Compensation Fund Turnaround Strategy: briefing

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Employment and Labour

03 May 2010
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

The Committee was briefed by the Compensation Fund (CF) on the progress of strategic interventions initiated at the behest of the Auditor-General, following the findings made in the previous financial year. The intention of the turnaround was to improve claims turnaround time, pay service providers timeously, address the findings of the Auditor-General, create adequate financial management capacity and implement new systems. It was also hoped to decentralise, implement new organisational structure, improve governance and the Compensation Fund’s image. The short and medium term interventions were outlined. Statistics were provided of the claims addressed.

Members commented that the figures presented were not clear, and after several questions were asked, it was agreed that the Compensation Fund would return the following week to brief the Members more fully on the apparent downward trends in payment figures, with claims and rand values being specified. The exact process of filing vacancies, and the organogram, were questioned. Several Members required more specific information also on the suspense account, and the clearing of the R30 million figure in particular, with details of the payments. Members also asked the reason for employment of managers who may be superfluous once the turnaround was completed and the backlog cleared, questioned the process for filling the vacancies, the delays caused in getting clearances from National Intelligence Agency and South African Qualifications Authority, the real vacancy rate. Members asked what the situation would be if there were a disparity between gazetted medical rates and those charged by medical service providers, and asked for an explanation of the incentives. They questioned why the Compensation Commissioner was also a Board Member, and said that the relevant legislation perhaps required amendment on this point. Members were not convinced that the turnaround strategy was yet showing positive results.

Meeting report

Compensation Fund (CF) Turnaround Strategy briefing
Mr Shadrack Mkhonto, Compensation Commissioner, Compensation Fund, said that the presentation would focus on progress made on the strategic interventions that were introduced to the Compensation Fund (CF), following the previous year’s strategic planning session and the Auditor-General’s (AG) findings.  The strategic intent was to improve claims turn-around time, timeously pay service providers, address the Auditor-General’s findings, create adequate financial management capacity, and implement new Information Technology (IT) systems. It was also aimed at increasing access to compensation through decentralisation, developing and implementing new organisational structure, improving governance and the public image of the fund.

Mr Mkhonto said that there were short and medium term interventions (see attached presentation for details.) He also presented information and statistics on claims and the fund’s finances.

Mr I Ollis (DA) stated that, with reference to slide 30, Mr Mkhonto had commented that claims received had dropped by a small amount. However, according to the presentation the number of actual payments made dropped even more. The same pattern was evident elsewhere, such as on slide 34, which contained details of medical payments. This pattern was that the Compensation Fund was paying out less. He added that he had been inundated with complaints that money was not being paid. In particular, he cited the case of Mr Gerhard Botha whose complaint had been dragging on for months, as well as an outstanding issue from 2007 for Mr A Van der Walt. It may have been that these people’s claims were rejected, but there had been a lack of communication about their claims. The procedure set up last year, whereby the Committee Secretary would send a list of complainants’ names to the CF and then receive feedback had stopped working, as the CF has stopped responding. The financial information in the presentation bore out the lack of payments.

Mr Mkhonto replied that insofar as the claims for 2009/10 were concerned, 129 362 claims were accepted; this figure appeared to be lower because the financial year had not ended at the time that the data was compiled in February 2010. The figure for 2009 on slide 31 referred to the cumulative total of claims paid during 2009, including outstanding claims from the previous year.

Mr Mkhonto stated that the claim of Mr Gerhard Botha had been dealt with and that he was paid R400 000. The matter was complicated, as the claim was initially repudiated because of his suspect employment record and the issue of whether the injury actually took place at work. However, regardless of these reservations the CF had decided to offer him the benefit of the doubt and pay him out. Mr Botha was now demanding additional compensation and routinely engaged in threatening to kill himself at the CF office or blow himself up.

Mr Ollis noted these comments. However, he reiterated that payments had still decreased across the years. Slide 30 indicated 87 800 payments from 2009/10. The number of payments was decreasing much more than the reduction in claims. There was a R1 billion difference in benefits paid for 2009/10, which could not be made up by the end of the financial year.

In regard to the specific claim of Mr Botha, a simple email from the CF stating what was happening would have been useful, instead of the DA having to raise this matter after being inundated with queries from Mr Botha.

