Health Portfolio Audit Outcomes & Performance: AGSA & FFC; CMS & CCOD 2020/21 Annual Report

Meeting report

The Chairperson welcomed Members to a virtual meeting where the Financial and Fiscal Commission (FFC), Auditor-General of SA (AG), Council for Medical Schemes (CMS) and Compensation Commissioner for Occupational Diseases (CCOD) would brief the Committee on their annual performance reports and financial information for 2020/21.

FFC

The FFC briefed the Committee on the statuses and outcomes of the National Department of Health (NDoH) and their entities for the 2020/21 financial year.

Dr Nombeko Mbava, FFC Chairperson, said that it had been two years since the COVID-19 pandemic shocked the world with dire socio-economic and health consequences. In spite of vaccination drive efforts, the future remains uncertain as the new variants and lost incomes have worsened existing issues of inequality in health, poverty and hindered socio-economic recovery. She indicated that the government is torn between protecting lives and preserving the economy.

On this basis, Dr Mbava said that the Fiscal Framework should remain nimble and strengthen the Medium-Term Expenditure Framework (MTEF). The Commission remained firm that the need to exercise financial restraint to achieve fiscal prudence must not come at a cost of the socio-economic conditions regressing for South Africans.

Government must avoid withdrawing its fiscal support too early and signal to the public that their debt levels are manageable by eliminating fiscal leakages through productive reprioritisation. The Commission maintained the recommendation that the government should commit to fiscal transparency to make sound and informed public finance choices to scrutinise their budgets and maintain legitimacy.

FFC on the National Department on Health

Mr Chen Tseng, FFC Research Specialist, lead the presentation to the Committee, mindful of the changes to the economy and health monetary fiscus caused by the third wave of the coronavirus.

COVID-19 Pandemic

In light of global responses to COVID-19, the FFC recommended that vaccinations must continue to be rolled out as soon as possible. The FFC also noted an increase in vaccine hesitancy and an extension of the COVID-19 Social Relief of Distress (SRD) Grant.

Departmental Budget Analysis

Mr Tseng said that there was a R132 billion shortfall projected for the financial year ahead. The NDoH expenditure for 2020/21 financial year stands at R58.1 billion. The Department exhibited over-expenditure in transfers and subsidies for the COVID-19 vaccine rollout in 2020/21.

Mr Tseng noted slight under-expenditure in payment for capital assets and goods and services. As per special appropriations, over-expenditure as a proportion of the main budget existed in the following programmes:

• Programme Two: National Health Insurance

• Programme Three: Communicable and Non-Communicable Diseases

• Programme Five: Hospital Systems

• Programme Six: Health System Governance and Human Resources

Focusing on the MTEF, the DoH has envisaged another increase in expenditure needs for Programme Three until 2022/23 financial year to address COVID-19 needs which are expected to decrease thereafter.

The budgets for Programmes Two, Four, Five and Six are expected to decline marginally for this year to reach budget requirements of the following year. The Commission recommended that the movement of these funds between programmes and sub-programmes be made more transparent to ensure funding-function alignment.

In terms of personnel composition in the NDoH, the number of level seven to 16 posts will decrease from 910 in 2020/21 to 776 in 2021/22 which may impact the Department’s administrative consistency, capacity and capabilities. The Department documented an overall decline of only 4 posts between actual number and revised number of posts, yet there is a discrepancy with the increase of R97 million between revised cost for 2020/21 and the actual cost in 2019/20.

Concerning key performance indicators, the NDoh provided insufficient clarity on how the Health Patient Registration System (HPRS) plans to have a live-tracking system to monitor data of access to services. In May the Commission recommended an integration of the patient-doctor information registry in a live-tracking system for effective health service provisioning and monitoring of outcomes.

Entities

National Health Laboratory Service

The FFC noted financial fraud and misconduct allegations at the National Health Laboratory Service (NHLS)  where hundreds of millions of Rands of COVID tenders which are currently under investigation. Additionally, the FFC reported a reduction in budget surplus from R1 billion in 2019/20 to R373 million in 2020/21. It was also noted that expenses were growing at a faster rate than revenue, attributed to high litigation costs as well as other factors listed.

South African Medical Research Council

The FFC reported a budget deficit in 2020/21 of R36.4 million, after a surplus of R43 million in 2019/20, which is projected to a budget balance by 2022/23. There was an increase in cash and cash equivalents from R92 million in 2019/20 to R12 million in 2020/21.

Compensation Commissioner for Occupational Diseases in Mines and Works

The FFC noted large cash outflows from investing activities: R57 million in 2020/21, increasing to R60 million outflow, which is projected as a cash inflow of R35 million in 2022/23.

Council for Medical Schemes (CMS)

The CMS reported a relatively stable financial report in terms of income and cashflow.

Office of Health Standards Compliance

Despite a stable financial statement of income and cashflow, this entity was projected to decline over the MTEF.

South African Health Products Regulatory Authority (SAHPRA)

On 4 October 2019, President Ramaphosa issued a proclamation for the Special Investigating Unit (SIU) to investigate any alleged “serious maladministration in connection with the affairs of the SAHPRA.” The FFC noted several public health experts working at SAHPRA are experiencing pay delays for the last few months. A SAHPRA spokesperson cited technical glitches with the payroll system.

The FFC agreed with the Committee recommendations from the SIU report. The FFC called for prompt and stringent measures of accountability as well as protection for whistle-blowers on this matter.

Discussion

Ms H Ismail (DA) said, on accessibility to healthcare services, that many clinics in rural areas face closure due to being unable to meet the required standards, which further exacerbates issues of accessibility. She asked what the FFC recommended to ensure equitable accessibility. She asked where the figure of 2 100 clinics that qualified as ideal, and what the total number of national clinics is.

How do you foresee the state of compliance under National Health Insurance (NHI), where the current state is at 20 percent for 2020/21? What is the total amount spent within the NDoH on legal costs for corruption and disciplinary procedures?

Ms N Chirwa (EFF) asked for clarity on the CMS circulars; whether the low cost benefit option was terminated.

Ms E Wilson (DA) expressed concern over the decrease in personnel under the current restraints and insufficient access in the health sector. She asked what the FFC recommended regarding considering the impending NHI introduction. On the increase of R97 million for the four new posts, she asked what the FFC recommended.

