The Auditor General of South Africa (AGSA) briefed the Portfolio Committee on Labour on the audit outcomes of the Department of Labour (DoL) and its entities. In addition, The Commission for Conciliation, Mediation and Arbitration (CCMA), the Compensation Fund (CF), the Unemployment Insurance Fund (UIF), the National Economic Development and Labour Council (NEDLAC) and Productivity SA briefed the Committee on 2016/17 Annual Reports.
According to the AGSA, there was not much improvement in the portfolio over the years. UIF and CF received disclaimed audit opinions as they both had issues around investment. Most of the entities had material misstatements as far as the annual performance report was concerned.
Members wanted to know what the AGSA meant when they said there was financial misconduct and why the ratings of the internal audit committees did not correspond with the results that they get from management does not take action.
The Deputy Minister agreed that overall there had not been much improvements in the Department. He explained that the work of the Department inextricably linked to the performance of the economy, domestically and globally. Hence, what happens in the global economic trends tended to have a direct bearing on the domestic economy and by extension the labour market. This meant that what could be a sound labour market policy could become obsolete within a short period of time.
According to the Department, during the course of 2016, the impact of various factors such as domestic political issues, and the US federal rate hike decisions had a bad effect on the Rand sending the Rand spiralling into further depreciation. The Rand weakened in the last two years against the US Dollar which affected the weak labour markets. The negative trends in the global economy had contributed in worsening the unemployment situation across the world.
The Department has spent 97.1% of the allocated budget which translated to R2.76 billion out of the allocated amount of R2.8 billion. The overall performance of the Department was at 74% as reflected in the audited report.
Members wanted to know what the challenges were being faced in implementing the plans of the Department and asked hard questions around fruitless and wasteful expenditure recorded by the Department and its entities. They wanted to know what plans the Department had in plans to address the increasing strike action and the misalignment between Department reports and that of the AGSA.
The UIF had 12 planning targets for the financial year of which six had been; thus an overall performance of 50%. When it comes to investment, corrective measures had been put in place to address this by reviewing their investment strategy and also looking at the portfolios that they invest their funds in. A company had also been appointed to advise them on actuarial services and thus do evaluations and provide recommendations with regards to investments.
Members asked for clarity on the relationship between the under evaluation of the unlisted investments and its impact on the surplus of the entity. Also, clarity was needed as to what the entity was doing to help Productivity SA with its irregularities.
The Compensation Fund had achieved 50% of the targets that had been set for the 2016/17 financial year. Revenue from non-exchanged transactions increased by 20% and this was due to increase in new registration and estimation policies that the CF applied on non-complying employers. Revenue from exchanged transactions increased by 11%, mainly due to higher investment returns compared to the prior period. Expenditure improved by 32%, because provision of benefits was less than the prior year.
The Committee acknowledged the actions by the entity to rectify mistakes, but why the shortcomings pointed out by the AGSA took so long to be addressed and if any action has been taken against individuals involved in fruitless and wasteful expenditure.
NEDLAC’s summary of the 2016/17 performance showed the total number of annual targets was 51 with 41 achieved and 10 not achieved. The overall performance was at 80%; 10 pieces of legislation and policy were concluded. NEDLAC obtained an unqualified audit opinion for the 2016/17 financial year
The National Minimum Wage (NMW) Agreement was also signed by social partners and a high level task team on Comprehensive Social Security was established with a timeline of two yeas allocated. The budgeted income for 2016/17 financial year showed that R30.8 million and interest received stood at R420 000. Sundry incomes was R132 000 and R3.9 million was allocated to programme 3, R6.4 million to programme 2 and R21 million to programme 1.
Productivity SA had a total of seven strategic objectives with 41 annual planned indicators; 28 of these were achieved while 13 were not achieved. The overall achievement was 68%. With the reduced funding received towards turnaround solutions programme from the UIF, Productivity SA was able to support 49 companies facing economic distress against a target of 33, and was able to save 4 760 against a target of 1 650. Total income in revenue for the year under review was R96.9 million. Deviations recorded were because funding was received late in June instead of April, The audit findings status report for the year showed eight findings, none of which was resolved as they are all in progress. This was in contrast to the 2015/16 audit findings status reports were 34 findings were made and 33 of these were resolved and one was outstanding.
Some Members questioned the validity of the report by Productivity SA since the financials were not audited by the AGSA in compliance with the Public Financial Management Act. Members also asked hat fraction of the R24.4 million gotten from the UIF by Productivity SA was spent.
Auditor General of South Africa
Ms Modiehi Skosana, Senior Audit Manager, Auditor General of South Africa (AGSA), thanked the Chairperson and introduced her team.
Ms Kedibone Mashaakgono, Senior Audit Manager, AGSA provided a cycle of accountability and expressed that eventually, once everyone was accountable, there will be service delivery through the Department and its entities. There were no outstanding audits and there had not been much improvement in the portfolio over the past four years. As a matter of fact in the current year there has been a major regression where the Unemployment Insurance Fund (UIF) moved from ‘unqualified with findings’ to a disclaimed audit opinion and the Compensation Fund (CF) remained in the disclaimed block, Supported Employment Enterprise (SEE) remained in the ‘qualified phase’, and DOL, the Commission for Conciliation, Mediation and Arbitration (CCMA), and the National Economic Development and Labour Council (NEDLAC) remained in the ‘unqualified with findings phase’. Both UIF and CF have issues around investment and that caused them to be disclaimed. NEDLAC was previously qualified but was now unqualified.
