DHET, NSFAS, SAQA, CHE, QCTO 2020/21 Audits & Annual Reports, with Deputy Minister

Meeting report

The Chairperson welcomed Deputy Minister Buti Manamela.

DHET 2020/21 Audit outcomes: Auditor-General SA briefing
Ms Kgapo Komape, AGSA Business Unit Manager, briefed them on the three categories of the sector: TVET colleges and Universities, but the AG does not audit the universities. The presentation covered the audit outcomes of the Department and its entities and most importantly recommendations for those entities that regressed. The key recommendations by AGSA to the Minister and Portfolio Committee were highlighted and the root causes for the findings. There were recommendations for which the Auditor-General would appreciate the Committee’s support.

Discussion
Ms C King (DA) noted that 8 out of the 21 SETAs had clean audits – unqualified audit opinions without findings. Services Seta received a qualified audit opinion again, which is very alarming. It was a concern that some SETAs were not adhering to legislation, were non-compliant with supply chain management (SCM) procedures, financial performance lacked credibility and there was poor contract management. Had DHET raised any red flags about the regression of some SETAs? The Energy and Water Seta purchased PPE at inflated prices which was not in line with Treasury guidelines. Why did the PPE procurement raise concern? The Minister had ensured that the NSFAS Administrator had a salary increase without approval from the Minister of Finance. How will this have a bearing on finances if legislation was not adhered to? As NSFAS has not yet complied with legislation as the Act was not even changed to be in line with fee-free higher education; what implications will this have on the NSFAS audit outcome in the long term?

Mr T Lestie (ANC) said on 10 February 2021, the Committee had a meeting with AGSA, the Minister and NSFAS 2019/20 audit outcomes due to late submission late in 2020. At that meeting the AG highlighted the top five qualifications areas were contingent liabilities, irregular expenditure, prior period errors, amounts owing by institutions and prepayments to institutions. Do these now reappear as some of the matters raised were repeats. On performance reporting, the AG indicated that the reliability of NSFAS information regressed from 86% in 2018/19 to 36% in 2019/20 as did the usefulness of performance indicators and targets. What is the picture looking like on performance for 2020/21. Are there also repeat occurrences?
           
In that meeting, NSFAS had cash reserves of just under R6 billion, which had increased from R3 billion the previous year. What is the current status of the NSFAS reserves?

On National Skills Fund, the AG said that NSF did not provide supporting documents as requested by the AG. Subsequently, NSF received a disclaimer. Why were the supporting documents needed not submitted? Is the AG confident about the people in NSF to steer it in the right direction? Is the NSF CEO still suspended?

The Committee may need to visit the NSF and the TVET college that failed to submit documents for the audit. TVET infrastructure assets were used to cover PPE; perhaps people were misusing college assets. The Committee should look into instituting a forensic investigation in that institution.

Ms D Christians (DA) noted the AG report stated that the TVET college infrastructure assets have not been completely recorded and this is a reoccurring finding. Historically TVET colleges have been battling with infrastructure and it is concerning that they have not managed to get the recording of the infrastructure assets under control. What are the AG recommendations for implementation of controls? We need to ascertain if the AG recommendations were implemented.

Secondly, he pointed to the irregular expenditure in the TVET sector – the Gert Sibande TVET and South Cape TVET Colleges had huge irregular expenditure. What are the AG recommendations to monitor and control that and see to it that consequence management is implemented?

NSFAS has non-compliance in a number of areas and a particular concern is remuneration and fees paid to advisors without the approval of the Minister. How is this going to be controlled?

One can see that there is inadequate consequence management in TVET colleges and at NSFAS. DHET must address the Committee on its assistance to implement preventative controls. Some TVET colleges have not handed in their audit reports on time and they will benefit from monitoring by the Department.

Ms J Mananiso (ANC) agreed about oversight visits to DHET entities that did not comply and submitting their documents late. We need to check that the AG is assisting to ensure these institutions and entities comply. We cannot continue to be told they are not complying.

Ms D Mahlatsi (ANC) said the R35.7 billion irregular expenditure is alarming. The R33 billion of this comes from NSFAS and was incurred primarily due to non-compliance as it was unable to get prior approval from Treasury. Could the Department not have taken adequate steps to mitigate this irregular expenditure?

On fruitless and wasteful expenditure, a large chunk is due to penalties and interest. From where do the penalties and interest emanate? R10.7 million comes from the prior years. Did DHET not have an audit action plan to recover these amounts from previous financial years. In unable to recover this, what was the explanation of DHET on this fruitless expenditure?

Ms Mahlatsi said that most of the qualifications are due to misstatements in the financial statements which indicates limited financial management capacity in these institutions. 90% of the DHET budget goes to entities through transfers and subsidies, clearly indicating that DHET is sitting with the problem of concurrent functions in controlling how these institutions utilise these finances. We must seek advice from the AG on the concurrent functions challenge as DHET has to account for the budget but is extremely reliant on these entities it transfers money to. How do we tighten this?

Ms Mahlatsi referred to risk management in mitigating potential irregular and fruitless and wasteful expenditure. How do we ensure that the challenges are detected and not repeated? One is not pleased with the progress of TVET colleges so far on SCM and financial management. How best can we ensure that we build capacity in institutions to be able to account properly?

Responses
Ms Komape replied about the NSFAS qualification areas reported for 2019/20 and said it was not qualified on the same issues in 2020/21, which means it was able to fix those. It put the necessary actions in place to move NSFAS from a qualified audit report to unqualified.

NSFAS is still experiencing challenges in performance information which is mainly due to it not monitoring its audit action plan more robustly. Management has not paid sufficient attention to refining the usefulness of the performance indicators. The standard operating procedures need to be implemented to collect information to make performance reporting reliable.

Cash reserves this year are around R12 billion which means a healthy cash reserve position.

The Minister had approved the allowances and remuneration increase for the previous administrator but had omitted to forward that approval to the Minister of Finance. The audit team picked this up, which resulted in the non-compliance.

