DHET & DSI Quarter 2 & 3 2021/22 Performance; Implementation of audit action plan

Higher Education, Science and Innovation

04 March 2022
Chairperson: Ms N Mkhatshwa (ANC)
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Meeting Summary

Watch

The Portfolio Committee met on a virtual platform with the Department of Higher Education and Training (DHET) and the Department of Science and Innovation (DSI) to receive presentations on their 2020/21 quarter two and three performance reports, as well as to be advised of progress in the implementation of the action plan to address audit findings from the previous financial year.

The DHET reported that it had achieved 50% of its quarter two targets, and 19% of its quarter three targets. It had targeted to have all valid invoices received from creditors paid within 30 days, but 1% were not paid due to delays as a result of technical challenges with the Logical Information System (LOGIS). The other targets that were not achieved had been in relation to the drafting of a framework, which had been due to a lack of capacity and non-compliance with the reporting standards and guidelines. There were plans to obtain additional capacity from other directorates while waiting for the human resources department to fill vacant posts. The bulk of the underachieved targets in quarter three had been related to technical and vocational education and training (TVET) colleges, where none of the eight targets had been achieved as a result of poor planning, delays and non-compliance with standards.

The Committee asked the DHET whether there had been a conversation with Treasury on the issue of delays in the 30 days' payment that was associated with technical challenges. Were systems in place to ensure that the DHET would not have to deal with the same issue in the future? Most of the targets that had not been met were in programme four, and Members wanted to know what the challenges were -- was it a lack of capacity, work not being done, or was there a problem with the organisational culture in the particular programme. Considering the inability of the Department to meet its targets, was there an intention to review its annual performance plan (APP) for the next financial year?

The DSI said 81% of its 31 quarter two targets, and 69% of the 32 quarter three targets, had been achieved. By the end of quarter three, it had targeted to have 82 South African students participating in international training programmes, but had achieved only 48. It had targeted to have 5 600 pipeline post-graduate students awarded an annual bursary, as reflected in the reports from the National Research Foundation and other relevant entities by 31 December 2021, but had achieved 5 356. The reasons for under-performance were described as process delays, which referred to factors that were outside the control of the DSI, and the achievement of such targets was therefore mainly dependent on external circumstances.

The Committee asked why the DSI's 73 vacant, but funded, posts had not been filled to date. Spending on technology innovation had been very low -- about R490 million against a budget of R1.7 billion -- which was attributed to problems with the processing of documents by the Technology Innovation Agency (TIA). The Committee had been aware of problems with the TIA since 2019 and wanted to know why it was not submitting the required documents. It would seem that every year the TIA had new problems that dragged the DSI’s performance down.
 

Meeting report

DHET quarter two and three performance report
Dr Nkosinathi Sishi, Director-General (DG), Department of Higher Education and Training (DHET), presenting the significant developments that were made during the period under review, said the Department had accredited six technical and vocational education and training (TVET) colleges to trade test centres for occupational qualifications, and 69 artisan learners had received training through the centres of specialisation. Each college had been pursuing partnerships with industry to enable placement of graduates. Ten universities had received accreditation for 11 TVET programmes. Seven universities were offering TVET programmes, while three were awaiting Council on Higher Education (CHE) accreditation and two were engaged with institutional processes.

He said the DHET had achieved 50% of its quarter two targets and 19% of its quarter three targets. In quarters two and three, the Department had targeted to have 100% of valid invoices received from creditors paid within 30 days, but 1% of the invoices were not paid within 30 days due to delays as a result of technical challenges with the Logical Information System (LOGIS). The other targets that were not achieved had been in relation to the drafting of the framework, and the reasons for underachievement had been due to: lack of capacity and non-compliance with the reporting standards and guidelines. The DHET had plans to obtain additional capacity from other directorates while awaiting the filling of vacant posts by its human resources (HR) department. The bulk of the underachieved targets in quarter three had been in Programme 4: TVET, where none of the eight targets had been achieved as a result of poor planning, delays and non-compliance with standards.

