Compensation Fund & Productivity South Africa 2016 budget review, Unemployment Insurance Amendment Bill [B25-15]: Democratic Alliance proposals for changes

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Labour

07 April 2016
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Meeting Summary

The Committee firstly addressed a technical amendment that was introduced by a Member of the DA on the Unemployment Insurance Amendment Bill. The presenting MP noted that the money in this Fund was not so much government money as money paid in directly by individuals and their companies, and that changes in the rates occurred not annually but on a five year basis. It was suggested that the wording on rates be amended, and the following was proposed:
“Section 17- Schedule 2 to the principal Act is hereby amended by the substitution for the second paragraph under the heading, “Income Replacement Rate” of the following paragraph:

“The IRR is at its maximum when income equals zero and it reaches its minimum where income is equal to the benefit transition income level. The maximum IRR is [fixed] currently set at 60%. The minimum IRR is currently set at 38%. However, the Minister may, in consultation with the NEDLAC vary the minimum [IRR] maximum income and flat replacement rate in terms of section 12 (3) (b) but cannot reduce the minimum IRR to any percentage below 38. The Minister may from time to time, by notice in the Gazette and after concurrence of the National Assembly, make regulations varying the IRR and the benefit period.” Members agreed unanimously that this amendment would be acceptable.

Productivity SA (PSA) and the Compensation Fund (CF) then presented their Annual Performance Plans (APPs) to the Committee. A new Chief Executive Officer had been appointed only seven days previously. The Chairperson described the lack of targets being reached as the result of “hiccups”, but later expanded that there had been delays in payment to Productivity SA by the UIF. PSA aimed to assist in the creation of employment and improved economic efficiency and aimed also – although this was not a core function – to assist with knowledge dissemination and training. It ran under six programmes and some of the outputs were described. Contributors of funding included the Department of Labour (DoL) at 28%, Department of Trade and Industry, with 5%, and UIF, who had pledged a payment of R97.8 million that would represent 57% of the PSA's funding, whilst self-generated funding amounted to 11%. The Department of Trade and Industry had instituted a Workplace Challenge,to improve the productivity and competitiveness of South African firms and sectors through constructive labour relations and the implementation of continuous improvement principles at the workplace. Programme 6: Corporate Services set out the amounts for each of the contributions, and noted that compensation of employees was to take up R63 million, goods and services R119 million and depreciation R0.7 million. Actual grants received over the period from 2012 had fallen short of projections, which meant that PSA had had to scale back its interventions, with the result that it did not achieve training and avoid closures to the extent it had hoped. Its challenges were financial, but it had received unqualified audit opinions and its compliance with health and safety, BBBEE status and accreditations, as well as developing partnerships, had been good. Lack of finances also made it difficult for it to attract and retain talent and it had limited investment in appropriate and relevant technology, as well as limited resources to market, its programmes and increase its footprint.

Members were very critical of the presentation, with some describing it as “thin” and others saying that the figures did not make sense. One Member suggested that it should be approaching companies previously supported to request assistance, and said it had to actually assist companies in distress rather than engaging in “business as usual”. Some Members felt that it may not be aware enough of the challenges and suggested that it had to aim to self-sustain. They asked if there was a follow up to training, and for how long, and what was the criteria for targeting managers, and why so few training courses were offered to interns. On both these last points, Members were very critical that the presenters could not in fact give answers, and were also upset that the Board Chairperson said that the Board was unable to comment on the issues because the right personnel were not in the delegation. They felt that the excuse of the current CEO's short tenure did not excuse the Chairperson from giving the answers. Finally, it was agreed that a supplementary report should be submitted with answers to all the Committee's questions. The Department must explain why the UIF did not transfer the promised funding in the previous year.

The Compensation Fund (CF) noted that a new Commissioner was appointed from 1 April, with a new management team. It was hoped that, since he had a financial background,he would be able to address the problems that best the CF since 2012. The CF aimed to strengthen the social security through compensating for occupational injuries and diseases. It also aimed to  strengthen the institutional capacity of the Compensation Fund. The performance indicators across the three programmes were described. Fund risk management maturity must improve annually and reach level 3 by 31 March 2017. The internal audit was particularly important to assure the public that adequate financial controls were now in place. A breakdown of the budget was given. Members asked for a breakdown of the budget figures on the last slide. They found the presentation a refreshing change and hoped that the new team would be able to address the substantial backlog of claims and institute new processes. They questioned why the projection for fulfilling the mandate was 2020, saying that the backlogs must be addressed now. They questioned the drafting of some of the targets and asked for an explanation of why some were stated in years and some in months, and cautioned that the processes all down the line needed to be checked for efficiency. In your summary you had this: The delegation of the Unemployment Insurance Fund had convened for the Amendment of the Bill and had noted that sometimes the long-winded legislation process of Parliament would address concerns that would be overcome in the interim”. This comment, however, didn't come in the main body of your report. Hint: do your report first and then cut and paste from there to create the summary (I used to copy the whole thing across into a new document and then chop from there). I noted your comment on the different wording, but actually what happened was that both the Parliamentary Legal Advisers and the Legal Officers from the DoL had got together and done the final wording. Well done for picking it up and pointing it out.  They asked how long an average claim would take and urged the CF to shorten this time and ensure that there were no gaps in the targets. There seemed to be a mismatch in the projections for claims growth and administrative growth, and the Members were also worried about the estimated growth in medical expenses and administration costs. They also questioned why different figures were given for claims, and why the reports of the CF and DoL differed, and how the former software problems were being mitigated. They asked what consequences had been imposed on former staff. The CF was asked to submit an action plan with all dates by 28 April. 
 

