Unemployment Insurance Fund Annual Report 2013
Department of Labour Annual Report of the Unemployment Insurance Fund for the year ended 31 March 2013 Publisher: Department of Labour Chief Directorate of Communication Private Bag X117 Pretoria 0001 Editing: Photography and distribution: UIF Communications and Marketing Layout, Design and Printing: Shereno Printers RP: 248/2013 ISBN: 978-0-621-42136-1 Title of Publications: Unemployment Insurance Fund (UIF) Annual Report 2012/2013
Minister of Labour Minister, MN Oliphant, MP The Honourable Minister of Labour It is my privilege to submit to you the annual report on the activities of the Unemployment Insurance Fund (UIF) for the year ended 31 March 2013. As required by Section 11(3) of the Unemployment Insurance Act, 63 of 2001, the report includes the statement of financial position and the statement of financial performance for the year ended 31 March 2013. It also contains the Auditor-General s report in terms of the Public Finance Management Act (PFMA), no 1 of 1999.
Table of Contents Part A General Information General Information 6 List of Abbreviations/Acronyms 7 Strategic Overview 8 Legislative and Other Mandates 9 Organisational Structure 10 Foreword by the Accounting Authority 12 Unemployment Insurance Commissioner s Overview 14 Part B Performance Information 1. Statement of Responsibility for Performance Information 20 2. Auditor-General s Report: Predetermined Objectives 21 3. Overview of the Unemployment Insurance Fund s Performance 21 4. Progress on Strategic Outcome Oriented Goals 22 Part C Report on Business Operations and other Support Services 1. Business Operations 44 2. Information and Communication Technology 56 3. Communication and Marketing 58 Part D Governance 1. Portfolio Committees 64 2. Executive Authority 64 3. The Accounting Authority 64 4. The Advisory Board 65 5. Risk Management 69 6. Internal Control Unit 70 7. Internal Audit and Audit Committee 71 8. Compliance with Laws and Regulations 73 9. Fraud and Corruption 73 10. Minimising Conflict of Interest 73 11. Code of Conduct 73 12. Health, Safety and Environmental Issues 74 13. Report of the Audit Committee for the year ended March 2013` 75 Part E Human Resource Management 1. Introduction 78 2. Human Resource Oversight Statistics 78 Part F Labour Activation Report 1. Introduction 86 2. Training Lay-Off Scheme 86 3. Social Plan Funding 87 4. Training of the Unemployed 87 Part G Financial Management 1. Report of the Auditor-General 94 2. Accounting Authority s Responsibilities and Approval 96 3. Unemployment Insurance Commissioner s Report 97 4. Annual Financial Statements 104
Members of the Board Mr J Jacobs Mr BKM Nhlapo Mr N Vermeulen Mr G Strauss Mr S Gangca Ms I Frye Mr B Seruwe (UI Commissioner) Mr W Nzimande (Chairperson) Ms C Bothe
Part A General Information Registered Name: Registration Numbers: Unemployment Insurance Fund Schedule 3 A public entity, established in terms of Section 4 (1) of the Unemployment Insurance Act, 63 of 2001 as amended Registered Office Address: 94 WF Nkomo Street, Pretoria, 0002 Postal Address: UIF Pretoria, 0002 Telephone: 012 3371700 Call Centre: 012-337 1680 Website Address: www.labour.gov.za www.ufiling.co.za External Auditors Information: Auditor-General of South Africa, 300 Middel Street, New Muckleneuk, 0181 Bankers Information: First National Bank, 6 th Floor, 1 st Place Bank City, Cnr Simmonds & Pritchard Streets, Johannesburg, 2001 ABSA Bank, ABSA Towers, 15 Troy Street, Johannesburg, 2001 Standard Bank, 9 th Floor, Standard Bank Centre, 5 Simmonds Street, Johannesburg, 2001 Nedbank, 135 Rivonia Road, Sandown, 2196
List of Abbreviations/Acronyms AG Auditor-General of South Africa APP Annual Performance Plan ARC Audit and Risk Committee CCMA Commission for Conciliation, Mediation and Arbitration CFO Chief Financial Officer CIPC Companies and Intellectual Property Commission CPI Consumer Price Index DG Director-General DOL Department of Labour DPSA Department of Public Service and Administration EDS Employee Declaration Section ERP Enterprise Resource Planning FAC Financial Advisory Committee FET Futher Education and Training GCIS Government Communication and Information System GDP Gross Domestic Product GRAP Generally Recognised Accounting Practice HRD Human Resources Development IA Internal Audit IBNR Incurred but not reported IC Investment Committee ICT Information Communication Technology IDC Industrial Development Corporation ITA Income Tax Act IT Information Technology IYM In-year monitoring MC Management Committee MerSETA Manufacturing, Engineering and Related Services (SETA) MICT SETA Media, Information and Communication Technologies Sector Education and Training Authority MoU Memorandum of Understanding 6 UIF Annual Report 2012/2013
List of Abbreviations/Acronyms MP MTEF MQA NAC NSF PEC PFMA PIC PPP SABC SACCI SAPO SARS SETA SRI SSA TETA UCR UIA UIB UIC UICA UIF WSP Member of Parliament Medium Term Expenditure Framework Mining Qualification Authority National Appeals Committee National Skills Fund Project Evaluation Committee Public Finance Management Act Public Investment Corporation Public Private Partnership South African Broadcasting Corporation South African Chamber of Commerce and Industry South African Post Office South African Revenue Service Sector Education Training Authority Social Responsible Investment State Security Agency Transport Education Training Authority Unearned Contribution Revenue Unemployment Insurance Act Unemployment Insurance Board Unemployment Insurance Commissioner Unemployment Insurance Contributions Act Unemployment Insurance Fund Workplace Skills Plan UIF Annual Report 2012/2013 7
