The Chairperson opened the meeting by noting presence of the Minister and explaining that the meeting was in the form of hearing to learn the state of affairs of the National Skills Fund (NSF). The Committee was concerned that in the most recent audit by Auditor General South Africa (AGSA), the Auditor General was unable to express an opinion as to the financial state of the NSF given that many of its invoices were not deemed to be sufficient proof of the expenditure of public funds.
The Committee called the NSF Chief Executive Officer, the Minister of Higher Education and Training and the Director General to account for the state of affairs at the NSF. It was established that the Acting NSF Chief Financial Officer had been in that role for only a month as the previous CFO of seven years had resigned in December 2020. The Committee asked the CEO to explain the deteriorating audit outcomes over the past three years and did not find the responses to be satisfactory. It wanted to know who the Minister would hold to account and what he would do and it called for a forensic investigation into the NSF
The Minister pointed out that a forensic investigation would not conflict with the review he had already instituted and added that SCOPA should note that the Skills Development Act does not sit well with the Public Finance Management Act (PFMA) and Public Service Act because the DG, in terms of the Skills Development Act is the NSF accounting authority and at the same time the Department of Higher Education and Training (DHET) accounting officer. He seemed to accept the request of the Committee to provide a roadmap for a forensic investigation to be provided within 30 days of the meeting.
The Chairperson said the hearing was on the financials of the National Skills Fund (NSF). He welcomed the Minister of Higher Education and Training and the Director General was present and noted the Deputy Minister’s apology. The reason for the hearing was that the state of the NSF is one of serious concern. There have been regression which raised the eyebrow of the Committee when it received a briefing from AGSA. The Committee decided a hearing was needed to get answers from the Department and the NSF itself.
The hearing would be led by Ms Mente-Nqweniso followed by Ms Tolashe. Before it began, the Minister could make his introductory remarks. After the hearing, the Minister will also be able to come back in. The Committee noted that in 2015/16; 2016/17 and 2017/18, the NSF had unqualified audit findings. In 2018/19, these were qualified and in 2019/20, there was an adverse audit outcome. The Auditor General has raised almost 10 issues on this score. He welcomed AGSA and the Special Investigating Unit (SIU), the Committee's stakeholders in the work it does.
Minister’s opening remarks
The Minister of Higher Education and Training, Mr Blade Ndzimande, was joined by the Director General, Mr Gwebinkundla Qonde, of the Department of Higher Education and Training (DHET), who is the NSF accounting authority in terms of the Skills Development Act; the NSF Chief Executive Officer, Mr Mvuyisi Macikama, as well as the Minister's Chief of Staff and advisors, including: Mr Nqaba Nqandela, Prof Derrick Swartz, Ms David Niddrie and Ms Thuli Radebe who were there to listen with him. He wanted to make five or six key points after which he would be happy to listen to the proceedings. Firstly, he wanted to state upfront that he welcomed this hearing by SCOPA.
On his part, he has been concerned about the deteriorating state of affairs at the NSF for some time now, as evidenced by the progressively worse audit outcomes over the last few years. If one only looks at the AG findings in its 2019/20 audit opinion, it is significantly different to the qualified audit opinion of the previous year in that AGSA is saying is that the NSF has failed in its duty to keep records evidencing its skills development expenditure. Absent this evidence, AGSA is saying that it cannot express an opinion on the financial statements of the NSF, and is thus unable to give an audit assurance that the NSF skills development expenditure was regular. More seriously, AGSA is saying that it cannot say that the money was spent for what it was allocated. This is a very serious finding which he takes seriously.
It was clear to him from the 2018/19 audit that something was not right in the NSF. Accordingly, he initiated a process starting last year, for a complete review of the NSF, covering everything from its business model, its operational processes, its governance structures, and its decision-making processes. Of course, it is not an investigation, but it is a review because he has been concerned about the NSF.
He has raised this with the NSF. The process only started early this year when he finally appointed a three-person review committee after careful consideration. This committee has recently started its work. Given the pending review, he needed to point out that out of a concern of not wanting to commit the NSF to large contracts that may be affected by the outcome of the review, he has directed that the NSF should not enter into any contracts of more than R1 million, without engagement with and approval by himself. Given the outcome of the audit, this has proven to be a prudent approach.
He must indicate that when SCOPA was meant to deal with this matter at the meeting where it dealt with National Student Financial Aid Scheme (NSFAS), it had a brief initial engagement with the NSF. Until this time, he was not aware that there were interactions between the NSF and AGSA questioning some of the findings. He learnt about this for the first time at that meeting a couple of months ago.
