Technology Innovation Agency & National Student Financial Aid Scheme 2018/19 Annual Reports

Higher Education, Science and Technology

13 November 2019
Chairperson: Mr M Mapulane (ANC)
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Meeting Summary

Annual Reports 2018/2019

The Committee was briefed by the Technology Information Agency (TIA) and the National Student Financial Aid Scheme (NSFAS) on their annual reports for the 2018/19 financial year.

For the TIA, this was a return visit, as it had been instructed at its previous meeting with the Committee in October to amend its annual report to reflect the board's dismissal of the former chief executive officer, and to include missing annexures.

The Committee was informed that TIA's focus areas supported the realisation of the bio-economy strategy, to make an impact on economic sectors such as agriculture, health, industrial biotechnology (including environmental innovations)and indigenous knowledge systems. The TIA also provided access to technical expertise for individuals, innovators and small, medium and micro enterprises (SMMEs) to validate, develop and exploit their ideas to enable industry renewal and competitiveness.

It had identified inadequate baseline funding, unfunded opportunities, negative stakeholder sentiment and organisational capability as possible constraints to its operations. It conceded that the slow pace at which it assessed funding applications was a source of "great unhappiness" among its stakeholders. It had recently discovered applications that had been stuck in the pipeline for more than two years.

A Member alleged the former chief executive officer had been unfairly dismissed for exposing wrongdoing, and that his replacement had been appointed despite having a conflict of interest. He also criticised the TIA for having a board chairperson who lived in Australia. Another Member wanted to ascertain whether it was true that the TIA had sold a 50% stake in a biotechnology company to another private entity, which had promptly sold that stake to a foreign company for three times as much. Several questions were raised about the agency’s structure, its support for small, medium and micro enterprises (SMMEs), and the type of technology support it provided.

The Committee expressed grave concern over the “dismal performance” of NSFAS for the 2018/19 financial year. Not only had the entity incurred R7.6 billion in irregular expenditure, more was being uncovered, which meant that the amount of irregular expenditure would possibly increase. Members expressed their displeasure at the lack of investigation into the irregular expenditure, and that consequence management was not being implemented. NSFAS had received a qualified audit opinion with findings from the Auditor-General of South Africa (AGSA) as a result of material misstatements and limitations in respect of cash flow statements, amounts owed to institutions, bursary expenditure and contingency liabilities.

The administrator appointed to stabilise NSFAS’s operations explained the major challenges he had faced on his appointment. He agreed with Members that there was a need for a complete overhaul of the organisation. A complete re-imagination of the NSFAS governance structure and its disbursement model was required, otherwise within two years there would be another administrator or the institution might shut down.

Meeting report

Technology Informational Agency: 2018/19 annual report

The Technology Information Agency (TIA) briefed the Committee on its revised 2018-2019 Annual Report. In October, the Committee had instructed the TIA to amend its annual report to reflect the board's dismissal of former its former chief executive officer (CEO), Mr Barlow Manilal, and to include missing annexures. It also expressed unhappiness about the absence of TIA's interim chairperson, Mr Steve Lennon, who lives in Australia.

The Committee was informed that TIA's focus areas supported the realisation of the bio-economy strategy, to make an impact on economic sectors such as agriculture, health, industrial biotechnology (including environmental innovations)and indigenous knowledge systems. The TIA also provided access to technical expertise for individuals, innovators and small, medium and micro enterprises (SMMEs) to validate, develop and exploit their ideas to enable industry renewal and competitiveness.
This was undertaken through experts whose works were at 18 hosted technology stations located at higher education institutions across the country. The services offered ranged from feasibility and analytical studies, to the development of products, prototypes and pilot manufacturing, amongst others.

TIA's involvement in the technology innovation sector accounted for a R7.5 billion contribution to gross domestic product (GDP). 10 530 SMMEs were supported, and 63 technical innovation products were taken up by the market. About 18 536 jobs had been created, and R11.6 million in royalties had been received from projects supported.

