ATC111020: Report Budgetary Review & Recommendation Report of Portfolio Committee on Labour
Budgetary Review and Recommendation Report of the Portfolio Committee on Labour, dated 20 October 2011
The President had assented to the Money Bills Amendment Procedure and Related Matters Bill on 14 April 2009. The Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) was promulgated on 16 April 2009. The Act aims to provide for a procedure to amend money bills before Parliament. In broad terms the Act provides the procedure for Parliament to amend the budget, which includes the annual Division of Revenue Bill (although the bill is not classified as a money bill in terms of the Constitution), the Annual Appropriation Bill and Adjustments Appropriation Bill. Provision is also made for the procedure to amend other money Bills.
1.1 The role of the Committee
The role of the Portfolio Committee on Labour is to facilitate public participation by providing a national forum for public consideration of issues through legislation and overseeing executive action, in particular over the national Department of Labour. In terms of the Act, the procedure hinges on the constitutional obligation of Parliament to maintain oversight over the national executive authority. Therefore the annual assessment of national departments by the National Assembly through its committees signals the start of the budgetary review and recommendation report (BRRR) process.
The Act requires committees of the Assembly to submit BRRRs annually after the adoption of the Appropriation Bill and prior to the adoption of the reports on the Medium Term Budget Policy Statement (MTBPS). The BRRR and the reports on the MTBPS serve as an indication of whether amendments might be proposed to the fiscal framework and the budget bills when these are introduced the following year. In fact, when the Minister of Finance introduces the national annual budget, a report to Parliament setting out how the Division of Revenue Bill and the national budget give effect to, or the reasons for not taking into account, the recommendations contained in the BRRR and the reports on the MTBPS.
1.2 The Department
The mandate of the Department of Labour is to strive for a labour market which is conducive to investment, economic growth, employment creation and Decent Work.
To regulate the South African labour market for a sustainable economy through:
• appropriate legislation and regulations;
• inspection, compliance monitoring and enforcement;
• protection of human rights;
• provision of Employment Services;
• promoting equity;
• social and income protection;
• social dialogue.
2. Department’s Strategic Priorities and Measurable Objectives
2.1 Strategic Plans of the Department
In responding to government priorities, the Department’s strategic objectives for the next five years are to focus on the following areas:
- decent work;
- public employment services;
- promoting employment inspection and enforcement services to effectively monitor and enforce compliance with the associated legislation;
- strengthening social security; and
- strengthening the institutional capacity of the Department.
2.2 Measurable Objectives of the Department
Protect vulnerable workers by:
· sectoral determinations published for residual and emerging vulnerable workers
Promote equity in the labour market:
· employment equity implementation and enforcement mechanisms strengthened
Strengthen the Department’s institutional capacity:
· service delivery quality and access improved
Contribution to employment creation:
· job seekers registered and placed in opportunities
Strengthening social protection:
· increasing the number of unemployment insurance and compensation claims finalised
Promoting sound labour relations:
· to manage the implementation of the Labour Relations Act, No. 66 of 1995
Strengthen the multilateral and bilateral relations:
· participating in the ILO governing body and the ILC
Strengthening the capacity of the labour market institutions:
· monitor the performance of CCMA and NEDLAC against their strategic objectives
3. Analysis of the Department’s Prevailing Strategic and Operational Plan
The Department’s broad policy priorities remained:
· contribution to employment creation using programmes that already exist such as learnerships, Growth and Development Summit agreements commitments, supporting Expanded Public Works Programmes (EPWP) initiatives etc;
· promoting equity in the labour market by strengthening enforcement mechanisms to promote a culture of compliance in the labour market through the Employment Equity Strategy and the Broad Economic Empowerment (BEE) targets;
· protecting vulnerable workers by continuously evaluating Sectoral Determinations and through establishing bargaining councils and implementing the Child Labour Programme;
· strengthening multilateral and bilateral relations through effective participation in the International Labour Organisation (ILO), Southern African Development Community (SADC) and the African Union Labour and Social Affairs Commission;
· strengthening social protection through widening the beneficiary threshold of Unemployment Insurance and the Compensation Funds;
· promoting sound labour relations through sound social dialogue and through effective and efficient dispute resolution system
· strengthening the capacity of labour market institutions by strengthening capacity within statutory institutions and public entities to deliver services through performance standards;
· monitoring the impact of legislation through bi-annual labour market reviews and labour statistics and by ensuring the harmonisation of the labour market policies with other government policies;
· strengthening the institutional capacity of the Department by decentralising services provided by the Department and improved management practices within the Department.
