Department of Labour, Unemployment Insurance Fund; Productivity SA; and Nedlac Quarter 3 & 4 performance

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Employment and Labour

28 June 2017
Chairperson: Ms L Yengeni (ANC)
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Meeting Summary

The Unemployment Insurance Fund (UIF), Productivity South Africa (PSA) and the National Economic Development and Labour Council (NEDLAC) reported on their performances during the third and fourth quarters of the 2016/17 financial year. The meeting was a continuation of the Committee’s engagement with entities under the Department of Labour.

The UIF said areas of non-achievement in the third quarter included the percentage return on its investments, which was due to the poor performance of the Johannesburg Stock Exchange (JSE), and the number of employers using the U-filing system. A financial irregularity relating to the percentage of budgeted funds transferred to PSA had been picked up and was being investigated. In the fourth quarter it had missed some of its financial targets, and fallen behind in its approval of valid UIF claims.

Members questioned the challenge faced by the UIF that had resulted in poverty alleviation schemes being only 33% achieved; the numerous complaints made by the public on poor service delivery; how the backlog of claims would be tackled; the difficulty in using the U-filing system and how it would be resolved; the investigations carried out with respect to the financial irregularities; and the appointment of a service provider for the upgrade of the UIF’s data centre.

PSA reported it had been unable to achieve some of its objectives due to the challenge of limited funds being received from the UIF. R24 million had been received, as opposed to the expected amount of R97 million. However, it had been able to assist 49 companies in the period under review, despite the limited funds. Areas of non-achievement included the development of relevant productivity competencies; a drop in the performance of the strategic objective to facilitate and evaluate productivity improvement and competitiveness in workplaces; and the number of media articles published in both quarters due to lack of funding. It pointed out that several of its annual objectives had already been achieved in the first half of the year. PSA had lost R11.9 million in the financial year due to debts that had to be written off for clients that could not pay back because of the market conditions. Without the debt write-off, it would have achieved a surplus of R820 000.

The Committee focused on the challenges faced by the PSA as a result of the financial irregularity identified in the UIF; the debt write-off that reflected badly on the PSA’s financial status; the inability of the entity to sustain itself without dependence on grants, and a need to reconsider ways of generating income; poor target setting by the entity that resulted in achievements of annual targets in the first and second quarters of the year; the need for PSA to save more jobs; and the minimal number of entrepreneurs targeted for training by the entity.

NEDLAC reported that it was only in terms of administration that a 100% achievement was not recorded in the third quarter. This was primarily due to its failure to meet two targets relating to off-site backup data storage, as recommended in the findings from the previous financial year. In the fourth quarter, it had underachieved in its second programme on core operations. Eight indicators had not been achieved in this programmme, which was due to the signing of reports and bills that were not processed timeously.

Members questioned the over-expenditure recorded in this programme, despite the reported under-achievement. They also expressed concern that NEDLAC had not budgeted adequately for the expenses involved in the national minimum wage negotiations. The Council was also asked to submit copies of agreements reached with various parties to the Committee; to identify the areas of service delivery that resulted in job creation; and to provide an explanation on the entity’s overall contribution to the current South African situation.
 

Meeting report

Unemployment Insurance Fund (UIF): Third and Fourth Quarter report

Ms Marsha Bronkhorst, Acting Director General (DG), DoL apologized for the absence of the DG due to his attendance at an ongoing Standing Committee on Public Accounts (SCOPA) meeting. She said that the presentations would focus only on areas of non-achievement.

Mr Teboho Maruping, Commissioner: UIF, DoL, said that the Fund’s overall achievement against target in the third quarter was 67%. The first area of non-achievement was the percentage return on investment, due to general investments on the Johannesburg Stock Exchange (JSE) that had performed poorly.

The target of 90% of claims with complete information approved or rejected within five weeks of application, was marginally missed by 1%. However, interventions had been developed to close the gaps. The volumes picked up in the course of the year had increased and had been aligned with the current capacity. 258 UIF Client Service Officer (CSO) posts had been approved to close the capacity gaps. The entire labour centre model would be reviewed also in a bid to close the gaps. The Department had begun the procurement of switches to deal with network issues across all labour centres.

The target set for the increase in number of employers using the U-filing system was also marginally missed, as most of the employers still used manual methods of securing the UIF for their employees, and for payment of contributions. However, the Department agreed that the system could be more user friendly and simpler to use. Plans were in place to review and modernise the U-filing platform to make it easier for people to use, and also make it accessible on smart phones. A target had been set for September for the launching of the improved system.

