ANNUAL REPORT 2011 - Ombudsman · bolstered by the updated Code of Banking Practice, will undoubtedly force their hand in due course. In a policy document titled 'A safer financial

ANNUAL REPORT 2011

AN ACCOUNT OF ACTIVITIES FOR THE PERIOD1 JANUARY – 31 DECEMBER 2011

RELATIONSHIPS ARE NURTURED LOCALLY, CONTINENTALLY AND INTERNATIONALLY TO

ENSURE THAT THE OBS MAINTAINS A THOROUGH APPRECIATION OF THE UNIQUE NATURE

OF SOUTH AFRICAN BANKS AND THEIR CUSTOMERS, COMPLEMENTED BY A GLOBAL

VIEW OF DISPUTE RESOLUTION PROCEDURES AND APPROACHES

MOVING CLOSER TO CONSUMERS

FROM ALL WALKS OF LIFE

V I S I O N

The Ombudsman for Banking Services will be known by all banks and their customers for its impartial and well-reasoned resolutions of all complaints withinfour months.

M I S S I O N

The Ombudsman for Banking Services is dedicated to providing banks and theircustomers with a quick and efficient dispute resolution service. Our professionalstaff aims to do this in a fair, impartial and confidential way and strives to improvegeneral banking practice.

S E R V I C E S TA N DA R D S

CORE VALUESThe Ombudsman and his staff are committed to the following values: fairness,independence, professionalism, accountability, accessibility and timeliness.

The full service standards document is available on www.obssa.co.za

Board Chairperson’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Ombudsman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Case statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Case summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Marketing and outreach activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Report of the independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Directors' responsibilities and approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Directors' report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Certificate from the company secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Notes to the annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

The following supplementary information does not form part of the annual financial statements:Detailed statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

C O N T E N T S

OMBUDSMAN FOR BANKING SERVICES2

There's never a dull moment in the financial markets, but South Africa's banking sector is,

fortunately, duller than most. While global markets remain volatile and tales of impending

doom echo through international financial corridors, local banks are still holding strong,

albeit alert to the potential threats, with well-capitalised and profitable institutions.

The importance of the financial services sector is reflected not only in its 10,5% contribution to annualgross domestic product and the fact that it accounts for 4% of formal employment in the country, but inits role as catalyst for further economic growth and employment creation.

During 2011, high-level focus on consumer rights intensified, with Minister of Finance Pravin Gordhannever deviating from his call for decreased bank charges on the back of the adverse findings of theCompetition Commission's banking enquiry on service fees. Some believe that the banks have beensluggish in implementing the recommendations of the Commission, but public and government pressure,bolstered by the updated Code of Banking Practice, will undoubtedly force their hand in due course.

In a policy document titled 'A safer financial sector to serve South Africa better', released in February 2011and lending support to the banking enquiry report, National Treasury advocates a 'twin peaks' approachto financial regulation. Essentially, this would split market conduct regulation from prudential supervision,giving the Financial Services Board (FSB) more power to deal with banks reluctant to lower their fees andentrusting prudential regulation to the South African Reserve Bank.

Significantly for us, it may also pave the way for a single ombuds office combining credit, short- and long-term insurance and banking ombuds services. We have clear views on the wisdom of such a plan and,consequently, will be watching developments very closely and stating our case vociferously.

As Cas Coovadia, CEO of the Banking Association of South Africa, points out, a single ombud funded fromthe fiscus would not have the sector-specific expertise that currently resides in the various ombuds officesand it would dilute the effectiveness that comes from a voluntary scheme such as the OBS. In the light ofcurrent thinking and the emphasis on consumer protection, a one-stop ombud shop would seem to be astep backwards.

As in previous years, the OBS flag was flown proudly on the international stage during 2011, withOmbudsman Clive Pillay's presentation at the September 2011 conference of the International Network ofFinancial Services Ombudsman Schemes (INFO) in Vancouver, Canada. The session focused on serving thementally impaired and Clive's contribution was described by Canada's Ombudsman for Banking Servicesand Investments, Douglas Melville, as capturing 'the emotional imperative associated with this importantsocial issue'.

At the credit reporting conference of the Central Bank of Kenya and Kenya Bankers Association, in August2011 in Nairobi, Clive shared the stage with World Bank representatives and governors of various Africanbanks, and delivered his views on financial education and consumer protection in the context of creditinformation sharing.

B OA R D C H A I R P E R S O N ' S

R E P O RT

3

Looking ahead locally, long may the dullish outlook continue, financial crisis-wise, so that the bankingsector can devote its energies on its many other challenges. In Minister Gordhan's view, the most pressingchallenges, aside from executive remuneration and a reduction in overall levels of banking fees, are thegrowth of cooperative banks and community-based cooperative financial services, lending to small andmedium enterprises, and financial inclusion.

Innovations to attract the unbanked into the financial mainstream are gaining momentum and mobilebanking options have expanded services to the more rural areas, but much more is needed to increase thepercentage of South African adults in the banking fold from its current 63% to 70% by 2013.

There will be no regulatory respite either, with the advent of the Protection of Personal Information Act andits impact on sectors such as banking that work with vast amounts of personal information. Also in theoffing is the appointment of a retail banking regulator to monitor the language used to communicate withconsumers, determine that a real need exists for proposed new products and decide whether fees andcharges are reasonable and rational. Dull? Maybe not.

In conclusion, I congratulate the OBS team for another year spent productively in providing solutionsfounded on impartiality and fairness, and in striving to make more consumers alert to banking threats andaware of recourse mechanisms.

Advocate John Myburgh SCOBS Board Chairperson

MOVING CLOSER TO CONSUMERS FROM ALL WALKS OF LIFE

Innovations to attract the

unbanked into the financial

mainstream are gaining

momentum and mobile banking

options have expanded services to

the more rural areas

This report comes to you from the new OBS headquarters in

the Johannesburg suburb of Houghton. Our move

northwards from the city centre has brought a new era of

accessibility and convenience to both clients and staff.

A residential base is a welcome change in terms of both transport andcomfort. We spent the last few years working to the beat of hooters andsquealing tyres, with windows closed to keep out the noise andexhaust fumes. Now we enjoy the peaceful twitter and chatter ofbirdlife and a breath or two of fresh air. The official opening of the newbuilding, in May 2011, was a great opportunity to network withstakeholders such as bank officials and fellow financial sectorombudsmen.

During the year, as expected, our files brimmed over with interestingcases. Although the number of complaints that came our way wasslightly lower than in 2010, our adjudicators had more than enough tokeep them occupied, as several cases were very involved anddemanded great skill and experience.

ATM-related problems again dominated, but mortgage finance,perhaps surprisingly given the cyber revolution, overtook internetbanking fraud as the second highest cause of banking headaches.

A possible reason for this is the evolution of electronic banking fromnovelty to commonplace, and the consumer's growing alertness to thedevious ways of scam artists and fraudsters. Cellphone banking is likelyto follow a similar trend.

It is interesting to note that complaints concerning the use of cheques have all but disappeared. The OBShas long and very publicly cautioned against the use of cheques and their imminent demise is a great reliefto us.