Mr Jimmy Manyi, Director General, Department of Labour, replied that at a conceptual level it was not correct to look at amounts paid and the volume of claims, as it might be that the quantum of the claims was decreasing.

Mr E Nyekemba (ANC) stated that the reduction mentioned by Mr Ollis also applied to service providers, not only workers, and stated that more detail was needed.

Mr Jay Singh, Chief Executive Officer, Rand Mutual Assurance, stated that slide 30 was a snapshot of the position on a certain date and that the figures there related to other payments from the previous year as well. The amount given for this financial year also included outstanding payments.

Ms A Rantsolase (ANC) interjected that if the figures were shown for each financial year, and the systems were consistently applied, then twelve month financial year periods, with whatever payments had been made in that period, were being compared with each other. Mr Singh’s explanation did not clarify the position any further. Even if the 2009/10 figures were preliminary, they were still comparable to the previous periods. If one financial year’s statement included payments for previous years then this needed to be stated in detail to the Committee.

Mr Ollis added that Mr Singh could not be correct, as the outstanding years’ payments in discrete financial years was irrelevant. The trend was still going down.

Mr Mkhonto admitted that the presenters could not explain the figure to the Committee’s satisfaction now, and would draft a detailed explanation of the figures by the end of the week.

The Chairperson suggested that the CF come back on the following Tuesday so that members should specify exactly what they wanted.

Mr Ollis requested that the claims on slide 30 be illustrated properly and that the rand values for figures on slide 35 be included. Accurate breakdowns on claims paid, in terms of numbers and rand values, were needed. An explanation as to why it appeared the figures were decreasing across the years was needed. Exact numbers and values were needed, as summaries offered no information on what was actually occurring.

Mr Nyekemba requested information on the exact process involved in filling vacancies and a statement at which levels the CF was waiting for feedback from National Intelligence Agency and the South African Qualification Authority. He added that politicians could not suffer in terms accountability to their constituencies due to the responsible entity being unable to explain the state of affairs.

Ms Rantsolase asked for the CF’s organogram.

The Chairperson stated that the CF needed to take into account all questions raised and added that the Committee needed all the details.

Mr Ollis added that names of individuals were also necessary in the organogram, in order to determine how many functions an individual was performing.

The Chairperson agreed and entreated the CF to answer the other questions raised.

Ms Rantsolase expressed concern over the turnaround strategy, as it appeared that the CF had allowed for, and indeed employed a large number of managers. She added that this may be necessary to clear the backlog and get the CF working, but stressed that these positions could not really be deemed permanently necessary.

Ms Rantsolase asked how much was in the suspense account, stressing that she needed actual figures.

Ms Rantsolase, making reference to the clearing of the R30 million, asked how it had been cleared and where the money had gone. Clarity on individual access was needed, as the money was not paid directly to workers, but to companies instead.

Ms Rantsolase asked what was meant by interface in terms of weekly bank reconciliation.

Ms Rantsolase also requested clarity on who would be liable to pay the difference if the tariff rates for medical treatment were less than the amount being charged by a medical service provider was needed.

She asked whether labour brokers were used in filling up the CF’s vacancies and requested clarity on the rates of assessment that companies had to pay the fund.

Mr Manyi stated that the Committee should note that the Department of Labour (DoL) and the CF was working with a “broken organisation” and that the new management team was still trying to learn the complexities of the business. These people would also be fine-tuning the business requirements of the CF, and that, in addition, implementing IT systems or restructuring entailed IT demands on the business requirements, which further compounded the issue. The issue of interface referred to IT interfaces and the interoperability of systems, including the legacy systems of the CF. Ambitious goals of getting the CF turned around by April 2010 were provided last year, and even now the 1 July date that had been alluded to in the presentation was a high level goal that was not definite, but which would have to be viewed in terms of realities. Data migration was a huge task that would involve the cleansing of data and the removal of duplicate information. He added that the team would work towards the goals targeted, but that even so, unrealistic expectations needed to be managed.

Mr Mkhonto added that the Compensation for Occupational Injuries and Diseases Act (COIDA) stated that the CF bore full liability for costs, but that in some cases the tariffs used by medical service providers were not the same as those gazetted. The CF would stick to the gazetted tariffs. When this was explained to medical service providers, they usually accepted it.

