Compensation Fund: Interrogation of 2013/14 Annual Report and Financial Statement, with Minister of Labour

Meeting report

The Chairperson commenced the meeting by greeting and welcoming all the Committee Members, the Minister of Labour and the representatives from Compensation Fund (CF). He appreciated and thanked the Minister for being present and acknowledged and accepted that she had to leave early during the meeting. The Ministers early departure should not influence proceedings as the heads of the Compensation Fund were capable of answering on the minutest of details Members might raise regarding the Fund.

After a brief introduction by the Members and Delegation, the Committee proceeded with the discussions on the Compensation Fund Annual Report and Financial statement for 2013/2014 year end.

Discussion

Mr E Kekana (ANC) said he discovered a number of things after studying the report but needed some clarity on them before posing his questions. He asked when the fund was established and whether they had an organogram.

Mr Shadrack Mkhonto, a Former Commissioner of the Fund replied that the Fund was established in 1945 as a consolidated fund for South Africa and said the organogram was on page 14 of the Annual Report.

The Minister of Labour, Ms Mildred Oliphant asked the Chairperson if she could have an opportunity to further introduce some of the representative of the Fund as many of them are in an (acting) position. She then said she decided to establish a task team five months ago as a result of the many challenges faced by the Fund and looked at ways to turn the commission “into a proper functioning entity”. The task team was headed by the Director General of the Department of Labour and also included the Commissioner for the Unemployment Insurance fund, the Chief Financial Officer of Department Of Labour and of the Unemployment Insurance. The DG as leader of the team also requested the assistance of the Auditor General in dealing with some of these challenges faced. Additionally, work was closely done with the Audit Committee and the Risk Management Committee who keep the Minister informed by sending her reports on a monthly basis. The DG had come up with proposals based on the challenges and suggested that the he briefly indicate what has happened. She said she was raising this because when they said Mr Mkhonto was the former commissioner there was confusion between the members and chairperson of the Committee.

The Chairperson gave the DG an opportunity to address a few issues.

Mr Thobile Lamati, the Director General of the Department of Labour said from last December till the present date he had assessed the work done by the assembled task team. The task teams were given timeframes in which to complete the work and decisions would have been made regarding the effect of the interventions and thereafter a decision would have been made on that basis on what needs to happen next as an Organization. After conducting the careful assessment it was deduced that “the time has come for changes to occur to the Fund” and then it was agreed that effective from the first of June 2015 that Mr Mkhonto would be removed as Commissioner of the Fund as well as other top management officials that would not be dismissed but rather put in a different position in the entity. It was also decided that the Commissioner of the Unemployment Insurance Fund (UIF) Mr Vuyo Matata be put into the position of the Acting Commissioner of the Compensation Fund. The reason why there is an acting CFO of the Compensation Fund was a result of the former CFO, Mr Johnny Modiba being put under suspension.

The Chairperson said he was a bit hesitant to give time for the presentations as already in the two minutes given the Compensation Fund has responded that it dealt with all the problems by disbanding the leadership and saying that new leadership is in place since yesterday. It is unfortunate that the former CFO is not present as it would have been great to question him on issues concerning the Fund. This was said to be okay though as the former CFO of the year in review was present and able to answer to questions and issues raised. The finer details will be dealt with as they are brought up during the context of the engagements to take place.

Mr Kekana asked whether the Annual Report was in line with the turnaround strategy that the Department promised the Committee and said it was not even near the turnaround strategy. His biggest problems with the Report is that is show no leadership or systems hence that is the Audits opinion. The first issue raised was with regard to Revenue and Receivables. It was said the Auditing General could not receive auditing evidence of Revenue and Receivables from non-exchange transactions and additionally the entity did not have proper account records. He asked whether the Compensation Fund has an Archive system or designated area where these accounting records are stored because proper accounting documents and evidence is needed for the AG to make a sufficient fact based finding.

The Former Commissioner responded that there was no record system for the Revenue side and most recording was done manually by way of filing. The only sort of recording system is that which is on the compliance management site which is an electronic version of the filing which captures information, the scanning and indexes of documents. There is also a process in place to expand this electronic version into the Revenue side.

Mr Kekana asked for clarification on what processes were in place and what had been done to ensure that all the employers were registered with the fund and also assessed in terms of the compensation for occupational Injuries and Diseases.

Mr Mkhonto replied that on the Revenue side there was a manual process that dealt with registration of employers which provides that forms be completed and handed in to the Fund for capturing and an employer number will be generated to be used in relation to their annual returns for the amounts invoiced by the employer. However since April 2012 the Fund has introduced an electronic return of earnings system whereby employers are now able to submit their annual returns electronically on the system and will receive invoices instantly and then arrangements would be made by them to pay the Fund the amount owing. Since November 2014 services of Inter Five has been procured. Inter Five was a company assisting the UIF and the South African Revenue Services(SARS) to develop the U Filing and E filing systems. This process was going ahead now and the electronic mechanism was due to launch in a month or two which will allow for the self- registration of employers and the generation of invoices, letters of good standing and the automated banking facility.

Mr Kekana said he did not seem to understand and sought further clarity on the issue. It was said the system was introduced in April 2012 but the report being dealt with is the 2013/2014 however the AG picked up that the Fund did not have those systems.

Mr Mkhonto replied that the system that was introduced was for the submission of annual returns. In the past employers used to complete the returns manually, send the forms back to the fund which will in turn capture the information into the files to generate an invoice which would be posted to the employer. This process however was time consuming and created a lot of backlogs and did not allow for revenue to be collected up front. The new facility allows for invoices to be sent out faster which would make for revenue being collected faster so that employers can deposit their money sooner. Previously the Fund was able to invoice about R1. 9 Billion Annually. The first year of introduction of the system R4.6 billion was invoiced. Currently, the Fund is invoicing to the amount of R8 to R9 Billion Annually based on the electronic system introduced in 2012. What has recently been picked up is that employers that want to register new companies are battling because the system is still manual and that’s why last year November the services of Interfile had been procured to automate the entire value chain.

Mr Kekana said he would still be interested in looking at this system mentioned because of the different story portrayed by the report. He then wanted to look at allowances and impairments as the AG could not find any evidence that the allowance and impairment figures are based on. He then asked what the situation on this was as this relates to the first question he raised about the fact that there are no proper systems in place. He added, has any corrective measure been taken to fix the situation and if so when was it implemented.

Mr Mkhonto responded that the context of the problem is historical which is derived from the manual system that was used which created backlogs in the returns of earnings. As a result the CF was not able to invoice correctly and the monies owed by employers were determined and a debt book created out of that finding. As a result of not having a proper invoicing system, when monies come in the Fund was unable to tell if the monies belong to 2012 or 2013 which in turn created uncertainty with the regards to the auditing. The other issue is that the fund has over 400 000 employers and the system does not have a proper aging analysis for it to determining what is recoverable and what is not recoverable. GRAAP required that the fund have a process in place that achieves that. At the time of this audit those systems were not there and going forward the acting CFO has to ensure that an overhaul of the revenue system takes place so that it can start over from scratch. The CFO was instructed last year and he approached National Treasury (NT) that the fund has a challenge that is not able to be resolved easily and asked what is available to the fund so that it can start on a clean slate. The National Treasury responded in that meeting that the fund needs to give them assurance that proper policies and systems are in place to account going forward before Treasury could entertain the possible write-offs of the past. This is the process the CFO was working of before his suspension.

Mr Kekana said this would have been his follow up question as to whether the CFO approached National Treasury and if not the acting CFO will have to. However this does not give him confidence that the fund is dealing with the issue. He asked whether National Treasury was provided with the assurance needed.

