Compensation Fund 2012/13 Annual Report: Interrogation postponed, with the Minister of Labour in attendance

Meeting report

Opening remarks

The Chairperson welcomed the Minister of Labour, Ms Mildred Oliphant, the Director General, Mr Nkosinathi Nhleko, and the Chairperson of the Compensation Fund (CF), Commissioner Shadrack Mkhonto.  The meeting was a continuation of the earlier engagements that had taken place. The Committee had taken a decision to continuously engage departments and entities that had shown inconsistent spending patterns until it was satisfied that progress was being realised.  The Committee had met with both the Department of Labour (DoL) and the CF earlier in the year to deal with matters pertaining to the CF.

The Committee had subsequently visited the CF offices to see whether issues raised in that meeting were being attended to. The visit had been fruitful and Members had been taken through the areas of concern at the CF.  Interactions had taken place with senior officials who had not been part of the delegation that had come to Parliament.  This meeting was a continuation of those efforts. When the Committee last met with the Department it had been agreed that the CF was in a dire situation.

The DG had made commitment to resolve the issues that had been raised. The entity found itself back in Parliament precisely because the commitments had not been honoured, and judging from the annual report it appeared things had worsened. This state of affairs necessitated the engagement. He pleaded with Members not to look at the report at item by item, as normally happened at the Committee. The ideal was rather to have a conversation on the fundamentals and look at a few strategic things that had to happen to resolve challenges at the CF.  

The last time the Committee had met the DoL there had been a commitment to turnaround the CF. The DG had indicated there had been an attempt to solve matters and had alluded to a turnaround strategy. He had even wanted to come to Parliament to brief the Committee on the contents of that turnaround strategy. The situation at the CF would not change in an instant, but at least an indication that something was being done was enough.  At what stage was the process to rehabilitate the CF? The annual report had emphasised the emergency of the situation in which the CF found itself.

Mr Nhleko, DG, said the commitments made to the Committee had been made to various other oversight bodies, like the CF audit committee, the CF executive management, the Portfolio Committee on Labour, and a host of structures that were relevant to the work of the CF. He indicated he had made the commitments following enquiries by the Public Protector (PP) on the inefficiencies at the CF.  In 2008, the former PP, Adv Lawrence Mushwana, had produced a damning report about deficiencies at the CF, and the current PP, Adv Thuli Madonsela, was following up on those issues.  A meeting to address the challenges had been held at the PP offices.

The Department had started analysing the issues, using the Auditor General (AG) reports over the relevant period, the two PP reports, as well as the issues raised by Parliamentary committees like the Standing Committee on Public Accounts (Scopa) and the Portfolio Committee on Labour. The turnaround strategy was intended to look at three things – the people culture at the CF, business processes, and systems.  The business of the Fund was manually processed, and an enabling system was required.

A specific follow-up had been made by the PP on 12 August 2012, relating to various issues and the steps that were being undertaken. The kind of work that was required for the turnaround strategy was highly skilled, and needed expertise to design.  The DoL took a decision that it needed to source such expertise from outside. The Department had then started by setting up a project team in January 2013, comprising members of the management of the CF, Commissioner Mkhonto and a representative from the Unemployment Insurance Fund (UIF).

Any turnaround had to be informed by the actual state of the organisation, and this could be learnt only from people who were involved with the Fund itself.  In the light of the challenges that were there -- particularly in the DG’s office -- there was a need to capacitate the office by consulting broadly in Government.  He had approached Dr Eugene Watson, the Chief Executive Officer (CEO) of the Road Accident Fund (RAF), and had requested the services of the specialist individual responsible for the RAF’s turnaround. The person had been deeply involved in turning the RAF around. There were similarities in the work of the two entities, as well as the challenges.   The RAF had operated at a deficit of R42 billion, hence the decision to turn to them for assistance.

The project team had met on regular basis to test what needed to be done until March 2013, when the Department had to go out on tender. The issue was that the team not only had to deal with the turnaround, but also had to be factually informed on what the situation was. The various reports, qualifications and disclaimers that had been received from the CF made it apparent that serious losses were being incurred. Any organisation in such a situation would have to identify the loopholes responsible for the losses within the system. It would also need to determine how it hoped to fix those loopholes. A forensic investigation had to establish the root cause of the problem. One could not fix a problem until its extent had been ascertained.

The Department was clear that the investigation process needed to be untainted and independent. The process needed to feed into the turnaround strategy.   The DoL had approached the Commissioner of the South African Revenue Service (SARS), the DG of National Treasury (NT), and the DG of Justice and Constitutional Development (DJCD) to indicate that assistance was required, particularly with individuals who had the capacity and expertise to investigate.  SARS had indicated they were unable to provide such individuals because the type of skill required did not exist at SARS. The DJCD had made four people available for the two tenders, and NT had made available an individual from their legal division. Two people had also been roped in from the Department of Transport (DoT) to assist with bid adjudication.

