DEL response to issues raised by AGSA; UIF & CF Q3 2021/22 Performance; with Ministry

Meeting report

The Chairperson mentioned that the presentation documents and notice had been circulated with the Committee.

The Committee Secretary indicated that the Committee had received apologies from the Director-General (DG), who was said to be on leave. Standing in his place was Ms Aggy Moiloa.

The Chairperson then welcomed both the Minister and Deputy Minister (DM) of DEL to the meeting. 

Ms Aggy Moiloa, DDG: Inspection and Enforcement Services, DEL, first introduced the officials’ part of the department’s delegation. Thereafter, she indicated that the Commissioners of both entities (UIF and CF) would take the Committee through the two reports.

The Chairperson outlined that the department would first have to respond to the issues flagged by the AG’s report. Subsequently, it would then present the 3rd quarter report. Before that, she requested that the Minister provide an overview of the presentations.

Introductory remarks by the Minister

Mr Thulas Nxesi, Minister of Employment and Labour, informed Members that he would have to leave the meeting early to attend another commitment.

He began by stating that the Executive Authority had appeared before the Committee so that it could answer all questions asked by Members, and for them to hold it to account, regarding the two Funds. Despite the positive evidence of progress by the department and its entities in addressing the AG’s past audit findings, such as; the Follow The Money (FTM) Strategy to verify Covid-19 TERS payments; and the retrievals of overpayments, it was evident that the entities were still grappling with some of their legacy issues, which had led to a backlog, amongst others, in irregular expenditure.

Labour Activation Programme Projects, in terms of employment creation, preservation and training, had been implemented. He was pleased by the CF’s positive indications to compiling a planned response to audit findings, and its longer-term attempts to address the deep-rooted systemic challenges – which the department accepted would take longer to resolve.

However, as the AG flagged, there have been delays in implementing its recommendations by both Funds and the finalisation of processes, investigations, and in the case of the UIF Covid-19 TERS, recoveries. Furthermore, he admitted that a culture had set in, relating to the non-enforcement of adequate daily and monthly monitoring, reporting and controls, within both entities.  

He informed Members that a meeting took place between himself and the AG, in the past week, where it was agreed that they would jointly engage with the Executive Management of the two Funds. However, the department was concerned that neither Fund had submitted its Annual Financial Statements (AFS), which it is looking to correct. The AFS should also be supported by the daily and monthly monitoring reports that the AG alluded to.

He welcomed the Committee’s critical and robust oversight of the department and its entities.

The Chairperson, thereafter, requested that the UIF present its report to the Committee.

Briefing on UIF, AG and SCOPA response report

Mr Teboho Maruping, Commissioner, UIF, briefed the Committee on the UIF’s, AG and SCOPA response report.

He began by informing Members that the Fund had received three qualified audit opinions from 2018-19 to 2020-21. The most consistent area flagged by the AG for concern, across the three Financial Years was investments in associated, interest in joint venture and other financial asset payments. The other was the benefit payments for Covid-19 TERS, which was flagged for two FY’s, 2019-20 and 2020-21.

To remedy its annual financial statements (AFS) free of material misstatement and regular non-compliance, the UIF initiated a Clean Audit Project in April this year, and the end of March 2023. There are nine deliverables, eight of which have been accomplished; some of these were: the adoption of clean audit main pillars; the development of an audit action plan (AAP); have it signed by the DG; and the appointment of a clean audit committee.

Comprehensive action plans

Under this section of the report, he elaborated on the UIF’s action plans to deal with the areas that have led to its qualified audit opinion. The first area he dealt with was the investment findings. To correct this finding, he said, the UIF has placed certain measures, some of which were:

• Consultations with various stakeholders and changing the accounting treatment of unlisted investments
• A review of the unlisted investment mandate
• The development of detailed review procedures to deal with the accounting treatment of management accounts

Thereafter, he outlined its action plans to deal with issues around the Covid-19 TERS expenditure. These would focus on four critical areas, two of which will be mentioned: overpayments; the acknowledgement of debts. Relating to the former, the UIF is currently reporting for the overpayments according to the prescribed accounting treatment to avoid overstating accounts receivable, as previously reported by the AG.

