Labour Portfolio Audit Outcomes; CCMA, Nedlac & Productivity SA Annual Report 2021/22; with Minister

Meeting report

Minister's overview

Mr Thulas Nxesi, Minister of Employment and Labour (DEL), advised the Committee that the Director-General was in Mauritius as a representative of South Africa at an Anglophone African meeting. The annual reports of the Department and its agencies covered the findings of the Auditor-General of South Africa (AGSA) for the 2021/22 financial year.

On 28 September, the Ministry brought the Compensation Fund (CF) and Unemployment Insurance Fund (UIF) to this Portfolio Committee, where they were engaged on their audited outcomes. The UIF was reported to have a qualified audit opinion with findings, and the CF reported findings with disclaimers. These two funds needed to work hard to improve their audit findings.
 
Previously, the DEL had shared initiatives to improve these funds, which involved strengthening the financial systems of the funds and tackling the historic systematic challenges. He had previously written letters to Parliament to explain why the CF and the UIF could not table their 2021/22 annual reports.

The two funds were still facing the challenges of unlisted investments with year ends that were not on 31 March. The Funds were unable to obtain the Public Finance Management Act's (PFMA's) audited financial statements from the investees, as they used the companies for their auditing processes. Consequently, the funds were unable to prepare on time and submit on the due date (31 May) to the AGSA.

He said that investments made by the Public Investment Cooperation (PIC) on behalf of the UIF portfolio, which stood at R160 billion in March 2020, had played a crucial role when the country was placed under lockdown due to the Covid-19 pandemic. About R61 billion had been paid as a wage support to more than 50 000 employers, resulting in relief of more than five million workers in every corner of South Africa.

This portfolio has shown resilience, as it bounced back from R100 billion in 2021 to R115 billion in 2022. The PIC regularly reported to the UIF on the performance, successes and challenges faced by the investments. The DEL had been informed of the challenges in the Bounty Brands which were widely reported in the public sector. The UIF was concerned about these challenges, and had instituted investigations into these Bounty Brands' investments, and other unlisted investments facing similar issues.

The UIF Commissioner and the Chairperson of the Advisory Board met with the PIC leadership to discuss the latest developments regarding the challenges in this investment. The UIF would continue to exercise oversight over the PIC investment activities, through the government infrastructure.

The Minister reiterated that the challenges faced by Bounty Brands were not representative of the whole financial performance of the UIF investments. The overall performance of the Fund has remained sustainable through the years.

He went on to state that efforts were being made to fight maladministration, corruption and fraud. To illustrate this, he gave the example of a bookkeeping consultant, Mr Lindelani Gumede, who had processed UIF claims related to Covid-19 for four Gauteng bakeries that were his clients. This was not done under the instruction of the clients, but rather he had misused his position as a bookkeeper. Subsequently, R11.1 million was paid into his account. The employees were unsuccessful when they claimed from the Fund due to the actions of the consultant. The matter was reported and Mr Gumede was arrested and sentenced to 135 years on 32 counts of fraud. The work of finding and jailing the corrupt was in force. To date, 30 people have been charged with Covid-19 related fraudulent activities.

The Commission for Conciliation, Mediation and Arbitration (CCMA) received a clean audit, which provided a model to the entire Department and all its entities to show that it was doable. The Ministry was also thankful for the work of the AGSA, which was essential for financial accountability.

AGSA on DEL audit outcomes

Ms Michelle Magerman, Deputy Business Unit Leader, AGSA, said the entity had a new strategy called Culture Shift 2030, that advocated for the importance of the role that everyone needed to play in the accountability ecosystem. If all officials consistently did their tasks as required and ensured the internal controls were in place, and all systems were in place when the audit process took place, this would enhance the lives of all South Africans.

Ms Bulelwa Sikweyiya, Senior Audit Manager, AGSA, said the audit outcomes were focused on
the DEL, the UIF, the CF, the National Economic Development and Labour Council (NEDLAC), Supported Employment Enterprises (SEE), and the CCMA.

