DoL, Unemployment Insurance Fund; Compensation Fund; Productivity SA; CCMA; & Nedlac on their 2015/16 Annual Reports with Auditor General input

Meeting report

Department of Labour and entities: Auditor General on audit outcomes
Ms Modiehi Skosana, Audit Manager, Auditor General of South Africa (AGSA), dealt with the actual audit outcomes of the Department of Labour (DoL) which had been gathered over the past three years. The majority of the financial statements provided had a number of material misstatements, which was a concern. In terms of the Compensation Fund (CF), a disclaimer of opinion had been issued, and a disclaimer of opinion had been issued for the past four years. The National Council for Economic Development and Labour (NEDLAC) and the Supported Employment Enterprises (SEE) fund entities had received a qualified opinion, with findings. The Unemployment Insurance Fund (UIF), the Commission for Conciliation, Mediation and Arbitration (CCMA) and the Department of Labour (DoL) had received unqualified opinions with findings, but this had been largely due to inadequate review processes to ensure that the financial statements produced were free from material misstatements, and also due to non-compliance with key pieces of legislation.
 
All of the entities, including the DoL, had instances where they had not complied with key pieces of legislation. This was also due largely to inadequate review processes.
 
The APPs audit showed four entities had issues with the drafting of their APPs, but all entities had issues with their reported information, which was found to not be reliable.
 
Mr I Ollis (DA) requested a point of clarity regarding the methodology of the presentation but the Chairperson requested that the Members leave their questions until the presentation had been completed, which was agreed to.

Mr D America (DA) made a suggestion that points of clarity be allowed in order to allow the Committee to follow the presentation properly, which was agreed to.
 
The presentation then dealt with the AG’s findings regarding the status of key controls. There was a general regression regarding performance leadership and providing financial statements free from material misstatements. This was mainly due to a failure to implement and properly monitor the APPs. In terms of governance, there was no change overall. The status of key controls had resulted in a recommendation by the AG that leadership should hold the entities and its officials more accountable for poor performance. The internal audit and the audit committees of various entities had provided assurances that the concerns of the AG would be dealt with, but the AG had noted that those entities should focus more on monitoring compliance with legislation and the implementation of the APPs by the various entities.
 
The usefulness of the APPs which were provided and the selected outcomes showed that the DoL had two targets which had findings, and one which had no finding. The CF had findings on both issues which had been selected, and 50% of the CF programmes had findings. NEDLAC and SEE had had changes to their reported information, which resulted in them having the status of having no material findings.
 
With regard to compliance with legislation and the quality of financial statements, there was a general trend of non-compliance with revenue management, procurement, contracts and unauthorised and irregular expenditure. Both the CF and SEE did not have systems in place to ensure that management revenue processes were followed, including a failure to put adequate systems in place regarding the collection of debt, and debt management. There was, however, some improvement in terms of SEE which had had a number of findings in the past. However, its only issue now was primarily related to the collection of revenue. The CCMA, UIF, SEE and CF had not complied with supply chain management (SCM) regulations.

The UIF was the only entity which provided financial statements free from material misstatements. All of the other entities produced statements which had a number of material misstatements. Unauthorised and fruitless and wasteful expenditure showed that entities did not have proper systems in place to prevent unauthorised as well as fruitless and wasteful expenditure. 67% of the entities did not follow SEM legislation in terms of procurement and contracts. CF did not provide the requested documentation to allow the auditors to properly audit that they had complied with the procurement regulations. The qualification areas for CF and SEE were in the area of disclosure. A number of entities had made a number of changes to their financial statements, in particular the DoL, the CCMA and UIF, resulted in an overall unqualified opinion.
 
There was decrease in the irregular expenditure that was incurred by the various entities, from R449 million in 2015 to R140 million in the 2015/16 year. This amount, however, had to be read in conjunction with the earlier findings, such as the CF not providing a number of key documents which had been requested. Thus, while the irregular expenditure figures had dropped, the fact that those documents had not been provided to the AG could have distorted the actual figures which were recorded. The CF was, however, qualified on that point. It had also reported R403 million in fruitless and wasteful expenditure, due to a breach of contract which had occurred, and which had resulted in the supplier still being paid that amount.
 
A primary root cause of the outcomes was the slow response by management -- particularly in terms of poor monitoring and implementation of the APPs -- and although there was an improvement in the filling of vacancies, this still remained an issue as the interventions to fill them had only happened late in the financial year and therefore a positive impact could not be realised while the auditing process was being completed. The AG had had four meetings with the Minister, and no new commitments were solicited from her. There was a slow response on the part of the Minister in acting on commitments. It was recommended to the Committee that increased monitoring of the implementation of the APPs be done in order to address those concerns.
 
The outcome for Productivity SA, which is a Public Audit Act (PAA) s4 (3) entity, was an unqualified audit opinion with material findings, as the only challenges related to performance information.
 
The CF had raised a number of concerns. It was felt that there was a lack of urgency in correcting the challenges, and that if those issues were not dealt with there was a high risk of fraud, corruption and the depletion of financial reserves. There was also a climate at CF where it was felt that there was no proper management oversight, and that steps were not being taken against officials and employees responsible for continuous poor performance and the implementation of APPs. It was recommended that a turnaround strategy for CF be developed and that the reports provided by CF be verified by an internal audit and audit committee.
 
A delegate ended the presentation with a brief summary. He said that the audit conducted this year, in comparison to previous years, showed that there was not a major turnaround or new issues which had been identified. The concerns raised were of a recurring nature, and had not been properly addressed. It was recommended that the Committee ensure that the entities properly implement and monitor the APPs and ensure that the financial statements were free from material misstatements, which was the primary concern of the AG.
 
Discussion
Ms T Tongwane (ANC) was concerned about the CF not addressing a number of concerns that had been repeatedly raised for the past four years. At what stage did the AG intervene to assist in the CF to ensure that there was compliance?
 
Ms S van Schalkwyk (ANC) said the briefing notes provided by the AG indicated that 67% of the entities did not have well drafted APPs. They also showed that management did not have a proper process to ensure that the APPs were properly drafted to include verifiable information to ensure that the APPs were complied. Based on her previous interactions with the AG, the AG had regular interventions with the Department and its entities to ensure that progress was made regarding the concerns raised by the audit findings, and to ensure that the same situation did not arise at the end of the financial year. Her question was whether, during the continuous engagements with the Department and its entities, the AG was in a position to properly comment upon and address those concerns? With regard to the APPs, were those issues identified early on in order to ensure that those concerns did not arise at the end of the financial year?

She expressed concern that the results presented were so poor and had so many qualifications raised. The presentation showed that there had been a gradual regression in terms of the audit outcomes for the various entities over the past three years. A key recommendation was that management should penalise those accountable for poor performance, but she wanted to know if this concern had been continuously and properly raised with management. It was very concerning that there was a general regression in the entities on that point and whether the entities had taken those concerns properly. Findings had also been made regarding a culture of fraud and corruption at the CF, which was a serious allegation. Was there any supporting documentation or evidence to prove those statements? The CF also did not provide the documents for supply chain management procedures, which was concerning.

The CF had presented a turnaround strategy to the Committee, and had told the Committee that to address the concerns regarding potential fraud and corruption, it was moving to a paperless electronic system. Did that include the supply chain management procedures and did the AG have insight into that intervention, and what were its comments in that regard? The amount of R403 million of fruitless and wasteful expenditure due to a breach of contract in the CF-- had that been picked up in the previous financial year, or had the AG found out about it only this year?
 
Mr I Ollis (DA) noted that the statement regarding the high risk of fraud and corruption in the CF had been dealt with in the AG’s report where it spoke to investigations into fraud, mismanagement and misconduct. The report showed that there had been a total of 130 financial misconduct investigations opened, of which 70 were completed, yet management had not acted on the recommendations made following the completion of those investigations into any of the cases. A total of 110 fraud cases were under investigation. with only 20 being completed -- and 11 had not even begun yet, among other concerns. Would it not be more proper to say that the CF already had issues regarding fraud, corruption and mismanagement, and what action could the Committee take to address the failures through a lack of good management, and to hold those individuals accountable?
 
Mr T Rawula (EFF) said the CF specifically had a number of concerning findings. It indicated to him that there was no leadership, accountability or responsibility regarding the use of funds, hence the recommendations. The recommendations of the AG regarding the CF were, in his view, a bit lenient given the issues at the fund. What the AG had reported indicated that there was no sense of willingness or intention to improve,. What it indicated was that there was a lack of management and negligence. He wanted to know whether it would not be necessary to actually make the recommendations far harsher, and to request and that the CF be placed under administration. The Department had admitted, the last time it visited the Committee, that there was a large amount of claims that had not been processed at the CF, which indicated a high level of incompetence, lack of capacity and lack of leadership. The lack of willingness on the part of the CF to comply with key pieces of legislation indicated that the entity was in a state of disarray, so why did the AG not then recommend that it be placed under administration so that a proper turnaround strategy could be implemented?
 
Mr America noted that of the six entities, four had provided some assurance to remedy the issues raised. Did the auditors attach a low level of reliability regarding those assurances, given the recurring qualifications made over the years? There was a low level of trust that senior management would carry out the recommendations of the AG. There was also a complete lack of leadership at those entities. What was the AG’s view as to what the main challenges were that those entities faced in terms of turning around their operations? He noted out of the six entities, only one accounting officer had provided assurances that the AG’s concerns would be met, and he asked which accounting officer that was.
 
The Chairperson noted that the DoL would be joining the Committee soon and any further concerns and clarity could be provided from them then.
 
The AG said that when the APPs were provided for audit, material misstatements were found in all of them. Once those misstatements were identified, however, the AG did provide the entities and the Department with an opportunity to adjust their information submitted for audit, and once those adjustments were made, 67% were not able to address those findings.
 
The AG audited in term of usefulness and reliability in terms of the APPs. Usefulness examined whether the APPs were properly formulated and aligned with the annual performance report, whilst reliability was whether the entity was able to provide adequate supporting evidence for the information provided. Once the adjustments were made, both NEDLAC and SEE no longer had material findings.
 
The approach of the AG was always to work closely with both the Department and its entities to address their audit findings, and they attended the debriefing sessions at the end of the auditing process to ensure that they were aware of their concerns. When the APPs were drafted, the AG did examine those APPs to ensure that the “smart” principles were addressed. However, the AG only provided recommendations to the APPs when they were still being drafted. In this instance, even though the findings had been raised and they had informed the entities, the majority of the findings had not been addressed. Their findings had, however, been issued to the Department and its various entities to be addressed.
 
In most instances, the regression in leadership related to the action plans not being implemented to address the previous year’s findings. When an APP was presented, it could not simply address the findings, but also had to address the root causes of those findings and how they would be remedied.
 
Regarding the fraud and financial crime cases, the Committee could request updates from the CF regarding the progress and recommendations made in terms of those investigations.
 
In general, the main issue was one of leadership at the entitie,s which had been a recurring issue for the past three years.
 
Ms Skosana dealt with the fraud question raised by Mr Ollis. She said that management had not acted on a number of investigations which had been completed. She recommended that the Committee raise that issue with the CF, to find out what the result of those investigations was and why there was such a high number of fraud and corruption cases in the first place. There had been an increased number of cases relating to fraud and corruption, which was serious risk and an area of concern. The AG had specifically brought this to the attention of the Committee so that they could question the CF further about that concern. There was a recommendation from the AG that a turnaround strategy be developed and verified by an independent audit and that the implementation of the strategy be monitored either by the Committee or Parliament.
 
Regarding the fruitless and wasteful expenditure at the CF, especially in terms of the contractual breach, she said that the payment was reported as fruitless and wasteful expenditure because the entity had cancelled the contract.
 
The AG had requested further information on the paperless system which was implemented at the CF, to ensure that the system complied with the SCM regulations, but in this instance that information was not provided. She also was not aware of the paperless system specifically addressing the issues regarding the supply chain management process.
 
The UIF was the entity with the accounting officer who had provided the level of assurance.  
 
The Chairperson asked the AG to answer the question as to whether the AG had brought those issues noticed during their quarterly engagements with the CF, to the CF at the time. There was no mention that the CF had been hesitant or defiant in implementing the recommendations of the AG, nor did they say that the reports which were submitted had not passed through the Department’s internal audit. The AG had noted that the systems of the CF did not support its business or mandate, which the Committee was well aware of. The findings of the AG were correct, but she wanted further clarity as to the extent the Department had acted on their recommendations. The AG had said that the Department had responded, but when they had responded to the concerns, the root causes of the problem were not addressed, which was an issue that had arisen for the past few years. If it was the case that the Department was actively disregarding their recommendations, then they should inform the Committee of that fact.
 
Ms Skosana replied that there was no internal audit for the CF in the 2015 year, as no information was provided for the AG to actually audit. Issues regarding the supply of proper information hampered the ability of the AG to make recommendations. In terms of the implementation of action plans, the CF had reported during the audit meetings that they had implemented approximately 61 APPs, but the internal audit painted a different picture, which indicated that only around six APPs had been achieved. There was a discrepancy, therefore, between what the management of the CF had reported and what the internal audit actually showed. The AG was working very closely with the internal audit, and had made a number of recommendations over the years. However, those recommendations were continuously not implemented and further issues had continuously arisen due to information not being timeously provided, or not provided at all.
 
The Chairperson wanted to know when the internal audit disagreed with the information that was provided by the management of the CF.
 
Ms Skosana replied that the management report regarding the implementation of APPs was provided and that the internal audit revealed, as noted above, that the number of APPs achieved as stated by management was not correct, as revealed by the internal audit, which showed that the number of APPs was far lower than the number provided by management.
 
The Chairperson asked whether the internal audit report of the the CF was sent to the AG’s office.
 
Ms Skosana replied that the report was tabled and discussed at the audit committee meetings of the CF, which was used during the audit process.
 
The Chairperson wanted further clarity on why the CF had not provided the information for the 2015 year, which was a very serious issue.
 
An AG delegate said that there was a disclaimer of opinion, which stated that a number of documents were not provided for the 2015 year, which had resulted in a disclaimer that the AG could not therefore express an opinion on those statements due to their not been provided. The AG did attend the audit committee meetings of the entity, and was aware of what processes they had followed in making recommendations. The main issue was that management reported the status of the APP as being one thing, while the internal audit revealed a different picture, which was where the AG obtained that information.
 
Ms Van Schalkwyk noted that in terms of the AG’s briefing notes, there had been a reduction of 69% in irregular expenditure from the previous year, and said the reduction was due to improved control management processes. It was also stated that the overall financial health of the various portfolios was good. She was confused as to how the presentation showed that there was generally a regression in performance across the entities, but the briefing notes appeared to state otherwise. She requested clarity on that point.
 
Mr America said the CF had a new commissioner and a turnaround strategy had been developed. He wanted to know whether a degree of action was being implemented to address the various concerns. He was concerned, as it appeared that the entities were simply engaging in a box-ticking exercise and not properly acting upon the recommendations. In the report, it said that four engagements with the Minister had occurred, but it appeared as though the Minister did not properly comprehend the serious of the situation, particular as it pertained to CF. The Minister appeared not to have been committed to turning around those entities and addressing those concerns, which were both very serious and recurring. In terms of irregular and wasteful expenditure, he noted that it would be a positive development if criminal convictions occurred for officials or employees who had engaged in criminal acts regarding fraud or other financial crimes.
 
The Chairperson said that her focus was primarily on the CF, which was the biggest issue. As mentioned earlier, the AG had not stated that the Department or its entities had been resistant to implementing the findings. The issue appeared to be, in her view, that the Department and its entities were not addressing the root causes of the findings, which resulted in the issues recurring every year. If the Department was intentionally defiant of the findings, then the Committee should be informed of that, as it could not be a simple oversight that the issues recurred every year.

She wanted to know whether the AG had been firm enough with the Department in ensuring that their concerns were properly addressed and that the root causes were dealt with. the Committee was aware of the limitations of the AG, but wanted an assurance that the root causes of the issues raised had been communicated to the Department and its entities. She was particularly concerned about the status of the CF, and the Department had been engaged a number of times on its progress and issues by the Committee.
 
The Chairperson requested that the question of Ms Van Schalkwyk be left for another meeting, as the AG would be better equipped to answer that question at a later date. This was accepted.
 
Department of Labour
Before the Department began its presentation, the Chairperson said it was important for the entities and the various Department’s to formulate their annual performance plans (APPs ) creatively due to the recent budget cuts, as it was important for the Department and the various entities to use whatever funds they were provided with as creatively and efficiently as possible.
 
Mr Thobile Lamati, Director General, DoL, said the Department, in its discussions with the AG, had agreed that they would only use two legends regarding performance targets: achieved and not achieved. Targets which were not achieved, but only partially achieved, would fall under being not achieved. 
 
The first target dealt with the number of workplaces/employers which were inspected. The target was 172 334 inspections, and 186 871 inspections were conducted, and therefore the target was achieved. The second target dealt with the number of work seekers registered on the Employment Services System for the year, with a target of 600 000 registrations, and 634 503 been registered. The third target which dealt with the number of work seekers registered on the system who had been provided with employment counselling, which was not achieved, with a target of 250 000 set and only 208 989 registrations having taken place. The fourth target was also not achieved. It dealt with the number of work seekers placed in registered employment opportunities for the year, where a target of 25 000 was set, with only 10 927 achieved. The fifth target, which dealt with the number of pay scales assessed during the year to reduce gaps in minimum wage determinations, was achieved. It was set at four pay scales assessments, and four pay scale assessments were conducted.
 
