Employment and Labour 2019BRRR

1. Budgetary Review and Recommendation Report of the Portfolio Committee on Employment and Labour, dated 23 October 2019

The Portfolio Committee on Employment and Labour, having considered the performance of the Department of Employment and Labour and its entities on 18 September 2019 and 9 October 2019, reports as follows:

1. INTRODUCTION

The Budgetary Review and Recommendation Report of the Portfolio Committee on Employment and Labour has been compiled in compliance with the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009. This report provides an assessment of the Department of Employment and Labour (DEL) and its entities’ service delivery performance given available resources; effectiveness and efficiency of the use and forward allocation of available resources; and recommendations on the forward use of resources.

1. The mandate of the Committee

All parliamentary committees have a mandate to legislate, conduct oversight over the executive and facilitate public participation.

As such, the mandate of the Portfolio Committee on Employment and Labour (the Committee) is governed by the strategy of Parliament and the Constitution. The Committee is charged with the responsibility of holding the executive and related entities accountable through oversight of objectives of its programmes; scrutinising its budget and expenditure; and recommending through Parliament, what actions the Department should take in order to attain its strategic goals and contribute to service delivery.

The National Assembly, through its committees, is required by section 5 of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009, to annually assess the performance of each national Department and submit Budgetary Review and Recommendation Reports (BRRR) for tabling in the National Assembly. These reports should be submitted to the Minister of Finance and the relevant Ministers.

1. The mandate of the Department of Employment and Labour

The Department derives its mandate from the Constitution and gives effect thereto through a number of Acts which regulate employment and labour matters in South Africa. Such legislation includes the following:

• Basic Conditions of Employment Act (1997);
• Employment Equity Act (1998);
• Employment Services Act (2014);
• Labour Relations Act (1995);
• Occupational Health and Safety Act (1993);
• National Minimum Wage Act (2018).

The mandate of the Department is to regulate the labour market through policies and programmes developed in consultation with social partners, which are aimed at:

• Improving economic efficiency and productivity;
• Creation of decent employment;
• Promoting labour standards and fundamental rights at work;
• Providing adequate social security nets to protect vulnerable workers;
• Promoting sound labour relations;
• Eliminating inequality and discrimination in the workplace;
• Enhancing occupational health and safety awareness and compliance in the workplace;
• Giving value to social dialogue in the formulation of sound and responsive legislation and policies to attain labour market growth.

The Department of Labour’s legislative framework is informed by the South African Constitution, Chapter 2: Bill of Rights:

• Section 9, to ensure equal access to opportunities;
• Section 10, promotion of labour standards and fundamental rights at work;
• Section 18, freedom of association;
• Section 23, to ensure sound labour relations;
• Section 24, to ensure an environment that is not harmful to the health and wellbeing of those in the workplace;
• Section 27, to provide adequate social security nets to protect vulnerable workers;
• Section 28, to ensure that children are protected from exploitative labour practices and not required or permitted to perform work or services that are inappropriate for a person of that child’s age or their wellbeing, education, physical or mental health or spiritual, moral or social development is placed at risk;
• Section 34, access to courts and access to fair and speedy labour justice.
  1. Purpose of the BRRR

The Money Bills Amendment Procedure and Related Matters Act sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department. In October of each year, portfolio committees must compile BRR Reports that assess service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations of forward use of resources. The reports are also source documents for Standing/ Select Committees on Appropriations/ Finance when they make recommendations to the House of Parliament on the Medium Term Budget Policy Statements (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

1. Method

In reviewing the work of the labour portfolio (Department and its entities) for the 2018/19 financial year, the Committee placed emphasis on the following:

• Overall performance in lieu of allocated budget as reflected in the annual reports of the portfolio;
• Presentations by the labour portfolio to the Committee on their annual reports;
• Report of the Auditor-General on the labour portfolio;
• Report of the Financial and Fiscal Commission on labour portfolio;
• Report of Statistics South Africa on employment statistics; and
• Responses of the Department to the BRR report of 2018.

The source documents used by the Committee are: 2019 Estimates of National Expenditure; presentations by the labour portfolio during the course of the year; annual reports of the Department and entities; and the State of the Nation Address.

The Committee invited the Auditor-General to brief it on its assessment of performance of the labour portfolio. The Committee also invited the Financial and Fiscal Commission as well as the Statistics South Africa to brief it on relevant matters. This was followed by meetings with the Department and entities comprising the portfolio to receive presentations on their performance against their annual performance plans.

1. Outline of the contents of the Report

The content of the Report is as follows:

• Overview of the key relevant policy focus areas;
• Summary of previous key financial and performance recommendations of the Committee;
• Overview and assessment of financial performance of the Department of Labour;
• Report of the Auditor-General;
• Financial Performance for the first quarter of the 2019/20 financial year;
• Overview and assessment of service delivery performance for 2018/19 financial year;
• Overview of Performance of Entities of the Department of Labour;
• Committee Observations;
• Committee Recommendations; and
• Appreciation.

The sections below expatiate on the content outlined above.

1. OVERVIEW OF THE KEY RELEVANT POLICY FOCUS AREAS

Poverty, unemployment and inequality are three major challenges facing the country. The National Planning Commission, which was appointed by the former President J Zuma in May 2010 developed the National Development Plan whose aim is to eliminate poverty and reduce inequality by 2030. In its diagnostic report of June 2011, the Commission identified unemployment as one of the nine primary challenges confronting the country. Therefore, raising employment through faster economic growth became one of the three priorities to remedy the situation the country finds itself in. One of the key points raised in the National Development Plan was, “To eliminate poverty and reduce inequality, South Africa has to raise levels of employment and, through productivity growth, the earnings of working people.” The key measures of economic success were identified as achieving an average growth of over 5% of Gross Domestic Product (GDP) and the reduction in unemployment rate to 6% by 2030.

The Quarterly Labour Force Survey (QLFS), which is a household-based sample survey conducted by Statistics South Africa, reported the unemployment rate to be 29% at the end of June 2019 (Quarter 2 of 2019 calendar year). This reflects a quarter-to-quarter increase of 1.4% from the 27.6% reported in the previous quarter. Compared to the second quarter of 2018, unemployment rate increased by 1.8% from 27.2% reported.

The labour force increased by 476 000 from 22 492 000 in the first quarter to 22 968 000 in the second quarter of 2019. Compared to the second quarter of 2018, the labour force increased by 598 000 from 22 370 000 to 22 968 000 reported in the second quarter of 2019. The number of people who are employed increased by 21 000 from 16 291 000 in the first quarter of 2019 to 16 313 000 in second quarter of 2019. Compared to the second quarter of 2018, the number of employed people increased by 25 000 from 16 288 000 to 16 313 000 in the second quarter. The formal non-agricultural sector lost 49 000 jobs in the second quarter when compared to the first quarter of 2019. Compared to the second quarter of 2018, the sector lost 148 000 jobs. The private households sector also lost 49 000 jobs when compared to the first quarter of 2019 and 45 000 jobs when compared to the second quarter of 2018. The informal non-agricultural sector gained 114 000 jobs compared to the first quarter of 2019 and gained 219 000 jobs when compared to the second quarter of 2018. The agricultural sector gained 5000 jobs compared to the first quarter of 2019 and lost 1000 compared to the second quarter of 2018. The number of unemployed people increased by 455 000 from 6.2 million in the first quarter to 6.7 million in the second quarter of 2019. Compared to the second quarter of 2018, the number of unemployed people increased by 573 000 from 6.1 million to 6.7 million in the second quarter of 2019. Since more jobs were created than lost, the explanation for an increase in unemployment rate can be attributed to the increase in the number of people entering the job market as reflected by the reduction in the “not economically active” population, which decreased by 326 000 quarter-to-quarter.

In response to the unemployment challenge, President Ramaphosa convened the Presidential Job Summit, which developed the Framework Agreement in October 2018. Social partners who were part of the summit agreed that the unemployment crisis necessitated the Jobs Summit to focus not only on job creation but also address the crisis of job losses and retrenchments. Government dismissed the rumour that it was going to embark on retrenchments in the Public Service and committed to filling all critical vacancies in the Public Sector. Business agreed that everything possible had to be done to avoid retrenchments in the Private Sector. The Jobs Summit identified five areas of interventions to realise intended outcomes, which are: Economic sector specific Interventions; SMME interventions; Education and Skills interventions; Inclusive growth interventions; and Public and Social interventions. Furthermore, the social partners agreed on continuous monitoring of implementation of commitments.

