Unemployment Insurance Fund strategic plan & budget 2006/07

Meeting report

LABOUR PORTFOLIO COMMITTEE
13 March 2006
UNEMPLOYMENT INSURANCE FUND AND COMPENSATION FUND: BUDGET & STRATEGIC PLANS

Chairperson:

Unemployment Insurance Fund Budget briefing

SUMMARY
The Unemployment Insurance Fund (UIF) presented their 2006/07 Budget Report and their objectives. Achievements of the 2004/05 financial year included the finalisation of ‘Siyaya’, their operational system, and of Axsone, an Integrated Financial Information System. From 1 April 2006, the UIF had become an agency of the Department of Labour. There was at present no Public Service Act that allowed delegation to the Commissioner, and thus this move was controversial. Budget highlights included a 9% increase in contributions to the Fund, and a 27% increase in other revenue due to a corresponding 29% increase in the investment base. Administration costs for 2006/07 were anticipated to decrease by R13 million. The anticipated net increase was R762 million, or 40%.

The Department of Labour then gave a presentation of the Compensation Fund’s Budget for 2006/07. The Fund had calculated an increase of 7% in income, 8% in expenditure and 3% in net surplus. The net surplus should be around R1.4 million by 2006/07. The Compensation Fund’s challenge was to offer greater accessibility, and better quality in a shorter time. They had tried to achieve these goals by improving infrastructure and restructuring units. As a result, a Call Center and a second Provincial Medical Advisory had been established. They also wish to establish a Medical Advisory in each province; an integrated system for claims; and an electronic claims management system.

MINUTES

Unemployment Insurance Fund (UIF) briefing
Dr Vanguard Mkosana, Department of Labour Director-General, introduced the members of the UIF delegation. Mr Boas Seruwe, Acting Commissioner, presented the proposed budget for 2006/07.

Mr Seruwe began by outlining the mandate of the UIF, which was to administer unemployment insurance contributions from employers and employees in order to pay benefits and related administrative expenses. He noted the achievements of the Fund in 2004/05. There had been a 9% percent increase in employees covered by the fund, from 6.23 million in 2003/04 to 6.97 million in 2005/06. There had been an 18% increase in benefits paid out, and a 9% increase in revenue in 2005/06, as compared to 2003/04. Investments with PIC had increased by 81%. The Auditor-General’s Report for 2004/05 showed improved accountability.

Mr Seruwe moved on to outline the improvement of institutional infrastructure and capacity, through the finalisation of Siyaya, the benefit administration system, and Axsone, the Integrated Financial Administration System. Since January 2006, all new claimants had been paid via Electronic Fund Transfer (EFT), thus preventing long queues and cutting UIF administrative costs. Call centre facilities had also been installed.

The independent review of the corporate form of the UIF had been completed and approved by the Minister of Labour, for implementation from 1 April 2006. The UIF had been administered as a government agency from this date. The Budget Proposal had been designed to align planning, budgeting and service priorities. It was aligned to national and Department of Labour priorities.

Key projects for the year 2006/07 included addressing the compliance of employers in registering workers with the Fund; the completeness of revenue through invoicing; concerns voiced by the Auditor-General; service delivery challenges; institutional reform through agencification; and capacity building.

The proposed revenue for 2006/07 was R8.26 million. Proposed expenditure was R4.19 million, with a reserve of R1.4 million. The surplus for 2006/07 was R2.7 million. When compared to 2005/06, the Budget showed a 9% increase in contributions, and a 27% increase in other revenue from investments. Administration costs had decreased by R13 million due to anticipated efficiencies.

Dr Mkosana emphasised the process of agencification, in the interests of accountability and ring-fencing the Fund. He was aware that the move was controversial, and that the lack of a Public Service Act allowing the delegation of powers to the Commissioner was problematic.

Discussion
Ms Kasienyane enquired what the Fund had done to address the issue of a significant reserve. Mr Seruwe replied that actuaries had looked at the possibility of improving benefits paid to employees without crippling the Fund, and had come up with a proposal around this matter. This proposal was now being looked into by the Fund’s legal team. Dr Mkosana added that new efficiencies had been discovered. Claimants would be more conscious of their rights, and as the UIF was intensifying advocacy campaigns, more claims would be processed. He was confident that claims could be paid without worry about the Fund’s resources.

Prince N Zulu (IFP) commented that the process of agencification had concerned the Committee. He asked whether agencification would have any benefits for the beneficiaries of the Fund. He also queried how the Fund anticipated controlling this until the relevant legislation was in place. Did agencification amount to outsourcing? He also asked for more details on the Siyaya system.

The UIF Executive Manager of Communications, Mr Page Boikanyo, explained that the actual name signified a move from inefficiency to efficiency: ‘we would get there.’ Siyaya was an integrated system for registration, laying claims, paying into the Fund, and placing queries. The idea behind Siyaya was to speed up the claims process, and to cut down on paperwork while allowing clients access to information.

Mr Seruwe then stated that agencification did not amount to out-sourcing as this would entail giving services to the private sector. The UIF remained in the public sector. In terms of benefits to beneficiaries, the UIF would be in a better position to improve service delivery as a government agency.

