NSFAS Annual Report, deviations and expansions: hearing; with Minister

Meeting report

NSFAS Annual Report

Mr Andile Nongogo, Chief Executive Officer, National Student Financial Aid Scheme (NSFAS), took the Committee through the presentation on the entity’s 2019/20 annual performance report. The report provided details of NSFAS’s activities in the areas of administration; audit outcomes; financial statements; irregular, fruitless and wasteful expenditure; the annual performance plan (APP) and reasons for the non-achievement of targets; the action plan to address the audit outcomes; investigations; procurement deviations; and strategic steps to be taken to stabilise the institution.

When NSFAS was placed under administration, the following interventions took place:

-A risk-based strategy, informed by detailed root cause analysis, was developed;

-Funds trapped in the system were released to ease the plight of hundreds of thousands of students;

-There had been a focus on introducing financial controls, improving governance, developing and enforcing a policy and standard operating procedure (SOP) framework, and clamping down on fraud and corruption;

-Collaboration with other funders was strengthened in order to improve targeting and assistance to previously excluded groups;

-The internal audit function was in-sourced. The team was fully operational and had assisted in identifying and determining the underlying root cause issues of several operational matters;

-An independent Audit and Risk Committee (ARC) was established to strengthen oversight and improve accountability of the executive;.

-Forensic investigations specified in the terms of reference (ToRs) of the Administrator were completed, and NSFAS had taken the necessary precautionary and decisive actions, including invoking disciplinary and criminal investigations; and

-The relationships with the Department of Home Affairs (DHA), the Department of Social Development (DSD), the South African Social Security Agency (SASSA) and the South African Revenue Service (SARS) were leveraged to verify application information.

NSFAS had received a qualified audit opinion with findings for the past three consecutive years. The qualifications were related to irregular expenditure due to amounts disbursed in excess of loan values, which also affected the carrying value of the loan book. It also included contingent liabilities, cash flow statement errors, completeness of manual payments, prepayments to institutions, etc.

[See presentation for more details on the annual report]

Discussion

The Chairperson asked how long it had been since the board had been appointed. It looks as if the board was facing an uphill battle, with challenges that were based on legacy issues. What was the key focus area of the new board, given the state in which the previous administration had left NSFAS?

Mr Ernest Khosa, Chairperson of the Board, NSFAS said the first task was to address the audit findings of the Auditor-General (AG). Secondly, there were the matters in the public domain, such as maladministration and matters that were being dealt with by the Portfolio Committee on Higher Education and Training (PCHET). Other secondary issues were to ensure that the organisation was institutionally redirected, and matters related to its systems.

Mr S Somyo (ANC) said NSFAS had been founded on the basis of receiving funds from the fiscus, and then being disbursed to qualifying students. These amounts ought to be received by the appropriate beneficiaries – there were challenges that were endemic in the organisation.

Mr Khosa agreed that the new administration needed to ensure that all the legacy issues were addressed. The board was committed to good governance. New committees had been set up and a new strategic framework had developed with deal with all the challenges. The board had also taken a decision to ensure that all matters that rendered NSFAS inefficient had to be properly addressed.

The new administration was doing an assessment of all that had happened in the organisation before taking action. One could take action only once one had collected all the facts. These investigations would take about three months to be completed.Even though the current administration was new, it had to take responsibility for what had happened before. He assured the Committee that those investigations were being undertaken. Once that process was completed, action would be taken. The current administration was committed in turning the organisation around.

Mr Somyo asked why it was difficult for the leaders of the organisation to detect issues before the AG picked them up or before the audit came in. Was it not the responsibility of the leaders of the organisation to pick up issues before the auditors arrived? What was the leadership doing to address the misalignments in the organisation?

Mr Nongogo responded that management agreed that performance management in the organisation had not been institutionalised, and it had been left to the planning department to focus on. Management had now ensured that the annual performance plans (APPs) were supported by operational plans. These were monitored on a monthly basis, where management had to report on how far it was towards achieving the performance objectives.

Every time management had to report, members of the executive had to sign that there were adequate documents to support the information that was being reported. Management also made use of the internal audit function to review performance to ensure that when there was under- or over-performance, it was able to institute corrective action way before audit. Monitoring of performance was not an audit issue, but a management and strategic issue. The board had proceeded to review the strategic plan to look at the outcomes, and to review the existing strategic outcome. As a result, the board had come up with seven strategic outcomes. It also ensured that the strategic plan met the SMART (specific, measurable, achievable, relevant and time-bound) requirements and the government outcomes.

