DEPARTMENT OF LABOUR

PRESENTATION TO THE PORTFOLIO COMMITTEE

JANUARY 2007

Director-General: Dr. Van Mkosana

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Annual Report 2005/06

1. Department of Labour

2. Sheltered Employment Factories

3. National Skills Fund.

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1. DEPARTMENT OF LABOURREPORT OF THE AUDITOR GENERAL FOR

YEAR ENDED MARCH 2006• Qualification

– Asset management: Corrective Measures:• The Department is in the process of implementing &

verifying a comprehensive asset register including PPP assets. This will ensure an accurate and reliable asset register which will provide financial information for the Annual Financial Statements

• The following is currently undertaken:• Phase 1:• Countrywide asset verification• Reporting on the condition of assets including bar-coding.

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•Reconciliation of assetsData capturing of assetsLocation verification forms completed and signedAddress any discrepancies on the registerAn inventory list be placed at the back of each office doorPhase 2Capturing financial information from current year going back to 1999/ 2000Reconciliation between BAS and Asset RegisterFor the statements of the 2006/07 financial year the previous year opening balance on LOGIS will be utilized

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Emphasis of matter-DOL

• Independent checks and reconciliations:

• Travel and subsistence expenditure-reconciliation between

PERSAL and BAS:

• Corrective Measures:

• Reconciliation is being performed for the 2006/07 financial year.

• Procedure framework is in place

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Monitoring

• As a result of a lack of a proper management monitoring framework no procedures were set by management to monitor the:utilisation of subsidised vehicles, resulting in 69.11% of subsidised vehicles being under utilised

• Corrective Measures:

• Log sheets are reviewed on a monthly basis.

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The withdrawal of vehicles that are under utilized from the scheme is currently under review. This also takes into account initiatives undertaken by the Department of Transport to revise the 70/30 ratio to accommodate unique departmental challenges.

Reasons for under utilization were provided to the AG during May 2006.

Adherence to Treasury Regulations 8.3.4 and 8.3.5 resulting in inadequate certification of payroll reports

Corrective Measures:Financial circular no 18 of 2006 has been issued in this regard to monitor that all the payroll reports were received back and are certified timeously according to the regulations.

Adherence to Treasury Regulation 8.2.3, resulting in expenditure approval forms not being attached to payment advices. Consequently, irregular expenditure as noted in note 25 of the annual report has

occurred

Corrective Measures:

Control measures are in place to ensure compliance to regulations which includes the requirement that expenditure approval forms be attached to payment advices.

Register implemented at Supply Chain Management to monitor irregular expenditureAdditional training has been provided to programmes regarding the importance of adherence to supply

chain regulations.

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Performance information• Performance information in the

annual report does not agree with the ENE 2005-06 and the objectives on the approved strategic plan.

• Corrective measures:• The Department acknowledges the Auditor

General’s recommendations and the objectives as set out in the ENE are now included in the work plans and would reflect in the 2007/08 financial year.

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Physical security of resources: Inventory

• Corrective measures:• Logistical arrangements are made to access all locations

to ensure that inventory items are counted at year end.

• The Departmental Policy to manage inventory is in place.

• Redundant inventory items are disposed off in accordance with the Departmental disposal policy.

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Policy framework• Staff debtors-irrecoverable:• Corrective measures:• The Debt Management Policy is in place

• Human Resource plan (HR plan)• Corrective measures:• HR plan which is in compliance with Public Service Act is

in place

• Supply chain management:• Corrective measures:• Policy is in place. For the year under review Treasury

Guidelines and practice notice were used.

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Performance audit

• Database- recording of accidents

• Incidents on Occupational Safety System (IOSS)

• Corrective measures:

• Accidents/incidences are recorded at Labour Centres and transmitted to Provincial Offices where it is consolidated. This information is then downloaded at Head Office and captured on excel spreadsheets.

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• The Department has engaged ILO to look into an internationally benchmarked system dealing with accident reports

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INDLELA

• Underutilisation of training center.

• Corrective measures:

1. A slow but steady increase in numbers of candidates is evident from 2003 = 6343, 2004 = 7004 and 2005 = 8865. The decline and increase of artisans is also linked to the economic conditions of the country over the years

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2. The decentralisation resulted in the reduction of trade test backlogs at INDLELA and also allowed Industry to take core-responsibilities in assessing apprentices in their industries.

