UIF & Compensation Fund Annual Reports & AFS: hearing; with the Minister

Meeting report

Chairperson’s opening remarks

 The Chairperson welcomed the Minister, the Director-General (DG), the Compensation Fund (CF) Commissioner, and colleagues from the Unemployment Insurance Fund (UIF). He expressed appreciation to the Minister and her team for providing the Committee with two comprehensive documents in advance. As such, there would be no need to go through the presentations in detail, as Members had had sufficient time to review the material. The focus of the meeting would be on specific aspects of the audit outcomes, particularly governance and performance issues. He clarified that SCOPA’s role was not to duplicate the work of the Portfolio Committee. Any discussion on general policy matters would be limited to their impact on performance and expenditure, rather than an evaluation of the policies themselves.

He outlined the structure of the proceedings, stating that the Minister would first be given an opportunity to make an opening statement, providing her response to the audit outcomes and highlighting key takeaways for the Committee. Thereafter, each Member would have a 20-minute interactive discussion with the relevant institution. Members would then be given an opportunity to ask follow-up questions.

He announced that the session would begin with the Compensation Fund, and that Mr N Maduna (ANC) would lead the discussion from the Committee’s perspective. Before proceeding, he invited the Minister to address the Committee.

Minister’s opening statement

Ms Nomakhosazana Meth, Minister of Employment and Labour, thanked the Chairperson and assured the Committee that her team would comply with the outlined directives. She said this was her first appearance before SCOPA since her appointment as Minister. While acknowledging some nervousness, she expressed her commitment to engaging constructively with the Committee.

She said that both Deputy Ministers, Mr Jomo Sibiya and Ms Judith Nemadzinga-Tshabalala, were unable to attend due to concurrent meetings of the Portfolio and Cabinet Committees. Nonetheless, she reaffirmed her understanding of SCOPA’s constitutional mandate, particularly its role in ensuring transparency, accountability, and responsible governance in the management of public funds.

The Minister acknowledged the significant challenges faced by both the CF and the UIF. During her first 100 days in office, she identified several critical issues that undermined the effectiveness of these entities and initiated immediate corrective measures. Within her first three months in office, she had engaged with the Auditor-General of South Africa (AGSA). This engagement was not a mere formality, but a necessary step to consult an institution that had conducted in-depth assessments of the Department and its entities. AGSA’s insights were instrumental in shaping the corrective measures currently being implemented, some of which had already begun to yield positive results.

She outlined several longstanding issues within the CF and UIF, including persistent audit challenges, inadequate internal controls, irregular expenditure, inefficient financial reporting, mismanagement of revenue from non-exchange transactions and statutory receivables, and a lack of consequence management. Governance and leadership concerns were also identified as key areas requiring intervention.

She acknowledged that the Committee had reviewed the documents detailing these issues. As an example of progress, she highlighted the submission of annual reports for the 2021/22 and 2022/23 financial years, which had not been submitted in previous years. While these submissions were delayed, they nonetheless marked an improvement. For the 2023/24 financial year, financial statements had been submitted on time for the first time in years, an achievement commended by the Auditor General of South Africa (AGSA). There had also been a reduction in the number of disclaimer paragraphs in the audit report following the implementation of the audit improvement plan initiated during her first 100 days in office.

Minister Meth reiterated that the ultimate goal was to ensure clean administration, good governance, and clean audit outcomes. She expressed concern about a prevailing mindset among officials who viewed audit progress as a step-by-step process from disclaimer to qualified and then to unqualified audits. She emphasised that the objective should not be to manage the audit process incrementally, but to achieve clean audits as a matter of principle.

While acknowledging progress, she conceded that persistent challenges remained. Many of these issues had gone unchecked for years, eroding public trust and institutional integrity. However, she assured the Committee that within the framework of the Government of National Unity (GNU) under the current administration, there was a strong commitment to breaking this cycle.

One of government’s key priorities was the eradication of corruption and financial mismanagement. This commitment extended beyond rhetoric, with concrete action being taken to hold wrongdoers accountable and ensure that public funds were used for their intended purposes. She cited the suspension of the UIF Commissioner following the R5 billion Thuja jobs scheme as evidence of this commitment. Upon assuming office, she had inherited the matter and due to the ongoing disciplinary process, deemed it necessary to place the Commissioner on suspension.

Further action was taken following the completion of the Fusion Centre report on corruption allegations within the Compensation Fund. Several implicated employees had faced disciplinary action, some of which had commenced before her tenure, with a second phase of disciplinary proceedings currently underway. Investigations into the misuse of the COVID-19 Temporary Employer/Employee Relief Scheme (TERS) funds had also progressed. The first phase of investigations had been completed, and the second phase was now focusing on recovering misappropriated funds from individuals who had exploited the pandemic for personal gain.

She said the Special Investigating Unit (SIU) had recently reported its findings following Presidential Proclamations R23 of 2020 and R8 of 2021. The Department would carefully consider these findings and take appropriate action to restore accountability and ensure public funds were properly managed. She also expressed confidence in the work of law enforcement agencies, particularly the South African Police Service (SAPS), in investigating, arresting, and prosecuting individuals and companies involved in fraudulent activities, including asset seizures.

She reaffirmed that the funds within the Compensation and Unemployment Insurance Funds belonged to the hardworking people of South Africa -- employers and workers alike -- and that it was government’s duty to manage them with the highest level of integrity. To prevent further financial mismanagement, the following measures were being implemented:

Enhanced financial oversight and real-time monitoring

• A functional digital financial tracking system had been introduced to allow real-time transaction monitoring and to flag irregularities immediately.
• A dedicated financial oversight team with relevant expertise had been established to scrutinise large transactions and ensure compliance with financial regulations.

Strict consequence management and legal action

• Officials implicated in financial mismanagement or fraud continued to face disciplinary actions, including dismissals and criminal prosecutions.
• Collaboration with law enforcement agencies had been strengthened to ensure swift prosecution of those found guilty of financial misconduct.

Forensic audits and independent financial reviews

• Independent forensic audits were being conducted on high-risk financial transactions to identify irregularities and recover stolen funds.
• External auditors were overseeing financial management practices to ensure adherence to best practices, with strengthened internal audit mechanisms, including an enhanced audit committee.

Minister Meth also highlighted initiatives to strengthen internal controls and governance, including a comprehensive review of procurement and financial management processes to eliminate corruption risks. Measures were also being implemented to enhance whistleblower protections, establish public reporting mechanisms, and build capacity through ethical leadership development.

Recognising the complexity of addressing these issues, she acknowledged that the Compensation and Unemployment Insurance Funds were among the largest in the country, with an investment portfolio exceeding R160 billion. As part of broader reforms, a decision had been taken to reposition these funds within the Department of Employment and Labour (DEL) through an unbundling process. This restructuring aimed to address persistent challenges and enhance responsiveness to labour market demands.

She admitted that the current state of both funds was not optimal in assisting the government in achieving its developmental objectives. However, actions were being taken, and progress was evident. Leadership stability was also a key focus, with efforts to appoint permanent leadership in critical positions. The Minister emphasised that she held regular meetings to monitor the implementation of progress and ensure accountability.

She added that budget cuts, austerity measures, and administrative moratoriums had created additional challenges. However, she had insisted on setting targets for filling vacancies and had recently received a positive response regarding the appointment of a director general (DG) and other key officials. Leadership stability, she stressed, was crucial in tackling the longstanding challenges faced by these entities.

Minister Meth concluded by reaffirming the Department’s commitment to clean administration, governance, and transparency. She assured the Committee of her full cooperation with SCOPA’s oversight processes, and expressed determination to turn the institutions around for the benefit of all citizens.

The Chairperson thanked the Minister and said that to be fair, he would allow the Acting Commissioner a few minutes to speak. He acknowledged that the Minister had provided a comprehensive outline, but noted that if any important issues had not been covered, the Acting Commissioner could highlight them. He clarified that while the presentation could be referenced later when Members asked questions, it should not be presented at that moment. He emphasised the importance of keeping contributions, including Members’ questions, as concise and to the point as possible.

Compensation Fund’s opening remarks

 Ms Farzana Fakir, Acting Commissioner, Compensation Fund, said that the disclaimer remained a significant concern and priority for the CF's management, as well as its executive and accounting authorities. She acknowledged that the challenges experienced were primarily due to legacy issues, but emphasised that the Fund was not seeking to assign blame. Instead, it was committed to addressing the findings. As the Minister rightly pointed out, the focus should not merely be on responding to audit findings, but on implementing sound administration and governance structures. This approach should be process-driven rather than reliant on individuals, ensuring that past mistakes were not repeated and that every cent in the Compensation Fund could be accounted for.

Ms Fakir reiterated that the disclaimer was a blemish that the Fund took seriously. In its presentation, the Fund sought to highlight its complexity, describing it as a multi-faceted entity that functions as an insurance fund collecting premiums from employers, a pension fund with pensioners on its books, and a medical aid. Furthermore, as a public entity, it relies on the State Information Technology Agency (SITA) information communication technology (ICT) network, which frequently fails.

Regarding interventions, she confirmed that the Fund had carefully considered the Committee’s directives and the AGSA’s findings. Six key factors had been identified and included in the presentation. The Fund had already begun implementing solutions to address these factors and had formulated plans for the remaining issues. She assured the Committee that she and her team were fully committed to this process.

Touching on the issue of skills and leadership, Ms Fakir highlighted that the Fund had seen five different chief financial officers (CFOs) in the past three to four years, posing significant challenges in terms of continuity and commitment. Despite this, she expressed confidence in the current leadership team’s dedication to addressing the challenges and resolving the disclaimer.

The Chairperson thanked the Acting Commissioner and indicated that the discussion would proceed, handing over to Mr Maduna. He advised that he would intervene only for clarifications, and requested that acronyms be avoided to ensure that members of the public could follow the proceedings.

Discussion: Compensation Fund

 Mr Maduna expressed appreciation for the Minister’s recognition of the extensive issues facing the Compensation Fund, and noted that it had been receiving disclaimers for over ten years. He rejected the argument that these were legacy issues, stating that challenges persisting for such a duration indicated a continuation of past practices, rather than inherited problems.

