UIF Covid-19 TERS Payments Special Audit Report; with Ministry

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Employment and Labour

04 September 2020
Chairperson: Ms M Dunjwa (ANC)
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Meeting Summary

Video: Portfolio Committee on Employment and Labour 04 Sep 2020

AGSA First Special Report on financial management of government’s COVID-19 initiatives 
AGSA Media Release 

The Committee was briefed in a virtual meeting by Auditor General South Africa (AGSA) on the Observations made during the COVID19 special audit of the Unemployment Insurance Fund (UIF) which is part of the Department of Employment and Labour (DEL) portfolio. The first special audit report noted that:
o TERS benefit payments as at 31 July 2020 were recorded at R37.7 billion.
o Payments for normal UIF benefits from 26 March 2020 to 31 July 2020 were R6 billion

It identified numerous gaps, risks and inadequate controls and verification processes. This had resulted in illegal payments to recipients of other State grants, students receiving National Student Financial Aid Scheme (NSFAS) payments, public servants, and even inmates, deceased persons and minors. There is also evidence of overpayments and underpayments as well as inflated claims.

Members asked the AG questions about the audit finding that the UIF had issued Temporary Employee Relief Scheme (TERS) payments to dead people. The Committee heard that this had to do with a lack of data consolidation amongst government institutions. The UIF had not compared its data against that of other government databases such as Home Affairs to safeguard against making payments to ghost employees.

Members asked the Minister about the Department’s audit action plan subsequent to the findings of the AG. The Committee heard that the Department had engaged the Special Investigating Unit and the Fusion Centre to launch a rapid forensics audit on the AG's findings. The goal was to unveil the fraudulent activities and recover the money lost during the TERS payments.

The Committee was also briefed by Productivity South Africa, National Economic Development and Labour Council (NEDLAC), Compensation Fund and UIF on their procurement of COVID personal protective equipment (PPE).

Members asked Productivity South Africa, NEDLAC, Compensation Fund and UIF to explain if they had procured PPE from the Supported Employment Enterprises (SEEs). The Committees heard that at the beginning of the lockdown period the entities had procured PPE from private suppliers but subsequently shifted to SEEs.

Meeting report

Minister's opening comments
Minister of Employment and Labour, Mr Thulas Nxesi, acknowledged that the Committee had a lot of questions on the audit findings of the Auditor General on Covid-related government transactions. The Department had a difficult task to manage and disburse a large amount of money. According to the CEO of the National Employers Association of South Africa, Mr Gerhad Papenfus, the Department had done a great job despite the fraud that had taken place within the UIF.

Prior to the President’s proclamation directing the AG to audit all departments, DEL had already taken a resolution to conduct an internal audit that it termed “Follow the money”. With the assistance of the AG, the audit sought to enhance financial controls within the UIF. The AG’s independent investigation had revealed additional and overwhelming loopholes within the system. For example, the AG found that UIF payments had been made to deceased individuals, as well as individuals that benefited from other government institutions including NSFAS.

The Minister said the AG had recommended that the UIF collaborate with the DEL and other state agencies to investigate the risks it had identified. DEL had acted on the recommendations quickly and engaged the Fusion Centre and SIU for investigation assistance. On 21 August SIU had launched a rapid forensic audit on the audit findings with the goal of identifying perpetrators and recovering the money that had been lost.

The UIF and DEL had engaged the Fusion Centre to help it consolidate data from other government departments. DEL had requested National Treasury to provide technical support to the UIF to fast track the implementation of the AG recommendations. DEL had further requested National Treasury to assist with identification of service providers that the Director General could contact to get assistance with overhauling the UIF as well as the Compensation Fund. The Minister said he had always been concerned about the technological and skills capacity in these entities and had given directions to restructure these prior to COVID-19.

DEL had opened 38 cases of fraud following the AG findings and those of DEL's internal audit team and had suspended implicated management officials.

Auditor General SA (AGSA) briefing
Ms Kgabo Komape, AGSA Business Executive, said that AGSA had conducted the COVID19 special audit as per the President’s request. The audit report was divided into three categories. The first category dealt with preventative controls, the second with data analysis and the third with additional risks. The report made recommendations on the primary controls that could assist the UIF with its payment process going forward.

The audit was significantly delayed as initial engagements with management took longer and the information required was submitted late. UIF management has indicated that the urgency to implement the benefit scheme did not give adequate time to identify and implement all possible preventative controls. Overall the leadership expressed their support for the audit.

