The Committee convened on a virtual platform to receive a presentation from the National Skills Fund (NSF) on its 2021/21 annual performance report, and to hear the response from the Department of Higher Education and Training (DHET) to the Committee's questions following the forensic investigations at the NSF.
The Committee expressed its disappointment at the NSF's poor performance. Despite a high expenditure, it had achieved only seven of its 29 targets. Although its audit outcome had improved, a Member pointed out that the fact that it had moved from a disclaimer to a qualified audit was like moving from minus one to zero, which was not progress.
The Department put it on record that it was angry and disappointed about the state of affairs at the NSF. It was decided that the entity should report quarterly to the Committee so improvements could be monitored closely. Emphasis was made that the NSF had a crucial role to play in helping people who were unemployed to establish themselves, especially after the Covid pandemic, so it was unacceptable that it had not met its spending targets.
National Skills Fund 2021/22 Annual Report
Mr David Mabusela, Chief Executive Officer (CEO), National Skills Fund (NSF), said the entity had reported on 29 output indicators, of which seven were achieved and 22 were not achieved.
The NSF audit action plan had been approved, and implementation had started. However, it took time to finalise most of the actions identified by the business units.
There were 13 639 NSF-funded beneficiaries out of a targeted 35 000 who had completed their education and training. This was caused by delays in implementing newly recommended projects and the drop-out of learners from projects due to various reasons.
There were no small, medium and micro enterprises (SMMEs) and cooperatives funded by the NSF for skills development. The reason was that old projects had closed, and newly recommended projects were in the recruitment process and would start reporting in the new financial year.
NSF remained a cost-efficient efficient entity, spending only 5% on administration costs concerning the skills development skills levy received in 2021/22.
The R1.16 billion overspending was due to the movement of funds from the prior year as a result of approved funds by the Minister of Higher Education of R3.3 billion from the NSF to augment the 2021 shortfall at the National Student Financial Aid Scheme (NSFAS) for the 2021 academic year, of which R1.2 billion was disbursed to NSFAS/Department of Higher Education and Training (DHET) towards the end of March 2022. The remaining balance was then accrued as part of reimbursement expenditure to NSFAS for expenditure incurred in the 2021 academic year.
The reason for the under-spending on employee costs was mainly due to the slow pace at which the DHET human resource management (HRM) functioned to fill vacant positions at the NSF. They were taking longer than average to fill a position from the date of advertisement, and taking long to advertise vacant positions.
Some of the issues raised by the Auditor-General (AG) included that adequate systems were not in place to account for skills development funding, and there were inadequate project monitoring and expenditure approval processes.
(Please see attached document for details).
DHET response to NSF investigation: Ministerial Task Team Review & Forensic report
Mr Stanley Mkhize, Director: Ethics, Integrity, Fraud and Risk Management, DHET, said there was a sense of administrative satisfaction that the prudent considerations of the forensic investigation had been complied with, in the sense that the DHET had handled the forensic report diligently to limit unintended fallouts and consequences.
His unit received the report in April 2022 and finalised its processes in July. These processes involved cross-referencing the report with the internal audit report, the 2019/20 Auditor-General's (AG') report and the 2021/22 AG's report. The convening of disciplinary proceedings was earmarked to begin in 60 days’ time, within the prescribed period of suspension.
On timeframes of the Ministerial Task Team (MTT) report and the forensic investigation implementation plans, timelines would be attached to the comprehensive plan which would be submitted to the Committee.
Post-audit activities were undertaken by the NSF, where an audit debriefing session involving all the NSF staff was held, wherein the challenges and successes of the 2021/22 audit process were discussed, as well as expectations in preparation for the next findings. These preparations included business continuity and improvement plans for the NSF unit, which referred to the findings of the AG and the revision of the audit action plan
On the implementation plan of the MTT report as of 01/07/2022, the mention of the “low hanging fruits” was related to what could be achieved before a formal implementation plan was finalised. This related to the go-ahead directive the DG had given concerning the NSF addressing the rapid filling of vacancies, in that it may proceed to make use of its own processes in staff recruitment. This would also address the AGSA’s finding on the NSF’s slow filling of vacant posts.
Ms D Sibiya (ANC) appreciated the Department's responses and turnaround strategy. She asked what had caused learners to drop out, and how many had done so. Could any of the irregular expenditure be regularised? What role did the NSF play in its skills infrastructure development project to ensure the project was delivered effectively within the project plan? Regarding e-monitoring, what system was in place to monitor a learner’s support during training, and how could the NSF develop work opportunity linkages for trained learners? Lastly, she asked how the entity mitigated the impact of vacancies to ensure the entity delivered on its mandate.
