AGSA Induction briefing; Department, CCMA, Nedlac, Productivity SA & UIF Quarter 4 performance; with Minister

Meeting report

Auditor-General South Africa (AGSA) Capacity Building Programme

Ms Michelle Magerman, AGSA, took the Committee through the presentation. The AGSA has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, exists to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. The AGSA provides assurance that the Annul Financial Statements (AFS) are free from material misstatements, reports on the usefulness and reliability of the information in the Annual Performance Report (APR), reports on material non-compliance with relevant key legislation and identifies key internal control deficiencies that should be addressed.

The Audit Process

On risk assessment, auditors agree on terms of agreement. This is done to ensure a clear understanding of responsibilities of the parties, objectives of the audit and access to information and the reports to be provided. Thereafter, auditors must plan the audit and perform risk assessment procedures to determine the number and type of procedures to perform. Procedures are performed to obtain evidence that the financial statements and annual performance report do not contain material misstatements and that key legislation has been complied with. Finally, auditors prepare management and audit reports. The audit report is published in the auditee’s annual report, it informs those responsible for oversight, the public and others of material misstatements in the financial statements, material findings on the usefulness and reliability of the performance report, material non-compliance with key legislation in specific focus areas, and deficiencies in internal control identified during the audit.

The AGSA shares insights on root causes of audit outcomes and recommendations on corrective actions needed for improvement and sustainable outcomes through briefings to the Committees.

Audit Opinions

The AGSA expresses five audit opinions. On clean audit outcomes, the financial statements are free of material misstatements and there are no material findings on reporting on performance objectives or non-compliance with legislation. On financially unqualified opinion with findings, the financial statements are free of material misstatements, but material findings have been raised on either the reporting on predetermined objectives or non-compliance with legislation, or both these aspects. On financially qualified opinion with findings, the financial statements contain material misstatements of specific amounts and disclosures, or there is insufficient evidence for the AGSA to conclude that it is not materially misstated. The auditee will also have material findings on predetermined objectives or non-compliance with legislation, or both these aspects. An adverse audit opinion contains so many material misstatements that the entity disagrees with almost all the amounts and disclosures in the financial statements. In a disclaimed audit with findings, the auditee provided the AGSA with insufficient evidence for most of the amounts and disclosures in the financial statements. The AGSA is therefore unable to conclude or express an opinion on the financial statements.

Root causes of continued poor outcomes:

-blatant disregard for controls, compliance with legislation and AGSA recommendations

-continued capacity gap in administration

-vacancies and instability slow down systematic and disciplined improvements

-unethical behaviour in administration and by political leaders

-leadership inaction/inconsistent action to address persistent transgressions which creates the culture of “no consequences”

 

Public Audit Act (PAA) Amendments – key expansion of AGSA mandate

-refer material irregularities to relevant public bodies for further investigation

-taking binding action for failure to implement the AGSA’s recommendations for material irregularities

-issue a certificate of debt for failure to implement remedial action if financial loss was involved

 

Material irregularity is any non-compliance with, or contravention of, legislation, fraud, theft or breach of fiduciary duty identified during an audit performance under this Act that resulted in, or is likely to result in, a material financial loss, misuse or loss of a material public resource or substantial harm to a public sector institution or the general public

The presentation addressed examples of material irregularities, material irregularity vs. irregular expenditure, legal obligations of an Accounting Officer to address irregularities and implementation of an expanded mandate. The expanded mandate commenced on 1 April 2019. The implementation of the amendments would follow a phasing-in approach to allow for:

-Responsibly align the organisational resources with the demand placed on the AGSA

-Develop understanding of the required additional resources to implement the powers

-Reassess audit methodology and the audit process to accommodate the additional work

-Develop requisite content and capacitate the audit teams via extensive training

-Develop tools and system to facilitate remedial action and referral processes

-Build adequate support capacity

-Ensure the AGSA is able to fund the additional effort

-Develop adequate materiality threshold to ensure value for audit fees

-Enhance the relevant internal processes to ensure adequate accountability reporting