He said the Department’s annual appropriation for the 2021/22 financial year had amounted to R115.6 billion -- R97.784 billion of voted funds and R17.813 billion from the skills levy.          
                                               
The spending at the end of quarter 2 had increased by 63%, from R48.757 billion to R79.485 billion. The total expenditure for the period ending 30 September 2021 of R79.485 billion represented a spending rate of 68.8%, of which R9.233 billion was for the skills levy. The spending on operational expenditure had increased from 11.5% to 27.4%, amounting to R187.7 million.
The spending at the end of quarter 3 had increased by 31.9%, from R79.485 billion to R104.874 billion. The total expenditure for the period ending 31 December of R104.874 billion represented a spending rate of 89.8%, of which R13.925 billion was for the skills levy. The spending on operational expenditure had increased by 91.6%, from R187.7 million in the second quarter to R359.7 million in the third quarter, and represented a spending trend of 56.8%.
He said the Department was working on improving its internal audit system to ensure that matters were dealt with before reaching the office of the Auditor-General (AG). The DHET had systems in place to follow up on the audit findings, but some findings had not been justified with evidence by the AG. Some goods and services above R500 000 had been procured without inviting competitive bids, and the DHET was going to implement consequence management as a result.

Discussion

Mr W Letsie (ANC) said that the quarter two and three performance looked very bad, and the DHET had to find a way to address it. Some targets were not achieved because of ‘lack of capacity,’ and he asked why those targets were set in the first place when there was no capacity to achieve them. He noted that on 25 January, the Minister had tabled an addendum to the 2021/22 annual performance plan (APP), and wanted to know what the honest reasons were for revising the targets just before the end of the financial year.

He asked the DHET how far it was with the process of filling the vacancy of Deputy Director-General (DDG) of University Education. Had the DHET incurred any irregular, fruitless and wasteful expenditure during quarters two and three? If so, what amounts were involved; what services or goods had been procured irregularly; were the same individuals who had been responsible for irregular expenditure in 2020/2021 still responsible for that of 2021/22; and what consequence management had been taken against those individuals? Had the determination process of the 2020/21 irregular expenditure been concluded and if so, what had been its outcome?

He said President Ramaphosa had raised concerns regarding late payments by departments, often affecting the smooth operation of small businesses. In terms of the DHET’s reported 1% of unpaid invoices, what was the total outstanding amount? Which division had been affected by the outstanding payment? How many service providers were impacted? What was the DHET doing to ensure that all invoices were paid on time in the following quarter?

On the DHET’s progress on the implementation of the audit action plan, he recalled that the Auditor General had indicated the root causes of the entity’s poor performance, and had made recommendations on actions to be taken for improvement. On page 208 of the DHET's report, the AG had stated the following regarding internal controls:
- Leadership had not exercised adequate oversight, specifically regarding reporting on the pre-determined objectives as well as the related controls, resulting in material ‘misstatements’ being identified during the audit.
- The APP had not been adequately reviewed. It contained numerous ‘misstatements.’ There had been significant shortcomings in the record management system used to support the reported performance. That included information related to the collection, verification and storing of actual performance information.
- The DHET did not have adequate systems to monitor compliance with all applicable legislation, resulting in the Department incurring irregular expenditure.

He asked where these recommendations featured in the audit action plan the DHET had presented.
The ineffective risk management had suggested that there was a lack of monitoring and oversight by the Department. How many incidents of consequence management interventions had been reported across programmes?

Ms J Mananiso (ANC) asked the DHET to supply the Committee with the demographics and residential locations of the 69 artisan learners that had been trained. Referring to slide 10, she said it was very worrying that the third quarter performance indicated a decline from quarter two. Was there a plan and a time frame indicating when the remainder of the invoices due for payment would be processed? The DHET had to submit a plan, with time-frames, to the Committee indicating when it would attend to the AG's findings. The DHET could not just talk about the issue of consequence management -- it had to implement it. If people had to go to jail, then that was what had to happen.

Dr N Khumalo (DA) said one of the recommendations that the AG had made was that it was important for sector education and training authorities (SETAs) to have adequate contract management processes to determine accurately how much the SETAs had committed themselves. She asked if the DHET had acted upon that recommendation in its audit action plan. To what extent had consequence management been taken against those tasked with ensuring that control measures were in place for some of the findings related to procurement, for example. What was the reason for not inviting competitive bidding for goods and services with transactions valued above R500 000? The DHET had to provide the Committee with a detailed report on which services had been procured and from which companies. What had happened to the person who awarded the services contract without bidding?