Regarding the acknowledgment of debts, the entity is presently analysing this and refund receipts from the Special Investigating Unit (SIU) and FTM investigations.

The FTM is a project that the entity has developed and started on 1 April 2022, with the objective of ensuring that Covid-19 TERS funds reached the intended recipient; and where not spent appropriately, to recover the funds with interest. He reported that to date, R14 billion had been confirmed to have been paid correctly to deserving employers and employees. In addition, a R3.2 billion has been paid back to employees due to the audit. This project is anticipated to conclude on 31 March 2023.

Officials found to have been involved in defrauding the UIF, regarding the Covid-19 TERS funds, have faced disciplinary charges, with some cases being referred to the South African Police Services (SAPS).

The Chairperson asked if the Members preferred to deliberate on the presentation or wait for the entity to conclude with its 3rd Quarter Report, first.

Mr S Mdabe (ANC) proposed that the Committee have its discussions following the presentation of both reports.

Dr M Cardo (DA) disagreed and counter-proposed that the Committee have separate discussions for each report.

Ms C Mkhonto (EFF) supported Mr Mdabe’s proposal.

Ms H Denner (FF+) supported Dr Cardo’s proposal.

Mr M Nontsele (ANC) supported Mr Mdabe’s proposal.

The Chairperson ruled that, due to the load shedding, the Committee would allow the UIF to present its second report, before Members could engage on it.

Briefing on UIF’s 3rd Quarter report

Mr Maruping and Ms Fezeka Puzi, CFO, UIF, briefed the Committee on the UIF’s 3rd quarter report.

Key highlights

• 48% achievement of targets in the quarter (12 out of 13)
• 14 771 jobs created (against a target of 3500) through UIF funding and investment initiatives
• 85% of internal and external audit findings resolved
• 55% of the R37.45 million spent on all three programmes
• Development of Systems Applications and Products (SAP) project

Quarterly Performance Report 2021/2022

The Fund had three programmes for this quarter: Administration, Business Operations and Labour Activation.

Programme 1: Administration

He indicated that for this programme, the UIF managed to achieve six out of its twelve targets, representing an overall achievement of 50%. Some achievements include reducing administrative and irregular expenditure to 15% of overall expenditure. However, it was unable to reduce fruitless and wasteful expenditure to 22.5% and it remained at 39%.

Programme 2: Business Operations

He explained that the UIF, for this programme, managed to achieve five out of its eight targets, representing an overall achievement of 63%. One of the touted achievements was the creation of 14 771 jobs, against a target of 3500, through funding and investment initiatives. Although, it was unable to achieve its target of finalising 90% of simple cases within 30 days, and complex cases within 90 days, with only 2.3% finalised.

Programme 3: Labour Activation

No slide was provided on this programme.

Performance for the 3rd Quarter

Subsequently, he pointed out the UIF’s financial performance for the 3rd Quarter. To begin with, he pointed out that the entity spent R20.5 million of its R37.45 million budget for its programmes in the 3rd Quarter, with most of this dedicated to Business operations (R19.4 million).

Thereafter, he announced that the entity had initiated an SAP project, to improve its Inter Communications Technology (ICT) infrastructure.

(See Presentation)

The Chairperson opened the floor for discussion.

Discussion

Mr M Bagraim (DA) posed four questions to the department and its entities. One, he asked what the department was doing to address the high volume of claims the Funds were receiving, which he believed to be similar to the levels seen during the Covid-19 TERS.

Two, he asked for comment on the allegations of late payment to individuals who have taken maternity leave.

Three, he asked what the cost of the new system to improve UIF transparency was.

Four, he asked how much had been spent on procurement of computer systems, which he estimated was approaching the billion Rand mark.

Mr Nontsele, referring to slide 72, asked whether the UIF could indicate if the clean audit plan, that the presentation indicated would be completed by August of this year, had begun to improve the entity’s audit outcomes.