Addressing the Minister, he questioned the implication of having an entity responsible for collecting public funds that had consistently received disclaimers without consequences. He said that professionals within the Fund continued to receive salaries despite failing to achieve an improved audit opinion. He questioned how the Fund could make informed decisions when its financial statements were deemed unreliable.

He pointed out that the Auditor-General’s (AG's) report had highlighted significant deficiencies in the Fund’s audit files, raising concerns about the entity’s ability to make strategic decisions. He also sought clarity from the Minister and the Acting DG on the composition of the audit committee, noting that it appeared to serve both the Department and other entities. He questioned whether this arrangement placed excessive responsibilities on the committee.

Regarding performance, Mr Maduna observed that the Compensation Fund had improved its performance to 57% in the current financial year, but noted concerns over budget management. He highlighted that while Programme One had overspent by R2.8 billion and Programme Two by R990 million, their performance outcomes were only 50% and 33%, respectively. He questioned how funds were being utilised, given that targets were not being met.

He also noted that the Fund had received disclaimers in almost all audit areas, with only four exceptions. He expressed scepticism about the prospect of future improvements under these circumstances.

On investments, he pointed out that the Fund used the Public Investment Corporation (PIC) for its investments, and sought clarification on whether agreements outlining investment parameters were in place. He noted instances where investments had yielded minimal returns, and questioned the rationale behind investing in non-listed companies.

At this point, the Chairperson interjected, requesting that the officials be given an opportunity to respond. He expressed concern that time constraints might prevent follow-up discussions.

Mr Maduna concluded by indicating that he had a few remaining questions, which he would raise after receiving responses to his initial queries.

Minister Meth said she was unsure whether the Member’s last question was complete, particularly regarding unlisted companies. She asked him to clarify or complete the question.

Mr Maduna referred to the entity’s annual report, which indicated that investments were made in both listed and unlisted companies through the PIC. He inquired whether there were any agreements outlining the terms under which the PIC could make investments on behalf of the Fund.

The Minister responded that she would first allow the Compensation Fund Commissioner to address the questions, as some were directed at her. After the Commissioner had responded, she would provide any necessary additional input before handing the floor back.

Ms Fakir said that her CFO was present and would assist in responding to some of the questions, particularly regarding overspending. She acknowledged the financial reporting disclaimer over the past ten years and the challenges associated with it. However, she affirmed her commitment to addressing these issues, and leading the Fund towards improvement.

She said she had served as Acting Commissioner for two years, alongside her CFO and a relatively new team. Despite the challenges, she expressed confidence in the team's ability to turn the situation around. She emphasised that referring to legacy issues was not an attempt to shift blame, but rather a necessary step in identifying and addressing the root causes of the Fund’s problems. She explained that previous management had failed to acknowledge these issues, leading to a snowball effect that had resulted in the current difficulties faced by the Fund.

She cited the AGSA findings as an example of these legacy issues, referring specifically to the audit outcomes. She highlighted that the Fund had consistently received disclaimer audit opinions when it operated with manual processes. However, when the Fund began automating its processes, a major challenge had arisen due to the absence of source documentation.

She illustrated this issue by referring to 25 000 pensioners from as far back as the 1930s and 1950s who were still receiving pensions. When the AG had conducted an audit and requested source documents to verify payments, those documents were missing because record-keeping systems had been disbanded, and the physical files stored in warehouses had been disposed of. As a result, the Fund could not provide the required documentation to support pension payments.

She said the current management team had acknowledged this issue and was actively seeking solutions. One such measure was conducting a pensioner verification process to cleanse the database. The Fund also engaged with AGSA to propose alternative solutions, considering that some records could not be retrieved due to the non-existence of previous employers or hospitals that had originally maintained these records.

Regarding employer registrations, she said the AG had identified missing registration documents for employers who had been manually registered. To address this, the Fund planned to introduce a re-creation process during the upcoming return on earnings (ROE) season to re-establish the necessary employer records. A thorough quality assurance process would also be undertaken to determine the appropriate risk classification for each employer, as the Compensation Fund employed a complex, algorithmic, risk-based model for calculating ROEs and revenue.

She reassured the Committee that raising these legacy issues was not meant to suggest an inability to resolve them. Instead, it was a necessary step in acknowledging the problems to implement effective solutions.

On the matter of financial oversight, she agreed with concerns that a disclaimer audit opinion suggested that every cent in the Fund’s financial records could not be accounted for. However, she assured the Committee that the Fund actively monitors its benefits payments.

She referred to slide 11 of the presentation, stating that approximately R1.4 billion was paid annually to 25 000 pensioners. She explained that the Fund faced a difficult situation -- while AGSA required source documentation for verification, the affected pensioners were among South Africa’s most vulnerable. She said that in theory, the Fund could stop pension payments to achieve a clean audit outcome, but this would have severe humanitarian consequences. Instead, the Fund had opted to continue disbursing pensions while implementing measures to strengthen financial controls.

The Fund had made significant improvements in recent years to address the documentation challenges. Over the past five years, the Fund had used the CompEasy system to capture and validate all required source documents for new transactions. Although she acknowledged that the system was not perfect, she believed in continuous improvement. The Fund was also working towards migrating to a cloud-based central repository for record-keeping. This system would ensure that all financial and administrative records were securely stored and easily retrievable for future audits.

In terms of governance, she clarified that the audit committee was independent and functioned within the Fund. While there had been a temporary secondment of some members to assist the UIF’s audit committee, this had been a short-term arrangement. She also explained that the audit committee chairperson attended meetings of the DEL's centralised audit committee, where he presented audit findings and committee reports. This was necessary because within the Fund’s governance structure, the DG served as the accounting authority and was responsible for reporting to the central DEL audit committee.

She concluded by allowing the CFO to respond to questions regarding budgetary allocations, overspending, financial performance, and investment strategies.

The Chairperson thanked the participants and requested that they introduce themselves before responding. He noted that in the last engagement, discussions had reached the level of the Commissioner.

Mr Monaheng Mokoena, CFO, Compensation Fund, said one of the first issues concerned the submission of financial statements. He explained that management had previously decided not to submit the financial statements by the regulated deadline of 31 May due to concerns about the reliability of audit files. This decision had been made to allow time for the reconstruction of records and to ensure the financial statements were accurate and reliable. However, this decision had consequences, including overlapping financial years and increased reporting pressure.

Although this decision was communicated to National Treasury, it did not exempt the Compensation Fund from accountability. He explained that disclaimers of audit opinions arise when auditors are not provided with sufficient documentation to express an opinion on the financial statements’ fair presentation. The Commissioner had previously highlighted the challenges of making decisions in the absence of reliable financial records.

Mr Mokoena elaborated on the issue of benefits payments, stating that these payments were based on source documents. He expressed concerns about the accuracy and verification of these payments, including whether the correct beneficiaries were being paid and whether some beneficiaries were still eligible. These concerns underscored the broader risk that some liabilities may not be accurately valued. As a going concern, the Compensation Fund had investments amounting to approximately R130 billion. However, it also had provisions for future benefits that needed to be paid, estimated at around R60 billion to R70 billion. Actuaries used benefits data to determine these provisions, but the accuracy of this data remained questionable. Despite professional actuarial assessments, the reliability of the underlying data remained a risk. He concluded by stating that the Compensation Fund was taking serious steps to clean up its accounting records and improve its financial reporting.

Minister Meth then intervened, reminding Mr Mokoena to be concise and not to repeat points unnecessarily. She pointed out that the Chairperson had advised presenters to refer to specific slides in their presentation, rather than restating information. She also highlighted the need to discuss under-expenditure, over-expenditure, and underperformance.

Mr Mokoena proceeded to address these matters, stating that the Compensation Fund had not overspent overall, and had recorded a surplus of approximately R5.7 billion. He said that in Programme 1, there had been an unanticipated provision for the impairment of the debtors' book. A journal entry was made at year-end to account for this, which had resulted in the debtors' book increasing significantly. The impairment assessment, conducted in accordance with the Fund’s policy, had led to a larger-than-expected amount. Consequently, the Fund had to process an adjustment journal, slightly exceeding the allocated budget for the programme. In addition, audit adjustments were made based on audit findings to ensure the completeness and accuracy of financial records. He emphasised that while financial adjustments were made, the entity remained cautious about managing the implications of overspending.

The Chairperson invited Mr Maduna to ask a follow-up question.

Mr Maduna sought clarity on whether the Compensation Fund had impaired its debtors.

Ms Fakir then provided an update on investments, explaining that the Fund had service-level agreements (SLAs) in place with the PIC. She referred to a specific slide in the presentation, which showed that nine investees were performing well, and that their investment value was increasing. She reported that the Fund had committed R1.8 billion, and had R2 billion in investment value, with two investments having exited at a profit.

She also addressed the rationale behind unlisted investments, stating that they were aimed at job creation and aligned with the Fund’s commitment to black economic empowerment (BEE) policies. The Fund invests in start-ups, small, medium, and micro-enterprises (SMMEs), and businesses that may not meet the stringent requirements of traditional banking institutions. The objective was to facilitate economic participation and job creation.

The Chairperson then called on the Minister to respond.

Minister Meth acknowledged the time constraints, but expressed her willingness to provide a comprehensive response. She committed to submitting written responses for issues not fully addressed during the meeting. She highlighted that, despite the Compensation Fund having received disclaimers for ten years, improvements had been made, particularly concerning the submission of financial statements. Previously, the Fund had gone seven years without submitting financial statements, but had recently started submitting them on time. The Minister viewed this as progress, and had asked the CFO to confirm this improvement in writing.

She further addressed the issue of historical financial records, noting that if the AG was not provided with sufficient documentation, disclaimers would continue unless condonation was granted or an investigation provided adequate proof for consequence management. She said that a list of consequence management actions was available in the presentation, beginning on slide 44. These actions included dismissals, reporting implicated officials to the police, and ongoing legal cases.

The Minister also discussed the issue of unlisted investments, noting that they had placed the Fund in a precarious financial position. Consequently, the Department had decided to impose a moratorium on investments in unlisted companies. This decision was reflected in the report.

The Minister expressed confidence in the Compensation Fund’s turnaround efforts. She acknowledged that large entities took time to reform but was optimistic that significant progress could be achieved with strong leadership, support, and rigorous oversight.

