Compensation Fund; Productivity SA & NEDLAC 2021/22 Annual Performance Plans

Meeting report

Productivity SA APP for 2021/22

Mr Mothunye Mothiba, CEO of Productivity SA, said in his presentation that the organisation aimed to measure and evaluate productivity in the workplace and the competitiveness of the economy. It aimed to develop and maintain databases and best practice productivity and competitiveness systems. It was involved in business model innovation and products and services innovation to improve quality and access to services. It undertook and publicised  productivity related research and statistics.

The Committee was shown slides outlining Productivity SA’s priorities and programmes for the period from 2019 to 2024. (See documents for the figures.) These included the development of a capable and ethical state which paid small businesses within 30 days of receipts of statements and the elimination of wasteful expenditure.

A five-year target for economic transformation and job creation envisaged saving 40 300 jobs, tsupport for companies facing economic distress, workplace training, support for small and medium businesses and programmes to promote a stronger cul;gtrue of productivity.

The Committee heard that the programme to save jobs in companies in distress had achieved its  annual target of 9 550. Another target was achieved in  supporting 191 companies to retain jobs through turnaround strategies.

Two research reports on priority sectors were published.

The presentation also outlined projected revenue and expenditure for three years.

NEDLAC APP for 2021/22

Ms Lisa Seftel, Executive Director, National Economic Development and Labour Council (NEDLAC), said the guidelines of the Department of Planning, Monitoring and Evaluation required public entities to: revise their strategic plans if there were significant changes to policy, in the service delivery environment or in the planning methodology.

Outcomes and indicators of the revised strategic plan included obtaining an unqualified audit every year. There had been a 75 percent positive feedback in an annual digital survey of social partners. One hundred percent of processes were completed within agreed timeframes.

The Annual Performance Plan for 2021/22 tried to respond proactively to the shift in the Strategic Plan with due regard to ongoing fluidity in relation to the impact of the Covid19 pandemic on the economy and labour market institutions. It took into account the role that Nedlac will be playing in economic recovery and a significant number of new indicators.

The slide presentation provided a breakdown of NEDLAC’s operational performance in concluding agreements and handling reports as well as in providing technical assistance and assisting with capacity building. 

It provided details of total projected revenue and expenditure for three3 years.

Compensation Fund APP for 2021/22

In his presentation, Mr Vuyo Mafata, Compensation Commissioner, Compensation Fund, stated that the fund was established with the main objective of providing compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees. The fund’s five-year strategic priority targets were to improve the system of internal control and maintain financial soundness. The slide presentation provided a list of indicators being tracked. Among these were increases in assets, elimination of wasteful expenditure and obtaining an unqualified audit opinion. 

Other slides listed various targets in ensuring appropriate benefits were delivered to intended beneficiaries, efficiently and at a reasonable cost. The Fund aimed to improve operational efficiency through process reengineering and technological innovation and to implement an integrated claims management system by 31 March 2023.

Another aim was to embed an ethical culture and zero tolerance for fraud and corruption, with an 80 percent resolution of reported incidents of corruption by 31 March 2025

Projected Revenue for 2021/22 was R19.3 billion, increasing to R22 billion 2023/24. Projected expenditure for 2021/22 was R13.7billion, increasing to R14.4 billion in 2023/24.  

Discussion

Mr S Mdabe (ANC) said there was no indication of any plans by the Compensation Fund to address the issue of disclaimers of audit opinion.  The Committee had previously raised the issue and had been assured it would receive quarterly reports to assess how the Fund was performing in addressing the issues that led to previous disclaimers. There was no indication in the current APP of how they would deal with the audit problems. He said the Committee was not taken seriously and it looked as if the Fund’s management were there to draw salaries while not taking any measures to address the issues raised by this Committee as well as by the Standing Committee on Public Accounts (SCOPA). It seemed as if the input of Parliament was not respected.

