Compensation Fund Turnaround Plan; Horse Racing Industry investigation

Meeting report

International Labour Conference: Feedback

Ms S van Schalkyk (ANC) said that she was not going to read a report on the International Labour Conference held in Geneva from May 28 to June 8, as it had not been received yet, but when it was available it would be presented to the Committee. However, as the leader of the delegation, she felt obliged to give Members a brief overview of what had happened.

The delegation of Ms T Tongwane (ANC), Mr D America (DA) and herself had arrived in Geneva on Thursday 31 May to join the rest of the South African delegation, led by the Minister of Labour. The first session was held on 1 June, where the delegation had represented the Government in an observer status and had attended an African group session dealing with violence and harassment in the workplace. The discussion had not reached an outright conclusion as it was scheduled over a two-year period and would therefore be concluded in 2019.

From 4 June onwards, the delegation had attended plenary sessions on a continuous basis. Plenaries were held where the Minister and other representatives would address various issues regarding the country’s’ experiences. The conference concluded after Members had given their statements on 8 June. The reports were being compiled and would be distributed, and hopefully Members would get copies of those reports.

The delegations had included representatives from government and labour, as well as employees and the International Labour Organisation (ILO). It was worth noting that the committees that played a major role included representatives of African countries, who were leading in many capacities. The Minister had insisted that Members attend the conference from the beginning to the end. This was really necessary, as getting there halfway one could not really grasp the necessary information on the issues.

The Chairperson thanked Ms Van Schalkyk and the delegation for attending the conference and representing the Committee, and said that the Members would await the report for the opportunity of going through it.

 

Horse Racing Industry Investigation: DTI briefing

Mr Nkoatse Mashamaite, Director: Gambling Law and Policy, Department of Trade and Industry (DTI), briefed Members on the investigations into the horse-racing industry.

South Africa had passed laws and standards initially for regulating aspects of gambling. Horseracing was one of those aspects, but only betting and gambling in horse-racing was regulated, while other aspects such as breeding were not regulated. In 2011, the Portfolio Committee for Trade and Industry had conducted public hearings on the Gambling Review Commission Report, and wanted to hear what the industry’s views on the report were. That was when the DTI had learned there was an organisation called the South African Grooms Association (SAGA), when they had attended the presentations and highlighted the issues that they experienced within the industry.

They had indicated that there were racial issues within the industry at that time, and that they were not being recognised as an association by the Committee on Trade and Industry. Another contentious issue was that the groomers were not being assisted by the National Horseracing Authority (NHA) which registered all participants, including the owners of the horses and the trainers. The NHA was a self-regulating body created by the industry to regulate horse-racing aspects -- for example, registering, licensing and monitoring the conduct of horse breeders, owners and trainers, and imposing fines for the misconduct of registered members. The response of the NHA at that time was that they did not employ the grooms who were employed by trainers, so their issues should be dealt with as labour issues, and if there was any criminal conduct, it should be reported as a criminal matter.

Following that, the National Gambling Board (NGB) had tried to intervene and mediate between the NHA and SAGA. They wanted to come up with a code of conduct that would regulate the conduct of the trainers relating to the grooms in the industry. However, all attempts that they came up with failed, including the draft code of conduct. The NGB reported their efforts to the Portfolio Committee for Trade and Industry on 11 September 2013, indicating that they had not been successful. The NHA had said that they could deal with the issue of a code of conduct, but as for labour issues, they would not entertain them as they were not the employer of grooms. However, that meeting was not also successful in coming up with a solution.

This had resulted in the Minister undertaking to appoint an independent facilitator. The DTI did not have the legislative mandate to intervene in such cases, but it was their view that the National Gambling Act (NGA) was not a very effective regulator by itself, so an independent facilitator would actually help bring this matter to closure. Following that, Tefo Raditapole from Tokiso Dispute Settlement (Pty) Ltd, was appointed by the DTI to facilitate in the matter. Following this appointment, another organisation came to the fore, called the South African National Grooms and Assistant Trainers Association (SANGATA), and were also joined in the facilitation process.

After a number of meetings, the issue that was emphasised was that Phumelela, Gold Circle and the NHA were not employers of the grooms, as the grooms were employed by the trainers, and also that labour issues could not be discussed in that process. All parties agreed that they would refer labour issues to the Department of Labour, and leave them out of the discussion. What came out was that there was the Horseracing Industry Liaison Committee in each region of the country, and it was said that this was the place where all industry issues were to be resolved. It was agreed that the grooms would be able to participate in the forum and have their issues addressed. This was the agreement that was reached out of the facilitation process.

For the first 12 months, the two Associations that represented the grooms -- SANGATA and SAGA -- would participate without having to prove how many grooms they represented. However, after 12 months, the two associations would be required to show that they represented at least a third of the grooms in the region they wished to participate in. During the participation process, Phumelela also complained that SAGA were abusive in the language that they used to communicate, and SAGA said that they would undertake to desist from using violent language when they were communicating.

