National Student Financial Aid Scheme 2017/18 Annual Report with AGSA input; with Minister

Meeting report

Budgetary Review and Recommendations Report: AGSA briefing

Mr Joshua Baganzi, Senior Manager: Auditor General of South Africa (AGSA), led the presentation on the audit outcomes for the Department and its 28 entities. All 28 entities had been audited, and 36 percent had received clean audit outcomes. 61 percent of the entities had submitted financial statements which were free of material misstatements, a slight improvement on the previous year. The quality of performance reports had improved, but was still below 50 percent, sitting at 32 percent. Most of the entities were struggling with the quality of performance information and performance reports submitted. Entities always made adjustments to correct that. The number of entities which had no findings on compliance was 54 percent, a slight improvement on the previous year’s 50 percent. Irregular expenditure for the current year for all the entities stood at R632 million, which was an improvement compared to the previous year’s R775 million

He highlighted the audit outcomes over the previous five years. Ten entities had received clean audits over the previous three years. Some had been unable to sustain clean audit outcomes over time. 17 entities, or 60 percent of the total, had received unqualified audits with findings. Those entities had submitted financial statements which were not qualified. There were issues of compliance with laws and regulations, and findings on performance information. The findings coming out of most entities, specifically the sector education and training authorities (SETAs), were that there were material adjustments to the financial statements pertaining to discretionary grants and commitment disclosure. One entity, the National Student Financial Aid Scheme (NSFAS), had received a qualified opinion. Over the five-year period, the audit outcomes had remained roughly the same.

Mr Baganzi elaborated on the improvement or regression of the entities in the current year. He listed the entities which had received unqualified audits with no findings, and three of these had improved from the previous year. The Wholesale and Retail SETA (W&RSETA) had improved to an unqualified audit with findings. Three SETAs had regressed from a clean audit to an unqualified audit with findings. NSFAS had regressed from an unqualified audit with findings to a qualified audit with findings. Only one entity had received a qualified audit -- the majority had received unqualified audits. There were no adverse or disclaimed audits.

Over the previous two years, all the entities had submitted their financial statements on time. Ten of the 28 entities had received clean audits. 27 of them had received unqualified audits. One entity had received a qualified audit. Nine entities, or 32 percent of the total, had no findings on their annual performance reports. This was an improvement on the previous year’s 18 percent total. 58 percent of entities had findings on, or had adjusted, their annual performance reports. 54 percent of the entities did not have findings on compliance with key legislation. 13 entities had findings on compliance with laws and regulations.

There had been a decrease in irregular expenditure compared to the previous year. The biggest contributor to irregular expenditure was the overpayment of bursaries by NSFAS. With other entities, the key findings were non-compliance with supply chain regulations. Fruitless and wasteful expenditure stood at R45 million in the current year, R35 million of which was from the Local Government (LG)SETA.

Mr Baganzi provided a breakdown of the R637 million in irregular expenditure. Four percent of this was irregular expenditure from previous years, which had been uncovered and disclosed for the first time only in the current financial year. 96% of the total pertained to non-compliance that had been picked up in the current year.

He elaborated on the key common findings in supply chain management. One entity, the Cultural Arts, Tourism, Hospitality and Sports SETA, had not adhered to the minimum threshold for local production. Two entities, or eight percent of the total, had not invited competitive bidding. Four entities, or 15 percent, had not submitted declarations of interest. Only one entity, or four percent of the total, had not applied a preference point system. Suppliers’ tax affairs not being adhered to, amounted to 12 percent. 19 percent of the entities had inadequate contract performance measures and monitoring.

In determining the percentages, only 26 entities were considered. Two of the entities were excluded due to AGSA’s audit methodology, with one of them not complying with the Public Finance Management Act (PFMA). It had excluded the Council for Higher Education (CHE) and the National Institute for Humanities and Social Sciences (NIHSS), as there were no PFMA audits.

Fraud and consequence management was considered by looking at how many investigations into financial fraud within supply chain there were, and how long the investigations took. All allegations were properly investigated within three months. Regarding supply chain management findings which were reported to management for investigation, there were two instances of suppliers submitting false declarations of interest, and 62 instances of employees failing to disclose interest in a supplier at the Department of Higher Education and Training (DHET). These were mostly Technical and Vocational Education and Training (TVET) college lecturers, who had failed to disclose their interest in suppliers. There was one instance at the Mining Qualifications Authority, and five instances at the W&RSETA. for a total of 68 instances where employees failed to disclose their interest in a supplier.

Mr Baganzi continued with a financial health analysis of entities, looking at whether the entities were financially viable and whether their financials were in a good position. Across the portfolio, no financial risk was found, apart from the Services SETA, which was overcommitted. The Services SETA had awarded contracts valued at more than what it had in reserve. Total commitments had amounted to close to R4.3 billion, compared to their discretionary grant reserve of R877 million. Should all the commitments materialise in the future, the SETA might not be able to pursue all its commitments, which would result in cash flow problems. AGSA recommended closer monitoring of the Services SETA.

He referred to the different levels of assurance and assurance providers, and how these assurance providers help the entities to function. He praised the work of the Portfolio Committee and audit Committee in providing oversight. 22 out of the 26 internal audits were found to be functioning as intended. Executive authority was assessed to provide some assurance because of the issues which were picked up under the entities which fell under the executive authority. Much of senior management and accounting authority was assessed to provide some assurance. The only senior management which was assessed to provide limited assurance was NSFAS, and this was based on the audit outcomes of the entity.

The assessment of internal controls was based on the three areas - governance, financial and performance management, and leadership. This spoke to the wheel of accountability. There had been some improvement in planning. Internal controls showed improvement, as did financial and performance management controls. There were slight improvements in Information and Communications Technology (ICT) controls, although some entities still faced ICT challenges. Vacancies in Chief Financial Officer (CFO) positions had slightly improved. Assurance providers had slightly regressed. Internal audits had improved, and Portfolio Committee assurance remained unchanged. Compliance with consequence management improved, as did investigation of the previous year’s unauthorised, irregular and fruitless expenditure. Investigation into supply chain management findings which were reported in the previous year improved.

Mr Baganzi elaborated on the root causes for non-compliance across the portfolio. He expressed concern over the lack of urgency from management in addressing AGSA’s messages about risks and internal controls. A lack of adequate project management had resulted in SETAs adjusting financial statements or not complying with regulations. This led to inadequate reporting in terms of discretionary grants and performance reports. There were inadequate record keeping controls to ensure that financial and performance reports were supported by reliable evidence. This was why most entities had adjustments to their annual reports, or negative conclusions to their pre-determined objectives.

He recommended that action plans to improve the internal control environment should be implemented. Monitoring of progress against action plans should be enhanced, to determine if implemented actions were effective to address reported internal control deficiencies. Attention should be paid to record management systems so that it improved the ease with which information was retrieved for audit review.

Mr Simbongile Manzi, Senior Manager: AGSA, took the Committee through the report on the audit outcomes of the Technical and Vocational Education and Training (TVET) colleges.

He said that the clean audit outcomes for the TVET colleges had declined from 18% in 2016 to six percent in 2017. This was primarily due to the strengthening of the legislative requirements around the preparation of financial statements, in accordance with the accounting framework. In previous years, the compliance and preparation of financials in accordance with the framework was prescribed through a circular by the Department. In the 2017 financial year, the Department had gazetted a requirement that the financials be prepared in accordance with the financial accounting framework. The effect of this was that matters which in previous years would have been reported only in a management report became material compliance matters. This was the primary reason why the percentage of clean audits had reduced from 18 percent to six percent in the current year. The number of unqualified audits with findings was directly linked to that. In most instances when colleges move from unqualified audits with no findings, those colleges fell into the unqualified audits with findings category.