In his second question, he asked what actions had been taken to address poor or inadequate AFS on investments, submitted by the Public Investment Corporation (PIC) to the UIF, as the AG had flagged this as one of the reasons for the entity’s negative audit outcome. In addition, he asked whether the UIF had approached the PIC to find a solution to resolve this.

Dr Cardo observed that the Minister failed to provide evidence for the progress he spoke of. He disputed the Minister’s claim that the Funds were only beset with deep-rooted challenges, arguing that basic administrative challenges affected both, with the UIF showing signs of regression. On this, he asked what had led to the deterioration of financial discipline and basic administrative aptitude in both Funds, and why weak consequence management had been implemented.

Referring to the UIF’s recent meeting with the Standing Committee on Public Accounts (SCOPA), where it was mentioned that it had unlisted investments of R20.6 billion in 25 (or slightly more) investee companies, he asked why the Fund had not implemented the necessary controls to ensure that the information received from the investees was accurate, complete, valid and could be relied upon for financial reporting purposes. Additionally, he asked whether the Commissioner supported a freeze on unlisted investments.

In addition, he asked what the current financial status of the UIF was after it concluded R60 billion worth of Covid-19 TERS pay-outs and what its actuaries had said about the Fund’s financial sustainability in the long-term. Furthermore, he asked for the Fund to comment on the claims made by complainants that the UIF was deliberately holding back payments to them.

Ms Denner highlighted that in the recent meeting with SCOPA, the UIF mentioned that external chairpersons would be utilised in its disciplinary hearings. As such, she asked how many of these hearings were planned and what the timelines were.

She indicated that she had sent a written question to the Minister in April, asking how many outstanding maternity claims there were. He had responded that no outstanding maternity claims existed where the documentation was complete and correct. While she initially accepted the answer, since then, she has received multiple complaints where documentation was shown to have been completed and correct, yet pay-outs were not made. As such, she asked what was being done to address those complaints.

In her last question, she asked if steps were being taken to deal with the claimants having repeatedly asked to submit the same documentation to the UIF – an issue raised in the past. This, she said, contributed to the backlog in claims and was an indication of the Fund’s poor administrative systems.

Ms Mkhonto applauded the Fund for improving its consequence and financial management (implementing its FTM Strategy). However, she felt that the Fund did not mention what impact these efforts had on service delivery, especially concerning the claims process. To her, it seemed that the improvements made did not impact customer satisfaction. She highlighted that the department and the UIF had not made progress in this regard. Following this, she asked what effect the improvement of financial and consequence management had on the department and the UIF’s output.

Minister Nxesi took issue with the view that the department and Fund were regressing in their ability to process claims. As a greater number of companies faced financial stress, more jobs would be shed, increasing the number of unemployed workers making claims to the UIF; a trend which he believed might continue but would not reach the levels seen during the height of the Covid-19 pandemic. Subsequently, he asked Mr Bagraim to forward all the complaints he had received so the department could address them.

Touching on the earlier point that he had not provided evidence to support his claims, he indicated that the presentation qualified as evidence. Positive outcomes were acknowledged not only by the department, but also by the AG. All the while, the department noted the outstanding negative areas highlighted by the AG that it needed to intensify efforts to address. He described Dr Cardo’s comments as hot air and political in nature, as the department had provided evidence to support its claims.

Mr Maruping, referring to the question related to the Fund’s R20.6 billion unlisted investments, explained that the UIF has put in place interventions, which include: the engagements between its Chief Executive Officer (CEO) and that of the PIC; and the review of the investment SLA with the PIC. One of the challenges with the UIF’s Socially Responsible Investments (SRI) portfolio is the difference in financial years amongst the various investment companies, hence it has initiated a process to engage the Accountant-General, through the DM of Finance, on how to ensure that there is a broad agreement on treating such financials. A technical opinion has since been developed by the entity, which focuses on this same matter.

Oftentimes, companies that initially submit their management accounts and interim financial statements to the entity, correcting many of the material misstatements contained in their final AFS, providing the Fund with new values that it will then have to review.

