Budgetary
Review and Recommendation Report of the Portfolio Committee on Labour, dated 20
October 2011
1.
Introduction
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. 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.
Capital Assets
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.
Programme 1
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 2009/10.1
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.
Programme 3
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.
Programme 4
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.
Under/over
Expenditure
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.
Virement
Shifted from |
Shifted to |
Amount R million |
Inspection and Enforcement Services |
Administration |
15 906 |
Public Employment Services |
Administration |
5 010 |
Labour Policy and Labour Market Programmes |
Administration |
7 886 |
Total 28 802
|
||
Inspection and
Enforcement Services |
Public Employment Services |
20 114 |
Inspection and
Enforcement Services |
Labour Policy and Labour Market Programmes |
1 250 |
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
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
·
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.
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
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.
Audit
Performance
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.
Expenditure Management
·
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.
Asset Management
·
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
·
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.
8.
Recommendations
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.
1 National Treasury (2010) Estimates of
National Expenditure