Unemployment Insurance Fund & Compensation Fund: Budget & Strategic Plan

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Employment and Labour

18 March 2008
Chairperson: Ms O Kasienyane (ANC)
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Meeting Summary

The Compensation Fund and the Unemployment Insurance Fund briefed the Committee on their strategic plans and budgets for the 2008/09 financial year.

The Compensation Fund indicated how it had improved on clearing the backlog of claims and increased the number of payments to employees. Members posed questions about staff work ethic, employee bonuses and the Fund’s surplus. Members expressed concern about the Fund’s backlog, and believed that it should be addressed as a matter of urgency. In addition, the Committee asked that the Fund deal with issues of capacity and IT systems in its turnaround strategy.

The Unemployment Insurance Fund reported on its improvements in financial stability, infrastructure spending and employment equity. Members examined the Fund’s staffing cost, its large surplus and whether it was to become a separate government agency as originally planned. The Committee said that it was doing an outstanding job.

Meeting report

Mr Shakes Mkhonto, Compensation Commissioner, summarised the organisation’s vision, mission and strategic objectives. . Its core functions were to manage compensation claims, generate revenue through assessments and collections, monitor compliance with the Compensation for Occupational Injuries and Diseases Act (COIDA) and to provide statistics and information on occupational injuries and diseases. The Fund’s strategic outputs for 2008/09 financial year comprised of four components. These entailed obtaining a clear audit opinion, increasing stakeholder awareness and support for the Fund, recruiting and retaining competent staff and enhancing the quality of services to clients. A key strategic objective for the Fund centred on reforming its management and restructuring the entity. This was designed to establish an integrated system, improve capacity and ultimately improve the turn-around time for claim settlements.

Mr Mkhonto listed the Fund’s achievements and challenges. Two key accomplishments stood out; the first was the 84% reduction in backlog claims and the other achievement was the elimination of the cheque payment method. The claims turn-around time and its IT system still remained a challenge for the Fund. The report analysed the Fund’s financial information and projected a marginal inflationary increase of 7% on revenue over the MTEF period.

The Chairperson complained that Members were not afforded adequate time to scrutinise the Fund’s report. She indicated that Members expected to receive such reports at least seven days prior to engaging with the organisation.

Mr Les Kettledas, Acting Director-General, Department of Labour, apologised for this oversight, and gave an assurance that the Department would submit copies to the Committee by that deadline in future engagements.

The Chairperson queried how the Fund was going to address its huge backlog.

Similarly, Mr L Labuschagne (DA) voiced concern about the backlogs, and believed that this should be the Fund’s main priority. Also, he cited an example of someone who continued to be frustrated in obtaining due compensation from the Fund.

Mr Mkhonto admitted that the claim backlog was a major problem. He explained that this was mainly due to missing information on the claim forms. He confessed that the Fund did not follow up on outstanding information and left it up to workers to get the information. He explained that the Fund absolved employers from liability of any injury suffered by employees at work. However, most employers were not aware of this, and believed that they would be in trouble if they gave the right information.

The Chairperson queried how the Fund’s administration expenditure decreased when it was supposed to be restructuring and addressing its capacity challenge.

Mr Pule Tsatsi, Acting CFO: Compensation Fund, explained that the administration cost was reduced primarily because the Fund experienced a huge staff turnover and did not replace these individuals. This factor reduced the Fund’s salary bill and other related administrative issues.

Ms A Dreyer (ANC) thanked the Commissioner for his presentation. She claimed that some of the organisation’s achievements still remained challenges. She asked what the fundamental reason was for all the Fund’s problems. Simultaneously, she suggested that this could be related to its lack of human capacity.

Mr T Anthony (ANC) noted that the Fund did not have sufficient managers and intended to prioritise this area in the current financial year. As a result, he wanted details on how this would be addressed.

Mr M Nene (ANC) contended that the entire Department’s problem emanated from of a lack of human capacity.

Mr Mkhonto could not specify what the Fund’s root cause problem was. Issues of capacity, mismanagement and systems were all factors that contributed to the problem. He agreed that the Fund had not achieved its total objectives. However, he believed that the Fund had achieved small milestones in the realisations of its final goals.

