Compensation Fund turnaround: Department of Labour briefings

NCOP Public Enterprises and Communication

27 February 2013
Chairperson: Ms M Themba (Mpumalanga, ANC)
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Meeting Summary

The Committee was briefed by the Department of Labour on the challenges facing the Compensation Fund, which was set up to pay compensation for death or disablement caused by occupational injuries and diseases sustained or contracted by employees. For several years the Compensation Fund had been faced with different challenges in delivering efficient and timeous services. It had received disclaimer audits in the 2008/9 and 2009/10 years, and which had still not managed to settle the issues, which were mainly to do with revenue management and debtors, and claims, although bank reconciliations had later improved. The challenges were categorised into those of people, processes and systems in the business capacity areas. The challenges were systemic and complex and had been in existence for a long time. The audit report of 2011/12 had highlighted problems in leadership, financial and performance management. It had found poor accounting systems, no evaluation of the management actions to address audit issues of prior year, no timeous production of information for audit purposes, and poor procedures, training of staff, and general lack of leadership in financial matters. The business challenges included a poor organisational culture, poor staff morale and resistance to change. The IT systems were not up to the challenges and this resulted in many processes still being done manually. There were also lack of skills and training apparent, and heavy reliance on service providers.

The Department of Labour had carried out an analysis and had formulated short, medium and long term interventions to address the challenges. A project team would be appointed to run the implementation of the turnaround strategy in the Compensation Fund. Assistance had been sought from the Road Accident Fund (RAF) and Unemployment Insurance Fund, both of whom had faced and overcome similar challenges in the past. A diagnostic review was undertaken of the Compensation Fund to identify the main organisational challenges and weaknesses. Various interventions were planned, including holding workshops, developing an operational plan, establishing a forensic audit, improving communications and improving IT functionality. The interventions were outlined in more detail. There would be a particular focus on the business and operational model, organisational values and culture, organisational strategy and structure, processes and policies, performance management framework, skills assessment, change management, fraud and risk management strategy. It was decided that the turnaround would have to be owned by, and reported upon to the Director General. A dedicated team was appointed, and regular communication and interactions with all stakeholders were to be held. There would be strict adherence to supply chain management and continuous change management. A tender process would be carried out to appoint a specialist in turnaround strategies. Buy-in and acceptance by all stakeholders was essential.

Members asked a number of questions around challenges such as lack of skills, training, and lack of staff morale, the blockages and poor processes and IT systems. They agreed that the problems had been ongoing for some time. They asked for time frames and a more precise indication of the steps planned under the short, medium and long term interventions. A DA member believed that the problems lay not so much with the systems, as with the staff and stressed that the Department of Labour itself bore responsibility to address this point. All Members agreed that it was vital to equip the Fund with the necessary training and skills to enable the job to be done and to clear the backlogs. The Department was asked to provide a list of service providers who did not do their work properly. The Committee noted that it would be formulating a list of issues that it wished the Department to address, and noted that a particular emphasis would be placed on the Shanduka project.

Meeting report

Compensation Fund: Challenges and Turnaround Initiatives: Department of Labour presentation
Mr Nkosinathi Nhleko, Director General, Department of Labour, tendered an apology for the absence of the Fund Commissioner, who had undergone an operation that morning.

Mr Nhleko said that the Compensation Fund (the Fund) was intended to pay compensation for death or disablement caused by occupational injuries and diseases sustained or contracted by employees. In the past, the Compensation Fund had been faced with different challenges in delivering efficient and timeous services to its stakeholders. These challenges could be categorised into those relating to people, processes and systems. The challenges were complex in nature, as they were systematic and had been in existence for years.

Mr Nhleko summarised the audit findings for the Fund over the last few years. In 2008/9 and 2009/10 there were disclaimers in respect of revenue management and debtors and bank reconciliations. There were attempts to address them in the following years.

The audit report for 2011/12 cited concerns around leadership, financial and performance management. The leadership was characterised by problems such as poor financial accounting systems, no evaluation of management actions to address audit issues of prior year, no timely producing of information for audit purposes, and lack of procedures followed and proper training of staff in the SAP accounting system. Generally, in the finance area, there was lack of leadership, too much use of consultants, and the post of Chief Director for Human Resources (HR) had been vacant for too long. There was no action plan to address the audit issues, and the auditors were not able to determine how the draft DoL strategy would support the Compensation Fund. Financial and performance management was characterised by lack of procedures and training of staff, delays in submissions of audit information requested by the Auditor-General (AG), lack of accounts reconciliations, lack of understanding of accounting standards, difficulty in preparing financial statements, and non-compliance to procurements processes.