The CEO had identified some irregularities in the percentage of budgeted funds transferred to Productivity SA (PSA) for turnaround solutions to companies in distress. It was agreed by the UIF and PSA that investigations should be conducted to check if the irregularities were currently existing. The parties also agreed to transfer the sum of R24 million to help with PSA’s work.

In comparison with the third quarter, the UIF’s performance dropped from 17% to 15% in the fourth quarter. One of the areas of non-achievement was in the percentage return on investment, which was due to the market conditions that remained unfavorable for investment. Despite the fact that UIF had received a 5.9% return on investment, it was unable to achieve its initial target of 8.6%. UIF has therefore reviewed its investment mandate to align with the financial conditions. Its new target was now sitting at the consumer price index (CPI), instead of CPI+2.5%.

The second area of non-achievement was in terms of the percentage of valid claims with complete information, approved within five weeks. The UIF maintained the achieved target of 89%, as in the previous quarter. However, it had commenced with the implementation of the CSOs. It was expected that the CSOs would be deployed to different provinces within the next two months in order to assist provinces with the quick processing of claims. The process of reviewing the labour centre model had begun. The Acting Chief Director of operations was also busy with the identification and blocking of loopholes in provincial offices that stood as bottlenecks in the process. This would help with the possible implementation of solutions in the second quarter.

Although the target on the percentage increase in revenue had been achieved in the third quarter, the target for the fourth quarter was marginally missed. This was due to unfavourable market conditions. The more people contributed to the UIF, the more revenue the organisation would have, and vice versa. The UIF achieved 6.6% on this target, as opposed to the initial 7.5% target that had been set. The target has been reviewed down to 7.2%, based on the actuarial estimates.

The target on the percentage of overpayment balances collected was also marginally missed, as the organisation achieved a 19.6% target as opposed to the original target of 20%. This was yet another target driven by market conditions. UIF debtors were often affected by market pressures, and were therefore unable to pay back their debts. The UIF ended up writing off some of the funds owed due to the nature of the people from whom such funds were collected. It would, however, be implementing a compliance strategy for companies to comply with the unemployment insurance acts.

The target on the percentage of budgeted funds transferred for turnaround solutions was also not achieved. The status was the same as what had obtained in the third quarte, which focused on the agreement between the two parties to look into the irregularities picked up by the CEO. It was expected that the target would be met in the new financial year.

The last area of non-achievement was the turnaround time to transfer funds to the sector education and training authorities (SETAs). This was due to the way the technical indicators were coined, which created a problem for the auditors when conducting the review. Some of the targets had been omitted as achieved, based on the advice of internal auditors, to ensure that the targets were correctly aligned.

Discussion

Ms F Loliwe (ANC) asked about the challenge faced by the UIF that had resulted in a 33% achievement against the target set for poverty alleviation schemes. She observed that Northern Cape’s performance in Programme Two had been better than its performance in other areas, as alluded to the presentation made to the Committee the previous day. She wanted to know how such a performance was achieved by the UIF in the province.

Mr M Bagraim (DA) said that the Department informed the Committee of the demise of Mr Bonika. He asked that the details of the funeral should be communicated to the Committee as soon as possible. He added that a photograph of Mr Bonika had been published on the front page of a newspaper, showcasing what he had done for the public.

Returning to the UIF presentation, he said that the public was still experiencing enormous problems, as numerous complaints were still being tabled at various offices of the organisation throughout the country, particularly in the Eastern Cape. Complaints were being received on the existence of long queues, people being sent away, missing files, documentation through paper work as opposed to the use of computers, rude officials, and so on. He asked for a comment on the above mentioned complaints. He also noted that there had been an enormous backlog before the appointment of the Commissioner. He wanted to know how such backlog would be tackled.

He highlighted the issue of educating the public, and asked for the means by which the public would be educated on claims; the registration of businesses; accessing their insurance money after being retrenched or after retirement, and so on. He commented on the difficulty in using the U-filing system, commenting that he struggled while trying to use the system. He expressed worry over the number of people faced with similar difficulty in using the system.

Regarding the target on the percentage of budgeted funds, he applauded the UIF for approaching PSA, as the latter had the skills to assist with the investigations. However, clarity was sought on the financial irregularities alluded to, and whether it referred to fraud. He also asked for a detailed explanation on the target set for the turnaround time to transfer funds to a SETA after the approval of a training lay-off scheme application.