An agreement was signed on 8 December 2014, and later the terms of reference for their participation in the Liaison Committee were also drafted. As indicated earlier, the National Gambling Act 7 of 2004 only focused on betting on horses. As a result, this had affected the DTI’s ability to actually direct the issue and this was reflected in development of the National Gambling Policy. This was because in the value chain of the horse racing industry, there was an element of agriculture in the breeding, and the training of horses had a sport element in it as well. The issue was, which department was supposed to participate? The DTI had come in, as after the breeding and training of horses, they were sold here or in other countries.

The Department had also noticed that gambling was inherent in the value chain of the horse racing industry. As a result, it was actually trying to intervene in terms of policy and that was why, in 2016, it had commenced drafting. It actually wanted the NGB to be part of the Gambling Bill, and to become the National Gambling Regulator (NGR) where it would conduct oversight on the industry to ensure that everything that was done was following all the requirements that the industry was expected to fulfil.

The DTI would no longer focus just on betting, but would also ensure that the races were conducted fairly, with the people in-between being treated fairly. It expected the NGR to develop standard operating criteria that would be used to oversee the horse racing industry. Another approach would be to take over regulation, which would be very cumbersome because there was a lot that the self-regulatory body was actually doing. The Department would continue to offer assistance to ensure that the facilitation agreement was actually implemented. It had, however, noticed after the grooms reported to it regarding the facilitation agreement, that the Liaison Committee was a one-man show, where the chairperson of the body actually decided what got on to the agenda, and who spoke or who did not speak. The DTI had tried to engage with them, where it had also been complained that SAGA were not allowed to access the premises where the grooms were residing. The Department had engaged with them and they had responded it was because the grooms were also threatening them with violence. The Department was still speaking to them to give them more power and voice, and also engaging with them directly to ensure that these issues were resolved.

Discussion

The Chairperson thanked Mr Nkoatse Mashamaite for his presentation, and commented that there was the information that was in the public domain, and there was also what the DTI had indicated about the betting industry currently. However, apart from this, were there any proposals on issues to actually empower the DTI to solve the projected problems, or does the Department believe that this “gentleman’s agreement” would cure them?

Mr Mashamaite replied that the legislation was being amended, and the DTI’s Deputy Director General was not present at the meeting because she was actually attending a Cabinet meeting to request that the Department’s Bill be approved for tabling in Parliament. The amendments were comprehensive, and there was a clause that empowered the NGA to conduct oversight on the NHA. This was the criterion that was hoped would be effective in regulating the industry. Generally, in other sectors like casinos, the DTI also licenses the manufacturers of the machines, but in the horse environment it focuses only on the results of the race, and that was why it wanted to extend its powers. It believed that with this intervention, it would be able to solve the issues.

The Chairperson said it was good that the Department was requesting that the Bill be tabled. Members who had any issues that they wanted to ask regarding the presentation by Mr Mashamaite could do so after the Department of Labour (DoL) gave their presentation on the horse racing industry.

 

Horse Racing Industry Investigation: DoL briefing

Mr Thobile Lamati, Director General (DG), DoL, briefed Members on the inspection and enforcement reports dated 7 and 12 June 2018. He asked the Committee to note in the report that the Department mentioned the number of inspections that had been done, and that some of those inspections had been carried out yesterday, so some of the reports had only just been received. The DoL therefore wanted to share some of this information with the Committee, and would wind up all its inspections by the end of this month.

On receipt of a request for the DoL to intervene in the horse-racing industry, the Department had met with Mr Chopelikaya Simoto, Chairperson of SAGA, who had concerns that affected all grooms nationally. He had raised a number of irregularities occurring in the horse racing industry, such as Unemployment Insurance Fund (UIF) contributions not being deducted, or not being registered as a close corporation (CC). The DoL had requested him to provide details of the trainer who was employing the grooms in order for the DoL to conduct investigations. The DTI had indicated in their investigations that the grooms were employed by the trainers and that was why the DoL was interacting with them. It had received information that the NHA could provide the information that it had requested from Mr Simotwo. The office of the NHA had been contacted, and it had requested that the DoL make such request via email, which was sent to the Chief Executive Officer, Mr Lyndon Barends.

The DoL had then decided to investigate in terms of the different issues raised by SAGA on the UIF contributions that were not being deducted. There was an obligation on the employer that he must deduct UIF from the employees’ gross remuneration in terms of section 7 (1) of the Unemployment Insurance Contributions Act. There was also an obligation on the employer to contribute to the Compensation Fund under the Occupational Injuries and Diseases Act.