The modified opinions had increased from 54 percent in 2016 to 58 percent in 2017. This was largely attributed to three colleges regressing from having unqualified audits with no findings, to qualified audits. These colleges were Majuba College, Esayidi College and Boland College. Those regressions were related to issues around property plans and equipment, where the colleges could not provide the auditors with sufficient evidence to substantiate what was reported in the financial statements.

That said, it was not all gloom regarding the TVET colleges. Although the modified opinions had increased from previous years, the number of disclaimers and adverse opinions had decreased from 12 colleges, or 24 percent, to 10 percent in the current year. No colleges had adverse opinions. There were two audits outstanding at year end – Sedibeng TVET college and Tshwane North TVET college. Sedibeng submitted their financials for 2017 in the first week of September, while Tshwane North submitted their financials for 2016 during September. Tshwane North had a backlog of outstanding audits from previous years, with the 2015 audit being finalised only in September 2018. At that time, the 2016 and 2017 audits for Tshwane North were still outstanding.

Mr Manzi identified the colleges which had moved from one audit opinion to another. Buffalo City, Ekurhuleni West, Nkalanga and Port Elizabeth colleges had all regressed from an unqualified audit with no findings, to an unqualified audit with findings. 11 colleges had managed to improve their audit outcomes from the previous year, while 12 had regressed from the previous financial year. Ehlanzeni, South West Gauteng, Taletso and Vuselela had received disclaimed audit opinions in the current and previous financial year. Lephalale had moved from an adverse audit opinion to a disclaimed audit opinion.

Clean audits stood at six percent compared to 18 percent in the previous year. Quality financial statements stood at six percent compared to 52 percent in the previous year. Three colleges had no findings on compliance, and the remainder had findings on compliance due to financial statements not being prepared in accordance with the financial accounting framework.

Mr Manzi referred to the areas of financial statements where the colleges were struggling, and which contributed to the modified opinions, disclaimers or adverse opinions. The main areas were expenditure, revenue, liabilities, current assets and non-current assets. The non-current assets were mainly findings related to property plans and equipment, where the colleges were unable to provide the necessary evidence for the auditors. Regarding assurance providers, three colleges did not have internal audits – Northern Cape Rural, Taletso and Nkangala. Northern Cape Rural did not have an audit committee.

In respect of the state of internal controls in governance, financial and performance management, and leadership, the main issues were record-keeping and providing records to auditors; processing and reconciling of transactions on a regular basis; and the preparation of regular, complete and accurate financial reports. The main issue pertaining to leadership was the implementation of action plans to resolve findings which had been reported in previous financial years. The root causes for poor audit outcomes were mainly the slow response to improving key controls and addressing risk areas. A major area of concern was that key officers lacked the appropriate competencies.

Dr Takalani Rambau, Education Specialist: AGSA, presented the sector audit outcomes, which look at service delivery across different entities. The audit work was informed by three key policy documents -- the National Development Plan (NDP) of 2011-12, the White Paper for Post-School Education (PSET) of 2014 and the National Skills Development Strategy (NSDS) of 2011. These areas were listed in the policy documents as the aspirations, outcome and impact the NSDS needed to achieve. Evaluating effectiveness could take a long time, but AGSA would present some of its findings on specific areas.

Between 2014 and 2016, AGSA had focused on research, partnerships, monitoring and evaluation. It was important to focus on demand and supply within research -- whether SETAs were doing research to identify demand and their research informed the supply, which was the institution of higher learning. Partnerships focused on the delivery of schools to link workplaces and learning. This required a number of partners, in particular SETAs, institutions of higher learning and employers. SETAs sat in the middle of connecting the three partners. Monitoring and evaluation focused on data which came out of the interventions AGSA does and whether that data was informing the effectiveness of the institutions.

In 2016-17, AGSA looked at key pillars which told them whether the NSDS was effective. Of the seven key pillars, AGSA focused on five – work integrated learning, rural development, small, medium and micro-sized enterprises (SMMEs)/unions, inter-sectoral skills and revitalisation of TVET colleges. Work-integrated learning addressed learnerships and internships. Inter-sectoral skills were where SETAs entered into partnerships. AGSA decided to look at whether the interventions at TVET colleges were making an impact in 2017-18.

Dr Rambau spoke about research and the suggestion that all research done by the 21 SETAs should be elevated to a research repository held by Department of Higher Education and Training (DHET). This would make it easier for universities to access the research. Private service providers or universities were sometimes contracted by SETAs to do research, such as Agriculture SETA working with the Agricultural Research Council (ARC) on research. If research institutions and SETAs worked together, future skills which were needed could be identified. This was something AGSA was elevating.

While there were partnerships between SETAs themselves, there were challenges in some auditees. An example was the National Rural Youth Service Corps (NARYSEC), which faced challenges with skills development. The Expanded Public Works Programme (EPWP) workers were not being trained. He suggested that recognition of prior learning would enable people to find work after the EPWP, because of the work it did in skilling the nation. He spoke about engaging with Public Employment Services, because of their system of registering work seekers. One of the challenges the Department of Labour was facing was that once people registered, those people were unable to be placed in work because of skills shortages. This was another partnership that would make an impact on communities.

Dr Rambau felt that monitoring and evaluation needed to be elevated, because in the past SETAs would do monitoring and evaluation, place that information in their database which, once there, was difficult to access. If monitoring and evaluation were elevated, findings could be used to prevent problems from happening. Skills, rural development, SMMEs and the revitalisation of TVET colleges, were essential. These findings would be presented at public hearings on the new National Skills Development Plan.

He described some of the findings in different areas. Some SETAs’ interventions were not informed by the priorities of TVET colleges. AGSA felt that it would have indicated whether the interventions were effective in promoting the growth of TVET colleges. SETAs would advertise and colleges would respond to the advertisement. TVET colleges which did not have sufficient capacity would not be able to access the interventions which had been advertised. Some TVET colleges would respond to SETAs and do interventions such as learnerships or internships without looking at the capacity the TVET colleges had, and whether the project could be implemented successfully. The White Paper looks at some of the challenges the TVET colleges experience, particularly the management capacity to manage skills development interventions. If SETAs did not have the appropriate management capability to manage internships and learnerships, the programmes were delayed or discontinued. If learnerships were given to TVET colleges with poor learning facilities, people would leave the learnership without the skills needed by society. He noted the need for curriculum enhancement to align the curriculum to the needs of employers.

Dr Rambau spoke about elevating the limited strategic engagement on prioritising interventions to strengthen the capacity of TVET colleges from the National Skills Fund (NSF). He was aware that there were interventions taking , but engagements with SETAs and others would avoid a situation where everyone was funding the same interventions.

There were lecturers due for retirement, and he expressed concern over the lack of succession plans at TVET colleges to replace them. Another issue was the service level agreement (SLA) between the DHET and SETAs. Ideally, SLAs would inform annual performance planning (APP). SLAs were done annually and sometimes there was an overlap, with SLAs being signed after APPs. This created confusion around target setting in those areas. In the new NSDP which was proposed, the idea was for there to be a three-year implementation plan. The Education, Training and Development Practices (ETDP) SETA had a chamber which focused on TVET colleges, which placed them in a good strategic position to look at all TVET colleges and what their priorities were. Using that, ETDP could engage other SETAs which look at focus areas aligned to their sector. Providing direction and support to ETDP SETA to start looking at priorities of TVET colleges was very important.

