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The Auditor-General has revealed the details about the ongoing issues at the Compensation Fund, highlighting a lack of accountability and ineffective consequence management.
Parliament’s Standing Committee on Public Accounts (Scopa) was addressed by officials from the Auditor-General’s office on Wednesday regarding the annual reports and financial statements of the Compensation Fund and the Unemployment Insurance Fund (UIF).
The Compensation Fund, which operates under the Department of Labour, is mandated to provide compensation to employees for disability, illness, and death resulting from job-related injuries and diseases.
During the briefing, Bulelwa Sikweyiya, a senior audit manager, informed Members of Parliament (MPs) that the Compensation Fund’s audit outcomes had shown no improvement, with the institution receiving a disclaimed audit outcome in the 2023/2024 financial year.
This disclaimer signifies that the Auditor-General could not form an audit opinion on the Compensation Fund’s financial statements.
“At least for about 12 years now, the Compensation Fund has been a disclaimer opinion, and the key issues that we have noted over the years are pointing to a breakdown in the internal controls,” Sikweyiya said.
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She further explained that these issues are not isolated to specific areas within the Compensation Fund, such as financial statements.
“In some of the instances, we have also noted that the fund is struggling to provide support evidence, which is what has led to the disclaimer opinion. We end up in a situation where we are unable to verify what is reported by the fund.”
Sikweyiya stressed that the Auditor-General’s office was concerned about the entity’s recurring challenges.
“With all these issues that we have been highlighting over the years, there is lack of accountability, and there is no consequence management is which contributing to the repeat audit outcomes.”
She emphasised that addressing these issues could lead to improved audit outcomes.
“To address these, we are highlighting that the culture at Compensation Fund needs to change.”
The senior audit manager underscored the urgency of reviewing and addressing internal controls.
“There need to be preventative controls put in place because the issues are so significant that they cannot be fixed only when the entity is preparing financial statements.”
Sikweyiya also identified revenue from employer contributions and compensation benefits as major issues that led to the disclaimed audit outcomes between the 2019/2020 and 2023/2024 financial years.
These issues affected outstanding claims and the capitalised value of pensions.
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“On the revenue and all related components, it is mainly the issue that, over the years, some of the employers that actually registered and declared their earnings are not assessed, meaning not all revenue is recognised by the Compensation Fund.
“We also had instances where incorrect assessments were done, or interest was charged at an incorrect rate, or the amount itself was incorrectly calculated. That affects the revenue,” she said.
She also revealed that the Compensation Fund has been underspending its budget.
“This raises concern because this is their core mandate. This is what they need to be working on, so they need to work on improving that process and making sure that they pay the benefits.”
The Compensation Fund reported an increase in irregular expenditure, which stood at R485 million in the 2023/2024 financial year.
“It has not increased significantly, but it remains high,” Sikweyiya noted.
Fruitless and wasteful expenditure rose to R652 million, up from R567 million in the previous financial year.
The Auditor-General’s office identified five significant material irregularities.
The first involved an overpayment to a medical service provider due to a lack of effective internal controls for approving and processing payments; this issue has since been resolved.
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The second irregularity concerned interest incurred on late payments of medical invoices.
In response, the Compensation Fund has instructed the state attorney to recover the interest paid.
The third irregularity was tied to duplicate bank accounts for employers within the fund’s system, leading to a loss of revenue.
The fourth issue related to benefits being paid into incorrect bank accounts, further highlighting weaknesses in the fund’s financial management systems.
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