Mr Kettledas replied that the Department had clearly identified the levels of vacancies in the Fund. As a short-term measure, discussions were held to prioritise those posts that needed to be filled as soon as possible so that the capacity could be improved. For the medium to long term, the Fund recognised that it needed to look at its entire structure, and that it was “untenable” to have 47% of its staff as contract workers.

Ms Dreyer enquired about the status of several senior officials who had been suspended.

Mr Kettledas indicated that their hearings had commenced but had not been concluded as yet. As a result, their posts could not be filled while the matter was still being resolved. It was hoped that this matter would be finalised shortly.

Ms Dreyer asked on what basis the Fund paid bonuses to employees.

Mr Mkhonto confirmed that the Fund had a performance management system which was monitored closely. Only one person had received a bonus in the previous financial year

Dr Usha Roopnarain (IFP) queried whether the Fund levied penalties for revenue collection.

Mr Mkohnto answered in the affirmative.

Dr Roopnarain voiced concern about the perceived poor work ethic and low morale at the Fund. She remarked that the mismanagement of documents was a recurring problem for the organisation.

Ms Dreyer also complained about organisation’s work culture and ethic. She believed that the principles of Batho Pele were not adhered to by the staff.

Mr Mkonto attributed part of the problem to the fact that there were no integrated claims and revenue systems, which resulted in the poor quality of service. He also reasoned that service delivery remained poor because of the high turnover of staff, who were mainly contract workers. Finally, he emphasised that all these issues were being addressed in the turnaround strategy

Dr Roopnarain probed two issues. Firstly, she asked how much the Fund paid out in fraudulent claims. Secondly, she asked on what basis the Fund received a qualified audit opinion.

Mr Mkhonto could not quantify how much money was lost through fraudulent claims. The Fund had received a qualified audit opinion in one area namely, revenue management.

Dr Roopnarain asked whether the Fund had a policy on traditional healers. She wondered whether they were on the Advisory Panel and whether an individual could submit a claim from such practitioners.

Dr Aggrey Maake, Chief Medical Officer: Compensation Fund, replied in the negative. He explained that it was not envisaged that a person would be taken to a traditional healer when he had an injury.

Mr Nene could not comprehend why the Fund did not copy the IT technology used by other entities.

The Chairperson probed what measures the Fund had in place to benchmark its IT system to that of the Unemployment Insurance Fund.

Mr Kettledas maintained that the Compensation Fund’s IT system needed to be strengthened. He mentioned that the organisation could not function manually because if one piece of paper went missing, a claim could not be processed. He emphasised that there should be a proper system where all the information was accessible on a single database.

Mr Mkhonto added that the Fund was working towards a system where it could update people on the progress of their claims. An effective IT system was imperative to the success of the Fund’s work.

Mr V Sirkisson, Chief Information Officer, Compensation Fund, explained that the Fund was using outdated legacy systems that were not integrated. Consequently, the Fund needed to finalise its business processes and automate and develop systems around that.

Mr G Lekgetho (ANC) expressed concern regarding the incomplete claim forms. This contributed to the delays and backlogs. He asked what time frames were set for dealing with the Funds 2008/09 strategic objectives, particularly regarding capacity challenges.

Mr Kettledas anticipated that there would be a turnaround within the next year, particularly with capacity, process flow and the IT systems.

The Chairperson asked about the vacancy level in the Compensation Fund.

Mr Kettledas replied that the Department was currently investigating all its entities. In its investigation, it was discovered that Fund had 72 vacancies, and since then it had increased to 81.

Mr L Labuschagne (DA) questioned whether it was the Fund’s job to maintain such a massive surplus.

Mr Mkhonto replied that the Fund was not well off despite its apparent surplus. He explained that the Fund had not made provision for other contingencies such as occupational diseases, which could prove costly in the future.

A member of the Committee queried the state of the Fund at the regional office

Mr Mkhonto confirmed that the regional offices only dealt with enquiries and did not process claims.

Mr Anthony complained that the Fund did not adequately advertise its services, particularly in rural areas.

