THERE ARE NO HEROES

Report of the Public Protector on an investigation into alleged abuse of power by the Director-General of the Department of Trade and Industry towards the former Commissioner of the National Consumer Commission

Report No: 1 of 2013/14

Executive Summary

"Both parties can however take another look at what was envisaged in Chapter 3 of the Constitution as cooperative governance, as they both failed miserably at it."

I "There are no heroes" is a report of the Public Protector in terms of section 182(1) of the Constitution of the Republic of South Africa Act, 1996 (the Constitution) and section 8 (1) and section 8(2A)(a) of the Public Protector Act, 1994 (the Public Protector Act).

II It is the result of an investigation and attempted conciliation process involving allegations of abuse of power submitted by the then Commissioner (the Commissioner) of the National Consumer Commission, Ms Mamodupi Mohlala Mulaudzi, against the Director-General (DG), Mr Lionel October, of the Department of Trade and Industry (DTI). The national Consumer Commission, an independent statutory body, is South Africa's cardinal consumer watchdog, which is administratively located in the DTI.

Ill The Commissioner approached the Public Protector on 28 March 2012 making allegations of abuse of power against the DG of the DTI. The complaint included various allegations of abuse of power, interference in NCC operations and harassment in retaliation to her resistance. The main allegations related to the DG's alleged co-management of staff of the NCC transferred from the DTI, the main grievance being the DG's alleged withdrawal of some of these without notice causing disruptions to the NCC's operations. A related allegation was See general observations paragraph 10.7.4 page 54, that the transfer of the staff was not handled properly by the DTI and the transfer agreement was never presented to or signed by the Commissioner.

IV The Commissioner further alleged that DTI had procured goods and services for the NCC without her consent and made certain payments without her knowledge or authorisation when she was already on board. She further alleged that the DG was interfering in her operational independence by questioning her decisions on motor industry matters on behalf of that industry.

She alleged that her resistance to DTI's interference in her operations had been met with retaliatory action, including withdrawal of needed support, particularly in regard to the procurement of financial systems. She further alleged that she was placed under virtual financial administration and ultimately subjected to multiple investigations and audits, facing at one stage 5 concurrent processes of that nature. The Commissioner also alleged that she had no signed performance agreement.

V Upon assessment of the complaint, I endeavoured to conciliate between the parties at a meeting held on 25 May 2012. The issues isolated from the complaint and the first conciliation process were the following:

(a) Abuse of power by the OTt and interference in the management of the NCC in respect of HR matters, procurement and finance;

(b) Violation of operational independence;

(c) Harassment by:

(aa) Subjecting the NCC to multiple investigations;

 (bb) Withholding support; and

(d) Failure by the Minister to sign a performance agreement with the Commissioner.

VI At the initial conciliation meeting, the DG of DTI made the following counter allegations against the Commissioner which were later supported by the

Minister:

(a) Governance failure especially financial systems and procurement failures; and

(b) Failure to sign staff performance agreements.

VII When it became clear that the conciliation process was not likely to yield any tangible results, I decided to investigate the matter with a view to making a determination or findings as envisaged in the Public Protector Act, 23 of 1994.

VIII In the end, the matters requiring a determination comprised a combination of the four issues raised by the Commissioner and the two issues submitted by the DTI represented by Minister Rob Davis and the DG, Mr Lionel October in various documents and meetings.

IX As part of the investigation process, meetings were held with representatives of the DTI, the Auditor General of South Africa as well as the Minister of Trade and Industry. Documents such as memoranda, letters and e-mails, were perused.

X I had to determine the propriety of the conduct of the DTI, primarily the Minister and DG, and in response to the counter claim, the conduct of the Commissioner. The test for proper conduct was constructed from the legal framework, policies and prescripts regulating the operations of the NCC as an independent statutory consumer watchdog and its relationship between with the DTI as the hosting department. The framework revealed that the clearly defined relationship is between the Minister and Commissioner. The Consumer Protection Act, 2008 emerged as the main instrument regulating the relationship. Key among its provisions is the fact that the relationship is between the Commissioner and the Minister. Also worth noting is that the Commissioner is regarded as the Accounting Authority of the NCC, with responsibilities that incorporate those of an Accounting Officer under the PFMA.

Xl The role of the DG of the DTI and consequent relationship with the Commissioner, is principally left to conventions that have emerged over the years around the relationship between the DTI and the parastatals, mainly State Owned Enterprises(SOE) that fall within its remit. It is noteworthy, for example, that although the NCC is not an SOE, being an independent regulatory body, the key administrative instrument regulating its relationship with the DTI is referred to as a Share Holder Compact as is the case with SOEs. It is worth noting though that the shareholder compact is an agreement between the Minister and the Commissioner and does not include the Director-General.

