UIF & Compensation Fund audit outcomes: AGSA briefing; DEL on plan to include the extended mandate; with Minister and Deputy Minister
Employment and Labour
23 February 2022
Chairperson: Ms M Dunjwa (ANC)
Meeting Summary
The Auditor-General of South Africa (AGSA) briefed the Committee in a virtual meeting on the audit findings for the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF), and the Department of Employment and Labour (DEL) outlined its plan to implement an increased mandate for job creation.
The Compensation Fund had received a disclaimer audit opinion, with the AG commenting that any figure provided by the Fund would be difficult to back up with performance evidence. In certain instances, it appeared as though even the internal audit function, which was a statutory requirement, had either not received information or received it late, causing the internal audit function to suffer. Members voiced dissatisfaction with the Fund's audit opinion, which had remained static for five straight years. They said it appeared as though certain matters were deliberately being concealed from the internal audit and audit committee, with proof of wasteful and irregular expenditure being withheld purposely, followed by a failure to act. Members agreed that withholding information intentionally constituted a crime, since it rendered oversight structures ineffectual and ineffective, and urged immediate action to address the issue.
Members asked the AGSA whether the Public Audit Act aided it in enforcing accountability. They requested information on whether the AG had performed a skills audit at the Compensation Fund, and whether the staff were appropriately skilled to perform their duties.
The Committee also received a briefing from the DEL on its expanded employment creation mandate. The Department said that following the President’s State of the Nation address, it would be obliged to shift its focus away from policy development and compliance enforcement and move toward employment creation. This emphasised the critical role of Public Employment Services in ensuring that job seekers were registered and put into employment through its vocational services programme. Since the expanded mandate, the DEL had engaged with the International Labour Organisation, the Presidency and other labour market stakeholders.
Members commented that given the sheer number of unemployed, the DEL should be reaching out to the private sector to ascertain the impediments to job creation. The question was what government could do to foster an atmosphere conducive to job creation, and how the DEL could assist in fostering that favourable climate.
In response to the ructions over the presence of foreign workers in South Africa, Members pointed out that one could not dismiss persons with work permits if one did not wish to hire foreign workers. Given that the President had signed the African Union (AU) agreement allowing for free trade and movement of people, instead of looking to the DEL, one should perhaps look to the Departments of International Relations and Cooperation and Home Affairs to create a proper border post, rather than allowing everyone to walk across the borders into SA.
Meeting report
Overview by Deputy Minister
Ms Boitumelo Moloi, Deputy Minister of Employment and Labour, referred to the audit outcomes and said the Compensation Fund had received a disclaimer from the Auditor-General of South Africa (AGSA), and it had been a journey of audit outcomes for the past five years. Going deeper, the Fund had received 17 key qualifications in 2017, and these had been listed in the AG’s report. In 2018, there had been 22 key qualifications, meaning the Fund regressed, with five more additional qualifications from the year prior. In 2019, there were 15 key qualifications, which was an improvement of seven key findings, and in 2020, there were 13 key findings, which was a further reduction of two qualifications. However, in 2021 there were 16 key findings a regression of three more findings. In the past five years, 2018 had been the worst in this journey, and this was prior to the onset of the sixth administration, but they also had to admit their successor in law position and take full responsibility.
To turn matters around at the Compensation Fund, they had reduced the key qualifications in 2019 by seven, compared to 2018, and further reduced them by another two the following year. Although this had been a journey of disclaimers and key qualifications which were unacceptable, it did not mean there had been no improvements at all, even though there were instances where the ball had been dropped.
Overview by AGSA
Ms Kgabo Komape, Business Executive, AGSA, said there were areas of the Compensation Fund’s report that bothered the AG a lot. However, in summary for the 2021 financial year report, they were in line with the comments of the Deputy Minister that the Fund had issues over the disclaimer opinion. This was primarily because of the issues relating to supporting documents that were not provided to justify the figures and the amount of all the activities tailored to the financial statements, including the annual performance reports. The message had been to ensure the entity had reliable processes in place to facilitate accurate and transparent reporting. Some of the highlights were that there was work the entity had to do to utilize the audit committee and internal audit effectively because the Fund could benefit from the internal audit's knowhow and recommendations.