In 2018 Parliament processed and passed the National Minimum Wage Act whose purpose is, inter alia, to improve the wages of lowest paid workers. This will contribute in narrowing the income inequality gap and improve lives of those who were earning less than the prescribed national minimum wage. While the introduction of the national minimum wage was met with some criticism regarding the level at which it was introduced, it was estimated that about six million workers stood to benefit from its introduction.

The triple challenges of poverty, unemployment and inequality have persisted despite legislative interventions that started in 1994. This, amongst others, prompted the fourth democratic parliament to identify assessment of the impact of legislation passed since 1994 as key priority to be undertaken by the fifth democratic parliament. The High Level Panel that was headed by former President K Motlanthe was appointed by the fifth Parliament to conduct the impact assessment of the legislation and make recommendations. The panel produced a report titled: “Report of the High Level Panel on the Assessment of Key Legislation and the Acceleration of Fundamental Change”. The panel recommended, amongst others, that people below a certain age, those that have been unemployed for a long time, people in rural areas and the disabled be employed without the firm being required to pay the minimum wage on the same terms. Furthermore, the panel recommended that Parliament amend the Labour Relations Act to remove the extension to non-parties’ clause or to prescribe that the extension to non-parties will not be applicable to small and medium enterprises.

1. SUMMARY OF PREVIOUS KEY FINANCIAL AND PERFORMANCE RECOMMENDATIONS OF THE COMMITTEE
   1. 2018/19 BRRR recommendations and responses of the Department

In the BRRR of the previous financial year, after considering the presentation of the labour portfolio on their annual reports and inputs from the Auditor-General, the Committee made recommendations to the Minister of Labour. Below are recommendations made by the Committee and the responses of the Department of Labour are captured in italics.

The Committee recommended that the Minister of Labour take steps to ensure that:

3.1.1    The vacant funded posts within the Labour portfolio are filled with suitably qualified persons without delay, priority be given to critical posts.

Response:         The vacancy rate in IES has now gone down to 6%, at end of September 2019. This is the lowest vacancy rate in a long time. The Branch prioritised and speeded up the filling of vacancies.

3.1.2.   The services of the Internal Audit and the Audit Committee of the Department are fully utilised and their reports implemented to avoid negative findings by the Auditor-General.

Response:         The IES has a consolidated action plan that ensures that audit findings are dealt with effectively. The action plan is monitored on a monthly basis. Corporate Services has developed a management action plan that is consolidated into one departmental plan that addresses the root causes of the audit findings and this is updated and reported to EXCO on a monthly basis. Internal Audit provides an assurance on the effectiveness of the management action plans.

3.1.3.   Incidents of Irregular Expenditure and Fruitless and Wasteful Expenditure are investigated and officials who are found to have flouted regulations are timeously subjected to remedial action.

Response:         The Employee Relations process deals with all the officials who are found to be liable through the recovery process or other forms of disciplinary process.

3.1.4    The Inspection and Enforcement Services programme is adequately resourced so that suitably qualified inspectors can be appointed; provided with relevant tools of trade to monitor implementation of labour laws and that the retainment strategy is developed.

Response:         The Branch is going to add 500 more OHS inspectors by the end of the financial year. The Branch has put in place various strategies to ensure retention of staff. The Departmental policy on retention is also utilised to assist with this.

3.1.5.   The funding of Productivity SA is timeously addressed in line with the proposed single funder mechanism to enable the entity to fulfil its mandate.

Response:         Productivity SA continue to receive its Annual Treasury allocation from the Department in line with their legal mandate and the transfer agreement concluded with the Director-General.

                        Challenges continue to exist in the following areas that the entity has taken additional work that is not part of the Treasury allocation but remain crucial for companies to attain Turn Around Solutions and improve their productivity and competitiveness levels and thereby saving jobs:

1. Inability of the entity to generate additional revenue through services that they provide to various entities to assist them in improving their productivity initiatives.
2. The Workplace Challenge programme under the DTI that is costing the entity about R23 million to implement when the allocation from the DTI is around R10 million.
3. Turn Around Solutions project that is funded by UIF and the unresolved disputes with regard to Project Management, Accountability and Governance.

The Director-General has established a Committee that has developed a number of proposals to resolve challenges in all these areas:

1. The entity was assisted with a bail out after securing Treasury approval from DEL savings during the last consecutive 3 years with amounts ranging from R5 million to R23 million during the 2018/19 financial year.
2. Discussions were also held with Treasury to increase the entity’s allocations from the fiscus and to do away with other sources of funding. However, this could not be realised given the current economic situation.

3.1.6    Additional funding is made available to the CCMA to enable it to fully implement its statutory obligations in terms of the National Minimum Wage, Basic Conditions of Employment Act and Labour Relations Act.

Response:         The Secretariat for the NMW Commission has as yet not been fully implemented and therefore there will still be savings realised. The Branch is dependent on the HR section in the DEL to finalise all necessary processes in order for it to move forward.

3.1.7.   The current approved structure of the Supported Employment Enterprises is reviewed in order to capacitate the entity and government departments are encouraged to procure goods from the entity.

Response:         The SEE structure was reviewed and the following adjustments were recommended:

1. Profile of CEO was reviewed and submitted for advertisement and recruitment.
2. Creation of new Director HRM position at SEE HQ
3. Creation of new Director Risk, Security and OHS at SEE HQ
4. Creation of new Deputy Director Risk
5. Creation of new Deputy Director Security and OHS
6. Creation of new 13 nursing positions for each factory at SR 9
7. Creation of new organizational structure for the Limpopo factory comprising of:

(i) Factory manager SR 10

(ii) 3 instructors (Wood, Steel and Textile) at SR 8

(iii) HR senior admin officer at SR 9

(iv) Store person admin officer at SR 7

(v) 2 admin clerks at SR 5

1. The SEE did not have a budget for the new positions and did the following in order to secure funding for the structure.

(i) Adjusted budget through virement

(ii) Abolished funded vacancies and recreated new positions

(iii) Reallocated medical health budget towards first aid centres and employment of nurses.

Government Department procurement from SEE has not been fully realized however the following initiatives were undertaken:

1. SEE was awarded a contract for Hospital Linen as part of government stimulus packages by the DHA
2. Contracts were concluded with the National Department of Basic Education for new school’s furniture and the Eastern Cape Provincial Education Department
3. A contract for supply of Hospital Linen was also concluded with the Department of Health Western Cape
4. SEE held exhibitions in the DEL Service Delivery initiatives, Ministerial Imbizo’s Presidential events and also opened showrooms in most factories and specific sites wherein government department procurement officers are invited from time to time.
5. The SEE also submit Tender applications wherever opportunities arise in various Departments.
6. The SEE price listing is reviewed annually and submitted to Treasury for approval.
7. The National Treasury is developing a special procurement dispensation for entities similar to SEE and will release those details when the applicable approval has been granted.

1. Committee Report on Budget Vote 28: Labour 2018

The Committee was generally satisfied with the budget plans of the labour portfolio. However, the Committee made the following recommendations:

1. Putting measures in place to ensure that irregular, and fruitless and wasteful expenditure are not incurred, and ensuring that the recommendations of the Auditor-General are taken into consideration.
2. Establishing partnerships between the Department of Employment and Labour and the Department of Higher Education, Science and Technology, as well as other government Departments to ensure that relevant skills are provided.
3. Ensuring that all the Department’s Centres are accessible to the majority of the communities.
4. Increasing the budget of the Department to accommodate the possible expansion of its mandate.
5. Ensuring that the Department work with the Department of Justice and Correctional Services to address delays in Occupational Health and Safety cases.
6. Strengthening the office of the Registrar of Labour Relations to ensure that it discharges its mandate effectively.
7. Funding Productivity SA appropriately so that it can perform its duties.