While dispute resolution remains our core function, we place great store on keeping abreast of trends onthe dynamic financial landscape, domestically and internationally, where the outlook and views of SouthAfricans are increasingly seen as progressive and trendsetting. I presented papers on behalf of the OBS inVancouver to an audience from 39 countries and at a gathering of banking specialists in Nairobi. Bothevents were great networking platforms and our presentations were well received.

African links remain important in broadening perspectives and sharing experiences of mutual interest.Guest speaker at the launch of our 2010 annual report, in April 2011, was Habil Olaka, the chief executive


O M B U D S MA N ' S R E P O RT

5MOVING CLOSER TO CONSUMERS FROM ALL WALKS OF LIFE

officer of the Kenya Bankers Association, who talked of his country's successes in achieving access tofinance for Kenyans from all walks of life.

Another high-profile visitor to the OBS was the Banking Services Adjudicator of Botswana, GabrielMaotwanyane, who was on a fact-finding visit to study best practices in running an ombud's office.

During the year, we held the first of what we hope will be a series of workshops with the banks, duringwhich we explored dispute resolution processes and experiences, with a view to improving systems in theinterests of both the institutions and their customers.

As touched on in the chairperson's report, consumer protection has become a government priority. Awave of new legislation started in 2007 with the National Credit Act and gathered momentum with thepromulgation of the Consumer Protection Act on 1 April 2011 and the subsequent founding of theNational Consumer Commission (NCC). South African consumers now have a potentially powerful meansof recourse against retailers and other service providers.

In keeping with this consumer-centricity, the OBS continued to take its message to less privileged bankconsumers across the country. While consumer education has always been an integral and essential partof our marketing drive, it assumed added prominence during 2011, with a series of workshopscountrywide targeting consumers in more outlying areas. The sessions promoted the services of the OBSand advised audience members on dealing with banks, on the importance of savings and, mostimportantly, on avoiding problems by becoming familiar with account-opening requirements andselecting the most appropriate account for their needs.

As we close the book on another successful and eventful year for the OBS, credit must go to all 27 membersof the team, for enabling us to fulfil our mandate effectively and serve both the banks and their customersto the best of our ability.

It is an honour and a joy for me to manage an organisation such as this that touches so many lives dailyand that has the potential to assist many more in future, notably the vulnerable, who, not being thatworldly-wise, are particularly susceptible to the cons that are an ever-present threat to bank customers.

Clive PillayOmbudsman for Banking Services

OBS board members (from left):

Tanya Venter, CEO: Tokiso Dispute

Settlement; Jacky Mathekga, Executive

Director: NMG Consultants and Actuaries;

Diane Terblanche, Chairperson: National

Consumer Tribunal; Adv John Myburgh SC,

Chairperson: OBS Board; Nicky Lala-Mohan,

General Manager: Legislation and

Regulatory Oversight: The Banking

Association South Africa; Bob Tucker,

Consultant; Tefo Raditapole, Attorney and

Director: Cheadle Thompson & Haysom

Attorneys, and Ina Steyn, Head: Customer

Contact and Care Management, Absa Bank.

Inset: Cas Coovadia, Managing Director:

Banking Association South Africa.


C A S E S TAT I S T I C S

CASE FLOW COMPARISON 2007 2008 2009 2010 2011

27 036 24 667 12 562 38 141 20 832

Files opened 5 478 3 620 3 366 4 241 3 684

4 539 3 491 2 342 2 716 2 482

370 623 973 1 013 1 242

Total files closed 4 909 4 114 3 315 3 729 3 724

(480 walk in, 1 695 referralsand 22 492 callcentre)




Enquiries (external call centre, referrals to banks, walk-in enquiries)

Files closed in initial stage aftermatter referred to the bank

Files closed after furtherinvestigation

The total number of files opened decreased in 2011 across the majority of complaint categories. However,the increase continued in the number of cases that required further investigation. The banks generallysettle the easier disputes once the matter is initially referred to them, which leaves the more difficult andcomplicated disputes that need further investigation and adjudication by the OBS.

FILES OPENED IN 2011 PER BANK (2010 IN BRACKETS)

Total cases 3 684 (4 241) Assets for all banks R3 374 472 467at October 2011

Standard 1 008 (1 265) R873 259 710 25,9%

FNB 983 (787) R668 062 718 19,8%

Absa 850 (1 120) R721 668 344 21,4%

Nedbank 683 (773) R574 999 059 17,0%

Other banks 160 (296) R536 482 636 15,9%

'OTHERS' ARE:

Capitec 75 (175)

African 49 (69)

Bidvest 8 (2)

Investec 7 (7)

Ithala 6 (5)

Teba/Ubank 6 (10)

Mercantile 4 (8)

Bank of Athens 3 (5)

HSBC 1 (0)

GBS Mutual 1 (0)


ATM fraud-related complaints remained the highest category in 2011.

Internet banking fraud remains among the top categories of complaint and users are reminded never toclick on any apparent internet-banking-related e-mail link, respond to any apparent internet bankingrelated e-mail or provide any internet banking-related information in response to a phone call. Fraudstersare now also using cellphone banking platforms to access accounts and users must ensure that they donot provide any information to anyone calling or sending them SMS messages regarding cellphonebanking logon information.

The number of files opened per bank in 2011 was not necessarily indicative of the individual bank'scomplaint handling performance or performance in general. The banks vary considerably in size, clientprofile and product mix. At various stages during the year, the major banks' clients were targeted byinternet banking fraud syndicates, which contributed to an increase in the number of complaints againstthose particular banks.

35

30

25

20

15

10

5

0

ATM

Mortgag

e finan

ce

Internet ban

king

Credit card

s

Vehicle fin

ance

Personal

loans

Current a

ccounts

Savin

gs acc

ounts

Investm

ent

Debit orders

Cash/ch

eque scam

Cheques

Estates a

nd trusts

Business

finan

ce

Overdraf

tOth

er

Foreign exc

hange

Suretys

hips

Insuran

ce

Credit bureau

Telle

r deposit

disputes

Safety

deposit

%

30

17

1311

7 74

311 1 1 1 1 1 0 0 0 0 0 0

FILES OPENED IN 2011 PER CATEGORY



The percentage of decisions in favour of the complainant increased from 36% to 47%. This was influencedlargely by the number of findings made in internet banking phishing fraud cases where the customer ispartially reimbursed.

CLOSED CASES IN FAVOUR OF BANK OR COMPLAINANT PER CATEGORY (2010 STATISTICS IN BRACKETS)(excluding cases closed as outside jurisdiction)

Categories In favour % In favour % Total %of bank of complainant

ATM 659 56% 509 44% 1 168 32,7%

Internet banking 213 36% 378 64% 591 16,5%

Mortgage finance 323 62% 199 38% 522 14,6%

Credit cards 192 56% 150 44% 342 9,6%

Vehicle finance 135 60% 89 40% 224 6,3%

Personal loan 118 54% 101 46% 219 6,1%

Current accounts 79 49% 81 51% 160 4,5%

Savings accounts 43 48% 46 52% 89 2,5%

Debit orders 14 33% 29 67% 43 1,2%

Cheques 13 34% 25 66% 38 1%

Investments 20 65% 11 35% 31 0,9%

Cash/cheque scams 18 60% 12 40% 30 0,8%

Business finance 16 84% 3 16% 19 0,5%

Estates and trusts 14 74% 5 26% 19 0,5%

Overdraft 13 72% 5 28% 18 0,5%

Credit bureau 6 55% 5 45% 11 0,3%

Foreign exchange 6 60% 4 40% 10 0,3%

Suretyships 6 86% 1 14% 7 0,2%

Teller deposit disputes 4 67% 2 33% 6 0,2%

Safety deposit 2 40% 3 60% 5 0,1%

Insurance 2 50% 2 50% 4 0,1%

Other 8 44% 10 56% 18 0,5%

Total 1 904 53% (64) 1 670 47% (36) 3 574 100%


Breaking down the 3 574 cases listed on the previous page interms of the decisions made, the following emerges:

7 cases (0,5%) The complainant withdrew the complaint

6 cases (0,5%) The complainant did not respond to repeated requests for information, which led to the file being closed due to a lack of cooperation

1 891 cases (53%) The complaint was not upheld

148 cases (3%) No award was made, but assistance was provided in the form of information

592 cases (17%) Only a portion of the complainant's claim was upheld

930 cases (26%) The complainant's claim was fully upheld and the full amount claimed was awarded

PERIOD FROM OPENING TO CLOSURE OF ALL FILES IN 2011 (2010 IN BRACKETS)

Closed within 2 months 31% (39%)

Closed within 2 – 4 months 37% (47%))

Closed within 4 – 6 months 17% (12%)

Closed within 6 – 9 months 13% (1%)

Closed after more than 9 months 2% (1%)

MANNER IN WHICH THE 1 242 CASES THAT NEEDEDFURTHER INVESTIGATION WERE FINALISED

Assessment report 1 222

Formal mediation 16

Provisional recommendation 3

Final recommendation 1

Total 1 242

No applications for determination or review were received in 2011.Average number of days taken to close a file in 2011 – 102 days(77 days in 2010)

Of the files closed, 85% (98%) were finalised within six months ofbeing opened.

There was an increase in the average time taken to close files. Thiswas due mainly to the very complex and time-consuming natureof the cases that needed further investigation. Internet bankingfraud-related complaints cases are notoriously time consumingto investigate and assess.

Western

Cape 16%

(15%)

Northern

Cape 1% (2%)

Gauteng 48% (53%)

Free State 4%

(3%)

Kwazulu-Natal

16% (14%)

Eastern

Cape 6% (6%)

Other

(international etc)

1% (1%)

North West

4% (2%)

Limpopo 1% (1%)

Mpumalanga

3% (3%)

FILES OPENED IN 2011 PER PROVINCE2010 STATISTICS IN BRACKETS



TOTAL AMOUNTS RECOVERED FROM BANKS (MILLION RANDS)

1999 4,07

2000 7,5

2001 7,8

2002 8,7

2003 11,1

2004 13,8

2005 16,2

2006 10,3

2007 7,2

2008 9

2009 9,9

2010 11,6

2011 17,6

Assessments constitute a summary of the matter setting out the complainant's case, the bank's response,and the OBS's assessment of the matter and conclusion as to liability. They are done mostly when thebank's offer is found to be fair and reasonable, and the complainant is advised to accept, and where theOBS believes there is no prospect of making an award in favour of the complainant. An assessment alwaysinvites the complainant to make further submissions or submit evidence that could influence the finding.

Mediations are formal meetings between representatives of the bank and the complainant, with an OBSadjudicator as the mediator. The mediator guides the debate between the parties and facilitates an agreedsettlement.

Provisional recommendations are detailed reports incorporating new evidence tendered and submissionsafter an assessment is done. If new evidence is tendered or further submissions are made, the matterproceeds to a final recommendation.

A determination is a binding, written ruling by the Ombudsman.

A review of the matter is done by a review panel member (retired judge of the high court).

There has been a substantial increase in compensation to customers compared to 2010, mainly becausethe recommendations made in internet banking fraud related cases often involve large sums of moneystolen from the customer.

It is often very difficult to reflect a finding made by the OBS in monetary terms, as many recommendationstake the form of the bank providing a specific service, performing a specific task or writing off certainamounts. The amounts reflected above are, therefore, indicative only and do not necessarily reflect actualpayments made to the customer.


FINAL RECOMMENDATIONS MADE PER BANK (2010IN BRACKETS)

Bank In favour In favour of Totalof bank complainant

Nedbank – 1 1 (1)

Total – (–) 1 (6) 1 (6)

A final recommendation was issued in one case only.

HOW THE COMPLAINANT LEARNT ABOUT THE OBSFiles opened in 2011 (from completed complaint forms)2010 statistics shown in brackets

Through the bank 41% (40%)

Word of mouth 40% (36%)

Newspaper 6% (8%)

Radio 3% (3%)

Television 3% (3%)

Magazines 1% (1%)

Referred by organisation 1% (1%)

Other 5% (8%)

It was pleasing to note the substantial number of cases referred by the banks. This indicates that the banksare making an ongoing effort to assist their customers in resolving disputes. The high percentage of word-of-mouth referrals is a further indication that the OBS service is appreciated by the public and is beingrecommended to others.

SERVICE STANDARD TARGETS (2010 IN BRACKETS)

Target 2011

Finalise all files within six months of opening 85% (98)

Average time to closure of 70 days 102 days (77)


C A S E S UM MA R I E S

INVARIABLY THERE'S NO QUICK FIX

The complainant had four bond accounts. During June 2009, she asked the bank to change the interestrates on the accounts from fixed to variable, as she was experiencing financial difficulty and wanted tomeet her bond repayments. The bank eventually did change her rates to variable in 2011, but thecomplainant maintained that the process was unreasonably delayed, which caused her bond to fall furtherin arrears.

An OBS investigation found that the consultant who had assisted the complainant did not advise her onthe correct process to be followed when applying for the change. The bank was advised that it would befair and reasonable to refund the difference between the fixed rates and the variable rates from the timethe application was lodged in 2009 until it was granted. The bank agreed.

ONCE, TWICE, THREE TIMES M'LADY

During a couple's divorce, the bank allowed the wife to make three withdrawals totalling R75 800 from thejoint bond account without the complainant's consent. It was clear that the complainant did not receiveany benefit from the funds and that the withdrawals were made contrary to the mandate held by the bank.The OBS recommended that the bank credit the bond account with the funds withdrawn and the matterwas resolved in 2009.

During 2011, the complainant lodged another complaint. He had settled the bond account and wastransferring the property to his ex-wife in terms of the divorce order. The bank, however, had again debitedthe bond account with R75 800 on the basis that it was entitled to claim this money from the ex-wife, whohad withdrawn the amount before, thus adding it to the bond.

The OBS deemed the bank unreasonable in holding the complainant liable for half the debt, whichcontradicted the office's earlier recommendation. At the OBS's suggestion, the bank agreed to credit thebond and allow transfer to the ex-wife. It could then claim the amount withdrawn using the property assecurity.

A TAXING DEBT

The complainant had an account with the bank that was in arrears of R35 321 and that had not been paidor used for some time. SARS paid R16 994,79, which was due to the complainant, into this old account. Thecomplainant, who, by then, had a new account with the bank and was under debt review, lodged acomplaint with the OBS requesting that the bank transfer the funds to his new account for his use and thathe continue paying all his debts as per the debt review order.

An investigation revealed that the account credited with the SARS funds was not included in the debtreview order and that the deposit was used legitimately by the bank to reduce the total debt owing on theaccount. The bank, therefore, was under no obligation to reimburse the complainant.