UIF & Compensation Fund Audit Outcomes: AGSA presentation
Ms Michelle Magerman, Business Unit Leader, AGSA, said that the Fund was unable to provide the underlying supporting documentation to prove that the employers had submitted returns on earnings that had been assessed at the correct rate and class, as the employers' information submitted was insufficient to enable verification of the calculations performed by the Fund. It had not implemented adequate and appropriate controls to address the completeness and accuracy of employer contributions from the employers, as some of these employers' returns of earnings (ROEs) were not assessed. The deficiencies identified included:
-Inadequate assessment of the accuracy of information submitted by the employers.
-Inadequate processes to ensure all employers were registered and assessed at the correct rate and class.
- Inadequate enforcement of the Compensation for Occupational Injuries and Diseases Act (COIDA) for employers not complying with the Act.
Performance Report
The Compensation Fund (CF) had remained with uncorrected misstatements after the audit process. The findings identified on programme 3 included recurring medical Invoices. The Fund was able to correct the finding relating to the usefulness of the submitted annual performance report. Material findings on reliability of programme were that the Fund had material uncorrected misstatements in the annual performance report due to a lack of documentation to support the reported achievements, as well as inappropriate recording of the performance achievement, and management could not correct the misstatements.
The findings on medical benefits were a result of a lack of supporting evidence and accurate listing that supported the performance achievement reported in the annual performance report, and recording of the previous years' achievement in the current year.
In some instances, the performance achievement was not correctly calculated, and some listing included the performance achievement related to the previous period.
Recommendations to the Compensation Fund
There was still an urgent need to review the control environment of the Fund, including the role of management, and subsequently to strengthen the preventative and monitoring controls, to identify deficiencies early and react appropriately.
Monitoring of the adherence to controls must be enforced proactively and where there were transgressions, action must be taken and the root causes identified must be responded to timeously.
Regular and adequate review controls over financial and performance reporting must be implemented to ensure that errors were timeously detected and corrected.
Consequence management should be implemented and monitored on transgressions.
Recommendation to the Committee
The Committee should obtain a report detailing the progress made by the Compensation Fund on the review of the control environment of the Fund.
It should obtain all the investigation reports from the Fund and confirm that:
-The investigations had been adequately conducted.
-The root causes had been addressed.
-Employees who caused the irregularities were identified and action had been taken against them.
- Where the Fund had incurred a financial loss, that loss was recovered.
- Monitor that consequence management was implemented against transgressors.
Discussion
Mr M Bagraim (DA) thanked the AG’s office for a fantastic job. The reality was that the AG had an expanded mandate which had been in place for over a year. What now? What was the AG going to do after this failure of the Fund going on for ten years? The ball was now in the AGSA’s court because Parliament had given that office the power. There seemed to be many disclaimers, especially with the medical invoices, and the Minister believed some claimants were defrauding the Fund, but no prosecution was taking place. If one kept seeing these repeat disclaimers year after year, the public would continue complaining about productivity and the turnaround time. Maybe it stemmed from their inability to run the office. The AG's comments on consequence management and the lack of disciplinary hearings would also be appreciated. Could it be that the same people were causing the same problems? This was the Department of Employment and Labour (DEL), which should know how to run disciplinary hearings. The high courts on a few occasions had made government officials pay personally for legal costs -- maybe the Committee should explore that possibility too.