A Member then questioned how the Fund intended to strengthen employer compliance. He was also concerned with what formula was used in paying out to beneficiaries. Finally, he questioned the outcomes of investigations into the duplication of cheques within the UIF.

Mr Seruwe replied that the enforcement of compliance occurred through the use of inspectors at the labour centres. These inspectors went to employers to ensure they had registered their employees. In terms of legislation, employers were supposed to register, and this was how it was enforced. If workers come to the Fund and had not been registered, it was possible to find those employers not registering workers.

Mr Seruwe stated that with regards to the issue of duplication of cheques, Ernst & Young auditors had carried out a study and had found that no cheques had been issued twice, but that the same cheques had been recorded in different centres.

The Chairperson asked how the Fund had dealt with the recent outcry that Chinese immigrants had taken over the shop-keeping market, and were not registering their workers. This was a particular problem in the rural areas.

Mr Phineas Mathiba, Acting Commissioner of the Compensation Fund, responded that most responsibility in this area was allocated to inspectors. These inspectors reached 280 000 employers per annum.

Dr Mkosana added that, worldwide, the informal sector and small businesses were hard to regulate. Small businesses operated at times as though no legislation was in place. However, the Fund applied the legislation across the board, and no employer was exempt. He said that the Fund was aware of the problem the Chair alluded to, and had set aside time this year to target this area.

The Chairperson was not sure if enough was being done to counter this problem. She also hoped the process of agencification would be successful, and that claims could be finalised within four weeks. Given that there were reports of beneficiaries waiting months to receive benefits, it seemed agencification could only help.

Compensation Fund briefing
Mr P Mothiba (Commissioner at the Department of Labour) gave a presentation of the Compensation Fund’s Budget for 2006/07. The Fund had calculated an increase of 7% in income, 8% in expenditure and 3% in net surplus. The net surplus should be around R1.4 million by 2006/07.

The Compensation Fund’s challenge was to offer greater accessibility, and better quality in a shorter time. They had tried to achieve these goals by improving infrastructure and restructuring units. As a result, a Call Center and a second Provincial Medical Advisory had been established. They also wish to establish a Medical Advisory in each province; an integrated system for claims; and an electronic claims management system.

Discussion
A Member asked how the income from employers was calculated. A delegate from the Department of Labour explained that the employers were divided into sub-classes according to the risk of injuries and accidents in that industry. The employers in high-risk industries paid more than those in low-risk industries. The rate of each class was determined and changed by comparing percentage income with the percentage claims from each class. There might also be individual rates for employers that do an effort to lower the risk of injury. There were also penalties for late submission of returns.

Ms S Rajbally (Minority Front) asked what happened to employees’ contributions. Mr Mothiba replied that the employees did not contribute.

Ms Rajbally also asked how the Department saw the domestic cloth and textile market, now that cheap foreign had products flooded it. Dr Vanguard Mkosana, UIF Director-General, said South Africa had a problem competing with China in the cloth and textile markets. The government was trying to reach an agreement with China in this area.

Mr G Anthony (ANC) asked how the Compensation Fund planned to achieve 70% capacity to process and finalise claims on time. Mr Mothiba replied that capacity today was 50%. He hoped that the Compensation Fund would conquer its challenges by creating an integrated system for claims, and establishing an electronic claims managing system. The latter would mean that the claimant could file a report directly to the Fund instead of bringing the file to the Labour Centre for forwarding. Another delegate from the Department of Labour explained that the lack of an integrated system meant that the one part of the Fund did not know what the other part was doing and caused inefficiency in the system.

Mrs Rajbally pointed out that according to the Compensation Funds numbers, 65 000 people were not aware that they had a claim against the Fund. She asked what the Compensation Fund would do to help them access their claims.

The Chairperson asked how the information about the Medical Advisory and the electrical system would reach people in the rural areas.

Mr Mothiba replied that the Department wished to increase people’s knowledge of their claims in the future. They planned to accomplish this by offering people service at the point of contact in the Labour Centres and by establishing the electronic claims system.

The Manager of Communication at the Department of Labour explained that they were trying to increase people’s knowledge by advertising on SA Broadcasting Corporation (SABC) and commercial radio stations, as well as giving presentations to employees during lunch or teatimes.

Mrs Rajbally asked when the Medical Advisory would be established in all provinces; when the integrated system would come into being; when the Call Centre would be improved, and about the number of backlogs in the system.

Mr Mothiba answered that by the end of this financial year, a Medical Advisory in all provinces and the integrated system would be established. He acknowledged the problem with the Call Centre, but pointed out that it had only been established two weeks ago and that it was a trial system. The Department did not have figures of the backlog in the system since the lack of an integrated system made it very difficult to calculate.

Mr G Anthony (ANC) asked how the Medical Advisory would operate and what its role would be if a dispute on a claim occured.

Ms K Tselane (delegate from the Department of Labour) explained that the Medical Advisory worked with occupational diseases and not accidents. The panel of the Medical Advisory would consult with other professionals when necessary. It also assisted the Minister of Labour regarding issues on occupational hazards.

Mr G Lekaeth (ANC) pointed that when claimants were assisted by lawyers, the compensation from the Fund often did not end up with the injured person. He asked what the Department would do to address this issue. Dr Mkosana said that the Department was currently working on guidelines.

The meeting was adjourned.