UIF ANNUAL REPORT 2006/07 PRESENTATION TO THE PORTFOLIO COMMITTEE 20 NOVEMBER 2007

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UIF ANNUAL REPORT 2006/07 PRESENTATION TO THE PORTFOLIO COMMITTEE

20 NOVEMBER 2007

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UIF

• Thank you for inviting us to present to you the Annual Report and Annual Financial Statements for the 2006/07 financial year of the Unemployment Insurance Fund

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Index• Background• Vision• Mission• Strategic priorities• Operational improvements• Compliance levels• Transformation agenda• Financial report• Actuary report• Auditor General’s report• Management Response• Work plan Priorities for 2007/08• Outlook

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Background

• The Unemployment Insurance Fund was established in terms of Section 4(1) of the Unemployment Insurance Act, 2001.

• Funding is provided through the Unemployment Insurance Contributions Act 2002 which provides for the imposition and collection of contributions for the benefit of the Fund.

• The Fund administers the unemployment insurance contributions collected from employers and employees to pay benefits and related administrative expenses. The surplus is invested through the Public Investment Corporation.

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VISION

• Contribute to the alleviation of poverty in South Africa by providing effective short-term insurance to all workers who qualify for unemployment and related benefits

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MISSION

• Rendering an effective and accessible service to all stakeholders

• Being a sustainable organisation with sufficient reserves

• Administering the Fund professionally

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UIF STRATEGIC PRIORITIES

– Develop and sustain a safety net for unemployed workers

– Improve benefit regime– Improve compliance by investing in

infrastructure– Enhance service delivery through institutional

reform– Increase stakeholder awareness and support

for the Fund

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R2.84bn IN BENEFITS PAID IN 2006/07 TO 572,000 CLAIMANTS

BENEFIT TYPE

VALUE / VOLUME

Unemployment benefit Paid over R1,990 billion Approved 421,000 new

claims Illness benefit Paid over R180 million

Approved 30 000 new claims

Maternity / Adoption benefit Paid over R419 million Approved 96, 000 new

claims Dependants benefit Paid over R248 million

Approved 25,000 new claims

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Stakeholder Reach

• The Fund paid R2,84 billion to 572 000 beneficiaries during the period under review

• The decline in benefits payment is attributable to the growing economy as more people are in employment.

• Also increased efforts in communication and education means more people are increasingly becoming aware of the do’s and don’ts in applying for benefits.

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Stakeholder cont…

• A key feature in improving the lives of the workers is constant education and communication

• The Fund undertook an extensive outreach programme to create as well as to increase awareness of the services and benefits of the Fund.

• The Education and Awareness Campaign is estimated to have reached over 20 million people.

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Strategic Transformation

• Transformation agenda –

During the period under review, the UIF began the process of decentralization.

Approval of the restructuring plan for Head Office and subsequently the provincial offices has

– Strengthen strategic management and internal control – Led to the implementation of a new governance structure

including risk management– Ensured a customer orientated service delivery

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Transformation cont…

• Employment Equity Report (Designated Groups)Actual statistics for Africans, Indians, Coloureds, White females and people with disabilities are in close proximity of the target set.

68.7% of the employees are Africans, 14.3% are White females while 10.8% and 3.7% are Coloureds and Indians respectively.

Over 62% of the workforce are women.

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Employment Equity – Race Workforce Profile

RACE AND GANDER NUMBER OF EMPLOYEES

% NUMBER OF EMPLOYEES

White Male 53 2.5

White Female 306 14.3

Coloured Male 79 3.7

Coloured Female 152 7.1

Indian Male 30 1.4

Indian Female 49 2.3

African Male 639 29.9

African Female 827 38.8

TOTAL 2,135 100

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OperationsClaims

Region Created Approved No of payments Amount Paid (million)

Eastern Cape 49,992 49,882 150,671 R 240

Free State 36,684 36,352 121,632 R 159

Gauteng North 40,426 40,182 141,405 R 241

Gauteng South 117,662 117,020 448,612 R 716

Kwa-Zulu Natal 114,496 113,919 391,837 R 531

Limpopo 28,662 28,387 76,128 R 95

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Claims Cont…

Region Created Approved No of payments

Amount Paid (million)

Mpumalanga 48,033 47,889 135,219 R 182

North West 24,312 23,350 88,410 R 124

Northern Cape

15,852 15,199 48,833 R 58

Western Cape

100,593 100,160 303,568 R 501

Total 576,712 572,340 1,906,315 R 2,84 bn

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Call Centre

2006/2007

Received Answered Percentage

333,194 314,397 94,35%

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Improving compliance

– INCREASED NUMBER OF CONTRIBUTORS• Over 528 000 commercial employers on

register up 9.28% and an increase of 9.84% in terms of commercial employees.

• Over 540 000 domestic employers on register up 9.69% and an up swing 7.97% in respect of Domestic employees.

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Compliance cont..