4.   OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE OF THE DEPARTMENT OF LABOUR

4.1.      Overview of Vote allocation and spending (2017/18 to 2018/19)

The activities of the Department of Employment and Labour are structured into four programmes, namely Administration, Inspection and Enforcement Services, Public Employment Services and Labour Policy and Industrial Relations. Table 1 below reflects the allocation and expenditure per programme in 2017/18 and 2018/19 financial year.

Table 1: Comparative Revenue and Expenditure for 2018/19 and 2017/18

Source: Annual Report 2018/19 (Department of Labour)

Table 1, reflects that the final appropriation for the Department of Labour amounted to R3.2 billion in 2018/19 financial year, which is an increase of R227.0 million from the R3.0 billion allocated in 2017/18. The Department spent R3.0 billion or 94% of the final appropriation, resulting in under-expenditure of R196.2 million or 6% of the final appropriation. The larger portion of the final appropriation was allocated to the Labour Policy and Industrial Relations programme at R1.2 billion, followed by the Administration programme at R881.5 million. The Inspection and Enforcement Services programme received the least allocation at R592.2 million.

4.2.      Expenditure per programme of DoL 2018/19

4.2.1.   Administration

The purpose of the Administration programme is to provide management, strategic and administrative support services to the Ministry and the Department, with a goal of building institutional capacity. To carry out this objective the activities of the programme are structured into five sub-programmes, namely: Ministry, Management, Corporate Services, Office of the Chief Financial Officer and Office Administration.

The total allocation for the programme amounted to R881.5 million, which is approximately 27% of the final appropriation to the Department. This allocation is an increase of R20.8 million from the R860.7 million allocated in 2017/18 financial year. The programme spent R804.9 million or 91.3% of the allocation resulting to under-expenditure of R76.6 million or 8.7% of its budget and achieved 75% of the predetermined objectives. The reason for underspending was attributed to internal promotions and vacant posts that were not filled during the financial year, which resulted in less spending on Compensation of Employees.

The Management sub-programme received the largest allocation of R272.6 million or 30.9% of the programme allocation. This sub-programme spent 100% of its budget by the end of the financial year. It was followed by Corporate Services sub-programme which received R262.6 million of 29.8% of the programme allocation. This sub-programme spent R225.2 million or 85.8% of its budget by the end of the financial year resulting to a variance of R37.4 million.

4.2.2    Inspection and Enforcement Services (IES)

The purpose of this programme is to realise decent work by regulating non-employment and employment conditions through inspection and enforcement, to achieve compliance with all labour market policies.

IES programme comprise the following sub-programmes: Management and Support Services; Occupational Health and Safety; Registration; Compliance, Monitoring and Enforcement; Training of Staff; and Statutory and Advocacy Services.

The final appropriation for the programme amounted to R592.2 million, which is an increase of R47.1 million from the R545 1 million allocated in the previous financial year. The programme spent R549.2 million or 92.7% of the programme allocation and achieved 50% of the predetermined targets, resulting in under-expenditure of R43.0 million. Internal promotions and vacant posts that were not filled during the financial year resulted to under-expenditure on Compensation of Employees. Delay in the delivery of ICT equipment for inspectors resulted in under-expenditure on Payment of Capital Assets.

Compliance, Monitoring and Enforcement sub-programme received R472.5 million, which is the largest portion of the programme budget. It spent R438.9 million or 92.9% resulting to a variance of R33.6 million by the end of the financial year.

4.2.3.   Public Employment Services (PES)

The purpose of the PES programme is to provide assistance to companies and workers to adjust to changing labour market conditions, and to regulate private employment agencies.

This programme comprise the following sub-programmes: Management and Support Services: PES; Employer Services; Work-Seeker Services; Designated Groups Special Services; Supported Employment Enterprises; Productivity South Africa; Unemployment Insurance Fund; Compensation Fund; and Training of Staff: PES.

The final appropriation for this programme was R605.7 million and it spent R542.8 million or 89.6% of its allocation and achieved 75% of its predetermined targets, resulting to a variance of R62.9 million. Internal promotions and vacant posts that were not filled during the financial year resulted to under-expenditure on Compensation of Employees. Delay in the procurement of ICT equipment for the provincial offices resulted to under-expenditure on Payment for Capital Assets.

Work-Seeker Services sub-programme received R179.5 million or 29.6% of the programme allocation, which was the largest share of the programme budget. It spent R156.6 million or 87.3% of its allocation resulting to a variance of R22.9 million. Supported Employment Factories and Subsidies to Designated Workshops sub-programme received R153.2 million or 25.3% of the programme allocation, which is the second largest allocation. It spent R142.2 million or 92.8% of its allocation resulting to a variance of R11.1 million.

4.2.4.   Labour Policy and Industrial Relations (LP&IR)

The purpose of the LP&IR programme is to facilitate the establishment of an equitable and sound labour relations environment; support institutions of social dialogue and promote South Africa’s interests in international labour matters; conduct research, analysis and evaluate labour policy; and provide statistical data on the labour market.

The LP&IR programme comprise the following sub-programmes: Management and Support Services: LP&IR; Strengthen Civil Society; Collective Bargaining; Employment Equity; Employment Standards; Commission for Conciliation, Mediation and Arbitration (CCMA); Research Policy and Planning; Labour Market Information and Statistics; International Labour Matters; and National Economic Development and Labour Council (NEDLAC).

The LP&IR programme was allocated R1.203 billion or 36.7% of the entire budget of the Department, which is the largest programme allocation. It spent R1.189 billion or 98.9% and achieved 57% of its predetermined targets, resulting in under-expenditure of R13.7 million. The delay in promulgating the National Minimum Wage Act resulted in under-expenditure on Compensation of Employees. Fluctuating exchange rates resulted in under-expenditure on Transfers and Subsidies.

The CCMA sub-programme received R963.1 million or 80% of the programme budget. The CCMA spent 100% of its budget allocation by the end of the financial year.

4.3.      Expenditure by Economic Classification

The Department reported its expenditure by Economic Classification as follows:

Table 2: Expenditure of the Department by Economic Classification

Source: Annual Report 2018/19 (Department of Labour)

Table 2 reflects expenditure of the Department by Economic Classification. Current Payments received R1.856 billion or 56.6% of the total budget of the Department, which is the largest share. A total of R1.700 billion or 91.6% of the Current payments budget was spent by the end of the financial year resulting to a variance of R156 million. Compensation of Employees received R1.271 billion or 68.5% of the Current Payments budget. Of that amount R1.149 billion or 90.4% was spent by the end of the financial year, resulting to a variance of R122 million. Goods and Services was appropriated R585.0 million or 31.5% of the Current Payments budget. Of that amount R550.9 or 94.2% was spent by the end of the financial year resulting in a variance of R34.1 million.

Transfers and Subsidies was allocated R1.315 billion and R1.296 billion or 98.6% was spent by the end of the financial year resulting to a variance of R18.4 million.

Payments for Capital Assets was appropriated R109.6 million and R87.9 million or 80.2% was spent by the end of the financial year resulting to a variance of R21.7 million.

Payments for Financial Assets was appropriated R1.4 million and 100% of the allocated amount was spent by the end of the financial year.

1. REPORT OF THE AUDITOR-GENERAL

The Department of Employment and Labour (DEL), CCMA and Nedlac received unqualified audit opinion with findings in 2018/19 financial year. DEL and CCMA had been receiving unqualified audit opinion with findings since 2014/15 financial year. Fifty per cent of employment and labour portfolio received unqualified audit opinion with findings. DEL materially underspent the budget by R196,2 million primarily on programme 1 and 3, due to vacancies and delays in capital project expenditure.

The Supported Employment Enterprises (SEE) and UIF received qualified audit opinion with findings in 2018/19 financial year, constituting 33% of the employment and labour portfolio. Both SEE and UIF had received unqualified audit opinion with findings in 2017/18 financial year. SEE had received a qualified opinion in 2016/17 and the UIF received a disclaimer in the same financial year.

The Compensation Fund (CF) received a disclaimer of opinion in 2018/19 financial year, which is the worst audit opinion. The CF had received a disclaimer of opinion since 2014/15 financial year.

AGSA reported that DEL achieved unqualified opinions because they corrected all misstatements identified during the audit. Qualification areas for CF and UIF regarded unlisted investments where credibility of data in respect of valuations performed could not be validated for completeness and accuracy. AGSA further reported that another qualification area for CF was the limitations on revenue and claims. Furthermore, it reported that cost of sales were inaccurately recorded and inventories were valued at an incorrect amount at SEE.