Regarding the question of whether the UIF considered freezing its investments in unlisted portfolios, he mentioned that both he, as the Commissioner of the entity, and his counterpart at the CF, have had discussions on the feasibility of this option, as each one has to account every year and explain why AFS was not received from the PIC. However, the challenge was that through its investments in an unlisted portfolio, the entities looked towards achieving job creation, rather than obtaining a return. As such, by retracting an investment from an unlisted portfolio, the entities, he explained, would be contributing to the high rates of unemployment in the country.

Furthermore, he indicated that as both Funds were formed to serve the interests of workers, they could not ignore their responsibility to create further employment – in fact, this had to be one of their core objectives. Thus, other avenues to obtain accounting treatment, that is done correctly, are underway, such as its engagements with the Accountant-General, through the DM of Finance.

On the current financial status of the UIF, he stated that while the Fund’s balance sheet decreased from R164 billion at the beginning of the Covid-19 pandemic in 2020, to R124 billion this financial year (FY), it remained in a solid financial position. This view was confirmed by the recent actuarial evaluation report of the entity’s portfolio. Despite this, he was not confident that the Fund would continue to be in this position if an event, such as the Covid-19 pandemic, were to emerge again, particularly due to the lack of job creation in the country.

With the increase of applications to the Fund, as a result of the continued shedding of jobs, there has been a subsequent rise in the number of fraud cases – many fraudsters have been colluding with the committee and staff members in the department. A staff member in KwaZulu-Natal was arrested in August of this year. He explained that when it suspected fraud, the Fund usually places a hold on the identity document (ID) of the suspected staff member, and the funds, to ensure that no money goes to the fraudsters’ accounts. Though the UIF was aware that this action also affected beneficiaries.

Holding accounts was part of why there has been an increase in the number of complaints received. Nonetheless, the entity managed to clear all the accounts on hold, a month ago, as it was able to separate them from the fraudulent cases. However, investigations in the fraud cases are still underway, with certain staff members colluding with external parties to defraud the institution.

Touching on the measures to clear the complaints backlog, he explained that the Minister had approved additional capacity for the UIF, with the employment – and subsequent deployment – of 104 staff members in DEL’s offices across the country, some of whom are expected to assist complainants in the queues. In addition, the department has also integrated the variation order and control instrument systems to ensure that the claims are processed quicker. As such, the UIF anticipated that it would begin to see a drop in the number of complaints received in the next three weeks.

Still referring to the backlog complaints process, he stated one reason for the backlog was the entity’s decision to place vendors on hold at payment stages, to conduct additional verifications. This, however, has since been removed, with 60 to R70 million a day being paid out to beneficiaries, in the past two weeks.

He informed the Committee that the UIF expected to introduce a UIF App, and USSD. Both these technologies will enable individuals to update their information online. To ensure accessibility for all, the UIF has negotiated with service providers for the App to be zero-rated and resolved that it will carry the cost of data for the USSD.

Regarding the Fund’s August deadline to complete its clean audit plan, he indicated that the slide related to the target of capturing the I-track in August, which was achieved. He admitted that this should have been made clear in the report.

Responding to the question of what actions had been taken to address poor or inadequate AFS on investments submitted by the PIC to the UIF, he stated that each time the Fund engaged with the PIC, it would commit to pursuing the investee companies so that they submit their AFS to the former on time, but nothing came from this. As a result, the UIF has updated its SLA with the PIC to include penalties for non-deliverance. Previously the UIF considered introducing accounting treatment for the investee companies, but it paused the process, as it meant that it would incur additional costs to pay for auditors to audit each company and deliver the AFS on time.

Instead, he added, the Board, through its Chairperson, decided to engage the Accountant-General through the DM for Finance. He anticipated that the UIF would meet with the AG the following day, regarding how best to treat the SRIs without losing jobs.

