UIF on challenges experienced with the financial administration of TERS in WC; COVID-19 TERS public participation process

Meeting report

Unemployment Insurance Fund Presentation

Ms Marsha Bronkhorst, Acting Commissioner: Unemployment Insurance Fund, said the Unemployment Insurance Act, 2001, empowered the Unemployment Insurance Fund (UIF) to register all employers and employees in South Africa.

The Fund must be used for the:

• Payment of benefit in line with the Act
• Reimbursement of excess contributions to employers
• Payment of :

Remuneration and allowances to members of the Unemployment Insurance Board (UIB) and its Committees and;

Any other expenditure reasonably incurred and relating to the application of the Act

The Unemployment Insurance Fund operates in one provincial office of the Department of Labour. There are 12 Labour Centres in the Western Cape, which members of the public can access to apply for benefits. Those Labour centres service more than 88 visiting points within its geographical location. Claims processing happens at 16 sites.

Types of benefits include:

• Unemployment
• Illness
• Maternity
• Adoption
• Dependents

Progress on Follow the Money Project

The Unemployment Insurance Fund appointed seven audit and accountant firms to conduct the post-verification audit through the “Follow the Money Project.” The scope of the project included:

Verification Team:

• Verify if COVID19 TERS funds were used as intended;
• Confirm if it funds the intended employees;
• Verify accuracy and validity of the application;

Support Team:

• Trace and track all untraceable employers;
• Assist with debt collection where needed;
• Assist with fraud investigation where needed.

Common findings

• Employer received Temporary Employer/Employee Relief Scheme (TERS) but has not paid over to employees
• Employer claimed for employees who are working
• Employer paid employees less TERS than received
• Employer submitted false claims
• TERS funds utilised for personal expenses such as paying for credit cards
• Employer claimed TERS but still paid employees full salary
• TERS funds utilised for operating costs
• Employers overstated salaries

Suspected Fraud

• Amount involved: R3 842 336.75
• Nature of the suspected fraud: Company was operating during lockdown

Non-Cooperating Companies

• Big G Employment Services
• PEPCO LIMITED
• Cape Union Mart
• N1 Restaurant Suppliers (Pty) Ltd
• CoriCraft (Pty) Ltd
• Concorde Employment Contractors
• Venture Diversified Products Pty Ltd
• SP Automotive Profile Sealing Systems S.A

Discussion

Ms N Nkondlo (ANC) asked the Commissioner to explain the entire concept of employees not being declared, and what this ultimately meant. She also asked for data, expressed in percentage, of South African workers versus foreign workers, who were paid nationally and within the Western Cape.

Regarding the fraud findings, Ms Nkondlo asked if the findings could be broken down into different categories. This will allow the Committee to get a fuller picture on which sectors were the main issue in the Province. 

Regarding slide nine, she asked about the reasoning behind the decrease in applications from April to December 2020.

Lastly, she said she was shocked when looking at the numbers given to the Committee. She asked for an explanation. The comparison between the numbers in slide eight and slide nine were shocking, as the numbers were very low, despite pay-outs being huge. She said her mathematics was not the best, and an explanation would help her understand the figures, as the huge amounts made no sense to her.

The Chairperson said UIF officials need to make the system more user-friendly, to help employers and employees. If every single person applied for what the person is entitled to and received the pay-out accordingly, it would help stretch the South African Rand for the Fund. The Department of Employment and Labour was essentially the political department responsible for the UIF. The Department should have been prepared to deal with the Covid-19 situation, before Covid-19 occurred. The investigations and other issues which occurred were a symptom and result of what was happening with the system prior to Covid-19.

The Chairperson said the eight non-cooperating employers names must be urgently forwarded to the Red Tape Unit of the Western Cape’s Department of Economic Development, to try and sort the matter out as quickly as possible. The Chairperson asked for the total number of unique applications received by employers and employees to be forwarded to the Committee. She asked for an explanation regarding how the figures on slide eight and nine were calculated.

The Chairperson asked who monitored the pay-out to the employees; asked what the process was; and what was being done to ensure employees received money from employers. There were complaints from constituencies, and based on these complaints, she asked if the payment of some employees, and not others, was linked to the non-declaration of employees.