3. To compensate for reduction in numbers of candidates assessed and to optimise utilisation of resources at INDLELA, numerous workshops were converted to technical training facilities and following numbers of learners trained in these converted facilities:

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– 28 learners in basic house wiring– 12 learners in basic hands skills & basic

machining– 12 learners in brick laying– 7 FET College Instructors in development of

assessment tools– 144 Employment Services Practitioners

(ESPs) trained in basic technical awareness training implemented that capacitates the ESPs to monitor and check on quality of training that is implemented in provincial and rural areas through the social development projects.

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2. Under-utilisation of equipment and personnel and no testing for certain trades.

Corrective measures:

1. A detailed INDLELA repositioning strategy was developed and is in a process of being further refined to reposition INDLELA as a national apprentice assessment centre, moderator on quality of artisan development, to offer specialised training for skills development practitioners or instructors and delivery of Master artisans training.

2. Integral to this repositioning will be the amendment to the current Skills Development Act to introduce a new Chapter on apprenticeships and the repeal of the entire Manpower Training Act of 1981. A first draft is already available and the target is to submit it to Parliament during the 2007/8 financial year.

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3. DoL will review current salary levels of artisan assessors during 2007/8 to align them with the market rates in order to retain skilled staff and to attract others in those trades that are not assessed at the moment including securing allowance for scarce skills occupations in accordance with the current policy.

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3. Hair salon

• Corrective measure:

The hair dressing sector through the Services SETA is now involved and the salon is being utilised optimally.

4. Assessment fees

Corrective measure:

A process has been initiated to secure National Treasury approval on the proposed increases.

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5 Rent for residential buildings and money paid for meals

Corrective measure:A process has been initiated with Public Works to review rentals. The process is moving very slow as the matter of rentals of government housing is national and not unique to INDLELA.

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6 Database for Historically Disadvantaged Individuals (HDIs)

Corrective Measure:

INDLELA could not attract HDI services providers despite the advertisement. The current practise is that INDLELA puts a requirement to existing service providers to bring HDI partners on board.

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7 Control over materials Corrective measure:

Flow control sheet has been developed and implemented. An independent internal audit process to check on the use of the flow process sheet is also in place.

8. Redundant material

Corrective measure:

This problem is resolved.

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9. Delay in obtaining new contracts

Corrective measure:

• Contracts are processed at Head Office and will be decentralized to INDLELA once capacity is developed. In the meantime, Head Office procurement is assisting INDLELA to put all the necessary contracts in place.

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10. Maximum / minimum stock inaccurate Corrective measure:

A monthly stock taking system comparing physical stock with stock on record has been introduced. An independent internal audit process to check on the stock taking system is also in place.

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2. Sheltered Employment Factories

• Qualification• Audit of financial

statements:• Property, plant and equipment: • Asset register incomplete and inaccurate.

• Corrective measures: • Asset register updated on SYSPRO – May 2006• Half yearly reconciliation by factory managers in

place since 2002. Methodology being checked by CEO – to be completed by 31 March 2007

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• Policy in place for registering new assets – March 2006

• Principle of transferring assets to needy location has been in place since 2002

• Disposal Committee formed to inspect sites and recommend transfer / disposal of redundant fixed assets - commenced Oct 2006 and will be ongoing

• Numbering with permanent marker in place since 2000

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Asset management project initiated to compile new asset registers. Due for completion by 31 March 2007. Project deliverables are as follows:

– Review current asset registers, recommend asset categories and reformulate the fields in the Fixed Asset Register

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–Verify the Fixed Asset Register and reconcile with physical location of assets. There are 12 factory sites located around the country and some 9 000 items (many do not belong on the asset registers)

–Establish a unique coding system that integrates with the management information system (SYSPRO)

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–Physically label all the relevant assets

–Establish a methodology to depreciate assets in compliance with GAAP and integrate with the accounting framework

–Recommend training / skills transfer

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• Inventories:

• Corrective measures:

• Financial policies and procedures approved – March 2006

• Accounting project initiated to address AG findings. Due for completion by 31 March 2007. Project deliverables are as follows:

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– Review current financial policies and procedures

– Review all business processes and make recommendations to ensure alignment with GAAP / GRAP

– Recommend training / skills transfer

• Job profiles completed for finance staff - Dec 2006

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• Training of finance staff commenced Nov 2006 and included the following:– Purchase orders and requisitions– General Ledger– Cash Book– Debtors– Creditors

• Staff needs identified and draft organisation structure submitted to SEF Management Committee - Sep 2006

• Recruitment of CFO to be progressed – target 31 March 2007

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• Unlimited access to SYSPRO removed – April 2006

• Principle of “test company” separate from live systems implemented - March 2005