For the first time in many years, the CCMA had received a clean audit, meaning that it had listened to the advice of the AGSA and had been able to maintain a sound control environment throughout the year. This emphasised the need for agencies to implement controls throughout the year and not act only toward the end of the financial year.

The DEL and NEDLAC have been in the category of unqualified audits with findings for over two years, meaning these agencies have been stagnant.

The number of qualified audits with findings had reduced in the past two financial years, due to the non-submission of financial statements by the UIF, resulting in the Fund having outstanding audits. The reasons for the stagnation of audit findings had been inadequate financial reviews, while the monitoring and compliance for financials were poor, and there was a need for daily and monthly reconciliation controls. The portfolio needed to move from placing reliance on the auditors to identifying errors that needed to be corrected. There needed to be internal processes that were implemented by the auditees to ensure that financial controls and performance reports were reviewed against supporting information.

The SEE was currently the only entity with a qualified opinion. The reason for this was the lack of monthly controls. If the entity were to focus on adequate monthly reviews during the year and the reconciliation of its accounts, there would be an improvement in this area.

Financial management and compliance

The entity's performance in this area was commendable, although the SEE and the DEL seemed to be having challenges in all the areas of financial management and compliance. Impressively, the CCMA had no control deficiencies. Similarly, NEDLAC has been performing well in its financial management, with compliance as an area of development. The main challenges of NEDLAC had led to the entity having compliance requirements regarding material errors in its financial statements, accompanied by non-compliance in the irregular and fruitless expenditure measures.

The issues faced by the DEL were not insurmountable -- they merely required the management of the Department to pay attention to the reported financial activities. The AGSA's main concern for the portfolio at large was the SEE, which had remained with qualified audits for over four years. The challenges were purely due to the review of the financial statements, and the lack of financial controls. Management was urged to remember the importance of keeping reliable information throughout the year. This was because the daily and monthly controls were used to make financial decisions by management, which in turn affected the overall structures, and served as a better guide for auditees. Lastly, the issue of operating expenses was not expected to rear its head again, especially if management paid attention to the corrective measures to be taken.

Financial health

Across the six entities, there was a need for an improved revenue collection process as the average debt collection period was 356 days. The amount of irrecoverable funds was more than 10% at the CCMA, NEDLAC and the SEE. Encouragingly, the creditors were not that high on the required 30 days, but this should be properly monitored, as non-compliance would qualify as a fruitless and irregular expenditure.

There had been a notable decrease in irregular expenditure, with the top two contributors being the DEL and the SEE. The reasons for the irregular expenditure were still being investigated. The fruitless and wasteful expenditure was on the rise, with the highest contributor being the DEL, with R25.8 million in this category. The Department should consider having a target to track the investigations, to enable oversight structures and accounting officers to measure performance and investigations.

DEL's ICT environment status

The DEL's Information and Communication Technology (ICT) environment had the biggest project relating to the SAP Hana project, which started in 2017 and had an initial completion date of 2020. This was yet to be concluded. The implementation of the project was still in process when the audit was being concluded. When the project was made live, some deadline extensions had been allowed, and these had not been met once again, which caused further delays in the project going live. The issues contributing to these delays dated back to the planning stages, as well as the implementation phase. There were delays from the outset. These had contributed to fruitless and irregular expenditure. The Department needed to pay attention to this, as they lacked adequate controls to mitigate potential delivery risks that were showing for the projects. The Department lacked an approved security management policy.

The AGSA had done further analysis on two auditees – the Employment Services of South Africa (ESSA) and the DEL – so that the Portfolio Committee and management could look at opportunities for improvement. The ESSA system had great potential to be used as a system for registering unemployed youth in South Africa in terms of its capability to register more than 900 000 people per year. Furthermore, leveraging technological advances, the public sector could rally around the system, resulting in work seekers saving enormously on application costs.

The overall root causes of the significant findings for the portfolio, excluding Productivity SA, were:
-The entities and the Department did not ensure daily and monthly controls were adhered to. The process to ensure monthly reconciliations and in-year monitoring was not embedded in the Department and entities.

-The Department and entities were ineffective in developing and monitoring the implementation of action plans, and there was no urgency to address the deficiencies identified.