He remarked that in his view, the investments that did not yield the right returns were due to the fact that most of the money was invested in the public investment corporation (PIC). This was based on the answer given by the Minister of Labour to Parliament -- and the UIF had no control over it in any way. However, he sought clarity with regard to whether UIF also invested some money on its own.

Ms S van Schalkwyk (ANC) asked for an update on the investigations carried out with respect to the financial irregularities alluded to in the presentation. She also asked for an update on the appointment of a service provider for the upgrade of the UIF’s data center.

Mr D America (DA) said that although it was good to have achieved certain turnaround times in terms of processing claims, there was a need to reflect on the actual experiences of the users of UIF services. Labour centres were often characterized by long queues and were understaffed. Consumers of services were displeased at the level of service received from the labour centres, particularly with regard to the processing of UIF claims. He was, however, excited that processes were under way to redesign the labour centres. He asked for priority areas for the new design, and said that the cooperation of the DoL would be needed in the process.

He pointed out that no financial report had been tabled before the Committee, despite the fact that the organisation had huge financial assets within its portfolio. A financial report was needed for the Committee to get an insight into the organisation’s liquidity, and the overall financial status of the UIF’s portfolio. He recalled his previous comment during the presentation of the UIF’s annual performance plan (APP) that the organisation was being ambitious in terms of its target on investment returns compared with the Compensation Fund. He was, however, relieved to know that the target had been reviewed due to the unfavourable market conditions.

Ms L Theko (ANC) asked for a progress report on the upgrading of data centres.

UIF’s Response

Mr Maruping began his response to Member’s questions by dealing with the issues around financial irregularities. He said that the term ‘financial irregularity’ was used for lack of a better word, as the CEO was not comfortable with some of the finances. The first report on investigations in this regard had been presented to the UIF on Monday, 26 June 2017. Comments had been made and submitted to the investigators, and it was expected that a final report would be submitted to the UIF in the coming week.

Mr Mothunye Mothiba, CEO: Productivity SA, added that at the beginning of the 2016/17 financial year, money had been received from the UIF’s 2015/16 financial year. PSA was worried that the programme had been in place since 2012. During the tracking of performance, it was discovered that the money spent was not equivalent to the outcomes. The programme was aimed at assisting workers and companies in retaining jobs. An initial investigation was commissioned to identify the cause of the financial irregularity. This investigation was, however, limited due to limited resources. Nevertheless, it was discovered that the programme was characterised by maladministration. Also, some funds could not be accounted for.

He had then approached the DG to suggest that a broader investigation should be carried out in order to identify whether the maladministration was systematic or was due to issues such as a lack of capacity; negligence and so on. A broader investigation was also requested due to the sums of money that could not be accounted for, which was to the tune of R36 million at the time. The outcome of the investigations would be communicated to the Committee in due course.

The Chairperson asked if the officials under investigation had been suspended.

Mr Mothiba replied that one of the officials had been dismissed after going through the disciplinary process. The CFO had resigned after undergoing a disciplinary process. The executive manager for the programme on issues of maladministration had also resigned before the commencement of a disciplinary process. However, none of the officials would be exempted should fraud be discovered during investigations. Instances of suspecting collusion with a service provider had also been picked up and a follow-up would be done.

Ms Bronkhorst reiterated that the first report from the investigations had been submitted on Monday. A request had been made for the scope of the investigation to be broadened due to the matters identified in the draft report. The report on the first part of the investigation would be received in the coming week, but the extension of the scope in relation to the issues mentioned by Mr Mothiba would be treated in the in-depth report that formed part of the analysis of the happenings within the entity.

Mr Maruping continued with his response to other issues raised by Members. He agreed with Mr Bagraim that the U-filing system platform was not user-friendly, and this formed the basis of the process of modernising the platform to also make it smartphone-friendly. The launch of this platform was anticipated for September. Plans were also under way to provide free Wi-Fi in labour centres, as part of the ways by which service delivery could be improved. Having a simplified U-filing system and Wi-Fi in labour centres would result in ease for people applying for the services being offered at the labour centres. It would also reduce the amount of time spent in the queues. The process of providing free Wi-Fi had begun. The tender for this programme would be closing on 5 July 2017. An evaluation process and appointment of service provider would commence shortly.

The UIF would be guided by the Committee regarding when to submit its financial report, as it was prepared to table such report as and when required.

