Compensation Fund 2020/21 Audit Hearing; with Deputy Minister

Meeting report

The Chairperson apologised for being absent the previous day and thanked Mr S Somyo (ANC) for holding the fort. Ms Ntombi Nkabinde, the Committee Secretary, would be sending correspondence to Members shortly which would explain a few things. He requested that the Committee deal with their housekeeping matters at the end of the meeting where he could then explain some of the changes to scheduling that had arisen. He welcomed everyone to the meeting. The Committee would be receiving a briefing from the Department insofar as the Fund was concerned. There was an outstanding presentation that the Department was supposed to have made on 24 November 2021 in the previous year but the Committee had overrun with time. Secondly, the Committee had yet again found itself with a disclaimed audit outcome with the Fund. This was a situation that was wholly untenable, unacceptable, and indicative of a host of issues that the Committee probably had to deal with. The fact that, yet again, the Committee had the permanent feature of disclaimed audit outcomes at the Fund was something which required urgent and immediate action including but not limited to the questions he had posed the previous time when the Committee had met on this matter, and which he thought the Committee would go to again. He noted that he had received an apology from the Minister of Employment and Labour, Mr Thembelani Thulas Nxesi, who was in Botswana. He welcomed the Portfolio Committee on Employment and Labour and said that the changes which were discussed and which had resulted in the Committee meeting this morning were in agreement with the Portfolio Committee because of the clashes of scheduling among other things.

Deputy Minister’s Overview
Ms Boitumelo Elizabeth Moloi, the Deputy Minister of Employment and Labour, mentioned that the Chairperson had already alluded to the absence of the Minister owing to the attendance of the African Regional Labour Administration Centre Governing Council and the meeting of the ministers of employment and labour in the Southern African Development Community in Botswana. The Department was present because the Committee had invited one of its entities—the Fund—to a hearing following the poor audit outcome of the entity once again in having received a disclaimer which followed a series of other disclaimers. When the Department was last before the Committee in May 2021, the Minister in his overview remarks had indicated that he would initiate a forensic investigation into the operations of the Fund. At the end of that meeting, the Committee had endorsed the idea of the forensic investigation and it had become one of the decisions of that meeting amongst others. When looking into the Fund, the Department had looked at what more could be done to get the entity out of the bad books. The Department had realised that scratching the surface and papering over the cracks were not helping and hence the Department had ended up entertaining the idea of a forensic investigation. The Department could also see on the horizon that other disclaimers were looming because challenges of the Fund appeared to be deep-seated and systemic.

The Department was before the Committee again because the Fund had received another disclaimed audit in the 2020/2021 financial year. As much as the Department loved the Committee, the Department wished that they did not see the Committee in meetings like these. This was why the Department had worked around the clock to ensure that decisions that they had taken in their previous interactions were actioned, though they took longer than anticipated. Another decision that had come out of the Department’s previous interaction was the implementation of the Audit Action Plan. These decisions were also taken by the Portfolio Committee, who was also keeping the Department on its toes in terms of demanding progress. From herself and the Minister, their attitude was that digging deeper into the Fund affairs and those affairs of any other entity of the Department that may have more or less similar challenges was their focus. To this end, she and the Minister believed that forensic investigation may provide valuable information that might come in handy in eliminating many, if not all, matters that were unwanted in the Fund particularly. Mr Thobile Lamati, the Director-General of Employment and Labour, was directed to action, amongst others, the appointment of forensic investigators, the development of an action plan to address the audit disclaimers at the Fund, and the appointment of highly qualified financial and audit professionals to assist the Fund finance management in dealing with the historical and current finance and performance reporting.

Based on the Department’s regular monitoring meetings with the Director-General and the Fund, it was her understanding that the following had been acted upon: Firstly, the appointment of a forensic investigator to carry out investigations into various areas of work in the Fund. The procurement processes were completed in November 2021 and she was sure that the Committee would understand the fact that the process of procurement took longer than anticipated.

Secondly, the Director-General led a process of the development of an action plan in June 2021 which had resulted in the adoption of a clean audit action plan. Among the activities in the action plan was the implementation of preventative controls in the management of unlisted investments which were made through the Public Investment Corporation (PIC). This was a subject that was a recurring audit finding and she was sure that at some point Members would have to discuss the matter separately. The Department had also thought that the Portfolio Committee would deal with it at some point. The Deputy Minister of Finance also needed to be called in, who was now the chairman of the PIC itself, where the Department was investing. Most of the time the Department’s entities requested, more often than not, an extension of the submission of annual financial statements because the financial year-end of the PIC was not necessarily in sync with the financial year of government. She thought that at some point this could be a discussion for another meeting and day.

Lastly, the appointment of skills resources to close the skills gaps identified in the financial management and audit unit of the Fund. These resources had started working at the Fund from the end of January 2022.

The Chairperson thought that the pertinent issues that the Deputy Minister had raised required the Committee’s attention. He said that the Committee had the added advantage of being with the Portfolio Committee this morning.

Clean Audit Action Plan Progress Report to Standing Committee on Public Accounts
Mr Vuyo Mafata, Commissioner of the Fund, presented the clean audit action plan progress report of the Fund. The presentation consisted of an: Executive Summary on the Overall Plan; Summary of Clean Audit Actions Progress as at 31 December 2022; and Status per Focus Category.

The Fund presented a progress update on the Clean Audit Action Plan currently being implemented at the Fund that addresses the key focus areas that have contributed to disclaimed audit opinions as highlighted by the AGSA over a period of years.

The action plan implementation started on June 2021 and these results outline the progress made from June 2021 to 31 December 2021. From a total of 169 actions as at 31 December 2021, 138 actions are completed and 31 actions are not yet complete. A further 12 actions are due between 31 December 2021 and 31 March 2022.

The status per focus category and its highlights were presented for: Revenue and receivables from non-exchange transactions; Benefits; Provision for outstanding claims; Payables from non-exchange transactions; Consolidation of investment in associates; Investment in financial assets and associates; Prior Period Years; Contingencies; Irregular, fruitless, and wasteful expenditure; Other important matters and Administrative matters; and Key Considerations for Improvement in the Control Environment.