This is a matter he has been concerned about as he did not know why as the executive authority, there would be such to-and fro involving AGSA, the Accountant General and National Treasury, without at least being informed that there was such a process. It was, of course, not himself who would have engaged in such a process but he thought he should have known. This enabled him to begin asking some questions afterwards as he had already had a meeting with the DG and the NSF CEO on the audit outcome, including a week or two ago. The nature of many of the findings are of grave concern and he would not be defensive about this, especially given that such matters arise, firstly, out of basic operational deficiencies such as record keeping and document management, which the review must look into. Here too, there has been a regression.
He was concerned NSF continues to operate in outmoded ways, and he would like the review to look into to this as well. This continues to place the NSF at great risk in this age of modern ICT systems. The Skills Education Training Authorities (SETAs) for instance, are not perfect; but some of them have relatively advanced ICT systems. In his view, the NSF is doing work that is not too dissimilar to the work done by a SETA. He was not saying he was proscribing SCOPA making its own findings and recommendations. The fact that there is a review committee in place should not be an obstacle to any decision that might be taken but he needed to say this upfront as the executive authority and he looked forward to see how the Committee would deal with the matter.
National Skills Fund 2019/20 audit disclaimer & irregular, fruitless and wasteful expenditure
Ms V Mente-Nqweniso (EFF) said that upon hearing the Minister’s opening remarks, she hoped that in his closing remarks he would explain what consequence management he was taking as it was indicative of his concern about the functioning of the NSF. She hoped he would respond to these at the end and asked if the Chief Financial Officer of the NSF was present.
Mr Mvuyisi Macikama, NSF CEO, replied that the CFO was present, however she was acting.
Ms Mente-Nqweniso asked how long the DG, NSF CEO and Acting CFO has been in office and when the previous CFO left.
Mr Gwebinkundla Qonde, DHET DG, replied that the management of the NSF as constituted under the accounting officer has a few executive positions, one of which is the CFO. The CFO has a number of staff members. The previous CFO resigned at the end of December. The new CFO has just come into the office and has been there for about a month or so, but the executive officer could clarify this. The point being raised by Ms Mente-Nqweniso actually points to some of the areas that AGSA has picked up on NSF operations, which is human resource capacity in various areas.
Ms Mente-Nqweniso interjected saying that she just needed to know how long these people have held their positions. The hearing would still get into the other answers which he was giving.
The DG replied that it is now the tenth year he had been in his role.
The NSF CEO, Mr Macikama, replied that he had been in his role for 10 years. The CFO was with the NSF for seven years and he left at the end of December 2020.
Ms Mente-Nqweniso said all present knew the law that governs the expenditure framework and budgeting of South Africa when it comes to public funds. Looking at section 86 of the Public Finance Management Act (PFMA), she explained that it prescribes the conditions under which offenses and penalties are invoked. She read that an accounting officer is guilty of an offence and liable on conviction, to a fine or to imprisonment, for a period not exceeding five years if that accounting officer wilfully, or in a grossly negligent way, fails to comply with the provisions of section 38, 39 or 40. She asked if all present agreed.
Mr Macikama agreed.
Ms Mente-Nqweniso said in the 2018/19 audit report, the NSF had serious issues. One of these was that the annual financial statements, as per paragraph 27 on page 130 of the 2018/19 annual report, were not prepared in accordance with the prescribed financial reporting framework, as per section 55(1)(a) and (1)(b) of the PFMA. In 2019/20, this occurred again and the AG was unable to express an opinion. She wanted the DG to answer what is to happen when an AG cannot express an opinion. She asked if he agreed with the statement that the AG could not express any opinion and if he does agree, she asked why it was in the same state as was raised in the previous year.
Mr Qonde replied that Ms Mente-Nqweniso was correct and that when this matter was raised the previous year in the 2018/19 audit, it was based, amongst other things, on the lack of capacity. As the accounting officer, once he was briefed by management, he instructed management to start a capacity process as NSF is a rapidly growing organisation as identified by the AG. This is so that it is able to have human resources that are able to be hands on for current projects. Secondly, whilst this process was being rolled out, management must appoint a service provider to mitigate the challenges identified by the AG in the 2018/19 audit. This was put to management and there were engagements to ensure that these steps took place. These are the measures which he thought, amongst others, would be important in assisting the NSF capacity as identified by the AG. The AG does not only identify findings but looks at what might be causing the poor audit outcomes to happen. The question of capacity came to the fore, hence he insisted on measures being put in place. In this respect, from his side as accounting officer, this process is properly documented.