Ms Nnana Sekoati, AGSA Senior Manager, said the audit was motivated by the coronavirus which had presented new challenges in the operations of the UIF and other government departments that were handling COVID-19 related funds.

The UIF had to make payments of the Temporary Employee Relief Scheme (TERS) benefits that totalled R122 billion. As at 31 July 2020, UIF had made TERS payments of R37.7 billion. The AG’s audit of the payments focused on the internal control environment, data analytics, fraud risks and employer site visits.

AGSA had observed that TERS payments had some of the following control weaknesses:
- Inadequate verification of employer details
- Inadequate system functionality for bank confirmation of uploaded documents
- Incorrect system calculations of the TERS benefit payment for the first lockdown period and;
- Inadequate verification of employee salaries.
It made recommendations to improve UIF control systems (see document).

AGSA had analysed TERS payments that had been made by verifying the details of the employers, bargaining councils and employees against various existing government databases such as those of Home Affairs, South African Revenue Service and CIPC to confirm the eligibility of the beneficiaries, identify double dipping, and so forth. It observed the following:
- Payments made to applicants below the legal age of employment
- Payments made to applicants with identity numbers matching those of UIF employee
- Some deceased individuals were paid TERS benefit
- Imprisoned individuals were paid the TERS benefit
- Payments made to applicants with the same banking details as UIF employee.
- Payments made to individuals with invalid identity numbers.
AGSA had made recommendations on how to improve data analysis (see document).

AGSA had reviewed the appointment of service providers to create awareness of the UIF COVID-19 TERS initiative and noted the following:
- Non-compliance with the instruction notes
- Unfair awarding of contracts
- Discrepancies in the appointment of service providers.
Again, AGSA had made recommendations (see document).

The AGSA team had started a process of visiting the premises of some employers and bargaining councils to obtain assurance about the validity and existence of employee related payments received for the Covid-19 TERS benefit. AGSA had observed that some employers were reluctant to welcome auditors and had abandoned the premises at the addresses they had used to apply for TERS.

Discussion
Mr M Bagraim (DA) asked if there was room for the SIU to investigate UIF management for the cases of fraud that had been exposed. AGSA had to explain if it found anything connecting the fraud to UIF officials and management.

AGSA had to confirm its availability to provide responses to written questions that Members would send it once they had finished analysing the presentation in greater detail.

Ms Komape replied that there was room for the SIU to commence investigation. The report had identified hot spots for investigation. AGSA had recommended to UIF to investigate further, with the assistance of independent investigative bodies, for example the Fusion Centre.

Minister Nxesi said he had to be upfront about the fact that he had a difficult task to answer the questions asked by the Committee. He advised the Committee to consider the suggestion that had been made to give DEL time to digest the audit findings and meet with the Committee at a future date to answer its questions. Be that as it may, he was prepared to provide general responses if the Committee required these.

On the SIU, the Minister replied that DEL had acted quickly to the audit recommendations and engaged the SIU and the Fusion Centre for assistance with the investigations. These were reputable organisations that had the knowledge and capacity to investigate financial matters. DEL had started investigations of its own and had requested people from AGSA to assist with these.

Dr M Cardo (DA) asked the Minister if the suspended UIF Commissioner, Chief Financial Officer, Chief Operating Officer and Head of Supply Chain Management were going to be suspended until November 2020 when AGSA completed its final special audit report. The Minister had to give reasons the task to administer the TERS Scheme had not been assigned to SARS which appeared to have the technical and financial expertise to do a satisfactory job. One could not help but wonder if DEL would have been in the situation it currently was, had SARS administered TERS.

Dr Cardo referred to Observation 13 of the AGSA presentation: UIF had paid R140 million to 35 000 applicants that had received benefits from other state institutions including government employees who had been paid R41 million through the personnel system. AGSA had to explain what it was doing to recover the money that illegally benefited public servants through double dipping. The presentation only mentioned recommendations and action plans about SASSA beneficiaries.

Dr Cardo noted Observation 11 where R30 million was paid to people with invalid identification numbers. He asked if the ID numbers were invalid or belonged to people that were deceased. This had undermined the state system to identify its citizens and had implications for fairness and accountability when looked through the lens of South Africa’s social service delivery programme. AGSA had to explain its action plan.

