UIF & Compensation Fund Annual Reports 2007/08

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Employment and Labour

19 January 2009
Chairperson: Mr M J Mzondeki (ANC)
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Meeting Summary

The Commissioner of the Unemployment Insurance Fund outlined its financial performance and a summary of financial achievements. Gains in operations performance were presented and the decentralisation of functions was highlighted as one of the UIF's most important goals. An increase in the total benefit payment was noted. He reported on social security reforms, stakeholder engagements, people management and corporate governance. The matters highlighted in the Auditor-General’s audit report were discussed and the progress made in this financial year as well.

The members expressed concerned about the insufficiernt numbers of taxi drivers and domestic workers registered with the Fund. Concerning UIF benefits for new mothers, the role of agencies was queried. Clarity was sought on the vacancy rate, if the labour force training the UIF was considering introducing was relevant to the South African labour market and if its own staff training produced results. The UIF was asked how they determined increases and decreases in unemployment and if their surplus could be used to increase unemployment payments. The UIF was asked if the decrease in operational expenditure was a reflection of increased efficiency. The lack of maintenance of rented buildings was raised as a concern as was the accessibility of their services to seasonal workers. The UIF was also complimented on taking their services to the people in cases of recent large-scale retrenchments.

The Compensation Fund provided a background to the state of affairs in the Fund. They reported on the critical challenges faced by the Fund, including a diminished management structure, disciplinary action against managers and the process of constructing a new organisation under way. It was emphasised that there was a plan to get reach their objectives and that Parliament should hold them to that plan.

The members appreciated the open approach of the Compensation Fund on the problems they faced. They queried the extent to which the Fund would consider tenders for outside companies to do work on their behalf. The delegation was asked about the accidents in the construction sector with a view to 2010. The R400 million in unpaid claims was noted as a matter of particular importance. The members asked how they maintained staff morale and queried the reasons for the dismissals and the incidence of fraud in their disciplinary action cases. The members suggested that the Fund tender for a better IT system and highlighted the problem of employees working in an acting capacity, accompanied by the delays in appointing new staff. Other questions concerned the capabilities of the Fund’s employees to cultivate service delivery, the inclusion of foreign workers for compensation and the plans to employ a service provider and how this would affect the construction plans related to the 2010 deadlines.

 

Meeting report

Mr M Mzondeki (ANC) reported that due to the other political responsibilities, the Chairperson (Ms O R Kasienyane) would not be able to attend. As a result, he would serve as Acting Chairperson.

Ms A Dreyer (DA) pointed out that there was a total of five members in attendance and as most of the members were opposition representatives they did not form a quorum. She expressed concern at proceeding without a quorum.


The Acting Chairperson responded that the point had been noted and that he would communicate with those members. He ruled that the Committee members present would take the briefings and suggested that it was necessary for the other members to be present only at the deliberations.

Unemployment Insurance Fund (UIF) Annual Report
Mr Boas Seruwe, UIF Commissioner, outlined the presentation according to financial performance, a summary of financial achievements as well as financial and budget information versus actuals. He examined their gains in operations performance. The decentralisation of functions was highlighted as one of the UIF's most important goals. There was an increase in the total benefit payment according to the summary of benefit payment per category. Other matters covered were the social security reforms, stakeholder engagements, people management and corporate governance. The matters highlighted by the Auditor-General (A-G) report and their progress in solving these were discussed.

Discussion

The Acting Chair commented that he was happy to note the improvement of the UIF. He was pleased that Mr Seruwe had noted the unemployment challenges posed by the global economic crisis, as the unemployed relied so much on the UIF. He commended the UIF on taking the fund to the people. He was, however, concerned about the insufficient numbers of taxi drivers and domestic workers registered with the UIF.

Mr Seruwe responded that it UIF's role was to help the Department of Labour (DoL) with the taxi industry. He added that, as parliamentarians had relationships with the unions, it could assist the Department and the UIF in discussions with the taxi associations in their constituencies.

Ms Dreyer commented that the unqualified A-G report was a welcome change. She referred to the comments on the turnover time for payments and asked what the average period was for a claim to be processed. She further asked what happened to beneficiaries who claimed outside that timeframe and what the reasons were for the delayed payment to such beneficiaries.

Ms U Roopnarain (IFP) asked how long it took (on average) to process a claim.

Mr Seruwe responded that previously, it was six weeks but that it had now gone down to five weeks. When the statistics were examined, however, one would find that 70% of claims were paid in that target period, while the remaining 30% falls outside that period of five weeks. The main reason for this delay were that often claimants were not on their databases. The UIF then needed to communicate with the employers for information about the person. The predicament the UIF found themselves in was that employers were often uncooperative and were of the view that if they declared the number of staff to the South African Revenue Service, they would not also need to declare that to the UIF. They then had to send inspectors to beg employers for that information.