Dr Rambau elaborated on strategies to improve skills development. The National Skills Fund (NSF), SETAs and other skills development role players had not strategically moved in addressing the system blockages listed in NSDS III. Some of the problems from 2011 were persisting. There were interventions which had been put in place, but he expressed concern at challenges. He stressed the importance of collective planning, noting that SETAs planned their ammual performance plans (APPs) in isolation. This linked to the consolidated PSET report. There was a skills development implementation progress report which the Department submits. This report picks up the targets and puts them together. The report records the number of internships and learnerships, but does not go deeper to record the impact these have in different areas. In the current plan, TVET colleges and SMMEs had been highlighted, but it was silent on rural skills development as an outcome.

He felt that if the Department’s systems and processes were well implemented, it would enable AGSA to reach the outcomes. He noted the various plans and strategies for skills development. AGSA’s reflection was that annual SLAs and APPs were mostly ineffective. The systems of SETAs and the NSF would need to be aligned to target specific areas. The DHET leads coordinating, with SETAs taking sector-specific leads. The NSF would look at the gaps not addressed by sector-specific initiatives. Where a SETA had a limitation, it would be taken over by the NSF. Consolidated reporting did not only talk to targets, but to issues that provide effectiveness. He stressed the importance of research, monitoring and evaluation.

Sharonne Adams, Business Executive: AGSA, responsible for the NSFAS audit, highlighted the key areas from an auditing perspective. There were two qualification areas this year. One related to student loans and limitational scope on bursaries and loan agreements. The second area related to irregular expenditure. AGSA could not ascertain the total value of the irregular expenditure, based on the work done. A projected figure was used instead, as indicated in the audit report. In terms of compliance with laws and regulations there were findings which the senior manager for the audit of NSFAS would provide context for. The first one was related to asset management where, in terms of Treasury regulations, there were funds deposited in banking institutions which were not accredited by National Treasury. The other area of compliance related more to expenditure management, where it came to irregular expenditure for the current year. The third area of non-compliance related to the annual financial statements. There was a material finding on predetermined objectives relating to the reliability of the number of manual applications received by NSFAS.

Luthando Mehlomakulu, Senior Manager: AGSA, responsible for the audit of NSFAS, outlined the qualification which was identified for NSFAS in 2017/18. He reiterated the need to evaluate the responsibilities of the individuals responsible for providing oversight during the audit. If assurance providers had emphasised their responsibility, there were certain aspects which could have been picked up to avoid a qualified audit and ensure that disbursements did not exceed loan agreements. AGSA had provided context with respect that, as per the requirements of Treasury, a public entity like NSFAS needed to deposit funds into the banks approved by Treasury. If that exercise by the leadership had taken place, NSFAS would have avoided the material non-compliance in 2017-18 financial year.

He highlighted the root causes of the qualified audit. One of the reasons NSFAS had regressed was the slow response on key risk areas which AGSA had identified in previous audits. One aspect that contributed to the qualification was the restructuring of NSFAS to a student-centred model. By fully implementing this model, NSFAS no longer utilised higher education institutions for the application processes. NSFAS took on that function themselves, and applied the processes and procedures of the means test themselves to determine if those students qualify for bursaries and loans from NSFAS. In addition, NSFAS was responsible for making the disbursements to the institutions which would be responsible for providing higher education to students who qualify. Taking over such a big process with limited capacity, particularly in information technology (IT) applications, had resulted in the significant deficiencies identified at NSFAS where it did not have sufficient capacity to process applications and monitor the process.

The application system which had been implemented did not have certain functions where NSFAS would be able to identify whether the application forms had been approved, and what the specific amounts were that students and NSFAS had agreed to. It was not possible to detect whether the disbursement which had been made was over and above what had been agreed to. This had contributed to the over-disbursement because the function in the application system did not exist, contributing to the deficiencies in application controls. It was imperative that this be reported to the public. This was an act of non-compliance against the National Creditors Regulation Act and the NSFAS Act, which was important for managing the debt and the agreement between NSFAS and the students.

As auditors of NSFAS, AGSA needed to develop a plan to address the shortcomings. AGSA had highlighted this in the presentation and presented a way forward as auditors, to work closely with NSFAS to make sure all these matters were addressed appropriately. One of the paragraphs highlighted that a fault lay with AGSA, as it needed to have a close relationship with the current administrators at NSFAS to make sure that the administrators improve the controls within the organisation. AGSA needed to understand all his plans, including the strategic plans and APP. AGSA had to evaluate all the new business plans the administrator formulates to make sure that the plans were aligned with the current form of NSFAS and with the environment in which it operates. This would prevent NSFAS from being in situations where there were significant deficiencies in their control environment.

Mr Mehlomakhulu said that the administrator had come in trying to eliminate the funding backlog from all the students in 2016-17, as well as the 2017-18 academic period. There needed to be audits of the clearing of the backlog to ensure that all the processes and controls with respect to disbursements were followed appropriately. This would ensure that monies were paid to students who deserved to receive bursaries, and that processes were appropriately followed. There was a plan to ensure that new processes at NSFAS were being led effectively. AGSA would evaluate whether the mapping of the processes was being done appropriately, whether it was effective and whether it aligned with the current form of the organisation.

Data integrity at NSFAS had contributed to the qualified audit. NSFAS needed to look at data integrity to see if any aspects of it needed to be fixed. AGSA had committed to test their data integrity to ensure it did not jeopardise the funding system of NSFAS in the future. NSFAS had committed to do an internal audit review and records review in November, to evaluate whether the qualified audit had been appropriately addressed or to highlight whether the qualification might persist. AGSA would evaluate whether the processes and systems which had been implemented compromised the disbursement system that was currently in place.

Discussion

Dr B Bozzoli (DA) questioned what constituted a Departmental entity, noting that the first part of the report focused on so called Departmental entities, with an additional part on TVETS. Were TVETs not Departmental entities? Should the report not be a single report? She felt that this was done to make the Department look better than it was, because the TVETs failures were not included in the Departmental entities section. She asked the AG to comment on that.

She questioned the R280 million figure given for NSFAS and asked what reassurance there was that the figure was correct, citing a report which estimated the figure as being over R1 billion. She expressed concern that this was still a lot of money being paid irregularly to students, and asked how it would be recovered.

She noted that the R6 billion taken from the National Skills Fund to fund free higher education, which the NSF Chief Executive Officer (CEO) had expressed extreme concern about, was not mentioned. She asked whether this should be an audit consideration, since it was a large amount of money taken out of the NSF and directed towards items which did not seem to be directly in the mandate of the NSF.

She felt that a broad report on skills would be excellent for the Committee to see. The Department did a lot of reporting, but when it came to reporting on skills, the Committee’s experience was a fragmented one – sometimes there were presentations from SETAs or the NSF, but the Committee never got an overall picture of how the Department was doing in managing skills education. She urged the Department to take this seriously. She also expressed concern that Tshwane North never seemed to have handed in an annual report. She asked what steps could be taken in this respect.

Mr A van der Westhuizen (DA) expressed appreciation for the AGSA analysis of why there had been problems at some of the entities. He praised the suggestion to utilise and focus on existing research institutions, rather than duplicating and trying to set up new research units, given the limited capacity in the country.