With regard to credible performance reporting, Nedlac and UIF submitted performance reports without errors. This constitute 33% of performance reports submitted without errors, which is an improvement from the 17% of reports without errors in 2017/18. DEL, CF, CCMA and SEE were reported to have submitted reliable reporting of achievements. This constitutes 67% of reliable reporting of achievements, which is an improvement from the 50% in the previous financial year. Performance indicators and targets of the SEE were reported to be useful.

AGSA reported material findings on compliance with key legislation for DEL, CF, Nedlac, SEE and UIF in 2018/19 financial year. Only the CCMA had no material findings in the year under review. The whole portfolio had material findings in the previous financial year. Top five non-compliance areas were:

• Quality of financial statements with material misstatements corrected (DEL) and material misstatements not corrected (CF, SEE, UIF);
• Prevention of irregular expenditure (DEL, CF, Nedlac);
• Prevention of fruitless and wasteful expenditure (DEL, CF);
• Revenue management-inability to collect debts (CF-lack of regular follow ups on debtors raised, SEE-clients not paying due to economic conditions);
• Consequence Management-Information not provided (CF, Nedlac) or disciplinary steps not taken for irregular/ fruitless and wasteful expenditure (DEL and UIF).

Fruitless and wasteful expenditure decreased from R13.8 million in 2017/18 to R11.4 million in 2018/19 financial year. The majority of the disclosed fruitless and wasteful expenditure for the current year was caused by litigation and claims of R6.7 million at CF, damages to vehicles of R4.1 million at DEL and R0.2 million on lease payments for parking at UIF.

Irregular expenditure decreased from R111.3 million in 2017/18 to R49.3 million in 2018/19 financial year. The majority was caused by the non-adherence to procurement and contract management processes of R43 million at the Department and all entities. Of the R43 million, R10.7 million is expenditure on ongoing multi-year contracts at CCMA. Overspending on the approved budget of R6.2 million at Nedlac without the Minister’s approval contributed to irregular expenditure.

1. Statement of Financial Performance for the year ended 31 March 2019

The final appropriation of the Department for 2018/19 financial year amounted to R3.282 billion and the departmental revenue amounted to R10.781 million. The total revenue amounted R3 293 billion. This is an increase of R221 million from the total revenue of R3 072 billion in 2017/18. The source of departmental revenue was:

• Sales of goods and services other than capital assets (R4 665 million);
• Fines, penalties and forfeits (R1 988 million);
• Interest, dividends and rent on land (R1 233 million);
• Sales of capital assets (R76 000);
• Transaction in capital assets (R2 819 million).

The total expenditure amounted to R3 086 billion, which was broken down as follows:

• Total current expenditure (R1 700 billion);
• Total transfers and subsidies (R1 296 billion);
• Total expenditure for capital assets (R87.909 million);
• Total expenditure for financial assets (R1 409 million).

This resulted in underspending of about R207 million.

1. Statement of Financial Position for the year ended 31 March 2019

The total assets of the Department for the year ended 31 March 2019 amounted to R209 1 million (R209 103 000) comprising R188.8 million (R188 799 000) current assets and R20.3 million (R20 304 000) non-current assets. This is a decrease of R15.6 million from the 2017/18 total assets that were valued at R224.7 million (R224 745 000).

Total liabilities amounted to R199.8 million (R199 816 000) comprising only current liabilities. These included:

• Voted funds to be surrendered to the Revenue Fund (R196 179 000);
• Departmental revenue and NRF receipts to be surrendered to the Revenue Fund (R718 000);
• Payables (R2 919 000).

Total liabilities decreased by R16.9 million from R216 805 000 in 2017/18 to R199 816 000 in 2018/19.

The net assets amounted to R9 287 000, which was an increase of R1 347 000 from the net assets that were valued at R7 940 000 in 2017/18.

6.         FINANCIAL PERFORMANCE FOR Q1 OF 2019/20 FINANCIAL YEAR

6.1       Expenditure analysis

The main appropriation of the DEL for 2019/20 financial year amounted to R3.4 billion. By the end of June, the Department had spent R758. 6 million or 22.1% of the total budget. This is lower than the projected amount of R830.7 million by R72.1 million or 8.7%. The slow spending is mainly under compensation of employees, goods and services and payments for capital assets.

6.2.      Expenditure per programme

6.2.1.   Administration

The Administration programme was appropriated R962.0 million and had spent R182.5 million or 19.0% of the allocation by the end of the first quarter. This is R49.0 million or 21.2% less than the projected expenditure of R231.5 million. The slow spending is mainly under compensation of employees due to vacant finance, supply chain, security and management posts at provincial offices and labour centres and IT posts at head office. The slow spending on goods and services is due to delays in invoicing by service providers for the procurement of cars for the departmental fleet in the provinces as well as delays in the issuing of invoices for office accommodation leases and municipal service charge by the Department of Public Works.

6.2.2.   Inspection and Enforcement Services (IES)

The main appropriation for Inspection and Enforcement Services programme was R631.1 million and the programme had spent R126.2 million or 20.0% by the end of the first quarter. This is R200 000 or 0.1% higher than the projected R126.0 million. Goods and Services was the main contributor to higher spending. This is due to new security services tender that came into effect in April that resulted in an increase in the amount spent.

6.2.3.   Public Employment Services (PES)

The main appropriation for Public Employment Services programme was R611.2 million and R145.6 million or 23.8% was spent by the end of the first quarter. This is R10.0 million or 6.4% less than the projected expenditure of R155.6 million. The slow spending was mainly under transfers and subsidies because of delays in the payment of transfers to Designated Groups Special Services due to the adjudication committee approving the awarding of funding, which was completed on 23 July 2019.

6.2.4.   Labour Policy and Industrial Relations (LP&IR)

The main appropriation for Labour Policy and Industrial Relations programme was R1.2 billion and the programme had spent R304.3 million or 24.7% of the allocation by the end of the first quarter. This is R13.2 million or 4.2% less than the projected R317.5 million expenditure. The slow spending is mainly under compensation of employees due to delays in establishing and appointing the National Minimum Wage Commission. Slow spending under goods and services is due to delayed invoicing for property payments as well as delayed invoicing by service providers for the procurement of cars for the regional offices. The slow spending under transfers and subsidies is due to delays in transferring funds to Strengthen Civil Society because of late submission of signed original memoranda of agreements.  Most of these memorandums of agreements were only received in June.

6.3.      Personnel

Expenditure on compensation of employees during the first quarter was R300.8 million or 21.5% of the available budget of R1.4 billion, against the projected spend of R319.6 million as at the end of June 2019. The headcount target for 2019/20 as per the Estimates of National Expenditure is 3 341 with only 2 690 posts filled by the end of the first quarter. The slow spending and lower headcount is due to delays in the filling of vacant posts.

6.4.      Issues for the Committee to note

The Department is struggling to retain labour inspectors. Many labour inspectors leave the Department for higher salaries in the private sector and departments such as Mineral Resources. The Department needs to develop a strategy to retain inspectors within the IES in consultation with the Department of Public Service and Administration (DPSA).

7.         OVERVIEW AND ASSESSMENT OF SERVICE DELIVERY PERFORMANCE FOR 2018/19 FINANCIAL YEAR

The overview and assessment of service delivery performance is classified into three categories, namely: Performance per Strategic Objectives, Performance per Programme and Performance per ENE Objectives.

7.1.      Performance of the Department per Strategic Objective

The Department reported its performance per strategic goals as follows:

Table 3: Performance of the Department per Strategic Objective

Source: Presentation by the Department to the PC on Employment and Labour on 18 September2019

The Department achieved its targets except for promoting sound labour relations strategic objective. It achieved 33% of performance on this strategic objective. It achieved 16 of the 20 annual planned indicators, translating to an overall achievement of 80%.