Mr Mkhonto conceded that the Fund’s communication strategy needed to be improved.

Mr Mzondeki asked for details on the issues raised by the Auditor-General.

Mr Mkhonto replied that the Fund was taking the Auditor-General’s concerns very seriously and this was being addressed through the Office of the Director General.

The Chairperson queried the Fund’s decision to eliminate cheque payments

Mr Mkhonto replied that the Fund had done away with cheque payments because the Financial Intelligence Act required all citizens to operate a bank account so that their movements could be tracked.           

Ms Dreyer questioned whether the Fund was aware of companies that collected monies for doctors. She claimed that these companies were favoured because their claims were processed quicker than all other claims.

Mr Mkhonto responded that he was aware of the existence of these sorts of companies. However, he disputed the claim that they received any kind of preference. He speculated that their claims were processed quickly because they were experienced and knew what information should be submitted

Mr Kettledas mentioned that the Department would be happy to update the Committee on an ongoing basis on how it was responding to all the challenges.

The Chairperson encouraged the Compensation Fund to continue with its turnaround strategy.

Unemployment Insurance Fund
Mr Boas Seruwe, UIF Commissioner, described the organisation’s vision and mission. The Fund’s strategic outputs for 2008/09 financial year comprised four components. These entailed obtaining a clear audit opinion, increasing stakeholder awareness and support for the Fund, recruiting and retaining competent staff and enhancing the quality of services to clients.

The Fund’s most notable achievements in the previous financial year included improvements in financial stability and infrastructure spending. For the most part, the Fund surpassed its employment equity targets and managed to amplify the performance management figures.

Mr Mkhonto provided a projection of the Fund’s expenditure over the next four years. Simultaneously, he tabled the Fund’s expected surplus growth figures over the next three years. By the 31 December 2007, the Fund had achieved a surplus in excess of 14 billion Rand.

The Chairperson raised two issues. Firstly, she asked what target dates were set for the evaluation of the organisation’s strategic objectives. Secondly, she observed that there was a decline in the number of unemployment benefits compared to 2000, and asked the reason for this.

Mr Seruwe clarified that the target period for the evaluation of the strategic plan was the end of the financial year. He attributed the decline in benefits due to the increase in employment in the country and the fact that less people were losing their jobs.

Ms S Rajbally (MF) posed three questions. Firstly, she enquired how the Fund managed to save money on staffing costs. Secondly, she examined whether the Fund experienced similar backlogs to that of the Compensation Fund. Finally, she wondered whether the Fund placed any conditions on employees that it trained.

Mr Seruwe indicated that the Fund reduced its staffing cost because it integrated its services and employees were required to do more than one function. He explained that the Fund had no backlogs because it had decentralised its services. Lastly, he explained that the Department trained some of its employees on condition that they remained in the organisation for a few years. He indicated that other employees were also trained, but without any preconditions, and subsequently left the organisation to “seek green pastures”.

Mr Labuschagne remarked that the Fund should not have such a surplus, and should give the money back to the unemployed.

Mr Seruwe acknowledged that the surplus appeared to be attractive in the current economic cycle. However, he cautioned that there would be a decline in the economy and the surplus would cater for any hardships during that period.

Mr Labuschagne related that the Fund continued to send him letters, demanding payment, even after he had settled his account. He claimed that some of the Fund’s employees lacked a work ethic and a commitment to delivering a service.

Mr Seruwe contradicted this claim, and indicated that the employees were passionate about their work and had a good work ethic.

The Chairperson asked if the Fund had completed the process of agencification where the
UIF would become a government agency. She also asked about the status of the proposed Unemployment Insurance Fund Amendment Bill.

Mr Kettledas explained that there had been a decision that the Bill would not be processed in the current year due to Parliament’s congested legislative programme. He mentioned that the drafting of the Bill was completed. He indicated that the Department had received legal opinion, which confirmed that the Fund did not need to pursue the agencification route but should continue as a public entity.

The Chairperson thanked the Commissioner and his team for doing such an outstanding job. She hoped that all the other entities could emulate the Unemployment Insurance Fund’s great work.

The meeting was adjourned.


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