Compensation Fund: briefing on plans to address performance & governance challenges

Meeting report

Compensation Fund briefing on plans to address governance and performance challenges
Mr Shadrack Mkhonto, Commissioner, Compensation Fund, thanked the Chairperson for the opportunity to meet, and stated that he hoped that the Fund would be able to provide more clarity on questions asked at a previous meeting. He noted that sixteen questions had been asked to which the Compensation Fund (CF or the Fund) was asked to respond. He tabled the questions and answers on a Powerpoint presentation (see attached document for full details).

Members had firstly noted, as a general comment, that there had been little improvement in the performance of the Fund. Mr Mkhonto explained that  a workshop took place on 30 October 2014, with senior and middle management. He noted that 80% of turnaround projects were completed but only 20% had yielded returns.

The second question related to the continuing negative audit outcomes. Mr Mkhonto said that the control environment and processes were identified as the main causes for the negative audit opinions.

Members had noted their concern over the slow pace in dealing and finalising disciplinary actions. Mr Mkhonto said that there was a challenge in relation to the time taken to complete the investigation reports.

Members had also questioned the time taken by the Fund to fill vacant posts. Mr Mkhonto responded that the non-availability of the panel to conduct short listing and interviews was one of the reasons for posts not being filled as soon as required.

Members asked why the posts in the provinces were not strengthened. Mr Mkhonto responded that there had been some improvements to provincial structures, which included:
- Shifting of the processing site
- Shifting of legal administrative posts
- Establishing the vacancy rate and ideal staff establishment

Members had commented that it seemed that the Fund was employing people whose skills did not match the requirements of the post. Mr Mkhonto said that a skills audit was being conducted to address the issue.

The comment had been made that it seemed as if the Fund was not enough concerned with corruption. Mr Mkhonto stressed that an anti-corruption hotline had been established to address the matter, but there were also other measures are also in place to address the issues.

Members had asked how many consultants there were at the CF. Mr Mkhonto responded that at times, the Fund did face skills challenges, when consultants would be brought in to assist. He noted the various service providers in the Fund. The State Information Technology Agency (SITA) also provided services. True South was noted as providing actuarial services and assisting with a new finance model which the Fund wanted to introduce; this would result in lower premiums for members.

Members had asked how many systems the CF utilised. Mr Mkhonto noted that during the year under review, and the current year, the Fund had different systems, but wanted to work towards only having one system.

Members had asked for more detail on the statement that sometimes there was defiance and resistance to change on the part of staff. Mr Mkhonto said that line managers were expected to closely monitor this trend and, where appropriate, take disciplinary action. The Fund would continuously implement change management to keep staff informed.

Members commented that the basics for auditing were not provided by the Fund. Mr Mkhonto reported that now, a business case for a document management system had been drawn and introduced.

Members noted that they had previously requested a progress report on the first two quarters of the 2014/15 financial year. Mr Mkhonto reported that in the first quarter, 46% of targets were achieved and 54% were not achieved or were identified as work in progress. In the second quarter, 31% was achieved and 61% was not achieved or was still work in progress.

(Later a Committee Member pointed out the mathematical errors).

The Members had been concerned about the comment, by the Auditor-General (AG) that the Fund was not fully supported by its Board. Mr Mkhonto said that the Board had, since that comment, started to advise the Fund's management on matters related to the financial statements. It also assisted in other matters, including performance issues of the Fund. A number of sub-committees had also been established to address challenges and to assist management and the Chief Financial Officer.

Members had asked whether the Board was performing properly. Mr Mkhonto noted that the Board was making recommendations to the Minister and continuing in its advisory capacity.

Members asked for the current status in relation to the proposed decentralisation. Mr Mkhonto said that this process was on-going but the main challenge was in relation to finding office space.

Mr Mkhonto said that the Fund was informed that 30 previous comments still required answers, and he noted that an e-mail was sent to the Committee member concerned, and the questions and queries were still awaited. Once they had been received, all would be dealt with. He assured Members that the Fund was continuously working to resolving the problems and remedying the situation.

Discussion

The Chairperson noted, after checking with Members, that they would firstly deal with any follow-up questions from this part of the presentation.