Ms Wilson expressed further concern about the R351 million from the budget spent on investigations into corruption and irregularities. She asked for recommendations and clarity as to how and on whom the money was spent.

Ms S Gwarube (DA) asked what role the FFC played in redirecting funding and resources from other programmes to COVID-19 response and relief programmes. She asked the FFC how the redirected resources were spent and how the NDoH planned to resume everyday functioning without the expected funding which was redirected.

The Chairperson asked whether the decrease in funding in 2022/23 is due to the expectation of COVID-19 subsiding in the foreseeable future.

On Programme Five: Hospital Systems, the Chairperson noted the 2.5% decrease expected. He asked what the reasoning was for this considering the burden of diseases prevalent in South Africa.

The Chairperson asked whether reprioritisation of funds could be expected for next year within the NDoH.

FFC Response

Ms Elzabe Rockman, FFC Commissioner, on strengthening the internal control environment of the NDoH, said that there are many control factors. She said that this was a broader environment on which the Department and its entities had to rethink initiatives.

On oversight roles of the Committee, Ms Rockman said proactivity would allow risk areas to be flagged and ensure that the NDoH takes the necessary correction actions. She expressed concern over the large budget allocated to investigations and legal fees. The FFC urged the Committee to look into matters further as part of their oversight responsibilities.

Regarding equitable access to clinics, Mr Tseng recommended that the performance measures of clinics should extend to measure the proximity to the people. Clinics must be both up to standards and within a reasonable distance to patients.

On NHI state of compliance, the FFC said that there must be clear policies of implementation in these processes. Due to the circular terminating NHI in 2019, many of the low cost benefit schemes were lost creating an unserved market without protection for beneficiaries. Mr Tseng expressed concern regarding the decline of South Africans covered by any insurance schemes.

The FFC said that budgets, especially disciplinary budgets, form part of a much larger sector of failures in the system. Mr Tseng said that disciplinary budgets are worth the expense to ensure that the greater system is free from these irregularities.

On personnel, the FFC is prohibited under their powers and functions from intervening directly in the matter. Through the assistance of the Committee, the FFC may get Departments to account to the Committee.

On the MTEF, the FFC relied on Minister of Finance to table the updated fiscal framework to create budgets within the confines of available funding.

Dr Mbava said, on roles of the FFC in ensuring funding is spent well, that the Commission makes recommendations to organs of state on financial and fiscal matters in accordance with the Constitution. The FFC creates an evidence-based analysis according to the spending, from which further recommendations will be made.

Ms Wilson commented on the cost of litigation. She said that these expenses are usually unprecedented and not budgeted for which results in the reprioritisation of funds. The R371 million spent on investigating government corruption has impacted the NDoH’s ability to provide quality health services. She asked how this could be monitored and managed in the future to prevent these problems from reoccurring.

Ms Chirwa asked for a response to her question regarding the CMS circular.  

On the issue of the CMS circular, Mr Tseng responded that there has been a change of policy to remove the low cost benefit scheme. This created a “missing market” where people are unable to afford higher cost benefit schemes. The FFC recommended for a more sequenced transition during the policy amendment process. The FFC expressed concern that the NHI had failed to step in timeously, resulting in some people not receiving any medical insurance coverage.

On issues of cost of litigation, the FFC recommended that the processes do not get further delayed and responsibilities divested. Mr Tseng indicated that this was a matter of urgency.

Ms Rockman added that the environments are equally broad and complex in scope to merit upscaling the internal audit measures. The FFC suggested that internal audit units have independence and questioned whether they are limited purely due to resource capacity. Ms Rockman said that there is a strong case to be made that the NDoH should have internally certified fraud examiners to reduce the cost of outsourcing during investigations.

The FFC further recommended that risk assessments should be done throughout the year with specific indicators in mind. The audit committee meetings should have a sense of urgency to deal with the consequence management of these matters.

Ms Mbava said that fiscal leakages to more productive resources are redirected to constructive resources. The large budget allocated to litigation could rather be spent on more constructive resources.

AG’s Budgetary Review and Recommendations Report: Health Portfolio    

Mr Andries Sekgetho Business Manager, AGSA, said that due to time constraints the sector outcomes of the provinces by the AG will be presented at a later date.

Mr Sekgetho explained that the AG office is compelled to give views on credibility in terms of financial information and performance when reaching predetermined objectives and reaching areas of compliance with key laws and legislation.

Portfolio Outcomes

Ms Thabelo Musisinyani, Senior Manager, AGSA, noted an improvement in the audit outcome of “unqualified with no findings” in 2020/21 compared to 2019/20. She attributed this to the Office of Health Standards Compliance (OHSC) that corrected many issues of concerns from the prior year.

The SAHPRA controlled environment improved significantly, though remained qualified due to misstatements not corrected from the prior year.

The Mines and Works Compensation fund remained outstanding. However, the 2018/19 financial year is being finalised and the AG hopes to finalise the 2019/20 financial year by the end of the year. Thereafter the 2020/21 catch-up audit will commence. Management plans to submit the 2021/22 financial statement within the legislated date.

The Office of the AG commended the CMS, the South African Medical Research Council (MRC) and OHS for submitting financial statements free from material misstatements. However, it was noted that the financial statements of the NDoH and the National Health Laboratory Service (NHLS) required urgent attention, resulting in an unqualified opinion.

The NHLS, MRC and SAHPRA were commended for submitting performance reports free from material misstatements. The challenges relating to performance management continued to persist at the NDoH. Information requested was not provided timeously to allow for assessment by the auditors, which resulted in a limitation of scope. Material findings were identified at the CMS and OHSC; however, management was able to make the necessary adjustments to correct the material misstatements identified by the auditors, and therefore no material findings were reported.

The Office of the AGSA was highly concerned about the increase in the number of instances of non-compliance with supply chain management prescripts and regulations regarding contract management, some of which were repeated from the prior year. It was recommended that the action plans that management committed to implement are seen through so as not to repeat the same misstatements.

The Office of the AG recommended to the Committee that:

• Implement consequence management by investigating and taking action against officials guilty of not complying with laws, regulations and documented internal policies and procedures.
• Strengthen controls relating to proper record keeping to ensure that complete, relevant and accurate information is accessible and available to support financial and performance reporting.

• Strengthen controls relating to monthly processing and reconciling of transactions to be recorded in the financial and performance reports.