(See attached document for details).

Discussion
The Chairperson, during the presentation, said that the network of the Commissioner was not helpful and that it was not a conducive environment for productivity.

The Commissioner apologised as the Fund was still experiencing intermittent connectivity issues due to not having recovered from the downtime that happened on Monday.

Ms N Tolashe (ANC) was taken aback by the presentation. She hoped and prayed that the Director-General would come forward to formally apologise. It could not be as if nothing had happened when it was known for a fact that no one in this day and age could be experiencing what the Committee was experiencing with the kinds of packages that officials, from the Director-General to the last person in the Department, were getting to make sure that oversight was effective and being respected. She took serious offence to this and somebody had to come forward. She suggested that the Committee have a physical meeting so that they could do their work properly. Listening to the Department, it might be thought that the Committee was dealing with something that had just happened overnight. She traced back to the fact that what was being spoken about today had been happening for the last 11 financial years. The Fund had been receiving disclaimers and adverse audit opinions, which was why the Committee was meeting today. In the previous meeting, the Committee had received all of what the Commissioner had just presented. However, from where the Committee was sitting, they were dealing with the audit findings of 2021. Therefore, in respect of what was being reported by the AGSA, the Committee got to see that nothing had in fact happened differently.

All of the qualification areas that had been identified by the AGSA were repeat findings and dated back as far as six years ago. She mentioned a few qualification areas, including the revenue from the non-exchange transactions and the receivable benefits, the irregular, fruitless, and wasteful expenditure, and payables from non-exchange transactions. Under irregular, fruitless, and wasteful expenditure the AGSA had reported the fact that the effective steps were not taken to prevent irregular, fruitless, and wasteful expenditure as required by section 51(1)(b)(ii) of the Public Finance Management Act (PFMA). The AGSA had again mentioned the fact that the irregular expenditure disclosed was mainly incurred due to noncompliance with the procurement requirements. She said that she was just mentioning these qualifications as highlights because Members and the Department all had the audit outcome. Hence, she was saying that from the responses one might think that it was something that had just happened in the previous month or year but it had been occurring for the past 11 years. The more serious part of it, when listening to the presentation, was that one did not hear anything except that certain things needed to be changed. No consequence management had been reported and as such what had been reported for 2021 had already occurred in 2019/2020. She thought that this time the Committee would be getting a full briefing that said what the Department and the Commissioner had done to change things around.

As part of what had been picked up and reported by the AGSA on the revenue from the non-exchange transactions and statutory receivables, was that the Fund did not correctly account for revenue. Employers were not accurately assessed in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA). The management did not maintain proper accounting records and adequate controls over revenue assessed from the non-exchange transactions and statutory receivables. Lastly, the Fund did not implement adequate and appropriate controls to address the completeness and accuracy of the employer contributions. Some employers’ returns on earnings were not assessed. Her concern was regarding the repeated finding. The Fund was equipped with relevant skills and qualifications. Are the officials provided with training, especially in areas around the COIDA, to avoid what had just been mentioned by the AGSA’s report? Why did the management not ensure that there were proper accounting records and controls over the revenue assessment? What measures were there in place to ensure that these records and controls were put in place in future? Were there any performance bonuses paid to the employees responsible for record-keeping and revenue management? If yes, why were they paid revenue when they did not perform as required? These were some of the concerns there were, which had not been addressed for the past 11 years, especially for the 2021 AGSA report.

The issue for consideration by the Committee was, firstly, that the investment in unlisted companies had always been an area of concern for many years. The AGSA had been raising this issue for a number of financial years. Does the Fund have a plan to ensure that the investment in unlisted companies is correctly accounted for? Does the Fund provide adequate training to officials responsible for investments in associates to ensure that they are kept abreast of all the requirements they need to properly account for investments in associates? If so, is there a plan in place to ensure this finding of the AGSA is correctly addressed?

Another matter that had been raised by the AGSA was the issue of internal controls. What are the plans to address the internal control deficiencies that were being identified by the AGSA? In the last meeting wherein the Committee met with the Fund, the Committee had raised issues and the Minister had submitted a plan that he was to embark on for him and his team to be able to address those. However, the plan fell short in really identifying what it was that needed to be done. Her fear here was that from a distance the Department and the Fund seemed to be stable. The Department had a Director-General who had been there for a number of years, as well as a Commissioner and everybody else. One did not find a strategy to turn things around and make sure that the 11-year history, in 2021/2022, was being addressed.

What was being said was the case in the previous year, and was also the case in the fifth Parliament, where Members were being made to sit and listen to things that were never implemented anyway, hence the history. It was like nothing had been said because all that had been raised did not seem to be addressed. There were words that were being put together coherently but actuals could not be found. The presentation did not give the Committee any different picture from what they had. The Committee needed to look at what they needed to do with the experience that they were getting from the Department and other institutions, especially when there was this funny historical arrangement of a fund that has never been able to account properly. With everybody that was in place, from the Director-General to the last person, one did not hear anything about consequence management. However, the Committee received stacks and stacks of presentations that did not give the ordinary South African, who was paying tax to the Department for it to be able to do its business, anything that said that they were being taken seriously, that things were being turned around, or that people were being held accountable as per the PFMA where any deficiencies were picked up. Perhaps when the discussion was being closed, and beyond the nice presentation, the Director-General should come in to tell the Committee what was being done.

The errors that were being recorded in the previous year, as well as in the last six and 11 years, were being created by a human being who was on the payroll of the Department. However, one did not hear anything. One of these days the Committee was going to talk and the South African taxpayer was not going to be happy with the Committee’s talking without doing anything. The time has come now for the Committee to be able to say that, for those who did not do what they were supposed to be doing according to the law, the Committee was going to do what they had been given the responsibility to do. She did not see any change or indication that the Committee would receive anything differently. The presentation had been received from the Minister, however the feedback did not provide anything different. Things were being done in three or six months, but the problem had been there for the previous financial year as well as for the last six to 11 years. The Committee was not being taken seriously and if the same thing kept on being done, she did not think that the taxpayers would be happy with the Committee. The strategy needed to be changed to say what it was that the Committee was going to do with the fact that the Minister and Director-General were not doing what they were expected to do. The Committee needed to do something so that as they sat in their chairs, being salaried by taxpayers, they were doing something on their behalf.

