SIU & AG on UIF financial management relating to Covid-19

Meeting report

The Chairperson said that this meeting would discuss the corruption within the UIF and the shortcomings within its systems. The Committee had learnt that the Minister of Employment and Labour has suspended the Commissioner of the UIF who the Committee had an opportunity to interact with in the previous meeting and raise concerns. The UIF was characterised by heightened confusion and difficulties.

The Chairperson thanked Mr Kimi Makwetu for his service as the Auditor General of South Africa. He had conducted himself with professionalism while holding the office. The Chairperson thanked him for his dedication and commitment in guiding and supporting the Committee. The Chairperson wished him well for his future endeavours as he was vacating the Office of the Auditor General.

Briefing by the Special Investigating Unit (SIU)

Introduction

Adv Andy Mothibi, Chief Executive Officer, SU, said that on 22 August 2020 the Minister of Employment and Labour had requested that the SIU review the AGSA Report on the findings relating to the Temporary Employee Relief Scheme (TERS) paid during Covid-19. In order for the SIU to attend to all the other audit findings, it entered into a Secondment Agreement with the Department of Employment and Labour in order to obtain further evidence for a motivation to extend and/or amend the current proclamation. During the investigation under the Secondment, the SIU will make referrals for Disciplinary Action, Criminal and Civil recovery. The Secondment Agreement was due to end on 15 December 2020. The presentation covered matters investigated under the Proclamation and the investigations under the Secondment Agreement.

Matters covered by the Proclamation

Mr Johnny le Roux, Chief Investigator, SIU, said the AG findings suggested that no proper SCM process was followed to appoint at least 5 companies for the awareness campaign and that the appointments were made based on a motivation for sole service providers. The SIU commenced its investigation into the matter on 24 August 2020. The value of the five contracts amounted to R6.1 million.

The five service providers were required to conduct advertising campaigns in order to create awareness about the UIF Covid-19 TERS on their respective radio channels and related television channels. The UIF’s requested for a deviation from the normal procurement processes in order to appoint the service providers. All the service providers were appointed on a deviation.

The SIU was conducting a full-scale investigation in order to confirm and or refute corruption, maladministration allegations, and or to determine if there were any undue benefits or gratifications paid to the UIF officials to influence the process the SCM process.

Summary of findings

The 5 service providers were appointed without following the proper SCM process. The appointments made were not in compliance with section 217(1) of the Constitution and section 51(1)(a)(iii) of the PFMA. The UIF acted unlawfully because there were other commercial radio stations registered with ICASA in those provinces.

Matters investigated under the Secondment Agreement

The Team obtained a high-level understanding of some of the processes adopted by the UIF relevant to the TERS benefit. The Team interviewed several officials from UIF. The team collected valuable information which was untested at this stage. To date, the seconded team analysed the data from the AGSA.

Status of the secondment investigation

The SIU investigation discovered that SANDF staff had claimed from the Relief Fund. A total of 59 SANDF members associated to 55 bank accounts were identified. The amount of TERS benefit paid to the SANDF staff amounted to R327 638.

The investigation revealed that inmates were also claiming from the Relief Fund. Seven DCS inmates were identified to be claiming from the Relief Fund benefit totalling R40 657.93.

Deceased individuals were paid TERS benefit totalling R441 144.34, which represented 68 deceased beneficiaries making use of 72 bank accounts.

Government officials also claimed form the Relief Fund. The investigation identified 6140 officials who claimed R41 009 737.70 from the Relief Fund benefit making use of 3959 bank accounts.

Adv Mothibi highlighted that although some outcomes had been reached the investigation was ongoing. The SIU was hoping to uncover any further irregularities or corruption that could have been committed. It was clear that at the UIF there was a failure of people, process and systems. This matter required urgent attention. The SIU would be making systemic recommendations to root out the maladministration and the corruption that plagued the UIF.   

Briefing by the Auditor General of South Africa (AGSA)

Mr Kimi Makwetu, Auditor General, AGSA, said that the purpose of the presentation was to report on the observations made during the Covid-19 special audit of the UIF which is part of the Department of Employment and Labour portfolio.

Ms Sibongile Lubambo, Corporate Executive: Audit, AGSA, said the focus areas of the special audit were the Internal control environment, Data analytics, Fraud risks and Employer site visits. Relating to preventative controls, the presentation noted that there was a lack of verification of applicants representing employees as well as inadequate verification of employer details. There were applicants who were below the legal age of employment. Individuals below the legal age of employment of 15 years were paid by the UIF. A total amount of R 224 677 was paid for 53 applications for the period up to 30 June 2020. It was also discovered that a claim of R4 027 was paid to an individual who has the same identity number as a UIF employee. The report highlighted that payments amounting to R685 846 671 were made for 166 619 applications relating to foreign nationals whose employers had not paid contributions for them for the past 12 months. The presentation also made mention of the process of ‘Double dipping’. The UIF paid total amount R140 556 822 was paid to 35 043 applicants who received benefits from other state institutions.