The problem of queue management, service delivery, and capacity constraints at labour centres had been identified by the organisation. The Acting Chief Director (CD) on operations and the information communication technology (ICT) Directors had been sent out to different provinces to identify ICT areas in need of improvement. This had resulted in the proposed free Wi-Fi for labour centres. The CD: Corporate Services had also spent some days in North West Province to observe the way the processes were running. It was discovered that the structure of the processes was not favourable to the public. Recommendations were then proffered. The organisation was working towards concretising the processes to ensure consistency. Visits would be made to two or three other provinces to confirm findings, after which implementation would commence. As noted earlier, the model of the labour centres would be reviewed. An agreement had been reached with the DG and executive members of the DoL, for the UIF’s CSOs or UIF functionaries to be made available at labour centres in order to segregate functions and also ensure to provision of adequate capacity. This explained the approval of the 258 CSO posts.

The issue raised on education of the public had also been picked up by the organisation as an area to be addressed. A schedule had been drawn up to educate the public through various platforms, including the radio. The UIF had also published some of the requirements for different services it offered in the media. It would also publicise its services through local media. An aggressive campaign had been embarked on to educate the public on services offered by the UIF. It was currently putting together a booklet that would assist in clarifying some of the issues, and also help the public to learn more about the organisation.

Mr Maruping agreed that the investments of the UIF were sent to the PIC, but the organisation had decided on not leaving the management of investments to the PIC alone. It had also decided to set targets on expectations on investments with the PIC, in order to ensure proper management of its investments. It was, however, necessary to consider the market conditions and align targets appropriately. The UIF had taken the advice given at its previous engagement with the Committee, to revise its target downward.

Responding to the issue raised on the success recorded in the Northern Cape, he pointed out that the province’s achievements were driven by volume, as the volumes in the Northern Cape were smaller than those of other provinces. It was therefore easier for the province to achieve its target.

Ms Bronkhorst added that the workforce of the UIF in the Northern Cape was stable, and comprised of well experienced staff. The Assistant Director in that particular office had been there for more than 20 years, and this gave an indication of the stability of the UIF staff component. It also reflected the expertise and speed with which claims were dealt. The work of the Compensation Fund was more complicated because of medical issues.

The Chairperson asked for the number of people working in the office.

Ms Bronkhorst replied that she could not recall the number of new appointments in that section. However, the Deputy Director heading the unit had been in office for more than five years, while the lower level functionaries had been in the office for several years. Details could be given to the Committee upon request.

The Chairperson said that although the stability alluded to reflected a strength at the moment, it also reflected a challenge at the same time. She advised that new staff should be deployed to the unit to understudy the activities in the office for the purpose of ensuring continuity.

Responding to the issues around the data centre, Mr Maruping said that an agreement had been reached with the State Information Technology Agency (SITA) on how to address the issue. The UIF was almost at the point of implementation before it was discovered that the cost was higher than what had been anticipated. The Department had taken a decision for the process to be restarted and a survey to be carried out in the market for a cheaper option. In the meantime, the UIF was considering other options, including a network upgrade and free Wi-Fi as a means of closing the gaps while searching for a better solution.

Ms Theko asked for a definite time for the upgrading of the U-filing system, commenting that the organisation had continually shifted the date given.

Mr Bagraim also asked for timeframes for the implementation of all aforementioned targets and plans alluded to by the organisation. He applauded the financial team for identifying and investigating financial irregularities. However, he urged the Department not to hide such information from the Committee going forward. At the very least, the Chairperson should be carried along in the investigation, especially since the scope of the irregularity was yet to be determined. He asked for the likely time when the report on the outcome of the investigation would be ready, and whether the copies of the report would be circulated among members of the Committee before the Sunday Times got hold of it.

Ms Loliwe commended the UIF for indicating the irregularity without the Committee having to pick up the issue on its own. She urged Members to allow the organisation to complete the legal process of investigation and report back without interference from the Committee. This was to avoid the possibility of the Committee jeopardizing the investigation through continuous reports at every stage of the investigation.

The Chairperson added that the UIF should continue with its investigations quietly. It was not obliged to answer questions from Members on the ongoing investigation. The organisation had a right not to comment on issues that were yet to be finalised. She also urged the organisation not to be intimidated by false reporting on the position of matters in the newspapers, and be tempted to respond to such issues.

