Department of Labour, Compensation Fund, National Skills Fund & Sheltered Employment Factories: hearings on Qualified Auditor Ge
Public Accounts (SCOPA)
21 June 2006
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
STANDING COMMITTEE ON PUBLIC ACCOUNTS
21 June 2006
DEPARTMENT OF LABOUR, COMPENSATION FUND, NATIONAL SKILLS FUND AND SHELTERED
EMPLOYMENT FACTORIES: HEARINGS ON QUALIFIED AUDITOR GENERAL REPORT 2004/05
Chairperson: Mr T
Godi (PAC)
Document handed out:
Department of Labour and Compensation Fund Annual Reports (available
at www.labour.gov.za)
Auditor General's
Report on Department of Labour, Compensation Fund, National Skills Fund and
Sheltered Employment Factories
Department of Labour delegation list (see Appendix)
SUMMARY
A top-level delegation from the Department of Labour appeared before the
Committee to explain accounting and financial management problems relating to
the department, Compensation Fund, Unemployment Insurance Fund, the National
Skills Fund and sheltered employment factories. Members of the Committee
subjected the department to an intensive and robust interrogation.
MINUTES
The Chairperson’s opening remarks described the meeting as an information
sharing session to clarify issues. On his instruction, a process of engagement
ensued.
Discussion
Mr D Gumede (ANC) enquired who the accounting officer was for the public
entities resorting under the Department of Labour (DoL).
The Director General, Dr. V Mkosana, replied that he was the accounting officer
for the Unemployment Insurance Fund (UIF) and Compensation Fund (CF).
Mr Gumede asked who monitored the operation of these entities.
The Director-General answered that the day-to-day monitoring fell under the
purview of the Commissioners of the UIF and CF.
Mr Gumede queried what kind of monitoring the DoL had over the public entities.
The Director-General responded that it had an advisory committee that assisted
with monitoring. He added that a work plan was developed annually and that the
top management met weekly to discuss problems and assess whether the objectives
were being realised.
Mr Gumede asked whether the monitoring included compliance with regulations and
laws.
The Director-General answered that an internal audit committee ensured
compliance.
Mr Gumede noted the high vacancy rate (in the department) and shortcomings
relating to IT and financial management reflected in the Auditor General’s
(AG’s) report. He asked what steps the department was taking to remedy
this.
The Director-General countered that the vacancy rate had been reduced to 6%,
which was better than the international standard. Furthermore, he said that the
department had a partnership with Siemens to correct the skills dearth in the
ICT department.
Mr Gumede persisted and wanted to know if the department employed the same
capacity throughout all the entities.
The Director-General confirmed that all entities had equal capacity.
Mr Gumede sought to establish whether the department was satisfied with its
human resources capacity.
The Director-General expressed dissatisfaction with regards to capacity in the
ICT department.
Mr Gumede asked whether the department had the same capacity when the CF
received a qualified audit report.
The Director-General answered in the negative. He said that capacity was
increased the previous year.
Mr Gumede queried whether the department had a performance contract with its private
partner and if this was monitored.
The Director-General confirmed that a standard performance contract existed and
conceded that it was a problem monitoring the private partners’ performance.
Mr Gumede accused the department of acting slowly in improving the status of
the National Skills Fund (NSF).
The Director-General expressed uncertainty whether the NSF was a public entity.
He submitted that an investigation was underway to determine how to help the
NSF.
Mr Gumede wanted the view of the Treasury regarding this matter.
Ms J Naidoo, Deputy Director: Labour and UIF (National Treasury) said that they
met the department on the issue and advised them what process they needed to
follow to list the NSF as a public entity.
The Chairman angrily commented that it was unacceptable that the process was at
a tentative stage while the NSF had been around for a long time.
The Director-General answered that nobody understood the legal form of the NSF.
Mr E Trent (DA) wondered if the department was in a position to handle an
additional fund.
The Director-General stated that this was possible provided that there was a
good plan and a proper structure.
Ms T Tobias (ANC) requested the department to allay her fears concerning the
casualisation of workers.
The Director-General acknowledged that the Minister had already voiced his
discomfort concerning this matter. Thereafter, he reckoned that this was only a
temporary arrangement.
Ms L Mashiane (ANC) enquired how often the project team met.
The Director-General answered that they met on a monthly basis.
The Chairman wanted to know if the Director-General was satisfied that the
public entities complied with the Public Finance Management Act (PFMA) and
Treasury Regulations.
The Director-General responded that there was compliance “by-and-large”.
Mr V Smith (ANC) disputed that there was compliance and argued that the AG’s
report was qualified because of non-compliance.
Ms Tobias agreed with Mr Smith. She complained that half compliance did not
equate to full compliance. Furthermore, she felt that there was non-compliance
on fundamental issues like financial management.
Mr G Madzikiza (UDM) inferred that the Director-General was incompetent by
asking him how he could have let things develop to such a point that the AG’s
report had a disclaimer.
The Director-General admitted that he was not satisfied with compliance.
Ms A Dreyer (DA) asked the department what remedial action it intended to
pursue.
The Director-Genera; replied that they noted the weaknesses highlighted in the
AG’s report and would devise a strategy to address the concerns.
Mr Smith stated that for the past two years this department had not had a clean
audit and yet performance bonuses were awarded. He suggested that the
department cease all bonuses when it received disclaimers because
non-performance was being unduly rewarded.
The Chairman clarified that the audit is a qualified opinion and not a
disclaimer.
Mr P Gerber (ANC) asked who had compiled the report.
The Director-General replied that the project managers had compiled it.
Mr Gerber argued that the figures in the AG’s report contradicted the
Director-General’s assertion that the vacancy rate was satisfactory.
