The focus of the meeting was a progress report on the implementation of corrective measures at the Unemployment Insurance Fund (UIF) in terms of a resolution of the Committee from May 2021. The resolutions covered five particular issues: namely the clean audit action plan; the blacklisting of companies; irregular and fruitless and wasteful expenditure; consequence management; and the Accenture matter. Officials of the Compensation Fund and the Auditor- General also addressed the meeting.
The Minister of Employment and Labour said there were systemic issues with the Compensation Fund which needed to be addressed. It did not have enough skilled staff in finance and auditing. In general, the information technology systems – as supplied by the State Information Technology Agency - were not good enough to support the work of the Department. The issue was being addressed but there was no “quick fix”. The Department had also realised that the operating systems of the funds needed to be fundamentally reviewed to be in line with best practice in the insurance and finance sectors. Experts would be appointed by the end of the month.
Members asked why there was such a delay in setting up terms of reference for matters such as the forensic investigation which had not yet started. Members asked how the UIF dealt with the risk assessment of service providers, especially those who developed the specifications for systems which subsequently did not deliver. Members asked about consequence management for the service provider and for UIF management when systems did not work as intended. How many people who applied for and received money under fictitious names and categories were current government employees (people with PERSAL numbers)? At what stage was the legal process against them? How did the UIF come to the decision to write off millions that were owed which could have helped poor people? Why were companies that improperly claimed payments from the UIF not named and shamed? Members questioned whether the UIF’s information technology officials were up to standard. They asked why the UIF did not use the Special Investigating Unit to investigate improper expenditure, rather than using expensive audit firms. What was the cost of using forensic firms? Members asked why the UIF and the Compensation Fund had not tabled their annual reports on time.
The Department of Employment and Labour (DEL) briefed the Standing Committee on Public Accounts (SCOPA) on the progress regarding the implementation of corrective measures at the Unemployment Insurance Fund (UIF).
The Chairperson said that the Committee’s reports had needed to be re-ATC’d and that the Committee’s oversight visit to the Post Office had been approved.
Mr Thulas Nxesi, Minister of Employment and Labour, apologised for the absence of the Director-General (DG), who was attending a meeting in Mombasa.
He said the Special Investigating Unit (SIU) report [on the Unemployment Insurance Fund (UIF)] was a follow up on the findings of the Auditor-General (AG). The AG had uncovered certain risky Covid payments [by the UIF] and had made recommendations for the UIF to tighten up controls. The SIU’s role then was to investigate individuals and entities relating to charges being laid. The UIF was committed to auditing every Covid payment, which netted more culprits. The briefing would report on the establishment of the clean audit task teams, the development of audit action plans and close monitoring of the said plans and holding managers responsible. In the previous month, the DG had held a governance lekgotla on compliance, accountability and regular monitoring while internal auditing was playing a far greater role.
There had been progress but there were aspects which needed clearer deadlines. The repeat [audit] findings on the Public Investment Corporation (PIC) investments in unlisted companies needed to be addressed. These were often start-ups, Small, Medium or Micro Enterprises (SMMEs) or black-owned businesses with reporting and accounting periods not in alignment with government’s periods. The Department was working with these companies to become compliant.
There were systemic issues with the Compensation Fund which needed to be addressed. It did not have enough skilled staff in finance and auditing and the Department was engaging with the Treasury to address this. Information Technology (IT) systems were not good enough to support the work of the Department. The issue was being addressed but there was not a quick fix. The Department realised that the operating systems of the funds needed to be fundamentally reviewed to be in line with best practice in the insurance and finance sectors. Experts would be appointed by the end of the month.
Adv Mzie Yawa, Acting UIF Commissioner, who was to have led the presentation, experienced internet difficulties and Ms Marsha Bronkhorst, Chief Operating Officer (COO): DEL, then took over the presentation.
Ms Bronkhorst, said the briefing would focus on the five SCOPA resolutions raised in the May meeting, namely the clean audit action plan; the blacklisting of companies; irregular and fruitless and wasteful expenditure; consequence management; and the Accenture matter. [See the presentation slides]
Progress on the clean audit action plan
There had been 20 findings on the UIF’s investments in associates and 13 were resolved. There were six investees where information was not available by the closure date of the financial system and will be excluded from the equity accounting process. There were four findings in terms of benefit payments, provisions and contingencies and all were resolved. There were six findings in terms of non- compliance with legislation on annual financial statements and four were resolved. There were five findings of non-compliance with legislation on expenditure management and all were resolved. There had been seven findings in terms of commitments and all were resolved. On credible performance reporting – performance information, there were eight findings of which five were resolved. On non-compliance with legislation – strategic planning management, there were two findings all of which were resolved. On non-compliance with legislation – consequence management, there were 12 findings of which nine were resolved. On leadership – audit action plan, there were five findings all of which were resolved. In total, 55 of the 71 findings (77%) have been addressed.
