25 March 2019

CFO Talks

Lungisa Gqweta – Regional Financial and Administration Manager: National Health Laboratory Services.

Managing the financial risks of NHLS:  With 250 laboratories and 8000 employees, the National Health Laboratory Services is the largest diagnostic pathology service in SA.

CIARAN RYAN: This is CFO Talks and today we are talking with Lungisa Gqweta, regional financial and administration manager at National Health Laboratory Services. Lungisa is a member of the South African Institute of Business Accountants and a member of the Association of Black Investors and Securities Professionals. National Health Laboratory Services is the largest diagnostic pathology service in South Africa and it has the responsibility of supporting the national and provincial health departments in delivery of healthcare. The National Health Laboratory provides laboratory and related public health services to over 80% of the population through a national network of laboratories. Lungisa is responsible for managing the financial risks of the company, as well as financial reporting, management and supervision of the finance unit. He’s also responsible for supply chain management, and Lungisa also has quite a history in local government. We’re delighted to welcome Lungisa Gqweta to CFO Talks, welcome, Lungisa. To start off, can you give us some background on yourself, where you started your career and how you ended up at National Health Laboratory Services?

LUNGISA GQWETA: I started my career back in 1998 when I started at the Department of Health as an accountant and I moved through the echelon up to the stage when I reached deputy director level in nutrition. Then from there I moved to Nyandeni Local Municipality as a CFO, which was a contract for a period of five years, and from there when the contract ended the municipality didn’t renew the contract. Then I moved to Nkonki Pty Ltd as a financial consultant and then later I joined NHLS.

CIARAN RYAN: And you have been at NHLS for how long?

LUNGISA GQWETA: For ten years now.

CIARAN RYAN: Oh wow, okay, tell us about the National Health Laboratory, when it was started and the role it plays in the life of ordinary South Africans.

LUNGISA GQWETA: The NHLS brand is a combination of the then state-owned laboratories, which were for the TBV states…

CIARAN RYAN: Just explain what is TBV states?

LUNGISA GQWETA: Transkei, Bophuthatswana, Venda, Bantustan governance. Then there was also what was called the South African Institute of Medical Research Council, which predominantly existed in the then so-called South Africa. So there was then an act, which was enacted by Parliament, Act 61 of 2003, which then combined all these entities into one, which was then called National Health Laboratory Services.

CIARAN RYAN: And that happened in, what, 1994?

LUNGISA GQWETA: 2003

CIARAN RYAN: Oh 2003, okay. So National Health Laboratory Services has only been going for about 15 years.

LUNGISA GQWETA: Yes.

CIARAN RYAN: Explain the role that it has, as a laboratory what are you doing, you’re doing testing of blood samples, that kind of thing on behalf of the hospitals?

LUNGISA GQWETA: Yes, what happened is the act mandated National Health Laboratory Services to be the one that handles diagnostic pathology for all state hospitals. If, for instance, for us we have got a problem in terms of the capacity in a certain test, we will then direct that test to private but we’re still going to bill them at a state rate.

CIARAN RYAN: Can you give us an idea of how big this organisation is in terms of employees and offices around the country.

LUNGISA GQWETA: We are situated in every hospital in the country.

CIARAN RYAN: Do you know how many state-owned hospitals?

LUNGISA GQWETA: We run over 250 laboratories in the country, with a staff complement of approximately 8000.

CIARAN RYAN: My goodness that is large, so this is quite a responsibility and quite a budget as well that you’ve got to manage.

LUNGISA GQWETA: Yes, we run six regions in the country, Gauteng, which is the one I am responsible for, there’s also KZN, Eastern Cape, Western Cape and Limpopo and Mpumalanga is one region.

Planning for the unplanned at NHLS

CIARAN RYAN: I see you are quite involved in strategy, now I guess this is a fairly recent development in the life of a financial manager, being involved in strategy, can you share some of the strategic insights you have gained at National Health Laboratory Services.

LUNGISA GQWETA: Ja, there are certain strategic involvements that involve us as the finance people. For instance, for the purpose of decision-making we are the ones who get consulted in terms of advice, whether the decision that the company is taking is going to be viable financially, as well as in terms of resource-wise do we have enough resources to do so. As I indicated, National Health Laboratory Services is an organisation that deals with so many issues that requires us to plan, sometimes there are outbreaks that are unplanned…

CIARAN RYAN: Like cholera or something like that.

