ISETT, ESETA & ETDP Sector Training Authorities 2005/2006 Annual Reports

Meeting report

LABOUR PORTFOLIO COMMITTEE
20 June 2007

ISETT, ESETA & ETDP SECTOR TRAINING AUTHORITIES 2005/2006 ANNUAL REPORTS

Chairperson: Ms O Kasienyane (ANC)

Documents handed out:
Information Systems Electronics and Telecommunication Technologies (ISETT) Presentation on the 2005/06 Annual Report and Expected issues 2006/07 Auditor General
Information Systems Electronics and Telecommunication Technologies (ISETT) 2005/06 Annual Report
Energy Sector Education and Training Authority (ESETA) Presentation on the 2005/06 Annual Report and Expected Issues 2006/07 Auditor General
Education, Training and Development Practices (ETDP) Presentation on the 2005/06 Annual Report and Expected Issues 2006/07 Auditor General
Education, Training and Development Practices (ETDP) 2005/06 Annual Report
Education, Training and Development Practices (ETDP): Report on the National Conference 14 – 15 September 2006

Audio recording of meeting

SUMMARY
The Committee received presentations by three Sector Education and Training Authorities (SETAs). The Information Systems SETA ISETT gave a presentation to the Committee on four issues raised by the Standing Committee on Public Accounts (SCOPA). These issues related to lack of a fully functioning internal audit, high staff-turnover, staff bonuses and the reported absence of a remuneration  committee. The SETA sought to explain all issues, and stated that there was a remuneration Committee. There was inadequate monitoring of consultants, which was now being addressed through the employment of a new system. The Committee questioned the issues raised by the Auditor General, the impact of the internal audit has had on the SETA, the retention methods employed, and the basis on which bonuses were determined. A problem with the former Chief Financial Officer and Acting CEO was outlined. The Committee members aired their dissatisfaction with the presentation as it was limited to 4 issues and commented that the 2004, 2005 and 2006 annual reports had the same issues presented on, in particular the disclaimer on the SETA finance management. They were uncertain whether to keep supporting the SETA or whether it should be closed down.

The Energy SETA focused on the challenges it was facing and the issues raised by the Auditor General .A major challenge was the fact that many employers in the sector had received exemptions from paying levies, and Eskom provided about 70% of the levies received. Three senior managerial positions were vacant. The Auditor General had reported that there was an inadequate supply chain management system and existing staff and accounting authority members were not trained in supply chain management, nor was there a unit under the chief financial officer. Remedial action was taken through staff training and there was now a Supply Chain Administrator. The Auditor General also had highlighted the lack of a policy framework which resulted in the absence of a human resource and succession plan, but this was being addressed pending the appointment of a human resource officer. The Committee commented that SETA was important to the country and was concerned by the problems it was facing. Questions were asked whether the policy framework was already in place, the reason for a R97 million investment, the progress made by the SETA, what it hoped to do by September 2007, whether it was tracking those trained to see if they were employed, and its position on the SETA comparative score cards. Concerns were expressed about the failure to ensure that enough disabled people were trained, the absence of Committee members and lack of focus by the Board, and whether there was adequate monitoring of targets.

The Education and Training Development Practices SETA reported that seven issues had been raised by the Auditor General. These included the special investigation requested by the Board into the R74 million grant disbursements made in 2002 and 2003. Further issues were the split on levy income between mandatory and discretionary grants, which had been addressed, non-approval by the Minister of certain finance leases, which had now been sorted out by the issuing of Practice Note 5. There was inadequate debtor management on skills development levies, which had been corrected through double checking of procedures. Skills plans received after cut off dates were not addressed. The bank reconciliations were now being performed weekly, to address that issue of inadequate checking. The issue concerning incomplete documentation on learnership agreements had been addressed through instituting a contract management system. Members raised concerns over the material losses reported from the 2003 and 2004 year, the staff bonuses, the fact that bonuses were paid despite the SETA only achieving a scorecard rating of 2, whether sufficient had been done in terms of adult basic educaton and literacy training, the reasons for the shortfalls in performance targets, what the SETA was doing to try to reach its goals and what its equity rating was. The responses to some questions were to be submited in writing, due to shortage of time.

