UIF 2019/20 audit hearing; with Minister

Meeting report

The Chairperson apologised for being late to the meeting. He welcomed everyone to the hearing into the state of affairs and financial situation at the Unemployment Insurance Fund (UIF). The UIF had appeared before the Committee in 2019, and there was a joint oversight visit in 2020. The present interaction was not in a vacuum, and the Committee was very much aware of financial circumstances of the UIF, as well as the issues with the call centre and other components. The state of affairs at the UIF was not pleasing; there were qualified audit outcomes which constituted a regression. This represented a similar situation to what the Committee saw with the Compensation Fund. It was known that the Commissioner was on suspension, and there were quite a few people currently in acting positions at the UIF. The UIF had been the centre of attention for the last few months for all the wrong reasons.

Briefing by the Minister
Mr Thulas Nxesi, Minister of Employment and Labour, introduced the delegation. He said that engagements with the Committee were crucial to hold the executive accountable, and they would be taken seriously. He would provide an overview of the financial statements for 2019/20, as well as the irregular, wasteful, and fruitless expenditure.

He said that the qualified audit opinion for the year was largely due to the non-submission of the financial statements by the majority of investee companies for audit purposes. The financial year-ends of most of the investee companies were not in sync with the UIF, and this posed a challenge for auditors as they are not able to conduct a complete audit due to the outstanding financial information. These were social responsibility investments in smaller, black or start-up companies, through the Public Investment Corporation (PIC). Similar problems persisted at the Compensation Fund. The UIF had embarked on a process to address these shortcomings and improve the audit outcomes.

In relation to the audit findings of wasteful, fruitless, and irregular expenditure, he welcomed the Committee’s input. The UIF was very clear on what had to be done and what was taking place to ensure that when cases were reported, assessments were done to confirm whether the matter fits the definition. Once confirmation was complete, investigations would be conducted into the matters so that consequence management could be discussed based on facts. National Treasury had raised concerns about the lack of consequence management. This was given as a reason for refusing condonation for one matter.

The UIF had a long way to go, but progress was being made slowly. To deal with these problems they had to be acknowledged.

Discussion
Mr A Lees (DA) said that the Minister had mentioned the issue of the investments. He said that the Auditor-General of South Africa (AGSA) could not verify that those investments actually existed. That was in the last financial year. He wanted to know what action had taken place over the last 12 months to ensure that at the end of the current financial year the AG, which was presumably now busy with the audit, would be able to verify those investments.

Minister Nxesi indicated that there had been several sessions at the highest level to raise this matter with the PIC and the concerned companies, and address the negative impact this matter was having on the UIF. He was unsure of the detailed explanation, but Ms Marsha Bronkhorst, Acting Commissioner, UIF, and Mr Thobile Lamati, Director General, Department of Employment and Labour (DEL), would be able to provide an explanation as he had instructed them to lead those interactions. He even threatened that if investigations had to be conducted and the relevant companies had to be blacklisted, that would be done.

Mr Lamati said that the matter of the investments had been ongoing for a while. The UIF had met with the PIC, and he had met with its Chief Executive Officer. Every year the UIF was promised that it would receive the full set of financial statements, and would be availed of the full situations of these companies. However, what was clear with these companies, is that there is no year-end alignment, which meant that the UIF did not receive audited statements from them. It was thus agreed that the UIF would do due diligence by checking the existence of these companies. Those that were able to merely provide management accounts should do so. The status of each of the companies had to be well-documented.

In the last meeting with the PIC, on 21 May, the PIC agreed that it would make that information available before the end of that day, so that the AGSA could have a better sense of the status of each of the entities. The UIF met with the AGSA, and it was agreed that even though the purpose of the entities was for the UIF to derive some financial benefit, they were largely established for social benefits and to increase employment. Hence, given the state of some of the companies, the UIF had to reconsider its position in terms of the social responsibility investments. Some of the companies were in liquidation and some were in business rescue. Ms Bronkhorst would be able to provide a list of those companies.

It was evident that the UIF was not deriving any value from the unlisted companies that were invested in. A process of reviewing the UIF’s position was underway, and a decision would be made as to whether it should de-invest from the companies. Some of the financial reports received from the companies are so poor that they would have a negative bearing on the UIF’s financial statements.

Ms Bronkhorst said that the UIF board had also met with the PIC board, the investment committee of the UIF, and the investment committee of the PIC in an attempt to obtain the necessary documents and make it clear what the challenges were. There were quite a number of companies in distress, with the UIF concerned that it would not receive their financial statements. She asked if she should list all of the companies.

Mr Lees said that the Committee needed a full report on these companies. If the list of companies was available, it would be sufficient if Ms Bronkhorst submitted it to the Committee during the day. It seemed that there was a possibility of the investments being written off. At the end of the 2020 financial year there were unlisted investments to the amount of R5.7 bn. He asked what the write-off figure anticipated on that R5.7 bn was.

Ms Bronkhorst said that it would be R9 bn to write off all of the socially responsible investments (SRI) in distress. Not all of those were in liquidation, and the UIF felt that some of them could be saved. The total SRI portfolio in the UIF was R21 bn.

Mr Lees said that that was a serious position to be in. He asked if he was correct in saying that no progress was made under the last financial year, which was now under audit, in enabling the verification of these investments. The UIF still could not provide the AGSA with the verified existence of these funds. Was it correct to say that the UIF did not know what these companies were doing with the investments?

Ms Bronkhorst said that that was incorrect. The UIF had confirmed that these companies existed. The meetings with the PIC did not only take place recently.  Since the audit of the 2020 annual report, there had been a substantial number of meetings. The financials of some of the unlisted investee companies had been received, but not all of them.

