Unemployment Insurance Fund ,Compensation Fund & CCMA on their Annual Reports for 2012/13

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Employment and Labour

09 October 2013
Chairperson: Mr M Nchabeleng (ANC)
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Meeting Summary

The Commission for Conciliation, Mediation and Arbitration (CCMA) presented its Annual Report for 2012/13, which it described as a very challenging year in relation to the current labour market within the country. The CCMA was also in the process of developing a best practice model for the South African work place, which it hoped would help improve partnerships between business and labour and government. It would like to see people looking at alternative dispute resolution at an early age which would give better understanding of the fact that conflicts could be resolved without resorting to violence.  That would immediately allow people the benefit of trying to understand how conflicts could be resolved without relying on violence. It was noted that socio-economic concerns were becoming increasingly linked to labour disputes. In relation to its internal matters, the CCMA had a reasonably low staff turnover. It had been trying to work with the Department of Labour (DOL) to ensure that there was integration of systems, so that the Labour Centres would be in a better position to assist workers visiting the centres with information on the CCMA processes. Although the Auditor-General South Africa (AGSA) had commented that there was a need to address a supply chain management issue, that had been a once-off, was accepted as due to a genuine mis-reading of the regulations around when three quotations were needed, and the AGSA had still awarded an unqualified audit report. Members asked how the CCMA was responding to areas of supply and demand, and hoped that the mobile offices were helping as many of the vulnerable workers were in outlying areas. They asked for more explanation on the links between socio-economic issues and labour unrest. They were concerned that many of the industrial actions in the year under review were outside the scope of the legislative framework, and were illegal strikes, and asked why there was a tendency for people to operate outside the law, and what could be done to reverse that trend.

The Unemployment Insurance Fund (UIF) then described its structure, and presented its performance information and lastly its job creation initiatives. It was as a state entity that was compelled to register all people who worked 24 or more hours a month. 91 of its labour centres had processing functions which meant that a claim could be processed in one office. It had registered, in this year, 57 000 new employers and 205 000 new employees. It was running the Audit Communication Language (ACL) tool to detect and prevent fraud within itself as it managed a large amount of money. It had an unqualified audit. The UIF and Industrial Development Corporation (IDC) had a funding arrangement to try to save jobs and create new employment, in terms of which a certain portion of UIF funding was deflected to the IDC. There had been 199 transactions in relation to UIF social investment. Members asked how many cases of fraud there had been in this year, within UIF and committed by claimants, and what percentage was finalised in the 2012/13 year, and what outside that year. They asked why the numbers of claims were increasing and whether this was due to increased awareness, or more job losses and noted their concern that many of those attempting to claim were not registered for UIF. One Member was unhappy with the amount that was paid out in relation to the amount of levies received, and believed that it would be in the interests of the country for UIF to pay more, to increase spending and thereby boost the economy. He was also unhappy with the amounts paid out on maternity benefits. Finally, he expressed the Committee’s concern over the type of work that was classified as a “job created”, which seemed to mask the true situation.

The Compensation Fund (CF) presented its Annual Report, but there was not sufficient time to interrogate the matters, and the Chairperson noted that the questions would be asked by Members on another day, when Members also had the responses of the Department of Labour to issues raised on the audit opinion. One of the Compensation Fund’s biggest challenges was around ICT. It had managed to appoint 400 former contractors as part of the permanent team. Its biggest problem was perhaps the disclaimer audit, but this was explained as being largely the result of a completely inadequate system of internal controls. However, there were plans to address that, which would be more fully explained in the next meeting. The CF had done quite a bit of work identifying the legislation that needed to be amended, to address issues of governance, simplification of the dispute resolution process, enforcement and difficulties in accessing medical treatment, as also around what would be regarded as a work-related death, for the purposes of beneficiaries of employees who had been pensioned as a result of injuries. Finally, it would simplify the collections model. It had upgraded the call centre. The current assets had increased by 25%, total liabilities decreased by 6% and reserves showed a 65% increase.
 