In 2018/19, 11 technologies within the innovation funding portfolio had been taken up by the market. These had collectively resulted in sales of R63 million. The TIA had also assisted innovators to secure funding -- from companies, venture capital firms, angel investors, donor funding and development finance institutions -- for the commercialisation of products, services and processes developed through its support.

It had received a clean audit for the year under review, and performed at about 91% of total capacity. It was confident that during the 2019-20 financial year there would be more opportunities for the state agency to advance. This was based on the following predictions:

Increased innovation activity;
Growth in the National System of Innovation (NSI) private sector;
Interest in innovation as a driver for competitiveness; 
Government use of innovation for service delivery; and 
Increased international interest in South Africa as an innovation hot-spot.

It had identified inadequate baseline funding, unfunded opportunities, negative stakeholder sentiment and organisational capability, as possible constraints.

The TIA conceded that the slow pace at which it assessed funding applications was a source of "great unhappiness" among its stakeholders. It had recently discovered applications that had been stuck in the pipeline for more than two years. It had never met its target for turning applications around within four months, and plans were afoot to address this.

The TIA board had decided on May 30 to terminate Mr Manilal's contract, after concerns were raised about the CEO’s performance. Attempts to secure an amicable settlement had failed, and the matter was referred to the Commission for Conciliation, Mediation and Arbitration (CCMA).

After the board's decision to end Manilal's contract, he had levelled allegations of fraud, corruption and maladministration against board members and had laid complaints with the Public Protector, the Auditor-General of South Africa (AGSA), and the relevant Minister.

Discussion

Mr N Paulsen (EFF) said that he found it very difficult to trust someone who had already lied, and that unacceptable behaviour had been displayed by the TIA. He was not happy about the lying, and the Minister of Higher Education, Science and Technology should institute a full enquiry into the affairs of the TIA. He was emphatic that heads should roll, and that the status quo at the TIA should not be tolerated. He viewed the TIA board with suspicion, and this was particularly based on a newspaper article published in BusinessLive on 19 June.

The article had mentioned that the board had been happy with the TIA having achieved a 91% success rate on its annual performance and a clean audit, as well as International Organisation for Standardisation (ISO) accreditation. The article had stated that the board had parted amicably with the previous CEO, and yet it seemed this had not been the case, if one judged by the comments of Dr John Lennon, chairperson of the TIA board. The challenges faced by Mr Manilal had been severe, as he had had to merge seven different entities into one entity, and had performed very well. He thus questioned whether Mr Manilal’s removal had been premised on spurious grounds.

Mr Paulsen commented that he would have thought that the TIA would appoint an even more brilliant CEO than Mr Manilal, considering that the latter performed outstandingly. He questioned the appointment of Ms Fuzlin Levy-Hassen to the position of CEO, as she had business interests in the same field and had served as a board member before her appointment as the acting CEO.

He added that employers could not muzzle employees who exposed wrongdoing, and he could not fathom why private entities would withdraw their funding if they were not happy with the TIA. Was this not a form of state capture? He also took issue over the fact that Dr Lennon that resided in Australia, and questioned whether there had been no competent individuals in South Africa to chair the board.
He knew that there was a close relationship between the former chairperson of the TIA, Mr Edward Kieswetter, and Dr Lennon, and that Mr Kieswetter had a fraught relationship with Mr Manilal. He said that power had been used to humiliate Mr Manilal. He proposed that the TIA submission be rejected, as the Committee should not accept what it was being "fed".

Mr W Letsie (ANC) welcomed the handout provided to the Committee by the TIA on the dismissal about the previous CEO. He was looking forward to the Public Protector’s probe into the situation at the TIA. Hopefully, this path would lead to more information being provided, especially in connection with the allegations made by Mr Paulsen.

