National Skills Fund investigation: Ministerial Task Team Review & Forensic report; Implementation of audit action plan; with Deputy Minister

Higher Education, Science and Innovation

26 October 2022
Chairperson: Ms N Mkhatshwa (ANC)
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Meeting Summary


The Committee met virtually with the Department of Higher Education, Science and Innovation to receive briefings on the reports of the Ministerial Task Team on the review of the National Skills Fund (NSF) and its forensic report into the misappropriation of R5 billion from the Fund. The Department reported on a myriad of issues, like the legislative frameworks and considerations; the terms of reference of the forensic investigation by Nexus; the list of the ten projects that had been sampled for investigation, along with the findings and recommendations; and the progress to date by the Department and the extent of consequence management that had been implemented.

Members were not pleased with the report, and most were shocked at the findings made by the forensic investigator. Although R5 billion had been misappropriated from the NSF, the Department had mentioned a total recoverable amount of only R300 million, which they found extremely unsettling. They were concerned about the money to be spent on establishing a legal expert panel that would oversee issues around the legalities and veracity of the fraud as it related to the implicated officials. Proposals were made to strengthen the processes underway so that all those who were guilty would be held accountable. It was recommended that the Department consider expanding its investigations into the NSF projects, as Members had reason to believe that more corruption would be uncovered.

The Committee was perplexed by the fact that it had taken the Department a very long time to act on the forensic report, and Members were concerned that these processes could also drag on for a long time. They questioned who should be held accountable for the mess at the NSF because the previous Director-General, as the accounting officer of the NSF, had been suspended, yet many of the implicated officials were somewhat ‘protected.’ The suspensions of implicated officials were discussed, with Members asking if they were still being paid or not. The NSF as an entity had always had capacity issues -- now, with the suspended officials, Members wanted to know how the entity was performing.

Amongst other suggestions, it was suggested that all implicated companies and individuals must be blacklisted, including any other related party that had benefited from the misappropriation of funds at the NSF. This blacklisting must be followed by the full might of the law, with a view to possible criminal prosecution.

Meeting report

The Chairperson said the Committee was not pleased that this briefing should have taken place before, and was taking place only now. She hoped recommendations would come from these engagements. Given the magnitude of the issues that had to be deliberated on, if the Committee did not finish, it may reconvene on Friday before these matters become stale. Members needed to be taken into confidence about the National Skills Fund (NSF), and its current state required fruitful engagements.

Deputy Minister’s overview

Mr Buti Manamela, Deputy Minister of Higher Education, Science and Innovation, said both reports resulted from the Auditor-General's (AG’s) set of findings. He emphasised that both the Ministry and the Department of Higher Education and Training (DHET) had no intention of trying to sweep the forensic report under the carpet. The intention was that those implicated in the report should face the consequences, and that action would be taken to the extent that pursuance by the criminal justice system took its course. This would enable the Department to show that those responsible faced the might of the law. The Department was not trying to hide anything about this report, and it had also taken some action to ensure that the audit processes and investigations were followed through, with actions that would result in consequences for those who were implicated.

Since the conclusion of the forensic process and upon receipt of legal advice from the State Law Advisor and the internal legal unit of the DHET, there has been progress in implementing the outcomes of the forensic investigation. Last week, the DHET had had an opportunity to brief the Standing Committee on Public Accounts (SCOPA), and the AG, the Hawks and Special Investigating Unit (SIU) were present in that meeting. The conclusion of that discussion was a consensus on certain processes, which the Director-General (DG) would speak about in the presentation. The DG would also include some of the processes that would be undertaken.

Key actions had been taken in the last few weeks, which included the suspension of officials. The DHET had approached the Hawks and provided all the documents required for the criminal investigations, and the Department had laid criminal charges with the South African Police Service (SAPS). Companies that had overcharged for equipment and had not delivered equipment, even though payment had been made, would be blacklisted. The blacklisting action was hoped to be completed by the end of 2022.

The DHET expected the NSF to approach the companies that had been paid but had not delivered the equipment. The legal unit was in the process of procuring the services of a panel of external legal experts to oversee the process of determining the charges and sanctions against all the officials implicated in the forensic investigation.

The NSF was showing signs of noticeable improvement. In the previous financial year, the AG’s report had shown a movement from disclaimers to a qualified opinion. The development of the new audit action plan would address some of the challenges and some lingering findings by the AG, as pointed out in the NSF's management report. The business model of the NSF had been completed, and that would also be presented. The implementation of the NSF system was -cheduled to be contextualised and implemented by 30 June 2023.

