Compensation Fund progress: Department of Labour briefing

Meeting report

Compensation Fund progress: Department of Labour briefing
The Department of Labour briefed the Committee on its Compensation Fund and its turnaround strategy. The briefing also covered other initiatives undertaken by the Fund to improve its performance.

Mr Nkosinathi Nhleko, Department of Labour Director-General, proceeded with the Compensation Fund’s turnaround strategy. He conceded that the Compensation Fund was a distressed organisation plagued with systems challenges, process problems, discontented staff, audit qualifications, fraud, and ministerial complaints, and that the Fund followed a silo approach. Almost half of the Compensation’s Fund staff was dissatisfied. The one good thing was that finances were in a good position. An overview of audit findings showed that for the years 2008/9 and 2009/10 there had been disclaimers. For 2010/11 and 2011/12 there were qualified audit opinions. Some of the interim audit findings for 2012/13 were the identification of material misstatements in financial statements and that management did not provide effective leadership. There was likelihood that there would be a disclaimer for the Fund for 2012/13. Previous interventions by the Fund were amongst others leadership capacitation, process mapping and a new organisational structure, but still the Fund was dysfunctional. The problem was that the interventions were all still focused on a silo approach. Had things improved? The answer was in the negative.

Hence the introduction of a current intervention which was a Rand Mutual Assurance (RMA) Systems Pilot Project. It was a systems approach to address the Fund’s organisational challenges. If successful it would address the claims systems problems but it would not address the people issues, process challenges, organisational problems and change management issues. Once again it was a silo approach to addressing the organisational problems. Was the Fund making the same mistakes? Lessons learnt from previous systems implementations were that not everything was about systems; there was also an over reliance on service providers and that the financial management environment was wanting.

The Compensation Fund needed a turnaround and did a scenario analysis. Of four scenarios evaluated it chose the “Catch the Gautrain” approach which took stock of the total situation. A balanced approach was needed. Services would improve and were accessible through various channels for all citizens, at their convenience. All key business elements would be functioning well together, i.e., people, processes, systems and finances, etc. The Fund therefore had to drop the silo-based approach to solving problems and had to adopt a holistic approach to the dysfunctional organisation. The turnaround was a long-term process but it also ensured long-term sustainability and efficiency. Some of the critical components of the turnaround were a business-operating model, an organisational strategy, a performance management framework, skills assessment and planning, leadership and change management. Progress to date was that a project team had been set up which was drafting a remedial plan, developing strategies and interventions to improve operations, a review and drafting of specifications of the forensic audit and turnaround strategy and lastly drafting a governance document for set-up, functioning and management of a programme office.

The implementation of the programme office was to take place in July 2013. A medical backlog project had been implemented to address the medical invoice-processing backlog. A similar project had been implemented to deal with the claims registration backlog. Regarding the Fund’s information technology (IT) systems, an electronic portal had been developed for employers and medical service providers to register and submit claims. There were also forensic audit and turnaround strategies on tenders and stakeholder engagements had also taken place. The turnaround would ensure that all key business elements were addressed and would come together towards a transformed Compensation Fund.

Mr Nhleko strongly emphasised that the turnaround strategy was not yet in place but steps were being taken towards having a turnaround strategy.

Mr Shadrack Mkhonto, Compensation Fund Commissioner, continued by elaborating on other initiatives undertaken by the Fund to improve its performance. He stated that the RMA system was based on the mandate of the Compensation of Occupational Injuries and Diseases Act (No. 130 of 1993) (COIDA) and had been tried and tested and was found to be 90% compatible with the business of the Fund. The Minister of Labour had been requested to pilot the RMA system. The Budget Vote noted that the pilot RMA system started on 22 May 2013. The RMA system was fully automated. All employers in the mining sector, doctors and hospitals had access to the RMA system. The system was good for the collection of revenues and the reporting of assessments. The system was operational. The current record of the RMA was that payment was made within seven days of receipt of the account. Executive management and middle management had been trained. The second phase of training covered super users. By the end of June 2013, 180 people would have been trained. The issue of staff was being addressed as positions for senior managers had been advertised.

He said that the Fund was in the process of being decentralised. Placements had taken place in nine provincial offices already; decentralisation to labour centres was yet to happen. If the RMA pilot were a success it would be viable at all labour centres. In February 2013 the Fund implemented a project to address backlogs relating to claims registration, adjudication, quality control and legal reviews. The project had for instance shown that in February 2013 there were 240 000 unregistered new claims. All these claims were registered and on the 30 April 2013 there were only 1 609 new claims which remained unregistered. Since May 2013 all new claims were registered on the same day. The Fund was also upgrading and deploying new technology in its call centre. In order to improve its service delivery, the Fund was currently amending current legislation. The legislation would deal with the governance of the organisation and the rehabilitation of employees. It was also aimed at revamping the appeals process.