He referred to Boland College’s reputation for unqualified audits. In 2016, the principal was about to retire after an extended contract in 2017. The principal had asked the Department to start advertising so that the filling of that position would be seamless. Boland College had had an acting principal for the previous year, with the position being filled only from 1 September 2018. During this time, Boland College’s audit outcomes had regressed sharply. The red mark was against Boland College’s name, because it could not maintain its good financial performance record. He believed that the entity which should take accountability for this was the DHET, which had taken 22 months to fill a vacancy which had been reported to them. This showed the importance of management in an entity getting good results.

He expressed shock at the use of taxpayers’ money to do business with entities whose tax affairs were not in order. He cited the figure of 8% of irregularities in terms of supply chain management. He felt that one of the first tests when entering into an agreement with an entity should be whether their tax affairs were in order.

Ms J Kilian (ANC) felt that the Committee had to make some very serious interventions which were necessary. The handover report to the next Parliament would have to highlight the serious interventions which would be required. She expressed grave concern over the TVET sector and NSFAS. She noted that the Minister had already intervened, and that there was a new administrator at NSFAS. Given the background of the new administrator, she felt that he would make the audit report his real focus so that the internal controls at NSFAS were back on track. She questioned whether, when looking at the overview of the previous five years, things had been missed in previous audits, since it seemed to be such a sudden and complete collapse at NSFAS. She asked the AG whether it was wrong to make such an assumption. Were there weaknesses which had not been addressed and deteriorated so rapidly that NSFAS just collapsed?

She asked why there had been growing regression in the TVET sector over the previous two years. None of the colleges were making any progress in terms of financial management and internal controls. Why was this the case – was it because the AG had only recently assumed responsibility for the audits? This sector must be fixed to address the skills deficiencies in the country. All the internal controls pointed to a collapse. This was true of all government departments, where you could see regression which was followed by a complete collapse, with leadership leaving, turnover and disciplinary processes. She expressed concern and asked why the TVET sector had regressed.

Mr C Kekana (ANC) questioned whether the new student model at NSFAS contributed to the problems it was facing. He expressed concern that there could not be fee free education without any improvement in higher education. He referred to the lack of capacity in management and resources, and asked why there was no capacity if the money was there. He expressed concern at the small number of entities receiving clean audits, stating that this had persisted for a long time. Why weren’t capacity issues being fixed if the money was there?

Another Member said that the TVET colleges were the backbone of the country’s development and for changing the status quo of skills development. He felt that money was not a solution to all the problems and that government should reach a point where it stopped giving money, looked back, and evaluated what was causing the challenges. People with capacity needed to be employed for relevant positions. Given the existence of intergovernmental relations, he expressed concern at the stakeholders failing to come together.

The Chairperson congratulated the Committee for improving its oversight role in the sector to the satisfaction of the AG. She congratulated the AG for taking into consideration the issues the Members had raised as to how reports should be set out. This helped the Committee immensely to make connections. The Committee was not only interested in the numbers, but in connecting the numbers with value for money. She asked the AG to expand on this and zoom into particular sections. She felt that the skills issue should be unpacked in all its different facets, not only the NSF.

The Chairperson disagreed with the AG on the NIHSS, saying that it was not a matter of the scheduling of the organisation, but what the report was raising. This needed to be elevated, as she felt the entity was slipping away from its responsibilities by the remarks which were made. She was concerned at their non-compliance, and asked what the AG would do about it.

She asked the AG to show the connection between why colleges like Sedibeng and others had not produced an audit report, and the actual functioning of the college. Sedibeng had had ups and downs for a long time. It was obvious that it would not have an audit report, but the AG did not seem to have picked up the reasons that had led to this.

She asked why some SETAs – the Bank SETA and the ETDP SETA -- were missing from the report. She noted the proposals which the AG made about NSFAS. As the financial year had already started, she asked which proposals would be implemented, expressing concern that no one would take notice of them. The previous audit report on NSFAS had indicated that there were problems and proposals had been made. She asked what happened to the proposals, noting that the laws were being changed to give the AG more power. Were the proposals taken into consideration, and had the AG been given sufficient power to make sure that the proposals were implemented? She suggested that the AG report on current engagements with NSFAS, rather than speaking about engaging with them in November.

AGSA’s response

Mr Baganzi responded on the issue of the money being transferred out of the NSF for free higher education. The NSF funded most of the shortfall in free higher education. The legislation needed to be looked at. In terms of how NSF operated, there were Director-General (DG) projects and ministerial projects or grants. The NSF asks Ministers or DGs to fund those priorities. At that time, free higher education was a priority for the country so the DGs and Ministers used their priorities in terms of the Skills Fund. When AGSA audited the transfer of the money, it was permitted within existing legislation.

The Chairperson clarified that the Member hadnoted that the figure was not reflected.

Mr Baganzi replied that the Member had asked where it was reflected. When the transaction was audited it was done in terms of Skills Development Act.

Dr Bozzoli commented that the CEO of the NSF believed it was not within the law, as it was not being transferred to a specific skills development project but rather to general bursaries, which could mean not producing skills which the country needed.

The Chairperson suggested that AGSA think more about the answer and come back to it, as she felt the answer was not the correct one.

Mr Baganzi said the AGSA report included mostly entities which had unqualified opinions with findings. The only clean audits which were brought in were the services SETA, because of their over-commitment. Because SETAs like the Bank SETA and ETDP did not have material findings for AGSA to highlight, those SETAs were not brought in. Most of the entities highlighted in the detailed documents focused on the key findings that led to their not receiving a clean audit.

Regarding the questions about the NIHSS, he said that AGSA would need to go back to their offices and consult before providing the Committee with a proper answer.

Mr Manzi responded to the question about the definition of Departmental entities. Departmental entities were those listed in the PFMA. TVETs were not included, as TVETs were not listed in the PFMA. AGSA’s view was that separating TVETs from Departmental entities in their report would give a clearer picture of where the issues were. AGSA was happy to present a consolidated picture including everything, if the Committee felt it would better serve their purposes.

Regarding Tshwane North, the presentation had stated that it had just completed its 2015 audits. The 2016 and 2017 audits were still outstanding. The 2016 audit was in process. A private auditing firm was catching up on the backlog. AGSA hoped that the 2016 audit would be finalised by the end of November.

He responded to questions about why the TVETs had been regressing over the previous two years. The AG had recently assumed the audits of the TVETs, with 2016 being the first year it had audited all the colleges together. Before that, AGSA had audited 15 colleges in 2013, gradually building up to 30 colleges in 2015. AGSA had pointed out in previous engagements with the Committee that the outcomes seemed to be regressing when the AG took over the audits. Some of that may have been due to differences in audit methodology, with AGSA perhaps having a more rigorous approach than some of the private firms. That would explain the regression of the previous few years. AGSA should now be able to see if the trend was continuing or if the colleges were starting to address some of the issues. That said, the adverse and disclaimed opinions had reduced, meaning some progress had been made. Whether the progress was being made fast enough was another question, but some progress had been made to improve the financial reports.

Mr Manzi responded to the question about Sedibeng and whether the non-submission of financial statements was impacting the functioning of the college. He said that unfortunately he was not able to pronounce whether this had been the case. That had not been within the scope of the audit, but was something AGSA could try and think about a bit more. AGSA could apply its mind to that in the future.

