National Skills Authority oversight role over SETAs; National Skills Fund 2018/19 Annual Report

Meeting report

National Skills Fund on its 2018/19 Annual Report
Mr Mvuyisi Macikama, NSF CEO, said National Skills Fund money may be used:
- To fund projects identified in the National Skills Developed Strategy III as national priorities
- To fund projects to achieve the purposes of the SDA as the DG of the DHET determines
- To fund activity by the Minister to achieve a national skills standard of good practice in skills development
- To administer the NSF within the prescribed limit of 10% revenue.

In 2009/10 the NSF shifted from the Department of Labour to the then newly formed Department of Higher Education and Training (DHET) with an accumulated surplus of R5.1 billion due to year-on-year under-spending in the former Department. These funds were subsequently focused towards increasing investment in the public TVET sector as well as building capacity in post-school education and training (PSET).

Since 2010, R7.837 billion investment in the public TVET college sector was made, broken down into:
- R2.5 billion for 13 new TVET college campuses and refurbishing three existing campuses: three campuses completed and nine currently under construction;
- R151 million for 26 centres of specialisation for 13 priority trades at 19 public TVET colleges
- R2 billion for National Certificate Vocational (NCV) and National Accredited Technical Education Diploma (NATED) over enrolment during 2013 to 2015. NSF funding then refocused on funding occupational programmes and workplace-based learning for TVET students
- R2.178 billion for funding occupational programmes during 2016 to 2019;
- R246 million to connect all 256 TVET campuses to South African National Research Network (SANReN) for high speed internet connectivity and to install campus wifi, gearing them for the 4th Industrial Revolution.

In addition, R2.65 billion was invested for building capacity in the PSET system more broadly such as:
- R270m for strengthening of SA Artisan Development System
- Operating National Artisan Moderation Body (NAMB), National Artisan Development Support Centre and developing the artisan certification system
- R519m for strengthening financial management and human resources function in Public TVET and CETs in partnership with SAICA
- R127m for operationalising the National DHET Career Development Services
- R164m for construction of veterinary science facilities at University of Pretoria to double student in-take

Ms Melissa Erra, Chief Director: Strategy, Innovation & Organisational Performance, provided a performance overview for 2018/19. NSF achieved only 63% of its overall targets.

Performance highlights included 59 051 people were trained through education programmes with 35 291 females and 23 760 male; 41% came from urban areas while 59% were based in rural areas.

The NSF approved more than R789 million for the funding of university qualifications through bursaries and scholarship programmes. A total of 10 223 students were funded through the NSF five distinct undergraduate bursary programmes administered through the National Student Financial Aid Scheme (NSFAS), post-graduate degrees through National Research Foundation and scholarships awarded through the Department’s international scholarships programme.

Through the strategic partnership with NSFAS on its five undergraduate programmes:
- Scarce and Critical Skills programme, R415 million approved and 6 818 students benefited
- Rural Student Programme, R24 million funding allocated and 317 students benefited
- General Bursary Scheme supported 570 students with a budget allocation of R101 million
- University of Limpopo SAICA Programme, 212 students funded on budget allocation of R32 million;
- Fort Hare SAICA programme, 44 students funded towards Charted Accountant profession R10 million.
See page 32 to 38 for post graduate bursaries and international scholarships breakdown.

On its financial overview, NSF reported that there was sharp decline in its accumulated reserves – R10.258bn (2016/17) to R6.818bn (2017/18) – due to funding the “No Fee Increase in that year. However, there was an increase to R8.332bn in 2018/19.

Revenue of R3.5 billion was collected from skills development levies but total revenue was R4 billion. NSF remained a cost-efficient organisation spending only 4% on admin costs compared to skills development levies received in 2018/19.

NSF received a qualified audit opinion on its financial statements because Auditor General South Africa (AGSA) was unable to obtain sufficient appropriate audit evidence. AGSA reported that there was inadequate project monitoring by NSF. Quarterly reports were not submitted timeously as required by the NSF Memorandum of Agreement signed with skills development providers and project managers.

Discussion
Ms J Mananiso (ANC) said she was disappointed at the non-achievement of the targets and asked what measures would be put in place to ensure targets were achieved. She asked if the 63% target achievement meant there was value for money. NSF should outline the challenges experienced and what were the causes of the under-achieved targets. Perhaps SMART principles were not effectively implemented?

