Unemployment Insurance Fund (UIF), Compensation Fund, National Economic Development and Labour Council (Nedlac) 2011 Strategic Plans

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Labour

28 March 2011
Chairperson: Mr M Nchabeleng (ANC)
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Meeting Summary

The Unemployment Insurance Fund’s strategic outcomes included improving the collection of revenue from employers, improved payment of benefits to beneficiaries and the effective administration of the Fund’s operations. This would be achieved by reaching strategic objectives such as creating UIF poverty alleviation schemes, improving governance and strengthening the institutional capacity of the Fund. The UIF’s three-year budget was explained and the highlights for the past year discussed. These included paying benefits to 693 000 beneficiaries to a total amount of R4.9 billion and a 4.36% improved revenue collection from employers compared to the previous year. The Fund also held briefing sessions and national road shows with taxi associations to educate them about the services offered by the Fund.

Members asked questions on the budget expenditure of the UIF. They wanted to know why an amount of R46 million was set aside for the restructuring of the head office as this amount seemed extravagant. They were also confused with regards to vacancies as percentages recorded were not coherent across reports. Members’ questions focused on the skilling of unemployed persons to find employment. The non-compliance of the taxi industry was also questioned and whether road shows and awareness campaigns to involve the taxi industry had been successful.

The Compensation Fund was mandated to administer the Compensation for Occupational Injuries and Disease Act (COIDA) and to pay compensation to employees for death or disablement caused by occupational injuries and diseases. Compensation Fund strategic goals included providing an efficient social safety net, client-oriented human resources and strengthening corporate governance. The Fund was focusing strongly on enhancing quality and access to COIDA services and information. The 2010/11 achievements included the development of a a draft rehabilitation, reintegration and return-to-work policy. The Fund collected R431 million of debt relating to prior years and its total investment increased by R3.9 billion from 2009/10. The Fund also paid 192 892 more claims and 50 734 more medical accounts compared to the previous financial year.

Members asked how the Fund would include domestic workers as beneficiaries in cases of injury on duty. They questioned the recent large expenditure on administrative costs and the fraudulent expenditure reported in the Annual Report. Lost documentation resulting in the non-payment of claims was also discussed. Members wanted to know how internships would benefit beneficiaries in the long term.

Nedlac was a representative and consensus-seeking body which sought to reach agreement on policy matters through negotiation and discussion based on mandates, especially legislation affecting the labour industry. Nedlac reported on key achievements to date and its key challenges were identified as:
▪ Some issues of policy were being by-passed past Nedlac or being tabled at Nedlac at short notice.
▪ There was a disconnect between with what happened at Provincial and Local levels.
▪ Nedlac had difficulty dealing with policies that straddled more than one government department.
▪ There were tight timeframes to finalise issues and little or no flexibility from some government departments.

Nedlac was questioned about the proposed Superior Courts Bill, if it was planning to address the needs of deep-sea fishermen or whether the Department of Transport was mandated to change such policy issues. Also questioned was whether community care workers were taken care of as they were not catered for in the Basic Conditions of Employment Act.

Meeting report

Unemployment Insurance Fund (UIF) Strategic Plan 2011/12 – 2013/14: presentation
Mr Boas Seruwe, UIF Commissioner, gave the presentation to the Committee on their strategic plan. The Unemployment Insurance Fund strived to contribute to the alleviation of poverty in South Africa by providing effective short-term unemployment insurance to all workers who qualify for unemployment and related benefits.

Mr Seruwe explained the UIF’s first strategic outcome was to improve the collection of revenue from employers. The goal statement was to increase contributions collected by at least a rate equal to the prevailing Consumer Price Inflation index. The second strategic outcome was to improve the payment of benefits to beneficiaries of the Fund, by increasing the rate of processing claims in order to pay within the targeted service levels and turnaround times. Strategic outcome three was to participate in government initiatives of creating and sustaining a decent employment system. Mr Seruwe said that the UIF was planning to do this by contributing to the various schemes designed to alleviate the harmful effects of unemployment which included investing in the Social Responsible Investments. The fourth strategic outcome was the effective administration of the Fund’s operations. The goal statement was to maintain effective system of internal control as required by the Public Finance Management Act (PFMA) by receiving an unqualified audit.