-Ensure AGSA external partners are on adequately prepared

-Establish relationships with identified public bodies

-Create required level of awareness of the Act and regulations in the external environment

-Extensive engagement with constitutional stakeholders (accounting officers, accounting authorities, executive authorities and audit committees) and non-constitutional stakeholders (media, professional bodies, civil society, audit firms)

 

Role of oversight and Executive Authority

Executive Authority:

- Insists on credible and frequent reporting on state of financial and performance management

-Use reports to monitor, direct and support accountability

-Set the tone for accountability and consequence management by investigating and dealing with any allegations of financial misconduct and irregularities by accounting officers and authorities

-Share any knowledge on possible material irregularities

-Monitor the implementation of the recommendations on material irregularities

-Support referral and remedial processes, including recovery of debt, if required

 

Oversight structure:

-Use information in the audit report on material irregularities for accountability and oversight purposes, insisting on timeous implementation of recommendation

-Use reports tabled on progress with material irregularities to oversee and influence progress made by public bodies with investigations and executive authorities (for recovery of debt)

 

Discussion

Mr N Hinana (DA) stated that the Auditor-General is a Chapter Nine institution with the primary mandate of checking other entities’ finances. The report does not reflect specifically which municipalities or provinces the figures represent so a breakdown is required. How do adverse findings affect service delivery? What corrective measures were taken to rehabilitate municipalities and provinces that are suffering?

Mr M Bagraim (DA) stated that the key expansion of the AGSA mandate is fantastic and should be followed. On the certificate of debt, who does the debt go to, what is its impact, who collects the debt and how is it implemented? The process outlined takes about 15 months - will the Committee be kept up to speed? On the AGSA capacity to implement the extended mandate, will staff be extended because this mandate will increase the AGSA’s work? Will Parliament assist in this regard?

An official from the office of the AGSA responded that an extract of the report that gives a breakdown of specific provinces and municipalities can be provided to the Committee. On service delivery, the AGSA enables oversight. If municipalities report transparently, it enables the institution to help.  On rehabilitation of suffering municipalities and provinces, there is a slide that alludes to that. The AGSA is very interactive with other entities and tells them exactly what they need to know. On the certificate of debt, the Public Finance Management Act (PFMA) talks to Accounting Officers. The Officers should prevent the occurrence of wasteful expenditure and if they fail, they are held accountable. The certificate goes to them. The Minister and Parliament are asked to help with this. The Committee will be kept up to speed regarding the extended mandate and will receive regular reports. On the capacity to take on the mandate, a phase-in was agreed upon to ensure the entity is well prepared given the magnitude of the work to be done. The AGSA will not duplicate other state agencies - if something requires the attention of the Public Protector or other organs, it will be sent to be them.

Commission for Conciliation, Mediation and Arbitration (CCMA) 2018/29 Fourth Quarter Performance Plan Results

The Committee was taken through the presentation where it was outlined the CCMA achieved 18 of the 19 targets set for the 2018/19 financial year. The target not achieved as all registered cases first event heard within 30 days - 98% of all registered cases first event were heard within 30 days. This was because the Case Management System has limited capability to extract and populate the number of conciliations sat down to be heard at first event within 30 days. The technical indicator has been amended to reflect “all” cases activated for conciliation (conciliable cases) at first event within 30 days of the date of receipt of the referral.

Looking at the fourth quarter dashboard, 193 732 cases were referred to the CCMA during the period under review, compared to 186 902 cases in the 2017/18 financial year. On average, the CCMA took 24 days to deal with conciliation cases as compared to the legislated target of 30 days. On average, the CCMA took 68 days to deal with arbitration cases against a target of 60 days. The CCMA settled 83% (29 out of 35) public interest matters. The CCMA settlement rate for the period under review is 74%.