Ms Komape replied that the Director General and the Minister were in a position to answer questions about the double dipping in Observation 13.

On Observation 11, Ms Komape replied that AGSA had matched the identity numbers of beneficiaries in the UIF database against the Home Affairs database. The Home Affairs database had reported some identification numbers as invalid. In certain cases, UIF had explained that the data inconsistencies were as a result of clerical or data entry mistakes.

Ms Komape replied that DEL had also performed data analytics. The Department had taken the resolution to consolidate data from different government institutions in order to allow these institutions to easily conduct their work.

The Minister replied that the issue of the identification numbers had seriously undermined the government IT system and the Department was looking to overhaul that area. There was a need for collaboration amongst government institutions to strengthen the IT system.

Ms H Denner (FF+) asked if AGSA had investigated more of the UIF personnel excluding those who had been suspended. AGSA should explain the disciplinary process going forward for the suspended officials such as the timeline for the disciplinary process. This was critical considering that in the past there were cases of foot-dragging about disciplinary processes.

She asked AGSA to specify the amount of money that had been paid out and recovered in cases where individuals had received double payments. If the money had not been recovered, what was AGSA’s action plan for recovery? To prevent future cases of fraud, AGSA should tell the Committee the government database against which the UIF database had been matched.

Response
On whether AGSA had investigated more UIF personnel, Ms Komape answered that the job of AGSA was to audit and not to investigate. AGSA had made recommendations about investigative bodies that could assist DEL with this task. For this reason, the DG and the Minister were in a suitable position to answer that question.

Ms Komape replied that the DG was in a position to answer which external database the UIF had matched against its internal database. On its part, AGSA had used the SARS, SASSA, NSFAS and Home Affairs databases to conduct its investigation.

The Minister replied that the timeline for the investigation and the disciplinary process was going to be determined by those responsible for the investigation. The fact that AGSA had already conducted a seemingly thorough investigation guaranteed a speedy investigation going forward.

Ms C Mkhonto (EFF) said that the system under review had been established as a case of emergency and had some loopholes. The fraud that had been unveiled by AGSA showed that some individuals had taken advantage of the loopholes. The Minister had explained that consequence management led to the arrest of some of the individuals responsible. Some of these individuals were out on bail. The Minister had to promise that the perpetrators would be convicted and incarcerated.

AGSA’s investigation had showed that the DEL internal audit team failed in its task to mitigate financial risk within the institution.

The presentation had talked about people who were underpaid. While AGSA had to prioritise the recovery of lost money, it had to guard against overlooking those who were underpaid and still needed to get their remaining balance.

The presentation had not talked about the difficulties faced by those employees employed through labour brokers. These employees had not received TERS and they had got the run around from labour brokers about the status and whereabouts of their relief monies. Had AGSA conducted an investigation on this matter?

Ms Komape replied about labour brokers, saying that AGSA had conducted an end to end investigation. This means AGSA checked if the UIF had released UIF money directly to the employees or had paid the TERS money to employers or the bargaining council for later payment to the employees. AGSA was still yet to visit employees and determine if they had received payment.

The Minister replied that it was his desire to see perpetrators getting convicted. However, the ultimate decision lay with the justice delivery system. In his experience, most perpetrators showed up at court with reputable legal representation clearly beyond their financial reach. This showed that the perpetrators had the assistance of powerful forces.

On the internal audit team, the Minister replied that he was faced with the task of applying consequence management if it the team had not performed its duties to mitigate risk.

Mr S Mdabe (ANC) asked if AGSA had written an engagement letter to DEL about auditing the UIF system prior to the payment of the TERS benefits. Prior engagement was useful to the Department to look at the identified weaknesses as well as understand the auditing process going forward.

He asked for further information on the unsubstantiated payments UIF had made which totalled R1.3 billion. DEL had to explain how this happened. He said that the time allocated to interrogate the presentation was not enough and the Committee had to discuss how it was going revisit the matter.

Ms Komape replied that AGSA had not written an engagement letter. The engagement letter would have allowed DEL to put together a control system, test it and then execute it which included making payments. However, AGSA deliberately ensured that the audit process commenced between claim payments to give AGSA time to reflect on the payment process and identify weaknesses and loopholes that DEL management needed to address before continuing with further payments. The first special audit report was about observations made in March and April. The observations were meant for DEL to start enhancing and reinforcing the payment system. If the observations would have been made at a later stage where the system was already at an advanced stage, it would have been difficult to enhance and reinforce it.