4. Analysis of Section 32 Expenditure Reports
The First Quarter Expenditure Report for Financial Year 2010/11
The Department spent R1.8 billion or 99.5 per cent of its adjusted appropriation as at the end of the fourth quarter. Whilst total spending is not markedly below the 100 per cent benchmark, some programmes and economic classifications experienced slower than projected spending trends. The Department transferred 28.7 per cent of its adjusted budget for 2010/11 to public entities and non-profit institutions of which 100 per cent or R561.0 million has been transferred as at the end of 2010/11.
Compensation of Employees
The Department spent R681.5 million or 100 per cent of its adjusted compensation budget by the end of the 2010/11 financial year owing to a virement of R63.3 million from this economic classification to machinery and equipment. However, the departmental vacancy rate has improved from 13.8 per cent to 8.6 per cent. This was due to a combination of an improvement in the filling of posts and the upgrading of salaries for labour inspectors. Most of the vacancies are for Client Service Practitioners, which stand at 12.5 per cent, various administrative posts across all programmes, and Labour Inspectors.
Goods and services
As part of the current payments in the budget allocation were allocated R506.3 million and only spent R503.4 million at the end of the financial year. This means that the Department has reported an under expenditure of R2.9 million or 0.5 per cent for goods and services.
By the end of the 2010/11 financial year 92.9 percent or R80.2 million of the Department’s adjusted budget for Capital Assets had been spent. The increase in expenditure rate is owing to the reclassification of the finance lease cost in respect of the IT-PPP from current expenditure to capital payments. Due to this reclassification, spending on payments for capital assets increased from 53.1 per cent to 92.9 per cent. In comparison, by the end of 2009/10 the Department spent only 44.1 per cent of its capital budget also due to delays in the receipt of invoices from the Department of Public Works for capital projects.
The Department stated that spending would substantially increase for the administration programme due to restructuring of the Department. As such, spending on buildings and other fixed structures was estimated to grow by 977.9 per cent in 2009/10.
It spent 99.6 of their available budget by the end of the 2010/11 financial year with slight under-spending on payments for capital assets by 3.2 per cent (R2.6 million).
Programme 2 spent 100 per cent of its allocation for the 2010/11 financial year.
Expenditure for the 2010/11 financial year amounted to 98.7 per cent of their available budget. Expenditure against the payments for capital assets allocation only amounted to 4.4 per cent or R162 000 due to the reallocation of staff from Employment Services to Registration and Placement Services that resulted in under-expenditure on office equipment.
Labour Policy and Labour Market Programmes spent 99.4 per cent of its adjusted budget. However, expenditure against the goods and services budget of this programme only amounted to 90.37 per cent by the end of the fourth quarter, due to delays experienced with the processing of payments for the Child Labour Conference (held in Cape Town on the 4th April 2010) as well as delays experienced in the completion of the National Skills Development Strategy (NSDS) 2 Evaluation Study.
Having spent a total of 99.5 per cent of the total budget, the Department reported that it has underspent its budget by 0.5 per cent, i.e. R9.5 million. It has attributed this under expenditure to less than anticipated orders being processes for the procurement of new office furniture and equipment.
Unauthorised, Fruitless and Wasteful/Irregular Expenditure
An amount of R2.7 million relating to irregular expenditure for R12.9 million has been condoned by the Accounting Officer during 2010/11 financial year.
Inspection and Enforcement Services
Public Employment Services
Labour Policy and Labour Market Programmes
Total 28 802
Inspection and Enforcement Services
Public Employment Services
Inspection and Enforcement Services
Labour Policy and Labour Market Programmes
Total 21 364
5. Analysis of the Department’s Annual Report and Financial Statements
2010 presented a number of challenges for the South African economy, more especially the labour market. When the 2010/11 financial year started, i.e. April-June, unemployment rate stood at 25,2 per cent and by the third quarter of 2010, as a consequence employment had reached its lowest point although this was not at the same level as the 2009. This is the highest figure compared with other G20 countries. Year-on-year job losses were most felt in the agriculture, mining and private households (domestic) sectors. The decline in growth and employment associated with the post crisis effects resulted in an increasing number of people struggling to find jobs in the South African economy. Owing to these challenges, the Gini coefficient in South Africa rose from 0.66 in 1993 to 0.68 in 2000 and further to 0.7 in 2008.