XII The PFMA on the other hand, specifies the role of Accounting Authorities while also defining the role of the transferring Accounting Officer, referred to as Group Accounting Officer by the DTI. The responsibility of the "Group Accounting officer" regarding the handling of transfers to statutory entities is principally regulated by section 38(1)(j) of the PFMA. The key requirement is that the Accounting Authority needs to provide a letter certifying that sound financial and related systems have been created before a transfer of funds is made. What happens in the event of a subsequent system failure or suspected system failure is left to DTI conventions. Herein lies the roots of the stormy relationship between the DTI's Departmental Accounting Officer and the Commissioner as the Accounting Authority of the NCC.

XIII In the search for the ideal relationship between DTI and the NCC, consideration was also given to the broader regulatory framework, including the principles of co-operative governance as envisaged by Section 41(1)(h) of the Constitution which states that all spheres of government and all organs of state must coo perate with one another in mutual trust and good faith by fostering friendly relations and assisting and supporting one another.

XIV My findings are the following:

(a) Maladministration and Abuse of power by the DTI and interference in the management of the NCC in respect of HR matters and finance:

(aa) Interference in Human Resources Management

(I) The signed Shareholder Compact between the NCC and the DTI indicates that the Commissioner should have sufficient freedom to manage the affairs of the NCC balanced against the responsibility to exercise such freedom within the agreed mandate as outlined in the relevant legislation and the framework of effective accountability. This was clearly not the case in the relationship between the NCC and the DTI. My impression of the relationship between the parties was one of an "overprotective parent not willing to allow an eighteen year old child" to stand on his/her own feet.

(ii) The Shareholder Compact further states that the parties entered into the Compact on the basis of mutual co-operation and good faith. However, no sign of mutual co-operation or good faith was evident during my attempted conciliatory meetings between the parties and their general conduct towards each other.

(iii) The Transfer Agreement of staff indicates that the Commissioner should have been requested to sign the document as the employer department, but she was never requested to sign the agreement and as such she never became a party to the agreement. The DTI ignored the Commissioner and expected her to adhere to the conditions even though she was not given an opportunity to be a signatory to the Transfer Agreement.

(iv) Staff members were seconded and transferred to the NCC with effect from 1 April 2011 and the Minister delegated all HR functions to the Commissioner on 18 April 2011.

(v) When the DG became aware of complaints by the NCC staff regarding working conditions at the NCC he unilaterally decided to transfer them back to DTI via internal memoranda. There is no indication that the Commissioner was consulted or that there was any formal communication to the Commissioner to inform her that her staff would be removed with immediate effect. The DG clearly abused his authority in this regard.

(vi) In the DG's own words, "the removal of staff was disruptive" and it is clear that he abused his power in this regard as his conduct went well beyond merely "providing support" to the NCC.

(vii) My finding is that the DG of the DTI, Mr Lionel October, had multiple direct interactions with the NCC staff and eventually authorised the withdrawal of some staff arbitrarily without the Commissioner's knowledge or approval causing major operational disruptions.

(viii) The conduct of the DTI constitutes a violation of the Commissioner's operational independence, an unfair labour practice, an act of abuse of power and maladministration.

(bb) Interference in Financial Management:

(i) My finding is that the DG had the authority in terms of section 38(1)(j) of the PFMA and Regulation 8.4.2 of the Treasury Regulations to withhold the transfer of funds to the NCC until such time as the public entity (NCC) met the financial conditions and that the DTI had the authority to withhold the transfer of funds until such time as the NCC had sound financial and related systems in place.

 (ii) However, as much as there should be adherence to the prescripts in terms of the PFMA and the Treasury Regulations, I was concerned about the breakdown in the mutual trust and good faith between the DTI and the NCC.

(iii) I'm further concerned about the Jack of clarity regarding the day to day roles of the Accounting Authority and the Group Accounting officer.

(iv) The manner in which the authority was exercised, however, fails to meet the test of good administration. Although lawful, the DTI's conduct was unfair, unreasonable and constitutes maladministration.

(b) Violation of operational independence:

(aa) The DG, Mr Lionel October, did meet with certain role players in the motor industry, wherein the Commissioner's conduct was discussed. He subsequently requested feedback from the Commissioner on the Ombud Scheme for the Motor Industry and inputs on enquiries received from the Portfolio Committee on Trade and Industry. However, I am unable to find that the DG's conduct amounted to interference with the mandate of the Commissioner as he did not direct her to do anything.

 (c) Harassment through multiple investigations:

(aa) It is correct that the NCC was indeed subjected to multiple enquiries and audit investigations at the same time. While the AGSA was conducting its audit, the Minister also requested an Independent Forensic Audit to be conducted by Grant Thornton as well as an internal audit. The Public Protector investigation was also taking place around the same time, a fact known to the DTI. At a stage when the DG had already withdrawn staff members from the NCC, these audits stretched the NCC staff unduly. This meant that the NCC was unable to execute its functions properly because of being subjected to multiple investigations. While there is nothing wrong with auditing, per Se, the pressure placed on the Commissioner does amount to abuse of power.