• Strengthen controls relating to the preparation and reviewing of financial and performance report to ensure they are accurate and complete and are supported and evidenced by reliable information.

• Improve controls relating to the review and monitoring of compliance with legislation relating supply chain management processes and regulations regarding contract management.

Focus Area One: Credible Financial Reporting

All auditees, excluding Mines and Works Compensation Fund, submitted their financial statements on time. Three of them were free of material errors.

The controls relating to the preparation and reporting of financial information at the NHLS and NDoH need to be strengthened as there was inadequate review and reconciling of information before they are recorded in the financial statements. The Office of the AG reported an inadequate review of financial statements by the relevant role players, including SAHPRA who failed to correct material misstatements from the year prior.

The following recommendations were given to management:

• Accounting officers must continue to do their work through audit committees to that ensure management implements and enhances processes of review of the financial statements.

• The finance unit should reconcile and review supporting documents and schedules that support information to be included in the financial statements.

• Internal audit should be allowed sufficient time to review the financial statements before final approval.

Focus Area Two: Credible Performance Reporting

The NHLS, SAHPRA and MRC were the only auditees to submit performance reports without material errors. The CMS and OHSC submitted reports free from material findings due to previous misstatements being corrected. It was highlighted that the information requested from the NDoH was not submitted timeously.

The following recommendations were given to management:

• The auditee should strengthen controls relating to the preparation and reviewing of performance report to ensure they are accurate and complete and are supported and evidenced by reliable information.

• The auditee should strengthen controls relating to proper record keeping to ensure that complete, relevant and accurate information is accessible and available to support performance reporting

Focus Area Three: Compliance with Legislation

The Office of the AG reported that they were still in the process of looking at the findings related to the audit report. There was stagnation in this focus area within the sector. The MRC and OHSC reported no findings in the audit report. However, CMS, NDoH, NHLS and SAHPRA held findings in their report concerning compliance with legislation. Where it was found that these entities were unqualified, it was due to material errors found in the financial statements in non-compliance with the Public Finance Management Act (PFMA).

On irregular and unauthorised expenditure, Ms Masisinyana said in 2021/22 the NDoH reported unauthorised expenditure amounting to R49 million. This was due to overpayment during the transfer payment processes for the conditional grants. Management later reported that they were able to retrieve the money from the double payment. The second area of unauthorised expenditure was due to overtime payments for staff working during COVID-19.

The AG recommended that there must be a control within the budgeting unit to track the expenditure against the budget in order to be noticed before the over expenditure occurs. 

On irregular expenditure, National Treasury released the framework which allowed management to disclose irregular expenditure as under assessment or in dispute in a sub-note. Ms Masisinyani highlighted that a note was added that in instances were irregular expenditure is under assessment or management is in dispute with the AG, the expense must be disclosed in the sub-note rather than the main note. The NDoH reported R60 million in this sub-note for irregular expenditure as it is still under discussion with National Treasury. Should  Treasury confirm the irregular expenditure, the R60 million will then fall under the main note.

In the main note irregular expenditure the AG reported an increase when compared to 2019/20. In 2020/21 the total irregular expenditure amounted to R922 million due to non-compliance. The AG expressed concern over the increase in non-compliance resulting in irregular expenditure. The NHLS reported the highest amount of irregular expenditure at R778 million, forming 84% of the total.

SAHPRA’s non-compliance was highlighted due to the significant spike in irregular expenditure where a contract was concluded without the approval of the National Treasury. The NDoH and NHLS reported non-compliance surrounding the procurement and tender processes. The CMS reported procurement from a panel that was not established according to Supply Chain Management (SCM) prescripts. The NHLS reported irregular expenditure due to expired contracts. The AG recommended that there be an improvement with contract management within the NHLS to monitor contracts before they reach expiration.

R3.7 billion of irregular expenditure costs in 2018/19 were investigated and has been condoned by the Treasury. However, a further R1.6 billion is still under investigation. At the time of the report, R2.4 billion in irregular expenditure from 2018/19 remained under investigation.

On SCM and consequence management, it was highlighted that the OHSC had non-compliance findings in the material report. Awards were made to suppliers whose tax matters had not been declared by the South African Revenue Service (SARS) relating to the NDoH and NHLS. The AG reported findings for NDoH and SAHPRA regarding procurement without following procurement processes. The findings for SAHPRA were from 2019/20, and were not submitted in time for the audit report. It was noted that in the last six months of 2020/21 management had implemented some controls in the procurement processes.

The NDoH exhibited large deviations which were assessed and where found ought not to have gone through the normal procurement processes. The NDoH and NHLS received awards for not submitting a declaration on whether they are employed by the state or connected to any person employed by the state.

Governance and Internal Controls

Senior management of the entities received a moderate review of some assurance provided, although, on internal status control, the entities were reported to have displayed effective leadership.

On the status of the information technology (IT) environment, the AGSA noted delays in the appointment of key positions in the IT department. The vacancies resulted in many variables being unfinalised. This greatly affected the budgeting processes for the MTEF which excluded strategic plans and initiatives that the department had planned.

In terms of IT system control, the Department had a labour impasse which resulted in head office closures, IT security control weaknesses and the IT risk assessments not performed.

It was recommended that management should finalise the appointment of key staff members and ensure the IT initiatives are included and budgeted for in the next year.

(See presentation for root causes within Health Portfolio preventing improvement in audit outcomes and actions to deal with complacency and lack of action by management as well as recommendations.)

Mr Sekgetho concluded by commending the improvements by the Department to reach a clean audit.

Discussion

Ms Gwarube asked if it was the view of the AG that the Department had performed poorly when compared to their entities in terms of financial management. If so, how is this the case?

She asked, in light of the large-scale corruption, when the AGSA would be able to implement the amended legislation concerning the AG to recuperate lost money. She emphasised the need for accountability of senior management in this sector and asked whether there were examples of this.

Ms Gwarube asked what the impact has been on the AGSA considering that senior managers were suspended, including the Chief Financial Officer (CFO).

On the internal auditing process, Ms Gwarube asked what the relationship between the work of the AGSA and the internal auditors in the department. What are the red flag systems in place to detect early warning signs of corruption? She further asked how these internal auditing processes were affected by COVID-19.

On SAHPRA, Ms Gwarube asked for clarity on the financial struggles of the entity in light of news reports of people not receiving payment from the entity.