Meeting report

Unemployment Insurance Amendment Bill: Proposals for amendment

Mr I Ollis (DA) presented a proposed amendment the Unemployment Insurance Amendment Bill to the Portfolio Committee on Labour. He noted that the Unemployment Insurance Fund (UIF) was the largest budget reviewed by Parliament, at R120 billion, but these funds were not governmental money, but money directly received from members of the public and corporations that have paid into the UIF. The rates under review would seldom be altered. Therefore, he suggested that his technical amendment, by adding the underlined sentence, would ensure that the public and their money could be better served. The words in brackets were to be deleted.

The Proposed Amendment to the Unemployment Insurance Amendment Bill [B 25-2015] was read out as follows:

Section 17- Schedule 2 to the principal Act is hereby amended by the substitution for the second paragraph under the heading, “Income Replacement Rate” of the following paragraph:

“The IRR is at its maximum when income equals zero and it reaches its minimum where income is equal to the benefit transition income level. The maximum IRR is [fixed] currently set at 60%. The minimum IRR is currently set at 38%. However, the Minister may, in consultation with the NEDLAC vary the minimum [IRR] maximum income and flat replacement rate in terms of section 12 (3) (b) but cannot reduce the minimum IRR to any percentage below 38. The Minister may from time to time, by notice in the Gazette and after concurrence of the National Assembly, make regulations varying the IRR and the benefit period.”

Discussion

Mr M Bagraim (DA) clarified that the technical amendment would in no manner affect the other amendments pertaining to the Bill, neither would it compromise the Bill itself. The unemployed people in South Africa would be helped by this amendment, but at a better rate.

It was noted that a delegation of the Unemployment Insurance Fund had noted that sometimes the long-winded legislation process of Parliament would address concerns that could be overcome in the interim.

The Chairperson asked Members to give an indication of their feelings on this amendment.

Ms F Loliwe (ANC) noted that the ANC was in agreement with the proposed amendment.

It was noted by both the ANC and DA that this amendment had been crafted with input from the Parliamentary Legal Advisers and Legal Officer of the Department of Labour. 

Productivity SA on its APP and Strategic Plans 2016/17

Mr Thobile Lamati: Director General , Department of Labour, explained the purpose of Productivity South Africa (PSA). It would intervene and try to effect a  turn-around to businesses in distress. Department of Labour (DoL) had transferred R47.9 million to it for that purpose.

He introduced the newly appointed Chief Executive Officer, Mr Mothuaye Mothiba, who had been in his post for only seven days.

Mr Mthunzi Mdwaba, Chairperson of the Board, Productivity South Africa, believed that the entity was hugely under-capitalized and under-funded for the enormity of its vision and mandate. He admitted that “man-made hiccups” delayed delivery and that those “hiccups” were mainly financial (see attached slides for details). He then introduced the programmes of the entity. He highlighted the creation of employment and improved economic efficiency as the entity’s main impacts on the economy. The entity’s sectors of priority were manufacturing, agro-processing, mining and the public sector . The public sector involved transparency of knowledge, so that when investments would be made the public would be informed (see attached presentation for full details). He noted that PSA ran under six programmes: 1) Turnaround solutions; 2) Productivity Organizational Solutions; 3) Value Chain Competitiveness; 4) Marketing and Communications; 5) Human Resources  6) Corporate Services.

Mr Mothiba noted that when the entity undertook productivity related research it used its extended relationships with international bodies for guidance, and the links that it had were outlined on slide 16. He then cited the objectives of key funders and their contributions for 2016/17. The Department of Labour contributed R47.9 million (28%) for a national awareness campaign, research reports for specific sectors and for employment within Small, Medium and Micro Enterprises (SMMEs) and Education, Training and Development providers. The Department of Trade and Industry (dti) contributed R8.5 million (5%) to support industrial clusters, workplace collaboration between management and workers, and for competitiveness and productivity. The Unemployment Insurance Fund (UIF) had pledged R97.8 million (57%) for turnaround solutions for companies in distress, the rescue of companies before liquidation and the saving of jobs. Self-generated funds were R18.7 million (11%) and were to utilise skills set to generate additional funding to become sustainable.  

The dti had initiated the Workplace Challenge (WPC) as a 1/3 strategic focal area within Programme 3: Value Chain Competitiveness. The WPC would improve the productivity and competitiveness of South African firms and sectors through constructive labour relations and the implementation of continuous improvement principles at the workplace.

A breakdown of the targets was outlined on pages 21, 25, 32, 33, 36 and 39 respectively for Programmes 1 to 5.