The Department of Labour (DoL or the Department) had attempted to assess the reasons for these problems. On the organisational side, employees lacked a common shared vision of the organisation, there was lack of communication, poor understanding of business value chain, lack of training, and no clear defined roles and responsibilities. On the policy side, it was found that business processes and policies were fragmented and poorly defined, and that papers were too large and were processed manually. Information technology and systems were developed poorly, with no clear processes, and systems were not user friendly. The Department relied on external providers to provide Information Technology (IT) systems. From October 2012 there had been no payouts for those who died whilst on duty. As a result, medical practitioners refused to treat people who were injured at work, due to lack of payments from the Fund. The public was not receiving the services they deserved from the Fund.

One of the main challenges related to the staff. The vision of the organisation was not clearly understood by employees. There was lack of, or misalignment of skills, low employee morale and performance management, lack of training on operation systems, and there was no mechanism in place to implement talent and performance management. Change management was another problem. There was lack of proper communication and consultation from leadership, with decision making taking place at a senior leadership level only, without any involvement from employees, and there was no buy-in into initiatives.

Mr Nhleko also described the business capacity challenges more fully. He stressed, however, that the problems lay with people as well as the system. The Department had developed the integrated claim management system to try to instil some efficiency, but the Fund had functioned relatively better with the old system. There was insufficient performance management and monitoring, and the staff showed low skills levels and insufficient training. The staff also lacked a service orientation culture and staff motivation. There was also fear of change and people preferred to do things in the old way.  Processes had been done manually, and processing was centralised. There were no structures that would allow for effective performance, and there was lack of effective reporting mechanisms. In addition, there was reliance on service providers, who lacked good implementation (see attached document for more details).

Mr Nhleko said that in January 2013, the DoL undertook a diagnostic review of the Compensation Fund with the aim of identifying weaknesses and challenges in the organisation. This review would give the department a clear picture of what a turnaround strategy needed to achieve. DoL had now established a Project Team to intervene and improve the workings of the Compensation Fund. A project manager and other staff members were appointed to implement a turnaround strategy in the Compensation Fund. The team came up with terms of reference. DoL had called for assistance from other government entities such as the Road Accident Fund (RAF) and the Unemployment Insurance Fund (UIF) who had faced similar challenges.

Mr N Nhleko said that the Department held a leadership Compensation Fund Workshop to review and confirm weaknesses and challenges, and identify turnaround options. A specifications document for service providers was drafted, which was a detailed draft that indicated what the turnaround strategy should contain, and how it should be undertaken. In February 2013, these specifications were published, in an open tender process that sought a specialist expert in turnaround. The DoL’s IT systems functionality had been reviewed, and would be improved, and the key requirements would be developed around May 2013. The Department also had meetings with the Compensation Fund management and board, trade unions, other staff, and medical service providers in the Western Cape and KwaZulu-Natal. The Department also learnt some lessons from other turnarounds such as the Road Accident Fund.

DoL had now developed an operational action plan to address specific areas in the Compensation Fund, around revenue management, information technology, audit findings, human resource management, supply chain and reporting. The communication strategy for the compensation stakeholders was being developed, and should be finalised by the end of February 2013. An independent forensic audit was instituted, and would focus on liability of employers in terms of fines for non-compliance and recoveries, compliance to the Public Finance Management Act (PFMA), revenue management, expenditure administration and other matters (see document for full details). Other entities such as the Auditor-General, National Treasury and the Public Protector were notified about the establishment of the forensic audit.

Mr Vikash Sirkisson, Chief Information Officer: Compensation Fund, Department of Labour, said that the Department understood the problems that the Fund faced. Long term operational and strategic interventions were needed, and the ideal value chain must be established. The DoL had broken down a number of strategic and operational projects that needed a special focus. On the strategic side, there was a need to focus on business operational model, organisational values and culture and organisational strategy and structure. Operational interventions were needed on business and policies, to draw up a performance management framework, fraud and risk management framework, do a skills assessment, change management, and concentrate on revenue and debt management strategies, and IT strategy (see document).