She asked the Commissioner to forward its periodical oversight visit schedules to the Committee. The Committee will use it in the event Members feel the Committee needs to conduct an unscheduled oversight visit. The Chairperson asked the Commissioner to schedule a date in which the Committee could be taken through a mock application of the UIF TERS funding, from start to finish. Unless one was an actual business, it was not easy for someone trying to do oversight over the system to see exactly how the process worked; to see what the requirements were; and what impediments individuals had to deal with in trying to register and receive benefits.

A risk regarding schools was mentioned. She asked for information on this to be forwarded to the Committee, who would in turn forward it to the Education Committee. She asked the Commissioner if the risk regarding the particular schools was pointed out to the Department of Education; and asked for the case number of the employer suspected of fraud to be forwarded to the Committee, including the average number of fraud cases nationally, for the Committee to get an idea of the differences between the provinces.

Ms Bronkhorst said it was a mammoth task for the UIF to change its systems from the systems and processes which it previously had. Payments in the past were anywhere between R8-10 billion per annum and rose to over R60 billion during the Covid-19 period. Systems were changed from paying an individual, to the introduction of paying employers to disperse the funding to employees, in the way employers deemed the easiest and most efficient way to make sure money reached workers.

At the onset, the verification of bank accounts presented a challenge to the UIF. This delayed the system and payments to employers. The delay was most often caused by employers entering the incorrect information into the system. The employer was often notified of these mistakes, because it was the employer who needed to correct it on the system.

One of the mandatory statutory requirements was, an employer had to inform the UIF when a worker started working for the employer. This is known as a declaration. Failure to declare an employee could often result in the worker claiming unemployment benefits while working, and resulting in the overpayment of benefits. The data on South African citizens’ payments versus foreign citizens’ payments, would be forwarded to the Committee. Regarding fraudulent findings, there have been two more cases added to the initial finding of only one case. The one matter related to an employer who took an administration fee for paying tax money, and the other was a matter where an employer claimed UIF money, despite terminating workers employment contracts. All three cases were handed over to the South African Police Services (SAPS) for further investigation.

The decrease in the number of applications from April to October 2020 was a result of the shift from the ‘hard lockdown’ to the slightly adjusted lockdown, where some workers were able to return to work. The opening up of the economy significantly reduced the number of applications submitted. The pandemic at the very least assisted the Department in finally getting things more digitally aligned.

Ms Bronkhorst said 54 981 businesses were registered with the UIF and applied on behalf of its workers. There were 1 109 339 unique identity numbers, these are actual people. Slide 8 showed there were a number of people who applied more than once per month. The Fund received 2.8 million applications, and as such excess applications were not paid. This was therefore referred to as unique applications.

Irrespective of the contributions paid, an individual would never receive less than the minimum wage of R3 500 per month. The principle of labour legislation in South Africa was one based on self-regulation. According to the Commissioner, neither the Department of Employment and Labour, nor the UIF would ever have enough inspectors to inspect each and every workplace, annually. However, it had proactive inspections to educate employers and to make sure employers complied. The pandemic was something which could never have been predicted. As per the memorandum of understanding, employers were expected to submit proof to the UIF within five days of the money being paid to employees. While some employers did this, others did not. This sparked the ‘Following the Money Project’. Banking verifications were a big challenge. Oversight visit information would be forwarded to the Committee. Arrangements surrounding the time and date of the mock application would be coordinated with the Committee Secretary.

The Department of Education was not involved because the UIF worked with individual employers. However, the Fund would follow up on the proposal with the Department of Education (DoE). The police case numbers would be provided to the Committee.

Mr A Van der Westhuizen (DA) asked if employers were given additional information setting out which amounts were meant for which employees, and which employees had not been verified, and so on. This would make it easier to reconcile the money received.

Regarding the call centre, Mr Van der Westhuizen alerted the Commissioner to the slow turnaround time. He said he tried to get through to the call centre, and wanted to know what the general experience was regarding the call centre’s service. Lastly, he asked what the current position of the UIF’s bank balance was.

Ms Nkondlo wanted to know the turnaround time between applying for the UIF benefits and the money being paid out. She asked if the verification process was still underway and how transactions would be verified. The system for the UIF claims was open to fraud and manipulation, especially because of the UIF being self-regulated. The Commissioner was asked if the UIF was able to quantify the non-declaration problem, including what was being done to correct it. With the lowest amount of R3 500 being paid out to individuals, she asked what the highest amount which was paid out was.