Dr Rambau responded to the question on the capacity of TVET colleges. AGSA’s observation, based on the analysis that was done at the Sekhukhune and Ekurhuleni TVET colleges, had found that only two SETAs had supported Sekhukhune. More than 20 SETAs supported Ekurhuleni West. In terms of capacity, Sekhukhune did not have a dedicated person to look at all SETAs, i.e., when SETAs advertise, what was advertised and what the college needed. Ekurhuleni West had that capacity – it engaged with SETA and could put together responses to SETAs. That gave them an advantage. Many other TVET colleges focused their capacity on teaching and learning without looking at other resources which were there, not only from SETAs, but also the placement of learners who had been sponsored through learnerships and TVET colleges. AGSA identified this form of capacity as lacking in many TVET colleges.

Mr Mehlomakulu responded to the question about the figure of R280 million in irregular expenditure, and what assurances there were that this figure was correct. During the audit process, the management had been requested to investigate the population of the figures, because AGSA had provided a projected amount of R1.2 billion. In terms of process, NSFAS had needed to be given an opportunity to investigate the total amount, to determine the factual figure. When NSFAS investigated, it had provided supporting evidence which confirmed that there had been no over-disbursement. In the audit report, AGSA highlighted that there were concerns about the completeness of the total figure. This was why no figure was specified in the audit report because AGSA did not know the exact figure. The figure included in the presentation was not the best estimate. AGSA still needed to come back and confirm that that figure had been cleared or reduced to a reasonable amount.

He spoke about the weaknesses in the controls at NSFAS which had contributed to the qualified audit. There were weaknesses which had been reported in the previous five years. One of the weaknesses which was highlighted was that the policy and procedures at NSFAS were outdated and were not aligned to the structure of the organisation. There were problems identifying the job description, roles and responsibilities of individuals within NSFAS. The primary internal control deficiency which resulted in the qualification was that there were still gaps within the system in terms of the people who were responsible for disbursements and approvals for disbursements. He gave the example of situations where scripts were written which were escalated to the IT Department to process the disbursement in the system, without detailed supporting evidence.

There was a personnel review process which needed to take place at a higher level. This was an area which was highlighted, but due to the limitations of reporting standards, this was not included in the audit report. This was one of the aspects that the administrator would look at intensely. AGSA would come back to ensure that the action plan was implemented to address those deficiencies. He said that the audit report had been signed on 1 July, giving NSFAS the opportunity to address those issues, provide oversight, and formulate action plans that targeted the deficiencies. AGSA had given NSFAS a grace period to make sure that these aspects were implemented so that AGSA could evaluate the implementation. This was why AGSA felt that November was an appropriate date. AGSA had highlighted the areas it wanted to focus on to provide an appropriate and meaningful service. It would evaluate if the qualification had been reduced by a reasonable level. It would also evaluate whether the process and procedures for disbursements were followed appropriately for the new academic period, and whether any backlog for disbursements which took place had procedures followed appropriately. AGSA would provide a detailed analysis of data integrity and ensure that there was sufficient capacity to do so at AGSA.

Ms Adams felt that AGSA would have to come back to the Committee about the R6 billion from the NSF. AGSA would provide a response in writing. It would provide explanations for the entities which were not included, such as the Bank SETA.

Addressing the way forward, she said the status of record review which AGSA would do at NSFAS in November would enable them to identify risks, concerns and early warning signals. AGSA would have this information available for the Committee in January 2019, if the Committee wanted feedback.

The Chairperson said that there was not enough time for answers, and that not all the questions had been fully answered, but suggested that AGSA look at the questions again and provide detailed answers. The Committee would not be able to put the answers into their records, since they were not comprehensive.

She welcomed the administrator of NSFAS and his delegation to make their presentation. She questioned whether the authors of the report and the people who did the things mentioned by the AG were still in the employ of NSFAS, and if so, when those individuals were leaving.

 

2017/18 NSFAS Annual Report

Dr Randall Carolissen, administrator of NSFAS, introduced his team – Mr Morgan Nhiwatiwa, acting chief financial officer (CFO), and Mr Nathan Johnstone, chairperson of the audit and risk committee. He clarified that the board in its entirety had been dissolved upon the appointment of an administrator. He had reconstituted the audit and risk Committee due to the severity and amount of audit issues which remained, as well as because of the then unresolved issue of the CEO. The future of the audit and risk committee would be debated internally, as to whether NSFAS required it going forward.

Dr Carolissen said that the Committee had been briefed a few weeks earler, but he felt it appropriate to refresh the Committee on some of the progress made and the issues NSFAS faced at that point. Much of his first six weeks as administrator had been defined by the terms of reference published by the Minister, which was what she wanted him to concentrate on. He expressed his pleasure that the AG was staying in the meeting, since the severity of the audit reports defined a large part of his work, beyond the terms of reference.

The engagement with the internal and external audits showed that NSFAS was dealing with business which was extremely unusual. There were such big gaps, so that even while the 2017 and 2018 backlogs were being closed, the real issue was whether it would have a stable 2019 and whether it had sufficient time to prevent another qualified audit. In its engagement with AGSA, NSFAS had insisted on having a very strict internal audit so not to become self-delusional and so that it would have thorough guidance which was more objective than its own interpretations of the problems. NSFAS had defined the scope of the November audit with AGSA, and this would shape their work plan going forward.

He could not respond to the sudden collapse of NSFAS -- whether it was anticipated or part of a longer progression. The three main things which stood out for him when he arrived was the complete absence of financial controls, severe system instability and a basic collapse in governance. Large upfront payments were made to institutions, to the tune of around R11 billion, but no remittances were provided to those institutions to indicate to which students the money must be paid out to. This was one of the first things that had to be addressed -- unlocking the money which was trapped at the institutions. The financial reconciliation could not happen, which was why he said there was a lack of financial controls.

The contracting of students was way behind. The figure had been standing at 86 000 students with unsigned contracts when he first arrived. As this was cleaned up, additional students were found in the system, bringing the figure to well over 100 000. There was a complete absence of segregation of duties, with the people who implemented the system changes being the same people who made pay-outs. This spoke to the severe exposure the organisation had at that stage. Delegation of authority was non-existent, so his first act was to pull up all authority to himself, and then delegate it to the next layer, with further delegations requiring his permission.

He said that there was excessive outsourcing of key and core roles in the institution. Key person dependencies did not allow for segregation of duties, because there was only one person who could do a particular job, with that person changing the system and doing the pay-outs. There was a complete absence of development protocol and a lack of project management. Normally, changes to a system would be done on a development platform while the production platform ran uninterrupted. There were many instances where development was done on the live system, as the system was running.

Data integrity and data integration institutions were in a very bad state. NSFAS could not trust the data which was given to them. Somehow data was corrupted in the transfer between NSFAS, DHET and the institutions. This was some of the root cause analysis, which called for immediate and drastic action.

Dr Carolissen elaborated on some of the actions taken to begin to address some of the severe exposure the institution was facing. He had had many successful engagements with student bodies, such as the TVET SRCs, to secure their cooperation to assist with the closeout of the 2017-18 issues, such as finding some of the students who needed to sign their contracts. Some of these SRC presidents became ambassadors, going to different campuses to assist in this endeavour. The main burning issue from the TVET SRCs was the discriminatory nature of allowances -- why was their allowance different to those of universities? To that end, he had had many engagements with the DHET on how to better standardise allowances across universities and TVETs, how to smooth out disbursements and make sure allowances ended up in students’ bank accounts, with minimal interference from middlemen, and how to limit the amount of special cases or special allowances in the system. Special cases or allowances caused havoc in the system. He questioned how, as an administrator, he was to determine if a person lived nine and a half or ten and a half kilometres from campus and, on that basis, whether that person was entitled to a travel allowance.