(d) Prejudice suffered because of support withheld:

(aa) I firmly hold the view that when the NCC chose the option to do things independently, some of the support was withheld. In this regard I specifically find that it was improper for the DTI not to provide the NCC with resources for the purchasing of financial systems and advertising of the post of the CFO. I accordingly hold that the DTI's conduct was improper and constitute abuse of power and maladministration.

 (e) Failure to sign Performance Agreement:

(aa) Even though a Contract of Employment and a Shareholder Compact was signed between the Minister and the Commissioner, no Performance Agreement was ever signed between the parties.

(bb) The Commissioner submitted a draft agreement to the Minister, albeit 5 months later than expected and the Minister only responded 6 months later by way of a letter to indicate that he is satisfied with the performance agreement, but still without signing the Performance Agreement.

(cc) In a situation where relationships between the parties were already stretched it would have assisted enormously if the Minister ensured that the Commissioner's Performance Agreement was signed timeously.

(f) Findings on the counter complaint by the DG

(aa) Governance Failure relating to financial systems and internal controls

(i) On alleged Lack of Financial Management Systems, it is clear that the NCC failed to implement proper financial systems until a very late stage of the financial year. However, the DTI is partly responsible for this failure in view of its tardiness in providing resources for the purchasing of financial systems. The auditor General further found mistakes in financial reporting and that the Audit Committee was only appointed 3 months before the end of the first financial year.

(ii) On alleged irregular procurement of office accommodation, the procurement of the office accommodation for the NCC did not comply with the SCM Policy requirements and section 51(1)(b)(ii) of the PFMA in that the accounting authority should prevent irregular expenditure and that the procurement by the NCC should be regarded as irregular expenditure. This was confirmed by the Auditor General's Final Management Report.

(iii) .The acts and omissions of the commissioner regarding financial systems constitute maladministration. However, the context of being a new entity and the lack of support mitigate the severity of the impropriety. The procurement of offices is the subject of a different Public Protector Investigation into various alleged governance and administrative irregularities.

(bb) Failure to Sign Employee Performance Agreements

(i) The NCC failed to enter into performance agreements with staff on account of the absence of a signed performance agreement between the Minister and the Commissioner. My view is that by taking a legalistic stance regarding the need for her to have a signed agreement and failing to enter into any agreements even if such could have been regarded as interim agreements, the Commissioner undermined her own ability to manage performance of her staff effectively. Her Draft Performance agreement and the NCC's Strategic Plan were adequate to provide guidance.

(ii) While the conduct of the NCC generally and the Commissioner, specifically, was lawful, it was improper and constitutes maladministration.

XV General Observations:

(a) There seems to have been different interpretations of the independence of the NCC in the context of the DTI's responsibility as a shareholder. The law is very specific that the NCC is independent yet the PFMA has certain requirements. The relationship between the Minister and the Commissioner also was defined in one way in principle yet different expectations informed the situation. The notion of "shareholder" appears to have contributed to the distortion.

(b) The relationship between the DG (as accounting officer of DTI) and the Commissioner (as Accounting Authority of NCC) broke down largely because of improperly defined functions and powers. In the end, the broken down relationship was to the detriment of the NCC. The DTI admitted that it allowed the NCC to choose between creating its own systems and leaning on departmental support. But it would appear that as soon as the choice to go for own systems, the attitude of the DTI hardened. The offer to choose reminds me of the option that Henry Ford's curious offer to the Americans when he said:"Americans can have any car they want in any colour they want as long as it is black."

(c) The NCC wanted to walk independently whilst it was still learning to crawl, while the DTI wanted a full parental relationship. The reality is that the DTI has vast experience in the establishment of public entities and knew what was required to set up the NCC to ensure that it became a well-functioning public entity. Unfortunately, in its efforts to assist the NCC with its establishment it took the role of a parent unwilling to allow a maturing child to stand on its own feet.

(d) Both parties can however take another look at what was envisaged in Chapter 3 of the Constitution as co-operative government as they both failed miserably at it.

XVI Appropriate remedial action to be taken, as envisaged in section 182(1) (c) of the Constitution is the following:

(a) The Minister must take urgent steps to ensure that:

(aa) There is a clear definition of the relationship between the DG and the Commissioner as well as the Minister's role;

(bb) The Commissioner's role as Accounting Authority is clarified; and

(cc) The HR management processes be clarified.

(b) The NCC should continue its on-going process of tightening its financial accounting and supply chain management processes.

The full text of the report can be found here - PDF.

Issued by the Public Protector, April 24 2013

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