The Compensation Fund’s Response
The Director-General respectfully apologised for the connectivity issues and said that the Fund always respected the Committee’s oversight. The Fund had been receiving disclaimers for the past 11 years and there was a perception that nothing was being done and that these were repeated findings. When he had started as Director-General in the Department, he had appeared before the Committee and said that the problems at the Fund had been part of the institution for a long time before himself and the team that was present. A plan had then been presented to the Committee and he had said to the Committee that if the focus was to address the audit findings then the problems at the Fund would not be solved. This was because the problems were systemic and linked to the structure of the organisation and how it was functioning. It was then said that the plan would first address a number of issues. It was easy for the Fund to say that they would be addressing what the AGSA was saying only for the AGSA to pick it up in the following year because the root causes of the findings had not been addressed. There were thus key things that needed to be done. In the presentation that the Commissioner presented it could be seen that the Fund had been consistent in saying that they needed to address issues relating to people, systems, technology being used, and going fully automated.

An institution had been inherited whose operation was not automated, so he and his team needed to make sure that it was automated. Once the automation was done through the Compeasy system, the data sitting on the legacy system needed to be migrated, which presented its own problems. The Fund also needed to address the issue of competencies. Of all of the plans that the Fund had, even those presented by the Minister, a commitment had been made to address the competency issue.

The AGSA’s findings could not be addressed without having addressed all of the systemic issues that he had spoken about, including having a reliable system. The Fund was happy that the AGSA had audited the Compeasy system that they had now and did not find fault with it. This meant that the controls that had been placed on the system were now working and the Fund was now poised to deal with other areas that continued to present them with challenges.

The Fund continued to have discussion with the AGSA on a number of issues that were being disagreed on and which related to the fact that the Fund was fully automated. This included that part of being fully automated meant that nothing was done manually and there would not be hardcopies, as well as how the Fund dealt with theft parties that were transacting on the system.

The Fund was at the last end of the implementation of their plan and they were hopeful. In fact, it was known that all of the things that had plagued the Fund would have been addressed before the end of the current financial year. This was the commitment that they had and that the Fund was made. He said that he could have easily dismissed everyone in the meeting and it would not have solved the problem. When he had started, one of the assessments that were made concerning the previous management was to look at the skills and competencies. Part of the consequence management was to make sure that the Fund removed those who were not correctly placed. One of the problems that the Fund had was that people were just placed in key positions without the necessary competencies and qualifications. For example, at one stage the head of Medical Services was somebody who was not medically qualified. The fact that the operations of the Fund were centralised ahead of it, meant that the work of the Fund needed to be decentralised. The Fund needed to make sure that it appointed nurses and doctors in provinces. The perception that there was absolutely nothing that the Fund had done was not correct and he disagreed because there was a lot of work that had been done. For now, that work has not translated into the Fund getting a clean audit.

He was not surprised that the Fund did not get a clean audit but rather a disclaimer, because part of the things that they had said they would do and committed to was part of the action plan that they had presented to the Committee.

Ms Tolashe said that the Fund had not indicated what plans and strategies they had, yet the Fund had presented to the Committee their plans and strategies and how long it would take them to arrive at that point.

On the issue of whether bonuses were paid for poor performance, none of the top management was paid bonuses because of the work that they had done and the fact that the Fund was not doing well.

The Chairperson said that context was important. How long has Mr Lamati been the Director-General? How long has Mr Mafata been the Commissioner at the Fund?

The Director-General said that he had been the Director-General for seven years and that the Commissioner had been the Commissioner for five years, going onto six years now.

The Chairperson said that the Fund was dealing with 11 years of adverse or disclaimer audit outcomes. The majority of these years were under the Director-General’s watch, being seven out of 11 years, and just under half of the 11 years were under the watch of the Commissioner. He hoped that that context channelled in the direction of what Ms Tolashe was saying. He had heard what the Director-General was saying but he thought that the flip side of the coin should not be lost. Nobody was expecting that the Fund was going to miraculously move from a disclaimer to a clean audit overnight. The Committee might expect qualifications along the way, which was perhaps not okay but it was progress. He hoped that in responding to the disclaimers and placing them in a particular historical context, there was an appreciation of that on one hand. On the other hand, the Director-General was employed precisely because there was an expectation that there would be movement in the audit outcomes. There has not been any movement.

Yet again the Committee was here speaking about another disclaimer, which was the worst audit outcome that there was. What he was hearing was that it was everybody else’s fault but the Fund itself and that it was an inherited reality. It should not be spoken as though there was a new Director-General or Commissioner. These audit outcomes were squarely on the Director-General’s table and at his doorstep. He wanted to clarify this, particularly on the basis that in the fifth parliament the Committee had visited the Fund. The Committee had thus been interacting with the Fund and raised these matters time and time again, and the main issue that the Committee heard was that the Fund continued to be disclaimed. There was no improvement. The only time that the Fund would satisfy the Committee that there was an improvement would be when they come out of a disclaimer, which, as yet, has not happened. In his view, the pushback on what Ms Tolashe had to say did not take any responsibility and sought to embrace no accountability. The buck stopped with the Director-General and the Commissioner, which context was important.

The Director-General said that he had acknowledged that the buck stopped with him. In the context that the Chairperson had indicated, to simply apportion the blame on the Director-General and the Commissioner without reflecting on the real context within which the institution was found and the context within which the disclaimers took place would also be wrong of him not to indicate. If he had inherited an institution that had all the systems in place and that was properly structured, it would then mean that he would have to take responsibility for whatever happened.