Ms Mente-Nqweniso said that she was glad that the DG was happy with the process which he undertook, however, come 2019/20, the AG was not able to express an audit opinion. Therefore, his measures must have been short-lived. She asked if he was happy with the effect of the mechanisms he put in place to mitigate the AGs findings from the previous financial year.
The DG replied that he did not say he was happy, he simply explained the interventions and measures that he put in place. One of the biggest areas that are NSF-funded are Technical Vocational Education and Training (TVET) colleges and other government departments. This is the explanation he gets from the NSF; however, management was present and could elaborate on this matter. Whilst the NSF was still appointing service providers to assist in these areas, this coincided with the review mentioned by the Minister. This meant that the process could not be taken further. The issue at play is that the NSF gives funding to TVET colleges. What apparently happens in some instances is that a TVET college goes to hire a service provider to provide the service they need. The service provider then become a third party. The NSF is then unable to extend their monitoring to the third party as this service provider is appointed by the TVET college and not by NSF. This is what the AG is picking up on. This is why, amongst other things, a complete review of the NSF's standard operating procedures, so that the gaps that exist in monitoring and accountability are tightened up. This is a space that management would have more substance to speak to as he does not feature in operational matters at NSF. However, he was involved in ensuring that the required policies and governing issues are addressed and attended to.
Ms Mente-Nqweniso said that she thought the DG would agree since he had been in office for 10 years. There was a regression in 2018/19 and the Minister began his process to assist, but then things became worse. She wanted to know why things became worse when three years prior there were no major issues.
DG Qonde replied that the explanation which he received from management when he was probing into the matter is: first; the volumes of projects grow exponentially, secondly; the capacity of human resources, especially in project management as well as in finance remain minimal, thirdly, the approach of the AG, that identified the NSF as being one of the entities that would be introduced to a new form of auditing by the AG that it risk based would be a drastic departure from what was initially processed. One would find that some of the issues raised re issues which the AG looked at in prior years but did not have a problem. Because of the new process, they picked up some gaps.
This is what prompted the need for a rigorous review of the standard operating procedures and these should be aligned with the issues raised by the AG. The development of these procedures will require some assistance so that it is done speedily and so that the variety and scope which the NSF operates in is covered as some of it is in rural areas and not all of its work is in urban areas. He noted that the more urban an area, the more ICT systems are available. The further into rural areas one enters, more human resources are needed because everything is mainly paper-based and there is no infrastructure in some cases. These measures ad directives to management were put out and the question as to the extent to which management has executed would be best clarified by management. He was merely clarifying from the standpoint of the accounting authority. He is not the accounting officer of NSF; he is the accounting officer of the DHET.
Ms Mente-Nqweniso said that she would like to hear the CFO's explanation as to what went wrong. For three years 2016, 2017 and 2018; there were no major issues but the reason now given is that the scope of work became much bigger. It did not matter how much bigger the scope of work is, as there is still a law to be complied with for spending money from the public purse. A reason put forward is that the scope of work changed. This did not mean that the law should not be complied with. She asked the CEO what happened as the scope of work changed to the point where the AG could not express an opinion in 2020. She asked when the scope of work changed and when the CEO took a decision not to comply with the law.
Mr Macikama acknowledged that the scope of work changed from an audit point of view. The NSF did not go out of its way not to comply. As the DG indicated, one of the processes that the NSF realised would need to happen, especially after 2018/19, where there was the first regression, was that going forward was the level of detail and documentation that the NSF should seek from skills development providers, especially government institutions and TVET colleges, would be much more than what it would normally bring to the offices of the NSF for record-keeping. On this basis, one of the actions which the entity took, following advise it gave to the counting authority, is that the entity did not have sufficient capacity to undertake some of the work that would be required in order for it meet all of the requirements.
Such capacity, especially from the project management perspective is needed as a matter of urgency. It was on this basis that a process to procure the services of external parties whilst the entity is still on the other hand, bringing in more capacity for ongoing project monitoring. Unfortunately, due to the review process which the Minister sought to have on the entity, the process needed to be halted this did not negate the fact that the entity did not have sufficient capacity to ensure that at all times it is able to source the documentation needed. This documentation has always been accessed by the skills development providers (SDPs) are as it is mainly information related to the transactions that the SDP enters into with third parties in the delivery of skills development programmes that are delivered be it at a college level or through partnerships that the NSF has with national and provincial government departments and in some instances, municipalities.