Mr America said that the reason for discussing these issues was because of certain targets yet to be achieved by the UIF. The irregularity identified was not specific to the UIF. Instead, it was a reflective management issue that had taken place. He applauded the CEO for probing further into the irregularities identified. The question to be asked was how the Auditor General (AG) was yet to pick up the perceived irregularities that had occurred over a long period of time. He suggested that once the investigations had been concluded, the AG should be invited for interrogation.

The Chairperson expressed appreciation to the organisation for its efforts in discharging its services to the people.

Responding to the issue raised about the AG, Mr Mothiba said that the UIF was not audited by the AG. Instead, external auditors were appointed to conduct the audit. It was for this reason that the scope of the investigation had been extended to uncover the reasons behind the failure of existing governance structures to pick up these irregularities over the period of time during which they had taken place.

Productivity SA: Third and Fourth Quarter report

Mr Mothunye Mothiba, CEO: Productivity SA, said that the first strategic objective had recorded 0% for both quarters, which was due to the fact that PSA’s targets had been set in expectation of R97 million from the UIF. However, it had received only R24 million in the third quarter, due to the challenges faced in the course of the financial year, and the annual performance plan (APP) targets were not revised in the middle of the financial year. After receiving the R24 million, PSA had begun to think about how the strategic objectives could be achieved. Evaluations showed that it could intervene in 33 companies. However, by the end of the third and fourth quarter, it had been able to assist 49 companies. This was achievable by testing the capacity of the system to deliver. He was certain that the system was ready to service enterprises faced with economic distress and save jobs in the process.

Another area of underachievement was in terms of the development of relevant productivity competencies. The reason for this was linked to planning, whereby targets planned were exceeded in the first and second quarters.. The challenge that resulted from this was the availability of resources without plans to utilize them, which was also reflected in other programmes, and which was due to the amount received from UIF in the third quarter.

The performance of the fourth strategic objective – to facilitate and evaluate productivity improvement and competitiveness in workplaces -- was yet another area of challenge, as the percentage dropped from 67% to 50%. This was due to the reliance of service companies on what could be accessed in the market in terms of companies joining the workplace challenge. It was therefore difficult to attract companies to participate in the programme when the economy was going down.

One of the areas of areas of non-achievement per programme was in relation to the number of media articles published in the third quarter as part of its marketing and communications activities. PSA was unable to place articles in the media, which was largely due to the challenge of funding. It was also because the entity had to scale down its budget based on the funds received from UIF, which was below the expected amount.

Most of the targets were achieved in Programme Two in the third quarter, which dealt with the training of emerging entrepreneurs, educators, workers, skills development facilitators (SDFs) and managers.
This was largely due to planning in terms of achieving all targets set by the first and second quarter. However, the early achievement of those targets was what enabled the entity to assist 49 companies with turnaround solutions. PSA had looked into the reasons behind the achievement of targets set for the year in the two quarters, and had corrected the issue.

After the executive manager of turnaround solutions had left in the third quarter, the executive manager of productivity organisation of solutions had taken over the responsibility for turnaround in the “war room” environment in order to achieve the targets for the year. A positive outcome was seen in this regard.
PSA’s performance on the turnaround solutions for the third quarter was dismal, when compared with the APP targets. The challenge was largely due to the means by which the R24 million could be spent effectively. The same trend was recorded in the fourth quarter, although an over-performance was recorded in terms of the number of companies assisted.

No progress was recorded on the achievements of the targets set for the “Workplace Challenge” because the annual targets for the programme had been achieved in the first quarter. In the fourth quarter, the variance recorded was 46, which implied that the target had already been achieved in previous quarters.

The Chairperson asked for an explanation on what ‘variance’ meant. She also requested information in simple terms on the actual targets achieved, and those yet to be achieved.

Mr Mothiba responded by referring to human resource development progress described in the presentation, where the number of career path discussions had been over-achieved in the previous quarter, resulting in fewer than planned discussions taking place in the third quarter.

Dr Sibusiso Sabela, CFO: PSA continued with the financial impact of the presentation. He said that the PSA was basically funded by Parliament, and by revenue/grants from other services. The money expected from Parliament was R47 million, while R97 million was expected from UIF. R8 million had been received from the DTI. The target set for income to be generated by PSA was R37 million.
80% of the PSA’s income was dependent on grants and Parliament, while 20% of the income was generated through the services rendered by the entity.

Although the money expected from DoL was R24 million, PSA eventually received R59 million from the Department. The reason for this was that PSA ran out of cash around December to pay employees for January, February and March. It then had to approach DoL for an additional grant, and had been granted R11.1 million.