However, for all of the years that he had been in the Department he had presented a plan to the Committee and said what it was that he had intended to do. In fact, with some of the problems that had always been plaguing the Fund, if they had not taken the steps that it had taken then the institution would have closed down. It was accepted that in so many people’s eyes an audit outcome was a measure of progress that the institution was making. However, that instrument that was being used alone did not paint the real picture and it gave an impression that there was absolutely nothing being done, yet there was a lot of work that was being done to address the challenges. The fact that the Fund had moved and now had an IT system with the controls that were built on the system was testimony of the fact that the Fund had been at work trying to address the problem.

He took full responsibility for the fact that the Fund had not moved beyond a disclaimer to a qualification or clean audit. This was the Fund’s plan; it was what they wanted to achieve, and it was thought that the Fund was at the right point now where they could achieve that. After having done all the work that they had done, he thought that the Fund was positioned to go beyond the disclaimer.

Mr A Less (DA) said that President Cyril Ramaphosa, had made some far-reaching remarks in his State of the Nation Address in the previous week. One of the remarks was the question of red-tape. The Director-General was right, the audit outcome was but one measurement of the performance of any entity but it was quite an important one. The most important measurement however was the service that the entity provided. The Compensation Commission (the Commission) provided shocking service. Whether it was systemic or otherwise does not matter to the client, as the client wanted the service. He happened to be a client and he thought that others in the meeting were clients as well. He suggested that in seven years, if the Fund had been handed to a private enterprise, it would be by now operating very efficiently and giving a good service. People out there were desperate. During this meeting, he had received a phone call from a desperate client of the Commission. The client’s name was Monster Security Service, which had submitted their return of earnings for the previous financial year on time. The client was then told that they were going to be audited and they had supplied all their documents that were required for the audit. Strangely, they were being audited because their turnover had decreased from the previous year.

Anyone with an iota of thought would understand that during the Covid-19 lockdown that there would more than likely be, in many cases, a reduction in turnover. Nevertheless, the audit was requested. No response was received and the client was desperate. The client was being turned down in tenders because they did not have a letter of good standing from the Commission. There was a tender closing the following day, and the client had been on the phone with the Commission today to desperately try and get some sort of response from the Commission. There was no response. This was the ultimate measurement of work being done by the Department and the Commission. He had the registration number of this particular client of the Commission and he provided it, being 2014/158812/07. He expected the Commissioner to go and personally see what the blockage was with this particular client of his. It was outrageous and completely unacceptable that the Committee received the excuses given to them by the Director-General. After seven years, the Director-General was still telling the Committee that the issues were systemic and that they had put an IT system in place. Does this IT system send out notices that returns on earnings are now due? As far as he knew it did not, and with the old manual system ten years ago he used to receive a notice. Now he received nothing; this was the new system. 

He had some questions about figures in the annual report. On page 95, there was a reference to intercepted payments and fraudulent claims, but there was no detail given in the annual report of what exactly these were. What are they? There was about R100 million. What is an intercepted payment?

On page 13 there was an indication of various parties, R71 812 518, cases investigated in finalised anti-fraud and corruption units, etc. Could some detail be provided as to who these various parties are that amounted to nearly R72 million? He was very upset as he had just been dealing with someone on a phone call who was basically in tears. There was a business that was likely to close down and employees likely to lose their jobs, yet the President has emphatically said that red tape must be dealt with. Here, we had the Director-General saying that things were taking some time and that the Fund would get there eventually. This was unacceptable.

The Commissioner said that Ms Tolashe had read out of the audit report the issues that the AGSA had raised around the Fund’s management of revenue and the absence of controls in the management of revenue from non-exchange transactions. The issues around audit that had been flagged by Mr Lees were actually those controls that had been put in place to make sure that whatever earnings were declared by an employer could be verified. Flagging an employer for audit was a control measure in instances where the revenue or earnings that had been declared by an employer in the current year significantly differs from the earnings that have been declared by the same employer in the prior period. Flagging for audit were those controls that had been put in place to verify if indeed those changes were genuine. When an employer was flagged for audit, the employer received an email that listed issues and items that they needed to submit to the Fund. This was for the Fund to carry out the audit and clear the flagging for audit so that the employer can be assessed and pay the assessment that had been made. If the employer did not cooperate or provide the information requested, it would result in the frustrations that Mr Lees was speaking about.

Mr Lees said that the employer had responded and submitted everything. Could the Fund not obfuscate and make excuses all the time? He was not a fool and understood what verification was. He had said that it was accepted that the reason for a reduced turnover at the time of Covid-19 would surely have required a bit more thought. However, the information was supplied.

The Chairperson said that Mr Lees had given the registration number of the client and that the matter should be left at that. The case should be left to be taken up by the Fund and a follow-up could be done in the following week as to the progress thereof.

The Commissioner said that the Fund would reach out to Mr Lees and attend to the matter. He referred to the question on page 95 of the annual report, on what is an intercepted claim and fraudulent claim. In the course of processing claims, the Fund came across instances where a claim may have been fraudulently submitted and inadvertently fraudulently paid to a claimant or person who was not the injured party. In some instances, even the bank account that was used to pay the claim into was not the correct banking details of the claimant as a result of fraud syndicates that would attack the Fund and intercept some of the payments. The Fund prepared the financial statements per the Generally Recognised Accounting Practice. There was thus no requirement for the Fund to provide that list but it would be provided to the Committee to highlight what the details were. The Fund had the list and would be able to submit it at the end of the meeting, to show what made up the amount that was reflected on the financial statements. It was the same for the issue of the R71 million, which was the fraud cases that were investigated in the previous financial year and included those that had been intercepted. The parties in almost all of these cases were before the law enforcement agencies as he spoke, and the Fund would be able to provide this list to the Committee at the end of the meeting.

Mr B Hadebe (ANC) said that the meeting was really frustrating. He focused on the presentation as it was shared with and presented to the Committee. He was struggling to make sense of the timeframes and said that they were too vague. For example, he referred to slide 5 regarding the summary of the progress of issues that were meant to be completed from June to 31 December 2021 as per the action plan. The summary highlighted all the issues that had been completed to date and those outstanding and indicated the number of issues that would have to be completed before 31 March 2022. There was a difference in terms of outstanding issues. For example, when taking the first issue of revenue and receivables from non-exchange transactions there were nine outstanding issues but only three could be implemented. He was expecting that when the Fund was dealing with the updated status per focus category they would give more details, but what the focus category did was that it just said the Fund was planning to implement 42 actions, only completed 33, and nine were outstanding and would be implemented after 31 December 2021. He did not know what date was after 31 December 2021. For monitoring, evaluation, and review of the action plan, specific dates were needed so that the Committee could monitor progress. If it was just stated as after 31 December 2021, this was an open-ended date. The Fund was not specific in all of the focus categories.