There are a couple of compliance findings on irregular expenditure but it is prior-year legacy non-compliance. For 2020/21 NSFAS investigated that irregular expenditure and made full disclosure of it which it had not done so in the prior year. The qualification disappeared on irregular expenditure for 2020/21 because there was full disclosure of it. The payments to the Administrator were included as well as overpayments of allowances or funds to students which was a legacy issue
that was addressed this year.

Ms Michele Magerman, AGSA Deputy Business Unit Leader, replied that E&W SETA paid inflated prices for PPE which was above the limit of the Treasury price list. For example, surgical gloves were R1.56 whereas the guide was R0.46. There was a glaring difference.

As for the NSF executive officer, he was there for the year under review but the audit was finalised without him present as he had already been suspended by that time. It is important to ensure that the expenditure for learning is followed through to ensure that learning activities did take place by seeking proof of attendance register and payment of stipends to the correct recipients. The audit team did not get that information from NSF from documentation required for the team to be confident that learning activities did take place.

For TVETs, recommendations were given to ensure the underlying schedules agree with the financial statements. That is where they are failing in the preparation of the financial statements. One of the key recommendations was that daily controls are implemented. It is critical that college management enforce those controls. These recommendations were provided and there should be audit action plans to improve their audit outcomes.

Ms Komape commented on penalties and what the AG can do to ensure that there is timely submission of financial statements. The law is clear that the AG cannot be both referee and player, so the AG cannot impose penalties. It would report it on the audit report so that the Portfolio Committee is able to facilitate accountability on the people responsible for financial statements being done correctly and on time.

Deputy Minister remarks on DHET 2020/21 Annual Report       
Mr Buti Manamela, Deputy Minister of Higher Education and Training, said the sector has been affected greatly at all functional levels by the Covid-19 pandemic and we had to assess all functions. Most of the functions had to endure budget cuts, which occurred across all departments and entities and agencies. DHET worked with Higher Health to provide appropriate support and advice to ensure effective management on the impact of the pandemic within the sector to save lives and the academic year.

Key developments included the Economic Reconstruction and Recovery Plan (ERRP) to respond to the impact of Covid-19 on the economy. DHET developed a Skills Strategy to ensure that occupational shortages and skills gap are not a constraint to its implementation and the Minister presented the Strategy to Cabinet. It has gone through a wide consultation process including Nedlac, SETAs and University South Africa.

The second is the establishment of the two new universities and a high level plan has been set up for the feasibility study for the construction of two new higher education institutions for science and innovation in Ekurhuleni and for crime prevention in Hammanskraal. A project manager has been appointed to manage the feasibility study, including assembling a team of specialists. The steering committee has also been established to oversee this work and meets monthly.

The third area is the student accommodation infrastructure programme underway which seeks to address the shortfall in the number of student beds in all provinces. The first phase of this progress saw 1800 beds procured by VUT, 200 beds at NUM and 11400 beds in a student village on the University of Fort Hare Alice Campus in 2020. Currently, there are developments for 8 000 beds at the North West University; others include SMU, UWC and King Hintsa College. About 3 500 beds at University of Zululand are underway and 500 beds at the University of Limpopo. It involves a R3.5 billion investment with R1.6 billion debt funded by DBSA to attract more funding. Phase Two feasibility studies have been completed for 9 500 student beds in TVET colleges and at UKZN. This will enable an investment of about R3 billion. There are feasibility studies at the final stages for 15 000 beds in various TVET Colleges and other universities. Phase Two constitutes about 24 000 beds and a R7.2 billion investment. This could create about 4 000 job opportunities. The demand analysis for procurement of the remaining 34 000 beds is currently at the data gathering stage. A breakdown per institution will be available on completion of the demand analysis.

The fourth area is the regional multi-purpose centres, which are focusing on skilling our communities through education and training and innovation and science. This was done through the development of the Imbali Innovation Precinct which continued throughout 2020.

The fifth area is the TVET college sector where DHET is collaborating with State Information Technology Agency (SITA) and Umalusi to eradicate the certification backlog. Significant progress has been made on this and 95% clearance has been achieved and the certificates have been issued. We have also targeted lecturer development as a key intervention in this sector where 190 lecturers have already graduated in December 2020.

The implementation of the College Infrastructure Efficiency Grant is progressing and 60% of the 10 campuses were now occupied by the beneficiary colleges.

DHET was also reconstructing Engineering programmes to make them more responsive to the changing environment and align them with the standards of professional bodies.

The university sector continues to improve as outputs have increased at a substantially high rate. Graduations at public universities have grown at an annual growth of 4.2% in the past five years to 2019. DHET is monitoring the 2021 academic year and a new monitoring tool has been developed and directions have been pushed to support universities in the context of the pandemic. The Minister established a task team to look into an urgent policy review of the student funding policy, which also affects the TVET sector. Work is underway on this. The Ministerial Task Team was established by the Minister in May 2020 to determine the root causes of the problems with the rollout of the "student centred" model. NSFAS submitted its report in February 2021 and we are considering the recommendations for future business processes and systems, policies and the capacity necessary to assist the Scheme.

There are a few developments in the CET sector and funding has been secured to develop a sustainable funding model for CET colleges. The work will commence in 2021/22 and it is envisaged to be completed by 2022/23. DHET is also working with the QCTO.

DHET 2020/21 Annual Report
Mr Reineth Mgiba, DHET Acting Chief Director, Policy, Planning Monitoring and Evaluation, outlined the progress on key priorities; achievement highlights; programme performance against annual targets; and financial performance (see document).

Discussion
The Chairperson noted the Deputy Minister's comment that funding has been secured for the CET programme. We can all agree that the CET programme was not achieving its mandate and there are areas where we feel that something could have been done. It remains unclear what the challenges are in ensuring that targets were achieved. We need to obtain clarity on the root causes for the lack of achieving the targets.