The Chairperson said that Mr Maduna had two outstanding questions. He would provide Mr Maduna with an opportunity to complete them, after which the Minister and team would respond. Following this, they would move on to the Members.

Mr Maduna made a request for a list of unlisted companies in which investments had been made, as he believed it was crucial to thoroughly examine these entities. He expressed some alignment with the AG's concerns, noting the potential for continued payments to incorrect beneficiaries, despite the existence of the correct recipients. He referred to material irregularities, particularly those involving changes in bank accounts. He suggested that measures be put in place to verify that payments were being made to the correct beneficiaries.

He then raised the issue of the advisory board, querying whether the structure was effective, given the Fund's size. He observed that the Fund appeared to have some instability, citing the presence of an acting DG and an acting Commissioner, along with multiple other acting positions. He questioned whether a board would improve accountability and facilitate progress.

Lastly, he addressed irregular expenditure and fruitless and wasteful expenditure, noting that in the previous financial year, R13 million in irregular expenditure and a certain amount of fruitless expenditure had been recorded. He pointed out that approximately 97% of these issues remained unresolved. He sought clarification on the challenges causing the delays and the increase in such expenditure year after year. He also referred to material irregularities (MIs), particularly the unauthorised changes to bank accounts, which he believed should have led to the dismissal of those involved. He also mentioned the payment of medical invoices to unauthorised service providers, recalling a court case related to the matter.

He concluded by urging the Minister to review the governance structure, suggesting a conversation with the former chief audit executive (CAE) who had resigned prior to the current acting CAE, as this individual might provide valuable insights on the situation and how to move forward.

The Chairperson responded that the first question was directed at the Minister, as the Commissioner would not be in a position to assess the adequacy of the Minister's measures. The Chairperson also expressed interest in the Minister’s views on the matter.

Minister Meth responded that the laws created by Parliament were responsible for the lack of an executive board, as the Compensation Fund was not classified as a Schedule 3 public entity. Efforts were underway to restructure the Fund to establish a board, but for the time being, the Fund remained accountable to the DG. She clarified that even if the Fund were to become a separate public entity, it would still report to the Minister.

Ms Fakir emphasised that the current Act did not allow for an executive board, and that changing this would require a new legislative process. She reiterated the Minister's point that the law was the primary constraint.

On the matter of MIs and intercepted banking payments, Ms Fakir noted the significant concerns the Compensation Fund faced with professional criminal syndicates exploiting vulnerabilities in the Fund's ageing SITA infrastructure. Despite efforts to implement cybersecurity measures, the outdated infrastructure remained a challenge. She compared this situation to having a high-quality vehicle (cybersecurity) on roads riddled with potholes (the aging infrastructure). She explained that the Fund had introduced laptop pairing as a measure to limit access to user profiles, ensuring that a profile could be accessed only on the registered laptop. Furthermore, she reported that biometric identity systems, such as fingerprint recognition, were being implemented to increase accountability and prevent users from claiming their profiles had been hacked.

Ms Fakir also discussed measures to address intercepted payments, which included the implementation of a banking project involving encryption and added security for files. She revealed plans to have banks store beneficiaries' banking details securely and to conduct account verification to ensure that payments were made only to the correct recipients.

Regarding the unresolved fruitless and wasteful expenditure, she said that a significant portion of this expenditure was historical, with some records dating back more than ten years. The documents required to support these expenditures were either lost or inaccessible. However, the Fund was working to retrieve these documents where possible. New management had taken action to address this, including involving the SIU to investigate the issues and ensure that appropriate corrective actions were being taken. She assured the Committee that the Fund was committed to resolving these matters.

The Chairperson said he had a couple of questions, first addressing the Minister with a comment. He said that one of the Minister's powers was to assess the current law and determine whether it served the intended purpose. He highlighted the importance of this assessment, and expressed a desire to know the Minister's specific evaluation, as well as any steps that could be taken in this regard. He reassured the Minister that the Committee was always willing to help, especially when it came to identifying statutory or regulatory issues. He stressed that the Committee's objective was to achieve proper outcomes, not to act as an adversary. He urged the Minister to make an assessment and determine what interventions were possible, assuring her that where support was needed, the Committee would assist.

He then directed a second point to both the Minister and the Commissioner. He raised the issue of potential scope creep -- a concern that extended to various government entities. He said that while there was pressure to create jobs, the Compensation Fund was not meant to operate like other entities such as the PIC, the National Empowerment Fund, or the Small Enterprise Development Agency (SEDA). He questioned whether the Compensation Fund was being tasked with functions that were never intended when it was established, particularly regarding the unlisted portfolio. He expressed doubt about the Fund's ability to perform tasks beyond its original mandate. He requested a straightforward answer from the Commissioner on whether the Fund had the necessary capabilities to undertake tasks that would typically fall under the Department of Trade, Industry and Competition (DTIC) or the PIC.

The Minister responded, clarifying that the law allowed for investments, as large sums of money could not simply be kept without being put to work. The Compensation Fund had to invest these funds because they ultimately belonged to workers. As a result, the Fund had appointed the PIC as an asset manager, which in turn appointed other entities. She acknowledged that the discussion was focused on whether it was compulsory to appoint the PIC in every instance, especially when issues arose. The Minister Meth agreed with the Chairperson's comments, and expressed appreciation for the support offered by the Committee. She emphasised that the current priority was to expedite the unbundling process, rather than amending the Act. She said the unbundling process aimed to grant independence to both the Compensation Fund and the UIF, but that the process was expected to take four years, which she felt was too long. She stressed that she was pushing for a quicker resolution.

Ms Fakir added that she welcomed the statutory and regulatory assessment, which the Minister had already considered. She acknowledged the concerns about scope creep, but argued that the Fund was managing R130 billion in reserves and had a social responsibility, especially in a country with a high unemployment rate. She questioned whether the PIC should be the only entity handling the investments, referring to the Mpati Commission and the issues raised with the PIC. She supported the Minister's view that the Fund should build its own investment capabilities and explore other asset managers who could assist. She also highlighted the importance of reviewing the laws, referring to Section 18(d) of the Compensation Fund Act, which allowed the DG to invest with the PIC. She cited other state-owned entities (SOEs), such as Eskom, which had investment specialists contributing to job creation. She emphasised that the Compensation Fund had a significant role to play, but acknowledged that improvements could be made in how the investments were managed.

The Chairperson concluded with a comment for both the Minister and the Commissioner, as well as the rest of their colleagues. He agreed that investment was an obligation of the Fund, as failing to invest would be detrimental. However, he cautioned against assigning non-core functions to entities like the Compensation Fund. While the pressure to create jobs was understandable, the Fund's primary responsibility was to ensure the best possible return on investments to support its long-term growth. He suggested that the mandate of investment should be entrusted to the PIC or another specialised entity, with the Compensation Fund's role focused on ensuring that its investments continued to grow. He expressed concern that the Fund was being stretched beyond its core mandate, and urged careful consideration of this issue.

Mr F Essack (DA) expressed his frustration with the persistent issues within government departments, highlighting the lack of positive, actionable reports and the prevalence of corruption. He emphasised his disappointment at the fraudulent activities, such as fraudulent payments and bank accounts within the Department, and referred to multiple AGSA reports that painted a bleak picture of the situation. He called for clarity on the concrete actions taken by the Department to address these issues, especially regarding the appointment of auditing firms and the risks associated with these firms. He also asked for updates on the Department’s financial performance, particularly in light of the high irregular expenditure.

He questioned the Department on the measures it was taking to combat fraud within its systems, highlighting the continued existence of fraudulent payments and fictitious names on government payrolls. He also asked for updates on forensic investigations into financial misconduct, urging the Department to explain the concrete steps being taken to address the serious issues of corruption and fraud.

The Minister responded to some of the questions, expressing hope that answers would emerge as the meeting progressed, and provide insights on the new leadership team’s efforts to address these challenges.

Mr P Atkinson (DA) followed up by stressing the importance of responsible investment, warning that placing public funds in high-risk investments or unlisted ventures could lead to significant financial losses. He raised concerns over potential corruption in investment practices, citing a specific example of misappropriated funds. He suggested that the PIC should use only secure investment instruments, avoiding risky or questionable investments. He strongly urged that the Department focus on its core responsibilities and leave risky investment decisions to entities like the PIC.

The Chairperson then handed over to the officials to respond to the various concerns raised by the Members.

Compensation Fund's response

Ms Fakir acknowledged that it was reasonable to ask about the concrete plans and achievements of the Department. She said that when she and the CFO had joined in January 2023, there were no financial reports for 2021/22 or 2022/23. Despite this, within one year, the team had successfully completed two audits. Although these reports had been submitted late, they had managed to catch up and ensured that the 2023/2024 financials and the annual report were submitted on time, despite the disclaimer issued. She recognised that these hard decisions were part of leadership, where one must balance the risks, including taking a knock in certain areas to ensure progress.

She commented that there were cultural challenges within the Compensation Fund, highlighting issues of collusion and fraud over the past ten years. She said acknowledging the problem was the first step in developing a concrete plan. The Department was now implementing action plans linked to their risk registers, as recommended by the AGSA. They were also working to make the system easier for clients and employers, as the funds involved were from employers, not the fiscal government. She pointed out that responsibility for managing these funds lay heavily on their shoulders.

Regarding specific actions, Ms Fakir confirmed the introduction of biometrics and an evaluation of payment processes, although these changes may not be reflected in the next audit due to their implementation in the current financial year. She expressed a firm commitment to instilling a culture of accountability, and explained that the Department was working hard to fill senior management positions, prioritising competency over simply filling posts. The recruitment process now included rigorous testing of candidates, with exam papers based on real-life scenarios within the Compensation Fund. Even some individuals already employed by the Fund had failed these tests, resulting in their non-promotion or dismissal.

She also addressed the issue of fraud, explaining the use of independent investigators to ensure unbiased reports. Regarding cybersecurity, she mentioned the Fusion Centre and successes like reclaiming R24 million from fraudulent transactions. She reiterated that the Department acknowledges the challenges raised by the AGSA and is working on improving internal controls.

In response to Mr Atkinson's concern about investments, Ms Fakir acknowledged the importance of building internal investment capacity and ensuring strict protocols for investments. She referred to examples like student accommodation as viable investments that could benefit both the economy and the Department. She gave an assurance that the majority of their funds were invested in equities and bonds, with only a small portion in social responsibility investments (SRIs).