The presentation then dealt with the AG’s findings regarding the status of the financial health of the entities and the Department. There was a concern in terms of UIF and CF as their current financial statements cannot be relied on for the AGSA to properly determine the financial health of these entities. Only CCMA did not have material misstatements as far as the annual performance report was concerned while none of them had material findings around compliance.
Ms L Theko (ANC) expressed that what Ms Skosana was saying and what was being presented on the screen were not the same.
Ms Skosana explained that there were two documents being presented, one with the presentation and the other with a briefing note which provides more detail. She moved on to deal with a three year trend analysis with regards to unauthorised expenditure, irregular expenditure, and fruitless and wasteful expenditure. The portfolio did not have unauthorised expenditure but it had fruitless and wasteful expenditure and irregular expenditure which however have seen a decline.
Leadership and financial and performance management have remained constant which correlated directly with the audit outcomes as overall there has not been much improvement on the audit outcomes. Governance also remained constant. All the entities, except CCMA, are in the red when it comes to proper record keeping. As the entities are doing their day to day duties, proper records are not being maintained which was evident when the AGSA arrived to audit. These areas must be strengthened in order for them to be able to prepare financial statements that are reliable.
Three key root causes as to why the portfolio was in the state that it was in have been identified. These were slow responses in improving the key controls, inadequate consequence management and competence. The last two have improved from the previous year but the portfolio still has slow responses to key controls which were a concern. There are staff members and officials that are doing things that are not in line with the basic principles of key controls and this caused misstatements in the overall audit outcome for the portfolio.
Productivity SA was financially unqualified, has misstatements in performance, information and compliance, and has maintained the same status quo as in the past. They have a financial health issue which meant their liabilities exceeded their assets. However, management has plans to deal with the going concern over the next 12 months.
The Chairperson told Members they were to ask questions to get clarity before they engage with the Department and the entities as the major questions will be to the DOL regarding what has just been presented on.
Mr D America (DA) wanted to get clarity as to whether the information presented regarding the investment and interests accrued to that could be reliable as a representation of the actual investments that was done by UIF and CF. Secondly, he wanted an opinion on the current incumbents and whether they possess the necessary competence in ensuring that compliance issues are met to effect a better outcome.
Ms F Loliwe (ANC) asked whether the AGSA found that the Department did things in a different manner when they were expected to do it differently because in previous instances the Department indicated that they would follow a particular process but came back with a different process the next year, so was this still the case? Secondly, what qualifies information to be unreliable?
Mr M Bagraim (DA) said the AGSA found irregular expenditure of R65 million with the major contributors being UIF and CCMA, wasteful expenditure of almost R1 million by DOL and NEDLAC, but in CF itself there was financial misconduct. What does this mean? Is this was not theft and fraud, what is? Also, AGSA said there was a report that has been done but not finalised so he presumed that the Members will get a copy of that in due course. However, who is doing the report? Is it the AGSA and when are they planning to hand it over? He wanted to know when it was being finalised and hoped it will not be a ‘sanitised version’. Furthermore, there are 152 financial misconduct cases of which 119 are still in progress and he asked if those people are suspended and getting their full salary? Also there are 135 fraud related cases, 49 of which have been completed and he asked what happened to the people.
Ms T Tongwane (ANC) wanted to know what the AGSA meant by ‘33 cases had been completed but without proper investigation’ in their briefing notes on page 5.
The Chairperson asked if the ‘green’ on slides 4 and 5 of the presentation meant the same thing as they had explained or if it meant something different. This was because on slide 4 UIF was in green but on slide 5 none of the entities are in green. Also on slide 4, UIF was in green but is also in amber, and NEDLAC was also in amber and purple. The internal audit committee and audit committee are committees that should be alerting the Department of problems and she asked why there were still negative reports from the people who should be doing what they are asking them to do.
An AGSA official explained that the change in colours in the presentation are there to show where the entities are currently and where they moved from, whether they improved, stayed the same, or regressed. As for NEDLAC being plotted in two blocks, that was a mistake and they apologise for it. NEDLAC should only be in the amber block.
The Chairperson wanted to know what criteria the AGSA was using to rate.
Mr Vishai Juggath, Audit Manager, AGSA responded that internal audit was assessed on what they were supposed to do and what they have done. The internal audit plan was used as the basis for the rating, and how they have made their plan for the year was looked at. If they have made a plan and given a report, the report was also assessed throughout the year, and they decided whether it was credible and if there has been sufficient coverage in terms of what they have looked at and how they have assisted the Department. For the entire portfolio, the internal audit has followed the internal audit plan and has been giving recommendations and credible reports to management. Management has not listened to them in all cases and this should also be taken into account. With the Department specifically, the AGSA was not happy with the coverage of the internal audit in terms of the provincial coverage because DOL needed to extend their provincial coverage into more labour centres and provincial offices. But the AGSA was happy with the coverage of the other entities.