A variance of 80% was recorded in terms of the UIF funding, as the expected amount was R97 million while the actual amount received was R19 million. Reasons for the underpayment had been explained earlier. The impact of the under-funding by the UIF resulted in an under-achievement of the income target by 49%. PSA had achieved only R96 million, as opposed to the target of R191 million.

A loss of R11.9 million was recorded for the 2016/17 financial year. This was because of the memorandum of understanding (MOU) between the UIF and PSA, which was to the effect that UIF would fund 65% of the amount used in assisting clients, while the remaining 35% would be paid by the clients. However, it was discovered that the clients could not afford to pay the 35% owed to PSA, mainly because they were faced with economic distress. It was also established during PSA’s financial evaluation that the sum of R12 million owed by these clients was irrecoverable. The entity had then recommended to the audit and risk committee that the debts be written off in order to present a fair financial report. The audit committee had recommended that a second opinion should be obtained from external auditors. After one month, the external auditors had also recommended that internal provision should be made. The implication of this was that the amount owed would become a part of the entity’s income statement, hence the loss of R12 million recorded for the year. Without this loss, PSA had achieved a surplus of R820 000.

In terms of governance and compliance, the auditors made 34 findings in 11 areas. PSA has been able to implement remedial action for the areas, apart from the finding on contract management, which was due to the fact that PSA had no system in place to manage its contract. However, the system was currently being developed. 50% of the audit areas were centered on procurement. PSA has brought together procurement committees that did not exist before, and now has a bid committee and an adjudicating committee. The entire procurement was now centralised, unlike what obtained previously, where each programme carried out its own procurement. PSA’s governance status had improved. Plans were in place to ensure maintenance of the status and improve it going forward.

Discussion

Mr America applauded PSA’s effort in achieving certain outcomes despite extremely trying conditions and under-funding by the UIF. It seemed PSA had to bear the brunt of the perceived financial irregularities that may have occurred in the UIF. It was inappropriate to have punished PSA, which could have assisted in saving numerous jobs through UIF contributions. UIF should be ashamed that it allowed the situation to continue for two quarters.

He said it would be difficult for him to evaluate PSA’s presentation due to the circumstances created by outside forces apart from the management of PSA. He was sympathetic to PSA’s commitment to improve its management and operations regardless of the circumstances alluded to. He noted that the debt write-off of R12 million reflected badly on PSA’s financials.

Ms Loliwe said that PSA was unable to sustain itself due to its level of dependence on grants. No jobs were saved with the limited funds it received. She therefore wanted to know the priority areas where PSA had spent the limited funds it received. She asked for the outcome of PSA’s ‘swot’ analysis, as well as areas where PSA would like to be assisted in order to become more empowered, instead of depending solely on funds from external sources.

Mr Bagraim said that targets should be set a bit higher than just normal expectations. PSA’s achievement of most of its targets in the first quarter was ridiculous, as it reflected poor target setting. He asked for an explanation on why targets were not revisited after such targets had been achieved in the first quarter. Also, targets should have been reset after the expected funds were not received. One of the strategic objectives that could be followed in this era of mass retrenchment, was the saving of jobs.

He mentioned the Committee’s oversight visit to a factory, where PSA had intervened and had saved a lot of jobs and was in the process of saving more jobs. He applauded PSA for its efforts in this regard. He agreed with Ms Loliwe on the need for PSA to sustain itself financially. He remarked that the saving of 3 080 jobs due to the implementation of turnaround solutions, was rather minimal. PSA was urged to work harder to save more jobs.

He also considered the inability to achieve the target set for the publication of media articles in both quarters due to funds not received as ridiculous. In his opinion, PSA did not need much funding to achieve this target. He said that the target set for the number of emerging entrepreneurs trained – 5 500 a year -- was also minimal, especially since the small, medium and micro enterprises (SMMEs) were desperate for training. The number of workers trained was also little. He also raised the issue of numerous variances in the turnaround programmes, which were blamed on the lack of funds.

Ms Bronkhorst agreed with the concern raised by Mr America regarding the wrongdoings that occurred in UIF which had resulted in the limited funds given to the PSA. Measures had been put in place by the Department to ensure that the same situation did not repeat itself. Various meetings had been held by a steering committee which she had chaired, to ensure that progress was made on the turnaround solutions programme, as well as to ensure the provision of funds as and when due.