The Fund implemented the Return on Earnings (RoE) website in 2012 to allow employers to register online.

Discussion
Mr H Groenewald (DA, North West) asked what the Department’s motivation was for choosing scenario four “Catch the Gautrain” approach for its turnaround. If everything was in place it was time for the Department to get into gear. What was management doing to ensure that there was success? For there to be success the staff needed to be happy and the environment had to be conducive for work. Was the Department still using consultants and if so how many consultants were being used?

Mr Nhleko admitted that the Department would be using consultants in addition to its internal staff. From time to time consultants would be used. The issue was about how to manage the use of consultants.
The Department as management had to play its role. There was no choice in the matter; the organisation had to meet its stated objectives. 

Mr Z Mlenzana (COPE, Eastern Cape) noted that the Director-General had been so transparent about the Department’s challenges that it made it difficult to ask questions. The Director-General had even admitted that the Department’s turnaround strategy was not yet operational and that it was still in planning. Perhaps the Department in the future could have staff members who did the actual work to brief the Committee?
The Compensation Fund had a Board but none of its members had attended the briefing. He was not sure whether some of the questions should be directed to the Department, as perhaps it was more relevant for Board members to answer. The Auditor-General had raised concerns about internal controls and compliance and had given the Department more than one qualification. The Fund’s accounting authority had not done proper oversight to ensure that skills were in place where they were needed. This was especially true for the finance unit. He asked whether there were timeframes set for the turnaround.

The Auditor-General had also pointed out irregular expenditure of R6.5m for the financial year under review. Mr Mlenzana asked why disciplinary action against employees had not been taken. He asked for a list of the employees. Were there measures put in place to prevent irregular expenditure from taking place again? The Board of the Fund should have been present but the Director-General had been sufficiently transparent.

Mr Nhleko explained that the Board of the Fund merely had an advisory function. The Department was the Fund’s management structure. It would not be fair to hold the Board accountable. Management had to be held responsible. He was, however, not saying that there were no interactions with the Board. The Board was an oversight structure and advised the Minister.

The Chairperson said that the briefing had spoken about shortcomings in systems and the Committee had witnessed it firsthand on a visit to Hankey in Port Elizabeth. No systems were in place and equipment was lacking. He asked why the Chief Financial Officer (CFO) of the Fund had resigned just before the Department had been audited. Many questions could be asked. Who was responsible for the CFO’s transfers?

The Auditor-General had pointed out wasteful management. What measures had been put in place to prevent it from happening again? Who were the guilty persons?

On fraud and risk management concerns raised by the Auditor-General, were wrong doings identified and were people charged and if so who were they?

If service providers were to be appointed by June 2013, was that target still achievable as it was already June?

Mr Nhleko said that, as he was the accounting officer, he was responsible for the situation in which the Fund found itself. He was to be held accountable. In previous interactions with the Committee he could have chosen to bluff Members but had not done so. He had come clean and explained that efforts were being made to address the concerns raised by the Auditor-General.

The CFO had been transferred to the Unemployment Insurance Fund (UIF). He conceded that there were financial management issues with the Compensation Fund. The Auditor-General said that the situation was helpless and even access to information was a problem. Solutions needed to be found regarding the Compensation Fund’s financial management system. He said that the position of CFO at the Compensation Fund would be filled by 18 June 2013.

Fraud and risk management issues would come out in the main. In the previous financial year R26m had been lost to fraud and corruption. These were known cases. There was the possibility that there were cases that were still unknown. The issue was about closing gaps. The month of June 2013 was not yet at its end and service provider targets could still be met. The starting point for him was admitting that things were not as they should be. The Auditor-General had for the past four years tried to highlight issues that needed to be addressed. A holistic approach was needed.

Mr Mkhonto said that the list of names of persons requested by the Chairperson would be forwarded to the Committee. There were cases under investigation. A service provider was investigated regarding an amount of R1.7m but no fraud had been detected. A case involving a claim of R15 000 was resolved as the injury was found to be genuine. Cases of fraud investigated were an amount of R23 500 that was being prosecuted, also an amount of R116 400 that was still under investigation; a patient’s claim of R6 971 was investigated but no fraud was found.

The meeting was adjourned.