The Chairperson wanted to know why the ratings of the audit committees did not correspond with the results that they got from the Department. There cannot be good internal audit committees and yet have problems in the Department. Something must not be right. She was not convinced by the answer given by the AGSA because their ratings for the internal audits are very high yet there really was not much change in the actions of the Department.
An AGSA official responded that internal audits identified the risks, and reported to management, but management was not taking action hence at that point what matters was who the final decision maker was. The internal audit committee was the oversight and they did the recommendations, and report to the executive audit, the accounting audit, and the senior management who are supposed to implement the recommendations and actions from the internal audit. Hence if they did not do it then there was a problem because the audit committee was not operational - they do not carry out the actions.
In response to the UIF and CF investment question, when AGSA audits, they get thirdparty confirmation and in this case it was from PIC, to confirm the figures that management had reported in the balance sheet. Investment was divided into two: investment in listed companies and investment in unlisted companies. Management should have prepared the reconciliation regularly on the normal investments and they had not done that throughout the year. CF managed to do that towards the end of the audit but did not throughout the year; hence they finally managed to reconcile the cash statements that they were getting from UIF to the numbers recorded as they reported on accrual basis. They had been struggling to reconcile the two because they were not doing that throughout the year. UIF was unable to do this hence they kept changing the numbers and instructing PIC to change the confirmation hence AGSA could not even rely on PIC confirmation in this regard. Thus this part of the investment was what resulted in the disclaimed audit opinion. The other part of investment was investment in unlisted companies in which both UIF and CF did not account for according to the standard. In terms of the competencies in finance, if management had looked at the contracts they were entering into, interrogated them and looked at the standard, they would have been able to see that they should account for them in terms of the standard. AGSA alerted management in October that they needed to look at the accounting in investment.
When it comes to reliable information, in this case, third party confirmation was the most reliable information. However, PIC could not even be relied on because management was telling PIC what confirmation to put up for auditing for UIF. When it comes to financial misconduct, this are instances in which management made payments on expenditures that were irregular or fruitless expenditures, and not necessarily fraud in this instance. With the investigations regarding the 152 cases of financial misconduct, the AGSA obtained a report from CF detailing all the investigations that had been either completed or ongoing and all the information was in that report. Hence the information they got from management could say that the case was closed and another column could say that nothing was done. So they had no information that showed what they had done to complete or close the investigation. One document would set out all investigations, the status of the investigation, and what steps had been taken.
When AGSA audit financial statements, they request that the figures that the entities have are supported. The process did not change and they didnot ask for something different. The entities have to explain what they used to confirm the balances.
In the absence of any further questions, The Chairperson thanked the AGSA and said the presentation was more clear and understandable than the last time.
Department of Labour
The Chairperson welcomed the Department, its entities and the Deputy Minister.
The Deputy Minister, Nkosi Patekile Holomisa thanked the Chairperson. He said that the Minister appreciated the invitation but was unable to come as she was out of the country attending an international conference. The Department was pleased to be able to walk through its activities for the period of 2016/2017 financial year. The Annual Report highlighted areas where they have done well, as well as areas where they have not done so well. Overall there have not been some improvements and the Director-General (DG) will talk on the areas of achievement, areas that remained a challenge, and the new issues that have to be dealt with going forward. The activities for the period under review find expression in the mandate and scope of the National Development Plan (NDP), the 9-point plan as announced in the 2015/16 SONA, the 2014/2019 medium term strategic framework (MTSF) and the election manifesto of the ruling party.
The AG’s report highlighted areas where the Department fell short in meeting predetermined objectives. The role of the AG in evaluating the work was greatly appreciated, especially the guidance and advice offered. It was true that the labour market policy was extremely dynamic and as such required constant monitoring and evaluation. The pace of changes in the labour market policy comes with its own challenges and inherent contestation becomes even shallow. While this was useful in terms of informing tooling and retooling efforts, most of the key drivers are more exogenous than internal meaning that more work was saved more by external factors than what can be controlled. The work was inextricably linked to the performance of the economy, domestically and globally. What was happening in the global economic trends tended to have a direct bearing on the domestic economy and by extension, the labour market. This meant that what could be a sound labour market policy could become obsolete within a short period of time. Furthermore, the real threat of the fourth industrial revolution was no longer a myth but a reality as companies intensify the shift from manual labour to robotics. The question was what our state of readiness to deal with the challenges that come with it was. In some instances, improvements in productivity come with unintended consequences of job losses. Sectors that used to be labour intensive are rapidly shifting to capital intensive business models thereby forcing a retake on the kinds of labour market policies to deal with this challenge. Our labour laws foundation has for many years been modelled around workers with little or no anticipation of robots taking over the space. Workers used to rely on trade unions for protection against abuses, but today unions are finding it difficult to fulfil their obligations. Hence more and more workers are side stepping their unions and coming straight to the labour centres for help which has placed an incredible strain on our capacity to provide services. It has also put a strain on the labour centres infrastructure as the volume of workers requiring assistance grows. These matters are being raised to illustrate that more often than not, the Department was dealing with an environment that was evolving all the time.
The Chairperson thanked the Deputy Minister and handed over to the DG.