The presentation then dealt with the annual performance of the Department in terms of its strategic goals (SGs).
 
The first SG dealt with the promotion of occupational health and safety standards, which was covered in terms of SG eight, which dealt with the strengthening of the institutional capacity of the Department. The second SG dealt with contributing to decent employment creation, with nine indicators set, of which four were achieved, with a total achievement rate of 44%. The third SG covered the protection of vulnerable workers, where four of the seven indicators were achieved. The fourth SG dealt with the strengthening of multi-lateral and bilateral relations, and the only indicator was achieved. The fifth SG dealt with the strengthening of occupational safety protection, with six indicators set and four achieved. The sixth SG dealt with the promotion of sound labour relations, and neither of the two goals set was achieved. The seventh SG dealt with the monitoring of the impact of legislation, with the one indicator being achieved. The eighth SG dealt with strengthening the institutional capacity of the Department, and of the 18 indicators set, eight were achieved. The ninth SG dealt with the development of occupational health and safety policies, which was covered by the indicators applicable to the strengthening of occupational safety protection under SG five. The tenth SG dealt with the promotion of equity in the labour markets, with six indicators set and five achieved. The overall performance was that 50 SG indicators were set, 27 achieved and 23 not achieved, which resulted in a total achievement of 54% overall.
 
Mr Lamati stressed that the information provided in the presentation had been audited and sent to the AG. In the initial compilation of the figures related to performance, the Department had achieved approximately 60% of their goals. However, after the AG had conducted an audit on those figures, the achievement rate had dropped to 54%. In SG 6, relating to the promotion of sound labour relations, there were two indicators which were not achieved, largely due to the fact that the AG did not agree with the way that those indicators were formulated. The 54% total achievement rate was therefore the audited performance, while the performance prior to the audit was 60%. This was still an improvement for the Department as compared to the 2014/15 financial year, where the performance had been around 42% in terms of targets achieved. While there had been an improvement, the Department was aiming to increase their achievement percentage even higher going into the next financial year.

The APP’s breakdown according to the different branches in the Department was then presented:

• Administration:18 targets, eight achieved and ten not achieved (44%);
• Inspections and enforcement services:16 targets, ten achieved and six not achieved (63%);
• Public Employment Services: nine targets, four achieved and five not achieved (44%);
• Labour Policy and Industrial Relations: seven targets, five achieved and two not achieved (71%);

The overall performance, in terms of the different branches, was that 50 targets overall were set, 27 achieved and 23 not achieved, with a total achievement of 54%.
 
The presentation then dealt specifically in more detail with the various branches where the Department had not performed well.
 
Programme one: Administration.
 
Under performance indicator 1.3, which dealt with the number of monitoring reports conducted on the Service Delivery Improvement Plan (SDIP) produced within 30 days after the year end, a target of four monitoring reports was set, with none being achieved. However, it was noted that the actual reports had been completed but had not been timeously filed with the different branches, which was the reason for the zero percent achievement.
 
Performance indicator 3.1 dealt with the number of fraud cases which had been received or detected and finalised within 90 working days. A target of 95% was set but only 42% was achieved. This was an area with which the Department continued to have problems, due to the various resource restrictions in the various provincial Departments, but this issue was being addressed through the UIF and the CF allocated more resources to the provincial departments to equip them to deal better with issues relating to risk management, and more specifically fraud cases.
 
Performance indicator 4.1 dealt with the Department communication strategy for 2019. The target was not achieved, but the Department had formulated a communications strategy which still required a proper review before it could be properly implemented.

Performance indicator 5.1 dealt with employment equity relating to the employment of women, youths and persons with disabilities. The targets set were: 50% for women, 38% for youths and 3% for people with disabilities. The Department had made the following achievements: 39.7% of women employed, 32.5% of youth and 2.9% for people with disabilities. While the Department had not achieved any of those targets, it was confident that it would meet the targets pertaining to women at the end of the year, as it was currently doing further recruitment to meet that target. The targets in terms of youth employment had presented challenges, and the Department was attempting to recruit more young people, but there challenges in retaining young employees at the Department, as they often pursued different employment elsewhere after being employed at the Department. The employment of people with disabilities was above the government threshold of 2%, and currently stood at around 2.9%, and would result in an achievement if it was rounded off to 3%, That figure, however, had not been rounded off and therefore was not achieved.
 
Performance indicator 5.2 dealt with the reduction in the Department’s vacancy rate, which had a target of reducing vacancies to 8% by 31 March. This target was not achieved, as the rate remained at 12.4%. This was a result of the vacancies which were created by the UIF and the CF to close the gaps in human resource challenges which those entities were experiencing. The Department could easily have achieved those targets, but due to the reallocation of employees to the CF and the UIF, the target was not achieved.
 
Performance indicator 5.3 dealt with the percentage of disciplinary cases resolved within 90 working days, which had set a target of 100%. The target was not achieved, with a 76% achievement, but it was noted that disciplinary cases had taken time to complete and that the outstanding cases were due to postponements and the complicated nature of those matters, which resulted in the variance.
 
Performance indicator 7.2 dealt with the implementation of the information communication technology (ICT) governance framework. The strategic plan had been finalised by the time the report was finalised, but it had been implemented late. The structures were in place, however, and it was now functional.
 
Performance indicator 9.1 dealt with the percentage of compliant invoices paid within 30 days of receipt. 99.54% was achieved, While this target was not technically achieved, a substantial improvement had been made. The reason for the variance was due to a system error which occurred during some of the payments.
 
Programme two: Inspection and Enforcement Services (IES).
 
The only provinces which did not perform well were Limpopo and the Western Cape.
 
Performance target 1.2. dealt with the number of employers which were reviewed to determine their compliance with employment equity legislation. Of the 831 employers reviewed, 668 were not compliant. Only the Free State, Northern Cape and the North West had not achieved their targets, which meant that they did not issue their recommendations to those employers within 90 working days.
 
Performance indicator 3.2 dealt with the percentage of non-compliant workplaces in terms of the Occupational Health and Safety Act. Of the 22 423 inspections, 8 168 were non-compliant. 8 144 compliance notices had been issued, with a total achievement of 99%. The Northern Cape was the only province which had not met all of its targets, otherwise this target would have been fully achieved.
 
Performance indicator 3.4 dealt with the percentage of applications for registration of entities that were processed within four weeks. Of the 4 828 applications received, 3 453 had been processed within four weeks, which resulted in an achievement of 71%.
 
Programme three: Public Employment Services (PES).
 
Performance indicator 1.1 dealt with the number of final regulations in terms of the Employment Service Act published by the Minister in the Government Gazette. A target of three regulations was set, which was not achieved. The three regulations could not be published in the Gazette by March 2016, as the establishment of the ES board had not yet been finalised by that date. The board had, however, subsequently been finalised and those regulations would be presented to the Minister for approval shortly in order to allow the promulgations of those regulations.
 
Performance indicator 1.4 dealt with the number of registered work seekers who had been provide with employment counselling. The target was set at 250 000 but was not achieved, with only 208 861 being provided with employment counselling. This was an area which was being addressed in the new financial year, as the number of employment counsellors versus the number of active employment population showed that one career counsellor was responsible for approximately 160 000 registered work seekers. In terms of international standards, there should be one counsellor responsible for approximately 15 000 work seekers, and this created obvious difficulties in achieving this performance target.
 
Performance indicator 4 dealt with the number of work seekers who were supposed to have been placed in registered employment opportunities. A target of 25 000 had been set, which was not achieved due to only 10 927 work seekers being placed in registered employment opportunities. This was due largely to the structural nature of unemployment, where despite job opportunities being available, the work seekers registered in the database often did not have the requisite skills for those opportunities. This required the Department to retrain those work seekers so that they could acquire the skills that the market required. This was a challenge that was faced throughout the country, and the Department had begun interventions through various initiatives, such as engaging with the Technical and Vocational Education and Training (TVET) colleges.
 
Performance indicator 6.1 dealt with the number of Private Employment Agencies (PEA) and Temporary Employment Services (TES) registered within 60 days. The target was to process all PEA and TES applications within 60 days, which was not achieved, with 281 applications processed within 60 days and 116 processed after 60 days. This was largely due to the fact that in some instances the documentation submitted was not completed properly, which required that documentation be sent back to the applicant, and this resulted in delays beyond the 60 day target.
 
Performance indicator 2.1 dealt with applications for foreign nationals, corporate and individual work visas, being processed within 30 working days. The target was to process all applications within 30 working days, but this was not achieved as 34 were processed within 30 days and 57 processed after 30 working days. This was also due to the fact that investigations often had to be conducted with inspectors, and only once that inspection was finalised could the report be sent to public employment services, who would then decide based on the report, whether recommendations to Home Affairs to grant those applications would be made.
 
Programme four: Labour Market and Industrial Relations.
 
The area which was not achieved was related to the number of collective agreements which had been concluded within 60 days. The reason for non-achievement was that 14 additional collective agreements were extended, and only one of those agreements was completed within 60 days of receipt, which created various delays. The amendments to the Labour Relations Act (LRA), however, were currently under consideration and when those amendments were passed that would allow for those agreements to be considered within 90 days and not 60 days, which would result in a substantial improvement in this area.
 
Financial Performance
 
The Department was allocated finances of R2.7 billion and its actual expenditure was R2.6 billion, which resulted in an under-expenditure of R92 million. The main reason was that there was an amount of R86.4 million, where the Department of Public Works (DPW) had made a claim of R78 million which was disputed. The reduced value, which was R68.4 million, was paid, however. The second reason for the variance was due to delayed invoices for software licensing, which could not be processed prior to the year end.
 
Public employment services was allocated R12.2 million, which was the allocation given to the Department from the Treasury to compensate all government employees who are injured on duty, and who then submit a claim. This fell under the budget of public employment services. The Department could only spend less than what they were provided with, which resulted in a saving of R1.2 million.
 
Labour Policy and Industrial Relations had a savings of approximately R11.6 million, which was due to the Government Communications and Information Systems (GCIS) invoices not being received, which created that variance.
 
The DG concluded with comments about the audit outcomes for the 2015/16 year.
 
Discussion
 
Ms Van Schalkwyk said that the Committee had received a report from the AG’s office, and it had concerns she wanted to raise with the Department. The AG had placed emphasis on his concern regarding the slow response of management to implementing the AG’s proposals, especially with regard to recurring matters that had been raised in previous years and matters which had been raised as concerns in terms of the APPs. This was a matter of great concern, as despite an overall improvement in terms of the Department finances, which were stable, a matter of concern was the fraud cases detected and not finalised within 90 working days, which only a 42% achievement. This was the second consecutive year in which this had occurred. Wasteful and irregular expenditure was also a point of concern. The Committee could not allow the Department to continue in this manner, despite it having been informed of those issues.

The AG had stated that management had not properly addressed their concerns, especially in respect of the APPs which did not have “smart” targets. She had raised those concerns with the AG and had pointed that it was not fair to raise those concerns at the end of the financial year when quarterly interventions should be implemented, and the response of the AG was that the Department had been made aware of those concerns, but the it had simply not implemented their recommendations. The AG also noted that these concerns were primarily due to the conduct of management and senior leadership, as the fraud cases not been properly acted on, and she wanted further clarity on this. Regarding the high number of work seekers who had not yet been placed in employment, she wanted to have further details regarding the retraining that was being conducted by the Department to find those work seekers employment.
 
Mr Rawula commended the Department for breaking down their report in terms of provincial demographics, as requested by the Committee. The report did not, however, have information regarding the breakdown according to the different sectors and he wanted to know whether this was deliberate, as some sectors were far more vulnerable than others in terms of legislative compliance. The recent oversight visit of the Committee in the Northern Cape did confirm the findings that that province was one of the worst when it came to compliance with legislation.

There had been a number of strikes, particularly in institutions of higher learning, mainly pertaining to outsourcing. He had a concern that it appeared that the Department was reluctant to register trade unions which did not fall within the Congress of South African Trade Unions (COSATU) which had a direct implication for labour and policy relations in the country. If that allegation was true, that would mean that there was political interference in the Department, on which he wanted further clarity.

Regarding the issue youth employment, which was attributed to labour mobility, he said that this was a fair comment, but that the term ‘mobility’ could be defined in various ways regarding factors such as age and qualifications, and wanted further clarity on what the Department specifically meant by the use of that term.
 
The Chairperson noted the questions of Mr Rawula, but said that allegations had to be substantiated by proper evidence and that he could not ask questions in the Committee which were pure gossip or conjecture. This pertained primarily to question raised about trade unions. He had to provide proper evidence for that allegation in order for the Department to respond. It could not respond to facts which were not substantiated, which would erode the status of the Committee. She said that while his question was important, he had to substantiate it with facts and not hearsay. She expressed her displeasure that the question had not been substantiated.
 
Mr Rawula accepted the Chairperson’s comments, but said that if the Department was willing to respond to those allegations then they should be afforded an opportunity to do so, to allay that perception. He did accept that if they were not willing, or unable, to respond, then he would accept that.
 
The Chairperson responded that if the Department was going to respond to questions, she would not allow hearsay questions to be put to them. She disallowed his question regarding the trade union registration until such a time as he had evidence to substantiate that allegation.
 
Mr America had a question relating to the fraud cases which had been detected, investigated and finalised. The presentation had shown that only 42% of the 86 fraud cases received had been finalised within the reporting period. He wanted to know what had happened after the reporting period following the completion of the previous financial year, and whether those cases had possibly been referred for investigation to other state organs. His second question related to the percentage detection of unauthorised and wasteful expenditure. A substantial amount of money was involved in quantifying what constituted wasteful and unauthorised expenditure. His question was, considering the substantial amount of money which was lost due to non-compliance with supply chain management processes and compliance with the Public Finance Management Act, what steps had been put in place to address those concerns? The AG’s report had highlighted the lack of consequence management, particularly as it pertained to that issue, and in the AG’s view the Department appeared to not be serious about taking appropriate action against individuals who failed to comply with the Act and SCM processes, which in the AG’s view was due to a lack of proper leadership and accountability. The AG had also noted that the accounting officer had also failed to exercise proper oversight in terms of those issues. He essentially wanted to know what consequences had ensued for those employees for either intentionally or negligently failing to follow that legislation.
 
Mr Ollis said that there was an acting Commissioner of the UIF, but the previous time that the UIF had appeared before the Committee, it had had a permanent Commissioner. He wanted to know what had happened to that Commissioner -- whether he was suspended, and whether it was for misconduct, or whether he had simply resigned. The CCMA governing body chairperson had recently been appointed for five years in writing, but s116 of the Labour Relations Act (LRA) stated that such a person could be appointed only for a period of three years, which then required a review of their employment at the end of that period. Why had the current Chairperson been appointed for five years in contravention of that provision? The AG had noted that in terms of legislative compliance, the overall compliance of the Labour portfolio had regressed, with 100 entities having material findings against them in that regard. In terms of key controls, especially in the Department and the various entities, the AG had noted a further regression mainly due to APPs which were inadequately implemented and monitored, as well as various repeat findings which occurred every year. The AG had also noted a regression of leadership in the head office of the Department, the CCMA and NEDLAC, and financial record keeping had regressed particularly in the CCMA, CF and NEDLAC. The level of assurance from senior management had also regressed, and in lower levels had remained stagnant. He wanted the DG to answer for that regression under his watch in terms of factors such as legislative compliance, monitoring of the implementation of APPs and financial controls.

The AG was also concerned about the high risk of corruption, both in the Department and its entities, and why the Department and its entities, especially in the CF, had not taken more action against those cases of fraud, corruption and mismanagement. He noted that the presentation showed that a number of misconduct and fraud cases had not been “resolved” and stated that that was an ambiguous term which could mean a number of things, such as there been no case to answer, or the case been buried. The AG had said that he was concerned about a number of investigations which were not conducted into allegations of financial mismanagement, such as various cases which had transpired in 2014, 2015 and 2016, and various other cases where disciplinary procedures were not conducted despite investigations confirming allegations of wrongdoing. A total of 130 cases were investigated, 70 were in progress and 30 had been completed, but his concern was that management had not acted on the reports for any of those cases and the recommendations they made. The AG’s report essentially stated that when a person was found guilty of misconduct, no action was taken to address those issues, which was unacceptable. The report also showed that the only action which had been taken on that issue, was that some of the cases had been referred to the police for investigation, which was not enough. He wanted further comments on why the DG and management had taken no action arising from the 70 completed cases, as it was imperative that action be taken against such persons. He also asked why his previous questions in other meetings had still not been answered regarding why no disciplinary action had been taken against Mr Herbert Mkize and the money that he had spent for his personal benefit while he was stationed at NEDLAC.
 