Mr Letsie asked whether the TIA could provide a list of the SMMEs it supported. This list should include the location, the demographics and racial profiles. He also requested more information on the statistics/background to the innovators that had secured funding from the TIA. He asked why the former chief financial officer (CFO) had left the TIA.

Ms J Mananiso (ANC) thanked the TIA for the "beefed" up report. She asked the TIA to integrate the demographic graphs on the human resources (HR) figures for future reference. She also took issue with the lack of disabled people and youth being employed by the entity. Questions were also posed that related to what the TIA considered as an "unskilled worker," and whether the Standing Committee on Public Accounts (SCOPA) had invited the TIA to conduct investigations.

Mr B Nodada (DA) said his questions pertained to technology support. He wanted to know what type of technology support the TIA provided within the context of enhanced innovation and the contribution made towards knowledge systems developed in partnership with basic and tertiary education entities. He also wanted to ascertain why it had not achieved all its targets.

Dr W Boshoff (FF+) wanted to ascertain whether it was true that the TIA had sold a 50% stake in a biotechnology company called IKAPA to another private entity, which had promptly sold that stake to a foreign company for thrice as much.

Mr S Ngcobo (DA) asked whether Dr Lennon had been using TIA money to travel between South Africa and Australia. He lamented the absence of Dr Lennon during the previous Committee meeting, and said that this dented the integrity of the TIA when the acting Chairperson picked and chose which meetings to attend. He recalled that during the previous appearance by the TIA management, presenters had presented documents that had been riddled with mistakes, and this had seemed suspicious. This needed to be interrogated further, as the Committee had a duty to unearth the truth.

The Chairperson said that he noted the explanation given by Dr Lennon for his absence from a previous meeting and about the situation regarding the former CEO. One of the things raised with the TIA had been the lack of honesty about certain matters. He recalled that media articles that featured the TIA had made no mention about the situation regarding the former CEO, and that it seemed as if he had been airbrushed out of history. The Committee was upset by this turn of events, especially since the TIA report had not been a true reflection of what had transpired. He added that he had received a letter from Dr Lennon that sought to explain the reason for his absence, and he had accepted the apology..

He thanked the TIA for the revised presentation and the fact that it had tried to address all the concerns raised.

TIA’s response

Dr Lennon replied that there had been constructive engagement on technology transfers, and that several universities participated in technology programmes. There had been a gap at grassroots level, however, and this was a situation that the TIA would like to rectify going forward.

He further added that Dr Boshoff was correct about the sale of IKAPA.TIA had instituted a thorough investigation into the sale and concluded that there had been a misrepresentation of the actual value of IKAPA, and that the directors were to blame. The case was currently undergoing arbitration.

About Mr Ngcobo's comments and questions, he said that the vast majority of duties he undertook as TIA’s acting chairperson had been conducted "remotely". This meant that meetings with the board and other interactions sometimes took place electronically, such as Skype calls. He emphasised that when the previous Minister of Science and Technology, Ms Naledi Pandor, had appointed him, he was already based in Australia.

Dr Lennon said he had always attempted to be frugal as the acting chairperson, and that his previous absence should not be seen as being disrespectful. He served at the pleasure of the Minister, and had indicated the need for a permanent chairperson to be appointed.

He explained that at the time that the board took the decision to employ Ms Levy-Hassen, it had had a long discussion on whether there were other suitable internal candidates for the position. At that stage, there had been no suitable internal candidates, as all of the senior positions were filled by people who acted in those positions. A decision had then been taken to appoint Ms Levy-Hassen as the interim CEO. She had declared to the TIA that there may be a conflict of interest with regard to her position on the board and her private business interest. When she was appointed to the interim CEO position, she had resigned from the board.

On internal issues, Ms Levy-Hassen said that the TIA would provide the Committee with an in-depth analysis on the commercialisation and innovation support it provided to SMMEs, as well as the requested racial, gender and age profiles. The TIA had only six unskilled workers, and that these were cleaning and maintenance staff.