Mr Bheki Dlamini, Chief Financial Officer, Productivity South Africa, introduced the Programme 6: Corporate Services. He explained the entity’s budget of 2016/17, and said that the total revenue of R183 million matched its total projected expenses. The total revenue was broken down into income from sources other than grant funding (R28 million); interest received and other income (R0.4 million) and transfers and grants received (R154 million). The total expenses were described as compensation of employees (R63 million), goods and services (R119 million) and depreciation (R0.7 million).

He agreed with the Chairperson of the Board that the entity was under-funded to achieve its mandate as fully as planned. The actual grants received had fallen short of   the projected expenditure from 2012/13 right up until 2018/19. Being under-resourced had meant some of the planned interventions were cut back and the effect had been increased unemployment; uncompleted productivity improvement, research and statistics not fully completed, and SMMEs not trained. For instance, in 2012/13 the total actual grants were R71.7 million, but the projected total expenditure was R116 million. In 2016/17, the total actual grants were R154 million, but the projected expenditure was R183 million. In 2018/19, the actual grants would be R145 million, but the projected expenditure would be R178 million.

Mr Dlamini noted the entity's main achievements related to its content. Its challenges were financial. The achievements were that the entity had continued to receive an unqualified audit opinion, that it had achieved  99% compliance to health and safety and achieved an improved rating of three from five regarding its B-BBEE workforce. It had got ISO 9001 and public sector SETA accreditation, and had developed strategic alliances, partners and projects, as set out in slide 53. The challenges were largely to do with the diminishing funding sources,. PSA was undercapitalised for the mandate, and had lack of investment in product development and upgrading of product offering and its presentation. It was unable to attract and retain talent, due to lack of proper funds. It had limited investment in appropriate and relevant technology and also had limited resources to market, such as funding and implementation of Productivity SA programmes to the critical masses, as well as increasing the footprint throughout the country. 

Discussion:

Mr Ollis criticised the presentation as weak and “thin”, because one slide addressed the achievements and one the challenges. A major concern was the citing of insufficient funds as an obstacle. However, slide forty-nine showed an 84% increase of total transfers or grants. He suggested that PSA should be requesting funds from the companies that the entity had previously assisted. He implored PSA to do more work in actually rescuing companies, because many more jobs may well  be lost, given the economy’s current status, if these companies failed. He asked if PSA could not initiate the approaches, and offer governmental services to companies that were quite obviously at risk of liquidation.

Ms F Loliwe (ANC) advised that if PSA did not develop some sort of self-sustaining approach beyond its funding that it was receiving from government, it could itself fall prey to the very problem that it exists to resolve. She felt that the presentation was unduly complicated and Members could more easily have understood it if the percentages of achievements had been quoted in addition to the targets that had been set for each programme.

Ms S van Schalkwyk (ANC) referred to Programme 2: Productivity Organisational Solutions, on slide 25. She noted that PSA had a target for  training 5 500 emerging entrepreneurs, but wanted to know if there was any follow up to the training, if the entrepreneurs were given support, and if follow up measures were taking place. She wanted to know the criteria for the targeted 170 managers, and whether their training was later evaluated as effective. She asked why only two graduates were engaged for training.

Mr Bagraim said that his point was not covered in the presentation but the ratio of salary increases does not match up to the productivity of South African employees. Would it not be possible for PSA to approach trade unions and somehow negotiate appropriate salary increases?

Mr D America (DA) stated that it had seemed that PSA had not fully understood the gravity of the country's situation. He thought that this presentation was suggesting “business as usual” with only a few minor tweaks and no significant planning for preventing job losses. The presentation also did not have any breakdown of quarterly targets.

Mr Mdwaba assured the Committee that the 84% increase of transfer of funds would be explained by the CFO, as set out on slide 49.

Mr Dlamini explained that the 84% increase of funds was due to the erratic nature of the transfers from the major funder. A signed agreement guaranteed sponsorship for three years. The first year guaranteed R62 million for 2015, the second year R97 million for 2016 and the last year R78 million for 2017. However in 2015, only R17 million of the promised R62 million was received, causing the increase of 84% for the following year. In answer to a further question from the Chairperson for more clarity on this point, he said that this exponential increase was set out on slide 49. There was indeed an increase, but it was the result of the short-funding received in the previous year. He repeated that R62 million should have been received in the first year (2015) but only R17 million was received, with the rest carried over to the 2016 year.

Mr Ollis said that in that case, perhaps the question should be asked of the DoL as to why the UIF had not proceeded to give the allocated R62 million.

The Chairperson expressed that the 84% grant transfer of revenue had bothered her too.

Mr Mdwaba interjected that the problem here was a matter of terminology. There was not in fact an 84% “increase” of grant funding. In 2015, PSA should have received R62 million from the UIF in grant funding. This had not happened and it had only received R17 million, because of undue delays in the UIF giving the money. This had happened every year; when the entity requested the funds there had been delays in getting it – his reference to “hiccups” earlier on had been a diplomatic way of putting this to try to avoid actually assigning any blame.