Department’s response

The DG dealt with first question regarding the AG’s criticism over the slow response by management to recurring matters and concerns. The AG had noted in its presentation earlier before the Committee that the Department failed to deal with the root causes of their issues, but the DG did not agree with that assertion. He was on record at the meetings he had engaged in with the AG and Standing Committee on Public Accounts (SCOPA) that it was not in his own interest to run the Department in such a manner that would please the AG. His primary concern was finding out why the Department was not run the way that it should be, and that he was committed to finding the root causes for the issues raised. In his meetings with the AG, he had informed him that a number of the recommendations that he had made could not implemented within a short time period of only a year, or even a couple of weeks. The AG had raised issues with regard to the reliability and usefulness of performance information, but in the DG’s engagement with the AG he had informed him of the challenges that the Department had faced with regard to the implementation of the ICT system, which was the only issue that the AG had with the usefulness and reliability of the information which the Department had generated. Public Employment Services, which did have an IT system in place and gleaned information from the system, had received an unqualified audit in that area.

He raised a second point that the engagement with the AG regarding the “smartness” of their indicators had shown that the AG was concerned about the way those indicators were drafted, which the Department accepted. The indicators were then subsequently revised and the AG then informed the Department that the revised indicators did deal with their concerns. The DG stated that it would not be in his interest to leave recurring issues unresolved, but if the AG was concerned with the smartness of their indicators, he should provide the Department with further information to that effect. The Department was however engaging further with the AG in order to address his concerns more fully.

He accepted that there were issues regarding the reliability of the records, and there should be more accurate record keeping at the provincial work centres. He took issue with the comments regarding the smartness of the indicators which had been drafted according to recommendations made by the AG and internal auditors, and it was an issue that he could not agree with the AG on. He did not want this to mean that the Department was not taking this issue seriously, but rather that there was a difference of opinion regarding the smartness of the indicators. He also took issue with the claim of the AG that there was a lack of willingness on the part of the Department to address the concerns of the AG by senior management. He said that he would deal with each concern individually.
 
In terms of the fraud cases that were not finalised within 30 days, the Department had indicated that because of their strong risk management units, within both the UIF and the CF, these had been extended to all the provinces, to ensure that all of the risk associated with their work and other challenges were properly dealt with. In the provinces, an independent chairperson had been appointed to ensure that the issue of risk management was taken very seriously.
 
It was also not true that management did not act on cases of fraud, as numerous cases had already been investigated but, due to a lack of resources and capacity, progress had been slow and they had also been unable to investigate other cases. It was only once those investigations had been finalised that the disciplinary process could begin and only once a recommendation by the presiding officer had been communicated, could any action be taken. The DG had personally dismissed employees at the Department because of fraud and other cases of misconduct, details of which could be provided to the Committee, as well as statistics relating to the current cases under investigation. He wanted the AG to point out a particular instance where he had refused to act on cases of fraud which, in his opinion, did not exist. It was also not true to say that there was a culture that tolerated fraud and corruption. Simply because they had not achieved their targets in that regard, it did not necessarily mean that they did not take the issue seriously.
 
Regarding steps taken against officials who had been implicated in the reports, the DG said that he could not personally think of any instance where either he or the Department had not acted on its recommendations. If the AG could provide such an example, the DG could then provide further information. The exact reason why the Chief Financial Officer of the CF had been placed on suspension was due to such allegations, and why disciplinary hearings had been instituted against him. He stressed that if examples could be provided where he had not acted against fraud or corruption cases, he would provide further information.
 
The DG agreed that irregular and wasteful expenditure was a serious concern, but the Department was taking this issue very seriously. Since the APP and the strategic plan of the Department had been implemented in 2015, irregular expenditure had been placed as an indicator, to send out the message that irregular expenditure would not be tolerated. In terms of the Public Finance Management Act, if irregular expenditure occurred it could be condoned by the DG, and officials would state before the Committee that he personally would not condone irregular expenditure if proper reasons could not be given for that expenditure. He stressed that he could not understand the AG’s concern that the Department did not take steps to deal with their issues.
 
With regards to the question which had been raised by Mr Rawula regarding the different employment sectors, that information was available and could be provided. He noted that the hospitality industry in the Northern Cape was of particular concern, but the Department would be visiting the Northern Cape next week to address those concerns personally.
 
A discussion had begun with the Director of the CCMA regarding the strike issues in higher education, which the Director could answer when he gave his presentation before the Committee.
 
The DG dealt with the term “youth mobility”. He gave the example of Occupational Health and Safety, where learners were sponsored to learn at higher learning institutions to study degrees and to be absorbed later into the Department. One often found that those students, once they had graduated, would work at the Department only for a year or two and then enter the private sector. The reason was that the DoL could not match the remuneration that the private sector provided. However, the Department was still proud to contribute towards to growing the economy and producing graduates, even if it did affect their employment targets and occurred in an indirect manner.
 
The UIF Commissioner had resigned to pursue his personal business interests, and there were no allegations of misconduct or fraud of any kind. The process was currently under way to fill his position permanently, and interviews were currently being conducted.  
 
The DG took issue with the claim that the Department had regressed overall under his leadership. The interventions that he and the Minister had made at the Compensation Fund had been instrumental in turning the fund around, such as the removal of the entire top management of the CF. The DG and the Minister were also confident that the current team would drive the necessary changes at the UIF, which had been confirmed by the AG. There were often differences of opinion with the AG -- issues such as revenue collection and the payment system, but the CF specifically had begun to be turned around his leadership, which was an example that there was not regression under his leadership. He had sat down with the AG and explained the DoL’s plans for the CF, but the AG had later recommended the very measures which the Department had implemented. He did not want to create an impression that there was hostility with the AG and he valued the work of the AG, which helped improve areas of concern and weaknesses in the Department. He was of the view that the AG did not properly understand the work of the CF and if they did, they would not be raising the concerns before the Committee which they had done earlier that morning.
 
The Department had achieved an unqualified audit, but was aiming for a clean audit, which he believed could be achieved due to the numerous interventions and measures that had recently been put in place. He stressed once again that he, the Minister and the Department took fraud and corruption very seriously, and was not sure where the AG had gained the opposite impression.
 
The phrase “resolved” meant that a case’s investigation had been finalised, as well as the disciplinary hearing in its entirety.
 
A delegate from the DoL then dealt with the questions raised by Ms Van Schalkwyk. The first thing that the Department did was to acknowledge their under-performance in the 2015/16 year but they had reduced their target from 28 000 to 5 000, which was approved by the Treasury. The SR system had been improved, particularly as it related to employers and registration. As part of the improvements, self-service systems were being rolled out which had been audited by the AG. They had improved the training of their staff in terms of the system, and assistance was being provided to unemployed work seekers through a programme funded by the UIF to enhance the skills of the unemployed. These initiatives had begun to see results, as during quarter one and two there had been a significant improvement in the placement of unemployed work seekers.
 
A second delegate answered the question asked by Mr Ollis regarding the tenure of the chairperson of the CCMA.
 
Mr Ollis did not completely understand the response, and asked for clarification. He did not understand what was meant by the phrase that a “process” had been put in place, as his understanding was that the contract was due to end only in 2018 which was five years, and not three years. He wanted clarification on what date the contract was due to expire and secondly he wanted clarity on what the delegate meant by the phrase that a “process” had begun on that issue? He said that they had accepted that the AG’s criticism regarding reporting was valid, but the DG had taken issue with the majority of the AG’s other findings and he wanted further clarity on that point. His question had also not been answered regarding the disciplinary procedure or status relating to Mr Mkize, and wanted that issue to be addressed.
 
The DG said that they agreed with the AG on the following areas:
 
Firstly, they agreed over the usefulness and reliability of their reporting information. There were certain areas where they did not have all of the required records to verify their records, and were currently in the process of addressing that issue.
 
They did have a difference of opinion with the AG regarding the “smartness” of their indicators. He clarified that the Department had drawn a line between their indicators and their performance indicators. They were of the opinion that their performance indicators were smart, based on the information that they were given by the AG during their internal audit. They accepted that during the collection of their data, they could not verify some of the performance which was claimed by different provinces in different areas, due to proper records not being kept. This was being addressed and it was being ensured that every centre kept proper records and management relating to that information.
 
The rest of the issues raised by the AG relating to fraud, irregular expenditure and a supposed culture of tolerance of fraud and corruption could not be agreed with, He argued that those issues raised were not based on facts, and he challenged the AG to produce any information or evidence where management had failed to act in instances of clear fraud or other types of serious misconduct. He stressed that he took his role seriously and that if there examples where he failed to act he would like to be given that information or evidence.
 
It was noted that the forensic report done by NEDLAC had been sent to the police for further investigation and there was no information, as far as he was aware, that the police had either completed their investigation or had recommended a criminal prosecution against Mr Herbert Mkize. They had been informed that the reason the matter was referred to the SAPS was that the investigation was not conclusive and that further investigations had to take place. Mr Mkize reported to the Minister as a personal advisor, and it was the choice of the Minister to take action against him, if she was of the view that he should be disciplined for his conduct, and fell outside the powers of the DG, and he could not officially take action on that issue.
 
The DG said that it had been an oversight that the CCMA governing body appointment had been granted for five years as opposed to the three years as required by law, and the oversight was currently been addressed.
 
Ms Van Schalkwyk wanted to place on record that during her engagement with the AG, she had found that there were a few contradictions in his report which may have led to a misrepresentation of some facts. Her questions in that regard had not been answered, but she did not want the Department to respond to those outstanding matters. She simply wanted to place that fact on record.
 
The Chairperson noted that the DG had reiterated that the Department had a cordial relationship with the AG. The issues raised, however, should be sorted out so that the next time that the Department appeared before the Committee, it would see an improvement. It was important for the presentation to be fully detailed, and where there was a regression or improvement, that specific details should be provided as to what constituted either that regression or improvement.
 
Mr Ollis had one final comment. The Committee should be cautious about commenting on the AG when they were no longer present, as that was procedurally unsound when the AG was not present to answer the questions or concerns.
 
The Chairperson replied that there was nothing procedurally unsound about making comments or raising concerns when the AG was not present.  Members had asked questions related to the Department which had been raised in the AG’s report and the Department had a right to respond to those concerns and questions. All of the issues which had been raised had also been raised before the AG. As the meeting was public, and the AG was afforded an opportunity to stay, there was nothing wrong or procedurally unsound with raising those concerns even if the AG or his representatives were not present.
 
Supported Employment Enterprises (SEE)

Annual Performance Report

Mr Silumko Nondwangu, CEO: SEE, said performance indicator one dealt with the strategic risk monitored in line with the risk appetite mode/framework. This indicator was not achieved, primarily due to a lack of adequate resource capacity to manage and report on the risks within the entity. Additional resources had subsequently been allocated, however, and this area was currently being attended to.
 
Performance indictor two dealt with the expansion of consultations conducted for the purpose of expanding the Sheltered Employment Factories (SEF) into Limpopo and Mpumalanga. There were delays due to consultations with the relevant stakeholders in the various provinces, but this was in the process of being finalised to allow the establishment of new factories there. This target was therefore not achieved, as the feasibility study had not been finalised by the time that the report was compiled.
 
Performance indicator three dealt with the increase of sales of goods and services in the SEF. This goal was not achieved, as there problems regarding the finalisation of contracts for raw materials with various service providers.
 
Performance indicator four dealt with increasing the gross profit margin on all goods and services. This was also not achieved because of the failure to finalise all of the relevant contracts, as was the issue in terms of performance indicator three.
 
Performance indicator five dealt with the SEF marketing strategy being reviewed and approved for implementation in line with the market. This indicator was achieved and approved.
 
Performance indicator six dealt with the production standards and norms developed and implemented in line with the SEF. This was not achieved. While the standards and norms had been developed, there were delays in finalising and consolidating them, which led to delays in implementation across all factories. Further consultations had been conducted with Productivity SA so that technical information and comments could be provided with regard to those norms and standards.
 
Performance indicator seven dealt with the financial security and sustainability of the entity being achieved in line with the financial management strategy. This indicator was not achieved, but there was currently a review of the management systems in place, and there was another system currently in place after the appointment of a new CFO for the entity.
 
Performance indicator eight dealt with procurement being carried out in line with the supply chain management (SCM) policy, which was achieved.
 
Performance indicator nine dealt with the increase of sustainable work opportunities created for persons with disabilities, and an increase in SEF capacity to 998 persons with disabilities by the end of March 2016. This indicator was not achieved owing to the failure to secure additional work for persons with disabilities, which was also due to a failure to conclude contracts for the supply of raw materials and the failure to conclude contracts with various government departments.
 
Performance indicator ten dealt with the implementation of the employment equity plan, which was achieved.
 
Overall, 68% of the performance indicators were achieved, with five out of eight targets achieved in the first quarter of 2016/17, which was a big improvement. The entity was also currently engaging in an initiative to stabilise and re-energise itself for long term sustainability and growth.
 
Financial Performance

Mr Spheni Ngcongo, CFO: SEE, said the entity had shown an improved financial performance for the last year, and had achieved a net profit of R36.2 million, as compared to R29.1 million the previous financial year.
 
The findings that had led to a qualified audit opinion by the AG were related largely to cost of sales and inventories, as well as some account receivables which had not been recognised from the 2013/14 financial year. In the past, the SEE would have received a different audit finding, but in the 2015/16 financial year the finding regarding the financial misstatement had been addressed, but as an investigation had to first be conducted regarding the inventory findings, it still resulted in a qualified audit opinion. An audit action had been developed and shared with the AG and comments had been provided, with the plan currently in its implementation stage. The AG had stated that they were satisfied with their current costing model, which had previously been the basis for qualified audit findings.

GRAP (Generally Recognised Accounting Practice) 12 had been fully adopted with regard to their inventories, which required that all direct and indirect manufacturing costs be recognised as costs of sales, which had resulted in the high figure. A strong focus on inventory management was required, and management was currently in the process of reviewing its procedures. Further training would be provided to entity storemen who were responsible for the bulk of the inventory management and compliance within the entity.
 
The entity failed to meet its revenue targets, but there was a substantial improvement from R48 million in the previous financial year, to R52 million in the current year. The cost of sales was R128 million, which included all raw materials, wages and salaries for labour, as well as the various manufacturing overheads. The gross loss of R76 million was due primarily to not generating enough sales. Other income showed that the subsidy received from the National Treasury was an additional R91 million.
 
There had been irregular expenditure of R16.1 million, due to legacy contracts which had been inherited from the previous management. However, in the 2016 financial year, the irregular expenditure was only just over R100 000, which was quite an improvement, and further ways to address this issue were being sought. Fruitless and wasteful expenditure was just over R100 000.
 
The AG had made 33 audit findings. Four were currently in the process of being resolved, while 13 had already been resolved.
 
The financial ratios had improved from 2015, where it used to take 66.8 days to pay creditors. They were now being paid within 23 days. While there was an improvement, the debtor’s collection period was not yet meeting its target. The reason was that there were a number of issues regarding the completion of projects, but the figures would be different if one excluded the projects that the entity was currently working on.
 
In the 2015/16 audit plan, there were 38 audit findings in total. Some of them were administrative in nature and the majority related to the inventory management plan. A detailed action plan had been implemented to address the audit findings, which would be monitored monthly in terms of its implementation.
 
The quarter one financial performance showed that the revenue was approximately R10 million below budget, as the target had been set at approximately R14.5 million, and the actual achievement was approximately R4.5 million. The reason for the variance was primarily due to the contract delay in securing supplies for raw materials -- contracts had been secured for textiles, but the contracts for wood still had to be finalised. The majority of the entities’ revenue was linked to their sales, which explained the variance due to the decrease in sales. The cost of sales showed that the entity was above budget primarily due to the fact that when the budget was compiled, it had been based on the previous accounting standards used by the entity. However, during the last financial year they had adopted the correct accounting standards, which was the explanation for the variance. The gross loss was around R18.7 million, with a variance of approximately R2.7 million. Operating expenditure was slightly below budget at R1.2 million, with the net profit for the quarter being at R11.4 million.
 
Discussion

Ms Van Schalkwyk was concerned about the annual performance indicators which were not met, as she calculated only 20% were achieved. The financial performance for the last financial year, as well as the annual performance report for the first quarter of the current financial year, gave a degree of guidance as to why a number of those indicators had not been achieved, and also explained a number of her concerns. She wanted to know whether the entity currently had a financial manager. She wanted an explanation for the loss of R11 million, and what had lead to it.
 
Mr Ollis said they did not achieve their profit margin targets due to delays in securing raw materials and production, and wanted to know what the reason for those delays was, and what plans had been put in place to address that issue. He also wanted to know if the CFO had been replaced. The financial performance showed the entity had lost R18 million, compared to the profit of R36 million in the previous year, which was very concerning. He wanted clarity as to why there had been such a reduction in profits and whether those losses simply reflected the losses in the last quarter, or for the whole of the previous financial year.

A final question was asked about the failure to meet their employment equity targets. The entity used to have around 2 000 staff, and now had approximately 900. The Committee had been informed, when it performed oversight over the entity, that a commitment had been made that the entity would employ military veterans. Had those veterans been employed? Since 2010, the Committee had been informed that a problem faced by the entity was that it could no longer force government departments to procure products from the entity, which required a greater degree of marketing to sell those products either to the private sector or government departments. As there had not been an increase in the number of staff, it appeared that there had not been an increase in sales and if that was the case, what steps had been taken to deal with that issue?
 