Further discussion

 

The Chairperson welcomed Ms C Mkhonto (EFF) to the Committee for her first appearance.

Mr D Skosana (MK) expressed serious concerns regarding the ongoing leadership instability within the Department, particularly the number of acting positions. He questioned the effectiveness of a system where key roles, including that of the Commissioner, CFO, Deputy Director General, and others, had been held in an acting capacity for extended periods. From his perspective, this was deeply embarrassing and undermined the Department’s credibility. He acknowledged that such a situation is not unique to the DEL, but rather a wider issue affecting several government departments and state-owned enterprises (SOEs). However, he pointed out that the continued presence of acting officials for multiple years raised questions about the overall leadership capacity of the Department.

His comments also touched on the financial issues within the Department. He referred to the billions of rands in fruitless expenditure, which he and his colleagues had already discussed in previous meetings. This expenditure, coupled with the long-standing failure to resolve various financial and administrative challenges, had led to significant frustration. He questioned the acting Commissioner’s satisfaction with the current leadership situation, particularly the prolonged acting appointments which had spanned years without any permanent appointments being made. He asserted that the continued reliance on acting officials reflected poor governance and a lack of stability at the leadership level.

Mr Skosana raised concerns about the Department’s handling of social responsibility investments, specifically referring to companies such as Daybreaker and Zamalwandle, which he noted as being some of the most successful businesses. He sought clarification on how disadvantaged individuals or communities could access funding from these SRIs, as he felt there was a lack of transparency regarding the process. He questioned whether these SRIs were grants and how they were being distributed. In particular, he wanted to know how disadvantaged people, especially those from historically marginalised backgrounds, could benefit from these investments.

In addition to the investment concerns, he directed attention to the alarming number of unresolved cases within the Department. He highlighted a specific case where R64 million had been paid out without proper documentation, which he described as “shocking.” He noted that such cases were not isolated, and this pattern of financial mismanagement raised significant concerns about internal controls, accountability, and the Department’s capacity to ensure funds were properly administered. He said the Department was plagued by a culture of inefficiency and lack of oversight, which had resulted in substantial financial losses.

Ms Mkhonto raised several critical issues regarding the leadership and financial management of the Department. She began by noting the "revolving door" of acting positions within the Department, particularly in the roles of the DG and CFO, which she said had occurred consecutively over the past one or two years. She also referred to the Minister's statement regarding the former Commissioner being placed on precautionary leave due to the Thuja case. She pointed out that even the DG had resigned as a result of the same issue.

She questioned whether any senior management had been held accountable for the various irregularities, maladministration, financial mismanagement, fraud and corruption, particularly within the Compensation Fund and the UIF. She expressed concern that those who had left their positions were held accountable only due to their involvement in the Thuja case, leaving other issues unaddressed. She specifically asked who was responsible for the sustained financial mismanagement that had led to the AG issuing disclaimers for the Fund, and whether consequence management had been applied to those involved in the wrongdoing. She also wondered whether the individuals who had left the Department had been tracked and brought to account for their actions.

Ms Mkhonto then shifted her focus to the human impact of the financial and administrative failures, stating that behind the figures, there were families and vulnerable workers who had been negatively affected. She stressed the need for the Human Rights Commission (HRC) and the Public Protector to become involved in shedding light on the real-world consequences of the fraudulent and criminal activities taking place within the Department. She asserted that it was unacceptable to reduce the situation to mere numbers, as real people were suffering as a result.

Finally, she questioned the progress made in addressing long-standing issues with the Department's ICT system, which had been a point of contention for years. She expressed scepticism about the Department's internal efforts to rectify the system, citing concerns that internal auditors were not being taken seriously due to their lower post levels within the Department. She questioned whether the individuals tasked with investigating cases had the authority to hold higher-ranking officials accountable, or whether they were merely tackling smaller issues while the larger problems remained unchecked.

Mr S Maeco (ANC) provided his perspective on the Department's efforts to address issues of maladministration and inefficiency. He welcomed the Minister's proposed intervention mechanisms, which aimed to address the contradictions and malpractices identified by Members of Parliament. He also supported the Minister's initiative to restructure and unbundle the entities involved, noting that such a process, while initially taking four years, would ultimately enhance accountability, governance and efficiency.

He expressed his agreement with the Minister's approach to restructuring the Compensation Fund into stand-alone entities. He argued that this restructuring would allow Parliament to better ensure accountability and promote efficiency. He also expressed support for investing the Fund into more efficient programmes, such as those that would assist the public, and for establishing advocacy programmes to raise awareness and improve access to the Fund.

Mr G Skosana briefly commented on the Minister's commitment to turning the situation around, but expressed cautious optimism. He sympathised with the Minister for inheriting a problematic entity, but underscored the urgency for change, given the limited time of the current parliamentary session. He highlighted the frustration that came with the legacy of the previous Committee's discussions with the Compensation Fund, as many of the undertakings and promises made in previous meetings had not been realised. He particularly noted the continued disclaimers issued by the AG over a decade, which reflected the deep-seated issues the Department faced.

Mr Skosana also expressed his support for the Minister’s current efforts, but maintained that due to the poor track record and unfulfilled commitments of the past, it was difficult to accept the promises of immediate change. He compared the situation to a recent meeting with a state entity that had managed to reduce its audit qualifications over three years, contrasting this with the Compensation Fund's ongoing disclaimers for ten years. He acknowledged the challenge of inheriting existing problems, but made it clear that the Department’s inability to resolve these issues over time had led to diminished confidence in its ability to turn things around swiftly.

He posed two questions for clarification. First, he asked why the Department had achieved only 57% of its targets for the 2023/2024 financial year. Second, he asked about the lack of preventative controls and the fact that 97% of previously reported irregular and fruitless expenditure remained unresolved. He expressed concern that only 3% of such expenditure had been dealt with, which pointed to a failure to address systemic financial mismanagement.

Ms T Bila (ANC) opened her remarks by expressing her appreciation for the Minister's opening comments and the commitment to instigate change within the entity. She highlighted the undesirable nature of being associated with disclaimers and poor outcomes, noting that the entity needed to make progress. She then proceeded to raise three key questions.

Firstly, regarding fraudulent payments and unauthorised bank accounts, she sought clarification on the payments made to unlisted bank accounts that had been discovered by the Auditor-General. Specifically, she requested information on how many individual payments had been made to these unauthorised accounts. She asked for an estimate of the percentage of these funds that could potentially be recovered through legal action.

Secondly, she acknowledged that Mr Maduna had addressed the issue on fruitless and wasteful expenditure. However, she expressed the hope that further attention would be given to the matter in the ongoing discussion.

Lastly, she raised a concern about employee-related costs. She pointed out that despite a reduction in the number of employees, from 976 to 930, employee-related costs had increased from R1.36 billion in 2023 to R1.46 billion in 2024, representing an increase of R100 million. She asked why and how this increase had occurred, and what steps were being taken to better manage and control employee-related expenses in the future.

Ms H Neale-May (ANC) began by expressing her heartened response to the Minister’s intention to implement a turnaround strategy for the Department. She stated that she was pleased to hear of the Minister’s commitment to reform. She then asked two specific questions.

Her first question concerned the percentage of approved benefits paid within ten working days. She referred to the target of 90%, where only 75% had been achieved, leaving a shortfall of 15%. She inquired about the reasons for this shortfall, and sought to understand the main factors contributing to the delay in paying approved benefits within the stipulated ten working days. She also asked how the Fund intended to address these delays and improve the payment processes moving forward.

Her second question was regarding Program Four, which deals with orthotic and rehabilitation services. She pointed out that a number of persons with disabilities were funded annually for vocational rehabilitation, with the target set at 300 beneficiaries. However, the achievement had been only 87, resulting in a shortfall of 213. She asked what factors had contributed to this significant shortfall and what strategies the Department was putting in place to increase the number of beneficiaries in the coming financial year.

Mr A Beesley (Action SA) opened his remarks by referring to a comment made by the AG, which he felt encapsulated the overall issue. The Auditor-General had referred to the total breakdown in internal controls within the Fund, calling it a "cesspool of incompetence, corruption, and wastage." He then directed a question to the Minister, asking at what point she would consider resigning if the situation continued.

Mr Beesley also inquired about the advisory board, asking for an explanation of its mandate, what it advises on, and how much it had been paid in the last financial year.

Lastly, he asked for a copy of the final investigation by the SIU into the Compensation Fund, which had been completed in 2021. He requested access to the report to gain more insight into the findings of the investigation.

Mr K Madlala (MK) clarified that his primary interest lay in four key areas. Firstly, he asked if the turnaround strategy had already been developed and if not, when the Committee could expect to receive it. He emphasised the importance of having a clear timeline for the strategy, as this would help the Committee to hold the Department accountable and ensure that commitments made were fulfilled.

He also requested that, if no formal strategy existed, the Minister provide a clear indication of when it would be in place. This would enable the Committee to track progress and hold the Minister accountable for meeting deadlines. He expressed concern about past instances where commitments had been made but were not followed through, and he hoped this time would be different.

He also expressed the need for project timelines to address legacy issues. He requested that the Department provide project timelines to ensure there was a plan in place to deal with these issues. If no documents were available, he asked for a clear explanation of why, and when progress could be expected. He suggested that these timelines should be linked to performance targets, which would hold the Minister accountable for progress and consequences in cases of poor performance. He stressed that consequences for poor performance, such as dismissal, needed to be part of the framework to ensure accountability.

The Chairperson concluded the session by thanking the participants and handing over to the Minister and officials to respond to the questions. He added that he intended for the Committee to meet again in six months' time to assess progress. By holding a mid-year update, he hoped to close the gap between the audit outcomes and the discussions about those outcomes, allowing for more timely follow-up in the next version of the conversation in 2026.

 Ms Fakir addressed the issue of fruitless and wasteful expenditure, commenting that there had been a significant reduction in such expenditure. She explained that most of the fruitless and wasteful expenditure had been caused by failures in supply chain management (SCM) processes. It was not simply about issuing tenders, but rather issues within those processes, such as one tender issued over ten years ago, which had resulted in a large financial loss. The company awarded the tender had failed to fulfil the terms, taking them to court, and the case had been lost due to mismanagement from the Compensation Fund's management.