Meeting report

Chairperson’s opening remarks
The Chairperson stated, at the outset, that the Committee had met with the Auditor-General South Africa (AGSA) on the audit outcomes on the Department of Labour (DOL) and its entities, and asked that all presenters keep this in mind when presenting. He noted the apologies of the Director General of the Department of Labour, who was unable to attend the meeting.

Commission for Conciliation, Mediation and Arbitration (CCMA) : 2012/13 Annual Report
Mr Elias Monage, Acting Chairperson, CCMA, said that the CCMA would present a synopsis of the Annual Report, outlining its strategy and growth, and thirdly dealing with the AGSA report findings. He briefly outlined (see attached slide presentation for full details) the composition and the functions of the CCMA’s governing body. He noted that the Executive Director of the CCMA would take the Committee through the “Siyaphambili Strategy”, which formed the basis for a number of areas that had been raised by AGSA, including the operations, the scorecard and the finances of the CCMA.

Ms Nerine Kahn, Executive Director, CCMA, noted that the Annual Report for 2012/13 reflected upon a “very challenging year” within the CCMA and particularly in relation to the current labour market.

She confirmed that the CCMA’s discretionary functions were the dispute management function and the dispute resolution function. The CCMA had decided to re-focus in order to ensure that its discretionary function was operating at optimum levels s that if there was a conflict and conflict resolution was needed, that the CCMA was available and would, upfront, be able to address those situations.

Ms Kahn said the CCMA was also in the process of developing a best practice model for the South African work place. The CCMA believed that would help improve partnerships between business and labour and government. 

In relation to capacity building, Ms Kahn said that the CCMA had also looked at what other audience it could target. CCMA firmly believed that ideally people should be introduced to and start understanding alternative dispute resolution at an early age, to appreciate that it was possible to resolve  conflicts without relying on violence. The CCMA was going to enhance its strategy to look at rolling out its dispute resolution qualification at tertiary institutions.

Key Performance Areas
Ms Kahn reminded the Committee that the “section 150” matters noted were those where the CCMA intervened when it thought the matter was one that involved the public interest or there were particular challenges with society, but the CCMA could not force the parties to allow it to intervene.

She said that the CCMA had assessed its own Human Resources standards and in its view, it had a reasonably comfortable work force, as it did not experience a high staff turnover.

CCMA was supporting its Social Partners in their efforts to strengthen collective bargaining and related systems of social dialogue. It had assisted by addressing pre-bargaining conferences encouraging labour in relation to the work that it did, and also encouraged employers to prepare for the collective bargaining season.

On the target of increasing accessibility, Ms Kahn said that the CCMA was working with the Department of Labour (DOL or the Department) in relation to the DOL’s labour centres and making sure that this Department had access o the CCMA’s case management system, so that at the least the labour centres would be able to assist those who visited with queries. She then listed the places where the CCMA was planning to open formal offices as separate spaces from the DOL (see attached presentation for full details)

In relation to the case load, Ms Kahn said that CCMA was still struggling with a continuous rise in its case load. There were two ways that the caseload graph could be viewed. In one sense, it could be suggested that South Africa had a very adversarial labour market, which perhaps might be true. However, the other way of looking at it was that the CCMA concentrated mostly on dealing with issues of mutual interest, particularly strikes and wage negotiation. 85% of the CCMA’s case load was to do with individual unfair dismissals. Firstly, she noted that the CCMA had seen a significant rise in utilisation of CCMA processes, by business professionals, ranging from banking through insurance and IT, as noted in the CCMAs Annual report. That trend had been quite interesting, because the CCMA had been actually set up to service vulnerable workers, not the business professionals. That could be seen as either appropriate and as part of growing the work of the CCMA, or could be seen as incorrect. It was, however, possibly an indication that more and more people in society trusted the CCMA.

Ms Kahn said that the CCMA was also seeing a bigger increase in the “section 189A referrals”, which related to retrenchments and the CCMA’s efforts were largely geared to trying to save jobs.

In relation to outreach, the CCMA was also trying, each year, to do more work on preventing work place disputes instead of responding to disputes or a fragmented labour market.