Mr W Letsie (ANC) raised concern that a lot of performance targets were not achieved, considering that this financial sector had contributed more than anybody else. He suggested that performance indicators be checked, as some may have contributed less than others in terms of percentage. Only seven of the 29 targets had been achieved, which was a serious concern as spending was ongoing.
He asked whether the NSF had a chief financial officer (CFO), because the happenings in the NSF were not furthering its mandate. If it did have a CFO, then it should explain the day-to-day duties of this particular individual. The state of the internal monetary affairs of the NSF should have been pointed out by internal audit very early. He asked what the day-to-day work of the NSF's internal audit department was, if they were not picking up all the irregularities, including money paid to companies which did not do the work. Those companies then transferred those funds to third party accounts, and eventually, that money landed in individual accounts of people who were probably buying cars and helicopters. The fact that the NSF had moved from a disclaimer to a qualified audit was like moving from minus one to zero, and that was not progress.
He requested the NSF to send the Committee progress reports on its audit action plan every three months. He was concerned that there currently was no progress on the audit action plan, as evidenced by the R1.3 billion in irregular expenditure. Progress would be when the NSF got an unqualified audit, even if it was with findings. He suggested that standards should be changed to state that any entity which received anything less than an unqualified audit should not even speak about progress. The AG should be brought in to explain to the NSF the meaning of qualified audits, as they did not speak of progress, but "bad things."
Last year, the NSF reported a high vacancy rate, and the situation was still the same this year. This gave people who believed in propaganda the belief that this vacancy rate had been created intentionally, because hiring more people would mean that the irregularities could be curbed. He requested a full list of the vacancies, the plans for advertising and clear time frames of when the NSF anticipated filling them. He also asked for the reason why these vacancies could not be filled. He also asked for clarity on the staffing capacity of the human resources department, as maybe one person being there might be inundated and unable to complete such a big task.
He asked which information communication technology (ICT) projects had not been implemented, and the reasons for this.
He mentioned that "hopping" happened across sector education and training authorities (SETAs) and departments because they operated independently, but did the same thing. So, where a learner could get a higher stipend elsewhere, they would jump. He suggested that proper central records be maintained of learners' participation in various SETAs, to curb this SETA-hopping for higher stipends.
He stressed that the Committee had previously asked the NSF to provide a list of active projects so it could do oversight visits at them. It had not received any list, and he requested that it be received by Friday.
Ms K Mahlatsi (ANC) commented that the presentation clearly indicated why the forensic investigation was necessary. She said there had to be some form of correlation between targets not met and the expenditure for the period. It did not make sense that seven of the 29 targets were not met, yet expenditure for the period was "humungous."
She expressed concern about whether the NSF would receive applications for vacancies, given the current reputation of the institution, as it would take serious efforts to build a credible institution that would attract skilled learners.
She asked for clarity on who sits on the audit steering committee and in what capacity.
Regarding students, she asked what the impact was on the 40 000 students who were trained, given the R3.3 billion expenditure. She also wanted to know why the newly recommended projects for learners funded by the NSF had been delayed, and what systems were in place to monitor the learners supported for training. Were there work opportunity linkages after the learners were trained and supported, and what was the exit strategy for learners to exit the system if they were trained by different service providers?
She asked how many SMMES as service providers had benefited from the closed and new projects funded by the NSF. She asked for a further breakdown of the number of youth and people with disabilities among SMMEs' service providers.
She commented that it was quite worrisome that the NSF was operating under difficult circumstances. It was moving from one bad audit opinion to another, which did not give the Committee confidence that it was moving in the right direction. The Committee strived towards clean governance of taxpayers’ money.
She said that the world was still recovering from Covid, and many young people were unemployed, or had dropped out of universities for numerous issues, and the NSF should be a provider of comfort for them. This kind of report, however, did not provide that comfort level, although the Committee was somewhat comforted by the new business plan and turnaround strategy. She requested that the NSF give a plan of how its new business plan would salvage its reputation. Lastly, she asked whether the senior management of the NSF had signed the performance agreements.
The Chairperson commented that the Committee needed the NSF to start functioning to its full capability and delivering on its given targets, given the important role the Department played in ensuring that the country's citizens had the requisite skills and knowledge to be active participants in the economy. Given the high unemployment rates, and higher levels of inequality and poverty in the country, the Committee and the Department had a huge task. They could not afford to find themselves in this situation, where funds were set aside, and targets were not met. It was unacceptable to see that NSF-funded beneficiaries were only 13 639 when the target was 35 000, and 4 113 learners had completed their education and training when the target was 10 500. There were no beneficiaries out of a target of 5 000 students funded through SMME and cooperative skills development initiatives.
She asked the Department to clarify how much time it needed to bring the implementation plan on the recommendations stated in the forensic report and the recommendations stated in the MTT review report.
