Unemployment Insurance Fund & Compensation Fund: 2009/10 Annual Report

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Labour

09 September 2010
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

The Unemployment Insurance Fund and the Compensation Fund presented their 2009/10 Annual Reports and financial statements to the Committee. The Compensation Fund reported an increase in revenue of 6.7%, which was derived from assessments of registered employers, interest and penalties from defaulting employers, and interest from investments. The total assets had grown by 15% from the previous year. Investment formed 97% of total assets for the year. Current liabilities included provisions for outstanding claims, staff leave and bonus payments, as well as trade and other payables. The Compensation Fund had received a qualified audit opinion, but this was an improvement on the audit disclaimers that had been given in the previous two financial years. It reported irregular expenditure of R7.6 million on a contract with a service provider, and a ruling that the Fund must pay R7 million in interest for late payments of medical claims. In an effort to correct the discrepancies reported by the Auditor-General, the Fund had attended to a restatement of R342 million, and it described measures taken to address the adverse findings, including putting teams in place to address arrear assessments, developing management tools to monitor capturing errors, appointment of a debt collector, and upgrade of systems. Work on claims had been decentralised, which had resulted in improvements on the turnaround times, and payment of more claims through elimination of backlogs. The Minister of Labour had approved substantial increases in benefits. Organisational re-design was at an advanced stage. The Fund had successfully run an Unclaimed Monies campaign, resulting in about 2 500 beneficiaries having claimed. Its vacancy rate was between 6% at lower levels, and 11,9% at senior levels.

Members commented that the Fund had improved and progressed since the previous year, asked about decentralisation and the opening of labour centres in provinces, and enquired about the court cases and disciplinary hearings. They asked that a report be submitted on how many widowers were being supported, and also asked for clarity on the vacancies, the IT upgrades, and the implementation of recommendations of the Auditor-General.

The Unemployment Insurance Fund (UIF) reported that it had received an unqualified audit report, for the fifth year in succession. It had increased the number of employers registered, and although the taxi sector had been slow to register in the 2009/10 financial year, the numbers had picked up since April 2010. The global economic crisis had resulted in growing unemployment in South Africa, and a consequent increase in claims on the UIF, by 48% in this financial year. The Fund had raised its income from collections by 4%, and had also raised its investment revenue by 3%. The surplus, however, had declined due to increased benefit payments. There was likely to be slow recovery in the labour market throughout 2010, with high demand for unemployment insurance benefits. The database of employees had increased by 2.2%. The UIF had filled 89% of its 450 staff posts, outlined the gender composition, had undertaken training of officials and offered 19 learnership programmes. The strategic and operational risks had been assessed and were being well managed, with a Policy Committee and Health and Safety Committee being established. The UIF had also participated in many media and news campaigns to increase public awareness. It had also participated in planning processes on the social security reforms. It was working with the Department of Labour and Sector Education and Training Authorities on a project to train unemployed beneficiaries, and had committed R26.5 million to this. The UIF Board had recommended an investment of R2 billion with the Industrial Development Corporation.

Members commented that the UIF had implemented recommendations of the Committee from the previous year. They would support working with the UIF on outreach programmes.  Members asked about the initiatives that the UIF had taken to assist companies and individuals through the economic crisis, asked for details on the recruitment strategy and learnership programmes, and the reasons why illness benefits had decreased. 


Meeting report

Compensation Fund (CF): Annual Report and Financial statements 2009/10
Mr Shadrack Mkhonto, Commissioner, Compensation Fund, reported that the Compensation Fund (CF) had, in the 2009/10 financial year, generated revenue of R4, 8 billion, most of which was from assessments of registered employers and interest and penalties from defaulting employers. This was an increase of 6,7% on the previous year. Other income consisted of interest from investments. Total assets grew by 15% compared to the previous year), and were now at R24 billion, of which 97% was invested. Investments had, however, declined from R2 billion to R1 billion in this year, and this was attributed to investments made in government bonds. The surplus rose to R2, 5 billion. He noted that the major assets were income assessment debtors, cash, and deposits with financial institutions.

Mr Mkhonto noted that the current liabilities included provisions for outstanding claims, staff leave and bonus payments, as well as trade and other payables. The Compensation Fund received a qualified audit opinion. This was a significant improvement from the disclaimers given in the previous two financial years. The CF incurred irregular expenditure amounting to R7,6 million as a result of extension of a contract with an Information Technology service provider without any signed agreement for the current financial year. CF could not lawfully extend the contract with the service provider because it was not compliant with South African Revenue Services (SARS) regulations, but was in contact with SARS to ensure the service provider complied with SARS regulations. An amount of R7 million was paid in interest for late payments of medical claims. A service provider had sued the CF for disputed medical claims, and the Court had ruled that the CF was liable to pay all claims plus interest.

The Compensation Fund had now done a restatement for R342 million, in an effort to correct and clear the queries the Auditor-General had raised in the previous years. This now ensured that the financial statement fairly presented the financial status of the Fund.