The DoL had conducted the inspection on 8 June, where it looked at the basic conditions of employment, unemployment insurance and occupational health and safety. The reason why it had looked at the issues relating to basic conditions of employment was solely because there was no sectorial determination that prescribed minimum wages in the sector, and apparently there was no bargaining council in that sector. The employment conditions in that sector were therefore regulated by basic conditions of employment. This meant that the DoL could not even argue for or against the salaries that were being paid, because there was no wage determination in that sector.

The following transpired during the investigations. The grooms were not employed by the horse racing industry -- they were employed by the race horse owners. The documents with employee records were not available, as human resources (HR) person was out of office. That was why he had undertaken to meet the Department on 12 June at 09h00 to undergo a full inspection, and a relevant update would be presented on 13 June

On issues related to injuries and contracting occupational diseases in terms of the Occupational Health and Safety (OHS) Act, there was an allegation that the employer-trainers were not registered with the Compensation Fund. As a result, when the grooms were injured or died, there were no benefits. There was an obligation on the side of the employer to contribute to the Fund in terms of section 80. Another complaint was that trucks that were being used to transport the horses did provide grooms with protection from accidents on the road, and also allowed sickness to be transmitted between the horse and groom.

The Department also stated that in terms of the OHS Act, every employer was required to provide and maintain as far as reasonably practicable, a working environment that was safe and without risks to the health of his employees, and to take such steps as may be reasonably practicable to eliminate or mitigate any hazards or potential hazard to the safety or health of employees. In this context, the employers had to tell employees what the risks were that were associated with them sitting or standing next to horses when they were being transported, and what kinds of occupational diseases they may contract as a result of that. What the Department had picked up so far was that none of what he had spoken about was happening in terms of the risk assessments done, to inform employees of the risks associated with the work that these workers were doing.

The Gauteng DoL had conduct ed an investigation on 12 June, and would provide a report. On receipt of the details of the trainers countrywide, the Department would conduct inspections in all provinces in order to test compliance on the following labour laws: the OHS Act, the Unemployment Insurance Act, the Compensation for Occupational Injury & Diseases Act, and the Basic Conditions of Employment Act. A consolidated report would be submitted to the Committee on conclusion of inspections conducted by 30 June.

During the inspection done on 11 June in Johannesburg, the Department had struggled to get hold of employers because they were not registered, so there was no platform to use to find out exactly where they were. It had had to liaise with the office of Phumelela to get the information. Investigations had been conducted on 8 June, and a database had been created to enable the conducting of inspections nationally, which would take place from 25 to 29 June. What had also been realised was that the industry was not organised, and there had been a meeting where the industry was advised to register online. The industry had also been issued with forms used in the investigations that were conducted. Further, on the issue of transportation of the horses, the Department had undertaken to meet the Departments of Health and Transport in order for it to get information.

During inspections that had been conducted in KZN, the Department had picked up some shortcomings. Inspectors had conducted investigations in two places where they had found that the first aid certificate that was displayed had actually expired. In terms of the general safety regulations, one needed to have a valid first aid certificate and also a first aider who was trained and who had a valid practising certificate. There was also no compliance with section 3 of the Basic Conditions of Employment Act, and personal protective equipment was not supplied to employees. Risk assessments were not conducted in terms of the OHS general and administrative regulations, and there was no file that the employer kept to record incidents. There were no contracts of employment in place and in terms of the basic conditions of employment, one needed particulars of the employment, and these were not issued. No payslips were issued by the employer. The DoL had issued the necessary notices. Inspections would be held next week. The representative union of employers in KZN was the Association of Mineworkers and Construction Union (AMCU) and all the grooms were represented by a union.

Discussion

Ms Van Schalkwyk said that she was sorry to interfere while the DG was presenting, but she wanted to make a proposal that the Committee note what was in-front of them, but also to take note that while the DG had concluded, it seemed that the majority of the work was outstanding and it would not do justice to discuss this one aspect, because the DoL had been given a mandate to investigate the horse sector, and that included all the provinces. It would therefore only be fair to the Department and Members that it got the opportunity to finalise the investigations and present to the Committee a comprehensive report of what they had found. When Members went on recess, the Department would have an opportunity to follow up on the notices of compliance and matters that they had proposed to the employers, and could come back with a comprehensive report on the state of affairs.

The Chairperson asked if that was also the view of other Members.

Mr America replied that he agreed with Ms Van Schalkwyk’s proposal and recommended that the Department should present a report once the investigations were completed.

The Chairperson stated that if that was the view the Committee, it give the Department an opportunity to complete the investigation and provide a fully fledged report and recommendations. This was a work-in-progress, but the Committee appreciated what the DoL had so far had made available, as it also totally vindicated what it had feared was happening on the ground. The Director General had to speak about the DTI’s proposed legislation, and whether the DoL was aware of it. He also asked whether, from the DoL’s side, there were any types of institutional arrangements in the administration of the horse racing industry or any possible legislation, to fill in any gap where the Department was not able to intervene.