Ms Mente-Nqweniso said she heard him; however, her question remained unanswered. If the scope of work becomes bigger, this meant more projects were added. She welcomed that this was mainly for TVET. The Committee is a big fan of education, but this does not exonerate anyone from doing the right thing and accounting for expenditure. It is very good to have infrastructure but if it costs more than what is expected, or people are spending money willy-nilly, it cannot be accepted. AGSA said that under its Skills Development, R2.5 billion could not be accounted for in the 2019/20 annual report. The same finding was made in 2018/19 for R2.4 billion. Further, AGSA says that of the 22 indicator targets NSF planned for Skills Development, 13 of the 22 had no evidence of the money being spent. Nothing could prove what NSF says it had done. This is a serious concern. She asked why there were no documents to prove that NSF had spent money.
Mr Macikama noted that there were areas where NSF and the AG could not agree on the sufficiency of the information provided. All of the evidence for expenditure incurred by NSF is available at NSF. Part of it is kept at NSF, specifically the invoices between the SDP and NSF in the manner provided in the Memorandum of Agreement (MOA). The evidence is then verified on a quarterly basis by NSF. This verification happens through the visit exercises before the project manager signs off on a quarterly report that is then processed by NSF – both financial and performance information for a particular project. Upon this verification, there is a triggering of either a payment or a non-payment and in other instances, it would be non-compliance of that particular SDP. Whenever non-compliance is found in the verification process, that particular SDP is meted with consequence management letters outlining the areas where the SDP has not complied with what was required in the MOA entered between the SDP and NSF.
No payment on the part of NSF has ever been made without this process: the SDP report received on the activities undertaken; this report verified by the project manager who undertakes a site visit. At the site visit, part of the work includes verification of invoices, particularly invoices that NSF has no direct control over as it is a contract between the SDP and a third party that works with them in the provision of the skills.
For the expenditure associated with Skills Development implementation in NSF, the quarterly monitoring reports are in place. However, it agreed on the point that it was unable to present some of the evidence required by AGSA only because this information had never before been collected by NSF to sit in the NSF offices. However, invoice verification exercises during previous AGSA audits at the point of the SDP have been undertaken and such invoices have been proven to be valid for the activities of skills development provision.
Ms Mente-Nqweniso disagreed, saying there were two defence mechanisms he had just indicated. One of these being there was a service provider level, being whoever was implementing a NSF project and that in this space it cannot be accountable for what happens. Secondly, he said that those who cannot produce proof for utilising the state's money has consequences meted against them. However, at the end he said NSF had found everything had conclusive evidence. AGSA, however, has a contrary belief. She asked which is correct.
The NSF CEO replied he was in agreement with the AG, however the reality was that the information at the time was not being collected because it dealt with a contract between, for example, a TVET college and a third party. He agreed that the AG had a right to this information. In the previous year, a lot of the TVET colleges were closed due to lockdown which hindered the access needed by NSF to verify the necessary documentation. There were time constraints in the ability of NSF to obtain all the necessary items. To avert this, NSF, through the TVET branch of the Department, requested permission letters for TVET principals and key employees be provided so there are present at the TVET colleges so NSF can access the records at a given time. This exercise alone, however, was not sufficient and it took some time to implement. Hence NSF had to ask AGSA to give it more time to provide the required information. The invoices that NSF relies on to effect payment have been effectively verified and this verification includes performance verification. The NSF on site verification is the only tool it uses to trigger any payment.
The Chairperson told the CEO that in 2018/19, NSF had findings on accruals, trade and other receivables, reliability of predetermined objectives; material misstatements in financial statements; and consequence management. All these were repeat findings. There was no lockdown in 2018/19. Time extensions were given to accommodate for lockdown, therefore no lockdown reasons were accepted.
Mr B Hadebe (ANC) said that the repeated response has been that all invoices have been verified. He asked for a detailed breakdown of the verification process for the R2.5 billion and where it is if such a process exists.
The NSF CEO replied he was not using lockdown as an excuse. The accruals, trade and other receivables matters were in the 2017/18 audit. The concerns relate to non-reporting by some SDPs, in particular the state owed companies (SOCs). A number of these were not reporting or were not reporting on time. These state owned enterprises have provided the certification of its learners and this has been provided. However, the non-reporting and lateness were due to the fact that SOEs often report after certification of learners which is only provided after NSF has paid.
The contracts AGSA looked at in 2019/20 are the same contracts entered into in 2017/18. This is because over 60% of its work is done with TVET colleges. The remaining work is with the 26 universities and the remaining 10% with SDPs. The TVET college contracts were entered into as Phase two of its engagements with TVET colleges in the roll-out of occupational programmes. Phase two started in 2017. When it went through the audit process, the documentation proving the existence of the training of young people was provided. The same documentation used in 2017/18 and 2016/17 for which NSF received unqualified audit reports was used in 2018/19.