We want to increase our internationalisation targets but there is a great concern about the lived realities of our students who are abroad. There must be coordination with other departments who send students to study abroad. We need to ensure that those students are safe where they are.

The Chairperson asked for a status update on the Imbali Education and Innovation Precinct project. In 2019/20, DHET started targeting lower because the figures were not being achieved. This may also speak to funding – but as we target lower, the numbers get higher. This speaks directly to planning which should be looked into.

Ms King noted 65 of the 91 targets were achieved and it was a slight regression from 2019/20. Some of the targets were too high and were not achievable. Has the DG considered streamlining some of the targets as this raises questions about planning and internal capacity? The NQF Amendment Bill was assented to by the President but it has not been proclaimed. What are the reasons for this?

The NSFAS Act has not been amended to incorporate fee-free higher education. What progress has been made by DHET on this? What are the main findings and recommendations of that report and will it be made available to the Committee? At the beginning of the year there was a R7 billion shortfall at NSFAS. Are there mechanisms or interventions to avoid shortfalls in the future? In July the Minister announced the appointment of another ministerial task team on UNISA. Will this report be made available to the Committee and what were the findings of that task team?

The Minister also told us that DHET was profiling the data on student debt to ascertain the "missing middle". Has this been completed and will it be made available to the Committee?

Mr Letsie said that the Portfolio Committee was presiding over 100 entities and over billions of rands of taxpayers’ money. The Deputy Minister indicated that funding has been secured for CET so how much is allocated for the 2022 MTEF period? The presentation stated that enrolment was planned based on the reserves of the colleges, which was not guaranteed and sustainable and as result the reserves have been depleted. We must plan much better in future.

How do you plan on developing systems to avoid bad audit outcomes? What is the consequence management for Coastal TVET College missing the deadline for submitting its financial statements for audit?

What is DHET doing to hold the accounting officer and management accountable for NSF? There is also a finding about Generally Recognised Accounting Practice (GRAP) on Property, Plant and. Equipment – what is DHET doing to correct this finding? There are allegations across the country where municipalities have failed managing property, plant and equipment and with some buildings given to former officials of municipalities. The AG said that there was also a lack of internal capacity – is this something that will be addressed?

Almost 90% of TVET colleges had findings on non-compliance with legislation – all them were repeat offenders and clearly nothing is being done about it. Clean audits in universities have declined but more and more universities are submitting AFS without any findings, which is commendable.

When the Committee has time, it should consider visiting the University of Fort Hare because Members were not pleased with the performance of the institution.

Ms Mananiso commented on the irregular expenditure saying this is an important matter. We need to get a report as the Committee needs specifics on a case by case basis on how DHET is addressing the irregular expenditure. The entities should also submit this information.

Ms Sibiya said slide 31 was unclear about Covid-19 delays. Does this mean we are still waiting for those cases to be finalised? How long must we wait for the faulty information management system to be fixed so that work can get going? What are the timelines for addressing the reasons certain targets were not met?

Ms Mahlatsi said that the presentation speaks about vacancy rate reduction. However, 136 days was not enough because the regulations state it should take 90 days or less to fill vacant posts. What is the plan to ensure DHET sticks to 90 days. Has Covid-19 affected the DHET vacancy rate given that there was a voluntary retirement process underway?

DHET obtained an unqualified audit opinion but its entities failed to do so. What is the Department's view on this?

As for the targets, the process of developing targets is strategic. There was an indication that DHET could not achieve them because the planning was not done properly. Where does that leave DHET in strengthening planning to ensure targets are achieved? She was not pleased with the response in the presentation.

There is a significant misalignment between the budget and the enrolments at TVET colleges. How does DHET intend to deal with this misalignment?

One is encouraged to see the increase in graduations, but the ability to ensure that this growth continues to increase is primarily reliant on the capacity of DHET to provide support to students.

As for consequence management, the AG report says that DHET is not doing enough about consequence management.

When looking at consequence management, internal audit and risk management – is there sufficient capacity? Why do we have challenges with the audit function and what is DHET planning to do to increase its capacity? The fact that 90% of DHET budget goes to entities does not exonerate DHET from taking responsibility and accountability for what we see. There are misstatements in the AFS and these are indicative of capacity constraints in entities. We need to be told if the internal audit function is outsourced. If outsourced, this means that DHET is paying for nothing as the objective is to build capacity internally.

The Chairperson asked what for the reflection of DHET on Continuous Assessment (CASS). What is the make-up of the certificates and what is the update on the certificates? There are five new subjects in TVET colleges – how far is the branch in adding more as previously indicated?

On the CET targets (slide 56), this is not acceptable and what informs us having particular targets if there are no resources to support those targets? When is the vacancy for the University programme DDG going to be filled? The Committee has recommended that DHET has ongoing conversations with Treasury on the budget.

As for NSF, are there conversations on who may govern that particular space?

The Chairperson indicated that some of the questions may be responded to in writing.

DHET response
Ms Pretty Makakule, Chief Financial Officer: DHET said that the CET allocation on average over the MTEF is about R2.5 billion. It is evident that this budget is too small in supporting the sector in the manner that it needs to be supported. In the new MTEF we have presented some of the cost pressures and some of these DHET may not be able to absorb but we continue to support the sector through trade-offs of programmes.

Over the MTEF we have re-allocated over R150 million to support the sector in compliance with Covid-19 regulations and cleaning services. There were also donor programmes where we were able to secure funding to support some of the programmes the sector is embarking on.

On virements on page 185 of the Annual Report – the reprioritisation of funding – on 10 March, Cabinet approved reprioritisation of the NSFAS shortfall and during those discussions it was acknowledged that the quickest way to do this was for DHET to do internal reprioritisation. However, at that time we were already experiencing budgetary delays

DHET does have deviations during the year that were approved by Treasury and it looks at each case on its own merit. DHET provides all relevant information and correspondence to assist Treasury to make a decision to accept or reject. Lastly, the legal fees were procured on an urgent basis and that would not have required approval from National Treasury.