7.2.      Performance of the Department per programme

The Department reported its performance per programme as follows:

Table 4: Performance of the Department per programme

Source: Presentation by the Department to the PC on Employment Labour on 18 September 2019

The Department achieved 16 of its 20 annual planned indicators, translating to an overall achievement of 80%. The Administration programme achieved three of the four annual planned indicators, translating to an overall achievement of 75%. It did not achieve the target of having 45% of total Department’s M-Pat standards at level 3 and 4 by 31 March 2019. Instead, it had 20% of total Department’s M-Pat standards at level 3 and 4.

The Labour Relations and Industrial Relations programme achieved 5 of the 8 annual planned indicators translating to 63% overall achievement. The programme did not achieve the target of implementing the National Minimum Wage by 1 May 2018. The programme extended 80% (16 out of 20) of collective agreements within 90 days against a target of extending 100% by end of March 2019. The programme did not achieve the target of reporting on impact of amendments to LRA on workplace conflict by 31 March 2019 because the amendments were promulgated in January 2019.

7.3.      Performance of the Department on Estimates of National Expenditure (ENE) indicators

The Department reported performance on ENE as follows:

Table 5: Performance of the Department on ENE indicators

Source: Department of Labour Annual Report 2018/19

Table 5 above indicates that the Department exceeded the majority of its ENE performance targets. It inspected 218 919 employers to determine compliance with employment law against a target of 218 732. The Department investigated 76% of reported incidents and/ or finalised within prescribed time frames against a target of 65%. It registered 888 553 work-seekers on ESSA against a target of 650 000. It registered 240 695 learning opportunities on ESSA against a target of 200 000. The Department had planned to provide 42 500 work-seekers with employment counselling. It provided 49 968 work-seekers with counselling. The Department planned to fill 85 000 work and learning opportunities with registered work-seekers. It managed to fill 142 804 work and learning opportunities with registered work-seekers. The Department met the target of assessing three pay scales to reduce gaps in minimum wage determination.

8.         OVERVIEW OF PERFORMANCE OF ENTITIES OF THE DEL: 2018/19

8.1.      Supported Employment Enterprises (SEE)

SEE is a business entity of the Department of Employment and Labour and it resides under the Public Employment Services programme.

The SEEs were established in 1943 to provide employment for people with mental and physical disabilities that prevented them from entering the open labour market, due to their afflictions. The factories provide employment to all races and currently employs 972 people with disabilities.

The factories have operated without an enabling legislation since inception, except for a Cabinet Memorandum, first compiled in 1943. The Employment Services Act 4 of 2014 formally established the Supported Employment Enterprises.

There are currently 12 factories across the country in seven of the nine provinces. Income from the factories is generated from the sales of manufactured goods that include furniture, hospital linen, protective clothing, garments, upholstery and screen printing.

SEE reported a need to review the current structure in order to capacitate it and ensure the smooth running of the organisation.

The DEL provides the following services to SEE:

• Internal Audit
• Audit and Risk committee
• Legal services.

SEE financial health has deteriorated due to the revocation of the preferential supplier status and the production processes which are not cost effective. In response, SEE has launched a Sustainability Plan aimed at:

• Driving Business Productivity and Cost Containment Programmes to restore financial sustainability;
• Re-engineering the production processes;
• Investment on machinery and equipment as part of capital maintenance;
• Developing selling price lists that are cost reflective, which was approved for the financial year 2018/19.

8.1.1.   SEE Performance per Strategic Objective

SEE reported its performance per Strategic Objective as follows:

Table 6: SEE Performance per Strategic Objective

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 6 above reflects that SEE had two planned indicators and achieved both of them translating to 100% overall achievement. It provided 100 additional People with Disabilities with work opportunities by end of March 2019 as planned. It increased sales revenue from Goods and Services by 16.59% against a target of 10% by end of March 2019. In monetary terms it increased sales revenue to R72.0 million against a target of R61.8 million by end of March 2019.

8.1.2.   Statement of Financial Position as at 31 March 2019

SEE had total assets amounting to R228.2 million by end of March 2019, which is a decrease of R23.5 million from the R251.8 million value of assets recorded at the end of March 2018. Total assets comprise R199.8 million current assets and R28.4 million non-current assets. The Current Assets decreased by R27.0 million from R226.8 million recorded in 2018 and the Non-Current Assets increased by R3.5 million.

Total Liabilities of the SEE amounted to R106.7 million, which is a decrease of R5.1 million from R111.9 million worth of assets recorded in 2018. The larger share of liabilities are current liabilities amounting to R106 6 million.

The Net Assets amounted to R121.5 million, which is a decrease of R184 million from R139.9 worth of net assets recorded at the end of March 2018.

8.2.      Commission for Conciliation, Mediation and Arbitration (CCMA)

The CCMA’s constitutional mandate is drawn directly from section 23 of the Constitution that deals with labour relations. The CCMA is a national public entity in terms of schedule 3A of the PFMA.

The CCMA’s statutory functions are set out in section 115 of the LRA, and are divided into those that are mandatory and those that are discretionary.

8.2.1.   Annual performance of the CCMA by Strategic Objectives by 31 March 2019

The CCMA reported its annual performance per strategic objective as follows:

Table 7: CCMA annual performance per strategic objective

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 7 reflects that CCMA had 19 planned targets for 2018/19 financial year and it achieved 18 targets, translating to an overall achievement of 95%. The actual target for Strategic Objective 4, which is optimising the organisation was to have 98% of all registered cases’ first event heard within 30 days (excluding agreed extensions). The actual achievement was 88% (136 857/155 351) of all registered cases’ first event heard within 30 days. The reason provided for non-achievement was that the Case Management System has limited capacity to extract and populate the number of conciliations sat down to be heard at first event within 30 days. As a corrective measure, the technical indicator has been amended to reflect ‘all’ cases activated for conciliation at first event within 30 days of the date of receipt of referral.

The CCMA received 193 732 referrals during the 2018/19 financial year and heard 136 857 conciliations within 30 days. A total of 16 669 arbitration awards were sent to parties by the fourteenth day after completion of the arbitration process. The CCMA conciliated cases within 24 days and arbitrated cases within 68 days. Through partnership with the Sheriff’s Board, the CCMA assisted 3 721 vulnerable workers to enforce and execute CCMA awards.

Approximately 71% of all case referrals related to unfair dismissals and 11% related to unfair labour practice disputes.

The Business Professional Services sector remained the highest referring sector at 27% of total referrals and the Retail sector accounted for 11% of total referrals at the end of 2018/19. Safety and Private Security Sector accounted for 12% of total referrals.

The table below reflects referrals by Act as at 31 March 2019.

Table 8: Number of referrals by legislation

Source: Presentation to the PC on Employment and Labour od 18 September 2019

Table 8 above reflects that the bulk of referrals, which is 92% were related to the Labour Relations Act.

8.2.2.   Annual Financial Performance results for the period ended March 2019

The table below reflects annual financial performance of the CCMA per programme.

Table 9: CCMA Revenue and Expenditure per programme in 2018/19

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 9 above reflects that the CCMA had a total budget allocation of R1.0 billion and spent R987.6 million or 94% of the total allocation, resulting to a variance of R57.9 million. The Administration programme received highest allocation of R557 million and spent R552 million or 92% of the allocation, resulting to a variance of R46 million. The Social Services programme received the second highest allocation of R451 million and spent R431 million or 95% of the allocation, resulting to a variance of R20 million.

The table below reflects annual financial performance of the CCMA by Economic Classification.

Table 10: CCMA Annual financial performance by Economic Classification in 2018/19

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 10 above reflects that Current Payments received an allocation of R1.0 billion and spent R970 million or 96%, resulting to a variance of R37.6 million. Of that allocation, R538.6 or 53% went to Compensation of Employees and R521.9 or 97% was spent resulting to a variance of R16.6 million. Of the Current of Payments budget, R469.7 or 47% went to Goods and Services and R448.8 or 96% was spent, resulting to a variance of R20.9 million.

Transfer Payments was allocated R6.2 million and spent R5.6 million or 91%, resulting to a variance of R568 000.

Therefore, total operational budget amounted to R1.0 billion and R976.4 or 96% was spent resulting to a variance of R38.2 million.

The budget for capital expenditure amounted to R30.9 million and R11.2 or 36% was spent resulting to a variance of R19.7 million.

The table below reflects annual financial performance of the CCMA per Strategic Objective in the year ended 31 March 2019.