Mr Mdwaba emphasised that the reality of the situation was that because PSA was meant to have received R62 million, but had only received R17 million, it could not accomplish the programmes in 2015, and this meant that there would be job losses, and the problem was that the programming could not take place in time time to prevent those losses. This could have been prevented, had the funding been made available at the due date.

Mr Mdwaba then assured Mr America that the PSA indeed did fully grasp the reality of unemployment and the economic situation in South Africa. Not only did it grasp it, it was quite desperate about it. There had been a perception that it was complacent, but this had arisen from its attempts to not ascribe blame. PSA had in fact done whatever it could to try to ensure that the promised and expected funding did come to it, including building of relationships, and follow up with emails, letters and phone calls. The Board of Productivity South Africa had fully supported the management, who had even gone beyond the call of duty to try to pursue those programmes, despite the lack of funding. However, ultimately it felt that it could not continue to do the work whilst being underfunded and a more upfront approach to funding was needed. The figure of R97 million for 2016 might look substantial at first. However, the Members should consider the shortfall in the previous year : the difference between the  R17 received and the R62 million expected, and this would balance out the figures. Therefore, what was seen as an 84% increase of funding actually received was artificial, as the difference in terms of the amounts promised was not actually that large. He said that it was necessary to agree on a figure that would adequately reflect the funds expected for the subsequent years. UIF had come up with a figure of R97 million as a total that should cover the backlog from the preceding year.

Mr Mdwaba said that it was financially impractical and thus impossible for Productivity SA to be a high-profile organisation. It had to meet a critical balance. It tried not to be a secretive organization, but because of lack of adequate resourcing, it would try not to not encourage too many approaches and exposure; if the public was to be aware of its existence, undue attention might mean that exponentially higher demands would be made on the entity. He said that its following on Twitter was 31 people last February, and over 1 000 currently. It was worried that demands would be made that it could not fill. Limited resources would limit its success and if there was to be failure, due to having the right plans but not the right resources, it would damage its brand and image. He apologised again if there had been a misunderstanding over the percentage increases cited on slide 49.

The Chairperson asked what the other 16% of “Other” non-tax revenue was, if the Board considered the 84% increase of transfers artificial.

Mr Dlamini corrected that. He said that 84% total transfers was grant money that actually comprised 84% of the total revenue. It was not a ratio increase. The total funding of PSA was divided into grant money, at 84% of the revenue, and self-generated funding of 16% of total funds received.

The Chairperson asked Mr Ollis if he needed any further explanation from the Department.

Mr Ollis wanted to know why the UIF had delayed in its transfer of the funds guaranteed to PSA.

Mr Lamati said that he would not normally be privy to the correspondence between the entities, unless it was specifically highlighted and brought to his attention. He had spoken to the UIF Commissioner about the differences. Here, there was a contract to guarantee the funding, and he would investigate why the funds allocated were not actually paid by UIF as they should have been. The newly appointed CEO had been invited to meet to discuss any obstacles to prevent a recurrence of this situation.

Mr Mothiba apologized for the “thinness” of the presentation and requested permission to submit a supplementary presentation that would address  the problems raised at the meeting. He assured the Committee that the PSA was fully capable of grasping the magnitude of the problem of unemployment in South Africa. It was aware of the  country’s needs in employment creation as well as at the level of competitiveness.

He then referred to slides 51-53 to address Mr Bagraim’s question on the negotiation of salary increase and productivity ratio difference. Interventions related to the goods and services rendered by the PSA that had cost R119 million and 65.3% of expenses. Recently, the National Economic Development and Labour Council (Nedlac) had told PSA that it could intervene between employers and employees for a proper salary negotiation. PSA was developing into a viable authority in the country, and had increased say on issues of productivity. Additionally, a core competency of education would infiltrate competitiveness at school level and so impart the mindset of being productive to pupils, so that they already had a culture of being productive when they entered their adult lives. The inclusiveness would mean an expanded mandate for the PSA. To that extent, he said that the PSA was not in fact merely doing “business as usual”. The national productivity rise, because of commercial intervention that the entity provides, would attract foreign investments. PSA aspired to be proactive. Another positive would be that it could prevent the closure of businesses, before they reached a point of distress, by evaluating the past five years of financial statements, to  identify and assess areas of instability and the cause of probable liquidation.

On the issue of capacity generated income to supplement the grant, he noted that the business model showed clearly an improvement in the self-derived funding. Help would be granted to businesses where PSA could afford to do this, but the PSA must also become esteemed as an institution of knowledge, since it could track the growth of businesses and so be reliable in referencing business particulars.

Mr Mothiba assured the Committee that all those who received training also received follow-up support and training.

The Chairperson questioned the terminology used on slide 25. The slide indicates the various groups trained, but said that graduates were “engaged” - she asked what that meant, and why was this categorised as training.

Mr Dlamini replied that the graduates were “engaged”, because they were listed as “in-house employees.” Therefore it was on-going training, although  they were on the entity’s books as already employed.

The Chairperson asked in what capacity they were employed

Mr Dlamini said that their contracts ensured on-the-job training and conceded that “engaged” was not the best word to use.

