UIF suspensions in 2020 & overdue CF reports relating to claims, payments and injuries per sector; with Minister

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Employment and Labour

19 February 2021
Chairperson: Ms M Dunjwa (ANC)
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Meeting Summary

Video: Portfolio Committee on Employment and Labour, 19 February 2021

In a virtual meeting, the Portfolio Committee on Employment and Labour received an update on the cases of suspended officials of the Unemployment Insurance Fund (UIF) who were accused of defrauding the Department’s Temporary Employee/Employer Relief Scheme (TERS). The officials had been suspended following a report by the Auditor-General (AG), who had discovered that about R170 million of the R774 million paid out had not found its way to the correct beneficiaries. This was either due to fraud, or employers had not transferred all the funds to their employees. The matter had been referred to the Special Investigating Unit (SIU) for a comprehensive investigation.

Members expressed concern over the fraud and corruption issue at the Commission. They enquired about the SIU’s ongoing investigation of the UIF’s top-ranking officials, and criticised the prolonged investigation process and the lack of immediate consequence management. They asked who the presiding officers and prosecutors were that had presided over the disciplinary processes of the UIF’s officials, and for an update on the audit into their lifestyle. They questioned whether TERS funding had been made available for workers in the hard-pressed hospitality industry. Although Members were critical of suspended officials drawing salaries for nearly six months while awaiting legal proceedings, the Committee Chairperson stressed it was essential to allow the process to take its course and ensure everything was done by the book. The Minister said that the officials, who included the UIF commissioner, the chief directors responsible for operations and the labour activation programme, as well as the director for supply, would remain on suspension pending the finalisation of the investigation by the SIU and the lifestyle audit.

During their engagement with the Compensation Fund, Members enquired about the percentage of claims paid out to third parties, the implication of the amendment of section 43 of the Compensation for Occupational Injuries and Diseases Act (COID), the total amount of unpaid claims by medical service providers due to disputes, and if there were any active cases against the Fund. They asked what the maximum prescribed amount was which the Fund was allowed to give to third parties. A Member recommended that the Fund should provide the Committee with more details of the injured workers, as well as the industries in which those workers worked.

The Committee resolved to continuously interact with the Department and monitor the investigation to ensure the law was applied fairly.

Meeting report

Minister’s opening remarks

Mr Thulas Nxesi, Minister of Employment and Labour, informed the Committee of the suspension of senior managers at the Unemployment Insurance Fund (UIF) Commission. Those officials would remain on suspension until the Special Investigating Unit (SIU) had concluded its investigations and lifestyle audit. He understood that it had been a lengthy process, but unfortunately the Department had to follow labour legislature and as a defender of labour law, this Department would be the last to violate those processes.

On consequence management, the SIU report recommended charges against several UIF officials, including three managers. He said that this was an ongoing process.

The Minister emphasised the Department’s seriousness to ensure the health and well-being of both the private and public sectors. The Department would be meeting with the UIF later to review its progress in addressing the underlying structural and systemic processes. The aspects that would be reviewed were:

  • Mandates of the fund;
  • Legal framework and structure against the mandates;
  • Audit of capacity and skills against the mandate;
  • Appropriate system processes;
  • Operating model governance structure;
  • Risk compliance measures;
  • Measures to control fraud and corruption.

Department of Employment and Labour (DEL) on UIF suspensions in 2020

Mr Welile Dlwengu, Deputy Director, DEL, outlined the contents of the presentation, which was to report to the Committee on the progress on the consequential management as recommended by the SIU, as well as the status of the suspensions of senior officials.

On the status of consequence management, the SIU finalised the Supply Chain Management (SCM) investigation and recommended that charges be brought against seven officials - four middle managers and three senior managers. Charge sheets have been compiled and handed to the implicated officials. Presiding officers and prosecutors have been appointed for all the middle managers and one senior manager. Prosecuting officials are appointed for all senior managers. Presiding officers for the senior managers are from outside the DEL. The disciplinary hearings will take place from 19 February 2021 to 26 February 2021.