The CCMA heard 136 857 out of 155 351 conciliations of all registered cases first event within 30 days. 16 669 out of 16 720 of arbitration awards were sent to parties by the fourteenth day after completion of the arbitration process. Through the partnership with the Sheriff’s Board, the CCMA has assisted 3 905 vulnerable workers to enforce and execute CCMA awards. The CCMA’s job savings activities resulted in 41% of jobs saved (15 787) of those likely to be retrenched (38 588), against an annual target of 35%. Actual retrenchments were recorded at 21 391.

The highest number of job losses were recorded in the building and construction sector (3 584), followed by the mining sector (3 260) and lastly the metal sector (1 741).

A total of 1 004 mutual interest or potentially strike related disputes were recorded which represents a decrease when compared to 1 166 in the same quarter of the previous financial year. The settlement rate in these matters was recorded at 60%, which remains the same when compared to the 60% in the same period of the last financial year. The uptake in S150 offers of assistance in public interest matters has resulted in 83% of these matters being resolved. The CCMA settled 29 public interest matters out of 35 dealt with. This is due to the CCMA’s proactive monitoring, support and guidance provided to labour market in respect of collective bargaining matters.

The presentation addressed the financial performance results as at the end of March 2019 in terms of expenditure analysis, case disbursement spend, spending by programme and spending by strategic objective

Discussion

Mr Bagraim said the CCMA is the crown jewel of the Department. On slide 13, there is a decline on mutual interest disputes – is that because of new legislation? He asked that the Committee be provided with information on cases involving the national minimum wage. How did the CCMA manage solve 95% of registered cases within 30 days? In over two months, it finished all arbitration cases and that is fantastic. How did the CCMA save 41% of jobs and how did it get that figure?

Dr M Cardo (DA) asked whether the entities had read the Auditor- General’s report and whether they support some proposals made regarding labour. What is the CCMA doing to reduce the time to resolve cases? What impact does the national minimum wage have on the cases the CCMA is dealing with? Is the CCMA capacitated to deal with legislation and what impact does legislation have on small businesses?

Mr M Nonstele (ANC) stated that the report is good but there are some concerns. On the success rate of cases, how many of these cases have been reviewed because many of the CCMA cases go under review?

The Chairperson found there is no uniformity regarding reporting. All the entities focused on different aspects.

Response

On the number of mutual interests and the fourth quarter’s slight decline, the first quarter runs from January to March and sight should not be lost of the fact that the annual number of disputes sent to the CCMA has increased. There also is an over-reliance on the CCMA on matters.  On intervention on strike related matters, the CCMA pursues unresolved wage disputes and keeps parties in the process to ensure the situation is mitigated.  On the national minimum wage, from January to July, there is an increase in implementation of the national minimum wage and referrals regarding the Basic Conditions of Employment Act (BCEA).  On targets not achieved, it’s the CCMA’s statutory objective for conciliation. All matters should be scheduled for a period of 30 days. It must be borne in mind that not all matters registered are conciliable. The ones that are, are generally heard in 24 days. The 19 732 cases on slide nine actually refer to annual comparisons to the previous financial year. According to the law, arbitration turnaround should be done in 90 days but the CCMA sets its own target of 60 days and encourages that the outcome result in reinstatement. On incidents of unreported industrial action, the CCMA does not condone it because it does not follow legal prescripts however it tries to support the parties involved so they can go back to work and restore normalcy. Over the years, the number of wage related matters has been in the region of roughly 5 000 wage disputes that get deferred to the CCMA in the country.

On job saving statistics, the CCMA’s statistics differ from Stats SA because the CCMA only records retrenchment activity of matters that are brought to it. In the past financial year, 38 000 employees faced retrenchment and the CCMA managed to save 16 000 of those.  This is measured by looking at the number of employees facing likely retrenchment and subtract voluntary and forced retrenchments from that number.

National Economic Development and Labour Council (NEDLAC)

Mr. Tebogo Thejane, Acting CEO, Nedlac, took the Committee through the presentation. Nedlac strives to promote the goals of economic growth, participation in economic decision-making and social equity, reach consensus and conclude agreements on matters pertaining to social and economic policy, consider all proposed labour legislation relating to labour market policy before it is introduced in Parliament, consider all significant changes to social and economic policy before it is implemented or introduced in Parliament and encourage and promote the formulation of coordinated policy on social and economic matters.