Mr D America (DA) noted that the duplicate payments were not addressed, although this was discussed in a previous meeting.

A delegate from the Fund responded on the duplicate payments and advance payments. In 2012 these payments were made to five health care providers. The full amount was recovered from Medi-Clinic, and R3 million from Netcare. Three weeks ago, management met with three health care providers to work towards recovering the money. The correct accounting principles were applied. Negotiations were more successful with some health care providers than with others. The Fund was at an advanced stage of addressing reconciliations and a report could be provided when the process was finalised.

Ms S van Schalkwyk (ANC) was still concerned about the slow process of disciplinary cases, and the fact that the blame was being placed on line managers. It seemed that some of the managers could not be trusted, and she asked how this point too was being dealt with.

The Acting Chairperson agreed with concerns about attempting to shift the blame for some instances on to the line managers, and said that the non-availability of presiding officers to deal with matters was of concern. She identified problems with the percentage figures in the presentation.

Mr M Plouamma (AGANG) questioned the entity for engaging in a relationship with a trade union which is unregistered. He further noted that the Fund appeared still to be in a challenging position.

A delegate from the Fund addressed the issue of human resources relating to misconduct. It sometimes happened that an internal resolution followed, and the Fund could not pursue these cases. In relation to questions about the unions, it was explained that in order to be recognised, a certain number of members should belong to this union. The union would be registered but no longer part of POPCRU. The disciplinary cases would proceed with SASAWU.

Presiding officers were members of staff who worked in other areas of the Fund, in order to allow for impartiality. These members did not receive any extra remuneration. In terms of panel members who were appointed by the Minister, there was a need for better diary management to accommodate all members who had to meet.

In relation to the panel for the filling of posts, he explained that after the advert appeared in the media, a panel should be convened for shortlisting of the candidates. One or two candidates may be sent for competency assessment. A service provider was needed for the skills audit as there was not capacity for that in the Fund.

Ms van Schalkwyk wanted to know when the hotline had become operational.

An official from the Fund answered that the hotline allowed the public access to report fraud and corruption. It was tested by an official who found that it was operational. The public had also been sensitised to this service through marketing. SITA did not perform the actual work on the hotline, but provided the service providers. This enabled the Fund to be aligned with the Act.

Ms F Loliwe (ANC) took over the Chair at this point, as the Chairperson had to be excused.

Mr I Olllis (DA) noted that the document which the Committee received did not in fact set out the 16 questions and he requested that the document being presented be e-mailed to the Members.

The Acting Chairperson asked that a copy of that presentation should be circulated now.

Mr Ollis asked whether the SAP accounting system was still being used.

Ms P Mantashe (ANC) noted that her concerns continued, particularly since the Fund establishing a body to investigate the audit appeared to be little more than the Fund itself avoiding responsibility. The Fund appeared to be too extravagant, given that it was using money from the fiscus which was contributed by ordinary citizens, and she said that if this was so, then it was showing financial mismanagement. She was not comfortable with the whole situation.

The Fund's delegate responded that a forum would be established to work with the service provider periodically. The matters raised by the Auditor-General were addressed, and programme and responsibility managers had been employed. The action plan was signed off by the programme managers. The monitoring then would follow and letters had been issued to indicate the process made until end of October 2014. Challenges with the financial statements had existed for a period of seven years, but the focus was being put on the last three years. The issue of financial misconduct arose from the identification of the problem that internal controls were not sufficiently managed. A financial management misconduct committee was introduced, and this was outsourced to prevent conflict of interest. The other members were internal, except for the Chairperson.

Ms P Mantashe wanted to know how these members were paid.

The delegate responded that only the Fund Chairperson was compensated outside the money of the Fund. This was in line with the circular from the National Treasury which related to remuneration of board members.

Some banter ensued with Members from opposing parties calling each other "comrade", and noting that despite their political differences, friendships were formed.

The Chairperson returned, apologised for her short absence, and resumed the Chair.

Ms van Schalkwyk asked exactly how the decentralisation was being dealt with, and how issues involving the use of consultants were being addressed.

Ms Loliwe wanted to know why sometimes the Fund appeared to be using SITA, and at times would use other consultants.