Concerning the turnaround processes for funding applications, she said that when she became interim CEO, she had instituted a full review of the TIA's internal processes. There had also been a backlog in approved deals that had been there since 2016-17 that had to be cleared up.

One of the challenges the TIA had was the limited funding in the wake of the broad scope of its mandate, though it was trying to bridge the gap between the research and the development that had been done, in order to commercialise the latter.

It had experienced a flurry of applications that did not meet the high quality standards set by the TIA. The majority of the TIA's staff were considered technically brilliant, but lacked a commercial edge. This was a priority area that it had earmarked for further development and capacity training. Post investment support was also being looked at.

On a more personal level, Ms Levy-Hassen addressed the matter raised that pertained to her private business dealings, her tenure on the board and subsequent appointment as the interim CEO. She stressed that at no time had she benefited from any tenders, as none had been awarded to her company.
 
Committee Chairperson’s comments

The Chairperson said he was worried about two issues regarding the appointment of the interim CEO. These included the fact that she had been a member of the board, and had then declared a conflict of interest when she was earmarked for the position. This raised serious ethical issues, especially in light of the interim CEO having submitted a bid for a tender from the TIA when she was in the private sector. This was a worrying situation, and the TIA had to attend to this matter. It was not a matter that could be swept under the carpet, and although no contract had been awarded to the interim CEO, the interest had been there to secure a tender.

He said that the TIA had to fill all acting positions as a matter of urgency, and the revised presentation/report had to be tabled again before the National Assembly (NA). He urged the TIA to liaise with the Department of Higher Education, Science and Technology (DHEST) on the tabling of the revised report, as the previous report had been rejected by the NA at the request of the Committee.

He also touched on the cost implications that pertained to the acting chairperson, and flagged this as a concern for the Committee. It had taken note of the arrangement Dr Lennon had with Minister of Higher Education, Science and Technology, but it might be prudent to have a discussion with the Minister about the appointment of a new board chairperson. This should be seen within the ambit of the current economic situation in the country.

Proposal to dissolve TIA board

Mr Paulsen proposed that the Committee should take a decision to dissolve the board. He expressed serious reservations about the honesty and integrity of the board.

According to the majority of Committee Members, Mr Paulsen was acting in a manner that was inconsistent with the decorum of the NA. They did not agree with the proposal by Mr Paulsen, and the motion was not carried.

They took issue with the "disruptive" posture of Mr Paulsen, and called on the Chairperson to hold him to account. They also commented on the fact that he was not a Member of the Committee.
 
Ms N Mkhatshwa (ANC) expressed her exasperation with Mr Paulsen and what she deemed his continuing veiled attacks on Committee Members. She called on him to refrain from insulting fellow Members under the guise of attacking the integrity of the TIA.

Mr Paulsen was then asked to leave the meeting by the Chairperson.

Mr Ngcobo thanked the Chairperson for the ruling made in respect of Mr Paulsen. He was against the repeated interjections of the Committee Chairperson by Mr Paulsen. He had been given a platform to ask questions, just like other Members, and thus his actions were uncalled for. His actions showed a total lack of respect.

The Chairperson thanked the TIA management and board for the presentation, and closed the session.

National Student Financial Aid Scheme (NSFAS): 2018/19 annual report

The Committee expressed grave concern over the dismal performance by the National Student Financial Aid Scheme NSFAS for the 2018/19 financial year.

The 2018-2019 report indicated that NSFAS had incurred irregular expenditure of R7.6 billion. In prior years, NSFAS had disclosed R284.7 million in irregular expenditure. This had been rebased to R2 billion in the current year, due to a non-compliance with laws and regulations (NOCLAR) notice that had been issued to NSFAS.

The Committee was concerned that the entity had incurred R7.6 billion in irregular expenditure and that more irregular expenditure was being uncovered, which meant that the amount of irregular expenditure would possibly increase. Members expressed their displeasure at NSFAS for not investigating irregular expenditure, nor implementing consequence management.