On corrective measures taken by management to address investments in unlisted instruments, she said equity accounting was performed on fourteen investees whose financial information has been received by 31 August 2021. The internal assessment of valuation reports and market value adjustments were performed and required corrections would be made. The internal assessment of impairment calculations was performed and completed. Prior year accounting treatment of benefit payables, provisions, technical reserves and benefit payments was done.
An irregular expenditure process flow was developed in line with the National Treasury irregular expenditure framework and a financial misconduct advisory committee was instituted. Irregular expenditure cases were re-opened and assessment and recognition of irregular expenditure would be shortened to not more than 5 days of receipt of the alleged non-compliance.
On commitments and disclosures, she said a monthly commitment schedule was implemented and was reviewed by the Head of the Unit prior to the disclosure. All disclosures will be according to Generally Recognised Accounting Practice (GRAP) standards. A GRAP checklist was developed and would be reviewed by external parties. The Fund developed a financial year-end project plan which included quality review processes. A pre-payment accounting policy was developed and agreements between the UIF and training service providers were amended to address pre-payment issues.
On leadership action plans, she said a process document on monitoring the audit action plans was developed and communicated; the UIF Clean Audit Committee was instituted and would report to the Risk Management Committee and the Audit Committee on a quarterly basis; a control dashboard would be developed; and the implementation of audit action plans was included as part of the Director’s performance agreement which was assessed quarterly.
Clean audit initiative
The Clean Audit Committee assisted the Directorates to conduct a control exercise to develop a control environment dashboard covering Planning- Budgeting; Employability; Debt Management; Contributions; Overpayment; and the Claims Process amongst others.
The intention had been that a list of all companies who were suspected of fraud on the Covid-19 Temporary Employer/Employee Relief Scheme (TERS) benefit would be submitted to the National Treasury for naming and shaming. Legal opinion was received that the Memorandum of Agreement signed by the Department and UIF did not provide for naming and shaming of the companies. UIF should institute legal proceedings against those employers.
She said the opening balance on 1 April was R111m of which R96m was written off (Accenture), leaving a closing balance on 30 September of R14m. She went into the details of the irregular expenditure ( see presentation slides)
Fruitless and Wasteful Expenditure
She said the opening balance on 1 April was R128.7m and there was an additional amount related to a Telkom Cancellation fee of R 2.1m leaving a closing balance on 30 September of R130.8m. The Department took a decision to re-open investigation into two cases where consequence management was not applied. The UIF has implemented a probity process to verify supply chain management (SCM) processes during procurement processes.
On the progress on SIU cases on irregular expenditure, she said there were seven cases of which four were finalised. The status of three outstanding cases were that Disciplinary Committee (DC) hearings were scheduled for 17 and 18 November. The DC Hearing would convene upon return of an official who was on extended temporary incapacity leave since February 2021 to date. She then gave feedback on other irregular expenditure cases involving Vodacom and Duma Travel.
She gave the background to the Accenture case, saying that the AGSA had raised a finding against the UIF regarding the procurement processes followed in relation to the awarding of the contract for the implementation of the SAP system. A service provider was appointed to conduct an investigation into the appointment of Accenture. National Treasury had declined condonation for the outstanding payment due to a lack of consequence management implemented. The Director-General has approved a submission for disciplinary action to continue against officials that were not exonerated in the disciplinary action against them.
Mr A Lees (DA) asked why there was such a delay in setting up terms of reference such that the forensic investigation had not yet started. This was an example of the lack of urgency that entities display concerning their problems.
Adv Yawa said the forensic investigation was “following the money” and the delay was because the first tender contract‘s term had expired before the full scope of the investigation was completed. A full new tender process had then to be followed to appoint a service provider by the end of the month, so it was a new tender in that sense. “The previous one gave us some actions within a limited scope of time without completing the entire radius. We had to go back to tender and follow the legal process. That is why we are said to have moved slower than we should have—to cross each T and dot each I."