Table 11: CCMA Revenue and Expenditure by Strategic Objective

Source: Presentation to the PC on Employment and Labour on 18 September 2019

The CCMA spent R11.2 million or 91% of the budget allocated for Strategic Objective one, resulting to a variance of R1.2 million. The variance was reported to be as a result of implementation of cost containment measures on travel and subsistence.

It spent R8.2 million or 53% of the R15.4 million budget allocation for Strategic Objective two, resulting to a variance of R7.2 million. The variance was attributed to unfilled posts and timing difference in implementation of dispute management activities.

The entity overspent by 6% on Strategic Objective three and the over-expenditure was attributed to high demand for training interventions in the labour market.

The CCMA spent R944.1 million or 95% of the R995.0 budget allocated for Strategic Objective four, resulting to a variance of R50.9 million. The spending on this strategic objective is in line with the National Treasury guidelines.

8.3.      National Economic Development and Labour Council (Nedlac)

Nedlac was established through the Nedlac Act, No. 35 of 1994. It operates in terms of the Nedlac constitution. Nedlac’s mandate is derived from the Nedlac Act, Labour Relations Act, Nedlac constitution and Nedlac protocols.

Nedlac’s objectives in terms of the Nedlac Act are to:

• Strive to promote the goals of economic growth, participation in economic decision-making and social equity.
• Seek to reach consensus and conclude agreements on matters pertaining to social and economic policy.
• Consider all proposed labour legislation relating to labour market policy before it is introduced in Parliament.
• Consider all significant changes to social and economic policy before it is implemented or introduced in Parliament.
• Encourage and promote the formulation of coordinated policy on social and economic matters.

8.3.1.   Nedlac’s overall annual performance per programme in 2018/19

Nedlac reported its performance per programme as follows:

Table 12: Nedlac annual performance per programme in 2018/19

Source: Presentation to the PC on Labour dated 18 September 2019

Table12 above reflects that Nedlac had 44 annual planned indicators and achieved 41, translating to an overall performance of 93%. The Constituency and Capacity Building programme had 6 annual planned indicators and achieved all of them translating to an overall achievement of 100%. The Administration programme had 10 annual planned targets and achieved 8 of them, translating to an overall achievement of 80%. The Core-Operations programme had 28 annual planned indicators and achieved 27, translating to an overall achievement of 96%.

8.3.2.   Nedlac’s overall annual performance per strategic objectives in 2018/19

Nedlac reported its performance per strategic objective as follows:

Table 13: Nedlac annual performance per Strategic Objective

Source: Nedlac Annual Report 2018/19

Table 13 above reflects that Nedlac had a total of 44 annual planned indicators. Of these 23 fall under strategic objective 7, which is effective engagement on draft policy and legislation within the framework of the Nedlac Act, Constitution and Protocols. This strategic objective reflects the core mandate of Nedlac, hence more than 50% of annual indicators fall under this strategic objective. Nedlac achieved 22 of the 23 planned indicators under this strategic objective, translating to an overall achievement of 96%. The above table also reflects that Nedlac achieved 100% overall performance in the majority of other strategic objectives.

8.3.3.   Annual financial performance results for period ended 31 March 2019

Nedlac reported its financial performance as follows:

Table 14: Nedlac financial performance in 2018/19

Source: Presentation to PC on Employment and Labour dated 18 September 2019

The total revenue of Nedlac amounted to R41.5 million and the total expenditure amounted to R46.9 million. Of this amount, R21.2 million or 45% was spent of Compensation of Employees and R25.7 million 55% was spent of Good and Services. The over-expenditure of the entity amounted to R5.4 million.

8.4.      Productivity SA

8.4.1.   Legislative mandate of the Productivity SA

Productivity SA is established in terms of section 31 of the Employment Services Act, No. 4 of 2014, as a juristic person, with the mandate to promote employment growth and productivity, thereby contributing to South Africa’s socio-economic development and competitiveness.

The Act enjoins Productivity SA to develop relevant productivity competencies and competitiveness in workplaces, with a focus on the following core functions:

• To promote employment and income growth, and workplace productivity;
• To improve the employment and reemployment prospects of employees facing retrenchments and those retrenched, which include schemes to provide for turnaround strategies, layoffs, retraining or alternative employment opportunities;
• To conduct research on productivity and competitiveness related matters, provide productivity improvement and competitiveness measures; and
• To promote social dialogue and a culture of productivity and competitiveness in the workplace and all spheres of the nation’s economic and community life.

The value proposition of Productivity SA is that it offers productivity and competitiveness improvement solutions to accelerate wealth and decent employment creation, by enhancing the productive capacity and operational efficiency of enterprises throughout the business lifecycle.

8.4.2.   Annual performance per Strategic Objective of the Productivity SA in 2018/19

Productivity SA Performance per Strategic Objective is reflected in the following table.

Table 15 Productivity SA performance per Strategic Objective

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 15 above reflects that Productivity SA had a total of 13 annual planned indicators and achieved 7, translation to an achievement of 54% by the end of March 2019. The entity had an overall achievement of 0% on strategic objective 3, which is to provide support to companies facing economic distress to retain jobs. This is one of the core-functions of Productivity SA. Another core-function where the entity scored 0% is strategic objective 4, which is to contribute to employment and income growth through research, information generation and dissemination.

8.4.3.   Annual performance per programme of the Productivity SA in 2018/19

Productivity SA reported performance per programme as follows:

Table 16 Productivity SA performance per programme

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 16 above reflects that the Productivity SA achieved 100% overall performance in the majority of the programmes. However, it scored zero in programme 2, which is Human Resource Management and programme 6, which is Turnaround Solutions. The entity had four annual planned indicators for programme 5, which is value chain competitiveness. It achieved two of those indicators translating to an overall achievement of 50%. It is concerning that the entity scored a zero on turnaround solutions programme, which is its core function. This may be attributed to the fact that the grants from UIF towards this programme are not guaranteed and the transfers are always not in full or on time, which resulted in the programme being suspended during the 2018/19 financial year. The reason for poor performance of the entity on core functions is elaborated upon below.

8.4.4.   Productivity SA Challenges

Productivity SA current funding model does not allow the organisation to adequately achieve its national mandate of leading and inspiring a competitive and productive South Africa. The organisation is also under-resourced in terms of human capacity and the lack of required resources hinders its ability to make a meaningful and desirable impact nationwide.

The current challenges emanate from the change in business environment with the promulgation of the Employment Services Act in 2015, which expanded the mandate of Productivity SA to include promoting employment growth and supporting initiatives aimed at preventing job losses. However, there was no additional funding appropriated by Parliament for this expanded mandate.

Productivity SA is a national public entity, but its footprint is limited to three provinces resulting in inadequate national coverage and equitable servicing of all the nine provinces. The footprint is reorganised into regional offices (Johannesburg/ Midrand servicing Gauteng, North West and Limpopo; eThekwini/ Durban servicing KwaZulu-Natal, Eastern Cape and Mpumalanga; and Cape Town servicing the Western Cape, Free State and the Northern Cape).

The Funds received from the three sources of funding i.e. DEL, DTI and the UIF are not sufficient for the entity to deliver on its mandate and provide services to the entire country. The persistent applications for additional funds are evidence of the funding problem.

8.4.5.   Annual financial performance of Productivity SA as at 31 March 2019

Productivity SA reported its financial performance as follows:

Table 17 Productivity SA Financial Performance

Source: Presentation to the PC on Employment and Labour dated 18 September 2019

Table 17 above reflects that Productivity SA spent R87.8 million and achieved 54% of its annual planned indicators. The largest share of expenditure was on Administration programme, which spent R53.9 million and achieved 80% of its annual planned indicators. Workplace challenges programme spent R12.9 million and achieved all its annual planned indicators. Productivity solutions programme also spent R11.2 million and achieved all its targets.

8.5.      Compensation Fund (CF)

8.5.1.   Constitutional Mandate

The mandate of the CF is derived from section 27(1)(c) of the Constitution. In terms of this section, everyone has the right to have access to social security, including, if they are unable to support themselves and their dependants. The CF is mandated to provide social security to all injured employees and those who have contracted diseases as a result of their workplace and diseased employees and their dependants.