HOOKED ONLINE AND BLINKERED

The complainant admitted to responding to a phishing e-mail and entering his personal logon details ona false website. The bank initially disputed any liability for the loss.

During investigation, it came to light that the complainant had contacted the bank immediately afterreceiving the fraudulent e-mail, which purported to be from the bank. The consultant not only incorrectlyadvised him that the email was from the bank and was legitimate, but assisted him to respond to the email.

The bank clearly was negligent and should have advised the complainant not to respond to the email. Itaccepted the OBS's suggestion that the R34 671,30 loss be refunded in full.

PHISHING FOOLS, BUT FICA RULES

The complainant responded to a fraudulent email that appeared to be from the bank. By clicking on thelink in the email he accessed a false banking website and entered his confidential password information.The fraudster logged onto the real banking website and transferred R452 600 from the complainant'saccount to accounts held with various banks.

The bank managed to recover R82 586,62 that had not yet been withdrawn and return it to thecomplainant's account. However, it denied responsibility for the balance as its systems had not beenhacked into or compromised in any way. The bank provided evidence that the one-time password (OTP)used to create the beneficiary accounts was sent to the complainant and must have been entered on thefalse website. The fraudsters must have used this OTP to continue with the fraud on the account. Whilethere was no evidence that the bank was responsible for the fraudster accessing the complainant'saccount, it had failed to suspend some of the fraudulent accounts within a reasonable time. Further, someof the fraudulent accounts used were not opened in accordance with the Financial Intelligence Centre Act(FICA).

The bank accepted the OBS's suggestion that it refund the complainant a further R243 052,17.

OBS staff (from left):

Frans Maja, Nerosha

Moodley, Ronél van der

Merwe, Vaheeni Naidoo and

Johan Conradie.


QUICK SELL HELL

When the complainant's property was sold at a sale in execution, he made numerous submissions,

essentially alleging the sale was not lawful. He wanted the sale to be cancelled and his property returned

to him.

Investigation found that the complainant's bond account was in arrears since 2006. The bank and the

complainant entered into various repayment agreements during this time but the complainant was

unable to pay the arrears. The bank eventually initiated legal proceedings in 2009. The complainant

entered an appearance to defend the matter and the bank then applied for summary judgment. The court

granted this and allowed the bank to proceed with a sale in execution of the property. Soon thereafter, the

complainant applied for debt review, but as judgment had already been obtained on the bond account

this debt could not formally be included in the debt review process. The bank, however, decided to accept

the debt review repayment offer on the account. The payments were not forthcoming and the bank

continued with the legal action.

The complainant then signed a form allowing the bank to try and sell the property through estate agents

as a last resort – known as a 'quick sell' process. The agents were unable to sell the property. The sale in

execution continued and the house was subsequently auctioned for R590 000.

Although the OBS does not have any jurisdiction over court processes, it considered the legal documents

used to obtain judgment and could not find any evidence of errors.

The complainant argued that the sale was invalid in terms of a Constitutional Court finding that a registrar

of a court was not permitted to allow the sale of the property in execution. The OBS found that the

Constitutional Court's judgment in this case did not automatically render previous sales in execution

invalid.

The OBS found that the bank's actions were reasonable and there was no basis for a finding against it. The

complainant's argument was more suited to a court of law.

MAKE MINE A DOUBLE

The complainant bought a property from the bank at a sale in execution auction. The bank granted a bond

to the complainant for the purchase. As the property was incorrectly advertised beforehand as a two-

bedroom apartment when it actually had one bedroom, the complainant lodged a complaint with the

OBS. Although it does not ordinarily deal with complaints based on a purchase and sale agreement and

not a banking product, the OBS decided to consider the matter as the bond for the purchase was through

the same bank.

The bank initially rejected the claim, maintaining the sale was 'voetstoots' or 'as is' and that it could not be

held liable for any errors in the description of the property. The OBS suggested to the parties a fair and

reasonable settlement and both agreed that the purchase price on the property would be reduced by

R150 000.



BEWARE THE FOREIGN AFFAIR

On enrolling with a foreign academic institution for an internet-based course, the complainant providedhis credit card details and authorised payment to the institution. According to him, payment was made oncondition that the institution could provide proof that it was internationally recognised. Proof was notprovided and the complainant wanted to cancel the payment. The bank initially reversed the transactionand called on the institution to prove that valid authorisation was provided. The institution provided proofand the bank debited the complainant's account with the transaction. The complainant then approachedthe OBS and requested that the bank reverse the transaction based on the condition he set down beforeauthorising the payment.

The OBS could not find any evidence that the bank was informed of this condition, but, in any case, it wouldnot be a party to such an agreement. Nor can a credit card authorisation be granted subject to conditions– once a customer grants authorisation the bank has no choice but to make payment.

The complainant's claim was against the institution, not the bank.

MY LOAN YOUR MOAN

The complainant and her husband were married in community of property. The husband applied for a loan,which the bank granted. The wife complained to the OBS that she had not consented to the loan and thebank had not requested her consent in writing. She asked that the loan be cancelled.

As the bank had lost the loan application documents, it was impossible to determine what the husbandhad written on his application form regarding the status of the marriage. The bank argued that, irrespectiveof this, the dispute was between the complainant and her husband.

The OBS considered relevant laws such as the Matrimonial Property Act (MPA) and the National Credit Act(NCA). The former states that unless the other contracting party knew or reasonably ought to have known that

OBS staff: Anika Klopper and

Jacqueline Plantinga (above) and

alongside (from left) Nieshta Soutter,

Abraham Mhlanga, Cylvia Rapodile,

Mosupi Mashele, Dimakatso

Mangena, Edrich Buytendorp,

Maggie Forbes, Don Mashigo,

Helena van der Merwe, Mpho

Mokoena and Annicee Emmanuel.

16


OMBUDSMAN FOR BANKING SERVICES

the transaction was being entered into contrary to these provisions, the transaction will be deemed to have been

entered into with the necessary consent. However, should the joint estate suffer a loss as a result of such a

transaction an adjustment will be effected in the non-consenting spouse's favour when the parties are divorced

and the estate divided.

Even if the bank did know of the marital status, the legislation makes no provision for cancellation of the

loan by the spouse. The OBS found that the complainant's claim was against her husband and was more

suited to a court of law should they divorce. It was recommended, however, that in future, the bank obtain

the written consent of both spouses when they are married in community of property.

SETTLED FOR LESS

In 2009, the complainant took out a vehicle finance account repayable over five years. During 2011, he

requested a settlement amount. The bank informed that the account reflected as settled and that

R25 831,19 was overpaid. This was refunded. Shortly after, the bank informed the complainant that it had

made an error and that there was an outstanding balance on the account of R82 747,82.

The complainant asked that the bank regard the account as settled and provide him with the registration

documents for the vehicle.

On investigation, the OBS found that the original loan was R180 140. Some of the monthly instalments of

R4 108 were returned due to a lack of funds.

The complainant had been paying the loan for under two years when he was informed of the settlement

and overpayment. Although an extra lump sum payment had been made on the account previously, there

was no basis to accept the complainant’s contention that he believed the account to be in credit or to

believe he was a totally innocent party. The bank, however, acknowledged that it had made a serious error

and agreed with the OBS recommendation that it pay compensation of R5 000.