She said slide 10 indicated that the findings on information technology (IT) were expected to be resolved by year-end, but the presentation had not spoken to what actions had been taken, specifically in quarter three, to achieve that. Was it realistic to say that the findings would be resolved in one quarter? The Committee had requested the DHET to submit a document on the policy register and the review status of all policies.
A non-declaration of interest by employees had been quite worrisome -- what disciplinary actions were taken against those employees, and what was the nature of the detected conflict of interest of the employees?

What was the opinion of the DG on the effectiveness of the DHET’s internal auditing structures? She noted, with disappointment, the decline in performance from quarter two to quarter three, and requested some sort of justification or explanation for that. It was worrisome that vacancies within the DHET had not been filled for up to 12 months after they had been advertised, given the large numbers of qualified persons out there and given that the vacant posts were fully funded.

Ms K Mahlatsi (ANC) referred to the 30 days payment target and asked whether there had been a conversation with Treasury on the issue of delays that were associated with technical challenges. Were there systems in place to ensure that the DHET would not have to deal with the same issue in the future? Most of the targets that had not been met had been in programme 4 -- what were the challenges, were they in terms of staff capacity, work not being done, or was there a problem with the organisational culture in the particular programme? Looking at the inability of the DHET to meet its targets, was there an intention to review the APP in the next financial year? In responding to the report on the audit action plan, it was important for the DHET to be scientific in its approach as far as indicating what work had been done. and how far was it from completion concerning persons that had been found on the wrong side of the law?

Ms N Tarabella-Marchesi (DA) asked if the DHET could consider the issue of accommodation at universities when reviewing its APP for the next financial year. The invoices from the service providers had not been honoured on time, resulting in students finding themselves without accommodation. TVET colleges had accommodation as the least of their problems -- they were dealing with issues of certification, accreditation etc. It was concerning that TVET colleges were not seen as centres of improving the economy by rendering skills development programmes.
 
Ms Mahlatsi, referring to the finances of quarters two and three in the DHET’s report, said the Committee was not able to correlate the money spent with the targets achieved. Did the DHET see the possibility of roll-overs or shortfall, or was there a possibility of taking money back to Treasury? Would the DHET be able to achieve the targets that were not achieved in quarters two and three, in the current quarter four?

The Chairperson agreed that the correlation of the targets met, compared to the money spent, had not made sense. Zooming into programmes one and four, where zero percent of the targets had been achieved, she said the reasons that had been given were not acceptable. The Committee implored the DHET to act in terms of consequence management. The DG should share with the Committee the reasons why the DHET was not able to follow through in terms of consequence management and ensure that there were repercussions for the wrongdoings of colleagues. How could Parliament and the Committee be of help to the DHET in terms of performing oversight in that regard?
 
What were the reasons for the delays in the approval of reports, and how were those being currently mitigated?

DHET's response
 

Ms Pretty Makukule, Chief Financial Officer (CFO), DHET, answering on the issue of irregular expenditure, said the DHET had not incurred any irregular expenditure in the current financial year emanating from new transactions. From the previous financial year, the DHET had irregular expenditure relating to legal services, which had been a continuing expense due to an ongoing court case. The determination test (investigation) had been done and a report had been submitted to Treasury for consideration. The transaction was reported as irregular expenditure because Treasury had not yet given a response to the report. The DHET had paid about R1.4 million to date on the transaction but was likely to report regular expenditure at the end of the current financial year, given that the transaction emanated from the previous financial year.

For both the previous and the current financial year, the DHET had not incurred any fruitless or wasteful expenditure. In the previous financial year, the DHET had reported irregular expenditure and would be able to submit to the Committee the reports relating to the cases and their outcomes as a result of exercising consequence management.

Answering the number of service providers that were affected by delays in the processing of invoices, she said it was a total of 11 service providers, composed of large and small companies. The DHET had revised its business processes in terms of the payments being made in 30 days. The challenge was that the accounting system could not be accessed remotely, and if an employee contracted the COVID virus, it would affect the business process. There was additional capacity in the form of interns who were helping with the processing of documents to ensure faster business processes. All the invoices from the eight suppliers had since been paid.

