1. Compensation Fund Challenges and Turnaround Initiatives Select Committee Presentation Director-General : NPT Nhleko27 February 2013

2. CONTENTS 2 2 3 3 5 5 1 1 4 4 6 6 7 7 Objectives of the Fund Background Audit Findings Diagnostic Review Findings Interventions Looking forward Critical success factors

3. “To pay compensation for death or disablement caused by occupational injuries and diseases sustained or contracted by employees” OBJECTIVES OF THE FUND

4. The Compensation Fund (CF) has historically been faced with various challenges in delivering efficient and timeous services to its stakeholders. These challenges can be categorised into people, processes and systems in the business capability areas/model. The acting capacity of the Director General in the Compensation Fund provided insight and appreciated the extent of challenges facing the organisation in its entirety. The challenges are complex in nature as they are systemic and have been in existence for years. BACKGROUND

6. OVERVIEW OF AUDIT FINDINGS Revenue Management and Debtors Disclaimer Qualification Disclaimer Claims Disclaimer 2008/9 2009/10 2010/11 2011/12 Qualification Cleared Bank Reconciliations Disclaimer Qualification Cleared

7. Audit Analysis - Areas of high concern (2011/12) Financial / Performance / Compliance Details : LEADERSHIP Financial Accounting System - timely production of financial reports (quality, reliable and credible) No evaluation of management action to address audit issues of prior years (ie. assessment revenue, assessment debtors, penalties and interest) Timely producing of information for audit purposes SAP Financial system – lack of procedures and training of staff MTER HR Plan submitted to DPSA outside the required timeframes Lack of leadership in the Finance area – finance and accounting skills. This has led to a lot of audit adjustments during audit. Excessive use of consultants Vacant post of HR Chief Director – in excess of 12 months The Fund failed to develop an Action Plan to address audit issues Auditors could not determine how the Draft DoL ICT strategy will support the Compensation Fund Source : AG Management Report 2012

8. Financial / Performance / Compliance Details : FINANCIAL AND PERFORMANCE MANAGEMENT Delays in submissions of audit information requests from AG SAP Financial system – lack of procedures and training of staff Lack of accounts reconciliations Difficulties of preparing financial statements Lack of understanding of accounting standards (GRAP) Non-compliance to procurement processes Delays in submissions of audit information requests from AG SAP Financial system – lack of procedures and training of staff Lack of accounts reconciliations Audit Analysis - Areas of high concern (2011/12)

10. The following issues and challenges were found to be plaguing the Fund and preventing it from optimally delivering services to all its stakeholders. IssuesDescription Organisational No common shared vision of the organisation amongst the leadership Business Value Chain not adequately mapped and understood by everyone Not clearly defined roles and responsibilities Lack of communication and business units functioning in silos Lack of training and change management Business Processes and Policies Fragmented and poorly defined business processes and lack of enforceable controls Largely paper based, manual processing and lack of integration across systems Information Technology and Systems Systems developed against poorly defined processes and requirements Dual systems being used to process and pay claims Systems are not user friendly System response times are too slow and causes delays in operations CF reliant on DoL to provide ICT services because of the PPP arrangement STRATEGIC CHALLENGES Source : CF Diagnostic Review

11. IssuesDescription People Vision not clearly understood by employees Low and misaligned skills levels across the organisation Low employee morale and a lack of performance management across the organization Lack of training on operating systems No mechanism to implement Talent and Performance management Change Management Lack of proper communication and consultations from leadership Decision making is at a senior leadership level and does not involve all employees No buy-in into new initiatives STRATEGIC CHALLENGES contd… Source : CF Diagnostic Review

12. BUSINESS CAPABILITY CHALLENGES PEOPLEPROCESSESSYSTEMS -Lack of efficient performance management and monitoring -Low skills level and in- sufficient training - Lack of accountability by managers and supervisors -No service orientation culture and staff motivation -Fear of change and a preference to doing what is known -Manual orientated processing -Centralised processing organisation -Numerous non value and duplicated tasks -Highly segmented areas of operations – no workflows or integration -Not structured for effective performance -No effective reporting or exception reporting mechanisms -Highly user dependant and based on traditional manual processes -Paper based \ manual input – no electronic submission or automation of standard processes and rules -No reporting functionalities - large reliance on service provider -Poor system implementation by service provider

14. AreaDetailsTimeline and Progress Appoint a Project Team Appoint a Project Manager (and team) to run with the implementation of the Turnaround Strategy in the Compensation Fund Done - team appointed and operational Obtain assistance from other Government entities Obtain assistance from other Government agencies who have gone through similar turnaround projects Done – officials from Road Accident Fund and Unemployment Insurance Fund involved in their organisational turnaround, are on the project team Conduct diagnostic review of Compensation Fund Conduct a review to identify organisational weaknesses and challenges that would lead to defining what the turnaround is to achieve Done – diagnostic review completed in January 2013 SHORT TO MEDIUM (6 MONTHS)