Mr Thobile Lamati, DG, DOL, said the presentation will give a reflection as to what is happening in the labour market with regards to employment, poverty eradication, and other labour market challenges that are being experienced. The report will also reflect the issues raised by the AGSA.
The Department has spent 97.1% of the allocated budget which translated to R2.76 billion out of the allocated amount of R2.8 billion. The overall performance of the Department was at 74% as reflected in the audited report. The policy mandate was to improve economic efficiency and productivity and that was why the Department was structured the way it was as it had to reflect on the creation of employment, promote labour standards and fundamental rights at work, provide adequate social safety nets to protect vulnerable workers, ensure sound labour relations, eliminate inequality and discrimination in the workplace, enhance occupational health and safety awareness and compliance in the workplace, give value to social dialogue in the formulation of sound and responsive legislation and policies to attain labour market flexibility for competitiveness of enterprises which is balanced with the promotion of employment.
During the course of 2016, the impact of various factors such as domestic political issues, and the US federal rate hike decisions had a bad effect on the Rand sending the Rand spiralling into further depreciation. The Rand weakened in the last two years against the US Dollar which affected the weak labour markets. The negative trends in the global economy have contributed in worsening the unemployment situation across the world. In South Africa, the unemployment rate has remained relatively constant. Employment declines were reported in two of the 10 industries namely community and mining on the year to year comparison. The South African labour market was still in crisis and there was need for real change to address matching skills demand to achieve the desired outcome of the NDP.
The rate of transformation in the country especially at the top management level continued to be a challenge. It did not respond to the transformation agenda of the country and the Department was looking at proposed changes in terms of the legislative reform process - 360 companies that did not comply with the laws were taken to court. Section 53 of the Employment Equity Act will be used to force disseminated employers to comply with the Employment Equity Act leading up to the achievement of the transformative imperatives. Section 53 of the Act compelled the State to see that whoever participated in the contracts issued by the State must comply with the Employment Equity Act, hence this will be a condition put in place in order to drive transformation. R59 million was allocated to Productivity SA for them to do productivity organisation solutions and turnaround solutions. There have been productivity gains that have been realised from the initiative of this programme.
Mr Lamati said 50% of inspections done were in the sectors of wholesale and retail, 20% in construction, 8% each in the domestic sector and community services. This was a reflection of the challenges in the wholesale and retail sector in as far as wages paid to workers. Provident fund was becoming a huge problem where companies are deducting money for provident fund but the workers are not being given access to this provident fund when the time comes. In the construction industry, a challenge was a phenomenon known as the ‘bakkie brigade’ where people are being sourced from street corners and they work without knowing the names of their employers and when they are done they are not paid. In total about 909 employers were taken to court so they could be prosecuted for non-compliance. Most importantly an amount of just over R 5 million has been recovered on behalf of the complainants who were not being paid.
The Department has the responsibility of finding employment for work seekers which was a function done by the public employment services. A total of 400 000 job seekers are young people between the ages of 16 and 35 years old which was a clear depiction of the problem that we have when it comes to youth unemployment. More young people are claiming unemployment benefits than the older workers which were alarming. Of significant importance was that when the Labour Relations Act, the Basic Conditions of Employment Act and the Employment Equity Act were amended, the aim was to deal with the particular employment phenomenon that we have. Even with the legislations, the phenomenon of temporary employment services still persisted because there was a big chunk of workers procured through temporary employment services and private employment and agencies as opposed to them being permanently employed - 75% are still on contract whereas only 11% was permanently employed. This called into question the effectiveness of the deeming provisions that we have.
The audit committees are fully functional in terms of governance and oversight responsibility, an internal audit that is fully functional, risk committees that are fully functional across the portfolio of the Department. s. The unqualified audit opinion, to a greater extent, was linked to the material findings as well which meant that there was still a lot of work to be done to make sure that the material findings bare cleaned up. The Department was in agreement with the AGSA that overall the portfolio has regressed. This was something that the Department was already working on to ensure that the misunderstanding in terms of how to account for investment was now cleared up. There was ongoing communication between the two funds and PIC and we are happy with the process that was underway to ensure that this problem becomes a problem of the past. The submission of financial statements containing misstatements is being attended to in order to prevent a repeat of these findings in 2018.