On unsubstantiated payments, Ms Kompape replied that this referred to payments that AGSA had failed to reconcile with the payment data that had been presented to them. The receiving and processing of claims were within the TERS, SIYAYA and COMPUTRON systems.

The Minister replied that amongst the factors that had contributed to the unsubstantiated payments was the overwhelming number of employees that had been admitted to benefit from UIF as exceptions.

Ms N Hermans (ANC) asked if the weaknesses in the UIF system were identified prior to or subsequent to the loss of the R5.7 million to one fraudulent claim. AGSA had said that it implemented measures to safeguard double dipping but it had not made it clear when it implemented such measures.

Ms Hermans asked DEL to furnish reasons the double dipping had happened when certain groups of people were receiving payment from other government institutions. For example, NSFAS students received TERS around the time they were supposed to receive their allowances. This would enlighten the Committee if the double dipping scandal was as a result of genuine mistakes by management or collusion between UIF officials and those that benefited.

She asked AGSA to explain the role that the South African banking industry had in exposing the fraud. The banks could have flagged suspicious payments and had these investigated.

She asked if there were public servants that had come forward to report that they had received payments they had not applied for. If nobody had come forward, what was the recovery process going forward? She asked if the money the public servants had benefited from was going to be automatically deducted from their salaries.

AGSA should explain if it had discovered anything showing that there was collusion to defraud the government within the UIF. It was obvious that there was collusion considering that TERS applications had to go through different processes managed by different people before their subsequent approval and payments.

Response
On double dipping, AGSA had simply ascertained the fact that there were people that had received payments from both NSFAS and the UIF. The UIF had to investigate if it was the intention of government to pay certain individuals twice or if these individuals had misled government.

The Minister replied that it was possible that double dipping beneficiaries had colluded with department officials to defraud the government. The task to acquire the names of these individuals and implement consequence management was easy and already in process. The name of the process was “Follow the Money”.

The Minister replied that the weaknesses in the UIF system were identified in the early stages of the payment process. He had requested UIF officials to close all loopholes within the system and he was assured on several occasions that this had been done.

On the role the SA banking industry had to play in unveiling corruption, the Minister replied that the banking industry was keen to collaborate with the UIF but the UIF had not demonstrated interest to do so. This was despite the Minister's pleas and directions that the UIF should collaborate with the banking industry.

Mr M Nontsele (ANC) advised the Committee not to engage substantively on the matter until DEL had made formal responses to the audit findings of AGSA. The Committee had to first hear both sides of the story and make comments and recommendations afterward.

Ms Komape agreed that it was important for the Committee to get a broader picture from DEL because there may have been findings made by DEL subsequent to AGSA’s investigation. The findings explained those elements that were worrisome to the extent that DEL required the services of the SIU and the Fusion Centre.

The Chairperson said AGSA had mentioned that during its investigation it attempted to verify the existence of companies that had received payments. The verification process unveiled that some of the companies had been deserted. He asked if DEL was still going forward with the verification process. DEL should provide the Committee with the exact number of companies that had been abandoned.

On the cases of wrongful applications, had DEL conducted an investigation to determine if the applications were deliberate and fraudulent or were genuine mistakes? AGSA had to ensure that its investigation was not limited to exposing corruption within DEL but also outside in the private sector.

The Chairperson said the Minister if it was possible to obtain the total number, names and provincial locations of those public servants that had not reported wrongful payments.

Ms Komape replied that AGSA had the numbers available of public servants who had received and not reported wrongful payment. It had reconciled the numbers with DEL and the UIF. It was up to DEL to decide if the payments were justified.

The Minister replied that DEL was going to identify the public servants through its operation “Follow the money”. The operation would unveil the government institutions these public servants were coming from. It already knew that some of the public servants worked in the Ministry of Defence.

On corruption and fraud within the private sector, Ms Komape replied that DEL was aware of this and hence had introduced the post validation process. The post validation process sought to rule out potential cases of fraud by employers that applied for UIF for those employees that were admitted into the system as situational exceptions.

Productivity SA on its COVID-19 procurement
Mr Mothunye Mothiba, CEO of Productivity SA, took the Committee through its R93 000 expenditure on PPE since April 2020. The breakdown of the R93 000 showed that it had spent R49 745 on the deep cleaning of offices.