The Chairperson asked for a comparison of fraud cases between provinces. There was no reason for there not to be integration between departments to deal with the verification issue. The Department of Trade and Industry (DTI) and the South African Revenue Services (SARS) were a good place to start. The Chairperson asked for an explanation on the statement which said the UIF was a third party, and could not verify the specific information it needed.

The UIF’s website and application process was not very user friendly. It needed to be re-designed to be simpler for the ordinary person to use. In light of the Committee conducting public hearings, the Chairperson asked the Commissioner what information UIF needed from the public regarding the public’s experience or complaints, so it could deal with these issues.

Lastly, the Chairperson asked for information regarding the current backlog of applications within the UIF, and the effect it had on the curvatures of other applications.

Ms Bronkhorst said the Fund prioritised employers according to the ‘Follow The Money Project’. All employers would be audited. Employers who were identified in the Auditor-General’s report as potentially problematic employers were audited and looked at first. The task portal on the website gave an explanation regarding who the money being issued was for, along with various other details. The call centre was in the process of switching locations, and as such there were delays in the response and turnaround times. The new call centre would be fully operational the Monday after the current meeting. The Fund hoped to achieve its normal telephonic answering time of 20 seconds. 

At the current stage, the UIF could definitely cover its liabilities. The UIF dealt with 90% of its claims within 15 working days. However, the lockdown period caused delays to its turnaround time, with 87% of its claims being dealt with within the 15 working days.  The system of the UIF itself was based on feedback given by employers. The first audit by the Auditor-General showed there were a number of loopholes in the system, which needed to be fixed. The entire system has been improved, with checks and balances in place. However, no system was full proof. Declaration was equated to registration. An employer could be registered with only five out of all his workers being declared. The lowest amount paid was R3 500. The highest amount depended on the individuals’ contribution to the Fund, and average salary in the months before the lockdown. The comparison of fraud between the provinces would be provided to the Committee in writing.

Regarding the public participation and hearings, the Commissioner said at the very least, it would need the individuals identification number (ID). A list of other possible requirements to speed up the process would be provided to the Committee in writing. Statutory benefits were decentralised in the provinces. As such, all claims for unemployment, maternity, illness, and dependence benefits were dealt with through the provincial office in Cape Town, and by processing sites. The Commissioner said for the public hearings, it would be important to have representatives from the provincial offices. This is because it was essentially the provincial offices responsible for the province’s claims.

Mr Van der Westhuizen said what he learned was there was a lack of compliance with the rules regarding registering employees with the UIF. He wanted to know the extent to which the UIF worked with the General Labour Inspectorate, and what its experience has been thus far.

After being unable to get through to the call centre, he sent an email, and wanted to know the turnaround time regarding online communication, because thus far he got no response.

He also asked what the approximate bank balance of the UIF was; and if Mr Teboho Maruping, UIF Commissioner who was suspended in the previous year, was still on the UIF payroll as Commissioner. The incident occurred nine months ago, was pending forensic investigations, and he asked if any outcomes with regard to termination occurred.

Ms Bronkhorst said the inspectors of the Department of Employment and Labour worked on the UIF checks and compliance. There were UIF auditors who went to employers and audited the employers’ books by doing a full payroll audit, to make sure the payrolls were correctly paid. Mr Maruping was still on suspension, with the case still being finalised by the Special Investigating Unit (SIU). The Fund was awaiting the final reports for the recommendations, once received, it would take appropriate action. Some other senior officials from the Fund, who were previously on suspension, are back at work. The Commissioner apologised for the telephonic delay and the email delay. Both are linked to the new call centres being set up.

Lastly, she said the current UIF bank balance was just over R100 billion.

Mr Allan Regavallo, Director: Provincial Operations, UIF, said the salary cap was R17 712. The maximum which the Fund paid per day was R221.28, and amounted to R6 730. Regarding the system, the Auditor-General’s finding set out areas of improvement. The first related to the external sources related to its databases. According to the bank verification process, it was divided into three portions, each being dealt with separately. Any issues occurring in any of the three portions, was dealt with accordingly. It played a role related to contacting the bank and individuals, to try and get verified and sorted.

The Chairperson thanked the UIF delegation for its attendance. Committee Members were invited to ask follow-up questions, or new questions to be put to the UIF in writing.