Management did not have a digitised system, and it reported performance manually. It was in the process of acquiring a system into which performance information would be logged. During the administration, there had been a process to align the administrator’s terms of reference to the APP and the strategic plan.

Certain positions had been established during the previous administration. The administrator had had to bring in advisors, but there was only one position where they had found duplication. During administration, a consultant was sourced to assist with the performance information as part of aligning the terms of reference. That consultant’s term had not yet come to an end, but the post had been repurposed to provide support on performance information.

Mr Somyo said that student funding had to be predictable. How could NSFAS guarantee that if one was a student and got into a university having applied for funding, the student would know where they stood? What guarantees were there for students who were progressing well that they would receive financial assistance through NSFAS?

Mr Nongogo responded that 90% of the challenges related to systems, which were aging and were not predictable. The first thing that would enable the organisation to provide guarantees to students for funding was the development of a new system. With the aging system, there was no certainty on how things would unfold.

When it came to payments, the organisation ended up not paying the money on time because of the system.

When the new management came on board, one of the first things that it committed to do was to acquire a new, reliable system. The disbursement module in the system was being re-worked, and there was an agreement with the educational institutions for NSFAS to make payments in advance to them so that they were able to continue paying allowances.

There was a platform called the “NSFAS Wallet” through which technical and vocation education and training (TVET) college students were paid, but this platform relied on student cell phone numbers. There were unscrupulous people who ended up hacking students’ cell phone numbers, which resulted in their phones being blocked and the students not being paid. This system was now under review, and the service provider had been engaged to institute more controls into the system. Management was also looking at other methods to disburse directly to students.

Despite the new systems which could be acquired, it was important to look into the human aspect of the situation, and the board and management had introduced performance management contracts for staff to ensure that that aspect of the organisation was not lagging behind.

Mr Somyo asked how the management sought to mitigate all the challenges that it had inherited from the previous administration.

Mr Nongogo said that any funder required assurance that its funding had been utilised as intended. This had lapsed, but guidelines had been issued to the institutions required them to provide assurance from their internal and external auditors that the money had been spent for the purposes intended, as well as the balances to be reflected in order to prepare reconciliations. NSFAS had sourced an external service provider to reconcile the historical balances that it was sitting with. It had also established a reconciliation team internally, and on a monthly basis the balances would be reconciled with the institutions. If the system challenge was resolved, that would do away with the prepayments.

Mr Somyo said that due to the lack of a reconciliation, management was not aware of the true reflection of the current balances with the institutions.

Mr Nongogo confirmed this to be correct. However, the process of reconciliation with the institutions had commenced. The reconciliation of these finances came with the underlying data of the students. Sometimes the data does not agree with the funding list. It could be a simple accounting principle, but there were underlying problems that made the process strenuous and difficult.

Mr Somyo asked how many new entrants would benefit from NSFAS, and what had necessitated the earlier closure of the date for applications.

Mr Nongogo said that in the previous year, NSFAS had received about 400 000 applications, and in the current year it had received about 800 000 applications, which took into account the walk-in applications at TVET colleges. Through its online portal, NSFAS had received about 700 000 applications. Although there were so many applications, there were enrolments targets and plans that institutions had. The system could absorb students only to the extent of the enrolment plans.

The projection, taken together with the TVET colleges and universities, was that the number of learners expected on the system in this year it would be close to one million students who would be eligible for funding, compared to 700 000 in the previous year. However, there was no certainty as to how many students would end up finding a place in an institution.

Ms B van Minnen (DA) asked whether students who had been granted, or would be granted, funding would be guaranteed funding until they finish their studies, as long as they met the criteria to be eligible for funding academically. Secondly, she sought details on the NSFAS system -- where it was sourced, and why it was taking so long to get to the bottom of the issues.

Mr Nongogo said that students, who were enrolled with the legacy qualifications, before they expired, would continue to be funded. It was only the first time applicants that would not be assisted with those legacy qualifications.

The system currently used was a system that had been acquired ten years ago, and the organisation was on the first version. The versions had since evolved. NSFAS was using two systems called Phoenix and Cache, and these had ended up conflicting with each other. The system had also changed ownership and the new owners were in Jamaica and could not provide NSFAS with the necessary support. This had led to no controls over who had accesses it or codes to protect it.

He was not aware why this system had been kept on for such a long time, but the new management and the board had taken a decision to acquire a new system. New requirements for the system had been completed, and the process of issuing a tender would commence in the next month. Management had given itself six months to implement the process. In the interim, it had been looking at ways to keep the ball rolling.