Ms Fakir attributed the improvements to the new CFO, who had introduced stricter financial processes, particularly in relation to the members of their bid adjudication committee (BAC) and the bid evaluation committee (BEC). The CFO, along with the BAC team, was now closely scrutinising each procurement to ensure fairness and transparency. She gave an example of a recent tender in which the BEC had nominated a bidder, but the tender was rejected because procurement processes had not been followed correctly.

On the matter of access to SRIs for disadvantaged individuals, Ms Fakir explained that the PIC had a website through which proposals could be submitted for investment, provided the business proposals met the necessary standards. She clarified that the PIC acted on their behalf, and it was not their direct responsibility to manage the process.

Ms Fakir confirmed that the CFO was no longer acting, but had been appointed permanently. She praised the CFO for his contributions to improving financial management.

Regarding the disclaimer, she acknowledged that the situation was disheartening, particularly as they may be the only entity still facing a disclaimer. However, she pointed to the South African Social Security Agency (SASSA), which had over 20 million beneficiaries and had also received a disclaimer, yet had managed to provide the necessary documents for auditing. Such examples motivated them to address the issue. She assured the Committee that a plan with clear timelines had been put in place to resolve the matter, and the upcoming six-month review would serve as a key motivator for their team.

On the issue of fraud, Ms Fakir explained that funds that had been fraudulently diverted from beneficiaries were being reprocessed and returned to the rightful recipients. She reaffirmed the Fund’s commitment to holding those responsible for fruitless, wasteful, or irregular expenditure accountable, with the SIU engaged for investigations.

She responded to Mr Maeco’s question about restructuring, agreeing that unbundling the Fund would allow it to function with more autonomy and agility, bypassing bureaucratic delays and fostering efficiency. She confirmed that the Minister would provide further feedback on the restructuring.

In response to Mr G Skosana’s comments, Ms Fakir assured him that monthly feedback sessions with the Minister on the disclaimer would continue. She praised the Minister’s hands-on approach, describing her as operationally astute. She noted that the Minister would often request meetings at short notice, focusing on operational details. She expressed confidence that the Minister’s involvement would aid in resolving the disclaimer.

She acknowledged the unrealistic targets set in the previous strategic plan, which had been based on assumptions rather than data. With the new strategic plan, the Fund had moved towards a data-driven and evidence-based approach. The new indicators would be more realistic and would result in improved performance.

She concluded her remarks by referring to the implementation of key projects, such as the biometric solution and banking project, and deferred to the CFO for further details on employer-related costs.

Mr Mokoena addressed the question regarding employee-related costs, confirming that compensation of employees (CoE) had increased from R1.36 billion in 2023 to R1.46 billion in 2024. He explained that, despite the increase, employee compensation had remained steady year on year due to unfilled vacancies and the Minister’s decision to freeze the recognition of senior managers' pay progression. He promised to investigate where the R100 million figure had come from, and provide clarification.

Ms Fakir suggested that a written response be provided on the matter due to time constraints. She also requested that Mr Mokoena indicate where the R100 million figure had originated from so they could address the discrepancy.

The Chairperson inquired whether all the questions had been answered, and urged the speakers to proceed with addressing any remaining questions.

Ms Fakir responded to the discussion on payment delays caused by cybersecurity threats. She explained that the cybersecurity challenges faced by the Fund had resulted in halted payments as a precautionary measure to protect the system. Despite the delays, she gave an assurance that the decision to halt payments was made out of concern for safeguarding the integrity of financial transactions. The Fund had experienced multiple cyber-attacks, which had lowered the approved payment percentage to 75%. She acknowledged the need for a stronger cybersecurity system, and highlighted that the Fund had already conducted a workshop to address the identified gaps. Moving forward, she indicated that the procurement of advanced cybersecurity tools would enhance the security of the Fund’s ICT environment, improving payment processes.

On the topic of the Fund’s Programme 4, which focuses on assisting injured workers with disabilities, Ms Fakir provided an update on the progress of the programme. She said that the lack of a verified pensioner database and outdated contact details posed challenges in reaching target beneficiaries. She explained that the Fund’s mandate limited its scope to injured workers with disabilities, which meant that it could not extend its resources to general persons with disabilities (PWDs). She acknowledged the difficulty in locating training institutions suitable for people with disabilities, but said more partnerships were being established to enhance the programme. Despite the challenges, the programme had made notable progress, with a target of 287 persons with disabilities being assisted within five years, up from zero at the programme's inception.

Addressing the comment about the Fund’s internal controls, Ms Fakir sought to clarify the interpretation of a “total breakdown” of internal controls, suggesting that the situation might have been sensationalised. While admitting that there were gaps in the internal controls, she insisted that funds were still reaching the intended beneficiaries, and that the description of a “total breakdown” was an exaggeration. She attributed the challenge of translating processes into systems to the complexity of the task, noting that it was a skill that the Fund needed to develop further. She expressed confidence that the necessary controls would be addressed and the Fund would move towards better operational efficiency.

She also addressed the issue of the advisory board, explaining its role in overseeing major strategic areas within the Fund. She said the advisory board members were not well-compensated, receiving around R2 500 per day, and not the R30 000 per day that might have been implied. The advisory board reviewed key strategic matters, provided advice, and submitted quarterly reports to the Minister. She said a list of members would be sent to the Committee.

Regarding the SIU investigation, Ms Fakir acknowledged her lack of information about it and promised to investigate further to clarify whether it concerned the Compensation Fund or the UIF.

She concluded by agreeing with Mr Madlala’s suggestion to implement timelines and provide feedback within six months. She reiterated that the Fund was committed to following through on its actions and would provide comprehensive updates.

The Chairperson light-heartedly asked Ms Fakir whether she wished to comment on the Minister’s potential resignation, but it was made in jest.

Minister Meth stated that she was unsure whether she was permitted to pose a particular question to a Member. She inquired whether, given the oversight responsibilities associated with the separation of powers and functions of the arms of the state, the Member would consider resigning. However, she clarified that the question was posed in a light-hearted manner.

The Minister described herself as an optimistic person who had learned through experience. She reflected on her humble beginnings, progressing from an ordinary councillor to a speaker, a mayor, a Member of the Executive Council (MEC), and ultimately a Minister. She recounted her tenure as a mayor, when she had inherited a municipality that had experienced five consecutive years of under-expenditure exceeding R500 million at the time. As a result, funds had been returned to the national fiscus. Upon assuming office, she had immediately engaged with the National Treasury, which had informed her that the funds were being returned. She noted that her predecessor had requested a rollover of the funds, but the National Treasury had declined the request.

The Minister recalled pleading for an opportunity, explaining that she was new to the role and would implement all necessary mechanisms to ensure the funds were spent. The National Treasury had eventually granted the rollover request. She highlighted that the municipality had received consecutive disclaimer audit opinions for more than five years. However, by the time she left office, the municipality was overspending, and the funds that had been rolled over had been fully utilised, in addition to the allocated budget for the year. She emphasised that she was not attempting to boast but rather to illustrate the lessons she had learned during the process, particularly regarding disclaimer audit opinions.

She recalled that her internal auditor had once presented an audit action plan and had indicated that it would take several years to turn the situation around. She had questioned where she would be by that time, and had insisted that the turnaround be implemented as soon as possible. She asserted that she was not planning for resignation but rather for promotion, should such an opportunity exist.

Minister Meth said that, with the Committee’s support, they would assess the outcomes of their work. She believed that everything had been covered, but wished to address Ms Mkhonto’s concerns. She disagreed with the notion that the actions taken against the UIF Commissioner and the resignation of the former DG were isolated incidents linked solely to a particular case. She pointed out that there had been multiple cases of consequence management, as indicated on slide 44 of the presentation. People had been dismissed, and criminal cases had been opened against several individuals.

She acknowledged that they might have failed to open a case against the former DG, who had resigned, since the alleged fraud had been prevented before it occurred. She suggested that they could seek legal advice on whether any further action should have been taken in such circumstances. She concurred that it was inappropriate for individuals to evade accountability by resigning once charged, and stressed that the law required criminal cases to be pursued even if the individuals in question were no longer part of the system.

Minister Meth revealed that she had been approached multiple times with proposals for an agreement to part ways with the Commissioner. However, she had refused, insisting that if the Commissioner pleaded not guilty, they should undergo the proper legal processes to clear their name. She maintained that she could not be seen to condone corruption, particularly given the gravity of the matter, which involved R5 billion. Nevertheless, she affirmed that all individuals in South Africa were presumed innocent until proved guilty, and the due process had to be followed. She expressed openness to advice on how best to address similar cases in the future.

Regarding the challenges related to ICT, the Minister acknowledged the complexities surrounding ICT in South Africa. She cited issues with a particular service provider, SAP, which had been causing delays due to capacity challenges and indecisiveness in management. She said that some appointments had not been finalised despite proper processes being followed. She insisted that if a recruitment process had been conducted correctly, there was no justification for failing to appoint successful candidates. However, if irregularities were detected, investigations should be undertaken to ensure that decisions were not influenced by personal interests.

She reported that during a meeting of the in-year monitoring (IYM), officials had claimed that there was insufficient funding for ICT. She had rejected this claim, and had directed the Compensation Fund and the UIF to collaborate with the DEL to secure funding through a cost-sharing arrangement. She noted that progress had since been made, and indicated that they could provide a briefing to the Committee on the specific ICT issues and the measures being implemented to address them.

She acknowledged Ms Mkhonto’s reference to "lizards chasing crocodiles," and said that in terms of work ethics and the ethical code, internal auditors, regardless of their seniority, were required to report directly to the accounting officer of the Department or entity. She committed to verifying this matter further, as she was aware that reports had been compiled by risk committees and internal auditors. She emphasised that internal auditors should be situated within the office of the DG to prevent their work from being undermined by more powerful individuals within the system.

The Minister urged Mr D Skosana to give them the benefit of the doubt regarding the issue of ten years of disclaimers versus three consecutive years of qualified audit opinions. She suspected that some departments or SETAs misunderstood the significance of a qualification, believing it to be an achievement worth celebrating. She shared an anecdote about a mayor who had reportedly slaughtered a sheep in celebration upon receiving a qualified audit opinion.

