Unemployment Insurance Fund and Compensation Fund: Budget & Strategic Plan 2007/08

LABOUR PORTFOLIO COMMITTEE
14 March 2007
UNEMPLOYMENT INSURANCE FUND AND COMPENSATION FUND: BUDGET & STRATEGIC PLAN 2007/08

Chairperson: Ms O Kasienyane (ANC)

Documents handed out:
Department of Labour Unemployment Insurance Fund presentation
Department of Labour Compensation Fund presentation

Audio recording of the meeting

SUMMARY
The Unemployment Insurance Fund briefed the Committee on its key financial strategies, and reported that in the forthcoming year it aimed to improve contributions from employers, to guarantee compliance, to reduce losses, and to enhance management and reporting. It further aimed to improve revenue inflows by at least the Consumer Price Index, to achieve a clean audit report, to decrease administration costs, and to work more closely with communities and to increase awareness. Taxi owners were targeted for inclusion in the Fund. It reported on the successful decentralisation, efforts to improve response time, customer care courses and the bursary scheme. It had implemented a ring fencing system for assets and staff. The estimated budgets were tabled, and total costs were estimated at R945 million. Most of the investments were in government bonds, South African banks and state entities such as Eskom. There had been improved institutional capacity. Questions by members related to agency certification issues, problems in contribution collection, retention strategies for staff and the bursary schemes, the length of time to process claims, the reasons for over and under payments, the criteria for making investments, the sectors to be targeted, and the appointment processes of staff. The Committee indicated that SARS might be able to assist in collection work.

The Compensation Fund briefed the Committee on its general function. The budget projected total income of R4,3 billion, and there was a budget of R2.2 billion of claims. The projected amount for bad debts for 2007/08 would be increased by 114% to R396 million. The Fund indicated how it had improved the backlog of claims, and reported dramatic improvement in the number of compensation payments to employees, the rand value compensation to employees and the number of medical aid payments for 2006/07. The achievements, challenges and priorities of the Fund were set out. Medical panels had been established in two provinces. Major challenges included the ability to generate income, address backlogs and find solutions to delays in submitting documents. It would be aiming for management restructuring and reforms, enhanced claim turnaround times, extending the medical panels to all provinces and implementing a communication strategy that would provide information to all their stakeholders.
Members asked questions on other programmes, and suggested again that SARS could be of assistance in collecting income. Further questions were asked on the infrastructure requirements,  the methods of advertising, the use of the reserve surpluses, sharing of information and systems with the Unemployment Insurance Fund, and bad debts

MINUTES
Unemployment Insurance Fund (UIF): Budget and Strategic Plan briefing
Mr Boas Seruwe, Acting Commissioner, UIF set out the key financial strategies for the UIF. These included to improve contributions from employers, to guarantee compliance, to reduce losses, and to enhance management and reporting. UIF wished to continue its drive towards a multi-skilled workforce through the recruiting and retaining of competent workers. There had been good strides in employment equity and UIF had hired five new black females in management positions. One white male had been hired as a deputy-director and three white females had also been put in management positions. It aimed to achieve a level of satisfaction in the workforce.

Mr Seruwe stated that the UIF’s overall financial strategy aimed to improve revenue inflows by at least the CPIX (Consumer Price Index) and to improve their submissions of declarations by 5% on the previous year. It also wished to achieve a clean audit report and comply with the Public Finance Management Act (PFMA). It wished to ensure that all those entitled received payments from the UIF, and to bring down the administration costs. It aimed to work more closely with communities to create a safety net for the unemployed, to help people sooner and to increase awareness of the UIF and its benefits, such as maternity leave benefits. It also aimed to register 40 000 taxi owners.