Mr Mdabe said that 12 months ago, the Committee had asked for a report on the types of injury sustained by workers in different industries and how much was paid to medical practitioners and hospitals. Twelve months had gone by and that report had not been received, yet the Committee was told the Fund was functional. The people who interacted with them daily continued to say the Fund was dysfunctional. The Committee was unable to verify that assertion based on the simple document it had requested from them.  In what they had presented to the Committee, the Fund said they had budgeted R1 billion for goods and services. The Committee wanted a breakdown of the goods and services that warranted that budget. They had also budgeted R3 billion as final costs for outstanding claims. In accounting terms, that said that their expenses had generated three-fold interest and penalties three-fold. He suggested that Productivity SA should intervene in a bid to improve service delivery in the Compensation Fund.

Dr M Cardo (DA) said the Compensation Commissioner had stated that the budget inputs did not include the effects of an Amendment Bill which was going to increase benefit costs. Had the Fund done any forecasting on the increased benefit costs and, if so, could it provide an idea of the figures involved?

He said Productivity SA had referred to productivity champions in the presentation. What did they do and were they remunerated? Low productivity in South Africa reflected a high cost of doing business. Why was there not a focus on lowering the cost of doing business for small business people and entrepreneurs?

NEDLAC had had a task team about four years previously to review their statutes and protocols, but nothing had been heard about it in recent times. What outputs had they produced and what recommendations had been made to address major criticisms levelled against NEDLAC? He noted that NEDLAC compensation for employees stabilized over the next three financial years at R28.4 million per year. That still constituted a very high proportion of its expenditure at 47 percent. What was the average personnel cost for employees at NEDLAC? It had been about R800 000 per head the previous year. What was being done to tackle this situation?

Mr M Bagraim (DA) asked how many computer systems the Compensation Fund had purchased in the past ten years. What was the cost of the various computer systems? What is the latest cost? His understanding was that they spent about R500 million, but that might be wrong, so what was the true figure?

 Were they aware of the numerous complaints received daily that there was a complete failure and most private doctors and private institutions were refusing to see Compensation Fund patients? What were they doing about that?

 Mr Bagraim asked how long internal disciplinary measures took. When people were found guilty of fraud, what about prosecuting them criminally? Had that been done in the past  two years?

The registration of employers had been a nightmare over the past four years and asked why.

He put it to Productivity SA that productivity in South Africa was the lowest in the world. It had been like this for ten years, yet there seemed to be a business as usual attitude. Maybe because wages were set, people felt they did not need to be productive. What was meant by decent work? Was that work receiving a minimum wage or was there another definition for it? Should Productivity SA be incorporated into NEDLAC?

To NEDLAC he said there was a history of agreements reached at NEDLAC after much debate, time and money had been spent. But somehow those debates got ditched when they got to Parliament. Did they want to comment on that? What about taking over Productivity SA? He congratulated them on a clean audit.

Ms C Mkhonto (EFF) said the Covid-19 pandemic had affected many institutions and entities and resulted in budget cuts. She asked how the Compensation Fund had been affected. Was there any monitoring tool their stakeholders were using to create jobs? What were their success rates in dealing with fraud and corruption in percentage terms?

She asked Productivity SA whether it was possible for this committee to undertake an oversight visit to them so as to be able to assess the impact of their work on their stakeholders and role players. This could enable the committee to understand what was happening on the ground. 

Mr M Nontsele (ANC) was concerned about the continuous audit disclaimers plaguing the Compensation Fund. He asked the Commissioner to take the committee into his confidence by expressing his opinions about the major contributors to this audit outcome. This would help the Committee understand the extent of the challenges faced by the fund and also the impact of the Committee’s visit. He asked if there were any he thought the Committee should recommend. To what extent were budget cuts impacting on the Fund’s ability to deliver? Could the commissioner elaborate on the progress that has been made in the last few years and had the fund made any meaningful progress in the prioritisation efforts?

The Chairperson said that when the Compensation Fund presented their APP to the Committee in 2019, they said they had a turnaround strategy. In their observations, there was nothing forthcoming. Could they take the Committee into their confidence? What would be the causal factors if they did not?