The Chairperson wanted clarity on the inconsistencies; Mr Dlamini had firstly answered that they were employed, then contracted, and then trained. She asked in exactly what capacity these graduates were assimilated to PSA.

Mr Mdwaba said that the terminology used was actually correct, but he agreed that “training” would have been a better term. PSA had different forms of training including “in-house” training for various employees, such as  personal assistants,. In this instance the training was to have provided the graduates with the richness necessary to have made them employable afterwards. Their employment was in the nature of an internship, thus the nature of the contracts was training. He said that he would send through some supplementary documents with further details on the training of the graduates.

The Chairperson questioned the number of graduate interns, and asked why only two were being given that opportunity, because a reference to graduates surely meant that they were skilled. There were numerous unemployed graduates, and perhaps 99% of them were the children of people who had contributed to the UIF at some point. She asked why this was not taken into account. A core function of the PSA was to sustain employment for the sake of productivity in South Africa. Surely recruitment should be a matter of concern for the entity? It is unclear if the recruitment of graduates forms part of the core mandate of the entity, and she reiterated that she wanted to know why only two were mentioned.

Mr Mdwaba clarified that the mandate of PSA did not in fact specify training. It was not foremost a training organisation, but training did add value. However, given its limited resources,it did aspire to do as much as possible. However, the motivation to have incorporated the internship training was not known personally. As mentioned by the CEO, the performance of the year preceding determined many of the possible programmes that could be pursued within the current year. The two graduates recruited may have been due to the under performance of the year before. He could give full details in a supplementary report.

The Chairperson acknowledged that training might not have been the entity’s core mandate, but it was done nonetheless, and if it was done, it should be done with purpose, both to advance the individuals and the entity. Recruitment training should not be listed last as though it was insignificant. The calibre of people recruited should have been considered, especially since there exists a link between the graduates and the entity’s main sponsor, the UIF. Having two graduates recruited had not been convincing.

Mr Mdwaba apologised that the level of particularity that the Committee wanted was not in the presentation and assured Members that it would be in the supplementary report. He had been impressed by the presentation, given that the Chief Executive Officer was in post for only seven days.

The Chairperson said that the recent appointment of the CEO could not be used as an alibi, because the Chairperson of the Board had been employed much longer and because of his position, he should have  reviewed every line of the presentation and checked its accuracy before bringing it to the Committee.

Mr Mdwaba commented on Ms Loliwe's questions by saying that quality was important. The Board of Productivity South Africa had motivated the new business module used to ensure maximum results, in spite of the under-funding and under-capitalization. Quality was there already but needed support; if that did not happen, PSA would have its hands tied.

Mr Mdwaba noted that he held a position on a university board, University of the Western Cape, which prided itself on knowledge, research and innovation. It was able to do this because it had funding. Other universities and institutions of higher learning could not achieve as much as UWC, due to their lack of resources which meant that South Africa was not as well serviced by academics as it could be. He emphasised again that PSA did understand the serious situation of the country. It had tried to advance itself by having an annual awards ceremony and would bring all appropriate candidates and nominees together to engage effectively with them. It was also trying to affiliate with productivity in every department. Since productivity should be the collective responsibility of government, it should have programmes dealing with it coupled with measures to make it happen. PSA would like to collaborate with other funders of other departments, rather than working in isolation.

Mr Dlamini replied that the vacancy rate was quite low at a 5%. The entity would focus on recruiting key people who would maximise revenue. The focus on administrative personnel was not an objective, not because administrative duties were not important, but because such work did not influence turnover.

Mr Bagraim appreciated the responses to his salary increase versus worker productivity ratio. Other than unemployment, the mismatch between productivity and wages has been a major problem in South Africa. He asked also how it would be possible to engender a proper work ethic in South African employees? He advised that perhaps the experts of PSA could approach businesses and offer training to their managers and trade unions on work ethics and productivity, and he cited a recent German seminar that he had attended as one example.
Ms van Schalkwyk felt that her question regarding the training for managers was not addressed.

Mr America appreciated the context, and agreed that the PSA had an enormous task, also agreeing that the very mention of its name might create the impression that it would be the solution to all low productivity, which was grossly exaggerated.  He liked its self-classification as an institution of knowledge, and said that if it was able to track the correct combination of skills, it would be even more successful. He advised that a link should be made with those who had large financial reserves, but there were serious interventions needed on  issues of productivity within its various industries. The entity should consider developing partnerships or MOUs for services that might be beneficial to it.

Mr Mdwaba said that he thought he had answered the question on training of managers but would expand on it. The tracking of the management trained was discussed with the Board of the entity, but the exact figure and feedback was not mentioned in the presentation.

Mr Dlamini elaborated on his earlier answer. There was some tracking of managers trained, in regard to their performance and successes but only up to a certain point. He would include notes on the selection criteria in the supplementary report.

 it would stop. Regarding the selection criteria, it would be best to incorporate that information within the supplementary as opposed to answer falsely.

The Chairperson asked that PSA answer the question now; it was a simple question on the selection criteria for training of managers.

