Compensation Fund outstanding issues: Compensation Fund and Department briefing

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Labour

23 July 2013
Chairperson: Mr M Nchabeleng (ANC)
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Meeting Summary

The Chairperson indicated that the Compensation Fund would answer Parliamentary questions that were sent around February and March.

The Compensation Fund Commissioner, said the presentation was prepared in such a way that would ensure questions were dealt with individually. Members had wanted to know among others the number of employers registered during 2011. Clarity was sought on the total number of claims rejected.

Members said a lot of money had been spent on acquisition of SAP and asked if there had been an effort to recoup the money when the system was not implemented. The system was found not to be suitable to the Compensation Fund’s requirements. It had also been claimed that R21 million overpayment was made for the system, had that money been recouped. The system appeared to be the cause of the problem. The claims were not being processed because employers had provided wrong information on the system. He asked if all employers knew how to fill the form properly. Was there interaction with employer and labour organisations to agree on how the claims could be made acceptable, or was the Fund imposing what it thought was a best system?

The Compensation Fund replied that during the year in question Compensation Fund registered 436 807 employers, of whom 281 870 were assessed. The manner in which the Fund operated was that employers were assessed for the year that had passed. The Compensation Fund said that the current assessment that the Compensation Fund was busy with related to the period March 2011- February 2012. During the month of December and January, employers were reminded to register. Because of the rigorousness of the process, the Compensation Fund had to stamp the forms when they arrived and indicate the dates. Anything received after the expiry date interests and penalties were charged. Thereafter the process went to the assessment section at the Fund. The SAP system registered 23 248 claims and 13 647 were accepted for liability. The balance of the claims was not accepted due to more information needed for adjudication. It was realised that the service provider was not able to migrate all the information into the new system for the Compensation Fund to be able to swap. The old system, as much as it had been computerised it still relied heavily on manual system. The employer would complete the form to report an incident. They would post the form, and once received the information would be captured on the system to generate a claim number. It was revealed that an appointment for the chief finance officer had been done and awaited the Minister’s approval. When the Compensation Fund advertised for the position, there were no responses received, forcing the Department to resort to headhunting. Five candidates were identified and their names were forwarded to the Minister for consent. Once that was done, one of the five was found not to be of the required skills level; four were subsequently interviewed and candidate for appointment was identified.
 

Meeting report

Opening remarks
The Chairperson indicated the Compensation Fund (CF) would answer Parliamentary questions that were sent around February and March to CF. He noted apologies from Members among them that of Ms L Makhubela-Mashele (ANC) who was part of the observer mission to Zimbabwe. He handed over to the CF Commissioner.

Mr Shadrack Mkhonto, CF Commissioner, said the presentation was prepared in such a way that would ensure questions were dealt with individually.

Question 1: How many employees were registered during 2011/12 financial year? And, how many employers were assessed?

Reply:
Commissioner Mkhonto replied that during the year in question CF registered 436 807 employers, of whom 281 870 were assessed. (Slide 3)

Commissioner Mkhonto added that the manner in which the Fund operated was that employers were assessed for the year that had passed. He said the current assessment that CF was busy with related to the period March 2011- February 2012. During the month of December and January, employers were reminded to register. Because of the rigorousness of the process, CF had to stamp the forms when they arrived and indicate the dates. Anything received after the expiry date interests and penalties were charged. Thereafter the process went to the assessment section at the Fund.

Question 2: When comparing claims registered by provinces, Gauteng province registered 93 407 claims and accepted 103 974 claims. How come claims accepted were more than claims registered?

Reply: Commissioner Mkhonto replied because the system of operating on the manual basis, one found that by year end there still were claims that had been reported in the previous. This challenge often resulted in differences in figures reported in a financial year. But this was purely attributed to the fact that at the time of registration, certain information might not have been available for adjudication and was only brought later. The registered claims of 93 407 and the 103 974 accepted in Gauteng province included CF’s Head Office figures. (Slide 3)

Question 3: On page 31 of the annual report, the total number of claims registered using SAP system is 23 248 and claims accepted were 13 647. This was an enormous amount of claims rejected when compared with claims processed by provinces. Did the new SAP system make it difficult for claims to be accepted? Please provide a detailed response.

Reply: Commissioner Mkhonto replied all claims dispatched were registered, scanned and indexed, however, if documentation was incomplete it would be difficult to adjudicate such claims. The adjudication process would be delayed, thus impacting on decisions on whether to accept or reject liability. He cited an example of an employer who would submit an accident report and indicate injuries. But for the CF to be able to adjudicate, the first medical report from the treating doctor was required to confirm the extent of injuries. Once a claim had been successfully registered it would then be put on the website.