Ms C Mkhonto (EFF) said that under normal circumstances, moving from an audit outcome of disclaimer to qualified, from qualified to unqualified, and from there to a clean audit should take three years. However, listening to the presentation just given, there was no will to do that from the Compensation Fund, and no hope of getting out of this situation. When she was the chairperson of this committee, she had always emphasised the value of integrity, and this entity ran counter to what this Committee believed in. Their lack of record-keeping was intentional because they wanted to hide certain things from the AG. That left one to conclude that the internal audit unit and the audit committee were sidelined, which made no sense. Evidence of wasteful and irregular expenditure was intentional too, and so was the lack of consequence management. This entity could be qualified as a stagnant train that was not moving, and its engine needed to be changed. Those who had a case to answer must be prosecuted and jailed.
Ms H Denner (FF+) referred to employer contributions and said the enforcement department had stated they had 1 000 inspectors looking after two million employers. The Compensation Fund 2020/21 annual report said it had received the return on earnings assessments from 250 000 employers, and that was just over 10% of the two million total. Keeping that in mind, the AG believed there had been a 48% completion rate for the return on earnings for 2021. She queried the Fund's figures for the number of employers registered on their books and asserted that the quality of data presented was not correct. As a result, the Committee could not perform its oversight effectively. If they were unable to present correct and quality data to the AG, what did this Committee receive? There were huge discrepancies in the data it was receiving. This Committee ought to be outraged at the quality of data it was receiving.
Mr S Ngcobo (IFP) welcomed the report but wanted clarity from the AG. Last week, the Committee had been presented with a progress report on the audit plan implementation. Had the office of the AG taken part in developing and identifying the challenges, and created the progress timelines to track its implementation? After issuing disclaimers to the entity for five years, had the AG also looked at a skills audit at both the senior and middle management levels of the entity? This was one of the recommendations given to the Compensation Fund by the Committee when they presented their 2020 annual financial report. The 2021 audit outcomes had deficiencies that could be characterised as lacking periodic interventions prior to the development of the annual financial statements. Another issue that was troubling was the withholding of information from government structures. If this was done intentionally, it was a crime and required drastic action to be taken, because it rendered the structures that perform such functions ineffective.
Mr N Nontsele (ANC) pointed to the presentation where the AG had recommended that all supply chain management findings which were related to the negatives highlighted, should be investigated. He asked the AG team to elaborate on what form the investigation should take. Should internal or external investigations be recommended?
The Chairperson wanted to know whether the AG had had interactions with the internal audit committee, and what their response had been on the issues picked up. What had the AG found regarding the skills available to the entity? This question arose because, with an internal audit committee in place, several of the issues raised by the AG should not have arisen at all. It was widely accepted that every entity should have a capable information technology unit. Was the AG identifying these difficulties based on the knowledge that the AG dealt solely with financial matters, or were they identified by information technology (IT) professionals in the AG's office?
AGSA's response
Ms Komape said the Public Audit Amendment Act allowed the AG to make material findings on irregularities discovered, and slide 20 of this presentation would not have been there had that Act not been passed. The Act did not also leave the entire mandate with the AG, as it did not allow the AG to override the accounting officer, but allowed for a combined assurance provision. Even when material irregularities were found, it did not give the authority to override the Public Finance Management Act (PFMA), and therefore one ought to ask the accounting authority to investigate the matter because the PFMA asked one to do that. Only when the accounting officer refused to investigate or did so at a cosmetic level, could the AG refer it to an investigating body. In this case, therefore, irregular expenditure had occurred, and the AG had recommended an investigation as part of the Public Audit Act mechanism.
There had also been room for improvement on the claims management too. A disclaimer opinion meant that not enough information was provided to the AG that could warrant it to express an opinion, which meant the AG was not sure if the figures given were correct or not correct, in line with international auditing standards. The biggest improvement that needed to happen with the Compensation Commission was in record keeping. It was the belief of the AG that their internal audit may not have been given the information they required, because auditing generally was evidence-based.