Mr Dlamini replied that the selection criteria were a combination of processes. It was normally voluntary; individuals would approach the entity, or companies would approach with lists of managers that they would like to have trained, so he would prefer to get feedback from the person in charge of this aspect.

The Chairperson said that she wanted the Chairperson of the Board to answer.

Mr Mdwaba said that he did not have responsible for operations of PSA, and would not interfere in that.

The Chairperson reprimanded him for this response, saying that she had asked him to answer precisely because she had been told that the CEO was only appointed recently. She asked how it was possible that he did not have the faintest idea of how the managers were listed to be trained. If that was the case, she questioned whether the Committee could take the rest of the presentation seriously. That answer was not satisfactory, particularly because it was linked to the PSA's request for funding. The trainers would have to be paid for offering training unless they were training the managers for free.

Mr Mdwaba responded that normally a bigger team of the Board would attend the Committee meetings, and it would have been ideal to have the person overseeing training present. However in the interests of saving costs, only three people attended. Training constitutes part of the budget review and those attending the meeting did not have all the details. He asked that the details be set out in the supplementary document.

The Chairperson again dismissed the response given by Mr Mdwaba, saying that he was the final authority to whom people should report on the criteria, and that should inform him on how the lists were compiled. It was unacceptable for him to say that this was not in his job description, and his defensive attitude was not appreciated. If he was truly ignorant of the process, then he should rather be honest about it, not attempt to dismiss his accountability. This presentation was not usable for Parliamentary purposes.

Mr Mdwaba replied that the entity was not being defensive and was reporting to the Committee to the best of its ability.

Ms L Mjobo (ANC) made a comment in an indigenous language.

The Chairperson clarified  that it was not a dialogue, and the questions asked by herself to the PSA and its Board Chairperson were follow ups to initial questions asked by the Committee.

Ms Loliwe concluded that Members were unsatisfied with the report and that their questions ultimately remained unanswered. When the CEO had requested the opportunity to submit a supplementary report, the Chairperson of the Board should have stepped up to the plate to give clarity; but the more he tried to answer, the messier it became. The impression was gained that he was being too casual, and was not giving due weight to the matters.

Ms van Schalkwyk asked that PSA must rework its presentation, highlighting and answering the questions unresolved in this meeting, and e-mail that to the Committee Secretary.

The Chairperson asked if the reworked presentation should be reviewed without the PSA being present.

Ms van Schalkwyk  confirmed that the supplementary presentation should be able to be discussed, because the loopholes in it were in fact already highlighted in this meeting.

The Chairperson asked the Director General of the DoL to make sure the presentation was revised before being resubmitted.

Mr Lamati assured Members that he would revise it, and in future would also check the delegation for the Committee meetings. Although the DoL had to adhere to cost cutting measures, he agreed that the three persons present could not as adequately explain the human resources as would someone who dealt with this particular function, and he agreed that, particularly since the CEO had been in his post for such a short time, it would have been worthwhile to bring more personnel of the Board.

Mr Mdwaba requested the timeframe to submit the report.

The Chairperson said that it should be submitted by the following Monday. She wished the  newly appointed CEO well in his future endeavours.

Compensation Fund 2016/17 Annual Performance Plan briefing
Mr Lamati, Director General of the Department of Labour, noted that Mr Vuyo Mafata had been appointed from 1 April as the Compensation Fund (CF) Commissioner. He had been acting in this post since June 2015, and had arranged a management team to work with. The previous Head of management of the entity had been removed. Mr Lamati also introduced Mr Lunsisa Matendela, the Chief Operations Officer; Mr Thando Headbush, Project Manager of Finance and Acting CFO, and Mr Joseph Ledwaba, the Acting Chief Director. Mr Mafata had been the Chief Financial Officer at the UIF, and has a financial background well suited to this organisation.

Mr Vuyo Mafata, Compensation Commissioner: Compensation Fund, noted that the CF’s Annual Performance Plan (APP) for the financial year 2016/17 had considered the following aspects, and attempted to address them in this presentation: 1) The Audit Action Plan emanating from the Auditor-General South Africa (AGSA) findings during the financial years 2013/14 and 2014/15. 2) The operational risk treatment actions. 3) The Internal Audit reports for the financial year 2015/16.

The Annual Performance Plan was informed by National Government as well as the Department of Labour (DoL) and its strategic objectives. In summary the CF had two main strategic outcomes. It aimed to strengthen the social security through compensating for occupational injuries and diseases,. It also aimed to  strengthen the institutional capacity of the Compensation Fund. The strategic objectives to manifest the outcomes would be to provide faster, reliable and accessible Compensation for Occupational Injuries and Diseases (COID) services by 2020, as well as to provide an effective and efficient client orientated support services. There were ten performance indicators for the first strategic objective and eight for the second strategic objective. The total eighteen performance indicators were then divided amongst three programmes: Programme 1 was Administration, Programme 2 was Operations Management and Programme 3 related to Provincial Operations.