On the DHET R10.7 million irregular expenditure, if one looks at the previous cases where the biggest balance was carried, six out of the eight cases were taken through disciplinary hearings and there were also dismissals.

Mr Zukile Mvalo, DDG: Skills Development, DHET, agreed that more work needed to be done on the SETAs. Normally, what DHET does is convene a special session post the audit outcomes with the SETAs, especially those who had challenges. In those engagements, we invite the AG to make presentations, which assist in assurance levels on the work that must be done.

On the NSF, the Committee would have an opportunity on the 17 November to interact with the NSF. The Committee may also be aware that there is an ongoing forensic investigation at the National Skills Fund

On CET funding, we know that our centres have infrastructure challenges. We are transferring some funding to the TVET colleges to take care of its infrastructure. For 2020 financial year, nine of the CET colleges achieved unqualified audit opinion and the two that had findings were being assisted by DHET. We have developed an advocacy strategy, which has been approved by the DDG. We have also developed marketing strategies.

On the training of the lecturers, in the previous year we did not achieve much due to Covid-19 regulations. However, in the first and second quarter of this year, things started going as planned and outlined in the Annual Performance Plan.

Mr Sam Zungu, DDG: TVET Colleges at DHET, replied to the questions on TVET colleges. DHET was aware of the poor performance of some colleges and it has put measures in place to circumvent those challenges. DHET will provide a detailed response in writing on some of the questions about TVET colleges.

As for the certification backlog, significant progress has been made and the Unit was approaching Day-Zero with currently 95% clearance of certificates.

Ms Nolwazi Gasa, DDG on Planning: DHET, commented that the extent to which we do not lose sight of the vision going forward, she had learnt to communicate with the DG and the Minister but it is not our intention to regress on the targets that were set. Part of the challenge is the extent of the resources and the targets set. There have been issues around vacancies and the vacancy rate but it will be addressed going forward. On concurrent functions, the commitment that we have is to ensure that with the entities there is an expression of the message of holding the entities accountable to an extent that penalties would be enforced.

Ms Gasa said she would provide a report on the Imbali initiative – we see this project as part of our focus on having regional multi-purposes centres.

Mr Sishi requested the remaining questions be responded to in writing due to time constraints.

NSFAS Board Chairperson remarks
Mr Ernest Khosa, NSFAS Board Chairman, said that when the board’s term of office started at the beginning of the year, NSFAS had a plethora of challenges. The first was the scathing audit findings of the AG, which were still hovering over the board and management to this day. Secondly, very importantly was the uncertainty of the availability of funds for students. Thirdly, it was unhappiness amongst stakeholders and the whistle-blower activities that had reached the Committee. The board arrived to find the most unfavourable circumstances.

When the board took office it was amid the AG’s conclusion of the audit, which was completed later than the statutory timeline as a result of financial statements being submitted late and an extended dispute between the AG and NSFAS. Further, the there was the existence of material irregularities as established by the AG. This was also at the time when there was funding shortfall, which led to student protests. We have taken on an insurmountable task but due to our resolve and commitment to serve, the task was taken up.

The board conducted an assessment of the entity and identified key issues that needed attention such as the organisational structure that is not responsive to the student centred model and was not aligned to the change from a loan scheme to a bursary scheme; a weak financial control environment that ultimately culminated in a negative audit outcome; a weak planning and performance management mechanism leading to low achievement of performance targets; and the student funding criteria also needed some improvement and enhancement – the organisation’s administration budget is not sufficient to support the number of funded beneficiaries and put in place adequate systems and controls to administer the funds entrusted to the entity.

These issues have made it difficult for the board to put in place interventions in a timely manner. These limitations led to launching an improvement project and initiating the following interventions such as aligning the operational model to the organisational structure, which included the review of all operational policies and it will be concluded before the yearend; system improvements were initiated and implemented despite budget constraints as a result NSFAS was now able to make some real time decisions for 66% of student funding applications, which are SASSA beneficiaries – for the balance of the applicants, it does not take longer than five days to get a response; engaging third parties to improve the turnaround times; improved disbursement model including the student disbursement calculator model; implemented a robust audit improvement plan and improved basic financial management; and reviewed the APP and Strategic Plan. While it was late for the intervention to take effect in 2020/21, in the next reporting cycle there will be improvements.

Improvements have been proposed for student funding criteria and the proposed funding policy and criteria were shared with the Minister. Many of the changes, to the extent that they do not have significant funding implications have been incorporated in the 2022 draft funding guidelines that are currently being consulted with stakeholders. The aim is to ensure that these are issued and finalised before the start of the academic year after a wide consultation with stakeholders.

As for the funding shortfall, the board is working closely with the shareholder to ensure that the matter is addressed and concluded before the start of the academic year. The board was also engaging the shareholder on the administration budget.

For the complaints from whistleblowers, which found their way to the Committee, the board has appointed reviewers to look into these issues. We have structured this review exercise so that there is consequence management. Lastly, we are not saying that the organisation is in perfect health but we are trying to turn things around but it is a titanic task.

The Board was pleased to present an Annual Report that reflects an unqualified audit opinion – an opinion that NSFAS was unable to acquire for the past few years. The board has already started an audit action plan.

National Student Financial Aid Scheme 2020/21 Annual Report
Mr Andile Nongogo, Chief Executive Officer: NSFAS, said that the Scheme was previously a loan scheme and in 2015 it was changed to a bursary scheme. This has brought up a number of issues including the high demand of potential students in need of funding, which in turn has brought its own budgetary constraints and it has led to some delays on availing funding.

NSFAS has managed to obtain an unqualified audit opinion and we were assisted by external service providers but in the long term we are looking at building internal capacity. The appointment of the Board has increased the entity’s resolve. We have ensured that we implement internal controls, hence we managed to obtain the audit opinion we received. There were issues pertaining to the extended academic period as a result of Covid-19. The Ministerial Task has submitted its recommendations to NSFAS and most of the issues raised by the Task Team were already being addressed and implemented by the Board.