MINUTES
Briefings by Sector Education and Training Authorities (SETAs)
Information Systems Electronics and Telecommunication Technologies (ISETT) Annual Report Briefing
Mr Lucky Masilela, Chairperson: ISETT Board and Mr Oupa Mopaki, CEO: ISETT SETA gave presentation to the Committee on the measures that have been taken to rectify the four issues raised by SCOPA, following disclaimers in the audit report for 2005/06.

Mr Lucky Masilela noted that the disclaimers articulated that the SETA was dysfunctional, and lacked a full functioning internal audit. Revisions were made to eradicate the problems and this should change the perceptions of dysfunctionality. These revisions included the instituting of controls to address the high staff-turnover that was prevalent in the SETA through a retention plan that ensured that key staff members were retained. A Human Resources specialist was consulted on an appropriate retention plan, and the SETA was confident that the situation had been rectified.

A further issue raised at the meeting with SCOPA concerned the staff bonuses and the absence of a remuneration Committee. This was a misconception as a remuneration Committee had always been present, though it was incapacitated by a chronic high staff-turnover. The staff bonuses received were based on recommendations from industry that were made by BEMCO. Bonuses received were performance based but nonetheless the remuneration policy has been revised with the aid of SCOPA, following which the bonuses were benchmarked with those of the other SETAs.

A further issue raised was the inadequate monitoring of consultants. The problem was being addressed through the employment of a new system which allowed the downloading of revenue files to be done in-house, in conjunction with a consultant who was both training and putting a policy in place. This system should be functional by the beginning of the new financial year.

Discussion
The Chairperson requested to know more about the issues raised by the Auditor-General (AG), as well as the staff retention strategies. She also requested to know the impact that the internal audit had had on the SETA, and if it had boosted the internal capacity of the SETA.

Mr Masilela replied that the staff retention scheme employed by the SETA included the adoption of global benchmarks. There had been assessment of the functions and identification of the skills needed. The retention scheme included ongoing dialogue between staff and line management. This was stipulated in the revised staff retention policy. An internal audit team had been put in place to try to eradicate the problems indicated in the disclaimers.

Mr B Mkongi (ANC) commented that most of the issues in the presentation were already known to the Committee. The declaimers highlighted in the presentation were noted last year, including the tools that had been employed to remedy the issues. This SETA appeared to be becoming more dysfunctional according to the scores achieved on the SETA score card. In the last assessment it received a rating of 3, meaning that it was simply complying, but not performing.

Mr Lucky Masilela responded by apologising for having focused too much on the past and assured the Committee that there was a focus on the future. This entailed improving the SETA’s compliance, and skills development as a means of contributing to the economy and the stakeholders.

Mr Mkongi requested further clarification on the action plans and the progress that the SETA had made in the last year. He also requested the details on the monitoring tools, although this was raised in the previous year’s presentation.

Mr Masilela replied that an internal audit team had been put in place, with a prime focus on eradicating and preventing the problems previously identified.

Ms L Moss (ANC) referred to the retention strategy and policy. She requested whether staff bonuses were part of the retention strategy employed by ISETT SETA.

Mr Masilela responded that the staff bonuses were part of ISETT's retention scheme and that these had been successful.

Ms Moss asked whether ISETT had a staff evaluation system that corresponded with the  performance on the score card system. She further requested where the programmes operated. She noted that the Committee members were able, through their own constituencies, to gauge the performance of the SETAs.

Mr Masilela replied that the leaner programmes by ISETT SETA were run in the Western Cape, Eastern Cape and in Kwazulu Natal.

Mr C Lowe (DA) commented that he shared the dissatisfaction of the other Committee members, although he acknowledged the importance of ISETT to its sector. He referred to page 4 of ISETT’s annual report, on operational performance, and noted that the lack of sufficient detail over where the training highlighted took place. There was a need for the SETA to come back and give more detail regarding its achievements. Furthermore there was a need to show how the performance bonuses were achieved, in particular the targets set for the particular period and the performance for the same period.