Ms Dreyer referred to the specific groups mentioned by the Mr Seruwe, such as domestic workers and taxi driver. She also noted mothers of newborn babies and complaints she had received in her constituency from the agencies representing these mothers. The agencies were saying that it was difficult for them to get assistance at the unemployment offices. She asked what the role of these agencies was, what the UIF and DoL policy was here and for clarity on the perception that they were not keen to deal with these agencies.

Mr Seruwe responded that the law states that people can send others in their place for these services. However, for unemployment benefits, people must come in person. The UIF did have separate queues for mothers so that they did not have to queue all day. The services of the UIF were free and it was a point of contention that people were paying money to the agencies. Another problem was that the agencies sometimes wanted to be given priority. The concern was that people were, in essence, paying agencies for a free service.

Ms Dreyer referred to the comments about an increased role for the UIF on labour policy. She asked what kind of input they have for the problems with the taxi industry, their observations and comments on a similarly high employee turnover (as in the taxi industry) in other industries.

Mr Seruwe responded that the DoL saw the taxi industry as the informal sector and the casualisation of the industry was not a good thing. There was a large supply of people with driver’s licences. Likewise if drivers were not happy, they could easily go elsewhere.
Ms Roopnarain referred to the vacancy rate and asked what the impact of the number of resignations was.

Mr Seruwe responded that the vacancy rate was at 16%. By public service standards, that was not bad. They did need to work hard to fill those posts. One of the problems was that people were continually being promoted, leaving their previous position vacant.

Ms Roopnarain indicated that there should be a move away from a total reliance on UIF and instead a move toward training of the unemployed. She asked how they could have training that was relevant to the South Africa labour market to ensure that people were able to find employment after such training.

Mr Seruwe responded that they were providing training by using the National Skills Framework (NSF) and the list of critical and scarce skills was a guideline as to the skills they should concentrate on. They also had career counsellors.  He noted that training was voluntary. The Department assessed people as to the relevance of the training to their current jobs and advised them on their chances of employment, once the training was completed. He emphasised that they wanted to start this counselling and training when people first registered with the UIF, not after they had already exhausted their unemployment payments.

Ms S Rajbally asked how the UIF determined increases and decreases in unemployment.

Mr Seruwe responded that the South African Reserve Bank and Statistics South Africa used the DoL databases for input into their own employment figures. The UIF kept track of increases in unemployment using the number of new employee registrations for UIF. Decreases in unemployment were tracked by the number of employers registered with the UIF. This included new employers and registered employers adding more employees to their UIF record.

Ms Rajbally asked what happened to people who had exhausted their payments and were not yet employed elsewhere. She queried the possibility of a dole system for the unemployed in South Africa.

Mr L Labuschagne (DA) referrred to the summary of benefit payment per category and requested the reason for the difference between the two totals for 2008 (R2 921 460 and R3 227 804) and the reason for the adjustment amount of R306 344.

Mr Seruwe responded that the difference was due to the reserves (surplus funds) of the UIF.

Mr Labuschagne said that in view of the surplus position of the fund, they could be said to be doing very well if they were a company reporting the surplus as profit. He asked if it was their function to accumulate the surplus and also what the possibility was of using the surplus to increase payments.

Mr Seruwe replied that their function was not to accumulate surpluses and reserves. They had invited actuaries in 2006, to investigate the potential impact increased benefit payments would have on people's lives. The actuaries had concluded that this would not be advisable. They instead suggested that they increase their replacement rate. On an annual basis, they had a ceiling on the benefit and any increase would have to be in line with that ceiling.

Mr Labuschagne referred to Slide 8 on Financial Information - Budget vs Actuals and asked about the decrease in benefits expenditure. On the same slide, was the decrease in operational expenditure purely a result of increased in efficiency or if it was perhaps due to vacancies?

Mr Labuschagne asked if the bursaries awarded to staff were tied to years-in-service to the UIF. Staying on the topic of staff development, he asked what percentage of staff actually passed the courses that they had attended. He commented that the attendance figure provided meant nothing and wondered what the Fund was doing to ensure some measure of passes on the course.

Mr Seruwe responded that the staff did not merely attend the courses. The Department only enrolled in courses that had accreditation. Staff would therefore get certificates.

Mr Labuschagne complimented the UIF on their unqualified audit report from the Auditor General. He asked if the skills training was general skills training or if it was more targeted.

Mr Seruwe responded that they ensured that skills training was relevant and advised people to do courses that were relevant.

