National Student Financial Aid Scheme 2010/11 Annual Report, Committee Report on Department's implementation plan

Meeting report

National Student Financial Aid Scheme: Annual Report 2010/11
Mr Zamayedwa Sogayise, Board Chairperson, National Student Financial Aid Scheme, said that 2010 was a challenging year for the National Student Financial Aid Scheme (NSFAS). The Auditor-General had issued a disclaimer, several board members had resigned, and new board members were issued with a mandate to develop and implement a new turnaround strategy. The new board members had, in addressing the disclaimer of opinion, succeeded in getting an unqualified audit opinion for NSFAS in 2011.

The 2010 disclaimer of opinion was based on the fact that NSFAS had not valued the loan book at ‘Fair value at initial recognition’, had not correctly accounted for interest over the life of the loan and was unable to justify, on verifiable scientific grounds, how it impaired the debtors. In addition, NSFAS had written off R589 million of interest and could not justify this. Interest was incorrectly calculated on the system by R181 million, due to adjustments made without proper control. There was also a reconciling difference of R42 million which could not be explained.

In order to address the disclaimer a number of key interventions were implemented by the new Board. The newly reconstituted board and Committee was set up. The three-year compliance checks were changed to yearly compliance checks. The former Chief Executive Officer’s contract was terminated. There was secondment of resources to the finance department, actuarial valuation of the loan book, the completion of loan book amortisation, independent date verification of the loan book and a procurement review.

In relation to actuarial valuation of the loan book, every transaction in the loan book was now run so as to properly allocate all repayments. Actuaries ran the data through a model that accounted for all the reasons for differences in loan values. Credit balances totalling R77.8 million came to light for the first time and resulted in refunds to 34 000 students who had overpaid.

The 2010 audit findings had found that the board did not exercise adequate oversight in that service providers were appointed too late and technical aspects were not started in good time, which in turn led to actuarial errors needing to be corrected. The accounting officer also had not taken steps to address irregular expenditure and there had been no proper guidance and training of staff on supply-chain management.

Irregular expenditure in 2010 stood at R25.6 million. Remedial procedures put in place to address this once the new board took office included holding disciplinary hearings of all management involved in procurement processes, independent adjudication, the appointment of a supply-chain management officer, the automation of the purchase order system, condonation of valid expenditure and the audit of potential fruitless and wasteful expenditure.

The Information Technology department had lacked a Chief Information Officer, formal IT governance, formal IT project or risk management frameworks and formally approved Disaster Recovery and Business Continuity Planning. In order to address this, remedial actions had been taken in the form of policies, plans and resourcing, which all formed part of the turnaround strategy.

In relation to investigations, the forensic audit into the conduct of one employee had found that this conduct had resulted in no financial harm to the organisation.

Highlights in relation to the 2010/11 annual financial statements included the distribution of R3.7 billion in financial aid to 210 576 students in 2010 (17% up from 2009). This figure, in 2011, stood at R5.5 billion. Students who passed had 40% of their loan converted to a bursary. In 2011 NSFAS could, for the first time ever, substantiate the books to the balance sheet difference of R7 billion, to the satisfaction of the Auditor-General. Although NSFAS had in the past been quite good at administering outstanding loans, it was not good at recovering loans. The reasons for the decreases of loans now included the fact that the NSFAS would not be aware if or when the debtor would be able to repay the loan, differential interest rates, death and disability, bursary conversion and the cut-off point of ten years.

Mr Sogayise outlined the strategic goals of NSFAS. These included expanding the pool of funds available, and better and more effective management of the way in which the funds were used and administered. Internal efficiencies in the processing of student awards and/or claims were to be improved. The quality of internal management and operations, in line with changing funding patterns, must be strengthened. NSFAS must effectively communicate with all of its stakeholder groups and targeted audiences. It was required to undertaking research that informed the effective utilisation of funds, in order to assist in the mandate of advising the Minister of matters related to student financial aid.

He outlined that future plans included the development of comprehensive policies and plans to improve operational efficiency as well as lay the foundation for a smooth transition to new, student-centred systems. These included a focus on areas such as finance, IT infrastructure, systems and operations, the administration of loans and bursaries, credit management, audit and risk management, Human Resource management and communications.

Discussion
Mr W Faber (Northern Cape DA) said that the report was very worrying as everything, particularly the amounts of money written off or lost, pointed towards poor management.