Mr Lees accepted that the existence of those companies was recorded through the Companies and Intellectual Property Commission (CIPC), but the real issue was whether the UIF was confident that the investments with those companies still existed, and that that money was safe. He asked whether, as a portfolio, the financial statements received gave the UIF comfort that those that were thought to be safe, disregarding those in liquidation, were actually safe. How confident was the UIF about those companies that were not yet in liquidation or business rescue?

Ms Bronkhorst said that the UIF was comfortable with the companies from which the audited financial statements had been received. It had received management accounts of all the entities, but not all of them were clean. Hence, there was concern.

Mr Lees said that he was thinking of suggesting that the Committee request a meeting with the PIC, as he believed that these were all investments made through the PIC. He asked if his belief was correct.

Ms Bronkhorst said that his belief was correct.

Mr Lees said the responsibility on the UIF is to ensure that the PIC got a clear investment mandate and adhered to it. Maybe the PIC had to provide a report on all of the investments, given the controversy and the malfeasance surrounding the PIC as well. The AGSA had encountered problems with the benefit payments and provisions. These were not third party problems, and there was issue in obtaining the necessary information. These were basic accounting 101 issues. Provisions had to be made for contingent and future liabilities. This was an issue in the previous year’s financial audit. He asked if there was now absolute control to ensure that the provisions for future expenses and liabilities were now in place.

Ms Bronkhorst said that this matter was discussed during the audit, because of the various interpretations. She said that the UIF had the matter under control.

Mr Lees believed that from that statement, the 2021 audit would not be qualified on that basis. He looked forward to seeing that. If the liabilities were not accounted for the UIF could well be insolvent. It was known that in trying to mitigate the impact of Covid-19, there was the emergence of the R350 gratuity per month to try and assist desperate South Africans. For that reason, he hoped that this was under control. The Committee had been hearing about the fraud that was taking place in the tourist programme for about six months. Could the Committee get an indication of how many people had been charged with, and convicted of, fraud in the tourist programme?

Ms Bronkhorst said that 89 cases had been referred to the South African Police Service (SAPS). Of those, 14 employers had appeared in court, but those matters were still being finalised. There had not been any convictions, as the cases were still being dealt with. The UIF had received a number of Covid-19 fraud cases. It had received 344 alleged fraudulent transactions through the fraud hotline and other sources. 240 of these cases had been finalised. The UIF had referred 156 (this was the updated figure) to the SAPS, and there had been 16 arrests, not 14. Not all of the cases referred were genuine fraud cases. The internal fraud cases were still being investigated by the Special Investigations Unit (SIU), and she had not received a report on that.

Mr Lees congratulated Ms Bronkhorst for getting this process moving, notwithstanding the slow speed. He asked if there had been any recovery of funds paid out irregularly or fraudulently.

Ms Bronkhorst said that the UIF had had repayments of R2.2 bn, which was paid voluntarily by employers. The UIF had a “follow the money” process, whereby all employers who claimed the money would be audited. This process was started, and the UIF had audited payments to the value of R16.7 bn so far. In the auditing of the R16.7 bn, the UIF had identified R628 million that was incorrectly or fraudulently claimed and subsequently refunded to the UIF and/or the workers who were entitled to it.

Mr Lees said it was encouraging to get reports of action and results, rather than plans alone. In terms of the voluntary recoveries, did that not constitute an admission of guilt on the part of the employers? If it did, what were the consequences for those employers?

Ms Bronkhorst said that not all of the repayments to the UIF were the result of wrongdoing by employers. The internal controls of the UIF were found to be lacking, and sometimes duplicate payments were made to employers. When those employers audited their own accounts, they identified the duplicates and refunded the UIF. All of the employers who defrauded the UIF would face fraud and corruption charges. The UIF would not let anyone escape just recourse. When an employer was confirmed to have committed fraud, they would be blacklisted from doing business with the state.

Mr Lees said he looked forward to that process being finalised promptly, because profiting from Covid-19 was extremely immoral. The UIF had the full support of the Committee for holding those employers accountable. When the Committee visited the UIF offices in Tshwane in October 2020, the Members learnt that there was a backlog of 440 000 emails at that point in time, and the staff were able to handle a mere 680 emails per day. This meant that it would take two years and seven months to clear the backlog, without dealing with any new emails. He asked if he could get a report on any improvements in this regard.

Ms Bronkhorst said that the situation had improved. Apart from those officials, the UIF also used the call centre, where 290 agents were used to assist in dealing with the backlog. Officials had also worked overtime. At the moment, there was still a backlog, but it had been reduced to 40 060. The backlog of emails was partly due to the fact that people submitted multiple emails if they did not receive a response within a day.

Mr Lees said that was great. He noted that he had not yet received a response to an email he sent more than a year ago. He asked, if he were to send an email, what the reasonable response time would be.

Ms Bronkhorst said that the expected turnaround time was seven working days. At the moment, the UIF was switching over to a new call centre, so during this week there may be a slight delay.

Mr Lees said that he would hold Ms Bronkhorst to that statement. During the visit in October, the call centre was averaging 30 000 incoming calls a day, and the staff members could only deal with 3 000 calls per day. He understood that many of those calls would be duplicated. He asked if those were the same call centre agents used to deal with the email backlog.

Ms Bronkhorst said that at that time, the UIF did not have a proper call centre. There were only 40 agents at that time. The UIF then added another 290 call centre agents. They were the ones dealing with the backlog, as well as the incoming calls and enquiries. The new call centre was much more technologically developed, and 250 call centre agents had been contracted to deal with the current incoming calls.

Mr Lees thanked Ms Bronkhorst for her responses. He had described the meeting with the Compensation Fund as helpful, but he could not do the same about the present meeting with the UIF. A considerable amount of action and consequence management was required. He looked forward to another engagement in the near future.