Mr Bagraim wanted the Department to comment on the report presented by the AGSA which he found to be horrific. Firstly, there has been a regression in the audit outcomes for the past four years and the Department has been unable to improve the quality of the financial statements. Secondly, the CF in the past 5 years has been unable to express an audit opinion because they have not had the appropriate supporting documentation. UIF have experienced four consecutive regressions where there have not been proper accounting systems and processes to accurately report on investments. DOL, CCMA and NEDLAC have had problems with employee costs, provisions, leave entitlements etc. which seemed to be almost corrected but there has been ongoing problems there which is horrific when you think about it. With regards to the financial statements, due to inadequate review processes, the internal controls did not prevent material misstatements. This has been for over three years. With the exception of the CCMA, the portfolio failed to take steps to prevent irregular and or fruitless and wasteful expenditure. There has been a concerning regression and it seems to be getting worse. In terms of revenue management, CF and SEE did not establish systems, procedures and processes to ensure efficient and effective revenue management. NEDLAC experienced expenditure in excess of the approved budget. CF did not take effective and appropriate disciplinary measures against officials who committed irregular and or fruitless and wasteful expenditure. Disciplinary hearings were not held for confirmed cases of financial misconduct committed by officials. The portfolio incurred irregular expenditure of over R65 million during the 2016/17 financial year with the major contributors being the UIF and the CCMA. The portfolio incurred further fruitless and wasteful expenditure of R781 000 of which R300 000 was incurred by the DOL and R445 000 by NEDLAC. The CF has an allegation of financial misconduct against it and an investigation has been completed. There are a total of 152 financial misconduct cases that have been investigated this year of which 119 are still in progress. When will these be finished? Are those people still in employment? Are they still earning a salary? The report says 33 have been completed without proper investigation and what has happened to these people? 135 fraud related cases, what has happened to these people as well? The key controls are mainly due to the regression at the UIF and action plans which were inadequately implemented and monitored resulting in numerous repeat findings. Leadership should lead the initiative to ensure that all the items on the action plans are adequately addressed and hold staff accountable for poor performance, non-implementation or inadequate implementation of management action plans. There was lack of sufficient and adequately qualified and skilled people to support senior management on their operations.
If one looks at the overall report presented by the DG, it appeared to be a drop in the ocean. Is it not about time that we had a relook of our labour laws? The majority of people are employed by contract despite the fact that there was this new law. It needed to be looked at. One suggestion was that there should be exemption from that particular legislation for small businesses in the townships hence when you say 75% of the opportunities are registered as contracts, the figures are much greater than that because what you are really looking at are people who are in formal employment and not informal employment and this made a mockery of the actual law itself.
Ms Loliwe asked what the plan of the Department was to reduce strikes as they had increased by 10%, which was a sizeable figure and had an impact on the economy of the country. She asked if there was a way of ensuring the number of those absorbed in the market increased because by the look of things now, it was not assisting. The DG’s presentation indicated there are work seekers who are registered but are in the age group of 60-61. Are 60 not a retirement age in South Africa? The presentation showed effective structures for audits and all the other areas which are fully functional, but this did not tally with the fact that despite the functional structures, there was still regression as observed by the AGSA. The performances of UIF and CF are concerning because it was clearly indicated that they lack proper financial processes and systems to accurately report. What plan is in place to address this? Inability to report especially on financial matters was a danger for the entity so what is the remedy for this?
Mr America wanted clarity with regards to the audit opinion pertaining to the investment of the CF and UIF. With CF, the figures presented could not be reliably verified because of the lack of source documents and information. In so far as the UIF was concerned, it has similar challenges, but it tried to intervene and get PIC to provide the AG’s office with the required information that supported their assertion. This was a major problem. Both those entities deal with billions and their lack of internal controls and verifiable information opened them up to consequences that one would not dare to contemplate because millions of people are dependent on the liquidity of those funds. This was a critical area that must be attended to. In so far as the outstanding disciplinary cases are concerned, if there are no firm actions taken against those employees who commit these infractions, it will create a culture of impunity and once this culture becomes part of the organisational culture, the same kinds of audit outcomes will remain.
Ms Theko wanted to know whether the amount that was paid back was in millions or billions. What was the outcome on the cases that were taken to court? The AG’s report is indicating functional committees on UIF and CF but the outcome of the findings of the AG shows that they are in disclaimer. How can you have functional structures but are unable to submit proper documentation?
The Chairperson asked the Deputy Minister what the challenges were in implementing the plans that were put in front of the Members by the Department to ensure that certain things were going in the right direction. What were the things that erupted unexpectedly in the process of implementing the plan to put the Department in the right track? What positive thing has been done and what has not been done. If the internal committees are doing their job to the letter, why is there little to no change in terms of what the AG is expecting?
The Chairperson said the Department will respond at the answer session later.
Unemployment Insurance Fund (UIF)
Ms Hilda Mhlongo, Chief Director, UIF, said the Commissioner was also away with the Minister. The entity had 12 planning targets for the financial year of which six had been achieved. Thus the overall performance was 50%.
The first challenge was the percentage return on investment. There was a target of +2.5% which they were unable to reach because of the economic outlook within the country. The corrective measure put in place to address this was that they are currently reviewing the investment strategy and also looking at the portfolios that they invest their funds in. A company has also been appointed to advise on actuarial services and thus do evaluations and provide recommendations with regards to investments. The second indicator that proved to be a challenge was the percentage of valid claims that the entity paid. This target was missed by 1% as the target was 90% but the entity only achieved 89%. The main challenge was that the systems were down most of the time and the assessment done indicated that they should actually have employees who are specialising on UIF services. Thus they are currently finalising the filling of the 258 service officers position who will be dedicated employees only focusing on UIF services.
The labour centre model was also being reviewed in order to ensure that they centralise all services at labour centres. The third indicator that was not achieved was the percentage increase in revenue. The measures put in place to address this are by implementing a compliance strategy to ensure that employers register and declare contributions on a monthly basis. UIF was also working hand in hand with the employer service inspectors to ensure that employers comply. The indicator of the percentage of overpayment balance collected was also not met. The challenge was that there was a huge debtor’s book which was because most of the people in the country are unemployed thus it was hard to collect overpayments from people who are unemployed. Once again they are looking at implementing the compliance strategy to ensure that the debtor’s book was reduced.