Due to the irregular expenditure, NSFAS had received a qualified audit opinion with findings from the Auditor-General of South Africa (AGSA). The qualified opinion had been a result of material misstatements and limitations in respect of cash flow statements, amounts owed to institutions, bursary expenditure and contingency liabilities.

In real terms, this translated into the AGSA not being to confirm the correctness of transactions due to institutions, to the tune of R1.25bn. The AGSA could also not obtain sufficient appropriate audit evidence for bursary expenditure paid outside of the entity's normal disbursement process.

The total bursary expenditure was R24.6bn for the year. The AGSA also found that contingency liabilities were understated by R6.3bn.

NSFAS had achieved only two of the 16 targets planned for the financial year under review.

NSFAS had indicated that the reason for this performance had been the poorly devised key performance indicators/areas (KPI/As). These indicators were deemed as unsuitable for the NSFAS business model and were being revised. The indicators did not correspond with SMART principles.
The Committee found this explanation unacceptable.

Notwithstanding the fact that an administrator had been appointed to take over governance and management and bring stability to the entity, it appeared that more focus had been on crisis management and less focus on ensuring that predetermined targets were achieved.

The Committee was seriously concerned that NSFAS had not been performing for a number of years, especially on the core mandate of disbursing funds to eligible students.

The Committee urged the Minister of Higher Education, Science, and Technology, Dr Blade Nzimande to expedite the establishment of a Ministerial task team to review the business processes of the entity, which would make long term recommendations on the future models, structures, systems and business processes necessary to improve  NSFAS's efficacy.

The Committee would also convene quarterly meetings with the entity to assess progress made in the disbursements of funds and progress towards achieving the predetermined targets.

Members called for a complete overhaul of the NSFAS.

Discussion

The Chairperson advised the Administrator of NSFAS that it may be prudent to focus on the planned activities of NSFAS with clearly devised indicators for the actual performance against these targets for future reporting purposes. The presentation by NSFAS spoke to pertinent points such as the financial situation, but no mention had been made of the annual performance plan (APP). NSFAS had not taken the Committee into its confidence about the two areas where it had not achieved.

Mr Letsie said the AGSA had indicated that during the 2017-2018 financial year, two findings had been made that were related to unfair competitive bidding processes. It had also reported on irregular expenditure of R3.3 billion. How was the administrator and his team planning to improve on these two findings? Had there been any investigations into these irregularities?

On the ICT system utilised by NSFAS, were there plans to introduce a more streamlined and efficient system?

Were the individuals who had resigned or been dismissed responsible for the graft at NSFAS?

Mr P Keetse (EFF) said that the work conducted by NSFAS should be taken very seriously, and that things were not as they seemed.. He called on the administrator never to hide things from the "masses", especially since a picture had been created that things were rosy at NSFAS, even though they were not. He questioned the terms of reference that the administrator operated under, and said that 80% of the information provided to the Committee seemed to be rehashed.

The irregular expenditure of R10.9 billion incurred was worrying and had a direct effect on the distribution of funds to disadvantaged students. There were currently 14 000 students that had not yet received any funding, yet they had signed contracts with NSFAS. He wanted a proper explanation in plain language for this.

He questioned why the administrator had omitted certain terms, as stipulated in the Government Gazette, especially as they related to the appointment of an IT specialist to assist NSFAS. He asserted that the Committee was being misled. According to his information, NSFAS had appointed an IT specialist by the name of Mr Bernard Kruger. Mr Kruger apparently did not have the right qualifications, and was an expert in the Excel Microsoft applications. He deemed his appointment as unacceptable.

Mr Keetse took issue with the manual processes still employed by NSFAS. This included staff typing information manually. He described the manual system as weak and riddled with opportunities for graft.

He also told the Committee that Ms Thaaniya Isaacs (NSFAS internal audit) used to work for a private entity, and in that capacity used to audit NSFAS. He questioned her appointment and wanted an explanation as to how this had come about.

