province. The low level of compliance by the due date especially by the Free State and Gauteng (47%) raised serious concerns about their commitment, transparency and accountability.
   3. As at December 2008, 3188 disclosure forms (74%) of designated officials of national departments were lodged with the PSC.
   4. Only three national departments namely, the Departments of Arts and Culture, Correctional Service and Land Affairs had not by the end of December 2008 submitted any disclosure forms.
   5. Thus for 2008 only Six (6) national departments managed to submit all the disclosure forms of their SMS members by 31 May 2008 with an additional ten (10) national departments managing to submit all disclosure forms by 31 December 2008. A key concern for the PSC with the late conclusion and submissions of disclosure forms is that with the officials concerned there is no way of determining the risk of potential or actual conflict of interests and managing this in the intervening period between the prescribed deadline and when they eventually sign and submit their forms to the PSC.
   6. For the provincial departments, the overall submission rate as at 31 December 2008 was 89% which is significantly better than that of national departments which stood at 74%. Because the provincial level of government is responsible for the actual delivery of basic services, the interaction between the public and private sectors does tend to be more intense and with it potential conflicts of interests are more likely to occur. Given the risks associated with the interaction between the public and private sectors in terms of bribery and collusion, it is important that potential conflicts of interest be identified and addressed before actual conflicts of interest occur. The compliance rate at provincial level is therefore a cause for concern.
   • The North West (100%) and the Northern Cape (100%) are the two best performing provinces.
   • KwaZulu-Natal performed the worst (76%).
2. Unsatisfactory Disclosure by Directors-General and Deputy Directors-General:
   1. As at 31 December 2008 there were 105 officials designated as Directors-General at provincial and national departments of which 78 (74%) had submitted their disclosure forms.
   2. For the same period there were 419 officials designated as Deputy Directors-General at national and provincial departments of which 295 (70%) had submitted their financial disclosure forms.
   3. In terms of national departments there were 38 officials designated as Heads of Departments (HoDs) as at 31 December 2008. Only 29 submitted their financial disclosure forms to the PSC. This represents a submission rate of 79% by the HoDs.
   4. For the same period there were 236 officials at the level of Deputy Director-General attached to national departments. Of these officials, only 153 (65%) had submitted their disclosure forms to the PSC.
   5. As at 31 December 2008 there were 67 officials designated as Directors-General at provincial, level of which 49 (73%) had submitted their disclosure forms. For the same period there were 183 officials designated as Deputy Directors-General at provincial level of which 142 (78%) submitted financial disclosure forms.The low level of compliance by Directors-General and Deputy Directors-General at both national and provincial departments is of concern to the PSC. At this level better compliance is expected because these officials take the lead in decision-making within their departments. Moreover, the major government contracts are also signed at this level and therefore transparency and accountability with regard to the Financial Disclosure Framework is of utmost importance.
3. Repeat Offenders:
   1. The PSC found 249 senior managers to be repeat offenders who failed to submit their disclosure forms for two successive financial years.
   2. Only two provinces i.e. the North West and Northern Cape have no identified repeat offenders.
   3. At national level there were 179 senior managers who failed to submit their financial disclosureforms for two financial years in succession.
4. Potential or Actual Conflicts of Interest based on the assessment of the Financial Disclosures forms :A sample of thirty percent (30%) of the disclosure forms, totaling 2038 forms, received for the 2007/2008 financial year which included Limpopo, Western and Eastern Cape provincial departments was assessed for the purpose of identifying potential conflicts of interest. The PSC found as follows:
   1. 434 senior managers may have potential conflicts of interest between their private interests and their official duties. Although this represents 21% of senior managers that formed part of the sample, it is a very significant and real number.
   2. The highest number of potential conflicts of interest at provincial level was identified in the Limpopo Province at 121 officials
   3. The highest number at national level i.e., 20 was identified at the Department of Social Development.
   4. d. Of the Seven-hundred-and-sixty-nine (769) disclosure forms of ten (10) national departments scrutinized by the PSC, 151 or 19% of the sample may have a potential conflict of interest between their private interest and official responsibilities.