Responding to the issues raised around the setting of targets in PSA, as well as the correction of the trend on target achievements in quarter 1, she said that PSA would be assisted in addressing this concern going forward. The Department would make sure that PSA began to provide reports on quarterly targets going forward.

The Chairperson wanted to know if PSA was aware that the Department had put measures in place to address this challenge.

Mr Mothiba replied that PSA was aware of the measures. He was also part of the steering committee.

The Chairperson said her reason for asking the question was because of the difficulty in understanding the method adopted by PSA in setting its targets, particularly because of the consistent challenges faced with respect to funds. All parties had to contribute towards PSA’s targets. This would assist the entity in setting up targets that were achievable.

Mr Mothiba continued with his response to issues raised, and said that measures had been in place in the 2016/17 financial year to correct the irregular expenditure recorded in 2015/16.

One of the main priorities of the PSA was to target companies in the productive sector of the economy in order to assist them to improve their performance. It was in this area that it was working with the Department of Trade and Industry (DTI), and was also referring to the R8.9 million funding. A second priority focused on the turnaround solutions programme. PSA would not be dwelling on problems from previous times. These challenges had occurred in the 2016/17 financial year, and PSA had approached the DG to state that the funding agreement in place should be honoured, as this would ensure that PSA’s targets were informed by that funding agreement and funds would flow. An agreement had been reached with the DG on 31 March 2017 for the investigation to be finalised; for governance structures to be put in place (which had been achieved); for the funding agreement to be revised (which had been done); and for money to flow to the PSA in the current financial year, based on its performance. Plans for the 2017/18 financial year would be made in this light.

He agreed with Mr Bagraim on the need for targets to be stretched. This issue had been corrected in the 2017/18 financial year during the review of PSA’s planning processes.

PSA appreciated the input on the issues around media articles. Even though PSA was planning to buy media space and had been unable to do so in previous times due to limited funds, new plans would be put in place to address this issue.

The reality of the situation with regard to the training of SMMEs and workers was the lack of funds, particularly taking into account the costs involved travel and accommodation. PSA had considered its set targets in line with the core business in a bid to determine what could be achieved using the limited funds to help emerging enterprises and companies in distress, as well as to identify companies that could compete better.

PSA assured the Committee that an improvement would be seen when the entity returned to present the 2017/18 report.

National Economic Development and Labour Council:  Third and Fourth Quarter report

Mr Madoda Vilakazi, Executive Director: National Economic Development and Labour Council (NEDLAC) said that in the third quarter, the entity had achieved 100% in its second and third programmes on core operations and constituency capacity building funds respectively. It was only in terms of administration that a 100% achievement was not recorded. This was primarily due to its failure to meet two targets relating to off-site backup data storage, as recommended in the findings from the previous financial year. Assistance was sought from SITA in this regard, but it had been too expensive for NEDLAC, as the cost was around R650 000. NEDLAC ended up getting permission from National Treasury to outsource this assistance from an external service provider. An external service provider had been appointed at the beginning of the last quarter of the financial year under review, and the assistance cost an average of R120 000. The overall performance achieved was 89%.

In terms of Section 77 applications, two targets carried over from the previous financial year were not achieved. Instead, they had been carried into the fourth quarter as well.

In the fourth quarter, NEDLAC had underachieved in its second programme on core operations. Eight indicators had not been achieved in this programmme, which was due to the signing of reports and bills that were not processed timeously.

The work of NEDLAC involved stakeholders, and was bound by time limits for most things – for example, six months for the finalisation of Bills at the level of NEDLAC, which was not achieved in three of the Bills that had been presented. These Bills included the Critical Infrastructure Protection Bill and the Occupational Health and Safety Bill, as well as the briefing report that should have been printed after the session with the Commission for Employment Equity. The entity was, however, pleased that the above mentioned targets were achieved in the next quarter.

Two applications in terms of section 77 were achieved and no target was left unachieved in this regard.

Discussion

The Chairperson asked if NEDLAC had made mention of savings in any part of its presentation.

Mr Vilakazi replied in the negative.

Ms Van Schalkwyk asked for an explanation on the underachievement of 70% recorded in programme two (core operations) in the fourth quarter, in relation to the overspending alluded to in the expenditure information.