The Chairperson thanked Mr Lees and handed over to Mr B Hadebe (ANC).

Mr Hadebe said that in 2018/19 the UIF received a qualified audit opinion, with seven areas highlighted by the AGSA. In 2019/20 there was another qualified opinion, with 15 areas highlighted. It seemed that things were worsening rather than improving. The AGSA highlighted that the UIF did not have documented process to obtain information from associates and joint ventures to ensure that it recorded information properly. This brought into question the credibility and accuracy of the UIF’s financial statements and the information it submitted for the audit. There were concerning issues in this regard.

He said that for two consecutive years the AGSA was unable to verify the accuracy, completeness, and validity of the financial information submitted in relation to the UIF and its associates and joint ventures, as prescribed by the law. The accounting authority of the UIF, as required by the Public Finance Management Act (PFMA), ought to submit accurate and credible financial statements for auditing. He asked how this happened when the UIF had an internal audit committee that had to scrutinise its financial statements.

The reports of the audit committee stated that issues raised by the audit committee and the internal audit unit were not considered. He asked who received these reports and why they were not acted on. How many issues were highlighted and were not acted on?

Dr Prittish Dala, Acting Chairperson: Audit Committee, UIF, said that Mr Hadebe was correct. He said that the audit committee had raised concerns around the unlisted investments when the statements were put to it for the 2019/20 audit. With regard to those investments, the PIC had made commitments whereby it would produce the audited financial statements in some cases, and further that credible management accounts would be provided.

In the 2019/20 financial year, the UIF adopted a different approach whereby it developed a methodology to use the management accounts to assess and credibility of that information. Due to Covid-19, the revised date for financial submissions was July, however, when that time came, the management team stated that it was not where it wanted to be with the unlisted investments and the statements would not be provided in time. However, the team accepted the implications as there was not approved extension. In the current financial year, there was an additional provision that spoke to non-compliance for submissions.

Unfortunately the commitments made by the PIC were not abided by. When approaching the late submissions, in September, those management accounts that were submitted were not of adequate quality, and in addition, some of the audited financial statements were not submitted. Management then adopted a different approach, whereby instead of closing against the generally recognised accounting practice (GRAP) six and seven, it decided to close against a deviation, GRAP one, which stated that the audit committee did not have the necessary information and wanted to disclose based on the available information. As a service provider was utilised, the audit committee questioned if that would get the UIF disclaimed. However, it was given assurances that that would not be the case. Further, the audit committee had applied all of the GRAP provisions.

Unfortunately, when the audit concluded by the end of November, the AGSA noted that the audit committee had not satisfied all of the requirements to have applied GRAP one, specifically in that it had not demonstrated that it had taken action against the PIC in terms of the non-submissions. The AGSA constantly stated that the receipt of management accounts sufficed, but the UIF had to comply to a framework. The UIF was impairing the amounts of those unlisted investments year on year, and it could not account for them.

From an oversight perspective, when the audit committee received the financial statements late, it took into account that there was no assurance from the internal audit unit. Further, when the audit committee recommended the financial statements, it noted its concerns in its report. Some of those concerns came to the fore, particularly the fact that the audit committee resolutions were not being recommended in terms of the PIC matter. In this regard, the AGSA stated that it could not be shown that all options in terms of the service level agreement (SLA) were exhausted and that action was taken against the PIC. The audit committee recommended almost two years ago to put a checklist in place in the SLA to monitor the PIC to demonstrate that it was exhausting its courses of action. That recommendation was only being implemented now.

Mr Hadebe asked who in the management of the UIF ought to have implemented that recommendation.

Dr Dala said that the audit committee directed all of its recommendations to the accounting officer, which in this case was Ms Bronkhorst. Further, the executive levels of the financial and investment units were to be involved in the implementation.

Mr Hadebe asked for a response. He asked why the UIF was making the Committee’s work obsolete. He wanted Ms Bronkhorst to explain what she had done in terms of implementing the recommendations. An explanation had to be given for the implementation of the checklist and the audit action plan that was not resolved.

Ms Fezeka Puzi, Chief Financial Officer, UIF, said that the UIF had tried to get information from the PIC. The information it had received was not always credible, and was often late, as the majority of the companies were small companies. To implement the AGSA’s recommendations, and resolve the issues, an extension had been requested for the submission of the financial statements, because the PIC’s commitment was not adhered to. The closing of businesses due to Covid-19 resulted in financial statements not being finalised. Several attempts were made that the checklist was completed. However, the information received from the investee companies was not credible. The UIF could not go directly to those companies, as the UIF was a minority shareholder and did not have much voice in administration and operation of these companies.

Mr Hadebe asked how the UIF interacted with and held these companies accountable. If they disregarded all of the UIF’s requests, what was possible recourse did the UIF have?

Ms Puzi said that that was the biggest challenge.

Mr Hadebe said that he needed a response from the officials directly responsible who were not executing their mandate.

Ms Puzi said that monthly meetings were held with the PIC.

Mr Hadebe said that he did not want to have a situation where he was directed from one official to another, with each one avoiding responsibility. The Members had to know who could be held accountable for not implementing the recommendations.

Ms Bronkhorst said that when the current Service Level Agreement (SLA) with the PIC was signed, there was no provision made for penalty clauses. The SLA was being reviewed so that penalty clauses could be included in order for the UIF to hold the PIC more accountable than it had been held. If there was breach of agreement by the investee companies, the UIF instructed the PIC to take legal action, so that the UIF could recover its investment. She agreed that the audit action plan had not always been followed through. This was a priority. It was currently being worked on. The audit action plan’s quality and controls had to be improved going forward.