Referring to the question on the decision to appoint external chairpersons to disciplinary hearings, he mentioned that nine of the eight SIU cases had been finalised, with sanctions issued. The remaining one is awaiting a verdict from the Chairperson. Other finalised investigations uncovered ten cases of irregular expenditure, which involved 35 officials. All 35 officials had been issued with an intent to discipline and given seven days to respond; though they requested extensions, to consider their files and engage their representatives.

On how much has been spent on the procurement of ICT solutions, he indicated that an estimated R214 million was spent on SAP solutions, which will go online in March 2023. This forms part of the department’s efforts to improve both Funds’ ICT infrastructure. To guarantee that both entities remain relevant and deliver on their mandates, the department has contracted Price Water Coopers (PWC), which will be tasked with changing the UIF’s strategic focus, structures, processes and technology.  

The Minister, through the Cabinet, is looking at removing the UIF from the State Information Technology Agency’s (SITA) ICT network, due to its unreliability, so the Fund can introduce its own infrastructure.

Mr Bagraim said that the UIF had not answered his question on the cost of procuring the new ICT systems.

Mr Maruping said that the UIF estimated the cost to be R214 million.

Mr Nontsele requested that the updated slide 72 be circulated to Members.

Briefing on the CF’s 3rd Quarter Report

Mr Vuyo Mafata, Commissioner of the CF, took the Committee through the CF’s 3rd Quarter report.

He began by mentioning that the CF has identified five strategic areas over the current five-year cycle which will inform institutional policies: financial management, customers, organisational capacity, internal business process, anti-fraud and corruption elimination.

Thereafter, he outlined some of the key highlights, which included:

• 75% achievement of targets (6 out of 8)
• Underachievement in the reduction of the vacancy rate (13.63% against a target of 11.6%)
• An increase in the loss ratio from 4% in December 2020 to 46% in December 2021
• A decrease in the collection from 88% in December 2020 to 82% in December 2021
• Total expenditure of R6.7 billion

Quarterly Performance Report 2021/2022

The Fund, he outlined, had four programmes for this quarter: Administration; Compensation for Occupational Injuries and Diseases (COID) Services; Medical Services; Orthotic and Rehabilitation.

Programme 1: Administration

He indicated that in this programme, the CF managed to achieve two out of three targets, representing an overall achievement of 67%. The one achievement related to the submission of one quarterly report on monitored performance of Mutuals reporting to the Fund. While the non-achievement was in relation to the Fund’s failure to reduce its vacancy rate to 11.6%, only managing to bring it down to 13.63%.

Programme 2: COID Services

He mentioned that in this programme, the CF managed to achieve one out of two targets, representing an overall achievement of 50%. In fact, it was able to overachieve in the percentage of approved benefits paid within five working days, with 92.7% approved against a 90% target. However, the Fund only adjudicated 79% of its claims within 30 working days of receipt, with the reasons being: capacity constraints, system outages and incomplete claims contribute to delays in the adjudication of claims. To address this, the Fund has implemented two measures: one, to obtain interim capacity and to automate some processes to address capacity constraints. Two, have continuous stakeholder education campaigns, to educate employers on submission of claims.

Programme 3: Medical Services

He highlighted that in this programme, the CF achieved both of its targets, presenting a 100% overall achievement. One of which was to finalise 87% of accepted medical invoices within 40 days of working receipt.

Programme 4: Orthotic and Rehabilitation

In the final programme, the Fund managed to overachieve on its sole target: finalising 85% of complaint requests for assistive devices within 15 working days of receipt (it obtained a 93% target).

Financial performance 2021-2022

He then informed the Committee of the Fund’s financial performance for the FY. Total revenue for the period ending 31 December 2021 amounted to R13.68 billion, of which R6.7 billion was spent, most of which went to benefits (R4.1 billion) and finance costs (R1.034 billion). Current assets stood at R19.45 billion, with the majority being in investments (R12.65 billion).

He further explained that the loss ratio of the CF increased from 4% in December 2020 to 46% in December 2021, due to the monthly provision of accrued benefits. While the collection ratio, which is a measure of assessments raised over actual amounts collected from employers, decreased from 88% in December 2020 to 82% in December 2021.