On the status of the suspension of senior officials, all suspended officials, including the Unemployment Insurance Commissioner, the Chief Directors responsible for Operations and Labour Activation Programmes as well as the Director: Supply Chain management, remain on suspension pending the finalisation of the SIU investigation and lifestyle audits

Discussion

Mr M Bagraim (DA) enquired about the ongoing process of the investigations on the Department’s suspended top-ranking officials almost six months ago. He said that the causes that led to suspensions were usually quite convincing, because there would not be suspensions if there was insufficient evidence. Given that, he asked if the Department had taken any action against those officials. For instance, had the Department started tracking money movements in those officials’ bank accounts, which should take only a few hours? He urged the Department to immediately implement a better consequence management system. He commented that the Department seemed to be shifting the responsibility for this lengthy waiting period to the SIU, which he said was not an excuse. He hoped the Department could obtain a court order to freeze those peoples’ bank accounts at the moment.

Dr M Cardo (DA) enquired about the eligibility of the Temporary Employer/Employee Relief Scheme (TERS) for workers in the hospitality sector. Due to lockdown restrictions, wages were being reduced for many workers in the hospitality industry. Many of them were desperate to know whether they would be getting TERS relief funds, and whether they would be paid out to those workers as long as the lockdown lasted.

Dr Cardo wanted to know how much had been paid out to the suspended officials to date. He also wanted the Department to explain why it had taken the Department six months to charge those officials and implement disciplinary process. In addition, he wanted to know who the presiding officers and prosecutors were, and where they had been drawn from during the charges against those officials. Who would conduct the lifestyle audit for Department officials, and when would the audit be finalised?

Ms K Mkhonto (EFF) asked for clarification on the suspended Department officials. She asked whether those were the same officials that had been subjected to disciplinary measures. If that was the case, she asked whether the Department did not think that the processes were redundant. 

Ms Mkhonto further wanted to know what would happen to the salaries that had been paid out should those officials be found guilty. She found it unacceptable that taxpayers’ money was being used for them to be sitting at home. She urged the Minister to ask the SIU to expedite the process so that the case could be finalised.

Ms H Denner (FF Plus) asked the UIF Commissioner if any more criminal cases had been added to the 70 cases, as in the presentation. She said that the figure had been 70 when the Committee received the briefing last year, so she did not understand why there were still only 70 criminal cases opened to date. She asked the Minister what control measures were in place to prevent similar incidents from happening again. She highlighted the egregious nature of fraud and corruption among government officials and staff at the UIF specifically.

DEL’s response

Mr Thobile Lamati, Director-General, DEL, furnished Members with reasons on why the mentioned officials had been suspended. These had been provided by the Minister in a media briefing after the suspensions, explaining the rationale behind them. He agreed with Mr Bagraim that the Department did not suspend its employees if the evidence did not appear convincing and overwhelming. The suspensions were recommended by the Auditor-General (AG) in a report. In that report, the AG had also presented findings which involved those suspended officials and provided explanations for their suspensions. Based on those findings, the Department had decided to suspend those officials as they held key positions at the UIF Commission.

He said it would be incorrect to assert that the SIU was conducting its own investigation. In fact, as soon as the Department received the AG’s report, the Minister had immediately contacted the SIU and requested a full investigation, focusing on those areas covered in the AG’s report. The Department could have hired forensic investigators to perform the investigation otherwise. The rationale behind working with the SIU was because of its wide-ranging power, its investigating ability and its connections with other law enforcement agencies. It was unfortunate that the process had been taking this long. The current status was that the SIU had concluded that the area which involved fraud and corruption was within the supply chain environment.

Although Mr Lamati understood the severity of the fraud and corruption allegations, he asked Members to bear in mind of the ‘innocent until proven guilty’ principle. It was imperative to get those allegations thoroughly investigated, and it would be wrong to assume that colleagues were corrupt only because of these allegations.

Mr Lamati responded to Dr Cardo’s enquiry on the COVID-19 TERS fund. The Department had issued a statement after its discussion with its social partner, the national Economic Development and Labour Council (NEDLAC), indicating that the TERS fund would cover the tourism sector, which including the hospitality and liquor industries. The Department fully understood how this sector had been affected as a result of the lockdown restrictions. It was also aware of the shortening of business hours among businesses in this sector. He guaranteed that this sector would be covered by the TERS extension. The President had announced -- and it had also been the Department’s position -- that TERS would be extended till 15 March. He indicated the possibility of the extension of TERS beyond 15 March, but the Department would need to check the sustainability of the fund first. He also reminded Committee Members that workers already had the UIF to cushion the negative impact of unemployment in the short term.

Unfortunately, he could not provide the total amount that had been paid to the suspended officials in their salaries. However, he would make the figure available as soon as he verified the information, and would send it to the Committee.