Mr Seruwe explained its strategic objectives were what the UIF intended doing to achieve the strategic outcomes. The first strategic objective focused on Fund Poverty Alleviation Schemes. The output of this objective was the establishment of schemes aimed at alleviating the harmful effects of unemployment. The performance indicators were based on the number of schemes approved by the UIF Board, the percentage of total mandated Social Responsible Investments invested and the Social Plan funded.

The second objective focused on improving governance. The outputs in this area were to establish adequate and effective internal controls, combined assurance and the implementation of a fraud prevention strategy. The performance indicators to measure this objective was to establish oversight structures, meet deliverables according to adopted charters, the approved annual plan executed by internal audit, risk monitoring and the implementation of an automated fraud detection system.

The third strategic objective was to strengthen the institutional capacity of the Fund. The key outputs here was to enhance skills development, promote employment equity, maintain the establishment and develop an information and communication strategy. In order to achieve this, the UIF planned to develop staff as per the Workplace Skills Plan, appointing people from the designated groups with the implementation of the new Head Office structure in each occupational category and level. Also, the UIF wanted to decrease its vacancy rate and have an Information and Communication (ICT) strategy developed and approved.

Strategic objective four focused on the encouragement of compliance through enhanced service delivery. These outputs focused on improved client service, implementing technology to improve service delivery, increased revenue flows and decreased losses for the Fund. The performance indicators were to increase the percentage of claims approved or rejected within five weeks of the application, and to increase the number of employers using the Virtual Office.

The final strategic objective was to improve stakeholder relations, by keeping the public educated and informed about UIF services and obligations as well as developing strategic alliances with the relevant government entities and other stakeholders. Communication campaigns needed to be undertaken and diversified publications utilised. A Memorandum of Understanding (MOU) was to be signed by March 2012 by all the stakeholders and relevant government entities.

Mr Lodewyk Ferreira, UIF Chief Financial Officer, presented the Budget for 2011/12 to 2013/14. With regards to UIF contributions, a revenue projection rate of 7% was supplied by the Fund’s actuaries and was aligned with expectations of marginal growth, economic recovery and subdued job creation including improved compliance. Total benefits expenditure was based on the Actuarial year-end valuation report as at 31 March 2010. The revised estimated value of benefits payable for 2010/11 was at an increase of approximately 7% when compared to the 2009/10 original budget. The total administrative expenditure represented 9.06% of total revenue and 11.45% of contributions revenue. This was based on a very conservative growth budget of 7%. 

Mr Seruwe said highlights for the year to date included Fund poverty alleviation schemes, strengthening institutional capacity, enhanced service delivery and improved stakeholder relations. The Industrial Development Corporation (IDC) drew down R1 billion. These funds were available to start-up businesses, to provide a debt portion of expansionary acquisitions for existing businesses and to facilitate working capital funded expansions. Based on approved business plan funding up to date, there was a possibility to create 9 355 jobs and save 5 365 jobs. The training lay-off scheme was given an amount of R1.2 billion over the MTEF period. The improvement of the schemes benefits up to six months was agreed on by the Minister of Labour and the Minister of Higher Education and Training. Jointly an amount of R40 million was spent towards alleviating the effects of the recession. As a result of this programme, 19 companies and 6 351 workers were assisted through the Department of Labour/Department of Higher Education and Training lay-off scheme.

Other achievements were that the UIF had taken further steps by setting aside R1 billion over the 2009/10 – 2013/14 MTEF period for schemes aimed at re-integrating unemployed UIF beneficiaries back into employment. The UIF had invested 68% of its investment portfolio in central government, municipality and parastatal bonds and money market instruments that support infrastructure projects that would create and sustain jobs.

Discussion
The Chairperson said he was impressed with the work of UIF, considering they had to deal with an influx of 63 000 claims a month during the recession when people were losing their jobs at a rapid rate. However, there was a lot of room for improvement.

Mr A Williams (ANC) said that page 24 of the original strategic plan showed that there were 401 employees yet the expenditure on salaries and wages was estimated to be at R556 million for 2011/12. He asked whether these amounts were accurate as it seemed too high.

Mr Seruwe replied that the Fund had a total staff complement of 7000 taking into consideration posts for the 2011/12 financial year and these were all included in the R556 million. The amount of 401 only referred to the posts at head office and higher management level.