Mr W Madisha (COPE) questioned the reasons for outsourcing and whether there were not people within the structure who could possibly perform the work; if there were, then employing others was wasting money.

A delegate from the Fund agreed that the outsourcing was costly but reminded the Committee that there were instances where institutions would require outsourcing, if they lacked capacity and skills to do certain tasks. However, it was known that the Fund's organisational structure should be addressed and financial management has been identified as the first line of restructuring.

Another delegate from the Fund noted that a committee existed to address decentralisation. Recruitment was currently on going. Provinces lagging behind had been addressed, and priority was being given to certain posts such as managers and medical-related vacancies. The necessary skills were to be attracted at provincial level.

The Chairperson wanted to know how many managers were needed, and in which provinces, and what time span was envisaged.

The delegate noted that she did not have all the details.

The Chairperson expressed her concern that the delegate was unclear about the exact numbers and in which provinces these professionals were needed. These vacancies had existed previously, and she wanted to know exactly what the current problem was.

The delegate apologised, saying she was not aware that the report had not been handed to the Members.

The Chairperson called for clarity again, and wanted to know what skills were needed to occupy these posts.

A delegate was able to specify that there were nine Medical Officer vacancies in Occupational Health. Only five applications were received, but three candidates withdrew, and two were interviewed. One accepted employment elsewhere and the other declined the position as the salary offer was too low. The Fund was then advised to review the job profile.

The Chairperson noted that it appeared that the salary offer remained a challenge, and asked if this could not be overcome.

The delegate answered that the job profile was to be revised but this would involve another process.

The Chairperson asked whether the Fund would be compromised, if the job profile was modified.

The delegate noted that job sharing was possible.

Ms Loliwe noted that there was a discrepancy between the verbal presentation and written report. It appeared that one province was dependent on another for employment.

Mr Mkhonto stated that the new legislation involved employing a Medical Officer with the specialised skills. The German model was followed, in terms of the ranking of the medical posts. The Fund may have to review the job profile and employ a manager and then proceed with decentralisation. In order for this plan, however, an organisational review was needed.

The Chairperson wanted to know when the vacancies would be filled. The Fund should address the matter with the Department and the Minister.

A delegate mentioned that when decentralisation was introduced, most people indicated that they wanted to work in Gauteng. The employees with more experience would be placed in their preferred site. The majority of employees affected were at level 6 and these posts were not advertised.

The Chairperson wanted to know who had written the report.

Ms Lungisa Matandela, Chief Operations Officer, Compensation Fund identified herself, together with other members of staff, as being the author of the report.

The Chairperson questioned whether the matter was only related to the nine vacancies or if there were more vacancies.

Mr Tshepo Mokomatsidi, Chief Director: Corporate Services, Compensation Fund (Department of Labour), stated that there were more vacancies.

The Chairperson stated that the impression was given that only nine vacancies existed. She said that the delegates should be completely honest with the Committee, and not make things difficult, so if more vacancies existed, then this must be stated up front.

Ms Loliwe reiterated that she was disappointed in the presentation, particularly in relation to the Human Resources Department, as there were discrepancies, and the delegates had not addressed the matter according to the report.

Ms Mantashe was concerned that people from the Eastern Cape would have to wait until others were employed before being employed themselves.

Mr Plouamma said it seemed that all services had been outsourced. He commented that it also seemed that some of the Directors should be undergoing disciplinary hearings.

The Chairperson noted the contradictions, and questioned whether the report writing was outsourced.

Mr Mokomatsidi identified a provincial and national structure and stated that the actual numbers of vacancies in provinces was not available at the moment.

The Chairperson questioned whether reports were not directed to him, and asked whether he was relying on someone else to give him information about his own area. She said that there was clearly a need to talk about the Fund in the provinces, but it seemed that if this was not possible, then a call would go out to the Department to answer.

Mr Mkhonto said that there were administrative arrangements, between the Department of Labour and entities. However, he recognised his responsibility for the matter and said he should be able to provide the answers in future, as the Fund returned with a report on the vacancies in each province and the plans to fill these vacancies.

