Department of Labour 2007/08 Annual Report: briefing

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Employment and Labour

04 February 2009
Chairperson: Ms O N Kasienyane
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Meeting Summary

The Department provided a breakdown of allocations and expenditure for each departmental programme as wellas for the National Skills Fund and the Sheltered Employment Factories. Both the Department and the National Skills Fund had obtained a qualified report from the Auditor General. The Department highlighted the Auditor General’s specific comments on each programme, illustrating the basis for these respective reports.

The Department had obtained a qualified audit report from the Auditor General based on shortcomings in the management and control of assets and the asset register. Regarding Treasury Regulation 3.2.1, the Auditor General had stated that an inadequate risk assessment for 2007/08 had been performed and a functional risk committee had not been established. The Auditor General had also highlighted the Department’s failure to comply adequately with SCM3 of 2004, which provided a detailed implementation plan for Supply Chain Management (SCM). The Department had also failed to comply with certain provisions of its enabling legislation.

The National Skills Fund had likewise received a qualified report because of issues pertaining to its commitments. Due to inadequate systems and lack of documentation, there had been insufficient appropriate audit evidence to confirm the existence, valuation and completeness of commitments. The Auditor General stated that advances amounting to R10 714 million could not be confirmed due to limitations in the accounting system and lack of appropriate documentation

The Sheltered Employment Factories, on the other hand, received an unqualified report, but the Auditor General commented on the irregular expenditure of R9.5 million by the Sheltered Employment Factories during the year under review. There was an amount of R570 209 that related to cheques fraudulently cashed by unknown parties.

Members expressed dissatisfaction that the Department had received a qualified Auditor Generals report for four years in succession. This was frustrating, as it made the task of monitoring and oversight more difficult. They questioned the Department on the salaries of labour inspectors and also whether there was a code of conduct governing these inspectors. Members wanted detail on the cheques, which had been fraudulently cashed. The Committee discussed the question of artisans, who had no formal training or whose training had become outdated, having their qualifications recognized. The Committee also questioned the use of virements despite these having being condoned by the Public Finance Management Act.


Meeting report

Department of Labour (DOL) Annual Report 2007/08 briefing
Mr Les Kettledas, DOL Acting Director General, conducted the briefing. The rest of the delegation comprised of Ms Tina Roos, DOL Executive Director to the Director General’s Office, Mr Dean Haasbroek, DOL Chief Information Officer, Mr Thembakosi Mkalipi, DOL Senior Executive Manager, Ms Thembeka Puzi, DOL Senior Executive Manager, Mr Len Larson, Sheltered Employment Factories Acting CEO, Mr Bheki Maduma, DOL Deputy Director General Corporate Services, Mr Freddie Petersen, DOL Acting Chief Financial Officer, Ms Siyanda Zondeki, DOL Deputy Director General Service Delivery, Mr Sam Morotoba, DOL General Employment and Skills Development Services, Ms Paige Boikanyo, DOL Senior Executive Manager and Mr Nokuko Nonjojo, DOL Chief of Staff. Mr Shadrack Mkhonto represented the Compensation Commission.

The Committee was at the outset provided with insight into the various programmes of the Department whilst highlighting achievements and challenges that each faced. The five programmes were administration, service delivery, employment and skills development/human resources development, labour policy and labour market programmes and lastly social insurance. A breakdown of allocations and expenditures under each programme was also provided. The National Skills Fund (NSF) and Sheltered Employment Factories (SEF) were also elaborated upon and the allocations and expenditures for each were additionally provided.

Mr Kettledas continued with a synopsis of the Auditor-General’s (AG) report on the Department, the National Skills Fund and the Sheltered Employment Factories. The Department had obtained a qualified report based on shortcomings in the management and control of assets and the asset register. Duplication of barcodes on assets and the incorrect valuation of assets on the asset register were some of the shortcomings. The asset register had not been maintained in accordance with the requirements of National Treasury.

Regarding Treasury Regulation 3.2.1, the AG had stated that an inadequate risk assessment for 2007/08 had been performed and a functional risk committee had not been established. The AG highlighted the DOL’s failure to comply adequately with SCM3 of 2004, which provided a detailed implementation plan for Supply Chain Management (SCM). The DOL had not held debriefing sessions with unsuccessful bidders, had failed to implement demand performance management and had not conducted a needs assessment before each acquisition. Also, performance of vendors had not been monitored. Monthly questionnaires had not been completed and submitted to National Treasury.