Mr Hadebe said that the AGSA highlighted the fact that the UIF’s financial statements were not prepared in accordance with the prescribed financial reporting framework nor supported with full documents for two consecutive financial years. This meant that the UIF was relying on the audit processes to identify and correct the material misstatements. He asked if he was being told that all of these issues that made the statements not credible were to be solely contributed to the PIC. There were issues of material misstatements relating to benefit payments, investment in associates, and employee cost cashflow statements. Those could not be attributed solely to the PIC. Why were the audit processes being relied on to identify these issues? Why were the statements not credible?

Ms Bronkhorst said that the bulk of the challenges with the UIF’s financial statements were in relation to the investments. If the source documents could not be verified, which was a challenge, there was a ripple effect that impacted the UIF’s valuations and impairments. If these were not complete, that information could not be used in the UIF’s financial statements. Looking at the huge number of unlisted investments, there was a snowball effect. She agreed that there were areas of control within the UIF which could be corrected. The UIF was working to correct those control areas. Additional controls had been put in place for the benefit payments.

Mr Hadebe asked what internal control measures had been put in place to ensure that the financial statements were accurate, valid, and credible.

Ms Bronkhorst said that the UIF had enhanced its supply chain management (SCM), as there were a number of issues in that regard. A probity process had been included to ensure that the SCM was strengthened. It had also improved on the management of its assets. The UIF had done a lot of work with its processes, in terms of including a legal service review. Risk management had been improved. Benefit payments and claims had been improved, with the systems being enhanced to prevent duplicates.

Mr Hadebe said that the AGSA had highlighted that payments were made before services were received, advance payments were made which were not in line with the UIF’s contractual agreements. He asked under which contracts the payments in contravention with the regulations of National Treasury were made. Why were advance payments made in contravention with the contractual agreements? How many contracts were in issue? What were the amounts?

Ms Bronkhorst said that those payments were for the labour activation programme (LAP). The LAP agreement provided that the first tranche of payments would be paid before services were initiated to enable the entities to set up their logistics and operations. The challenge came from the fact that some of these service providers were paid their tranche two payments at the end of tranche one, meaning they received a second payment after the third month rather than after the sixth month. All of the contracts for the LAP were done in the same way. The memorandum of understanding (MoU) was amended to explain clearly when payments would be made.

Mr Hadebe said that the AGSA said those payments contravened National Treasury regulations. He asked how those contracts could have been implemented if they contravened National Treasury regulations.

Ms Bronkhorst agreed, and that was why a full scale investigation was underway into the LAP to determine what went wrong.

Mr Hadebe asked if the person who drafted that contract was unaware of those regulations.

Ms Bronkhorst said that she would be unable to answer that question.

Mr Hadebe asked if the accounting authority was Mr Lamati.

Mr Lamati said that he was the accounting authority.

Mr Hadebe said that in terms of the PFMA, as the accounting authority, Mr Lamati was responsible for preventing irregular expenditure from occurring. If that failed, reasonable steps ought to have to have been done to discipline those who permitted the irregular expenditure.

Mr Lamati said that the LAP was set up in a manner so that it did not follow the SCM processes. The UIF would go out and request proposals. The contract would be set up so that an advance payment would be made to allow the learners to travel and have a stipend. The UIF thought that it was alleviating the challenge young people were facing. The legal services unit did not see anything wrong with that approach, due to the purpose of the LAP. The UIF had changed the way it did things. The focus was no longer on training; it was now on employment. Hence, the hosting employer had to submit an invoice once the people were employed.

Mr Hadebe asked if there was any provision that allows for deviation from the normal SCM procedures. Was there nothing in the SCM policy to provide for deviation such that it did not contravene National Treasury regulations?

Mr Lamati said that a process had been laid out for the LAP. It had to comply with the policy put in place to administer it.

Mr Hadebe asked which procurement provision was relied on to implement LAP and the relevant contracts. The UIF was governed by legislation in order to execute its mandate.

Mr Lamati said that the UIF was guided by the SCM processes and legislation. The LAP started as a pilot project. Part of the pilot project did not follow the SCM processes. This was part of the problem that the UIF was trying to rectify.

Mr Hadebe interjected and said that he wanted to be told which processes the LAP did not follow.

Mr Lamati said that the UIF did not opt to not follow the SCM processes. A document that was put together acted as a term of reference for how the LAP was going to operate. The LAP ran for a while using that framework. That could be attested to. After some time, the LAP had to be put back into the SCM processes. The changes had been made to the LAP to ensure that it complied completely with the SCM processes.

Mr Hadebe asked where that framework derived authority from. What was the framework drawn out of? Was it derived from common sense?

Mr Lamati said the framework was not derived from common sense.

Mr Hadebe interjected again and asked from which authority or legislation the framework was derived from.

Mr Lamati said that the UIF had a responsibility to assist, to ensure that the people who it paid benefits to were brought back into the labour market. That is why training, particularly of UIF beneficiaries, forms part of the UIF’s activities. That responsibility was derived from its mandate in terms of the legislation. The fund no longer paid benefits to people once they were employed, hence those people had to confirm with the UIF whether they were employed or not. The framework was derived from that mandate. At the time, the UIF thought that the process it followed was living up to its legislative mandate.

Mr Hadebe said that it was clear that he would not get a response on this matter. For 2018/19, the UIF’s closing balance for irregular expenditure was R107 million. In 2019/20 the closing balance was R93 million. The AGSA indicated that there was not sufficient evidence to suggest that disciplinary steps were taken against some of the officials who permitted irregular expenditure, amounting to R86 million in the prior year. The forensic investigation into the implementation of system application products (SAP) had been concluded, and there were sanctions and recommendations made. The AGSA stated that those sanctions and recommendations had not yet been implemented. He asked why these actions were not taken. Who were the officials implicated in the investigation? Who was responsible for ensuring that the actions were taken accordingly?

