Unemployment Insurance Fund Operations and Budget: briefing

Meeting report

LABOUR PORTFOLIO COMMITTEE
1 April 2005
UNEMPLOYMENT INSURANCE FUND OPERATIONS AND BUDGET: BRIEFING

Chairperson: Ms O Kasienyane (ANC)

Documents handed out
Presentation on Operations of the Unemployment Insurance Fund
Presentation on 2005/6 Budget of Unemployment Insurance Fund
Committee Budget Report (available shortly in Committee Reports)

SUMMARY
The Unemployment Insurance Fund (UIF) painted a positive and improved picture of the status of the UIF’s operations over the past 36 months, its restructuring progress, compliance in the registration of employers, improvements in claims processing and the number of payments made. The UIF budget expenditure allocation for 2005 and its key policy developments were then presented.

During the discussion the Committee sought clarity on the following matters:
- the UIF’s measures to communicate to employers its plans to properly invoice payments;
- whether surpluses were actually under-expenditure of payments to entitled beneficiaries;
- whether the UIF followed up on rejected claims;
- its efforts to assist those without bar-coded ID documents to benefit from the UIF;
- beneficiaries in the rural areas; and
- whether the taxi industry was likely to be included by the UIF.

MINUTES
Briefing by Unemployment Insurance Fund
Mr S Mkhonto, UIF Commissioner, stated that the mandate of the UIF was derived from the legislation, with its key responsibility being the collection of revenue from all working South Africans in order to provide benefits while unemployed and in the process of seeking employment. Secondly, it served to pay maternity benefits to working women who were off-duty during the period when they had to look after their child. The third function was to pay illness benefits to employed persons during the period when they were not able to continue with their work. Fourthly, the UIF paid dependence benefits to dependents of deceased contributors and, finally, the UIF paid adoption benefits to children under the age of six years who were adopted in terms of the South African laws. These were the key benefits provided by the UIF.

He stated that the mandate of the UIF cut across the entire country. It belonged to the national Department of Labour and thus did not have provincial MEC’s in charge of the UIF. It was quite an old fund, incepted in 1939 and had a history which was not very good. It had been known to malfunction and even bankrupt, and for many years the working people of South Africa experienced challenged in accessing benefits from the UIF. In fact the last time the UIF had reserves was in 1989, and had continuously experienced deficits since then. The advent of the new government in 1995 resulted in the commitment to transform the institution by launching its turnaround strategy which was approved by Cabinet in 2001.

The strategy was meant to be finalised by March 2005 and the idea was to focus primarily on building the legislative and policy framework of the institution to strengthen it, as well as to focus mainly on service delivery to ensure that the majority of South Africans could access the benefits of the institution. Government also focused on increasing the revenue of the UIF to enable it to fulfil its obligations and to be able to put government at peace when making allocations to the UIF. Improvement of the UIF’s operational efficiencies was also focused on, and over the last three years the Office of the Auditor-General had given the IUF a disclaimer but this year it had moved away from its past. The UIF was resourced with requisite skills to deal with that aspect, and when the UIF appeared before Parliament’s Standing Committee on Public Accounts (SCOPA) it assured that Committee that it was in fact committed to moving away from the current challenges it experienced in the financial management area. The UIF was currently healthy, and it looked forward to interacting with Parliament on policy changes that were needed in order for it to provide satisfactory service delivery.

Mr S Govender (UIF Operations Manager) outlined the status of the UIF’s operations over the last 36 months, its current and future actions, the progress made with regard to restructuring, growth in UIF revenue, rates of registration of employers and their compliance, the status and improvements in claims processing, the number of payments made and the benefit type and the UIF call centre trends.

Mr B Soruwe (UIF: CFO) outlined the programmes of the UIF and their purpose, the UIF budget expenditure allocation for 2005/6, UIF key policy developments, financial highlights and trends of the UIF 2005/6 budget, reserves buildup and investments, benefit expenditure trends and general operating and administrative expenditure.