TWO-WHEEL STEAL

The motorbike was advertised for sale online and a buyer deposited R80 000 into the complainant's

account. Although the amount did not reflect in the available balance, the buyer pressed for the release

of the bike. The complainant asked him whether the deposit was a cheque and was told it was an

electronic funds transfer. She explained the situation to her bank and asked for the deposit to be cleared.

She also followed up with an email, attaching the website advertisement and the details of her

negotiations with the buyer.

The complainant's bank phoned the bank that issued the cheque and obtained a 'Code C', indicating that

the account on which the cheque had been drawn was in good standing. The proceeds of the cheque


were then made available on the complainant's account and she was told that the cheque was cleared.

The bank also sent her an email stating: 'Cheque paid'. After the motorcycle was delivered it transpired that

the cheque was stolen and it was reversed from the complainant's account.

The OBS found that the complainant had been the victim of a common scam, but that she had acted

correctly in contacting the bank first. The bank had merely allowed the value of the cheque to be made

available, and had failed to point out that the cheque had not been 'paid'. The bank complied with the

OBS's final recommendation that it reimburse the complainant in full.

TELLER NO THIEVING FELLA

The complainant withdrew R30 000 in cash inside a bank branch. After leaving the bank he was robbed of

R10 000. The complainant held that the bank was responsible for the loss.

Claims such as these are generally very vague and are more suited to police investigation and court

decision. However, given that the teller had sent an SMS during the transaction, the OBS decided to assess

the matter.

The complainant had left the bank holding the bag with the cash and a 'shock stick' device. He handed

R20 000 to his wife in a nearby restaurant, kept the balance and drove to another location, where he left

the bag containing the cash in his vehicle and went into a shop. Two vehicles pulled up next to his. The

occupants smashed his window, took the bag and drove off. The complainant alleged that the bank was

liable for the loss of R10 000, the damage to his vehicle and the cost of his trauma counselling.

The bank agreed that the teller acted in contravention of prescribed policies and procedures when he used

his cellphone and interviewed him about the SMS. He underwent polygraph testing and passed. The

incident was also investigated by the South African Police Service. The cellphone was confiscated and

investigated and no evidence could be found linking the teller to the robbery.

In the circumstances the OBS was unable to make a finding in favour of the complainant.

PIN IT ON THE BANK

The complainant went to an ATM to make a withdrawal. When she struggled to insert her card into the slot,

someone offered to assist. After completing her transaction she left with her money and card. She later

discovered fraudulent transactions to the value of R19 904. She reported the incident to the bank, which

rejected her claim, saying her card and PIN had been compromised. The complainant lodged a complaint

with the OBS claiming all the fraudulent withdrawals made from the account.

The complainant was the victim of a common scam in which fraudsters tamper with ATMs, making it

difficult for the card to be inserted, and then offer help. While the victim is distracted, the thief swipes the

ATM card through a handheld skimming device small enough to fit in his palm. The victim is watched while

OBS staff (from left): Irene Thupi,Uzile Gugushe and Nici Lavine.



she enters her PIN. With the card details on his skimmer and the PIN, he can make a copy of the card and

transact with it.

The bank denied responsibility for the loss as it had no way of preventing the thief from obtaining the card

or observing the PIN.

The OBS found that a number of the fraudulent transactions were done using the bank point of sale (POS)

commonly used by merchants to process debit card and credit card transactions. For this particular bank

card, POS transactions could be processed for as long as funds were available. The bank was unable to

show that the complainant had ever used this facility or was aware of the risk of limitless daily withdrawals.

Consequently, it accepted the recommendation that it refund all the fraudulent POS transactions.

HUSBAND MAKES HIS SIGNATURE MOVE

The complainant, who married in community of property, signed a limited surety of R450 000 for a

relative's business account with the bank. A covering bond was also registered over the complainant's

house as security for the account's credit facilities.

When the account went into arrears, the bank claimed the outstanding balance of R500 000 from the

complainant. He paid R500 000 even though he had stood surety for only R450 000. The complainant

lodged a complaint with the OBS alleging that the bank did not discuss the surety agreement with him

beforehand and that his wife did not sign this agreement. He wanted the bank to refund R500 000 plus

interest as the surety was not legal without his wife's signature.

The bank advised that the complainant's signature on the surety indicated that he had read, understood

and accepted the terms. According to the bank, his wife signed all the necessary documentation for the

covering bond that served as security for the suretyship. Therefore, the bank believed that she was aware

of and at the very least tacitly approved of the suretyship.

In terms of the MPA, the complainant's wife had to give written consent to the suretyship. Nevertheless,

with the covering bond, even if the bank could not enforce the debt through the suretyship, it could

through the covering bond. Thus, the bank would have been legally entitled to sell the complainant's

house and apply the profits to settle the business's debts. The OBS found that it would not serve any

practical purpose to investigate this aspect further. However, the bank was advised to refund the R50 000

overpayment and then to cancel the surety agreement and covering bond. It retained its right to claim the

outstanding balance from the main business account holders. The bank agreed.

TERMINATION CONSTERNATION

Her vehicle finance account in arrears, the complainant applied for debt review. Although, she claimed, she

cooperated with the debt counsellor in good faith, the bank terminated the debt review process, and

OBS management:

Louise Hall and John Simpson.


repossessed and auctioned her car, holding her liable for the shortfall. A default judgment was listed on her

credit bureau profile. The complainant believed that the review was terminated unfairly and she wanted

the bank to remove the default judgment listing.

The bank countered that, because no payment arrangement was concluded, the review for the vehicle

finance account was terminated after notification in terms of the NCA. Since no payment was forthcoming,

the account was handed over to the collection attorneys for legal action and recovery of the vehicle. The

bank maintained that it did not terminate the debt review process unfairly and that there was no basis for

rescinding the default judgment.

It appeared that the complainant and her debt counsellor had 11 months between the implementation of

the review and the auction to conclude payment arrangements, yet only four payments were made during

the time and these were far less than the required instalment.

As many more than 60 days had passed since the application for debt review had been lodged, the bank

could legally terminate the review according to section 86(10) of the NCA. It was not obliged to indulge

the default status of the account indefinitely and it followed the correct legal procedures. The OBS

confirmed that, in terms of the NCA, a default judgment listing could remain on the credit bureau for five

years.

A finding could not be made in favour of the complainant.

CHANCER HOLDS NO CARDS

The complainant maintained that he did not withdraw R600 from his savings account and claimed the

money back from the bank. The bank found that the withdrawal had been made with the complainant's

card and PIN. There was no evidence of fraud and it rejected the claim.

The OBS receives many such complaints. However, withdrawals cannot be made from an ATM without

using the card and correct PIN. If a customer's card has been cloned, there is generally a very clear pattern

of withdrawals. The location of the withdrawals is assessed when investigating possible fraud.

Where there are no indications of cloning or card theft, the only reasonable conclusion is that someone

close to the complainant has accessed the card and knowing the PIN, has made withdrawals. The person

then returns the card before it is missed.

In this specific case there was no evidence of fraud. The withdrawal was for a relatively small amount and

less than the daily withdrawal limit. The withdrawal was made from an ATM in the area where the

complainant usually withdraws. There were no incorrect PIN attempts and no attempts to withdraw again

after the card was reported to the bank. The complainant could not be reimbursed.


