UIF ANNUAL REPORT CD 2013pmg-assets.s3-website-eu-west-1.amazonaws.com/131010uif.pdf · Title of...

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.

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

Table of Contents

Members of the Board

Mr J Jacobs Mr BKM Nhlapo Mr N Vermeulen Mr G Strauss

Ms I Frye Mr B Seruwe

(UI Commissioner)

Mr W Nzimande(Chairperson)

Ms C Bothe

Mr S Gangca

Part AGeneral Information

Registered Name: Unemployment Insurance Fund

Registration Numbers: 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, 6th Floor , 1st Place Bank City, Cnr Simmonds & Pritchard

Streets, Johannesburg, 2001

ABSA Bank, ABSA Towers, 15 Troy Street, Johannesburg, 2001

Standard Bank, 9th Floor, Standard Bank Centre, 5 Simmonds Street,

Johannesburg, 2001

Nedbank, 135 Rivonia Road, Sandown, 2196

UIF Annual Report 2012/20136

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

List of Abbreviations/Acronyms

UIF Annual Report 2012/2013 7

List of Abbreviations/Acronyms

MP Member of Parliament

MTEF Medium Term Expenditure Framework

MQA Mining Qualification Authority

NAC National Appeals Committee

NSF National Skills Fund

PEC Project Evaluation Committee

PFMA Public Finance Management Act

PIC Public Investment Corporation

PPP Public Private Partnership

SABC South African Broadcasting Corporation

SACCI South African Chamber of Commerce and Industry

SAPO South African Post Office

SARS South African Revenue Service

SETA Sector Education Training Authority

SRI Social Responsible Investment

SSA State Security Agency

TETA Transport Education Training Authority

UCR Unearned Contribution Revenue

UIA Unemployment Insurance Act

UIB Unemployment Insurance Board

UIC Unemployment Insurance Commissioner

UICA Unemployment Insurance Contributions Act

UIF Unemployment Insurance Fund

WSP Workplace Skills Plan


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) Improve the collection of revenue from employers

(b) Improve the payment of benefits to beneficiaries of the Fund

(c) Participate in government initiatives of creating and sustaining decent employment

(d) Effective administration of the Fund’s operations


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.

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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


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


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



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.



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.



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

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