Mr I Ollis (DA) asked why an amount of R46 million was needed for the restructuring of head office.

Mr Seruwe said that this amount did not only refer to the restructuring of the building itself, but also to the increase in needed capacity due to the decentralisation of head office to the 76 labour centres across the country. This process was lagging behind as the current capacity was developed for the Fund as it was five years ago.

Mr G Boinamo (ANC) wanted to know what would happen to candidates benefiting from the artisan skills training after their training was completed.

Mr Ferreira replied that 99% of people who successfully completed training were employed immediately afterwards. This was because skilling was directly related to employment opportunities offered by companies.
 
Mr Ollis wanted to know whether the vacancy rate was currently at 10% or 6% as there were discrepancies in the presentation and the original strategic plan. He noted that at levels 7 to 8 was the largest number of vacancies.

Mr V Mafata, Acting Chief Director: Human Resource Management, UIF, replied that the vacancy rate was currently at 6%. He added that 80% of these vacancies were at levels 7 to 8 which were mostly clerical posts and these would be quickly filled with the decentralisation of head office into other provinces.

Ms L Makhubela-Mashele (ANC) wanted to know whether the mentioned road shows held with the taxi industry had brought any progress. She said that taxi owners should be brought to book.

Mr Seruwe admitted that they had struggled in the past to involve taxi operators to adhere to the UIF model and this had not changed much, but with the amendment of legislation they could actively take hold of the situation.

Mr Ollis said that he noted in the presentation it stated that an ICT strategy would be presented to the UIF management by June 2011. UIF had spent a lot of money on the previous contracts. He wanted to know what had gone wrong.

Mr Seruwe replied that indeed the UIF did have a new ICT strategy to be implemented as soon as possible. With regards to the previous contract, it had ended due to the fact that the provider was not suitably qualified to handle the contract; therefore UIF took the decision to end their agreement.

Mr E Nyekembe (ANC) wanted to know about the relationship between UIF and the Sector Education and Training Authorities (SETAs).

Mr Seruwe replied that there was a strong relationship between the two entities and that SETAs did have the capacity to offer training. The Department of Higher Education and Training was also given funding to help in this regard. 

Compensation Fund (CF) Strategic Plan 2011-2016: presentation
Mr Shadrack Mkhonto, Compensation Commissioner: Compensation Fund presented the strategic plan. The Compensation Fund was a public entity of the Department of Labour and was responsible for administering the Compensation for Occupational Injuries Disease Act (COIDA). Its objective was to pay compensation for death or disablement caused by occupational injuries and diseases sustained or contracted by employees within 90 days of receipt of full documentation. The CF strategic goals for 2011 to 2016 were to provide an efficient social safety net as well as to provide professional, efficient and client oriented human resource. CF planned on improving corporate support and services and enhancing the quality and access to COIDA services and information.

Mr Mkhonto went on to explain the past year’s achievements. The Compensation Fund processed and paid 446 911 compensation benefits in 2010/11 amounting to R606,310,161 as compared to 254 019 amounting to R580,475,988 during 2009/10. The Fund also paid 186 563 medical accounts amounting to R409,111,173 in 2010/11 as compared to 135 829 amounting to R232,933,375 in 2009/10. Of the above medical accounts, 4899 were paid via the new bulk loading system at an amount of R4,630,022.51. The Minister approved a 7% increase in medical tariffs, and 4.6% increase in compensation benefits plus 90% purchasing power catch up. Another achievement was that the draft policy on rehabilitation, reintegration and return to work had been developed. The implementation of the CF turnaround strategy was under way and the CF had collected R431 million of debt relating to prior years.

Total investment increased by R3.9 billion, from R22,660,354 in 2009/10 to R26,563,700 in 2010/11. Audit qualifications were cleared in the areas of bank reconciliation and suspense account, accounts payable, and fixed assets. Certain COIDA sections were to be considered for amendments that had been identified. From a target of 45%, 77% of Section 91 objections were finalised within 3 months in 2010/11, as compared to finalising 35.7% in 2009/10. The CF also participated and contributed to the Interdepartmental Task Team (IDTT) and contributed to the social security reform proposals. A communication strategy was developed and intensive COIDA educational campaigns were being conducted in Limpopo, Mpumalanga and the Eastern Cape. A risk management strategy was developed and implemented and in partnership with specialist organisations, the Fund made significant achievements in dealing with fraud and corruption. 