Strategic overview 3. Strategic Overview Vision The UIF strives to contribute to the alleviation of poverty in South Africa by providing effective short term unemployment insurance to all workers who qualify for unemployment insurance and other related benefits. Mission The UIF sees its mission as: Rendering an effective and accessible service to all stakeholders Being a sustainable organisation with sufficient reserves Administering the Fund professionally Strategic outcomes oriented goals (a) (b) (c) (d) Improve the collection of revenue from employers Improve the payment of benefits to beneficiaries of the Fund Participate in government initiatives of creating and sustaining decent employment Effective administration of the Fund s operations 8 UIF Annual Report 2012/2013
Strategic overview 4. Legislative and Other Mandates The Unemployment Insurance Fund is a Schedule 3 A public entity in terms of the Public Finance Management Act, 1 of 1999. Constitutional Mandate The supreme mandate of the UIF is derived from section 27 (1) (c) of the Constitution of the Republic of South Africa. The UIF provides social security to its contributors in line with section 27 (1) (c) which states that everyone has the right to social security. Other Legislative Mandates Unemployment Insurance Act, 63 of 2001 (as amended) The mandate of UIF is stated in the Unemployment Insurance Act. The UIF was established in terms of section 4(1) of the Unemployment Insurance Act. The Act empowers the UIF to register all employers and employees in South Africa and pay those who qualify for unemployment insurance benefits. Unemployment Insurance Contributions Act, 4 of 2002 Section 9 of the Unemployment Insurance Contributions Act empowers the Unemployment Insurance Commissioner to collect contributions from all those employers who are not required to register as employers in terms of the fourth schedule to the Income Tax Act and are not liable for the payment of the skills development levy in terms of the Skills Development Act. These contributions together with those collected by the SARS Commissioner in terms of section 8 of the Unemployment Insurance Contributions Act, are utilised to pay benefits and any other expenditure reasonably incurred relating to the application of the Unemployment Insurance Act. UIF Annual Report 2012/2013 9
Fezeka Puzi Director: Risk Management Organisational Structure Boas Seruwe Unemployement Insurance Commissioner Judith Kumbi Mpumi Mnconywa Sagren Govender Director: Operations Chief Director: Labour Activation Programmes Acting Chief Information Officer Hilda Mhlongo Chief Director: Corporate Services Vuyo Mafata Chief Financial Officer Mazwiogwani Phathela Director: Legal Services
Hlonitshwa Mpaka Director: Labour Activation Programmes Kabelo Mahloko Acting Deputy Director: Internal Audit Lebogang Molefe Director: Organisational Effectiveness Nomfundo Mahlangeni Director: Human Resources Management David Khumalo Director: Support Services Muzi Mkhwanazi Deputy Director: Communications and Marketing Hlalisa Aderibigbe Director: Budgets, Expenditures and Bank Reconciliations Lezanne Briedenhann Director: Reporting Mmatshepo Rasebopye Director: Supply Chain Management Ziyanda Fololo Acting Director: Income
Foreword by the Accounting Authority Introduction The UIF is a public entity of the Department of Labour (DoL) and is one of the key social security agencies in the country. In pursuing its mandate, it identifies deliverables and pursues these throughout the year. Overview of the UIF s strategy and performance The UIF has identified four strategic outcome-oriented goals to pursue over five years (2010/11 to 2015/16). These are: Improved payment of benefits to UIF beneficiaries Improved collection of revenue from employers Participate in government initiatives to create and sustain decent employment Effective administration of the Fund s operations. To pursue these goals effectively, five strategic objectives were identified: Fund poverty alleviation schemes Improve governance Strengthen the institutional capacity of the Fund Encourage compliance through enhanced service delivery Improve stakeholder relations To achieve these objectives, the UIF develops performance measures for each financial year. In the 2012/13 financial year, there were 24 performance targets set to be pursued by UIF staff and management. The UIF achieved 65% (15 performance targets). Those that were not achieved still reflected an improvement from the levels achieved in the previous year. Strategic relationships The UIF does not exist in isolation of other state institutions that have a mandate to deal with organised business and the employed citizens of the Republic of South Africa. To service clients effectively, it has recognised the importance of strategic collaborations to improve service delivery. During the financial year, it has entered 12 UIF Annual Report 2012/2013