Mr Thembeka Puzi, CFO, UIF, said the fund generated R18.2 billion as compared to R17.1 billion from the prior year which translates to a 7% increase. 90% of these contributions are collected through South African Revenue Services (SARS). They have paid 8.4 billion benefits as compared to 7.6 billion which was a 10% increase in terms of benefits. Due to increase in unemployment, the benefits being paid out have also increased. Income on investment has increased by 19% from investments done in PIC. Administrative expenses have increased by 12% which are mainly payments to SARS for collecting the contributions. The more contributions received the more rates they pay. The more the portfolio grows the higher the management fees that that they pay to PIC. There was an increase in terms of spending under the poverty alleviation scheme of about 81%. Employee costs have increased due to the new organisational structure being implemented. UIF has a strong financial position and the total investment portfolio has increased by 12% which have been invested with PIC in different instruments.
UIF fund received a disclaimed opinion and one of the issues was the unlisted investments. The fund invested in unlisted investments as part of its social responsibility investments and according to the AG and graph standards, immediately ownership was more than 20%. The entity had a different interpretation with that of the AGSA at the time. But the entity has since started a process where they are seeking a technical opinion so that this issue is addressed. This was a new finding for the fund and not one that has been recurring and the issue of investment was never raised in the previous year. The fund therefore has a detailed action plan trying to address these findings and was working together with the CF and PIC to resolve the issue.
Mr America asked for clarity on the relationship between the under evaluation of the unlisted investments and its impact on the surplus of the fund. Is it because of the interest that ought to be earned? He sees no relationship between the interest on investment and the surplus. The entity was working with money that belonged to employees that have contributed over a number of years, and this money was being placed in the entity’s care to invest wisely and ensure that there was money available to fund the programmes hence there needed to be some sort of oversight and proper management of where this money was invested. The action plan developed to deal with this matter should also be shared with the Committee.
Ms Loliwe wanted more clarity on the irregularities picked up by Productivity SA and why nothing has been done up to now? Productivity SA had requested that UIF assists them on this so how far have they gone in this process?
Compensation Fund (CF)
Mr Vuyo Mafata, Commissioner, CF said the by the end of the fourth quarter the fund had achieved 50% of the targets that had been set for the 2016/17 financial year; 9 strategic objectives/ performance indicators were not achieved. The first was the achievement of the implementation of the three year annual audit claim in which not all activities identified in the internal audit plan were finalised. The main reason was that the internal audit started implementing the plan much later due to the fact that it was presented to the audit committee for approval only at the beginning of the financial year in which the approval process took time.
The second one was the indicator relating to the percentage of the active registered employers whose assessments are finalised by the end of the financial year. A target of 60% of all active employers needed to have been assessed in terms of their submissions of their annual return of earnings and paying their assessments. Only 95% of the target was achieved which was about 55% of the employers who were actively assessed. The main reason was the issue of non-compliance by employers and the entity has partnered with the inspection and enforcement branch of the Department who have signed an MOU with various areas of co-operation with the effort of improving compliance to the current legislation so as to prevent workplace accidents from happening. In terms of this partnership, inspectors are being trained on how to deal with employer assessments and what issues to look out for when doing inspections so that compliance by employers can start improving. In the long term, the specific provisions in the legislation that make it difficult to enforce compliance on employers will be amended because it requires a lengthy procedure in which employers are not complying as opposed to an administrative process that imposes fines that enabled the inspectors to be able to enforce fines on employers that are not complying.
The third one was on the percentage of increasing investments and the returns on investments in which the target was set at +2% as a return for all investments made through PIC. The target was 8.28% but only 7.17% was met. This was largely due to the fact that the economic conditions were depressed and the entity was not able to outperform the benchmark that was set. 78 of findings that had been raised by the AG in the prior three years had been targeted to be reduced but only 12 of these were cleared and the others are still in progress.
The last target that was not achieved was the vacancy rate. The target was to have a vacancy rate of not more than 10%. By the end of the financial year the entity was sitting on 10.3% vacancy rate and a big challenge was the fact that the entity had difficulties attracting the specialised skills required particularly in the medical services area which has led to lengthy delays in the appointments, something they have been able to overcome in the first quarter of the financial year.
With regards to the core business of the entity, there were 3 indicators that were not achieved. One of which was the review of the compensation benefits in terms of annual adjustments of benefits. This was because the benefits were finally approved at the beginning of the financial year in April because they had started with the consultation process with the public was started late and it took longer to do these consultations. What was done now was starting the process much earlier at the beginning of the financial year so that the final approval from the Minister can be obtained before the end of the calendar year so that by the beginning of the 2018 calendar year, the approval has been obtained and just waiting for publishing and implementation. The second one was on the implementation of the electronic based management system for the tribunal hearings and managing all the cases in the fund from the legal point of view. The project was delayed by a number of factors relating to the licenses needed to finalise. This system will however be going live in December 2017 as the project is already at an advanced stage. The other target was that 85% of claims needed to be finalised within 60 days of receiving the claim and making sure that by the end of the financial year, 90% of the claims that have been received are finalised. The entity managed to achieve the goal of finalising within 60 days but only got to 73% finalised at the end of the year.