Ms Ismail asked what preventative controls were not implemented regarding the second focus area of credible performance reporting.

On lack of compliance with legislation, Ms Ismail asked what consequence management strategies could be implemented to alleviate this issue. She felt that there were no consequences within the Department for this corruption.

Ms Wilson reiterated the recommendation from the FFC presentation that audit procedures needed to be upscaled. She asked whether the AGSA would consider this as a recommendation to get internal fraud examiners to address the internal issues, reduce litigation costs and hold people accountable for a broken system.

On audit committees, Ms Wilson recommended that performance standards should be implemented to prevent fiscal leakages which occur due to unproductive performance.

On supply chain management in the NDoH, Ms Wilson expressed concern that investigations were not being performed given the current status of corruption and gross irregular expenditure. She asked what had been done to correct things concerning the R49 million spent in unauthorised expenditure and what consequences were put in place thereafter. She said that the trend of having insufficient consequence management actions has accumulated into a problem greater than ever. In terms of the new regulations, she asked what the AGSA plans to do with this authority to alleviate the situation.

On governance and internal controls, Ms Wilson expressed a disconnect between the poor assurance levels of senior management and effective leadership reported within the internal controls. Considering the unsatisfactory levels of consequent management, she said that effective leadership could not be possible.

Ms Wilson said that the AGSA presentation expressed serious issues concerning the NDoH’s consequence management supply chain which seems to be broken. She said that the NHI calls for central procurement which cannot be considered because the Department alone cannot successfully do this. She asked for comment from the AGSA on this matter.

Ms Chirwa said that annually there has been a regression among the NDoH and other entities. She asked how the oversight tools of the Committee could be maximised and made effective to receive tangible results.

She asked for a detailed account of which financial legislation had been disregarded by whom in which department. She asked what the subsequent consequence management would be. She asked which of the contraventions require intervention beyond dismissals and motions, such as opening criminal convictions. 

Ms Chirwa recommended that the Committee be involved in consistent engagement with the AG to strengthen interactions and provide accountability measures that will ensure recommendations are implemented. She expressed distrust between reports from the entities when compared to the report of the AG that indicates lack of progression as promised. She said that this delays the alleviation of these issues until the end of the year, at times causing them to be carried over.

Ms A Gela (ANC) said that the Committee must monitor the implementation of recommendations from the AGSA. Concerning the R49 million in unauthorised expenditure, she asked for clarity concerning irregular expenditure in 2018/19 and 2019/20. She asked how the AGSA plans to use their powers to prevent these issues of irregular expenditure from reoccurring.

Mr E Siwela (ANC) recognised that historically there has been an emphasis for government and its entities to receive a clean audit, in spite of service delivery available on the ground. He asked what the reasoning was behind necessitating a clean audit when realistically service delivery could still not be accessible to communities.

On SCM, he said that there is a disparity between the AGSA calling for all SCM findings to be investigated while NDoH has not investigated into irregular expenditure or has not done so successfully. This implies that there are no consequences for wrongdoing. He asked whether the AGSA would ensure that these investigations happen. If the NDoH does not plan on investigating it themselves, who will bear the responsibility of ensuring this happens?

The Chairperson expressed difficulty in ascertaining if the AG report and verbal presentation fully addresses the issues relevant to the Committee. On this basis, he concurred with Ms Chirwa that the Committee must have more frequent and thorough engagement with the AGSA to discuss whether concerns have been addressed. He felt that the recommendations made to the Committee would also apply to the AGSA if they were to meet with the Committee on a more frequent basis.

The Chairperson directed that there be proper record keeping and reconciliation by the department and their entities, detailed review of financial and performance quarterly reports, sufficient consequence management and to follow up on management action plans implemented in compliance with legislation.

The Chairperson asked what the role is of the internal audit when compared to the accounting authority and the office of the AGSA.

Concerning late submissions, he asked whether there is a mandatory deadline for entities to submit before the internal audit takes place.

On SAHPRA, he asked what they have done to successfully hold people accountable when compared to other entities.

Regarding noncompliance with SCM, does this fall under the ambit of the announced powers of the AGSA instilled in 2019?

AG’s Response

Mr Sekgetho clarified that clean audits are held in very high regard. He said that institutions with a clean audit often display that they have institutionalised certain good practices that could be replicated in other areas of performance, including service delivery.

On internal auditing, Mr Sekgetho explained that internal auditors are key role players in providing assurance and timely, effective recommendations for management and the accounting authority to implement in the internal control systems. Internal audits are directed by the audit committee and their work is informed by management risk assessment. These risk assessments are used by the internal audit function to compile their audit action plan. This allows these bodies as a collective to conduct an internal audit focussing on key areas during prescribed time periods.

Mr Sekgetho acknowledged that there is scope for management to better use the internal audit functions in assisting them to improve the internal control environment and assist in review of the financial statements and performance reports, that are credible and reliable. Thereafter it will be handed over to the AG for auditing.

The Office of the AG welcomed engagements with the Committee to provide oversight over government structures. Mr Sekgetho explained that these meetings would need to occur after receiving financial statements from organisations on 31 May each year. The AGSA recommended that after receiving outcomes from engagements that they be shared with the Committee.

On the AGSA’s recommendations, it was explained that the key actions provided by the AGSA must be taken up by the accounting officer to monitor whether authorities and senior management implemented the changes, thereafter it receives oversight from the Committee. He explained that procedural processes must be followed in order to decide the course of action and whether remedial action is necessary.

On irregular and unauthorised expenditure in 2019/20, Mr Sekgetho expressed concern over the stagnated investigation process after following up on investigations and recommendations made by the accounting officer. The Office of the AGSA urged the Committee, within the sphere of oversight, to implement the recommended actions to drive progress.

On SAHPRA, a new CFO was recruited in the financial year which allowed the team to unpack shortcomings from the previous financial year. The CFO then implemented a decisive action plan that spoke to the root causes of the reported findings. Mr Sekgheto explained that SAHPRA remained qualified due to their not dealing with the opening balance of revenue relating to the previous financial year, despite clearing numerous other issues.

On SCM, he said that it would remain a key focus area due to the shortcomings and high value of irregular expenditure that continues to be incurred. The PFMA stipulates that the accounting officer must implement systems of internal control to prevent irregular expenditure.