When discussing employer site visits, Ms Lubambo noted with concern that Auditors were denied entry to the premises. The officials cited the company was not sufficiently prepared to accommodate and assist the auditors and provide the required information. In another event it was identified upon arrival at the address provided to the UIF as part of the application, that the premises of the employer was deserted and hence the audit could not be performed.

In summary the following are the key in ensuring a sound internal control environment:

• Stringent preventative controls should be implemented in order to minimise the risk of fraud and error in the application, verification and payment processes.
• Design and implement detective controls in the application, verification and payment systems in order to enable the identification of errors as well as potential fraudulent claims
• Institute a process of investigation and recoup the monies paid for the COVID 19 TERS benefit to ineligible beneficiaries.

Discussion

The Chairperson said that the presentations confirmed the Committee’s worst fears about the control deficiencies within the UIF. The Committee remained concerned and disappointed that systems continue to fail at the UIF. While no one could have anticipated Covid-19 any Government Department or agency needed to forecast that there may be a disaster of this magnitude.

Mr A Lees (DA) thanked the two units for their work on the investigations. He thanked Mr Makwetu for the work he had done. There could be no negative aspersions towards his time in office. One thing the Committee needed to be careful of was thinking that this abnormal process, namely TERS, was going to continue indefinitely or be repeated. TERS was a once off and the emphasis should be on those who have defrauded the system. They should repay the money and go to jail instead of trying to perfect the system which will never be used again. The State should be cautious about pouring resources into designing a system which was going to the end of its life soon. The Committee, which has had engagements with the UIF and its Commissioner over decades, has experienced the lack of proper systems and professionalism with those departments. The flaws in the TERS system was a reflection of the general malaise which bugs the UIF. From the call centre to the submission of monthly returns there have been failures. It was a nightmare. As it was stated in the presentation it was no surprise that the system used for the TERS payments had so many flaws which was now being revealed. He had certain concerns and observations. He was not sure there was going to be a quick fix unless there was a complete change in the skills and direction of the executive at the UIF.

Ms N Tolashe (ANC) assured the SIU and the AG that the Committee was behind them in dealing with anybody that has been guilty of corruption. It did not matter who the person was or where they came from. She was impressed with the work done by the AG. Within a very short space of time they were able to produce these reports. She wanted the SIU to explain what was meant by the term ‘double dipping’? It seemed that within the UIF someone knew that South Africa was going to be hit by Covid-19 because certain people in the UIF took advantage of the pandemic. These people must be brought to justice. It was unheard off that the UIF did not have a system in place to check whether someone had a valid identity document. Students were even able to draw from the UIF. It seemed as if it were deliberate. She wanted more clarity on the term ‘double dipping’. Did that mean students were getting NSFAS as well as TERS?

Mr S Somyo (ANC) thanked Mr Makwetu for his work and commitment in serving the nation. He looked through the original report of the AG and noted the interesting analysis that was made on the UIF. He was interested in the received applications and how those applications were finalised. He discussed the numbers of claims. For example, there was a slide on the original report which indicated the number of days taken before payments were made. That information was on page 39 of the original report. It indicated that at the time of the audit there were above 6 million applications that were 30 days old. There were 11000 applications that were between 30-60 days old. There were also applications where the date of processing was the same as the date of application. Those applications amounted to 202211. Looking into this information he asked what this whole thing meant. There were a number of applications and those applications were processed at different times. The benefits were paid at different times. The same day application and payment was above R1 billion. What was the causal factor for this kind of behaviour of the system in dealing with applications and payments?

 The second area of concern was that Government was carrying a multiplicity of systems that were not interacting with each other. This exposed the fiscus to more risk than if there was some sort of consolidation of such systems. He did not know when such a finding was made on a prolonged process of execution whether there was going to be any drastic change in processing some kind of transactions which was going to improve the level of risk that was associated with such kind of systems. He saw that the SIU has been forced to write to various Departments and entities for verification for some of the information used within the investigations. This confirmed what the AG has found out that a longer route needed to be taken to discover the justness of whatever process had been undertaken. This should not be carried by the SIU or AG but should be carried by those who carry the service. As long as Government carried those deficiencies the risks multiply in terms of issuance, using and verification of those IDs. More work needed to be done on those foreign nationals who were benefiting from the system. The system failed to process those individuals. He then noted the benefit claims that were received per sector. The two largest sectors were stretched on the benefit lines. One went to personal services and the other went to trade. If those two sectors were taken together then the question arises where does the economic benefit lie? Was this a true reflection of the economy? The content of the benefit needs to be looked at.

