The Director-General of the Department of Labour said that after his appointment in December 2014, he had noted a number of challenges facing the Compensation Fund and these were being addressed. The Fund had received a number of disclaimers from the Auditor General over the years because of issues related to weak internal controls arising from IT issues such as the integration of processing and financial systems. There were human capital management related issues especially in the core business and in finance. The Fund had tended to focus on its support functions rather than the core business. Hence the focus of the strategic plan had changed from support to that of its core business. As the Fund had not been responsive to client enquiries, it had resulted ultimately in court orders and therefore customer relationship management would be a focus. There was a cumbersome assessment structure which was out-dated, complicated and subject to abuse and this was being addressed. Fraud cases involving staff were tackled and a number of staff were dismissed and third party service providers were taken to court. A skills audit was initiated so that the right skills could be appointed to the right job. A smartphone project was initiated to reduce the use of paper. Staff were being trained for change management. The Minister had appointed a task team to assist the Fund in addressing audit result findings. An anti corruption fraud strategy initiative was developed where all staff declared their financial interests. 100 interns were appointed to address the claims backlog. The Fund was looking at rearranging the organisational structure to better service its mandate. The Fund had two tasks: the collection of contributions from employers and to pay the claims of injured people and the pensions of those that qualified. These informed the strategic and annual performance plans. The Fund would also be putting an action plan in place to address the 93 audit findings of the Auditor-General. The budget was R4.8b of which R4.4b went on goods and services which included compensation claim pay-outs and benefits.
Members said the new Director General felt like a breath of fresh air in the Fund. How long would it take to catch up a decade of claims? Members asked the time frame for the service provider to conduct a skills audit. What percentage of the backlog did the 65 000 cleared backlog claims represent? Members said staff declarations of interest was not enough as a fraud prevention mechanism. Were funds recovered from staff involved in fraud? How long would it take to catch up a decade of claims? How would the Fund get the message across to the public that they were going back to core business? Members said there were structural problems that needed to be addressed. Was the DG the accounting officer of the Fund? What decisions did the DG need to get the Minister’s approval before it could be implemented? Was the new DG aware of the Board request to change its structure from an advisory to an executive board? Did the DG have discussions with the Minister on this issue? How sure was the Department that software being implemented was capable and scalable? Why were documents getting lost in the Fund’s offices and warehouses?
In their engagement with NEDLAC, Members queried what they termed reckless spending at NEDLAC. They asked NEDLAC follow up questions about stolen laptops, IPads and other computer equipment; what was meant by capacity building and the R2 million in travelling costs; NEDLAC was asked why it allowed people to fly business class or charter planes to Kruger National Park, Durban, Sun City and Port Elizabeth for training events when its training policy limited travelling costs to Gauteng; Members requested further detail on accounting fee payments and noted that cell phone, telephone and refreshment budgets were too high; questioned the amount spent on consultants which should be reduced; who the additional temporary workers were and what particular skill set was required; to what extent capacity building funds were spent in compliance with NEDLAC’s financial policies; and if the internal auditors could be regarded as independent. The recently appointed Executive Director of NEDLAC could not answer a question about a second case of theft of computer equipment and was tasked to investigate and report back to the Committee.
NEDLAC Responses To Committee Questions
On Nedlac’s response to question 12, Mr M Bagraim (DA), asked if the budget item was just for the server. Was the stolen laptop and Ipad reported to the police and to the insurance? Was it part of the budget? Did the insurance pay out? Regarding the second theft of a laptop and Ipad from a shopping centre car park, he asked if this was reported to the police and to the insurance. Was there an insurance pay-out? Was the cost of replacing this laptop part of the budget? On question 13, he asked what was meant by capacity building, did it mean training? Was the travel for capacity building done in economy or business class?
Mr I Ollis (DA) asked if government or NEDLAC had to pay for the replacement cost of the computers stolen from Mr Mkhize’s office. Two sets of laptops were stolen, that of ex director Mr Mkhize and the former director, Mr Smith. Did the insurance pay out the computer claim? Why were people flown business class to Port Elizabeth, Kruger National Park and Durban when NEDLAC training policy was that travel was not allowed for training beyond Rosebank?
Ms T Tongwane (ANC) asked how far the investigations were. If no training was taking place outside Gauteng, why were travel and accommodation costs so high at over R2m?
Ms P Mantashe (ANC) said she had a problem with the answers given. What were the accounting fees for? Did they outsource, was there no internal accountant? She had a problem with how they squandered money. The cell phone allowance and telephone budget was high. Who were they entertaining when the refreshment budget was over R800 000? This was reckless spending.