Discussion
Mr M Mzondeki (ANC) asked the UIF to explain why the average turnaround time for the processing of an unemployment payment had stood at an unsatisfactory 182 days in 2003.

Mr Govender replied that the primary reason was lack of awareness, and that the worker did not know how to approach the UIF or was not aware of the UIF at all.

Mr M Lowe (DA) noting that the UIF had indicated that it was not state funded, he asked about the R846 million and R815 million amounts mentioned in the presentation as part of the Medium Term Expenditure Framework (MTEF) allocation.

Mr Mkhonto responded that the Public Finance Management Act (PFMA) required the UIF to submit its budget even though the State was not funding it at all, because the Minister of Labour had to approve the budget as the executive authority. The budget of the UIF would be included in the Department’s total budget which the Minister would then ultimately present to National Treasury. The figures were provided for information purposes in terms of the MTEF process. The difference between the figures was that after the MTEF submissions were made, a decision was taken at board level to reduce these figures.

Mr Lowe stated that she had learnt by way of anecdotal evidence that employers were concerned that they made annual UIF payments for domestic employees, but no record was given back to them by the UIF as acknowledgement of the payment. The UIF had allocated R5 million for provision of invoices and statements, and both employers and employees must be made aware of this development.
 
Mr Mkhonto replied that this was indeed the case. The UIF had already responded to questions posed to the Minister in the Natrional Assembly about annual payers. The Office of the Auditor-General preferred the UIF to use invoices as proof of receipt of payment from employers. However the UIF itself preferred direct bank payment, and the deposit slip would serve as proof of payment. The UIF did however reach an agreement to carry out ‘secularisation’, which was catered for in the budget. It required the UIF do provide invoices on a quarterly basis to indicate to employers that the UIF had indeed received payments.

Mr Sibitso, UIF: Communications Manager, added that during 2004 the UIF had commissioned marketing and communication research country-wide and in different sectors. The aim was to identify issues which the public did not understand or had misperceptions about UIF, so that the UIF could effect informed communication and marketing interventions. The UIF used the results of the research to draw up its communications strategy, which involved the public awareness and education. This campaign was being executed in print, radio and television format, and the UIF also interacted directly with people. This was an ongoing process and a budget had been allocated for this programme.

Mr Lowe asked the UIF to assure the Committee that the bad audit reports it had received from the Office of the Auditor-General in the past would no longer be repeated.

Mr Mkhonto responded that, as he indicated in his opening remarks, the context of the Auditor-General’s report did not suggest that the UIF was not managing its funds well. Instead the report indicated that the Auditor-General was not satisfied with the particular manner in which the UIF was conducting its financial affairs, because its different financial systems were not compatible and this resulted in complications when the financial statements had to be compiled. This matter was being addressed.

He reminded Members that the accounting officer of the UIF was the Director-General of the Department, and whenever the UIF sought additional skilled personnel in the financial management area, it would have to be approved by the Director-General. Over the last four years the UIF had lost two Chief Financial Officers. One passed away and the other was transferred due to ill health because of the nature of his position. The decision had recently been taken to appoint four senior managers, and this would no doubt result in a much improved audit report in the next financial year. The Minister was driving this process.

Mr S Rasmeni (ANC) noted that the top structure of the UIF was not gender representative at all, and asked whether this would be addressed.

Mr Mkhonto replied that all efforts were being made to achieve the proper gender balance within the UIF. There were in fact more female staff members at the UIF than men, although the top management structure did need attention. The UIF had two female financial managers at executive director level, and had just lost a female assistant manager for human resource management. He assured the Committee that the Department was dealing with the gender balance via its internal policy.

Mr Rasmeni asked whether they were real surpluses, or whether the amount was actually under-expenditure of payments to entitled beneficiaries.