Mr B Hadebe (ANC) said that the report presented was disturbing. The next day the Committee would be visiting the UIF and would make sure that no stone would be left unturned in exposing these vultures. With the levels of unemployment, inequality and poverty within the country it was very disturbing to learn that 6140 civil servants were defrauding the same State who puts bread on their table. The amount was approximately R41 million. There were also 68 claims from deceased individuals to an amount of R441000. This was disturbing and shocking. Someone was claiming relief from seven inmates while they were serving their sentence to an amount of R40000. He was lost for words when there were also SASSA beneficiaries and NSFAS students. South Africa was facing a high employment rate. Where were the morals and ethics? Where were the values of South Africans when they double dipped in times of crisis? When the SANDF were assaulting people in townships there were some amongst them, with multiple bank accounts, claiming relief from the same fund. What happened to this country? What went wrong with the rainbow nation and ubuntu? There were also underage individuals also claiming from the relief fund. He could not wait for the Committee to perform oversight at the UIF headquarters tomorrow. Those culprits needed to be brought to book. This was no longer about politics. The nation needed to stand up and put and end to this. He thanked the SIU and AG for doing sterling work.  

The Chairperson said that the Committee was not surprised at all of this because it had highlighted these concerns before. The biggest indictment was that while there were shortcomings in the system there were also people in the citizenry unafraid to take chances to exploit those vulnerabilities. That indicated, generally, a corrupt society. Leadership needed to begin a process of self-reflection on one hand and national reflection on how the citizenry was jumping onto the bandwagon of public service corruption. That compounds the problem of corruption even further. This does in no way exonerate the corruption of officials who have looted the state. He wanted Adv Mothibi to further unpack the issue of SANDF officials who benefitted from the fund. He wanted the circumstances around that to be explained. He also asked the research team to start drafting some questions for the SANDF to understand why they were on the system. This was exposing serious shortcomings within the SANDF. The SANDF was becoming a focus area. He handed over to the SIU and AG to respond.

Adv Mothibi appreciated the comments made by the members. He would make it his duty to carry those comments forward to ensure that those who were responsible for all those corrupt activities were held to account. The money that has been lost should be traced and recovered back to the State. The general observation made by the SIU was that there has been a failure of people, process and systems. Both presentations highlighted that. From the people perspective, it was observed that there was either collusion or fraudulent activities that result in corrupt activity. From a process perspective, it was clear that processes were deliberately overlooked or circumvented for the purpose of paying out these monies fraudulently. It was clear from both presentations that there were a lot of system failures and people were deliberately circumventing the system. The investigation will have to determine whether all these factors were interlinked in committing these offences. He agreed with Mr Lees’ comments that there was a lack of proper systems and professionalism within the UIF. As the SIU investigated further it would dive deep into those shortcomings. He then responded to Ms Tolashe. The term ‘double dipping’ means that an individual was unlawfully getting benefits from two sources of funds. The people investigated were found to have obtained income from two different sources and this would be in an illicit manner. When TERS was put into effect it was meant to relieve the issues caused by unemployment because of Covid-19. Those Government officials who remained employed did not experience hardship like those who lost their employment. Those who remained employed could not obtain funds or benefit from the UIF through TERS. If an individual was employed the SIU would use the term dipping or being paid from the salary. But if those individuals went illicitly and corruptly to benefit from the UIF it would be considered double dipping. The SIU had identified those instances and those individuals should be punished. The investigation would discover the extent to which those individuals benefited. How did he or she benefit? Did he or she collude with anyone within the UIF? Those monies would be paid back. The SIU would make sure that all those individuals involved in all these corrupt activities were identified and punished accordingly. As mentioned in the presentation the SIU would be monitoring the criminal cases that have been opened. The SIU wanted to ensure that appropriate criminal sanctions have been given to those who have been arrested. He agreed with the Chairperson’s comments about the general corruption within society. This was an issue that really needed to be addressed. The SIU looked forward to the national anti-corruption strategy being signed off and rolled out to make sure that the culture of corruption was dealt with.

Mr le Roux responded to the concerns raised over SANDF officials benefiting from the UIF. On slide 28 of the presentation the SIU indicated that it had sent out requests to various Government Departments for further information. The information showed that 78 SANDF staff appeared to have received benefits from TERS. The SIU would approach the employer, in this case the SANDF, to provide more details for the SIU to be certain that it was dealing with individuals that were currently still employed. The spreadsheet sent with the letter was an extract of the data from the AGSA. That included the ID numbers and personal information of the individuals. The letter requested that the SANDF confirm that those individuals were employed. Were they currently employed? What was their position? What were their salary levels? Once the SIU had that information, that would be available at the end of this week, it would approach the SANDF officials and the investigation would be taken forward. Either the individuals would be disciplined, or criminal cases would be registered against them. This would all include verifying the information with the UIF. Criminal cases would be registered and then monitored.