• Implement Accounting project – see 2.1 above. Due for completion 31 March 2007

• Implement Accounting project – see 2.1 above. Due for completion 31 March 2007

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• Accounts receivable: Corrective measures:Finding relates to leave provision that is handled in the Creditors Journal and is dealt with in Accounts payable in section 6.2 below

Impairment of Debtors:

Corrective measures:

Financial policies and procedures approved March 2006

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• Accounting project initiated to review policies and business processes see 2.1 above. Due for completion 31 March 2007

• PFMA and TR checklist prepared - Nov 2006. Training and awareness to be completed by 31 March 2007

• Formal skills audit not yet conducted. Job profiles completed and staff requirements defined – Dec 2006

• Training and skills transfer is a component of the Asset management project (section 1 above) and Accounting project (section 2 above).

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• Staff appointed in line with the Employment Equity plan - March 2006

• Restructuring of the finance department and appointment of CFO is due for completion by 31 March 2007

• Debtors verified by full reconciliation of orders, delivery notes, invoices, statements – Aug 2006

• Statements resubmitted to customers – Sep 2006 and ongoing

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• Debtors lists updated to contain all customer details for audit purposes - April 2006

• National Treasury informed of outstanding Govt Dept debtors (R12 million) – Nov 2006

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• Cash and cash equivalents: Corrective measures:There is disagreement about whether this is irregular. AG has accepted that the accounts are separate from SEF financials. Finalised Jan 2007.

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• Accounts payable:

• Corrective measures:• Obligations were recognised as liabilities in the

annual financial statements. AG has accepted that this finding should be set aside. Finalised Jan 2007

• Financial policies and procedures approved March 2006

• Accounting project initiated to review policies and business processes see 2.1 above. Due for completion 31 March 2007

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• PFMA and TR checklist prepared - Nov 2006. Training and awareness to be completed by 31 March 2007

• Formal skills audit not yet conducted. Job profiles completed and staff requirements defined – Dec 2006

• Training and skills transfer is a component of the Asset management project (section 1 above) and Accounting project (section 2 above)

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• Leave provisions have been verified and reconciled with personnel records – Sept 2006

• Management review process implemented – Jan 2007

• Appointment of salaries and wages supervisor to be progressed. Target 31 March 2007

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• Suspense accounts: Corrective measures:

• Suspense accounts cleared with one exception - Medical Suspense Account

• Advice on how to treat the medical account was requested from Council for Medical Schemes in Oct 2006 and again in Dec 2006. Response is awaited. Will be cleared up by 31 March 2007

• Medical Suspense Account is made up from moneys transferred from all factories over a 50yr period. History is lost

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• Revenue: Corrective measures:

• Policy is in place to recognise revenue only on receipt of signed delivery notes or invoices or cash deposit – March 2006

• Documentation regarding Related Party Transactions is available for audit and preparation of the AFS – Jul 2006

• Detailed financial records are in place• The accounting project will deal with alignment

with GAAP (section 2.1 above). Due for completion by 31 March 2007

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• Supply chain management.Corrective measures:

• It has been confirmed that leases for premises owned by Department of Public Works are not required. AG has accepted. Finalised Jan 2007

• Formal written agreement with transport contractor is in place.

• Specification for transport service has been completed and will go out to tender. Due for completion by 31 March 2007

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• Basis of accounting.Corrective measures:

• Implement Accounting project (see section 2.1 above). Due for completion by 31 March 2007

• Documentation regarding Related Party Transactions is available for audit and preparation of the AFS – Jul 2006

• Confirmed that leases for premises owned by DPW are not required. AG has accepted. Finalised Jan 2007

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Emphasis of matter: Sheltered Employment Factories

• Non-compliance with laws and regulations

• Corrective measures: Accounting project initiated to review policies

and procedures and business processes for compliance. Due 31 March 2007

Debtors reviewed monthly by management – in place for last 2 years

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• Debtors verified by full reconciliation of orders, delivery notes, invoices, statements – Aug 2006

• Statements resubmitted to customers – Sep 2006 and ongoing

• Debtors lists updated to contain all customer details for audit purposes - April 2006

• National Treasury informed of outstanding Govt Dept debtors (R12 million) – Nov 2006

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• Internal controls in process of development. There are capacity constraints. Accounting project initiated to review policies and procedures and business processes for compliance. Due for completion by 31 March 2007

• Contracts previously held by factories are now being held centrally – Sep 2006

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• Monthly management accounts have been produced for past 50 years

• Reports to DoL have been instituted – Apr 2006• Risk based internal audit commenced - Jul 2006• Fraud prevention plan drafted – Jan 2007• All employees are aware of the disciplines

pertaining to the DoL. However no-one is appointed as a civil servant and this leads to confusion. Business case for restructuring is being compiled. Recommendation to SEF Management Committee due by 31 March 2007

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• 93% of debtors (R12million) are Govt departments. Cannot be handed over to lawyers for collection

• Organisation structure reviewed and Job profiles for finance staff completed – Dec 2006

• Restructuring of the finance department and appointment of CFO is due for completion by 31 March 2007

• VAT invoices are verified before payment – 2005

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• Only remaining account is medical account.