The Committee knew from the previous slide that between December and March the Fund had only implemented 12 actions. What had happened to the 19 actions? This was an indication. He often made the statement that one could not monitor that which could not be measured. He did not know what was going to happen with the 19 action plans that were not listed here. He sought clarity on the vague dates and requested that in future the Fund also give reasons for not implementing that which they had initially planned to implement. To provide the Committee with numbers without giving reasons, how then would the Committee be convinced that there were remedial actions in place to remedy the situation that led to the Fund not being able to implement what they had planned to implement? If he had been expected to arrive at the City Hall at 10am with his car and with five people but he arrived at 11am with three people, those who were expecting five people would not accept the fact that he arrived at 11am with three people. Rather, they would want to know why he was late to understand why he arrived late and failed to deliver five people. This report did not tell the Committee anything and it was not a progress report that contained detailed information or mitigating factors. It was not a progress report that told the Committee what led to the failure in achieving the planned actions that were meant to be achieved before 31 December 2021. He asked for this response.

The Commissioner took note of the comment around the Fund not providing the reasons for not implementing the targets. This was something that had not been included in the presentation and the Fund would make sure that they included it going forward. There were reasons why, for each of the activities, the Fund had not been able to complete them as they had initially intended. For some of the planned actions, the Fund had already extended and determined some of the dates, in terms of which the responsible head would have to come up with a catch-up plan that indicated by when they would be completing the activities if they had not completed them by a specific time. The Fund would make sure that in future presentations they incorporated the element for each of the items that may not have been completed in the reporting period. He attempted to explain slide 5.

Mr Hadebe interjected to say that he understood exactly what was contained on slide 5 and the colour coding. He was merely giving the Fund an example of what they had achieved, not achieved, and what was outstanding, and had said that the summary was not giving details. 19 action plans were not included in the other slide. What happened to that? He did not want the Commissioner to explain what was contained in the slides, but to explain what happened to the outstanding 19. When looking at the blue column, the Fund would only achieve 12 actions on 31 March 2022. 31 actions were not complete. Twelve minus 31 meant that the Fund was left with 19. Where were the 19 actions? He apologised for interjecting.

The Commissioner said that one could not minus 12 from 31 as they were two separate activities, which is what he had been trying to explain earlier. What was being tracked in blue was outside. The 31 items were those that formed part of the total of 169 actions that were reportable by the end of December 2021. Out of the 169 actions, 31 of them were not complete. He had indicated in his presentation that part of the Fund’s ongoing monitoring was that they also wanted to keep track of what those actions were that were reportable in the next reporting term at the end of the quarter. This was so that whoever was implementing any of the activities did not get lost in looking at the items that were not completed in December 2021, but knew that in addition to those items that were not completed by December, 12 items in the same quarter were currently being tracked and that needed to be implemented.

Mr Hadebe clarified if what the Commissioner was simply saying was that out of the 31 outstanding actions, 12 should be added.

The Commissioner confirmed that that was correct.

Mr Hadebe asked what it meant when the Commissioner said after 31 December. Only the 12 actions were being given dates, which was 31 March 2022. The 31 actions were given the date of 31 December, and he did not think that that would help in terms of the Committee’s monitoring exercise. The Committee wanted the actual date by which the Fund was going to achieve the outstanding plans.

The Commissioner said that these were indicators that the Fund also needed to include in the presentation, to show what the dates were for those items.

Mr Hadebe asked if, presenting to the Committee today, the Fund did not know the dates.

The Commissioner said that the Fund took note of the points. What was not included in the presentation was to show, for all of the items that had not been completed, what the time was for them to be completed. The actions should be completed and the expectation was that they should be completed before the end of the quarter, which was 31 March 2022. In subsequent presentations, the Fund would provide the Committee with the intended completion times for items that had not been completed by the time as per the plan. The Fund would also highlight what the reasons were that could have led to the Fund not completing it in time and what mitigating plans were put in place to make sure that it is implemented on time.

Mr Hadebe clarified that the Fund had the information at their disposal but chose not to furnish the Committee with it or did not see a need to provide the Committee therewith. He asked if the Committee could provide the Fund with a timeframe in which they were to furnish the Committee with the information. If it was readily available then a week should be enough, or even directly after the meeting.

The Commissioner said that the Fund would provide the Committee with the information by the end of the week; they just needed to clean up their operational working documents. If the Fund could submit by Friday, they would then definitely do so.

Mr Hadebe asked how the Fund presented to someone, who was not hands-on in terms of the Fund’s daily operations, a vague report. What was the plan and intention of limiting the Committee in terms of information? Now the Committee would have to wait another week. The Committee had line-up meetings and was dealing with other issues. He thus humbly requested, for future purposes, that the Fund provide the Committee with full and detailed information.

If the Fund saw it fit to indicate the deadline for the items listed in blue, he saw no reason why the deadline was not included for the items highlighted in red. To him, this only spoke to one thing which was that the Fund did not know when and how they were going to complete those activities. If the Fund knew that information, it could be presented to the Committee immediately after the meeting or the following day. For the Fund to ask for a week was a clear and simple indication that the Fund was still going to look around for the information. This was highly unacceptable for a Department that had had 11 disclaimer audit opinions. The Commissioner had been responsible for seven of those audit opinions based on the number of years that he had been involved in the Department. The Commissioner was saying to the Committee that the IT system with built-in controls had been put in place as one of the successes. However, the question was what positive results had been produced by the IT system. Did the Fund care to share with the Committee any positives? The audit opinion did not reflect any improvement and, in fact, there was a regression. He asked that the Fund share the positives of the IT system that the Fund had highlighted as one of its key successes concerning the disclaimer audit opinion.