As for the audit outcome, NSFAS received an unqualified audit opinion but there were some findings. It is important to note that this was done within seven months of the current board being in office, which highlights the point that the Board is fighting to turn things around. We are pleased that we have reversed all seven findings highlighted by the AG last year in its audit opinion report. The AG highlighted in its presentation that the first set of financial statements had some adjustments that needed to be made. Now, more controls have been put in place to ensure that next time around there were limited adjustments.

The Board reviewed the APP and strategic plan of the Scheme – this was a little too late for the year under review. If the AG had issued an opinion on annual performance, it would have issued a disclaimer on annual performance due to how the performance indicators are formulated and the fact that supporting evidence cannot be produced and it had not put in place systems and measures to reliably report on performance information. We have now put in place these mechanisms in 2021/22.

We were able to correct the annual financial performance and in the following year some of these matters would be addressed. No material findings were found in supply chain management. There were material irregularities, which were carried forward from the previous year and the Board has put in place interventions and the AG was satisfied with the interventions introduced.

The monies that are due to NSFAS, this is a matter covered by the report. We were previously not charging interest on loan accounts but that has since changed.

Mr Nongogo further presented on risk management of the Scheme, human resources and 50% of its budget goes towards salaries, which makes it difficult to put some measures in place that are necessary. As a result, management resolved not to fill vacant posts at the moment but some key vacancies were filled (see document).

Discussion
Ms King commended NSFAS and the Board for the great work that has been done in such a short space of time. When it comes to security, how secure is NSFAS when it comes to cyber security and how far is it in implementing the security strategy for NSFAS?

Last year NSFAS had a shortfall of R7 billion at the beginning of the year for students, does NSFAS envisage these shortfalls occurring again in the future with more students enrolling? Is the shortfall going to be R7 billion again or is it going to be more?

She was pleased to note that there were considerations about the Committee’s plea for the decentralisation of NSFAS funding; what is the time frame for when this will be implemented?

There was mention of the amount owed by institutions to NSFAS; how far is NSFAS in ensuring that there are proper mechanisms in place to ensure that the funds owed by various institutions were recouped?

As for the ICT model, how far is NSFAS in synchronising the model with students and institutions to ensure that there is synergy in the entire system to know who is enrolled and where to avoid overpayments or underpayments of funds to students?

Ms King said there was an investigation to determine the viability of student funding and the ICT system at NSFAS. Members have not yet received the report but she would have like to get an indication of the findings and recommendations and how far NSFAS is in ensuring these were considered and implemented.

At the end of 2020/21, there was an overspending of R744 million – this tells us that the budget allocation was inadequate for NSFAS to execute its mandate. On its sustainability, when there is an overspending, how sustainable will NSFAS be in the next financial year and going forward to ensure that fee free education is realised. Did the report also mention the sustainability of the fee free higher education system or was there an alternative to ensure that we look at something else to ensure that this is sustainable?

Ms Mananiso commended the new board and management for the work done so far. It would be important for the Board to submit to the Committee the audit action plan so Members can checklist what has or has not been done when conducting an oversight visit.

On irregular expenditure, what are the mitigating plans for it? One can see that NSFAS has tried to strengthen its relationship with stakeholders. Perhaps, NSFAS can put efforts in ensuring that it creates a good relationship with beneficiaries as well. Members have been bombarded with student issues and NSFAS must create a space where beneficiaries are able to connect with it.

Can Members get an indication of the 30 court cases that are in the pipeline – student related cases, employee related cases and external party related cases.

As for fraud and corruption, how many employees were found guilty of fraud and corruption and what lessons have been learnt with all these findings?

NSFAS had experienced challenges in filling vacancies due to high employee turnover of 6.5%. What strategies are in place to reduce this percentage?

Lastly, the Board has demonstrated that it is walking the talk but the Committee would appreciate time frames on the audit action plan and targets. Can NSFAS ensure that it does not over commit on its targets?

Ms N Ndongeni (ANC) said according to the NSFAS organogram, there are three vacant posts at executive management level; what progress has been made in filling these posts? Is NSFAS confident that the target on recoveries it set itself was realistic and attainable and what is going to be done to ensure that monies were recovered from those who owed the Scheme?

Mr Letsie said that NSFAS achieved only 40% of its targets, this is an under performance of 60%. What is the board planning to do to identify the lack of management monitoring and engagement? The administrative budget accounts for 0.9% of the student budget but this restricts NSFAS from putting improvements in place; how much would be enough administrative budget for NSFAS to be able to put in place the planned mechanisms for the Scheme to be fully effective?

On slide 7, it is clear that the audit opinion is unqualified with findings for 2020/21. NSFAS should provide clarity on the findings. Earlier this year, the NSFAS presented its 2021/22 Annual Performance Plan and the AG had apparently indicated that the new Board and management would not have had sufficient time to implement it. In the last audit outcome, it declined from 86% to 36% on the reliability of reporting of achievements and it also declined significantly on indicators and targets from 86% to 9% on the 2019/20 financial year. What is the current status on this? There is now an appointed CFO, the previous two produced and signed off on financial statements not prepared in accordance with the PFMA. Hopefully, NSFAS will not experience that same issue.

Last year, one of the biggest issues was the outsourced APP. The AG indicated that there was a fruitless expenditure of R490 000 on the APP that was put together by service providers. Has NSFAS made plans to recover those monies or is there consequence management that has been implemented for this fruitless expenditure? Can NSFAS provide clarity on the 2020/21 R40 million irregular expenditure? NSFAS disclosed R82 million irregular expenditure in the AFS notes; can it break this figure down for the Committee?

Is the NSFAS complying with the POPI Act to ensure student information is protected?

There are students that have complained about not having received a funding decision from NSFAS. How far is NSFAS in finalising the systems to ensure that these decisions on funding were made timely? There were too many students that have complained about this.