Mr Linda Kotta, Director: Financial Reporting, CF, said revenue from non-exchanged transactions increased by 20% due to increase in new registration and estimation policies that the CF applied on non-complying employers. Revenue from exchanged transactions increased by 11%, mainly due to higher investment returns compared to the prior period. Expenditure improved by 32%, because provision of benefits was less than the prior year. Also some general expenses incurred in the previous period were not incurred in this period. There was an improvement in other expenditures and adjustments of about R 3 billion which was from the improved fair value adjustments that the entity had, as compared to the previous year were they suffered a huge fair value adjustment of about R 3.2 billion but only incurred about 200 million this year which was a huge improvement. In total, the investment movement was about R4 billion coming from the non-current and current assets. The main drivers of this investment was the improvement in fair value adjustments of R3 billion and a contribution of R300 million that was collected from employers which was put in PIC, plus the investment returns of about R400 million.
Mr America said he had seen a movement in the entity turning around and he hoped that in the near future it would emerge out of the disclaimed area of the audit outcome chart. However, in the presentation it was stated that of the issues raised by the AG including historical findings, only 5% of these issues have been addressed. Is this because of lack of capacity? As long as the shortcomings are not addressed the entity will continue to have challenges where the entity is unable to get out of the bottom. Has any action been taken against individuals involved in fruitless and wasteful expenditure?
Ms Tongwane wanted clarity in the 2016/17 achievements as the presentation did not state the number of received. Also, when will the bidding process be completed?
Ms Nobuntu Sibisi, Head: Programme Operations, NEDLAC, said a summary of the 2016/17 performance showed that there were three programmes namely administration, core operations and constituency capacity building funds. The total number of annual targets was 51 with 41 achieved and 10 not achieved. The overall performance was at 80%; 10 pieces of legislation and policy were concluded. NEDLAC obtained an unqualified audit opinion for the 2016/17 financial year
The National Minimum Wage (NMW) Agreement was also signed by social partners and a high level task team on Comprehensive Social Security was established with a timeline of two yeas allocated. The budgeted income for 2016/17 financial year showed that R30.8 million and interest received stood at R420 000. Sundry incomes was R132 000 and R3.9 million was allocated to programme 3, R6.4 million to programme 2 and R21 million to programme 1.
There was over expenditure in programme 1 which was due to the NMW activities. This impacted on expenditure in programme 2 and increased in expenditure relating to security services and audit fees. In programme 2, there was also an over expenditure which resulted from the increase in the cost of research projects undertaken by the four chambers of NEDLAC. Programme 3 witnessed an under expenditure largely due to implementation of cost containment measures and also some due to actual costs being less that initially estimated. Talking about organisational priorities for 2017/18, there is the need to enhance financial management by enhancing risk management systems and compliance, seeking additional funding in order to address the issue of underfunded projects which are undertaken by NEDLAC and an effective implementation of the audit action plan.
With respect to programmes, there was a need to enhance communication and outreach, which would entail forming strategic partnerships with other communicators, and healthy relationships with the media. The NMW will remain one of the key deliverables for NEDLAC, and also ensuring that the work that flows from the NMW lives beyond the implementation date of May 2018. Comprehensive Social Security (CSS) will form a pivotal part of NEDLAC’s work, ensuring that South Africans who are currently outside the security net are also covered. There will be a substantially advance engagement on work of the National Health Insurance (NHI) and there shall be continuity with the consideration of Section 77 notices in line with the NEDLAC Protocol and Code of Good Practice. On human resources, there are plans to improve capacity of the secretariat to attract and retain highly skilled staff to carry out the mandate of NEDLAC and build research capacity in line with the ILO recommendations.
Productivity South Africa
Mr Mothunye Mothiba, CEO, Productivity SA, said there was a total of seven strategic objectives with 41 annual planned indicators; 28 of these were achieved while 13 were not achieved. The overall achievement was 68%. He told the Committee the main challenge was with strategic objectives 3 and 4 which were not achieved. A comparative analysis was done and it showed that in 2014/15, there was a 49% achievement of the APPs, in 2015/16 it was 36% and 68% in the 2016/2017 financial year. With the reduced funding received towards turnaround solutions programme from the UIF, Productivity SA was able to support 49 companies facing economic distress against a target of 33, and was able to save 4 760 against a target of 1 650. There Under programme 1, the performance indicator on the number of media articles to be published was totally not achieved and this was due to the difficulty in securing media space due to lack of funding.
Dr Sibusiso Sabela, CFO Productivity SA said the total income in revenue for the year under review was R96.9 million. Deviations recorded were because funding was received late in June instead of April, the budget was overstated by the 35% revenue from TAS assisted companies which has been discontinued. The bailout from the Department of Labour to cover salaries and other operational costs was also a deviation factor. The audit findings status report for the year showed eight findings, none of which was resolved as they are all in progress. This was in contrast to the 2015/16 audit findings status reports were 34 findings were made and 33 of these were resolved and one was outstanding.
Mr America questioned the validity of the report by Productivity SA since the financials were not audited by the AGSA in compliance with the Public Financial Management Act. He also reacted to the delays in transfers of funds from the UIF. He noted it would be regrettable if Productivity SA closes up due to insufficient availability of funds. He wanted to know what steps were being taken to address staff turnover and instability. Lastly, he asked for information with regards to the investigations on subsidy payments.