He summarised how many of the indicators related to each programme (see attached slides for full details). .
In Programme 1, the first key performance indicator (KPI) was Fund risk management maturity, which must improve annually and reach level 3 by 31 March 2017. KPIs set out on slide 10 pertained to the internal audit of the entity, which was important, because it would provide assurance to the public that adequate internal control of the funds was in place, to deliver on the mandate. KPIs 4 to 7 related to raising revenue by financial management. A further KPI aimed to ensure that the  vacancy rate would not be more than 10% of the vacancies at the Head Office.

The budget was then explained by reference to the attached slides – where a summary of the entire MTEF budget was given, as well as a breakdown of the administration budget and each programme, and compensation of employees (see slides 24 to 26).

Discussion

Ms Loliwe welcomed the report, However, she pointed out that the CF had a financial backlog from previous years and asked how it was intending to deal with that. She also asked for clarity on slide 24.  In the Summary of the MTEF Budget 2016-17, a 25% allocation was given to the Administrative expenditure, but within the further division, 25% was assigned to the ‘Compensation of Employees’ line. She wondered where, then the money would be found for the goods and services, another sub-division of Administration.

Mr Bagraim complimented the report as “refreshing” and had felt that it was the first time that the questions previously raised were being answered, for which he thanked the new management team. He said that perhaps the problem was that entities became jaded. Every six months or so, upgrades in the computer programming had been promised and when that did not happen, further assurances were given, which merely had compounded the problem. Should these new promises come to pass, the Committee would have to applaud the CF, particularly in view of its inherited backlog. He was not sure whether it had to wait until 2020 to fill its mandate, because the new management would have to “catch-up” on matters where there had been procrastination earlier. He wondered why it should take four years to provide “faster, reliable and accessible” COID services. Some of the complaints were already ten years old, and some doctors had stopped treating people because they were not being paid. That would have to be addressed swiftly.

He also commended the new Commissioner for accepting this post, as it had the potential to jeopardise his career if he did not manage to resolve the backlog. This entity had been an embarrassment to South Africa for years.

Mr Ollis also welcomed the newly appointed heads of management. A while ago an Advisory Board had advised the Members of Parliament as to what they should consider when reviewing APPs, and one was to check that targets were quantifiable and time-bound, so that it would not be difficult for the Auditor-General to pick up fraud. Many APPs of the past were either too easy or had not specified a date, so no accountability attached. He now questioned slide 19, which related to breaches of internal controls and asked if anyone within the CF was held accountable for misconduct and consequently dismissed.

Mr Ollis thought that slide 15 looked promising with a target of “100% of authorised claims to be paid within five working days”, but the key word that would insinuate delay was “authorised”. The process preceding the authorisation had taken excessive time, even up to decades. That may not be the fault of new management but he cautioned that it should have targets to make sure that the process prior to claims receiving authorisation or rejection was conducted more promptly and effectively.

Mr Ollis also commented on slide 20. The annual and quarterly targets were to have 85% of received compensation claims benefits finalised by 31 December 2016. Slide 23 noted that 85% of registered compensation on claims should be adjudicated with sixty working days. These targets had inconsistencies: one looked to the whole financial year, the other to 60 days. This would be highlighted by AGSA. The Committee wanted to know how long it would take for a person to claim, and what was the average time taken over the period. To have a figure of 85% suggested that part of the workload would not be completed in the year. There should not be gaps in targets.

Mr Ollis was concerned about the MTEF Budget 2016-17 on slide 24. The compensation claims were expected to grow by 1%, but the administrative expenditure was expected to have grown by 25% and Revenue by 63%. This would be worrying if this was a business. It was not – it was a government entity and it seemed that it was intentionally planning not to have an increase in people claiming. There was 3% estimated growth for compensation benefits; divided as 1% increase for compensation claims and 3% increase for the medical claims. Even if the costs of medical benefits should increase beyond inflation, it would make better sense than a 1% increase. The administrative costs were cited as a 25% increase, which implies that the entity was willing to spend the funds available on itself  as opposed to increasing payouts for claims.

He was also worried and queried why the payouts had not been about the same from year to year. The increase for the medical claims was increased by 15%. There was also great disparity between the figures cited as payouts by the entity from its own report, compared to the research report from the DoL.

He noted that there had been a problem with software, and noted that it was said that the implementation of the former software was successful in some areas of the country, but not in others, implying that the overall implementation was unsuccessful. In places that had not had the software, an employee would manually compile documents and take them through to another branch, risking the loss of the manual documentation. He asked what was now in place to prevent errors. 

Mr Lamati noted that the DoL had appealed to the Committee that the CF have time to submit an action plan and had also appealed to the AGSA to get time for the CF to deal with the root causes of the problems. A regular audit report would merely address the symptoms. An entire change of management had occurred, because people were in positions without being competent. The CF was a financial institution, but its former members did not have financial backgrounds, so it was inevitable that there would be problems. Another issue was the structure of the entity that did not allow it to fulfil its mandate, but this was now being addressed. For instance, in order to process medical claims, there was a pressing need for qualified medical doctors, and incorporating the right judicial processes had then minimised the waiting period for payouts. The Action Plan had stipulated short, medium and long termed goals. The DoL and CF must be truly honest with the Committee because there was no point in producing a report that looked good on paper, but is unachievable or with a large risk of corruption in reality. DoL can assure the Committee that the processing of medical claims had improved and billions of rands had been paid out. Since August 2014, the financial aspect of the entity had been accounted for better, as opposed to the past, where money was sometimes paid out without the exact beneficiaries or amounts being clear.