Mr Mkhonto gave the CF Strategic Plan for 2011 to 2016 with deliverables for 2011/12. He then presented the 2011/12 strategic priorities:
▪ Implementation of the approved organisational structure
▪ Implementation of the Integrated Chain Management and the Financial Management systems
▪ Intensify development and approval of Rehabilitation, Reintegration and Return to work Policy Framework
▪ Amendment of the COIDA
▪ Continue with COIDA educational campaigns to provide guidance on the Fund’s services
▪ Job creation, internship, leadership and invest in socially responsible investments.

Mr Mkhonto outlined the investments through the Public Investment Corporation (PIC). The Fund received 8.98% return on investment from April to December 2010. The Fund bought investments from Government and parastatals such as ACSA, Development Bank of SA, Eskom, SANRAL, Transnet, Trans-Caledon Tunnel Authority and Telkom. The Fund also had corporate bonds with ABSA, SABSA Holdings, Bidvest Group, FNB, Imperial, Nedbank, Old Mutual and Standard Bank. He then gave a summary of financial performance 2009 to 2011. Total expenditure increased from R1,964,909 in 2009/10 to R2,322,015 in 2010/11. The bulk of this increase contributed to the payment of outstanding claims. With regards to revenue, the Fund had a net surplus of R3,325,172 in 2009/10 and this had increased to R3,930,688 in 2010/11. He then gave a budget summary for 2011 – 2015 with the current budget decreasing from R5,879,907,763 to R5,242,542,218 in 2011/12.

Discussion
Mr Williams said that the Annual Report from the previous year was very bad. He requested a copy of the turnaround strategy that the CF had proposed. He wanted to know why fraudulent expenditure was noted in the Annual Report and what the resolutions in place to address this were.

Mr Mkhonto replied that the irregular expenditure problem that was reported began in 2007 when a service provider was appointed, but later it was found that the provider was not registered with the South African Revenue Service (SARS). This provider was providing capturing and running software solutions when another service provider came to take over. However, the management of the software still remained with the first service provider and moneys paid during that time were deemed irregular due to the fact that the provider was not registered with SARS.

Mr Nyekembe said that it was disappointing to know that domestic workers were not covered by the Fund, as they were workers too.

Mr Mkhonto said that the Fund could not defend itself when it came to this issue. It was disappointing but the industry class was a challenge and the resolution to this had to include creating a separate class for domestic workers to be included under the Fund.

Mr Ollis said that things were improving for the Fund. However, there was a trend of claims not being finalised due to missing documentation. He wanted to know how these documents were getting lost in the system as the bulk of the problem was at the stage of document submission. Other than that, payment of claims was relatively quick.

Mr Mkhonto explained the reason why this was happening. Within the normal medical system, most things were automated, but within CF business processes still evolved around the usage of paper, which resulted in documents going missing. The problem was also that workers were submitting documents, instead of the doctors. The responsibility was with the doctor to submit medical reports. The paper system was failing. However, the Fund had piloted a new bulk uploading system and was working towards addressing this issue.

Mr Boinamo asked whether the investment of R2.2 billion would interfere with the payment of claims.

Mr Mkhonto replied that it would not affect the operational workings of the Fund. All investments were managed by PIC and not the Fund directly.

Mr Nyekembe wanted to know whether the proposed amendments to the COID Act would affect the legislation of the Mining Health and Safety Act.

Mr Mkhonto replied that it might be possible for the Mining Health and Safety Act to be integrated into the COIDA. However, the issue of lung diseases could be problematic as this was managed by the Department of Health.

Mr Ollis wanted to know why there was such a huge increase in administration expenses.

Ms Thembeka Puzi, Chief Financial Officer: Compensation Fund, replied that the increase in admin costs was due to the decentralization of their head office to other provinces, taking into consideration the accommodation costs for staff members. In addition, CF had to pay to renew their scanning licence which was quite expensive and the appointment of forensic experts to fight fraud andinvestigating risk units.

Mr Nyekembe noted that there was an aim of providing 100 internships per year over the four year period. He wanted to know what happened to interns after they completed their internships as internships were not permanent.