He proposed that the Committee should undertake a visit to NSFAS.

Mr Nodada said that he had read through the presentation and understood the challenges faced by NSFAS. However, it had been scant on actual details that pertained to the actual performance of the entity. He wanted to ascertain how many targets had been met since the administrator had been appointed. He lamented the irregular expenditure, and pointed out that AGSA had reported that this irregular expenditure had been as a result of incomplete financial statements. He wondered what the actual situation was, especially since the administrator had indicated that no money had been lost under his tenure.

He also questioned why NSFAS was investing money that was supposed to be used by students, and wanted to ascertain whether it had done follow-ups on the expenditure of funds allocated to technical and vocational education and training (TVET) colleges.
 
He asked how much money had been lost as a result of the “NSFAS wallet” funds disbursement system. It was ironic that a system that was designed to curb fraud and malfeasance had ended up being used as a vehicle for illegal activities. Had there been any consequences for the developers and proponents of this system?

What had been the role of the Venda Building Society (VBS) mutual bank had been in disbursing funds to students?

He called for a complete overhaul of NSFAS and for enhanced cooperation with technological entities, that included the DHEST. He also called on NSFAS to stick to one disbursement model.

Ms Mkhatshwa agreed with Mr Nodada's proposal that NSFAS had to devise one proper method of disbursement, instead of having multitudes of disbursement methods. Three weeks ago, at a colloquium on NSFAS, she had reiterated that it was important for NSFAS to ensure that it was ready for the 2020 funding application period, as well as with disbursements. She called on NSFAS to ensure that all students received their allowances timeously, as many depended on these allowances. Allowances should be paid by the time students registered.

It was critical that wrong payments be corrected as a matter of urgency. She felt that the administrator presented a sense of hope that under his guidance, NSFAS would address all concerns raised, so the Committee would not be amenable to excuses going forward.

She also called on NSFAS to prioritise funding for female students over male students, as female students apparently had greater needs than male students. NSFAS had to be cognisant of the individual needs of students, instead of applying a blanket approach. She wanted to know whether former NSFAS recipients were paying back their student loans, and the status thereof.

Ms D Sibiya (ANC) asked whether NSFAS had an internal audit committee, and how ready it was for the 2019-2020 audit season. She also wanted to know what had happened to the previous audit committee members, and whether some had been implicated in financial wrongdoing.

Mr Ngcobo said that since its inception, NSFAS had never performed well. Given this background, he wanted to ascertain from the administrator whether he would support a complete overhaul of NSFAS.

The Chairperson disagreed with Ms Mkhatshwa on more funding for female students than male students, as South Africa's Constitution guaranteed equality for all.

On the audit outcomes of NSFAS, he commented that the AGSA had highlighted that the outcomes had remained the same as previous years. He had been irked by the decision to disband the audit committee in the wake of NSFAS not having any senior managers, or a board, in place. He regarded this as wrong, as an audit committee was an objective external oversight mechanism. He asked that an audit committee be appointed as soon as possible.

When the Committee had first met with NFSAS, a picture had been painted that things were going in the right direction, yet only two of the 15 key indicators set as targets had been met. In real terms, this meant that NSFAS had achieved only about 12% of its overall targets. The previous year, it had achieved 9% -- a worrying trend, since this pointed towards mediocrity.

The Chairperson was at pains to explain that NSFAS had to pursue a two-track strategy about investigations -- investigations to determine whether irregular expenditure occurred, and investigations into culpability. Investigations to recoup the money and to identify wrongdoers were paramount, as every cent was critical.


NSFAS’s response

Dr Randall Carolissen, NSFAS administrator, said that the figures presented to the Committee had been audited by an external auditor. The internal audited figures had subsequently been presented to the AGSA for audit purposes.