She was not pleased with only 1% funding provided to people with disabilities. In terms of employment equity, that figure ought to be 5%. The NSF ought to focus on capacitating people living disabilities with scarce and priority skills.

On TVET campus management training, the monies spent on those institutions translated to fruitless expenditure because those institutions were not performing.

She asked why infrastructure was being constructed when there were challenges in TVET colleges with infrastructure management.

On the audit action plan, NSF needs to hasten in addressing the audit findings reported by the Auditor General. The action plan report was unclear on measures taken to address the findings by AG.

Mr P Keetse (EFF) asked for the definition of rural area according to the NSF. He asked for details about the commencement of construction on the nine TVET colleges still being built and those renovated TVET colleges. NSF should not be frugal with facts.

On work integrated learning at University of Johannesburg (UJ), the training facility for engineers was next to test rooms and lecture rooms and this was not placed correctly. Someone was not being honest about this – it could be UJ or the NSF.

Mr B Nodada (DA) asked why NSF had an acting CFO. The qualified audit indicated that there was not credible financial reporting. What are the consequences for the people that caused the qualified audit. What consequence management measures would be put in place for the people responsible for this? Is there a reason why the NSF focused only on the University of Pretoria? There are other higher learning institutions that could be provided the funding; why the focus on University of Pretoria? On page 17, why was the programme target unachieved and sitting at zero as it speaks directly to the plans.

Can you provide a breakdown of the scarce skills acquired by the students funded and indicate where the graduates were placed. You need to indicate this if you are producing people with critical skills. What is the experience with NSFAS in disbursing funds to students and institutions – are there any complaints from the students and is there follow up to ensure that those funds were provided? He asked in which institutions the funded students were placed. These students that acquired the scarce skills ought to be tracked "because those skills are said to be needed in the country" and this needs to be confirmed. Are there programmes provided for TVET college lecturers to qualify for the skills they teach related to 4IR?

Ms N Mkhatswa (ANC) sought clarity on page 12. On internet connection in TVET colleges, how does NSF measure value for money spent on investment of internet infrastructure in TVET colleges? Is NSF able to provide support and training on TVET college financial management to address those shortfalls?

The University of Pretoria seems to be the dominant recipient of funding for infrastructural facilities. What plans are in place to ensure funding is distributed equally or based on institutional needs?

On the fee increase, she could not understand why it was a factor and sought clarity.

Mr T Letsie (ANC) commented that the presentation should be direct and to the point. The strategic objectives targets kept on decreasing. Why were they significantly lower than previous years?

On implementation of Microsoft ICT on page 28, NSF increased funding for it but the target was not reached. He asked NSF to unpack the ICT programme partnered with Microsoft.

He asked for a breakdown of where in Gauteng the beneficiaries were based that received training on page 29 as well as the postgraduates and beneficiaries of international scholarships.

He asked for the success rate of the beneficiaries with job placements since they acquired scarce skills. He asked if the Acting CFO was only acting for the meeting or was in an acting position at NSF. He asked if the audit outcome had improved or regressed compared to previous years.

The Chairperson pointed to page 20 of the Annual Report and said that the Acting CFO started acting in June 2019 and Mr Zacharia Ali acted until May 2019. Mr Ali was in charge for the 2018/19 financial year. He asked why a permanent CFO had not been appointed.

The audit outcomes were worrisome considering the financial resources that were under NSF management. Even the performance report, only 67% of the targets were achieved. Overall, NSF financial performance did not do well which is a serious concern. He was especially concerned about the material misstatements in the annual financial statements (AFS), bad record keeping and the irregular expenditure of R4.4 million. Supply chain management was deficient and he asked about the contracts involved in the irregular expenditure and for reasons. The tender advertisement was not compliant and he asked for details.

Three entities in the higher education portfolio did not investigate previous irregular expenditure and take action and NSF was one of them. The PFMA required NSF to do something.

NSF was as a schedule three entity but it did not have a board so its governance arrangements, so the he Minister is the Executive Authority and the DHET Director General is the Accounting Officer. This was perplexing and not ideal – why is the Director General the accounting authority?

On the R590 million (page 13) spent on strengthening HR and financial management in partnership with SAICA. He asked for full details of how that money was spent. Members were aware of this programme and it resulted in some audit issues in TVET colleges. When the programme ended, the SAICA CFOs were pulled out, so did NSF spend R590 million on that programme?

Personnel costs increased by R11 million (page 44) from R59.6 million in 2017/18 to R70 million in 2018/19. This is a huge increase in employee related costs. The Annual Report shows a difference of only two people in number but the difference in monetary terms was R11 million?