With regard to sorting out the adverse findings of the Auditor-General, measures had been taken. A team was in place to address arrear assessments, a variance report was developed as a management tool to monitor capturing errors, a debt collector was appointed to follow up on outstanding debtors, and systems were upgraded in order to improve functionality.

The process of decentralising work pertaining to claims was finalised. Registration of claims, adjudication of claims, and payment of medical claims were delegated to the Provinces of Limpopo, Eastern Cape, Free State, and KwaZulu-Natal. The average turn-around time had improved remarkably as a result. A total of 138 605 medical accounts were paid in the four provinces. 19 836 claims were registered and adjudicated. The CF had paid more benefits than in the previous years, due to the review of claims that had eliminated backlogs.

The Minister of Labour had approved substantial increases on pensions in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA), lump sums and constant attendance allowances. The monthly pension increased by 5%, giving 85% purchasing power to low pension earners. The constant attendance allowance and maximum funeral benefits increased by 9,5%. Minimum earnings increased from R2790 per month to R3055 per month. The maximum lump sum for partial dependency increased by 9,5%. An approval of a 13% tariff increase was made, across the board, for medical aid expenses

Mr Mkhonto said that the process of organisational re-design had proceeded to an advanced stage. Business processes, the service delivery model and the draft organisational structure had been finalised and were ready to be submitted to the Minister for approval. This new structure would be implemented in the next financial year. The financial management and claims management systems redesigning were currently under way, with financial management being at an advanced stage of development, while the claims management was still at the blueprint phase.

Mr Mkhonto said that within the CF, the vacancy rate at senior level was at 11, 9%, while at lower level it was at 6%.

Mr Mkhonto noted that the Unclaimed Monies advertising campaign ran during the whole of February 2010. As a result of this campaign, about 2 500 beneficiaries came forward and payouts of R67 million was made. The campaign was thus deemed to be a success.

Discussion
Mr E Nyekembe (ANC) expressed appreciation for the improvements and progress made so far, noting that some of the matters had been of concern to the Committee in the past. The current briefing demonstrated its commitment to solving the problems and the matters raised by the Standing Committee on Public Accounts (SCOPA).

Mr Nyekembe commented on decentralisation, and wanted to know if the CF and the Department of Labour were planning to establish labour centres in provinces.

Mr Mkhonto replied that decentralisation was happening at provincial offices. The Western Cape, according to plans, would have four labour centres, and Gauteng would have eight. The number of centres would also depend on the size of the provinces.

Mr Nyekembe asked when the CF anticipated being able to finalise the disciplinary hearings. He asked if court orders were against or in favour of the Fund.

Mr Mkhonto said that the legal practitioners of the CF attended to most decisions. Before any matter went to court, there would be attempts to try to settle the issues, and only if these settlement negotiations failed would the matter proceed to court. Subpoenas were also being used. He emphasised that the Auditor-General found a lack of consistency across many of the judgments, and that this was something that the legal department would be looking into.

Ms L Makhubela (ANC) wanted to know why the Fund had said nothing about widowers; it appeared that most people with whom it was concerned were widows.

Mr Mkhonto replied he had no information about widowers, and this was not something that he had given specific attention to. However, he would investigate this, and forward a report to the Committee.

Ms Makhubela asked the Fund to comment on its ICT progress.

Mr Mkhonto said that CF planned to “go live” in October with bulk uploading. Many staff members were trained on this system and pilots were being done. Bulk uploading was the only solution for the moment.

Ms F Khumalo (ANC) asked for clarity on the issue of the 40 vacancies.

Mr Mkhonto said that the numbers of vacancies were effectively out of his own control. The challenges lay in the system that the Fund was using. Usually, the posts would be advertised, qualifications were verified and criminal records were checked. That took substantial time.

Ms Khumalo asked when the CF had started to engage with the debt collector.

Mr Mkhonto explained that engagements with the debt collector started in January this year, and were introduced to the employers already.

The Chairperson asked why the Fund had difficulties in implementing the recommendations of the Auditor-General.

Mr Thembeka Puzi, Chief Financial Officer, Compensation Fund, said the problem lay in the capturing the errors. Employers had exploited that opportunity and had refused to pay. Another problem was the arrear assessment, which emanated from 2005, with queries about what was charged to the employer. That had created the backlog. Late registration by employers was another contributing factor. The CF discovered that some employers registered this year, although it was later discovered that they had started operating in 2001. The CF was currently internally addressing all these backlogs.

Unemployment Insurance Fund (UIF) Presentation
Mr Boas Seruwe, Commissioner, Unemployment Insurance Fund, announced that the Unemployment Insurance Fund (UIF) had received an unqualified audit report from the Auditor-General, for the 2009/10 financial year, for the fifth year in a row. The UIF was working closely with the Executive authority and the UIF Board in addressing the strategic intent and challenges of the Fund. The Fund had 1.287 million employers registered on the system, compared to 1.239 million in 2008/09. The Taxi sector had been slow in registering with the UIF, but from 31 March 2010, more than 6 000 taxi employers had registered.