Lastly, what is the current update on the high staff turnover? Over 60% of the administration budget goes towards salaries but what is the plan for staff turnover? Whistleblowing came up consistently in the previous year – how far is NSFAS in fixing some of those matters?

Ms Mahlatsi said that during the recent elections, Members engaged with a number of students. She had a list of students whose accommodation and fees have not yet been paid and some of them have been chased out. Some landlords are willing to keep those students until NSFAS has paid. Hopefully, next year things will change and finances would be allocated to every student that has been approved.

The AG indicated that NSFAS has the biggest irregular expenditure. Has NSFAS been unable to request Treasury condonement for the R33 billion irregular expenditure incurred in previous financial years?

Does NSFAS have sufficient capacity for risk management and internal audit function? Does NSFAS have capacity to ensure that there will be no audit challenges in the next financial year? Is NSFAS outsourcing the audit function; if so, which service provider has been procured for this?

On targets, does NSFAS have capacity to conduct proper planning to ensure that it is able to account for all monies disbursed to students? Given the pandemic, what are the possible future challenges foreseen so that they can be addressed on time?

On the recovery from previous beneficiaries, given that some students were able to finish their qualifications but were unable to pay; is there no way NSFAS can speak to Treasury about this so that matter can be handled at Treasury level?

The Chairperson said that taking into consideration the board plans to remedy NSFAS challenges, one hopes that the risk mitigation plan would be implemented. Members would appreciate if timeframes could be included. What are the projections of the Board and management on what it could achieve from its list of intervention measures?

As for vacancies, there has been conversation within the Committee on working on the systems of NSFAS to be effective and efficient but most times one finds that people do not come on board due to various reasons such as political pressures, etc. NSFAS has indicated that part of what stifles the disbursement of allowances is the misinformation received from the institutions. So, from the person who punches in the student details at the institution to the person behind the IT system – everybody must have an internal conviction about the vital position that they play. One then wonders if NSFAS has considered reviewing the composition of individuals assisting the Board and management in executing the mandate of NSFAS.

We can no longer have instances where students that fall within the R350 000 bracket, who are eligible for NSFAS, have their details entered incorrectly into the system or are paid their allowances on time. We need to get that right; we understand that the system is overloaded but we need to get the basics rights. Perhaps, the leadership of NSFAS can provide an understanding of its readiness for the 2022 academic year and the possible challenges that could be faced.

In the analysis of decentralising NSFAS operations, one wonders if there has been a reflection on why the operations were centralised to begin with. This will assist in finding a balance between the two standpoints of centralising and decentralising it.

The Committee also stresses the importance of DHET playing its role to ensure that institutions play their part about the 'misinformation' that is sent to NSFAS. DHET must intervene and ensure that institutions were held to account for doing this.

Applications for 2022 funding have opened, is it possible to get an indication of how that is going? Lastly, what support does NSFAS require from the Committee and how the Committee can assist to strengthen the mitigation measures in its turnaround?

NSFAS response
Mr Khosa was pleased to hear the positive remarks from Members. The team may feel comfortable to disclose that it was the 30th year anniversary of NSFAS and we might need to find some time to celebrate the existence of this organisation.

Our mobile phones never stop ringing because students call all the time with complaints and about problems they face. One of the first observations that the board made was that the organisation must develop a better relationship with stakeholders. The board took an unconventional decision to visit universities and TVET colleges and confront the problems the institutions are facing. Most of these institutions were previously disadvantaged where NSFAS funds the majority of the students.

In some cases, we were unable to deal with the problems such as in Walter Sisulu University. We then took a decision to send a NSFAS team to camp there for a week and ensure that all the issues were addressed.

As for engagement with institutions and students NSFAS ensures that every time it visits the institutions the leadership of SAUS is invited.

Mr Nongogo replied that NSFAS has projected the shortfall to be at R10 billion, taking into account what has transpired in the country this year with people losing their jobs, looting and the pandemic. We have engaged early with DHET and Treasury to try and source this money as this is not within our control. We have also highlighted this is one area that causes delays in making decisions at the beginning of the year. We have in a timely manner engaged DHET and Treasury to ensure the funds are secured on time.

As for decentralisation of the Scheme, in the past decisions were made at the institutional level on the funding of students. When the Scheme became centralised, the focus was more on the student – chasing that one student that is being funded. When that model was still operative, it brought up many inconsistencies on how funding decisions were made, hence much of the irregular expenditure dates back to 2017 – it comes from that era where incorrect funding decisions were made. We are conducting a feasibility study taking into account the lessons learnt when the Scheme was decentralised and also what we see as some of the pitfalls under centralisation. We understand that the stakeholders are calling for decentralisation but we must ensure that the systems are firstly up to date and it would require some budget to have staff members moving to certain areas. Therefore, there is no simple answer to decentralisation; there are a number of factors that must be taken into account such as costing.

On amounts owed by institutions to NSFAS or by NSFAS to institutions, we have concluded all the reconciliations dating back to 2017 from 2020 and we are busy with the process of agreeing with institutions. A sustainable control would be to pay up amounts owed to institutions upfront but this is not possible at the moment due to fiscal constraints. This would eliminate the task of having to conduct reconciliations. Internal capacity is being built to ensure that reconciliations are done on a regular basis.

On the ICT model and integrating systems with the institutions, we are in constant engagement with the institutions about this system integration but this is limited by the fact that even our own system needs to be improved. We are still requesting assistance from DHET in supplementing the administration budget.

As for cyber security, we are not comfortable where we are but we do have measures in place and we are going to build a security operations centre (SOC) to monitor these. However, through the digital risk we continually monitor vulnerabilities to our systems including our third parties that are tasked to pay students directly.

On student funding investigations, there are two Ministerial Task Teams; the first, which has concluded its work, was tasked to look at NSFAS processes and systems. Many of its recommendations were already being implemented by the Board. We cannot share these but the Board has responded to the Minister indicating where it has already begun implementation plans including timelines for where we have not begun. The second Task Team was responsible for assessing the sustainability of the Scheme. NSFAS is part of that Task Team and contributes to it.