(See presentation)

Discussion

Mr Mdabe asked whether the CF headed all governance structures throughout the four quarters in 2021. If not, he asked in which quarters it did not do so and what the reasons were. In addition, he asked whether the Fund’s internal audit had assisted it with preparing the AFS, to be audited by the AG. If so, he asked if the governance structures received the AFS prior to their submission to the AG; and what their comments were after they reviewed them.

He then expressed his concern regarding the AG’s finding that the CF failed to provide a source document for its payments, which prevented it from being able to verify the authenticity of the figures submitted. One such instance, as shown in the presentation, was the entity’s R3.2 billion expenditure on medical bills, without a source document. As such, he questioned why the Fund failed to provide the AG with a source document, as it is a basic accounting principle.

As a result of this finding, Members were left unsure of the authenticity of the information provided to them by the CF, particularly as they had not received source documents from it in the past two years.  

Ms Denner indicated that earlier this month, the CF informed SCOPA that it had appointed 20 skilled consultants to assist the office of the Chief Financial Officer (CFO). The cost of these appointments was confirmed by the Commissioner to SCOPA as amounting to R20 million over a period of 12 months. She asked if a tender process had been followed or if it related to the deviation from the procurement process listed for the project titled seconded of financial management support services; the reason is caused by a failed bid process. Moreover, she asked why the bid process had failed; and whether this project, which amounted to R62 million, was the same one as the one to appoint the 20 skilled consultants or not. If it was, she asked why the tender process failed.  

Ms Mkhonto said that she had two questions to pose. Before that, she warned the Committee that if it was not careful, both entities would be outsourced under its eyes.

In her first question, she asked what percentage of the staff contingent based in the CFO’s office, the seconded outsourced individuals constituted. Moreover, she asked whether their terms would end once the CF managed to identify the critical skills it needs to fill in its vacancies, as mentioned in its presentation.

In her final question, she asked what consequence management mechanisms were inserted into the contracts of the seconded individuals in the CFO’s office. Additionally, she asked if they had signed SLAs with the Fund.

Mr Bagraim asked if the Fund had any remaining Covid-19 claims, and if so, how many and what their values were.

While he commended the Commissioner for his swift responses to the issues he had raised, he noticed that staff members in the Fund were slow to address the concerns. Thus, he asked if the Fund had turnaround times to address complaints.

In addition, he asked the entity’s comment why no date had been given for an agreed-upon meeting between the Commissioner and a particular company.

Dr Cardo asked what the status of the regulations gazetted back in October last year, which affected the status of 3rd party administrators, was. He recalled that they were withdrawn at some point because of their rejection by the Committee during its deliberations on the COID Amendment Bill. In fact, the Minister, he underlined, also declared war on the regulations.

The Chairperson asked if the regulations had been rejected by the Committee or the Democratic Alliance.

Dr Cardo said that the original clause – relating to 3rd party administrators – in the COID Amendment Bill was withdrawn after deliberation by the Committee as a whole. There was agreement that the original formulation of the Amendment Bill should be changed.

The Chairperson humbly requested that Dr Cardo only speak after he had been recognised.  

Dr Cardo apologised for interjecting.

The Chairperson indicated that she understood the context in which he was referring regarding the Amendment Bill.

Mr Nontsele asked for the CF to explain the extent to which it has overcome its ICT challenges, as the AG found that this was one of the reasons clients struggled to access the Fund’s systems, leading to their use of third party administrators.

The Chairperson indicated that the Committee, in the main, wanted to know how much of the claim is allocated to the claimant and the 3rd party administrators, as it was certain that the majority of the money is paid to the latter. Moreover, she questioned why neither the department nor its entities had answered this question, which the Committee has continued to ask since 2019; and whether their silence meant that this information could not be divulged.

During an oversight visit at an office, the Committee was told that the officials were able to pick up instances where a claim that has been paid out, is resubmitted for a second time, containing a different payment date. She asked how many such claims the Fund was able to pick up.