The AG’s comments were not limited to these, as shortcomings relating to the Department’s enabling legislation were also highlighted. The Department had in fact failed to comply with provisions of the Skills Development Act, as they had failed to formally document operating procedures. It was therefore not clear which controls had been implemented by the Department to administer that Act. In addition, the IRP 5 reconciliation for the financial year ending 31 March 2007, had not been performed and issued to the South African Revenue Services (SARS) on time.

The National Skills Fund had also received a qualified report because of issues pertaining to its commitments. Due to inadequate systems and lack of documentation, there had been insufficient appropriate audit evidence to confirm the existence, valuation and completeness of commitments. The AG also stated that advances amounting to R10 714 million could not be confirmed due to limitations in the accounting system and lack of appropriate documentation. The Fund should be listed as a public entity and be required to prepare their financial statements in line with the SA Generally Accepted Accounting Principles (GAAP). The AG also reported that there had the NSF had incurred irregular expenditure of R237 111 million.

The SEF on the other hand was given an unqualified report by the AG, which in itself was good, but the AG did point out that there had been irregular expenditure of R9.5 million by the SEF during the year under review. There was an amount of R570 209 that related to cheques fraudulently cashed by unknown parties. The recoverability of the amount could not be determined. The matter had however been reported to the South African Police Services (SAPS) and the third parties involved.

Mr Kettledas did conclude with a progress report on the audit issues highlighted by the AG relating to the Department, the NSF and the SEF (See document for further detail).

The Chair expressed her disappointment with the Department having received a qualified AG’s report for four years in succession. She said that greater clarity was needed as to why this was so.

Mr Petersen responded that a task team had been established to do a full audit of assets. The incorrect valuation of assets and the duplication of barcodes were also being rectified.

Ms Kasienyane asked for clarity on the issue of advances to be used for traveling and subsistence expenses of learners.
Mr Petersen pointed out that the monetary advances by the National Skills Fund were different to the advances for learners’ travelling and subsistence.

Mr Morotoba referred to advances for learners and said that service providers had complained that learners dropped out because they lacked funds for lunch and travelling expenses. Funds were thus given to service providers to advance it to learners. These advances were however only given once the training had been completed. It did cause problems which were being addressed by the Department.

Ms A Dreyer (DA) said that she had received complaints from labour inspectors about their poor salaries and lack of proper traveling expenses.

Ms Zondeki conceded that there had been a high staff turnover of inspectors. The reason was that better salaries were being offered elsewhere in the public and private sector. She did note that the Department had reviewed the job profiles of inspectors. There would be different categories on different levels. The process would be finalized by the end of February 2009. Ms Zondeki also said that the tools of trade for inspectors were being reviewed. The Department was doing its utmost to try to retain its inspectors

Ms Dreyer asked what criteria were used to decide which civil society organizations would obtain funding from the Department.

Mr Nkalipi said that civil society organizations applied to the Department for funding. The funding could possibly be for the training of workers or on issues around Unemployment Insurance Fund (UIF) and occupational health and safety. The application would be evaluated and, if the proposal made sense, the funding would be provided.

Ms Dreyer asked why not just send the people to the Sector Education and Training Authorities (SETAs) for training.

Mr Nkalipi said that the non-governmental organisations would not provide skills training, which was what SETAs did. Instead it provided training on issues such as UIF and occupational safety. It was more about capacitating the worker regarding his rights, knowledge etc.

Ms Dreyer had also received complaints from small businesses, like hairdressers, that inspectors pitched up unannounced and were rude. Was there a code of conduct that inspectors had to adhere to?

Ms Zondeki responded that there was. Inspectors were required to do inspections by appointment, as well as randomly. She asked Ms Dreyer for the details on specific cases where inspectors had acted inappropriately. She did however point out that there were also cases where inspectors had been harassed and assaulted.

Mr Kettledas stated that hairdressers were part of bargaining councils. Bargaining councils had their own agents who did inspections. Labour inspectors did not inspect premises that fell under bargaining councils.