Ms Van Minnem asked from whom the system had been bought, and why there had not been any support included in the contract.

Mr Nongogo said that these issues emanated from the contractual agreements that had been signed by the parties. The system had initially belonged to Deloitte, and after NSFAS acquired it, Deloitte had sold the system. It had since changed hands about twice. If NSFAS asked for support from the current owners, it would have to pay a lot of money for it.

The Chairperson asked whether NSFAS was still paying any money towards this system. If so, how much money? Was the contract still valid, and how many times had it been renewed during the time that it was active?

Mr Nongogo said that NSFAS paid an annual fee of R3 million for licensing. It was an open-ended contract and required a year’s notice to terminate it. The notice had been given for termination, which was why NSFAS had now embarked on acquiring a new system.

The Chairperson was not pleased that NSFAS had been paying R3 million for an obsolete system. It was paying R3 million for something that was utterly useless.

What was the management’s assessment on whether there had been any achievements during the previous administration, and whether the entity had improved?

Mr Nongogo said that when the Administrator took over, there had been a lot of students who were stuck in the system whose allowances had not been released, and the focus was on releasing those allowances. Secondly, the terms of the Administrator required certain investigations to be undertaken, and those had been undertaken. Thirdly, they also required that the Administrator institute some governance, and this was done through the Board process, with the appointment of an audit and risk committee, and it had begun to institutionalise organisational processes. Lastly, there was also a focus to rebuild relationships with institutions and funders that had been broken.

The Chairperson asked whether the new management considered the Administrator to have achieved what his administration was intended to, and whether NSFAS had improved under the Administrator’s leadership.

Mr Nongogo said that management had conducted an assessment, looking at where the institution had been when it was placed under administration. Although there had been some progress, not everything was addressed. This included the structure being not fit for purpose. It was not aligned to the student-centred model; the systems were not fully leveraged to ensure that this was adequately addressed; and there was a lack of institutional performance management in the organisation. Performance management was not embedded in the institution. The management had looked at whether these areas needed assessment.

The administration, by its nature, could not address everything -- only the issues that were detailed in the terms of reference and, to the extent that they were related to the terms of reference, those issues were addressed.

Mr Khosa said that there were areas which had seen improvement, but there were areas that were still a source of concern to the new Board. This accounted for the overview and investigation of what had happened. The new Board was fighting to get the organisation to be effective.

The Chairperson was not satisfied with the response. He asked if Mr Khoza was you satisfied with the kind of institution that the Board had inherited.

Mr Khosa said he was not, because the institution still required a lot of fixing.

The Chairperson said that the Committee had met with the Administrator, and a number of promises and commitments had been made. There was never a time when NSFAS had been in the kind of state it was in now, even from a perception point of view. One would imagine that the new management and board would have come into an organisation where very little needed to be done.

There was still a need to ascertain why NSFAS was in the mess that it was in, and this was something that had to be probed, even by the Department. The Committee would like a full scale assessment of that administration and how much it cost the taxpayer, and whether due processes had been followed in the activities that were conducted at that time.

The “laundry list” that the CEO had given the Committee told the Members that whatever changes that were made had resulted in the full blown explosion of what they were sitting with now. They were dealing with an institution which carried the collective sustainable livelihood of the previously and presently disadvantaged, compounded by the challenges of Covid-19, who were finding themselves increasingly marginalised, excluded and unable to move.

This was the reality of dysfunctionality, and the Director-General needed to provide the Committee with some level of confidence regarding the Department’s plans to offer support to NSFAS that would enable it to become fit for purpose. The Committee also needed to receive an explanation as to how they arrived in this situation. An institution could not just collapse. The warning signs were there, but it seemed that the interventions were not timely enough.

He asked the Minister to take the Committee through that detail. This had the potential for a ripple effect on the public purse, so Members needed to hear how the executive authority intended to turn things around.

A political decision had to be taken to assist NSFAS. This scramble at the start of the year, amongst other things, was what lent itself to the chaos that they were seeing happening right now.

Seeing students attending half classes into March because they had to stand in long NSFAS queues was perpetuating the very vicious cycle of inequality. Students were spending too much time in queues and not enough in classrooms, while the “haves” continued to be in class because they did not have to worry about those queues and that kind of treatment.

There had to be better management of this and the strain it puts on the public purse, as students dropping out ended up being the state’s problem.

At some point the Committee would have to ask the former Administrator to appear before the Committee.