Mr Mkhonto responded that he has to be “honest” and said the reason why the Fund had to come back from the NT because of him and the suspended CFO could not provide them with the required assurance. To give context to the situation, the fund is trying to move away from accrual to cash accounting just like SARS and the UIF. This is because the accrual system is very difficult to manage as it requires a lot of GRAAP interpretations amongst other things therefore a move towards a cash basis is sought. Additionally, because there are challenges with the AG that are historical, it was then said impairment was a possible write off that can be done that may not be recovered. The CF is sitting with a debt book of around 8 Billion. In order for the NT to approve write offs it first has to be established if there are guarantees that the monies are in fact not recoverable and how much can be recovered and when. Those are the things the Fund need to satisfy the NT with before they could consider allowing the Fund to move towards a cash based system for accounting of revenue.

Mr Kekana then said the answer that was furnished was very political and that the question posed was very simple. He reiterated the question as to whether the NT was provided with the requisite assurance.

Mr Mkhonto responded that he did not provide the required assurance and that has been the mandate given to the acting CFO to go and do that.

Mr Kekana said if that was the case then the DG will need to come and assist in answering the question of when the situation will be remedied.

Mr Lamati replied that all the interventions taking place at the CF and more specifically on the issue raised, the NT would have been interacted with and dealt with by the end of July. He said he has had a conversation with the Accounting General to provide some support to the CF because largely the problems are as a result of ‘weak financial abilities at the CF”. As a result, the DG and the Accountant Generals Office will be working on providing the necessary financial capabilities to the CF.

Mr Kekana said he appreciates the fact that there are time lines in place so that the CF can be measured. He then wanted to touch on the benefits paid and asked what tools was used to determine the claims paid for the current and previous financial years as the AG was unable to determine any adjustments required as to any benefits paid which was stated at 2.2 Billion for 2014 and 1.9 Billion for 2013.

Mr Mkhonto replied that there are two systems that were used in the financial year of 2013/14 which was the E-Claims and the Integrated Claims Management System (ICM) and the SAP financial system was used for payment. The three systems are not integrated, what transpired was that claims would be paid using the E Claims system and also the ICM system and all go through the SAP Financial system for payment. What the AG picked up was that there were no proper reconciliations done in order to account for the monies the financial system has paid out. An example was give of claims being approved and dispensed for 1 Million via the ICM system and the SAP financial system would pay out 900 000. There was then a surplus of 100 000, that may have been a result of insufficient banking details by the service provider. The ICM would hold that a claim for 1 Million had been paid out but the SAP Financial system would hold that only 900 000 had been paid. This differential between the two is what the AG referred to as not having the proper reconciliations to account for those differences and to provide the AG with sufficient detail of the amounts reflected in the financials as paid. This is a result of the two systems not talking to each other.

Mr Kekana asked whether that means that a beneficiary might be paid twice for one claim as a result of the systems not communicating with each other.

Mr Mkhonto responded that in the event where reconciliations are not done timeously that possibility could be eliminated however he does not deny that in the case where reconciliations are not done then that possibility exists.

Mr Kekana asked what has been done to reconcile the two systems.

Mr Mkhonto responded that he has identified the problem on the 1st of August 2014 and the use of a new claims management system was procured and the other two systems used before were closed. The system is integrated so what the claim system says it is paying; this would be reflected in the SAP Financial system as to what is being paid. This is because the SAP Financial system will not pay if there are discrepancies between the amounts paid. An example was given that the system forces users to reconcile before a bank run can happen. In a normal scenario one will find that the claimant will pay a service provider who does not have banking details, so when he wants to run the payment to the bank the systems will reconcile that it does not want to pay because it is lacking one person’s banking details. The user is therefore forced to reconcile on the spot so that the system is able to reverse those that were paid.

Mr Kekana then referred to page 84 of the Annual report where there is an acknowledgement from the CF that there are no internal controls. He said he appreciated the acknowledgement. He then referred the issue to be raised to the DG and said he heard him say earlier in the meeting that there is a turnaround strategy. He then asked what is being done to correct the whole situation of the CF and what the time frames of this happening are so that next time the CF is in the Committee then the same program will not be heard again.

Mr Lamati responded that there is an acknowledgement that the “CF is in a very bad situation and is a very sick patient”. These are the following steps that have been taken. The one with effect from the 1st of December we put together a task team that looks at the challenges of the CF. Firstly the idea was to look at responses to the issues raised by the AG. The objectives were then changed and it was not going to help us if we look at the issues solely raised by the DG.it was decided that the focus should be on getting the CF to a point where it can conduct its normal functions besides that what was raised by the AG. The AG’s report was used as a basis for the interventions that are needed to be made at the CF. The first thing decided upon was that the management should be changed at the CF and that’s why the commissioner had been replaced however it was of the view that all the issues faced by the CF cannot be attributed to a single person as the leadership should take collective blame for that. It was found that the CF does not have the necessary skills and human resources to do the work.

Mr Kekana asked whether there was an effective risk management

Mr Lamati responded in the affirmative and said there is an effective risk management unit and is most probably the strongest unit in the CF.

Mr Kekana then asked the DG to refer to page 84 of the Annual Report and asked him specifically to read the last sentence on risk management as “it is very clear that the CF does not have a very good risk management unit but the DG is saying that it is very good”.

Mr Lamati responded that in the year in question the CF did not have an effective Risk Management Unit but since then it has.

Mr Kekana asked whether the DG is monitoring that.

Mr Lamati responded that yes he is and of the changes being made at the CF it has been decided that the Risk Management Unit will not be changed because of the work it has done thus far.

Mr Kekana said the difficulty with the responses he is receiving now is that the DG is saying that there are already mechanisms that have been put in place. He then said what the Chairperson was saying was correct as to what the purpose was of all the questions posed. What needs to be done is based on the responses received from the CF the Chairperson will have to rule on that, that the CF will have to provide a plan to rectify on all the issues. It is good to say that there are these issues but when interrogation of the plans take place one will find that there is a different situation all together. He said he is saying this because that the CF promised SCOPA that a turnaround strategy would be created and unfortunately after one goes through the report the situation is still the same. He respected what was said earlier on the fact that the whole management had been overhauled and have a new management team and that there is a possibility that most of the issues indicated here can be corrected however; let’s also look at the fraud and corruption unit which is also on page 84 of the Annual Report. He then asked for a view in terms of the cases dealt with, whether there a list of reported cases and there outcomes. In addition, what had been done about the irregularities that have been discovered as reported by members of the Committee?

Mr Mkhonto responded that when the unit when it started had 56 reported cases of fraud to the tune of 2.89 Million that were being investigated. In the year of 2012/2013 it also had around 56 reported cases to the value of 2 Million. It must be indicated that the number of cases the unit finalized by the end of 2013/2014 were 55. In other words there were 112 reported cases and there were 55 cases dealt with to the tune of 3.81 Million. He also indicated that the cases referred to by the Court in that year two cases were referred to the magistrates court to the value of 2.1 million and the other to the value of 476 000. There were also two cases referred to the commercials crime court which were 479 000 and the last appearance of the other was on the 13 May 2015. In total 58 cases have been finalized to the amount of 4. 6 Million and have been able to dismiss three staff member, one not found guilty, two were given warnings and suspension without pay and one was found guilty and the report of which is waited upon and the DG before the meeting said the outcome was a dismissal. There are cases numbers that can be made available at the member’s request.

Mr Kekana said the Committee will definitely need the case numbers of each case, the transgression, and the outcomes thereof and how it was dealt with by the CF. He then referred to an issue raised by a Committee Member, Mr M Booi (ANC) when a question was posed as to what the Department is doing in terms of all the issues that have been raised. Perhaps it needs to be determined by the Chairperson as to whether the committee should proceed but the CF should be given an opportunity to represent itself.

Mr R Lees (DA) said he did not know where to start but said he will start with the now former commissioner. He then said every single figure in the last report was wrong and he does not know how that is possible. He is of the understanding that the Minister has taken drastic action now on the management of the commission. He would have thought that the former commissioner would have given up already and say that he cannot fix the situation. There was also a concern that there was a redeployment of personal instead of dismissals and perhaps that is an issue to be dealt with by the DG and the Minister. He questioned how it is possible to get all the figures wrong. Everything was his report as he was as he was the Accounting Officer and is sadden that the Acting DG is not present as because he gives fine and sufficient reports that have generally have no problems.