Ms V Mente (EFF) asked about risk assessment which was not in the presentation. How did the UIF categorise the risk assessment of service providers, especially the ones who developed the specifications to design the system which could not pick up public servants with PERSAL numbers who were paid TERS benefits or compensate people who were not out of work due to Covid. In general, this was an issue because service providers were developing systems that did not deliver.
Adv Yawa said the matters arose from the first audit of the AG in the previous year when the UIF first paid TERS and the speed at which it had to be implemented and the trust that public servants would not do something untoward. Cases of staff with PERSAL numbers who were paid were still under investigation on whether they were claiming for themselves or for their domestic workers. People in jail or in debt were also paid in that round. After that the UIF realised there was miscommunication with the Department of Home Affairs (DHA) around a tool provided by the DHA to be used in the UIF system that was no longer the tool that the DHA itself was using.
The Chairperson interjected at this point and asked why it appeared that everybody else was at fault except the UIF. He was not convinced on where the response was going.
Adv Yawa gave the assurance that there were no problems with all audits of ordinary payments prior to TERS. “There is no audit on our normal payments which shows that we have paid a dead person. When you come to claim ... our staff are trained to check the documentation you bring as proof and when it passes that [test] we make that payment.”
Mr S Somyo (ANC) said the issue was the failure of the UIF’s own system which led to an outcome where millions of Rands were lost. The UIF justifications should not be accepted as there was a myriad of failures of the UIF systems as noted in the SIU report of the previous week. “That [SIU] report has given rise to a myriad of system failures, which presented an outlook of beneficiaries who ought to have been paid by the system, which is not functional in terms of making sure that payments were made to the deserving people.”
Ms Mente said that on an oversight visit, the Committee picked up that risk assessment was the least of their concerns. She said service providers offered a system and there were UIF managers involved in the drafting the specifics of the system. What happened to the service provider and to management, given that the UIF was involved with naming and shaming people who applied for money under fictitious names and categories. It was said that some of the people who received money were people in the criminal justice system and therefore had PERSAL numbers. How many were there on that list and at what stage was that process?
Adv Yawa said the service provider that installed the system corrected the problems and the latest audit found no problems. The issue was the installation of the DHA tool and the fact that the UIF’s risk assessment prior to the action was not “awake”.
The Chairperson said this indicated silo operations and a lack of integrated checks and balances.
Minister Nxesi said there were problems with the IT systems which needed upgrading. He said that the Committee also needed to look at the effectiveness of all government’s State information Technology Agency (SITA) systems. A number of departments were disappointed on this matter and were hamstrung because they could not look beyond SITA for solutions.
Ms H Mkhalipi (EFF) said people were very frustrated with the UIF when processing a South African Social Security Agency (SASSA) claim for example. On the oversight visit to the IT section, she said the workers there did not appear to be serious, yet they were dealing with matters of serious concern to those seeking assistance. How did the UIF come to the decision to write off millions that were owed which could have helped poor people? On the issue of naming and shaming, she asked why people were not named and shamed solely on the basis that this clause was not part of an agreement. It seemed as if the Department was not serious in fighting crime.
Adv Yawa said that, following legal advice, it could not name and shame businesses that improperly received TERS payments from the fund.
The Chairperson asked if the Committee could get that legal opinion.
Adv Yawa said he agreed that it was not easy for clients around the country to get the services offered by the UIF with ease. He said the UIF would provide the legal opinions to the Committee. On the issue of naming and shaming, he said everyone was regarded as innocent until proven guilty as it was yet to be proven and these were only allegations at this point.
The Chairperson said the substantive matter was not about naming and shaming but about public disclosure and that there appeared to be no urgency on the speed that things were moving. There was a perception of protectionism occurring. These were issues concerning public funds. If people were being charged for something, then the DEL should inform the Committee. The issue was of transparency and taking Parliament along in its confidence.
Minister Nxesi said Mr Yawa must be direct in answering the issues.
The Chairperson asked for the legal opinion and to get the full schedule of all the matters engaged in legally, including when they had started and where they were currently. He said the Committee needed to have a frank discussion with the Department of Justice on legal delays where matters were stuck on court rolls which caused a build- up and frustration.
Adv Yawa accepted that their systems were not up to scratch all the time. The UIF had engaged with SASSA to avoid double dipping.
Mr Somyo questioned whether the UIF’s IT officials were up to standard, notwithstanding the deficiencies of SITA, which should also be brought before the Committee in the future. He said he had experienced arrogance when officials were questioned on the procurement process during an oversight visit.