Commercial Registrations 2005/06 2006/07

Employers 490,145 528,077

Employees 6,502,996 6,605,889

Domestic Registrations

Employers 523,547 540,547

Employees 501,629 629,321

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Improving compliance

• Revenue up R1,1bn or 16% for 2006/07

0

5

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Revenue

Billions 5.6 6.1 6.9 8.05

2003/0 2004/0 2005/0 2006/0

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SUMMARY FINANCIAL REPORTR million

2006/07

R million

2005/06

% change

Contributions 8,056 6,922 16

Investment income 1,398 896 56

Other income 10 3 233

Benefit expenditure 2,841 2, 933 3

Operating costs 679 565 20

Net surplus 6,005 4,599 30

Investments 19,997 14, 290 40

Reserves 8,675 7,092 22

Total Assets 20,619 14, 876 39

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FINANCIAL ACHIEVEMENTS

– FINANCIAL IMPROVEMENT• Net surplus of R6bn up 30 % for

2006/07

0

2000

4000

6000

8000

2003/04 2004/05 2005/06 2006/07

Net Surplus

millions

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BUILDING A SUSTAINABLE BENEFIT REGIME – financial investments worth R19.9bn up 40%

– LONGER TERM SUSTAINABILITY• Approximately R20 billion worth of investments

under management with PIC up 40%Billions

0 5 10 15 20 25

2003/04

2004/05

2005/06

2006/07

Billions

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Actuary’s Report

• The asset evaluation conducted by the Fund’s Actuary concluded with the following assertions;– Reserves required to meet potential future

liability was estimated at R8,6bn as at 31st March 2007.

– The Actuary also concluded the Fund will continue to generate significant surpluses on a cash flow basis for the next ten years.

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IMPROVING ACOUNTABILITY

THE AUDITOR GENERAL’S UNQUALIFIED REPORT IS ANOTHER MAJOR ACHIEVEMENT

NO AUDIT QUALIFICATIONS• MAJOR AREAS OF IMPROVEMENT

COMPARED TO PREVIOUS YEARS–Bank reconciliation process–Benefit payment to contributors–Fixed asset management–Supply Chain Management

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Addressing areas of emphasis

• The UIF Management is taking the lead in addressing areas raised as matters of emphasis.

• Through the compliance office, progress made in implementation of AG implementing AG recommendations are monitored.

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Emphasis cont…

10.1 Unemployment Insurance payments and liabilities:

This matter relates to the interpretation of section 13(3) of the Unemployment Insurance Act, 2001. The Auditor-General is of the view that this section can be interpreted and applied in another manner. The fund is of the view that this will lead to inconsistent application of the law.

The Office of the Chief Law advisor has endorsed the Funds interpretation of the section and recommended that the section be amended to be formulated in a manner that is less ambiguous. The section has been targeted for amendment in the next UI amendment bill

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Emphasis cont…

10.2 Benefits paid in error

• The fund maintains a database of 1 million employers and more than 8 million workers. The database of the Fund is updated by employers on a frequent basis as the employment details of workers change. The auditor general is of the view that this data must be independently reviewed and checked for accuracy.

• During the audit from the sample extracted and tested the error rate was under 1%. The fund has undertaken steps to review the data and perform additional reviews of the data.

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Emphasis cont…

Further findings were that the Fund does not have effective controls in place to recover benefits paid in error. The cumulative amount of benefits paid in error is R66.1 million(R33 million:2006) at year end.

The 100% increase to R66 million was due to the implementation of various projects to note/ detect and prevent paying benefits in error. In an effort to improve controls to detect/note benefits paid in error, the Fund in the financial year 2006/7 introduced a new adjudication functionality in the Fund’s operational system hence the increase in benefits paid in error.

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Emphasis cont…

The adjudication functionality electronically detect discrepancies based on updated employee information submitted by employers.

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Emphasis cont…

10.2 Benefits paid in error (continued)PROGRESS TO DATE

• An approved overpayments policy is in place and currently being implemented

• During the 2006/07 Financial Year, the Fund was collecting/recovering from its debtors via set-off and debtors paying through the bank. To further improve on the collection strategy, the Fund has in the current financial year involved the State Attorneys in different provinces and third parties to assist in debt collection.

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Emphasis cont…

• The Fund is also in the process of reviewing its business processes to try and prevent paying benefits in error.

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Emphasis cont…

RECOVERY • The recovery rate has substantially improved in the

current financial year as compared to prior years• 2005 – 2006 - R 1,383,534.15

• 2006 - 2007 - R 9,438,439.71

• April 07 –Sept 07 R 8,884,616.11 ( six months)

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Emphasis cont…

11 (a) The cash basis of accounting is in line with the accounting framework applicable to the Fund. Advice was received from the Office of the Accountant General at National Treasury in this regard. Cash basis of accounting is also used to account for Unemployment Insurance Contributions and all other forms of taxes collected by SARS.

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Emphasis cont…

11 (b). Write off of net amount of R3,8 million.AG’s Finding:• The Fund wrote off a net amount of R3,8 million in

respect of prior years.

• This write off related to the prior year of 2004/5 un-reconciled debits and credits on the bank accounts.

These errors occurred during bulk loading of legacy data with the implementation of the new financial system during the 2004/5 Financial Year. This matter has since been resolved.

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Service improvement initiatives for 2006/07

• The Fund had 4 strategic imperatives , these were:

Investment in infrastructure to boost service delivery

Improve financial sustainability of the Fund Build a sound institution based on good

governance. Increase emphasis on performance

management

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Work Plan Priorities 2007/08

• The focus areas include : Processes• Enhance quality of service to the clients Finances• Obtaining clean audit report

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Work Plan Priorities 2007/08Cont...

Stakeholders

• Increasing awareness campaigns and support

People

• Recruit and retain competent staff

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Outlook

The UIF position for the medium term is: Improving social assistance Address capacity constraints Legislative mandate Social security reforms Amendment to UI Act

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Department of LabourUnemployment Insurance

Fund

• THANK YOU