She asked if the Fund could provide the Committee with a slide that includes a list of claims from both the private and public sectors so that Members could better understand the compliance of employers’ occupational health standards (OHS) in the workplace and the number of injured workers.

Mr Mafata, responding to the question on whether the CF headed all governance structures throughout the four quarters in the 2020-21 FY, mentioned that it had done so for all the quarters, except the fourth, where it did not have an audit committee, as its term of office came to an end in December and the process of finalising the appointment of a new one had not yet been done.

He confirmed that all the governance structures of the Fund, such as its Advisory Board and committees, have all provided it with the support to correct all issues raised by the AG. For instance, the audit committee has raised the same concerns highlighted by the AG, which include the speed at which the Fund deals with all of its prior period errors. Hence, as part of the intervention, it prioritised dealing with the previous issues because if they did not, they would continue to affect the work done by the CF.  

Regarding the non-submission of source documents, he explained that prior to 2014, the AG took issue with the Fund’s financial records. During this period, all clients of the Fund had to submit their documents manually, many of which were lost in transit from provincial to national offices; thus leading to incomplete financial records. This system, he said, also led to excessive delays in the payment of claims, with several workers and medical providers having to wait months or years to receive payment. 

Subsequently, in 2014, the Fund transitioned to an online system, aiming to fast-track the processing and payment of claims. Yet, the AG still did not accept the financial records submitted by the CF, arguing that it limited their scope to audit. It further argued that much of the information provided was inappropriate and did not support the entity’s AFS. He added that an invoice is recorded on the system for every claim paid.

During their discussions, the AG also highlighted a number of control weaknesses with the system. Considering the AG’s finding and the cost of improving controls in the system versus the development of a new system, the CF chose the latter, which was named SAP and introduced in 2019. A number of the control weaknesses identified by the AG were addressed with the introduction of the SAP system. However, the AG still took issue with the system’s processes. The CF has looked into ways to satisfy the AG’s concerns with the electronic process by not returning to its manual process, which it believed would compromise service delivery.

He further added that some of the challenges noted were accounting in nature, such as the inability of the previous systems used to provide the listings favoured by the AG to support the figures shown in the financial statements. Presently, the CF’s audit committee is aiding it with extracting those listings from the system, to produce them for the audit.  

On how much was paid to claimants and medical providers, he said that he did not have the information on hand, but he would try and provide them to the Committee.

Touching on the question related to the two tenders issued by the Fund, he clarified that the tenders were not the same, as one placed focus on reengineering and redesigning the business process. However, due to concerns raised by the risk management and internal units, regarding the scope of the tender and the bids submitted, the CF decided against pursuing the tender.

Regarding the recruitment of the seconded individuals to the CFO’s office, he stated that a secondment agreement had been signed by the DG of the department, with the company that seconded the individuals to the Fund. These individuals were then appointed through the Public Service Act process.  

On what consequence management mechanisms were inserted into the contracts of the seconded individuals, he indicated that the CF manages the resources together with the company it is contracted with. 

Referring to the question on what percentage of the staff contingent to the CFO’s office the seconded outsourced individuals constituted, he mentioned that it was just under 20% of the total number. Due to the volume of work it conducts, there are close to 100 people in the Finance unit. 

Responding to the question on whether their terms would end once the CF managed to identify critical skills to fill in its vacancies, he explained that part of the work done in the architectural review is to conduct a skills assessment to determine what type of skills are needed for both Funds. Following this, a skills audit was done in 2015-16 and it highlighted the critical skills the Fund needed, which were found to be financial, actuarial and clinical. Considering this, the Fund then instituted a restructuring process in 2017, which sought to address the skills gaps identified.

On whether it had any remaining Covid-19 claims, he indicated that the entity received 27 000 claims, 988 of which it subsequently accepted. In many cases, the Fund was paying for the medical expenses of the claimant, which included testing and minor treatment for those who required hospitalisation. He added that the total amount paid over this period was R111 million, which was made up of R50 million in medical expenses; R2.6 million in funeral expenses; and just over R52 million in pension funds, for those who were either left disabled or killed, due to Covid-19.