The Office of the AGSA said that it reported on the contract mentioned earlier using their enhanced powers. Where things of great concern are detected by the AG it gets passed over to the respective bodies that have the required knowledge of the situation. The NDoH was included in the inclusion of amended powers where transactions were evaluated in situations of noncompliance. Due to discussions still ongoing, no specific findings were noted nor further action taken. The Committee will be briefed on this fully at a later stage.

On consequence management strategies, the accounting officer is required to take accountability and the Committee should request for those bodies to present status reports and investigations on a quarterly basis to evaluate progress.

On fraud examiners, the AGSA recommended revisiting the pre-existing insurance providers to hold them accountable for executing what they are required to under their responsibilities. Where this does not occur, legislation pertaining to consequence management should be enforced.

Ms Musisinyani said that, according to their assessment, the Department had more findings than the entities reported on, some of which were reoccurring findings. The AGSA felt that this was a key focus area for improvement.

On legislation, she said that deviations and expansions by the NDoH, NHLS and SAHPRA are problematic and stemming from contract management. In instances where contracts have leniency or are expiring, entities often opt to expand contracts which results in deviations and areas of noncompliance.

Council for Medical Schemes Annual Report 2020/21

Dr Sipho Kabane, CEO and Registrar, CMS, said, on aggregated performance, that the overall performance achievement in 2020/21 sat at 90.83%, against the benchmark of 80% set by the AGSA. Programmes noted for not achieving their performance requirements included Programme 1.4, Programme Five and Programme Six.

Mr Kabane reported that CMS received an unqualified audit report by the AG while IT systems up-time were maintained 99% of the time. Various improvements were also noted such as a revised Prescribed Minimum Benefits (PMB) package updated and costed, increased research projects in support of the National Health Policy, increased stakeholder awareness and training sessions, and improved the resolution of complaints during the year.

On strategies to overcome underperformance, CMS reported a high turnover rate in the human resources (HR) department. Mr Kabane reported that retention measures were being put in place to motivate staff and create more opportunities in a restructuring process. A shortfall was reported on the stakeholder awareness survey. Routines and commissioned inspections at entities regulated by the CMS were greatly affected by the lockdowns. Mr Kabane expressed that with improved planning and the relaxation of lockdown services can be procured for the investigation.

Areas of underperformance by CMS

Human Resources Management

CMS planned a target of less than 10% turnover of staff in their performance output indicators in 2020/21. At the end of the year, it was measured that staff turnover was at 18.3% due to resignations, non-renewal of contracts and various service conditions.

Stakeholder Relations

CMS intended to share a survey to give an indication of awareness of the CMS and their function. It was predicted that the overall awareness level would be at 55%, while the level of awareness was around 50% after conducting the survey. CMS believed that COVID-19, small sample size and late responses resulted in the poor performance recorded. CMS plans to review the manner in which the survey was conducted in hopes to reach as many people as possible under the relaxed COVID-19 conditions.

Compliance and Investigations

CMS planned to conduct 15 routine inspections of entities they regulate, although only 10 were held. Mr Kabane attributed this to lockdown restrictions prohibiting onsite inspections as well as preventing workers from accessing their offices to respond timeously. It is hoped that as lockdown regulations ease this will improve accordingly next year.

Commission inspections were set at a target of 80% to resolve issues of complaint. Due to the aforementioned reasons, only 33% of inspections were held.

Annual Financial Statements and Audit Outcomes

Ms Andisa Zinja, CFO, CMS, said that the CMS received an unqualified audit opinion with no material misstatements on the financial statement. CMS received no material findings on usefulness and reliability of performance information in the annual performance report.

However, it was reported in the audit report that there were internal control deficiencies regarding compliance with legislation. Ms Zinja reported irregular expenditure for 2020/21 amounting to R5.3 million stemming from old contracts which have carried over. She noted a legal panel established by CMS that was not initiated according to the correct procurement processes.

To correct this, CMS had established an appropriate legal panel and is currently in the process of transferring contracts from the old to the new panel. A formal request was submitted to National Treasury for allowance of this change. The CMS is also in the process of applying for condonement of the irregular expenditure that occurred.

The CMS audit outcome indicated a significant improvement when comparing it to 2019/20. CMS saw a decline of 24 matters reported in the previous year, while only 10 were reported in 2020/21. Ms Zinja noted that only two matters of supply chain management were reported when compared to the 12 reported in 2019/20.

CMS reported liabilities at 61% and assets at 39%. This was attributed to insufficient reserves, litigation costs and the need to deliver on projects which could not have been postponed, resulting in increased liabilities in 2019/20.

On revenue, CMS experienced delays from 2019/20 financial year when it came to the approval of the proposed levy increase due to the timing of the submission during lockdown and delays throughout the year. The levy increase was approved in April of this financial year which hindered cash flow.

CMS developed a plan with the NDoH to ensure that this instance would not reappear. The plan stated that at the start of each financial year CMS must have approved levies in order to deliver their mandate.

On revenue strategy, CMS noticed that additional tariffs charges had not been updated. CMS is currently in the process of revising tariffs. Commission inspections faced pushback from schemes disputing reports. CMS is currently looking into how they can get schemes to pay upfront to recover funds.

On expenditure, CMS noted telecommunication, rent and operating expenses as the largest administrative costs. To manage these costs CMS is negotiating with the landlord to decrease rental rates and is looking into a hybrid work operating model. CMS is also looking into the value of each part of its IT infrastructure to reduce costs. 

The largest operational costs for CMS were operational costs and consulting fees. Consulting fees were influenced by investigations and commission inspections conducted throughout the year, including Special Unit Investigations. CMS has created a team for every legal matter occurring to advise the registrar on the cost to benefit ratio when defending themselves in disputes. Ms Zinja did note a drastic decrease in legal fees from R22 million to R2 million in the past financial year.

CMS incurred fruitless and wasteful expenditure penalties from SARS. A waiver of R240 000 in penalty fees had been applied for and granted by SARS.

Utilisation Trends

Mr Michael Willie, General Manager: Research and Monitoring, CMS, noted that CMS lost two medical schemes due to matters that occurred in the industry.

In terms of membership, schemes declined. This resulted in a pronounced decline in open schemes which accounted for 54.35% of the medical schemes population. The impact of COVID-19 was not as significant as predicted, amounting to less than 2% decline in the industry.