Mr Lamati said that the matter was investigated, and a report was drawn up which recommended that disciplinary action had to be taken against the concerned officials. One of the implicated officials was Mr Victor Mafata, the former Chief Financial Officer of the UIF, who was now the Commissioner of the Compensation Fund. The full list of officials could be provided. These people were part of the bid adjudication committee in relation to the putting together of a business case regarding the development of the systems of Accenture. When those officials were reviewing the process for approval, they saw that Accenture had applied for bids. The officials then looked for legal advice on whether Accenture should have been excluded as it was working with the UIF. The legal opinion stated that there was nothing precluding Accenture from applying like any other service provider. On the basis of that opinion, the process moved ahead, and Accenture was appointed as a preferred service provider.

When the report came out, as part of the disciplinary process, he allowed each implicated official to state their case. After their responses, the advice from the employee relations and the legal service units was that the disciplinary process could not proceed, as there were no grounds to do so. After applying his mind to the matter, he concurred with that advice, because the officials did not act with malice and they sought out legal advice before acting.

Mr Hadebe said that the AGSA noted that there was failure to act on the recommendations of the forensic investigation.

Mr Lamati said that he did not fail to act. He had acted, even though the outcome may not have been what was expected.

Mr Hadebe wanted to know what the recommendation from the forensic investigation was.

Mr Lamati said that the recommendation was that a disciplinary process had to commence. There was no recommendation for a specific sanction. The prescribed disciplinary process was complied with. Based on the facts at his disposal he opted not to institute disciplinary proceedings.

Mr Hadebe asked why the forensic investigation was instituted if the recommendations therefrom were not going to be implemented.

Mr Lamati said that the forensic investigation recommended that a disciplinary process be instituted. This was done. Part of the disciplinary process was to hear the responses from the officials, and that was done. On the basis of the responses, action was taken.

Mr Hadebe asked if what was being said was that the investigation did not state that there was a prima facie case that had to be addressed.

Mr Lamati said that he was not saying that. The investigation stated that a disciplinary process had to be started.

Mr Hadebe asked on what basis the disciplinary process had to be commenced. He asked whether the investigation stated that there was a prima facie case based on the occurrence of financial misconduct.

Mr Lamati said that the report indicated that there was a conflict of interest, because Accenture should not have been considered for the bids. The legal opinion said that nothing precluded Accenture from applying.

Mr Hadebe asked if over and above the investigation, Mr Lamati requested a legal opinion.

Mr Lamati said that the legal opinion was there.

Mr Hadebe noted that if the legal opinion was done before the investigation, the investigation made the recommendations based on the consideration of the legal opinion and all of the facts. He expressed belief that the investigation would then have concluded that there was no malicious intent rather than recommending action.

Mr Lamati said that he could not speak for the investigators. He applied his mind to the information he had before him. To say that he did not start the disciplinary process was incorrect.

Mr Hadebe asked whether that meant that what the AGSA stated was incorrect.

Mr Lamati said that he disagreed with what the AGSA stated. He disagreed on the point of what constituted a disciplinary process.

Mr Hadebe asked if what the AGSA highlighted about there being no disciplinary process was incorrect.

Mr Lamati said that he disagreed with the AGSA, because once the disciplinary process started, there were steps that could not be skipped, otherwise it would become a subjective process. The disciplinary processes were not held due to the process that he outlined, and the representations made by the officials.

Mr Hadebe asked if Mr Lamati agreed with the AGSA’s finding that there were issues of confirmed financial misconduct, and disciplinary hearings were not held. He said that someone had to be held accountable.

Mr Lamati said that he did not think the outcome of the investigation was financial misconduct. If that was what the investigation report stated, he would not disagree with it.

Mr Hadebe said that as this related to R86 million, Mr Lamati should be able to recollect the necessary information. He asked if Mr Lamati could retrieve the information pertaining to discussions and disagreements with the AGSA on the point of the disciplinary hearings.

Mr Lamati said that he was not disputing what the AGSA stated. He could not, and did not, see it fit at the time that there should be disciplinary hearings. The disciplinary processes were followed. The hearings itself were only at the end of these other processes that were carried out.

Addressing the Minister, Mr Hadebe said that there was now the situation where the AGSA said that there were confirmed cases of financial misconduct and disciplinary hearings were not instituted, and Mr Lamati, as the accounting authority of the UIF, presently stated that he did not deem it fit to institute those hearings. He asked the Minister for his take on the matter. Was the Minister aware of the R86 million, the forensic investigation, and the recommendations that were not followed, which were included in the AGSA’s report that contributed to the UIF receiving a qualified audit opinion?

Minister Nxesi said that if disciplinary process or action was supposed to be taken, a number of steps had to be followed. The principle of audi alteram partem had to be adhered to and the officials had to be allowed to state their case when the proceedings were instituted. In this case, he would prefer to analyse all of the facts, write a report, and account for missteps, if there were any.

Mr Hadebe asked for the timeframe for the Minister to write up the report.

Minister Nxesi said that two months would be enough time.

The Chairperson said that Ms V Mente (EFF) wanted to make an interjection.

Ms Mente wanted the Minister to explain why he did not act in line with the provisions relating to powers and consequences of failure to act of the PFMA. Action was not taken following the advice of the audit committee, nor was action taken in relation to the disciplinary hearings. She said that the PFMA empowered the Minister to charge Mr Lamati for failing to carry out his duties in these matters.

Minister Nxesi agreed that the PFMA empowered him to charge any official who failed to carry out their duties. However, he indicated that before he could make any such charge, he had to listen to the reasons for why the process was handled in the manner it was. That was what he was going to do. On the basis of that, he would be able to determine what happened, and whether Mr Lamati’s version of events supported the action he took or did not take. He had to investigate the matter.

