Minister and Department of Higher Education and Training and the National Student Financial Aid Scheme on the Scheme's annual report and financial statements 2009/10: hearing

Public Accounts (SCOPA)

14 February 2011
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Minister and Department of Higher Education and Training and the National Student Financial Aid Scheme met the Committee to discuss the Scheme's 2009/10 annual report. The Scheme had received a disclaimer from the Auditor-General.

The Chairperson asked why the Scheme's Chief Executive Officer and Chief Financial Officer were not in attendance. Members raised concerns around this and asked whether the Chief Executive Officer had been suspended.

In his questions on the initial measurements of student loans, the Member leading the discussion asked why it had been difficult for the Scheme to provide the Auditor-General’s office with the necessary information on fair value adjustments, who was responsible for drawing up policy on this, whether any disciplinary measures were taken against the accounting officer, and whether the Scheme had been fulfilling its mandate.

Members asked whether a system was in place to meet the requirements of International Accounting Standards 39, whether the fair value estimation had been completed, what had led to the Scheme's receiving a disclaimer after having had unqualified audit opinions, and when the new model would be in place.

The Member leading the discussion on revenue from exchange transactions asked what was going to be done about understated interests, whether the Scheme's audit committee had raised the issue of non-compliance with Generally Recognised Accounting Practice 9 and International Accounting Standards 39, and whether the Scheme's expenditure on consultants’ fees had yielded value for money.

A Member asked whether all the procedures to be followed to obtain a clean audit had been completed.

The Member leading the discussion on impairment of student loans and provision for doubtful debts asked whether there were any monitoring systems in place to ensure that the information submitted by students was accurate, what objective evidence was used by management in relation to the number of impairments and why the Scheme had no international funding as this appeared to speak to issues of credibility.

Members asked where information could be found on disciplinary actions taken against employees in the past, whether any performance bonuses were paid out in 2009/10 and what monitoring systems were in place to ensure that monies given to universities were adequately spent.

The Minister concluded by saying that there were many issues that required attention but that the Scheme's current board was willing to effect the necessary changes. Capacity issues, however, remained a challenge. The Department was looking into certain issues and was committed to addressing the challenges that the Scheme faced.

Meeting report

Introduction
The Chairperson welcomed the Hon. Dr Blade Nzimande, Minister of Higher Education and Training, the Department, and the Chairperson and Board members of the National Student Financial Aid Scheme (NSFAS).

The Chairperson asked why the NSFAS's Chief Executive Officer (CEO) or Chief Financial Officer were not in attendance.

Mr Zamayedwa Sogayise, Board Chairman, NSFAS, answered that the Board had agreed to terminate the services of the current Chief Executive Officer as the two parties were not sharing a common vision.

The Chief Financial Officer could not attend the meeting as a result of personal obligations.

Mr M Steele (DA) asked whether the CEO had been suspended and, if so, why?

Mr Sogayise replied that the Board had been engaging with the CEO and management though this had not proven very fruitful. The Board had therefore sought legal recourse.

The Chairperson asked what challenges the Board had experienced in relation to the CEO.

Mr Sogayise answered that there had been challenges around areas linked to operations and the disclaimer NSFAS had received from the Auditor-General. Certain issues here should have been dealt with in a more effective way by the CEO. There was insufficient management linked to the recovery plan, post disclaimer. There were also challenges around compliance with the NSFAS Act as well as the Public Finance Management Act (PFMA). These challenges necessitated a speedy response.

The Chairperson commended the actions of the Board in this regard.

Student Loans – initial measurements of student loans
Mr S Thobejane (ANC) asked why it had been difficult for NSFAS to provide the Auditor-General’s office with the necessary information around fair value adjustments.

Mr Stephen Smith, NSFAS Board Member and Chairperson of the NSFAS audit committee, answered that one of the issues related to the loan management system as the current system favoured the student and prejudiced the accounting record. The NSFAS model only met one of the three criteria when determining fair value. Although these factors were not insurmountable, they did complicate how this fair value could be determined.

Mr Thobejane asked who was responsible for drawing up policy around this.

Mr Smith answered that the Board was responsible in this regard. The CEO began the process too late and this resulted in the deadline not being met.

Mr Thobejane asked whether any disciplinary measures were taken against this accounting officer.

Mr Smith answered that the officer in question had been demoted.

Mr Thobejane asked whether the NSFAS had been fulfilling its mandate.