Referring to the question on turnaround times of responding to queries, he stated that in most cases, when the claim is received, staff members begin engaging with the claimant to obtain the relevant information that they may be missing to finalise it.

On the question related to the number of duplicate claims the Fund was able to pick up, he said that the bigger issue involved employers who were flagged in the audit. As a consequence of Covid-19 on the workplace, payrolls have been shrinking, leading to lower returns of earnings being submitted by employers to the CF.

To mitigate fraud, the Fund, he explained, has programmed its systems in such a way that employers who submit a return of earnings in the current FY that are found to be significantly higher than the previous year will be flagged for audit so that the correctness of the information provided can be verified. He highlighted that this was implemented as a control process after the AG flagged the Fund’s inability to verify employer information. Each employer flagged by the audit system is sent a list of items they need to submit to the entity. However, there are exceptions to this.

The biggest challenge faced by the system, he indicated, was the fact that most of the employers who utilised 3rd parties to assist them in submitting their documents, do not inform the CF that they have stopped using their services, and do not update their contact details. He added that the CF has increased its capacity to better verify the information provided and complete assessments in a shorter time.

Regarding the question on the status of the regulations gazetted back in October last year, affecting the status of 3rd party administrators, he reminded Members that the Fund has stated in the past that the Notice published last year on its intention to verify banking details before it pays claims, had nothing to do with the COID Amendment Bill and its provisions. Rather, it was related to the provisions contained in the COID Act and the responsibility of the Public Finance Management Act (PFMA) to ensure that it implements adequate controls over the processes of the Fund.

The account verification system, he said, has since been implemented. In certain instances, claims are paid to 3rd parties and not directly to the client or healthcare facility. Such claims, he pointed out, were vulnerable to interception by fraudsters. In the future, the CF wants to make sure that payments are made directly to healthcare facilities, doctors and clients – if they are found to be injured.  

Touching on the ICT challenges, he indicated that the system had since stabilised; however, there are projects currently underway to further improve its functionality. Feedback from users is also utilised to make enhancements to the system. In addition, the CF is looking to automate its system as far as possible, to speed up the rate of processing the claims; though network (which is managed by SITA) challenges remain, with several instances of downtime.

He assured Members that in its future presentations to them, the CF would illustrate the amount of claims processed, finalised and paid: as well as the number of invoices, claims and how they are processed. Also, the CF would resubmit an improved report, including a slide showing the number of claims it has received from private and public employers.

The Chairperson asked if either the DG or DM had anything else to add.

Ms Moiloa thanked the Committee for the interaction, which she felt assisted the department in making improvements. The department, she underlined, took note of the Committee’s request for it to provide information on how much is being paid to beneficiaries.

One of the largest challenges facing both entities is its reliance on SITA’s unreliable network infrastructure. Presently the department, she added, is looking to obtain a deviation, to move on from SITA.  

Ms Boitumelo Moloi, Deputy Minister of Employment and Labour, mentioned that the department noted that both Funds had made progress and would continue to monitor their actions. She indicated that the Minister had met with the AG to deal with some of the findings raised by the AG. Thereafter she thanked the Committee for continuing to hold the department to account.

The Chairperson informed the department of the Members’ resolution for its first meeting with the AG and SCOPA before it appeared before the Committee to account. This would assist the Committee in tracking DEL’s progress in rectifying its negative outcomes. Further, she reminded the department of its meeting with the Committee in the fourth term, for its Budgetary Review and Recommendations (BRRR), where it will have to account for how far it was with the implementation of the AG’s recommendations. She hoped that DEL came prepared to the next sitting, as the Committee did not want to adopt a report for the sake of doing so.

She pleaded with Members to provide the department with specifics on claims against both Funds by members of the public, such as the locations where they are lodged so that officials could better respond to them. In addition, she felt that not doing so, gave the impression that all DEL offices were not delivering on their mandates.

She thanked the departmental officials for the engagement and said if Members had any follow-ups to the issues raised, they would send them in writing.

The meeting was adjourned.