As far as the overspending of R744 million, we should recall that this was a result of an extended academic year and there were costs that were not anticipated. This is not signifying that the Scheme is not sustainable. The Scheme’s sustainability is linked to the fact that government has committed to funding all deserving students and to the extent that government provides those funds, NSFAS will be sustainable.

As for irregular expenditure, much of this emanates from irregular expenditure incurred dating back from 2017. The bulk of it relates to the gazetting of the funding criteria. This was not by NSFAS’ doing but DHET. However, this issue would not be recurring in the current financial year.

As for the administration budget needed, NSFAS gets 0.9% but SETAs are allowed 10.6%. However, NSFAS would need about R590 million over the next three years. This is not sustainable but what will be sustainable with a 10% administration budget.

On condonement, we are preparing submissions for it and have been engaging with Treasury on what is permissible and what documents must be encompassed.

As for the cases, the list will be shared with the Committee. The majority of the fraud cases relate to people who are accessing the Scheme who do not qualify and students being defrauded by other students or unscrupulous third parties.

On the vacancies, we must understand that the NSFAS organisational structure was not reviewed since the student centred model was adopted and the 2018 announcement that the Scheme would be a bursary scheme; hence in its assessment the Board has seen that the structure is not fit for purpose. Therefore, to continue to fill positions in an outdated structure would be difficult because once you review the structure and realise positions are not relevant, it becomes an expensive exercise moving people from those positions. However, the focus has been on filling key positions.

NSFAS will submit the audit action plan and the plan does have timelines. These are all limited to underfunding as it comes to administration budget. As long as we have limited funds, we will not be able to address these issues.

When it comes to recoveries, we set a high target in the past without knowing that we would have a pandemic. However, we are also engaging with SARS and in the past SARS would give us alerts when beneficiaries start getting employment. We should also note that NSFAS takes a soft collection approach given that the people we fund are mostly poor. However, we believe that by taking this approach we want to encourage the beneficiaries that these repayments fund other students who are in need. We also have agencies that we work with to pursue recoveries.

NSFAS gets only 0.9% of the funds that it administers. SETAs are allowed 10.9% of their core funding for their administration budget. However, we have done a calculation of the key interventions we need in the short term and in 2021/22 we would need R252 million extra to implement the system we need to implement. Over the three year period this amounts to R549 million. This is not sustainable. What would be sustainable is reviewing the model of how we are funded and ensuring we are aligned to entities and get 10% of the core funding for administration.

On unqualified audit, the audit opinion was given on the financial statements. We think this is a significant step as an entity that is entrusted with the distribution of funds.

It should be noted that the board took office when there were only three months left to finalise the financial statements and information. Thus, we had to get external help, which is why we have these material adjustments. We were able to correct those adjustments as well with the external help we received.

In terms of the POPI Act, we are compliant with it and we have gone for training on the Act. We have changed the processes to ensure that we are aligned with the POPI Act.

On student accommodation, NSFAS pays for student accommodation through the institutions. The Board has determined a policy position on this. NSFAS pays approximately R12 billion towards student accommodation. However, NSFAS has a limited role in how and where that money is spent. The resolution taken by the Board is for NSFAS to play a much closer role.

When the new board took office with new management, it was told that it would take two years to turnaround its audit outcomes. If we could get the budget we need, we would be able to turn things around much quicker. We cannot make commitments or change if we do not have the budget.

NSFAS has received 126 681 applications to date but he would submit the details on how many real time decisions NSFAS has been able to make on these. This can be submitted to the Committee at a later stage.

Mr Khosa concluded by saying the Board is aware that an inefficient NSFAS poses significant risks for the country.

South African Qualification Authority (SAQA) on its 2020/21 Annual Report
Prof Peliwe Lolwana, SAQA Board Chairperson, announced that Dr Julie Reddy, SAQA CEO, was joining the meeting from Canada as she was attending a conference. The Board was relatively new as it joined the organisation in January 2021 so it had only three months before the end of the 2020/21 financial year reported today. For the Annual Report, see document.

Discussion
Ms Mananiso said that she was pleased with the presentation and the women representation in SAQA. She commended SAQA for obtaining a clean audit for the third consecutive year. The total expenditure exceeded the total revenue by 5.9% or R7.1 million – what are the reasons for overspending? On the targets achieved and targets exceeded, what is the impact on the budget for the targets that were exceeded? She asked if the resignation and dismissal went hand-in-hand with corruption and fraud?

She asked if SAQA has measured the impact of the retrenchment of the 89 staff members? Is there a negative impact on the entity as a result?

Ms King said that she was concerned about the sustainability of SAQA. If Treasury is not able to provide the R20.6 million to ensure that SAQA is sustained; what plans will be put in place to ensure that SAQA is sustained? Forty per cent of the funding is to be raised by SAQA and is there a five year plan put together to mitigate the non-sustainability?

Mr Letsie was also pleased with SAQA’s presentation and performance. It was deeply concerning that people had to be retrenched. The hard lockdown was bad for SAQA because it affected the verification of qualifications for foreign students. Has this since improved with the relaxed Covid-19 regulations during the course of the year? SAQA invoiced DHET R5.7 million but received only R4.7 million. The remainder was declared as fruitless and wasteful expenditure; why was this amount declared as such?

The Chairperson was impressed with the Annual Report of SAQA and commended it for its clean audit for the third consecutive year.

Responses
Ms Sarah Netili, Chief Financial Officer: SAQA, replied that the reason total expenditure exceeded revenue was based on retrenchment of the staff, which took place in May 2021. In 2020/21, SAQA had to make a provision of R8.6 million, which was the main reason there is an overspending. Further, there are some non-cash items that need to be considered when calculating the deficit. There are depreciation line items and amortisation and for those non-cash items we accounted for R4.3 million. There were also movements on accrual for leave pay, which also had an impact on the total expenditure. The R7.1 million should not be taken as an amount that was paid to suppliers or employees.