Mr B Hadebe (ANC) said that he would appreciate it if the Administrator came before the Committee, because most of his questions on irregular expenditure would have to be answered by him.

He asked whether the Administrator had developed a risk-based strategy that was informed by a detailed analysis, and whether he had managed to introduce financial controls, improve governance and enforce the policy standards to dismantle fraud and corruption. Surely the new Board and management could have conducted this assessment before taking over?

Mr Nongogo responded that there was a process where the Administrator had initiated financial controls, because there were areas in finance where staff was appointed and a risk and compliance unit was introduced. An internal audit department was established during administration, as well as an audit and risk committee. There was an ongoing project that was reviewing standard operating procedures that had been initiated by the Administrator.

There had been ongoing engagements that the Administrator had set up with the student bodies, which had subsequently been taken over by the new management. There were standing engagements with NSFAS and institutions, as well as with student leadership. The Administrator had also renegotiated the terms of engagement with the South African Revenue Service (SARS) to ascertain whether applicants met the threshold.

The risk and audit committee was appointed only after the financial year had ended, so it had not been fully embedded. The risk maturity level was still low for the organisation, but these measures had been put in place.

Mr Hadebe said part of the financial control measures had been to ensure that irregular expenditure was detected and prevented from occurring. For three consecutive years, irregular expenditure had been fluctuating with regard to non-compliance with laws and regulations in relation to disbursements, varying from R1.7 billion to R2 billion. In the current financial year, it had incurred R522 million in irregular expenditure. The past three years indicated that the organisation was unable to prevent irregular expenditure from occurring. He wanted to know whether any investigation into to these amounts had taken place or not.

Mr Nongogo responded that the organisation did not agree with the AG on some of these findings, and it had also sought legal opinion on whether or not they were irregular expenditure. For example, one of the irregular expenditure occurrences related to a student(s) signing a contract, but the contract did not specify the full value of the funding. Once one got into the realm of disagreement with the AG and failed to implement the recommendations, it meant that these instances would recur.

Management had now agreed with the AG that it would implement the recommendations and begin a process to clean out the irregular expenditure. Some of these areas were taking time to be cleared out of the organisation, but that process was currently taking place.

Mr Hadebe sought clarity about whether the disagreement with the AG stemmed from:

-students’ being funded for courses that NSFAS did not fund;

-disbursements in excess of bursaries awarded;

-the disbursement process against incorrect funders and incorrect students;

-disbursements paid to a student in terms of multiple awards; and

-unsigned bursaries or loan agreements

He asked if all of these were disputed by NSFAS. If not, who were the persons involved, what had been done, and what were the mitigating factors that had been put in place? Had management received a report that indicated consequence management?

Mr Nongogo responded that he was providing a contextual background as to why some of this irregular expenditure had not been adequately dealt with, which was because of areas that were being disputed with the AG. These were disputed on the basis of the legal opinion that had been received. Some of the irregular expenditure – non-compliance with laws and regulations -- continued to be expenditure that was incurred against students had been funded as a result of non-compliance. Some of the staff members who were part of incurring this irregular expenditure were no longer with NSFAS. Disciplinary processes had been instituted, and others had resigned before those processes were instituted.

Some of the irregular expenditure was based on the funding guidelines and criteria, and could not be attributed to an individual. All of this had been assessed, and it was deemed that there was no one official who could be linked to these issues. All investigations had been concluded and the outcome was that this matter could not be attributed to a specific individual.

The new management was cleaning out some of these matters, and had satisfied the AG that it was implementing the proper controls. The AG had indicated that it was satisfied with the actions that had been taken so far to address these issues.

Mr Hadebe said that he was struggling to understand this, because there were individuals in the organisation with roles so that they could be held accountable. Was this indicative of a lack of clear roles and responsibilities for the employees?

Mr Nongogo said that the issue with the system was that any one person could go to the backend of the website and effect changes. One of the issues the AG had raised was access control over the system of the organisation.

The Chairperson asked where the laptops were for the students to utilise during Covid-19.

Mr Hadebe asked about the concluded investigations into the Xbox Channel, and whether disciplinary action had been taken as a result.

Mr Nongogo said that he would come back and present the name of the employee who was involved. The matter had since been referred to the Special Investigating Unit (SIU) and some of activities linked to that matter stemmed from external sources. There were syndicates from outside NSFAS that were trying to access these funds.

