THE Auditor-General of SA (AGSA) recently delivered a devastating virtual briefing to the Standing Committee on Public Accounts (Scopa), exposing the disastrous financial management and governance inside the Compensation Fund (CF) and the Unemployment Insurance Fund (UIF).
The meeting, chaired by Rise Mzansi’s Songezo Zibi, revealed systemic failures, rampant fraud, and a culture of non-accountability that have plagued these entities for over a decade.
The CF, which provides compensation to workers injured or disabled in the line of duty, has received a disclaimer of audit opinion for 12 consecutive years. This unprecedented failure underscores a complete breakdown in financial oversight, governance, and internal controls.
Meanwhile, the UIF, a lifeline for millions of unemployed South Africans, faces similar challenges, with its 2023/24 audit still underway but already showing signs of significant irregularities.
Bulelwa Sikweyiya, senior audit manager at AGSA, delivered a scathing assessment of the CF’s financial management. “The Fund has received a disclaimer of opinion for approximately 12 consecutive years,” she said, attributing this to “fundamental weaknesses in financial controls and a persistent failure to provide sufficient supporting documentation”.
The CF’s financial statements were deemed unreliable, with discrepancies in revenue, compensation benefits, and investment records. Fraud and irregular expenditure were rampant, with payments made to unauthorised accounts and material irregularities left unresolved. A high-risk investment strategy, which diverted resources to unlisted entities, resulted in substantial financial losses.
“Unless these root causes are addressed, the Fund’s financial governance will not improve,” Sikweyiya said. She identified three primary issues: a lack of preventative controls, failure to address prior audit findings, and a high tolerance for non-compliance with no consequence management.
AGSA’s data analytics revealed alarming irregularities. Payments were made to bank accounts not listed in the CF’s official records, and multiple payments were made to different accounts for a single medical service provider. “The system log function had been disabled, making it impossible to identify who authorised these changes,” Sikweyiya said. In some cases, officials denied making changes, claiming their accounts had been hacked.
Material irregularities, including overpayments to service providers and delayed medical payments, remained unresolved. Of the five material irregularities identified, only one had been fully addressed. “Inadequate consequence management has allowed these irregularities to persist,” Sikweyiya said, noting that 97% of previously reported irregular and fruitless expenditures remained unresolved.
The CF’s investment strategy came under heavy scrutiny. Funds were channelled through the Public Investment Corporation (PIC) into unlisted entities, many of which failed, resulting in significant losses. “Investments in start-ups that went bankrupt or were deregistered led to funds being written off,” Zamahlangu Mditshwa, senior audit manager at AGSA, said.
Committee members expressed outrage at the lack of accountability. Action SA’s Alan Beesley questioned the decision-making process behind these investments. “Who made these decisions, particularly regarding unlisted investments, in the absence of internal controls?” he asked. MK Party’s Thalente Kubheka went further, suggesting that the situation might be a “looting vehicle” for certain individuals.
The absence of a dedicated board was a recurring theme in the discussion. The CF operates under the Department of Employment and Labour, with an acting commissioner who has been in the role for two years. “The current structure is ineffective,” Mditshwa said, recommending the establishment of a board to strengthen accountability.
The ANC’s Gijimani Skosana echoed this sentiment, calling for urgent structural reforms. “The absence of a board creates a gap in accountability and oversight, leaving the entity vulnerable to fraud and corruption,” he said.
The chairperson described the CF’s state as “unacceptable” and called for immediate remedial action. “This is a disaster,” he said, emphasising the need for collaboration with the Portfolio Committee on Employment and Labour to accelerate reforms.
AGSA recommended several measures, including strengthening internal controls, expediting investigations into irregular expenditure, and enforcing consequence management. “Unless management addresses the identified issues, there will be continued revenue loss and a lack of accountability,” head of specialised audits at AGSA, Thami Zikode, said.
The AGSA’s findings painted a picture of an entity plagued by a culture of non-performance and weak accountability mechanisms. “The prevailing culture of non-performance and weak accountability has created an environment where financial mismanagement persists unchecked,” Sikweyiya said.
Beyond the financial mismanagement, the human cost of these failures cannot be ignored. Delays in processing legitimate invoices have resulted in late payments, legal disputes, and additional financial losses due to court-ordered interest charges. “These errors negatively impact end users, leading to unequal and unjust outcomes for those on the receiving end,” MK Party’s Kwenzokuhle Madlala said.
The Scopa meeting highlighted the urgent need for decisive leadership and structural reforms within the CF and UIF. The AGSA’s findings underscore the critical importance of accountability, transparency, and robust financial management in public entities.
As the chairperson aptly put it: “This situation is a disaster.” The time for excuses is over. The CF and UIF must be stabilised, and those responsible for financial mismanagement must be held accountable. The millions of South Africans who depend on these funds deserve nothing less.