The skills audit was not done by the AG -- that was left to the accounting authority. The AG had people with specialised information technology (IT) skills, so the recommendations on IT were not coming from people with financial skills alone, but from IT specialists that formed part of AGSA.
Ms Magerman touched on the employers registered with the Fund and said they could see differences between what was assessed and those registered. There were employers not registered with the Fund who should be followed up on, but they could not establish how many there were. AGSA had given input on the action plan, and what was key was the monitoring of the plan to ensure that it was being implemented.
The Chairperson asked if it was not appropriate to pilot auditing physically from one province itself instead of just sampling. It was something to sleep over.
DEL presentation on its extended mandate
Mr Thobile Lamati, Director-General, DEL, said the Department of Employment and Labour and its entities played a collective role in translating its vision into real programmes aimed at employment creation, preservation, promotion, security, access and retention.
The repositioning of the DEL would strengthen the role of the National Economic Development and Labour Council (Nedlac) to facilitate greater participation by business, labour, the community and key government departments in national strategic interventions such as job summit resolutions, economic rapid recovery plans (ERRPs), employment temporary relief and long-term measures, and social compacts.
It would reassess the roles of the DEL and Presidential Programme Management Office (PMO) in coordinating youth employment programmes across government. with the provision of comprehensive services to young people, and mobilising and overseeing resources used toward the Presidential Youth Employment Initiative.
Sub-theme on national labour migration policy
A sub-theme on the national labour migration policy (NLMP) would be alignment, for instance, with the national employment policy's (NEP’s) section on immigration, its labour market context and impact. Migrant workers were more likely to be employed than South Africans were disproportionally represented in certain sectors, and were increasingly working in the informal economy. However, they were also more likely to be employed in an environment of employment insecurity and vulnerability and had poor access to decent work.
Empirical evidence on whether they displaced locals in employment varied. There was a broader context of rising unemployment and informal employment in SA, and of skills shortages and skills mismatch. South Africans should be prioritised in key sectors, but all workers should enjoy minimum protection in respect of wages and working conditions.
Discussion
Dr M Cardo (DA) said that achievement of 22.2m jobs in the South African economy by 2030 in terms of the National Development Plan seemed a pipe dream. How was the Department going to help to achieve it? The President had made it clear in the SONA that the private sector and not the state was the major creator of employment. Most of the presentation was inward-looking, as it focused on public employment services and what the state-owned entities (SOEs) were doing to stimulate employment through their internal programmes. With the scale of employment needed, should the DEL not be reaching out to the private sector to find out what the blockages were? The question was, what could the government do to create a conducive environment for job creation, and the DEL to help create that favourable condition? That should involve revisiting the onerous labour laws, especially those that disadvantaged small businesses. What was NEDLAC doing in that regard?
The idea of exempting small businesses and small firms from the extension of bargaining agreements had been floated for a long time, so why had it not happened yet? The DEL had said the International Labour Organisation (ILO) had conducted extensive reviews and made comparisons of similar departments of employment and labour in the European Union (EU), Asia and the United States (US) and were proposing a number of adjustments which were being considered. What were those suggested adjustments? The Department had spoken about the National Labour Migration Policy -- what were the time frames for its adoption? Was the suggestion that foreign migrant workers were contributing to the country's high unemployment rate, -- was it supported by empirical evidence? The focus should be on growing employment, instead of carving it up into quotas.
He asked if the UIF had taken any legal steps to recover the R1.8 billion lost in the Public Investment Corporation (PIC) deal. If so, could the Committee be updated on those steps?
Mr Bagraim said what was presented had been a historical look back at what DEL had been doing for the past ten years, and there was nothing new. The only new part was from page 37 onwards. This was what the Department had been doing before the name change three years ago. It had effectively done nothing for three years. The President was now repeating what economists had been saying -- that it was the private sector that created jobs and small businesses in particular. What the Committee was looking for were genuine proposals and not the history lessons that had been presented. The reality was that the government did indeed create some jobs and that was good because every job saved a family. If a cursory look was taken, every job created by government costs a huge amount of money -- almost R1m per job -- whereas if a job was created by a deregulated small business community, it would cost the government nothing.
