Department of Labour, Compensation Fund, National Skills Fund & Sheltered Employment Factories: hearings on Qualified Auditor Ge

STANDING COMMITTEE ON PUBLIC ACCOUNTS
21 June 2006
DEPARTMENT OF LABOUR, COMPENSATION FUND, NATIONAL SKILLS FUND AND SHELTERED EMPLOYMENT FACTORIES: HEARINGS ON QUALIFIED AUDITOR GENERAL REPORT 2004/05

Chairperson: Mr T Godi (PAC)

Document handed out:
Department of Labour and Compensation Fund Annual Reports (available at www.labour.gov.za)
Auditor General's Report on Department of Labour, Compensation Fund, National Skills Fund and Sheltered Employment Factories
Department of Labour delegation list (see Appendix)

SUMMARY
A top-level delegation from the Department of Labour appeared before the Committee to explain accounting and financial management problems relating to the department, Compensation Fund, Unemployment Insurance Fund, the National Skills Fund and sheltered employment factories. Members of the Committee subjected the department to an intensive and robust interrogation.

MINUTES  

The Chairperson’s opening remarks described the meeting as an information sharing session to clarify issues. On his instruction, a process of engagement ensued.

Discussion

Mr D Gumede (ANC) enquired who the accounting officer was for the public entities resorting under the Department of Labour (DoL).
 
The Director General, Dr. V Mkosana, replied that he was the accounting officer for the Unemployment Insurance Fund (UIF) and Compensation Fund (CF).

Mr Gumede asked who monitored the operation of these entities.

The Director-General answered that the day-to-day monitoring fell under the purview of the Commissioners of the UIF and CF.

Mr Gumede queried what kind of monitoring the DoL had over the public entities.

The Director-General responded that it had an advisory committee that assisted with monitoring. He added that a work plan was developed annually and that the top management met weekly to discuss problems and assess whether the objectives were being realised.

Mr Gumede asked whether the monitoring included compliance with regulations and laws.

The Director-General answered that an internal audit committee ensured compliance.

Mr Gumede noted the high vacancy rate (in the department) and shortcomings relating to IT and financial management reflected in the Auditor General’s (AG’s) report. He asked what steps the department was taking to remedy this. 

The Director-General countered that the vacancy rate had been reduced to 6%, which was better than the international standard. Furthermore, he said that the department had a partnership with Siemens to correct the skills dearth in the ICT department.

Mr Gumede persisted and wanted to know if the department employed the same capacity throughout all the entities.

The Director-General confirmed that all entities had equal capacity.

Mr Gumede sought to establish whether the department was satisfied with its human resources capacity.

The Director-General expressed dissatisfaction with regards to capacity in the ICT department.

Mr Gumede asked whether the department had the same capacity when the CF received a qualified audit report.

The Director-General answered in the negative. He said that capacity was increased the previous year.

Mr Gumede queried whether the department had a performance contract with its private partner and if this was monitored.

The Director-General confirmed that a standard performance contract existed and conceded that it was a problem monitoring the private partners’ performance.

Mr Gumede accused the department of acting slowly in improving the status of the National Skills Fund (NSF).

The Director-General expressed uncertainty whether the NSF was a public entity. He submitted that an investigation was underway to determine how to help the NSF.

Mr Gumede wanted the view of the Treasury regarding this matter.

Ms J Naidoo, Deputy Director: Labour and UIF (National Treasury) said that they met the department on the issue and advised them what process they needed to follow to list the NSF as a public entity.

The Chairman angrily commented that it was unacceptable that the process was at a tentative stage while the NSF had been around for a long time.

The Director-General answered that nobody understood the legal form of the NSF.

Mr E Trent (DA) wondered if the department was in a position to handle an additional fund.

The Director-General stated that this was possible provided that there was a good plan and a proper structure.

Ms T Tobias (ANC) requested the department to allay her fears concerning the casualisation of workers.

The Director-General acknowledged that the Minister had already voiced his discomfort concerning this matter. Thereafter, he reckoned that this was only a temporary arrangement.

Ms L Mashiane (ANC) enquired how often the project team met.

The Director-General answered that they met on a monthly basis.

The Chairman wanted to know if the Director-General was satisfied that the public entities complied with the Public Finance Management Act (PFMA) and Treasury Regulations.

The Director-General responded that there was compliance “by-and-large”.

Mr V Smith (ANC) disputed that there was compliance and argued that the AG’s report was qualified because of non-compliance.

Ms Tobias agreed with Mr Smith. She complained that half compliance did not equate to full compliance. Furthermore, she felt that there was non-compliance on fundamental issues like financial management.

Mr G Madzikiza (UDM) inferred that the Director-General was incompetent by asking him how he could have let things develop to such a point that the AG’s report had a disclaimer.

The Director-General admitted that he was not satisfied with compliance.

Ms A Dreyer (DA) asked the department what remedial action it intended to pursue.

The Director-Genera; replied that they noted the weaknesses highlighted in the AG’s report and would devise a strategy to address the concerns.

Mr Smith stated that for the past two years this department had not had a clean audit and yet performance bonuses were awarded. He suggested that the department cease all bonuses when it received disclaimers because non-performance was being unduly rewarded.

The Chairman clarified that the audit is a qualified opinion and not a disclaimer.

Mr P Gerber (ANC) asked who had compiled the report.

The Director-General replied that the project managers had compiled it.

Mr Gerber argued that the figures in the AG’s report contradicted the Director-General’s assertion that the vacancy rate was satisfactory.

