Department of Labour & Unemployment Insurance Fund: Annual Reports 2010/11

Meeting report

Election of Acting Chairperson
Mr M Sibande (ANC, Mpumalanga) was elected to act as Chairperson, as the regular Chairperson was ill.

Unemployment Insurance Fund (UIF) Annual Report 2010/11
Ms Fezeka Puzi, the Acting Commissioner, Unemployment Insurance Fund, outlined the mandate, aims, mission and vision of the Unemployment Insurance Fund (UIF) and set out the most pertinent pieces of legislation relevant to the UIF (see attached presentation for detail). She explained the main sources of revenue, pointing out that employees falling in certain categories had a portion of their salary deducted and paid over to the UIF, and would be able to claim should they become unemployed. She also tabled the office locations, pointing out that the UIF had offices in all major centres in all provinces.

Ms Puzi then presented an overview of the UIF, detailing issues around auditing, corporate governance, operational performance, employee and employer registration, benefit payments and claims approval rates (see attached presentation for all statistics). She particularly emphasised the slides on the Human Resources management, and outlined figures of vacancy rates, appointments, promotions, terminations and training.

The financial performance was summarised in a tabulated form (see attached presentation for full details). She elaborated on the expenditure of the Fund and the investment of its main assets. She also pointed out the performance highlights of the UIF for the year. It was noted that contributions increased by 5.37% from R10.75billion in 2009/10 to R11.33billion in 2010/11. This followed a general trend that saw increases in all areas of financial performance. Investment revenue also increased by 2.91% from R3.45billion to R3.55billion over the same time frame. Similarly the net surplus increased by 38% from R6.85billion to R9.46billion in 2010/11 due to decreased benefit payments, an increase in contributions and the reversal of the explicit prudence reserve on benefit payments. This also meant that the total investment portfolio increased by 20% from R43.73billion in 09/10 to R52billion in 10/11. Overall expenditure was R6.44billion, of which 83% was allocated to benefit payments, 8% to staff costs, 5% to administrative costs, 3% to operating costs, and a meagre 1% to unemployment alleviation schemes. The investment portfolio of R52billion was broken down into 61% bonds, 18% fixed deposits, 15% equity, and 3% each for promissory notes and bills.

In terms of performance highlights for UIF in general they were extremely successful in implementation. Examples given included over 1976 persons selected from the UIF and DoL database that were approved by the Fund for use in the MQA Training Scheme up from the proposed 800. All strategic risks identified were monitored as per set time frames and 97% of cases were finalised by March 31, 2011 up from a desired 82%, a significant success rate. Furthermore a risk appetite framework was developed and approved for implementation. There was a 73% increase in u-Filing usage and a total of 84 centres had processed claims during the year after initial indicators had predicted 20% and 76 centres respectively. Likewise 22% of the outstanding balance of overpayments was recovered after an indicator of 15%. Finally a 3 month UIF awareness campaign focusing on the Taxi industry and domestic employers had an audience of 41million according to the GCIS Thelma Report up from an indicator of only 15million.
Ms Puzi presented on the unemployment alleviation scheme, particularly the training lay-off scheme, and explained that this was introduced to try to ensure that workers and employers were better able to face the recession.

Finally Ms Puzi mentioned that the main challenges that the UIF faced included the need to improve turn-around times for claims, and the current economic conditions.

Department of Labour Annual Report 2010/11
Mr Sam Morotoba, Acting Director-General, Department of Labour, tendered an apology on behalf of the Director-General, who was unable to be present. He highlighted the key aspects of the Department of Labour’s Strategic Plan highlighting specific performance targets and strategic objectives.

Mr Morotoba then looked at the key challenges and remedial actions. These challenges centred on the lack of ICT capacity, and lack of automated systems for monitoring and evaluation. He noted that the Office of the Chief Operations Officer had not yet been established.