She asked whether Productivity SA tried to understand about the challenges from workers themselves. Were workers able to understand the concept of productivity? Workers' understanding of productivity was linked to overwork or retrenchment. What had the entity done to set this straight? Was it bearing fruit?

Responses

Mr Mothiba said the advice question of Productivity SA assisting the Compensation Fund to improve operational efficiency would be taken up with the Director General and the Compensation Commissioner.

He said the productivity champions approach was modelled around community development. A partnership has been entered into with the Department of Trade, Industry and Competition regarding internships and learnership programmes. In the 2021 financial year, the Productivity SA was able to place 385 interns in a company the Productivity SA was supporting. The internships were in engineering and operations management. Part of the intervention was to capacitate them on productivity and operational efficiency issues.  Productivity SA had entered into a partnership with the Limpopo Economic Development Department and they were keen on taking some of the interns once they finished and placing them in some of their districts. The idea was to populate the country with people with capability to drive this agenda.

On the issue of low productivity, all agreed that low productivity led to an increase in the cost of doing business, because productivity was all about lowering costs, improving speed and improving quality of products. On the suggestion as to why the focus was not on small enterprises, indeed, that was the focus.  Towards the end of 2021,the entity was able to sign a memorandum of understanding (MOU) with the SA Chamber of Commerce and Industry as well as the Small Business Institute in collaboration with the Small Enterprise Development Agency (SEDA).  The focus in the coming years was on small business enterprises, so the recommendation was appreciated.

Productivity SA agreed that there were low productivity rates in the country, and it had been confirmed by the Institute of Management Development and Competitiveness Index. Productivity SA was partnering with the International Labour Organisation (ILO) and other international partners to implement programmes.

The decent work concept being followed was within the definitions set by the ILO. Issues around safety were considered, because if workers were in a safe space, they would become more productive. The comments on shifting Productivity SA to NEDLAC were noted. That probably would not be the right thing to do if one looked at what productivity centred around. Productivity SA’s business model was premised on that, but it did note that the work the two entities did was complementary. Foreign models being looked at were the Australian and Swiss ones and discussions were ongoing with them in terms of their core programmes and lessons. It was correct to say that if work did not show impact, it was not worth undertaking. The entity is open to the idea that there should be an oversight visit by the Committee to verify and measure the impact of its interventions, particularly on the enterprises that had been assisted to forestall the retrenchment of workers. The entity still had more to do, but it was covering the ground.

Ms Seftel said in regard to the governance task team outputs, that NEDLAC commissioned a research study in September 2020 into the nature of leadership that was required for NEDLAC for the next 25 years. The researchers interviewed over 40 people and they produced a research report with recommendations. The report would be presented to the governance task team in a week’s time. The organisation would then have a workshop and develop recommendations for the Executive Committee (Exco). NEDLAC would seek to implement in a methodical way the recommendations of the Exco. Hopefully, the next time the entity reported to the Committee, it would give a progress report.

On the moving of productivity SA to NEDLAC, that question had been adequately addressed. The entities played complementary roles.

On the issue of retrenchments, the Commission for Conciliation, Mediation and Arbitration (CCMA)played a particular role in that regard. The point made by the chairperson is important - there was scope for dialogue in NEDLAC about the roles not only of government but business in limiting retrenchments. That was a commitment that was made in the economic recovery action plan which social partners agreed on in September. Nedlac would pursue it and remind business and labour of that commitment. 

On the issue of representation, it was true that the SA Federation of Trade Unions (SAFTU) was sidelined. In the previous year they had applied to be part of NEDLAC but unfortunately, they could not meet all the requirements around annual financial statements, and it was understood that they were still trying to do so. When they qualified, their application cojuld be considered.

Nedlac’s chief financial officer added that the average cost to company of NEDLAC staff was R650 000. This excluded the executive management positions and was in line with the benchmarks for similar organisations.