Ms F Loliwe (ANC) asked if the R130 000 was for 11 years or for one year. On question 6 she said using R627 000 to pay consultants on the development of a staff retention plan was a lot. Was there no one in the organisation who could do that?
Mr D America (DA) asked whether the additional temporary staff were related to the minimum wage indaba that was held. Who were employed? How many were employed and what were their particular skill sets? question 13,he asked to what extent capacity building processes and funds were spent in compliance with NEDLAC’s financial policies. Regarding question 14, he asked whether internal auditors were independent. Were they paid by NEDLAC or were they outside auditors?
Mr Mahendra Naidoo, Acting Executive Director, NEDLAC, said the budget item was exclusively for the server. The laptop and Ipad that was stolen was of the former executive director, Mr Smith. The insurance paid out in the 2014/15 financial year. This would be used to get new laptops. He did not know how long it took to pay out.
Regarding the question on constituency travel, he said the NEDLAC budget made an allocation to business labour and community of R1.2m to convene constituency workshops etc. to prepare for NEDLAC engagements.
On Mr Ollis’ question on Mr Mkize’s stolen laptop, he said he would have to check and come back to the Committee because he had not been aware of that.
Regarding training outside of Gauteng, he said constituencies could use the capacity building fund to convene workshops or training anywhere in the country, provided NEDLAC policies were adhered to.
On the high travel and accommodation costs, he said NEDLAC’s work was primarily logistical, the convening of meetings. NEDLAC covered the cost of constituents travelling to meetings and the catering costs. Travellers had to use economy class tickets. All meetings took place at NEDLAC. NEDLAC had expanded its service provider database to get more competitive quotes and were looking at ways to minimise costs.
Regarding the police case on the stolen laptop and Ipad, no one to date was apprehended.
In reply to Ms Mantashe’s question on accounting support work, he said the challenge was to ensure supply chain management was strengthened therefore they had to bring in temporary support as they did not need someone in a full time capacity, only when the need arose.
On the high phone and cell phone costs, he said the cell phone policy was taken to the executive council the previous month and was approved. The policy was reviewed annually but he noted the Committee’s view that it was too high. He said they had tried to reduce telephone costs.
In reply to Ms Loliwe’s question, the R130 000 was for the maintenance of NEDLAC House for one year.
He said the R627 000 was not all spent on a staff retention policy. Only R200 000 was spent for staff retention. It could not be done in house as NEDLAC only had one HR person.
In reply to Mr America’s question, he said it was for the labour indaba. There was one facilitator for two task teams and one temporary staff member to assist for six months as a scribe. The task team met fortnightly.
NEDLAC ensured that supply chain management policies were complied with.
Mr Naidoo said an independent outside firm was appointed as the independent internal auditors and a budget was allocated for this.
Mr Ollis acknowledged that the insurance had paid out for Mr Smith’s laptop. He said that the equipment stolen from Mr Mkhise’s office might not have been laptops but was some form of computer equipment. He was sure other members of the delegation could answer the question seeing as the director had only been recently appointed.
Mr Ollis understood that it was policy that economy class tickets were purchased but he also knew that business class tickets were purchased.
Regarding capacity building training outside of Gauteng, he asked if groups could access NEDLAC funds to go on jaunts to the Kruger Park on chartered flights and was this acceptable.
The Chairperson said issues related to the forensic audit report should be held in abeyance.
Mr Ollis said he was trying to clarify that it might not have been a laptop but a desktop computer that was stolen and could officials answer this.
There followed some debate on whether other members of the delegation could answer, given that they had not informed the director, who was also the accounting officer. The Chairperson ruled that the director be allowed to investigate and report back.
Mr P Moteka (EFF) said the statement said no training took place outside of Gauteng but there had been travel to Durban, Port Elizabeth and Kruger Park.
Mr Naidoo said the CFO had started in December and that he, the director would come back with more detail regarding Mr Ollis’ question.
Regarding question 13, he said the first part of the response referred to constituency travel and the second part to staff travel for training. Constituency travel was informed by the constituency capacity building budget and policy. There was now a specific policy in place to ensure compliance with NEDLAC capacity building budget and expense policy.
NEDLAC staff could travel to meetings around the country but staff training had to take place in Gauteng.
Mr Moteka wanted to know what the trips to Kruger Park and Durban were for.
Mr Ollis added that he wanted to know whether the conveners travelled business class.
Mr Naidoo said the constituency capacity building budget did not cover the costs of constituency members travelling to NEDLAC meetings that came from NEDLAC’s budget and therefore they would not be able to travel business class unless there were no economy class tickets available. In this case a deviation report would be done.