Mr Mkhonto admitted that there was no plan going ahead with regards to interns. This issue still had to be addressed.

National Economic Development and Labour Council (Nedlac) strategic plan
Mr Herbert Mkhize, Executive Director, Nedlac, explained that Nedlac’s origins were in the struggles against apartheid, unilateral government decision-making and calls from all sectors of society for decisions to be made in a more inclusive and transparent manner. Nedlac was set up through an Act of Parliament which was the National Economic Development and Labour Council Act, No 35 of 1994. Nedlac was the seat of national social dialogue in South Africa and it was in many respects a uniquely South African model of social dialogue. The Council was a representative and a consensus-seeking body where the parties to the Council sought to reach agreement on policy matters through negotiation and discussion based on mandates.

Mr Mkhize explained that Nedlac was a statutory institution, funded from the Department of Labour’s budget. The Minister of Labour was the Executive Authority and the leader of government in Nedlac. The strategic plan drew its directive from the State of the Nation Address, the Budget Speech, the Medium Term Strategic Framework and policy issues proposed by business, labour and the community.

Nedlac’s remit was to strive to promote the goals of economic growth and participation in economic decision-making and social equity. Nedlac wanted to encourage and promote the formulation of coordinated policy on social and economic matters as well as to consider all significant changes to social and economic policy before it being implemented or introduced in Parliament. Mr Mkhize said that Nedlac was involved with four government departments, in each of its Chambers. Within the Trade and Industry Chamber, the Department of Trade and Industry was the lead government department as was the Department of Labour in the Labour Market Chamber. The Department of Finance headed up the Public Finance and Monetary Policy Chamber and the Department of Public Works was the lead government department within the Development Chamber. Nedlac’s main purposes were for negotiations, consultations, information sharing, research and resolving socio-economic disputes.

Mr Mkhize highlighted some of Nedlac’s key achievements to date:
▪ Created a forum in which the social partners had been able to work on their relationships and build some level of trust
▪ Built an important instrument to strengthen democratic governance and transparency in the decision-making process
▪ Provided the space for the evolution of a new approach to policymaking and changes to legislation, thereby contributing towards better and more democratic policies that enjoy wide acceptance
▪ Given birth to a range of tripartite bodies and thereby promoted the concept of social dialogue
▪ Created a central forum where greater consensus has been achieved amongst key stakeholders on a diverse range of policy issues
▪ Contributed to the development of a sophisticated and modern industrial relations system
▪ Helped to ensure a major investment programme in skills development
▪ Spearheaded initiatives such as the Proudly South African Campaign, Workplace Challenge, Growth and  Development Summit, amongst others
▪ Minimised, and in some instances even completely eliminated the prospect of national policies being challenged by the Courts

Mr Mkhize explained the process to policy or legislation development which came through Nedlac. The tabling of policy proposals was governed by an agreed protocol. Government tabled its programme of policy and legislation in Nedlac, often at the beginning of the first quarter. Labour, business, and the community constituencies likewise tabled their own policy issues for inclusion in the work programme. Issues were then tabled at least three months before sign-off was required. However, the protocol had provisions for issues that required quicker sign-off. Parties had to agree at the outset whether the issue was being tabled for consultations or negotiations or both. Parties then had to agree on a process and timeframes to expedite the matter. In cases where the issue fell within the terms of reference of more than one Chamber, a joint negotiation committee or task team was established. There may also have been instances where the intervention of the relevant Minister was required.

Mr Mkhize said that in the event that government indicated that giving effect to the policy required legislation, a draft Bill would be tabled at Nedlac for consideration. Once the process of engagement was finalised, a Nedlac report was prepared for ratification by the Nedlac Executive Council. The Nedlac report, after sign-off by the Executive Council, was sent to the relevant Minister who in turn tabled it before Parliament. Parties in Nedlac were bound not to re-open discussions in Parliament on any area where agreement was reached in Nedlac. However, parties had the right to raise issues in Parliament on which there was no agreement, or on which Nedlac was silent. Nedlac did from time to time get the opportunity to brief relevant Portfolio Committees on the Nedlac report, albeit on an adhoc basis.