Mr America said the CFO had reported that there were two significant concerns in the AG’s report, which were costs of sales and inventory. The entity had received a qualified audit, which was not a good audit outcome. The audit report itself showed that there were a number of material misstatements and other issues. The action plan which had been presented to the Committee to deal with the audit findings did not adequately represent all of the concerns raised in the AG’s report, such as a failure to properly present audit statements in accordance with GRAP 12, and that those statements were not presented on time, and other issues such as non-compliance with legislation. Did the entity have the capacity in terms of human resources to address those issues and if not, was there a substantive plan to prevent similar kinds of findings in the next financial year? The AG had noted that a similar action plan had been presented in the previous financial year, yet the majority of the recommendations in that initial plan had not been addressed properly.
 
SEE response

Mr Nondwangu responded to the concerns raised by Mr Ollis. The last report that had been given to the Committee had envisaged the entity growing through increased sales, the employment of additional personal and the conclusion of contracts with various government departments. The possibility had existed at that time for the additional employment of military veterans, which could also be marketed from outside of the entity. It was envisaged that there would be increased growth through government departments placing orders from the entity for products such as furniture, linen and other products related to the hospitality industry. The current situation was that the challenge remained that few government departments, both at national and provincial level, were placing orders with the entity. Their ability to generate more income and employ more people was dependent on government entities placing large orders in order to generate profits and growth, which was not currently the case. Previously, approximately 3 000 people with disabilities were employed at the entity, but the current figure was now less than 1 000. Employment opportunities for people with disabilities did exist within the entity, but an appeal was made to place pressure on government departments to place major order for products such as furniture, which was necessary in order to increase their operations. Engagements had been done with national and provincial departments, but this was not always successful, so he was appealing to the Committee to assist them in that regard.
 
The challenges in terms of procuring raw materials still remained, but engagements had begun with the DoL to address that issue. The nature of the business was such was that when an order was placed, they needed to be able to secure raw materials in order to create those products. In terms of the current government SCM policy, they were prohibited from running the business in a “factory” sense, but they were in the process of engaging the DoL to possibly find exemptions to these policies in order to allow for more orders to be placed in the entity and for more products to be produced. Any exemptions from the SCM regulations would first have to go through the DoL and then be approved by Treasury. Such exemptions were necessary, as there were stricter timelines when a client placed an order -- it was necessary to timeously secure raw materials in order to meet the deadlines set by the client.
 
The major work of the entity related to the production of wood products. What often occurred was that there was a culture of price fixing for a number of raw materials. This had to be resolved, but if the issues relating to SCM and the necessary exemptions were granted, then those problems could be overcome.
 
The nature of the problems faced in the past and currently regarding a commitment from government departments to support the entity through placing orders still remained a serious challenge. There had been a number of orders from government, but this had not occurred on the scale that was required in order for the entity to fully achieve its mandate. An absence of government contracts hampered their ability to employ persons with disabilities, but engagements with the government departments had begun to address those issues.
 
The CFO then dealt with the four questions relating to financial performance and the AG’s findings. The audit action plan presented was intended to be concise given the time constraints before the Committee, but a detailed action plan had been developed to deal with issues, along with prescribed timelines. The AG had been informed of that action plan.
 
The audit report showed that there were a number of misstatements which could be corrected and a number which could not be corrected, given the complexity of those findings. There was not a high amount of misstatements which had not been corrected. The errors had to be investigated before they could correct those statements.
 
Capacity was currently an issue, especially in the financial department, but in order to mitigate that risk an advertisement had been fast tracked for auditing and control positions, both of which had been vacant. One position had already been filled and improvements could already be seen and once the other position was filled, it was envisaged that there would be further improvements. There was still an issue regarding skills and training of the people employed in those positions, but that concern was being addressed and would take some time to resolve.
 
The issue relating to the drop in profits meant that the R36 million was the net profit in the 2015 financial year, while the R18 million was the gross profit. The gross profit in the first quarter was R11 million. The entity was currently making a gross loss overall, but the subsidy from Treasury did ameliorate some of the losses. Further engagements still had to take place with Treasury in terms of the different accounting standards, to see what portion of the entity’s direct labour could be offset with the subsidy in order to give a proper reflection of the entity’s gross profit and loss.
 
The DG, Mr Lamati, told the Committee that the business model of the entity in the past was that an order was first placed and then an order for raw materials would be made. This was in the process of being reviewed, where a three-year contract could be entered into with suppliers, resulting in a constant supply of raw materials. Contracts had been concluded for the supply of textiles, but a contract for the supply of wood was still in the process of being concluded. Once those contracts were secured, raw materials would probably no longer be an issue.
 
Mr Nondwangu then dealt with the concerns relating to the performance indicators not being met. The challenges relating to the sourcing of business from government departments was currently being addressed by the Minister, who was engaging with Members of Executive Committees (MECs) of the various provinces and the various Health Departments to encourage further business with the entity. The issue was that many of the Departments and entities were not fully aware of the business of the factories and the benefits from placing orders with them, but this was been addressed by the Minister through her own initiative in that regard.

There had been issues in the past relating to under-resourcing, and the position of senior managers within the entity. Two directors and a permanent CFO had been appointed, with improvements that could already be seen. The issues relating to under-resourcing were primarily in terms of strategy positions within the entity.  He specifically thanked the new CFO, who had played a big role in turning many issues relating to the finances of the entity around.
 
Mr Ollis commented that the issue here was essentially one of policy failure. SEE had been told that they could no longer expect government protection relating to the purchase of their products, and that they had to compete in the private market. However, at the same time the entity was not allowed to operate on the same basis as a private entity in terms of their procurement. This created a situation where there were a number of complex regulations relating to their procurements, but at the same time the protection provided to them had been removed by government. This hampered the ability of the entity to achieve its mandate and the Government should change its policy in order to address those issues.
 
The Chairperson said that the issues raised by the entity were of a recurring nature, particularly regarding the lack of government support for the purchase of its products. The Committee had made recommendations to the entity, but there were limits to the recommendations that they could make, as they could not give instructions to Treasury on this issue. The entity could not simply point figures at Treasury, but the Committee should be more aggressive in its assistance. This would be examined further in order to find solutions for the problems that the entity was currently facing. The Committee had to provide assistance within its limitations, and further work would be done in that regard.
 
Unemployment Insurance Fund (UIF)

Mr Tebogo Maruping, Acting Commissioner: UIF, described the entity’s achievement against its strategic goals.
 
SG one dealt with the improvement in financial management. The year began with a 67% achievement rate, and ended the year at the same level.
 
SG two dealt with the improvement of service delivery. The year began with an achievement rate of 50%, and ended the year at the same level
 
SG three dealt with improving compliance in terms of the Unemployment Insurance Act. The year began with an achievement rate of 25%, and ended with an achievement rate of 75%.
 
SG four dealt with poverty alleviation schemes, which began with a 0% achievement rate and ended with an achievement rate of 50%.
 
The presentation then focused on those areas where there was underperformance and less on the areas where the targets had been achieved.
 
Programme One: Administration
 
The first performance indicator dealt with percentage return on investment (RoI). A fourth quarter RoI target of 8% by March 2016 had been set, but only 3.3% was achieved. The main reason for the variance was poor market performance. Remedial action had been taken to review their portfolio and to structure it in such a way that it would be able to withstand poor market performance.
 
The second performance indicator of concern was the percentage of total mandated social responsible investments (SRIs) which had been committed. The fourth quarter target was that 80% of the total mandated SRIs should be committed by March 2016, but only 68% had been committed by that date. The main reason for the variance was the lengthy process involved in applying the investment strategy, but remedial action had been taken to embark on early engagement with stakeholders to obtain early approval of the investment strategy.
 
Programme Two: Business Operations
 
The first indicator of concern dealt with the percentage of valid claims with complete information that had either been accepted or rejected. The fourth quarter target of having 90% of those claims rejected or accepted within five weeks of receiving the application was not achieved. Gauteng had finalised 74%, the North West 79%, Limpopo 74% and the Free State 89%. The reason for the variance was that the stringent verification measures introduced to combat fraud had resulted in prolonging the finalisation of claims. Remedial action had been taken to streamline the process to speed up the verification process, which would address that concern. Some provinces had, however, substantially missed their targets, such as the North West, which required an intervention and investigation to discover what issues were in place in that province. Each province had also put together a service delivery plan which was monitored on a monthly basis, and this had already resulted in substantial improvements.
 
An official from the Department told the Committee that a study had been conducted in the North West regarding the poor service delivery. The findings showed that there were a number of issues which had to be dealt with, such as the allocation of work as well as the fact that a number of findings involved the central office. It was recommended, among other things, that a number of those functions should be decentralised, which should address the concerns regarding poor performance in the North West UIF. The main issue, however, was related to the need for proper training and providing capacity to those officials employed by the entity in the province.
 
The second indicator of concern related to the percentage increase in the number of newly registered employers. The quarter four target was set at a 4% increase by March 2016, but only 3.3% of new employers were registered. The reason for the variance was that a number of employers were not still not fully aware of the expectations and legal requirements imposed on them by the UIF, but remedial action had been taken to collaborate with employer bodies to reach and inform unregistered employers. An aggressive marketing campaign had been embarked on in this regard, and the figures had been revised in order to make the indicators more realistic and workable.
 
Programme Three: UIF poverty alleviation schemes.

The first indicator of concern related to the number of UIF beneficiaries who were trained or in training, with a fourth quarter target set of having 6 000 beneficiaries trained or in training by March 2016. This was not achieved, as only 3 258 UIF beneficiaries were trained by that date. The reason for the variance was that the recruitment and contracting process had taken longer than expected. Remedial action would be taken to address these concerns by decentralising aspects of the training system and increasing labour activation initiatives and training, as well as advertising throughout the various provinces.
 
A target of assisting 100 distressed companies by March 2016 had been set, but not achieved. Seven companies were assisted under the training layoff scheme, and 41 companies were assisted with turn-around solutions, thereby missing the target by 52 companies. The reason for the variance was primarily due to a lack of company compliance with the provisions relating to company assistance, which required a high degree of due diligence with the applicable legislation. Where a company did not strictly comply with those provisions, they were not eligible for assistance from the entity.
 
Financial Performance

The Chief Financial Officer, UIF, said the Fund’s total budget was R12.4 billion, of which R9.6 billion had been spent.
 
Compensation of employees had been R939.8 million against at budget of R1.026 billion, resulting in under-expenditure of R86 250 million. The reason was that new positions had been created, which were advertised, but they could not be filled by the end of the financial year.
 
Goods and services had an allocation of R1.05 billion, and the actual expenditure had been R849 million -- a variance of R195 million. The main costs drivers were the commissions paid to SARS, which collected revenue on its behalf, as well investments on behalf of the Public Investment Corporation (PIC), which required a commission payment. Another cost driver was the leases that were paid for the various provincial departments alongside the DoL.
 
Transfers and subsidies had amounted to R7.772 billion, which was R2.392 billion below the allocation of R10.164 billion. This was the main cost driver of the entity overall.
 
Capital assets had an allocation of R262 952. Actual expenditure was R129 454, with a variance of R133 498. The main cost driver here was the implementation of the IT system at the entity.
 
A financial breakdown of the different programmes within the entity was provided.
 
Programme one dealt with administration, which was mainly made up of the head office and the staff employed there. There was no amount allocated here for transfers and subsidies, as the main allocation of that figure was done through each provincial office.
 
Programme two dealt with expenditure for each province where service delivery was performed. Compensation of employees, goods and services, and transfers and subsidies were all accounted for in this programme. The major part of the budget was for the payment of benefits.
 
Programme three dealt with labour activation. Transfers and subsidies under this programme showed a large decline from the amount that had actually been budgeted -- R1.6 million had been budgeted, but only about R80 000 was spent. The acting commissioner had already indicated that a primary reason for this variance was due to delays in the training scheme, but this issue was currently being addressed. It was hoped that during the current financial year a far higher amount of money would be spent with regard to labour activation.
 
The fund was in a strong financial opinion and had received an unqualified audit from the AG.
 
Another delegate then provided further information regarding the performance of the entity. During the last financial year, over 23 Memorandums of Understanding (MoUs) had been signed with different Technical and Vocational Education and Training (TVET) colleges. Officials were currently being trained in civil engineering and construction. The duration of the programme was currently 12 months, with four months in class and eight months doing practical work. A sum of R1.8 million had been invested in each TVET college. Training of UIF beneficiaries was also occurring outside the TVET colleges, with 1 203 people currently trained by the fund provided by Productivity SA. There was also a programme to train aspiring entrepreneurs, with a total of 857 currently trained, but the records of the AG showed the number as 657 due to various documents that could not be properly accounted for. Productivity SA had also been transferred a sum of R17 million for the purpose of this training. R126 million had been transferred to train low-skilled people, but only R59 million had been spent. Gauteng was the province that had benefited the most from the interventions overall in terms of the training layoff scheme.
 
Discussion

Mr Rawula’s primary concern was with the labour development programme and the training layoff scheme. There had been no impact analysis in terms of the training layoff scheme. When a company laid off an employee, what usually occurred -- especially in the manufacturing industry -- was that those employees would not be laid off for more than two weeks. The type of interventions which the layoff scheme engaged in those companies in, were not necessarily the types that would achieve its goals, as they excluded learnership and apprenticeship compensation. The result was that the people who would primarily benefit from the scheme would be the training providers, and not necessarily the laid off workers, who had to sustain themselves during the economic distress of the economy.

He was also concerned that the presentation was not sector specific, as the figures differed substantially across different industries, such as the automotive industry which, in his view, showed that the training layoff scheme in that sector had been a complete disaster. What often occurred was that companies in the manufacturing sector would not lay off workers for more than a year at most. His comment was that the scheme was not effectively designed to achieve its purpose, particularly in the manufacturing industry, due to the short period of time that those employees were often laid off. He was concerned that the money that was spent on the programme was not justified, considering that it would not have the effect of actually providing skills to workers who were often laid off for only short periods of time.
 
Mr Ollis also commented ron the training layoff scheme. The purpose of the scheme had been to deal with the effect of the 2008 economic crisis, where companies began rapid retrenchments, particularly in manufacturing and mining. It was intended essentially to attempt to retrain employees who were currently employed, but not yet retrenched. He had raised his concerns when the programme was first implemented, as what often occurred was that employees would join the scheme but would later discover that they had been disqualified from receiving UIF funding, as they had to be trained fully before they were retrenched. It was unacceptable that the Department still had problems with the scheme, such as delays, as it had been implemented more than eight years ago, considering the amount of time that had elapsed for those issues to be properly dealt with and remedied. This was a recurring issue. The Department had been informed that the process was too slow and cumbersome, but those recommendations had not been implemented, despite the Committee informing the Department of its concerns.

He also wanted more information regarding the finances of the entity. It had had a R19 million surplus, which had decreased to R10 million. This was a 43% decline in ten months, which was not acceptable. The money allocated to the entity constituted public funds, and had to properly spent and accounted for. Did the entity have an explanation for that expenditure? He also wanted to know what systems had been put in place to trace contributions to the fund in the filing system. He had received a number of complaints that the system was not adequately managed and the funds could not be properly traced. He personally had not been able to trace his own contributions to the fund which he had paid for own his domestic workers, despite contributing to the fund for over ten years.

He was also concerned about a number of figures in the report. Unemployment was currently at one of its highest rates, yet claims from the fund had dropped, which did not make sense to him. If unemployment was increasing, it did not make sense that the claims for unemployment benefits were decreasing, which made him doubt the validity of the many of the figures which had been presented. He also had a question as to why the funds for Productivity SA had been transferred so late. An audit opinion also showed that the entity had failed to take steps to prevent R64.4 million in irregular expenditure, and the supply chain regulations were not followed. It was a serious issue that government money was often stolen through a failure to adhere to those processes, which had to be taken far more seriously. What disciplinary actions had been taken to address those issues in the last financial year, as mentioned in the AG’s audit findings?
 
UIF response

Mr Maruping responded on the training layoff scheme, saying the money was allocated for the employer-employee relationship, and therefore people outside of that scope could not benefit, although this could be addressed if it was a concern by restricting certain aspects of the scheme. There was a huge market in terms of the population that could benefit from the programme, and it would possibly be necessary to revisit certain aspects in order to increase the number of people that could benefit from it. There were also issues relating to the marketing of the scheme and the requirements that had to be met in order to benefit from it. The requirements could not be too lax, as that would result in funds not being properly allocated to benefit those who should benefit from the scheme. He did agree with Mr Ollis that it was necessary to streamline the programme in order to ensure that those unnecessary delays no longer occurred. It was important to put proper procedures in place to ensure that people who did not qualify for the scheme did not benefit from it, to the detriment of those who should be entitled to benefit.
 
Irregular expenditure had been a point of contention during the auditing process. There were two companies which the AG was looking for, which had been procured a number of years ago. When the finding was made, the procurement process was not entirely above board but the contract was still running. The procurement process had subsequently been rectified. This was a technical finding and would result in that procurement still constituting irregular expenditure in the following year due to the fact that that contract would still be in operation.
 