DoL’s response

Mr Lamati replied that the DoL was awaiting the proposed legislation by DTI in order to see what exactly was in it, and what the Department could propose. Apart from this legislation, the DoL had put before this Committee a number of pieces of legislation, key among which was an amendment to the Basic Conditions of Employment (BCE) Act, as well as the National Minimum Wage (NMW Bill), which would cover even sectors that were not covered by the sectorial determinations that existed currently. The Committee had adopted the Bill which made provisions for the Compensation Commission to advise the Minister with regard to any interventions that were needed in respect of any sector that had a problem. Therefore it may advise the Minister to come up with a sectoral determination or sectoral wages for that specific sector.

Discussion

Ms Van Schalkwyk asked a question regarding the presentation by the DTI. The Department had indicated that it found there were a number of issues during the facilitation process. What were the specific issues, and had they reported them to the DoL to further deal with the issues? Apart from the organisations that were currently in that industry -- SANGATA and SAGA -- was the Department stating that all organisations in the industry hadparticipated in the process, or had there been other sectors that had not necessarily participated? When was it envisaged that the Gambling Amendment Bill would come to Parliament, seeing that it was almost at the end of the Fifth Parliament’s term -- does the Department think it might be passed, or only referred to Parliament to be passed by the Sixth Parliament? If this was the case, what were the alternatives in place to remedy the current challenges faced, in the absence of amendments? The DoL and the DTI were to be commended on the efforts they were making to update Members with reports, but Members had acknowledged that when they looked at this first report, it seemed there were indeed serious challenges in this industry as had been indicated by the grooms. She asked that the report that would be ready by 30 June be issued to Members while on their recess so that they could prepare for oversight visits.

Ms A Muthambi (ANC) said there seemed to be a reluctance to go to the horse racing industry and regulate it instead of relying on self-regulation. As policy makers, the Department had the power. There was a responsibility to protect the most vulnerable from abuse, so one needed to address the issue of regulations to change the status quo, instead of the industry regulating themselves. With regulation, the Department would have the power to make sure that there were appropriate rules that would determine the industry’s conduct, and it would also be able to do enforcement, including agitating for quotas. That would give the department the authority to deal with these issues. However, there seemed to be a reluctance to do this and the actors continued to do as they wished while people were exploited. That was where the DTI should be able to address the situation.

The DTI had indicated that after signing the facilitation agreement, it had continued to offer assistance to the parties whenever there were complaints from each side. However, it had then indicated that there was a one-man show, which meant that that facilitation process was being frustrated. What was the Department doing to address this anomaly with the liason committee, as it defeated the purpose of the facilitation at the end of the day. What was the DTI doing about SAGA’s complaint that they were not allowed tbeing o enter the grooms’ premises, as their organisational rights were at stake? The DoL should be able to comment on that issue, because people were free to organise, and if in people were not allowed to have their organisational righst then there was a problem and which should be attended to.

Ms L Theko (ANC) referred to the Department’s engagement with Mr Simoto, where the presentation seemed to indicate that he had been part of the company and had then gone out and become the opposition. However, it was good that he was on both sides, because Members now knew what was happening to the grooms. She recommended that both departments should work jointly, so that in the next report at the Committee meeting after the recess, Members could be given a comprehensive report. At least the National Minimum Wage Bill would address some of the issues.

Mr America reminded the Committee about what it had done earlier in the year, and pointed out that the Committee had essentially identified issues that the Department had raised in tabling the proposed legislation. From the interim report by the Department, it was clear that although certain sections were being amended, what was not clear was that it had stated that the employers were not known, but in some instances it had stated that the trainers were the employer, while in others it had states that the owners were the employer. The industry had admitted that there were hundreds of employers with sample employment contracts for the employees. Could the Department advise how difficult it was to identify or rule out legitimate individuals who could make decisions, and find out if the legislation proposed could compel individuals to register as owners of horses?

This was a very difficult environment and as suggested, the National Minimum Wage Bill would address some of the issues, or all of them, but there was an absence of bargaining in that sector. Without the power of bargaining, the employers were able to get away with non-registration in terms of the legislation. At the end of the day, it aimed to ease suffering as a result of blatant defiance from a group who had acted for so long in defiance of the legislation. One needed to be very firm in the fight to deal with this. Perhaps these people should realise that if they consciously and deliberately broke the law, there would be consequences.

The Chairperson said the last page of the presentation indicated that some investigation had been done in 2010, and some sort of findings had been made then. Was it possible for the Committee to have this report made available so that Members could establish the aim of the report? How was the current threat going to be attended to? What were the proposals from the DTI and the DoL?