Ms Dreyer pointed out that the Compensation Fund had said that it could not fill vacancies in the organization because it was waiting for approval from the Department.

Mr Kettledas explained that there was a process that needed to be followed. The qualifications of candidates had firstly to be verified. Thereafter the National Intelligence Agency would have to do a pre-employment screening. As of the 30 January 2009, 41 candidates had been referred for pre-employment screening. The Department had received feedback on 38 of those candidates thus far.

Ms Dreyer mentioned that the briefing had alluded to the fact that the boards of SETAs had been assessed by UNISA. She asked what the outcome of the assessment was. She noted that there were allegations of corruption attached to certain SETAs and that the construction and electricity SETAs, for example had problems. It was felt that the tourism SETA was not up to scratch given that the 2010 World Cup was almost upon us. She wanted to confirm that 23 SETAs had been accredited by the South African Qualifications Authority (SAQA). The Minister needed to address the Committee on the issue of appointing a permanent Director General for the Department. Mr Kettledas had been an Acting Director General for too long.

Mr Morotoba said that the assessment by UNISA of the SETA boards was to check on SETA familiarity with government principles and financial management. The result was that 18 of the boards were fine but that five were problematic. He explained that part of the problem was that when board members eventually acquired the necessary skills their term of office ended. He stated that board members were now required to attend a corporate governance programme. The accreditation of SETAs with SAQA did not relate to their corporate governance but rather to the accreditation of the programmes of SETAs registered with SAQA.

Ms Dreyer furthermore referred to the assessment of artisans especially those who had qualified overseas or whose qualifications were outdated and asked what was being done to have their qualifications recognized so that could they could obtain employment.

Mr Morotoba explained that he was not aware of any qualification becoming outdated. He noted that provision had even been made for persons having vast experience but no qualification to take a trade test in order to obtain such qualification. The failure rate amongst artisans was unfortunately high but he was proud of the assessment standards. The ideal solution would be a national artisan moderation body. Indlela charged R200 for a trade test. Its pass rate was 49%. Private testing centres charged between R1500-R3000 per test but had a 100% pass rate. Mr Morotoba was concerned that perhaps persons were being pushed through. He did note that the Skills Development Act would now allow for the auditing of these results. The aim was to have the same standards for Indlela and for the private testing centres. SAQA did accredit the qualifications of foreign persons.

Mr M Nene (ANC) referred to employment skills and asked which sectors had been targeted to absorb youth. He also asked how funding was being used to develop the agricultural environment. Mr Nene felt that the track record of the Department on its annual reports for the last four years was embarrassing.

Mr Morotoba said that all economic sectors had the responsibility to absorb learners. Learnerships were applicable across all sectors. Two of the main sectors were mining and agriculture.

Ms Roopnarain agreed that the AG’s report was disappointing and said that it was frustrating to work in the Committee. It made the task of monitoring and oversight so much more difficult. She referred to only 3000 of 8000 candidates passing and asked why the failure rate was so high. Ms Roopnarain also made reference to the Internship and Skills Programme and said that Accelerated and Shared Growth Initiative for South Africa (ASGISA) and Joint Initiative on Priority Skills Acquisition (JIPSA) should also be looked at and not only the SETAs.

Ms Roopnarain referred to the SEF report and asked what the amounts of the illegally cashed cheques were.

Mr Kettledas pointed out that those amounts were set out in the annual report itself.

Mr Larson explained that the cheque problem had first been identified in 2001/2002. It was not one cheque, but several. It had not been proven that the cheques were written as a result of a fraudulent action by Department staff. An investigation by SAPS was ongoing. He said that the SEF had received an unqualified report from the AG with the exception of the issue of the fraudulent cheques. He however pointed out that the SEF was at present not a legal entity and, as such, was not registered. Work was currently being done on what form of legal entity the SEF should be. Policies have been developed and it was getting formalized. Mr Larson said that the real constraint of the SEF was the filling of the capacity that was available. IT support was in place, remuneration was close to private sector figures and a provident fund was to be established for disabled workers. Even disciplinary procedures were in place.

Ms Roopnarain further asked what was really being done about the problems highlighted in the AG’s report regarding issues such as the duplication of barcodes, in addition to the vacancies in the Department itself.