Answering the audit action plan, she said slides five to ten contained the reasons that had led the DHET to not receive a clean audit, and the details were provided as to what the challenges were and what the plan to resolve them was. The DHET was determined to focus on addressing the root causes as opposed to just resolving an audit finding. The process was longer but would yield positive long term results.

There was a lot of work that the DHET’s risk and integrity team had done on consequence management, and a report could be compiled and submitted. The Department noted that consequence management also included capacity building, and the Department was doing roadshows to capacitate officials so that they were made aware of legislation and had knowledge of the correct protocols and practices to follow.

There had been two services procured without following competitive bidding. One was for legal service for the transaction that had attracted irregular expenditure, and the second transaction was for examination stationery. The reasons for not engaging in competitive bidding on the legal service was that it had been procured on an urgent basis -- the DHET had been served with court papers on a Friday afternoon and was expected to appear in court the following Tuesday. The Department had since appointed a Head of Legal Service who would assist it in handling urgent matters. Regarding the examination stationery, the goods had been purchased on a quote comparison basis. The Department had had a discussion with the Auditor-General and was working to acquire a long-term service provider through competitive bidding.

She was confident that the Department would conclude its audit findings by the end of the financial year, and it would share the specifics, including the requested policy register, in due time. The DG had worked hard to ensure that more than half of the policies had been signed to date. The DHET’s internal audit function was effective and was validated by the report of the audit committee, which was part of the audit report. The internal audit structure did, however, have challenges with capacity. Currently, it was composed of eight officials, and the Department had appointed a service provider to assist them.

IT challenges had been referred to the State Information Technology Agency (SITA), as the problem had emanated from that side. The DHET had experienced a system shut down from 8 December 2021, which came back live only in January. That had posed a challenge to catching up with the payments that had to be made in 30 days because in December the system had been live for only a week. It was not anticipated that the problem would recur, given that it was occurring for the first time in the history of its existence.

Answering issues around the budget, she said that according to the modified cash standards, the Department reported expenditure only when the money went out of its bank account. It was worth noting that 90% of the entity’s budget went to colleges, universities etc. Most of its targets were thus achieved through those institutions. It was therefore expected that there would be a misalignment between the budget and the spending. The DHET was working to strengthen its oversight of the institutions.

The Department did not anticipate any shortfall or roll-overs at the end of the financial year. However, due to a lot of re-prioritisation that had been done since January, there might be some savings under goods and services which would be allocated to the institutions that were experiencing budgetary constraints.

Dr Khumalo asked what the turn-around time for appointing a service provider was, as opposed to filling a vacancy.

The Chairperson requested the DHET to respond in writing to those questions that had not been sufficiently answered. The Committee found the dismal performance of the Department unacceptable, especially in the third quarter. She asked the Department to submit a report on the targets that were achieved outside the time frame of the current report, to ensure that by the end of the financial year, those targets were met. The Committee frowned upon the non-payment of service providers, even if it had been just 1%, as that was a cause of businesses being destroyed. The Committee implored that all the technical challenges that had been reported on, be immediately addressed.

The Department had to ensure that there was proper planning of finances and human resources during the development of APPs, as the current legacy trends in achieving targets were not acceptable. The funded vacant posts had to be filled, to address the non-performance. The Committee recommended that the Department conduct an analysis of the feasibility of quarterly reports by institutions on the utilisation of infrastructure. All the outstanding audit actions must be finalised before the end of the financial year, and the Department had to ensure that the audit findings in 2020/21 did not recur in the 2021/22 annual report.

DSI quarter two and three performance report

Dr Phil Mjwara, DG, Department of Science and Innovation (DSI), presenting the highlights for the period under review, said the DSI had completed a feasibility study on the Hydrogen Valley in partnership with Anglo American Platinum (Pty) Limited, Bambili Energy Group (Bambili) and ENGIE. The study explored opportunities that would transform the Bushveld complex and the larger regions around Johannesburg, Mogalakwena and Durban into a hydrogen valley. The focus was on the conversion of diesel heavy-duty trucks to fuel cell heavy-duty trucks while supporting the up-scaling of hydrogen consumption in the transport sector.