Briefing by Department of Higher Education, Science and Innovation

Dr Nkosinathi Sishi, Director-General, DHET, took Members through the presentation, and commenced with the legislative considerations pertaining to the reports in question. The terms of reference were outlined in the presentation as follows:

Analyse and investigate ten projects which form part of the R2.5 billion unverified skills development expenditure as reported in the NSF annual financial statement and as per the 2019/20 report of the AGSA. (Questioning of possible witnesses and suspects and documenting their statements; conducting voice stress analysis, where applicable; interviewing Fund Adjudication Committee members).
Determine if NSF officials intentionally concealed information from the auditors.
Determine any possible conflict of interest concerning relationships by and between NSF officials, relevant DHET officials (past and present), projects awarded, as well as service providers;
Evaluate funding adjudication processes and procedures;
Evaluate processes and procedures when awarding funding for the projects
Conduct lifestyle audits and financial standing on employees, service providers, and other related parties.

Additionally, the DHET required Nexus, the private forensic investigation company, to:

Engage with the DHET, the NSF’s employee relations unit and the employer representatives to assist in the drafting and finalising any charge sheets (where applicable);
Assist with the presentation of evidence, and disciplinary and legal proceedings;
Recommend a course of action, inclusive of enhancements to the Department’s control environment; and
Compile and present a comprehensive report for the Minister’s attention and action.

[See the presentation for the ten projects that were investigated, the recommendations and progress update, and the way forward]

Lastly, on consequence management, based on the AGSA findings superimposed on the forensic report findings and recommendations, the DHET had reported to the Directorate for Priority Crimes Investigation (HAWKS) the findings of the forensic investigation. All principles recognised by natural justice had been adhered to. In this regard, the officials implicated would have an opportunity to respond to their charges to an independent panel of experts. The HAWKS would conduct further investigations as recommended in the forensic report.

The independent panel of experts, forensic investigators and the DHET's labour relations unit would process charges and recommend sanctions, in consultation and full cooperation with the HAWKS.


The Chairperson was shocked at the findings of the forensic investigations into the NSF. This was scary. It was extremely concerning that taxpayers’ money could be used so fraudulently. This was extremely shocking, because these were massive amounts. There were people within their ecosystem -- third parties and service providers -- who were not fit for purposes at all, including the systems in place. They did not protect the taxpayers’ money and South African citizens at large. It was extremely concerning that there were people in the ecosystem who did not have the best intentions for what the Department was trying to achieve. It was like snakes had been allowed to just do whatever they wanted without consequences. It seemed like this had been ongoing for a long time. The damage was done.

She welcomed the submission that these funds would have to be recovered, but in this case, they could not play with implementing consequence management. This administration’s theme was to clean house and deal with corruption. The work that must follow what this investigation has brought to light, must be robust.

Ms C King (DA) shared the same sentiments as the Chairperson. It was shocking to see how money had been mismanaged, and that no processes were followed. Before the AG had highlighted that funds were not accounted for, the NSF had already seen disclaimers. The Minister at the time had spoken about the R5 billion that was not accounted for, and the previous DG had therefore been suspended owing to the fact that one could not be a referee and a player as an accounting officer. However, how far was the Department in its legislative framework to address that matter? The current DG was going to find himself in the same position over the NSF. This would leave the Committee with the question of who must be held accountable -- was it the Minister or the DG? Was due diligence done in terms of the oversight mechanism of the Department over the NSF -- and by extension, the Minister? Previously, there had been two disclaimers at the NSF that were not acted on. It was a pity that the Minister was missing in action to answer some of the questions the Members needed to ask. She was also concerned that the South African Revenue Service had not been pulled in as well in connection with the value-added tax (VAT) that was not paid.

On 6 September 2021, the list was provided to the Minister's chief of staff, and it had been asked if this list could be revised. Were any service providers taken off the list or added to the investigative report before arriving at the final ten that would be investigated? The DG should provide the list of the suspended officials, the charges levelled against them, and whether most of them were suspended with or without pay. Was there a standard operating procedure when a request was made for funding until it was paid out? Had the skills audits of the NSF official team been conducted, and were those skills audits linked to the positions that the officials hold? It had been seen how cadre deployment had swept into these government departments and agencies without the requisite skills to run the departments they were administering.

Were the Memorandums of Agreement (MOAs) done with the legal assistance required? Members should see these MOAs to ascertain what they entailed for the ten that had been highlighted. Money had been paid over to departments without due diligence on whether those payments should continue. One could therefore conclude that the NSF never conducted any due diligence on any of the projects that had to be funded. There were no timeframes for evaluations. It was also clear that there was no project management department that operated fully and functionally. The NSF was just a cash cow to defraud the state. She was pleased that other than the ten, others would also be investigated.