-The entities did not implement adequate controls to prevent non-compliance with procurement legislation.

The following recommendations, as a result, were:
-Attention should be provided to the UIF and CF to ensure that they prepare accurate and complete financial and performance reports and submit them for audit.
-Follow-up on progress made by all entities on the implementation of the action plans.
-Regular and accurate reporting must be performed and reviewed against supporting schedules.
-There must be an urgency by the portfolio to finalise investigations into transgressors, and consequence management finalised.
-The portfolio must ensure that the culture of adherence to daily controls is implemented. Where there were transgressors to the controls, they must be swiftly dealt with by the relevant supervisor or management.

The Portfolio Committee was also given the following recommendations in this regard:
-Obtain commitment from the UIF and CF on submitting the annual financial statements and performance reports. Quarterly follow-up on the status of consequence management on all cases of irregular, fruitless, and wasteful expenditure.
-Follow up on the commitments made by the accounting officer on addressing the material irregularities reported.
-Monitor the progress of action plans put in place by the Department and its entities to strengthen the controls around financial and performance management.
-A culture of consequence management in the portfolio would enhance the internal control environment.

Discussion

Mr M Bagraim (DA) said the AGSA needed to employ consequence management for entities failing to provide financial statements. What was it going to do about the UIF and CF non-compliance?

On the financial health, could the AGSA share more on the investments at the PIC that were regarded as reckless? Who had made the investments within the entities?

Dr M Cardo (DA) said it seemed both the UIF and CF were riddled with systemic challenges in financial management. What other recourse was there for AGSA to ensure the financial statements were submitted on time?

Mr S Mdabe (ANC) asked for AGSA's opinion on whether the SEE had a capacity challenge, and, if so, what recommendations had they made in this regard.

Had the AGSA met with the entities, and what had been their reactions to the AGSA findings?

Ms C Mkhonto (EFF) asked how the AGSA was guided to deal with the matter of unlisted investments by the UIF and CF? What steps had been given to these two entities to address their non-compliance?

To ensure the effectiveness of the Portfolio Committee, what steps could be taken -- over and above oversight -- to ensure consequence management was effected on these non-complying agencies?

Responses

Ms Magerman said the UIF and CF were consistently communicated over their non-compliance by the AGSA, which had received a commitment from the entities to provide the financials, which were being consistently monitored. If the entities failed to provide them, the AGSA would employ their expanded mandate if non-compliance was irregular.

Ms Sikweyiya said nothing stopped the SEE from doing the manual controls and reconciliations. Therefore they could not use the system failure as an excuse.

There were capacity challenges at SEE, where two members resigned in the current financial year. However, by the time of the resignations, the controls were meant to be in place. Moreover, these challenges faced by the entity were not new -- they had existed in previous years when capacity was not even an issue.

CCMA Annual Report

Mr Cameron Sello Morajane, Director, CCMA, said the CCMA had achieved an unqualified audit opinion with no findings (clean audit) for the 2021/22 financial year, and a 100% performance against a total of 32 planned output indicators in the approved 2021/22 annual performance plan (APP).

The team at the CCMA was grateful for the financial performance of the entity. The sentiment behind the 100% performance of the CCMA was the key principle that drove it to choose areas of focus and set targets to be achieved at the end of the year.

A key to the CCMA's achievements and 100% compliance lies in its value of optimising the organisation. It was organisations that delivered results, and at the centre of that was the people. When considering the wellness and performance of the staff, the CCMA had a programme that looked at the people, as the execution of strategies was through them.

Although the CCMA had challenges with AGSA findings at times, it had made it a point to invest in stronger internal controls with adequate resources, capacity and compliance processes. This resulted in the financial success of the CCMA.

Discussion

Mr Bagraim asked if the CCMA had returned to the pre-Covid-19 numbers regarding referrals received.
Was the lion's share of CCMAs work on unfair dismissals and the non-payment of wages?

On the Collective Bargaining Council's conferences that the CCMA conducted, how well were they attended, and were the unions expressing an interest in them?