In cases of incomplete information CF did not reject such claims, but requested additional information to assist in deciding on whether to accept or reject liability. The SAP system registered 23 248 claims and 13 647 were accepted for liability. The balance of the claims was not accepted due to more information needed for adjudication. (See slide 4)

Discussion
The Chairperson interjected and asked if any of the Members wanted to make a follow up, as it appeared there were no details in the presentation. He sought clarity on whether the Fund had the right skills to carry out its mandate, or if were there challenges. This was the kind of detail that Members were interested in.

Commissioner Mkhonto continued and said it was realised that the service provider was not able to migrate all the information into the new system for the CF to be able to swap. The old system, as much as it had been computerised it still relied heavily on a manual system. The employer would complete the form to report an incident. They would post the form, and once received the information would be captured on the system to generate a claim number.

Commissioner Mkhonto said the claim number was given to the doctor so that account numbers could be submitted. Doctors were required by law to submit the first medical report. It was common that by the time the Fund adjudicated, doctors had not submitted invoices because they had to wait until the Fund accepted liability. All these things were done manually; this took a lot of time and often delayed the submission of invoices.

He said that in the modern system being intended for rollout, all processes would be done electronically. Employers would register electronically, and receive their claim numbers. This applied to the doctors, soon after treating patients they could also submit for their claim numbers and the process could be finalised in 24 hours.

Question: A lot of money had been spent on acquisition of SAPS; had there been an effort to recoup the money when the system failed, especially that the system was found not to be suitable to CF’s requirements. It had also been claimed that R21 million overpayment was made for the System, had that money been recouped?

Question: A Member pointed out that the system appeared to be the cause of the problem. The claims were not being processed because employers had provided wrong information. He asked if all employers knew how to fill the form properly. Was there interaction with employer and labour organisations to agree on how the claims could be made acceptable, or was the Fund imposing what it thought was best? Was there a consensus or had CF just got a consultant who indicated that the system was the best?

Reply: Commissioner Mkhonto replied that CF agreed with Siemens that a portion of work as the contractor had not been able to deliver. This was the solution. Siemens had admitted to lacking capacity to implement the programme. Its systems were geared in the financial services sector and not in the medical space. Siemens also lacked human resources to manage the system. This was the challenge with SAP. But also an advice from auditors had been that there were too many customisations. It was on this basis that an alternative service provider had been hired. The advantage of the news system was the speed with which claims were processed. The issue concerning the double payment was just a once off thing.

Question: Clarity was sought on whether the Fund was confident about the new system working.

Question: How long did it take one case to be processed, and also what should an ordinary worker expect in terms of time?

Reply: Commissioner Mkhonto replied that the prescribed period was 90 days but the Fund hoped to improve on its turn around time. But the challenge would always be the issue with incomplete claims.

Question 4: How many senior managers (i.e. Chief Directors, Directors, Deputy Directors and Assistant Directors) were employed under the 2007 structure? The question was based on the statement by the Commissioner in the 2007/08 Annual Report that, “the Fund continued the year without the Chief Financial Officer and a full complement of its critical Finance managers necessary to manage an organisation of this magnitude. Once approval for the new organisational structure was granted in August last year (2007), a recruitment process ensued and to date the Fund was able to fill 70% senior executive management posts, and the rest of the middle management posts and including that of the CFO will be filled in the new year”.

Reply: Commissioner Mkhonto replied during the period 2007/8 financial year, the Fund had four senior managers the Commissioner, the Chief Financial Officer (CFO) and two Directors: Medical and Compensation. The CFO and the Director Compensation were suspended and discharged from the public service, but Director Compensation had since been re-instated following an appeal in the Labour Court. The Fund had functioned without a CFO until a new organisational structure was approved by the Minister in 2009. The new CFO was only appointed in 2009, but the person had since left as well. The position of the CFO was currently vacant. A consultant was brought in, but later suspended.

In respect of the middle management staff (MMS) there were 21 posts on the establishment. Of these, two were also suspended and subsequently discharged from the public service. The Minister approved a new interim organisational structure in 2008. There were 13 senior management staff (SMS) posts and 12 were filled in 2009/10. (Slides 5-6)

Discussion
Question: Given that the CFO successfully appealed suspension, how rigorous was the process of putting people on suspension.

Reply: Commissioner Mkhonto replied this was a complex process because there were steps to follow in the public service before someone was put on suspension. When allegations had surfaced, a person was either cleared or found guilty. An independent person who would hear the evidence would be appointed. The case would be presented and the accused would be given an opportunity to dispute the allegations. The chairperson of the disciplinary proceedings would then be expected to make a finding based on the information that he had been provided with.