Mr Mkhonto responded that this is an indictment on him as he discovered this when the AG gave the CF a preliminary report. On the 31st of May the report was handed to the AG and this report was submitted by the CFO. It was only after it was submitted when the AG made it clear to him that the CFO did not do quality control on the financials, and said it was a “cut and paste” from the 2012/2013 financial year. He said he himself however tried to intervene to correct the situation but the AG was not able to accept his intervention. In terms of the Public Finance Management Act (PFMA) provides that what one gives to the AG on the 31st must be a draft report that they must audit and this was audited. In order to minimize impact; some of the figures have been placed in brackets. Subsequently the former commissioner did an investigation to determine who was responsible for this and the suspended CFO was found to be responsible and this was one of the charges put against him.

Mr Lees referred the commissioner to page 114 of the AP and said he reported that the disciplinary cases have been running well but if one looks at the report then it shows that staff turnover is very low and there were 4 dismissals out of 71 cases the committee was dealing with and it reads on page 114 that “the commissioner did not hold management accountable for poor service delivery and poor audit outcomes” “this resulted in in no improvement in key controls. . .” The reason why the staff turnover is so low is because it is a very comfortable place to work as there are no consequences and said to the Minister and the DG that he is trying to emphasize the point that there is a lack of real consequences for the top management and if staff are simply redeployed as a result of wrong doings then what is that telling the rest of the staff compliment and asked if he is painting the correct picture by saying that.

The DG responded that in the last appearance by the Department of Labour to the SCOPA Committee and the Minister said some issues would be raised with the SIU and as a result thereof there is now an investigation underway. He said the he has tried not to preempt the outcome of the investigation so the outcome is now awaited upon and this would probably not be the last intervention conducted by the Minister and the DG.

Mr Lees said he gets what the DG is saying but what the DG is talking about is fraud and corruption and the SIU would presumably be investigating fraud, corruption and or other illegal activities. Surely there should be a case based simply on a lack of poor performance irrespective of what may come out of the SIU investigation.

The DG responded that what he had tried to do and what message he had tried to convey to the general staff and management was that incompetence was not going to be tolerated. If one is given an opportunity to do work then the responsibility that goes with it must be taken seriously” if we were to take any other drastic steps it would require us to dismiss everyone who is there at the compensation Fund” and does not think that if that would be done that it would help the cause and turn around the CF situation. It was decided that what would be best at this stage would be to remove management and agreed that they were” comfortable” where they were and it was thought that by removing them would take them out of their comfort zones and give them different responsibilities they would realize that with their new responsibilities they will have to do their best and if they do not do so then there will be consequences. The message being sent and what was said yesterday is that those who do not do their work their days are numbered at the CF. Any lack of performance or not accepting their responsibilities will be taken very seriously as that is not doing justice to the people that should be being served.

Mr Lees asked for a description and background of what the role of the Board is. A million Rand had recently been spent on Advisories of Boards and emoluments, there were 3 meetings in the year mentioned and that cost over R500 000. He more specifically asked what the role of this advisory board is given the very serious situation the CF is faced with, are they needed or are they completely ineffective.

The DG responded that the role of the advisory board is to advise the Minister on policy related matters insofar as the CF is concerned. Also, because they are not an executive board they do not interfere with the day to day running’s of the CF. As to the number of meetings held, the Commissioner and the Chairperson of the Board is present today and are able to respond. As to the Board being “ineffective” there are a number of reasons why a board could be rendered ineffective but the DG was interrupted as he said this type of board should most likely not have direct impact on the Committee.

Mr Lees accepted that but still asked for an answer to the number of Board meetings and the cost thereof which has an direct impact on the Committee whether or not it was effective or not. He then said he would get back to that. He then referred to page 92 and said it was a very negative report. He then posed a question to the Audit Committee that it is all very good and well to report negatively but what action was taken during the year to try in fix the issues that were clearly not being dealt with and was the matter escalated to Ministerial or Presidential level.

Ms Rachel Kalidass, the Auditing Committee Chairperson responded that the Audit Committee(AC) had been very firm and assertive and should be noted that they stepped in as an Audit Committee from October of that year and in May did not receive any financial statements timeously and again in July. The AC expressed their disappointment and dissatisfaction and realized that management did not have the technical financial capacity to be able to prepare accurate financial and informational reports. For that reason the AC recommended to the Commissioner and management that a firm of chartered accountants be brought on board to build internal capacity internally and for the past financial year till May 2015 the consultants were able to support management that financial statements were prepared and submitted on time, so there has been momentum, it’s just that it has taken a bit long but there are now regular meetings with the DG to discuss the concerns, recommendations and corrective actions going forward. The AC believes that the recommendations tabled by the DG takes into account the recommendations the AC had made to him as well.

Mr Lees said he is not sure whether he should go into the technical details but he would like for her to guide him, for instance the CF paid an amount around 500 Million in advance payments to service providers on the basis that they were facing huge legal court action claims. He then asked why that was the solution. He then added that he heard that there are many curt orders that have not been adhered to and that claimants have to go back to court to get the Commission to pay, is this true, and if so why was it done as he can understand that legal costs are expensive and it was paid to stop the legal action but does not know if that was legal and if the National Treasury should take a stance on that. He said he is keen to hear the answers but is it constructive.

Mr Mkhonto responded by giving context to the situation by saying that the payment was meant to be payment on invoice because the CF is not allowed to pay in advance for services not rendered. What transpired was the then CFO agreed with the service providers that have made the submission that they should give him a spreadsheet of the claim numbers and their amounts without supporting invoices and said he thought that was where the problem occurred. The AG wanted evidences of supporting documents as to the monies paid but unfortunately at the time the CF only had spreadsheets and not the real invoices. On the recommendation of the AG action was taken and the CFO removed and a process put in place to get the necessary supporting documents. An investigation was conducted on the recommendation of the AC and there were actions that were taken but as a result of the Ministers Intervention to refer the matter to the SIU proceedings could not happen on the consequence management of others because they were subject of the SIU investigation so it was then allowed these subjected to the SIU be held in abeyance until such a time that the SIU completes the report. It must be indicated that many of the service providers have since reconciled however it is in the case of COMSAL and NEDCARE have not yet completed the process and the SIU is busy assisting in this in order to get the service providers to produce the documents so that the amount can be reconciled completely. However, in the books, it is still recorded as monies owed to the CF. Therefore, yes, some have paid back that money and its only in those cases where we still have them but the SIU are assisting to complete the process.

Mr Lees said that was money paid out in the 2013/14 year but it is now the 2015/16 year and it still has not been reconciled and service providers are sitting with money which may not be there’s and may be tax payers money and which no interest have been paid on. He then gave an example as to why he is emphasizing this; his wife has been waiting for a claim since 2013 and she has not gone to court yet but she has not even got an acknowledgement of the claim let alone after letter after letter sent to the CF. He was flabbergasted to see that the big guys get a 500 000 payout in advance but the little guys get nothing. He went on to say that his wife’s situation is not unique as been told by doctors in his little town of Ladysmith. If one does not go through some kind of a queue walker then one is not likely to get their money and said his doctor is reluctant to take on any cases which concerns claims from the compensation commissioner. He then asked what the record of complying with Court orders are and is it true that court orders have been ignored, and if so then why.

Mr Mkhonto responded that there were cases where there were warrants of arrests as a result of non-compliance with court orders. A process has been done whereby all those cases have been cleared and those cases where there was no compliance the new Director is looking for those responsible so that action can be taken against them. The cases come through the State Attorney so one needs to go back to the State Attorney to determine who the State Attorney was specifically referring to in the fund.

Mr Lees said basically what you are saying is that no one in leadership deliberately refused to adhere to court orders.

The Commissioner responded quickly that it was indeed officials and has no evidence of any of his senior officials not complying. However, if it is found that any of them are involved then the same should happen to them.