Mr Mothiba said that Productivity SA had adhered to the supply chain policy provided by National Treasury which had recommended that entities procure PPE from Supported Employment Enterprises (SEEs).

NEDLAC on its COVID-19 procurement
Ms Nobuntu Sibisi, Head: Programme Operations at NEDLAC, said that since April 2020 NEDLAC had procured cleaning services for offices, PPE for staff members and legal drafting services needed for the NEDLAC COVID-19 Rapid Response Task Team which was created by NEDLAC’s social partners in response to COVID-19. Nedlac had spent R12 000 on cleaning services, R573 000 on legal services and R5 900 on PPE.

Compensation Fund on its COVID-19 procurement
Mr Vusi Malukeke, Deputy Director at Compensation Fund, said that it had activated the Crisis Management Committee in terms of the Business Continuity Plans of the Fund during March to plan for the effects of the COVID-19 pandemic on its operations.

The Compensation Fund had spent R15 661 571 on the procurement of equipment to enable staff to work from home. This included laptops, mobile devices and 3G equipment. It had spent R1 702 678 on PPE procurement for staff that worked at its head office.

Unemployment Insurance Fund (UIF) on its COVID-19 procurement
Acting UIF Commissioner, Ms Marsha Bronkhorst, said that the UIF had issued a bid for the appointment of service provider to render verification and support for COVID-19 TERS benefits. It had also issued a bid for a service provider to render contact centre services. It has yet to finalise both tenders.

UIF had spent R27 million on procurement. A breakdown showed that Media Buying accounted for the highest percentage of the total cost. Media Buying was linked to TERS.

The audit finding that the appointment of service provider was in contravention of Treasury Instruction Notes was because UIF had not obtained three quotations as per supply chain processes.

The Adjudication Committee and the Supply Chain had violated Section 51 of the Public Finance Management Act when it chose to appoint the second candidate instead of the first candidate.

In response to the audit findings, UIF had taken the resolution to review the procurement of services for any amount exceeding R500 000.

Discussion
Ms Mkhonto, backed by the Chairperson, asked why the DEL and its entities had not procured masks from the DEL Supported Employment Enterprises. This was critical for the development of the SEE. Also, they would have got better value for money.

NEDLAC had indicated that it had outsourced legal services. She asked if this was not a duplication of the National Coronavirus Command Council. The NCCC made provision for legal services.

The Compensation Fund mentioned that it had purchased costly mobile devices. She asked it to provide information on the number of officials that benefited from the mobile devices scheme, their provincial locations and headquarters. This was useful information for the Committee to determine if there was value for money.

She asked the DEL entities to explain from where they sourced the funds to purchase PPE. Had they sourced the funds from National Treasury or did the funds became available as a result of the redirection of their budgets?

Response
DEL replied that there was no duplication of the NCCC legal services. NEDLAC was entrusted with the responsibility to look at labour legislation that potentially had an economic impact. This task required it to outsource services from legal experts. NEDLAC had outsourced to labour law experts to provide advice on directives issued about UIF, TERS, Compensation and Occupational Health and Safety

DEL explained that funds became available as a result of the redirection of funds in its budget. DEL and the entities used the money it had budgeted for projects that came to a halt as a result of the lockdown, as well as the money budgeted for travel and subsistence.

DEL promised to provide the information Ms Mkhonto had requested on the mobile devices.

On their failure to procure from the SEEs:
- The UIF replied that it had purchased face masks from the SEEs. DEL had only procured from private suppliers at the beginning of the lockdown due to shortages in supply.
- The Compensation Fund replied that it had started procuring masks in May prior to the SEEs commencement of business. For that reason, it had to procure facemasks from private suppliers.
- Productivity SA replied that it had started procuring cloth masks from SEEs in April.
- Nedlac replied that similar to the other entities, it had procured cloth masks from private suppliers at the beginning of the lockdown period but subsequently shifted to SEEs.
- The CCMA procured face masks from suppliers recommended by National Treasury. It promised to shift its future procurement of cloth masks to SEEs.

Deputy Minister Boitumelo Moloi stated that the DG and Commissioners had replied to the questions asked by Committee members. The Department had committed to provide written responses for any other questions the Committee may have.

The Chairperson emphasised that this was pre-hearing meeting to brief the Committee on the state of events.

Meeting adjourned.

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