The CFO responded to the question regarding the surplus reduction in the current year. The main reason for the decline was due to unrealised profits and losses. During the last financial year, an undisclosed profit of R5 billion had been disclosed, while in this year there had been an undisclosed loss of R4 billion, which had reduced the total surplus. This was essentially a technical disclosure required of the entity, but the actual performance showed that in terms of the surplus, if the unrealised profit was removed, the financial performance would be good for the current year. There was thus, technically, no loss for the current financial year due to those undisclosed investments, some of which were invested in bonds and equities which reflected the technical figures. Thus, in terms of the actual performance, their financial performance was on track.
 
The irregular expenditure in the last year was not discovered by the AG, but he had looked at previous years where irregular expenditure had been discovered, which had been further influenced by the fact that various contracts which the entity had concluded were still in operation, and which had been concluded in terms of a procurement policy that was not compliant with the AG’s recommendations. While the entity had a negative finding in that regard, the adjustments to the procurement process had been implemented, which simply required the entity to further tighten and adjust any outstanding issues on that point. There was one contract which was currently under investigation by the entity which had been entered into in the last financial year, and investigations were currently under way. If discipline was required, those measures would be implemented.
 
The CEO noted that there was a methodology to trace funds, but it did require some adjustment to improve its operations. It was necessary to tighten up that process to ensure that members of the public and companies could properly follow and trace their contributions.
 
No clear answer could be provided at the current stage regarding the increase in unemployment but the drop in claims for unemployment benefits. What could be said was that not all members of the public were properly informed of the benefits which they could claim, which would require more drives to educate the public about the benefits which they could claim should they become unemployed. This would be addressed primarily by engaging in an intensive marketing campaign to educate the public about the UIF and what could be claimed.
 
The Department was currently looking at the impact of the training scheme. A task team had been established which was headed by Mr Sam Morotoba, Deputy Director General, DoL, in order to streamline the processes of the scheme and evaluate its effectiveness in achieving its objectives. The task team was also looking at improving the period of the scheme from six to 12 months, but that would first have to be approved by NEDLAC before it could be implemented.
 
The Chairperson noted that in the Western Cape, there was a high number of layoff schemes and training initiatives. When was the last time that visits had been made to the various companies in the Western Cape that had been given funds? Which companies had been visited, and did they comply with employment equity legislation? How many of those companies operated in areas which consisted of more vulnerable people, such as Khayelitsha and Langa? Did the entity provide funding to people who were more vulnerable? If a company stated that it would train a certain amount of people, were those companies visited in order to ensure that those training schemes were actually properly implemented?
 
A UIF delegate responded that she did not have that exact information with her, but monitoring of companies did take place to ensure that the training did in fact take place. Both the UIF and the DoL paid only 75% of the salaries -- the rest of the training would be paid for by the relevant centre. The maximum period required for training was six months, and thus far the entity had not discovered any company which they had visited which did not comply with the full training period of six months. The Department did have an obligation to ensure that where a company did apply for the training layoff scheme (TLS), there was a statutory duty on the Department to ensure that it complied with its obligations. When a company was unable to access money due to not contributing to SARS and the UIF, and it alleged that the company had collapsed because of the UIF, such an allegation would not be true as the real reason for the collapse would be due to the company not complying with its statutory duties.
 
Companies were visited when the entity engaged in monitoring, but she did not have the exact figures for the Western Cape available. The last monitoring process had been engaged on two weeks ago at Score Metal, where they claimed that they employed 300 people, but the monitoring inspection had revealed that that claim was not true.

There were issues regarding company assistance due to issues of compliance, which hampered the ability of the entity to properly assist companies in distress. In the current financial year only one company had been given assistance, but the amount that had been set aside for training for the current financial year was approximately R4.1 billion.
 
The Chairperson said that she would not be posing further questions, but when the entity reported before the Committee next year the information regarding company assistance and training must be provided. The DoL was not the only stakeholder, but it was integral to the process, as without its participation and monitoring the programme would not achieve its objectives. It was important to ensure that all money allocated to companies for that purpose should be properly accounted for. It was a concern that many companies which were Sector Education and Training Authority (SETA) accredited were not benefiting from the programme, most especially people from poor and disadvantaged backgrounds.
 
Mr Rawula, wanted a commitment from the acting commissioner that there would a streamlining of the TLS. In his personal experience, companies often engaged in the layoff scheme, only to be superficially seen to be complying with the applicable legislation. The situation had changed since 2008 when the programme was implemented, and the majority of companies never laid off an employee for more than six months. It was also necessary to review the process that the training maintained its quality in terms of the skills that it provided to those who participated in the scheme. His main concern was that the scheme was only benefiting training providers by providing them only with “soft skills” and not proper and meaningful skills that would actually benefit them, and therefore the programme required a review to ensure that it operated more effectively and meaningfully.
 
The CEO said that an impact analysis had been conducted, and all of the issues which had been raised on the TLS had been examined. It was also noted that the skills had changed tremendously since 2008. A new governance structure had recently been approved by the DG, which included the three government departments, which would bring them under one administration. The Minister had instructed the UIF to convene a workshop to bring all stakeholders to look at the process and the impact analysis report, as well as the AG’s findings, to address the various concerns which had been raised and to streamline the training process. The UIF was attempting to fast track the applications currently on the table by requesting all of the information which was not forthcoming in the initial applications, and the Commission for Conciliation, Mediation and Arbitration (CCMA) was assisting in that regard. At the same time, the UIF had been given until the end of November to design a new process, as the concerns of Mr Rawula were valid -- many companies did not lay off workers in the same manner as they did in 2008. Improved technology also affected the profitability of some companies and alternative ways of training laid off workers were being developed to ensure that they had marketable skills, even if they did not necessarily regain employment in that same company. The whole scheme was currently being completely redesigned to address all of those various shortcomings and as part of that same process, it would be necessary to secure a buy-in from the labour market unit at NEDLAC to complete and finalise that process of review.
 
Compensation Fund (CF)

Mr Vuyo Mafata, Commissioner: CF, said the entity was focusing on two main strategic objectives over the next five year period. The first was to provide faster, reliable and more accessible Compensation for Occupational Injuries and Diseases (COID) services by the year 2020. The second was to provide effective, efficient and client-orientated support services.
 
Over the next three year period, the entity aimed to achieve a more focused and efficient fund by focusing on the three core areas of compensation and pension benefits, medical services and disability care.
 
The first strategic objective dealt with providing effective and efficient client-orientated support services. There were seven planned indicators, of which three were achieved. The second dealt with providing faster, more reliable and accessible services to COID services by 2020. Ten indicators were set, and four were achieved. There were 17 planned indicators in total, with seven achievements, and a total achievement of 41%, which was the audited figure.
As was noted by the DG in the Department’s presentation, the entity had only used the legend that showed whether indicators had either been fully achieved or not achieved, and therefore partially achieved indicators were indicated as not having been achieved.
 
The presentation then dealt in more detail with the indicators that had not been achieved.
 
The first indicator was the percentage of active registered employers which were annually assessed by 31 March 2016. The indicator was used to assess the revenue that was payable by employers to the fund. A target of 95% was set, and only 46% had been achieved. The fund was streamlining and reviewing its registers and there were a number of businesses which were no longer operational but which still appeared in its systems.
 
The second indicator dealt with the percentage increase on investment income by 31 March of the current financial year, compared to the previous financial year. A target of growing the business was set at the consumer price index (CPI) plus 2%, and the actual performance was at 4.02%. A major contributor to this figure was the unrealised losses in their investment portfolio in the last financial year.
 
The third indicator dealt with reducing the number of matters referred to in the AGSA audit report of March 2015 which had to be cleared by 31 March 2016. The target was set at clearing 26 matters, and the actual performance was that 16 matters were cleared by that date.
 
The fourth indicator dealt with the percentage of vacancies at the head office and provinces. A target of reducing vacancies to 10% was set, and the actual achievement was that 18% of the vacancies currently remained at the end of March, 2016. The CF had begun implementing a new structure in 2016, which involved decentralising services to the provinces, and this had resulted in new positions being created in the provinces which had to be filled, which resulted in the revised figures. The biggest reason for the variance was an inability to attract the required medical personal in the various provinces, which had still not been recruited at the end of the financial year. This figure had improved since the end of the financial year, however, with the vacancy rate currently at approximately 11%.
 
The fifth indicator dealt with the percentage of authorised claims which had been paid within five working days. The target was that 100% of those claims would be paid within five working days, with the actual performance reaching 95%.
 
The sixth indicator dealt with reviewing the compensation benefits for annual adjustments. A target of reviewing those annual compensation benefits by March 2016 was set, but was not achieved. However, the proposed benefit increase had been submitted on 28 January 2016. The main reason for the variance was the delays in finalising and publishing that review, which was received only in March 2016 and could therefore be published only in April 2016.
 
The seventh indicator dealt with the annual improvement in the administration of benefits, both compensation and medical. A target of piloting chronic medication distribution to beneficiaries and the hospital management programme by March 2016 had been set, but was not achieved. The chronic medication tender was advertised only during the fourth quarter of 2015, as well as the hospital management programme. The entity wanted to use the same contract that was currently being utilised by the Department of Health to distribute chronic medication. However, once the DG of the Health Department had granted that approval, it was discovered that the delivery method it currently used would not be practical for the entity’s own personnel, and therefore a decision was made to advertise their own tender to achieve that target, which delayed its implementation. The contract had been concluded at the end of September and the programme would then be implemented by October 2016.
 
Another issue which was also targeted concerned hospital benefit management, to attempt to deal with issues of fraud from medical service providers, to ensure that quality healthcare was provided, and injuries in the workplace were avoided. A company would be appointed to oversee the risk management and a tender had been finalised, but a company had not yet been appointed because the quality of the responses was up the level sought. The tender had been revised in order to deal with issue.
 
An electronic case management system was being developed to deal with issues related to litigation. The nature of the entity’s business was that it was often involved in court proceedings, where clients were not satisfied with the quality of the services that it provided. This could not achieved by the financial year end, but the project was still in the process of being finalised.
 
The eighth indicator dealt with the percentage of medical claims that were finalised within 60 working days of receiving the invoice, with a target of 85% being set, but the actual performance was 72%. Backlogs were currently being dealt with, as well as the new claims which had subsequently been lodged. This had to be seen alongside the fact that the entity had to achieve with target with limited resources, as well as the high vacancy rates which it had experienced.
 
The action plan which had been presented to the Committee already had around 75% of the targets already achieved. There had also been a big improvement regarding the number of claims which had been paid out in the last year compared to previous years.
 
Financial Performance

There had been an increase in total assets from R53.1 billion to R56.6 billion. Total liabilities had shown a move from R29.9 billion to R37 billion. This had resulted in total net assets decreasing from R23.1 billion to R21.9 billion. As was noted by the AG regarding the CF’s financial health in terms of the liquidity and insolvency ratios, the entity was far above the minimum required norms.

Total revenue had decreased from R11.8 billion at the end of the previous financial year to R11.4 in the current financial year. This included employer contributions of R7.6 billion, compared to R8.4 billion the previous year, and R3.7 billion from interest and dividends. The main reason for the decrease in employer contributions was that a number of them had not timeously submitted their returns for assessment. Revenue had also decreased due to the entity cleaning up its database, and actuaries had had to be retained and paid for that purpose..  
 
Total expenditure had increased from R8 billion to R9.3 billion. The major contributor to this figure related to benefits paid, which had risen from R6 billion to R7.9 billion. Fair value adjustments had amounted to R2.8 billion in the previous year, but were reflected in the current year as a R3.3 billion deficit. The net effect had been an overall deficit of R1.3 billion, compared to a R6.6 billion surplus the year before.

The presentation then dealt with the comparison of the entity’s budget versus its actual expenditure. It had an approved budget of R10.2 billion for 2015/16 and had spent R11.4 billion, which was R1.2 billion over budget. Administration expenses of R1.4 billion were 66% above the budgeted R848 million, while benefit payments of nearly R8 billion were more than double the budgeted R3.99 billion.  A major contributor to the over-expenditure under administration was a court action which the Department had lost, resulting in a damages claim of R350 million.
  
Discussion

Ms Van Schalkwyk began with the comments made by the AG, especially the finding that the CF did not present the documents requested relating to supply chain management. A second finding was that the CF did not take appropriate disciplinary steps against officials responsible for fruitless and/or wasteful expenditure, and that the fund did not investigate all allegations relating to financial misconduct nor hold disciplinary hearings for confirmed cases of financial misconduct. She wanted more information regarding the breach of contract issue and the court case surrounding it, as well as when the contract had actually been concluded. The AG also had questioned what measures had been put in place by the entity to address its serious concerns. The AG had told the Committee that the internal audit of the CF did not necessarily agree with the findings that had been presented to the AG by the fund’s senior management, and she wanted further clarity on that point. The AG had also stated that there was a general failure to follow SCM processes, there was a lack of compliance with key pieces of legislation and there was a failure to comply with legislation relating to competitive bidding processes which were not always properly advertised, and she wanted further clarity on that point. There was also a concern that there was a culture of poor performance, fraud and corruption which was not being properly dealt with, and there was a serious concern that the fund could deplete its financial reserves. There were a number of serious concerns and the Committee had indicated to the AG that they understood the issues, and that there had been an improvement following the implementation of the turnaround strategy, but she wanted further clarity on what measures the leadership had put in place to address the concerns raised by the AG. What steps had senior management taken to ensure adherence to both its targets and to address issues pertaining to the financial health of the fund? It was not acceptable for the fund to always report to the Committee without improvement being shown, and it wanted a commitment that steps were being taken to address its concerns.
 
Mr Ollis asked about the R350 million litigation. Who was the complainant, why did the matter go to court and why did the case cost such a lot in legal expenses? The budget versus actual expenditure showed that the actual budget was far lower than what was actually spent during the year, which was a concern. The presentation itself was disappointing considering its brevity and the fact that the fund, as the largest entity in the Department, did not have a sufficiently detailed presentation. The AG had noted that the CF had the most issues regarding financial health of all the entities in the Department, which did not give a positive impression regarding the seriousness of management to address the concerns about the entity. The presentation showed that the management was of the view that the risk management unit had delivered on its mandate, although the actual figures, in terms of risk management, showed the programme had cost R9.2 million of a R30 million budget, and of that same figure, only 55% of the meetings were attended by management. Some of the responsibilities of the entity had been outsourced to Deloittes at a cost of R25 million which did not, in his view, show that the entity was delivering on its mandate. IT was a serious concern, as there was poor meeting attendance and severe under-expenditure.

The entity had disagreed with the AG on various points. The AG had claimed that 130 people were investigated for financial misconduct, with 60 investigations in progress and 70 having been completed, but in all cases management had failed to act on any of the recommendations. If the DG was correct that those numbers were not correct, then what was the correct figure, if they maintained that they disagreed with the AG’s findings? More specifically, of the cases that had been concluded, how many had the entity fully acted on?. He was not willing to accept their claim that the AG’s figures were wrong, and then not provide the figures which, in the entity’s view, were correct. He said that there was another court case that was about to launched against the CF from a company called Mutual Construction Company, and their case involved what they claimed was a R17 million overpayment, their argument being that they had been incorrectly classified in terms of the type of business they engage in. Their business had changed, and the incorrect classification had been applied. They had requested a meeting and had contacted the Commissioner and the DG, but it appeared that no meeting had materialised and the Committee had been informed that summons had now been issued. Why were these kinds of matters not directly settled without having to go to court? This was a serious issue regarding their finances, considering that the finances of the entity were not private funds, but public resources.
 
Mr America said that he had empathy for the CFO, who had recently taken over the fund and was reporting on a period when he had not been involved in that capacity. However, he still bore the responsibility to ensure that the targets of the entity were achieved. Earlier in the year, the CFO had presented a turnaround strategy which dealt with many of the shortcomings which he had inherited in his new position. It appeared that there was a lack of human resource capacity, not in terms of quantity, rather that the right people with the requisite skills were not placed in the correct position, which should be reviewed in terms of a skills audit. In terms of disclaimers, these were largely the same disclaimers which had been presented for the last few years. It was hoped that through better administration and management, there would be improvements the following year.

Another issue of concern was the money lost due to litigation, which was a high amount. Had the people who had been responsible for causing that legal action taken responsibility, and what measures had been put in place to deal with the issue? It appeared that there was a lack of urgency and care in the entity to adhere to legislative compliance requirements, which was very concerning. It did not appear that this issue was being dealt with properly, and when there was a lack of compliance with legislation it impacted negatively, with a qualified audit and the various qualifications in that regard. It appeared that overall there was a very negative and casual attitude amongst the staff towards compliance matters. The auditors had been changed, but it still appeared that there had been a lack of improvement. Would improvements be seen in the next round of presentations? The AG had noted that there was a culture of fraud and corruption in the fund -- what had been done to change that culture to result in efficient and effective governance, as well as proper service delivery?
 