Mr Masilela replied that the staff bonuses received by management related to National Skills Development Strategy (NSDS) targets and the Auditor General's report, and were apportioned 80% to targets and 20% on the AG's report. Specifically the bonuses received by management were 80 percent for meeting the NSDS targets and 20 percent of the bonus is based on the Auditor General’s Report. This system was revised according to the views aired by parliament and had now been benchmarked with those of the other SETAs. A grading system ranging from 1-5 was used.

Mr Oupa Mopaki added that the reporting on operational performance on page 4 of the annual report was done in accordance with the requirements set by the Department of Labour.

Mr Mkongi stressed his dissatisfaction that the SETA board was male dominated.

Mr Masilela responded that the gender imbalance on the SETA board had prevailed in the past years and had now been rectified. The current board was balanced in terms of gender.

Mr Mkongi requested more details on the high turnover experienced and the staff retention plan. The Auditor General’s disclaimer indicated that the high staff turnover was particularly acute in the finance division of the SETA.  He also noted that this was a problem facing a lot of government departments, even though there were skilled unemployed youths in the country. He also requested how the SETA had ended up with inadequately skilled financial staff.

Mr Oupa Mopaki replied that the high staff turnover was related to the staff bonuses. The Chief Financial Officer (CFO) was responsible for certain financial situations. The former CFO became the Acting CEO, then eventually applied to become the CEO, but failed to get this position. There had been problems faced by the SETA regarding discipline and correspondence with the board, during the Acting CEO’s tenure. After failing to secure the CEO position, he went back to his position as CFO, but failed to do his job, and also implicated the same board member with whom he had previously failed to correspond. He finally left, and it took the SETA some time to secure a new CFO. The Financial Manager had applied for the CFO position, but became disillusioned and also resigned.

Mr O Mogale (ANC) referred to page 9 of ISETT's annual report and noted that the information included raised numerous questions regarding the geographical spread of the training providers. In 2004/2005 there were no training providers in the Eastern Cape, Northern Cape, North West province and the Western Cape. There was only one training provider in the Free State with a high concentration in the Gauteng region. He requested whether the SETA had any correspondence with service providers, and if not, why this was so.

The Chairperson asked for clarification on the geographical spread of the training providers, as highlighted in ISETT's annual report.

The Chairperson commented that one of the major challenges facing the economy was skills development. However, it appears that the SETA was not addressing this challenge adequately. She requested what the SETA had contributed to the economy. She also thought that there needed to be elaboration on the revised remuneration policy.

Mr E Mogale (ANC) aired his dissatisfaction with the presentation as it was limited to four issues. In addition to addressing the issues previously raised, the SETA must report on other matters.  He asked whether the SETA had the capacity to meet its mandate. He further commented that the 2004, 2005 and 2006 annual reports raised the same issues, in particular the disclaimer on the SETA finance management. This had not yet been rectified, casting a shadow of doubt on the SETA's ability to continue as an entity. Pages 34 and 311 to 317 in the annual report highlighted the poor management of funds and lack of accountability. The 2004/2005 accounting report had already indicated the SETA's problems in financial management. All of this raised questions as to whether the Committee should be trying still to help the SETA continue or whether it should be closed. He also asked whether there was a reason for the Chief Financial Officer (CFO) to receive bonuses, considering the financial and accounting issues facing the SETA.

Mr Masilela apologised that the report and the presentation did not meet the expectations of the Committee. He noted that the SETA had received a template to use in response to the issues raised, which had informed the presentation given to the Committee. He further noted that some of the disclaimers had already been addressed and the problems they identified had been eradicated. The accounting and financial problems faced by the SETA were due to accounting errors, and not due to any misuse of funds. He admitted that there were problems relating to Value Added Tax (VAT), which have since been corrected. There were now no longer VAT requirements for SETAs and this would be reflected in future reporting. In addition, there had been a process of benchmarking done with other SETAs. This SETA had also faced problems regarding opening and closing balances, but the Audit Committee had come up with a solution.