There was a need to ensure that the Departments went back to NEDLAC to say they had to start thinking outside of the box, and not this history lesson that had just been presented. Small businesses with fewer than ten employees must be exempted from the dismissal provisions, instead of being tied to an employee, and even given tax incentives. They should look at businesses in previously disadvantaged areas. It was claimed that 7% of employees in SA were foreign workers. Where did those figures come from? Verified figures state it was 3%, and those were people with work permits. How did one fire people with work permits because one did not want to hire foreign workers? That made no sense. The President had signed the African Union (AU) agreement which allows free trade and the movement of people, so maybe instead of looking at DEL, one should look at the Departments of International Relations and Cooperation (DIRCO) and Home Affairs (DHA) to build a proper border post, instead of everyone walking through the borders into South Africa. Also, the Department had a handful of inspectors for two million businesses, which was like having seat belt laws with no traffic cops.
Ms Denner said a major problem seen in various departments was that they tended to work in silos, where one did not know what the other was doing. One example was the employment tax incentive. The Committee had not heard the Department refer to the employment tax incentive even once, even when they talked about the expanded mandate. Was action being taken to promote tax-sharing mechanisms between government and private employers? This was an excellent mechanism to get young people into the labour market but seemed unutilised by the DEL.
Mr Nontsele felt it was inappropriate for the Committee to misrepresent the President's comments on the role of the private sector in job creation during his SONA address. When replying to questions in the House, he had elaborated more on what his views were and had referred to the centrality of the state in ensuring that jobs were created within the context of a developmental state. This was not what earlier speakers had alluded to. One needed to be cognisant when one spoke about the extended mandate because it was not meant to destroy existing jobs.
The Chairperson stressed the need for further engagements with stakeholders such as NEDLAC, labour, business, government, and the community forums. Members agreed that the document should be a working document that they could come back to engage with.
Minister's summation
Mr Thulas Nxesi, Minister of Employment and Labour, said that the issues mentioned in the presentation were still to be debated. The budget was still to be dealt with, which had implications for the employment discussions the Department was having at NEDLAC. When issues of unemployment were dealt with, they had to be considered in conjunction with poverty and inequality. In SA there were also issues of inequality of opportunities. There were people with better opportunities than others because of the country's past, which could not be discounted. There were inequalities in terms of earnings, which were gender and racially skewed. What the President had emphasised was reducing the regulatory and administrative costs of doing business for small businesses, cooperatives and informal businesses, without compromising workers’ rights, health, equity and safety at their workplaces. One could not talk of general deregulation, and the President had never said that.
The DEL was going to NEDLAC with identified issues from business, labour and the community, with identified constraints. With the present legislation in place, there were exemptions that could be applied for, but to talk of deregulation that would give blanket rights to employers to hire and fire workers as they wished could not happen. The government could look to areas where it could reduce the administrative constraints.
The Chairperson thanked the Minister for his insights and said Members would reflect on the issues discussed. The country could never move forward without taking stock of its history because there was a danger in doing that. The Department and the Minister would be invited when the groundwork was done.
The meeting was adjourned.
Audio
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Documents
Present
-
Dunjwa, Ms ML Chairperson
ANC -
Bagraim, Mr M
DA -
Cardo, Dr MJ
DA -
Denner, Ms H
FF+ -
Makhubele-Marilele, Ms PP
ANC -
Mdabe, Mr SW
ANC -
Mkhonto, Ms C N
EFF -
Moloi, Ms BE
ANC -
Ngcobo, Mr SL
IFP -
Nontsele, Mr M
ANC -
Nxesi, Mr TW
ANC -
Sibisi, Mr CHM
NFP -
Zuma, Ms AS
ANC
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