Mr Mafata spoke to the first question relating to documents which were not provided to the AG. When the audit was conducted, a list requesting various documents would be provided to the entity, and approximately 77% of the documents requested had been provided. There were two issues relating to the failure to submit various documents. The first was where physical forms would be submitted to the fund for claims, and the auditors would then ask for those physical documents. Following the introduction of the electronic system this year, all documentation was dealt with electronically. The AG had requested various medical reports, and the CF had informed the AG that that information was in the electronic system, but he was not satisfied that there was no physical documentation.

The second issue was that the AG chased timelines regarding the finalisation of their audits, which required a number of documents to be provided at short notice, which had resulted in issues arising.

The AG had noted that the entity did not have proper mechanisms to deal with misconduct and cases of fraud, as raised by Mr Ollis. Issues of financial misconduct occurred in such a way that if there was a suspicious transaction, it would be recorded in the financial misconduct register. A financial misconduct committee had been established, which was chaired by an independent chairperson. The committee would then evaluate those cases which were recorded to determine whether it constituted a case of fraud or irregular and/or wasteful expenditure. With the 130 cases reported, 70 had been through the financial misconduct committee, and the findings of this independent committee showed that a number of cases had duplicated information, and in other cases the transactions did not amount to fruitless or wasteful expenditure or fraud. There were eight cases which showed that they were genuine cases of financial misconduct, but other cases did not have enough information in order for them to make a finding. The statement that management was not doing anything to deal with those issues was surprising to him, as a list had compiled of those various cases and around 60 cases were still pending before the committee. Of the eight which did have negative findings, they had been referred for further investigation, while in other cases recommendations had been made that those items be removed from the register. In some cases it had been recommended that the expenditure potentially be condoned. There were issues around advance payments which had been made in 2012, and a decision had been made to recover that money. However, it was emphasised that proper legal avenues had to be followed in recovering that money, and the state attorney had been engaged in that regard.
 
The question regarding the litigation around the breach of contract was then dealt with. In 2010, advertisements had been made to retain the services of a debt collecting company, and the name of that company was Nix. At the time of the appointment, it coincided with the CF changing from the Computrance system to its current system in 2011. At the time of their appointment, there were issues relating to the fund giving data to that service provider to begin its work for the fund, which did start later than expected. At the end of the contract, the service provider wanted the contract to be extended for 18 months as a result of that initial delay. Discussions had taken place, but a decision was taken not to extend the contract. An arbitration process was provided for in the contract but that process, which was presided over by a judge, was unsuccessful. The judge ruled in favour of the company, largely as a result of the delays. A calculation of damages was done, which was around R349 million, which was then paid by the entity. As that payment had not been made for procurement, but for legal damages, it was considered as irregular and wasteful expenditure as no services were procured. This had been picked by up the AG, as it was disclosed. An investigation had been implemented to discover whether there was any wrongdoing in that regard, and this was still in progress.
 
The AG had stated that issues relating to revenue and claims were historical, and dated back to 2009 and 2010. The findings were being addressed, but the primary issue was that the root causes of those findings were not always addressed, which then resulted in repeat findings. The AG had acknowledged that the prior issues had been dealt with, but the root cause had not been dealt with, which was the AG’s main concern. This was the difference between what the management had reported and the discrepancy raised in their internal audit. It would take longer to deal with the root causes of the findings, but a commitment had been made to deal with those issues specifically.
 
There was a disagreement with the AG regarding the competitive bidding process. The management report of the AG listed a number of companies which had been retained without following proper procurement processes. The procurement processes in government could be quite lengthy. Certain services had to be urgently obtained from outside sources, such as auditing capabilities. Tenders were then advertised to appoint multiple companies to complete those services, and when a service was required, codes would be requested from that pool of companies and then the company which met that specification would then be appointed. This did cut out quite a lot of time and could be completed within a week or two, as opposed to a number of months. This was the reason that the AG made the finding that those contracts were not properly advertised, and which had resulted in that expenditure being classified as irregular and wasteful expenditure.
 
The AG had been provided with a list of all the cases of fraud and other issues pertaining to risk management. Where there was a suspicion that there was fraud, that would be reported to the entity’s hotline and recorded in their register, and it would then have to be investigated. The majority of the matters which were reported in the fraud register pertained to external parties attempting to defraud the fund. Only once wrongdoing had been identified would the matter then be referred to the police for further investigation, and there were cases in which they had been referred to the South African Police Service (SAPS). Where a staff member had been implicated, those staff members had been dismissed and in certain cases even convicted and sentenced. It was stressed that all of that information had been provided to the AG and, as raised by Mr Ollis, the contract with Deloittes was to assist the entity in uncovering and investigating those cases of misconduct more effectively. This was a step that had been taken by management to deal with issues of fraud and corruption.
 
The Commissioner took issue regarding the possible depletion of financial reserves, as was noted in the AG’s report. The financial report also dealt with the financial health of the fund, and in both 2015 and 2016 positive findings had been made regarding the fund’s financial health regarding insolvency and liquidity requirements, as well as the amount of time that it took to process claims, which showed that the fund was financially viable. The business of the fund was to collect money from employers and then to pay claimants in the event of injury or other relevant occurrences, and the business was primarily to simply hold funds. More claims had been paid in the last year in comparison to the last two years, and if the concern of the AG was simply that the fund was not holding enough funds in reserve, that would be an issue that the Commissioner would not necessarily be able to fix ,considering the mandate of the entity.
 
The action plan had identified a number of issues regarding people management and financial management. Under financial management, issues had been identified which were related to improving the capacity of the entity, and a number of officials had been replaced with officials who were more appropriately skilled and qualified for those positions. Medical services was one area which required more skills, and this had been dealt with in terms of the decentralisation process -- four medical doctors had recently been appointed to deal with medical claims. Disability and case managers, all of whom had medical training backgrounds, had been appointed to turn those issues around. The Minister had also recently approved a revised strategy which would focus on three areas in the fund: disability management, medical services and the insurance components of the fund. All of those measures had been implemented to improve the functioning of the fund and a skills audit had recently been concluded, which had identified that the fund needed additional financial and medical skills, which formed a large component of their business.
 
He agreed with Mr Ollis that there was a large discrepancy between the budget and actual expenditure. In terms of employee compensation, there were a number of issues with the budget which had arisen largely as a result of the decentralisation of the fund. Previously the work of the fund had all taken place at the central office and there were not necessarily any provincial offices to carry out the work of the entity at the provincial level. The budget for the previous year had not properly taken the decentralisation process into account, but it had been taken into account in the budget for the current financial year. The improved system had improved the information which they received, and this would improve their budgeting in the future.
 
A position had been taken that formulating their APPs in a way that was overly broad, and nothing was not achieved, was not an efficient way of drafting their targets. Fewer core targets had been set for that reason, and currently there were around 17 permanent indicators against the entity to evaluate their performance. Ten of those targets were in the core business and seven in the support strategy. Once they had reached a position where those core targets had been met, then additional targets could be added.
 
The nature of the business was that litigation was sometimes inevitable, as the law provided that if any person was not satisfied with decisions that had been made by the DG, then they could review decisions that he had made in the high court. An interesting phenomenon had developed. In the past, the fund would be defrauded by service providers, but what was happening now was that businesses had also attempted to engage in fraud against the fund. The usual modus operandi was that the businesses would bring legal challenges regarding incorrect classifications. Consultants would often approach businesses, and inform them that they could assist those businesses to get reduced payments due to the fund, or refunds, through court action. The assessment of the fund was based on the different industries that businesses were in, and therefore a higher risk industry would attract different pay rates due to the increased risk of workplace accidents, which many companies wanted to avoid. In many cases, companies were incorrectly classified due to various errors. However, other companies had been correctly classified and then alleged that due to an incorrect classification, they should be entitled to refunds, which was a worrying trend. A balanced approach had to be adopted. An automated system had been adopted in October which had various checks and balances which were checked against SARS to evaluate whether a company’s claim that it had been incorrectly classified, was correct or not.
 
The disclaimers had been largely the same as in prior areas, and dealt primarily with issues relating to claims. This was a root cause that could not be dealt with completely overnight. The fact that the AG was not satisfied with the electronic system meant they had had to review that process, which had resulted in further delays. The concerns of the AG in that regard had been noted, and were being addressed by the management at the entity.
 
The DG wanted to place on record that he had never disputed the figures of the AG. He had disagreed with the finding that the Department, and more specifically the CF, did not take steps to discipline those found guilty of fraud or misconduct. He did not dispute that there were 130 cases of fraud and/or financial mismanagement, as claimed by the AG, but what he did disagree with was the AG’s finding that those matters were not acted upon by senior management, or that management did not act on cases of fraud and misconduct seriously.
 
Mr Ollis had a further question regarding the disciplinary matters. The Commissioner had stated in his reply that of the 70 cases that had been processed, eight cases had raised legitimate concerns regarding misconduct, and he had recommended that disciplinary steps be taken. This had occurred in March and of those eight cases, how many had resulted in disciplinary sanctions such a written warning, dismissal or any other kind of sanction for misconduct or fraud?
 
The Commissioner replied that of the eight cases, four had resulted in dismissal and the other four cases were currently being finalised.
 
Productivity SA  

Mr Mothunye Mothiba, CEO: Productivity SA described the structure of the organisation in order to give the Committee an indication of the number of its employees. There were 106 employees, of which 63 were technical personnel and 43 were support staff. This was a misalignment, as they did not have enough employees to do the majority of the entity’s technical work with companies, but this was an area that they were currently working on.  
 
The presentation then dealt with the strategic goals (SGs). The performance indicators had been structured in such a way that they would have an actual impact on the labour market.
 
SG one dealt with support initiatives aimed at preventing job losses. 43 companies that faced economic distress had been supported through turnaround strategies, thanks to funds which had been provided by the UIF. R17 million had been provided in order to achieve the targets under this strategic goal, which was received only in December 2015, and therefore they had only four months in which to achieve it, due to the funds being sent late. There had been challenges in this regard, particularly in terms of project management related to the turnaround solution, which had poor performance. The performance was so poor that they were unable to engage in cost recovery, to recover funds from the UIF and account for the money which they had received. The CEO said that he had accused the UIF of not giving the entity their requested funds timeously, but when he had investigated further and established an independent audit, he discovered that it was not the fault of the UIF, but the fault of Productivity SA itself. Even the board had been misled, which had resulted in the CFO being suspended in July and the executive manager responsible for this aspect of the entity’s business had resigned within 24 hours. This issue was currently being worked on.

During this same period, approximately 6 976 jobs had been saved through turnaround interventions, although the actual target was 7 500. It was noted that over 36 000 jobs had been lost in total, but engagements had begun with the UIF to identify unemployment trends in the market and to ensure that effective strategies were put in place and to provide funding in the correct areas to further reduce future potential job losses.
 
SG two dealt with providing capacity to education, training and development (ETD) providers and small, medium and micro enterprises (SMMEs) in order to contribute towards sustainable employment creation. A target of training 8 600 beneficiaries was set, but this was not achieved, with 6 917 beneficiaries being trained.
 
SG three dealt with creating products and services of assisted companies to become world class and competitive. A target of implementing the Workplace Challenge Programme (WPC) in 736 companies had been set, which was not achieved, with only 610 companies implementing the programme. The figure in this regard had not been audited, but another issue had been identified, as they had been unable to track the number of jobs that they had saved through the programme. However, when they examined their own records further, the figures showed that just over 42 240 jobs had been saved through the implementation of the programme, but more work could be done in the programme to achieve even higher numbers in the future.

SG four dealt with the national awareness campaign. An awards system had been established by the entity, with 28 companies in various categories going through as finalists for the national awards in the 2015/16 year. Those companies were from across the country and fell into four different sectors: the cooperative sector, emerging sector, public sector and corporate sector. Each company was measured in terms of the extent that they had improved employment due to the entity’s interventions, improvements in turnover, their health and safety records, efficiency and cost.
 
The presentation then dealt with their performance per each strategic objective. The current level of performance against those targets was not good, as there were a number of targets which were not achieved. The average performance overall was at 35%, and a large amount of work had to be done to achieve the targets in the future. A turnaround solution programme had been formulated, however, and was being funded by the UIF.
 
Programme one dealt with the turnaround solutions, and none of the targets under that programme had been achieved.
 
Programme two dealt with the entity’s organisational solutions. Six targets had been set overall, but only two targets were actually achieved. The number of workers trained had a planned target of 900, with an actual performance of 934, and the number of managers trained had a target of 160, with an actual achievement of 205.
 
Programme three dealt with value chain competitiveness in terms of research. Six targets had been set and only one was achieved. The target which was achieved was to publish a report detailing the annual competitiveness indicators’ position of the entity. This was an area where productivity studies and impact per sectors were being conducted to ascertain to what extent their interventions had an actual effect on the ground. Discussion with the board had begun and performance would be monitored quarterly to ensure that they achieved their targets in the future.  
 
The second aspect of programme three dealt with value chain competiveness in terms of the Workplace Challenge. All of the targets in this regard had been achieved, except for that which dealt with the number of new entrepreneurs that had joined the WPC programme, where the planned target was 201, but an actual performance of 184 had been achieved.
 
Programme five dealt with human resources. They were unable to achieve approximately 80% of the targets under this programme.
 
The CEO said that the overall performance was quite poor, with an achievement rate of only around a 35%, but measures were being put in place to deal with the poor performance. 
 
Financial Report

The Acting CFO said that a the end of March 2016, there was a R2.5 million deficit for the previous financial year. By the end of April there was a total deficit of R9.5 million. One of the main drivers of that figure was that salary expenses, which made up around 30% of their expenses, had not been covered by the grant provided by the DoL. Funds had been received by the UIF, but not all of the projects which received UIF funding were implemented. There had been a rollover from previous years in terms of UIF funds received, which created issues regarding their financial statements. The entity also had R30 million from the UIF for productivity purposes.
 
The CFO then dealt with the audit findings following the conclusion of the audit at the end of March.
 
34 audit findings were made which related to SCM, contract management and procurement. 16 of the findings were of a financial nature, which related largely to the interpretation and application of their financial statements. These were corrected before the March 2016 financial statements were concluded, which had resulted in the majority of those findings falling away. There were four findings which related to performance information.
 
Fruitless and wasteful expenditure amounted to R1.05 million, while irregular expenditure amounted to R2.8 million.
 
In September 2016, six months into the current financial year, there was a deficit of around R6 million, which brought the total deficit of the entity to around R14.6 million. This again related to the DoL grant which did not cover salary expenses, besides other costs such as rent and services. Services income would have to be generated in the future in order to meet those expenses and reduce the current deficit. The DoL had transferred an amount of R25 million in July which had rolled over into the current quarter. In total, around R18 million of the UIF funds still had to be earned.
 
In the UIF, there was around R40 million in deferred projects which had to be rolled over in order to earn the funds from that UIF account.
 
The CEO had implemented a number of interventions to improve the financial health of the organisation for the next financial year. At the end of March 2016, there was a R9 million deficit, and by September there was a deficit of around R16 million which, if the current trend continued, would amount to around a R1 million deficit per a month. The CEO had implemented interventions such as placing a moratorium on all existing vacancies, which would result in further savings. That moratorium included existing vacancies and employees who had either retired or resigned from the entity, which would save around R1.3 million. Costs of communications had been reduced which would result in savings of around R1.5 million. Internal recoveries would be reduced, resulting in savings of around R900 000, and the use of consultants had been minimised, which would save around R500 000, and reducing legal fees which would also save around R500 000. Insurance costs would be reduced to the bare minimum essentials, which would save around R300 000. Other costs such as staff development would also be reduced, amounting to a further saving of around R500 000. In total, all of the cost cutting measures and interventions would result in savings of around R10 million between now and the end of the financial year.
 
Discussion

Mr Ollis said that there was a crisis at Productivity SA. All government Departments had to be proactive in dealing with issues in their operations and could not simply wait for that problem to grow and get out of hand. It appeared to him that there were a number of key personnel in the organisation who did not perform their jobs properly, which then jeopardised the whole operation, especially considering that they had been without funding for a period of almost nine months. Interventions had to begin early to deal with issues before they spiralled out of control. Many officials in the Department, and the Committee itself, were aware of these issues yet no one had taken responsibility to intervene and address those issues early. If they had been more pro-active in securing funding and dealing with issues as they arose, they could have fulfilled their mandate and saved more jobs.

He had question of clarity regarding UIF funding. It appeared as though the funding from the UIF was placed in an expense account and then, as the projects were rolled out, they could claim from the account, which would then constitute their income. It appeared as though it became income only once the project had actually been rolled out, and he wanted to know if this was the case. Despite that, the debt was growing because projects were not rolled out timeously. The fact that the entity was cutting down on costs in areas such as pensions and photocopying appeared to be misplaced. Why did they not rather focus on rolling out more projects to ensure that the business actually grew as opposed to simply cutting costs? He accepted that cost cutting was necessary in order to decrease their debt, but the funding which they would receive would be far higher if they focused more on rolling out more projects and ensuring that those projects were properly implemented timeously. He was concerned that it appeared that their approach was more along the line of simply saving costs as opposed to actually implementing the work of the entity.
 