Mr Mkhonto responded that the UIF was not created to produce surpluses, but was instead mandated to provide a specific service to beneficiaries. Unfortunately the nature of the IUF was that it must create reserves, as these were important to provide for unforeseen future changes or events. The reserve was thus not a surplus, and was in fact used throughout the insurance industry. During the last financial year the UIF became fully reserved and was beginning to generate surpluses. The nature of the UIF would thus have to be reconsidered, as it was not intended to generate surpluses year in and year out. He assured Members that the UIF was not generating surpluses at the expense of its beneficiaries.

Mr Rasmeni asked whether the UIF was informing applicants whose claims had been rejected about the steps they needed to take to provide a valid claim. Such information would provide a full picture of the status of the claims.

Mr Mkhonto responded that the legislation required the UIF to provide reasons to the beneficiary for the refusal of a claim, and the UIF was also obliged to inform them of steps to be taken to make the claim acceptable. The UIF had an Appeals Committee which dealt with all appeals, and they reported their work done to be Board on a bi-monthly basis.

Mr Rasmeni stated that one of the possible reasons for beneficiaries failing to receive UIF payments was because not all South Africans have bar-coded identity documents, and he asked the UIF to explain its joint efforts with the Department of Home Affairs to address this problem.

Mr Mkhonto replied that the UIF was aware that there could be people in the rural areas who did not have bar-coded ID books. The UIF claim officials were required by law to accept only bar-coded ID documents, and if they did not abide by this law, the Office of the Auditor-General would publish a qualified audit. The UIF was the one institution that had direct access to the Department of Home Affairs’ computer systems, and this expedited matters and added certainty. The UIF was presented with cases in which claimants genuinely lost their bar-coded ID documents, and the UIF made all attempts to assist where it could.

Mr Govender added that it was a requirement from a risk-management perspective that the UIF positively identify clients before paying them, and this was part of the regulations of the UIF Act.

Mr Rasmeni asked the UIF to explain its measures to ensure that beneficiaries in the rural areas actually received their payments.

The Chair asked the UIF to explain whether those in the rural areas were sufficiently informed of the UIF and its services.

Mr Govender replied to these two questions by stating that the UIF currently enjoyed a national footprint which ran throughout the country. It had a total of 14 processing centres to which a number of smaller offices were attached. There were 125 labour centres which in turn serviced more than 900 sites throughout the country. The UIF thus had immediate access for clients in most areas. Continuous scans were done to assess the need for new labour centres and service points, and the UIF would provide a service in any area so identified. In terms of the UIF’s current operations it was represented in all the urban, rural and semi-rural centres through its 900 service points.

Mr O Mogale (ANC) noted that the presentation identified five areas that were not performing as expected, and asked whether the surplus reported was a real surplus or whether it was as a result of “a delay in terms of performance in the other five areas”.

Mr Govender responded that the under-performing areas did not affect the surpluses. Provision was already made in the UIF’s actuarial practices for persons who had left employment but had not yet claimed their benefit. All this was taken into account when providing for the reserves. One of the performance indicators that the UIF set itself was to finalise claims within six weeks, and the portion of the presentation referred to by Mr Mogale indicated the offices that were not meeting that six-week time limit. It therefore did not mean that those areas were not processing any claims or that they were not servicing the public, but only meant that they were not reaching that six week target. All indications were that they would fall within the 6 week limit in 2005.

Mr N Godi (PAC) asked whether people in the taxi industry were likely to be included by the UIF.

Mr Mkhonto replied that “for the UIF it was not a big issue” because employers of taxi drivers were strictly ‘employers’ as well, and were required to register with the UIF. The important matter that needed to be decided here was the salary levels of the taxi drivers. He was of the view that taxi employers should already have been registered with the UIF. However, UIF issues have been included in the sector determination, because the UIF was aware that there were other employers that were not complying. In an effort to address this problem the UIF had already prepared communications packages to deal with the taxi industry. The UIF infrastructure was both ready and capable to register any taxi employers.

Mr Rasmeni requested information on the costs involved for rejected claims. The Department said that this information would be provided at a later date.

Committee Budget Report
The Chair noted that the Committee adopted the Committee’s Report on the Department’s Budget, with a few technical amendments.

The meeting was adjourned.