   That 434 out of 2038 senior managers (21%) who formed part of the sample may experience potential conflicts of interest if extrapolated to the entire SMS could mean that over 1700 managers in the Public Service (20%) could be experiencing potential conflicts of interest. This again underscores the importance of the Financial Disclosures Framework and the need for Executive Authorities to use the information provided through the financial disclosures to manage potential conflicts of interest and the risks associated therewith.

5. Potential Conflicts of Interest According to Category:
   1. Of the sample scrutinized, 341 Senior Managers have interests in private companies whose core businesses are closely related to the core mandates of their departments.
   2. Another 51 senior managers have directorships or shares in multiple companies raising concerns about the extent to which these officials can devote their full time and attention to the Public Service.
   3. The PSC could not conclusively identify whether a potential conflict of interest exists in respect of 32 of the senior managers that formed part of the sample due to the fact that insufficient information was available on the financial disclosure forms of certain senior managers, and that not enough information concerning the company was available from the CIPRO database.
6. Non-disclosure of Directorships/Partnerships in Private Companies and Close Corporations:
   1. The PSC found that 210 SMS members in the sample did not disclose their interests in some companies or closed corporations.
   2. A total of 112 senior managers from national departments and 98 senior managers from provincial departments did not disclose their interests.
   3. At national level 11 of these senior managers are employed by the Department of Science and Technology and 10 at the Department of Agriculture.
   4. At provincial level the highest number of such senior managers are employed by the Limpopo Province (43) followed by the Eastern Cape (34). The PSC’s scrutiny of the disclosure forms found that in many cases the companies that were not disclosed by the SMS members, actually poses a potential conflict of interest.
7. Scrutiny of properties:
   1. a. 182 SMS members did not disclose their properties. The registration dates of the properties were checked a nd it was found that registration occurred well before the date on which the disclosures were due.
   2. b. A total of 54 senior managers in the Limpopo Province did not disclose all of their properties.

C. RECOMMENDATIONS:

The PSC recommends the following to improve the compliance with the Financial Disclosure Framework:

1. Executive Authorities must prioritize this issue – The PSC has on numerous occasions advised and reminded Executive Authorities of the requirement that all senior managers in their departments must comply with the Framework by submitting the financial disclosures. It appears that such reminders are not followed up by Executive Authorities in all instances and members of the SMS may easily become complacent with regard to the submission of the disclosure forms.
2. Non-Compliant SMS Members Must be charged with misconduct - Chapter 3, Section H of the public Service Regulations clearly stipulates that any designated official who fails to disclose his/her financial interests, or willfully provides incorrect or misleading details, is guilty of misconduct. The PSC recommends that Executive Authorities charge transgressing Heads of Departments with misconduct and ensure that other members of the SMS are charged with misconduct for failing to disclose an interest by instructing their Heads of Departments to do so in terms of the Disciplinary Code and Procedures, as contained in the SMS Handbook.
3. Repeat offenders should be charged with misconduct and the Executive Authorities should obtain the outstanding forms of these repeat offenders and submit them to the PSC as soon as possible.
4. Dedicated Staff to Manage the Process of the Conclusion of Financial Disclosure Forms by Senior Managers must be appointed within departments: This will ensure that the forms are submitted timely to the PSC.
5. Disclosures of private companies and close corporations – Executive Authorities should ensure that members of the SMS are made aware that they need to disclose all companies, including dormant and non-profit making companies.
6. Updating information pertaining to companies on the CIPRO website - SMS members should take personal responsibility for their resignations from companies by following up and making sure that their details are removed and the CIPRO data base is accordingly updated.
7. Departments must put in place mechanisms for management of conflicts of interest as required to by the PFMA, National Treasury Regulations and Risk Management prescripts: At provincial level, departments should consider strategies to deal with persons who have been identified, through the disclosure of their financial interests, as having a potential interest by reassigning the duties of the official if this can be effected in the interest of the state. If this is not possible, a transfer to another component should be considered. If the reassignment of duties or a transfer is not possible, consideration should be given to request the official to resign from the private interest that is causing the conflict of interest.
8. Interaction by Portfolio Committees - Given their Legislative and Parliamentary oversight role, Portfolio Committees should call departments and Executive Authorities to account where there has been non-compliance as well as low levels of compliance.

