NSFAS & National Skills Fund investigations

Meeting report

The Chairperson was running late due to flight delays and Members elected an Acting Chairperson, Mr S Somyo (ANC).

The Acting Chairperson informed Members that the nature of the presentations would outline the work that the SIU has done so far in the preliminary investigation of the National Student Financial Aid Scheme. The Committee would also receive a briefing from the Department of Higher Education and Training (DHET).

NSFAS Investigation: Special Investigating Unit briefing
Adv Andy Mothibi, SIU Head, advised that the SIU had commenced with the NSFAS investigation which was still ongoing. It will conclude with the NSF investigation.

Mr Leonard Lekgetho, SIU Chief Investigating Officer, presented on the focus areas, scope and terms of reference of the NSFAS investigation; the incorrectly awarded students; NSFAS financial management systems; the Close Out Reports per institution (overpayments to institutions); outcomes to date from the pilot; monies already paid by owing institutions; observations; and potential systemic recommendations.

Mr Lekgetho explained the SIU fee determination. The charge rate is authorised by law in terms of the SIU Act, and it utilized the AGSA methodology to calculate rates and to be competitive, the SIU discounted its rates and fees by 40%. Its fees had been determined and remained unchanged for the past nine years while competitors have increased their fees. A full review of its fees and rates would be determined in the new financial year.

In its investigation thus far, the SIU has found that NSFAS paid a total of R5.1 billion to ineligible students during the years 2018, 2019, 2020 and 2021.

The amounts owed to NSFAS by institutions based on the Close Out report still needed to be verified but the preliminary figure is over R326 million. Three institutions paid about R38.3 million to NSFAS but the monies were still being verified to ensure that all monies due to NSFAS were paid.

SIU observed that NSFAS was struggling to identify fraudulent applications for student bursaries; it also had inherent flaws in its financial management systems such as payments were made to fictitious students; lack of procedures to perform proper reconciliation of the funds disbursed and the funded list, which has led to NSFAS hiring consultants to perform these reconciliations for it in the Close Out Report; involvement of syndicates in student accommodation as well as ghost students, under-payments and overpayments and double-dipping by students.

The investigation is quite gargantuan and the total cost estimate for the duration is R70.1 million. The SIU has already recovered R38.9 million during the pilot project. The final costs were yet to be determined. Once matters have been taken to court, court processes will attract more costs. The SIU was not utilizing private investigators for the NSFAS investigation, it is utilizing its internal capacity.

Department of Higher Education and Training Update on Developments at NSFAS
Dr Nkosinathi Sishi, DHET Director General, provided updates on the developments at NSFAS.

[See the presentation for details]

Discussion
Mr A Lees (DA) asked about the R38 million recovered from institutions and what were the possibilities of recovering any significant amount of that R5.1 billion from the students. It is a mammoth task, we are looking at spending R70 million towards the investigation. However, how much will the SIU recover? Would a non-recovery of funds result in a forfeiture of assets of the students that owe NSFAS?

The current NSFAS system is shocking leading one to reservations if owing students were even sent their accounts statements by the Scheme. If this was not done within three years, the debt becomes prescribed. Perhaps, NSFAS should consider putting people in jail because he had no faith in the recovery of the money from the students.

SIU clients do not often pay their debt to the SIU and Mr Lees asked what SIU debtors’ book looked like and if its clients were settling payments.

One of the major system failures seems to be the payouts of funds to students and the control being the threshold of R350 000 per annum. Has NSFAS fixed this major error of paying monies to students who do not qualify and are ineligible for funding? Mr Lees asked the Scheme to confirm if it had indeed paid monies to incorrect students and if this major error had been fixed.

Mr Lees asked the Chairperson to request a detailed brief on the NSFAS system and how it worked because as a bookkeeper, he was uncomfortable with NSFAS systems and internal control measures. NSFAS does not extend its footprint to partner with financial institutions like banks to assist it with its systems.

Mr Lees pointed out that NSFAS had not met the 2021/22 Annual Report submission deadline and the Minister must write to Parliament to request an extension. He asked if the Minister has written to Parliament yet about this because the AGSA has no authority to grant such extensions.

Adv Mothibi replied that the money received so far came from institutions not students. The possibility of recovering monies from owing students was hard to determine at this point but when SIU reaches that stage, it will conduct an assessment of the recovery method that will ensure that these funds were recovered. He did not want to speculate but once sufficient information has been obtained, the SIU will decide. On criminality, if there is evidence implicating a student of criminal activity, the evidence will be referred to the National Prosecuting Authority (NPA) for further investigation and prosecution.

On prescription, there are legal rules that determine how long a debt runs and at what point it may be prescribed. The SIU is yet to determine this once it has gathered enough information. If the matter relates to criminal action, prescription does not apply but it applies to a civil matter. It would apply to matters going back to 2013 and the SIU is considering extending the scope of its investigation.

The SIU would not consider reviewing its rate with a view to recovering bad debt. This would be a bad financial management act and SIU would not do so. It would review its rates since these have not been reviewed in the past nine years. It will apply prudence and consideration as it decides to increase or not.