The Chairperson in her remarks applauded the good work being done by Productivity SA and she asked what fraction of the R24.4 million gotten from the UIF by Productivity SA was spent.
The Deputy Minister said there had been continuous meetings with senior management members of the Department on a quarterly basis noting that the Department was on top of some of the issues raised by the Members. Responding to Mr Bagraim, he stated that the issues raised by him were policy matters. It was the responsibility of everyone to bring to the notice of Parliament anyone who tried to undermine the laws of Parliament with regards to labour matters. Also responding to the issue of the NMW, the Deputy Minister told the Committee NEDLAC was working on legislation and hopefully by May 2018, all issues relating to the minimum wage would be settled. Government was committed to ensuring that nobody was exploited at the work place.
Mr Thobile responded to the question on the SIU investigations and reported that the investigations were completed and the report was submitted to the President. The Department was still waiting for the report. The issue relating to low placement was a function of the skills of the people on the data base. There is a MOU between the Department and Higher Education so that skills can be provided to the people on the database requiring such.
Responding to the questions on unemployment, Mr Thobile noted that focus was on wages and this should not be so because the issues go beyond that. He talked about the need to ensure that employees are well treated by their employers.
Responding to the issues on inspections, the DG noted that the inspections which were carried out were just reviews of the DG. He however stated that inspections relating to procedural issues were also carried out by the Department. Talking about strikes, he stated that a lot had been done to ensure a significant reduction in the number of prolonged strikes. The CCMA was working tirelessly to ensure that if possible, parties do not take to strikes. On the retirement age of 60, he noted that even at that age people were still strong and able to work. This was attributed to improved healthcare and lifestyles. On recovered funds, he stated that this were fines which the courts have levied against employers who do not comply. The CCMA was engaged to ensure that companies comply. With regards to the irregularities at Productivity SA which was mentioned by the UIF, a forensic investigation was put in place and the results are being awaited.
The Chairperson asked if the workers in the lower level are responding positively to the new leadership at the Compensation fund The DG in his response stated that one of the biggest challenges at the Compensation fund was change management but noted that there were a lot of good people working there.
Mr Mafata responded to the questions around capacity. He stated that some of the issues require legislative attention. On the irregular expenditures, a lot of the cases were cases from prior years and these had to be investigated. There are currently 152 cases and they are being systematically worked through. On the question of case management system, he said a system would have been procured but the Department decided to use another model to develop the case management system.
Mr Cameron Morajane, Director, CCMA, responded to the issues around reviews and told the Committee that the CCMA cannot do anything when a case of bias was established. There was usually no interference on the outcomes of cases. When parties are not satisfied with outcomes, they are encouraged to approach the Labour Court.
Mr Madoda Vilakazi, Executive Director, NEDLAC, responded to the question on internal control and deficiency with the non-compliance of NEDLAC to its own internal process controls. He stated the only case of non-compliance was that of processing of legislation at NEDLAC. All the Departments are aware of the timelines at NEDLAC and this was the only case of non-compliance.
Mr Mfonu Fikile, CFO, NEDLAC, on the budget of the NMW, said the process began in 2014 and it was expected that the process would have been completed in 2016 but it was noticed that the processes were not going to end so there was an incorporation of this expenditure into the budget of NEDLAC in subsequent financial year. NEDLAC has not been able to get enough money for this. The total cost of the process till date is around R7 million. The minimum wage activities have been a major contributor to the deficit of NEDLAC. On the issue of over expenditure, the necessary documents have been prepared and will be submitted to Treasury.
Mr Virgil Seafield, Deputy DG, DOL, told the Committee that the minimum wage process was in its final phase and finishing touches were being put to ensure that an acceptable minimum wage will be available soon. Responding to the question of the relevance of NEDLAC to the NMW, he stated that NEDLAC remained an important stakeholder in the current discussions.
Mr Mothiba responded to the question asked regarding the R24 million received from UIF by Productivity SA and said R19 million of the fund was spent. On post retirement, he stated that a legal opinion on this was received already and this was being discussed with the board.
The meeting was adjourned.
- DoL, Nedlac; Productivity SA; CCMA; Compensation Fund & UIF 2016/17 Annual Reports, with Auditor General input 3
- DoL, Nedlac; Productivity SA; CCMA; Compensation Fund & UIF 2016/17 Annual Reports, with Auditor General input 1
- DoL, Nedlac; Productivity SA; CCMA; Compensation Fund & UIF 2016/17 Annual Reports, with Auditor General input 2
- AGSA Briefing to Portfolio Committee on Labour
- Commission for Conciliation, Mediation and Arbitration 2016/17 Annual Performance Plan presentation
- Compensation Fund 2016/17 Annual Performance Plan presentation
- Department of Labour 2016/17 Annual Performance Plan presentation
- Department of Labour 2016/17 Annual Performance Plan presentation - part 2
- Department of Labour financial performance
- Nedlac 2016/17 Annual Performance Plan presentation
- Productivity SA 2016/17 Annual Performance Plan presentation
- UIF 2016/17 Annual Performance Plan presentation