The DG and he had tried to explain the difference in the Auditor-General's approach which the NSF picked up in the 2018/19 qualified audit. The AG indicated that going forward there would now be the requirement not only to have the SDP invoices it receives as proof for payment but also the underlying third-party source documents. These would now be required to be held on the premises of NSF. A NSF circular was then sent to SDPs indicating that the underlying documents were now needed to obtain an unqualified audit. It required the SDPs to put this information together. For example, learning delivery would include the learner attendance register normally kept by NSF, the list of assessors, facilitators and moderators; the employment contracts for the assessors, facilitators and moderators; payroll reports and human resource reports that indicate the fees paid to assessors, facilitators and moderators in respect of the learners funded by NSF; the assessment reports and the learner portfolio of evidence. These all need to be provided going forward and this information needed to be made available within two days when it is requested for audit purposes. This is because due to the volume of the information, NSF would not have the storage to keep it.
This would be applicable to all learners funded by NSF at a TVET college, university, learnership or apprenticeship. The underlying source documents NSF was not in the position to provide the AG at the NSF office. All the other documents NSF has always provided the AG in the past were in and remain in NSF office. The scope of verification the AG requires has changed and NSF needs to adhere to this new requirement. It was therefore important, given the capacity within NSF, to undertake a process of acquiring external service providers to assist it in providing the documentation required at any given point. This is how far NSF has reached in trying to meet the enhanced audit standards. It truly appreciates these standards and does not think there is anything wrong with the new approach adopted by the Office of the Auditor-General.
Mr B Hadebe (ANC) apologised for interrupting but he found what the Committee was hearing seriously concerning. He asked if the CEO was saying that in the past it received SDP invoices and processed payments and then later it sought the relevant source documentation. It now has R2.5 billion that cannot be verified because of its modus operandi of only relying on invoices, processing the invoices and later going to look for the proof that indeed what it has paid was delivered. This was seriously concerning, leaving aside the fact that in the past the AG accepted this. This is something that should have been done long ago. He found this process unacceptable even if in the past the AG saw this as normal. It does not sit well with the Committee in its oversight role over the public purse that NSF relies on invoices and only later verifies them.
It is from 2018/2019 and it still has not been verified. He asked how NSF does its project management. Mr Hadebe said he was the product of NSF skills transfer through a SETA. In all the courses he attended that were run professionally, the first day is dedicated to administration, where all documentation is signed before the training begins. Therefore he could not understand that in NSF what was seen as the norm is to verify only after the fact. What is clearly in evidence is that the R2.5 billion could not be verified and it could possibly not have taken place, though he was not saying this was the case. He asked how long it would take to verify this R2.5 billion.
The NSF CEO qualified that he had not said NSF pays without verification. The process at NSF is that on a quarterly basis, all the SDPs provide their quarterly reports. The quarterly reports are received by the project manager and are then processed at NSF. The next step of processing the quarterly report is the undertaking of a site visit to conduct what it calls 'invoice verification'. Where there is a claim/invoice that needs to be paid to the SDP, the underlying set of invoices claimed by the SDP, either charged to them by third parties or other payments they made, must be verified by NSF as project management, before payment.
The NSF standard operating procedure in the finance environment is no payment takes unless these processes have taken place. This is the main reason NSF has been found wanting in not making payments within 30 days. Through invoice verification, the project managers are able to pick up on items that are not related to the intervention being paid for by NSF. Such adjustments have to be made to the invoice and signed by the SDP, the project manager and then verified by the project director at NSF for it to be paid. This is the process that has been followed at all times.
The AG has every right to now require that the originating source documents have to be presented at NSF offices, despite the fact that in previous audits NSF would undertake invoice verification at the SDP premises together with the AG. When this was not happening during 2019/20, it was understood by NSF, that although the AG had every right to do so, this did not negate the fact that NSF does have invoices that have been verified that indicate what training work has happened at the different SDPs and TVET colleges for which NSF has paid.
He acknowledged that a number of gaps had been picked up in its monitoring processes. Many of these gaps are directly linked to the capacity constraints NSF has. It relies a lot on working with partners governed by the same PFMA, including the TVET colleges, SOCs and government departments. A practice note exists between NSF and National Treasury which guides institutions receiving NSF funding how they have to account for it.
Ms Mente-Nqweniso asked if the AG rejected the readily-available invoices showing how NSF spent the R2.5 billion.