Turning to 2018/19 quarter four performance per programme:

-administration: 86% of the targets were achieved

-core operations targets: 94% of targets were achieved

- constituency building: 100% of targets were achieved

 

Overall for quarter four of the 2018/19 financial year, Nedlac achieved 94% of its targets

Challenges

-Quarterly staff performance appraisals for finance staff were not conducted within two months following the end of each quarter and performance appraisals for three staff members were not concluded within two months of the end of the quarter due to line management suspension.  Appraisals would be conducted in the next quarter by the new line manager.

-Labour Market Research report was not concluded. The research project could not be concluded in time due to delays encountered during the consultation processes by the Chamber.  

 

Impact on Employment, Poverty and Inequality of Nedlac Programmes

In line with its mandate, the work of Nedlac is centered around addressing socio-economic and labour market issues.  As such, all Nedlac’s programmes are to contribute towards improving economic growth, promoting employment and saving jobs, alleviation of poverty and inequality, primarily through consideration of legislative and policy matters. While Nedlac does not directly create employment opportunities, it creates an enabling environment to promote economic growth and address the triple challenges of poverty, unemployment and inequality.

The presentation addressed Nedlac’s programmes to address challenges of unemployment and other socio-economic matters and financial expenditure linked to organisational performance. The revenue recognised amounted to R41 456 615 as at end of the fourth quarter. A total amount of R12 301 226 was received for the Job Summit related costs. Of the R12 301 226 received, only R5 900 782 was recognised as revenue, with R6 400 444 deferred at year end for activities of the Job Summit that continued into the 2019/2020 financial year. Nedlac incurred a deficit for the year primarily due to over expenditure on compensation of employees and budgeting weaknesses. With regards to compensation of employees, Nedlac also recruited several temporary positions that were not budgeted. A settlement award was also paid during the current year relating to a CCMA award.

Discussion

Mr Bagraim asked what Nedlac means by “enabling an employment environment”. On slide 10, the discussion on monopoly should not be in the terrain of Nedlac. On slide 12, the discussion on Eskom is an oxymoron. On slide 14, the discussion on customs is not the job of Nedlac – why is it mentioned?

Dr Cardo asked what budgeting weaknesses Nedlac faces and what is being done about them.

Mr Nontsele said that the report is fine but it does not talk to the success of programmes and their implementation.

Mr Thejane responded that it is important for people to understand what Nedlac stands for because its mandate is in the name. Anything that has a socio-economical impact will affect Nedlac and provides a societal dialogue.  Nedlac strives to promote the goals of economic growth, participation in economic decision-making and social equity, reach consensus and conclude agreements on matters pertaining to social and economic policy, consider all proposed labor legislation relating to market policy before it is introduced in Parliament, consider all significant changes to social and economic policy before it is implemented or introduced in Parliament and encourage and promote the formulation of coordinated policy on social and economic matters. If the Department of Labour or the government has anything to discuss they should bring it to the platform Nedlac provides.

On the national minimum wage, it is important to indicate that at Nedlac the work does not stop there because social parties engage. On convening of the job summit, 77 projects in terms of JS agreements take place in the context of a joint tech committee which convenes every month and reports quarterly to the presidential committee.

Budget weaknesses are shown in the divorce between cash and the budget. Section 53 of PFMA says that if the entity has to spend money, it must be approved by both the financial and Executive Authority. Due to changes in management, that particular application was not sent through. There was cash in the bank to settle the deficit but because the application was not made, it could not be disclosed as such. The work of Nedlac and the CCMA deals with employment but these institutions are resource constrained and work within a fiscal envelope provided by the government. Job loss interventions by the CCMA are by design, not by accident, and are critical for employment.  The labour chamber, economic chamber and Eskom all play a critical role in the economy hence Nedlac is involved.