The Chairperson thanked the Commissioner for being open on this matter. She expressed concern that the HR Manager may have misled the Committee, because when the exact number of vacancies was questioned, the delegate instead provided a lengthy answer and avoided the question. Politicians understood the processes, because the committees needed to provide oversight. If this was merely a "cut and paste" document, then this must be admitted. She was worried that exactly the same situation would be presented in a few months time, and that would affect the performance of the Fund.

A delegate from the Fund noted that he utilised the PERSAL system to ascertain the vacancies.

The Chairperson stated that the delegate should visit the provinces. The Committee would also be doing this if necessary.

Ms van Schalkwyk said she was confused and wanted to know what was happening in the other offices of the Fund. It seemed to be that the Fund was only really dealing with national-level matters, and was not able to deal with matters at the provincial level, and if this was so, then there was little point in continuing with the meeting.

Mr Madishe noted that the Committee had not been unsympathetic to the problems that the Commissioner had, and he had shown some remorse, but the Committee wanted now to know when the report would be delivered, and when implementation would happen. There was some urgency to this. People had been injured and were dying in the rural areas. The weaknesses of the Fund were known, but the suggestion that a report could be brought to the Committee in future was not feasible.

The Chairperson noted that the discussion seemed to be going in circles and getting nowhere.

Mr Plouamma advised that the Commissioner should consider disciplining the Fund members. This was an important entity as people were reliant on this Fund, and the Committee was not going to treat it lightly. The document really said nothing but contained a lot of semantics. He was under the impression that the Fund could not even remember who all the consultants were.

Mr America noted the structural problems and questioned how to performance-manage the decentralisation.

Ms Loliwe again cited the various contradictions. She felt that the use of consultants was damaging to the Fund. She thought that the Fund should be given seven days to report back.

Mr Ollis suggested that the board members also be asked to make a contribution.

Another delegate from the Fund noted that the IT consultants were directly employed by the Fund. In answer to a previous question, he noted that the SAP system was still in use; it came directly from he Department of Labour. Dimension Data was another consultancy firm that was being used. He could not  answer on the amount of money that was spent and could not be held responsible for the past,but confirmed that he was attempting to fix matters for the future.

The Chairperson said that in future more elaboration would be welcomed.

The Chairperson questioned the role of the board.

Mr Mongezi Mngqibisa, Chairperson, Compensation Fund Board, noted that he was part of an advisory and not an executive board. The Board was responsible for advising, as outlined. About five committees had been established. The structural issues were the responsibility of the Director-General and not of the Commissioner. The Board advised the Minister to allow the Commissioner to be held accountable but the advice was not accepted. The Fund was complex, and thus in need of complex management. The quality of advice depended on the quality of information received. The Commissioner needed the required framework. A new model and restructuring of the Fund was required. Highly competent people served on the Board and wanted to share their knowledge with the Fund.

Mr Fani Xaba, Compensation Fund Board Member and Member of the Audit Committee, highlighted the need for trust and the focus on strategic issues. Nothing new was being noted. All the resolutions should be brought forward and then they could be discussed. A total overhaul of this entity and its work was needed, but this was a positive challenge as this Fund was "cash-flushed" and there was a problem that it had too much money. He jokingly noted that the Committee Members may need compensation, noting the comment from one Member that he was “scared” and another as being “confused”. Good consultants should be employed for improving the Fund and so that no damage was caused in the process. Some staff had proven un-trainable and hence there was a skills shortage.

Mr Ollis asked why the Board members did not resign, as they had made recommendations to the Minister without her implementing these changes. He further asked why the staff who had proven un-trainable were not being dismissed or transferred.

The Chairperson requested a meeting with the Board, the Commissioner and the Director-General of the Department of Labour, so that then all the questions could be answered in detail.

Mr Ollis requested a one-sentence answer, saying that he did not want the Fund to have to return for then there would be more questions left unanswered.

Mr Plouamma stated that the document containing the resolutions must be provided to the Committee.

The Chairperson concluded that the report was unacceptable if the Fund's delegates could not speak to it properly. She said that, in future, the reports must be drawn as soon as possible and finalised before being presented to the Committee. She noted that the next meeting date would be arranged by the Committee Secretary.

The meeting was adjourned.