He said that mechanical engineering master’s and doctoral students at the University of KwaZulu-Natal's (UKZN's) Aerospace Systems Research Group (ASReG) had designed and successfully tested a powerful liquid-propellant rocket engine as the first step towards developing a launch vehicle for placing satellites into earth orbit.

In search of an innovation-based system to improve the delivery of human settlements, the DSI supported the demonstration of 3D printing of houses through the use of additive materials technologies. 25 housing units had been earmarked for the demonstration through 3D printing technology, in partnership with the KwaZulu-Natal Department of Human Settlements.
The Department was reporting on 31 output targets for quarter two and 32 output targets for quarter three. 81% of the quarter two targets had been achieved, and 69% of the quarter three targets were achieved. He would not waste time explaining what was achieved but would rather focus on what was not achieved. By the end of quarter three, the DSI had targeted to have 82 South African students participating in international training programmes, but had achieved only 48. It had targeted to have 5 600 pipeline post-graduate students awarded an annual bursary as reflected in the reports from the National Research Foundation (NRF) and other relevant entities by 31 December 2021, but had achieved 5 356. The reasons for under-performance were process delays -- factors which were outside the control of the DSI, and therefore the achievement of such targets was mainly dependent on outside circumstances.
Mr Robert Shaku, acting CFO, DSI, said the Department had planned to spend R8.214 billion by the end of quarter 3. The actual spending for the period had amounted to R6.727 billion (74.7% of the total adjusted budget of R9,005 billion). That translated to a variance of R1.487 billion or 18.1% of the planned expenditure. The DSI had just concluded a re-prioritisation process which included virements amounting to R168.697 million across programmes and major items. That would improve spending for the remainder of the financial year.
The total procurement expenditure on goods and services from 1 October to 31 December 2021 had amounted to R22. 6 million and the total COVID-19 procurement expenditure on goods and services had amounted to R234 973. The Department had four audit findings and had plans in place to resolve two of the findings by the end of the current financial year. The other two findings would be resolved by the end of June, and the DSI was working to ensure that there were no repeat findings in the next financial year.

Discussion

Ms Mananiso said she was happy with the demographics of the beneficiaries. She acknowledged the improvements in communicating science developments to communities in the form of radio and television adverts. She asked the DSI to provide the Committee with time-frames indicating when the unachieved targets would be achieved. What had been the key challenges with regards to meeting targets and spending allocated funds? Which performance targets were not achieved and why?

Ms Tarabella-Marchesi referred to slide 6, and asked which countries the international students were from -- were they from Africa, or were they European students? She noted that there had been a drop in the number of students in quarter three, and asked what the reason for that had been.

She asked what was being done to ensure that the Hydrogen project moved forward. She commended the DSI on the aerospace project and said it was good to see South Africa participating in aerospace systems research.

In terms of enhancing the country’s capability in bioprospecting of indigenous microbial resources for new commercial opportunities, she asked which commercial space the DSI was referring to -- was it in terms of food, beverages, health, agriculture etc?

What was the DSI doing to ensure that it attracted people with disabilities in its initiatives?

How was MLT Drives ensuring that it remained competitive as a company in terms of pricing and that there was a market for them to produce inverters? On the photonics prototyping project, she noted that 25 3D-printed houses had been built as prototypes in the KZN, and thought that there would be a more aggressive uptake of the project by now, given that a prototype had been built previously in the Northern Cape. There was a desperate need for housing, and uptake of only 25 houses was disappointing.

Referring to slide 23, she said it was not clear which areas were going to be impacted by the reported achievements -- what was it that the students were achieving in particular, especially in the ‘Agrofoodchain’? What did the Agrofoodchain innovations mean to a person on the ground who was not part of the project?

The fact that the DSI had performed badly, especially in quarter three, was worrisome, and the Committee would like to see an improvement. Regarding underspending, it was totally unacceptable to move money to other programmes it had not been initially planned for. The DSI’s planning was really poor. There were very few young people getting involved in the projects, so what was the Department doing to ensure that the youth were aware of programmes so that they could provide services to the DSI?.