He agreed that the picture painted was not a rosy one, and that the key performance indicators (KPIs) had not been well designed and could not be properly audited. It was therefore imperative that NSFAS sought assistance from the AGSA to measure its performance appropriately. He gave an undertaking that the next report would speak to realities, and that the poorly constructed KPIs would be fixed and revised.

He emphasised that at no time had there been an exchange of money between NSFAS and VBS. Both Standard Bank and the VBS had won contracts to disburse the NSFAS cash wallet. The contract with VBS had been terminated before the appointment of an administrator, while the contract with Standard Bank had been cancelled when the new administrator took office.

Dr Cornelissen said he had been appointed to replace all management and governance structures of NSFAS, and when he arrived at NSFAS he had found an audit committee in which he had no trust. He had decided to relieve the audit committee members of their duties.

NSFAS had conducted a risk assessment, and one of the key risks highlighted had been that of cybersecurity. After the release of this risk assessment, it had been discovered that the audit committee had sat on the cybersecurity report that they had composed previously.

NSFAS has referred 515 cases for investigation to the Special Investigating Unit (SIU) in the Western Cape alone, and was under serious pressure nationwide as a result of fraud and corruption.

The SIU had informed NSFAS that to conduct thorough investigations, it had to be furnished with all the relevant documentation. It may be prudent to request the investigating brigadier at the SIU to appear before the Committee to give a detailed account of all cases under investigation.

A lot had been done to arrest the trend of fraud and corruption, and it was unacceptable that it continued. Every day, fraud and more irregular expenditure was being discovered. It had also been found that several third parties, which had facilitated payments or held cash accounts on behalf of students, had "forced" students to pay for additional products they did not need. This situation had led to entrenched monopolies taking root. The new system would eradicate these entrenched monopolies.

Regarding the other forms of disbursements, NSFAS had already scrapped the voucher system, as well as the cash wallet system, due to high instances of fraud. In 2020, it intended to pay students directly and cut out the middlemen completely. It was already engaging TVET colleges, to prepare these institutions for 2020.

He added that for money to be disbursed, an applicant had to qualify and receive registration data from the relevant tertiary institution. In the absence of all the relevant documentation, NSFAS could not disburse any funds. To mitigate any challenges, it had made upfront payments available to universities and TVET colleges when and where necessary. To date, it had disbursed about 95% of the payments for 2019.

Systems at NSFAS were not fit for purpose, and needed to be scrapped altogether and redesigned.

Dr Cornelissen said a lot of things had gone wrong, and he had found many outstanding issues. This situation necessitated a second term for an administrator to thoroughly address the rot in the system. Much needed to be done on the institutional culture at NSFAS that had been toxic culture in nature, and work on that issue was being undertaken.

He agreed with Members that there was a need for a complete overhaul of NSFAS. A complete re-imagination of the NSFAS governance structure and its disbursement model was required, otherwise within two years there would be another administrator or the institution might shut down.

He defended his tenure as Administrator, and said that the only reason that there had been a reasonable amount of success was because NSFAS had been placed under administration.

Dr Cornelissen corrected Mr Keetse's comments about Mr Kruger. It was untrue that Mr Kruger had been appointed as an IT specialist. Mr Kruger was a TVET college expert who had been recruited from Boland College. He had been brought in to assist NSFAS in dealing with TVET policy. Payments to students were also not done on spreadsheets.

Mr Prakash Mangrey, Acting CFO: NSFAS, responded to the questions around aspects of the investigations, the recoverability of funds and whether these investigations would continue. He said that all instances of irregular expenditure had been identified at the end of May, leading up to the finalisation of all the financial statements.

NSFAS had taken a conscious decision to have a holistic approach to the investigations at hand. There were investigations currently under way, and the outcome of these investigations would determine whether any funds could be recovered. The NSFAS management still had to work through the National Treasury framework on irregular expenditure to determine the appropriate steps that had to be taken.