Mr Lees then said he wants to deal with the issue of electronic return of earnings. He then added that he congratulates the CF for using such a facility and was very pleased to hear that the E-Filing consultants were being engaged with. The U-Filing one is very unfriendly but the CF one is very unfriendly. It is relatively simple but very unfriendly as was seen when he did one himself over the weekend. He then said if he was not financially and computer literate he would even battle with it even though he only has to do one return a year. He pleaded with the DG that it has to be more user-friendly. He reiterated the compliment that the electronic system is in place and commented that strives should be made for electronic registration of employers. He then referred to the AC Chairperson’s comment on the appointment of a firm of accountants and asked who this firm was and said he is not hearing any comfort about firms in the 2014/15 year and asked the AG whether it will be any better than in the previous year. These big firms generally do great work but charge exorbitant and often an immoral amount in fees. He asked how effective it has been in the year that has just finished.

The AC Chairperson responded that there were delays within the Organization in terms of the appointment of the firm so the firm was only appointed on the 7th of May this financial year. They have thus been appointed now for a period of only three weeks and have been able to provide financial statements with the information provided to them. We have recommended that they “focus on quick wins” and qualification items that can be removed in this financial year as the long term qualification items might take a period of two to three years. The firm appointed is a medium sized firm so there over head structure is substantially more reasonable so their fees are being managed. The AC is also very firm on the capacity building and skills transfer to management to ensure that there is actually capacity being built whilst the consultants are being phased off in the next year.

Mr Lees responded that he was distressed to hear that they were only appointed three weeks ago. He then said in the report it reads that “subsequent to the year end a firm of accountants had been appointed“. He then said the AC said they were only appointed three weeks ago and sought clarity on this.

Ms Kalidass replied that when this report was written there was another firm that was appointed and that was one of the reasons behind the suspension of the CFO. The firm appointed at the time unfortunately did not yield the desired results, there was no tangible progress and there was a fallout between CFO at the time and the Consultants who then resigned in December of last year. Therefore, because of the vacuum and backlog created by the removal of the firm, a second team of consultants had been appointed in May this year.

Mr Lees responded by asking the DG whether the cost of the failed appointment now becomes wasteful expenditure

The DG responded by saying that in a way it becomes wasteful expenditure and that was one of the reasons the CFO was suspended.

Mr Lees then said he appreciates the DG’s straightforwardness and said he cannot speak the same of other DG’s that have come before the Committee previously. He then said he had a bad experience with the call center over a long time and tried to test it on his way to the meeting this morning as he left from his office and was never answered. We cannot operate like that and said there is room to privatize some of the functions of the fund. He then made the example of ParMed, the medical aid for MP’s and said State Officials are not trusted with that and therefore it is given to MedScheme to administer in his opinion. He then suggested that going forward one should instead of bringing in expensive consultants who do not work and do not transfer skills as it just does not seem to work. This has been a cry by members since he became a Member of Parliament in 2009 and yet there are service providers who successfully administer funds similarly. He then urged the Committee to look into that.

The Chairperson then asked for any follow up questions from the Committee.

Mr M Hlengwa (IFP) apologized for arriving late and said his flight from Durban was delayed and the weather did not assist. He then said he had a number of questions. He began by saying that he is not a fan of consultants as when consultants are brought in the people who were supposed to be doing the jobs are still getting paid month to month. As far as he is concerned consultants are there to do the work in which there is not sufficient experience, skills, expertise or capacity. However we are seated with people who are earning a salary every month and then it is decided that because it is the taxpayers money (because it would not be done if it was a business) then let’s just keep those people in their comfort zones and will get someone else to do their job. That is not fair and we create a culture whereby consultants are continually needed and a liaise affair. His second point referred to was what the former commissioner spoke about the mistakes being picked up by the AG. He said he was inclined to believe that if the AG was not there then the mistakes would not have been picked. Again this goes back to what people are doing on a day to day basis and asked why these mistakes must be picked up at the very end of the process when they should be assessed on a monthly or quarterly basis. There is now a situation whereby an entire report is based on a problem and with all due respect all of this should not fall on the shoulders of the suspended CFO. Who signed off on the submission to the AG, someone somewhere is not doing their job and then the situation gets mitigated by getting in consultants. We really need arrive at a situation where we understand that the people in the respective positions are actually qualified enough and have got the capabilities to do the work so that taxpayers monies are not wasted on consultants who are not brought in to do fix the situation but to make a profit.

The Chairperson said he wants responses to the issues that had just been raised as if they were considered as comments then the Committee will be doing all the talking and not the CF.

Mr Lamati responded that on the issue of consultants the Departments view is that it does not want the CF to be run by consultants. We are in a process of phasing the consultant’s contracts out as key competencies are built in the CF such as the financials and medical claims amongst others. Even in the ICT space the internal capacity will be built and there will not be any reliance on consultants. He assured the Committee of that .The former Commissioner was then asked respond to the second part of the question raised.

Mr Mkhonto responded that he accepted that senior authority be held accountable for all the challenges however financial number are a technical space and one relies on the numbers one expects to get. He then said he only became aware of the numbers after the AG came before the AC and explained that the numbers on the report are not tying in with the numbers on the financial statement that was given to the AG.

The Chairperson asked whether the financial statements before it was given to the AG passed through the AC and questioned if it was checked.

Mr Mkhonto responded that they do go through the Audit Committee and what goes through the AC is the Financial Report which includes the financial position and cash flows. After that has passed through then what will be sent to the DG is that that had be approved by the AC.

The Chairperson asked what the Auditing Committee does and checks for when it passes through it as when it gets to the DG mistakes are picked up.

Ms Kalidass said if one looks at the Auditing Committees Report that was presented the AC did not approve the financial statements received and detected a number or errors and mistakes that were so materially flawed that needed to be reviewed in detail. As a result thereof it was not approved in May and July which was the report that the AC referred to the Auditor- General as well. When the AG received the Financials it had the AC disclaimer not approving them.

The Chairperson asked the Commissioner whether the corrections found were corrected or not.

Mr Mkhonto responded that he was of the opinion that corrections were made but not correctly made and when the financial was submitted then only was it brought to his attention.

The Chairperson sought clarity as he asked whether the mistakes found was brought to his attention after the AC dealt with it before it went to the AG.

Mr Mkhonto responded that he sits in the AC and the Committee were not able to say what a particular number means but rather asked questions on the financials then on the basis of the answers they get then they made a conclusion that they cannot rely on this.

Mr Hlengwa referred to his question raised about the lack of assessments being done monthly or quarterly and said he refuses to believe that and if that is the case then the system is entirely wrong as all of the flaws are being picked up at the end of the process and this is totally unacceptable. He added that when mistakes are brought forward in good faith by the AC then it by the very least have had alerted somebody that something was wrong and should have been corrected. He said he cannot on the surface of it accept this response as it speaks to a lack of due process through an entire year. He then asked what is being done during the entire year.

Ms T Chiloene (ANC) again asked her first question to the AC based on the response of the AC earlier that they will not be mentioning the name of the failed consultant firm. She added that it would be helpful and of the assistance to the Committee if the name of the consultant if provided as it can then be checked as the Committee deals with many Departments that have problems with consultants. Her second question was a follow up on the question raised on revenue and receivables by Mr Kekana. She said she is trying to check whether the records which did not permit the application of the alternative auditing procedures regarding the revenue and receivables because it was something that was raised by the AG in the previous year’s Committee meeting. The figures have gone up in terms of the revenue from the non-exchange which has escalated to 8.1 Million from 7.1 in the previous year. The other one of the non-exchange is now 1.4 Million. She said the CFO that was suspended does not work alone and asked the Commissioner whether he remembers them having the discussion where he promised that a turnaround would be made and that he would submit quarterly reports but taking from what he was just saying, then after the conclusion of the meeting the books were completely thrown away and then to come and say that structures are being put in place after it was found that the CF was to come forward to the Committee, this was not convincing to her. She then said she was not going to be able to talk today as she might have a heart attack as was seen in the last meeting. She asked who is responsible and questioned whether it was the CFO alone or other officials as well and what has happened to them.