As a result of the economic outlook, measures that had been established to cushion workers and companies during tough periods were put on the spotlight, as more and more people demanded services and products from various government entities, especially the Department. In addition, the decrease in employment rate and the general economic climate further impacted on the labour standards further leading to an increase in atypical work.
Decent Work Country Programme
As signatory to the ILO, South Africa had to develop and tailor-make its own decent work country programme in order to promote fundamental principles and rights at work, promote employment and income opportunities, improve social protection coverage and promote social dialogue and tripartism. As such, the National Economic Development and labour Council (NEDLAC) launched the Decent Work Country Programme 2010-2014 for South Africa. Some of the priorities in this programme include:
· strengthening fundamental principles and rights at work through the ratification and implementation of International labour Standards, and improved labour administration for effective employment services;
· promotion of employment creation through an enabling environment for job rich growth, sustainable enterprises, including formalisation of the informal sector and skills development;
· strengthening and broadening social security coverage through better managed and more equitable access t social security and health benefits, occupational safety and health, and improved workplace responses to the HIV/AIDS epidemic;
· strengthening tripartism-plus and social dialogue through the improved capacity of the tripartite-plus social dialogue institution, labour market institutions for effective social dialogue and sound industrial relations.
The New Growth Path
In November 2010, the Minister of Economic Development launched the framework of the New Growth Path (NGP). The NGP prioritises employment creation by aligning all economic policies with this priority. It also proposes massive investment in infrastructure projects and skills development, further targeting specific sectors that have the potential to employ people on a large scale. The NGP also emphasises the need for labour legislation to regulate decent working conditions for all. As part oversight, the Committee will assess government’s progress in creating decent working conditions, especially for the vulnerable sectors such as the domestic and farming sectors.
Programme 1: Administration
· Strengthening the institutional capacity of the Department
As part of improving access to departmental services and improve efficiency, the Department targeted to establish and staff the Office of the Chief Operations Officer. However, in the annual report, it reported that this target could not be fully realised due to lack of resources. It also stated that the labour centre model will be implemented in phases aligned to the expiry of leases starting in 2011.
· Human Resources
All government departments have to fill all vacant posts in the current financial year. Though this was not the target during the 2010/11 financial year, it is important to assess progress made by the Department in this regard. The 2010 SONA also emphasised the need to gender equity measures into the Government Programme of Action, in order to ensure that women and people with disabilities access developmental opportunities. In addition, the Department, as the custodian for the Employment Equity Act (EEA) should be the leader in achieving EEA targets. According to the Department’s annual report, the vacancy rate stands at 8.9 per cent. As at the end of March 2011, 91.40% of posts were filled against a target of 90%.
Programme 2: Inspection and Enforcement Services
· Target: Contribute to employment creation
Owing to the high unemployment, HIV/AIDS, poverty and the widening gap between rich and poor and the current economic climate challenges, the Inspectorate and Enforcement Services is presented with an opportunity to enforce labour standards by strengthening rights at work, in order to create decent work for all. The programme of this unit should aim at improving working conditions with specific targets for reducing non-compliance with laws concerning hours of work, minimum pay, reduction of occupational accidents, diseases and days lost to illness, accidents per worker and a progressive increase in the number of labour inspectors. A total of 192 129 of workplaces were inspected during the 2010/11 financial year, which was partially below the target of 200 000 workplaces. However the Department has stated that the target could not be reached due to the public service strike. In addition, the Inspectorate and Enforcement Services has reported a vacancy rate of 8.9 per cent, compare with the previous year’s 14.2 per cent.
Programme 3: Public Employment Services (PES)
Public Employment Services has a huge role to play in the labour market. As the provider of labour market information and the link between the job-seekers and the employers, it can have a serious dent on unemployment in the country. However, the current global economic climate presents serious challenges for countries’ economies to grow substantially in order to reduce unemployment. For example, in South Africa, the formal sector has been shedding a sizable number of jobs and instead, it has been the informal sector that has seen growth during this period. The other challenge for the PES is that the public service has a long history of negative perceptions due to poor service delivery that is linked to inefficiency as a result of poor skills and poor public relations skills. As a result, part of the reasons for poor endorsement from the private sector of the PES has been doubts that they can deliver efficiently to the needs of employers. A total of 483 038 job seekers were registered, while a total of 39 887 job opportunities were registered with the ESSA system. A total of 12 801 people were placed into various opportunities. A big concern is the slow placement rate within the labour market.