Mr Hadebe asked the Minister if he was aware that this matter related to the previous financial year.

Minister Nxesi said he was aware of that.

Ms Mente said that the Minister could not say now that he was going to hear Mr Lamati out. She said that this was a repeat finding. The AGSA said that duties were not carried out for consecutive years, in relation to these matters.

Mr Hadebe said that someone should have asked why the finding was still there. The AGSA’s report stated that quarterly reports were not submitted to the executive authority, which was the Minister, as required by the Act. He asked the Minister if he was aware of certain issues that ought to be brought to his attention and were not, including this matter. What did the Minister do when he did not receive reports?

Minister Nxesi said that there were a number of issues being analysed, and they had to be dealt with systematically. These issues had started being dealt with in early 2020. The charging of people had to be informed by the facts and had to adhere to the audi alteram partem rule, whereby all the parties were allowed to state their case. If a process was rushed into the results may not be satisfactory. That was why he asked for time to investigate. This matter had been a problem for a number of years. Nothing would be hidden. He would go back and find out exactly what had happened.

Mr M Dirks (ANC) said that he was having difficulties with Mr Lamati’s explanation for not charging the officials because that forensic investigation was carried out. He could not understand why the Minister now had to go and dig deeper to determine the problems. He did not think that the Minister could dig deeper than the forensic investigation. The recommendation from the investigation could not be ignored. It had to be acted upon.

Minister Nxesi said that he could not give any other explanation than to clarify how he understood the situation. Once a recommendation was given to charge officials, there were other processes that had to be engaged, such as hearing the implicated officials’ reasons for acting as they did. All that he could do was investigate the matter and return in two months with a report. He did not see any other way of proceeding.

Mr Hadebe said that the AGSA’s report had indicated that certain measures were not implemented to ensure that the UIF’s environment was conducive for consequence management. The areas highlighted were the failure to deal with allegations reported in prior years, the lack of investigations to identify the people involved, and the failure to institute disciplinary hearings for the confirmed cases. This had been happening for 24 months. Nothing had been done to create a conducive environment for consequence management. There was a lack of proper record-keeping to ensure the complete, relevant, credible, and accurate information was accessible and available. When the Committee conducted its oversight, the Members expected that these highlighted issues had been brought to the attention of the accounting and executive authority so that they could appear before the Committee to demonstrate that steps had been taken to address the issues.

It was unfortunate to conclude that that was still needed for the determination of what was previously identified, and that no action had been taken. The Members were forced to arrive at the conclusion that consequence management in the UIF was not taken seriously. He asked if this was the only case where consequence management was not affected, even though it was confirmed that officials had to be held accountable. Were there any other cases? Was this the trend within the UIF?

Mr Lamati said that this was not the trend in the UIF. There had been cases where consequence management was affected.

Mr Hadebe said that the AGSA indicated that there were cases, not only one case, that were confirmed. Why would the AGSA indicate a plurality if there was only one case?

Mr Lamati said that it may have been that there were cases that had not been finalised and were still going through the disciplinary process. There was no blatant disregard for consequence management.

Mr Hadebe said that it was concerning that Mr Lamati did not bother to look into why the AGSA indicated more than one case.

Mr Lamati said that he knew there were cases that had not been finalised.

Mr Hadebe said that he was talking about finalised cases. He knew that the cases that were under investigation amounted to R8 million. The irregular expenditure closing balance was at R93 million, so there were other cases. He asked Mr Lamati if he was aware of other cases that had been finalised. Or were there no other cases?

Mr Lamati said that there were a couple of cases that were brought to his attention, where the matters were finalised, but no action was taken. When following up on the implementation of the audit action plan, it was realised what had happened. Some of these cases dated back to 2017. The UIF was working on these cases to correct the actions.

Mr Hadebe asked how many cases there were. The AGSA spoke about the root cause, and mentioned the sanctions and recommendations in terms of completed cases. He wanted to know how many cases had not been pursued after the completion of the investigation. It should worry Mr Lamati that there was a lack of consequence management.

Mr Lamati said that it did worry him.

Mr Hadebe said that if it is worrying to him, he would have the necessary information available. He believed that Mr Lamati should have been prepared to answer all of these questions. These questions and issues were public, and well-known. It was unacceptable that concrete answers were not being given. These matters were not new discoveries. The AGSA was concerned about the environment at the UIF. The lack of an accurate response implies that Committee alone was bothered with scrutinising these matters.

Minister Nxesi said that he thought the hearing was dealing with the 2019/20 annual report, which was released late in 2020, so this could not pertain to any matter from 24 months ago. He stood to be corrected.

Mr Hadebe said that there were also cases that dated back to 2018/19 which had not been dealt with, hence the issue of 24 months.

The Chairperson believed the issue was the year-on-year repeat findings.

Minister Nxesi noted that Mr Lamati said a disciplinary process had been initiated, but the legalities precluded the commencing of hearings. He had to be allowed to look into that situation and return with a report. The process was not straight forward.

Mr Hadebe agreed with the Minister. He asked if there were similar cases that had been investigated but not acted upon. He was no longer dealing with the R86 million. How many cases were being dealt with here? What was the concerned amount? Who were the implicated officials? This would give the Members a sense of whether they should expedite action from management at the UIF.

Mr Lamati said there were ten cases that were still outstanding and had not been acted upon. They were being worked through. He had spoken to Ms Bronkhorst about why the cases were not finalised. Action would be taken.

Mr Hadebe asked if the Members could be told what value was concerned in each case.

Mr Lamati said that some of the cases were in the millions. There was a software case in which R4 million was in issue. There were cases where officials did not show up at hotels, or fly when they were supposed to. This amounted to R15 000.