DTI’s response

Mr Mashamaite said the labour issues had been raised the two grooms’ associations themselves, and not by the Department. The DTI had therefore engaged with them and, as indicated, it knew about one association but had come across the other in Parliament and in Johannesburg. The second one had been SANGATA, and SAGA had been suspicious that they had actually been brought in to destabilise the process, because the DTI was more supported by the industry operators who would find themselves travelling to the DoL, while the same support was not extended to the SAGA. That was what actually transpired but when they came on board, the DTI had allowed them to participate in the facilitation process. Even later, after the facilitation process, they had come and signed the final programme of the facilitation.

The cabinet was meeting to approve or not approve the DTI’s bill, so if it was approved soon -- maybe by next month – the Trade and Industry Portfolio Committee would invite it to introduce it and the process could hopefully be completed by the end of this financial year before the elections. In the meantime, when issues arose, the DTI tried to engage both sides. That was the interim measure. It was hoping that with its approach to the bill, by conducting oversight on the NHA, it would be able to set the rules required. However, it would recommend that the NHA widen their base for funding in order to address the issue of their independence.

Regarding Ms Mutambi’s reference to our reluctance to regulate the industry, the DTI had debated on whether it should take over or not, but the multiplicity of affected entities made it reluctant to actually come and take over. As he had said, there was an element of agriculture, sport and health, and the DTI’s interest was in trade and betting. Its involvement was also to ensure that the ethics of how a democratic country functioned needed to be observed, and that everybody that was participating in the industry should be treated fairly and well. The DTI also reached out to other departments so as to ensure that there was a consensus in the departments and to ensure everything was sorted out, especially with the most vulnerable group, which was the grooms. The Department would continue to offer assistance by conducting meetings and speaking to the people on both sides.

On the issue of the one-man show, the DTI had indicated to the person concerned that it was supposed to be working on ensuring that it did not end up in the media for the wrong reasons. Its interest was in trying to find ways to resolve the issues. However, the issue of the Liaison Committee was part of why the DTI was trying to push the Bill in order to resolve it and other issues.

The DTI was committed to working with the DoL to ensure that the issues were addressed. It was also not formally aware there were threats to the Durban July race that might actually destabilise anything, but the Department would look into it.

The Chairperson interrupted and said that the Department must have seen EFF party members on TV actually announcing that the race could be in jeopardy unless the grooms’ grievances were addressed. He asked for an explanation of the horse racing chain value chain to understand what participants were involved from when an individual bought a horse until it was on the race course.

Mr Mashamaite replied that there were breeders who were involved in identifying the horses to be involved in races, and the industry actually used breeders to identify which horses could sire race horses. All incidents were supposed to be recorded by the NHA for all horses. There was therefore information on horses, including from the date of mating, and the training by trainers or owners, though normally owners hired trainers to train horses. One could also have joint ownership of a horse.

The Chairperson said that that had not covered his question fully, as he wanted to know the hands that were involved in the horse, from a breeder until it was on the race course. Who were the people who were involved? From a breeder, one expectrf it would go to an owner who purchased it, who might hire a trainer and others until it ended up on the race course. This was so as to know the sectors that were involved in the value chain of the horse from breeding until it undertook racing with a jockey.

Mr Lamati responded to the question posed by Ms Muthambi on organisations’ rights. What the Department had noted was that there were those who had organisational rights who fell under the AMCU, and then there was SAGA, an unregistered association, and the DoL had been advising them to register so that they could have access to the workplace if they did not want to fall under any existing union. So at the moment, there was the issue of them not being registered, and therefore not having employee organisational rights.

Members had asked the DoL to provide a full report on the issues raised in the 2010 report, and it would do so.

The Chairperson had also mentioned the issue of the threats to the industry, and the Department had seen that and there were two sides to it. One was on the political aspect driven by the EFF, and the second was on the workers’ front. If it was an issue that involved workers and there was a strike, it had to be in accordance with the law. There had to be an application, so that the strike became legal, and if there was a protest, it had also to be legislated. The DoL would, however, keep its ears to the ground and look into this matter. However, if it was a political matter, it was outside the DoL’s mandate, but as a department it acknowledged it could have disastrous effect, especially if workers did not go to work. The DoL would work with the DTI to provide an effective service, as indicated.

With regard to the question raised by Mr America, it would actually make the Department’s work simpler if on registration, employers could register as entities as opposed to individuals. If registered as entities, it would clearly know who it was dealing with. It could indicate to the Committee what steps it had taken with regard to those who had not being complying with legislation. Certain steps going back as far as 2010 had been taken, and it would report to the Committee on these too.

Mr Mashamaite said that now he had fully understood what the Chairperson had asked him, he said the process started with the NHA as they were the ones who registered all the breeders of thoroughbred horse racers, the owners, and license trainers and assistant trainers and also jockeys. Then there were the breeders and owners, as well who ensured that the horse was available in the world and that the horse was also registered by the NHA. The owners employed the trainers and the trainers employed assistant trainers to train the horses, and also worked with the grooms, as they were on the backs of the horses training them to run. There had been an incident last year when a groom had actually fallen and lost his life during the training.