There was a dispute between the Minister and Business Unity South Africa (BUSA) about the changed SETA regulations that made it mandatory for employers to get only 20% not 50% back from the levies if they trained their staff. The 2017 judgment went against the Minister as he failed to consult the National Skills Authority and it stated that the Minister acted irrationally. He asked for an update on this because if there is a court judgment, it must be complied with.

Is there a list of the students that graduated from the programme as well as dropouts and the throughput rate? Is NSF able to disaggregate according to provinces and able to track recipients? He asked NSF to provide the contractual arrangements it has with the students that have been funded.

Responses
Mr Mvalo replied that the Director General is the accounting authority. There is reference to this in section 29(1) of the Skills Development Act which states that the DG is the accounting authority as contemplated in Section 49(2)(b) of the PFMA.

When the DHET presented a few days ago, it dealt with the colleges under construction – the contract value, employment of local people, and update on completion date. Most of those campuses will be completed next financial year with some completed this financial year.

On 30 July 2019, Stats SA released a report on the status of employment in the country. The report outlined that there was an increase in the unemployment of graduates. The economy has been in contraction. However, it has started bouncing back in the second quarter. By implication this means that graduates would also be affected by the state of the economy.

The CEO advised that in 2014/15 following the NSF being listed as a Schedule Three entity which required adherence to many legislated requirements and regulations, Ernst & Young (EY) was appointed to assist NSF to develop its policy instruments. Out of that exercise, the CFO was responsible for contract managing with the EY and the performance for that work was managed appropriately by EY. Upon completion of that, many recommendations needed to be implemented. Therefore, NSF decided in concurrence with the Minister and DHET to have the CEO oversee Project Siyaphambili to reposition the NSF.

Ms Erra replied that some questions would require a written response, particularly on the breakdowns. The MS Dynamics 365 would have all the contract management capabilites in one system. This would improve reporting. Currently, NSF was using MS Excel and that could be problematic. This Microsoft system would include contract data, district and municipality data and project management and monitoring reports.

The response to the court judgement on the SETA grant regulations can be provided in writing. The Minister was found by the court to have acted outside of his powers in terms of the surpluses. However, details would be furnished to the Committee as requested in writing.

Mr Gwebinkundla Qonde, Director General: DHET, added that after the court concluded its judgment against the Minister, the Department then took measures to comply fully with the court judgment by undertaking a consultation process with the National Skills Authority. After which when the Department appealed, the appeal was then in favour of the Minister. The issue is currently no longer a matter of lack of consultation or lack of rationality. BUSA on behalf of business wants to be paid the previous 50%.

On the declining targets and the planning cycle, NSF has utilised many of the research outputs that have come from DHET and Stats SA to improve the planning and funding of the NSF.

The NSF Acting CFO replied that the bursary unit within the NSF disburses funds to NSFAS and various institutions. She asked to provide details in writing to the Committee at a later stage. On the investments made to different universities, a written response would be submitted.

On the “No Fee Increase” contribution in 2018/19 the NSF did not disburse as projected due to slow implementation of the projects. We wait for the project unit to inform when the contracts were done and then make transfers. We projected that we would be paying R3 billion because the planning was not in line with what transpired on the ground.

The Chairperson sought clarity on whether this contribution from the NSF accumulated reserves was meant to be once off or continuous.

Mr Macikama replied that the allocation was a once-off allocation and when we engaged with Treasury, they wanted to understand what we were earmarking the money for. NSF indicated that it was for the construction of TVET colleges. Treasury replied that when it reimbursed the money, it would go straight to the TVET colleges not the NSF. The amount has since been reimbursed by Treasury.

The NSF would provide written responses on the details about international scholarships.

The Acting CFO responded that the reason for the qualified audit opinion due to material misstatements was as a result of project monitoring. The unit was not performing according to standard operating processes. It did not stem from finance. The calculation that NSF reported was based on the information that was provided to the finance function. It emanated from the project monitoring function not from finance.

The NSF would respond in writing on the irregular expenditure as well as the SAICA CFO project.

On the employee costs, page 187 of the Annual Report in note 20, there is a breakdown of the amount which included the salaries, performance awards (R854 000), non-pensionable allowances and pension fund contribution of R5.9 million. There is also a breakdown of employees at the bottom of the Note. 24% of the R77 million related Senior Management employee costs disclosed on page 189 and 190.