Mr Seruwe said that there was a need to undertake a client survey to be able to be more efficient and helpful. It would continue with the learning and education programmes and focus on four areas in each province. It had managed to decentralise claims and paper-flow. Decentralisation had allowed UIF to obtain 95% of all claims within six weeks of notification. It aimed to improve ICT systems availability and response time, and a project had been initiated to allow some SARS employees to declare and pay contributions on line. Customer care courses had been run for employees to enhance UIF’s quality of service. Another achievement was the generous bursary scheme that enabled two employees to study towards their Master in Business Administration degrees. There had been a strategic partnership with SABC, which had allowed for increased stakeholder awareness through a public awareness campaign that reached about 20 million people.

Mr Seruwe added that the UIF’s decentralisation efforts had improved access from 14 to 33 labour centre sites nationwide. This allowed for quicker response times and greatly empowered the labour centres. UIF would now be carrying out its own internal audits. Its ambit would increase in the next fiscal year by 2.5%, to 6.6 million employees. The target in terms of assets had been exceeded and it now stood at R18.2 billion. The fund was managed by the PIC (Public Investment Corporation) and R10, 5 billion was held in government bonds,  which meant that UIF was contributing to South Africa’s infrastructure development.

 Mr Seruwe said that the ring-fencing system had been implemented. The Information and Communication Technology division had decided to continue with two projects. This enabled decentralisation of the labour centre level.

Ms Fezeka Puzi, Executive Manager:Finance, UIF, briefly outlined the budget proposal. She said the four main objectives were to earn a clean audit, increase stakeholder awareness of the UIF, recruit and retain staff and provide a better service to users. She tabled the operating costs and provision for expenditure for the years from 2007 to 2010, and listed the write off of debt and depreciation of assets. It was estimated that total operational costs would be R 802 million for 06/07. In 2007/08 there would be a decrease in provision for debt, and total costs were estimated at R945 million. Goods and services would see a steady increase and there would also be a steady growth of operating costs. She stated that UIF generated revenue from private banks through investment decisions of the PIC, and also from late payments from contributors. It was added that the increase of R143 million resulted from staff increases as a result of ring-fencing.
Ms Puzi concluded that the prospects for the UIF were good. Most of investments were in government bonds, South African banks and state entities such as Eskom. There had been improved institutional capacity, and better results from decentralisation and improved client care.

Discussion
The Chairperson asked if agency certification issues had been finalised.

Mr Seruwe responded that the target was 31 March 2007 and that by January 2007 UIF had already achieved 95% of this target. UIF had already ring-fenced the staff and the assets still remained. This would be easier because assets were linked to personal numbers that would be put into a database. The Director-General had also improved the structure of the provincial system. The other issue was the corporate structure of the UIF. It initially said that it should be a government agency, but after careful consideration it realised that this classification would leave it in the same position in terms of the work that would remain to be done in conjunction with the Department of Labour. For instance, the annual report would have to form part of the Department’s report. The Minister then took the decision that the UIF should remain a public entity.

Mr B Mkongi (ANC) welcomed the report and asked what were the specific problems of contribution collection for the UIF.

Mr Seruwe replied that not all employers were paying towards the UIF, and an example was the taxi industry. There were a number of domestic employers who were not registered and still others who were registered, but were not contributing.

Mr Mkongi asked what the retention strategies were for the UIF staff. He commented that the bursaries, although laudable, could lead to staff being offered better salaries from other businesses or government entities.

Mr Seruwe stated that UIF had a performance management system that did not rely on an annual, but rather on a quarterly performance assessment. Every manager had to assess the staff and reward them according to merit. He believed this approach retained staff. UIF aimed to create an environment that provided employees with a challenging yet rewarding work experience. It was doing as much as possible to prevent employee boredom, which was a major reason for resignations, and also prepared people for promotion.

Mr Seruwe added that the staff who studied further, with UIF assistance, did so knowing that their skills would be needed, and they were therefore ensured of a place in the UIF. A bursary holder would be required to complete a certain number of years work for UIF after graduation, or to repay certain amounts. UIF would also try to match any other offers from other firms to employees who had completed post graduate studies. He said that the UIF had a committee that determined who should be allowed finance to study further. There were currently 470 vacant posts, with 169 being managerial positions. A rigorous process was presently being conducted to fill these positions. UIF was confident that there was no crisis and the target for filling the posts was in the next financial year.