The SIU will submit its debtors’ book showing the institutions that owed it and the life cycle of their debts. The current debt owed to the SIU stands at over R1 billion and SIU has made a case to National Treasury for consideration to review its funding model because at the current rate, the spiraling debt by institutions increasingly affects SIU’s ability to carry out its mandate.

Mr Andile Nongogo, NSFAS CEO, said that NSFAS has improved its systems and many of the cases referred to by SIU were at the time when its system was not linked to Home Affairs. NSFAS also utilized parental information to analyze student information. Many students register using their mother’s information which makes it difficult to assess the total household income to determine if they qualify for funding or not. NSFAS also verifies income from SARS, but the shortcoming is that the exchange of data with SARS is not in real time, so NSFAS was utilizing past tax information of the parent(s) of the student. Where the parent cannot be found on the SARS database, NSFAS also utilizes the credit bureau system.

NSFAS utilizes the SASSA database and if a student is a SASSA beneficiary, they are automatically funded by NSFAS. Improvements have been made to strengthen the systems, but they were still imperfect. Before NSFAS was decentralized, it used to utilize banks and financial institutions to process payments to students on its behalf. However, that has since changed and the Scheme took over from third party institutions for the payments of funds.

Dr Sishi replied that the Minister did write to Parliament in September 2022 requesting an extension for the submission of the NSFAS 2021/22 Annual Report. The second letter was sent to the Speaker on 15 December 2022.

Mr N Paulsen (EFF) asked the SIU from its preliminary investigation if the students awarded funding erroneously misled NSFAS with intent. How much of the erroneous paid-out funds were as a result of a NSFAS employee colluding with a student(s). The investigation is projected to take 18 months for over 40 000 students; how much of those students make up the R5.1 billion error and how many of them were ‘missing middle’ students? He asked NSFAS if it was at the stage of having a seamless application system for students who were SASSA beneficiaries.

Mr Lekgetho replied that there were instances where students misrepresented their parental information and utilized their grandparent information to apply for funding. There are institutions that have also contributed to this. When the SIU followed up, some of those students dropped out of the institution. The SIU was still assessing the data to ascertain who signed the contract and determine who is responsible. Collusion with employees at institutions does take place. This is prevalent in student accommodation – with service providers, institution employees and students often colluding in this. The SIU will utilize several databases to determine how it would investigate the 40 000 students. It was still assessing methods where it can gather reliable data to limit physical verifications on students.

Adv Mothibi assured the Committee that the SIU has tools in place to do the work and its system can indicate the outliers and flags instantly. The SIU has not done any assessment on the ‘missing middle’ students.

Mr Paulsen asked that the Committee be brought into confidence on the threats made to the NSFAS CEO by the student accommodation mafias.

NSFAS CEO Nongogo confirmed that SASSA applicants get real-time funding decisions. Over 70% of NSFAS beneficiaries are SASSA beneficiaries. As for the SMS threats that he received, he forwarded those messages to the security assessment team dealing with the matter.

The Acting Chairperson asked how deep the threats were and what was NSFAS doing to deal with this matter. It is a critical matter that must be responded to in detail.

Ms R Siweya (ANC) asked the SIU if it is confident that it would conclude its investigation within the allocated time. How much was spent so far to recover the monies that were recovered from higher education institutions? As for SIU capacity, she did not hear about a plan for how the SIU would bridge this gap internally to ensure that it is capacitated for the investigation.

She asked NSFAS about its plans to resolve its internal capacity challenges and constraints.

Adv Mothibi confirmed that the project would take place over the period of 18 months. If the SIU struggles with recoveries from students, it will decide then but so far it has recovered more than half of what the SIU will charge for the investigation. This is a good indication that it will yield value for money. It will also ensure that it has sufficient capacity and if there is a need for a specialist, SIU would ensure that it sources such expertise so as not to compromise the objective of the project.

Mr Nongogo said NSFAS has frozen its new appointments whilst waiting for the board to review the organisational structure. NSFAS has prioritized critical vacancies such as internal audit and forensics. NSFAS applied to DHET to use a percentage of the money to assist with NSFAS administration and its capacity. The recruitment process has commenced and there are resources that were placed internally to enhance the capacity of the forensic unit.

Ms A Beukes (ANC) acknowledged the progress of the investigation and asked if NSFAS was cooperating with SIU and how regular were the engagements. What is the status of measuring and developing its security systems to prevent compromising the investigation? Is the investigation revealing that it was indeed the students who applied for NSFAS bursaries even though they did not qualify?

She asked NSFAS why it froze vacancies and instead appointed service providers to enhance its capacity. NSFAS systems are also the source of this gargantuan issue.

Mr Nongogo said that the Hotline was in place prior to NSFAS being put into administration where anyone could report a fraudulent matter. On using service providers, the last time this was done to assist NSFAS was around 2019 where they were procured a service provider to investigate these matters. From time to time, NSFAS does make use of these service providers if it does not have capacity. It also has a forensic panel that specializes in this. NSFAS has not used consultants for investigations since 2019. Systems have now been improved although there were weaknesses. NSFAS has also reduced its dependence on external service providers.