Question: Clarity was sought on the allegations and findings regarding the CFO.

Reply: Commissioner Mkhonto replied the allegations related to performance and money lost. The normal process was followed and an independent investigation into the matter confirmed the allegation. What transpired beyond the Department’s process was that the matter was referred to the Labour Court and the process was restarted. Potential witnesses were not available when the matter was heard at the Labour Court. Evidence and information used in the first hearing was somewhat compromised by that at the Court. This was generally the case with most cases that the Fund lost on appeal.

Question: The answer was less than satisfactory, as it did not indicate the values involved here. Could the Commissioner state how much money was involved, and what steps had been taken to ensure that the money was recouped?

The Chairperson proposed that responses be availed to the matter, as it required detailed information that Members could apply their minds on. Could the Commissioner agree to presenting a detailed report on specifics as to how much was stolen and how much was recovered?

Reply: Commissioner Mkhonto responded this would indeed happen.

Question: Would decentralisation of the Fund not help address it challenges. The questions asked by the Standing Committee on Public Accounts (Scopa) on corrective action at the Fund to get systems up and running was still relevant to the Committee as well. An explanation that there was an oversight on the part of managers was not sufficient. It could only be acceptable if the officials accepted failure and take responsibility. This was the only language expected from the Fund. What was the way forward for the Fund?

Question 5: According to page 135 of the annual report, a total of 304 employees received performance bonuses. Yet the Fund has many challenges that could be attributed to inefficiency. How many employees from the finance and project management units received performance bonuses, taking into consideration comments from the Audit Committee on these units’ poor performance?

Reply: A CF human resources (HR) official replied that filled posts on the establishment of the Fund were 909 (excluding SMS) and not the 1 818 as indicated; the figure of 1 818 was incorrect. This incorrect calculation of the number of employees had also led to double calculation on the number of those who received performance rewards. However, the correct calculation was provided in Table 58 (page 136). The correct number of employees who received performance rewards was 155 and not 304 as reflected. In the chief directorate of financial management 50 employees were paid bonuses out of a possible 251 who qualified. In the project management office, only two received bonuses. Employees who received bonuses were below management levels. (Slides 7-8)

Question 6: How many senior managers received performance bonuses and why? Did the HR Head receive a performance bonus? If so, why? Did the Commissioner receive a performance bonus? If so, why? Please provide a detailed response.

Reply: The HR official replied for the year under review there were no senior managers who received performance bonuses. (Slide 8)

Question 7: The Committee would like an explanation of the decrease in miscellaneous revenue from R2.595 million in 2010/2011 to R814 000 in the 2011/12 financial year.

Reply: Mr Pitsi Moloto, CF Acting CFO, replied that miscellaneous revenue of R2.596 million reported in 2010/11 related to unclaimed credits which were due to employers that could not be traced. But subsequent to this almost half of these had been paid. And also based on the current policy, credits have since been reclassified as retained income. Miscellaneous revenue reported in 2011/12 of R814 000 related to the rental income charged for the leasing of the Compensation Fund’s Bhisho building as well as income from the leasing of the cafeteria at the Compensation House in Pretoria. In the prior year, the person leasing the cafeteria was using it for free, but a decision was taken that something should be paid. (See slide 9)

Question 8: The balance for reserve had decreased from R340.042 million to zero, representing a percentage decrease of 100 percent in nominal terms. What is the reason for this?

Reply: Mr Moloto replied there were two kinds of reserves, non-distributing and the distributing reserves. This figure pertained to the distributing reserves and contained two portfolios. The opening balance was R331.768 million less the R799.517 million for the actuaries’ capitalised value. Therefore, the amount came to R467.803 million and the money to fund this came from the investment income of R807.845 million and, as a result, what was still left was R340.042 million.

In 2011/12 financial year the amount of R340.042 million was the opening balance less the amount that the actuaries recommended of R2 798.407 million which came to R2 458.365 million, and funding came from the investment income of R842.071 million, hence there was a deficit of R1.616294 million which was funded from the Compensation Reserve resulting in the zero balance. (See slide 10)

Question 9: The Committee would like an explanation of why the amount for board members’ fees decreased. This might pose a risk that the board members did not execute their tasks as mandated.

Reply: Mr Moloto replied the Fund’s board was an advisory board and not an executive one. During the 2010/11 there was no decrease in board members’ fees in real terms. The Board of CF sourced the services of a medical practitioner (MPr) who was advising its Technical Committee on Occupational Diseases (TCOD). The same MPr was actually appointed as a medical assessor, and as a consequence, part of his claim for services rendered was captured and paid from the same allocation used for Board members’ fees who were also attending the TCOD.