On the fitness and capacity of the UIF staff, Adv Yawa said there was not a single disciplinary hearing case that was refuted, so he agreed with Mr Somyo’s comments. He said the Department had an IT advisory committee which acknowledged that the UIF’s IT capacity was not at the level it should be at and remedial actions were being taken.
Minister Nxesi said they would be able to give a progress report on this matter when they came back early in the following year. Regarding the capacity of some of the people, he said it was this rather than arrogance and some of the people there were not supposed to be there.
Ms B Zibula (ANC) said there were no consequences at the UIF at all. Why did they not use the SIU to investigate irregular expenditure rather than using expensive audit firms? What was the cost of using forensic firms?
Adv Yawa said he could forward what the forensic audit cost.
Minister Nxesi said there were issues which the SIU could investigate but there were also issues that were not in the proclamation that the Department could investigate on their own, not via the SIU, as sometimes the SIU took a lot of time to investigate some issues.
Adv Andy Mothibi, Head of SIU, said the SIU would reach out to the Department and UIF. Over and above investigating and holding people or entities to account, it also provided evidence -based recommendations, not only to the UIF but to other government bodies, on the systemic improvements to prevent maladministration and corruption. Regarding the investigations at the Department, he said noted the Minister’s comments that there were cases the Department was still waiting to hear about from the SIU. He wanted to improve the turnaround times so that the SIU became the preferred investigating and litigation agency for the state. The SIU looked at criminal, civil and maladministration issues. He said the SIU would appraise the Minister on the status of investigations.
Adv Yawa said that delays in processing cases were because cases for investigation were still with law enforcement bodies. He said there were even comments that UIF was sleeping on duty, and the report UIF had was that those matters were not investigated by SIU but by the Hawks. “They are still under investigation and there is no report and therefore there is no consequence we can take,” he said.
Adv Mothibi said he noted that Adv Yawa held a different view, but that these matters should be raised directly with the SIU so that numbers could be reconciled. SIU investigations and findings were evidence based and the SIU stood by its report.
Minister Nxesi said it was incorrect to quote newspaper reports. The UIF must deal with what the SIU delivered. It was not good to rely on newspaper reports.
The Chairperson said that from whatever angle one looked at it, there were shortcomings with the UIF systems. For example, the call centre was not coping. A meeting should be set up within the next ten days between the UIF, SIU and the Department to discuss issues and list areas that was agreed on and send the Committee a briefing note on the meeting. “The investigations must be concluded. One thing you must not do is speak through the media. It is the highest level of unprofessionalism to engage through intermediaries,” he said.
The Committee agreed to the proposal.
The Chairperson asked why the UIF and the Compensation Fund had not tabled their annual reports.
Ms Bronkhorst said it was because the audits by AGSA were not finalised yet. The audit of the Compensation Fund was far advanced and the tabling of the report was anticipated before the parliamentary session ended. The audit of the UIF still had a long way to go before completion.
Adv Yawa said there was a letter written from the Department to responsible committees making a request for financial statements to be submitted at the end of September, after which the AG would be able to do its audit.
Mr Vuyo Mafata, Commissioner: Compensation Fund, said the Fund had requested that the financial statements be allowed to be submitted two months later than required. The audit process was just concluded and the draft audit report was given to the Fund and the last few steps were being taken before receiving the final audit report .
Ms Kgabo Komape, Business Executive, AGSA, confirmed that the two entities submitted financial statements late and the Compensation Fund was very close to finalisation. The UIF submitted statements later.
Ms Bronkhorst apologised for any perception that the finalisation of the reports was the fault of the AG.
The Chairperson said the Committee would await the forensic investigation report because it dealt with over five years of disclaimed audit outcomes. He said that if people had to be fired then they should be fired and not protect dereliction of duty, corruption and failure to comply. The audit outcomes were not a mistake but were engineered to protect something. He said SITA was a failure and had to be fixed as a priority. Work needed to be done by the UIF and the Compensation Fund and the Committee was awaiting the annual reports and audit outcomes. If the audit outcomes were still the same, he said he was considering asking management to then motivate why they should remain in their jobs while these outcomes were on happening on their watch.
Minister Nxesi said the Department had taken all the recommendations given in the meeting and noted the issues in the IT system and issues around consequence management in the IT system. He emphasised that he had worked with the SIU for eight years. There might be misunderstandings, but there were no problems working with them. They constantly briefed the Department. The Department would continue to have meetings and there was no dispute between them and the Department.
The meeting was adjourned.
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