The income received on services rendered amounted to R5 million, with 44% collected from training and advisory services. Could the CCMA not reap more benefits? Was the CCMA not going to market itself publicly to attract more users, as this entity had valuable services at cheap rates?

Response

Mr Morajane said that, on average, the CCMA took 23 days for conciliations. It had had more capacity during Covid-19 as there were fewer cases and the system had moved to digital platforms. The response had been a rise in requests for the CCMA to keep the digital platforms for hearings, etc. It was cognisant of those who may not have access to digital platforms, and as a result, it adopted a hybrid system of both in-person and online hearings. Moreover, arrangements had been made with labour centre offices to use their premises, which would improve the accessibility of the CCMA.

Since the CCMA offices were fully open, the number of referrals and hearings was on the way to returning to pre-Covid19 numbers. However, capacity needed to be strengthened so that the average periods to complete cases were maintained.

The CCMA needed to invest more in pre and post-bargaining, as the process and work involved in this were enormous. This step was crucial in sustaining the results of what the collective bargaining process achieved.

One challenge the CCMA faced was the Public Finance Management Act (PFMA). It did render marketable services, such as disciplinary hearings for workplaces, but National Treasury usually wanted to take back the income received from such services, and yet CCMA could use it to supplement their programmes and get more commissioners.

NEDLAC Annual Report

Ms Lisa Seftel, Executive Director, Nedlac, said the Council had a new strategic plan and, as a result, it had not been able to meet some of its targets as they were too high. In the current financial year, it was doing better. In response to the Covid-19 pandemic, it has taken preventative measures for the transmission of Covid-19. These had included:
-Active monitoring and information sharing to respond to the changing science and circumstances;
-Promotion and/or review of non-pharmaceutical interventions, including masks, gatherings, social distancing, curfews, restrictions on travel, alcohol, etc;
-Directions, regulations and codes on the management of Covid in the workplace.

On activities of the Section 77 Standing Committee, two notices had been completed, and a new draft Code of Good Practice on protest action to promote or defend the socio-economic interests of workers.

Key changes included:
-Clarifying the roles and responsibilities of the Standing Committee, facilitators, and other forums;
-Clarifying the timelines applicable to different processes once an application was made;
-Alignment with recent case law and International Labour Organisation (ILO) guidelines.

At an organisational level, Nedlac had improved turnaround times and the irregular expenditures from previous years had since been condoned. In Human Resources, a new organogram was set up and the remuneration structure was revised, with a newly developed communication strategy implemented.

Audit outcomes
The biggest issues for Nedlac were compliance related. It needed to be abreast of compliance requirements. It had received an unqualified audit outcome for the 2021/22 financial year from the AGSA.

Findings had been noted on the misstatements in the annual financial statements that were corrected, and on expenditure management, where there had been fruitless and wasteful expenditure amounting to R31 716.

In addressing the findings, Nedlac would ensure an update of its compliance with laws and regulations to avoid repeat findings, whilst ensuring financial statements were prepared in line with the requirements of the Generally Recognised Accounting Practice (GRAP).
 

Discussion
Mr Bagraim said that in response to the July 2021 public violence that had occurred, Nedlac had indicated that they wanted to increase the presence of law enforcement and encourage the building of active citizenry to protect livelihoods. What had been done, and what were the plans for doing so?
When providing inputs on policy and legislation, what was on the list of legislation that Nedlac was seeking to reform?

Ms Mkhonto asked if the percentage of the money spent correlated with the work done. In the July 2021 unrest, small, micro and medium enterprises (SMMEs) had been affected, so had there been any dialogue or any sort of intervention that Nedlac had done with the affected SMMEs?

Mr M Nontsele (ANC) also referred to the July unrest, and asked to what extent, if any, social partners had been able to overcome the challenges imposed by the unrest.

The Chairperson asked what had caused the irregular expenditure, and what had been done to address it.
 

Nedlac's response
Ms Seftel said Nedlac was more of a social dialogue entity, which presented limits in terms of its ability to implement strategy. Regarding the July 2021 unrest, Nedlac’s involvement was more of a crisis intervention. Attempts were made to reduce the fires, as facilitated by Nedlac and other social partners. Nedlac had, since November 2021, not made any further plans on further action to be taken.