Ms L Moss  (ANC) referred to the report that the UIF was maintaining the buildings it owned. She asked if they were similarly maintaining the buildings they were renting. She referred to a meeting they had had while taking “Parliament to the People” where a DoL venue had been poorly maintained and inadequate.

Mr Seruwe confirmed that the Department owned its own buildings and maintained these buildings. They did, however, rent most of the labour centres and were doing their best to monitor the maintenance of these centres. The Department was subject to lease agreements on these buildings of three to five years. As the UIF decentralised its functions, they were still bound to these lease agreements even though the buildings were inadequate. In some cases they had terminated lease agreements.

Ms Moss noted the challenges that surround seasonal workers such as crop harvesters, working in different provinces and often moving to other provinces when the season ended. She asked how the DoL co-ordinated the process when these people applied for UIF at the end of the season. 

Mr Seruwe responded that the trend they had observed with seasonal workers, was that benefit payments increased between June and September. He added that workers could claim in offices in other provinces. There was co-ordination and monitoring of these payments.

Ms Moss referred to industries which were now retrenching workers on a large scale – Sea Harvest recently retrenched 300 workers. She complimented the Department on their efforts to ensure that people were UIF-registered by taking their service to the corporate organisations.

Mr Seruwe responded that the UIF had a social plan in place to act in cases of large-scale retrenchments. They went to companies and set up services to register people with the UIF. They had not publicised these interventions, but were now starting to tell people of this plan.

Compensation Fund Annual Report
Mr Shadrack Mkhonto, Commissioner: Compensation Fund, after briefly referring to the Fund's mission and vision, provided the committee with a background to the state of affairs in the Compensation Fund. He reported that they had identified the critical challenges. He emphasised that it would not be a rosy year for the Fund.

He discussed the completely diminished management structure and reported on the progress of disciplinary action against managers. Three of these managers had been finally dismissed from public service. Due to the introduction of voluntary severance packages in the public service, they had lost eight accounting employees, having opted for the packages. There was currently no Chief Financial Officer due to the disciplinary action and the appointment of a replacement could not be finalised until the end of August 2009. Having requested the upgrading of the post to the level of Chief Director, the preliminary process was reaching finality and they would soon be advertising the post. In short, the Compensation Fund did not have a fully-fledged management team and were in the process of constructing a new organisation. Mr Mkhonto noted that there was a plan in place to get to where they should be and emphasised the important role Parliament had in holding them to that plan.

Mr Mkhonto outlined the strategic objectives and specific outputs. He noted that they ”were held before” NEDLAC due to the slow turnaround time of two to three years to settle a claim. In order to address this, the Compensation Fund wanted to decentralise functions.

On their achievements, he reported that there was some indication that they had addressed backlogs. He noted that there was a decline in payments of R400 million and stated that Parliament may need to assist them as there was R400 million in payments waiting to be collected.

Challenges involved too the strategic outputs that were not achieved in the reporting year.

Generally, Mr Mkhonto commented on the need for a communications strategy to address the poor image of the Compensation Fund, as they needed to get people to register with them. They needed compliance but also needed to advocate their services.

The financial information presented looked at general financial issues and also focussed specifically on the claims statistics for 2001 – 2008, medical payments, number of compensation benefits and the amount of compensation benefits.

Mr Mkhonto examined the reasons for the disclaimer status of the Auditor-General’s audit report for 2007/08. Finally, he discussed the Fund's progress to date in achieving goals set in the previous financial year.


Discussion
Ms Dreyer commented that she appreciated the open approach taken on the problems facing the Fund, especially in the construction of a new management team. She queried the extent to which they would consider tenders for outside companies to do work on their behalf.


Mr Mkonto replied that in October of 2008, they had issued a tender for accounting services.  This was a very critical area needed to carry them through the construction period. The process was now in the final adjudication stage. They had also issued a tender for the risk management function and the appointment of an internal audit function, which they intended to complete by the end of March.

The Acting Chairperson asked for clarity on the action taken about the recent reports of accidents in the construction sector with a view to 2010 World Cup construction. 

Mr Mkhonto responded that the Fund operated with two mutual associations. The construction industry was managed under the Federated Employers Mutual Assurance (FEMA). Construction worker received compensation for injury via that mutual association. The second was Rand Mutual Assurance, who administrated compensation payments to mineworkers. There were also small mines which did not belong to the Chamber of Mines. The Compensation Fund made allowances for those who fell outside of the ambit of FEMA or the Chamber of Mines. This also applied to foreigners and their dependents, whether residing in South Africa or elsewhere.

Mr Mzondeki asked if foreign workers were covered by the Compensation Fund.