Ms Fezeka Puzi, Chief Financial Officer, CF, replied that currently the CF had a financial system in place, but wished to change to a different software system. She explained that R85 million was cleared from the suspense account. This money related to accounting irregularities and had nothing to do with money owed or paid. In cases where debts were written off, but then paid, it became necessary to credit the payers, which is what the suspense account referred to. Unclaimed funds were at R28 million, but 1 500 people had supplied outstanding banking details so far.

Mr Nyekemba said that Mr Mkhonto had also mentioned that he was the Chairperson of the board for the CF. He was worried that this put him in the position both of “player and referee”. He understood that the Minister of Labour had made this appointment, but stated that in light of this situation, further amendments to the COIDA may be needed.

Mr Mkhonto replied that COIDA allowed the Minister to appoint any government official to chair the board, but this was being reviewed according to the latest King Reports. The board had already reflected on this issue and was seeking the assistance of the DoL’s legal division, as well as the Audit Committee. He added that it was recommended that he recuse himself and that the board then should submit names for a suitable candidate to the Minister.

Mr G McIntosh, Board Member, Federated Employers Mutual Assurance Company, stated that there were two issues. Firstly, the CF board was an advisory one, not an executive board, so there was no real problem. Secondly, it was still necessary for a government official to be the Chairperson of the Board.

Mr Nyekemeba stated that the issue was COIDA, which needed to be amended. Mr Mkhonto could not be faulted for adhering to legislation, as according to COIDA the situation was legal.

Mr Nyekemba said that when filling the vacancies at the CF, there should be discussions with the three groups of employees necessitated by the turn-around of the CF, including people employed by labour brokers, temporary staff and people brought in to deal with the claims backlog. He added that the CF and the DoL could not be champions of labour brokering.

Mr Mkhonto noted that neither the CF nor the DoL made use of labour brokers
Mr Nyekemba asked whether there was an intention, in the current financial year, to establish offices in the five provinces that did not have CF offices yet.

Mr Mkhonto said that offices would be set up in the remaining five provinces.

Mr Nyekemba asked why there was a need to compensate or reward companies that did not exhibit work-related injuries, as this was not an extraordinary requirement of workplace conditions.

Mr Mkhonto responded that incentives were there to encourage improvement in safety and promote good risk management, when the new operational model came into effect, the rates charged to companies would be linked to the risk profiles they had, and thus meaning companies which provided high risk employment would pay more according to the risk assessment rate.

The Chairperson pointed out that the figures for the total number of compensation claims paid out were huge, but that they needed to be broken down so that they could be properly interrogated, in light of the numerous complaints from claimants received by Members.

The Chairperson asked whether the CF reported to the Director General or the Minister of Labour.

Mr Mkhonto replied that the CF Commissioner reported to the Director General.

The Chairperson stated that with regard to medium term interventions, 24 vacancies were waiting for National Intelligence Agency (NIA) security clearance, and asked whether this was done before or after short-listing candidates. She added that she did not understand what the delay was in filling all the CF vacancies.

Ms Thembi Moleko, Human Resources Manager, CF, replied that vacancies were advertised for two weeks. A shortlist of candidates was then drawn, which was submitted to NIA for verification, during which time interviews would be held. After this, qualification verification with the South African Qualifications Authority (SAQA) was initiated. SAQA and NIA delays in processing had resulted in delays in filling the vacancies because appointments could not be made until verification by both authorities had occurred. She added that Slide 26 showed a comparison between the vacancy rates for March 2009 and March 2010, which showed a drop from 17% to 9%.

Ms Rantsolase asked whether the 64 vacancies were due to a SAQA hold-up.

Ms Moleko replied that this was correct.

Mr Mkhonto added that the vacancies numbered 64 for this financial year, compared to 123 in the previous year. This did not mean that 59 posts had been filled, as it also talked to resignations and further hiring.

Mr Manyi added that the next slide (Slide 27) provided the status of the vacancies. She said that the real vacancy number was 31, but that this could not be stated as these appointments were pending, and were not shown in the CF system yet. However 31 people had been sourced to fill vacancies.

The Chairperson noted earlier questions relating to the R30 million cleared, and said that clarity was needed as it was not clear who had been paid what. She added she was not convinced that the CF was as yet any closer to solving its problems that had been identified.

The meeting was adjourned.


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