Mr M Booi (ANC) said to the DG with all due respect to the Chairperson, he might have read the PFMA which is a guiding document on how accounting officers are to be dealt with. The DG is an accounting officer and it was interesting listening to the Former Commissioner but still as an Accounting Officer he has to take full responsibility in terms of the PFMA which provides that he remains an accounting officer. It is important that where we are seated right now that the matters be discussed with the DG as the AC was so dissatisfied when it spoke to the AG. He then referred to page 92 on the monthly/quarterly management report which provides that “the auditing committee is so dissatisfied with the content and quality of monthly reports prepared and issued by the CF during the year under review. The response of the Commissioner was very arrogant because he sits in the CF and the AC and therefore knows what is happening in the CF and that is why “it is a disaster”. It is a disaster because he cannot expect on behalf of Taxpayers to listen to him. He should understand that it is not his but the taxpayers money. The SCOPA has visited, the treasury has spoken as well and the AG is reflective of a troubled organization and even in his own words that “it is “a sick organization”. This is taxpayers money and we are celebrating 21 years on being a democratic country but the CF has gone down which the poor of the poor are not benefiting from any money here. In addition, now the Commissioner has asked the Treasury to write off 8 Billion and then he said he does not understand how in a normal mind such a decision can be got to. If 8 Billion is to be written off then it means that someone must have worked for that money and as a country it should not be allowed to be written off and asked what will happen to the people that should have benefitted from it. One has to get the law to work regardless of sincerity and the law has to be maintained, which is guided by the PFMA is quite clear that somebody guilty needs to be sought as a result of the conduct and the PFMA says to look at the Accounting Officer First which is the DG. The firing of Management officials yesterday does not resolve all problems. He then asked what has gone wrong and explain what the problem is. Even if consultants are brought it there is still no turn around so therefore what is the problem DG. Explain the 8 Billion and what the problem as there are high unemployment numbers and are saying that we should add to that.

Ms N Khunou (ANC) apologized for arriving late and jokingly said it was because of winter problems. She asked how the suspended CFO’s mistakes been rectified. She also said she had an issue with the consultants as the report indicates that employee bonuses have increased by 70% since the previous year. She then supported Ms Chiloane’s request that the Committee be furnished with a list of consultants and when their contracts were concluded and are set to expire as the DG earlier said the consultants were to be phased out. She asked for assurance that those consultants will not be used again. She then asked how communication takes place between the DG and the AC and asked how often they meet or communicate. The role should be that of advising and assisting each other because both are there on compensation from government through taxpayer’s money.

The Chairperson then said responses would be taken before taking more follow up questions.

Mr Lamati responded that the issue related to the AC’s dissatisfaction with the Quarterly reports he thinks, it is something that the Chairperson will be paying special attention to. In the 2015/26 financial year for instance it has been made a point to change the Strategy and Annual Performance plans to reflect the work the compensation fund is supposed to do. In the past year of 2013/14 one would have notice that 95% of the key indicators of the CF were purely based on the work that has been done by the support services and only 5% reflected the work the fund was supposed to do. In the 2015/16 financial year the performance will be based on the mandate of the CF. He then said this is something he will be monitoring whilst working with the AC and the CF. He then responded to the question, to which he then referred to as the “8 Billion saga” . He then said he thinks that the former commissioner earlier on explained that they were supposed to go back to National Treasury and explain to them that of this 8 Billion, what portion could be recovered and this was the exercise the CF did not do. He then undertook that after leaving the meeting today that this exercise will be by the CF because it needs to be determined what constitutes the 8 Billion and will then come back and provide answers to the Committee. He then agreed with Mr M Booi’s comment that the situation does not look good and should not be seen to be wasting government monies especially monies that are supposed to be benefiting the workers. It should be strived towards that the Fund be managed in such a way in which it is correct and in line with the PFMA. The matter will be looked into and feedback will be provided to the Committee. He then responded as to what is happening at the fund, he said in the last 6 months since being appointed the DG, he had picked up from the general operating environment that management and general employees do not generally work together especially at the CF which is at an all-time low in that regard. This could be attributed to a number of things, firstly when something new is to be tried then change management needs to take place. As top-management of the Department it has been agreed that not much change management was done to take staff along and explain to them the need for the changes. An example of this is the issue of the IT System and everyone agrees that there is a need for the services and processes to be automated but staff in general have been saying that they have not been taken on board and therefore they do not fully understand how they system works, and the DG confessed that it is true. The Second point is that there is a resistance amongst some of the employees to embrace change. It has been said “the CF has been a leaking tap” for some time and when one closes a leaking tap then it will impact on the people benefiting from the leak and therefore will do whatever they can to derail one in making any changes that are attempted to be taken effect of in the CF.

The Chairperson said it may be because he had only been appointed recently and had then stepped into a new environment and tried to effect change that there would in turn naturally be some sort of a resistance by the employees where someone coming from the outside in is trying to effect change. The fact that the employees have been there all along would certainly mitigate vis-a- vis if one had just been there for six months and stepping into a new unknown environment .

Mr Lamati responded that yes under normal circumstances one is dealing with an issue of culture here which is entrenched within the organization as to how things are done and if one introduces something new which changes the way in which things are done then and where the resisters were deriving benefits from the old ways of doing things then it does not matter who introduces this change albeit a new or old person. It should be remembered that the CF’s processes were largely manually done so it was easy for someone that stays near could walk to the CF with the respective claims and go to someone who one knows there and that person will process the claims. There are some people like Mr Lees’s wife that have been waiting in the queue for a long time for services. Therefore when one brings in a system that seeks to balance and equalize the scales so that anybody anywhere can receive the same treatments. This was the tap referred to earlier and the closing of it. It is not only the people in the CF but also third party service providers that are saying that the system being introduced is not helping them. There is a huge challenge in changing the culture at the CF. He then responded to the question regarding the whether the CFO’s wrongs have been corrected that it would not assist in dealing with the funds that had been misappropriated and said the CFO had come under a list of allegations. Coupled with the fact that when the suspended CFO was brought into the CF it was of the belief that the CF were bringing in a person that was competent and had the requisite skills to build financial capabilities of the CF. This is now the task of the Acting Commissioner and the DG. When the suspended CFO was brought in then he himself brought in two or three service providers to assist him which in turn turned out to be a disaster as this alienated staff at the CF and it was the objective that skills be transferred to finance officials but skills were certainly not transferred. That is why we do not necessarily have to rely on consultants to do the work instead work has to be done to build the competencies at the CF and that is the task the Acting Commissioner and the DG themselves have. On the issue of giving bonuses to employees, this is an area whereby it has been decided that the performance level of the CF needs to be looked at and the number of people receiving bonuses should be a reflection of how that particular person performs and this is the message that has now been sent to corporate services people and down the line functions that it does not necessarily help to be nice to somebody and not want to interrogate the performance of an individual. It is believed that this was largely as a result of the subjective nature of applying the processes where instead of looking at actual work done individuals are looked at. He then said he was certain that going forward that this matter would be addressed. In speaking to the compensation it was mentioned that nobody will get a bonus if that person does not deserve it. A list of the contracts of the consultants and the details of the date it was entered into and its expiry will be provided to the Committee. He then securely said there contracts are not likely to be renewed but a determination will be made for certain areas where the CF is very weak then one consultant will be brought in in order to build the key competencies in specific areas. However, the reliance that on the consultants is not something that will be taken going forward. He was of the belief that the management has to interact with the AC on a regular basis and said the oversight committees play a very critical role and their advice is key as they are there to point out to management that internal controls in a specific area not is not as strong as it should be. The AC’s recommendations should not even be debated and these recommendations should be implemented. It should not be the responsibility of the AG to pick up on the mistakes but rather the management and that’s why there is now the idea that focus should not be on pleasing the AG but rather focus on determining the root causes of the problems and do the basic things right. He said if this is done then there should be a turn around with the CF but he cannot promise the Committee that yet. What will be focused on will be the key fundamentals.