The Director-General stated that he viewed this matter seriously and would resolve
it. He offered that the department was a victim of success due to its staff
being poached.
Mr Gerber asked the department to explain how the subsidised motor
schemes worked.
The Director-General referred this question to the Chief Financial Officer
(CFO) of the DoL. Mr C van der Merwe explained that approval of an application
was hindered by the determination that the use of the vehicle was work related.
Ms Tobias observed that there was an element of misinformation. She believed
that there were two positions presented in one document: the DoL’s stated
comprehensive register but the AG’s report listed an incomplete register.
Mr Gerber questioned why the department under spent and how it intended to
avoid this in the future.
The Director-General said that this was his biggest worry and he undertook to
meet with the Treasury to ensure that spending targets were met.
Mr Gerber alleged that there was evidence of conflict of interest between the
staff and service providers.
The Chairman inserted a rider asking to what extent this had been identified as
a problem.
The Director-General declared that this was not an overwhelming problem as
their employees were obligated to declare where a conflict of interest arose.
Mr Gerber accused the department of failing to disclose misconduct by
employees.
Mr Trent wanted to ascertain what mechanisms were put in place to monitor this
process.
The Director-General stated that there was a Tender Committee that monitored
the process. He also reiterated that employees were obligated to withdraw from
active participation where a conflict of interest arose.
Ms Dreyer advised the department to compile a register where employees could
declare their interests upfront.
The CFO proclaimed that such a register existed.
Mr Gerber queried whether the department’s contract with Siemens totalled R1.4
billion.
The CFO replied that the initial contract was for R120 million per year for ten
years. He continued that this figure would escalate because CPIX (inflation
rate) and services fees would be included.
Mr Gerber sought to establish why details of the performance bonuses allocated
were not incorporated in the report.
The Director-General said that these details were not available at the time of
preparing the document.
Questions around the report of the NSF
Mr Madikiza asked what accounting system the department used for the
NSF.
The Director-General answered that a modified cash basis of accounting was
used.
Mr Madikiza queried when the Committee would see a positive turn around for
this Fund.
The Director-General hoped to report positive news at the end of the financial
year.
Mr Madikiza asked what monitoring mechanisms the department had to ensure that
these funds were spent for their intended purposes.
The Director-General answered that each province identified and monitored the
projects.
Mr Trent voiced his dissatisfaction with the Director-General’s answer and
urged him to elaborate.
The Director-General responded that quarterly visits were conducted to enhance
monitoring and that any deviation on the progress plan resulted in the
withdrawal of funds.
Ms L Mashiane (ANC) asked the Director-General whether he visited any projects
to see if there was value attached to them.
The Director-General said that he as well as the Minister visited projects
regularly.
The AG remarked that there were issues around the legal framework of the NSF
and asked the Treasury to comment whether the NSF should be categorised as a
public entity.
The Treasury viewed the NSF as a public entity.
The Director-General argued that this was an area of disagreement with the
Treasury.
Questions around the report on the Sheltered Employment Factories (SEF)
Mr Gumede said that the mandate of the company was outdated and had not been
updated since 1983. He pointed out examples of discriminatory practices that
still appeared in this document.
The Director-General agreed with these sentiments and indicated that this
embarrassed him.
Mr Gumede highlighted that the SEF only catered for war victims and did not
include members of the Azanian Peoples Liberation Army (APLA) and the SA
Defence Force (SADF).
The Director-General bemoaned the chaotic status of the SEF.
Mr Smith took issue with the fact that money was written off. He was
particularly irritated by the wages suspense account write off.
The Director-General remarked that not the entire amount was written off
because an investigation revealed that some money owed by the old TBVC states
could be retrieved.
This revelation incensed Mr Smith. He argued that these amounts were more than
likely unrecoverable.
Mr Gumede asked what sort of action was taken in respect of the unauthorised
disposal of assets by the staff.
The Director-General answered that staff that engaged in such practices were
subjected to internal disciplinary hearings and/or criminal charges.
Mr Gumede challenged the department to produce a report within 30 days on
corrective actions taken.
Questions on the Compensation Fund
Dr H Bekker (IFP) asked what the vacancy rate was at the CF.
The Director-General replied that it was at 7.5%.
Dr Bekker persisted with why there was such a high level of temporary staff.
The Director-General acknowledged that the backlog meant an increase in
temporary staff and that it would be premature to create permanent posts
without a thorough process.
Dr Bekker wondered whether the Director-General was satisfied with the database
and claims
The Director-General responded that he was satisfied.
Dr Bekker observed that in the previous year there was a forensic audit and now
a qualified report against the CF.
Mr Trent asked whether the casualisation of workers would lead to poor control.
The Director-General was adamant that there were layers of supervision to
exercise proper control.
The Chairperson gave an overview of the matters discussed and encouraged the
department to improve.
The meeting was adjourned.
APPENDIX
Department of Labour Officials attending the SCOPA briefing on 21 June 2006
1. Dr V Mkosana: DG
2. Mr. L Kettledas: DOG: LP & LMP
3. Ms M Xaba: DOG: CS
4. Mr. S Mkhonto: DDG: SD
5. Mr. S Morotob: (Acting DOG: ESDS
6. Mr. C van der Merwe: CFO for DoL
7. Mr. P Mothiba: Acting Compensation Fund Commissioner
8. Mr. G Dreyer: CFO for Compensation Fund
9. Mr. J du Preez: Chief Director for
NSF
10. Mr. L Larson: Manager at Sheltered Employment Factories.
11. Mr. B Maja: Chief Director responsible for Sheltered Employment Factories
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