Mr Lamati said that the SIU administered the lifestyle audit, and what was outstanding now was the lifestyle audit of the senior officials.

He clarified that there was only one official who was with the TERS fund officials who had been suspended on charges related to supply chain breaches. The rest of the officials were not suspended. The Department was not duplicating processes, and was now implementing the SIU’s recommendation report.

The Department would stop paying those officials’ salaries once they were found guilty. It was a standard process which all other government departments used.

Mr Lamati responded to Members’ questions on the Department’s control measures to prevent similar incidents from happening again. From the very onset, the Department had clearly stated that it would make sure money from the fund that was being paid to employers would be handed over to their employees. Also, he explained that the system that was used to pay TERS benefits was different from the one that was being used to pay social grants through the normal day-to-day system. The DEL was making sure that the two systems interfaced and closed loopholes. There had been suggestions that employees inside the Department had aided people to defraud the fund by helping them get into the system. In response to that, the Department had brought in the National Treasury and its Government Technical Advisory Centre (GTAC) team to have a thorough review of the Department’s ICT system, and also to determine whether system had sufficient capacity to handle large transaction amounts. GTAC had indicated that the system which the DEL used to pay the TERS fund was well-designed, so the key focus to combat fraud and corruption should focus on operational processes.

Ms Marsha Bronkhorst, Acting UIF Commissioner, said that the Commission closely monitored the movements of its fund to ensure that workers indeed received what the government had paid out in the end. The Commission had appointed auditing firms to do its audit work since the second week of January. It had so far verified 440 000 workers, to whom R774 million had been paid. R604 million had been found to have been paid to the correct people, but R170 million was either related to fraud or employers had not transferred all the funds to their employees.

Ms Bronkhorst said that the presiding officers were drawn from government employees in charge of the pension fund. Those officers were all specialists in employee relations and supply chain issues. They included officers from the Department of Sports, Art and Culture in the North West province, the Department of Labour and Employment in Mpumalanga, as well as the Department of Transport in Limpopo province.

Ms Bronkhost updated Members that the number of criminal cases opened had now increased to 80. They had been handed over to the South African Police Service (SAPS), and 40 of them would be appearing in court and were out on bail.

Minister Nxesi emphasised the Department’s dedication to fight corruption and fraud. He remarked that justice delayed was justice demised. He reaffirmed that all actions taken by the Department were guided by the AG’s report. He would not be discussing the merits or demerits of the suspended officials, as this was the wrong platform to have such a kind of discussion. People had to allow the processes to follow their courses. Furthermore, he reassured the Committee that the issues exposed in the irregularity of TERS fund was an operational issue -- it did not mean that there was a systemic gap. The officials on suspension were mainly in charge of the operational issues prior to their suspension.

The Minister said that he was aware of the predicament faced by the liquor and hospitality industries. The Department had to put in place strict criteria for the distribution of TERS fund, as it did not want to collapse the fund. This would only put more pressure on businesses, causing more retrenchment. The Department’s approach to the sustainability of the fund was guided by actuaries.

The Minister corrected Mr Bagraim, saying that the suspensions had taken place only in September, so it was not more than six months, as the Member had asserted. He said the Member must allow the Department to follow due process.

Dr Cardo referred to Ms Bronkhorst’s response about the R170 million in irregular payments which might have been caused by intentional fraud, and asked how much of this amount could have been due to UIF officials’ involvement in corruption. He commented that there had been evidence of collusion between UIF officials and private sector employers in those fraud allegations. He asked if the UIF Commissioner could disaggregate the figure.

Ms Bronkhorst said that ‘follow the money’ was a process that the Commission followed to assess whether employers had indeed paid their employees. At this stage, she had not seen any evidence of collusion between UIF officials and the private sector. However, it was still early days and the Commission would wait and see what happened next.

Compensation Fund claims

Mr Vuyo Mafata, Compensation Fund Commissioner, briefed the Committee on the Compensation Fund’s claims.

He briefed the Committee on the Fund’s claims from quarter one to quarter three in the 2020/21 financial year. Payments per beneficiary type were outlined, and the information on rejected medical invoices was presented to the Committee. He also provided the information on claims according to their respective industries.

Mr Mafata talked specifically about COVID-19 claims, and presented the relevant statistics related to the pandemic. So far, R11 828 947 had been paid out in relation to COVID-19 claims.

[see presentation attached for detail]

Discussion

Mr Cardo asked what percentage of the Compensation Fund claims were put forward by third parties. He also wanted to know how the amendment of section 43 of the Compensation for Occupational Injuries and Diseases Act (COID) was going to affect that.