Historically, the OBS marketing strategy has been two-pronged – to increase awareness of the office andits services, and to consolidate its credibility and reputation. However, the nation's focus on protecting thepublic from unscrupulous service providers and, sometimes, from themselves, has prompted the office toadd a third essential arm to its marketing activities – consumer education.

The radio advert campaign launched in 2010 was maintained, with 30-second spots throughout the yearon stations ranging from SAFM to Metro, Lesedi and Motsweding. In addition, the Ombudsman wasquoted over the airwaves on internet banking problems, sales in execution and card skimming, amongother topics.

The launch of the 2010 annual report drew keen interest from radio and print media and generatedfavourable coverage.

The educational programme 'Banking dialogue', introduced the previous year on the national satellitestation, Commuter Radio, continued to create awareness among a large group of listeners of topical bank-and OBS-related issues.

The office maintained a strong presence on Facebook and Twitter.

To forge closer relationships with consumers, 17 interactive and informal workshops were held in sixprovinces, reaching more than 2 500 people. Delegates were shown a presentation about the OBS,including a demonstration of how to complete the application-for-assistance form, offered banking tips,and introduced to the savings and budget plan from 'Teach children to save', an industry initiative to whichthe OBS subscribes.

The well-established and much-coveted OBS annual awards for excellence were held for the 10th year ata function at the Radisson Blu Hotel, Sandton, on 25 November.

The awards recognise and reward banks and bank employees demonstrating excellence in disputeresolution.

Presenting the honours, Ombudsman Clive Pillay congratulated the banks for 'stepping up to the plate' inidentifying and solving complaints before situations escalate.

Nedbank (representatives pictured alongside) was named winner among the leading South African banks(category A), with African Bank (below) triumphant among the smaller institutions (category B).

Two individuals who distinguished themselves for their dedication to effective dispute resolution earnedOBS excellence awards – First National Bank's Johan Strydom in category A and Ronel Prinsloo of CapitecBank in category B.

MA R K E T I N G A N D O U T R E AC H


GENERAL INFORMATION (AT YEAR END)

Country of incorporation and domicile South Africa

Nature of business and principal activities Banking dispute resolution and related services

Directors JF Myburgh

TN Raditapole

C Coovadia

NM Lala-Mohan

D Terblanche

I Steyn

B Tucker

J Mathekga

T Venter

Registered office First Floor

Houghton Place

51 West Street, Houghton

Johannesburg

Business address First Floor

Houghton Place

51 West Street, Houghton

Johannesburg

Postal address PO Box 87056

Houghton

2041

Bankers First National Bank

Standard Bank

Auditors Nkonki Inc

Chartered Accountants (SA)

Registered Auditors

Secretary Corporate Law Services (Pty) Ltd.

Company registration number 2000/002577/08

22 OMBUDSMAN FOR BANKING SERVICES

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF THE OMBUDSMAN FOR BANKING SERVICES

We have audited the annual financial statements of the Ombudsman For Banking Services which comprise the director's report, statement of financialposition as at 31 December 2011, the statement of comprehensive income, the statement of changes in equity and the statement of cash flow for the yearthen ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 24 to 37.

Director's Responsibility for the Financial StatementsThe company's directors are responsible for the preparation and fair presentation of these financial statements in accordance with International FinancialReporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaininginternal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraudor error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with InternationalStandards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurancewhether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosure in the financial statements. The procedures selecteddepend on the auditor's judgement; including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statementsin order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity's internal control. An audit also includes evaluating the appropriateness of accounting policies used, and the reasonableness of accounting estimatesmade by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for audit opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of the company as at 31 December 2011 and theirperformance and their cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required bythe Companies Act of South Africa.

----------------------------------------------Nkonki IncRegistered AuditorsPer B Mungofa CA (SA)Registered Auditor

07 March 2012

23

The directors are required by the Companies Act of South Africa, 1973, to maintain adequate accounting records and are responsible for thecontent and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensurethat the annual financial statements fairly present the state of affairs of the company as at the end of the financial year and the results of itsoperations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice. Theexternal auditors are engaged to express an independent opinion on the annual financial statements.

The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and arebased upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and placeconsiderable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board setsstandards for internal control aimed at reducing the risk of error or loss in a cost-effective manner. The standards include the proper delegation ofresponsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptablelevel of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards inensuring the company's business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk managementin the company is on identifying, assessing, managing and monitoring all known forms of risk across the company. While operating risk cannot befully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour areapplied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal control providesreasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system ofinternal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have reviewed the company's cash flow forecast for the year to December 31, 2011 and, in the light of this review and the currentfinancial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for theforeseeable future.

Although the board is primarily responsible for the financial affairs of the company, it is supported by the company's external auditors. The externalauditors are responsible for independently reviewing and reporting on the company's annual financial statements. The annual financial statementshave been examined by the company's external auditors and their report is presented on page 22.

The annual financial statements set out on pages 24 to 37, which have been prepared on the going concern basis, were approved by the boardon 7 March 2012 and were signed on its behalf by:

Director Director

DIRECTORS’ RESPONSIBILITIES AND APPROVALFOR THE YEAR ENDED 31 DECEMBER 2011



The directors submit their report for the year ended 31 December 2011.

1. Review of activitiesMain business and operations

The company is engaged in banking dispute resolution and related services and operates principally in

South Africa.

The operating results and state of affairs of the company are fully set out in the attached annual financial

statements and do not in our opinion require any further comment.

2. Post statement of financial position eventsThe directors are not aware of any matter or circumstance arising since the end of the financial year.

3. Authorised and issued share capitalThere were no changes in the authorised or issued share capital of the company during the year under

review.

4. DirectorsThe directors of the company during the year and to the date of this report are as follows:

Name NationalityJF Myburgh South African Independent non-executive

TN Raditapole South African Independent non-executive

C Coovadia South African Banking sector

N Lala-Mohan South African Banking sector (alternate)

D Terblanche South African Independent non-executive

I Steyn South African Banking sector

B Tucker South African Banking sector (resigned: November 2011)

J Mathekga South African Independent non-executive

T Venter South African Independent non-executive

5. SecretaryThe secretary of the company is Corporate Law Services (Pty) Ltd of:

Business address: Central Office Park Unit 3, 257 Jean Avenue, Centurion 0157

Postal address: PO Box 7750, Centurion 0046

6. AuditorsNkonki Inc will continue in office in accordance with section 270(2) of the Companies Act.

DIRECTORS’ REPORTFOR THE YEAR ENDED 31 DECEMBER 2011


In terms of section 268G(d) of the Companies Act, 61 of 1973, as amended, I certify that, to the best of my knowledge and belief, the companyhas lodged with the Registrar of Companies for the financial year ended 31 December 2010 all such returns as are required of a public companyin terms of the Act, and that all such returns are true, correct and up to date.