Mr Willie noted a plateau in open schemes while closed medical schemes declined slightly due to mortality rates and high unemployment rates in 2020. Makoti Medical Scheme, LA-Health and Building and Construction Industry Medical Aid Fund all grew by more than 5% in the year.

In closed schemes, Mr Willie said that GEMS saw growth by 3.8%. In terms of open schemes, Discovery saw a decline by nearly 50 000 beneficiaries, followed by Fedhealth and Bonitas.

On demographics, overall CMS noted a slight increase when considering age, pensioner and dependency ratios. In spite of COVID-19 difficulties, members retained their beneficiary schemes to ensure care during this time.

Mr Willie said that there was a decline in total healthcare expenditure on benefits paid which was down by 3.81% due to many people not seeking healthcare during the prioritization of COVID-19 cases. CMS noted a decrease in total benefits and total risks paid per average beneficiary per annum.

CMS reported that there was a slight decline in expenses experienced by the average person during hospital visits due to COVID-19.

Overall, CMS said that there was a decrease in benefits paid to various specialists and practitioners, while pathology services increased by 10.88%.

Financial Performance

Mr Sameer Rajab, Acting General Manager: Financial Supervision, CSM, said due to the lower claims ratio, schemes reduced large services. Medical schemes generally tried to break even on a net healthcare result level.

Mr Rajab indicated that claims and contributions increased at rates higher than the normal Consumer Price Index (CPI) inflation. In 2020, a total of R219 billion was allocated towards gross contributions received by members while R179 billion was reported in claims.

Claims were affected by changing benefit design, changing profiles, and a high number of high cost cases. Some medical schemes were also affected by widespread fraud, waste and abuse of benefits. All of which resulted in a decline in claims experienced in 2020 when compared to 2019. In 2020, the risk claims ratio was at 81.38% which is down 19% from 2019.

Mr Rajab reported that the medical scheme industry remained financially sound with reserves at around 44%. However, the long term effect of the pandemic on scheme reserves is still unclear.in 2021, it was noted that claims were increasing due to a demand of COVID-19 claims in addition to normal claims.

Discussion

Ms Chirwa expressed concern about the circular released by CMS 80 and 82, about the removal or eradication of the low-cost benefit option which is an insurance alternative for people in low-income households. Ms. Chirwa stated that the low-cost benefit option allows for accessibility to necessary healthcare. According to the CMS circular from 2019, which takes effect in March 2022, it stated that the low-cost benefit should be removed, as a necessary step towards ushering in the NHI. She expressed concern as NHI would only be in effect in 2026. Ms Chirwa asked what the rationale was for this decision.

She asked what the consequences would be for affected cohort, who will no longer be catered for. She stated that according to the presentation, in 2019 there was a decrease in the clientele of medical aids and now from 2020 there was an increase. She stated that people were forced in the direction of medical aid when there was an alternative available. She stated that the only benefit from these actions would be towards medical aid companies. She asked if CMS could reconsider that decision and release an updated circular that would confirm that the low-cost benefit would be allowed. She also asked why the circular had not added certain benefits to medical aid.

She further asked why abortions and breast reductions have not been added to medical aid schemes despite civil and parliamentary conversations surrounding this presented to the CMS. She asked for clarity on the matter of the low-cost benefit option.

Ms Gela asked for clarity on how the CMS would address the irregular expenditure and would there be any consequence management being implemented. She also asked how Covid-19 has affected CMS outreach activities.

Another concern that was expressed was about how CMS would address the issue of there being many medical aid schemes for the public to choose from, and which would be the best possible option for them. She asked if the Committee could be updated on the situation of the submission of annual reports for the previous two years.

Ms Wilson stated that throughout the Covid period that anyone on medical aid, was contributing R850 towards the vaccinations that they had. She asked how this affected medical aid schemes and what impact it had on these companies. She also asked for clarification on how the amount of R850 was established.

Ms Gwarube said that, back in August of 2019, it was announced that there would be an SIU investigation into irregular administration that was taking place at CMS. She asked for some clarity on how the investigation was coming along from the CMS and what the outcomes were. She also wanted to know what the consequence management processes have been since then if there were any findings by the SIU and what the outcomes of these findings were.

The Chairperson asked if he could hear what the recommendations would be in terms of the contributions towards the medical aid and the difficulty with managing these medical aids due to the large income.

He stated that he has a concern about the distribution of healthcare benefits and those which were paid in 2020, which seems to be 61% to hospitals and specialists, and general practitioners (GPs) make up 5%. This is a serious indictment of what is happening in South Africa. The Chairperson asked if there could be an explanation given on this.

The Chairperson asked if there could be clarification relating to matters of Prescribed Minimum Benefits (PMB) in the presentation, and if it could be explained whether the reserves for the medical aid schemes would increase by that amount. He said he remembered that previously it was stated by the CMS that the reserves were R60 billion; it would easily equate to another R30 billion being added. He asked for clarity concerning the effect on the reserves.

CMS Response

On low-cost benefits, Dr Kabane stated that before the two circulars were published, research was done on the low-cost benefit options. He stated that there was a research paper released by the Department of Economics that was appointed and there were actuaries that went to analyse these products. The findings on these products was negative, necessitating standardisation, the reduced number of options in the environment, and deeming that low-cost benefit options would be inaccessible.

Dr Kabane stated that the market is for people earning around R6 000 per annum and certain products cost about R1 200 per month. He said that upon analysis, that a lot of what is consumed in the one round of contribution goes to broker fees, administration costs, and a small minimum is reserved for the relevant healthcare expenditure.

He said that the marketing on social media and other sources of media overpromise and underdeliver this information. For instance, it was said that members would receive unlimited GP consultations, and when further inquiries were done at the service providers, it was revealed that it was only three consultations per annum.

As the body that was mandated to deal with these entities, we questioned whether these products providing value for money for its policy members. The CMS has not done away with these products but instead, they have done this to engage key industry players, and this involved the very same insurance bodies that are providing these services. Dr Kabane stated that an advisory committee has been established with brokers, consumers, service providers together with schemes and administrators, that at the moment are engaging on the viability of the low cost benefit options and how a framework, that would allow them to exist, should look like with all the conditions.

Dr Kabane stated the statements that were made about low cost benefit options were in no way aimed at supporting the schemes but rather to come up with a solution of how medical aid schemes are to implement them and what these should look like.