Mr Mopaki added that the main disclaimer was in relation to the National Skills Fund(NSF), as it was stipulated that the SETA needed to have its own separate account for the sake of proper accountability, rather than following the existing practice of using the same account which received other levies. However, a closer assessment would have shown that the number of trainees under the SETA corresponded to the funds received. 10% of the levies received were spent on administration. It was not necessary to have offices in all provinces as training could still take place. 

Dr Florus Prinsloo, Senior Executive Manager: Department of Labour commented on the presentation approach adopted by the SETA. He noted that after the Department briefed the Committee on the under-performing SETAs, a proposed reporting format (not a template) was sent to the SETAs that were scheduled to appear before the Committee. This format required the SETAs to address the issues raised by SCOPA, the Auditor General and any questions raised by the Committee.

Mr Mkongi(ANC) commented that the Committee had a mandate to deal with wider issues than those raised by SCOPA and the Auditor General.

Mr  Mogale added that the SETAs were guided by chapter 1 of the Skills Development Act (SDA), and that this SETA did not appear to be taking account of those principles. 

Energy Sector Education and Training Authority (ESETA): Annual Report Briefing
Mr Bafana Ngwenya, CEO, ESETA and Mr Salim Omar, Acting CFO, gave a presentation to the Committee in which they focused on the problems facing the SETA. Mr Ngwenya reported that the SETA was facing challenges as some of the employers had received exemptions from  paying levies. Eskom providing 70% of the levies received by the SETA. Further challenges faced by the SETA included three key vacant positions, as outlined in the organogram, including the Human Resources and Marketing Manager, the Chamber Manager and the Education and Training Qualifications (ETQA) officer.

The Auditor General’s report had highlighted areas of qualification that relating to corrective action in the recording and reporting done by the Energy SETA. Measures had now been put in place, with the aid of the AG's office, to remedy the problems and these seemed to be working.  The presenters highlighted the other corrective actions that had been taken by the SETA,  including adjustments to financial reporting.

Another issue of concern was the supply chain management system, in which staff and accounting authorities were not trained in supply chain management, nor was any unit implemented under the Chief Financial Officer. Remedial action was taken through staff training and there was now a Supply Chain Administrator responsible for the supply chain management system.

Other matters of emphasis highlighted by the Auditor General included the lack of a policy framework, which resulted in the absence of a human resources and succession plan. This had now been corrected. This issue related to the vacant Human Resources Manager and Managerial positions. The remedial action involved an incumbent assuming the Human Resources position with a focus on addressing the issue of marketing to ensure that the SETA was compliant. With regards to the succession plan, the current CEO and CFO had assumed the responsibilities of deciding upon the plan in the meantime.

A further issue concern related to marketing, in particular the lack of visibility of the SETA. This was currently being remedied through the use of newspapers. I

There were inadequate controls to monitor the funds spent in supporting the NSD targets, in consequence of the lack of a policy framework. This had been addressed through proper segregation of duties within the department, and funds spent to support NSDS targets were now being monitored.

Key challenges being faced by the Energy SETA included inadequate administration funds (only 10% being available) to do all operational necessities such as marketing and regional presence. This resulted in provincial outreach constraints, particularly in Gauteng, Kwazulu Natal and Port Elizabeth. The SETA did have some provincial outreach programmes in Cape Town, although this was limited to certain areas due to the inadequate funds..

Discussion
The Chairperson commented that this SETA was important to the country and she was concerned by the problems it was facing.

Mr Lowe asked for clarification over the CFO noted as being on maternity leave.

Ms S Rajbally (MF) aired her concern about the Human Resources of the SETA and asked for more detail about the remedial action taken. She further requested if the policy framework was already in place.

Mr Ngwenya responded that in respect of human resource matters, there was a staff complement of 25 members, and there were clear guidelines as to what they should be doing at the centres. He further noted that there were training activities taking place at Kuhla.

Ms Rajbally asked whether the R97 million investment was for profit making or safe keeping.

Mr Salim Omar, Acting CFO, replied that the investment was made in order to separate the National Skills Framework (NSF) funds and the SETA funds. He further indicated that the R97 million was in RMB and Standard Bank, and interest was being received.