CONCLUSION

The management of potential conflicts of interest forms an integral part in the Public Service’s desire to become integrity driven. The PSC is concerned that financial disclosure forms are not submitted timeously to the PSC. The timely submission of disclosures places the PSC in a position to identify potential conflicts of interest and inform the Executive Authorities timeously. In doing so, the PSC is enabled to assist Executive Authorities and senior managers in preventing a potential conflict of interest becoming an actual conflict of interest. The PSC has, through the scrutiny of the sample of financial disclosure identified 434 managers who may have potential conflicts of interest. Of concern is that some of these senior managers have already been reported to the NACH and allegations of corruption have been leveled against the relevant individuals.

If these potential conflicts of interest had been identified proactively, Executive Authorities would have been in a position to introduce measures to ensure that there are no actual conflicts of interest. It is therefore incumbent on the Executive Authorities to introduce measures for the effective management of conflicts of interest in their respective departments. The PSC trusts that the findings and recommendations contained in this report will assist departments and Executive Authorities to improve the management of the Financial Disclosure Framework and that a greater level of compliance to the Framework will be achieved.

ISSUED BY THE PUBLIC SERVICE COMMISSION

For enquiries, please contact:

Mr Humphrey Ramafoko,
Director: Communication and Information Services
Tel: 012- 352 1196
Cell: 082 782 1730
Fax: 012- 325 8344

Or

Ms Dikeledi Phiri,
Deputy Director: External Communication
Tel: 012- 352 1070
Cell: 082 386 5743
Fax: 012- 325 8344
Website: www.psc.gov.za

This is the fourth article in our series on franchising (especially restaurant franchising). Best to familiarise yourself with our other articles which sets our tone.

Continuing on our series of articles on the franchise industry in South Africa, we want to look at the Consumer Protection act and what it’s impact is on the franchise industry?

The Consumer Protection Act is the second major development in favour of consumer protection in recent years. The first being the National credit Act which is designed to improve transparency; prohibit unfair contract terms and practices; and prohibit anti-competitive practices. The Consumer Protection Act is designed to protect consumers from exploitation and unfair practices by unscrupulous businesses, and to empower consumers to make wise purchasing decisions. Together these Acts entrench the protection of consumers as prescribed under the Constitution of the Republic of South Africa.

Rights of Consumers

Under the act, franchisees are regarded as “consumers” and franchisors as “suppliers.” Franchisees are given a number of consumer rights, including the right to equality, privacy, choice, information, disclosure, fair and responsible marketing, honest dealing, fair agreements, fair value, good quality, safety, and supplier accountability. Franchisees are also protected against undue influence or pressure; unfair tactics; and false, misleading, or deceptive representations concerning material facts. This would also apply to the contracting arrangements between franchisor and franchisee.

Franchise Agreements

Under the Act a franchise agreement is defined as an agreement where a franchisor grants to a franchisee for consideration a right to carry on business under a system or marketing plan substantially determined or controlled by the franchisor. In addition, the franchisee’s business is substantially or materially associated with advertising schemes or programs or with the trademarks of the franchisor, or any combination of these that are licensed to the franchises. The agreement must be in writing and signed by at least the franchisee. The Act allows for a cooling of period of 10 business days, wherein a franchisee may cancel a franchise agreement they have signed without incurring any cost

The right to full disclosure is entrenched in the Act. This is in recognition of the number of cases where franchisees had been devastated financially after investing their life savings into franchises that were sold to them on the premise that the franchises would be far more profitable than they ever actually would be. Under the act, franchisors will be required to disclose certain information to prospective franchisees, as provided in regulations to be promulgated by the Department of Trade and Industry.