The Commissioner said that the Fund had implemented Compeasy from 19 October 2020. When looking at some of the highlights that had been achieved in this system, firstly, an online platform was created for any person who interacted with the Fund. An employer who wanted to submit a claim and a medical practitioner who wanted to submit a medical invoice or pre-authorisation request could do so online. A platform was thus created so that should they wish to do things themselves they did not have to go to a third party to help them to do it because they could submit it on their own. Validation controls were improved over the registration of users on the system. Only a person who is authorised by an employer can submit a claim on behalf of an employer or medical practitioner. Nobody could submit anything on behalf of anybody if it did not pass any validations that had been put in place.

Claims and invoices that came through the system went through a validation process that ensured that only valid claims were submitted to the Fund. In the last year and a half since the system was implemented, over R4 billion in claims were paid. All of the claims had gone through the validation process and it was known that what the Fund was paying was submitted by the correct person and has gone to the correct person. The Fund had also implemented the account verification system that came as part of the implementation of the new claims management system. Any payment that went to the bank had to be validated through the account verification system to check whether the claim paid to a bank account belonged to the claimant. If the bank account did not belong to the claimant, the Fund was then able to deal with those exceptions and find reasons why it should be paid. The system has been subjected to audit and the control weaknesses that had been identified in the previous system that was being used were not existent in the current system. 

Mr Hadebe turned to the financial statements submitted for audit and said that they did not meet the required standards. The AGSA had complained that the Fund was relying or dependent on the audit process to correct the misstatement on the financial statements and that not all of the statements had been corrected. Why is the Fund unable to produce quality financial statements? Why is the Fund dependent on the audit process to correct the misstatement and submit proper statements for audit? Is the Fund unable to submit financial statements that were professional and in line with the standard of audit? What was happening here?

The Commissioner said that the Director-General had highlighted some of the systemic issues that the Fund was still currently dealing with that still influenced the information that was used to compile the financial statements. Granted that there were some areas where there were errors that would have been made in the compilation of financial statements, in some cases this related to the systemic issues that the Fund had with the balances that the Fund was still currently carrying on its financial statements. As such, the Fund was then unable to even correct some of the misstatements by the end of the audit when the AGSA was finalising it. In such cases where the Fund had not been able to finalise those, the Fund dealt with them as prior period correction of errors when the Fund compiled financial statements in the subsequent periods. When the AGSA came in for the status of record review as part of their planning for the audit, the Fund then presented them with all of those corrections that they could not do on time at the end of the audit process so that those could also be subjected to the audit.

Mr Hadebe said that he was trying to find out what it was that the Fund would do to completely eradicate dependence on the audit process for the Fund to submit proper audit statements. What are the plans in place? This was not happening for the first or second time, but it had been happening for years. There has not been any indication that the Fund was going to move towards a process where they were no longer dependent on the audit process to submit proper financial statements. Are there measures in place? Eleven years had gone by and there was no improvement. It was all good and well to highlight failures, challenges, and blockages. The Committee wanted tangible, practical, and implementable solutions, not plans that have failed for the past 11 years. The Committee was not in a position to accept theories at this juncture and wanted practical solutions.

The Commissioner said that in his presentation he had spoken to some of the processes that the Fund had put in place to improve the completeness and accuracy of the financial statements. He addressed the reconciliation processes that had been put in place and the development of reports on Compeasy that would help tie-up with the figures reported in the financial statements. This has been developed in the new Compeasy system that was implemented. In the reconciliation process that the Chief Financial Officer and his team had started to enforce and make sure that for every item on the Fund management or control account there is a corresponding reconciliation supported by reports that talked to transactions that made up the balances of the financial statements. These processes were put in place to help the Fund address the issues related to misstatements that may have occurred in the financial statements in the past. In addition, when dealing with the prior period issues, he had spoken to the process that was put in place to deal with all prior period errors that had been reported by the AGSA. He said that this was beginning with the analysis work that the Fund had done over the last ten years and currently with the action that was taking place to deal with the issue of those items falling part of the prior period errors in the past.

Mr Hadebe reiterated that what the Commissioner was telling the Committee was not new and did not yield positive results.

The Commissioner understood that what he was saying was not new. However, the Compeasy system was new and the measures that he had spoken about were put in place in the Compeasy system.

Mr Hadebe asked if the system was implemented in 2020.

The Commissioner said that the system was implemented in October 2019 and that modules had been progressively released.

Mr Hadebe asked how many audits had been completed since 2019.

The Commissioner said that the audit that had just passed was the first audit on the system.

Mr Hadebe said that even so, there was no improvement as there was still a disclaimer, which was his point. The Fund could not tell the Committee to expect improvement from the system implemented in 2019 which had failed to produce results in 2021. How long should it take for a system implemented in 2019 to produce positive results? How much has been spent or incurred in the implementation maintenance of the system from 2019 as there were no results?

The Commissioner said that he had been requested to talk about the positives related to the Compeasy system and he had accordingly highlighted them.

Mr Hadebe said that he was concerned about the status of the Fund’s audit opinion. For the Committee to see change it had to be reflected in the outcome of the Fund’s audit opinion. The Fund had put a system in place in 2019 to change things, which should be reflected in the audit opinion. However, to date, this has not been reflected.

The Chairperson said that Mr Hadebe was not going to get the answers that he wanted because there was disagreement with the AGSA in certain aspects of the auditing that had been done. Precisely, answers would not be received because the culture at the Fund was that a disclaimer was a comfort zone. The disclaimer was a conducive and enabling environment to do things as the Fund wished, without any consequence or accountability.

No matter how the Fund tried to spin it, the bottom line was that an audit was an assurance provider in that it looked at financial management, leadership, controls, functionality, and so on. At the Fund there was absolutely nothing to go on. He told the Deputy Minister that this was precisely why the Fund was in this mess.