Regarding the Kruger Park travel, he said the trip took place before policies were put in place. All travel was now routed through NEDLAC’s supply chain management processes.
Mr Bagraim wanted to know what took place at Kruger Park.
Mr Naidoo said that if training was requested, all details of the training had to be submitted first. However the current gap was that no report was required after the meeting. The executive council had agreed that a detailed operational procedures manual was needed to supplement the policies. The CFO and risk committee would draw this up. This draft procedure would be submitted in May.
Mr Bagraim asked if they went to Sun City in a private plane and what did they do there?
Ms Loliwe wanted all the details for all the trips and this was seconded by Mr Bagraim.
Mr Naidoo said these trips were raised in the forensic report. The capacity building fund was used to fund these trips. The trips were supposed to be to prepare for NEDLAC engagements but there were gaps in how the budget was used. NEDLAC had recognised this was happening and so developed the policy to counteract it.
Ms Mantashe said she wanted to be assured that the policy on telephone and cell phone spend would be amended. She said the amounts for coordinators appeared small but at the top of the hierarchy the amounts were big.
Mr Naidoo said the next audit and risk committee meeting would have a relook at the figures and policy.
Ms Loliwe wanted confirmation that the use of consultants would be minimised.
Mr Naidoo said the consultant budget allocation had been minimised but would relook at it to minimise further risk.
Mr Moteka indicated his concern that the delegation was not fully prepared. They should only come when they were fully prepared.
Compensation Fund briefing
Mr Thobile Lamati, Director-General Department of Labour, apologised for the absence of the Commissioner who was overseas. He said he had been appointed DG in December 2014 and had noted a number of challenges facing the Fund and they were being addressed. The Fund had received a number of disclaimers from the Auditor General over the years because of issues related to weak internal controls arising from IT such as the integration of processing and financial systems. There were human capital management related issues especially in the core business and in finance. The Fund had tended to focus on the support functions rather than its core business. Hence the focus of the strategic plan had changed from support to that of its core business. Since the Fund had not been responsive to client enquiries, it had resulted ultimately in court orders and so therefore customer relationship management would be a focus. There was a cumbersome assessment structure which was out-dated, complicated and subject to abuse. This was being addressed. Fraud cases involving staff were tackled and a number of staff were dismissed and third party service providers were taken to court. A skills audit was initiated so that the right skills could be appointed to the right job. A smartphone project was initiated to reduce the use of paper. Staff were being trained for change management. The Minister had appointed a task team to assist the Fund in addressing audit result issues. An anti corruption fraud strategy initiative was developed where all staff declare their financial interests. 100 interns were appointed to address the claims backlog. The Fund was looking at rearranging the organisational structure to better service its mandate.
Progress to date
A service provider was appointed to conduct a skills audit at the end of March and the supply chain management were finalising service level agreements. Since the introduction of the interns over 65 000 invoices were processed by them and in comparison to the staff output, the interns had done far more. The backlog should be cleared by the end of June this year. A cabinet memo on an employer classification and rating model was prepared for the Cabinet. A draft of the organisation restructuring would be available by the end of April 2015. This would also mark the end of the intervention by the task team. The Fund had two tasks: the collection of contributions from employers and to pay the claims of injured people and the pensions of those that qualified. These issues informed the strategic and annual performance plans.
Mr Tshepo Mokomatsidi, Chief Director Corporate Services, said key outcomes were to improve the collection of revenue and more efficient payments to claimants. The Fund was doing the latter through its investment in the Public Investment Commission and the effective administration of the funds.
There were four programmes: Corporate Management and Executive Support which sought to strengthen corporate governance, Financial Management which sought to maintain the Fund’s financial viability, Operations Management which sought to provide an official social security safety net and Corporate Services which sought to provide efficient, professional and client based human resource management.
He said the Fund would be implementing a three year risk based annual audit plan and reporting on a quarterly basis to the internal audit committee. It would produce bimonthly reports.
The Fund wanted to increase efficient revenue collection from employers by 8% and set a target of increasing the value of investments by 18.5% by 2019.
The Fund would be putting plans in place to address the 93 audit findings of the Auditor General.
The Fund wanted to increase the registration of claims as compared to the previous year and to increase the number of adjudicated claims. It wanted to increase the number of approved medical invoices for payment and the number of approved compensation benefits and increase the number of registered compensation claims that needs adjudication completed within 60 days. The Fund wanted to review compensation benefits annually, for example responding to a cost of living index. It also wanted to reduce the staff vacancy rate to 9.5%.