He presented the major complaints and investigations of the Department (see attached presentation for full details). He also noted the main aims of the public employment services, specifically pointing to indicators, objectives, achievements, targets and the training lay-off scheme in provinces. Measurable objectives were given as the facilitation of the entry and re-entry of job seekers into the labour market through proactive measures to address unemployment and poverty by finalising the public employment services policy and the Employment Services Bill. A possible reduction in unemployment was considered by placing people in decent work by filling at least 60% of opportunities on the public employment services database within 30 days of registration of an opportunity. This would go hand in hand with a referral of at 70% of registered persons to career counselling, training or work placement opportunities, UIF and the Compensation Fund within a 30-day period. Lastly a further reduction was envisioned by coming to the assistance of distressed companies within 5-days of receiving a notification from said companies. Achievements in this respect were given as 65 347 job seekers enrolled in counselling services. 25 814 job seekers were referred for work placement opportunities of these 12 801 were successfully placed. As well 451 950 persons were referred to UIF and 8 732 workers injured during the course of employment benefitted from the Compensation Fund. A further 7 217 job seekers were referred for skills development opportunities. In terms of support to distressed companies, 19 companies with a total of 6 183 workers were assisted at a value of R40million through the training lay-off scheme. The UIF invest R2billion in a private placement bond through the Industrial Development Corporation (IDC). This was expected to create 10 047 new jobs and save 7 186 existing positions.

Mr Bheki Maduna, Chief Financial Officer, Department of Labour, outlined the budget and spending for the financial year and compared it to past performance. He noted that the Department of Labour (DoL or the Department) had received an unqualified audit. Under this section, he also looked at predetermined objectives and compliance with laws and regulations.

Discussion
Mr H Groenewald (DA, North West) questioned the vacancy rates in the Department.

Mr M Jacobs (ANC, Free State) raised a concern about the high vacancy rates in the Department and wanted to know the reason for this. He also wanted a break-down of gender of the Department’s employees.

The Chairperson also requested clarity on vacancies. He questioned if these were funded vacancies, and if the fact that these posts remained vacant was linked to lack of capacity in the Department.

Ms Puzi responded to the question of staff complements. She explained that shared services were used between the Department of Labour and the Compensation Fund.

The Chairperson expressed his concern that the target of 50% of youth employment was unrealistic.

Ms Lerato Molebatsi, Deputy Director-General: Corporate Services, Department of Labour, said that matters had moved on since 2010/11 but one of the challenges was the ageing work force, and the fact that the only way in which younger employees were being introduced was on retirement or death of the existing employees. There were further complexities in the employment of people with disabilities, and the need to achieve a balance between the genders. She noted that the DoL was one of the departments with the lowest vacancy rates, but assured Members that the Department was, nonetheless, moving aggressively to fill vacant posts. She pointed to the challenges associated with the accreditation of employees and the problem of the “revolving door syndrome”, which she explained as posts being filled by promotions, which filled one post, but left another vacant. Many employees were moving to other Departments, the private sector or were retiring.

Ms Puzi added that she did not have a report of the breakdown of gender but she could make it available to the Members.

She too added to the comment on the mobility of staff and said that the largest number of vacancies in the DoL were at the lower levels, because of the large mobility and availability of other jobs or promotions. She said that posts were advertised and filled as soon as possible. All of the vacant posts were funded. She also noted that verification and security clearance was a lengthy process, and caused delays in the filling of posts.

Mr Groenewald asked a follow up question, noting the 25% vacancy in the professional managerial range, questioning why this figure was this high.

Ms Puzi responded that there were three vacant posts at Senior Management Service level, including that of the Chief Financial Officer. The Minister was involved in this level of employment and the process took longer.

Mr Jacobs sought clarity on how the Department dealt with interns and assisted them with finding jobs.

Ms Puzi said the ideal situation would be for all interns to be absorbed into the DoL, but this was simply not possible. If there were posts available at the time they completed their internship, then the interns would be prioritised for selection. However, if not, then they would at least leave the DoL with work experience, and the Department assisted them in finding jobs.

Mr Groenewald was worried about the distinction made between South African nationals, and foreign job-seekers. He also was concerned that the President’s target of five million jobs was not likely, on current figures, to be achieved.