Productivity SA

Mr Mothunye Mothiba, Productivity SA CEO, took the Committee through the report. Productivity SA is established in terms of section 31 of the Employment Services Act (2014) with the mandate to fulfil an economic or social responsibility of government which is to promote employment growth and productivity thereby contributing to South Africa’s socio-economic development and competitiveness.

Looking at the 2018/19 quarter four performance per strategic objective, the following objectives were not achieved:

-strengthen the institutional capacity of Productivity SA to deliver on its mandate and be financially sustainable

- provide support to programmes aimed at sustainable employment and income growth

-provide support to companies facing economic distress to retain jobs

-contribute to employment and income growth through research, information generation and dissemination

-promote social dialogue and a culture of productivity and competitiveness in the workplace and community life

 

Overall, for the 2018/19 fourth quarter, Productivity SA achieved 33% of its targets.

The presentation then addressed quarter our performance per programme and comparative analysis per programme for quarter one to quarter four for the 2018/19 financial year.

By way of achievements during quarter four, all Small, Medium and Micro Enterprises were paid within 30 days of receipt of invoice date, more than 10% year on year additional Income to improve financial sustainability of the entity was generated, seven productivity practitioners were trained as Kaizen Practitioners by experts from the  Japan Productivity Centre and no irregular expenditure was recorded for the year 2018/19.

Members were taken through areas of non-performance during quarter four and performance per programme for the following programmes: corporate services, human resource management, value chain competitiveness, productivity organisational solutions and turnaround solutions. The presentation then addressed financial performance for the period ended 31 March 2019, irregular, fruitless and wasteful expenditure over the same period and audit findings status report for the same period (5% of findings unresolved).

Looking at the major challenges during 2018/19, Productivity SA’s business environment has since 2015 changed as a consequence of the promulgation of the Employment Services Act with its mandate expanded to include promoting employment growth and supporting initiatives aimed at preventing job losses. The demand for Productivity SA services are increasing. The business environment is becoming sophisticated due to rapid globalisation, disruptive technologies and innovation. However, no additional funding was appropriated by Parliament for this purpose which is at the heart of the entity’s financial woes and the funding for the core programmes (Workplace Challenge and TAS) is not guaranteed. The TAS funding has over the past three years never been transferred in full and/or on time by the Department of Employment and Labour/Unemployment Insurance Fund and funding for the WPC from the Department of Trade and Industry covers only 45% of the total operational costs of the programme with 55% of the expenditure unfunded. Productivity SA is lacking on Product and Services Innovation.

Discussion

Mr Bagraim stated that the presentation was a Cinderella story.

Mr Nontsele asked what challenges are faced with the adopted funding model.

Mr Mothiba responded that Productivity SA is a public entity which is to be fully funded by government but also generates revenue. Slide 25 shows the sources of funding namely the UIF, DTI and the Department of Employment and Labour. The UIF has not been giving full funds and the Productivity SA has been dealing with this for three years. The funding structure is untenable and cannot be sustained. The funding structure should change, it is just a matter of when. There is a high vacancy rate of over 28 vacancies making functionality of Productivity SA difficult. The funding model has challenges and is complex. It must be put on record that Productivity did its best on reserves and approached Treasury for supplements.

Minister of Employment and Labour, Mr Thulas Nxesi, responded to the question on the finance ministry stating that he did not want to preempt matter as it is a discussion and a response will be given at an appropriate time. The BCEA allows terms and conditions to be varied from a less favorable threshold for example variation by way of ministerial determination, sectoral determination and variation of working hours.

On the minimum wage, it allows flexibility for employers who cannot pay to apply for exemptions. The employers must come with motivation and facts. When laws are called in, before they are even implemented, people are already asking for a review - this cannot be allowed.

The Chairperson said a broader and more focused approach is needed to take on these challenges. Members of Parliament must up their game but do need to be exposed to details within the sector. The Committee will look into how best it can deal with it.  Everyone needed to learn the impact of the Fourth Industrial Revolution and find ways to ensure that workers know their rights and responsibilities and are not exploited by employers.

The meeting was adjourned.