Dr Carolissen reported having hadvery successful engagements with the DHET, where many of the inhibiting policy issues had been put forward. NSFAS found a very receptive audience, with the DHET promising to brief the Minister on some of the policy proposals it would like to effect to make administration easier and more seamless.

Dr Carolissen, based on his engagements with TVET principals, expressed concern at the lack of capacity to administer funding at TVETs. There were no financial aid offices at that time, which the Minister had asked NSFAS to assist with. One of the ways to gets past this was to ensure that the 20% which was allocated to TVET students went directly to them, so that NSFAS was dealing only with students and allowances. This was a discussion which needed to gain traction with the DHET. Another problem with TVET funding was that current funding did not accommodate students during their in-service training, which prohibited them from attending workplace training due to a lack of travel money.

The 2019 planning would focus on outreach into rural areas. NSFAS had taken on board the offer from Parliamentarians to use their offices. Someone was working on this. NSFAS was establishing a firmer footprint by working with libraries which had Wi-Fi to ensure that people who did not have data could get on to their platforms and register.

The 2019 allocation for NSFAS would be R32 billion, and R36 billion in 2020. 800 000 students would be funded in 2019, 900 000 in 2020. He asked whether the sector could absorb that number of students. NSFAS agreed with DHET on the need to model this and manage supply and demand. He warned of the potential for chaos if students were eligible to study, but found there was no place for them once they got to the institutions. The modelling was a big priority so that when eligibility was indicated, there was concomitant capacity at the institutions.

Dr Carolissen said that since he last spoke to the Committee, he had brought some experts on board in line with the commitment the Minister had made to deal with the issues which had been referred to earlier. NSFAS now had a business process management expert on board. It also had a programme management and institutional support person on board who understood how universities needed to administer themselves to absorb NSFAS funding. This person would also assist in the rollout and training to TVET colleges. NSFAS had a governance policy, risk and financial expert on board who was an ex-CFO at South African Revenue Services (SARS), with extensive experience in dealing with the AG and audit oversight. This was a comfort to him personally, to have the right expertise in this area. There was an expert on payments, in line with NSFAS’s desire to eliminate as many of the middlemen as possible to that the money finds it way straight to students’ bank accounts, and so that students were treated as adults and managed their own financial affairs. The degree of rollout would be subject to discussion with the Department, as NSFAS would not want to dump all the money on students. There needed to be some form of balance.

NSFAS was getting operational experts on board, as well as people who understood how business processes should be mapped. This was important, because NSFAS did not want to buy a system and wrap the business around the system, as had happened in the previous regime. The business should be understood before buying systems. NSFAS had had meetings with the suppliers of the current system, which was a world class banking system, but it had not worked for NSFAS. He asked the supplier why it was not working. The supplier would develop a plan, since it faced huge reputational risks. NSFAS was in discussions to stabilise the system in the interim while it was busy with planning. If NSFAS bought another system, it should not fall into the same trap.

Dr Carolissen felt that NSFAS had secured the expertise to address some of the severe and deep-rooted issues, such as poor governance, lack of financial controls and system instability, to carry the organisation into 2019. If NSFAS could stabilise to that extent, it could bring new management on board. Temporary positions were being advertised. It must plan sufficiently for the new NSFAS, which was meant to be more responsive to its shareholders and stakeholders. This was the aim in appointing an administrator, and this could not happen amidst the ongoing crisis.

Dr Carolissen provided statistics since the appointment of an administrator six weeks previously. 95% of university claims, and 85% to 95 % of TVET claims for the 2017 year, had been cleared. NSFAS believed that by 31 October, it would have done everything possible to clear the remaining claims. However, if it could not find students, those students would remain on their books. This was a huge problem. Going into 2019 NSFAS wanted to find a mechanism where students signed their commitment at the point of registration. For 2018, NSFAS had completed funding for 560 000 students. As stated previously, new students were found in the system every day – either through being contacted by universities, through side systems or through data which had been corrupted during transfer. There were 292 000 new students and 268 000 returning students for 2018 who had completed their funding requirements. There were, however, 20 000 registration errors between universities and TVETs which needed to be resolved. There were over 86 000 students who had not signed their contracts, 46 000 of whom had been found and had signed their contracts, and the money had been paid over. Since the administrator started, NSFAS had disbursed R3.6 billion and unlocked R10 billion which was trapped at institutions. There had been progress in paying R17 billion of the R22 billion which was allocated for 2018. The remainder would be paid out in the following few weeks.

The 2019 application process was open from 3 September to the end of November. NSFAS had set up various mechanisms for students to register with them. It had signed an agreement with the Department of Social Development (DSD) to get better traction for South African Social Security Agency (SASSA) students and Isibindi applicants. Those two categories qualified automatically for NSFAS funding, but records showed the touchpoints were very limited, as was the uptake in that sector. 2017 figures for SASSA dependent students was 230 000, of which NSFAS funded only 30 000. This showed that this sector was under-funded. In September 2017, there had been 85 000 applicants, and this September there were 121 000 applicants. Importantly, NSFAS was already starting to process the applications, and 2 700 had been successfully processed. While this number seemed low, it was due to the teething problems which NSFAS was working through, and it expected this to pick up quite significantly so that there could be an early determination of eligibility.

The Chairperson thanked Dr Carolissen. She suggested that since the Committee had dealt with the AG’s report, the NSFAS delegation should stick to their side of the annual report. She asked why NSFAS was still in Wynberg.

Mr Nathan Johnson, chairperson of the audit and risk committee at NSFAS, said the qualified audit, as indicated by the AG, was directly related to disbursements in excess of the contract amounts. The disbursements in excess of the contract amounts constituted irregular expenditure, and the actual amounts could not be verified leading to an issue over the completeness of evidence.

The AG had referred to the migration of 58 of the 76 institutions to the student-centred model in the 2017 financial year. The issue was that in the student-centred model, students apply for funding once only. The contract includes an estimate of the funding required for the duration of their studies. The estimate was determined by the course of study students had enrolled for in their first year. Obviously, during the course of study from second year onwards students change modules, take up new courses and this impacted the cost of study. There were two issues during the migration of the remaining students to the student-centred model. 2 500 contracts had been generated with incorrect amounts of less than R1 000, while the estimated amount of some other contracts was less than the actual funding required for returning students. The registration data that NSFAS received from institutions was used to determine the amounts to disperse. In both instances the correct amount was disbursed to institutions and students based on their registration data. The issue was that in these instances, the amounts disbursed were in excess of what students had signed for. NSFAS had done a verification of 400 000 student records and had determined the over-disbursements to amount to R284 million. The AG had initially projected about R1.2 billion, which came down to R726 million. The issue at stake was the completeness of the information NSFAS could provide to the AG after verifying 400 000 student records. This had resulted in the qualification.

On the findings of material non-compliance, the AG had referred to financial institutions not approved by Treasury, irregular expenditure, and that there were also material misstatements on deferred income. In terms of the annual performance report, the AG had referred to the scope of limitations with regard to being able to verify the number of manual applications which would have to be captured into the system. In the process of applications for 2017, students had applied online directly to NSFAS, and had access to National Youth Development Agency (NYDA) offices for assistance in capturing or dropping off manual forms which could be captured later. This had caused the material misstatements.