8.5.2.   Legislative Mandate

The CF is a Schedule 3A (National Public Entities) entity of the Department of Employment and Labour. The Fund administers the Compensation for Occupational Injuries and Diseases Act, No. 130 of 1993, as amended by the Compensation for Occupational Injuries and Diseases Act, No. 61 of 1997. The main objective of the Act is to provide compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees, or for death resulting from injuries or diseases.

8.5.3.   CF performance per Programme in 2018/19

The CF reported its performance per programme as follows:

Table 18: CF Performance per Programme

Source: Compensation Fund Annual Report 2018/19

Table 18 above indicates that CF achieved six of its nine planned indicators, translating to an overall achievement of 67%. Administration programme had three planned indicators and achieved only one translating to an overall performance of 33%. COID Services programme achieved two of its three planned indicators, translating to an overall achievement of 67%. Programme 3 and Programme 4 achieved all of their planned indicators.

8.5.4.   CF Performance per Strategic Objective in 2018/19

CF reported performance per strategic objective as follows:

Table 19: CF Performance per Strategic Objectives

Source: Compensation Fund Annual Report 2018/19

Table 19 indicates that strategic objective 2, which is to provide faster, reliable and accessible COID services by 2020 achieved five of the six planned indicators, translating to an overall achievement of 83%.

8.5.5.   CF High level organisational performance

CF reported on high level organisational performance as follows:

• 85% projects on risk-based audit plan were implemented by 31 March 2019
• 98% of approved benefits paid within 5 working days of receipt
• 146 664 claims were adjudicated within 40 days of receipt (out of 156 223 claims registered) – 94%
• 867 381 medical invoices finalised within 60 working days of receipt (out of 934 742 invoices received) – 93%
• 1 539 of pre-authorisations responded to within 10 working days on previously finalised cases (out of 1 657 requests) – 93%
• 1 050 requests for assistive devices responded to within 15 working days of receipt (out of 1 159) – 91%
• 219 050 employers were assessed, which if 55% of active registered employers
• Investment return of 1.6% on funds invested over a 12 months’ performance period
• The Funds Risk Management maturity increased to 3.5.by March 2019.

8.5.6.   CF Financial Performance in 2018/19

CF reported on financial performance per programme as follows:

Table 20: CF Financial Performance

Source: Compensation Fund Annual Report 2018/19

Table 20 above indicates that The CF had a budget of R6.5 billion and spent R11.0 billion or 169% of the budget resulting to an over-expenditure of R4.5 billion. Programme 3 received the highest budget of R2.8 billion and it exceeded that budget by R2.0 billion or 75% of that budget. The Administration programme spent R3.9 billion against a budget of R2.4 billion, resulting to an over-expenditure of R1.5 billion. Programme spent R2.3 billion against a budget of R1.4 billion, resulting to an over-expenditure of R906 million. Programme 4 is the only programme that did not over-spent. This programme spent R26.7 million or 63% of the allocated R42.5 million, resulting to a positive variance of R15.8 million.

8.5.7.   CF Challenges

CF identified the following challenges:

• Weak internal control environment due to ICT system inefficiencies and skills levels;
• Poor compliance levels by employers affecting collection levels and claims processing;
• Inefficient business processes and operating model;
• Fraud syndicates who prey on the inefficiencies of the Fund;
• Inability to attract the required skills and expertise.

8.6.      Unemployment Insurance Fund (UIF)

8.6.1.   Constitutional Mandate

The mandate of the UIF is derived from section 27 (1) (c) of the Constitution. The UIF provides social security to its contributors in line with the afore-mentioned section of the Constitution, which states that “everyone has the right to social security”.

8.6.2.   Legislative Mandate

The mandate of the UIF is stated in the Unemployment Insurance Act, No. 63 of 2001, as amended. The UIF was established in terms of section 4(1) of the UIA. The Act empowers the UIF to register all employers and employees in South Africa and pay those who qualify for unemployment insurance benefits.

The Unemployment Contributions Act (UCA), No. 4 of 2002, empowers the SARS Commissioner and the UI Commissioner to collect monthly contributions from both employers and employees. Section 9 of the UCA empowers the UI Commissioner to collect contributions from all those employers who are not required to register as employers in terms of the fourth schedule of the Income Tax Act, No. 58 of 1962, and who are not liable for the payment of the skills development levy in terms of the Skills Development Act, No. 9 of 1999. These contributions are used to pay benefits and other expenditure reasonably incurred relating to the application of the Act.

8.6.3.   Performance of the UIF per Strategic Objective

UIF reported performance per Strategic Objective as follows:

Table 21: UIF Performance per Strategic Objective

Source: Presentation to the PC on Employment and labour dated 9 October 2019

The UIF achieved 10 of the 16 planned indicators, translating to an overall achievement of 63%. The entity scored 0 on strategic objectives 2 and 3, which is to Strengthen institutional capacity of the Fund and Provide easy to use services through multiple access points respectively. The Fund planned to reduce the vacancy rate to 10% or less but it was at 13.3% (80 vacancies/602 establishment) by 31 March 2019. Failure to meet the target was attributed to high volumes of applications received and the recruitment and selection of 68 internship posts additional to the establishment. The entity upgraded 33 provincial sites with free Wi-Fi against a target of 126. Failure to meet the target was attributed to delays in the appointment of service provider. The UIF planned to develop a test towards the implementation of the integrated claims management system (ICMS). The annual target was not achieved due to delay with the appointment of a service provider and approval for Accenture to conduct handover to the new service provider.

The entity achieved 50% on strategic objective 5, which is to collaborate with stakeholders to improve compliance with UIF Acts. It registered 64 577 new employers against a target of 65 000. The performance was reported to have been impacted by the systems downtime owing to data centre movement.

The UIF achieved 50% on strategic objective 6, which is to enhance employability of UIF beneficiaries, enable entrepreneurship and preserve jobs. It provided 3 823 UIF beneficiaries with learning and/or workplace experience opportunities against a target of 450 000. Failure to meet the target was attributed to delays due to internal and external probity.

The Fund achieved five of the six planned indicators on strategic objective 4, which is to improve service delivery. It issued 79% of applications with complete information with compliance certificates or tender letter within 10 working days against a target of issuing 90% within 10 working days.

8.6.4.   Performance of the UIF per Programme

UIF reported performance per programme as follows:

Table 22: UIF Performance per Programme

Source: Adapted from the Annual Report of the UIF

The Administration programme achieved three of the six planned indicators translating to 50% achievement. Business operations programme achieved six of the eight planned indicators translating to an achievement of 75%. Programme 3 achieved one of the two planned indicators translating to an overall achievement of 50%.

8.6.5.   UIF Financial Performance

UIF reported its financial performance as follows:

Table 23:UIF Financial Performance

Source: Unemployment Insurance Fund Annual Report 2018/19

The UIF spent R2.5 billion or 74% of the allocated R3.4 billion, resulting to an under-expenditure of R884 million. Business Operations programme was allocated R1.69 billion, which is more than half the budget of the entity. It spent R1.4 billion or 84% by the end of March 2019 resulting to a variance of R280 million. The Administration programme spent R1.5 billion or 91% of the allocated R1.66 billion resulting to a variance of R146 million. Programme 3 spent R1.4 million or 29% of the allocated R5.0 million resulting to under-expenditure of R3.6 million.

8.7       CF and UIF Boards of Directors

The adverse performance by the two entities above, over a long period, with the CF continuously receiving disclaimers from the audit outcomes of the Auditor-General, for 9 years, compelled this Committee for the first time to call in the CF and UIF Advisory Boards to appear before it. The engagements were held on Wednesday, 16 October 2019 and the following transpired:

8.7.1    CF Board

The CF Board identified the main reasons for disclaimers and the slow pace of performance at the CF, as caused by the Information, Communication and Technology (ICT) environment, among others, as follows:

• Poorly configured systems and lack of control over management of ICT within the Fund;
• Skills gaps in financial management identified in the past took time to be addressed by management resulting in no clear turnaround strategy and audit action plans;
• Inability of the board to intervene at an executive level as they are advisory result in the inability to act on poor performance or misconducts; and
• Weak controls as a result of poor ICT Infrastructure/systems resulting in fraud and opportunism by third parties.