Mr Lamati agreed that certain sectors, like farming and the hospitality industry, were known for the high number of foreign workers whom they employed, and noted that this was largely because the foreigners were prepared to work for less than the minimum wage. He explained that there were penalties outlined in the legislation, but these, especially when it came to issues of health and safety, were not a strong enough deterrent, and the Department was looking at amending the legislation.

Mr Morotoba also said there was a problem around the definition of “unemployment”, particularly in light of the country’s large informal employment sector. He said the Department was working with Statistics South Africa to establish who exactly was seeking employment, and who had registered as job-seekers on a database. There were also major challenges in distinguishing between South Africans, foreign employees and asylum seekers, which could only be established if they were in possession of the necessary documents.  The DoL was cooperating with the Department of Home Affairs on immigration management and work permit processes. He added that the DoL was also encouraging South Africans to consider moving to provinces where work was available.

Mr Morotoba noted that the target of five million jobs to be provided was a national issue, to be addressed by the President.

Mr Groenewald asked for more detail on the DoL’s investment portfolio, in particular questioning who was responsible for decisions and management of these matters.

Mr Jacobs noted his concern about investments with the Public Investment Corporation (PIC), who was also involved with the e-tolling. He wanted to know the impact or repercussions of this.

Ms Puzi noted that the R52 billion of investments was handled by a board of different stakeholders. Actuaries were employed to do evaluations around liabilities, and they presented the Department with proposals on how best to invest its funds. These proposals would then go to an investment committee which comprises of business, labour and community representatives, and they would make recommendations to another board, who would consider the matter in turn before going to the PIC, as stipulated under the Public Finance Management Act (PFMA)

Mr Morotoba confirmed that the PFMA outlined the investment with the PIC, which the Department had to observe. He could not comment on the e-tolls, as this matter was the subject of a court case, and there were other people better positioned to answer these concerns.

Mr Groenewald asked how the Department managed inspections of workplaces, and what challenges it found.

Mr Lamati said inspections were done regularly and they may be either announced or unannounced. The number of inspectors sent depended on the size of the entity under inspection. The main challenges experienced were the high level of ignorance around laws and regulations with which officials were to comply, and the use of labour consultants, who would often give employers incorrect advice as to what the law said.

Mr Jacobs questioned if companies not complying were taken to court, and asked what the outcomes were.

Mr Thobile Lamati, Chief Inspector, Department of Labour, pointed to the slides in the presentation that explained this question.

Mr M Jacobs (ANC, Free State) questioned the time frame for completing the average UIF claim and particularly wanted to know if there was an improvement on these times.

Ms Puzi responded that, on average, if took five days – but later corrected herself to five weeks – after receipt of all the documentation, to process the claim. She said the challenge of incomplete documentation caused delays, especially when the declaration of employment was submitted by the employer after the due date. If all the documentation was received on time, the claim took five weeks to process.

Mr Jacobs asked how companies in distress were assisted, how they were defined, and how they were linked up with the Citizen Entrepreneurial Development Agency (CEDA).

Ms Puzi explained that the alleviation schemes were a new intervention, and it had taken a long time to reach the targets that the Department hoped to achieve.

Mr Morotoba added that these companies were clearly defined according to the terms of the global agreement signed at National Economic, Development and Labour Council (NEDLAC). He added that the companies and trade unions had to agree that there was a state of distress, and must make a declaration to the Commission for Conciliation, Mediation and Arbitration (CCMA), providing the necessary proof. CEDA would look at the extent of the damage before referring the matter to a Departmental committee, who would consider the application. He said the link with companies to CEDA was usually done in the case of big business.

The Chairperson sought further clarity on the training lay-off schemes and the criteria used. He also questioned the money contributed to these schemes.

Mr Morotoba responded that money was committed by the UIF and the National Skills Fund, as announced by the President in the 2009 State of the Nation Address. He noted that different employment sectors required different processes in terms of the lay-off or training scheme. He said the training of employees to acquire new skills was always encouraged, instead of them simply staying at home.