Mr Mkhize noted some key observations of Nedlac:
Inherent in social dialogue was that this took time for it to produce meaningful consensus that ultimately led to real partnership. It would therefore be correct to assume that if government tabled a policy that did not solicit broader consensus among the key social partners, it should be taken very seriously by the legislators. This should also inform legislators of the potential implementation difficulties that the policy would likely suffer if signed off. Nedlac had acted as an important yardstick to measure the extent to which policies could find resonance with the needs of citizens. Therefore it followed that where social partners found absolute consensus or sufficient consensus on the policy thrust, ownership of such policies was co-shared. This arguably made the implementation much easier and most of all prevented unnecessary legal challenges and squabbles.

Key issues in each of the policy work streams were discussed and these policies fell under the:
▪ Management Committee
▪ Labour Market Policy Chamber
▪ Trade and Industry Chamber
▪ Development Chamber.

Mr Mkhize spoke around some of the key issues under consideration. The Labour Market Policy Chamber was looking at the Superior Courts Bill. They were also concentrating on four other Bills: the Employment Equity Amendment Bill, Labour Relations Act Amendment Bill, the Basic Conditions of Employment Amendment Bill and the Public Employment Services Bill. Mr Mkhize then presented a diagram depicting the establishment of Nedlac and its structure (slide 28).

Mr Mkhize highlighted the budget income of Nedlac. During 2010/11 Nedlac had a total income of R16,161,400 and this would increase to R25,025,000 over 2011/12. The biggest chunk came from the Department of Labour grant which increased from R15,352,000 during 2010/11 to R23,915,000 in 2011/12.

Key challenges faced by Nedlac were identified:
▪ Some issues of policy were being by-passed past Nedlac or being tabled at Nedlac at short notice.
▪ There was a disconnect between with what happened at Provincial and Local levels.
▪ Nedlac had difficulty dealing with policies that straddled more than one government department.
▪ There were tight timeframes to finalise issues and little or no flexibility from some government departments.

Some interventions were to obtain buy-in from government departments to comply with the Nedlac Protocol for tabling and consideration of issues at Nedlac. Nedlac wanted to build better linkages between itself and the social dialogue forums at provincial levels where they existed. Nedlac also wanted to improve linkages and coordination of policy and bring government departments up to speed with the requirements of the Nedlac Act and the Nedlac constitution. Mr Mkhize concluded that social dialogue was still relatively in its infancy in South Africa and required more time to mature, but they were pleased with their achievements to date. Nedlac’s journey had been one of many twists and turns. The institution had not achieved all that its constituencies had wanted. Social dialogue required time and practice. Even if it reached a deadlock, the answer was not to abandon it. It was all the more reason to ensure that the institutional framework for social dialogue worked effectively.

Discussion
Mr Nyekembe said that it was important for Nedlac to paint the dynamics of the whole Superior Courts Bill. He wanted to know whether the Department of Justice and Constitutional Development was leading the process.

Mr Mkhize replied that it was not unusual for workers to wait five years for their cases to be heard by the labour courts as they were simply told that there was a lack of judges to hear their cases as judges were unwilling to preside in labour and tribunal courts. Given these circumstances, the Department of Justice took the view that these courts had to be part of one system, and the Superior Courts Bill was established. This Bill was still under review.

Mr Nyekembe asked whether the fishery policy was an element of the Department of Transport. The scenario was that there was a deviation from the Basic Conditions of Employment Act with regards to working hours. This should be attended to otherwise the Basic Conditions of Employment Act would seem useless.

Mr Thembinkosi Mkalipi, Chief Director: Labour Market Policy, Department of Labour, replied that the Basic Conditions of Employment Act did not apply to deep sea fishing workers. The Maritime Fishing Act applied to these workers. There had been a discussion at the Geneva Convention the previous year to amend the Maritime Fishing Act to give more protection to these workers. However, this had to be administered and proposed by the Department of Transport but Nedlac had difficulty inviting the Department of Transport to become involved.

Mr Nyekembe asked if community care workers were also taken care of by the Basic Conditions of Employment Act. He noted that these workers were part of the Extended Public Works Programme and this was partly mandated by the Department of Cooperative Governance and Traditional Affairs.

Mr Mkalipi replied that South Africa did not have a strict minimum wage legislation that legislated the work by community care workers. They rather fell under a sectoral determination but the Basic Conditions of Employment should have applied to them. Nedlac was looking at tabling some policy around this in the near future.

The meeting was adjourned.


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