Mr Mkongi asked how long it took to process benefits claims.

Mr Seruwe replied that the current time frame for finalisation of claims was around six weeks but UIF hoped to better that time, with better technology and decentralisation, and try to complete a claim in about four weeks

Mr Mkongi also wanted to know why there were underpayments and overpayments.

Mr Seruwe said that this was a thorny issue. UIF would pay a person as long as he / she was unemployed. Once employment was found, the beneficiary was supposed to tell the UIF so that unemployment benefits could be stopped. There was now an integrated system that identified a situation where a person was drawing benefits although they were also being paid. If an overpayment was identified the UIF would try to recover the money. People who were caught trying to defraud could be suspended from claiming in the future. Under payments were caused when there was under-declaration of the salary or wages by the employer. This often was rectified through a new declaration and payments would be changed accordingly.

Mr M Mzondeki (ANC) asked what criteria were used to determine if investments could be made in banks.

Mr Seruwe replied that before UIF could make decisions it would have to consult with National Treasury, who, in turn, owing to its close relationship with the Reserve Bank, could then allow or disallow investments based on Reserve Bank counselling. The PIC also made investment decisions for the UIF and part of their decision-making process was to look at the banks’ corporate social responsibility programmes as well as their employment equity.

Mr Mzondeki was happy that the UIF was targeting communities. He said that Parliament would be happy to work with them in this regard. He asked if there were any other industries or sectors that were being targeting for registration besides the taxi industry.

Mr Seruwe replied that UIF was focusing on the taxi industry because the Unions had approached UIF with a request for assistance,  and because it was an area of major non-compliance. He added that they were also focusing on other areas.

 The Chairperson asked about the appointment of senior personnel and in particular when the UIF would be able to find a permanent Commissioner.

Mr Seruwe replied that overall responsibility for this lay with the Minister and that all processes should have been completed by March 2007.

The Chairperson stated that SARS had been very successful and effective in helping the UIF with collections. She asked if the UIF would consider allowing SARS do all of its collections work.

Mr Seruwe said that SARS had actually collected more than the UIF did itself and that they would certainly give it consideration.

Compensation Fund Briefing
Mr Shakes Mkhonto, Deputy Director-General, Department of Labour (DOL), stated that the mandate of The Compensation Fund was to administer the Compensation for Occupational Injuries and Diseases Act (COIDA), which provided compensation for death or disablement caused by occupational injuries or diseases sustained or contracted by employees in the course of their employment. The core functions were to manage compensation claims, to generate revenue through assessments and collections, to monitor compliance with COIDA and provide statistics and information on occupational injuries and diseases.

Mr Gawie Dreyer, CFO: Compensation Fund, gave details about the annual budget process. The Compensation Fund was a Schedule 3 Entity and its budget had to be submitted to the Executive Authority at least six months before each financial year. He said that the budget for 2007/08 had been approved by the Minister within the prescribed time. He reported on the breakdown of the expenditure for the last financial year. He then tabled the budget. It was projected that assessment income would be R3,1 billion, and investment income R1.1 billion. He explained that “other income” referred mainly to third-party claims from the Road Accident Fund. Projected total income would therefore increase by 3,2% R4, 3 billion. The Fund had budgeted for R2.2 billion of claims. The projected amount for bad debts for 2007/08 would be increased by 114% to R396 million. The reason for this was that there had been problems during the current financial year with the debt collection company that assisted the Fund and it had ended up not being able to complete all the debts that should have been done in this year.
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Ms Kefilwe Tselane, Executive Manager: Claims, The Compensation Fund, indicated how the Fund had improved its backlog of claims. She said that there had been an increase in the number of claims completed in a shorter period. The Fund has also managed, in the fatal accident pension category, to pay an average of 50 claims within 49 days. Pensions to widows or children were paid at an average of 44 claims within 59 days. The number of claims being completed had risen significantly. The Fund now believed that it had its claims payments processes in hand. There been dramatic improvement in the number of compensation payments to employees, the rand value compensation to employees and the number of medical aid payments for 2006/07.