The Board acknowledged the challenges and confirmed that it was   in the process of putting together various intervention strategies to try and improve the performance of the entity.

8.7.2    UIF Board

The UIF Board acknowledged that the entity achieved 63% of its targets in the 2018/19 financial year and received a qualified audit outcome by the AGSA, with eight recurring findings. As part of its intervention strategy, the UIF Board mentioned that it had instituted a Clean Audit Committee to drive the main pillars of the UIF, as follows:

• The Clean Audit Committee will be chaired by the Chief Operation Officer (COO).
• It will meet on a monthly basis and report to EXCO.
• The consolidated report will also be served at the Board and Departmental EXCO.
• The Clean Audit Committee will report to:
  • The Director-General on a monthly basis; and
  • Risk and Audit Committee on progress.
• The Clean Audit Committee will also perform thorough reviews of the annual financial statement and recommend them to other structures.
• The Clean Audit Committee will oversee the implementation of the control self-assessment for each Directorate.

9.         COMMITTEE OBSERVATIONS

After considering the presentations made by the Department and its entities on their annual reports and the input from the Auditor-General and Advisory Boards, the Committee made the following observations:

9.1.      Department of Employment and Labour (DEL)

9.1.1    South Africa's official unemployment rate soared to 29 percent in the second quarter of the year, the highest jobless rate since the start of 2008.

9.1.2    The Department materially underspent the allocated budget by R196.2 million. Effective and appropriate steps were not taken to prevent wasteful, irregular and fruitless expenditure.

9.1.3    Most challenges identified by AGSA in the department had already been identified by internal auditors. However, the department was slow to implement recommendations from internal audit.

9.1.4    The main reason for variance between appropriated funds and expenditure was reported to be the vacancies in the Department that resulted in underspending on Compensation of Employees.

9.1.5    Inspection and Enforcement Services programme has been struggling to attract and retain labour inspectors for the past few years. Many labour inspectors leave the Department for higher salaries in the private sector and to departments such as the Department of Mineral Resources.

9.1.6    With the expanded mandate on Employment, the DEL will require budget allocation increase to create an enabling environment for job creation. 

9.1.7    The National Treasury reported that the headcount target for the Department was 3 341 personnel but only 2 690 posts were filled by the end of the first quarter. This translates to 651 vacant posts by the end of the first quarter.

9.2.      Supported Employment Enterprises (SEE)

9.2.1    SEE generates its income from the sales of manufactured goods that include furniture, hospital linen, protective clothing, garments, upholstery and screen printing, therefore, requires more government departments to procure from their products in order to be sustainable as an entity.

9.3.      Commission for Conciliation, Mediation and Arbitration (CCMA)

9.3.1    CCMA has additional statutory obligations in terms of the National Minimum Wage, Basic Conditions of Employment Act and Labour Relations Act, which will require additional funding to enable it to fully implement legislation.

9.4.      Productivity South Africa (PSA)

9.4.1    PSA continues to experience funding challenges, which led to the suspension of the Turnaround Solutions programme.

9.5       Unemployment Insurance Fund (UIF)

9.5.1    The UIF did not implement adequate controls relating to daily and monthly processing and reconciliation of transactions.

9.5.2    The plan developed to address internal controls was inadequately monitored and management did not ensure that financial statements are reviewed adequately and have supporting documents.

9.5.3    The UIF Board is male dominated which is not reflective of gender parity in accordance with the department’s gender equity plan.

9.5.4    The UIF Board has never appeared before the Committee responsible for the labour portfolio in the current and previous Parliaments, as a result, its functionality and ability to make firm advisory decisions has yet to be tested.

9.5.5    A skills audit with regards to members of the Board of Directors is crucial to make a meaningful contribution to the work of the Board.

9.7       Compensation Fund (CF)

9.7.1    The Compensation Fund has received a disclaimer of opinion for the past nine years. The CF has commissioned a number of investigations to try and establish the origins of some of the financial challenges plaguing the entity. There were forensic investigations done by Sizwe Ntsaluba and Gobodo; and by SIU and the Public Protector. All these investigations made recommendations that are in line with those of the Auditor-General.

9.7.2    The Compensation Fund reported that it had been struggling to find suitably qualified personnel. However, it reported that the current management personnel were appointed based on the conducted skills audit.

9.7.3    A skills audit with regards to members of the Board of Directors is crucial to make a meaningful contribution to the work of the Board.

9.7.4    The CF has a challenge of weak internal control environment due to ICT system inefficiencies and skills levels.

9.7.5    The CF Board is also male dominated which is not reflective of gender parity in accordance with the department’s gender equity plan.

9.7.6    The CF Boards has never appeared before the Committee responsible for the labour portfolio in the current and previous Parliaments, as a result, its functionality and ability to make firm advisory decisions has yet to be tested.                       

10.       COMMITTEE RECOMMENDATIONS

10.1     After considering the presentation of the Department and its entities on their annual reports and input from the Auditor-General and Advisory Boards, the Committee recommends that the Minister of Employment and Labour takes steps to ensure that:

Department of Employment and Labour (DEL)

10.1.1  The DEL must step up its initiatives and programmes that support an enabling environment for job creation.

10.1.2  The implementation of consequence management in the Department and entities must be prioritised and enforced.

10.1.3  Recommendations of Internal Audit Committee are implemented.

10.1.4  The Department, in consultation with the Department of Public Service and Administration (DPSA), develop a strategy to retain labour inspectors within the Department.

Supported Employment Enterprises (SEE)

10.1.5  The DEL engages with National Treasury regarding preferential procurement by government departments and State-owned Enterprises (SOEs) from SEE.  

Commission for Conciliation, Mediation and Arbitration (CCMA)

10.1.6  Additional funding is made available to the CCMA to enable it to fully implement its statutory obligations in terms of the National Minimum Wage, Basic Conditions of Employment Act and Labour Relations Act.

Productivity South Africa (PSA)

10.1.7  The mandate of the Productivity SA is fully funded.

Unemployment Insurance Fund (UIF)

10.1.8  The UIF develops a plan to address internal controls deficiencies and a mechanism to monitor the implementation of the plan.

10.1.9  Through the Nedlac selection processes, gender equity is promoted at the UIF Advisory Board.

10.1.10The UIF Board reports to the Ministry on a regular basis and to the Portfolio Committee on a quarterly basis.

10.1.11The DEL, through the Minister of Employment and Labour, conduct skills audit on the members of the Board of Directors and present the skills audit report to the Portfolio Committee.

Compensation Fund (CF)

10.1.12The CF develops an action plan that responds to the recommendations of the Auditor-General. The action plan has to clearly indicate the short, medium and long-term milestones. Depending on the implementation of the action plan or the lack thereof, the Committee may commission an investigation around weaknesses in the running of the entity.

10.1.13The appointment of personnel based on a conducted skills audit in the CF is cascaded down to the operational staff level.

10.1.14The CF Board reports to the Ministry on a regular basis and to the Portfolio Committee on a quarterly basis.

10.1.15The DEL, through the Minister of Employment and Labour, conduct a skills audit on the members of the Board of Directors and present the skills audit report to the Portfolio Committee.

10.1.16The ICT system inefficiencies at the CF are addressed to strengthen the internal control environment.

10.1.17Through the Nedlac selection processes, gender equity is promoted at the CF Advisory Board.

10.1.18The Compensation Fund and other entities with adverse audit opinions put in place Audit Action Plans to address issues raised by the Auditor-General. Such plans have to be submitted to the Committee and entities have to report quarterly to the Committee on progress with implementation.

10.2     Further recommendation to the Minister of Finance

10.2.1 The Committee further recommends that the Minister of Finance takes steps to ensure that the budget allocation of the Department of Employment and Labour is adjusted to accommodate the expanded mandate of the department, thus enabling for the capacitation of its inspectorate.

11.       APPRECIATION

The Committee appreciates the cooperation it received from the Department and its entities. Furthermore, for the first time, the Committee had the opportunity to engage with the UIF and the CF Boards of Directors, in a bid to unfold the challenges that led to poor performance of these entities in the past few years. The Committee also acknowledges the assistance of the Auditor-General, Financial and Fiscal Commission and Statistics South Africa in providing information necessary for compiling this report.

Report to be considered.