The Director-General stated that he viewed this matter seriously and would resolve it. He offered that the department was a victim of success due to its staff being poached.

Mr Gerber asked the department to explain how the subsidised motor schemes worked.

The Director-General referred this question to the Chief Financial Officer (CFO) of the DoL. Mr C van der Merwe explained that approval of an application was hindered by the determination that the use of the vehicle was work related.

Ms Tobias observed that there was an element of misinformation. She believed that there were two positions presented in one document: the DoL’s stated comprehensive register but the AG’s report listed an incomplete register.

Mr Gerber questioned why the department under spent and how it intended to avoid this in the future.

The Director-General said that this was his biggest worry and he undertook to meet with the Treasury to ensure that spending targets were met.

Mr Gerber alleged that there was evidence of conflict of interest between the staff and service providers.

The Chairman inserted a rider asking to what extent this had been identified as a problem.

The Director-General declared that this was not an overwhelming problem as their employees were obligated to declare where a conflict of interest arose.

Mr Gerber accused the department of failing to disclose misconduct by employees.

Mr Trent wanted to ascertain what mechanisms were put in place to monitor this process.

The Director-General stated that there was a Tender Committee that monitored the process. He also reiterated that employees were obligated to withdraw from active participation where a conflict of interest arose.

Ms Dreyer advised the department to compile a register where employees could declare their interests upfront.

The CFO proclaimed that such a register existed.

Mr Gerber queried whether the department’s contract with Siemens totalled R1.4 billion.

The CFO replied that the initial contract was for R120 million per year for ten years. He continued that this figure would escalate because CPIX (inflation rate) and services fees would be included.

Mr Gerber sought to establish why details of the performance bonuses allocated were not incorporated in the report.

The Director-General said that these details were not available at the time of preparing the document.

Questions around the report of the NSF
Mr Madikiza asked what accounting system the department used for the NSF.

The Director-General answered that a modified cash basis of accounting was used.

Mr Madikiza queried when the Committee would see a positive turn around for this Fund.

The Director-General hoped to report positive news at the end of the financial year.

Mr Madikiza asked what monitoring mechanisms the department had to ensure that these funds were spent for their intended purposes.

The Director-General answered that each province identified and monitored the projects.

Mr Trent voiced his dissatisfaction with the Director-General’s answer and urged him to elaborate.

The Director-General responded that quarterly visits were conducted to enhance monitoring and that any deviation on the progress plan resulted in the withdrawal of funds.

Ms L Mashiane (ANC) asked the Director-General whether he visited any projects to see if there was value attached to them.

The Director-General said that he as well as the Minister visited projects regularly.

The AG remarked that there were issues around the legal framework of the NSF and asked the Treasury to comment whether the NSF should be categorised as a public entity.

The Treasury viewed the NSF as a public entity.

The Director-General argued that this was an area of disagreement with the Treasury.

Questions around the report on the Sheltered Employment Factories (SEF)
Mr Gumede said that the mandate of the company was outdated and had not been updated since 1983. He pointed out examples of discriminatory practices that still appeared in this document.

The Director-General agreed with these sentiments and indicated that this embarrassed him.

Mr Gumede highlighted that the SEF only catered for war victims and did not include members of the Azanian Peoples Liberation Army (APLA) and the SA Defence Force (SADF).

The Director-General bemoaned the chaotic status of the SEF.

Mr Smith took issue with the fact that money was written off. He was particularly irritated by the wages suspense account write off.

The Director-General remarked that not the entire amount was written off because an investigation revealed that some money owed by the old TBVC states could be retrieved.

This revelation incensed Mr Smith. He argued that these amounts were more than likely unrecoverable.

Mr Gumede asked what sort of action was taken in respect of the unauthorised disposal of assets by the staff.

The Director-General answered that staff that engaged in such practices were subjected to internal disciplinary hearings and/or criminal charges.

Mr Gumede challenged the department to produce a report within 30 days on corrective actions taken.

Questions on the Compensation Fund
Dr H Bekker (IFP) asked what the vacancy rate was at the CF.

The Director-General replied that it was at 7.5%.

Dr Bekker persisted with why there was such a high level of temporary staff.

The Director-General acknowledged that the backlog meant an increase in temporary staff and that it would be premature to create permanent posts without a thorough process.

Dr Bekker wondered whether the Director-General was satisfied with the database and claims

The Director-General responded that he was satisfied.

Dr Bekker observed that in the previous year there was a forensic audit and now a qualified report against the CF.

Mr Trent asked whether the casualisation of workers would lead to poor control.

The Director-General was adamant that there were layers of supervision to exercise proper control.

The Chairperson gave an overview of the matters discussed and encouraged the department to improve.

The meeting was adjourned.


APPENDIX
Department of Labour Officials attending the SCOPA briefing on 21 June 2006

1. Dr V Mkosana: DG

2. Mr. L Kettledas: DOG: LP & LMP

3. Ms M Xaba: DOG: CS

4. Mr. S Mkhonto: DDG: SD

5. Mr. S Morotob:  (Acting DOG: ESDS

6. Mr. C van der Merwe: CFO for DoL

7. Mr. P Mothiba: Acting Compensation Fund Commissioner

8. Mr. G Dreyer: CFO for Compensation Fund

9. Mr. J du Preez:  Chief Director for NSF

10. Mr. L Larson: Manager at Sheltered Employment Factories.

11. Mr. B Maja: Chief Director responsible for Sheltered Employment Factories