Corporate Law Services (Pty) Ltd.Company secretary

CERTIFICATE FROM THE COMPANY SECRETARYFOR THE YEAR ENDED 31 DECEMBER 2011


STATEMENT OF FINANCIAL POSITIONFOR THE YEAR ENDED 31 DECEMBER 2011

Figures in Rand Note(s) 2011 2010

Assets

Non-current assetsProperty, plant and equipment 2 1 013 954 415 837Intangible assets 3 58 287 111 206

1 072 241 527 043

Current assetsTrade and other receivables 4 96 000 215 815Cash and cash equivalents 5 22 458 109 21 149 340

22 554 109 21 365 155

Total assets 23 626 350 21 892 198

Equity and liabilities

EquityRetained income (890 011) (504 475)

Liabilities

Current liabilitiesTrade and other payables 6 24 516 355 22 396 673Total liabilities 24 516 355 22 396 673

Total equity and liabilities 23 626 350 21 892 198


STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2011Figures in Rand Note(s) 2011 2010

Revenue 7 19 055 701 16 545 778Other income 5 457 –Operating expenses (refer to page 38) 12/13 (20 106 890) (17 776 692)

Operating deficit 8 1 045 732 (1 230 915)Finance income 660 197 714 167

(Deficit) surplus for the year (385 535) (516 747)


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2011Figures in Rand Accumulated loss Total equity

Balance at 1 January 2010 12 272 726 039Changes in equityDeficit for the year (516 747) (713 767)Total changes (504 476) (12 272)

Balance at 1 January 2011 (504 476) 12 272Changes in equityDeficit for the year (385 535) (516 747)Total changesBalance at 31 December 2011 (890 011) (504 476)


STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2011

Figures in Rand Note(s) 2011 2010

Cash flows from operating activities

Cash (used in) generated from operations 10 1 660 823 2 620 576Interest income 660 197 714 167Other non-cash item – –Net cash from operating activities 2 321 020 3 334 743

Cash flows from investing activities

Purchase of property, plant and equipment 2 (960 152) (114 992)Sale of property, plant and equipment 2 – –Purchase of other intangible assets 3 (52 261) (110 688)

Net cash from investing activities (1 012 413) (225 680)

Total cash movement for the year 1 308 607 3 108 067Cash at the beginning of the year 21 149 502 18 040 434

Total cash at end of the year 5 22 458 109 21 149 502


ACCOUNTING POLICIESFOR THE YEAR ENDED 31 DECEMBER 2011

1. Presentation of annual financial statementsThe annual financial statements have been prepared in accordance with International Financial ReportingStandards, and in the manner required by the Companies Act of South Africa. The annual financialstatements have been prepared on the historical cost basis, and incorporate the principal accountingpolicies set out below.

These accounting policies are consistent with those of the previous period.

1.1 Significant judgementsIn preparing the annual financial statements, management is required to make estimates and assumptionsthat affect the amounts represented in the annual financial statements and related disclosures. Use ofavailable information and the application of judgement are inherent in the formation of estimates. Actualresults in the future could differ from these estimates, which may be material to the annual financialstatements. Significant judgements include:

1.2 Property, plant and equipmentThe cost of an item of property, plant and equipment is recognised as an asset when:n it is probable that future economic benefits associated with the item will flow to the company, andn the cost of the item can be measured reliably.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment andcosts incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised inthe carrying amount of an item of property, plant and equipment, the carrying amount of the replacedpart is derecognised.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocatetheir cost (Including capitalised leased assets) over the estimated useful life as follows:

Item Average useful lifeFurniture and fixtures 5 yearsOffice equipment 5 yearsIT equipment 4 yearsSecurity equipment 5 years

The residual value and the useful life of each asset are reviewed at each financial period-end.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the totalcost of the item shall be depreciated separately.

The depreciation charge for each period is recognised in profit or loss unless it is included in the carryingamount of another asset.


The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item isderecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the differencebetween the net disposal proceeds, if any, and the carrying amount of the item.

1.3 Intangible assetsAn intangible asset is recognised when:n it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity, andn the cost of the asset can be measured reliably.

Intangible assets are initially recognised at cost.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

Amortisation is provided to write down the intangible assets, on a straight-line basis, to their residual values as follows:Item Useful lifeComputer software 2 years

1.4 Financial instrumentsInitial recognition

Trade and other receivablesTrade and other receivables are carried at amortised cost less any accumulated impairment.

Trade and other payablesTrade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest ratemethod.

Trade and other payables are carried at amortised cost.

Cash and cash equivalentsCash and cash equivalents comprise cash-on-hand and demand deposits, and other short-term, highly liquid investments that are readilyconvertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recordedat fair value.

Bank overdrafts and borrowingsBank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interestrate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised overthe term of the borrowings in accordance with the company's accounting policy for borrowing costs.

Other financial assets are carried at amortised cost less any accumulated impairment.

Held-for-trading financial assetsAvailable-for-sale financial assets are non-derivative financial assets, either designated in this category or not classified in any of the othercategories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the statementof financial position date.


ACCOUNTING POLICIESFOR THE YEAR ENDED 31 DECEMBER 2011

Available-for-sale financial assetsInvestments are recognised and derecognised on a trade date basis where the purchase or sale of aninvestment is under a contract whose terms require delivery of the investment within the timeframeestablished by the market concerned.

These investments are measured initially and subsequently at fair value. Gains and losses arising fromchanges in fair value are recognised directly in equity until the security is disposed of or is determined tobe impaired, at which time the cumulative gain or loss previously recognised in equity is included in theprofit or loss for the period.

Impairment losses recognised in profit or loss for equity investments classified as available for sale are notsubsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debtinstruments classified as available-for-sale are subsequently reversed if an increase in the fair value of theinstrument can be objectively related to an event occurring after the recognition of the impairment loss.

Held-to-maturity loans and receivablesHeld-to-maturity financial assets are non-derivative financial assets with fixed maturities and fixed ordeterminable payments that management has the positive intention and ability to hold to maturity. Theyare classified as held to maturity are classified as non-current assets, except for those within 12 monthsfrom the statement of financial position date, which are classified as current assets.

1.5 LeasesA lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental toownership. A lease is classified as an operating lease if it does not transfer substantially all the risks andrewards incidental to ownership.

Operating leases – lesseeOperating lease payments are recognised as an expense on a straight-line basis over the lease term. Thedifference between the amounts recognised as an expense and the contractual payments is recognisedas an operating lease asset. This liability is not discounted.

Any contingent rents are expensed in the period in which they are incurred.

1.6 Impairment of assetsThe company assesses at each statement of financial position date whether there is any indication that anasset may be impaired. If any such indication exists, the company estimates the recoverable amount ofthe asset. Irrespective of whether there is any indication of impairment, the company also:n tests intangible assets with an indefinite useful life or intangible assets not yet available for use for

impairment annually by comparing their carrying amount with their recoverable amount. Thisimpairment test is performed during the period under review and at the same time every year.

n tests goodwill acquired in a business combination for impairment annually.


If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimatethe recoverable amount of the individual asset, the recoverable amount of the cash generating unit to which the asset belongs is determined.

1.7 Employee benefitsShort-term employee benefitsThe cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave,bonuses, and non-monetary benefits such as medical care), is recognised in the period in which the service is rendered and is not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, inthe case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make suchpayments as a result of past performance.

1.8 Provisions and contingenciesProvisions are recognised when:n the company has a present obligation as a result of a past event;n it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, andn a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall berecognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursementshall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Contingent assets and contingent liabilities are not recognised.

1.9 RevenueRevenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and servicesprovided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Interest is recognised in profit or loss, using the effective interest rate method.