The grooms were the ones who actually monitor the welfare of the horse, such as its feeding and sleeping. Then there were jockeys who would be on the back of the horses during the race. They participated in the training, as they were also funded by the industry to be trained as such. There were veterinarians as well who looked after the health of the horses. The NHA registered all participants and approved all races that take place. They take over during the race, because they provide stipends and also make sure that the races proceed in a fair manner, and that there is no cheating. The NHA also operates a laboratory to test blood samples of the horses, to check for enhancement drugs and could also approve secondary testing. There were also the operators who staged the races, for example, Phumelela, who had licences to take bets from the public. Then there were the gambling boards across the country, who give out licenses and whose licenses were overseen by the NGB to ensure that they were following national laws. There were also the departments providing policy to various provinces and also national policy.

The Chairperson thanked the Director for his response, stating that he and the Members had been educated. He thanked the DTI for having met the Committee and providing it with the information, and added he hoped they would continue to investigate matters. He encouraged the Department to continue with its monitoring and inspection in order to make sure that workers were not abused where there was legislation to protect them. Inspectors should remain vigilant, and it would be unpleasant to find the same results that had been found in 2010, which would mean there had been no intervention.

As Members had indicated, as much as one accepted self-regulation, if that self-regulation was counterproductive, then it needed to be attended to. Regulation was meant to introduce results in a sector that was not producing them. Otherwise, if the sector was good then there was no need to regulate. However, once there was something wrong, one had to intervene by bringing in legislation, regulations or guidelines.

He also thanked the DoL for its assistance and said that the Committee would wait for the 2010 report as well those being undertaken currently, as requested by the Members.

 

Compensation Fund turnaround plan

Mr Lamati said that when he was appointed as the DoL’s Director General (DG) on 1 December 2014, the Compensation Fund (CF) had been experiencing serious service delivery challenges. Key to this was the fact that the Fund was not processing claims, and as a result, it faced a series of court challenges. The Fund had weak financial management, internal controls had collapsed and that was why it had disclaimers. An assessment had revealed that the entity was not structured in line with its mandate. The core functions it was required to perform were non-existent.

What the DoL and the Minister did to change the situation was to remove the top management of the Fund and appoint a new Commissioner. It then restructured the Fund into three businesses -- pension compensation benefits, medical services and rehabilitation services. At that time, medical institutions did not want to treat CF patients. Staff morale was low and fraud was also rampant. To address this, a three-year action plan was put in place.

The primary objective was to first stabilise the Fund so that it could at least perform its key functions of adjudicating and hearing claims. The management team had done quite well. The Fund could pay benefits and adjudicate claims. The only challenge now was that old claims had not been transferred from the old system to the new one, so the team had to go out and ask people who had claims that had not been processed by the Fund to come and give information so that they could be assisted in setting those claims. There was now a second action plan which sought to address some of the issues left out by the first action plan.

Mr Vuyo Mafala, Fund Commissioner, briefed Members on the final report of the first action plan, and also the second action plan of the Fund.

The first phase of the action plan had been divided into four pillars -- financial administration, customer focus and service delivery, people management and internal business process, and administration. Since 1 July 2015, when the Fund started implementing the action plan, it had made 87% progress, and only 13% of the activities were in progress. On financial management, the Fund had finalised most plans and only four were in progress as at 30 April 2018. These were the revision of the employer assessment model, loading and reduction of assessment tariffs, clearing of long outstanding reconciliation items, and correction of all prior vouchers.

Some of the achievements that had been made so far included implementing employer discounts, where about R211 million had been paid out to employers. TheCF had also made interventions in the debt management process, where the Fund had been able to correct the module of impairments so that the correct penalties were charged on employers. Errors which had been made included erroneous modules of employees, and as a result to date R108 million had been charged in interest and R112 million charged in penalties. There had also been a correct impairment process for the Fund for prior years, where the impairment of debt had been increased by R485 million.

Previously, the debt-book had had inaccurate data and the Fund had to correct what had incorrectly being counted over the years, which amounted to R2.4 billion, but now the debt-book had been cleaned. The Fund had also approved financial policies that had been in place and cleared the suspense account. It had allocated merit rebates worth R67 million which had been refunded to 10 784 employers. It had been able to strengthen its IT systems and had successfully migrated all its payments to its Umehluko system. Since migration in 2017, a total of R3.4 billion had been paid through the system. The Fund had also built capacity in the financial management unit to curb poor financial management.

The Fund had managed to implement all its customer service initiatives. Previously, clients had been taking the Fund to court mostly because of poor client focus on service delivery, which had placed the CF in the media for all the wrong reasons. Some of these improvements included the supply of chronic medication arising from diseases from occupational safety and hazards, where a total of 667 pensioners had benefited. Previously, these pensioners had had problems with pharmacies not wanting to accept scripts that were funded by the Fund, but now it was a service provider who made sure that every month clients got their medication at their doorsteps. The Fund was hoping to increase these to all sorts of medication in the next phase.