The Minister was asked why the SIU had not been utilised for this. It had now been roped in, and double costs were now being incurred. What costs would be incurred by the SIU and the Hawks for further investigations? Processes that had been undertaken were welcomed, but who was going to be held responsible for this? Was it the DG or the Minister?

Mr T Letsie (ANC) said the report was bad and irritating. The NSF was a cash cow for criminals. It had been so for a very long time, and people just wanted to enrich themselves. He made it clear that it was unacceptable that the Department had not sent the presentations timeously. When presentations were sent timeously, Members could get the legal team to advise on the questions that were appropriate to ask.

Going back to the timeframes, last September, the Minister said that he would take the NSF issues through a forensic investigation, and a ministerial task team (MTT) would be appointed to review the business model of the entity. R5 billion had been misappropriated, and the fact that this report was handed over in March this year -- seven months ago -- makes one wonder what had happened since then. Members were supposed to have received a report a long time ago. It appeared the report was received, but the Ministry just sat on it. It still did not make sense why it took so long for SCOPA and this Committee to receive feedback from the DHET. Members could not accept this.

On slide 9, there was glossy feedback without any timeframes. What timeframes had been given to the State Attorney and the other stakeholders to start doing the work and revert to the Department? This could not be an open-ended process. The Committee needed timelines for all the actions that had been taken. The report in its current form did not assist Members in doing their job. The Department was hampering Members from doing their job. These cases could drag on for more than five years. Taking the cases to the Hawks and SAPS would not assist them. People must be arrested. This was a criminal network – a cartel.

The NSF paid money to service providers without verifying whether the services had been delivered. Once the first service provider received the money, it was sent to the second one and individuals, and it was a party. The SIU must investigate whose bank accounts the monies ended up in. Young people were being robbed of opportunities through lack of skills training. The Committee could not accept that.

It was all good and well to blacklist the companies, but the individuals who were responsible must also be blacklisted. People would close the companies and open others if they were not attended to properly and individually. The presentation did not assist the Committee.

He proposed that the SIU had to investigate all the entities that did business with the NSF, going back in time to 2013. They must not work just with the sample companies.

How many suspended officials were there? The NSF had had issues with capacity because of the vacant posts, but how were these suspensions impacting its capacity to deliver its mandate? The skills provided by these service providers could easily be provided by colleges, and perhaps by some universities. These service providers charge an arm and a leg and, in most cases, they do not even deliver. Why was the Department not considering giving this business to the technical and vocational education and training (TVET) colleges and other institutions in the sector? There was no value for money at the NSF. These funds should be redirected to the TVET colleges, and they had the infrastructure in place.

He also proposed that the NSF must submit the full details of all projects that were under way with their service providers so that Members could conduct unannounced oversight visits. He was convinced that in some establishments there may be ghost learners. He committed to doing unannounced oversight visits.

He asked about the overlap between the NSF, the TVET colleges and the sector education and training authorities (SETAs). The Department must institute an investigation into how much of the Skills Fund went into funding duplicate skills interventions, and if there was a need to review to ensure that there was a return for the investment made by the skills levy institutions. The Department must also develop an implementation plan for the Committee, which must address these identified overlaps. The MTT had also recommended that the NSF have a board, but how far was the Department in implementing that recommendation?

Lastly, it had indicated that there was work already being done by 1 July. What did that work entail?

Ms N Marchesi (DA) said if the President was serious about fighting corruption, he must implement the step-aside rule, because if there was a department where there was mismanagement of funds, one wonders why the Minister was still occupying his position. Backlisting the companies alone would not help -- one had to ensure that the bank accounts of those responsible companies and officials were closed, along with those who were related to them who had benefited from the corruption that took place at the NSF. Secondly, this matter had been handed over to the Hawks, but the Hawks were toothless and there were no timeframes.

The other problem was that whistleblowers were not protected. Corruption would go on for long periods of time because people were scared to come forward and report these matters. The fact that the previous DG had been suspended, and the Minister was still occupying his office, could not be accepted. The Committee would find itself in the same position. Perhaps it could ensure that the NSF model was revised. The NSF must be re-modelled, and perhaps aligned with the SETAs, given that there were overlaps with the SETAs. She agreed with Mr Letsie about using the TVET colleges instead of service providers.

The officials were the ones who ended up taking the responsibility, while the real perpetrators got off scot-free. She suggested that the Committee recommend that the Minister must step aside, and she did not believe that the HAWKS could do much.

