Department of Labour, Compensation Fund, Unemployment Insurance Fund: Annual Reports 2008/09

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Labour

19 October 2009
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

The Department of Labour briefed the Committee on the Annual Report 2008/09, including reports on the Compensation Fund, Unemployment Insurance Fund, overall responsibility of the department, and evaluation report and challenges. The focus and challenges of each of the Department’s four main programmes was described. Spending and risk management were on track, although the Department conceded that there were qualifications in the audit report, which were not reported upon in this meeting in detail. However, the Department was developing an action plan to address the issues, and the Audit Matters Forum would be meeting monthly to address the problems. Some of the challenges included the slipping control of the South African labour market landscape from the Department, which would address this by assuming a leadership role on labour market issues in Cabinet Cluster meetings, leading the debate on labour market issues and setting the agenda for decent work in South Africa. There were also problems of capacity, and the Department was addressing the issue proactively, abolishing unfounded posts, fast-tracking the filling of vacancies and reviewing and improving selection and recruitment processes. A hotline was to be established to assist service delivery.

The Unemployment Insurance Fund noted that it had received an unqualified audit, and was in a sound financial position, despite paying out more than in previous years because of the number of jobs lost through the recession. The collections had improved, but the taxi industry remained a challenge. The Fund was responding to the economic crisis by working with the Department and the Sector Education and Training Authorities to train unemployed beneficiaries, and had contributed to the training layoff schemes. It was participating in exhibitions and marketing campaigns. It had also identified areas of the legislation needing improvement and would present proposals shortly.

The Compensation Fund noted that it was aiming to improve its internal control environment, as it had received adverse comments from the Auditor-General, and outlined what steps had been taken so far. It was also concentrating on legislative compliance, and was working on streamlining of processes and improvements in governance. It would be implementing a risk management strategy from March 2010.

Members asked about the problems in a contract with Siemens, and the Chairperson asked that the Department send full details of all service contracts to the Committee, and enquired about the purpose of the hotline. Members also asked for further details on the qualified audits, what the Department would do to enforce compliance, its work with the International Labour Organisation, its training and layoff interventions, and the work on sectoral determinations. Members also asked how compliance would be enforced, what role the Department played to ensure that contributions were made, the criteria for funding companies in distress, the attempts to source beneficiaries through the Government Gazette, and whether the amounts set aside for unemployment insurance benefits were likely to be sufficient.

Meeting report

Department of Labour (DoL): Annual Report 2008/09
Mr Jimmy Manyi, Director-General, Department of Labour, presented the Annual Report 2008/09 to the Committee, focusing on performance in four key programmes.

He noted that Programme 1 covered the overall management of the Department of Labour (the Department or DoL), and strategic support and advisory services. It registered an improvement in stakeholder relations through exhibitions that showcased the services of the DoL in various provinces. Twenty marketing and advertising campaigns on the activities of the department were implemented. Senior managers participated in a training and development programme. Three pillars of employee health and wellness were implemented. The implementation of the employment equity plan was monitored monthly.

Spending was within budget because the Budget Advisory Committee provided support to spending units of DoL on financial management and control. Enhancements to the Annual Financial Statements for better compliance were implemented. Submission and analysis of quarterly financial reports were facilitated. A sub-directorate for asset management was established. Major asset registers were set up in all provinces and head office. Policies had been developed to cover key areas in the IT environment. A risk management plan and unit had been introduced. With the introduction of investigations on security breaches and theft of IT equipment, cases of IT equipment losses had been reduced by 75%.

Programme 2 was aimed at ensuring the implementation of and compliance with the labour policies and programmes of the DoL through monitoring, evaluation and inspections. It aimed to promulgate and implement the National Occupational Health and Safety legislation by March 2010. A total of 90% UIF claims were processed and paid within five weeks. There were 7 553 job opportunities. Of the total of 18 404 job seekers, 65% were placed in employment and 3 415 in learning, against a target of 15 000, compared to 5 578 in 2007/08.  86% of the 8 531 job-seekers were assessed and referred to identified and scarce skills development programmes. All these were mainly for strategic government job creation initiatives. Advocacy and blitz inspection programmes targeting high-risk industries were developed.