NSFAS would continue to incur irregular expenditure concerning disbursements in excess of contract amounts until the proper contractual details had been corrected. The 2017-2018 period’s irregular expenditure was related to reimbursements in excess of contract amounts totalled R122 million. However, this figure had been revised to R1 billion for the 2018-2019 period. This type of irregular expenditure could be arrested only if the Minister of Higher Education, Science and Technology and Parliament gave NSFAS an instruction to stop these payments until the necessary amendments to the contracts had been effected. This would, of course, have unintended consequences.

The Chairperson indicated that he was still unclear after the explanation provided by Mr Mangrey. NSFAS had received a clear instruction to investigate malfeasance and to recover outstanding amounts, yet none of this had happened.  A gloomy picture was being sketched, especially on irregular expenditure.

Dr Cornelissen explained that some of the irregular expenditure was not a loss, but resulted from cases of erroneous disbursements, where earmarked funds had been shifted. These had included funds paid from wrong accounts, payments made to wrong institutions, and overpayments to students. In some cases, students would be contracted for "ridiculously low" amounts like R5, R10 or R1 000, but NSFAS would make the correct payment. However, because the payments differed from the contracted amount, they became an irregular payments according to the Public Finance Management Act (PFMA).

Follow-up questions

Mr Nodada wanted to know why NSFAS was investing funds meant for students in private investment accounts.

The Chairperson also wanted to know about the recovery of R5.3 million in fees, as indicated in the annual report.

Mr Che Muller, Senior Manager: NSFAS, replied that this money had not been paid to VBS or the Corporation for Public Deposits. The funds had been invested in private equity firms, and these were asset management fees incurred on these investments. NSFAS had to apply for condonement from the National Treasury. It was at pains to explain that this money had not been paid to VBS.

The Chairperson requested more details on the above.

Mr Muller said he would furnish the Committee with this information.

On uncompetitive bidding processes, NSFAS had improved on this finding and no audit opinion had been issued by the AGSA on this.
 
Mr Keetse wanted clarity on what would happen to the book allowances. He recalled that there used to be a process of vouchers. The book allowance should primarily be used for books. With the current system of disburse funding, how would it prevent students from utilising funds meant for books, for other expenses.

He also requested information on the company that serviced the ICT system of NSFAS. He questioned their competence, since only 95% of payments have been made for the 2019 cycle. He considered this unacceptable, given that the remaining 5% represented actual students who needed the funds.

He also referred to allegations that NSFAS senior staff were driving around in expensive cars and living "large" at the expense of NSFAS students.

Ms Mananiso said that the presentation had mentioned that 30 data scientists, systems engineers, project managers and accountants had been appointed to support the administration. She wanted to know the demographics, qualification levels as well as the age profiles of these advisors. She also wanted to know how much the IT system had cost NSFAS, as well as timeframes for when critical senior positions would be filled. She questioned the payment of a gratuity to NSFAS staff when it was clear the organisation had been performing below par.

NSFAS’s response

Dr Cornelissen replied that Mr Kruger had not been appointed by the administrator, but as a member of the task team appointed by the Minister of Higher Education, Science and Technology. The administrator, as per the terms of reference, was allowed to appoint advisors.

The demographics and other related details of the advisors would be provided to the Committee. The previous Minister, Ms Naledi Pandor, had also proposed names, and these experts had been contacted. Some had acceded to the request, whereas others had declined.

It was untrue that senior staff were driving around in expensive cars or benefiting unduly. He had taken a conscious decision not to stay in a hotel when he was appointed as administrator. He reminded Members that he had had to relocate from Pretoria, and was staying in a small flat in Cape Town.

He also confirmed that Ms Isaacs had been employed at an external auditing firm that conducted NSFAS' audits, but assured the Committee that there was nothing untoward about her appointment.

The Chairperson replied that it was a serious conflict of interest for Ms Isaacs to be employed by NSFAS when she had previously audited the very same entity she was now working for. He regarded this as highly unusual.

He called on NSFAS to address all the pertinent issues flagged by the Committee.

The meeting was adjourned.
 




 

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