On abortions and breast reductions, Dr Kabane stated that there is currently a prescribed minimum benefit review that is taking place that addresses the conditions that are currently covered under the prescribed minimum benefits. He said that breast reduction is often seen as a cosmetic surgery and for it to be published as a prescribed minimum benefit, many medical aid schemes would find it unaffordable towards the fact of their liquidity and sustainability. He pointed out that before a benefit is put in, research must be done on the health impact, the finances, and the health outcomes.

On the impact of COVID-19 on the outreach activities, when the performance of the organization was presented it was indicated that there were 3 indicators where there was a poor performance, particularly due to COVID, limiting abilities to do inspections. The ICT-based system allowed schemes to apply their information online. Training and engagement were accelerated with stakeholders through the online platform to counteract the effects of COVID. 

On medical aid scheme options for the public, Dr Kabane stated that CMS planned to simplify and then to standardise the number of options it has. He said that they currently reducing the number of options on average to about four a year, providing proper guidance to schemes, ensuring that schemes do not lose members, that the options remain viable, and that the schemes are sustainable.

Dr Kabane said that this would be addressed as the engagements continue. A key recommendation was brought up by a health market inquiry about introducing a standard comprehensive option across all schemes. He said that the endpoint for the low cost benefit schemes, the prescribed minimum benefit review, the standardisation, and simplification of options in schemes should result in a single basic comprehensive option across all schemes that the HMI recommended.

On vaccine costs, Dr Kabane answered by saying the R850 is attributed to the pathological services increasing their revenue from R10.5 to R11.2 billion between 2019 and 2020. He stated that this was the only group that managed to increase its revenue by almost 11%. He believes that the R850 is a very high fee and that a complaint has been lodged with the competition commission to have a look at the issue. Due to time elapsing, increased volumes of product and competitors, the price should have decreased, but there has not been a reduction on that R850 price, which the CMS would also like to have explained.

Dr Kabane said that CMS was not a part of those engagements and is worried that there may have been collusion amongst the pathological services to arrive at a price of R850. As soon as the competition commission returns with a response to the complaints that have been laid, it will be shared publicly. He stated that they have promised that they are going to investigate this because there is a big concern with the looming fourth wave and the fact that the target has not been reached in the vaccination. If the price stays where it is at the moment, it will cause a problem with affordability for people that do not belong to a scheme or cannot afford out-of-pocket expenditure related to that.

On the SIU, Dr Kabane said that the SIU was invited to the CMS to probe officials within CMS, to look at the larger industry due to allegations that involved officials at CMS, and to point CMS to unethical and corrupt relationships with other key players within the industry. He said that in the last meeting that was held with the SIU in the previous month, it was indicated that they will be wrapping up that investigation by end of January 2022.

Dr Kabane stated that they received several recommendations that have been implemented. One in particular, which relates to the financial conflict of interest declarations, must be done on an annual basis and policies must be refined around that. He said that other findings have been the clearing of one official, from the CMS, for the allegations of having a lifestyle that exceeded their income. He stated that SIU investigated several officials that are doing the compliance and investigation work, and according to SIU, has cleared those officials.

Addressing levies, he said that if you were to have a look at the current funding model. These levies are a once-off deduction from the principle scheme members who are at about 4.1 million a year. He said the issue was not with collecting the money from members but it is that a standard has not been established that these should be escalated by CPI on an annual basis.

The part that has made the funding not be largely dependent on the levies is the tariffs that are charged for the regulated work and have not been adjusted since CMS has been established. CMS is subsidising the schemes industry instead of receiving the value of what is put into the process. He stated that the process to adjust these levies in accordance with the CPI has started. He stated that parties were spoken to and are in an agreement with these implementations. Dr. Kabane believes that in the next 2 or 3 financial years, the revenues of CMS will be less dependent on the levies that are charged to members.

On distribution of benefits, He stated that the reason why they are currently reviewing the prescribed minimum benefits is that it is hospicentric: that the schemes would rather have you in a hospital than pay for expensive medication. He said more focus should be placed on the prevention of amicable diseases so that people are not forced into hospital, thereby reducing costs.

On irregular expenditure and consequence management, Ms Zinja stated that with CMS the supply chain was decentralised from the previous years and they have centralised supply chains to new units and allowed for them to procure for themselves. She said they did not have a policy on contract management as part of the supply chain policy and they also had engagements with staff members on contract management. There has been training by National Treasury which was well attended by over 90% of staff when it comes to the supply chain and how to appropriately procure in the supply chain legislation, and any other questions the employees might have.

She said that they have put together a loss control committee in following the irregular expenditure framework that was issued by National Treasury. It has the main purpose of investigating cases of potential irregular expenditure and recommending whether it is to be recovered from responsible individuals or submitted for consideration for condonement. She stated that the Committee had referred some matters back to HR or up to the council for consequence management. She stated that in the matters that have been finalised there have been disciplinary procedures such as warning letters that were issued to employees.

Mr Willie said that the termination of pregnancies does fall as a benefit in these schemes and breast reduction surgery is a function that is subject to the schemes protocol. He states that he is aware that schemes will look at the clinical appropriateness of the procedure or the need for such a procedure and it is not discounted from the medical aid’s point of view.

Mr Rajab explained that the 81.38% was the nett amount which excluded a portion of the savings in terms of risk contributions. He further explained that from 2000 to 2019, claims increased by 82.04% after inflation, whereas, 2000 to 2020 is 69% in claims. An increase in reserves was noted from R73 billion in 2019 to R98 billion in 2020.

Dr Kabane added that delayed submissions of financial statements have incurred penalties from the CMS due to noncompliance.

Ms Chirwa asked why the two circulars were not withdrawn to allow for a fully-fledged process to be completed. She said that the updating should include all the products based on the demarcation exemption framework and the act should be allowed until an alternative is found. She said there should be additional exemptions granted for the creation of products for the low-income segments.

She asked about the more than 2 million people signed up by the CMS. She said that personally she spoke with a constituency who had not been engaged on these matters and have had to find out from insurers that their insurance was being terminated in March.

Ms Chirwa disagreed with the answers that were given about the breast reduction procedure and how it is a serious medical intervention that should be considered by the CMS. She said that breast reductions should not be overlooked by men when women and trans men have been pushing forward the movement.