Programme 3 was developed to contribute to employment creation and skills development by promoting and monitoring the achievement of the objectives of the National Skills Development Strategy and the National Human Resource Development Strategy. Its mission was to develop the skills of work-seekers by training 90 000 unemployed persons, by placing 70% in employment for the National Skills Fund Projects and SETAs. It aimed at providing skills development support through the National Skills Fund and SETAs, and funding SMMEs, NGOs and cooperatives. It also planned to provide funding through partnerships with Umsobomvu Youth Fund and Small Enterprise Development Agency to support 3 000 youth in new ventures, and ensure that 70% of those new ventures were sustainable, after completion of the programme, through training and mentorship.

Programme 4 was about establishing an equitable and sound labour relations environment and promoting the interests of South Africa in international labour matters through research, analysis and evaluation of labour policy, and providing statistical data on the labour market, including providing support to the institutions that promoted social dialogue. It focused on improving employment equity by inspecting additional Johannesburg Stock Exchange-listed companies each year for their substantive compliance with legislation. During 2009/10 the DoL would conduct follow-ups on all 106 companies assessed in the previous three years (2006-2008), and some companies would be assessed at provincial level as part of building this capacity in provinces.

Mr Manyi noted that a major strategic challenge that was identified was the slipping control of the South African labour market landscape from the DoL. DoL interventions to address this would include assuming a leadership role on labour market issues in Cabinet Cluster meetings, leading the debate on labour market issues and setting the agenda for decent work in South Africa, It would use DoL Research Reports as the basis for labour policy change and implementation in South Africa.

In the corporate services branch, a problem of capacity in the office of the Chief Information Officer (CIO), and effective management of the Siemens Public Private Partnership (PPP) contract was noted. Plans were in place to appoint the CIO and support staff in this office. These posts had been advertised. Monthly service level agreements with Siemens were to be monitored and signed off by the Director-General. Failure to deliver would result in penalties and termination of contract where improvement was not evident.

High vacancy rates and protracted recruitment and selection processes were other problems discovered within the Human Resources Management. The DoL now had a plan to abolish all unfunded posts, to fast-track the filling of vacant positions, and review and improve the DoL recruitment and selection processes.

In the client service delivery branch, problems were encountered around client service and service delivery. The DoL was to confirm Service Delivery standards. Responses to complaints would be handled in line with the Service Delivery Standards, and access to information and services would be improved. A Director-General’s hotline in the provinces would be established.

Within the organisation itself, audit matters were posing some problems for the Department. Consequently, an action plan for them had been developed and approved by the Audit Committee and submitted to the Auditor-General. The Audit Matters Forum met monthly to monitor progress. In managing performance, the Deputy Director-General would have to sign off monthly IT PPP service delivery reports. The turn-around time for all queries, service delivery complaints and parliamentary questions would be improved, and disciplinary action will be taken where necessary.

Unemployment Insurance Fund (UIF)
Mr Boas Seruwe, Unemployment Insurance Commissioner, DoL, briefed the Committee on the Unemployment Insurance Fund (UIF or the Fund). The Fund had obtained an unqualified audit report from the Auditor-General for 2008/09, for the fourth successive year. Compliance had been the cornerstone of UIF’s operations and this would continue to improve. The UIF had worked closely with the Executive Authority and the UIF Board in addressing the strategic intent and challenges. The new Board had been established in the current year. Actuarial valuations by end of March 2009 indicated that the Fund was in a sound financial position.

Financially, the Fund had managed to collect R10,3 billion,  compared to R9,1 billion in 2007/08. Investment revenue increased from R2,1 billion to R3,4 billion. The surplus had also increased. In terms of Employment Equity, its own statistics reflect 59% women and 41% males.

In terms of operational performance, UIF now had 1, 2 million employers registered on its system, and there were 7, 6 million registered employees.  The taxi sector had been slow in registering with the Fund. The Fund had paid out R3, 8 billion in benefits, compared to the R2, 9 billion in the previous year. This was due to the rapid deterioration in global financial markets, and an increase in unemployment in South Africa resulted in a growing demand for unemployment benefits. As part of its response to the economic crisis, the Fund had begun working with the DoL and Sector Education and Training Authorities (SETAs) on a pilot project to train unemployed beneficiaries. Already this project had started in Gauteng North and South, and R40 million was set aside for it. The Fund contributed R1, 2 billion to the project of Training Lay-offs, a scheme aimed at assisting companies in distress.