What assurance did the Committee have about the information of the so-called successes and that it was actually there when there was absolutely no audit? The Committee had to sit and be expected to swallow everything that they were being told and accept it as gospel truth in the absence of an audit outcome. When something was disclaimed, the auditor was saying that they would not be touching the mess because there was absolutely nothing there; there was no access to scope, no paperwork, and no paper trail. There was a continuation of nerve, cheek, and audacity on the part of the Fund and the Department to say that everyone else must jump off of the nearest cliff, accept what they were saying, and they just did not care. This interaction was a waste of everybody’s time until such time that the Minister took decisive action about the current leadership in the Department and the entity. There was nothing to assure the Committee that any work or success pointed to were credible because the Fund had been disclaimed for over 10 years. This was an absolute disaster.

Mr Hadebe wanted the Fund to understand the Committee’s frustration and mentioned that the AGSA had said to the Committee that, had it not been for the legislative requirement to perform audits on public entities, he would have withdrawn his service from the Fund. The AGSA was fed up and did not want anything to do with the Fund but because of the legislative requirement they were forced to audit them. He asked that the Fund understand the Committee’s frustration from that context. The Fund could not come to the Committee and paint a picture that everything was under control when it was not. The AGSA had wanted to withdraw. He asked that the Fund take the Committee into its confidence and understand that they knew exactly what was going on based on the audit outcome. Painting another narrative was not assisting in dealing with the situation; rather, it further exacerbates the level of commitment from the Fund to the extent and magnitude of the challenges with which they were confronted.

Mr Lees said that something that had been raised a couple of times was the question of obtaining the audited results from investees. Insofar as he understood accounting, there were procedures so that entities did not have to have the same financial year-end to be able to consolidate entities. This raised concern on his part that it was not just about year-end not coinciding but that perhaps these investees simply did not produce financial results. He asked for a specific report of those entities that were apparently making it difficult for the Commission to produce financial results or reports to be listed. Perhaps the Committee could be sent copies of the investees’ financial results so that Members could get some comfort as it had been indicated that Members did not have too much confidence in the Fund because they did not have much to go on. The Committee just listened and were told things, and one of the things that they had been told was that the Fund had problems with year-ends not coinciding. However, he was not so sure that he accepted that too easily.

Mr Hadebe asked, concerning what the Fund had presented to the Committee in June 2021, for the investigating plan.

Ms M Dunjwa (ANC) (Chairperson of the Portfolio Committee on Employment and Labour) sought clarity so that she did not leave the meeting trying to understand what Mr Hadebe was saying around what the AGSA had said in terms of auditing the Fund if they were not compelled by law. She asked that this just be repeated to understand what had been said.

Mr Hadebe read that in the audit report the AGSA reported that due to the limitation imposed on the scope of the audit by management the audit opinion was disclaimed, and had it not been for the legislative requirement to perform the audit to the public entity the AGSA would have withdrawn from the audit.

The Chairperson asked the Deputy Minister to take the Committee through how far the investigation was and what the progress was.

Mr Hadebe added that it was known that the Minister had submitted to the Committee on 21 June 2021 the terms of reference for the investigation. The scope was for five years, dating from 2016 to 2021, and was divided into eight phases. There was no clarity received after interacting with the plan. The terms of reference did not provide a clear timeframe on the actual commencement of the investigation, there were no proposed dates for each phase, it was not known when each phase would commence or how long it would take for the completion of the other phases, and the costs and estimated costs were not clearly stipulated in relation to the cost-benefit analysis. This was the issue that he sought clarity on in terms of giving the Committee a status update. How far the Fund was with the process, having submitted it to the Committee in June 2021? Has the tender been advertised for these purposes? If it has not been started, when does the Fund anticipate starting? If it has been started, how far was the Fund?

The Commissioner said that the six service providers had been appointed as reported to the Committee. The contracting process with the service providers was completed in January and the investigations unit was now busy with the planning for the allocation of cases to the service providers. What the Fund had previously committed to was as each phase was completed. This was because the investigations may not be able to have clear timeframes as it was dependent on how far or deep the investigators had to go with their investigation work, as some investigation work may even involve some surveillance requirements or requests of documents from banks or cell phone providers. That, in itself, took a bit of time. The Fund committed that they would report each case as it was completed and it would then be provided as a report to the Committee. Once the planning was completed with the six service providers, the Fund should be able to provide a clear plan that shows the estimated costs for each of the investigations. A budget has been set for the investigations and it was roughly close to R500 million for the investigations throughout the contracting period with the service providers. However, once the service providers had the scope of the cases they would be able to give the Fund a clear estimate for each of the cases which may be less than or equal to the amount budgeted for the investigations.

The Chairperson asked the Commissioner to repeat how much had been budgeted for the scope of the investigations.

The Commissioner reiterated that almost R500 million had been budgeted for the investigations. This included investigations for all areas of the Fund and was the estimated budget that had been provided for. The planning from the service providers would provide the Fund with the actual costs, which may come out much less than what had been budgeted for.

The Chairperson asked who the service providers were that the Fund was working with.

The Commissioner said that he did not have the list with him but that it had been provided to the Committee in November 2021. He just had to check the list and names provided to the Committee.

The Chairperson said that the Committee asked these things so that the Fund could be placed on the public record, not the Committee. Correspondence was one thing.

Mr Hadebe said that he also found it difficult to accept that the Fund did not have a framework of when each phase would be concluded but the actual date once the planning has been concluded. If it was known that the investigation might take five years, surely there had to be a draft framework providing that the five years would be divided into eight phases and each phase would likely be concluded at a certain point in time. This was so that the Fund would not be faced with a situation where they came back for the extension of time, increase of scope, or extension of costs. The Committee did not want that situation. Service providers could not be given a blank cheque; there had to be some sort of framework. The Fund had to at least appear as if they knew what they wanted to achieve and by when; they could not leave it to the service provider to tell them.