Mr Smith answered that the Board was not satisfied with its progress to date but that there had been no misrepresentation of values.

Mr R Ainslie (ANC) asked whether a system was in place in order to meet the International Accounting Standards (IAS) 39 requirement. Was the fair value estimation completed?

Mr Sogayise answered that the Board had identified gaps in terms of its policies and was therefore currently putting together systems which sought to address these issues.

Mr Smith added that there was no model in place as yet though this was being looked into. The fair value estimation could not be completed without the model in place.

Mr Steele asked what had led to the Scheme's receiving a disclaimer after having had unqualified audit opinions. How was actuarial information being factored into the model?

Mr Smith answered that the Auditor-General’s report had highlighted the following reasons: management had been unsuccessful in producing a valuation model' values in the loan book were overstated; the abandonment of the actuarial model; and the ineffective loan system. A new loan management system was needed.

Mr Ainslie asked when the new model would be in place.

Mr Smith answered that it was hoped that this could be completed by May 2011.

Mr N Singh (IFP) asked whether this was a realistic deadline, especially since some of the current Board members had served for the past two years.

Mr Gwebinkundla Qonde, Acting Director-General, Department of Higher Education and Training (DoHET), answered that certain Board members had left as a result of not meeting their responsibilities. The current Board members were, however, committed to meeting this target.

Revenue from exchange transactions
Ms T Chiloane (ANC) asked what was going to be done around the issue of understated interests.

Mr Smith answered that the interest issue was one of representation. This needed to be changed and therefore would be.

Ms Chiloane asked whether the audit committee had raised the issue of non-compliance with Generally Recognised Accounting Practice 9 (GRAP) 9 and IAS 39.

Mr Smith answered that the matter was raised in the GRAP review. The audit committee had made certain recommendations.

Ms Chiloane asked whether the money paid for consultants’ fees had yielded value for money.

Mr Sogayise answered that that this money was well-spent.

Mr Ainslie asked whether all the procedures which needed to be followed in order to obtain a clean audit had been completed.

Mr Smith replied that the loan book system first needed to be replaced.

Impairment of student loans and provision for doubtful debts
Mr Steele asked whether there were any monitoring systems in place to ensure that the information submitted by students was accurate.

The Department responded that it was reliant on the financial aid offices of the institutions to verify that the information was correct.

Mr Steele asked what objective evidence was used by management in relation to the impairment number.

Mr Smith answered that the assumptions used by management were not substantiated as there was insufficient time.

Mr Steele asked whether this meant that no objective information was used.

Mr Smith answered that this was correct.

Mr Steele asked whether someone should not be held responsible for this deviation from accounting practices.

Mr Smith answered that the CEO had been held responsible for this.

Mr Sogayise added that this was being followed up closely by the Board.

Mr Steele asked for clarity around the apparent writing off of R589 million in interest accrued.

Mr Smith answered that this amount referred not only to amounts written off under discretion but students who were repaying. Nothing changed in terms of cash flows. It was based rather on a judgement of reasonability based on factors such as the age of the loan.

Mr Steele asked why the entity had no international funding. Did this speak to issues of credibility?

Mr Nathan Johnstone, NSFAS Board member, answered that the international funding received previously was part of a bilateral agreement with Ireland. This agreement was ended in 2005, however, after that country decided that South Africa was no longer a priority for it. This decision was taken around all South African entities with which it had such an agreement and not solely with NSFAS.

Mr P Pretorius (DA) asked where information could be found around disciplinary actions taken against employees in the past.

Mr Johnstone answered that the Scheme would, in future, include such information in its annual report.

Mr Thobejane asked whether any performance bonuses were paid out in the year under review.

NSFAS answered that remuneration was not linked to performance therefore no performance bonuses had been paid out.

Ms M Matladi (UCDP) asked what monitoring systems were in place to ensure that monies given to universities were adequately spent.

The Department answered that funds were only transferred once a loan agreement between NSFAS and the student had been signed. Unspent money was transferred to where need was expressed.

The Minister of Higher Education and Training concluded by saying that there were many issues that required attention but the current Board was willing to effect the necessary changes. Although the entity had grown, capacity issues remained a challenge. The Department was looking into certain issues and was committed to addressing the challenges this entity faced.

Mr Qonde said that if there were any capacity issues which affected the three month turnaround time-frame, the Department would assist in this regard.

The meeting was adjourned.

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