As part of stakeholder relations, the Fund had participated in eleven exhibitions across the country, and it took part in four government programmes in Mpumalanga, Limpopo, Free State, and Gauteng. The Fund undertook an intensive marketing and advertising campaign through the SABC. Outdoor broadcasts were held in George, Lephalale, Limpopo, KwaZulu-Natal, Garankuwa, and Soweto.  UIF had also participated in the debates and planning processes around the social security reforms. It had produced and presented researched papers to the Interdepartmental Task Team on Social Security.

UIF had started internal processes leading to amendment of the Unemployment Insurance Fund Act (the Act), with a view to improving the benefits to claimants, through regulations.   Hopefully, this would be finalised before the end of the year.

Mr Seruwe noted that for 2009/10 UIF had identified eight strategic objectives, namely to:- Re-integrate unemployed workers back into labour market
Assist in job creation
Restructure the UIF benefits and coverage
Combat the scourge of fraud and corruption
Improve capacity and efficacy of the Fund
Improve service delivery
Improve revenue inflows
Improve customer awareness and satisfaction

Compensation Fund
Mr Shakes Mkhonto, Compensation Commissioner, DoL, presented to the Committee the Compensation Fund Annual Report. He identified a number of strategic interventions. He noted that firstly, the Compensation Fund (CF) aimed to improve the internal control environment. Activities undertaken so far included the appointment of key financial resources to address audit issues, clearing of suspense accounts, and introduction and monitoring of month-end procedures. Secondly, the CF was working on timeous production of monthly financial statements. The bank reconciliations were being performed on a weekly basis, debtors with credit balances had been cleared, to the tune of R23 million, and the Fixed Asset Register had been updated and would be finalised by the end of November 2009.

Thirdly, CF was attending to issues of compliance with legislation. Policies on enforcement of Compensation for Occupational Injuries and Diseases Act (COIDA), minimum earnings for total temporary disability and increase of Compensation Benefits had been finalised and implemented. The central repository for bank statements storage had been implemented. The project on banking details and EFT was under way and would be finalised by the end of November 2009. Fourthly, plans were in place to streamline processes to improve performance. The CF had a project to replace its financial system because of inadequacies with the current system. It had also come up with a management intervention to identify a claims processing system for the organisation that would improve turn-around time and efficiencies.

Finally, CF had identified a need to effect improvements in governance, and elimination of fraud and corruption. As a result, an actuarial review of the assessment rates process had been undertaken and a new methodology of setting assessments had been finalised. The Fund had appointed service providers to assist with resource challenges in the risk management environment. Already this was showing results. Implementation of the Risk Management Strategy was targeted to happen in March 2010.  The internal audit function would also be strengthened.

Discussion

Mr A Louw (DA) asked why the Department was struggling to resile from its contract with Siemens, if that company was not producing good results.

Mr Manyi explained that the problem with Siemens lay in the drafting of the contract, which lacked details and left the Department vulnerable. The contract was open to abuse, and it was also structured in such as way that it would be too costly to stop it abruptly. The contract was due to run until 2013. At the moment, Siemens was only being paid when the job or project was done to the satisfaction of the Department, and that is how it was held accountable.

Mr Louw also asked whether the hotline was to be established merely for the sake of having a hotline, or whether it would be looking at service delivery and taking decisive disciplinary steps if officials were found to be inefficient.

Mr Manyi answered that the Department was very clear on what it wanted to achieve. It had a complement of 1 000 inspectors. The hotline was about quality assurance for every service rendered and unit standards per service would be created.

Mr I Ollis (DA) asked how many units within the DoL had qualified audits.