Ms Mente said that, looking at the audit report and the reasons for its qualification, it was clear that there were areas where findings had occurred three years ago. There was a particular problem of not charging people that were responsible for irregular, unauthorised, fruitless, and wasteful expenditure. She hoped that Mr Lamati would have been able to say that the UIF had managed to at least deal with those people responsible for the wasteful expenditure. That money was spent in vain, without any justification. On the irregular expenditure, when the Committee visited the UIF offices, assurances were given that everything would be looked into. However, upon presentation of the financial statements, the same issues came up. The same findings appeared for 36 months, and nothing was being done.

She said that the wrong precedent was being set. This was not acceptable. The AGSA’s findings had to be acted upon. She accepted that in Chapter ten of the PFMA, it was clear what constituted misconduct. It was unacceptable that no one looked into why people that committed the same transgressions in the UIF constantly were not charged. On the issue of the Temporary Employee/Employer Relief Scheme (TERS), the UIF could not give a number of the people that were investigated by the SIU or whether they had been charged. What was being looked into? The names of those people who had committed misconduct were available from the internal system, so why had they not been dealt with?

She said that these findings would appear again in the next financial year, because the legalities were still being looked into. It was acceptable to look into the legality of the matters during the first year in charge, but not in the second. People had to be charged. The PFMA prescribed what constituted a transgression by an accounting authority. The evidence of these cases could be found in the fact that the audit committee made recommendations that had to be acted upon, but were not. What was going to be done?

Minister Nxesi said that he would look into the merits of the matters and he would return to the Committee in two months with a plan of action. He could not lie to the Committee.

Ms N Tolashe (ANC) said that she was worried by the Minister’s request. She was unsure what would be investigated in the two-month period, given the fact that nothing had been done after the forensic investigation or the recommendations and reports. The Minister did not act on the clear directives and advice from the AGSA. The Committee had to proceed to conclude and resolve these matters. She wanted to trust the Minister, but she was concerned. It appeared that the Minister and the UIF management did not bother to read the reports thoroughly before this meeting.

She said that the responses from the Minister and Mr Lamati did not give hope to the people who were still waiting for their benefits. The responses indicated why there was so much corruption in the UIF. No one was showing any interest in helping those genuine beneficiaries. This was a serious matter. She wanted to revert to her previous suggestion. Would the people take the President seriously after hearing what was being said about the financial situation at the UIF? She was losing hope. Something had to be done. If the Minister could not add to what Mr Lamati said, then the President had to act to ensure that the Minister acted. Questions were being asked, but nothing was happening.

Mr S Somyo (ANC) said that the focal point for the year was going to be on consequence management. He put some responsibility on Mr Lamati due to his role in the UIF. When the Members asked questions, they expected firm action to have been taken and concrete answers to be given, because money was involved. There had to be accountability in relation to visible disciplinary action. He urged the Minister, rather than appealing for a two-month period, to bring the timeline to a one month period. The audit for 2020/21 was unfolding, and the UIF team ought to finalise its financials for submission by the end of July. While that process was unfolding, the current audits had to be resolved.

He said that there might be a number of these cases which would require attention for disciplinary processes. Hence, the Committee would need a report on what would be done and what had happened. Proper action had to be taken. The questions being asked sought to instil a sense of urgency so that work could be done to deter these transgressions and misconduct.

Mr Hadebe said that the Members were so adamant that were there was financial misconduct, consequence management had to be implemented, because for every action there was an equal and opposite reaction. Looking at s51 of the PFMA, an accounting authority had to take effective and appropriate steps to prevent irregular expenditure. If this was failed, the accounting authority had to take effective and appropriate steps to discipline the officials that permitted the irregular expenditure.

He said that, looking at the root cause, there were irregular appointments of service providers. He wanted to know how many irregular appointments of service providers there had been in the past three years. There were variations of contracts that exceeded 15% of the original contract value. How many of those contracts were there? How many contracts have concerned in terms of the excessive payments? There were service providers that rendered service beyond their contract period. This meant that providers were being paid without any valid contract. He said that these were the root causes for the irregular expenditure.

Mr Lamati said that the following payments were made that exceeded the original contract value by 15%: R433 million was paid to SAP, from 2017; Nine IT was paid R2 million; Data Centrix was paid R122 000; Bambanani Pest Control was paid R80 000; Hunadi and Monare Trading was paid R57 000; and Master Hygiene was paid R35 000.

In terms of wasteful and fruitless expenditure: Kara Heritage was paid R237 000 without rendering services; R4.5 million was paid for the Human Capital Management (HCM) software, even though it was not fully utilised; SAP license support was paid R21 million, R53 million, and R48 million, but there was no full utilisation of the licenses; Birchwood Hotel was paid R72 000, although there was a smaller number of attendees than requested; R15 000 was paid for no shows at hotels and flights by officials.

Mr Hadebe asked if all of these issues still required investigations.

Mr Lamati said that a number of these issues still required investigations, but some of them had been concluded. The Burgers Park Hotel, where there was a payment without services, issue was dealt with, with the relevant officials being issued a written warning. Written warning was issued to the official implicated in the Kara Heritage matter. The HCM software and SAP licenses matters were still under investigation. Written warning was to be issued to the Assistant Director for the Master Hygiene matter. The rest were being followed up, as the investigations were concluded but no action had been taken when the report was concluded.

Mr Hadebe found it difficult to accept that a written warning for no shows constituted sufficient consequence management if there was no mechanism to recover the money. He wanted to understand why the SCM policy was not reviewed or updated for the past two years. What had been done to change the status quo in terms of poor contract management? Bid processes were not always fair, equitable, transparent, cost effective, and competitive. Was anything being done to change the status quo. Monthly reconciliations were not conducted to confirm the accuracy, validity, and completeness of third party payments. Why was that the case?

