National Student Financial Aid Scheme 2010/11 Annual Report; Postponement of hearing with Council on Higher Education

Higher Education, Science and Innovation

11 October 2011
Chairperson: Adv I Malale (ANC)
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Meeting Summary

The National Student Financial Aid Scheme received an unqualified opinion from the Office of the Auditor General. This revelation came to the fore when it appeared before the Portfolio Committee on Higher Education and Training to present its annual report on financial statements.

The Scheme informed the Committee that 2010 was a challenging year for the organisation. In 2009/10 the Auditor-General had issued a disclaimer of opinion. As a result of that a turnaround strategy had to be developed and implemented to ensure that the Scheme received an unqualified audit for the year under review. Some of the challenges the organization had to contend with, amongst others, was that it did not value the loan book; did not correctly account for interest over the life of the loan; and was unable to justify on verifiable scientific grounds how it impaired the debtors. As a result, to address these disclaimers, a number of interventions like reconstituting the Board Executive Committee and changing gear from three-year to one-year compliance, amongst others, had to be implemented. Some highlights in the Annual Report included the following:

•In 2010, NSFAS distributed financial aid of R3.7 billion to 210 576 students - 17% more than 2009
•Since NSFAS started, R19 bn disbursed - in 2011, R5,5 bn will be distributed in loans and bursaries
•Students who pass get 40% of loan converted to bursary - cost R1.85 bn last year, 15% of loan book

On the other hand, the Council on Higher Education was not allowed to present its annual report because it submitted its presentation late and did not have the right officials to present its case. Consequently, it was dismissed.

Members wanted to know why external fees trebled because the finance management system of NSFAS was inefficient; why the loss of expertise and high vacancy rate; the whereabouts of people implicated in unlawful activities within the Scheme; the difference between the old and new Board; who was in charge of allocations; and why Prof Gerald was sacked.


Meeting report

National Student Financial Aid Scheme (NSFAS) 2011 Annual Report Presentation
Mr Zamayedwa Sogayise, Chairperson, NSFAS, highlighted that the organisation had developed and implemented a turnaround strategy after it received a disclaimer in the 2009/10 financial year. In October of 2010 the Minister of Higher Education and Training (DHET) looked at the Board performance and identified challenges. The DHET helped in filling eight vacancies, and one of the issues that was reviewed was leadership of NSFAS. As a result, in February 2011 the CEO was suspended and his contract terminated.

Mr Stephen Smith, Chairperson of Audit and Risk Committee, NSFAS, said that in order for the organisation to move from a disclaimer to an unqualified audit, it had to accept it did not value the loan book at “Fair value at initial recognition” in terms of International Accounting Standards (IAS) 39; its interest was incorrectly calculated on the system by R181m due to adjustments made without proper control; and there were reconciliation differences of R42m which could not be explained.

So, interventions that had to be implemented in 2011 included the reconstitution of the Board and executive committee; actuarial valuation of the loan book; completion of the loan book amortisation; independent data verification of the loan book; and procurement review and termination of the CEO contract.To make sure that everything went according to plan, throughout the process NSFAS ensured that its own auditors and outside actuaries were part of the process of the valuation, and for the first time ever credit balances totaling R77m came to light. As a consequence, 34 000 students who overpaid were refunded.

Audit findings indicated that the Board did not exercise adequate oversight in the appointment of service providers, and that the management failed to see to it that the accounting officer did not take steps to address irregular expenditure, and human resource vacancies were standing between 15% and 18%. Key irregular expenditure in 2010 amounted to R25m. Remedial procedures taken on disciplinary hearings of all management involved in the procurement process were underway; an independent adjudication was in place; automation of purchase order system has been implemented; valid expenditure has been condoned; and fruitless and wasteful expenditure has been audited.

On issues of information technology, it had been found that the organisation had no Chief Information Officer; no formal IT governance; no formal IT project or risk management framework; and no formally approved Disaster Recovery and Business Continuity Planning. A remedial action was part of the turnaround strategy. Consequently, a forensic audit had been completed and singled out the conduct of one employee. The employee concerned had been suspended, and the disciplinary hearing was scheduled for mid October. This had no bearing on the finances of NSFAS.