The Chairperson said that to say the Committee was unhappy was an understatement of the highest order. He wanted to believe there was just simply no appreciation of the gravity of the situation. There was an emerging trend with the Fund and the Department that oversight was an irritation and tick box exercise. He reiterated that audit outcomes were an enabler, an assurance provider, and an information tool for everyone. As things stood now, the Fund was at the bottom of the bottom. From whatever vantage point that anybody could look at it, there was simply no improvement because there was no information. The Committee was relying on hearsay. This was fundamentally why he was saying that to say that the Committee was unhappy was an understatement. Mr Hadebe had correctly pointed out to the Committee the outlook of the AGSA insofar as the Fund was concerned. However, the Director-General had told the Committee that these were areas of disagreement. He was not sure how anybody who had been disclaimed or adverse for 11 years was in any position to disagree with anything. There was an absolute collapse of systems at the Fund and judging by the current attitude and outlook there was no redemption in sight. The Committee could sit and speak to successes that were untested, assuming that they were a light at the end of the tunnel, only to find that as the Committee got closer to the light that it was an oncoming train.

He knew that the Deputy Minister had listened to what the Committee had to say and that she would interact with the Portfolio Committee. The Committee’s issue was that they were saddled with an institution that was in ICU, which was also another understatement. The Committee would come back to these issues and probe through the annual report section-by-section. Ms Tolashe had further put to the Committee the issue of a physical meeting. He asked the secretariat to check with parliament when venues would be made available to committees at the earliest convenience. He knew that there was a process to beef up the capacity under the circumstances, to ensure that committees got committee rooms if required. There were venues in Marks Building, 120 Plein Street, and Good Hope that could be made use of, as well as in the NCOP building. The Committee could then have a physical meeting because the online engagement was not helping. He asked the Deputy Minister to convey to the Minister as the Executive Authority that none of the Members were convinced that there was progress. The Fund was disclaimed so the Committee did not trust anything that they told them as it had no assurance, it was not tested, and the AGSA was walking away from it. He hoped that the Department and the entity would leave the meeting knowing that the Committee did not trust anything that they were saying because there was no basis for them to do so.

He wanted the Minister to indicate to the Committee why those individuals who continued to occupy the offices that they did were still in office. The last time he had actually said that those officials were to tell the Committee why they continued to hold the offices that they did. On what basis could the Committee sit as a committee and be confident when these things were happening on the officials’ watch. The Deputy Minister was new as she had arrived in 2019 and the Minister was also new in the portfolio, yet the administration was not. The Committee had to test credibly, through the investigations that had to move at speed, whether the administration was not part of the problem if not the problem itself. The Committee’s patience had run out with the Fund because they had the same attitude at every meeting. When the Minister was back, he asked that the Deputy Minister inform the Minister to inform the Committee within 14 days as to why he believed that the Director-General and the Commissioner should be in their positions and the reasons for that. The Committee would then move on to the Director-General and the Commissioner for them to explain to the Committee why they should be in their positions. The Committee would then make the necessary recommendations and put them to the House of Parliament.

Something had to give and there had to be consequence management. It was an absolute shame to have an entity that maintained defiance in the face of disclaimers over 10 years, dug in its heels, went on business as usual, and said that it was fine because they could justify why they were disclaimed and speak of inheriting issues when by and large the disclaimers were happening on their watch because they were not new individuals. Unless he was insane, which he doubted that he was, something had to give. The Committee had to stop fiddling on the edges and go right to the heart of the leadership of the institutions and the Department, which was where the buck stopped. The Committee would come back to the Fund, find a date, and have a physical meeting to interrogate the annual report. He did not think that there was anything that the Committee could hear that they could concretely say was credible. What assurances could the Committee get other than the fact that they would rely on the AGSA, which was a Chapter 9 institution? As things stood, the entire situation of the Fund was totally unacceptable.

Mr Hadebe requested that, in preparation for the meeting where the Committee would probe into the annual statements in detail, the Committee be given practical solutions on the mitigating factors to change the status quo. The Committee could not accept being referred to systems implemented in 2019 that did not produce results. He humbly requested the solutions so that the Committee and the entity could show the public that indeed they were equal to the task. Trying is futile if all one did was constantly fail. The Committee would reach a point where they did not accept theory in terms of resolving challenges.

The Chairperson thought that what the Committee could also do ahead of the engagement was to send a comprehensive list of additional information that they would want the Fund to speak to on top of the annual report, management letters, audit action plans, and so on.

The Deputy Minister’s Response
The Deputy Minister felt what the Chairperson was saying and said that the Department and the Committee were in things together. She committed to conveying the message to the Minister and she thought that the Department was not going to say much because they just had to await further instructions from the Committee as to what the next course of action was and when another engagement would be held. She committed that the Department would make sure that in the next engagement they closed all of those gaps in the queries, questions, and outstanding issues which they might not have answered to the best of their ability and revert with a more credible report.
The Department would be able to honour the Committee’s request to call a meeting in the next 14 days. In that period the Department would have been able to gather the necessary information that was outstanding and that might not have been adequately dealt with. The Department would also try to make sure that they availed themselves to the meeting that would be convened by the Committee. The Department would await the Committee’s further indulgence in the matters that had been put forward.

The Chairperson said that the Committee would be in touch by the end of the week to test their expectations and the issues that had been raised by Members. He thanked everyone for attending. The Committee would move forward in a structured way which they would communicate to the Fund in the coming days. He thought that the Committee Secretary would have circulated the memo which he had spoken about earlier. He had received a response from the President and he had sent it to legal services.

There were issues around the State Security Agency, as there was a delay in them responding for a host of issues which they had tried to explain and rationalise with him. The legal opinion on those aspects of the State Security Agency had been clarified. The letter and the legal opinion should have reached Members by now. The Committee would meet that evening and suggested that they meet earlier because all that they had on their sitting for the day was the President responding to the debate and they would then look at the matters.

The change of slot was necessitated by the delay in the response by legal services on the aspects which he has asked them to clarify insofar as the President’s letter was concerned. He apologised for that delay but he would ventilate all those issues at the meeting when the Committee dealt with the agenda item, and he thought that he should give the background as to why it happened. The meeting was thus scheduled for that evening and it was in consultation with the House Chairperson’s office and the Portfolio Committee that the Committee was able to effect the change so that they could meet the Portfolio Committee again and go back to the other matters.

Mr Hadebe confirmed that Members had received the correspondence and the legal opinion.

The meeting was adjourned.