Financial Performance
Ms Ntombi Boikhutso, Chief Financial Officer, CCMA, said that she was fully appreciative of the fact that areas of concern had been raised by AGSA, on issues such as supply chain management, but there were not repeat findings and the CCMA had not received a qualified report, but in fact an unqualified report with no matters of emphasis.

Ms Kahn briefly described the lessons that the CCMA had learned from the 2012/13 financial year. CCMA was seeing, more and more, that organisations had downgraded the concept of industrial relations, and the CCMA was very proactive in advocating that everybody must put industrial relations as a key priority, and make this one of the strategic risks of the organisation. Until this was done, industrial relations would continue to be a major force in labour market disputes. She said that it could be argued that socio-economic issues that were coming up in labour disputes were not relevant, but it would of great concern if they were not to be acknowledged, as the CCMA was seeing, repeatedly, that these issues were being taken up by labour.

Discussion
Mr F Maserumule (ANC), sitting as Acting Chairperson, asked if CCMA had been tracking and identifying the working conditions in the mining and agricultural sectors. He also wanted to know how the CCMA was responding in areas of supply and demand, and particularly wanted to know how it had been doing with its mobile offices, given that most of the vulnerable workers in the country were in rural areas.

Mr A van der Westhuizen (DA) said that it had been another year where the CCMA had impressed the Committee with its results, both in relation to achievement of objectives and the unqualified audit. It was refreshing to hear the honesty with which the CCMA was evaluating itself, and how it had identified the areas where it fell short, and it was clear that it was working hard on those deficiencies.

Mr van der Westhuizen was concerned that too many industrial actions in the year under review were outside the scope of the legislative framework that had been established by law, and asked the CCMA to expand on what it might be that made people prefer to operate outside the law, by going on unprotected strikes. He asked if anything could be done to get people rather to choose protected industrial action. He also wanted some clarity on the impact of the socio-economic climate on labour relations.

Mr S Motau (DA) wanted more detail on the AGSA comment that there had been supply chain management irregular expenditure, where goods had been procured without inviting competitive bidding, and the awarding of contracts based on preference points that had not been calculated in accordance with the requirements of the Preferential Procurement Policy Framework Act and its regulations. He asked how, and why, this had happened.  

Mr Monage replied that it was important to consider the impact of social factors and delivery of services, and particularly at mining living conditions and standards. In the past, mines had accommodate miners in hostels, but later those companies had transferred the responsibility and liability of accommodation to miners themselves, which effectively meant that miners were now having to pay for rent, electricity, and support their extended families. The communities surrounding the mines then staged social action around service delivery, which would then spill over to the work place.

Mr Monage also answered to the concerns by Committee members of the unlawful nature of the unprotected strikes. He noted that the unions, in whatever form, generally concluded collective bargaining with employers by signing agreements. By virtue of the fact that those agreements were binding between the two parties, new formations of workers could arise which would be moving away from the processes of normal collective bargaining. Whatever actions those new formations would take, they would also demand that they be placed at the table of collective bargaining, because they claimed that the workers were in fact not the members of the older unions, who were therefore not representative. That was how unprotected industrial action started, as a result of the living conditions and standards of the workers. From there, other unions would then mushroom.

Mr Monage said that the outreach programme was looking at different forms of rendering the service, either in the form of partnering with DOL, or CCMA might have satellite offices and communicate that on a certain day, it would be in a certain area to give services.

Ms Kahn said that the work that CCMA was doing was to try and do more dispute prevention and dispute management instead of resolution. The CCMA was broadening and focusing its work more, and doing innovative work in advance of cases. The CCMA had indeed reported that there had been unprotected strikes accompanied by violence. However, when the CCMA was presenting the slide on “Promoting Labour Market Peace and Stability” which spoke to the negotiations in which it was involved, it was also important that there had been very few unprotected strikes in this year, and there was a more orderly process in respect of collective bargaining. She thought that was due not only as a result of the efforts of the CCMA, but that the country had been taking some stock in the context of making sure that people were going back to following the legal prescripts.