Mr Bheki Maduna, Chief Financial Officer, DoL, answered that the Department had two programmes – National Skills Fund and Sheltered Employment Factory – which were audited separately, but their financial statements were always included in the report of the Department. The Department received a qualified audit in relation to capital assets. The Sheltered Employment Factory’s audit was qualified in relation to the evaluation of inventory. The National Skills Fund received an unqualified audit certificate.

Ms A Rentsoalese (ANC) referred to the employment equity figures, and asked the Department to explain the kind of evaluation mechanisms it had to ensure compliance. She also asked if the Department intended to work closely with International Labour Organisation (ILO).

Mr Manyi said that the Employment Equity Act itself was a hindrance, as it did not make it easy to bring perpetrators to account. However, this issue was now being fast-tracked, and the fine, which was in the past too low, had been raised to 10% of turnover. Robust evaluation mechanisms were in place. The Department now would also go and do spot checks at companies, and suggest to them how they could comply. Some of them did make corrections, but, in his view, it would not be a good idea to name and shame those not complying as that would lead to complacency if they were to see that they were not the only ones not taking this issue seriously.

Ms Siyanda Zondeki, Deputy Director-General, DoL, added that the Department would stage a blitz to speed up compliance, through word of mouth. A roving team was currently undergoing training on legislation, which would be completed by February 2010. This would increase visibility and help identify high-risk sectors for inspection, and learner inspectors would be placed in provinces where capacity was lacking.

Mr Les Kettledas, Deputy Director-General: Labour practices, DoL, said that the Department would be working with ILO in looking at the conventions and seeking relevant technical assistance. Two conventions in terms of work hours had already been rectified, and another twenty three were receiving attention.

Mr E Nyekembe (ANC) asked the Department to elaborate on the training lay-offs and why it was experiencing difficulties in the skilling of workers.

Mr Manyi replied that the Commission for Conciliation, Mediation and Arbitration (CCMA) had been appointed to drive the programme. R2,4 billion had been allocated by the Department for this. Checks and balances were in place. The only thing left was for companies to forward proposals to the Department and CCMA.

Mr Nyekembe asked how far the Department had gone on sectoral determination.

Mr Kettledas explained that DoL was working to improve the use of language around sectoral determination, especially when it came to the meaning of certain terms. The Department was trying to make sure that everything was written in plain language in order to make labour legislation understandable. The sectoral determination had been processed by the Employment Conditions Commission, and has been promulgated with effect from 1 September 2009.

The Chairperson asked how the Department was going to ensure that inspectors had credibility.

Ms Zondeki explained that the legislation around this would have to be tightened. Tribunals would be established so as to have own forums of the Department in order to enforce legislation. Court orders would be issued, or the DoL could alternatively seek to close down businesses not complying.

Mr W Madisha (COPE) asked what role the Department was playing to ensure that employers were contributing to the Compensation Fund.

Mr Mkhonto replied that the Department was rather weak when it came to ensuring that employers contributed to the Compensation Fund, but assured the Committee that the Department would be addressing that issue.

Mr Madisha asked what criteria were used to fund companies in distress.

Mr Seruwe explained that the Department worked closely with the CCMA and SETAs. One of the matters that was taken into account was that the company should demonstrate that it was not in a position to pay workers but there was hope that it could recover.

Mr Madisha asked why the government had chosen the route of advertisements in the Government Gazette to source beneficiaries of the unclaimed R400 million in the Compensation Fund?

Mr Seruwe said that the Government Gazette was a legal requirement that had to be followed in sourcing beneficiaries of the unclaimed money. However, in order to intensify communication, other forms of mass communication like radio, TV, and print would be employed.

Ms F Khumalo (ANC) enquired if the R40 million set aside by UIF would be sufficient to cover its liabilities, since it was unknown when the recession would come to an end.

Mr Mkhonto believed that it would be sufficient.

Ms L Makhubela-Mashele (ANC) wanted to know what programme the Department had for the taxi industry, regarding the UIF.

Mr Mkhonto replied that the taxi industry was brought very late to this sectoral determination, but the Department was intending to work closely with taxi associations that were on the database.

The Chairperson was still a little worried about the Siemens issue, and asked that the Department should provide the Committee with a list of all service providers within seven days, setting out the duration of contracts and the history.

The meeting was adjourned.


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