Mr Mogale commented that the SETA had received a grading of 1 according to the SETA scorecard. He requested to know what grading the SETA envisaged in the assessment done in September.

Mr Ngwenya replied that he anticipated a fairly substantial improvement as the SETA had responded to the Auditor General's concerns. Furthermore the internal audit done had positive results.

Mr Mogale asked for a further breakdown on the spread of enrollment taking place in the provinces. He also requested how many people who had gone through learner ships had managed to secure employment, pointing out that the skills provided need to be transferred into employment.

Mr Ngwenya replied that there was a lot of enrolment taking place, including Kuhla. This focused on addressing the concerns over unemployed youths. The analysis to be done on the numbers of  trainees who had secured employment, was expected to yield positive results.

Mr Mkongi commented on the NSDS aggregates and noted that SETA had set a target of 7 for people with disabilities, yet the actual result was O. He requested to know why this had not taken place.

Mr Ngwenya responded that the SETA was in the process of implementing the NSDS targets and enrolment of learners was trying to focus on including people with disabilities.

Mr Mkongi requested how the SETA was dealing with the absence of members from the SETA’s Committees, as well as the NSDS targets. He also asked for further elaboration on the problems on administration as highlighted in slide 13 of the presentation.

Mr Ngwenya confirmed that the SETA Board had faced problems due to long serving members who had the tendency to relax, but this had now been remedied through a new provision whereby the Board had one seat for Eskom, and three CEOs from different companies had been tasked with recommending the appropriate people who might assume the other seats on the board. This was likely to improve the attendance of Committee members, and would be reflected in the upcoming Energy SETA report.

Mr Ngwenya also referred to page 22 of the Annual Report that indicated how the SETA was managing its NSDS targets. The strategy included ongoing dialogue with all  managers to address the NSDS targets, and so there was close monitoring.

Ms Moss commented that she was delighted that the Energy SETA was giving training through the Kuhla project. She requested if there was any follow up on people who had been trained, in order to find out if they had been employed.

The Chairperson asked what progress the SETA saw itself making by September 2007. She noted that the SETA was not doing well in comparison to other SETAs. She also requested  information on Small,Medium and Micro Enterprises (SMMEs) and Adult Basic EducationTraining (ABET), as well as new venture programmes by the SETA. She was concerned that the AG had noted that there was poor financial performance.

Mr Ngwenya replied that the SETA had a new strategy with regards to ABET. This strategy entailed the deployment of people capable in identifying the right people with the needs that ABET could cater to. The previous strategy on ABET was not suitable in that regard. He said that a report on the small enterprises could be found on Page 22 of the SETAs Annual Report. 

Education, Training and Development Practices (ETDP) SETA: Annual Report Briefing
Mr Vernon Nzama, Chairperson: ETDP SETA, and Mr David Molapo, Acting CEO: ETDP SETA, gave a presentation to the Committee. Mr Vernon Nzama indicated that the presentation focused on the issues raised by SCOPA, the Auditor General’s report and the Management letter. Seven issues were raised by the Auditor General, which he briefly outlined as the Special investigation, the split on Department of Labour levy income between mandatory and discretionary, finance leases having been signed without the necessary approval from Minister, failure to perform sbank reconciliations weekly, incomplete documentation on learnership agreements, inadequate SDL debtors management, and the skills plans having been received after cut-off date..

The special investigation highlighted in the presentation concerned the request by the Board, in 2006/2007, that an investigation be undertaken on the R74 million grant disbursements made in 2002 and 2003. The purpose was to establish whether the allocation went to the approved programmes, to check whether the programmes had any impact in the constituencies where they were run, and to check that all processes were correct. MMD Forensics conducted the investigation. It reported that the SETA had governance problems, internal controls were weak, there were management problems and a suspicion of fraud was raised. These issues were taken to the board which requested that the issues be addressed as a matter of urgency..