Ms Tselane reported on the achievements, challenges and priorities of the Fund. The obvious achievements had been the improved claims settlement for both old and current claims, financial stability, decentralisation and the start up of a call centre which handled in excess of 10 000 calls per week. The Fund also established medical panels in Cape Town and Kwa-Zulu Natal. Challenges included the increase of quality and access to services, including compensation benefits, increasing the Fund’s ability to generate income, address the backlog and find solutions to delays in reporting accidents and submissions of documents. Another key challenge was to address delays and the handling of Section 51 and 56 hearings. The major priorities included management restructuring and reforms, enhanced claim turnaround times, extending the medical panels to all provinces and implementing a communication strategy that would provide information to all their stakeholders.

Discussion
The Chairperson asked if there would be any other programmes to focus on the remainder of the backlogged claims.

Mr Mkhonto replied that there would be, and these were being designed at the moment with specific reference to the backlog. He added that it would not take much longer given the success of the initial phase.

The Chairperson also said that it might be worthwhile for the Compensation Fund to make use of SARS in their assessment collection income, seeing that they were highly-effective with collections relating to the UIF.

Mr Dreyer replied that the Compensation Fund would be doing a review of the complete assessments of employers with regards to collections. Making use of SARS would definitely be one of the options to consider.

Mr Mzondeki said that it seemed that turn around was still a problem and that it appeared to be a question of infrastructure, especially with the medical panels in the provinces. He asked the Fund to let Parliament know if there was any assisting role that it could play. He commented favourably on the good response to claims problems in the Western Cape.

Ms Tselane responded that before a panel could be set up in an area the Fund would first need to find a mini-hospital with equipment such as lung testing machines. In the Western Cape, Gauteng and Kwa-Zulu Natal the Fund used the lung testing facilities of universities. It was a problem in other areas. In the Eastern Cape, the Fund would use the equipment of the Provincial Health Administration and getting all parties on board to create the necessary infrastructure was important in meeting the July 2007 deadline.

Mr Mkongi commented that an advertisement that appeared regularly on SABC 1 was only in English. He asked if there were other advertisements on the radio or in print media that were in other languages, and catered for blind or deaf people.

Mr Mkhonto replied that the Fund had decided that the television advertisements would be most cost-effective if run only in one language that most people could understand. There were other forms of advertisements in newspapers, which deaf people could read and there were radio advertisements to cater for the blind.

Mr Mkongi asked what was being done with the reserve surpluses.

Mr Dreyer replied that this money was also invested with the PIC. The actuaries of the Fund were also doing annual evaluations of the Fund and would put aside some of the surplus for pensions. A small portion of the surplus went to outstanding claims and merit rebates. The rebates were refunds to certain employers made during a three-year cycle. These employers were rewarded for lessening accidents and for having favourable claim costs.

The Chairperson asked if the UIF and the Compensation Fund shared information, since sometimes they may be dealing with the same people.

Mr V Sirkisson, CIO: Compensation Fund, replied that they did collaborate a great deal with each other. The entire call centre and information system had been upgraded with the same systems as those of the UIF. They had also begun comparing databases to see if there were any clients that were registered with the UIF, but not with the Fund. The roadmap for the future included a fully integrated system. This system would make use of information from the UIF, the Compensation Fund and the Department of Labour.

Mr E Ntsholi (ANC) asked why there were bad debts at the Fund.

Mr Dreyer said that the Compensation Fund had faced some serious capacity problems but was addressing the way they received the collections from the employers. Comparing this year to last, there was a 16% increase in collection figures. The process would be a long one, but the Fund was making progress.

The meeting was adjourned.