Ms Kallidas responded on the names of the consultants and said in 2014 the first lot of consultants appointed was a consortium of Konana and Mazars which entered the organization around May 2014 and by the end of December last year they resigned as a result of the pressure on their lack of performance and not yielding the desired results. The second lot of Consultants appointed was SA BMT. She said she agreed with the members concerns on the appointing of consultants and said the appointing of consultants was a last resort and the Organization could unfortunately not prepare financial statement internally as a result of the lack of technical capacity and not receiving accurate information. While one does not desire to have consultants running the Finance Unit one still has to be honest about the lack of technical capacity of the finance unit.

Ms Kalilidas confirmed that they had “warm bodies” in the finance unit but said a skills audit needs to be conducted in order to match the personnel with the skills and competencies on the other side. On the one side there is a fully fledged unit but the output needs to be in relation to the skills and capacities for example GRAAP requires a lot of technical interpretations. No results and delivery was seen during the course of the year and appointing consultants was a last resort in order to get to the Organization to deliver financial statements and be able to meet the PFMA requirements in terms of submissions.

The Chairperson then asked who these “warm bodies” were and what ware they paid to do.

Ms Kallidas responded that the DG spoke on that earlier and said there has been a drive towards performance management.

The Chairperson then more specifically asked what the warm bodies are doing on a day to day practical basis. He then gave other members a chance to pose questions

Mr Hlengwa said he is shocked to hear that those people are referred to as “warm bodies” he asked how these warm bodies get employed to begin with and this shows that something is seriously wrong with the recruitment process and he believed that is where the problem lies.

Mr Booi said he senses that the DG will not be here in the next round given the state of the CF when one considers that the DG has talked about culture, alienation and pleasing. The AG does not want to be pleased as they have a legal and constitutional obligation to investigate the situation. He then said the point he was trying to make is that SCOPA has visited the Institution and there are only two ways in which the CF can be helped. This is through question and interrogation and finding a solution to the problems. He then referred to the statement made on culture and said in other words what the DG is saying as that every one of the CF delegation seated today are “lazy and do not care about their work”. He then added that how does one explain this type of situation to the public when the Members are canvassing for their respective parties. He then asked what does the DG expect Parliament to do in the CF strategy Plan and how long will it take. He then said there is an advantage in having a competent advisory committee but it is a disadvantage if they are just walking around. He then asked how the Organogram works so that a solution can be found.

Ms Khunou referred to a statement made earlier by the SCOPA members that there should be consequences for the wrong doings and she said she was very excited to hear that the CFO is suspended. She then added that the CFO’s pension should be taken and used to rectify the mistakes. It was then recommended that the service providers the CFO brought in be terminated immediately. Employees of government should also not be called warm bodies as when one is an employee of government one needs to come in to work and do what one is paid to do. She then recommended that the Internal Auditing and the AG come together and communicate on a quarterly basis on what has been done. This is not the first time SCOPA has given recommendation on the CF and the things have not been rectified which in turn showed that the recommendations made were not considered. Even though the DG is under pressure he still needs to listen to himself whilst presenting as one cannot say that the 8 Billion will be checked on then come back to the committee, this shows that he does not know what he is dealing with and answering to. We cannot repeat the same things and expect different outcomes and said changes will need to be seen by the next time next year the CF comes before SCOPA.

Mr Kekana specifically spoke to the DG and said he needed the following, there is a list of transgressions that was requested and in this list it also adds that which is on page 113 on procurement and contract management in the Annual Report. If one looks at the contract and procurement management which is the supply chain management there are serious transgressions there. He then requested a detailed list of each and every transgression listed there. One can infer from hearing from the DG that he believes that there is no Department. It can also be said there is no leadership at the CF. Perhaps the statement made by the DG that everyone in the CF needs to be fired in order for things to change should be considered and an overhaul undertook. The creation of an action plan should be considered as it is obvious that a turnaround strategy is not going to bear any fruits as has been seen before. This action plan should have time frames so that SCOPA can measure the performance on correcting the issues that was promised. He then said he appreciated that he is honest and sought assistance in dealing with the issues but equally so a promise was made to resolve the issues so therefore an action plan needs to be considered and then measure on that basis.

The Chairperson then said he wanted members to ask questions instead of making comments.

Mr Booi then said the situation is so slippery and disastrous that it does cause a problem. The DG said he as a turnaround strategy. He then focused on the Former Commissioner. He said he needs to be very careful in what he does and can see that mathematics and calculation is not his strong point. Page 164 of the Annual Report which concerned wasteful expenditure was then referred to. 71 cases are shown in the report but the figure raised by the Commissioner earlier that it was around 50 cases does not come near to that amount and one now questions whether he is telling the truth. He is misleading parliament and when that is done the law is violated so in turn the culture the DG spoke about encompasses the former commissioner as well and he needs to be dealt with first. He then asked for an explanation on the differences between the numbers and asked which set of numbers are reflective of the true number of cases. He then asked whether the Konana and Mazars consultancy firms could come to SCOPA so that they can convey what the state of things is as these firms might have a different version.

The Chairperson then referred the DG to look at the last paragraph on fruitless and wasteful expenditure on page 164 of the Annual Report and said he is not computer literate but it is called “cut and paste”. This is not a good reflection and is very wrong.

Mr Mkhonto responded to the question on revenue in the prior years and said it is because of the masses that are used that has put the CF in the situation where revenue cannot be fully accounted for completely. It has also been indicated that the manner in which is required by GRAAP, there was not sufficient capacity to be compliant with it. There were also attempts to get National Treasury to assist and to get exempted from the requirements of GRAAP. One of the attempts to get exempted from GRAAP requirements was to try to get on to a cash basis of accounting however it will require for National Treasury to approve that first. However for the National Treasury to approve this assurance must be given to them that systems and measure have been put in place.

The Chairperson asked if the requisite assurance was given.

Mr Mkhonto admitted that sufficient assurance was not given.

Ms Chiloane then asked for clear indication in terms of moving forward whether the CF will still be trying to give National Treasury the requisite assurance and in the absence of that assurance what is it going to be done in light of the Audit opinion and so that this issue does not come back again and so that things can move forward beyond this as an entity.

Mr Lamati responded that discussions have taken place with the AG and in light of the Audit opinion the status the audit findings are unlikely to change. The AG is liked as it is helping the CF to come out of the mess it finds itself in; therefore work is being done very closely with AG. The point that is trying to be made is that if one wants to correct on the issues the AG has picked up on then the focus should not be on AG but rather to do the basic things correctly. AG could then say that they are happy the internal controls have been looked at and that the basic aspects have been done rightly. In essence the Audit Findings probably will not change but hard work is being done to do the basic things right. There are a lot of employees of the CF that are caring, in fact a few days ago a number of emails were received saying that many employees were doing their work excellently in assisting the public. This shows that there are certain employees in certain areas that are doing excellent work. The level where serious problems are arising from is the top management where there is not a lot of monitoring and quality assurance taking place and that is admitted. Very hard work is being done to change the fortunes of the CF. He then asked SCOPA if an opportunity can be given to come up with an action plan considering all the challenges raised and not raised. A period of three of six months was asked for to address the basic challenges that are faced at the CF. In the plan it will indicate what the short term and long term interventions to be made and when the issues are to be resolved. The Chairperson can decide when the plan is to be submitted but a period of 6 months is asked for as to deal with a whole range of issues that are unlikely to be resolved in a shorter period than that. An example is the skills within the finance environment and the skills audit has been engaged with to determine who there is at the CF and whether these people are correctly placed and if these people are then do these people have the required competencies and skills to be where they are. Exercises are currently underway and hopefully it will be finalized soon because the information receivable from the exercise in making sure that people are placed correctly in the CF. He then agreed that the issue of wasteful and fruitless expenditure needs to be dealt with and in fact what has been done as a starting point is to include in the Annual Performance Plan of the entire Department especially Senior Manager two things. These two things are that there is target of 100% on compliance with financial management prescripts and a target of 100% for the eradication of irregular expenditure. This has begun with disciplinary process because as the Accounting Officer the DG himself has to condone the irregular expenditure. He then added if he were to condone this irregular expenditure then what happens to the person that caused this. This will be put in the APP and will be monitored on a regular basis so that people in positions make correct decisions so that the CF does not necessarily incur fruitless and wasteful expenditure. A list will be provided of the list of procurements of contracts, and consultants used and also a list of employees that have transgressed and their transgression, outcomes and case numbers. He then responded to the question put to the former commissioner on the fact that he was lying about the number of cases. The former commissioner comment was solely confined to the fraud cases have been dealt with. The 177 relates to the fruitless and wasteful expenditure picked up by the AG.