The budget was R4.8b of which R4.4b went on goods and services which included compensation claim pay-outs and benefits.
Ms S Van Schalkwyk (ANC) said the Committee had not been happy with the Fund’s performance, its quarterly and audit reports. The new DG was acknowledging the flaws and indicating what the remedial plans were. She proposed that the Committee note the strategic plan and APP and start on a clean slate with the Fund.
Ms Loliwe said the DG had said a service provider for a skills audit was provided. What was the time frame for the service provider to do the job? Regarding progress to date, what percentage of the backlog did the figure, 65 000, represent? Regarding interventions, she said staff declarations of interest would not be enough to avoid fraud. They needed to provide more mechanisms to close loopholes.
Ms Mantashe asked if there had been a way to recover the funds from staff involved in fraud. Could the breakdown of the allocation of funds be clarified?
Mr Bagraim said the new DG felt like a breath of fresh air in the Fund. How long would it take to catch up a decade of claims? The medical profession complained that it was not paid and therefore did not see patients thus putting a strain on government hospitals. A system of agents had arisen to assist in getting claims done. How would the Fund get the message across to the public that the Fund were going back to its core business? If this was the case there would be less court cases and would reduce the need to have legal capacity. He wanted to thank the Fund for responding to cases he had put forward.
Mr Ollis said there were structural problems that needed to be addressed. Was the DG the accounting officer of the Fund because he believed it was the Minister? For what decisions did the DG need to get the Minister’s approval before it could be implemented? He said the Board had indicated that they were not an executive board but an advisory board and had requested changes in the structure. Was the new DG aware of the request and did he have discussions with the Minister on these issues, as it meant changing the Act. Regarding IT requirements, he said since 2009 the IT systems had been having problems and were not resolved. How sure was the Department that software being implemented was capable and scalable? Documents were getting lost in the Fund’s offices and warehouses. Why was this happening because it meant the claimant has to get new copies and what being done to prevent documents getting lost?
Mr Moteka said he appreciated the intervention that was put in place. He wanted more information on anti corruption and fraud strategies. Could the money lost to those involved in fraud and corruption be recovered from them? Regarding the improvement in the processing of invoices, what number was it before? He asked what the compensation item indicated as being 7% of the budget was for.
Mr Lamati said the time frame for the skills audit was six months.
Ms Matandela, the COO, said that a backlog of 231000 claims were outstanding and the Fund hoped to eradicate this backlog by June. Staff were saying that the prior training they had received was not adequate and so there was a new training plan which would prepare staff for when the interns had to leave.
Mr Lamati agreed that the declaration of interest was not enough. He said the Fund now had a very strong risk management and internal audit committees and these were helping to detect fraud .
The Fund established a structure to deal with all financial misconduct which was chaired by an independent person, the chairperson of the audit committee. The Fund was attempting to recover the fraud money. Some staff had been dismissed while some were suspended and some service providers had been prosecuted.
Mr Pat Moloto, Acting CFO of the Compensation Fund, said the 7% compensation referred to compensation for the staff. The Fund was putting aside R3b for medical service providers and R700m for pensioners. In the past, pensioner pay outs were paid as a lump sum but now it was invested and pensioners were paid monthly. R250m was paid out for permanent and temporary disabilities and R491m for goods and services.
Mr Lamati said the Fund wanted to see medical practitioners have access to its system and be able to log on and view the progress of claims. The Fund was working to scale it up to work on a bigger scale. Third party agents had a right to exist but should not build their businesses around the inefficiencies of the Fund.
Soon the Fund would be embarking on a communication and advocacy campaign and they were already talking to service providers and medical practitioners. He said the Fund was not married to a system and would change it if it did not work. The Fund had not paid for the system, only for the maintenance of it.
He agreed that legal capacity was needed but he was very cautious on the capacity the Fund required.
He said the Director General was the accounting officer.
Regarding ministerial approval, he said the Minister delegated his power to the DG therefore the DG needed to get approval from the Minister.
The Fund’ board was an advisory board. He did not think the Fund needed a board that had executive powers. The UIF also had an advisory board and was doing well. He said the Board had proposed to the Minister that the Board wanted to become an executive board and that the head of the Fund had to be a CEO who would be accountable only to the Minister and the Board. The Minister had rejected that proposal.
The IT system was an issue and they were addressing the problem. He said lost documents was a concern and would continue to be an issue if one did not have a paperless environment.
On 20 May Mr Ollis would be introducing his private member’s bill to the Committee. The Department and parliamentary legal officers would be present.
The program was adopted with amendments to prioritise Expanded Public Committees and account for date and venue clashes.
The meeting was adjourned.
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