Nedlac hoped that the policy, legislation and actions of the Department of Home Affairs would reduce the porous borders. Its contribution in this regard was to reach an agreement on a policy approach to the matter.

On money spent correlating with work done, this was not the case, as the key performance area of Nedlac did not require a lot of money. Perhaps costs correlated with capacity building, and not necessarily work done.
 

Productivity South Africa Annual Report

Mr Justice Tshifularo, Executive Manager, Productivity SA, said the mandate of the entity was to fulfil an economic and/or social mandate of government, which was to promote employment growth and productivity.

In 2021/22, its performance steadily returned to pre-pandemic levels. Its priority for this sixth administration was economic transformation and job creation. This was supported through five pillars as informed by the business model that Productivity SA had in place, in line with the Employment Services Act.

The rapid technological advancements, as well as the Covid-19 crisis, had had a devastating effect on the South African economy and labour market systems and had reshaped business models, and they needed to respond with agility. They should leverage the emerging opportunities flowing from the collective global response to these events, including how they dealt with the Future of Work (FoW), using instruments provided by the International Labour Organisation (ILO) -- the Centenary Declaration for the FoW, the R204 transition from the informal to the formal economy, and the Abidjan Declaration, among others.

There was low productivity growth, particularly among the SMMEs in the productive/industry sectors. It was an undisputed fact that productivity improvement was the most effective way of ensuring long-term competitiveness, long-term business success and economic growth. This should be addressed holistically if one is to tackle the challenges of unemployment, poverty, inequality and exclusion. 

This has been accompanied by a decline in the contribution of the manufacturing sector to gross domestic product (GDP) growth over the last two decades. The sector accounted for around 13% of GDP and was an important source of employment, productivity growth, and demand for the service sector. It went without saying that this sector was a national priority if they were to begin pushing back the tide of joblessness that fundamentally threatened the country’s social stability.

Some challenges faced by the entity were related to capacity challenges. Out of 2.3 million SMMEs, Productivity SA could service only a fraction of the total number due to a lack of funding.

Investment into technology would further assist the unit in improving access to clients and service offerings, and to support the SMMEs in both the formal and informal economies to become sustainable entities that create decent work.

Discussion

Mr Nontsele asked what the key elements were that Productivity SA would share with other sectors for productivity measures that could help ensure savings were properly redirected to impactful programmes that fostered job creation.

Productivity SA's response

Mr Tshifularo said the savings made by the entity by changing rental premises and moving the working environment to a hybrid one had helped the entity to ensure that some interventions could be carried out online. Most businesses were in decline, therefore those savings could go toward turnaround strategies and programmes that could be provided for businesses in need. The savings had to be reinvested to ensure employment, growth and productivity.

Minister's closing remarks

Minister Nxesi said the Department was always comfortable in its engagements with Parliament’s committees, as democracy ought to be meaningful to the citizens. Listening to the global outlook on economic growth provided by the International Monetary Fund (IMF), it signalled tough economic times ahead. The Minister said the entities would receive all the support they needed to ensure the state's laws were upheld.

The overall work of Productivity SA was fulfilling its objectives.

The concerns raised by the Members of the Committee on the UIF and CF being unable to share their financial statements in Parliament had been noted, and it was placed on record that interventions were being made to address the challenges. The CF was facing historical challenges from previous years, and everything was being done to address them, as had previously been shared with the Committee. Everyone had an interest in having these challenges resolved.

The Minister went on to recognise the good work done by the UIF during the pandemic. There was, however, a need to interrogate the architectural design of the Fund.

The Portfolio Committee had a programme to deal with the negative financial books of entities. It was then puzzling when some of the Members sounded helpless. However, they had given the Department and its entities a programme, and an action plan had been shared with the executive to enforce the remedial actions. The executive encouraged the Committee to call the Funds at any time to ascertain if there was progress in the implementation of the audit plan.

The meeting was adjourned.