The NSF CEO replied that the AG did not refuse these but said that it was insufficient evidence. What the AG required is the original source documents, including any work undertaken by the third party such as where goods and services are procured for a third party. Goods include stationery, equipment and personal protective equipment (PPE), especially in the artisanal world, the SDP needs to purchase PPE and medical insurance costs which NSF has to purchase. When TVET colleges purchase items for their students, they do not always do this for NSF-only funded students but for students receiving funding from other sources, including those that are funded through the fiscus. These students may be scattered across different campuses of colleges and SDPs. Similarly, the assessment and moderation of the work done by all these learners is not done only for NSF. Therefore, in the past this would be verified for the NSF learner through a direct engagement at the SDP premises as it would not be able to request a TVET college or SDP to give a specific invoice of the stationery, consumables or equipment specifically purchased and invoiced directly for the NSF project. Other elements include contracts and service level agreements between the SDP and a third party supplier.
NSF's understanding, which has been carried out in the past, is that these documents would sit at the SDP premises. Through the invoice verification exercise that NSF undertakes, these would be accessed by AGSA when the visit is undertaken from a selection of SDPs that the AG would want to see. Thus, the AG did not say that the information was immaterial, but that it was insufficient since NSF did not have this further detail. For example, one of the SDPs that had 1000 learners, which fortunately happened near the NSF Gauteng headquarters, in order to provide the high level of detail on the learner portfolio of evidence for this one project, needed to hire a truck and then hire a room within the building to bring the whole set of evidence which was placed in the room and was full of all the files. This was one project for 970 learners. This is the sort of evidence which at all times previously would be accessed at the SDP premises. He was not saying that this information is not supposed to be accessed. It is agreed that evidence to prove the occurrence of an expenditure has to be accessed.
Ms Mente-Nqweniso said that NSF was now agreeing that the information should have been there. The Committee needs a list from NSF giving it all 13 indicators where their information could not be found. This exercise would be so that the Committee could see when a project happened, who was responsible for it and what happens when the SDP is not bringing forward the necessary information. She asked whose failure it was that 13 areas totalling R2.5 billion were not accounted for. She was not convinced that this information has been verified and therefore the AG said that it needed more. She asked whose failure it was now that NSF had dropped the ball.
The NSF CEO replied that the signals in 2018/19 for the new approach going forward was that documentary evidence should now be at the NSF premises rather than verified at the SDP premises. This triggered a response by NSF as there were a lot of items which needed to be looked into, such as storage for the documentation coming into the building, as well as capacity at NSF for collating the documentary evidence which should be kept on NSF premises. To this effect, it sought to procure external service providers whilst NSF beefs up its own internal capacity. The Committee would note that there is efficient use of funds for NSF administration as it is currently under 4% of the 10% allowable. This gives a false indication of capacity. This is indicative that current capacity is not at the scale to enable it to undertake the work needed to access all the documentation from all the entities it works with. Though the documentation is present, it needed a new process, which means that the information needs to be accessed at the NSF premises.
Ms Mente-Nqweniso asked if AGSA was present as the explanation seems to have changed to be that AGSA wanted the information to be at NSF offices and not as it used to be. She asked if AGSA could confirm if it undertook SDP site visits and found the documentation on site or they did not find the required documents to prove that money was disbursed and that it was utilised according to the PFMA.
Ms Kgabo Kompape , AGSA Business Executive, replied that AGSA does not expect the documents to be present at NSF. It understands that this is not practically possible. It did go on NSF project visits, similar to what it did in the previous year. It highlighted for management what did not work. As part of closing the matter for this year, it said to management that for the project to work effectively, there should be an NSF representative in all instances that can take responsibility for the documents that are required. AGSA goes to SDP sites and it does not expect all the documents to be stored within NSF premises. All it is saying is that it is NSF's responsibility to ensure that the source documents can be produced when AGSA comes to audit the sites so that it can verify that the learning had taken place; and it cannot be just an invoice indicating that the money had been paid.
Ms Mente-Nqweniso said that someone at NSF, which the CEO should take responsibility for, did not do what they were supposed to do. AGSA has now confirmed that nothing has changed in its auditing standards. What changed is NSF, where the documents to prove that the money was utilised are not being produced – it meant they did not do their work. This leaves the Committee with a suspicion. If there are no source invoices to prove that money was spent in accordance with the law, there is an element of corruption that could be identified and which could lead to serious mismanagement of funds. AGSA did not change its auditing standards. It means that when AGSA visited the particular sites, the information was not there. She asked who was misleading whom. Who did not do what they were supposed to do in order for AGSA to find all the information that would lead to them being able to express an audit opinion? Who dropped the ball?