She acknowledged that although the Department had previously received disclaimers for ten years, they had now moved beyond that stage. They were now focused on assessing the actual content and outcomes of their work. She stressed the importance of having a clear audit improvement or deduction plan and adhering strictly to it. She reported that it had been agreed during a recent ministerial meeting that audit improvement measures would now be discussed in monthly meetings rather than quarterly performance reviews.

The Minister said it might be difficult for the Committee to believe that improvements were underway, given their prior experiences. However, she assured them every effort was being made to turn the situation around. She welcomed the advice from Mr Madlala, who had suggested developing a formalised turnaround strategy. She agreed that they needed a documented strategy outlining specific targets and timelines rather than merely discussing improvements. She proposed submitting this strategy to the Committee, as it would also serve as an accountability mechanism, ensuring that commitments were measurable.

She cited a scholar who had stated that performance must be measured, as failure to do so could result in the unintentional reward of failure. She affirmed that they had taken the Committee’s counsel seriously, and would work diligently to implement improvements. She further assured them that they would not take an entire year to demonstrate progress. Instead, within six months, they aimed to have made measurable improvements in line with their commitments.

Finally, Minister Meth addressed the matter of the advisory board, as raised by Mr Beesley. She confirmed that a written submission would be provided regarding the board’s actions. She reiterated that the advisory board would remain advisory in nature until legislative amendments or the completion of the unbundling process conferred formal authority upon the relevant boards and entities.

The Chairperson thanked the Minister and her team, and said that follow-up queries would be sent for written responses to ensure that Members were further appraised of the issues discussed during the meeting.

He said the Committee would collaborate with the Minister’s team to develop a written submission template that tracked the audit issues raised. If this approach was followed, the report would be received in three months, and the Committee would reconvene in six months. This would allow an assessment of progress to be made against certain metrics in terms of the auditing outcomes, enabling them to determine whether meaningful progress had been achieved.

The Chairperson acknowledged the challenges associated with turning around institutions, and emphasised several key points. He said it was important to ensure that all acting positions became permanent and that any pending processes should be completed. He mentioned that Eskom had been present the previous week and had accepted an offer from the Committee to work collaboratively on their submissions, given that the Committee was responsible for overseeing more than 300 entities.

He reassured the Minister’s team that they should not be apprehensive about interacting with the Committee before meetings. He explained that he spent a considerable amount of time with Members, and had insight into the key issues they wished to address. He suggested that presentations should prioritise the ten most critical issues, incorporating insights from oversight visits. He advised against overwhelming the Committee with excessive information, and said that presentations should not exceed 25 slides, including interceding slides. He warned that presentations exceeding 26 slides would be problematic, though he assured the Minister’s team that the Committee, together with the secretariat, would assist in addressing Members' concerns.

The Chairperson added that the Committee would consider newspaper articles and other relevant materials when preparing for discussions, and that addressing these matters upfront would be beneficial. He invited the Minister, the DG, or the Commissioner to seek clarification from him or Ms Ntombi Nkabinde, the Committee Secretary, if necessary, as the objective was to ensure a concise and effective discussion that allowed the Minister’s team to return to their work. He emphasised that they were not expected to be in Parliament constantly, but should focus on their responsibilities.

He reiterated that the ultimate goal was to achieve a clean audit, and that reprimanding officials in meetings was not the desired outcome. The structured process of written submissions, interactions, and oversight visits was intended to ensure that future discussions became progressively less contentious. He expressed the hope that over time, these meetings would become uneventful to the extent that journalists would lose interest in covering them, because everything would function effectively.

The Chairperson stressed that the AG's concerns were directed at the institution rather than the individuals, given the history of repeated issues over the past decade. He urged the Minister’s team to cooperate with the Committee in addressing these matters.

Unemployment Insurance Fund briefing

 Chairperson’s opening remarks

 The Chairperson noted that the financial year would end in March, meaning that a significant amount of time had already elapsed. He said it would be helpful to establish a clear understanding of the situation to avoid discussing outdated matters. Addressing the Minister, he asked whether she wished to make any opening remarks, or if they should proceed directly with the discussion. He would allocate approximately five minutes for the Minister’s team to highlight key issues and respond directly to the AG’s concerns. He acknowledged that the issues of concern would be evident from the reports, and that Members were particularly concerned about them. He indicated that Mr T Kubheka (MK) would lead the discussion.

UIF Commissioner's opening remarks

 Adv Lucky Mkhonto, Acting Commissioner: UIF, stated upfront that it was no longer business as usual at the UIF. He acknowledged that while progress had been made, the entity had not yet reached its desired state and was still working towards improvement. Referring to the Chairperson’s earlier remarks, he emphasised that when speaking to the Committee, they should remain mindful that they were also addressing the public. He clarified that the UIF functioned as a social insurance entity of the government and that its core mandate was relatively straightforward. He explained that employers needed to register and declare their employees, thereby enabling them to contribute to the UIF.

The primary concern was now centred on what was done with these contributions once received. He explained that the key audit findings stemmed from investments made through the PIC, which had led to various challenges. He pointed out that while these investments were statutorily mandated, issues had arisen specifically concerning unlisted investments. He referred to previous discussions with Members on this matter, and confirmed that the UIF had a service-level agreement with the PIC. However, the agreement was being revised and strengthened to address concerns. He further mentioned that the UIF had sought the expertise of an external law firm to provide an objective review of the agreement, ensuring that the lessons learned from past experiences were incorporated into the revised terms.

He concluded by stating that the CFO would elaborate on the specific processes and developments. He explained that, as a lawyer, he wished to avoid misrepresenting financial matters and preferred for the CFO to provide a comprehensive briefing. He reiterated the importance of prioritising the main issues before addressing other matters.

The Chairperson staid that they would not go through the presentation in its entirety, but would focus on elevating the key issues.

Ms Fezeka Puzi, CFO, UIF, said that the root of their challenges could be traced back to the 2016/17 financial year when the UIF had received a disclaimer audit opinion due to investment-related concerns. However, by 2017/18, it had secured an unqualified audit opinion, as the unlisted investments at the time had not significantly impacted the audit outcome. She explained that problems had escalated in 2019 when the UIF expanded its unlisted investments in alignment with the Compensation Fund’s objective of financially assisting struggling companies to promote job creation. She clarified that the UIF had not anticipated the scale of the issues that would arise from this strategy.

She said that some of the companies in which the UIF had invested had since become delinquent, failing to comply with the Companies Act by not submitting financial statements. Some had entered liquidation or business rescue proceedings. In accordance with generally recognised accounting practice (GRAP) standards, the UIF was required to prepare consolidated financial statements. However, this had proved challenging, as the UIF depended on these companies to provide audited financial statements, which were often delayed or unavailable.

She elaborated that the UIF’s difficulties in submitting financial statements on time were primarily due to the complexities surrounding these investments. She mentioned that the UIF had sought an extension to address the audit qualification, particularly regarding investments classified as SRIs. She clarified that there were approximately 40 such investments -- 20 classified as associates and joint ventures, while the remaining investments were structured as services involving loans to companies.

She highlighted a further complication -- the misalignment of financial year-ends, as some of the companies had a financial year-end in September while the UIF’s financial year concluded in March. This misalignment complicated reporting and validation efforts. She explained that the AG required the UIF to validate the information received from investee companies to ensure its accuracy and completeness. However, the UIF faced challenges in doing so, as it did not have direct control over these companies, despite holding significant influence through the PIC.

She indicated that one of the UIF’s key recommendations was that the PIC, which had direct control over these investments, should assist in ensuring that the information received from the investee companies was verified, accurate, and complete.

She then turned to another issue that had significantly impacted the UIF -- its role in disbursing COVID-19 Temporary Employer/Employee Relief Scheme (TERS) payments. She said the UIF had disbursed R65 billion in COVID-19 relief payments over two years. However, she acknowledged that this process had not been anticipated, as COVID-19 TERS had been an extraordinary intervention outside the UIF’s usual operations.

When the AG audited the COVID-19 TERS payments, several irregularities were identified. These included fraudulent payments, payments made to public servants, and overpayments. The UIF was tasked with verifying the entirety of the R65 billion in payments to ensure that funds had been disbursed to the correct recipients in the correct amounts. She explained that this verification process had been time-consuming due to the sheer number of companies involved.

She concluded by stating that these two key issues -- the UIF’s investment challenges and the audit concerns arising from COVID-19 TERS payments -- were the primary reasons for the UIF’s continued audit qualification.

Mr Kubheka said that the UIF was a serious problem. He expressed concern that when the Commissioner and the CFO addressed the Committee, they spoke lightly about significant issues that should be taken very seriously. He indicated his discomfort with their approach, as they seemed to focus on minor issues that needed fixing, rather than acknowledging the gravity of the situation.

Regarding the PIC, he highlighted that there was an estimated write-off of investments in distressed companies amounting to R9 billion, which he considered a substantial loss. He was not comfortable with the CFO and the Commissioner referring to these as minor issues. He also outlined the UIF’s audit history, stating that in the 2016/17 financial year, it had received a disclaimer audit opinion, while in 2017/18 and subsequent years, it had obtained unqualified audit opinions until the 2023/24 financial year, where findings were not signed off. He pointed out that when officials referred to a "qualified audit," it might sound acceptable to those unfamiliar with auditing terms. He recalled that the Committee had previously noted that some people celebrated a qualified audit opinion, but it was essential to clarify that an entity either passed or failed an audit.

Mr Kubheka emphasised that these issues were not minor, and pointed to problems in the PIC’s investments as well as the UIF’s financial submissions. He questioned how investments had been made in companies that lacked adequate financial statements, asking whether this was a deliberate scheme or financial mismanagement. He inquired whether this was a "looting spree" or a scheme designed to benefit friends, and whether individuals were using UIF funds to pay associates.

He referred to the CFO’s statement that R65 billion had been spent over two years on UIF payments. He noted that R685.8 million had been paid to over 166 000 applicants who were foreign nationals, which he considered a substantial amount. He questioned why over half a billion rand was paid to foreign nationals while officials continued to downplay the issue. He also cited findings by the AG, which indicated that over R140 million had been paid to more than 35 000 applicants who had received benefits from other state institutions. He reiterated that these were not minor issues, and highlighted that 59 members of the South African National Defence Force (SANDF) had received TERS payments amounting to over R300 000. He added that government officials had claimed over R41 million from the UIF.