A debate had ensued about the role ex-employees of the CF could play in the pending investigations. The view was that ex-employees need not bother to bid.   He failed to understand how such employees could rescue the Fund, when they had failed dismally while they managed the institution. A legal view was that there should not be exclusions, as constitutional matters might be raised. After much convincing, the DoL had given in, and the exclusions had been done away with. The process of short-listings made provision for exclusions -- one did not need to stipulate it in adverts. A correction to the first tender specifications had to be re-advertised.

Following the evaluation process of bidders, adjudication had to be done. So many people of the bid adjudication committee had resigned, that the committee had to be reconstituted. Over three sittings of the committee, officials could not deal with the matter of appointments.  One of the reasons cited was that there were governance issues, particularly the exclusions.  Even when the committee had been reconstituted, there still were challenges. At some point the committee even failed to sit, citing a meeting of the DG and the CF management, even though times differed.

He had indicated to Commissioner Mkhonto that there were obstacles to the turnaround strategy, and that as the accounting officer he had to act. The Commissioner had indicated that the Minister was not in favour of the turnaround. This was strange, because the Minister was on record of supporting the turnaround strategy.

In the light of the delays, Mr Nhleko had then contemplated suspending Commissioner Mkhonto, and had written him a letter informing him of his intention on 29 July.  Commissioner Mkhonto had had seven days to respond and provide reasons why he should not be suspended, but also to provide an explanation of why things were not happening. The plan was also to sit and discuss the reasons.  Until the deadline, there had been no response from Commissioner Mkhonto. The only letter received was from the Minister, instructing that the turnaround strategy, the forensic investigation process, and the letter contemplating the suspension of the Commissioner, all be withdrawn. The letter indicated that the Minister was now taking over the running of the CF.

Commissioner Mkhonto had been copied on the correspondence, and he had subsequently written a letter saying that as a result of the Minister’s letter, he would not respond to the suspension letter.  Mr Nhleko had disagreed with the Minister’s letter in two respects -- the content and the approach. The issues raised in the letter fell within the ambit of the DG, and legally the Public Finance Management Act (PFMA) and the Compensation for Occupational Injuries and Diseases Act (COIDA) stipulated just as much.

He had asked for a meeting with the Minister, as there appeared to have been interference with administration. It was difficult to maintain sanity and stability in any organisation when people deviated from their responsibilities in the manner CF officials had done.  An option was to have the Commissioner report directly to the Minister, and this appeared to be the preferred option. He had cautioned against this position as it had legal implications -- it was untenable in law to have a direct reporting line to the Minister.

Mr Nhleko had written a letter to Commissioner Mkhonto informing him that as DG, he was no longer responsible for the CF.  Anything that related to the CF should not come to the attention of the DG, and the Commissioner could not sit in on the management meetings of the Department. Reporting lines had in effect been altered. Much of this had been attributed to personality clashes, and nothing could be further from the truth.  This was an institutional problem. When one received an instruction from a supervisor, particularly in writing, it was enforceable. One could not do anything but comply. From that point onwards, he had stopped all processes relating to the turnaround strategy and the forensic investigations, and had distanced himself from the CF.  A lot had happened, but this was a summary of what had happened.

The Chairperson said the answer to his question had been very long, but because of the concerns about the CF, the Committee had had hear it. The remarks had caught Members off guard.  He requested a private caucus with Members.

After a short adjournment, the Chairperson apologised to the Members of the Committee on Labour for not involving them in the caucus. The Committee wanted to take ownership of whatever transpired out of the meeting.

The Chairperson said it had been vital to allow the DG that much time to respond. This was necessary when one dealt with a disclaimer, as there could be many serious issues.  However, the comments by the DG had indeed taken all the Members by surprise, to the extent that they had decided not to continue with the meeting. There seemed to be a sense that things were not going as smoothly at the CF as they ought.

The feeling among Members was that if the meeting continued, there would be a lot of counter-allegations. There would be no point in pursuing a meeting whose contents the DG did not have knowledge of. The meeting could easily become a platform where everybody would want to put their side of the story. Members had decided to meet with the Minister, the DG, the Commissioner, and the senior officials again on 5 November.

In the meantime, all parties should go back and sort out the issues that were there.  When the meeting resumed, officials would have to provide an explanation on where the turnaround strategy and forensic investigations were. The Committee was least interested in the history, and it would not dispute what the DG had said.  If the meeting on 5 November failed to come up with explanations,  the Committee would then listen to the different versions of the story.

The Minister said she understood the decision of the Committee, and that it was important that Members understood why the turnaround strategy had been stopped. There were issues with the internal audit and the AG recommendations which the Department should brief the Chairperson on. The internal audit matters were precisely the reason the turnaround strategy could not be allowed to go ahead.  Both the report of the internal audit and the AG’s recommendations had since been submitted to the Special Investigations Unit (SIU).

Dr D George (DA) said he believed the Committee’s decision earlier on had been the right one. He would not want to read between the lines, and what the Minister had said was extremely important. The discussion should be with the entire Committee, and not just the Chairperson. It would seem the Minister had had a clear reason to do what she did, and that would have an impact on the management of the CF.

The Chairperson requested that the issue should not be further entertained. The two weeks should be enough to allow the DoL to iron out its differences.

The meeting was adjourned