The NSF CEO replied that, as AGSA had said, there were inefficiencies in the process of AGSA visiting the projects. Hence, NSF had a discussion with AGSA and agreed on the way forward to gain maximum benefits for NSF and AGSA when site visits are undertaken. AGSA officials did go to some of the projects but at those visits, there was no one from NSF and this meant that AGSA officials faced challenges. What was an anomaly was that AGSA attended without the support of NSF. He agreed that these inefficiencies led to some AGSA expectations not being met.
The NSF thus undertook the exercise as required by AGSA of bringing the documents to its office. It hired a truck and brought the documents for AGSA to go through the documentation and to garner the proof required to deliver an opinion on the particular project that it required information on. To the extent that it was able to provide this information, as some of the AGSA-identified projects happened to be in Gauteng, NSF went out of its way to ensure that it incurs this additional cost to fetch the files and to return the files to the SDPs. The files need to be returned to the SDPs because all the original files have to be accessed by the quality assurers that eventually do the certification of the learners.
Ms Mente-Nqweniso drew the Chairperson's attention to the fact that everything the Committee asked receives a new answer. It was unfortunate that the Committee was not meeting in a physical meeting where probing is much better than via screen. AGSA could not form an opinion as it could not get conclusive evidence on how the money was spent within NSF. The Committee needed to get an investigation of NSF. She hoped the Minister was still present on the platform as she felt the responses left a bitter taste in her mouth. She could not continue to ask about the project approvals which were not done as required as this would be shifted by the NSF reasoning that it is a project that took place somewhere and those documents were insufficient for AGSA but, according to NSF, it did it correctly. This goes to improper record-keeping and was the root cause for AGSA not to express an opinion. The NSF answers are not to the satisfaction of the Committee. She was not satisfied. If NSF said that it had done the work and submitted all the documents by 19 April 2020 for internal audit but AGSA has said that it could not work with the financials, the Minister and DG need to institute an investigation as she was suspicious of potential corruption or a worse scenario that the projects did not exist at all. She rested her case.
Ms N Tolashe (ANC) wanted to raise a concern before she asks questions. She had heard the Minister's opening remarks and she appreciated them. Although she appreciated the remarks, they gave her a lot of goose bumps in that she wondered if what the Committee was doing today would bring it anywhere, having heard the Minister and experiencing the interaction between the entity and Ms Mente-Nqweniso. The Committee may ask questions and engage; however, she was not sure that it would make a breakthrough. SCOPA needs to interact with the Portfolio Committee overseeing NSF. She foresaw that SCOPA was dealing with a matter that it would not be able to resolve. She was convinced of the work done by AGSA, but she was worried that the very people who are supposed to own up for the audit outcome insofar as their responsibility is concerned, are beginning to be everywhere else. She heard the Minister say that he interacted with different stakeholders working directly with the entity. She wanted to hear from him if he spoke to the students who are recipients of NSF funding. There were young women who were students exposed to gender-based violence (GBV) because of the leadership here that does not have a plan to correct what has happening and not demonstrating any capability to take NSF forward. She humbly requested a more serious process be considered so that it can get to the crux of what is going on as it appears to be a bigger problem than what it can see in front of it. The Committee hears serious inconsistencies in the responses received from the CEO. It heard from the Minister that he was not aware but now he realised there are problems. They wanted to hear from the Minister what the President is expecting of ministers in dealing with fruitless and wasteful expenditure and horrible audit reports.
She asked if the President looks at this insofar as the Minister's performance and has anything to say on this matter. She raised this matter because the President has committed himself to fight corruption. If this was not corruption, she did not know what it was since the officials cannot account for taxpayer money that has been spent, not in one financial year, but in more than one. The Committee cannot sit, fold its arms and pray in hopes that something is going to happen.
The Committee can punch holes in the responses given by officials, but this was not enough for her. The Minister should commit to do something that the AG herself cannot do by making sure that within 30 days, the Minister brings in forensic reporting to get to the bottom of the matter and fix the machinery. Whilst the CEO speaks in parables, he confirms that there is a more serious matter than the Committee can see. The audit process is a long process. She did not know how people have the audacity to deny the AG report. The only thing the Committee needs is to know where and by whom. If the CEO gives these kinds of responses, what of lower officials? She asked that the Chairperson ask the Minister to have a forensic intervention. She did not think the Committee was going to get anywhere as she did not want it to be like a Fees Must Fall situation that happens year after year. She wanted to know what the Minister was going to do.
Mr S Somyo (ANC) said he felt that Ms Tolashe had taken the words out of his mouth on the appalling state of NSF and to give the Minister a timeline for a thorough audit which would report back to the Committee in 30 days on a total review of the institution. Going on with questioning may cause confusion. He asked that the Minister take action so the Committee receives responses within 30 days.