Mr America disagreed with that there had been a saving of 42 240 jobs, as those jobs were not saved due to a number of companies which had come on board regarding the world class competitive programme run by the entity. Simply because they had participated in the programme did not mean that jobs were saved, rather that jobs had been simply retained, as those were jobs that were not in distress and did not require assistance. In terms of the UIF report, 6 000 jobs were saved on their first objective, and Productivity SA had stated that 9 670 jobs had been saved through the implementation of turnaround strategies. He wanted to know whether those were the same jobs, or whether they were additional jobs which were saved as a result of the subsidies which had been received from the UIF. It was commendable that they provided world class productivity training which resulted in new jobs being created. Of the 610 companies that had participated in the programme, not all of them were going to lay off employees and therefore he wanted to know whether it was technically correct that jobs had been saved as opposed to not simply being retained.
 
Mr Rawula appreciated the honesty of the entity, but had some concerns. In terms of their mandate perspective, they had indicated priorities such as revitalising culture and advancing beneficiation in terms of mineral wealth. He wanted the entity to achieve a productive South Africa, but the manufacturing sector, and more specifically the automotive industry, had lost a large amount of local business. Volkswagen had gradually been decreasing their employment in that sector, from around 9 000 employees in 1998 to around 3 000 at the present. The report failed to show the steps which had been taken to advance local industry and beneficiation. His concern was that there was not enough being done to advance local industry, and the country appeared to simply import products without advancing local industry and empowering local business. He questioned whether the current economic framework limited their ability to achieve their goals, particularly considering what, in his view, was the domination of the market by foreign businesses. The country had been losing a number of jobs and there appeared to be lack of political will to advance local industry and business empowerment.
 
Department’s response

The DG first dealt with the question raised by Mr Rawula. The mandate of the Department was to create an environment that was conducive to investment, economic growth and job creation. In order to achieve that mandate, they had to ensure that there were businesses which operated in an efficient way, and assist businesses which were in distress in order to prevent job losses. The mandate of the entity was to drive productivity at an enterprise level, to retain jobs as well as create new employment opportunities. The question which the Member had raised referred to a broader socio-economic policy. It could be necessary for the Department to examine how to assist smaller and more informal businesses better, in order to make them more competitive and to achieve the entity’s mandate, which would be looked into further. However, the Department could not engage in issues that fell outside of their mandate.
 
Mr Mothiba answered the question raised by Mr Ollis regarding the UIF funding and income. He said that the Member was correct, and that the cost of implementing the project would be claimed from the UIF account once that project had been rolled, which then constituted the entity’s income. The issue was that if they failed to implement projects they had the ripple effect of a lack of cash flow. While they had implemented cost cutting measures, that did not mean that they had stopped project implementation, but rather it meant that they had to stretch what resources they did have even further. Three projects were currently being worked on and implemented, and Transnet had recently given them R13 million. Once those projects had been implemented that would result in reducing their deficit even further. He did not want to have a deficit going into the future, and aimed to eradicate the deficit expenditure completely. The entity had been pursuing projects which did not always necessarily result in good returns. This had been revised in order to pursue projects that would both ensure the financial health of the entity and the fulfilment of their mandate, which was part of their cost containment strategy.
 
Their focus was primarily on companies which were facing economic distress, both in terms of efficiency and economic productivity. This was what they meant, in response to the question raised by Mr America, when indicating that they had saved those jobs. The effect of their interventions was that companies which would have laid off workers, did not do so, due to the interventions of the entity. This had resulted in a restoration of economic productivity and efficiency, thus resulting in those jobs being saved.
 
In response to the question raised by Mr Rawula, the CEO said that the entity could achieve an economically productive South Africa. He had personally conducted studies done on Asian countries which had experienced rapid economic growth, to determine what policies and practices they had implemented to achieve that rapid growth. Many of those countries had focused on productivity strongly, as well as international trade.
 
The Chairperson wanted to know whether the AG had had any positive comments or findings.
 
The CEO replied that while they had not received a qualified audit opinion, the AG had raised issues regarding the management which they were currently acting upon and addressing.
 
The CFO added that their external audit services had been outsourced by the AG to another service provider. There had thus been no direct feedback from the AG’s office, despite the service provider’s negative findings regarding the management of the entity.
 
The Chairperson asked if the CFO was stating the AG had not audited the entity, and the audit had been outsourced to another service provider which had not sent its findings to the AG’s office. How did the outsourcing work -- did the report go back to the AG to examine the findings, or did the AG simply rely purely on what he received from that outsourced service provider?
 
Mr Mothiba replied that the external auditors were appointed by the entity under the supervision of the AG, and it was essentially an outsourced function by the AG. Once that report had been finalised, it would examined by the AG’s office and the audit and risk committee of the entity.
 
The Chairperson asked if the entity had identified an agency to audit their operations, which would then be taken by the AG to constitute their audited work?
 
The CFO replied that the AG was fully aware of the outsourced auditing process. Due to the size of the organisation, the AG did not audit them directly. The AG appointed external auditors who were appointed after an interview process, and those reports would then be sent directly to the AG. There had been no direct feedback from the AG’s office, however, although those reports had been sent to the AG. They relied on what they had submitted to the AG and the external report, but to all intents and purposes, the AG did have sight of those audit reports as concluded by the external company.
 
Mr Rawula noted that the arrangement was essentially the outsourcing of an independent auditor. It was independent auditing which had been outsourced to a third party, but surely that did not mean that the AG did not have to still audit the entity?
 
The Chairperson stated that her understanding was that the AG had outsourced the auditing of the entity, which was the function of the AG, to an external agency identified by the entity. The CFO confirmed that that was the correct position regarding that issue.
 
Mr Ollis noted that due to the small size of the entity it was not necessarily worthwhile for the AG to audit them personally. The AG did, however, still conduct oversight over that audit, and it was standard practice to outsource its functions in situations such as the current one.
 
The Chairperson thanked Mr Ollis for his contribution, which she believed clarified the position and the reason for the AG outsourcing that function. The primary responsibility of auditing fell to the AG and therefore if no comments were provided by the AG, she had an issue with that.
 
Mr Rawula accepted Mr Ollis’ contribution, but was concerned about the independence of the external auditor because, as far he was aware, the entity had appointed the auditor, and this brought into question the independence of the audit.
 
The Chairperson noted that that issue was something that should be discussed with the AG personally for further clarity. It was disappointing that Productivity SA had failed to meet so few targets, and therefore she had wanted to know what the comments of the AG had been. It was important for the Committee to know what the concerns of the AG were in order to fulfil their oversight function properly.
 
The DG noted that part of the documents which had been given to the Committee by the AG covered the AG’s concerns in more detail regarding the entity, and the AG had stated that the auditing of the entity had been outsourced. The entity had received an unqualified audit opinion, with material findings based on the quality of the APP and compliance with legislation. The entity had maintained its overall audit outcome, but should strive to improve its APP. The outsourcing of the external auditor was the responsibility of the AG in terms of the applicable legislation, and the independence of the entity was completely lawful, and there are no real issues regarding the independence of the audit. The procurement of an external auditing process fell within the responsibility of the AG and not the entity itself.
 
The Chairperson noted that there was difference between what had been identified by the AG and what had been approved.
 
The DG said that the service provider had been identified together with the AG in terms of their supply chain and the pool of independent auditors which the AG had identified.
 
Ms Van Schalkwyk said that she had done a background check of the AG’s report on the outsourcing of the audit, and suggested that the Committee take their own time to familiarise themselves further with the applicable provisions of the Public Audit Act in order to provide more constructive comments once they properly understood how those provisions operated.
 
The Chairperson agreed, and said that there were certain issues in this regard that she was not fully aware of. She told Productivity SA that their presentation should aim to be as detailed as possible in order to avoid potential confusion on points such as this. However, this point would be clarified later, as recommended by Ms Van Schalkwyk.
 
Commission for Conciliation, Mediation and Arbitration (CCMA)

Mr Cameron Morajane, Director: CCMA, said the presentation would also comment upon concerns which had been raised regarding the role of the CCMA in the current student protests, an issue which the DG had requested him to specifically comment on before the Committee.
 
The audited performance report showed a 76% achievement, with 24% of their strategic objectives not being achieved. The main issues arose in terms of SG 1, as only seven of the 29 targets had been achieved..
 
The presentation then dealt with the specific targets that were achieved and the reasons for targets not being achieved. Targets had been changed from being achieved to not achieved after the audit, which had then resulted in the audited performance report showing that those targets had not been achieved. The entity fully accepted the findings of the AG, and his main concern related to the description of the technical indicators which they had applied.
 
The first target spoke to the advocacy campaign on Ekurhuleni, where a target of 16 campaigns had been set. The actual performance of 27 advocacy campaigns had exceeded the original target. The reason for the target being reflected as non-achieved related to the description used, and the performance that was used to measure that target should have reflected that they would perform on different platforms in terms of the advocacy activities, by doing presentations. As far as its actual content and impact were concerned, however, this target had been achieved. The reason for non-achievement was that it was conducted using different platforms.  This had been explained to the CCMA employees, and was accepted by them.
 
The second target dealt with advisory awards, which were integral to the work done at the entity. Whenever there was a dispute, a commissioner would produce an advisory award and the parties before the CCMA would then have a discretion as to whether to accept that award or not, but the current success rate was very successful in terms of parties accepting the award. A goal of 16 advisory advocacy campaigns had been set, with 20 been conducted. The reason for the variance was, as the case with the first target, that the advocacy campaign was not conducted on different platforms, which therefore led to the non-achievement, despite technically exceeding the original target that was set.
 
A third target which showed non-achievement was conducting 60 capacity building and awareness activities related to the labour law amendments. A total of 86 campaigns had been conducted but, as with the first and second targets, the non-achievement was due to the AG’s finding that the target had not been achieved because it was conducted on only one platform.
 
The findings in terms of the above had been taken into account and the recommendations would be integrated into the current targets to ensure that the same findings did not arise in the future. It was very important to ensure that targets were properly described, as they were important for both implementation and the assessment of targets. The CCMA had achieved the majority of their targets, and the main issues of non-achievement arose largely because of findings by the AG regarding the description of their targets.
 
The fourth target which was not achieved related to an industry sustainability process being conducted in a relevant sector. A decision had been taken by the Committee to implement this target through providing assistance to businesses in a particular sector to help creating more sustainable business practices. While this was not achieved, they were encouraged by what they had achieved thus far.
 
The fifth target which was not achieved related to the Case Management System (CMS) roll out to three provinces: Limpopo, the Eastern Cape and Free State. The Commission accepted that they had issues regarding accessibility. Where they did not have offices, they had to rely on the DoL in order to roll out their CMS in rural areas where accessibility was difficulty. All that would have been needed to achieve this target was to run out the CMS, which would greatly assist indigent people. The reason for the variance had been raised with the DG, which was due to issues of accommodating the entity within the Department in terms of their CMS.
 
The fifth target related to creating a tool to measure and predict conflict in the workplace, which was not achieved. This was an ambitious target, but the Commission strongly believed that such a tool would be highly valuable. If the tool was successful, it would aid the Commission greatly in predicting and preventing conflict, which would also assist in internal workplace mediation. The tool, once developed, would then work hand in hand with their workplace mediation to further achieve the mandate of the entity, by preventing disputes from having to come to the CCMA, by resolving that dispute internally through workplace mediation, which would also save resources. Despite the target not being achieved it was decided to still pursue this target, given its importance.
 
The sixth target related to the talent management and succession plan. The policy and framework had been completed, but the way that the target was set was that it would be completed within five years, while the audit had it as a one year plan. Once the AG had conducted the audit, the talent acquisition had not been implemented but this was due to the five-year plan framework. Thus it was, as with the other targets, an issue of the description used to measure that target.
 
The presentation then dealt with the annual dashboard, which would be displayed in their offices. This would display information on all key areas, such as the number of cases which were currently live. There were 179 528 cases, and that was cause of distress, as it meant that there was a high level of disagreement. A system had to be developed to address the root cause of what was causing workplace disputes. This was to promote the mandate of the entity, and not that they did not want people to approach the Commission for assistance. Dispute management should be placed first before workplace disputes -- to essentially be proactive and prevent disputes as opposed to just being reactive and managing disputes once they had already arisen. Panels had been established nationwide to produce commissioners who would be able to deal competently with various different types of disputes, not just solving workplace disputes. Dispute resolution was a skill that could be effectively utilised to solve a number of issues and produce predictive methods that could deal with a broad range of disputes and prevent them before they arose.
 
The referral forms had been translated into the various national languages and would be expanded further to allow more accessibility, as much was often lost in translation when disputes were referred.
 
An expedited and cost effective resolution had been created where non-complex cases would be resolved over the telephone. This was a good process, as it saved costs for the parties in terms of travelling, and the parties did not have to request leave. The process had had much success and no grievances in that regard had arisen.
 
S115 of the LRA suggested that the CCMA should have to approve administrative costs to those who could not afford it. This had been implemented and had made a huge difference in terms of administrative issues and referrals. The assistance from the Department had helped in assisting employees who could not pay those costs. What often occurred was that when an award was made, the party against whom the award was made refused to comply with the award. Issues often arose as to how enforce that award. The sheriff would often require security before he could execute the award, which most awardees could not afford to pay. A fund was created which was self-sustaining, so when a vulnerable person wanted to execute the award the Commission would pay and collect the costs from the person who refused to comply. The security would then be paid back to the Commission, which made the fund self-sustainable. A company had challenged the CCMA on this point by arguing that the CCMA did not have the power to issue warrants of execution, which they had opposed. The amendments did give the CCMA the power to issue warrants of execution, and the first case had been taken on appeal, which had accepted the position of the CCMA and set aside the first judgment in favour of the company with costs, and therefore no legal expenses on that point had been incurred.
 
The priorities of the CCMA were reliant on three aspects: intensifying dispute management and prevention; enhancing and expanding the employment security mechanisms; and facilitating improved collective bargaining and healthy labour relationships. In this regard, the CCMA had offered its services in attempting to resolve the recent university protests, as its services were not limited to solely resolving workplace disputes. The University Association of South Africa had been notified that the skills of the CCMA were available for that purpose, but they had not yet received a response to their offer. They would continue to wait and would provide their services if it was requested by the Association and the various universities.
 
The employment law amendments, in terms of s198 of the LRA, which was known as the labour broking provision, had given rise to various challenges which were not previously foreseen or intended. While the amendment itself was a good provision, the Labour Appeal Court was about to hear the majority of the issues surrounding its application shortly, which would resolve the issues that the CCMA had been experiencing.
 
Financial Report
 
The CFO said that the AG had communicated to the Committee that the CCMA had received another unqualified audit opinion, and expenditure was monitored continuously to ensure that that unqualified audit would be maintained. The expenditure of the Commission had been maintained in line with cost management measures which had resulted in total expenditure being 3.7% below target.
 
The cost containment initiatives had also led to a reduction in total expenditure over the past two financial years, from an average of 16% in 2014/15 to an average of 12% in 2015/16. These initiatives included processes around case management and the accessibility project regarding providing accessibility to rural areas. This also became a cost saving imitative through conducting the telephonic dispute resolution process. A healthy cash flow position had been maintained in terms solvency and liquidity requirements.
 
While there had been an unqualified audit, the goal was to achieve a clean audit, as the CCMA did have findings around compliance. The main areas of non-compliance were in terms of supply chain processes, where the financial statements showed irregular expenditure of around R35 million. The irregular expenditure, however, included the 2014/15 year’s figures, as the irregular expenditure was only R1 million. The R35 million was inflated substantially due to an irregular office lease. Management had brought this to the attention of the AG. Controls had been brought in subsequently to mitigate and prevent the further occurrence of irregular expenditure, such as a procurement committee which fulfilled an oversight function and reported directly to the board of the Commission for all contracts that were worth R1 million and above. The internal audit had been changed, which required that any contract worth R1 million and above would also have to be scrutinised by internal audit before it could be approved. The Director noted that in terms of internal controls, the controls for the Commission did not relate purely to the procurement process, but to all of the work of the Commission.
 
Discussion

Mr Rawula said that a case on 20 September 2016 had found that people who were not necessarily mentioned for legal standing in terms of the LRA, had held that employees who were not mentioned in those provisions had legal standing to bring cases. This issue dealt with a discretion that was exercised by CCMA commissioners, and he wanted to know what effect that judgment had had on the CCMA’s operations.

The Committee had visited the Northern Cape previously, which was a province that was not mentioned in terms of the expanded accessibility goals of the Department. In his view, that was a province that was in dire need of increased accessibility, as the nearest offices where often far away. It was disturbing for the Committee to see that the CCMA office in the Northern Cape was using an outsourced cleaning service through a labour broker. This was an issue, as how could the CCMA be the custodian of labour relations yet still engage in outsourcing, which was an indictment on both the CCMA and the Department. He understood the reasons for the variance, but noted that explanations should not be given to the extent that they were engaging in practices that the AG did not accept. He did not want to get the impression that they had reservations with the AG’s findings, which was a common trend following the presentations had been presented.

He also had a question as to whether the talent management plan did not detract from their employment equity targets. In his view, if it was an employment equity target, then it should lean towards a five-year, and not a one-year, plan. He welcomed the initiatives made in terms of the student protests, but those protests had been preceded by worker protests regarding outsourcing at those institutions, but he still welcomed the initiatives they had made in that regard.