Mr Bagraim asked NEDLAC to circulate copies of the agreements reached with various parties to Members as had been promised at its previous engagement with the Committee. He also asked for the entity’s view on whether it had received value for money from spending R31 million over the period under review. He observed that most of the strategic objectives of the entity were related to the internal processes of NEDLAC. However, he sought clarity on areas where the public was being assisted through job creation, as well as the overall contribution of NEDLAC to current the South African situation. One of the best areas that should be looked into was the creation of social dialogue, which could in effect, create peace in the marketplace. He commented that the target set for constituency capacity-building funds for the third quarter was low. Achieving 100% for this target did not necessarily mean good work had been done by NEDLAC. Instead, it reflected the need for the entity to reset its targets and ensure that such targets were stretched beyond normal expectations.

Explaining the variance between the achieved targets in programme 2, Mr Vilakazi said that the reason for spending 110% of the budget and still achieving 70% of the targets was because of the national minimum wage process undertaken by NEDLAC, which had not been budgeted for at the beginning of the financial year. The over-expenditure was therefore based on the amount of work that was not anticipated to be undertaken within the NEDLAC process of the national minimum wage.

The spending of R31 million amounted to money well spent, especially since the entity would have spent more than that amount if it had to pay for all the entity’s activities without assistance. Some constituencies provided funding for people participating in NEDLAC processes. The processes within the entity were primarily tripartite. All activities within the entity, including reports, discussions of Bills and policies, were carried out in a tripartite structure. The implication of this was the signing off on reports and consultations, which was being done in furtherance of targets that had been met. However, NEDLAC agreed there was room for improvement.

With regard to the contribution of NEDLAC to job creation, a discussion had been held within the entity on ways to ameliorate the impact of job losses. NEDLAC worked closely with other entities of DoL (such as UIF and the Commission for Conciliation, Mediation and Arbitration (CCMA)) in a bid to contribute to this process. However, the primary role of NEDLAC was to develop policies, without necessarily implementing them. NEDLAC was not responsible for implementing any job creation initiatives.

Regarding the low target in programme three, the programme was aimed at capacity building of the social partners. There were three social partners funded by NEDLAC -- business, labour and the community. These partners were able to meet all the targets set. For instance, the labour partner had a labour school, which was attended in January 2017 and an average of R450 000 had been spent. Labour achieved all the targets set, while still managing to save on its programme. NEDLAC offered support only to activities undertaken primarily by the social partners.

Mr Virgil Seafield, DDG: Labour Policy and Industrial Relations, DoL, said NEDLAC remained relevant in the context of social dialogue, and of developing consensus around labour and economic policy. One of the outcomes of NEDLAC pointed to an agreement on a national minimum wage and labour stability in the country. It also contributed to the realization of the benefit derived from the UIF amendments and the Occupational Health and Safety Bill, etc. In essence, NEDLAC contributed to the economic policy within the country.

The Chairperson asked for the total amount used by NEDLAC that resulted in overspending on the actual budget.

Mr Vilakazi replied that the total amount was about R1.6 million, which was primarily attributable to the work on the national minimum wage.

The Chairperson said she was confused about how the national minimum wage was a cause for overspending or under-spending by the entity. This was because the pronouncement made by the President on the national minimum wage was done in the 2014/15 financial year. Therefore, NEDLAC had no excuse for not aligning its budget to the national minimum wage in the 2016/17 financial year.

Mr Vilakazi replied that the process of national minimum wage was still at the commencement stage when the 2016/17 budget was submitted, and the entity could not have anticipated how long the process would take. When the process had continued till February 2017, it was not included in the approved budget for 2016/17. NEDLAC did not anticipate the numerous task teams that were eventually created. Also, the expenditure was primarily for meetings, traveling and accommodation, due to the numerous meetings that were not planned from the outset. NEDLAC was, however, in the process of correcting this issue. Discussions were being held with the Department, since the entity was now aware of the extent of involvement and expenditure that was anticipated for this work. A deadline had also been set for 1 May 2018, when all work relating to the national minimum wage should have been completed.

Mr Bagraim agreed that there was relevance in terms of the existing agreements on policy with social partners. His initial point was centered on the fact that the existing agreements that assisted the country should not have warranted R31 million in the financial year under review. He was of the opinion that such expenses would be unnecessary if the entity was properly organised.

The Chairperson said the reasons for the expenditure had been justified. This was because traveling and accommodation were essential expenses. NEDLAC had also not been invited to the Committee to present details of the expenditure.

Consideration of minutes

The outstanding minutes of 31 May 2017 were proposed for adoption by Mr Bagraim and seconded by Ms Loliwe.

The meeting was adjourned.
 

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