Although the 2010 State of the Nation Address stresses that people with disabilities will have access to developmental opportunities, however this is not reflected in the allocation of funds and the lack of support from government departments. According to the annual report, the SEF could not employ additional people due to insufficient funding, although there was a 15 per cent increase in sales. In addition, the key target of placing people with disabilities in the mainstream economy was not met. This failure is a major blow to government’s strategy in dealing with challenges facing people with disabilities.
The Department received an unqualified audit opinion subsequent to six years of qualified audits, mostly due to poor asset management and the Public-Private Partnership (PPP) between the Department on Labour and Siemens. However, the audit highlights the following concerns:
Procurement and Contract Management
· Non-compliance with the National Treasury Practice Note 8 of 2007-08 for transaction between R10 000 and R500 000, as the accounting officer did not invite written quotations or competitive bids respectively as required;
· In some cases, awards were made to suppliers without declaring if they are employed by the state or connected to any person employed by the state;
· In some cases, suppliers did not submit declarations of whether they had been involved in fraud, abuse and non-performance.
Human Resources Management and Compensation
· The accounting officer did not ensure that performance assessments of senior managers were conducted during the year as required;
· The accounting officer did not ensure that funded vacant posts were filled within 12 months after becoming vacant.
· The Department did not always adhere to procurement procedures as a result it incurred irregular expenditure.
· The accounting officer did not ensure that all payments due to creditors are settled within 30 days from receipt of an invoice.
· The accounting officer did not ensure that the PPP contract is properly implemented, managed, enforced, monitored and reported on.
· The accounting officer did not take full measures to ensure that assets were properly managed against theft, losses, wastage and misuse as required.
The Auditor-General (AG) raised matters relating to leadership capacity as a result of lack of internal controls relating to asset management, procurement, PPP agreement, etc. The AG further raises concerns regarding the fact that management had not established the IT governance framework which supports and enables the Department to support efficiently on its activities, including to predetermined objectives. Furthermore, the AG raised concerns that management did not prepare adequate, regular, accurate and complete financial performance reports that are supported and evidenced by reliable information. Finally, the Department of Higher Education and Training (DHET) commissioned a forensic investigation based on the allegation of irregularities by employees of INDLELA who had been transferred to the DHET. The report was yet finalised when the AG complied the report.
6. Consideration of Reports of Committee on Public Accounts
Having considered the Annual Report of the Department of Labour for 2010/11, the Committee on Public Accounts made the following recommendations.
On capital assets, the Committee recommended that:
- the Department employs professional, skilled personnel and exercises ongoing monitoring and supervision to determine whether controls are present and functioning;
- the head of human resources and senior management fill vacant posts urgently and that disciplinary action is taken against management and staff who fail to perform their duties as required;
- management implements a performance management system where staff performance is evaluated against specific key performance areas.
On governance issues, the Accounting Officer should ensure that:
- the Department’s Audit Committee takes corrective measures with regard to internal control deficiencies;
- personnel with adequate skills are employed;
- the head of human resources and senior management fill vacant posts urgently;
- disciplinary action is taken against management and staff performance is evaluated against specific key performance areas.
On non-compliance with laws and regulations, the Accounting Officer should ensure that:
- control activities are identified and developed with consideration of their cost and their potential effectiveness in mitigating factors;
- management establishes documents and implements a fraud prevention plan;
- management maintains an effective risk management policy which continuously evaluates and updates the financial management and internal control risks;
- reasonable steps are taken to recover debts before they are written off and further steps are taken to recover debts from the individuals responsible;
- criminal charges are laid against individuals who have committed financial misconduct and that internal control deficiencies are identified and communicated in a timely manner to those responsible for taking corrective action;
- an effective and well capacitated internal audit division is established;
- management implements regular assessments of supply chain performance to ensure that deficiencies are corrected;
- the entity addresses areas of responsibility and establishes lines of reporting in order to support effective internal control over financial reporting;
- effective policies and procedures in relation to financial reporting are established and communicated.
7. Committee’s Observations
Following the consideration of the Department’s 2010/11 financial and programmatic performance, the Committee identified the following issues:
· The performance assessment of senior managers was not conducted during the year as required by Public Service Regulations (PRS). There has been a slow uptake on the Training Lay-Off Schemes in provinces such as Free State, Limpopo and Northern Cape.