Ms J Mananiso (ANC) said this report seemed like a “zama zama" scene. It was disturbing to be receiving this report during a time when the country was faced with high unemployment and a lack of skills. It was important that the Minister and officials from the DHET implemented the recommendations.

The implementation plan must be provided in writing with timeframes so that substantial ground was covered at least by June 2023. Issues of duplication, poor management and inadequate systems to deal with project management were issues at the NSF presented by the AG last week, but the Committee was dealing with organised crime in the system. The Department had mentioned Operation Siyaphambili regarding reviving the NSF, yet Members still felt that this process had not been given the necessary attention it deserved. As the DHET committed to act, it must do so with specific timeframes.

Last week, the Minister had committed to fully comply, but a programme of responsiveness must be compiled so that it could be followed closely. The Committee had been told that people had been implicated, yet they were protected. Members were disappointed with this report.

Ms D Sibiya (ANC) also lamented how disappointing this report was. The SIU should be involved in the investigation already. She also wanted to know about the suspensions and whether the officials were still being paid or not. Where had the Chief Financial Officer of the NSF been when these activities were taking place?

Mr B Yabo (ANC) said the Department had put together a presentation with “shock absorbers”. He did not think what was detailed was the full extent of what the malfeasance looked like in the NSF. It was a “tip of the iceberg” presentation. Perhaps, the Department was trying to spare the Members from the deep-rooted malfeasance that existed in the entity. Constitutional democracy had created frameworks that allowed for checks and balances, and demanded accountability for public funds that put a bare minimum requirement on public services. It was unheard of to have an entity that did not follow the frameworks of the available checks and balances, first and foremost, internally. There was a reason why there was an internal audit function. Where was the internal audit committee when these activities were happening, and who were the members of that committee? Was any reflective report written to the accounting officer at the time raising some alarm about what was happening at the NSF? What was presented today did not reflect the R5 billion that had been misappropriated. Members would like to see the extent of this problem reflected in figures.

The principle of innocent until proven guilty was respected, but the consistent concealment of identities of rogue officials and businesses that collude to steal public funds was one of the discouraging elements of South Africa's legal system. If people were not exposed for fraud, financial irregularities and theft, nothing would discourage them because their identities would be concealed. This was one of the Achilles’ heels of the legal system.

Members must be given the plan to strengthen the internal mechanisms of checks and balances and a demonstration that within a reasonable period, the failed internal systems were going to be strengthened. Members needed to know that committees within the procurement and supply chain management (SCM) space were established and that reports were generated and kept to the processes that were related to expenditure. Internal mechanisms that complied with the law had been put in place. It may be appreciated that the MTT had recommended that the entity must have a board. The swift action the Minister would have taken against those implicated at the beginning would be appreciated. The accounting authority and management should have immediately seen that the entity was bleeding public funds, and acted. The lack of adherence to proper processes was unbelievable, so a demonstration of plans put in place to strengthen the internal mechanisms for checks and balances in the financial reporting, financial management and procurement space must be demonstrated. These mechanisms must be put in place to reverse the malfeasance that had taken place in the entity.

The spider web of the movement of money made it difficult to determine how much could be recovered. How could this paradox be reconciled? The extent of the movement of money at lightning speed between various and multiple parties made it difficult to recover most of that money. To who were preservation orders going to be served, and how much was going to be recovered? How much would this criminality affect the multiple parties down the chain – the people benefiting from the “slush fund” of the NSF without recourse? Through the preservation orders, the recoverable amount was R300 million, which was a joke because R5 billion had been stolen. What was going to be the cost of appointing legal practitioners who would determine the charges to be preferred on specific individuals who had been identified as culprits in this process? More money was going to be spent to determine the extent of the mess they had created and to remedy that mess. More money would be spent to recover misappropriated funds by those given the authority to oversee the money.  

Another problem was that the process must be devoid of witch hunts, because a mess of this nature almost guaranteed collateral damage. Thus, due diligence must be done to minimise collateral damage and witch hunts. Hopefully, the process would be thorough and swift. The Committee wanted the real culprits, not the collateral damage culprits, while the real culprits were left unscathed.

Dr W Boshoff (FF Plus) expressed his condolences to any Member who could defend the ANC today after this report. The NSF and the SETAs were products of the new National Skills Levy, which had started in about 2002. The policies like quotas and transformation targets had been created in the beginning, but only the cadres had benefited from these policies. They protected people from accountability because of some other external measures that had to be applied, which inevitably led to the NSF's collapse. It was commendable that the report had been compiled and investigations were underway. One would have to trust that the whole process of renewal and the application of accountability would assist in finding the criminals, and justice had to take its course.