Monopoly on the Supply of Goods

Currently, franchisees in South Africa have limited protection against unfair practices by franchisors under that country’s Competition Act, particularly in relation to the tying or bundling of unrelated products by a dominant franchisor or when it comes to exclusive dealing. Complaints stemming from these activities are, however, difficult to prove, and the franchisor in question has to be dominant or have market share.

The Act has taken the foregoing prohibitions in South Africa’s Competition Act and applied them regardless of whether the franchisor is dominant. The new law prohibits bundling or tying of products by a franchisor, unless the franchisor can show either (i) that the bundling results in economic benefits for consumers or (ii) that the convenience of bundling outweighs any restriction on consumer choice. Alternatively, the bundled goods or services must be offered separately and at individual prices.

The Act guards the right to consumer choice by generally providing that franchisors must not require, as a supply condition or as a condition of entering into an agreement, that the franchisee purchase goods or services from the franchisor or from any other designated supplier. It is a valid defense to show that products or services that the franchisee was required to purchase are reasonably related to the branded products or services that are the subject of the franchise agreement. It remains to be seen how closely linked to the brand “reasonably related” will need to be to excuse such a requirement by a franchisor. As a result, many franchisors will no longer be able to be the sole supplier of goods and services to a franchisee, unless it can be shown that the products and services are “reasonably related” to the brand.

Franchisors should take care to ensure that products and services essential to the protection of their brand are explicitly listed in their franchise agreements, to reduce any later issues regarding interpretation. In other words, the Act suggests that franchise agreements provide for core and non-core products. Core products or services would be the primary, unique products related to the brand.

With regard to transitional provisions, it appears that the Act will not apply to pre-existing franchise agreements (or transactions) entered into before the general effective date, expected to be October 2010. However it will apply to renewals of contracts. The Act highlights a number of factors relating to fair and honest dealings and unfair unreasonable and unjust contract terms. The Act allows for the cancellation of contracts, whole or part should it be deemed to have contravened these principles as detailed in the Act.

Closing

The Act will have huge implications for the franchise industry. For while it has boomed has also become a place for corrupt, fly by night operations.  The Franchise Association of South Africa has expressed concern with regard to the implication of the Act and the burden it will place on its members. This is a concerning position as the Act can only create credibility for the franchise industry by ensuring that it closes the gap for illegitimate franchisors to operate.

Surely this would be a benefit to FASA, to cleanse the industry of undesirable operators. Franchisors who lack the capacity for adequate, transparent contracting and operations shouldn’t be selling off franchises. Organisations like FASA shouldn’t be accepting these franchisors as members or providing a potential front for their operations.

This is the third article in our series on franchising (especially restaurant franchising). Best to familiarise yourself with our other articles which sets our tone.

Commercial banks are part of legitimate business. We trust them with our savings, we store our incomes in them, and we borrow money from them, all the time assuming that the transactions are legitimate and reasonable and regulated to some extent. We rely on them for every aspect of functioning of civilised life-homes, cars, business, school fees and personal events.  We also expect that they will exercise reason in their interactions with us because their survival depends on the patronage of their clients. So their responses to us are based on good credit lending praFFrctices and when banks make errors in planning, governments are hard pressed not to finance their recovery with taxpayer’s money, as in the case of the US recently. Banks are essential to the stability of our economy; citizens and the banks share a common investment in our economic future.

But have banks gotten too big for us. Do they represent something untouchable? So when they repossess homes and cars in a panic about the money that is being lost like a waterfall without following the specified due processes outlined in those contracts is this acceptable under the circumstances or is this just a case of bullying. And what really is their responsibility as the credit provider?