· The slow pace at which registered job seekers are being placed into the labour market was of concern to the Committee.
· Although there was visible progress made by the Compensation Fund, the Committee raised concerns regarding the negative audit outcomes. As such it was labelled as problematic entity in the Department of Labour based on the following reasons:
o the situation remained unchanged in areas ranging from material loss through criminal conduct to non-compliance with procurement policies;
o as pointed out by the Auditor-General, there were serious errors which the entity should have rectified in its financial report prior submitting it to the Auditor-General’s office;
o there was a serious lack of competency and skills within the entity;
o several instances of fraud had been committed by staff to the extent that other staff members were doing outside work without approval.
· Compared with the previous financial year, the Department has reduced the vacancy rate from 13.8 per cent to 8.6 per cent. This includes the reduction in the vacancy rate within the Inspectorate and Enforcement Services from 14.2 per cent to 8.9 per cent although the committee raised concerns regarding the slow pace in filling key vacant positions in the Department of Labour due to delays from the South African Qualifications Authority (SAQA) and National Intelligence Agency (NIA).
· When compared with the previous years, the Compensation Fund claimed that payments had been decreasing. The Committee was concerned that the Fund had not conducted a study to verify this trend and the cause thereof and whether the trend was due to non-reporting of accidents or an increase in compliance by employers.
· Progress was slow to enhance the IT capacity of the entity. As a result, the processing of claims is slow due to manual capturing of data. However, the Fund stated that by April 2012, employers would be able to submit Return of Earnings electronically.
· Consequent to opening offices in various regions around the country, the CCMA caseload has increased during the year under review. As such this could lead to an overload on the institution and may affect the quality of services delivered.
The Committee made the following recommendations:
· The Department of Labour must oversee and monitor the performance of the Compensation Fund and the Sheltered Employment Factories, as these have qualified audit reports and numerous matters of emphasis. The Department, together with the entities’ accounting officers should ensure clean audit outcomes for 2011/12. To achieve this, the two entities must train staff members to enhance performance and to raise skills levels to deliver services.
· The Department must liaise with other departments, Sector Education and Training Authorities (SETAs), the private sector, employer organisations and municipalities in order to market the Public Employment System to ensure an increased usage of this programme to register vacancies and to recruit potential employees.
· The Compensation Fund must commission a study on the reasons for the reduction in the payment of claims to determine whether this was due to an increase in compliance levels or poor reporting by employers. In addition, the study must be able to reflect on sector compliance and no-compliance in reporting workplace injuries.
· The Compensation Fund and the CCMA must work closely with the Parliamentary Constituency Offices (PCOs) owing to the absence of satellite offices in some areas.
· Due to an increasing demand for CCMA services, the Department and the CCMA should speedily come up with a sustainable funding model for the entity.
· Both the Decent Work Country Programme and the New Growth Path placed emphasis on the need to regulate and enforce labour laws in order to achieve decent work for all. As such the Department’s budget and spending patterns should be reflective of this goal. In addition, the Inspectorate and Enforcement Services (IES) budget should also reflect this priority, as the IES is responsible for regulation and enforcement of labour standards.
· As the Department continuously decentralises its services, more resources should be disbursed to labour centres. In addition, the Department must allocate more resources to upgrade service points and ensure that staff work under reasonably accommodating conditions and have adequate tools of trade.
· The Department’s Strategic Plan must have measurable objectives that are quantifiable and easy to evaluate. The Department must attach numbers to each goal, for example, how many cars will be purchased each quarter or month? How many uniforms will be purchased? How many additional labour inspectors will be appointed per quarter? How many new offices will be opened and by which entity within the Department of Labour.
· The Department must ensure that performance management agreements are signed and submitted to the Public Service Commission on time and that performance assessments of senior managers is done timeously.
· The supply chain management system must be complied with by both the Department and its entities.
· The Department must establish an IT governance framework.
· The Department must create space for the Audit Committee to meet with the Minister of Labour on a quarterly basis.
· The recommendations of the Committee on Public Accounts must be taken into account.
· Although the Department, the UIF, NEDLAC, the CCMA and Productivity SA received unqualified audit reports, they must maintain and improve outcomes on compliance to the audit prescripts as pointed out by the Auditor-General.
· The National Skills Fund must cater for unskilled and semi-skilled work seekers who cannot be placed through the Department’s Public Employment Services.
Report to be considered.
 National Treasury (2010) Estimates of National Expenditure
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