Mr Kubheka raised several concerns about the UIF’s systems and processes. He questioned whether the UIF had a functioning IT system, and whether it was integrated with the Department of Home Affairs (DHA). He stressed the importance of verifying the identities of applicants, particularly in cases where funds had been paid to deceased individuals. He also inquired whether the UIF’s IT system was linked to the South African Revenue Service (SARS) and if not, why this was the case. He questioned how over 160 000 foreign nationals had received UIF payments without proper verification. Furthermore, he asked on what basis payments were issued, and whether the individuals processing the payments had sufficient information to do so.

Mr Kubheka sought clarity on why payments had been made despite clear deficiencies in verification processes. He acknowledged that the current CFO might not have been responsible, but asked whether she knew why her predecessor had authorised such payments. He said the issue pointed to a total breakdown in internal controls. Some payments had been made without adequate verification of applicants representing employers, as well as employer details. He questioned how beneficiaries could be paid without verifying employers and their details.

He further pointed out that incorrect system calculations had resulted in miscalculations of TERS benefit payments during the first lockdown period. He asked how such errors had occurred, and why details of employee salaries submitted for benefit claims had not been provided. He also raised concerns about applicants who were below the legal working age receiving UIF payments, asking how such payments had been processed.

Mr Kubheka referred to a specific case in which an identity document (ID) number had been duplicated, with one instance belonging to a UIF employee and the other being used to claim benefits for a deceased individual. He asked why the UIF’s IT system was not integrated with Correctional Services, as there had been cases of imprisoned individuals receiving UIF payments. He requested details on the amounts paid to imprisoned individuals.

He also raised concerns about acting personnel occupying key positions within the UIF, questioning whether this issue needed further discussion. He highlighted the SIU’s observations regarding the UIF, and disputed the CFO’s and Commissioner’s claims that only minor issues needed fixing. He pointed to fruitless and wasteful expenditure, specifically mentioning that the UIF had hired 12 auditing firms to conduct investigations that were already being carried out by the SIU. He requested the Minister’s comments on this matter, even if the issue related to a previous administration.

He also addressed the use of fraudulent ID documents by foreign nationals to claim UIF benefits, stating that this had already been discussed. He also highlighted cases where companies had submitted fraudulent claims for former employees, again pointing to a total breakdown in internal controls. He questioned whether such fraudulent claims had been made for individuals who were not actually employed by those companies, and whether claims had been duplicated across different employers.

Mr Kubheka stressed that the UIF had suffered substantial financial losses and that those responsible needed to be held accountable. The perpetrators of these fraudulent activities had committed crimes and needed to face the consequences. He described the UIF’s IT system as "lazy," and suggested that it was deliberately maintained in its current state to enable corruption. He rejected the idea that such widespread fraud and inefficiencies were coincidental, arguing that they indicated systemic failures.

He questioned why the IT system had not been integrated with other government departments, asserting that doing so would have prevented many of these issues. He proposed integrating the IT systems of the DHA, the UIF, SARS, Correctional Services, and any other relevant entities, to ensure proper verification. Such an approach would allow officials to determine immediately whether an applicant was eligible for UIF payments.

Finally, he reiterated his concerns by posing a final question: why was there no cross-departmental information system linking SARS, Home Affairs, Correctional Services, and the Department of Employment and Labour?

UIF's response

Mr Mkhonto said he would begin by addressing the COVID-19 issue, which had emerged in March 2020. He noted that overnight, everyone had to respond in various ways, with the UIF being one of the key agencies to act. Upon being called to respond, it had set up systems to address the disaster that had affected the country and the world. Shortly thereafter, the AG had conducted an audit on the COVID-19 TERS, a matter Mr Mkhonto would discuss further. He also indicated that the classification being referred to would be addressed.

He explained that when payments began, the UIF had developed a system in March to start making payments. During this period, it had collaborated with social partners at the National Economic Development and Labour Council (NEDLAC), which included representatives from business, organised labour, and community organisations. These were the immediate beneficiaries of COVID TERS. He likened the UIF to an insurance scheme, comparing it to car insurance -- if a person paid premiums, they were covered; if not, they were not. Similarly, when UIF began receiving claims, there were instances where employers who were listed with ten employees, attempted to claim for 200 employees. However, the UIF could pay out only for the ten employees registered in its system. This issue arose until the UIF’s social partners suggested that employees should not be penalised for the actions of their employers. This was where the problem began, as the UIF had been required to pay the employees, and then pursue the employer for any discrepancies.

Mr Mkhonto went on to explain that when the UIF received claims, the AG had flagged some issues. One such issue was related to deceased individuals. While UIF had been integrated with Home Affairs even before the pandemic, the system was strengthened during COVID-19. However, there was a problem when a claim was submitted for an individual who had passed away shortly after the claim was made. The payment would already have been processed by the UIF before the death was recorded. This was one of the challenges that had arisen. He highlighted that even though the system was integrated with Home Affairs, the deceased person remained in the system until officially removed.

He also addressed the issue of foreign nationals. According to Mr Mkhonto, foreign nationals who were working in South Africa, even if undocumented, were still considered employees and should have been paid under COVID TERS. He said that the UIF verified claims against the Home Affairs system, blocking any claims from individuals not registered with the Department. However, employees not listed with Home Affairs could not receive payments, and the issue remained unresolved. He indicated that the matter might proceed to court, particularly concerning employees who were on the payroll of employers, but not in the Home Affairs system.

He elaborated on the challenges of verifying claims for individuals whose status had changed, such as a person on a study permit who later worked illegally. If such individuals changed their status, their claims could not be processed, which caused further complications. The verification process was tied to ID numbers or passport numbers, and any discrepancies in these details, such as a change in passport number, further delayed payments. This issue was being pursued through legal channels, as they could not make payments without proper verification.

Regarding the Auditor-General’s concerns regarding payment duplication, Mr Mkhonto clarified that the UIF was not duplicating tasks. He explained that the AG's report had led to a proclamation instructing the SIU to investigate any potentially irregular claims. The UIF’s role was to verify that each payment was made to the correct company and that the funds reached the intended recipients. He pointed out that the UIF had no choice but to make payments to employers, as they were the ones with the employee records. To verify each payment, the UIF had implemented a process called "Follow The Money," and external audit firms were enlisted to ensure transparency. This process would take five years, with external firms still working to verify the payments and ensure every cent was accounted for.

He said the issue of payments to government officials, minors, and the SANDF was also important, and would be addressed by the chief operating officer (COO). He stressed that these issues were taken very seriously, with a special team working on them. He assured the Committee that the government would never allow any funds to go unaccounted for, stressing that even a small amount of money that belonged to a worker would not be overlooked. He concluded by affirming that the Minister’s stance was clear -- no amount of money, even as little as R2, would ever be misappropriated.

Ms Judith Kumbi, COO, UIF, emphasised the importance of understanding the background and distinctions in the UIF’s processes, particularly in relation to normal benefit payments and the challenges arising from the COVID-19 TERS.

She began by clarifying that the UIF had a long-established system for paying normal benefits, which was fully compliant with the relevant legislation. Over the years, no significant issues were raised by the Auditor-General concerning the payment of normal benefits. This included payments to public servants and even to deceased individuals, where no discrepancies had been reported. The reason for this was the robustness of the UIF’s system, which was integrated with several institutions, such as Home Affairs and the banks, to ensure verification before any payments are made.

She reassured the Committee that the current system had undergone extensive auditing and no issues concerning normal UIF benefits had been flagged. The AG's audits had never raised concerns regarding the regular processes followed by the UIF, further affirming the system’s reliability.

However, Ms Kumbi acknowledged that the UIF had faced unique challenges with the implementation of COVID-19 TERS. When the pandemic began, it had been instructed to administer a new benefit that was not aligned with its existing legislative framework. This had posed a significant challenge, as the UIF did not have the necessary systems in place to process these new claims. At that time, the UIF had made it clear that it was not prepared to administer the COVID-19 TERS benefit, mainly due to the lack of a system and established processes.

Despite these challenges, the UIF was given only two weeks to develop the necessary systems and processes. In response, it had started with a manual process, implementing strict controls to prevent fraud, as the risk of fraudulent claims was anticipated. The first of these controls was that only individuals registered with the UIF by 15 March 2020, five days before the COVID-19 lockdown, could be eligible for benefits. This was done to ensure that only legitimate claimants would be considered.

The second control required applicants to have a UIF reference number, and the third control stipulated that only companies that were compliant with UIF contributions and had submitted employee information would be eligible for benefits. Furthermore, to avoid fraudulent claims from companies that could afford to pay salaries, the UIF requested that employers submit financial statements proving that they were in distress and unable to pay their employees’ wages.

Ms Kumbi said that despite these controls, the UIF had faced significant criticism for not paying a larger number of applicants. This was because many companies had been disqualified from receiving benefits due to non-compliance with UIF contribution requirements, or failure to register employees. For example, while a company may have applied for benefits for 1 000 employees, only a handful of individuals would qualify based on the controls in place. The low number of successful applications had sparked frustration, as many businesses were affected by the pandemic but were unable to meet the strict requirements.

She said the UIF's careful approach was necessary to prevent fraudulent claims, and although the system was robust, the manual process was not without its limitations. These challenges had led to the development of a committee that was tasked with addressing the concerns raised by businesses, and determining how to improve the process.

The turning point had come in April 2020, when the UIF received a directive to waive the controls it had implemented. The waiver came in response to the widespread outcry from businesses, which argued that the stringent controls prevented many deserving employees from receiving their benefits. Under this new directive, the UIF was instructed to lift the requirement that applicants must be registered in the UIF database before 15 March 2020, and employers were allowed to register employees on the spot.

This sudden change had opened the floodgates for new claims. However, the new process had significant challenges. The UIF system, which had been developed in a mere two weeks, was not integrated with other government departments, such as Home Affairs and the SARS. In addition, the UIF had never been tasked with paying employers directly, which added another layer of complexity. Without the usual verification processes in place, fraudulent claims began to emerge. Some employers, taking advantage of the lack of validation checks, submitted false employee information, including names of people who were not actually employees or were incarcerated.