According to the report, one person had been involved, and that person had failed to put controls in place to prevent the fraud that was being perpetrated externally. The staff member had since been dismissed. He could not provide the name at the moment, but the name of the implicated individual could be provided at a later stage.

The Chairperson said that he understood the frustration of the Members. Though the current board and management were new, they were successors in law.

He lamented the plight of the poor, and said it was not students’ fault. They were dealing with a system that was not responsive.

When he was campaigning for SRC elections and engaging with the students, the black students would be asking about solutions involving NSFAS -- residence, transportation, etc, and issues that would impact their ability to learn effectively. The “haves” and the privileged would ask about resolving parking issues – this was a reflection of the gravity of inequality. In all this mess that had been happening at NSFAS, where had the Department been?

Minister’s response

Dr Blade Nzimande, Minister of Higher Education and Training, said the Chairperson had posed two main questions to him, which he would try to respond to. The questions from Members were fair, but there were many positive things that the Administrator had done. The first thing he had achieved was the ability to inform students that they had been granted or not granted NSFAS funding before registration. Before that, students would go to institutions without knowing whether they had been granted NSFAS funding or not. This had led to a lot of protest action.

Secondly, students were now able to able apply directly to NSFAS for funding. In many institutions, the Ministry had found there was a lot of corruption taking place in the student financial aid offices, where NSFAS bursaries were being sold to students.

The other kinds of problem facing NSFAS were of a different order, because they depended on the educational institutions’ ability to supply information to NSFAS timely. This was why he had instructed the Administrator to have personnel at TVET colleges to assist with capacity, and even at some universities. There were always problems of not providing information on time for the transfer of money to take place.

Students no longer have to reapply for NSFAS funding once they have passed and progressed. There were areas that stemmed from the lack of capacity from institutions. The AG had identified the areas of weakness, which must be accepted.

He had agreed with the new board and management that all matters that had been identified by Parliament required them to go more deeply into those issues and investigate.

With the improvements had come some challenges that were still being experienced. This year they had announced that all continuing NSFAS students would be awarded bursaries if they met the academic criteria. This was an overwhelming number of students. The challenge was that there was inadequate funding for new students because of the budget cuts, which had started before Covid-19.

They had had an extended academic year, which meant that about half of the institutions had finished now in March, and they had not stopped paying students’ allowances. This was because some of the students would have had to collect their study material.

The Department had approached National Treasury for extra money for the extended academic year, but Treasury had refused. Another challenge was that the number of students whose parents could afford fees had decreased, and this had increased the demand for first time entry students. There had been a huge increase in NSFAS applications.

Cabinet would be dealing with this matter tomorrow, but it would be guided by the Minister of Finance’s pronouncements. The Department had asked the educational institutions to extend the registration period by two weeks so that the NSFAS students did not get compromised. The Vice Chancellors had all agreed to this. He had also asked the Vice Chancellors to admit for registration the NSFAS students who were still awaiting confirmation, and they had agreed that they would protect the places of those students.

Late last year, the Minister appointed a Ministerial Task Team to review the systems and functionalities of NSFAS. That team had already furnished a preliminary report, which looked very good and identified the matters that the Committee had identified, as well as the matters that had been identified by the AG. He was hopeful that the final report would be submitted before the end of March.

He agreed that NSFAS should not have continued with the outdated information technology (IT) system. He had approved the procurement of that system, but the 2017 announcement of fee-free education had exposed NSFAS and that system in a very bad way.

Concluding comments

The Chairperson indicated that the new administration would have to be given the opportunity to do its job. He also welcomed the comments from the Minister.

He said the Skills Fund had received a disclaimer, and NSFAS had a qualified audit opinion. The Committee would process the Skills Fund’s annual report, and Members could place it in the same basket. The list of issues cited to the Committee which were in dispute between the AG and the Skills Fund, was very long.

The issues of NSFAS were quite long, and perhaps the Committee would need to conduct an oversight visit and make an informed decision on what was happening there. Though the Minister had highlighted the things that had been achieved during the Administrator’s tenure, the Committee’s interest was on the AG’s findings and the things that were not achieved versus the commitments that had been made.

The Minister concluded by saying that he had confidence in the new Board and management, but he would be monitoring the team very closely. He was pleased that the Committee was in tune with the matters that were happening at NSFAS.

He took account of what had been said about the Skills Fund, and he would cooperate with the Committee on the matter.

The Chairperson said the Committee would continue to engage with the Minister on the Skills Fund matter, and once it had been conducted, there would be an oversight visit to NSFAS.

The meeting was adjourned.