Ms D Mahlatsi (ANC) said the report as presented painted a bad picture, and it was demoralising. She sought understanding about the suspension of officials, and how it would impact the entity's daily operations, given the vacancy rate. Was the intention to shut down the NSF? What were the plans, considering this reality?

What needed to be done to rescue this situation from an operational perspective? This process might take a long time, however -- was the Committee going to be furnished with the timeframes of the investigation process? When they received the audit action plan of the NSF, it had previously detailed weaknesses in the internal audit and risk committee. What was the plan moving forward, because these were critical internal controls necessary?

Lastly, she empathised with the DG, because this process was already running when he arrived in October. However, the DG and the Ministry were not exonerated by virtue of leading the Department, even though he was not the DG at the time.

The perception that the ANC government was corrupt was not fair, as it relates to this report. Those who would be charged would be defended by the counter-revolutionary Public Servants Association (PSA). To a large extent, no one would know if they ascribed to the ANC or any other political party. The Department must take accountability, but putting the cart before the horse may be dangerous. The process must be allowed to run, and the Department must admit that this report was a slap in the face of the public, and there was a need for a speedy recovery.

She took issue with Members who quoted the policies of the ANC incorrectly in a portfolio committee of Parliament. They should rather join the ANC so they could interpret its policies correctly, rather than misleading people as to how issues of step-aside were interpreted. No charges had been opened here for anyone to step aside. One must not play politics, but if Members wanted to play politics, they would do so and tell them a matriculant led them in the Democratic Alliance.

Chairperson's comments

The Chairperson said she had anticipated that there would not be sufficient time to respond to all the questions due to the Medium Term Budget Policy Statement (MTBPS) sitting in the afternoon. The engagements would be concluded on Friday. The meeting would reconvene then to receive adequate responses from the Department.

The matters relating to the NSF were not new. It had not been doing well for quite some time. The last two years have highlighted the need for this process. Members gave many recommendations regarding what should happen going forward. Part of those recommendations was the issue of timeframes, and there was also agreement with some of the recommendations in the report. There was also a great concern about the capacity of the entity. Members were concerned whether the entity could still function now.

The Committee could not focus only on blacklisting people. People must be brought to book, and those implicated and found guilty could not be recycled to other organs of the state -- even the service providers. The processes that would follow and steps taken must be centered on saving the state’s resources.

Members had also requested the implementation plan of the MTT's review report with timeframes; suggestions of other entities of the state that should be included, like SARS; the review of the Skills Development Act to address the governance of the NSF, as proposed by the MTT; an oversight visit to the NSF and SETAs, as well as service providers that host the training of learners; and whether the role of the NSF should be re-thought. The list that many Members had asked for was important. When Members of Parliament did not declare on time, it was known publicly. When people know they cannot hide behind the organisation or anyone, they may refrain from these criminal acts.

The money given to the service providers must be used for their intended purposes. Some of the recommendations from the review by the MTT would assist. Those who could not do the job must not be employed. There was a need to ensure that there were programmes in place to re-skill and upskill. However, people must be dismissed if they could no longer do that. They could not afford to have their plans as government stifled by people who did not want to work.

There was a need to expedite the blacklisting of the companies, the directors of those companies and third parties who unduly benefited from funds meant to develop young people and the communities of this country. They should also consider broadening the investigations to cover all NSF-funded projects.

The SIU should be roped in to investigate all the issues at the NSF.

The Committee also had to adhere to the commitments and resolutions taken. It must ensure the implementation of the recommendations and perhaps have quarterly engagements with the NSF to work towards ensuring the implementation of the recommendations from both the MTT review and the forensic investigation. The Committee would also work closely with the SIU and the Hawks. Members would need to know the costs of the legal team to oversee the disciplinary processes of the implicated officials.

The protection of whistleblowers was crucial, because part of the reason why some critical information had not come forward was because of fear. There was a need to find a way to support people in coming forward to contribute to the development of their country.

Dr Sishi assured Members that the Department would play its part in ensuring that this process led to the desired outcome. The might of the state must be used to crush those implicated and guilty of wrongdoing. All comments made by the Members had been clear that they were united against non-compliance and corruption. The Department would provide proper administrative systems and processes to ensure it delivered those guilty to the law enforcement agencies.

The MTT report made far-reaching recommendations about what could be done to improve governance at the NSF. This became a firm presentation by the Department in terms of its proposition on what needed to be done. They understood that a lot of work still needed to be done but also other avenues that must be covered.

The Department would compile its responses as requested.

The meeting was adjourned.


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