Department of Labour, National Skills Fund & Sheltered Employment Factories: Interrogation of Auditor General’s Report for 2005/

LABOUR PORTFOLIO COMMITTEE
31 January 2007
DEPARTMENT OF LABOUR, NATIONAL SKILLS FUND & SHELTERED EMPLOYMENT FACTORIES: INTERROGATION OF AUDITOR GENERAL’S REPORT FOR 2005/6:

Chairperson: Ms O Kasienyane (ANC)

Documents handed out:
Department of Labour Presentation to the Portfolio Committee January 2007

SUMMARY
The Department of Labour’s audit report for 2005/6 had contained a number of qualifications and matters of emphasis in regard to the statements of the Department itself, the National Skills Fund and the Sheltered Employment Factories. Each qualification and matter of emphasis was fully set out and explained by the Department, and lists of the corrective actions taken were tabled. The qualifications ranged from lack of asset management, through lack of adherence to Treasury Regulations, generally accepted accounting principles, lack of checks and reconciliations, problems in matching performance indicators with strategic objectives, lack of security of information and accident reports. The training centre Indlela, aimed at training artisans, had been underutilised, but corrective measures were being taken. In regard to the sheltered employment factories project deliverables had now been identified and corrective measures taken in regard to inventory problems. The Department had now decided to list the National Skills Fund, and the legislation to convert it to a separate entity was contemplated for April 2008. The Department sought to reassure the Committee that the internal control weaknesses were being addressed, that restructuring of the finance department was taking place, that training was due for completion by 31 March, that the data backup systems had been strengthened, and that IT plans were being drawn. A disciplinary process had been concluded and a senior official discharged from the Public Service. DOL was working hard to correct the problems and ensure they did not recur.

Members asked questions on the manner of dealing with inconsistencies, implementing reports and monitoring, the staff debtors and medical expenses accounts, the location of sheltered employment factories, and whether there were hostel facilities, and the leasing of property. The problems in attracting and retaining skilled staff were canvassed, and members asked if the skills
 problems were indicative that the Skills Education Training Authorities had failed. Further questions were raised on the deadlines for corrective action, the disposal policy for the National Skills Fund, the irrecoverable debts, and the working of the internal audit committee.

MINUTES
Department of Labour (DOL) Briefing on problems and corrective measures
Dr Vanguard Mkosana Director General, DOL outlined that the Department had received a qualified audit for the year ended March 2006. In regard to asset management, he explained that asset management had been identified as a problem, and outlined the corrective measures taken, including the drafting of a comprehensive asset register, reconciliation of assets, data capturing, verification measures, inventories and back-capturing information.

The various emphasis of matter reports by the Auditor General were fully set out in the presentation, and detailed lists of the corrective action taken were tabled. The emphasis related to independent checks and reconciliations, lack of full adherence to Treasury Regulations 8.3.4 and 8.3.5 in regard to payroll reports, and Regulation 8.2.3 in regard to expenditure approval forms. The performance information in the Annual Report had not agreed with the objectives on the approved strategic plan. Physical security of resources had been a problem. Policy framework plans were now being drawn. Accident reports were now being properly compiled, taking advice from the International Labour Organisation (ILO).

In regard to the training centre Indlela, Dr Mkosana reported that corrective measures had been taken to address the underutilization reported upon and there was a slow but steady increase of numbers. The numbers of artisans trained was linked to the economic conditions of the country over the years. Workshops had been converted to technical training facilities. The core areas of training were detailed. DOL would be reviewing salary levels of artisan assessors during the currect year to align them with market rates to retain skilled staff. The hair salon trainng scheme was now being used properly.

Dr Mkosana reported a further problem that had existed on rent for residential buildings and money paid for meals. The DOL was in consultation with Department of Public Works (DPW) but rentals were causing a problem throughout all government departments and the matter was moving slowly. Mr Mkosana stated that there was no database in relation to historically disadvantaged individuals (HDI), as no service providers had responded to the advertisements. Control over new materials, delay in obtaining new contracts and a new monthly stock taking system were all being attended to.