Mr Sirkisson said that the Department thought the ideal value chain would consist of revenue management, claims management and rehabilitation management. Revenue management would focus on investment, registrations and submissions. Claims management would focus on claims registrations, beneficiary payments, case management, which would help the Fund with the payments of injured people, and pension issues. Rehabilitation management would focus on individual rehabilitation, monitoring, restoration and re-integration of workers, reporting and provision of assistive devices (see document).

Mr Nhleko summarised that the Department of Labour had identified factors that would help to make the turnaround strategy successful. The project had to be owned by, and reports made directly to the Director General. A dedicated team was needed (and had been appointed). There must be regular communication and interaction with all stakeholders. Governance processes such as supply chain management needed to be followed. There must be buy-in and acceptance by stakeholders. Continuous change management was another important aspect. He finally emphasised that there were many vulnerable people who required assistance from the Fund, and  the DoL and Compensation Fund needed to be efficient in order to help those people.


Mr M Sibande (Mpumalanga, ANC) noted that the Department of Labour’s presentation listed challenges such as lack of staff morale, accountability and ownership of the project. There was also mention of the forensic investigation, and interventions. He asked if the Department had done some oversight over the Fund. He asked if the DoL was able to provide names of service providers who did not do their work properly. He also wanted to know when the forensic investigation had started and how long it would take. He wanted clarity on what were the short, medium and long term strategies.

Mr H Groenewald (North West, DA) noted that the presentation listed many negative challenges such as lack of skills, training, and lack of staff morale, and blockages. He stressed that the problem might well lie not so much with the system, as the people operating it. He said that the long-term interventions seemed both useful and necessary. He asked why staff did not have skills and training, and asked why the Fund apparently did not have policies in place.

Mr M Jacobs (Free State, ANC) noted that the Compensation Fund was in a bad situation, and it needed to be helped, with serious interventions. He was particularly concerned to note that there were insufficient personnel skills, lack of knowledge of IT system and lack of leadership skills. The audit was not well documented and the turnaround strategy was not clear. All of these resulted in corruption. He was even more concerned that there seemed to be no, or at least very minimal consequences imposed where there was corruption by officials. He asked the Department of Labour to provide the committee with timelines for the short, medium and long term strategies.

Mr Z Mlenzana (Eastern Cape, COPE) noted that the DoL had been very open in describing challenges, and they had to be continuously monitored so that they could be addressed. The Department mentioned issues of buy-in and acceptance by stakeholders, and the involvement of the Road Accident Fund. He asked if the document as presented represented a turnaround strategy or a framework strategy.

The Chairperson noted that last year the Committee had discussed the Compensation Fund, when the Department of Labour presented its Annual Report. At that stage, the DoL had mentioned that a new system was to be put in place. However, there seemed to have been little development. She stressed that this Committee followed up on documents presented, and was worried about the audit findings. She asked why there was a shortage of skills and why matters had gone wrong.

Mr Nhleko noted that at the moment there was no Chief Financial Officer in place, although there was a process under way to appoint one.

Mr Nhleko agreed that it was  important to identify the problems and find solutions to them and the Director General was not in a position to invent a new turnaround strategy.  Issues such as lack of accountability, backlogs and staff morale all had to do with organisational culture. The main problem had to do with systems and interaction of people and processes. The Turnaround Strategy should ideally be managed by management of the Fund and not by service providers. He had interacted with Auditor-General and the Compensation Fund board, to get buy-in and acceptance, and the Department would continuously engage with other stakeholders around the same issue of buy-in and acceptance, in order to get the problems fixed. The IT systems were an ongoing problem, and the Department would address this issue. He explained that the document presented represented neither t a turnaround or framework strategy, but simply indicated the direction and steps that the DoL had taken. The process was still at the initial stages, and the Department would now follow the tender processes to get the strategist appointed.

The Chairperson thanked the Director General and stressed that the Fund was in a poor situation indeed, and had faced many challenges over the years and required serious help. She noted that the Committee, after holding its strategic planning session, would send through to the Department a list of issues that were to be dealt with this year. The Committee was not yet happy with the Shanduka project, which the Committee wanted to see succeed.

The meeting was adjourned.


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