Mr Letsie said the Committee had the responsibility to be fair in the questions it asked, so the question of the innovative housing uptake should be directed to the Department of Human Settlements, and not necessarily the DSI. For a number of years, the Committee had always agreed that the DSI’s budget had to be increased, so the case simply could not be that the DSI went to the end of the financial year without having spent its budget allocation on its critical core business. Had the DSI incurred irregular, fruitless and wasteful expenditure during quarters two and three? What services or goods were procured as a result of irregular expenditure, and what were the reasons? What had happened to the people who were implicated in the irregular expenditure?

What were the reasons for the 73 vacant, but funded, posts not being filled to date? The spending had been very low in programme two on technology innovation -- about R490 million against a budget of R1.7 billion -- which was said to be due to problems with the processing of documents by the Technology Innovation Agency (TIA). The Committee had noted problems with TIA since 2019. Why had TIA not submitted the required documents? It would seem that every year TIA had new problems that dragged the DSI’s performance down.

The Department had indicated that COVID had been a main contributing factor to underspending in the previous financial year. Even in the current financial year, COVID had been referenced as the main contributing factor to underspending, and it could not continue to reference COVID as the reason for underspending for two consecutive financial years.

He recalled that the DHET had stated that some of the reasons for late payment of service providers were that the service providers had not submitted some relevant documentation that was required by the Department, and some service providers were not aware that they had to provide additional documentation and had just submitted invoices. He recommended that both the DHET and the DSI start orientating their service providers before appointing them, to inform the service providers about what documents were required by the departments to process the payments within the 30 days period.

DSI's response

Dr Mjwara said the DSI would provide the Committee, in writing, the plan of action and details of the offenders regarding irregular expenditure. The report would also include answers to the question of how much money had been irregularly spent, what goods and services had been procured, and what had happened to the implicated individuals. The written response would also include answers on how COVID had affected the DSI’s performance in the current financial year -- for example, international travel had been on and off, leading to delays in the DSI’s interactions with its international partners. The written response would also answer the question on the drop in student numbers between quarters two and three.

Mr Shaku responded on procurement from youth-owned service providers and said the DSI had a procurement strategy to ensure that in the next financial year there would be procurement made from service providers with previously disadvantaged backgrounds, particularly the youth. COVID had affected most of the companies that the DSI worked with, as most of them had been liquidated.

Answering on underspending, he said the DSI had been affected by budget cuts from National Treasury, and as a result, the DSI’s budget had had to be re-prioritised, but the entity would make sure that there was no underspending in the next financial year. It had recorded no irregular expenditure for the period under review. The irregular expenditure that the entity was reporting on had emanated from prior years, the matters had been sent to Treasury, and the DSI had requested condonation. He assured the Committee that the Department would take cognisance of providing orientation to its service providers.

Dr Mmboneni Muofhe, DDG: Technology Innovation, DSI, answering on the progress of the Hydrogen project, said the DSI was currently working towards the implementation of catalytic projects which would help get ‘things off the ground.’ There was a need for partnerships with the private sector, and the DSI had finalised its memorandum of understandig with SASOL. One of its partners had already signed a number of deployment agreements with shopping malls regarding where the deployment of hydrogen fuel cells was going to be realised.

The ‘bioprospecting’ application was varied and could be in the area of food, agriculture and health.

Answering on MLT Drives, he said the company was already exporting to the Middle East and Europe and did not have challenges with the marketing of its products.

The DSI had been engaging with TIA on matters relating to its spending and had decided to redirect the funds that were not spent to other programmes.

Dr Mjwara indicated that the DSI was in the second phase of the TIA review, and some of the issues the Committee had pointed out were related to long-term processes which were still under review. The Department would provide a remedial plan to the Committee once the review had been completed.

The DSI had summarised the answers to all the questions that had been asked and would provide a detailed written response in due time.

The Chairperson said she was wary of the precedent that was been set in as far as the DSI not committing itself to previous agreements with the Committee to provide written responses within seven days. There were a number of written responses that the Committee had requested from the DSI that had not been received to date, which indicated that the Department was not thoroughly accounting to the Committee. This did not sit well with the Committee. She asked the Department to ensure that it sent the written responses within the next seven days.

The meeting was adjourned.
 

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