Ms Mente-Nqweniso wanted to remind the Minister of her earlier question about what consequences he has in place and which prompted his earlier intervention. In addition to the proposed 30 days for the forensic investigation to be instituted by the Minister, she wanted to check with the Chairperson what the chances of involving the SIU in this matter were so that it can kick-start its process. Lastly, since there is an indication from the CEO that documents have now been found, she asked what the stand of AGSA was on these documents that have resurfaced and what AGSA was requiring out of them. She asked what AGSA can now do to check what is happening at NSF and if there was a possibility for it to implement a similar process as it did with the PPE issue and conduct a real-time audit of NSF and that the proper beneficiaries are getting what is due to them
The Chairperson said that the Committee is wholly unsatisfied with the responses, which is why the Members are making contributions so early into the hearing. The Committee proposed that a full-scale forensic investigation into all NSF for the last three years. Further, for the Minister to provide a roadmap with the urgency it deserves within 30 days on the process and structure of a forensic investigation, including its potential collaboration with the SIU.
The Chairperson explained that he was telling the Minister that the responses were not satisfactory, the audit outcomes were not satisfactory and there was massive regression in the form of an adverse audit opinion with a long list of findings. NSF state of affairs is one of serious concern and speaks to a collapse of systems and governance. The instability of leadership, particularly at CFO level, draws the Committee's attention. He would have wanted to go into this further, but his colleagues had circumvented the hearing correctly. The DG and the CEO have been there for 10 years so they will be good [inaudible 44:20]. The Committee would make a determination as to how long it would give the investigation once it receives a roadmap. He welcomed the Deputy Minister who had joined during the hearing.
The Minister began with Ms Mente-Nqweniso’s question as to whom he holds responsible. From his own standpoint he holds the DG to account as the accounting authority of NSF in terms of consequence management. There is something he did not raise at the beginning; but he did not want to start the meeting from scratch. However, it had been of concern to him since his earliest time as Minister of Higher Education about NSF. This is a matter which he was still determined to address. He thought that SCOPA would want to take note that the Skills Development Act does not sit well with the PFMA and Public Service Act. This is because the DG, in terms of the Skills Development Act is the accounting authority of NSF and at the same time the DG is the accounting officer of the DHET, to which NSF should be reporting. One has the same person performing two different roles as accounting authority of NSF and accounting officer to the Department where NSF reports. This is a hugely anomaly because it is like the same person reporting to himself. The law, therefore, is one thing that will need to be addressed. This does not depart from the fact that the DG is the accounting authority and as the Chairperson said, he must hold the DG responsible and accountable on this score. However, he thought it best to wait to hear SCOPA's contributions before continuing his talks with legal advisers. He hoped this answered Ms Mente-Nqweniso’s question.
The Minister said he considers this audit disclaimer in a serious light. What he has been doing, apart from the requested review of NSF 20 months ago, included seeking legal advice four weeks ago. He wanted to clarify to Ms Tolashe that he had not been interacting with the stakeholders of NSF. The review process will inevitably have to interact with NSF stakeholders as part of looking at the operating model of NSF. He hoped that it would include a sample of the projects that they might want to look at in depth but not from a forensic point of view but in view of accountability, functionality and so on. He did not think the review was in contradiction to a forensic review as the review has a very specific task. He accepts the Committee’s proposals and time period. He would have to apply his mind to the matter and return to let it know what he decides and what he still needed to do.
The Chairperson said the matter of the DG being the accounting officer for both DHET and NSF was at the top of his mind in preparing for the meeting. He said that the Committee may need to bring in National Treasury. He accepted that the Minister would respond in 30 days.
Mr Hadebe asked for more information about the conflict in the role of the DG.
The Chairperson asked the Minister to speak to the matter but to please provide a write up.
The Minister said that he was able to provide a brief, maybe with the necessary legalese that he does not have. However, the crux of the matter was that as accounting officer for NSF, functioning as a board, the DG of the DHET would essentially be accounting to himself.
Mr Hadebe said he understood but that the Committee needed a deeper analysis and a sense of the quagmire that is posed by this arrangement and a legal opinion will assist in determining how it ought to move forward in resolving such an arrangement legally and in compliance with legislation.
The Chairperson asked the Committee Secretary to ask for its own legal advice and this would be consolidated with what the Minister provides and with the forensic investigation outcomes so that it can make an informed decision on whatever legislative changes are required if any based on a concrete assessment. He asked the Minister to include the summary on the legal situation in the submission he makes in 30 days. The Committee would put this together with what it receives from its own legal advisers.
He thanked Members for their attendance and the meeting stood adjourned.
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