Mr Johnson elaborated on the funding disbursed to students and institutions for the 2017 academic year. There had been a significant increase in the total value of disbursements, particularly in the DHET funded categories for universities and TVET colleges. The other funders had remained fairly constant. The increase in disbursements was due to the additional funding provided to NSFAS. While there had been an overall increase in the total number of students who received disbursements in the 2017 academic year, there had been an increase of about 34 000 university students receiving disbursements, based on the approval of their funding, while there had been a decrease of 25 000 TVET students who had received disbursements as of 31 March 2018. This was the timing variance on the disbursement of approved funding. The issue had been the signing of schedules by students, the quality of data at NSFAS and from the TVET colleges.

The funds were disbursed to eligible students who signed their schedules and this was done after the end of the financial year. R2 billion of the funding was disbursed to students at TVET colleges, the remaining R12.1 billion was for students registered at universities. Of the R12.1 billion, about 17% of that figure had been 100% bursaries, the bulk of which were Funza Lushaka bursaries for initial teacher education. 83%, or R10.1 billion, was in the form of convertible loans. There were two components to convertible loans. The first was the bursary conversion rate from the students’ actual performance. Up to 40% of loans could be converted to bursaries based on the number of courses the students had passed. The second element was for students in their final year of study. If students qualified to graduate in that year, that loan was converted to a 100% bursary. R3.4 billion was converted to bursaries, with R6.7 billion added to the nominal value of the NSFAS loan book. The R6.7 billion had two components – the social benefit component was 58% of that value and R2.8 billion contributed to the net carrying value of the loan book.

Mr Johnstone said that the actual collections from debtors had increased by 31% to R513 million in the 2017-18 financial year. This was below the target of R589 million. The main driver of performance in the previous year had been collections through the Personnel Administration (PERSAL) system from people employed in the public sector. As one got deeper into the loan book and as loans were paid back, NSFAS had seen stagnation in collections from public sector employees. External debt collection agencies had been engaged to contact debtors and negotiate payment arrangements. In the last quarter of the 2017-18 financial year, a panel of external agencies had been finalised. The delay in the finalisation of these agencies had contributed to the under-performance in terms of the target, but there had been a significant increase in terms of actual recoveries. The cash flow from recoveries assisted NSFAS to make upfront payments to institutions in the first three months of the academic year.

In terms of NSFAS’s financial position, the three important lines had been included -- the net value of the student loan book of R10.3 billion, and the pre-payment of R3.6 billion constituting upfront payments to universities and TVET colleges for students who qualify for NSFAS funding, so that they do not have to pay registration fees and can receive allowances for travel, books and accommodation. There had been a significant increase in the value of upfront payments in the first quarter of the year. R1.8 billion of the R3.6 billion for upfront payments was sourced from loans which NSFAS had recovered from students in the year and in prior years. The other item under liabilities was deferred income. This was the unspent portion of conditional grants received during the year. It could not be recognised as income, because the expenditure had not been incurred, so it remained a liability. A significant amount of this money would have related to the TVET college students whose disbursements were transferred only after the end of the financial year.

Mr Johnstone referred to the student loans, and the movement from the nominal value of the loan book through to the cumulative fair value adjustments and the net carrying value. From the nominal value to the net carrying value, there was a difference of around R25 billion. The social benefit component was a significant contributor to the cumulative fair value adjustment. This was related to the policy on student loans from NSFAS. Interest was charged at 80% of the repo rate, which was already 3.5% lower than the prime lending rate. The interest that students were expected to pay when they started working was significantly lower. Interest was not charged while students were studying, and for 12 months after graduating. Unlike commercial loans, NSFAS had no fixed repayment terms, because repayment was calculated on a sliding scale based on the actual income of the individual, and was a percentage of the individual’s income. There was significant non-repayment of loans because of unemployment. One of the other policy requirements was that a debtor was required to start repaying a loan only once employed and earning more than R30 000 a year. Those elements were the social benefit component which must be quantified for the loan book valuation.

He drew the Committee’s attention to grants for students. NSFAS reported that in the year, R4.1 billion was disbursed to students, but the actual grants received was just short of R14 billion. The difference was in the line called ‘deferred grants.’ Income received in the previous year continued to be disbursed in that financial year. There was significant interest revenue on the loan repayments, as well as the interest on the student loans themselves. Where the interest was applicable, it was calculated and recognised as interest income. That amounted to R1.5 billion. Bursary expenditure was all the TVET college expenditure and the 100% bursaries for university students. Valuation adjustments were adjustments to the nominal value of the loan book during the year. That included the social benefit component, as well as the adjustments that must be made, based on the performance of the loan. If the cash flow projections from the loan book valuation were R600 million and the collections were only R500 million, there had to be an adjustment in the loan book. Those were the evaluation adjustments with an accounting surplus of R3 billion, because evaluation adjustments did not involve the actual movement of cash and did not represent expenses.

NSFAS had made upfront payments of R3.5 billion for the 2018 academic year. There was a decrease in cash of R226 million. The entity’s actual cash balance at the end of the financial year was R3.7 billion. The decrease related entirely to disbursements to TVET and university students.

Mr Johnstone presented the overview of the annual performance report, where the AG had reported seeing a significant regression in performance. Some of the main drivers of the regression were NSFAS’s ability to receive, assess, and approve applications for funding, and disburse to students. Specific targets had been set for that, but none had been achieved due to constraints within the entity. This had been raised as a risk for the 2017 academic year as early as October 2016. The risk was realised around January 2017, when it became clear NSFAS would not meet those targets. The deterioration in performance related to the actual recoveries, which were below the target amounts in the APP. Employee engagement had deteriorated in relation to Objective Six. He reminded Members that there had been a strike at NSFAS in the first quarter of the calendar year.

There had been significant changes in the entity, and that was reflected in employee engagement and employee satisfaction levels.. There had been a deterioration in the performance of research objectives for two reasons – the research work had been done and reports issued, but there was no research plan to inform what work would be done. Two of those reports were not approved by executive management before the end of the financial year. Other objectives were related to funding decisions being communicated to students, and disbursements being made to universities and students on time. The only objective achieved was the amount of funds raised for awards to student funding. This was a bittersweet achievement, because more money was raised which NSFAS was not able to disburse, which he felt was tragic.

While the targets were not met, 92% of allowances accepted by 30 November 2017 had been paid to students by 31 December 2017. This was too late, however, since students had already written exams and returned home. 82% of applications received by 30 November had their provisional funding decisions communicated to them by 31 January 2018. 97% of the amounts due to institutions accepted by 30 November 2017, were paid to institutions by 31 December 2017. He reiterated that this was too late, and that the targets needed to be achieved a lot earlier in the year.

Regarding improving performance and addressing the audit findings, 12 external debt collectors had been contracted to collect amounts owed to NSFAS. There had been an increase in collections from the fourth quarter of 2017-18. The audit and risk committee had received a report and the report had been provided to the DG on the actual forecast for collections for the remainder of the financial year, and the trend was upwards. Targets for the 2018-19 APP had been revised, and those changes needed to be presented to the Minister for approval.

Mr Johnstone spoke about data integrity and data exchange between institutions and NSFAS as being a big issue. The system was intended for full data integration between institutions and NSFAS. This had not been possible, particularly in the case of TVET colleges. The quality of the data coming in was a huge issue, as errors arose in the transmission and manipulation of data. Work was being done to improve the performance and capacity of the systems. A lot of work was planned and had been done around building and strengthening partnerships and relationships with stakeholders and institutions, with Dr Carolissen’s appointment providing the impetus for this.