Mr Jacobs wondered if anything was done for small, medium and micro enterprises (SMMEs) who were in distress.

Mr Morotoba explained that DoL and UIF had targeted big business, instead of SMMEs, under the scheme for companies who were in distress, because many small businesses did not contribute to the UIF, and were thus automatically disqualified in terms of benefits. 

Mr Jacobs wanted to know how many Departmental offices were constructed, and in which areas they were located.

Ms Puzi tabled a map of the places in which the 81 labour centres were listed.

Mr Maduna said that he was not sure exactly where the new offices were being constructed, but this information could be provided to the Committee. He said that most construction, particularly the permanent building in Rustenburg, was progressing very well. The DoL had opted to construct new offices because renting had proven a serious challenge, but there was equally some difficulty in finding suitable sites for construction, particularly since so much of the land was owned by municipalities.

Mr Groenewald cautioned the Department not to use the services of the Department of Public Works (DPW) when constructing its buildings.

Ms Molebatsi responded that the DoL did not have a choice in the matter, and although it was not an ideal situation, and there were indeed many challenges with the DPW, the DoL was looking into how best to cooperate with DPW, to maximise on the investment made in the buildings being constructed.

The Chairperson expressed his concern about the fact that assets were not adequately accounted for, not only by this Department, but others as well. He pointed out his concerns about non-compliance with laws and regulations and a lack of cooperation between the Department and other relevant sectors.

The Chairperson also cautioned the Acting Director-General on the use of consultants and the outsourcing of audit functions, saying that these operations were meant to be carried out by employees of the Department. In addition to this, it would result in cost savings.

Ms Molebatsi said the Department’s audit was done by its internal audit unit as there was sufficient capacity internally for this. She noted the end of the public-private partnership (PPP) contract in November and said the big issue moving forward was getting internal employees to fulfil the ICT mandate of the Department.

The Chairperson clarified that his question was directed to the remark made by the Auditor-General (AG) on consultants being used in the UIF, not at the DoL.

Ms Puzi then addressed the question of the UIF’s internal audit function, and said the numbers for this capacity were low, so outsourcing was at times needed, to assist the UIF. A new structure had been approved by the Department, and this was now with the Minister for Public Service and Administration for comment. She added that once the vacant posts were filled, the need for external consultants would cease.

Mr Jacobs questioned whether the Department had an action plan in place to address the issues that the Auditor-General had raised, and asked where this plan was.

Ms Caroline Mutloane, Chief Operations Officer, Department of Labour, affirmed that the DoL had drawn an action plan to address the AG’s findings. She said the Department did not operate in a silo but that different branches came together with provincial representatives to draft the strategic plans. These plans were then taken to weekly management meetings where they were debated by more senior officials and other stakeholders, before being approved by the Accounting Officer (the Director-General) and the Minister. She also stated the Department produced quarterly reports and midterm reviews and finally an annual report. National Treasury also provided the DoL with technical training on risk management based reporting. She had designed a reporting template that was then “locked”, so that the indicators used could not be changed, but the relevant information would be filled in.

Mr Maduna pointed out that the action plan was mentioned in the Annual Report.

Mr Groenewald wanted clarity on the funding of unions, as he explained that if the Department was paying the unions, this did not seem to make sense.

A Departmental delegate answered the question by saying that funding was made available to the Congress of South African Trade Unions (COSATU) for the training of shop stewards, but not for much else. The decisions on which institutions were allocated funding were made by a Departmental committee, which checked certain indicators. The performance of the organisations chosen for funding was then monitored.

The Chairperson said he understood why the DoL representatives could not comment on the questions around e-tolling, investments and foreign employees in greater depth.

The Chairperson expressed his concern that this presentation seemed to have been “cut and pasted” from a presentation given earlier to the Portfolio Committee, and said that he was particularly sensitive about the fact that this was a Select, and not a Portfolio Committee, and requested that the DoL not repeat the misnomers again.

Other Business
The Chairperson noted that there were not sufficient Members present to form a quorum, so minutes and reports could not be adopted at this meeting.

The meeting was adjourned