Compensation FundChallenges and Turnaround

Initiatives

Select Committee Presentation

Director-General : NPT Nhleko 27 February 2013

CONTENTS

22

33

55

11

44

66

77

Objectives of the Fund

Background

Audit Findings

Diagnostic Review Findings

Interventions

Looking forward

Critical success factors

“To pay compensation for death or disablement caused by

occupational injuries and diseases sustained or contracted by

employees”

OBJECTIVES OF THE FUND

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

OVERVIEW OF AUDIT FINDINGS

Revenue Management and Debtors

Disclaimer QualificationQualification

Qualification Qualification

Disclaimer

Claims DisclaimerDisclaimer

2008/9 2009/10 2010/11 2011/12

Qualification ClearedBank

Reconciliations

DisclaimerDisclaimerQualification

Cleared

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

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)

The following issues and challenges were found to be plaguing the Fund and preventing it from optimally delivering services to all its stakeholders.

Issues DescriptionOrganisational • 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

Issues DescriptionPeople • 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

BUSINESS CAPABILITY CHALLENGES

PEOPLE PROCESSES SYSTEMS

- 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

Area Details Timeline 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)

Area Details Progress 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)

Area Details Progress and Timelines

Improve IT systems functionality

Identify immediate interventions required to address and improve IT systems functionality

IN PROGRESSSystems review conducted and key requirements in developmentMay 2013

Stakeholder engagement

Engage with Compensation Fund stakeholders to identify challenges and obtain buy-in

Meetings held:1.CF management and Audit Committee2.Follow up meeting with CF Board 3.Unions and CF staff

CONTINUOUSDG 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

DONERAF lessons learnt has been reviewed and challenges identified

SHORT TO MEDIUM (6 MONTHS)

Area Details Progress and Timelines

Develop operational action plan

Develop an operational action plan to address key areas at CF :

Revenue ManagementInformation TechnologyAudit FindingsHuman Resource ManagementReportingSupply Chain

Done - operational action plan developed and being implemented

May 2013

Develop a communication strategy

Develop a stakeholder matrix and a communication strategy around the CF stakeholders

IN PROGRESS End February

SHORT TO MEDIUM (6 MONTHS)

Area Details Progress 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)

Area Project Definition OutcomeDefine 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 InterventionsLONG TERM INTERVENTIONS

Source : CF Diagnostic Review

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.

• 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 3rd parties

• Fraud and risk management

• Registration

• Processing

• Payments

• Reporting

Go

vern

an

ce &

Co

mp

lian

ce

Revenue Management Claims 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 M

an

ag

em

en

t

Support Services (HR , Finance, Supply Chain, Communications, ICT, Legal services)

Rehabilitation Management

Manage Service Delivery

IDEAL VALUE CHAIN

Source : CF Diagnostic Review

- 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