Ms Boikhutso spoke to the audit findings. She reiterated that the supply chain management incident finding was new, and this arose because of a misinterpretation of the Preferential Procurement Policy Framework Act (PPPFA). The CCMA had explained to AGSA that eleven contracts amounting to R8.063m were awarded during the year, as a result of SCM policy on thresholds not aligned to National Treasury Practice Note 8 of 2007/08. The reason that AGSA did not qualify the CCMA on that issue was that AGSA understood that that was a genuine mistake that any reasonable person could have made. AGSA had been more interested in hearing what controls had since been put in place by the CCMA to make sure that in the future, when legislation changed, the errors would not recur. The CCMA had indicated that it would consult National Treasury (NT) to get clarity, and ensure that all the changes to NT prescripts were adhered to.

Mr van der Westhuizen wanted clarity on the figures on the current wage negotiation graph. He also wanted to know whether the Consumer Price Index note next to that graph related to the financial years 2011/12.

Ms Kahn replied that it was the CPI from August of the year under review.

Mr Maserumule wanted the CCMA’s opinion about the five principles that determined the survival of an ordinary worker. He asked whether, in the CCMA’s experience in negotiations, it thought that it was appropriate to negotiate a value for transport, for housing, for health, for education and clothing, electricity and water. He wondered why workers were having to negotiate on those issues; he would have thought they would automatically have been taken into account.

Mr Monage replied that the CCMA did not use the same basis and standards of measurement when it was formulating a response, as that used by the collective bargaining process. There was a global problem, where the process of demanding was purely driven by power. That was why CCMA needed a different platform to talk about the basis in which collective bargaining took place. He said that the CCMA was promoting a pre-bargaining instrument. When dealing with pre-bargaining, there would be an attempt to minimise the focus on formulating demands.

Mr Maserumule also asked if the delegation presenting had any idea whether the CCMA was considering a paradigm shift.

Mr Ronald Bernickow, National Senior Commissioner: Operations, CCMA, replied that he was not attempting to speak on behalf of the CCMA. However, he reminded Members that in1994, social partners had made a very conscious decision not to have a minimum wage. That “platform” that Mr Monage kept referring to was in fact referring to a debate that needed to take place between the social partners, around whether or not, at the current stage of evolution of South Africa’s democracy,  it was now appropriate to have a minimum wage that would cover all those five principles determining the survival of an ordinary worker. Mr Bernickow thought there was going to be a big debate in the major federations as to where that minimum wage should be set, since those federations were already very vocal, and he was sure that business too had its own view.

Unemployment Insurance Fund (UIF) 2012/13 Annual Report
Mr Boas Seruwe, Commissioner, Unemployment Independent Fund, explained that the presentation would be based on an overview of the Unemployment Insurance Fund (UIF), its performance information, and lastly its job creation initiatives.

He explained that the UIF was compelled to register all people who worked 24 hours a month. 91 of its labour centres had processing functions, which meant that a claim could be processed in one office up to the lowest level. The UIF had registered 57 000 new employers and 205 000 new employees.

Mr Seruwe said that the UIF had a system that was called an Audit Communication Language (ACL) which was a tool that the UIF used to detect and prevent fraud within itself, as it managed a large amount of money

Mr Seruwe explained that on the funding, the UIF had a relationship with the Industrial Development Corporation (IDC), and their combined bonds totalled R8 billion. He said that the UIF made available certain of its funding to the IDC, to save and create new employment. The figure was 5% but the difference of 1% was then being utilised by the IDC to defray the cost of administering access to that  funding and to recover whatever impairments occurred between the IDC and the recipients of that funding. He added that the total number of deals across the sectors were 199 transactions on the UIF social investment.

The Chairperson returned and resumed the chair at this point.

Discussion
The Chairperson suggested that perhaps the Committee should go on an oversight visit to one of the UIF projects, and hoped that the companies being helped out by the UIF would be not flouting labour laws. He praised the UIF Jobs Initiative . He noted that the Committee had, after hearing of the UIF audit outcomes, instructed the DOL to find a way of interacting with commissioners of entities, so that UIF could also share some of its past experiences and successes.