Mr Mafata said the Compensation Fund had highlighted in the APP that the improvement of the audit outcomes would be one of the key strategic focus areas. For the 2021/22 financial year, the entity had targeted 75 percent of matters that affected the audit opinion. Over the life of the strategic plan until 2024, it was expected that the organisation would attain an unqualified audit opinion. The audit outcomes related mainly to the two areas of claims and revenue.

In regard to claims, a large number of control deficiencies had been identified by the Auditor General (AG). This was not only related to business processes but to systems in which claims were processed. The implementation of the new claims system was aimed at addressing those control weaknesses identified. It was an ongoing process, and this was the first year the AG would be auditing the claims paid by the entity based on the new system. The Fund was confident that issues that were raised in the past with regards to claims would not arise again.

 On issues around revenue, there were a number of factors contributing to the disclaimer. They related to policy, business processes and weaknesses in controls. Policy interventions had been implemented in the past few years.  The Director General had issued notices and regulations all aimed at addressing the issues. The AG had been saying that they were unable to verify whether the entity’s revenue was complete. It might be that employers were registered in incorrect classes, or that there were inadequate controls around variation of assessments, or problems with verification of earnings information submitted by employers.

Some policy interventions were taking a long time, particularly the classification of employers, which is one major issue causing disclaimers on revenue. Consultations in NEDLAC had taken 18 months to conclude. The Minister had published the regulations in December the previous year for effective implementation from 1 April in the current year. The classification model had been implemented. The problem now was that people were going to employers offering to help them get credits and huge refunds from the Compensation Fund in exchange for a percentage of the money. To get these refunds, they would claim that employers were registered in incorrect classes, perhaps in higher risk classes that attracted higher premiums.

On the new computer system, the Fund had paid R128 million for the development and configuration of the system and had contracted a service provider to provide support and regular maintenance of the system on a daily basis. The Fund had paid R51 million in the last 17 months for the use of the system.

On doctors being reluctant to treat Compensation Fund patients, Mr Mafata said the Fund knew that things were not perfect and there was a history of non-payments and inefficiencies. Many people, including service providers, were unhappy with the Fund. Over the past five years there had been engagements with stakeholders to update them on changes being made and to seek their input on their unhappiness. This process was ongoing. Certain people stood to gain from the inefficiencies of the Fund and so would not want to see improvements. They had sought to keep themselves relevant by influencing key stakeholders by peddling the narrative that things were not working. Many of the stakeholders believed them without bothering to find out the truth.

Internal disciplinary processes differed depending on the circumstances of the case. Some cases took six months and some more. Some of the fraud cases had been forwarded to law enforcement agencies after internal investigations were completed. One of the biggest frustrations was the turnaround time from law enforcement agencies. Some of the cases turned over to law enforcement involved external syndicates that preyed on the compensation fund and its beneficiaries. The AG picked up some weaknesses of the fund, one of which was that people declared lower payrolls so as to pay less to the Fund. The system was designed to flag such cases for audit especially if the variant from one year toi the next exceeded 30.

The Chairperson said it was not enough for the Compensation Fund to say there had been a misunderstanding about the submission of the quarterly reports. It should feel free to seek clarification if something was not understood. By not doing so it would create a perception that the Committee was not being taken seriously. The Committee had no energy to deal with perceptions; rather the energy of the Committee was reserved for seeing that all entities under the Department of Employment and Labour were performing well. The Compensation Fund had received five audit disclaimers. This means there was a challenge which may be IT or systems problems. The Committee was forced to ask, what was the morale of the staff? As the leader of the organisation, the Commissioner had to take the knock and the Committee hoped he would sort out issues that were causing the entity to be constantly challenged internally and externally.

Mr Thobile Lamati​, Director-​General of the Department of Employment and Labour, said he agreed with the observations made by the Committee and that the buck stopped with him, the Minister and |Deputy Minister. They would ensure that the fortunes of the entity were turned for the better. They had not lost hope but were pushing very hard. What the committee had said was taken to heart and he guaranteed that whatever was demanded by the committee would be submitted to it.

The meeting was adjourned.