Royalties are recognised on the accrual basis in accordance with the substance of the relevant agreements.

Dividends are recognised in profit or loss, when the company's right to receive payment has been established.

Service fees included in the price of the product are recognised as revenue over the period during which the service is performed.

1.10 Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred.


NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011

Figures in Rand

2 Property, plant and equipment2011 2010

Cost/ Accumulated Carrying Cost/ Accumulated Carryingvaluation depreciation value valuation depreciation value

Furniture and fixtures 657 754 (102 500) 555 254 – – –Office equipment 134 095 (122 844) 11 247 134 095 (114 957) 19 138IT equipment 1 258 160 (812 601) 445 560 955 763 (569 032) 386 732Other property, plant and 40 373 (38 480) 1 893 40 373 (30 406) 9 967equipmentTotal 2 090 382 (1 076 425) 1 013 954 1 130 231 (714 395) 415 837

Reconciliation of property, plant and equipment – 2011

Opening Additions Disposals Depreciation Totalbalance

Furniture and fixtures – 657 754 – (102 500) 555 254Office equipment 19 139 – – (7 891) 11 247IT equipment 386 732 302 397 – (243 569) 445 560Other property, plant and equipment 9 967 – – (8 075) 1 892

415 838 960 151 – (362 035) 1 013 0953

Reconciliation of property, plant and equipment – 2010

Opening Additions Disposals Depreciation Totalbalance

Furniture and fixtures 13 868 – – (13 867) –Office equipment 43 387 – – (25 347) 19 139IT equipment 492 022 114 992 – (220 282) 386 732Other property, plant and equipment 18 040 – – (8 075) 9 965

567 318 114 992 – (266 472) 415 835

A register containing the information required by paragraph 22(3) of schedule 4 of the Companies Act isavailable for inspection at the registered office of the company.

35

Figures in Rand

3. Intangible assets2011 2010

Cost/ Accumulated Carrying Cost/ Accumulated Carryingvaluation depreciation value valuation depreciation value

Computer software, other 651 591 (593 302) 58 287 599 329 (488 123) 111 206

Reconciliation of intangible assets – 2011

Opening Additions Amortisation Totalbalance

Computer software, other 111 207 52 261 (105 179) 58 287

Reconciliation of intangible assets – 2010

Opening Additions Amortisation Totalbalance

Computer software, other 281 791 110 688 (281 274) 111 206

4. Trade and other receivables2011 2010

Trade receivables – 34 200Deposits 96 000 181 615

96 000 215 815

5. Cash and cash equivalents

Cash and cash equivalents consist of:Bank balances 22 458 109 21 149 340

6. Trade and other payables

Trade payables 59 381 60 327Subscriptions received in advance 23 562 019 21 609 499VAT 410 674 352 495Accrued employee costs 19 848 4 548Provision for leave pay 464 433 369 794

24 516 355 22 396 663



NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2011

Figures in Rand 2011 2010

7. Revenue

Subscriptions received 19 055 701 16 545 778

8. Operating (deficit) surplus

Operating profit for the year is stated after accounting for the following:

Operating lease chargesPremises• Contractual amounts 1 615 454 1 221 084

Depreciation on property, plant and equipment 467 213 547 746Employee costs 13 727 783 11 767 749

9. Taxation

No provision has been made for 2011 (2010) tax as the company is exempt from tax.

10. Cash (used in) generated from operations

(Deficit) surplus before taxation (385 535) (516 747)Adjustments for:Depreciation and amortisation 467 213 547 746Interest received (660 198) (714 167)Changes in working capital:Trade and other receivables 119 577 127 403Trade and other payables 2 119 766 3 430 651

1 660 823 2 620 080

11. Risk management

Liquidity riskThe company's risk to liquidity is a result of the funds available to cover future commitments. The companymanages liquidity risk through an ongoing review of future commitments and credit facilities.

Cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored.



Interest rate riskThe company has no borrowings that are either at fixed interest rates or marketinterest rates.

Credit riskCredit risk consists mainly of cash deposits, cash equivalents and trade debtors.The company deposits cash only with major banks with high-quality creditstanding and limits exposure to any one counterparty. The company depositsthe bulk of its cash in a money market call account managed by Stanlib andtransfers cash to an FNB current account 'as and when' funds are required foroperations.

12. Directors' emoluments

For services of non-executive directors 368 498 311 623 Total 368 498 311 623

13. Operating lease

The Ombudsman for Banking Services leases its office accommodation interms of operating lease. Escalations of 9% have been included in the lease agreements. The total futureminimum lease payment under this lease is as follows:

Due within one year 1 229 960 1 050 336Due between one and five years 4 800 624 5 644 800

14. Going concern

We draw attention to the fact that at 31 December 2011, the company had accumulated losses of (R890 011) and that the company's total liabilitiesexceed its assets by this same amount.

The OBS relies on the banks for financial support, which is provided in the form of subscriptions received. The banks have contributed subscriptionsto the amount of R24 million which have been received in advance for the 2012 financial year.

Accordingly, the financial statements have been prepared on a going concern basis which assumes that the OBS will continue in operationalexistence for at least 12 months from the date of these financial statements. The validity of this assumption depends on the banks continuing toprovide adequate financial support to the OBS to meet its financial obligations. Based on the business plan and projections, the directors believethat it is appropriate for the financial statements to be prepared on the going concern basis.

38


RevenueSubscriptions received 19 055 701 16 545 778

Other incomeProceeds from insurance claim – –Interest received 660 197 714 167Other income 5 457 –

19 721 355 17 259 945

Expenses (refer to page 27) (20 106 890) (17 776 692)(Deficit) surplus for the year (385 535) (516 748)

Operating expensesAdministration and management fees (board fee) 368 498 311 623Auditors' remuneration 109 467 100 199Bad debts – –Bank charges 13 575 10 575Consulting and professional fees 94 545 58 148Call centre 261 682 359 600Depreciation, amortisation and impairments 467 213 547 746Employee costs 13 727 783 11 767 749Entertainment and travel 218 105 47 517Offsite storage costs 44 552 30 183Recruitment fees 253 140 92 560Office stationery 67 640 83 345Staff refreshments and functions 40 487 31 131Training and education costs 140 267 361 579Gifts 2 863 6 378IT expenses 676 430 436 858Insurance 75 230 97 462Lease rentals on operating lease 1 615 454 1 759 181Postage 24 459 30 468Promotions 800 319 790 851Premise relocation and installation 428 275 13 650Premise maintenance 66 061 97 057Equipment rental and maintenance 300 184 431 584Subscriptions 59 030 57 600Telephone and fax 251 630 253 648

20 106 890 17 776 692

DETAILED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2011


Copies of our brochure and application for assistanceform should be available at the local branch of yourbank and on its intranet.

Alternatively they may be obtained from theOmbudsman for Banking Services.

CONTACT DETAILS Postal address PO Box 87056

Houghton2041

Physical address First floorHoughton Place51 West StreetHoughton Johannesburg

Sharecall 0860 800 900

Financial 0860 OMBUDS/0860 662 837Ombudsman Call Centre

E-mail [email protected]

Website www.obssa.co.za

Documents

ANNUAL REPORT 2011 - Ombudsman · bolstered by the updated Code of Banking Practice, will undoubtedly force their hand in due course. In a policy document titled 'A safer financial