He asked for a figure of the total amount of unpaid claims by medical service providers due to disputes, and if there were any active cases against the Fund.

Ms Mkhonto enquired about the amount that the Compensation Fund had paid to workers. As the presentation figures indicate that third parties were being paid out more than workers, she wanted to know if there was a maximum prescribed amount which the Fund was allowed to give to third parties. She understood that medical aid companies had this provision, which was dependent on the seriousness of injuries, as the level of injuries was not within a person’s control.

Ms Denner observed that the Fund had delayed payments to workers directly in the past. There were claims that were pending for up to two years at the Fund. In those scenarios, the Compensation Fund had already accepted the liability for the claims, but there were no claims being received on the recipients’ side. She wanted to know how many cases of this nature there were at the Compensation Fund. 

Mr S Mdabe (ANC) sought clarity on whether or not there was a law or a rule that prohibited the direct mentioning of the details of workers’ injuries to the Committee. His point stemmed from the expectation of the report which he believed had not been addressed. He wanted real examples included in the presentation to assist Members to better understand the situation at the Compensation Fund so that they were more prepared and equipped in their oversight work. For instance, if a person worked at Shoprite and fell off a ladder at his workplace, that person would be taken to a doctor, and the doctor would then refer him to a medical facility. Usually the doctor asks middle men to apply for Compensation Funds. What he wanted to know from the presentation was the sectors that had high injuries for workers and real examples -- maybe three to five examples per sector per rate. Those details were essential to Members.

Compensation Fund’s response

Mr Mafata said that he did not have the total percentage of how much the Compensation Fund had paid out to injured workers and third parties. Some employers did not handle these claims directly, and health service providers provide administrative capacity on their behalf to submit claims to the Fund. The information that he had was that the total from all third parties and appointed administrative agencies amounted to R2 billion.

He explained how the Compensation Fund money was paid and the tariff structure which it used to determine the amount. The tariff structure was gazetted annually. The gazette very clearly stated the different procedures as well as the different tariffs for certain consultations. He reminded the Committee that the Compensation Fund would pay slightly above the rate, due to the high cost of healthcare services. The Fund also determined the amount that was paid out to injured workers, depending on the level of injuries workers suffered and the earnings of the workers at the time of the accidents. The information on the maximum and minimum amount of funding that was allowed to be paid out was available to the public. 

Mr Mafata explained the situation regarding the delayed claim cases. The focus of the Compensation Fund was to accept any cases caused by workplace injuries, and for the injured workers to receive medical treatment. However, although a case was registered, the Fund could not pay those claims until all the required information had been provided. Only when all this information was filled in could a case be considered finalised. So far, of the 1.2 million claims, there were 84 000 claims that were under investigation due to insufficient information. The Fund was working with social partners to assist in the completion of all the required information.

Mr Mafata told Mr Mdabe that he did not think there was any law or regulation that prohibited the sharing of such information with the Committee. Of course, the National Health Act clearly states the types of information that may not be divulged to third parties without patients’ consent. However, that information was more related to injured workers’ health, while the information requested by Mr Mdabe did not fall into that category. He would therefore provide information on claims for industries and the costs for related claims in future presentations.

The Chairperson emphasised the importance that labour laws should be applied to everyone, including the suspended officials. The Committee should allow the investigating process to unfold and the Department could not be blamed for breaking labour employment standards and regulations.

Committee matters

The Chairperson enquired about the submissions received on the Compensation for Occupational Injuries and Diseases Amendment Bill and the Employment Equity Bill.

The Committee Secretary informed the Committee that so far, the Committee had received 57 submissions on the Compensation for Occupational Injuries and Diseases Amendment Bill. The submissions kept on coming in. The Committee had received only five submissions on the Employment Equity Bill. He asked the extension date to be discussed.

Dr N Nkabane (ANC) supported the extension due to the constraints caused by the pandemic. She assumed that there were responses that had been delayed.

Dr Cardo supported the extension by another two weeks for both bills. He said it was challenging to comment over the festive season

Ms A Zuma (ANC) supported the extension of the Employment Equity Bill for another two weeks.

Ms Denner supported Dr Cardo’s suggestion, citing both the festive season and COVID-19 as constraining people from making submissions promptly.

The Committee agreed that the submissions deadline for the two bills would be extended for another two weeks.

The meeting was adjourned.

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