Ms Khunou said she would like for the DG would say something positive and changes cannot be sought if one has a negative view.

Mr Lamati responded that he was referring to the 2014/2015 year which is done and dusted and therefore will not change. The focus is now on turning the fortunes of the organization around and to make 2015/6 audit findings reflect a completely different situation at the CF. He believes strongly that the interventions made at the CF will yield positive results and come the 2015/16 one will see different results and there will be no disclaimer by the AC.

Mr Hlengwa then said the DG almost preempted SCOPA for a 6 months action plan but added that he quite frankly is not convinced because this road has been gone down before. It is said hindsight is best sight. The AG speaks to 12 actions that management committed to in correcting prior year matters and there was no movement on that. In the absence of tangible consequences and perhaps the suspension of the CFO is one of them we should actually keep individuals in their area of work accountable and if an individual is not fit for purpose and not performing and even deliberately so as to not get out of their comfort zone then “they need to walk the plank”. That is the basis of the turnaround strategy and the action plan. He then said whilst he respects the sentiments expressed by the DG that some of the employees of the CF is working well he probably cannot say the same for the Chairperson of the Audit Committee as she referred to “warm bodies” as that is the problem. Let us then arrive at a point where in action then it should be linked to the performance of a person and then deal with that particular person. This is a ripple effect in the chain of the cycle as we come here and are dealing with one or two sentences in a report and actually behind every sentence there is a long chain of things and people earning a salary who should in fact have been held accountable. This should be started by going back to the basics and that is that people must walk the plank. It seems as if the internal control and financial units are neither here or there in regards to capacity and capability and these are the people that need to be taken to task as these are the recurring problems that are coming up. The action plan can be undertaken but first one has to root out all these “warm bodies” that can be said to be dead wood and the action plan cannot be built on this.

Mr Lamati responded that the reason he was asking for a 6month action plan was exactly for what was raised by Mr Hlengwa was saying. This is a 2013/14 report that is being discussed and was not the DG at the time and it is only fair that he be given an opportunity to do his best to change the way things are done at the CF. He said he is not avoiding trying to take responsibility as he is the Accounting Officer but has done an assessment of the challenges at the CF but we are now wanting to do something to address these issues.

Ms Chiloane then referred to the Annual Report which dealt with the financial statements and said she highlighted a few points even though they are all important. She then specifically referred to the expenditure and the “Reversals of assessments, interest and penalties” which amounted to R586 million. She then pointed to the Consulting and professional fee of R646 Million, Public Private Partnership (PPP) which is R150 Million and the interest on late capitalization of pension. She then asked for an explanation on the figures highlighted.

Mr Pitsi Moloto, the Acting CFO of the Compensation Fund then responded to the question on the reversals of assessments, interests and penalties. He gave context to it by saying that normally what happens is that the systems were usually manual based and employers would come in and say that the assessment was done incorrectly and would ask for an assessment to be done considering the year under review. Then the interest and penalties of the employer would then have to be reversed. What is had on paper is reversed then the employer is reassessed then based on the new assessment then the residue will have to be paid.

The Chairperson asked whether the initial assessment is always wrong.

The Acting CFO of the Compensation Fund responded that the assessments are not always wrong. With regard to the consultants fees this is the money that were paid to them and in the year in review there was a debt collector which constituted almost 70% of the said amount. The contract of the debt collector has since expired and has not been renewed. The PPP is a fund that the CF had that was for services provided by the service provider on the ICT side for the Department of Labour, CF and the UIF. The R150 Million was budgeted for and R8 Million has been used as the contract of the Debt Collector had expired in that year. The interest on late capitalization is what can be referred to as an opportunity cost.

The Chairperson then asked if the PPP is “Simmons”. He then said this Simmons thing had put the government in a deep situation as it had been there for over ten years and has borne no results and it was something that only consumed money. Perhaps it should be seen as a fruitless and wasteful expenditure as the Committee is unaware as to how things were resolved since Simmons contract expired. The last time there was ongoing legal battle as to whether their employees are absorbed and the last time the CF was here there were still disputes regarding the legalities thereof.

The Acting CFO of the Compensation Fund continued his response by saying that with regard to the late capitalization this is the amount that the Fund charged itself on the late capitalization of pensioners. If a person gets more than 31% of an injury then the money will be capitalized to pay them for their natural lives or their spouses and children. What happened then was to say that the Fund has to be charged 1% to factor in the fact that this was captured a bit late. It is now the decision of the CF that this is not going to be charged going forward and there will be no column for interest charged on late capitalization.

Mr Lamati then responded on the Simmons Issue. What is seen in the table is the portion of the CF contribution to the unitary fee that was being paid to Simmons as a part of the PPP. This constitutes one third of the unitary fee. There is the UIF, CF and the Department of Labour. The issue regarding the absorption of employees has been resolved and had absorbed around 98 people from the EOH. Simmons ceded the contract to EOH and when the contract expired the staff was absorbed to strengthen the internal capacity.

Ms Chiloane said she remembers that the Debt collectors mentioned were not doing their work. She then asked how work was done with them after finding out that they were not doing their work as when one looks at the report the money lost as a result is quite substantive.

Mr Mkhonto responded that the contract was signed with a company called Niks and what was thought best in terms of the monies that were paid was around R227 Million versus the recovery they have claimed which was 10% which amounted to R2.27 Million.

The Chairperson politely interrupted by saying that it is almost as if there is no proof of the claim. He then asked if the said company comes with a claim then is it possible to confirm that the monies are in the account.

Mr Mkhonto responded that yes there is a process used in order to accept the order and pay.

The Chairperson asked what this process was. Logically, one should be able to confirm that the monies have been collected.

Mr Mkhonto agreed and said it was dealt with by the Finance unit and they would submit what actions they have done with specific debtors and the amounts that were paid as a result of these actions and then 10% of that effort would be calculated. Subsequent to that there was a dispute with regard to the contract extension and claims made. The State Attorney was then brought in to interpret the contract and extension of it and the initial advisement was that the CF should comply. A second opinion from the State Attorney was then sought indicated that the CF should not comply with the extension.

The Chairperson asked if the State Attorney gave a conflicting opinion.

Mr Mkhonto responded that it was from the same service provider; the CEDA council. It was then agreed that termination would take place. On the action of termination there was litigation and arbitration where the first round was lost. It was then advised that an application be made to the High Court to challenge the arbitration outcome which subsequently the CEDA Council withdrew from the matter. The state Attorney appointed another Attorney and the matter is still ongoing as we speak. The CEDA Council advised that it would be academic to go to Court and to challenge the arbitration outcome as there were no affidavits to contest as some official responsible for the contract refused to sign the affidavit. There is now a thorough investigation on this and the outcome received will be discussed with the DG. However, currently the CEDA council has said the CF should proceed as he foresees a way of getting out of that predicament without the CF having to incur additional costs.