Deliberations on the Covid-19 TERS public participation process

The Chairperson said the Committee would discuss the way forward with the Covid-19 TERS public participation process. Members were asked if there were any questions on the matter.

Mr Van der Westhuizen said one needed to ask if people submitted claims, and if people felt there was enough guidance with completing those claim forms. Secondly, he asked what the criteria was for people to make a successful claim, and if people experienced any delays in receiving money.

The Chairperson said it was important to distinguish between a business and an individual. The Committee also needed to make sure the advertisement was specifically dealing with the Western Cape. The procedural officer liaises with Dear South Africa through the Public Education Office. The Committee would be running the public participation process. The Chairperson asked if it could be ensured none of the questions were changed, as previously happened. The advertisement needed to specifically state the process was dealing with the Covid-19 TERS, and was specific to the Western Cape. Submissions and complaints should be accompanied by a reference or ID number at the very least, to ensure it could be passed on to the UIF to be dealt with. Information regarding how many applications were made, approved, or rejected, should accompany the submissions. Any time delays should be noted, to help the Commissioner deal with service delivery and turnaround times. The pay-out of successful claims had to be done within five days. In this regard it would be necessary to find out where payments took place much later than this period, or where payments had not yet occurred. The percentage and the amount paid out needed to be indicated, in the instances where money was paid out. The information being sent from the Commissioner would be included as well.

The Committee was asked if it could submit any other questions which it had by Wednesday, 19 May 2021, after which, the procedural officer would be given a few days to liaise with other colleagues on how the questions should be drafted. Once approved, it could be sent out for advertisement.

Mr Van der Westhuizen asked if a summary of the verbal questions mentioned in the present meeting could be supplied to the Committee in writing.

The Chairperson, after consulting with Ms Zaheedah Adams, the procedural officer (Committee co-ordinator), agreed the questions would be supplied by the 17 May.

Mr P Marran (ANC) recommended the Paarl Post, and the Worcester Standard, which are local newspapers, be added to the advertisement list.

The Chairperson agreed.

Mr Van der Westhuizen said the entire advertisement exercise was an expensive one. However, he asked if the George Herald could be added too, as it was a newspaper which had a wide circulation. He recommended the Committee look into targeted paid advertising when it came to social media. He said it would be a good experiment for the provincial parliament to start advertising on dedicated social media platforms, and direct the advertising at specific audiences where need be.  

The Chairperson said the George Herald was already on the suggested list of newspapers. The Committee would be more than happy to look into the particular recommendation regarding paid social media. Making use of Facebook and Twitter, and directing it at both employees and employers within the Western Cape, was suggested.

Ms Nkondlo asked for the issue of language to be considered. There was a variance regarding language and literacy levels from the low-end employees to the high-end employees. Community newspapers were important because it provided a wider reach in various languages, to various communities, where standard English was not be the first language of communication. She asked if Government Communication and Information Systems (GCIS) Western Cape, was notified of the public participation process.

The Chairperson said all information regarding public participation and hearings were always issued to all other government departments in the Western Cape. This included local government as well. As such, GCIS would be covered. The procedural officer was asked if she could liaise with the Public Education Office regarding getting the advertisement translated into various languages, to be sent to community based newspapers.

The Chairperson told the Committee to be safe, and said the Committee would aim for placement of the advertisements by the week of 12 June until 21 June. The deadline would be 12 July, which fell into constituency week and gave the Committee enough time to come back and set an actual date for the public hearings. The Chairperson said she would liaise with the procedural officer regarding a date on which the public hearings could take place.

The Committee agreed.

Consideration and Adoption of the Committee’s Draft Annual Activities Report for the 2020/21 Financial Year

Mr Van der Westhuizen moved to adopt the report

Mr D Mitchell (DA) seconded the adoption of the report

The Committee’s Annual Activities Report for the 2020/21 financial year was adopted

Consideration and Adoption of the Draft Committee Minutes for Wednesday, 31 March 2021

Mr D Mitchell moved to adopt the minutes

Mr Van der Westhuizen seconded the adoption of the minutes

The Committee minutes for Wednesday, 31 March 2021 was adopted

The Committee Members were thanked for their attendance and participation. The Chairperson wished all Members well.

The meeting was adjourned.