Mr Lamati said that the disciplinary processes were handled by employee relations. Based on the seriousness of the transgression, the Chairperson of the disciplinary process looked at the mitigating report received by the transgressing official and arrived at the sanction. The sanction may not be favourable to the UIF. However, that sanction could not be changed. The only way to disagree with the Chairperson and change the sanction was to take the matter to Labour Court. He was not happy with the written warnings. However, the money was recovered. An agreement was signed with the officials to pay the money back.

On the SCM policies, he agreed that they should have been reviewed and updated. Steps were being taken to review all policies annually. On contract management, this been a thorn in the side of the UIF for a while. The supply chain polices were being strengthened. All the existing projects were being regularly checked. Each line manager was checking when the projects would expire. That was the work being done by the office of the Chief Financial Officer, because that where contract management competency resided.

The UIF had embarked on a process of cleaning up the AGSA findings to obtain a clean audit. This meant that the root causes had to be addressed. This was why the systems were to be improved for there to be proper record-keeping. Those were the interventions being made. Monthly reconciliations were done. The only problem was that the quality of those reconciliations was not up to standard. Due to various competencies in each province, it was difficult to do the reconciliations, but work had been done to improve that, so that everything was done in line with the PFMA and the proper accounting standards.

Mr Hadebe said that the vacancies had also resulted in the under-expenditure. He asked if the vacancy rate had been improved. Was the current rate the norm? What else did it negatively impact?

Mr Lamati said that those positions had to be filled. In the last two years, a substantial number of positions had been added to accommodate client service officials who were dedicated to do UIF work in the provinces. Just over 238 posts had been created at the provincial level to ensure that the UIF had its own client service officials. Reports were being given on the vacancies. It was however a moving target as people were promoted within the UIF, which resulted in vacancies remaining. He admitted that in the public service sector it took a while to fill vacancies, due to the fact that there was four to six months to fill posts. The UIF was trying to improve that standard so that posts were filled more urgently.

Mr Hadebe asked how long some of the posts had been vacant as the normal turnaround time was three months. Were these posts still funded?

Mr Lamati said that those posts were funded. There had been instances where posts were vacant for six months or more. On average it took about four to six months to fill a vacancy in the UIF.

Mr Hadebe thanked Mr Lamati for his cooperation.

Mr Dirks wanted to point out the Committee did not receive satisfactory answers from Mr Lamati. The rest of the Members could have continued to scrutinise the issues, but that would not have served any purpose. He was extremely unhappy about the answers received. He wanted to appeal to the Minister to intervene, as these officials were failing him. Their failures would reflect badly on the Minister’s performance. It was not fair to blame the Minister, but he had to intervene and act to improve the situation. The Minister had to understand that the ANC component of the Committee held him to a higher standard. The behaviour of the officials was unacceptable, and the answers would not give the public a good impression.

The Chairperson said that it was clear that the responses raised more questions than answers. It seemed that the UIF was digging itself deeper into a hole. This was a vicious cycle. The audit outcomes were not good, but there was movement in certain areas. He suggested that the Minister have 30 days to meet with the officials of the UIF and the DEL and then present an audit response plan to the Committee.

Further, he said that the Committee would find time with the DEL and the PIC to deal with that matter in the coming days. The blacklisting of the companies had to happen. The Minister would be granted the two-month period, subject to monthly reports on the work being done on the blacklisting and other incidents. Hence, the first report would be received in 30 days, as National Treasury, amongst other, and to be involved in the matter.

The Committee, when it met with the Compensation Fund, made the determination that a performance assessment of the managing officials had to be drafted. He suggested that that be all-inclusive of the UIF as well in terms of the performance agreement between the President and the Ministers. He suggested that the Committee have the Presidency speak to it about the problematic departments and entities so that the Committee could have a measurement of how far the executive was taking these matters. This was integral to the Committee’s oversight duties. Public Enterprises was imploding, and there was a similar problem here.

He said that the Minister had to get the audit response plan to the Committee in 30 days. And then in two months there would be a more complete engagement on all of those matters. A report also had to be given in 30 days on the disciplinary matters, including the issue of the Commissioner’s suspension. He hoped that that was an appropriate approach to take going forward.

The Members agreed with the Chairperson’s suggested approach.

The Chairperson handed over to the Minister.

Closing remarks

The Minister said he had a performance agreement with the President, which focused on, amongst other things, turning around the two institutions. That agreement would be made available. Mr Lamati’s performance agreement mirrored his agreement with the President. He reiterated that he had made commitments to investigate the matters. He did not object to the suggested timeframes. The disciplinary process was established. The action may not have been what was expected, but there was action, nonetheless. Millions of workers had been paid, and the cracks were being dealt with. Many people had been charged and were being held accountable. The officials implicated in LAP were on suspension.

He said that there was an Acting Commissioner because he had acted. And Mr Lamati had acted on other issues. He thought that the Members would have asked about those suspensions. There were cases being investigated. Unfortunately, in some of the investigation cases, the UIF was overstretched, as some cases took much longer than expected. But the work was continuing.

All of the recommendations in the audit response plan would be taken, as will the issue with the PIC. These accountability engagements were necessary, even if sometimes uncomfortable. The suggested timeframes would be met, and the AGSA would continue to be engaged.

The Chairperson said generally one did not praise fish for swimming. The meeting with the State Information Technology Agency (SITA) was scheduled for 18:00 on 26 May. He thanked the Members, the Minister, and the UIF officials. He thanked the SIU and the AGSA for their work behind the scenes and being present. He asked the Minister to ensure that the Committee received the Compensation Fund submissions on 21 June, and the UIF submissions on 29 June. The Committee had applied for special permission to meet during recess, so the Committee would have one meeting a week.

The meeting was adjourned.