Mr Booi referred to the Annual Report and said there was an expense of a venue to the amount of R2 Million and which is considered to be an operational expense. He then asked why the expense on venues amount to so much. He then also referred to the amount spent on training and asked who is being trained. He then touched on the “other expenses” which amount to R67 Million. When talking about a turnaround strategy then it must be showed what can be accounted for as these expenses amount to a lot year on year so that we know this operational expenses that we are dealing with. He then said he agreed with the DG that the AG is confused as it is the DG’s figures. Reference was then made to page 123 and more specifically on the travel and subsistence which amounts to about R10 Million but if one goes back to page 169 then it shows that the amount is way higher. He then asked for an explanation on this difference and asked who is doing this travelling. He then said he was concerned as old ladies were phoning in at half past for this morning complaining about the CF does not want to pay. It is frustrating to hear complaints from people in rural areas then to come to this meeting with the CF and then the CF cannot provide answers on its expenditure. It is also obvious by the fact that the legal expenses have shot up which shows that the CF is at war with a lot of people. He then said if he were the DG then he would go to the Public Services Commission (PSC) and tell them to look at the Organization and the Personnel as that is their job to assist. It seems as the mechanisms used to resolve are more internal looking where if the CF instead looked for assistance from other Institutions of government such as the PSC which will in turn also save on costs that would be expended on assistance. If this is not done then there will not really be any change. The PSC has an Constitutional obligation to tell the Committee has is going on in the Organization and if the CF cannot do so then a recommendation will be sought to do so by Parliament so as to not have the same recurring problems. An example of a recurring problem is that of the lack of skills in the CF and nothing has been done to resolve it.

The Acting CFO of the Compensation Fund then responded to the question on the difference between the travel subsistence figures. On page 123 the figure provided constitute the budget for travel and subsistence which amount to R58 Million and this is what Mr Booi was referring to. The expenditure amounted to R48 Million and therefore the difference was R 10 Million. The expended amount is mainly because the CF is in the process of decentralizing staff members to the respective provinces. It was in the best interest to decentralize the functions and obviously people need to travel before functions can be decentralized. Therefore this was the reason why the figure shot up from the year 2014 to 2015. With regard to other expenses one has to keep in mind that in terms of GRAAP one there are figures that need to be disclosed and these are figures that does not have to be disclosed. An example would be the marketing and telephone would be marked under other expenses. He then said he could provide breakdown of the R67 Million and if he had to disclose very single item then the Annual Report would be over 1000 pages.

Mr Booi then said as members of Parliament the Committee has not come here today to get mislead and then asked for a breakdown of the other expenses.

The Chairperson then said when Mr Moloto said he “could provide a breakdown” that what he actually meant was that he can send it to the Committee. This was then said to be fine. The Committee Secretary was then told to record that the Committee will be sent the breakdown of the R67 Million. This needs to be done so that the Committee can be satisfied itself.

Ms Khunou then referred to page 169 and asked what constitutes the figures of employee costs and the Reimbursement of National Figures. She then said it is important when there is legislation that the Committee looks in to other legislation passed by Government to make sure that we are still in alignment. The legislation the Compensation Fund is based was passed in 1993 but as early as five years ago the Department of Health has not yet come up with the definition of “injury” and “accidents”. This is possibly the reason why employees have been fighting. She then asked if the DG has look at other legislation that has passed since 1993 so that it could help in consolidating the matter as far as injuries are concerned so that everyone is treated fairly. She then touched on the “prevention of accidents” on page 169 and asked for elaboration on the prevention of accidents.

The Acting CFO of the Compensation Fund then responded to the issue on venues and said it relates to the meetings that were had outside the Compensation Fund Offices and sometimes it is not practical to have the meetings in the CF house. On the issue of reimbursements of National Departments; as a Compensation Fund there is a portion that has to be paid on behalf of the Department of Labour and this is an arrangement that has always been there. There is the Director Generals for both the UIF and the CF so everything done for the CF by the Department of Labour has to be reimbursed to the Department of Labour for that.

The Chairperson then asked how many meetings are still to be had in relation to the use of venues as it is said the venues are used for meetings. He also asked if these meetings are the ones done by management.

The Acting CFO of the Compensation Fund then said he had not yet quantified the number of meetings and could try quantifying how many meetings management will have. It should be kept in mind that some meetings are conducted by Board Members, other meetings are held outside the CF house and some are kept in the Department of Labour. The CF also pays a percentage for the latter meetings held in the Department of Labour for space used. He then said he had all the figures and could give send a breakdown of what constitutes the R3 Million spent on venues.

The Chairperson then asked for that to be sent to the Committee. This is needed so that the Committee can get a sense because when the Committee went to the CF building and there was adequate space as there were more than 50 offices to use for meetings. If Management have to hold meetings off premises and incur expenses then that could be a problem. He then said it would be great to receive a breakdown of the meetings held by Board Members and Management and have details of where it was held and the day it was held in order to ascertain some sort of sense of it.

Mr Lamati then responded to the question on alignment and said a review of the Compensation Fund legislation has already begun. At this moment in the process the document will be sent for discussion at the clusters. The review is done because since 1994 other legislation has overtaken by many developments it in terms of how pensions are handled and things like that. The purpose of the review was to align the CF with the Department of Health and the ODMWA Fund such as when it deals with issues relating to lungs. Therefore what has been done is that the Commissioner of the ODMWA sits on the Compensation Fund Board so that whatever the CF does then there is alignment when issues are dealt with. The second point relates to integration of Orsh competencies in the Country because there has been a call to integrate all the CF competencies under one Fund. There was a process that was started by the Department of Labour and Deloise was contact and a National Policy developed. In 2009 there was an instruction that breaks must be put on the process because everything was going to be integrated under the Department of Labour. The issue of fairness of giving different rates for compensation does come up often but there has been a legal judgment passed where some employees in the mining sector were compensated less as there rates were lower than that what was set by the CF. This shows that there has been discussions on integration but it also needs political involvement. Officials of the Department are ready to act on instruction to this effect by a political figure.

The Chairperson then said the Financial Unit is not performing and functioning fully in terms of the report. He then asked the Director of Internal Auditing to if the Unit is functioning or not.

Ms Boitomelo Gumbu; the Director of Internal Auditing at the CF responded that the financial unit is performing it is just that there is a slow implementation of management action as alluded to.

The Chairperson then asked if it was then the management’s non-performance and not the financial units.

Ms Gumbu then responded in the affirmative.

The Chairperson then asked the DG for a breakdown of the fruitless and wasteful expenditure and the irregular expenditure. The Committee requests details on these transactions as well as how far the investigations into it are. The last comment is on the request to develop an action plan. Of course the Committee is interested that things should not just end here and would want to walk side by side with the CF until it is out of the woods so that close eye can be kept on progress. The only concern is that it is only starting now which is very reactive. He then said it felt as if the Committee was “ambushed” and “preempted” as only yesterday there was a change of guard at the CF with the Commissioner no longer being the Commissioner. There is now a new management team so what then becomes the value of today’s engagement as there are new people starting on a clean slate. However, be that as it may the management that has shifted is still part of the CF. he then allowed for the action plan and said it should not take longer than a month to create and should have time frames as to when certain issues are to be resolved by. A major measuring of this will then take place in December. The Committee Secretary was told to capture this. He then looked at the Audit Committee report and found that it read “the Audit Committee remains a concerned on the implementation of management actions to address audit findings”, this confirmed what Ms Gumbu said. It seems as if the problem lies with the management staff as they were not effective and efficient enough in doing its monitoring work. This should be left to the action plan which will then be the road map of how things will go about moving forward. He then asked by when it can be expected to have a new Commissioner.

Mr Lamati responded by saying that it is hoped that by the end of July/August there should be a Commissioner of the Compensation Fund.

The Chairperson said this will be okay and should be included in the action plan as one of the ‘quick wins” which will lay the foundation of the compensation fund going forward. He then apologized to the DG in easing him into his new job with such an engagement. He then said he picks up that none of the CF delegation is outraged at the situation that the CF faces and found that to be a bit off putting.

The meeting was adjourned.