• Advice on how to treat the medical account was requested from Council for Medical Schemes in Oct 2006 and again in Dec 2006. Still no response

• • Employment Equity report made to DoL

Labour Office – Sep 2006• Employment Equity profile advised to SEF

Management Committee - Sep 2006

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• Recruitment Policy is in place as per DoL prescripts

• Recent appointments are all in line with Employment Equity plan– March 2006

• Gain Treasury approval to pay on Statement and not on Invoices. Due for completion by 31 March 2007

• Policy implemented preventing payment of cheques in excess of R2 000 – Jul 2006

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• Advice on how to treat the medical account was requested from Council for Medical Schemes in Oct 2006 and again in Dec 2006. Response is awaited

• Budgeting model and procedure still to be developed. Due 31 March 2007 for implementation in the 2007 / 2008 financial year

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INTERNAL CONTROL WEAKNESSES

• Policies and procedures: • Corrective measures:• Financial Policies approved – March 2006• OH & S Policies and standards completed – Jul

2006• HR Policies in progress – due 30 June 2007• Accounting project initiated to review policies

and procedures and business processes for compliance (see section 2.1 above). Due for completion by 31 March 2007

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• SYSPRO training not yet commenced. Due for completion by 31 March 2007

• Restructuring of the finance department and appointment of CFO is due for completion by 31 March 2007

• A system is in place and pre authorisation is performed for any changes and corrections – goes back many years

• Independent reviews of adjustments are performed – 2005

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• Approved journal adjustments are filed - 2005

• Clear the only remaining suspense account - Medical Suspense. Due for completion by 31 March 2007

• Organisation structure reviewed and Job profiles for finance staff completed – Dec 2006

• Restructuring of the finance department and appointment of CFO is due for completion by 31 March 2007

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• IT Policies and procedures 80% complete. Due for completion by 31 March 2007

• Data backup is performed daily, weekly, monthly and annually – Apr 2006

• Data retrieval from backups was successfully accomplished – March 2006

• Off-site storage of backup tapes in place – Jan 2007

• IT plan will be submitted to SEF Management Committee by 31 March 2007

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PERFORMANCE AUDIT

PERFORMANCE AUDIT • Corrective measures:

• A model and procedure is still to be developed for implementation in the 2007 / 2008 financial year. Due for implementation by 31 March 2007.

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SPECIAL INVESTIGATION

• Corrective measures: Disciplinary process has been concluded

and the senior official discharged from the Public Service – Dec 2006

Disciplinary process has been concluded and the factory manager and assistant accountant discharged from the Bloemfontein factory – Nov 2006

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SCOPA RESOLUTION

• Corrective measures:

• Report submitted to SCOPA - 30 Jun 2006

• Further responses made to queries - 12 Oct 2006

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3. NATIONAL SKILLS FUND• Qualification

• Accounting Framework

• Corrective measures:

• NSF Financial Statements for 2006/07 financial year will be compiled in accordance with GAAP/GRAP accounting framework and will be appropriately disclosed.

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• Independent checks and reconciliations.

• Corrective measures:• All outstanding advances have been

reconciled.

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EMPHASIS OF MATTER• POLICY FRAMEWORK• Corrective measures:

• Following referral of the matter by SCOPA to the Labour Portfolio Committee, the Department reached a decision to list the NSF. This decision has been communicated to National Treasury, the Auditor-General and the Labour Portfolio Committee. Processes have been initiated by the Department to ensure the listing of the NSF as an entity is completed by April 2008.

• These processes includes amongst others, the development of a business case, appropriate legislation, development of an institutional framework.

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• POLICY FRAMEWORK

• Corrective measures:

• The Debt Management policy of the Department of Labour is also applicable to the NSF and it covers write-offs and recoverability of debts

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LACK OF MONITORING

Corrective measures:

MANDAB:• Amended MANDAB regulations were published

on 1 December 2006 to facilitate the transfer of the remaining funds to the Social Development Funding Window.

• Funds committed under MANDAB have already been disclosed on financial statements of 2005/06 and will continue to be disclosed in the financial statements of the NSF

THANK YOU