LUNGISA GQWETA: Exactly, recently we had listeria, which is something that was unplanned and, therefore, we need to put in strategies in terms of how then do we mitigate that kind of problem. That also involves financial planning, there are resources that are required and also how do you then ensure that in so doing you don’t kill the existing business because when you move resources to one angle you must make sure that you maintain your current status and be able to achieve what we want to achieve.

CIARAN RYAN: In charging for your services, I get what you said before that if you don’t have the capacity in-house you will then send the sample that needs to be tested to the private sector and you’ll charge them or bill them or they will bill you at a state rate.

LUNGISA GQWETA: They bill us and we continue to bill the government but remember we’re billing the government, which is the Department of Health…

CIARAN RYAN: Is National Health Laboratory Services profit-making or is it loss-making, does it rely on grants from government, how does it survive financially?

LUNGISA GQWETA: NHLS is a non-profit organisation, so what we then generate is just a surplus to keep us going and we’re basically billing government, as I indicated, and, therefore, we don’t rely on grants specifically. There are certain grants, of course, that we do get in terms of the training that we provide because we also provide training for the interns, the medical technologists and the registrars, so then government will give us a grant for doing so.

CIARAN RYAN: Can you give us some idea of the budget that you have to deal with every year?

LUNGISA GQWETA: Our budget in total is approximately R6 billion.

CIARAN RYAN: Oh wow that is large. I see that you are also involved in supply chain management, which is a huge challenge in any organisation and, I guess, particularly in the public sector you’ve got to deal with things like theft and corruption and BEE, suppliers, you have all of this to contend with. From where you sit what are the big challenges in supply chain management?

LUNGISA GQWETA: One of the challenges that we normally face is the legislation that governs how do you then discharge your responsibilities. For instance, in government you have got the Public Finance Management Act, which is abbreviated as PFMA, you’ve got PPPFA, which is preferential procurement policy, which guides you in terms of how do you then procure goods and services in consideration of the historical background of our country. Then you’ve got the BBBEE policy…

CIARAN RYAN: The Broad-Based Black Economic Empowerment Act.

LUNGISA GQWETA: …which also mandates us to ensure that we adhere to certain prescripts when we award tenders because if you’ve got a tender you’ve got to request for quotations and there are certain thresholds that guide that.

Restoring trust in the economy

CIARAN RYAN: We’ve read quite a bit in recent months about corruption at top corporate and state-owned company levels, how, in your opinion, should financial managers and chief financial officers be working to restore trust in the economy?

LUNGISA GQWETA: It’s a very difficult exercise, I must say, because the issue that you have is that human beings are influenced by certain things around them and you need to be then as a person who sits and sees what comes to your table and try to manage those kinds of situations. Corruption is something that you cannot say that I can be able to manage it very well but to a certain limit when you put in your controls to ensure that every step that is required to be maintained in terms of procuring goods and services you have closed any loopholes because, I must say, the people who are in business are the ones who are influencing the people who are supposed to award these tenders and all these kinds of things.

CIARAN RYAN: Right, I think we saw that with Bosasa and the Zondo Commission, and there you have that tie-in between the private sector and the public sector but where the money was coming from was from the private sector to corrupt the public sector officials.

LUNGISA GQWETA: Exactly, ja most of the time you’ll find that it is the business itself that then gives that influence and because money is something that corrupts, so if you put in money then I will think otherwise to think whether to take it or not to take it. Now, it depends on the integrity of the individual, how do you then see what is in front of you and in relation to the commitment that you have made to your organisation, and ethically how do you then behave yourself because if you are going to accept this bribe which is something that is not going to last long…

CIARAN RYAN: And might get exposed in a few years and ruin your reputation.

LUNGISA GQWETA: Exactly the point because if you look at the Bosasa issue, it’s exactly the same thing, you enjoyed that money at that particular point in time but at a certain point then it gets exposed, so where do you put yourself in that situation because you have to think about the consequences of what is going to happen thereafter. It might be good for you to say let me go for this, nobody is going to see. But at the end of the day there’s nothing that can be hidden forever.

CIARAN RYAN: Talk for a minute about the corporate social investment activities you’re involved in and how you measure the return on investment.