Mr Mafata responded to the concerns about the backlogs. A backlog could be the result of lack of the proper documentation; for instance the employer may have submitted the claim, but the medical practitioners could have procrastinated preventing the claim from being finalised. Medical invoices were crucial, but were often long-delayed. There were currently 90 000 pending claims. The oldest were 180 days old. CF had tried to involve the SA Medical Association to reach out to every doctor to try to ensure that claims would be addressed faster, finalised and paid out. Since the system had been largely manual, several documents might go missing in the capture process. By working directly with the doctors, CF had been able to minimise such manual errors too. The partnering with the South African Medical Association would occur soon, but the preliminary work with it would ensure clean up, which was why the 2020 target had been more realistically stated.

Mr Mafata said that there was not a discrepancy on the salaries. The final slide had just compartmentalised it so that the Committee could review the breakdown. The 3% increase of expected medical claims within the 25% increase on the administrative costs were as a result of an accrual assessment. At the end of each financial year the accrual assessments would be conducted to assess what would be the probable amount of increase for the following year. The medical claims, including the outstanding financial claims, would also be quantified and once that amount was known, the increase could be better determined without duplications of those already quantified. For instance, in this year, R65 billion was paid out to beneficiaries, but it would not show as “new expenditure” in the income statements; only newer claims would be listed as such. An assessment was being conducted for the year, but it had already shown that half of the claims that were submitted were done so in the last year. Accounting now would capture only the claims submitted in the current year to avoid duplications.

Ms Mmatheapelo Matabose, Parliamentary Liaison Officer, Department of Labour, elaborated on the length of the processes of beneficiaries claiming.

Mr Mafata noted that the new software system was superior to the previous system and had addressed the challenges of the previous system. He noted that the apparent inconsistencies in figures as cited by Mr Ollis was as a result of the previous system, and the backlog from 2004 was being addressed with payouts.  The new system eliminates the manual submissions and all paperwork, from the employer to the doctors, would be completed electronically. This ensures both accuracy and faster finalisation of claims.

Mr Thobile elaborated on the query about consequences, and said that the previous CFO had been suspended for failure to achieve internal controls. He had not been the only staff member suspended. The CF was engaging with hospitals, and whilst they were cooperating, the radiologists whom it had approached had point blank refused to cooperate.

The CF faced many legal allegations which it was willing to defend. One derived from people who had flooded the system with duplicated claims and so would run to Court to further resolve the issues if the system rejected their claim. Some claims were hugely inflated – such as R200 being claimed for a headache tablet, and these would be picked up by the system and rejected. Third parties from whom such plaintiffs requested advice would tag the system as  “foul play”. The new-found efficiency of the CF was closing gaps and this would cause unhappiness in those who had benefitted from the inefficiencies of the past, and some third party businesses' whole model of operation was based on and contingent on  In fact, there would discomfort experienced by those who had benefitted from the inefficiencies of the system. Many third party businesses may close, because their entire business module was based on and contingent to the entity’s former inefficiencies. 

Mr Ollis further noted that he had understood the 3% increase to pertain to claims, but his point was that whilst the claims were anticipated to increase by 3%, meaning that this would be the increased funding allocated, medical expenses were projected to increase to 15%, so there would be a mismatch with the claims. If 85% of claims were to be paid out, did that mean that 15% would be neglected? Was there an underlying assumption that no one would encounter accidents at work? The waiting period from the point of claim to payout was much too long - potentially, 450 days, if there was 60 for adjudication, 365 for authorisation, 60 for medical verification and then 5 days for finalised claims to have been paid out, and there seemed to be an assumption that the 15% not paid out would be waiting even longer. He also noted that figures of both 90 000 and 93 000 claims had been quoted and asked if there was then an overlap.

The Chairperson asked that the Action Plan must be submitted by 28 April 2016.

Mr Mafata clarified that the initial 60 days was when the claim would be received and then processed so that it could exit that stage of the claim. None should become obsolete in this period, which had been the problem in the past where claims could become 180 days old. In the following 365 days, the claim should be speedily addressed, with no procrastination. However, the days would not always have to be added one after the other for the stages. Backlogs could arise in the past at the medical claim and the CF stages. 90 000 was the figure for processing of the invoices, which were unpaid or at that stage. A week before the end of the financial year, there would be a freeze on payments. 93 000 claims was the figure of claims already adjudicated, on which only a payout was awaited. The 3% increase on claims was a calculation linked to the premiums that the entity pays, which are the highest in the country. As the backlog was being dealt with, the duplications would be eliminated and so there would be a drop in claims being carried over.

The Chairperson again requested that unresolved questions be included in the Action Plan.

The meeting was adjourned.

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