Mr America said that it was beneficial to have a number of entities give presentations on the same day, as it allowed the Committee to gain a comparative overview of all the different Department entities, particularly in terms of executive pay. The CCMA executive pay was way out of proportion to other entities which managed larger budgets and had equal degrees of responsibility. Who determined that amount of pay, and where was it sourced from? Both the CF and the UIF dealt with enormous budgets, and did not necessarily have executive pay as high as the CCMA.
 
Mr Ollis agreed that the descriptive indicators had let them down regarding their performance target evaluations. One of the things that the Committee had seen was that lease agreements were often called into question, such as the lease issues in Cape Town, Durban and Nelson Mandela Bay. It was very important to act against this, as a long term lease that constituted irregular expenditure would last for a number of years, which wasted a large amount of resources. The AG had noted issues of internal control in the audit -- what steps had been taken to rectify those concerns and reduce irregular and wasteful expenditure? He agreed that it was a concern that such a high number of cases were being referred to the CCMA .
 
Ms Van Schalkwyk said that the CCMA had made a number of improvements and fulfilled a vital mandate. In certain instances, such as in the Northern Cape, more attention should be focused on rolling out more projects to increase accessibility. It could be worthwhile to examine its current accessibility and to ensure that cases could be heard in all areas. It was positive that an effort was being taken to address the issue regarding referral forms in different languages. The AG had noted that there was an inconsistency between what was reported and the APPs, and she wanted further clarity on that issue.
 
CCMA’s response

The Director dealt with the first question raised by Mr Rawula. He had met the other party yesterday, and said that the judgment had not been properly reported in the media. What had actually happened was that before the court action was implemented, the CCMA had noted that the parties were indigent and required advice, which was not provided for in the LRA. The main concern was in terms of Rule 25 of the Act, which excluded certain persons who were non-unionised from being provided advice. However, such persons were able to group themselves into worker councils, which would allow them to be represented. The legal department had been instructed to send the other party a letter clarifying the issue regarding the rule, saying that that rule which was the source of their grievance was currently being amended, and if they could make a submission to court informing the court of that fact. The court case, however, resulted in the other party raising a constitutional issue based on s33 of the Constitution, which the CCMA had opposed. The judge stated that as the case had raised a constitutional issue, it could not be proceeded with as the Labour Court did not have the jurisdiction to decide the issue, and other parties needed to be joined to the application. During their meeting, they had stated that the ordinary rules of legal interpretation did not allow Rule 25 to be read in isolation. The purpose of the rule was to prevent individuals from going to the CCMA and creating a consultancy and charging poor people money in terms of contingency agreements, which prejudiced people that those consultants approached. They also informed the other party that Rule 25, read alongside Rule 35, gave the CCMA Commissioner a discretion to permit legal discretion, although this discretion had to be exercised judicially. The mischief which the rule aimed to prevent was to prevent those who exploited employees in terms of contingency agreements, which resulted in those employees being severely prejudiced if they won the case. They did not state before the court that there was nothing wrong with the rule which the judge agreed with, as the judgment was not against the CCMA, it was a judgment by agreement. It was important to consider that the rule was not necessarily aimed at preventing legal representation as such, but was to prevent exploitation of vulnerable people by consultants who operated on contingency fees. An agreement had been made to engage further with the other party. This had been supplemented by practice notes which had been issued to commissioners around the country regarding how to apply Rule 25.
 
He agreed that the Northern Cape and Limpopo should be included in the mobile unit. They had learnt that in such areas, the distances and costs of transporting commissioners and translators affected their services. The mobile unit had also been implemented in KwaZulu-Natal to avoid those issues.
 
The outsourcing of the workers in the Northern Cape had arisen, as they already had contracts running in that regard before s198 of the LRA had been passed. Some of the contracts were still running and therefore could not be terminated. This was the same situation that applied to interpreters, but more than 300 of those translators, who were previously independent contractors, had been employed directly by the Commission. There was a difference between labour broking and outsourcing. Labour broking consists of selling the labour of the worker, but this would be dealt with more fully by the CFO.
 
Mr Morajane stressed that they fully accepted the findings and recommendations of the AG. The point they wanted to make was that while they accepted the findings, they wanted to stress that the findings should be seen in context and that non-performance was not due to poor performance, but rather that the non-achieved targets were due to the impact study done by the AG.
 
He said the talent management plan could not be given precedence or supersede their employment equity plan, as that would be unlawful. A serious issue was not necessarily developing proper succession, but rather to manage the talent they currently had and develop it. That could not occur outside of employment equity targets, however, and the two had to be implemented in conjunction.
 
It was correct to state that worker protests had preceded the student protests, particularly regarding issues such as labour broking and outsourcing. The unions had made serious expressions regarding their views on the protests and it had to be understood that the protests had to be understood as also affecting employment law, given the large number of people that universities employed, such as lecturers and cleaners. The student protests were not limited solely to academic issues, but also to employment law issues with multiple stakeholders, and the CCMA was best placed to resolve those issues, given their expertise in resolving labour disputes.
 
He agreed with Mr Ollis that the lease issue was very concerning. However, the Nelson Mandela Bay lease issue was more than six years old and those responsible had subsequently left the organisation. As had been noted in the CFO’s presentation, all procurement of amounts above R1 million would be audited by an independent body and secondly, all leases would also be audited as forming part of one of those transactions and ensuring that all applicable legislation and treasury guidelines were followed. A clear statement had been made to the organisation that it would not be acceptable to disregard audit findings. In the 2017/18 year compliance had become one of the priorities in terms of their strategy drive, and the legal department had been restructured with the employment of two compliance officers, who also dealt with regulations and provisions relating to procurement. The AG and Treasury would be approached before leases and other procurement was concluded in order to ensure that these issues would not arise in the future. Senior management performance contracts also stated that management which failed to comply with audit findings could have their salaries reduced, based on the discretion of the Commissioner, which illustrated the importance of their commitment to compliance.
 
The CFO then answered the question relating to the outsourcing of cleaning services. Once the amendments had been promulgated, the CCMA had not wanted to take the lead in employing people who were previously employed through a labour outsourcing contract. With regard to the cleaners, a decision had been taken to employ them internally, but to employ them in a phased approach in order to prevent suppliers competing in terms of the SCM processes. As those outsourcing contracts would be coming to an end soon, the next phasing process of absorbing those cleaners internally could occur.
 
The last issue pertained to the inconsistencies in the annual performance information. The main inconsistency was that some goals were framed in terms of percentages, while others were framed in terms of figures. The inconsistency had been created due to those figures not being ‘smartly’ formulated and described, in the AG’s opinion.
 
National Economic Development and Labour Council (NEDLAC)

Mr Madoda Vilakazi, Executive Director: NEDLAC, said the entity had three programmes: administration, core operations and constituency capacity-building funds. The total number of annual targets was 55 and of that number 46 were achieved, was a 90% achievement rate, according to the audited figures from the AG’s report.
 
In core operations, 36 targets were set and 29 were achieved. The targets that were not achieved under this programme related primarily to the tabling of legislation, bills and policies. In terms of their own protocols, all bills and policies had to be finalised within six months, which had not occurred for some bills, largely because of the complexity relating to various pieces of legislation.
 
The annual performance overview in terms of s77 notices was dealt with next. 14 had been tabled in the financial year, and 11 had been concluded within the previous financial year.
 
Major variances had occurred in terms of SG two, which dealt with the provision of efficient and reliable back office support services. Overall, only 33% of the targets were achieved, and in the fourth quarter only one of the targets was achieved, which was due to the complications that occurred due to the requirement that NEDLAC had to cooperate with SETA in carrying out its back office work.
 
SG three dealt with improved risk management and financial oversight. In the second quarter of the 2015/16 year, only 67% of the targets set in this regard were met, as the target included achieving an unqualified audit, which was not achieved, as a qualified audit was achieved for the previous financial year.
 
The first target of concern dealt with the effective management on draft policy and legislation within the framework of the NEDLAC Act, the Constitution and protocols, and had resulted in an overall 90% achievement. The targets that were not achieved were mainly due to the introduction of the new constituency process, where NEDLAC had to cooperate with different parties in implementing this strategic goal.
 
The second target of concern was to promote social dialogue through communication, information and capacity building. Overall, 75% of the targets were achieved and the entity was supposed to finalise and distribute the 20 year anniversary booklet of NEDLAC in the fourth quarter, which was not achieved, but which would be achieved in the current financial year.
 
He described the challenges that had been experienced, and the suggested remedial action. The majority of the challenges were based on the AG’s audit findings and how his recommendations would be implemented.
 
A target of obtaining an unqualified audit opinion had been set, but was not achieved, as they had received a qualified audit. The main reason for the qualifications was due to issues relating to old and uncleared creditors’ balances, accounts retrievable from exchange transactions which had not been fully raised, and not all fully depreciated assets been revalued. An audit action plan had been implemented, which would address all of the root causes of the findings which had been raised.
 
The next target which was not achieved was to finalise the NEDLAC report on draft legislation regarding the consideration of public holidays versus religious holidays, which was set to be tabled for engagement on 09 September 2015. The reason for the variance was that the task team which had been engaged on this matter had requested the Commission to provide a socio-economic impact report, which had not been received by the end of the financial year. The report had been finalised, however, and it was envisaged that this target would be completed within the 2016/17 financial year.
 
The next target which was not achieved dealt with the number of Management Committee (MANCO) reports which had been submitted to the entity, but as the participants and authors of the report were unable to meet in the fourth quarter, it had been moved forward and would be finalised in the current financial year.
 
The next target which was not achieved was to finalise a NEDLAC report on the Private Member’s Bill, which had been tabled in 2015. The target was to finalise the report within six months of it being tabled at the entity, but as the bill had been tabled by a private member, there were no provisions for engagements of that nature in the NEDLAC protocol, which had resulted in the target not being achieved. Remedial action had been implemented, as the report had been signed off by MANCO on 24 March 2016.
 
The next target that was not achieved was to finalise the NEDLAC report on draft legislation, with a target being set to finalise the report on the Financial Sector Regulations Bill. The reason for the variance was that the Bill was tabled on 13 May 2015 and Government had requested at the task team meeting to engage internally on the bill with both the Treasury and the Department of Trade and Industry, and then to resubmit a revised version to the task team. However, the revised version had not been submitted to the entity by the end of the 2015/16 financial year. Remedial action had been implemented and it was expected that that issue would be finalised within the current financial year.
 
The presentation then dealt with the other challenges that NEDLAC had experienced and the remedial action that been taken to address those challenges.
 
The main challenge was a lack of human resources, especially in the finance department and overall leadership of the organisation. This had been exacerbated by the resignation of the bookkeeper and the Acting Executive Director, who was also the head of Programme Operations. Remedial action had been taken, where the acting Executive Director had been seconded from the DoL and the remaining positions -- the bookkeeper and the head of Programme Operations -- would be filled within the 2016/17 financial year.
 
The presentation then dealt with financial expenditure as linked to organisational performance.
 
The entity received its funding from three sources: the main source was a grant of grant from the DoL, interest earned from their call account, and sundry income which was income that was received from the sale of old and unused assets, as well as proceeds from insurance, recoveries and other income.
 
The total income for the 2015/16 financial year was approximately R32.2 million. The grant from the DoL was approximately R28.7 million, interest was approximately R415 000, sundry income was R125 000 and the retained surplus budget from the previous year was approximately R2.9 million.  
 
The first programme (administration) had the largest allocation of approximately R21.9 million; the second programme (core operations) had an allocation of approximately R6.5 million; and the third programme (capacity) had an allocation of approximately R3.7 million.
 
Compensation of employees had a budget of R12.5 million, with the actual expenditure being R12.1 million. The variance of approximately R450 000 had resulted mainly from the resignation of the acting Executive Director in the financial year. Goods and services had a budget of approximately R17.6 million, and the actual expenditure of approximately R18.9 million was approximately R1.2 million, which was mainly due to the work that NEDLAC undertook to deal with the national minimum wage workshop which was not budgeted for, and the extra costs and processes which were incurred as a result of that workshop. Payments for capital assets had a budget of approximately R2 million, with actual expenditure at approximately R1.4 million. The variance of R533 000 was due mainly to the fact that the furniture that was planned to be purchased in the previous financial year had not been purchased, but it would be purchased in the current financial year.
 
Programme two had a budget of R6.5 million for goods and services, with an actual expenditure of R6.2 million. The main reason for the under-expenditure of R326 000 was due to cost containment measures that the entity had implemented, and other instances where goods and services had cost less than what was anticipated.
 
Programme three had a budget of R584 000 for compensation of employees, and actual expenditure was R582 000.
 
In conclusion, despite the efforts taken by NEDLAC to achieve its mandate, it had received a qualified audit opinion in the 2015/16 financial year. The main reason for the qualification was that the entity did not review and assess the rescission value and useful life of the building which they had leased in accordance with GRAP 17 accounting standards for property and equipment.
 
Mr Vilakazi said there were a number of deficiencies in terms of the financial controls, internal controls and capacity across their various divisions. The entity had embarked on a skills audit and competency assessments for the whole finance division, which would be completed the following day, and a report on that matter would be received the following week. The goal was that once that report had been received and its recommendations implemented, it was envisaged that a clean financial audit could be achieved in the current 2016/17 financial year.
 
Discussion

Mr Rawula wanted an explanation for why the original budget of R17 million for the minimum wage workshop had later become R18 million -- what had caused the increased costs? Secondly, he said that one of the priorities of the entity was to conclude their engagements on the national minimum wage, and wanted further details on when that wage would be implemented, what major considerations had arisen during their work on the issue, and whether the minimum wage would be implemented across all sectors in the country.
 
Mr Ollis had a question regarding the GRAP 17 issue and non-compliance, which had been a major reason for the qualified audit. It was quite obvious that considering that the building was located in Rosebank, which had an increasing property value, that they should have noted that their property value was increasing and that this should have been recorded. As it was not, this had resulted in non-compliance with the GRAP 17 accounting standards. It did not make sense to devalue the building only one year after a massive renovation had been completed. The AG’s report had also noted doubts about the ability of the entity to recover a debt of approximately R1.2 million and he wanted to know what that debt was and how it was incurred.

He also had two questions regarding business progress. A panel had been appointed to determine the rate of the minimum wage, and he wanted to know specifically who had nominated the list of names as to who would sit on that panel. The second question related to the compensation benefits for the minimum wage. He said that there was amendment, and asked whether NEDLAC had a copy of that amendment. The amendment was in terms of a private member’s bill which Mr Ollis had personally tabled in Parliament in 2011, and he was informed that the Minister would address it. He wanted to know whether that bill had been referred to NEDLAC or whether it was still with the Minister or someone else in the Department.
 
Mr Vilakazi replied that the issue of the R1.2 million for the minimum wage workshop was that there was a number of costs in setting up the workshop itself, but a lot of work had also been done following the conclusion of the workshop, which had cost the entity around R500 000. A number of task teams had been established after the workshop was concluded, such as the labour relations technical task team and the wage inequality technical task team. Both of those task teams had continued their work, which had not been initially budgeted for by NEDLAC. Both had continued their work up until the end of March 2016. The wage inequality task team had not concluded its work, but it had been suspended until the advisory panel had concluded its work in that regard.
 
It was intended that the national minimum wage should cover workers across all sectors of the economy. However, a panel had been appointed by the Deputy President that would advise the entity of the principles regarding how to proceed on that issue. There were a number of different interests that still had to be taken into account and considered, such as the Department of Small Business Development, which was seeking a number of exclusions to the national minimum wage provisions and regulations, and there could a phasing in process in certain sectors. The advisory panel would advise on how to proceed with the various sectoral determinations across the country. The panel had been appointed on 10 August 2016, and had been given two months in which to complete its work. It was envisaged that a report would be finalised by the end of the month, which could then be presented to the committee of principals -- a committee chaired by the Deputy President, with representatives from the four key constituencies of NEDLAC. Once that process had been finalised, the recommendations would then follow the usual legislative process, based on the advisory panel’s recommendations and findings.
 
He accepted that the issue around GRAP 17 and the building valuations was an error due to the entity. A long discussion had taken place with the AG as to whether that non-compliance constituted a finding in terms of the previous financial year or not, as the entity was of the view that it was not a finding of the previous year. It was accepted, however, that it was an error on the part of NEDLAC not to review and assess the value of the building following the renovations that had been completed the previous year. That valuation process was currently under way and it was envisaged that the evaluation would be finalised by the end of the October 2016.
 
The debt recovery issue of R1.8 million was related mainly to the forensic investigation. A number of letters had been written on numerous occasions to the individuals concerned, but those demands had been rejected. The matter was now with the police, who were currently finalising their investigations before further action could be taken.
 
All of the different constituencies of NEDLAC had been requested to nominate names to the Deputy President for appointment to the advisory panel, but the ultimate decision as to who would sit on that panel rested with the Deputy President. The views of all of the four constituencies of NEDLAC were taken into account when that nomination process was conducted. It was initially envisaged that the panel would have six members, but it was later increased to seven in order to fully accommodate all of the different constituencies that NEDLAC represented.
 
The meeting was adjourned.