This claim from the MPr should have been paid from the compensation related expenses. The anomaly was rectified in the 2011/12 financial year, and the contract for the said MPr had since expired. Therefore, the decrease in the Board’s fees which came as a result of the correct allocation being used did not in any way pose a risk to the board in executing its duties. (Slide 11)

Question 10: When was the Project Team going to be ready to report to the Portfolio Committee on what it planned to do in the first 3 years?

Reply:
Mr Moloto replied that the Director-General’s project team would be ready at the end of July 2013 to report back to the Portfolio Committee.

Question 12: Had the project team been able to draw the terms of reference detailing what needed to be done?

Reply: Mr Moloto replied that the terms of reference had been finalised and published. The evaluation of proposals from prospective service providers had also been completed. It was anticipated that once the adjudication had been finalised, a successful bidder would be announced. (Slide 12)

Question 12: When was the Public Protector (PP) Report on the Compensation Fund going to be provided to the Portfolio Committee?

Reply: Mr Moloto replied that the CF had not yet received the report, but once the PP submitted the report, a copy would be made available to the Committee.

Question 13: When would the forensic investigation into the affairs of the CF be initiated, and could timeframes be indicated?

Reply: Mr Moloto replied the request for proposal (RFP) was advertised in the print media on 03 March 2013. The evaluation had since been conducted and the adjudication on the appointment of the successful bidder was underway. (Slide 13)

Question 14: In its presentation to the Committee on 13 February 2013, the Fund reported that it still did not have a Chief Financial Officer. The post was reported to be occupied by a consultant who was acting in the CFO post. When was the situation going to be rectified?

Reply: Mr Nkosinathi Nhleko, Director General (DG) Department of Labour (DoL), that replied interviews for the post of CFO had been conducted. The name of the nominated candidate for appointment to the post had been prepared for the Minister’s approval. (Slide 14)

Discussion
Question: In terms of the application process how many candidates applied and how many were shortlistted.

Reply: Mr Nhleko replied that in the first round of applications no candidate had applied. The Department had  resorted to headhunting the candidates. Five candidates were identified and their names were forwarded to the Minister for consent. Once that was done, one of the five was found not to be of the required skills level; four were subsequently interviewed and candidate for appointment was identified. This was where the process was.

Question: What was the salary band of the CFO. The situation at the CF was mostly like many municipalities.

Reply: Mr Nhleko replied that it was around R900 000.

Question 15: What had been done to rectify late payments of Hospital Groups, which resulted in medical staff threatening to withdraw their services?

Reply: Commissioner Mkhonto replied hospital accounts had been processed through the medical electronic backlog. As from January 2013 up to date an amount of R325 529 845.00 had been paid to private hospitals. An amount of R6 771 751 had been paid to public hospitals. The Fund had decentralised payment of medical accounts to all the provinces and medical accounts were processed and paid there. The Fund recently undertook a project on registration and adjudication of claims which resulted in payment of hospital accounts. (Slide 15)

Question 16: How far was the process of incentivising employers to use the web since it has been proved that it led to high rate of collection? An example was made that R6 million was collected in two weeks when the web was introduced.

Reply: Commissioner Mkhonto replied that the process of incentivising employers started in March 2013 with a marketing campaign to promote the Return of Earnings (ROE) website (online facility to file annual returns).  Employers who file online using the ROE Website were offered incentives on the current assessments in the form of discounts on a sliding scale as follows:

10% discount on assessments settled within 30 days of invoice date.

5% discount on assessments settled within 60 days of invoice date.

2% discount on assessments settled within 90 days of invoice date.

The date of payment determined the percentage of the discounts to be applied to employers’ accounts. The 90 days expired on 31 July 2013 and the discounts would be applied to employers’ accounts after the expiry dates. (See slides 16-17)

Question 17: When would infrastructure problems be addressed?

Reply: Commissioner Mkhonto replied that a number of improvements were undertaken to ensure that infrastructural problems at CF were addressed. The following improvements were made:

The lifts and escalators were replaced in the building;

The additional air conditioning units were installed in the building;

The electrical contractor was appointed to do repairs and maintenance of the electrical faults in the entire building;

A plumbing contractor was appointed to attend to all the plumbing requirements of the Compensation House;

The structural engineer was appointed to evaluate the building structure and they found it was sound; and

The office space requirements were attended to as and when needed by other business units.

Conclusion
The Chairperson cautioned that if the Commissioner failed act on underperformance, the Fund would forever be embroiled in challenges. There would be no one who would perform.

The meeting was adjourned.
 

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