Mr Mkhonto clarified that foreign workers working in South Africa were covered by the Compensation Fund. The Compensation for Occupational Injuries and Diseases Act (COIDA) ensured that the foreigners continues to receive benefits when they returned to their country of origin. A form had to be completed annually to state their status (that is, whether they were alive or now dead).Mr Mzondeki referred to the plans to employ a service provider and how this would affect the construction plans and the related impact on the 2010 World Cup construction deadlines.

Mr Mkhonto replied that they had a close link with their mutual associations and that this was a highly responsive system. There was no problem in that area.

The Acting Chairperson noted the R400 million in unpaid claims as an important issue and suggested that the their committee might want to meet with the Portfolio Committee on Public Service on some of the cross-cutting issues.

Ms Dreyer commented that she had never had so many complaints in her constituency and that most of these complaints specifically related to the Compensation Fund. She, however, added that she had sympathy for the scope of the problem faced by the fund. She commented that all these problems were at the cost of the sick, injured and disable. These were the really desperate people and their safety net had huge holes. She was also of the opinion that the image improvement mentioned would happen automatically when service improved.

Ms Dreyer referred to the large volume of complaints received by the Compensation Fund and asked how they maintained the staff morale, in order to aid them turning the ship around.

Mr Mkhoto responded that the slogan of the Compensation Fund was: “together we can make it happen” and this slogan was now being promoted internally. They had discussion forums and had taken staff through the problems and reports.  They also circulated emails to keep staff appraised of what was happening in the organisation.

Ms Dreyer referred to the cases of disciplinary action and queried the reasons for the dismissals and the incidences of fraud.

Mr Mkhonto replied that the bulk of the disciplinary action charges related to negligence. These were cases where duplicate payments that were not stopped and not picked up and the like. The individuals implicated in fraud had been dismissed. The South African Police Service and the National Intelligence Agency were currently working hard to recover those funds.

Ms Roopnarain suggested that perhaps Fund needed to tender for a better IT system

Mr Mkhonto responded that the advice was welcomed, however, the Compensation Fund
 was locked into a contract with Siemens until 2012. They were therefore unable to tender for other IT service providers.

Ms Roopnarain noted the problem of employees operating in an acting capacity and commented on the related job insecurity. She highlighted this as matter the Committee needed to look at as well as the long delays in appointing staff.

Mr Mkhonto referred to their tenders for outsourced external assistance. He was of the opinion that they should not need to do this, but the appointment process was protracted and it was therefore easier to rely on consultants to assist them. He stated that they could not do without oursourcing in the interim. The Compensation Fund needed the help of outsiders until they had a proper organisational structure in place. The areas of debt collection, risk management, internal audit and accounting services were the specific targets for outsourcing services in the interim.

Mr W Spies (Freedom Front Plus) asked for clarification of the figure on the claims statistics tables. The figures did not tally and asked if there was not perhaps another column needed for claims in progress.

Dr A Morake, Acting Chief of Operations: Compensation Fund, responded that the nature of injuries were different to all individuals. The number of claims they received a year was recorded according to the nature of injuries. They had noticed a trend which showed that there would always be a variance between claims registered and claims accepted. This difference was approximately 13% to 15% of the overall claims annually. Some of the claims concerned a less serious injury where people received first aid treatment in the workplace. One of the requirements for them to adjudicate a claim was that to be a link between the accident injury and the medical evidence of a doctor. In such cases personal injury could not be proven. Compensation could not be paid. This was root of the variance between claims accepted and claims paid. This was particularly applicable to cases where the employee was not permanently disabled.

Mr C Lengolo, Manager (Exempted Employers and Unreported Accidents): Compensation Fund, responded that the there was a special team tasked with dealing with the claims backlogs. There were different ways of addressing claims as they came in, leading to the variance.

Mr Labuschagne recounted personal experience of the delays in the Compensation Fund hearings. He recalled the low vacancy rate and asked if much of the problem was not administrative incompetence. He asked if people were capable of doing the jobs and what was being done to cultivate service delivery.

Mr Mkhonto responded that he had not been able to resolve the problems about the hearings which were between officials – mainly the doctors and lawyers involved. The focus was often on how to defend the fund and not on protecting the complainant. He felt that this was unacceptable and had taken steps to have all the cases on record finished by the end of 2009. The organisational structure had never changed to accommodate growth and they had used contract employees not reflected in the report. Contract workers were used to augment the structure. The vacancy rate in the report relates only to permanent employees. He recalled his own experience with delays due to the fact that they could not find documentation or files. This was a problem as they had to reconstruct the files and there was much to-ing and fro-ing as there was no unified filing system for separate members of the Fund to have access to the same information.
 
The meeting was adjourned.


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