Mr Motau said that the numbers of claimants of unemployment funds was increasing, and asked if this was due to the awareness drives of the UIF, or to the fact that more people were losing their jobs.

Mr Motau asked how many cases of fraud there had been within the UIF and how many had been resolved by October.

The Chairperson said he too had been concerned about the figures. These of course also related to some people who had not been registered for UIF, but tried to claim, and the figures could be understating the magnitude of that problem.

Mr van der Westhuizen was not unhappy with the financial statements for the UIF. People were leaving their jobs and ensuring hardships. There was levy income of R13.7 billion but UIF had paid out only R6 billion by way of benefits.  He urged the UIF to consider improving drastically the benefits pay out of the Fund, perhaps by paying double what was currently being paid, because then people would take home more money, and spend more, which would then stimulate the economy and create more jobs. He also commented that the UIF was essentially an insurance fund and other initiatives like funding for training were not a core mandate of the UIF. He was happy to hear from the Minister that the maternity benefits would be improved, but he was not so happy to see that these in fact were a very small portion of the benefits that people enjoyed from the UIF. Mr van der Westhuizen pleaded with the UIF delegation to speak to its board and the Minister to also reconsider improving those maternity benefits by a real factor.

Mr van der Westhuizen said that the last time he had checked the figures, the National Skills Fund was also sitting with approximately R14 billion, and UIF was now taking benefits that were supposed to go towards alleviating hardships from unemployment, and paying for initiatives that were supposed to be paid for by the Department of Higher Education (DHET) was supposed to be paying for. He  specifically noted that the Mining Qualification Sector Education and Training Authority (SETA) was one of the richest in the country.

Mr van der Westhuizen added that the Committee had also learned, to its dismay, that a char’s job for a few hours over a weekend, arranged through a labour broker, had been described as “a job created”.

The Chairperson asked about the UIF's vision around sustainable job creation.

Mr Seruwe replied that the reason for the increase in the benefits payout was due to both factors described: more people were losing their jobs, and there was a UIF awareness drives. The 93% case resolution figure referred to those cases resolved in the 2012/13 financial year. The other 8% had subsequently been resolved, but outside that period.

Mr Seruwe said that the UIF’s revenue was increasing, but the Minister of Labour had moved the claim period to twelve months from eight months so that more people could claim. He also added that the maternity benefits would also increase to 56%, but the UIF had also indicated to the Minister that from time to time she should look at the UIF revenue and if it had increased, she may have the power to regulate an increase in the benefits, without the necessity of this coming through Parliament each time.

Mr Seruwe responded to questions around the UIF’s partnership with the SETAs. The UIF had raised its concerns as to whether those SETAs were not “double dipping”, because the UIF had realised that the SETAs could do certain things to meet targets. For instance, the SETA might have a target to create 2 000 artisan jobs with the money that it was budgeted. However, the economy might require that 4 000 jobs be created. The UIF might come in and give funding for the creation of the other 2 000 jobs to meet the national need. However, in this case, the UIF would be very specific as to where the 2 000 benefits should come from, namely from the unemployment database, so that those unemployed people would be trained and be receiving a stipend during the training. It was for this reason that UIF thought that the SETA partnerships did pay a role in poverty alleviation. In terms of the UIF Act, the Director General of the DOL could actually direct people to vocational training before paying benefits. To that extent, training actually did fall within the UIF mandate, as it could not send people for vocational training if it had not created that training.

Mr Seruwe commented on the numbers of jobs created and recorded as “jobs”. This was an important factor. The UIF board, like Members, was concerned as to whether the recorded employment was sustainable. The UIF had been quite clear that seasonal jobs, such as those in the farming industry, would not get recognition as “jobs created”.

Mr Seruwe also invited the Committee to an oversight visit to one of the UIF’s project in the Orange Free State, where it had built an abattoir for R150 million

Mr Seruwe said that the UIF believed that beneficiation was a substantial area for investment; the UIF advocated strongly for the processing of the country’s minerals within the country, as well as further initiatives in agro processing, textiles and tourism.

The Chairperson qualified his statement on oversight visits, suggesting that maybe the Committee should visit both small and large scale projects, and inspect the books of those companies receiving state assistance.