Mr Seruwe stressed that the rapid deterioration in global financial markets, and an increase in unemployment in South Africa had resulted in a growing demand for unemployment benefits. The UIF had paid an amount of R5,7 billion in benefits, as compared to the R3,8 billion paid in the previous financial year, which represented an increase of 48%. The UIF had received 801 110 claims, an increase of almost 173 866 more claims than in the previous year, which was largely due to the adverse economic conditions that were experienced.

In respect of the staff establishment, UIF had 450 posts. 89% of the posts were filled and 11% were still vacant. Of the 89% posts filled, 58% comprised females and 42% were males. The UIF had trained officials on more than thirty training initiatives. Nine officials were enrolled and trained on Adult Basic Education and Training (ABET) programmes. Nineteen learners participated in learnership programmes, and fourteen officials were awarded bursaries.

In 2009/10, the Fund reviewed its strategic and operational risks, and the results showed that controls were improving in comparison to previous years. The results from the risk assessment were also used by the Internal Audit Division to develop an audit plan. Risk monitoring was covered, and the results indicated that most of the risks were mitigated through improved internal control systems. In support of risk management initiatives, the Fund established a Policy Committee and a Security and Occupational Health and Safety Committee.

The UIF had participated in a number of media related events to inform its clients about its services and offerings, in light of the huge number of jobs that were lost in the South African economy. It had featured prominently in different current affairs and news-driven shows in both radio and television.

The UIF had managed to collect R10,75 billion, compared to the R10,32 billion of 2008/09. This was an increase of 4%. Investment revenue increased by 3%, from R3,34 billion to R3,45 billion. The surplus decreased from due to the increased benefit payments. The total investment portfolio increased by 21% from R36,02 billion to R43, 73 billion. The current international economic conditions still created uncertainty, particularly over the future levels of growth. The South African labour market outlook appeared to have stabilized, although there was likely to be a slow recovery in the labour market throughout 2010, with a high demand for unemployment insurance benefits.

As at the end of March 2010, the Fund had a database with 7 757 241 employees, as compared to the 7 590 788 of March 2009. It recorded an increase of 2, 2%. The total number of new employers that were registered on the database was 1 280 950, compared to the 1 233 8444 of March 2009. The registration of new taxi operators had increased by 11, 8%. The three Provinces of North West, Gauteng North, and Mpumalanga had reached the target of 70% finalisation of benefit claims within five weeks. Six new processing sites were opened in Mthatha, Newcastle, Queenstown, Ulundi, Port Elizabeth, and East London.

As part of the process of the social security reforms in the country, the UIF had participated in the debates and planning processes on the social security reforms. A number of research papers were produced and presented by the UIF to the Interdepartmental Task Team on Social Security.

The UIF was also working with the Department of Labour and Sector Education and Training Authorities (SETAs) on a project to train unemployed beneficiaries. R40 million was budgeted for this project and the Fund committed R26,527 million to funding agreements. The UIF had also allocated R1,2 billion to the Training Layoff Project, to assist companies that were in distress due to the economic downturn. A total of 6 083 employees had already benefited from the scheme. A total amount of R36 695 218 had already been allocated. In responding to the economic meltdown, the UIF Board recommended that an investment be made in the form of a bond worth R2 billion with the Industrial Development Corporation (IDC). This facility would enable the IDC to pass the benefit of the concessionary rate to transactions that had job creation and retention capabilities.

Discussion
Mr Nyekembe commented that the presentation reflected the recommendations that the Portfolio Committee had made to the UIF last year. He stressed that there should be no competition between the Compensation Fund and UIF, because both Funds focused on the interests of the workers and provided a service. Instead, their relationship should be complementary.

Mr Nyekembe wanted to know if the Fund had plans in place for an outreach programme that would be taken to the public, saying that Parliament could also be invited to participate.

Mr Seruwe said he would welcome the opportunity to work with Parliament on outreach programmes. A calendar of the events would be sent to the Committee.

Mr Nyekembe asked if it was the intention of the Fund not to intervene when there was an economic meltdown.

Mr Seruwe replied that the closure of companies was not only restricted to times of economic meltdown. A framework needed to be created to assist the Fund in making interventions to assist the unemployed to take on learnerships and training. Legislation was needed, because there would be circumstances that would lead to wage-cuts. He added that in respect of lay-off schemes the UIF had held a meeting and made adjustments to the rules, and had also looked at how it could assist companies in distress.

Ms Khumalo asked for clarity on the recruitment strategy and learnership programmes of the Fund.

Mr Seruwe stated 19 learners were trained in human resources. This was an internal programme. It would also be extended to other units within the Fund.

Ms Khumalo enquired why illness benefits were on the decrease, and who was responsible for that.

Mr Seruwe clarified that it was the responsibility of the employer to register employees. Non-registered employees did not get illness benefits because they were not registered by employers, hence the decrease in benefits paid out. However, if the employee was registered, even if the employer failed to pay, the employee would be paid or would get compensation and the UIF would then claim back from the employer.

Ms Khumalo commended the Fund for making inroads into the taxi industry. She also requested the UIF to involve the Committee in some of its future public programmes so that the Committee could make a meaningful input.

The meeting was adjourned.

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