Adv Mothibi said that all the information gathered would be analysed further and check the level of collusion that has occurred. He responded to Mr Hadebe’s comment about underaged individuals benefiting from TERS. The SIU did not have the exact age but it would be interesting to determine the ages of those who transacted the funds. Was there someone assisting these individuals? That becomes a worrying factor. The SIU would look further into the matter.

Mr Makwetu responded to the issues raised by Mr Somyo particularly on page 39 of the presentation. The table Mr Somyo referred to was a perfect example of what happens when controls measures were not put in place. He highlighted the difference in application dates and payment dates. This indicates that not much work was done to verify the information that was put on the application. The verification processes as well as the validation controls needed to be put in place. The basis of these deficiencies was related to the fact that there was not sufficient time taken by the officials processing these transactions at the UIF to make sure that the payments made were done properly. These individuals could be living abroad. In an electronic processing environment there were many people who remained invisible. If the controls in the information systems environment were not strong those individuals have the capability to illicitly obtain ID numbers of various people. They could submit applications purporting to be those individuals. If a fund does not have the requisite control process to check the information there was a possibility that those fraudulent individuals might be paid. People who target information systems environment do just that. Recently, one of the companies that keep credit information was hacked. Everyone who had their name on that database their ID number appears alongside their name. Going into the future there are many Departments and State agencies that are going to commit doing things in the electronic environment. The difficulty of the situation is that in the electronic environment there were fraudulent people who were unknown. Hence, there was a need for preventative controls to be loaded on the electronic environment. He provided an example of the preventive controls and measures banks put in place to prevent fraudulent activity. This needed to be addressed on an ongoing basis when it came to processing transactions within an electronic environment. This was a matter that needed to be looked at. Government needed to fortify the environments where huge amounts of money were processed within Government. Some Departments and agencies could do a proactive audit. Looking at the vast sums that needed to be paid to third-parties, to what extent does the State have the requisite security in the systems environment? To what extent does the State have reliable application controls? Application controls o know if there was an exception to some of the rules that have been written in the electronic systems. The table on page 39 was a telling example of what would happen if there was no evidence of time being taken to analyse, to review and validate transactions. He confirmed that the definition that Adv Mothibi provided of double dipping was the same definition that the AGSA used. People knew that Government was not strong in certain areas of controls, based on past audit outcomes, so they take a chance. If the payment goes through then those individuals will make even bigger claims later on. The vulnerabilities were not going to end now. The UIF had already recovered somewhere between R3.5-4.3 billion of the funds that were paid inappropriately. If the systems were fortified properly and were monitored through the accounting officers the bulk of the issues could be dealt with.

The Chairperson said it was clear that corruption has characterised some of the operations at the UIF. Consequence management would follow when these investigations were concluded. He hoped there would be successful prosecutions and recoveries for the State. If it was found that those SANDF soldiers were found guilty of aiding and abetting corruption then there should be dismissals. People cannot continue to be on the payroll of the State when they have looted the State much to the detriment of those who were in dire economic circumstances. There must be dismissals. The Committee would be following up on that matter. It was increasingly becoming necessary that the reports of the SIU go to the Presidency. The Committee needed to find a date so that the Presidency could inform the Committee about the implementation of the recommendations which the SIU may have. The Presidency could explain how it was responding to the findings of the SIU. It would be in the best interest of oversight if the Committee meets with the Presidency on the issue of Covid-19 expenditure.

He re-emphasised that the systems of the UIF were not up to date and that they were vulnerable to abuse and corruption. The presentations by the SIU and the AG confirms those fears. The Committee was therefore well within its rights to interact with the UIF.

 He once again thanked Mr Makwetu for his work as Auditor General of South Africa. He wished Mr Makwetu well for all his future endeavours.

He also congratulated Ms Tolashe on the work of her Adhoc Committee, which recommended a new Auditor-General.

He confirmed that the Committee would be performing an oversight visit to the UIF on Friday. He requested that officials from the SIU and AG be present at that visit as the Committee interacted with the UIF and the Department of Employment and Labour. This was one of the most important oversight visits the Committee would make during the period of Covid-19 given the seriousness of the situation. He warned South Africans that irresponsible behaviour would lead to a second wave. Behaving in a reckless manner would put South Africans at risk before from a health and economic perspective. South Africans needed to be serious to come out of Covid-19. There was a risk of further job losses if South Africa went to another lockdown. These were all the considerations that needed to be made. It was quite clear that the public purse was stretched far beyond its limits. People need to get back to work so that taxes could be generated. He advised South Africans to be responsible. It was still necessary to wear masks, social distance, sanitise and not partake in irresponsible behaviour.

The meeting was adjourned.