There had been an increase in engagements with key stakeholders, including hospitals and health associations, and this involved improved invoice processing and communication which saw the payment of R734 million in the last financial year alone. The rehabilitation and return to work programme had also been improved by starting a pilot programme and establishing a rehabilitation unit to oversee its running.

The third pillar was on internal business processes and administration. The Fund had been able to implement the majority of all activities and the ones that were not able to conclude were those of a continuous nature, like issues around claims with incomplete information or continuous training. Some of the things where the Fund had been successful were, for example, appointing critical skills medical health professionals in all provinces servicing the operations of the Fund. There were also therapy services with occupational therapists for those who were injured or required prosthetic services. There were also medical case workers that helped too. The Fund had also done quality assurance on Umehluko to ensure it met business requirements. A case management system had been implemented to introduce monitoring and, which made it efficient so clients were now able to institute a section 91 objection. The Fund had also implemented various fraud prevention measures to curb not only internal but external fraud.

The last pillar was on people management. The DG had earlier indicated that staff morale was at an all time low when he took over because the Fund was not performing. The team was able to implement all projects that had been identified. Education and training was a continuous process because the CF had a lot of staff who required critical skills.

Phase 2 of the action plan had been rolled out now that the Fund had been stabilised, and it was desired that more focus should be on enhancing the control environment and ensuring delivery according to the Fund’s mandate. The objectives of phase 2 were to improve the systems of internal control, improve poor service delivery, address organisational performance, eliminate occurrences of fraud and corruption, and also to develop the capacity of the Fund to deliver on its mandate.

The action plan had four new pillars which include financial management and governance, service delivery and performance improvement, anti-corruption and integrity management, and organisational culture renewal and capacity building. The Fund had started implementing this action plan in May 2018, and the milestones which it had achieved in the meantime was to reduce the number of audit matters affecting the audit reports. The Fund had also defined service standards that everyone had to adhere to, and had come up with a framework and structure for ethics, fraud and corruption. Finally there had been full implementation of the reviewed structure of the Fund. The timeline of the action plan was estimated for for completion in 2021. The action plan was comprised of about 191 planned action steps, and out of this 67 had been managed.

The first pillar of financial administration and governance was comprised of activities aimed at addressing all the control weaknesses identified through risk assessment, internal audit and the Auditor General. In order to achieve this, a number of action steps were envisaged, key among which was improving control in the management of general ledger activities, to increase accuracy and develop standard operating procedures on all processes with electronic records. The action steps also include improving debt collection strategies and follow-ups, and also had in place an online platform for submission of return of earnings. With the issue of accessibility addressed, the focus was now on account issues to ensure proper accounting.

The second pillar was service delivery and performance improvement, which had activities aimed at addressing service delivery challenges. This pillar was divided into three subsections -- customer care, employer services and compensation, and medical benefits. The customer care section aimed to make the Fund more customer-centric and improve access, especially through a call centre unit. It aimed to achieve this through boosting staff morale by indicating appreciation through service excellence awards. The Fund would also procure mobile clinics and buses for increased accessibility, especially to rural areas or migratory clients, and also roll out kiosks in allocated labour services. Employer services focused exclusively on issues of employers facing difficulties in registration and submission of return of earnings, by developing a frequently asked questions data integration system which would be automated to remove manual delays in the system. One of the key things that had been done was the reduction of number of days in registering employers by implementing the CF-Filing system, which had cut down the time from 90 days to 20 minutes, with employers doing it themselves without having to come to the Fund. In the compensation benefits sub-section, the Fund would focus on developing a rehabilitation and return to work policy, and effectively deal with post-traumatic stress disorder cases and improve the case management system. This also aimed to improve how the Fund dealt with intermediaries as its service providers.

The third pillar was anti-corruption and integrity management, and was comprised of activities aimed at addressing control weaknesses in the Fund and behavioural attitudes that lead to fraud and corruption. It aimed to deliver outputs such as maintaining an ethical culture, effective management of conflicts of interest, early detection of fraud and corruption, and increasing fraud training and a supplier database. This would be through the establishment of an ethics office and ethics officer, and also conducting an ethics risk assessment. The Fund had already created an ethics unit.

With the last pillar on organisational culture renewal and capacity building, the Fund aimed to deliver a number of outputs, including a reduction in vacancies, improved staff morale, a review of staff profiles, improved records, leave management, and also improving training through online portals where before one could lodge a claim, one would undergo a short online training programme. The Fund would also establish an accountants’ training office to improve standards and also develop a minimum qualification of staff for the Fund.

The Fund’s progress on claims processing had been improving steadily over the last few years through the payment of benefits. In the last financial year, the it had paid out an amount of R2 billion, and so far in this financial year it had paid out R218 million in compensation.