In regard to the sheltered employment factories, the Auditor General had reported  that the asset register was incomplete and inaccurate. Dr Mkosana detailed the steps taken to address this. Project deliverables had been identified, and the project was due to be completed by 31 March 2007. Corrective measures had also been taken in regard to the inventories. Job profiles had now been compiled for all finance staff, and training programmes had commenced. A new Chief Financial Officer was being recruited and should be appointed by 31 March. IN regard to other problems identified with leave provision, impairment of debtors, debtors lists, and cash reporting, accounts payable, suspense accounts, revenue recording, supply chain management, and non compliance with set laws and procedures, Dr Mkosana once again detailed all the steps that had been taken to satisfy the Auditor General that the matters had been corrected.

With regard to the National Skills Fund (NSF) Dr Mkosana reported that the past financial statements had not complied with the Generally Accepted Accounting Principles (GAAP) system but this had been amended. Following referral of the qualifications by SCOPA to this Committee, the DOL had decided to list the NSF and this should be completed by April 2008. The necessary preparation of a business case and legislation was under way. The debt management policy of DOL would also apply to the NSF. The remaining ring fenced Mandab funds had been discl9osed in the past financial statements of NSF and would continue to be disclosed.

Although the presentation only focused on what was going wrong in the Department, Dr Mkosana reassured the Committee that the internal control weaknesses were being addressed, that restructuring of the finance department was taking place, that training was due for completion by 31 March, that the data backup systems had been strengthened, and that IT plans were being drawn. A disciplinary process had been concluded and a senior official discharged from the Public Service. DOL was working hard to correct the problems and ensure they did not recur.

 Discussion
The Chairperson explained that although the National Skills Fund was meant to give a presentation, Dr Mkosana’s presentation had covered all the necessary issues. She reminded the Committee that the Department was meeting with SCOPA on 7 February 2007. In addition she noted that it would be important that the Committee be informed about the removal of the NSF from the Department, especially with regard to the fate of the staff and how the Department would fill the gap.

Mr B Mkongi (ANC) stated that the Department needed to take note of the problems with the system, capacity and skills shortage. He added that in the Auditor-General’s audit of outcomes there were recommendations that reflected on performance measures, monitoring, guidelines, and corporate governance principles. In relation to the audit of outcomes, Mr Mkongi asked the Department how it was dealing with inconsistencies, how it implemented reports and how it understood policy to be monitored.

Dr Mkosana responded that the Department was continuously looking at the matters mentioned. Top management met with the Minister and came up with innovations whereby top management were placed in a position to give strategic direction to their supporting staff so that these more junior staff would be constantly trained and put in a position where they could be able to take over when the top managers left. The Department was currently creating space to make people be where they are supposed to be.

Ms H Weber (DA) asked Dr Mkosana to elaborate on staff debtors and the medical expense accounts.

Mr P Zulu (IFP) asked how staff debtors came about.

Dr Mkosana explained that the Department was a large one. It had 139 offices and one head office, so that for the Department to function as one unit staff would have to move from one place to another to interact with other staff and the pubic to ensure services were delivered. Owing to this movement the Department provided managers with advances for training, which should be returned if not utilized. Some had left employment before repaying or accounting for the advances. He added that the Department was attempting not to give staff cash advances.

Ms H Weber raised her concern about learners from rural areas and asked whether sheltered employment facilities offered hostel accommodation nearby.

Mr Len Larson, Acting CEO: Sheltered Employment Factories responded that twelve factories were located in the main metropolitan areas and that the Department tried to provide transport systems. He noted that in the past six years the DOL had unfortunately only taken 46 people and hoped that as soon as the marketing was improved the factories would employ more people. On that note he stated that there were no hostels near sheltered employment factories. In terms of medical suspense accounts, he responded that the Department was still working on this.