The Auditor-General’s subsequent audit had revealed several instances of fraudulent claims. The AG was able to cross-reference the UIF's payment data with other government databases, such as Home Affairs, the SA National Defence Force (SANDF) and the Department of Public Service and Administration (DPSA), and identified fraudulent claims involving foreign nationals, military personnel, and other non-eligible individuals. The fraud was largely concentrated in the first two major rounds of payments made in 2021 and 2022, before the UIF had integrated its system with other departments for proper verification.

Ms Kumbi further clarified that, following these findings, the UIF had made significant improvements to its process. By integrating the system with Home Affairs and other departments, it was able to eliminate fraudulent claims in subsequent payments. She pointed out that by 2022/23 and 2023/24, the UIF had managed to implement the necessary controls, ensuring that fraudulent claims were largely eliminated.

She concluded by explaining that the UIF was still in the process of verifying the R62 billion in payments made during the initial stages of COVID-19 TERS. Since many of these claims involved new registrations, the UIF continued to investigate whether all individuals who received benefits were entitled to them. She stressed that the ongoing verification process was vital to ensuring accountability and addressing any remaining discrepancies.

In response to the Chairperson's query regarding the payment figures, Ms Kumbi confirmed that the UIF had paid out R100 million in benefits through the manual process. She said that despite the challenges faced in the early stages, the UIF had since strengthened its systems to ensure that subsequent payments were more accurately processed and verified.

Ms Puzi addressed the issue of unlisted investments, stating that it was a matter of serious concern. She said these investments had become a significant challenge for the UIF, particularly regarding auditing and accounting issues. The situation was described as causing considerable stress, particularly because some of these unlisted investments could potentially result in a capital loss, which would directly impact workers' funds.

She clarified that the UIF did not select the companies in which it invests, but instead provides the PIC with a broad investment mandate. This mandate includes investing in various portfolios, such as listed companies, bonds, and unlisted investments. However, she emphasised that the responsibility for selecting the specific instruments within these categories rests with the PIC. The UIF’s role was to set the broad parameters, while the PIC managed the day-to-day investment decisions.

She pointed out that investing in unlisted companies was inherently risky, as not all of these investments were performing well. While some investments were yielding positive results, others were underperforming, which had led to the current difficulties. The UIF had taken several proactive measures in response to the challenges faced. One of the key steps was establishing a board-to-board meeting with the PIC to hold them accountable for the underperforming investments. In addition, the UIF had decided to suspend any further investments in unlisted companies until the situation stabilises, and until they could ensure that future investments would not lead to similar issues.

Moreover, the UIF was working on an exit strategy for the investments that were already problematic, particularly those that were already in liquidation. Ms Puzi acknowledged the difficulties involved in exiting these investments, especially at a loss, but emphasised that the UIF was committed to safeguarding workers' money. The PIC, as part of its response, had set up a turnaround unit to assist struggling companies. This unit, which was established following the Mpati Commission's recommendations, aimed to help revive companies facing financial difficulties. However, the UIF was cautious about exiting these investments prematurely, as they did not want to realise losses in the process.

In closing, Ms Puzi reiterated that the issue of unlisted investments was being taken very seriously by the UIF, and the lessons learned from this experience were guiding their actions moving forward. As a result, the UIF had made the decision to halt any new investments in unlisted companies for the time being, focusing instead on managing the existing legacy investments to prevent further losses.

The Chairperson responded by acknowledging the concerns raised by Ms Puzi, and proposed an alternative approach to the Committee's work. He suggested that due to the complexity of the issue, it would be beneficial for the Committee to meet with the boards and management of relevant entities separately, and then with the Minister and DG. He suggested that the Minister and DG should take a lead role in discussions, as the Committee aimed to resolve systemic issues rather than merely address individual incidents.

He pointed out that many of the issues mentioned by Ms Puzi were similar to those discussed in a previous presentation by the SIU. He referred to the challenges posed by the Covid-19 pandemic, where emergency measures had had to be implemented quickly. This urgency, however, had revealed significant weaknesses in the UIF’s systems, such as a lack of proper orientation for staff, inadequate systems, and operational inefficiencies that allowed for financial leakage. These deficiencies had contributed to the current crisis, and the Committee aimed to address them holistically.

The Chairperson proposed that the Committee focus on three main areas:

1. Recovery of funds and accountability

The first priority was to ensure that the UIF and other relevant entities, including the SIU, follow the money trail to recover any misappropriated funds and hold accountable those responsible for financial mismanagement.

2. System improvements

The Chairperson stressed the importance of establishing robust systems and governance mechanisms to prevent similar issues in the future. Given the likelihood of more frequent emergencies, such as pandemics and climate-related crises, he suggested that the UIF, along with other entities, develop a comprehensive plan for managing future emergencies. This plan should be well-tested, involve strong governance, and prevent future surprises.

3. Statutory or regulatory reforms

Recognising that quick responses to emergencies in the past often led to legislative amendments without proper public consultation, the Chairperson highlighted the need for careful consideration of any future regulatory changes. He warned against rushed decisions, as seen with the Digital Vibes scandal, and stressed the importance of ensuring proper checks and balances in the legislative process.

The Chairperson further suggested that the Committee should closely monitor progress in these areas. He indicated that when the UIF returned to present their findings, they should be backed by concrete evidence showing progress made in addressing the issues raised. This would enable the Committee to track developments over time, hold responsible parties accountable, and assess whether systemic changes had been implemented.

Regarding the State Information Technology Agency, the Chairperson acknowledged the ongoing issues various government institutions face in working with SITA. He expressed concern about SITA’s failure to meet the expectations of its mandate, particularly in relation to data management, system security, and integration of government systems. These failures had far-reaching implications for corruption, theft, and inefficiency within government systems. He stressed that the Committee would invite SITA to account for its performance, and discuss how these issues could be addressed.

He also commented that the PIC must also be held accountable for its management of unlisted investments. He emphasised that the PIC’s due diligence process, particularly in ensuring that the companies it invests in had sound financial records and practices, had been a major issue. The Committee had observed a pattern of the PIC failing to perform this critical step, which had resulted in financial losses.

The Chairperson then addressed the Cabinet's role, stating that as decisions affecting the UIF and other entities were made collectively, it was not appropriate for the Committee to continuously place blame on a single entity, such as the UIF or the Compensation Fund. There needed to be a whole-of-government approach to solving these systemic problems. He proposed that, depending on the progress of these discussions, it may become necessary for several ministers to attend Committee meetings to address specific issues jointly and find solutions.

In conclusion, he underscored the Committee's commitment to preventing further financial loss, rather than merely chasing after funds once they had been lost. He reiterated the importance of having effective systems in place to safeguard public resources, and emphasised that the Committee's role was to hold entities accountable and ensure that funds were being used effectively to achieve national objectives, such as economic growth and job creation. He stressed the importance of ongoing cooperation among all parties involved, to create strong, functional systems that protect public funds from being misused.

Mr Kubheka raised several follow-up issues, noting concerns about financial management and oversight. He highlighted that Clinix Health Group and Matseke Medical Consultants, both recipients of PIC funding, were owned by the same individual. He also pointed out that qualified audit opinions predated the COVID-19 TERS issues, suggesting a pattern of financial irregularities.

He emphasised that the Committee's role was not to be unkind to entities appearing before it, despite perceptions to the contrary. He raised concerns about the UIF being used to support foreign nationals, arguing that the UIF should not serve as insurance for foreigners. He called for a legislative review if necessary, requesting the Commissioner and their team to clarify the legal position on this matter.

He expressed concerns about decision-making within the entity, stating that verification processes, no matter how thorough, occurred after payments had already been made, which was unacceptable. He criticised the use of 12 audit firms, suggesting that such an arrangement appeared to facilitate financial mismanagement. He also highlighted instances where companies that had not paid UIF contributions for over a year were still able to submit claims and receive payments, which contradicted reports from the SIU and the Auditor-General. He urged alignment between the entity’s reports and those of oversight bodies.

The Chairperson reiterated that the primary purpose of the session had been to thoroughly address audit-related matters. He noted all of Mr Kubheka’s questions had been documented, and he expected the entity to address them directly without repetition. He emphasised the need for a structured and efficient discussion. He also proposed scheduling a session with the PIC in the near future to ensure all stakeholders were present and accountable, preventing the shifting of responsibility. Dates for these engagements would be confirmed to ensure a comprehensive review of TERS, PIC investments, and key audit issues raised by the Auditor-General.

Minister's concluding comments

 Minister Meth underscored the importance of parliamentary oversight being conducted in a fair and thorough manner, cautioning against premature conclusions. She emphasised that the Committee’s role was to ask questions and receive answers before making determinations. She clarified that the 12 audit firms were not auditing a single entity, but rather performing different functions. In addition, she said that the SIU’s mandate, as per its proclamation, differed from that of the audit firms. She expressed her expectation of receiving briefings from the SIU and internal teams before engaging with the Committee to ensure alignment of information.

Regarding the UIF's payment processes, she rejected the notion that there was a general breakdown, explaining that any issues must be understood in the specific context of the COVID-19 period. She reiterated that efforts to recover funds and hold individuals accountable were ongoing, with assets being seized where necessary. She cautioned against xenophobic interpretations when discussing foreign nationals’ access to UIF, stating that legally residing foreigners may have valid claims.

The Minister also raised concerns about the PIC’s audit outcomes, questioning whether the UIF was unfairly penalised due to the PIC’s financial management. She said the law provides for, but does not mandate, the UIF to use PIC as an asset manager, and suggested exploring alternative asset management options. She assured the Committee that follow-up engagements would be comprehensive, and address the questions raised by Mr Kubheka.

The Chairperson concluded the discussion by stressing the need for synchronisation between the SIU, the Minister and officials, to prevent discrepancies in information when they return to the Committee. He set a clear timeline, aiming to resolve outstanding matters before the Committee’s three-month written submission and subsequent six-month review.

He thanked the Minister, the DG, Commissioners, and Members, urging continuity in leadership and efficiency in future engagements. The date for the next meeting would be communicated, and Members were encouraged to submit additional issues to the secretariat in the interim.

The meeting was adjourned.