Dr Kabane said that he is a medically-trained male and that he did not state that breast reduction surgery should not be included in the benefits package. He said that there must be a clinical indication to do so, and need to exclude the cases of people who want to do it for cosmetic purposes due to the costs that are involved.

On low cost benefit schemes, CMS expressed that the circulars are based on the research that was done and is engaged in these key stakeholders. Dr Kabane explained that low cost benefit schemes consists of insurance groups providing products, medical schemes administrators and policyholders. He said that they are representative of constituencies though he did not have the number at hand; everyone’s input was welcome.

CCOD Annual Report 2020/21

Dr Barry Kistnasamy, Coordinator: Occupational Health and Safety, said that in 2020/21 annual reports were finalised from 2014/15, 2015/16 and 2016/17 which were submitted to Parliament. The 2017/18 report is in the process of being finalised by the AG and 2018/19 has been submitted to the AG.

Dr Kistnasamy noted an overall poor performance due to COVID-19 related issues and insufficient funding. From the 718 target for benefit medical examinations per month only 111 were conducted. This impacted outreach activities and lung function tests which had to be done physically during lockdown which was extremely dangerous.

On personnel, the CCOD noted many vacancies in senior positions. The CCOD has requested from the NDoH budget to be able to compensate people with the required qualifications needed.

Regarding certifications per month, Dr Kistnasamy noted in the previous financial year a collapse of the IT system. It was later rectified, although the benefit examinations had not pushed through the threshold of the initial targets of the CCOD.

On claims, there was a backlog on finalising claims. An outlier of claims finalised was noted during the second wave lockdown which was corrected once moving to an adjusted lockdown level.

The benefit medical examinations (BME) saw a sharp decrease after 2019, where it peaked at 18 616 mine workers. Due to COVID-19 the status of this has sharply declined, though the CCOD would like it to return to how it was previously performing.

The CCOD began the drafting process for Occupational Diseases in Mines and Works Act (ODMWA) in 2020/21. There have been discussions with the Minister and Deputy Minister of Health on this matter. The final submission of the draft bill is set to be sent to the Minister in November 2021. The Draft Bill is to get a schedule 3A entity under the PFMA. The National Treasury felt that the CCOD met all the requirements to establish a schedule 3A entity that could be self-financed.

The CCOD reported only 60% of benefit payments were made in 2020/21. On number of claims finalised by the CCOD, 81.6% of the target was reached within 90 days of all completed claim documents. Only 65% of the 80% target for controlled mines and workers liable for payment of levies per the financial system paid levies to the CCOD. This was limited due to time constraints and limited personnel in transit under lockdown measures.

Discussion

Dr S Thembekwayo (EFF) detailed a case concerning a contractual mine worker in Secunda severely affected by chemicals causing them to undergo two operations. She expects him to go through a third operation, though he has not received any financial support nor any compensation from the state mine. She said that the mine worker has all the correct documentation and would like to know from the department on how the worker could receive compensation from the Department and if it’s possible from the state mine.

Ms Wilson asked, concerning civil suits, how these issues affect the department. She asked how these claims were being laid against the Department and, if so, how the CCOD would budget for it. If not, how can the Committee offer assistance? 

Mr P Van Staden (FF+), reiterated, on the unclaimed funds that were mentioned, the importance of the meeting and asked to get more information regarding this matter.

The Chairperson said that they would have to deal with the outstanding audits and it would be a point that would be spoken about. By 2023 there would be an even level and that there would be progress from that point.

The Chairperson said that legal reform and the draft bill, which are the amendments to the ODMWA, must be handed to the Minister. The Committee would be proud to get to that point.

The Chairperson appreciated the work of the Minerals Council of South Africa and noted that the statutory system collapsed with the class action lawsuits; it is realised that it is for settlement trusts. The Chairperson raised a concern about these trusts and asked who would receive the administration fees, how much would they be, who the trustees were and who was managing these trusts due to the sheer amounts within them. 

The Chairperson suggested that an additional meeting be set up to review all of the orders given. He welcomed the CCOD to discuss the history of cross-subsidisation and what the role of that has been in South Africa, impacting beneficiaries.

CCOD Response

Dr Kistnasamy offered private support for the case Dr Thembekwayo mentioned. He then stated that if it is a chemical issue then it is covered by the Compensation for Occupational Injuries and Diseases Act under the Department of Employment and Labour. He then reiterates that members of Parliament should reach out for these types of issues. 

On civil suits, he explained they were against the mining companies, and a case against the justice system in England. He stated that there should be a meeting with the Minerals Council and other important entities that should be present, where questions can be asked individually on any specific concerns.

The trustees were from the Asbestos Relief Trust, sourcing mineworkers from all over the country. The class action suit affects the shareholders of the current company, while the shareholders from the time probably made large profits.

The trusts are in the process of trying to relief R750 million, of which the administrative amount will be approximately R100 million. A large portion of the funds went to the private medical sector, instead of building up the public sector in the surrounding areas.

An additional trust received R450 million with R50 million allocated to administration. The state is looking into building one uniform system to adjoin the relevant trusts.

Dr Kistnasamy then went on to answer the question that Mr Van Staden asked about the unclaimed fund. He said that unclaimed funds are a major problem that goes with pension and provident funds amounting to R45 billion and it is regulated by the Financial Sector Conduct Authority (FSCA) under the Minister of Finance. He pointed out a trend to in massive amounts of unclaimed funds that miners and their families are unaware they are entitled to. He welcomed the support of the Committee to simulate this process of accessing funds.

Addressing Mr Jacobs’ concerns, he said reforms will be discussed with the Minister and that it will go through the Cabinet process. He hoped that with the support of many entities that it will go through the Cabinet and come back to his desk next year on 1 April.

On outstanding audits, he said that the CCOD would await the Committee Annual Convenors to go through the annual reports.

On visits to the provinces, he said that Deputy Minister Ndlovu would be starting with the Eastern Cape, Lesotho, and Mozambique as a certain amount of mine workers are from each place.

Ms Wilson stated that she had been very shocked to hear about these numbers, suits, and funds. It made her truly uncomfortable and she insisted that it is critical to have another meeting on this matter and have numbers that are easier to digest.

Dr Kistnasamy agreed that a meeting should take place and they have most of the facts and details. He said he would prepare a small document with this information for the Committee.

 

The meeting was adjourned.