Foreword by the Accounting Authority into partnerships with the Transport Education Training Authority (TETA) as well as the Companies and Intellectual Property Commission (CIPC). These partnerships are aimed at assisting the Fund to improve the compliance level of employers. The Fund s relationship with the South African Revenue Service (SARS) continues to yield good results for the operations of the Fund. Continuous engagement ensures that this relationship continues to grow to higher levels to ensure adequate cover for qualifying employees. The year ahead In the 2013/14 financial year, the management of the Fund will focus on implementing action plans developed to address the areas of poor performance. The action plans will address the root causes identified for non-achievement of performance measures. To improve operational efficiency, the Fund will embark on a number of projects. The flagship project in the new financial year will be the implementation of an Enterprise Resource Planning (ERP) system. The Fund will also transfer some of its accumulated surpluses to its beneficiaries through the amendment of the Unemployment Insurance Act. The envisaged amendment Bill, which is expected to be tabled in Parliament by the Minister of Labour during the new financial year, will improve unemployment benefits. Acknowledgements/appreciation The Unemployment Insurance Board has played a big role in ensuring that the Fund delivers according to its mandate. The UI Board continues to ensure that through the Fund, the Minister of Labour responds to the needs of UIF beneficiaries. Conclusion The UIF has succeeded in achieving its key deliverables and will continue to be vigilant about obstacles and opportunities presented by the environment within which it operates. NPT Nhleko Director General: Labour Accounting Authority of the Unemployment Insurance Fund UIF Annual Report 2012/2013 13
Overview of the UIF s achievements for the financial year under review The UIF achieved remarkable results during the financial year ended 31 March 2013. The Fund operated in an environment where the economy grew at a slower rate than projected. Strong capital investment by the public sector, the addition of electricity-generating capacity, relatively stable inflation and low interest rates are expected to support improved growth rates over the medium term. This is likely to have a positive impact on the performance of the Fund s investment portfolio. During the financial year under review, the Fund was faced with various pressures. However, it continued to outperform the benchmarks and financial targets set. The Fund s surplus for the financial year amounted to R16,01 billion, reflecting an increase of 35,13% compared to the previous financial year. The increase can be attributed to the increased contribution revenue, investment revenue and the net positive fair value adjustment on the Fund s investments. CONTRIBUTION REVENUE 10,02% Contribution revenue collected, which includes penalties and interest collected from contributors, increased by 10,02%. During the year under review, R13,69 billion was collected in comparison to the R12,44 billion collected in the previous financial year. INVESTMENT REVENUE 10,56% The Fund received R4,66 billion in investment revenue during the financial year under review, against the R4,21 billion received during the prior financial year. Investment revenue comprises interest and dividends on the Fund s investment portfolio and interest from commercial banks. The Fund s investment portfolio is managed by the Public Investment Corporation (PIC) as per the Unemployment Insurance Act. The 10,56% increase in investment revenue was driven by bond returns and dividends received. BENEFIT PAYMENTS 7,14% Total benefit payments increased by 7,14% compared to the prior financial year. The number of beneficiaries paid during the year under review was 731 131 which represents a 3,58% increase compared to the prior year. Unemployment Insurance benefits remain the main benefit 14 UIF Annual Report 2012/2013
Overview of the UIF s achievements for the financial year under review type paid out by the Fund with 581 074 claims paid during the 2012/13 financial year, compared to the 555 969 paid in the previous financial year. INVESTMENT PORTFOLIO 25,16% According to the Unemployment Insurance Act, as amended, the Fund deposits all surplus funds with the Fund s Investment Manager, the PIC, to invest, manage and administer by the terms and conditions as set out in the Fund s investment mandate. The Fund s investment portfolio increased by 25,16% during the year under review amounting to R81 billion in comparison to the prior year s R64,85 billion. The Fund has a low risk appetite as it is dealing with public funds and its investment strategy is overseen by the Fund s Investment Committee, a sub- committee of the UI Board. The Fund, through the PIC, manages its investment portfolio in a conservative manner. The PIC mandate consists of a combination of benchmarks such as Besa All Bond Index (ALBI) and Besa Inflation linked Bond Index (BSAGI), SWIX and SteFi. PIC uses derivative structures to hedge the Fund s equity