15. AreaDetailsProgress and Timelines Conduct leadership workshop Conduct a Compensation Fund leadership brainstorming workshop to review and confirm challenges and weaknesses and identify turnaround options Done – January 2013 Draft specifications for a service provider for turnaround Define the specifications on what the turnaround must entail and how it should be done Done – specifications drafted Publish specifications for turnaround Publish the specifications for specialist turnaround organisations to respond through an open tender process IN Progress - terms of reference finalised. Tender to be published end February 2013 SHORT TO MEDIUM (6 MONTHS)

16. AreaDetailsProgress and Timelines Improve IT systems functionality Identify immediate interventions required to address and improve IT systems functionality IN PROGRESS Systems review conducted and key requirements in development May 2013 Stakeholder engagement Engage with Compensation Fund stakeholders to identify challenges and obtain buy-in Meetings held: 1.CF management and Audit Committee 2.Follow up meeting with CF Board 3.Unions and CF staff CONTINUOUS DG met with CF Board in December 2012 Met with medical service providers in Western Cape and KZN Lessons learnt from other turnarounds Identify lessons learnt from other turnaround initiatives in order to improve this process and not make same mistakes DONE RAF lessons learnt has been reviewed and challenges identified SHORT TO MEDIUM (6 MONTHS)

17. AreaDetailsProgress and Timelines Develop operational action plan Develop an operational action plan to address key areas at CF : Revenue Management Information Technology Audit Findings Human Resource Management Reporting Supply Chain Done - operational action plan developed and being implemented May 2013 Develop a communicati on strategy Develop a stakeholder matrix and a communication strategy around the CF stakeholders IN PROGRESS End February SHORT TO MEDIUM (6 MONTHS)

18. AreaDetailsProgress and Timelines Institute a forensic audit Institute an independent forensic audit of the Fund that would include : Liability of employers in terms of fines for non- compliance and recoveries The claim process in terms of chapter V of COIDA Act Compliance to PFMA Revenue management Expenditure administration Complaints and allegations as reported by the Public Protector, SCOPA and Portfolio Committee for Labour Test procedures for prevention of risk and fraud controls against policy and procedures Identify irregular and unauthorised expenditure Verify compliance to the delegation of authority and materiality framework IN Progress - terms of reference finalised. Tender to be published end February 2013 May 2013 SHORT TO MEDIUM (6 MONTHS)

20. AreaProject DefinitionOutcome Define an optimal business operating model to support the CF mandate (Investigate and recommend functions that can be outsourced or moved to other Government entities/Departments) Modernised CF Organisation Conduct a culture assessment and define a new organisational culture and values based on the assessment findings Engaged and committed CF Resources Define an organisational strategy and structure that supports the newly defined business operating model Skilled CF Resources Review and refine the business processes through a business reengineering project and enhance internal policies and procedures Improved Service Delivery to Citizens Design, develop and implement a new performance management framework that will adequately drive the business Productive Teams Review and implement strategy for the prevention and management of fraud and risk, this should encompass fraud and risk awareness Improved Service Delivery to Citizens Perform a skills audit and assessment of personnel to determine alignment with the new processes and operating model and define a training plan for the entire organisation Skilled CF Resources Develop an organisational change management strategy and roadmap that will be rolled out to the entire organisation. Engage with staff on this current process from the beginning to get them on board. World class People, Processes and Technology Review and update strategies for Revenue and Debt Management such as Income Strategy Improved Service Delivery to Citizens Develop and Implement CF IT Strategy and develop an IT modernisation roadmap Technology supporting Core Business Strategic Projects Operational Projects Business Operating Model Organisational Values and Culture Organisational Strategy and Structure Business Processes and Policies Performance Management Framework Fraud and Risk Management Strategy Skills Assessment Change Management Revenue and Debt Management Strategy IT Strategy The Compensation Fund is a going-concern that would require Operational and Strategic Interventions LONG TERM INTERVENTIONS Source : CF Diagnostic Review

21. Ideally, the primary business of the Fund is to generate income, pay out claims and manage the rehabilitation of claimants. These functions are then supported by common back-office support services that include HR, Finance, Procurement, Information Technology, Governance and Compliance and Risk and Audit Management. InvestmentsRegistrationSubmissions Claims Management Beneficiary Payments Case Management Pension Rehabilitati on Employer Registration Customer Segmentation Monitoring Employer declaration Contribution Determination Payment Management (contributions) Claim Registration Claim Pre- processing Claims Processing Adjudication Claim status reporting Payment Processing Approve payment Beneficiary payments Dispute Management Investigations Dispute Settlements Recovery of Expenses from 3 rd parties Fraud and risk management Registration Processing Payments Reporting Governance & Compliance Revenue ManagementClaims Management Implementation of Funds Strategy Monitoring Investments Performance Managing external investment managers Review Policy and Framework Reporting Monitoring Restoration and re-integration of workers Provision of assistive devices Reporting Risk Management Support Services (HR, Finance, Supply Chain, Communications, ICT, Legal services) Rehabilitation Management Manage Service Delivery IDEAL VALUE CHAIN Source : CF Diagnostic Review

23. -Project is owned and reported directly to the Director-General -Dedicated project team appointed -External expertise on project team -Communications and interactions with all stakeholders -Governance processes to be followed eg. supply chain management -Buy-in and acceptance by stakeholders -Continuous change management FACTORS TO MAKING THIS PROCESS SUCCESSFUL