The Chairperson wanted confirmation on the big movement for salary increases, service bonuses and non-pensionable allowances. These amounts increased by millions. If every year NSF increased employee costs by millions, it would not be viable and sustainable. He asked for the five expenditure patterns so that Members could determine the cost drivers of the increases.

Mr Zacharia Ali, former NSF CEO, replied that most appointments in 2017/18 were senior management posts. Most worked part of 2017/18 and then worked full year in 2018/19; hence, the increases were so significant in that line item.

The Chairperson requested that a five-year breakdown be submitted in writing.

Mr Ali replied that the audit outcome for 2017/18 NSF received an unqualified audit opinion and the AG raised the issue of reporting. In 2018/19, AGSA reiterated the long outstanding reports as a compelling matter. The lack of project reports was one of the main findings raised by the AG which led to the qualified audit outcome. Service providers were not submitting project reports on time. Therefore, at the time the AG was conducting the audit, there was no enough evidence to support the existence of the projects.

When we reflected on the audit outcomes, we realised that NSF needs to improve on the long outstanding reports as provide consequences for not getting reports from the service providers. That is where consequence management came into our audit action plan and the implementation of that will lead to an unqualified audit next time.

The international scholarships are administered by DHET on behalf of NSF but a full report could be requested and submitted to the Committee.

The irregular expenditure was due to the TVET infrastructure project and travel and subsistence for service providers. SCM processes are administered by DHET on behalf of NSF and we piggy-back on the bid awards made by DHET. Details of the irregular expenditure would be submitted in writing to the Committee.

The Chairperson suggested NSF submit a detailed report on the irregular expenditure, SAICA CFO project, contract management of the service providers and why an investigation into irregular expenditure was not conducted. The NSF report on its Action Plan did not speak to the specific findings raised by AGSA.

Mr Ali said that there was a full detailed Audit Action Plan that addressed the AG findings.

The Chairperson advised that the Committee look at its programme and advise on a date to reconvene. He requested a history of the surpluses and why the money was not being utilised.

Mr Macikama replied that the NSF delegation had taken note of all the questions and full responses to all the questions would be submitted in writing to the Committee along with the Audit Action Plan.

The Chairperson echoed that Members were concerned about the former CFO not discharging his duties as per his appointment. The NSF needs a substantive person in the Office of the CFO.

Mr Keetse said that clarity on the NSF organisational structure was not responded to as well as the NSF definition of rural areas. He was not happy that the latter question would be responded to in writing.

National Skills Authority on its oversight role over the SETAs
Dr Thabo Mashongoane, NSA Executive Officer, spoke to the NSA monitoring, liaison and reporting role, SETA administration expenditure, SETA audit outcomes, sector skills plans , SETA panel review recommendations, NSA investigation role, 2018 NSDS III evaluation report and conclusions about efficiency and effectiveness.

said the NSA addresses the following challenges:
- Low skills base of young people makes it difficult for them to find decent work and earn decent incomes
- Inequalities in access to skills development opportunities
- Skills deficits and bottlenecks, especially in priority and scarce skills, constrain our growth path and hamper social and economic development activities
- A skilled and capable workforce is critical for decent work, an inclusive economy, rural development, the reduction of inequalities and the need for a more diversified and knowledge intensive economy

He laid out the recommendations of the SETA Panel Review and reported that:
- The attention given to planning that has resulted in improvements in plan quality needs to be sustained.
- More attention needs to be given to SETA performance, achievement of results and impact.
- DHET has added a M&E chapter to the Sector Skills Plan (SSP). It will be important to revise the SSP assessment tool to check the quality and measurability of the M&E framework set out in the chapter
- It is important to ensure alignment between SETA M&E indicators and those in the NSA M&E framework
- Training of SETAs should focus on clear linkages between the SSP, Strategic Plan, Annual Performance Plan, and Annual Report reporting framework.
- In September, the SETA panel reviews the AR and AG audit report. This will measure what the SETAs claim they have done against their plans. A report from the panel will be available in October.

The audit outcomes for all SETA were provided for the past five years. Only W&RSETA and Services SETA had qualified audits in 2018/19. Investigations on governance in the past five years were conducted on FoodBev SETA , W&RSETA , AgriSETA, Services SETA , CETA, TETA.

Discussion
The Chairperson requested reports on all the investigations on SETAs conducted by NSA.

The Committee did not engage the NSA due to time constraints.

The meeting was adjourned.