He referred to the audit findings, particularly the over-disbursement findings of the AG. Management had finalised the identification of accounts with over-disbursement for the 2017 academic year, as well as any over-disbursements which may have happened in the 2018 academic year. Communication to students to whom over-disbursements had been made would commence in October 2018, so that those students could sign contracts with the correct revised amounts in them. The AG had spoken about reviewing progress in addressing this finding through the interim audit in November 2018, and this was on track. All funds held by asset managers by the end of July 2018 had been disinvested and transferred to the Corporation for Public Deposits. This excluded any of the operating accounts for payments that needed to happen.

The NSFAS control environment had regressed significantly, as indicated by the AG and Dr Carolissen. Some of this could be related to the on-boarding of 58 institutions for the 2017 academic year, which exaggerated some of the issues which were already in place. The main area of concern was around disbursements and top-up payments. A project was under way to address those issues which effectively resulted in material non-compliance with laws and regulations, and placed NSFAS at risk of significant fraud.

The action plan to improve the control environment focused on system access – who had access to the system, and at what level. At one stage, NSFAS had blocked all access to disbursements to see what effect that would have, and had restored access on an incremental basis, based on what people were responsible for. The key person dependencies and access to the system was a toxic combination. This needed to be fixed. Segregation of duties had been documented and controls were being put in place. The AG referred to instances where individuals in operations were able to write scripts, and then implement and deploy those scripts. Controls had been put in place, where operations must request the development of scripts for a particular purpose, which must be motivated. The scripts were developed by people with the necessary technical expertise in the IT Department and required sign-off at the IT and operational level. People who had access to disbursements and payments were no longer able to deploy scripts.

Other controls related to the approval process for top-ups, which was one of the drivers for over-disbursements to students in the 2017 academic year. The funding committee had been re-established and all top up requests go through the committee and require formal written requests from the university for individual students. Top-ups were implemented in terms of the protocols for the deployment of scripts. Internal audits provided significant assurance support in this area. NSFAS had monitored the development of these controls and would start on issue assurance in November 2018. Issue assurance would happen at two levels. The first level would test if the controls were adequate and effective. Three to four months later, the second level of assurance would assess whether the controls were sustainable.

Dr Carolissen added that one of the key things NSFAS had done was to de-risk some of the areas, calling for a shutdown of the system to re-issue passwords and access to the system. While that may seem chaotic, it was not like that anymore. NSFAS had sacrificed speed of throughput for firmer controls. Many of the de-risking issues which were referred to had been done in consultation with internal and external auditors. While there was a lot of laborious manual work and manual checking, which was not desirable, it was preferable to ploughing ahead with an uncontrolled environment. He expressed his satisfaction that there was sufficient control over the environment to plan for more systemic interventions later.

Discussion

Mr C Kekana (ANC) asked about the building of capacity within NSFAS, and expressed concern that the highly skilled people were not being signed to long-term contracts to ward off better salary packages from the private sector. He asked whether there was a transfer of skills to minimise the risk to the organisation. He also asked for NSFAS to elaborate on not being able to find students, and suggested getting students or student representative councils (SRCs) involved.

A Member asked whether students who were working and earning less than R30 000 were exempted from paying back the loans. What happened to money owed to students who had left their institutions? Was NSFAS impacted by money it was unable to recover? What measures did it put in place to recover this money?

A Member commended the fact that steps were being taken to stop the rot. She noted that very few of the targets had been achieved, and asked what was being done to recover money owed to them. Would NSFAS consider bringing the deadline for replies and communication to students forward, so that they knew by the end of the financial year or by the start of the academic year? The presentation had made it clear that there was no control or accountability. She asked whether there was any indication of deliberate fraud, and whether it was necessary to start a forensic audit so that those responsible for the gross mismanagement could be brought to book.

Mr Van der Westhuizen asked about NSFAS’s investments with financial institutions which were not approved by Treasury. Were there deliberate missteps from NSFAS staff? Were commissions earned on these investments? Did NSFAS suffer any financial losses because of this?

He commented that students had been held to ransom by striking staff at a critical time of the year. Were there plans in place to avoid a repeat of this? He observed that this was not the first year where there was a decrease in the number of TVET students benefiting from NSFAS funding. This was a sector the Committee wanted to see grow, and was in need of support. The previous year, the then Minister had said that this trend must be reversed. He asked what the projections were for the year to come, and whether the trend would continue or be reversed.

He asked for assurances that institutions would receive their list of remittances by the end of January 2019 for students who had applied for funding for the following year. He asked about the student-centred model, which was hailed as a solution but had proved to be a hindrance. What was the future of this model, given there was now talk of decentralising the work through building capacity at institutional level? What was the current thinking around this system?

Another Member felt it was clear that the collapse of NSFAS had taken place mainly during 2017, and said that this was the most shocking annual report the Committee had seen. She expressed concern that there might be as many as 800 000 students qualifying for next year. How would NSFAS cope with this number? The universities and colleges would not be able to take that many students. Given that NSFAS was in transition, away from collapse towards some form of order, she expressed concern that NSFAS would not be able to manage student applications, and that the capacity would not be in place at the 76 institutions it dealt with. She was concerned that many students would be left uninformed and without the funding they needed. This was not through any fault of NSFAS, but rather because it had not been given the time to fix the institution.

She asked what steps would be taken to recover the R268 million, which may be as much as R1 billion, which had been given out irregularly. Could those students be identified? What were the chances that that money would be repaid to NSFAS? She asked for clarity on what the model adjustments were, why it had cost R1 billion, and how it was managed.

The Chairperson expressed her agreement with Members’ disappointment over the report the Committee had been faced with. She agreed that the Committee needed to evaluate its responsibility in terms of the Public Finance Management Act (PFMA). Notwithstanding the fact that there was an administrator and the NSFAS board was not there, it had a fiduciary responsibility. The Committee needed to find out what fiduciary responsibility was still there in terms of the PFMA, regarding those who served on the board. It needed to find out what had happened when the CFO and Accounting Officer were there. Leaving was not the only solution. Individuals may leave and move on to other institutions. The Committee would need to discuss, in terms of the PFMA, what it wanted to recommend to itself and the Department on the prescripts of the law, so that it could feel assured that it was putting in place what needed to happen in terms of the NSFAS Act. The Committee could not leave things as they were, just because there was an administrator and things were starting to get back on track. The administrator had a short period in office, and the Committee may suggest that the administrator stay on for another year to put everything in place When the Committee talked to the Department later, it would want to be comforted with what was being put in place regarding the Department’s own oversight. The Committee would want to know where DHET was when all of this had happened. DHET could answer this for themselves later.

The Chairperson referred to the SASSA and Isibindi funds, and questioned whether Funza Lushaka was facing that same category of problems. She suggested that the public sector be informed to appeal to those who still owed money to NSFAS, so that more effort could be made to encourage everyone to come forward. She noted the existence of organisations like Intellimali, and questioned the need for it. The R14 million issue was still hovering, and some of them were responsible for this. It seemed that it was in those categories where over-disbursements were happening. Was there a need to contract this out?

The Chairperson concluded by stating that the Committee appreciated the efforts of the small NSFAS team, and said it would continue to engage with it. Its responsibility was oversight, but it would support it where it could, to turn NSFAS around. NSFAS as an entity should understand its role and function.

The Chairperson adjourned the meeting for lunch. NSFAS would respond to questions after lunch, followed by the presentation from DHET.