Dr Julie Reddy, SAQA CEO, said that where SAQA exceeded targets it did not affect the budget. The targets were exceeded within the budget line item; SAQA was just able to do more with the resources.

On the impact of the 89 staff members that were retrenched, we are facing a lot of backlogs and service delivery delays. We are not able to meet our turnaround delivery timelines, which have been affected. SAQA is measuring the impact of the retrenchment and conducting time and motion studies to ascertain where efficiencies can be built in. Once all these findings and results are made, we will be able to put in plans to mitigate some capacity challenges. In the meantime, the team is doing the best it can to respond to this. SAQA has also considered drawing from the retrenched staff members for temporary work – about 20 retrenched staff members were brought back for a period of three months to assist the organisation. We are not making any permanent employment decisions until SAQA is financially sustainable. We are looking at unspent funds and holding back unnecessary expenses and we have considered selling the large building to release more funds for the work. The team has been active in fundraising on international platforms and was able to receive some money from US Agency to implement our refugee project. We are also partnering with other projects where we have managed to raise some funds.

In July the Board approved a funding strategy that looks at different funding opportunities to move towards sustainability and move from dependence on the government grant. The hard lockdown affected SAQA but there is a huge demand for various verifications on foreign qualification evaluation services. We are also trying to diversify other opportunities in that service and looking into charging for the registration of qualifications and a number of strategies are in place for that.

Ms Nireen Naidoo, SAQA Director, explained the R5.7 million came in as additional funding from DHET for a specific project. There was a need to replace those old qualifications and we set up a task team, which was funded by DHET to assist SAQA with the work. We did not use the entire R5.7 million, we only used R4.7 million.

Ms Lolwana talked about the sustainability of the organisation. This has to be evaluated along with usefulness. We cannot create an organisation that exists for the sake of being there. If an organisation is useful and needed by the country, it has to be sustainable. SAQA has to fund more than 40% of what is on its mandate – we need to interrogate why SAQA has to do certain things without funding. SAQA needs to spend substantial amount of time fundraising but we should also sit with the shareholder to discuss the funding challenge and what it is that SAQA should be doing.

Council for Higher Education on its 2020/21 Annual Report
Dr Whitfield Green, Chief Executive Officer: CHE, took Members through the presentation, which covered the mandate of the Council; Strategic outcomes 2020 – 2025; approval of a new Quality Assurance Framework and progress towards its implementation; progress update on the inquiry into the remuneration of Vice Chancellors and Senior Executives; progress update on research on strategies to address articulation challenges; target achievement and financial information.

Quality Council for Trades and Occupations on its 2020/21 Annual Report
Mr Vijayen Naidoo, Chief Executive Officer: QCTO, presented the QCTO Annual Report, which covered the audit opinion; key policy developments; progress on institutional impacts and outcomes of the strategic plan; institutional programme performance; achievements in 2020/21 and the audit action plan.

Discussion
Mr Letsie welcomed the presentations from the two entities. He was pleased that the QCTO was purchasing a building. He also welcomed that for three years running the QCTO has achieved clean audit opinions. The QCTO underspent from 9% to 16% this year because of vacant positions (147) – why have the vacant posts have not been filled yet? This would not have affected the entity financially but in terms of performance, it was surely affected and this may be attributed to the unfilled vacancies.

The CHE has regressed on its audit opinion. This meant that there are a few things that did not go right and Members would like more details on what those issues were or the reasons behind the findings made by the Auditor-General.

There was also underspending that increased; why did the underspending increase? In addition, why were the targets not achieved because the budget was sufficient for targets to be achieved?

Ms Mananiso said that it was noted that the CHE had inconsistencies on internal controls; what are the challenges causing the difficulties in internal controls of the entity?

She asked the QCTO on its mandate of skills strategy, on ERRP, given its role to support the ERRP; what engagement did the entity have with DHET on this? What can the QCTO be able to do to support the ERRP mandate?

When did the Minister appoint the Chairperson of the Board and if this has not yet been done, why is that so? Have the vacant posts on the board level also been filled by the Minister?

CHE response
Mr Thulaganyo Mothusi, CHE Chief Financial Officer, replied that the auditors picked up that there was a problem with the bank reconciliations for the investment account. Other reconciliations were performed for the other accounts. It was because the bank statement was not reflecting the interest so when the financial statements were prepared, the interest was not included. The team engaged the bank on including the interest on the statement.

The internal control issues were not problematic at all but the accreditation unit will work closely with the auditors to ensure that the register tallies with the general ledger. This is being done on a monthly basis with the accreditation unit to mitigate this.

On underspending (slide 25, 26, 27), the majority of the funding was on compensation of employees. Based on the R1.5 million, the amount was almost 90% spent. The majority of underspending was on the eight vacant funded posts and this was due to people leaving in the middle of the year. The other contributing factor was the instruction from Treasury on the increase in cost of living but this was resolved.

Prof Themba Mosia, CHE Board Chairperson, thanked the Committee for its work in holding the entities to account.

QCTO response
Mr Naidoo replied about the underspending versus the vacant posts. We can fund only 104 posts at the moment and 199 are filled. The entity froze certain posts due to budgetary constraints. Our vacancy rate should be showing 5%. Our funding is an unstable model and employing people becomes a risky act to commit to because we may not get funding the following year and people might have to be retrenched.

We are aware that the Minister has gazetted a call for nominations and applications for the post of the Board Chairperson and the vacant posts. Those posts have not yet been filled.

We have not made an application to DHET for funding because the ERRP Skills Strategy has not yet been finalised and signed off by the Minister, so we do not yet know what that the document entails. However, we have taken the ERRP Skills Strategy and prioritised the scarce skills particularly in the area of IT as outlined in the ERRP for skills development.

The Chairperson thanked everyone and adjourned the meeting.