Mr Zulu asked whether the Department had started doing away with leasing property or whether this was still in conceptual stage. He also enquired whether the Department had included this in its budget and if there were enough funds to carry it out.

Dr Mkosana stated that the DOL leased property all over the country. If there was government property available, it would be used, but if not then DOL would utilise private property.

Mr C Lowe (DA) noted that the Department had a number of vacancies yet it seemed unable to employ staff who could do the jobs. He asked why DOL was not filling the positions. Mr Lowe also spoke about the reintroduction of artisanship, amending the Skills Development Act and asked whether the skills problem was an indication of the skills education training authorities’ (SETA) failure.

Dr Mkosana responded that the Department developed its staff but when they became well qualified, they were enticed by the private sector or other Departments who offered them higher remuneration. The Department at the moment had 421 vacancies, but these figures had reduced to a 6% vacancy rate. He noted that the Department had no justification for the vacancies that remained unfilled for months; the Department implemented a mechanism to replace staff as soon as possible. In response to the SETAs, Dr Mkosana stated that SETAs were not failing, although there were admittedly weaknesses in some SETAs, which the DOL was seeking to address. He added that the system was young and very important. The apprentice systems, and Manpower Training Act were repealed when the Skills Development Act was enacted. He noted that the Department continually developed apprentices and that there had been a raise since its enactment.

The Chair asked Dr Mkosana whether he thought the Department needed a deputy minister.

Dr Mkosana responded that the DOL was a huge Department, and anything that would facilitate its working was welcome.

Mr S Siboza (ANC) asked the Department whether it was going to meet its ambitious deadlines. He supported the D-G’s skills development assessment, and proposed that the Department should inform the nation about the impact on unemployment and poverty. He stressed his concerns about the turnover of staff and suggested that the Department should give a deadline specifying when vacancies would be filled. He also asked why the DOL could not pay as much as other Departments.

Dr Mkosana responded that the Department deadlines were realistic. He also stated that he had stressed to management to take their work seriously so that the deadlines have been put in place by people who do their work. He admitted that the Department set ambitious standards but still strove to achieve them. He stated that the NSF matters should be reaching parliament by April 2007. This was ambitious, and might not happen, but DOL was pushing for it. The question remained how best to turn NSF into a public entity.

Mr Siboza asked whether the DOL was following debates on the review on public entities.

Dr Mkosana responded that the Department had taken these issues into consideration.

Mr T Anthony (ANC) asked how the Disposal Committee had been put in place and whether there was a disposal policy.

Mr Larson responded that Disposal Committees had no power, they simply had guidelines to follow and they made recommendations that the Director-General had to approve. However, no recommendations had been made as yet.

Mr G Lekgetho (ANC) asked whether irrecoverable debts could be withdrawn from Departments. He also proposed that underutilised vehicles be transferred to areas of need rather than being withdrawn.

Dr Mkosana responded that the DOL had a policy in place to write-off irrecoverable debts when they could no longer trace a person, to put the books into order.

Mr O Mogale (ANC) raised the question whether the Audit Committee was working. He noted that if audit commmittees were not effective, reports would not comply with the Auditor-General’s requirements. He asked if Indlela could be transformed into an institution that produced people with skills.

Dr Mkosana responded that the Audit Committees were functional and effective, especially the internal Audit Committees. With regard to Indlela, decentralisation had already been done, and now it hoped to address issues of people who, although skilled, had no certificates.

Mr Mogale also asked how long the R12million debt had been in existence, and whether the debtors were willing to pay, if not, whether there was a possibility of writing off the debt. 

Mr Larson responded that the R12million debt dated back to 2003/04, and noted that the Department had been trying to reconcile this matter over a period of time. If DOL could prove the moneys were unrecoverable, steps for write-off would be taken.

The meeting was adjourned.