position against downside volatility and does not follow a speculative approach. The Fund had a positive fair value/market adjustment on its investment portfolio of R4,81 billion for the year under review. ACTUARIAL VALUATION AND RESERVES 9,93% The Fund s actuaries conduct an annual actuarial valuation of the UIF as required by the Unemployment Insurance Act. For the financial year ended 31 March 2012, the actuaries concluded that the Fund is in a sound financial position. The technical reserve for unearned contribution revenue (UCR) represents that part of the current year s contributions that relates to risk periods that extend over the following four years. The actuaries required an increase of the UCR of R1,5 billion to R1,6 billion. The Fund is currently fully funded. The outstanding claims reserve (benefits payable) comprises: Estimated reported benefits payable Claims incurred but not reported (IBNR) Estimated reported benefits payable relates to employees who became unemployed claimants and started receiving payments during the period under review. Provision is made on a prudent basis for the estimated final cost of all claims that had not been settled at the reporting date, less amounts already paid. Provision is made for IBNR claims arising from insured events that occurred before the reporting date, but had not been reported by that date. Based on the actuarial valuation for the financial year ended 31 March 2013, the Fund increased the outstanding claims reserve from R3,2 billion to R3,38 billion. UIF Annual Report 2012/2013 15
Overview of the UIF s achievements for the financial year under review Performance results and challenges The Fund has achieved 65% of the targets it had set for the 2012/13 financial year. These are performance targets that are aimed at achieving the identified strategic objectives of the Fund. Some of the performance results during the financial year are: 109% of mandated socially responsible investments invested by March 2013 against a target of 80% 94,05% increase in funding for Productivity SA Turnaround Solutions compared to the previous financial year s target of 10% 18,45% increase in usage of the u-filing system by employers to submit information and pay contributions against a target of 25% 67% senior management services consists of women by 31 March 2013 against a target of 50% 86% of claims were finalised within five weeks of application as reflected in the Fund s operational system (Siyaya) against a target of 82,5% 4% increase in the number of new employer registrations by March 2013 against a target of 5% 8,06% increase in revenue (excluding interest and penalties) collected against a target of 7% The challenge of non-compliance to UIF legislation by some employers remains, which led to some vulnerable workers not being covered by the Fund. The focus during the 2013/14 financial year will be to strengthen our relationship with the Inspectorate division of DoL. Highlights of future plans and actions of the UIF In projecting the Fund s assets and liabilities over the short and medium term, it is important to note the performance of the South African economy over that period. It is expected that the South African economy will grow by 2,7% during 2013, 3,5% in 2014 and 3,8% in 2015. The UIF s projected liabilities over the same period will reduce, although not significantly, as a result of fewer job losses. However, there is a likelihood that there will be an increase in the Fund s asset base due to an improvement in the investment portfolio. Moderate employment growth is expected over the next three years, with fiscal pressures providing little room for an expansion of public sector employment. Job creation prospects will depend largely on private sector hiring. It is against this background that the Fund will expand its labour activation programmes to contribute to employment creation. The Fund has set as its target for the new financial year, the development of a business case for the establishment of a labour activation fund to focus on job creation initiatives. The investment mandate of the Fund has been reviewed for the new financial year to include new asset classes, unhedged equity and listed property. Allocation towards socially responsible investment has been increased from 5% to 10% of the total investment portfolio. 16 UIF Annual Report 2012/2013
Overview of the UIF s achievements for the financial year under review Acknowledgements/appreciation The UIF operates under the guidance of the Director-General of DoL as the Accounting Authority. The Accounting Authority has contributed immensely to the success of the Fund over the last financial year. The management of the Fund wishes to acknowledge his contribution in creating an enabling environment for the Fund to achieve it s goals. The Minister of Labour and the UI Board have contributed to creating a policy environment that allows the management of the Fund to deliver service to clients in an efficient and effective manner. Our appreciation is also extended to all the strategic partners of the Fund, including the PIC, SARS and DoL, who have played a positive role in the performance of the Fund. TB Seruwe Unemployment Insurance Commissioner UIF Annual Report 2012/2013 17