When they would it send the collaborative costs of the institutions who would be working together to clean up the NSF -- for example, the costs for the Hawks, the Special Investigative Unit (SIU) etc.
She suggested the Department report to the Committee quarterly so progress on the improvement could be monitored. These report-backs should include action plans on filling vacancies in the regional offices.
Dr Nkosinathi Sithi, Director-General, DHET, responded that in areas where very high targets were set, no outcomes had been achieved. The entity was in dire need of improvement and turnaround, and this should not be masked by highlighting slight improvements, as this would seem like the entity was hiding the business risk posed by its poor performance.
He emphasised that the Department would like to be put on record that they were angry and intolerant of the poor organisational performance of the NSF. He welcomed the guidance and input of Members for improving the entity.
However, he acknowledged that the NSF did have committed individuals who worked hard. Performance agreements were in place, but they needed to be interrogated because they could defeat the entity regarding performance targets. Measurement tools that the Department had put in place must be assessed for adequacy.
He said the Department would share the business continuity plan to assist the Committee with its oversight.
He had had a conversation with the AG about the alignment of systems across the board specifically related to skills development infrastructure, including the monitoring of beneficiaries, so that the drawing up of reports was done more swiftly. This would also eliminate fraud, where a learner received benefits and grants from the same system.
The NSF had a CFO whose contract ended soon, and a new CFO would be taking over next month. A fund manager had also been appointed to stabilise the institution, which was a huge step for the entity.
He acknowledged the overlap between the SETAs, and said it was important to close that loophole.
He noted the request for a list of projects, and said that the Department would share those with the Committee.
Regarding irregular expenditure, he was pleased that an independent panel had been appointed so that the relevant people could be held accountable. He was aware of the business risks it presented, but it was an important step, especially when one started with a new set of executives who wanted to build good teams, but their plans were ruined by underperforming staff.
He agreed that there was a need for the NSF to study the impact it was making with the resources it had spent and the policies being implemented.
He said this report supported why a forensic report had been necessary. Now that the DHET had it, it would be used as a tool and opportunity to hold the Department accountable for improvement.
Regarding the time needed to bring recommendations for implementation, he said the Department needed 30 days for the implementation plan of the MTT review because although it existed, it still needed to go through an approval stage.
Updates on the forensic investigation could be given regularly at the request of the Committee, because the accountability for that had been handed over for the legal processes. For example, the law stated that within 90 days, those suspected must be charged and must have been presented with an opportunity to respond to the charges. In that regard, it meant the Department must advise the Committee on commencements within the next 60 days. There would be a much bigger number of people facing these charges as progress was being made on a daily basis.
He concluded that some questions were complex and required written responses, which would be submitted to the Committee. The suggestion for quarterly reporting on the forensic investigation was accepted, and the Department would also provide the implementation plan for the MTT report when it was finalised.
He added that the Minister had indicated to the Committee the need to look into the young people caught up in the bracket of the "missing middle" who had received funding from NFSAS but remained unemployed.
Mr Mabusela responded that sometimes the NSF had contradictions regarding irregular expenditure. An example was when they received a request from NSFAS to help struggling students which they could not ignore. Such situations forced the entity into a corner of either ignoring the plight of the students and emphasising administrative compliance, or helping the students.
Regarding vacancies, he said posts had been advertised and the presentation had indicated where the processes were. Two of the critical posts had been filled, and some had been processed and would be filled by the end of the current financial year. The NSF had also been given the go-ahead to manage its own recruitment processes.
The Department would provide a comprehensive report on the other suggestions and requests from Members.
Mr Mkhize responded that the Department had noted the concerns about student drop-out rates and the fraud happening around some programmes. The Department would look into these matters, and there were already a number of cases that were being investigated. The Department had investigated and knew the modus operandi of the fraud and the scams of "ghost" students. He would in future be able to provide a report on the steps taken by the Department in that regard.
Ms Miki Kutta, Head: Secretariat of the Independent Panel, assured the Committee that she would come back to them with a report, although the one that was being investigated by Hawks was out of the Panel’s hands.
The Chairperson suggested that the Department should share with the Committee in confidence the plans that were interim and subject to approval. She said there was at least some form of roadmap with timeframes for plans and for reporting on them.
Minutes of the previous meeting were adopted.
The meeting was adjourned.
- National Skills Fund (NSF) Annual Report 2021/22; NSF investigation: Ministerial Task Team Review & Forensic report response; Implementation of audit action plan response (Part 2)
- National Skills Fund (NSF) Annual Report 2021/22; NSF investigation: Ministerial Task Team Review & Forensic report response; Implementation of audit action plan response (Part 1)
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