Compensation Fund 2012/13 Annual  Report
The Chairperson noted that there would not be enough time for Members to interrogate the Compensation Fund (CF) and he therefore suggested that the briefing be done, but that it would be interrogated, together with the report from AGSA, at a later date. He therefore asked that the Commissioner take the Committee through the presentation. By the time that the Committee had convened another meeting, it should have received the written responses from the DOL on AGSA’s audit outcome report, and that would certainly assist the Committee in interrogating the CF report.

Mr Shadrack Mkhonto, Commissioner, Compensation Fund, said that he would like to see the Compensation Fund reach the stage that the UIF was at. The biggest challenge to the CF was in the areas of Information and Communications Technology (ICT). There was an increase in the CF revenue. The CF had also done a lot of work on the amendment of the Compensation Fund’s legislation, with many of the focus areas relating to governance. The CF had supported 21 partners. The CF was also dealing with the issue of dispute resolution and was simplifying the current dispute mechanism.

Mr Mkhonto said that the CF was dealing with the issue of enforcement, and it was overhauling the entire inspection force. The CF was also trying to remove some of the hardships around accessing the legislation. The CF believed that employees should not have to pay to access medical attention. When a person was injured, and that was recorded, then the medical treatment should automatically follow.

Mr Mkhonto added that the CF was also dealing with the issue of beneficiaries of a deceased person. Currently, if an employee passed away whilst on pension, but the Commissioner determined that the death was not due to any work-related issues, the benefits would stop. This posed difficulties – for instance, an employee might have broken her back and been confined to a wheelchair, but died from a stroke caused by the stress of her current situation. The current system did not take all the realities into account. The CF was now considering keeping the pension going, in such circumstances, for the  beneficiaries.

The last area to which attention was being paid was collections and simplifying the collection rate model.

Ms Kefilwe Tselane, Acting Chief Director, Compensation Fund, dealt with the performance information, as contained in the Annual Report (see attached slides for full detail).

Mr Tshepo Mokomatsidi, Chief Director, Corporate Services, Compensation Fund, took Members through the slides on the Corporate Services. He noted that the CF had managed to appoint, permanently, 400 contractors as part of its establishment. 

Mr Pitsi Moloto, Director of Financial Reporting, Compensation Fund, spoke to the strategic objective to improve corporate support and services, and enhance the quality and access to the Compensation for Injuries and Occupational Diseases Act services. He said that the call centre infrastructure was upgraded to newer technologies and so the CF could now ascertain how many calls were dropped and the reasons for this.

He moved on to the financial statements. The CF current assets had increased by 23%, non-current assets by 35%, and the total assets increase was 25%. Total liabilities had decreased by 6%, and the CF’s total reserves had increased by 65%.

Mr Johnny Modiba, Chief Financial Officer, Compensation Fund, said that he would speak to the disclaimer audit report that the AGSA had given in relation to the CF.

He tabled an organogram of the internal driver of controls within the CF in this financial year. This indicated, firstly, the areas of weakness which lead to the disclaimer opinion from AGSA. Secondly, it showed how far the CF had gone in trying to address those matters. He had also identified that there was no internal control in terms of the regulations that were coming into effect in April 2014, in the leadership category of oversight and responsibility. Therefore there was a major need to strengthen the oversight responsibility subcategory. Mr Modiba used the analogy of the Department of Home Affairs (DHA) and how far it had come from disclaimer to unqualified audits, and said that this illustrated that with the right structures, the CF could achieve this it too.

Mr Modiba said all the areas highlighted in yellow under interventions were areas where there was already progress in implementing. He also indicated that he would return again to elaborate more fully on the measures that would be taken to address all the challenges that AGSA had identified.

The Chairperson expressed the hope that there seemed to be light at the end of the tunnel. He hoped that the delegation who next appeared before the Committee would be thoroughly dedicated to their work.

Mr Motau noted that he was impressed by the summary that Mr Modiba had drawn relating to the  challenges within the CF that were identified by the AGSA.

The meeting was then adjourned.
 

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