In responding to this question I will share with you our own insightful experience with the banking environment recently, which has been the cause of much debate within our own inner circle.

We took out a loan to finance a franchised restaurant. After the bank evaluated our application they informed us that we were not disadvantaged enough to qualify for any form of BEE preferences (the words used were “not black enough”). This opinion of the banks was nether policy nor constitutionally justifiable. However, we were in love with the business idea, so we didn’t make a scene. We put up 40% of the financing required for the franchised restaurant we wished to buy. The bank confirmed that it had done a due diligence on the restaurant and the franchisor and was extremely happy with the results and would finance the deal.

In fact the franchisor was so highly credible to the bank, that the bank offered them great deals on banking and transacting facilities for their franchisees and they offered the group an approved financing facility for all new franchise restaurant setups. Since we knew what the obligations placed on the bank were by law to thoroughly assess any new deal we felt extremely confident in all the new “benefits” the bank was offering the franchisor.

So when the figures provided to us and the bank by the franchisor turned out to be deliberately exaggerated and show that a fraud was committed by the franchisor so as to ensnare us in the business deal the issue of what exactly is the responsibility of banks in this circumstances was raised by us. The answer apparently is that the banks have no obligation. The bank completed a FICA assessment of the franchisor; their results didn’t cry out any kind of foul – it should have. There was evidence of their foul practice’s aplenty, which at the time was outside of our sphere of access.

Now that the bank is aware that there was a fraud committed by the franchisor does it discontinue giving out loans to new franchisees wishing to purchase restaurants in the same group or does it blacklist the group? No of course it does not.

Granted our matter hasn’t been to trial yet, but we can supply details (irrefutable forensic evidence) to the banks legal department and they can make a judgment about the caliber of clients they want to maintain or their obligation to new investors. If the bank continues to give out loans to unsuspecting buyers wishing to take up opportunities within the same group, would the new franchisees be able to sue the bank for facilitating a fraud since the bank has knowledge that the franchisor is suspected of fraudulent behaviour?

At the very least the bank should consider suspending any new deals pending our case going to trial and being decided on, because should we win our case the franchisor may not be able to operate anymore and new franchisees would be placed at risk of defaulting on their loans, which is a risk to the banks bottom line.

At the very minimum this franchisor has committed FICA fraud? Should the bank not have called in SARS immediately? The bank leverages their risk on personal sureties signed by borrowers – the franchisees, so whatever happens with the business, the bank will get its money one way or the other. But should they? The National Credit Act outlaws irresponsible lending and by this it means that the banks assessment of whether a borrower is suitable for credit has to do with an assessment of the borrower’s ability to pay. If the borrowers ability to pay has everything to do with the business’s capacity to generate a certain profit, and the business was in fact never able to do that as the figures provided were a fake. Is the bank not responsible for irresponsible credit provision?

I’m not suggesting that the banks share responsibility for your business decisions or mine. You go to the bank for financing not buying into your idea. But they do have a role to play in not perpetuating a fraud when they know about it and they do have a job to ensure that there facilitation is not being used for money laundering or other such activities. The new Consumer protection Act certainly talks to the issue of facilitating fraud and specifies the right to have contracts cancelled in this case. What does that mean for a bank that knowingly provides financing to fraudulent franchisors. Can those loans be cancelled and they held responsible for the transaction?

On the cross side asking the banks to take more responsibility will be ensuring that loan facilities become even harder to access and you will pay for this risk in the repayments.

If you are hoping to see your banker as a partner in your business, best check out the development bankers, such as the Industrial Development Corporation or National Empowerment Fund. Since they accept a high percentage of risk they are better at evaluating the risk with you. If the business collapses they lose their cash too. So if you have to go after a franchisor that has defrauded you have a big partner on your side and you are out a considerably less amount of cash.