The Annual Financial Statements showed that NSFAS had received an unqualified opinion from the Office of the Auditor General. It also highlighted in detail what work the organisation did and how it fulfilled its mandate. Some highlights were:

•In 2010, NSFAS distributed financial aid of R3.7 billion to 210 576 students - 17% more than 2009
•Since NSFAS started, R19 bn disbursed - in 2011, R5,5 bn will be distributed in loans and bursaries
•Students who pass get 40% of loan converted to bursary - cost R1.85 bn last year, 15% of loan book

The following strategic goals were outlined in the report:
 
Expanding the pool of funds available for disbursement as student loans and bursaries
Effectively managing the institutional utilisation of funds administered
Strengthening internal efficiencies in the processing of student awards/claims to ensure that funding reaches target population
Strengthening the quality of internal management and operations inline with changing funding patterns
Effectively communicating the relationship with all NSFAS stakeholder groups and targeted audiences
Undertaking research that informs the effective utilisation of available funds and serves to advise the Minister of matters related to student financial aid.

Discussion
Mr A van der Westhuizen (DA) asked the Board to comment regarding external fees that trebled because the history of NSFAS was inefficiency in terms of finance management; why the terrible loss of expertise and high rate of vacancies and lack of continuity at Board level; and why the delay in resolving disciplinary hearings and the low involvement of the Board in managerial matters.

Mr K Dikobo (AZAPO) wanted to know about the whereabouts of the people implicated in the unlawful activities; the percentage of the operational costs in relation to the 40% of personnel costs; if there were contracts signed between students and NSFAS; and wanted an explanation on the meaning of rotation of service providers.

Mr C Moni (ANC) asked why the appointment of the new CEO was delayed to November or December.

Dr J Kloppers-Lourens (DA) enquired if the sacked CEO got the credit for this unqualified report because it looked like everything had been achieved during his time. Secondly, she asked what the new Board had done compared to the previous one, and what the outcome was of the disciplinary hearings.

Mr S Makhubele (ANC) wanted to find out who was in charge of the allocations because most of the time universities claimed not to have received money from the NSFAS.

Ms N Gina (ANC) asked if the NSFAS had mechanisms in place to avoid the chaos that happened every year at universities around fee payment when students staged sleep-ins; and what other means did it have to raise funds and why was Prof Gerald sacked.

The Chairperson commented that the Committee wanted to see more disadvantaged students getting money, and not more money being spent or given to historically white universities. As a result, Members were concerned that students at institutions such as the University of Venda (Univen) were given less money. He went on to say he was happy that NSFAS had acknowledged that a certain amount of money was written off and would be made available in a form of bursary.
He warned NSFAS it was unacceptable for it to come to the Committee and tell it about people who are still to be disciplined. The Committee wanted to know their names and disciplinary action taken against them. He asked NSFAS to submit all the responses and details asked by Members in a written form to the Committee as soon as possible.

Council on Higher Education (CHE) Presentation
Ms Gina advised that the Committee should not allow the CHE to make its presentation. She pointed out that Members had only received the organisation’s documents last night and needed time to prepare. This was not acceptable given that the CHE had known for some time that it would appear before the Committee.

Mr Makhubele agreed with Ms Gina saying if the Committee allowed that to happen it would be setting a bad precedent.

Mr Dikobo added that the absence of accounting officers was not acceptable.

Members asked the Committee Secretary when the documents had arrived.

Mr Anele Kabingesi, Committee Secretary,of the Committee, replied that he had received them late yesterday and received them very late on the day hence they were dispatched on the evening before the presentation to Committee members.

The Chairperson told the CHE its presentation would be rescheduled according to the regulations of the Parliament. Relevant bodies of Parliament would inform the CHE and give it a proper date.

The meeting was adjourned.



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