With regard to the weak internal controls, the board gave directives to address the issue through closing the gaps identified in the audit. The board also took steps to remedy the issues concerning governance and suggested a forensic audit on the five transactions suspected of involving fraud.. The investigation began in June 2007 and would take 3 months to complete.
The SETA had progressed since 2002 and 2003 through improving its internal controls, employing extra management staff to improve the processes in the SETA, appointing an audit Committee to assist the SETA board and appointing an internal audit company which performed the auditing functions for the SETA.. The board now took governance issues seriously and had a Charter through which it operated. The SETA had addressed the procurement issues through following the procedures laid out in the Public Finance Management Act.

The SETA had introduced an new accounting system that addressed the split on  levy income between mandatory and discretionary grants, and was thus able to distinguish between these grants when accounting back to the Department of Labour.  The issue over finance leases that had not been approved by the Minister had been addressed and the Accountant General had issues Practice Note 5 to address these issues. The SETA thus no longer needed to seek approval from the Minister, as this had already been granted for certain types of leases.

The issue on inadequate skills development levy debtors’ management had arisen because the SETA was not aware of debtors in its accounting books. This had been resolved through double checking when the SETA received information on debtors from the Department of Labour. The issue of WSP received after cut-off date was due to miscommunication by the SETA during the SETA reestablishment process. This had been corrected. 

The issue of the bank reconciliations not being performed weekly had been resolved by setting up a new system to ensure that the reconciliations were done weekly, as opposed to doing them monthly as prescribed by the Act. 

The issue concerning incomplete documentation on learnership agreements had been addressed through the instituting of a contract management system in the SETA that had a in-built mechanisms, such as checklists that accompanied all the learnership agreements that were entered into.

The Management letter had addressed these issues, and had further noted that the SETA relied heavily on the funds received from the Education Department, amounting to 10% of all levies, which was used for administration in the SETA.  If this funding was removed, the SETA would cease to exist. The Department of Education had indicated that it was committed to paying this amount. The SETA had also addressed issues of Health and Safety that were raised, and now complied with the legislation.

Discussion
Mr Mkongi commented that the Auditor General’s report indicated that there was a mismatch of the SETA’s commitments, and that this had impacted on the failure to achieve certain NSDS objectives.

Mr Mkongi referred to page 51 of the Annual Report, that indicated that there had been material losses equivalent to R2 million. He commented that these material losses should be considered against the bonuses received and highlighted on page 28.

The Chairperson requested further clarification on the on the special investigation conducted.

Mr David Molapo responded that the figure for the material losses was based on the South African Revenue Service (SARS) reports received on previous years, particularly 2002 and 2003. He noted that there was an error relating to VAT and delayed payments of PAYE involving R1, 7 million in 2002 and 2003, although current management had no dealings in these issues. The current management had actually resolved the issues of their predecessors. He said that the  performance bonuses bore no relationships to these issues, and should not be considered with them.

Mr Mkongi asked how the bonuses received by management had been given, bearing in mind the  SETA’s low scorecard grading of 2.

Mr Thinyane Molelle, Chief Operating Officer, ETDP SETA,  responded that the bonuses had no relationship to the score card grading but were basically a 13th cheque received by the staff annually. The staff did not receive any bonuses based on the scorecard performance.

Mr Mogale commented that in the State of Nation address the President highlighted ABET as a national priority. He requested what this SETA had done in terms of ABET.

Mr Molelle replied that there were always dynamics with regard to ABET. Some of the targets were nominated by the employers, although they were not the beneficiaries of ABET. However some of the employers were service providers. He further noted the ETDP SETA was currently facing ABET problems, which were being dealt with. In 2006 there were 1080 individuals trained in ABET.

Mr Mogale asked where the service providers were located, and whether the employers who were service providers were accredited. He also requested if there were any training schemes in Limpopo province.

Mr Nzama responded that employers were used as a service providers as the SETA was struggling to meet the numbers of people that ideally should go through the ABET.

Mr Mogale enquired the reasons for the shortfalls in the performance targets set.

The Chairperson pointed out that this was a very important SETA. There was unfortunately not sufficient time to deal with all questions at the meeting and she requested that the outstanding responses be sent through to the Committee in writing.

The Chairperson asked what the SETA was doing to reach its goals, and asked also for an indication of its equity principles.

The meeting was adjourned.