The Chairperson asked how many women were represented on the current Board, and asked for an indication of the current Board members’ areas of expertise.

Mr Sogayise answered that there were currently five women on the Board. The skills of Board members covered the organisation’s different needs, such as finance, IT and other needs.

The Chairperson also asked for the annual targets set for the funding of needy students.
 
Mr M De Villiers (Western Cape DA) asked why so many of the previous Board members had resigned on the same day.

A representative from the Department of Higher Education and Training answered that the Minister had requested that all resignations of the previous board should take place simultaneously, in order to reconstitute the whole board and implement the new turnaround strategy.

Mr de Villiers asked for clarity on the overpayments, asking if the scheme itself had overpaid, or whether 34 000 students had overpaid, and whether the overpayments were able to be reclaimed.

The Chief Executive Officer, NSFAS, responded that debtors (students) had repaid NSFAS more than was in fact due to them.

Mr de Villiers asked if there were measures in place to address irregular expenditure. He also asked what could be done, and if any controls were in place, to reduce the high costs for postage.

The Chief Executive Officer responded that an action plan which addressed the entire supply-chain management processes had been implemented by the new management. This had resulted in significant improvements in controlling irregular expenditure.

The Chief Financial Officer, NSFAS, said that NSFAS was looking at how to reduce its costs, including, for example, sending out statements by e-mail instead of post.

Mr T Mashamaite (Limpopo, ANC) asked about the current situation on the Audit and Risk Committee, particularly whether it was independent. He also asked how many officials were currently facing disciplinary procedures, and whether these officials still employed by NSFAS.

The Chief Executive Officer noted that the Audit and Risk Committee had now returned to effectively fulfilling its oversight role. Some of these officials who were facing disciplinary procedures were still employed by NSFAS, whilst others had had their contracts terminated, as a result of other issues. NSFAS always did follow up on disciplinary matters and took action against officials where necessary.

Mr S Plaatjie (North West COPE) asked whether there were any interventions planned by the Board to address those students who did not qualify for loans from either NSFAS or banks. He also asked for an indication of the implications of reducing funds, or ‘top slicing’. He queried if there was any consideration given to asking  students to pay off their loans through a service-linked programme.
 
Mr Sogayise answered that NSFAS had been asked by the Minister to come up with a policy which would look at the issues raised by Mr Plaatjie, and it was currently working on this, as also on the implications of “top-slicing”. A policy would be created once the issues were fully examined.

A representative from the Department of Higher Education and Training noted that NSFAS gave loans, and not bursaries, so in-service programmes had not applied in the past, although this was a matter that could be investigated further.

Ms R Rasmeni (North West ANC) asked how many bursaries had been allocated per province, and asked also if there was any policy to try to reach out to the more remote rural areas.
 
The Chief Executive Officer answered that although he could not provide exact figures, the percentage break-down per province was approximately: KwaZulu-Natal 19%, Limpopo 9.2%, Mpumalanga 0.75%, Northern Cape 0.41%, North-West Province 4.36%, Western Cape 13%, Eastern Cape 14.3%, Free State 5.5% and Gauteng 33.3%. Although NSFAS had identified Quintile One and Two schools, with whom it would work, and although it did have a programme in place to work with rural schools, he conceded that NSFAS could make significant improvements in this area.

Ms M Moshodi (Free State ANC) asked what was done in cases where debtors might still not be receiving any income after ten years and could therefore not repay their loans.

The Chief Financial Officer answered that it was assumed that if the money had not been repaid after ten years, it was unlikely that it would be repaid. However, this did not mean that NSFAS would simply give up on trying to recover the money.

Ms D Ranto (Eastern Cape, ANC) asked whether the new turnaround strategy would effectively deal with the challenges it faced. She asked if NSFAS, in granting loans, considered particular skills shortages. She also wanted to know if funds were specifically ringfenced for people with disabilities.
 
Mr Sogayise answered that the strategy had already achieved positive outcomes, and was therefore dealing with he challenges. The NSFAS was also working on a transformation process that addressed its challenges and shortcomings.

The Chief Executive Officer added that NSFAS had a programme that covered the areas of scarce and critical skills, as well as people with disabilities.
 
Committee’s draft Report on Department of Basic Education Implementation Plan
The Chairperson tabled and read the Report, which was adopted by Members.

The meeting was adjourned.