LUNGISA GQWETA: Ja, most of the time we look at what is called the opportunity costing, where you look at the options that are available for you, when I take this course of action what are the returns at the end of the day because in every business you must be able to either be on a breakeven point or you then have some sort of surplus. Secondly, you need to look at whether the investment that you are taking is going to yield the results within a certain period of time because for you to invest you must be able to recoup your investment. Now, if you can’t recoup your investment, then that investment was not worth it. So those are the kinds of things that you will then look at and then the decision that you make then will be informed by your calculation of the returns at the end of the day that you’re going to receive.

CIARAN RYAN: Right and the kind of activities that you’re investing in, corporate social investment, what is that; is it education, is it health?

LUNGISA GQWETA: As I indicated, we do some training that we offer in different spectrums within the health sector because we don’t go beyond that, so all our training is based on the health sector but we also provide for our employees who want to develop themselves in different fields. For instance, if I am in finance then definitely my development will be finance-related, so we also do those kinds of things.

CIARAN RYAN: How much of your time is spent on compliance and reporting issues versus people issues and what gives you the most headaches in your job?

LUNGISA GQWETA: Compliance is the biggest part of my role because wherever there is something that has not gone right in terms of compliance is a negative report at the end of the day, which when the auditors come and they see that we didn’t comply with this and that, then it gives the organisation a negative connotation. Therefore, we always look at whether then our controls are in place and we are managing our business in a manner it will then portray what the shareholders would want to see.

Leadership crisis impacts service delivery

CIARAN RYAN: Your auditor would be the Auditor General, I presume?

LUNGISA GQWETA: Yes, we are audited by the Auditor General, in fact, it’s not necessarily by the Auditor General but then the company that we normally appoint then the Auditor General has got their review of what those auditors have done.

CIARAN RYAN: Have you been getting clean audits?

LUNGISA GQWETA: Yes but over the years we have had some negative audits due to some problems with our supply chain management.

CIARAN RYAN: And is that improving?

LUNGISA GQWETA: We are improving on that because in the past we had some kind of leadership crisis, if I may say so. We have been changing our CEO’s now and again and that has impacted on our delivery of service.

CIARAN RYAN: And the current CEO has been in the position for how long?

LUNGISA GQWETA: She’s still the acting CEO because the CEO was suspended in 2017, so there’s still those litigations and…

CIARAN RYAN: Oh boy, okay, it got messy.

LUNGISA GQWETA: Ja.

CIARAN RYAN: Okay, is there a book that you’re reading or that you’d recommend?

LUNGISA GQWETA: Ja, I read one by Christo Wiese, Risk & Riches.

CIARAN RYAN: What do you like about the book?

LUNGISA GQWETA: The way that he explains how he developed his businesses starting from Shoprite…

CIARAN RYAN: Is there any role model or inspiration in your life that led you to where you are today?

LUNGISA GQWETA: I had my uncle who inspired me a lot in terms of how he has developed himself…

CIARAN RYAN: What did he do?

LUNGISA GQWETA: He was a teacher who also had a business, and the way he managed his businesses made me interested in so many of the things that he has done.

CIARAN RYAN: What about his character impressed you?

LUNGISA GQWETA: Ja, he had a good character, he was a well-known person within the area, he was involved in certain structures within the community and he was a leader.

CIARAN RYAN: Beautiful, okay, under your leadership there of the finance unit at National Health Laboratory Services, where would you like to see the organisation in five years from now?

LUNGISA GQWETA: Because of the changing environment within the public sector, there’s NHI that is coming up…

CIARAN RYAN: That’s the National Health Insurance.

LUNGISA GQWETA: Yes, which then poses a challenge to us in terms of how we do business and [our] participation in the market because one of the challenges that we’re going to face as we go along is that there will be more role players that will be welcome to participate in our field. Now, what then speaks to us will be how do we then position ourselves within that space because if our standards are not to the level in which the NHI will require, then it means that our business will then drop and the new entrants will then takeover…

CIARAN RYAN: So it will basically be a much more competitive environment for you, you’re public sector but you’re going to have private sector operators who are competing for the same pie.

LUNGISA GQWETA: Exactly and then it depends what resources then do you have because if you don’t have resources then you won’t be able to succeed in the competition.

CIARAN RYAN: So basically it’s going to be a far more challenging environment in the future as soon as we have a national health insurance than is currently the case.

LUNGISA GQWETA: Exactly so.

CIARAN RYAN: Wow, okay, I think we are going to leave it there, Lungisa, fascinating subject. Thanks very much for coming into the studio and talking to us. That was Lungisa Gqweta of the National Health Laboratory Services.