Discussion

Mr America said that when the Members had started the beginning of their terms, the Fund had been on its knees and in the intensive care unit (ICU). As the years had gone by, and especially with the DG and other appointments, Members had a noticed a big change. The Fund was a very difficult department to manage, because the system in place in the past could easily promote corruption and maladministration. Since implementation of the action plan, there had been progress, and also in terms of accounting to the Committee. Phase two would consolidate what had been achieved, because the effective service delivery of the department was also creating a good public image, as evidenced by the public’s increased engagement with the Fund.

Ms Van Schalkwyk said that Members were impressed by the good output of the Fund, but there were issues that needed highlighting. She commended the efforts made and the necessary measures already in place, especially the capacity building of staff which was key to the success of the action plan. However when one compared the reports made available to the Committee in November 2017 and February 2018, there was not much difference -- the figures were all the same, for example, in interest paid or incorrect data. Also, with the amounts that had been paid for claims, the actual number of claims had not been indicated. It was safe to say that when performance of 86% at the end of October 2016 was viewed against 87% reported in February 2017, and also 87% now in June 2018, the Fund should now focus on phase 2 of the action plan. If there was a later update, it should also be made available in terms of the figures mentioned for the Members’ consumption.

Ms Muthambi also commended the good progress made by the Fund, but stated that when one looked at the presentation there were no timeframes as to when targets would be achieved. Timelines enabled Members to monitor and evaluate progress. Some of the steps should be consolidated, because 191 action steps were just too many. Sometimes one or two of the plans talked to each other, and they should be consolidated. The other key issue was brand management and promotion, because although there were good things on paper, in order to boost confidence among stakeholders there was need for outreach programmes so that people could see that there had indeed been a turnaround.

The Chairperson engaged the Fund team, and said that from the presentation it was clear that previously there had been a failing entity. Now that the first action plan had largely been successful, how many people had been taken to court or to jail? This was because there could not be an entity that failed if there had been no malpractices. There was also the issue of vetting. Did the Fund have positions that required vetting and if these positions were not there, what was the Fund doing to ensure that it had the right people with the right integrity and ethical conduct to occupy the positions. How was the Fund monitoring all the proposed action plans to see what was being done or not, so that it did not become lengthy and complicated.

Compensation Fund’s response

Mr Mafala, in response to Ms Van Schalkwyk’s comment about numbers that were static, said that some of the issues -- for example, the  discount -- had a specific amount for four years for amounts paid to employers. In 2012, in order to improve employers’ drive -- the Fund had sent a proposal that employers who submitted their return of earnings by 30 April would qualify for discounts on their assessment rates. That had been done, but the Fund had no sort of functionality in the system to deal with the discount and formulate payments to employers. What the Fund had done was to develop a tool in the system to quantify the amounts of discount, which came to R211 million and which was paid out to employers. Employers had the option of either receiving cash or receiving credit for the following years, and most chose to receive credit.

On interest and savings, the final figure had remained static between December 2017 and now, because the payment of the assessment in the Fund was a one-off activity in a year. The R2.4 billion was related to the inaccurate debt book that had previously been there. Having arrived at this amount, the Fund had had to write it off, and that was why it seemed to be recurring. For the 2018-2019 period, the report had been produced in April and the Fund had not quantify the all months, but it would be appropriately updated. Also, the static figure of 87% was because a lot of activities that had not fully been implemented were continuous activities.

Regarding the question on the timeframes, a lot of the activities would run concurrently. There was a report which was more detailed than the presentation which would be made available to the secretariat, and which had the timeframes and who was responsible. However, all of this would be implemented over a three-year period by 2021.

Regarding how many people had been taken to court, there some cases before the courts, and some doctors had also been taken to court, and these numbers would be factored into the next report.

On the issue of vetting, there were key positions where vetting was required. These included finance, supply chain and senior management. As per the first action plan, the officers of the Fund were vetted, particularly those dealing with the claims environment. The Fund’s security division was also making sure that capacity constraints were made known when doing vetting. In the phase 2 action plan, th Fund would now start vetting intermediaries that submitted claims on behalf of clients. The Fund had also developed a monitoring tool to indicate progress, and was overseen by a steering committee which sat once a month.

Mr Lamati added that Ms Muthambi’s proposal on branding had been noted for the outreach programme. The Fund was often very shy in telling its good stories, and there was need to change that so that people became aware of its good work.

The Chairperson said that the only issue remaining was the issue of fraud cases, which could not wait for the next reporting period. The Fund team was directed to issue a report to the Committee within seven to 10 working days, briefly highlighting the names and offences being prosecuted. This would show the Committee that while the Fund was cleaning itself it, was not continuing with the same problems. If the Fund was cleaning itself to show seriousness, it was expected that some action was being taken.

The meeting was adjourned.