Mr Kettledas said that between April and September 2008, 134 staff members had left. In the last three months 108 persons had moved on. Sometimes persons even moved between departments. Between April and September 2008, 29 persons had moved to other departments. It exceeded the rate of recruitment. The Department was however doing a review of the vacancies that existed.

Mr O Mogale (ANC) felt that the morale in the Department was generally low. He asked if he was correct. Mr Mogale referred to the sheltered employment factories and asked how was it possible that bad cheques could be written when there were managers in charge. He wished to point out that there were black service providers in the construction SETA that had not been paid in time. Mr Mogale further asked what co-operatives had been funded by the Department in the year of review.

Mr Kettledas did not feel that the morale in the Department was low. He pointed out that of the 7000 staff members only 200 left each year. If morale was really low the figure would have been much greater.

Mr Morotoba said that the problem of non timeous payment to black service providers related to agreement issues between the SETAs and service providers. He said that the construction SETA was problematic in that there was a great deal of fighting regarding the allocation of contracts etc. The problems had even impacted upon training and the Department was trying its best to solve it.
The types of co-operatives funded by the Department varied. The list included agriculture and tourism, among others.

Mr M Mzondeki (ANC) asked in what specific areas people had received training. He referred to the 7400 learners that had been registered in projects and asked what the projects were. Mr Mzondeki also asked why all of SCOPA’s recommendations had not been implemented. He further asked whether the need for virements had been thoroughly investigated.

Ms Kasienyane also questioned the need for virements, especially since the Department had vired funds from the Administration Programme to Labour Market Programmes. This had taken place even though Administration itself had underspent its funds. She additionally asked what the delay in decentralizing functions at provincial level was.

Mr Petersen explained that virements was a tool used to reprioritize spending. It was provided for in Section 43 of the Public Finance Management Act (PFMA). He said that the virement in question was done because funds were needed to make payouts to persons who had left their jobs in the Department.

Mr Kettledas said that these had been unforeseen expenses, as it was difficult to predict when persons intended to quit their jobs, get injured on the job or even die. It was thus difficult to budget for it. Hence a plan was needed.

The Chair was not convinced about the explanation given on the virement, even if it was condoned by the PFMA.

Mr Petersen referred to the virement from administration to labour and said that the Commission for Conciliation Mediation and Arbitration had registered a shortfall to appoint additional commissioners and a management information system. He noted that the virement had received National Treasury approval. In September 2007when the viremant had taken place the Department had believed that labour would be overspent and hence action had to be taken. This accounted for the decision to transfer funds from administration to labour. Mr Petersen also stated that the irregular expenditure in the period under review amounted to only R2000. The R1 million also referred to was total irregular expenditures for previous financial years. He noted that issue of the R1 million had been sorted out and would not appear in the next annual report.

Ms Dreyer asked what action had been taken against the problematic SETAs. Were forensic investigations being done? She pointed out that the insurance SETA was also having problems. Ms Dreyer asked what was being done about that.

Mr Morotobi reiterated that 19 SETAS were doing well and that 4 were problematic. He stated that a forum for the Chief Financial Officers (CFOs) of SETAS had been established in order to deal with issues. Mr Morotobi said that even the Minister had written letters to the SETAs to inquire about their problems. A process of review had even been embarked upon to decide which SETAs should remain and which should be closed down. He was aware of the problems of the insurance SETA. Mr Morotobi said that a forensic audit had been commissioned and that the matter was sub judice.

Ms Dreyer asked whether some training service providers did not go through the procurement process.

Mr Morotobi stated that all training service providers must go through the procurement process.

The Chair referred to the AG’s comments that even though the NSF had implemented some of SCOPA’s resolutions not all had been implemented. She asked which ones had not been implemented and why.

Mr Kettledas explained that the issue was about time. The resolutions had been received in November 2007 and the financial year-end was in March 2008. It was therefore difficult to do much between November 2007 and March 2008. In January 2008 a progress report had been given and ever since quarterly reports had been submitted. This was the reason that some of the resolutions were outstanding.

A female ANC member asked what the breakdown of training of persons in terms of gender, race and disability etc was.

Mr Kettledas said that 85% were black, 54% were women but only 4% was for the disabled. The figures for the disabled were disappointing but it was being worked on.

The Chair thanked the presenters and the meeting was adjourned.


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