Adv Mothibi replied that the cooperation between NSFAS and the DHET has been excellent. Risk analysis done by SIU reveals that often witnesses do not have a clear recollection of the events that are being investigated. The SIU would ensure that this project was completed within the timeframe to avoid the challenge of memory loss by witnesses.

Most of the challenges indicated in the system recommendations were already receiving attention by NSFAS.

To ensure that the evidence points to the relevant students that owe NSFAS, the investigation is conducted such that there is an analysis process which assists in determining these students.

The Acting Chairperson asked if any students had been denied funding even though they were eligible due to insufficient funds.

Mr Nongogo replied that all inputs from the Committee would be considered as NSFAS seeks to strengthen its internal controls. There is no student that has been left behind because of unavailability or shortage of funds. Normally when this happens, NSFAS would delay the issuing of funding decisions to avoid declining funding to students due to depleted funding.

Dr Sishi replied that much can be said about NSFAS and the improvement it has made under the current board and management. Most of the issues covered in the investigation predate their tenure at NSFAS. The current funding model is not sustainable and the Minister appointed a Ministerial Task Team to look into the development of a comprehensive student funding model. This report is ready to be tabled in Cabinet. Once this policy is implemented, it will cover several issues that have been raised by the Committee and by the SIU. The fundamental question that remains is addressing the critical skills gap in the country through skills development. The funding should be geared towards responding to our skills needs as a nation.

Mr Ernst Khosa, NSFAS Board Chairperson, replied that it would be useful and assist NSFAS for the SIU to extend the scope of its investigation back to 2013. The value of the work done by SIU is it will assist NSFAS with recoveries and the identification of all the loopholes that led to this.

An AGSA official confirmed that AGSA had received the updated submission of 2021/22 annual financial statements and support documentation from NSFAS. AGSA informed NSFAS that this was not an extension but it was allowing it to update and adjust its financial statements. The audit will be completed by 30 June and the current audit for 2022/23 is underway.

National Skills Fund (NSF) investigation proclamation
Adv Mothibi said that if more companies or names come up in the NSF investigation, the proclamation would allow the SIU to investigate them as well. The Minister was informed in a letter on 28 February 2023 that the proclamation is being processed. Once the proclamation is signed by the President and gazetted, SIU will move on the investigation. The proclamation involves several companies involved in the 10 projects investigated by the Nexus private forensic company.

National Skills Fund (NSF) presentation
Dr Nkosinathi Sishi, DHET Director General, assured the Committee that the SIU would enjoy the support of DHET during the NSF investigation. The first part of the presentation deals with the Ministerial Task Team (MTT) report that reviewed the NSF operational model. The report has been implemented and it will present that progress.

Mr David Mabusela, Acting NSF CEO, said the Minister had commissioned a MTT for the reconfiguration of the NSF, its governance structure, and other operational matters. This was completed and the DG was assigned to implement the report. Internal processes were subsequently set up to ensure this implementation.

The implementation of the report was de-integrated into NSF work streams which were governance; business model, operating model and value chain stream; strategy, innovation, and organisational performance stream; human resources and change management stream. Much of the work done so far stemmed from the report although there has been ongoing work in the work streams. The report integrates with the AGSA report. The fifth work stream was its futuristic plan.

Dr Sishi said that the Department has set up an independent panel to hold officials to account that were implicated in the report. Those officials were subsequently suspended and today all of those officials have been charged and they have responded to the charges. Hearings were underway giving them the opportunity to put their side of the story.

Mr Mabusela stated that the scope of the investigation will include all matters raised by AGSA. Those that were implicated through the expanded scope of the AGSA investigation will also be investigated.

The Audit Action Plan in response the AGSA recommendations was detailed and what NSF had completed so far. The AGSA findings confirmed the systemic challenges crippling NSF. Among these were the high vacancy rate (60%) and slow recruitment process. NSF has since commenced with recruitment and there were interviews for the appointment of the CEO and the Fund Manager.

Discussion
Mr Lees said slide six seems to indicate a difference of opinion between NSF and SIU as the SIU said the proclamation has been submitted to the President to sign but slide six indicates a change of intention by the NSF on whether this should continue.

Dr Sishi replied that the NSF slide was behind in the developments. The SIU Head comments were the most accurate in capturing the status quo. We have come from far, but we are here now.

Mr M Hlengwa (IFP) said that the issue has always been the SIU investigation. What the Committee wanted on record is for the NSF to confirm that it will be cooperating with the SIU investigation. The historical context is important. NSF appeared before the Committee due to its audit disclaimers. The Committee directed that an investigation must take place but that was not achieved easily. This was now a major milestone but there were now also a Hawks investigation. He asked Adv Mothibi to take Committee through the issue of the Fusion Centre – the Anti-Corruption Task Team – as far as this investigation is concerned.

On slide nine, he asked how long the positions now being filled had been vacant for because it was material to the turnaround. He asked for timelines for appointments to fill the vacancies; how many years these positions were vacant and who was acting in those positions before. This will help Members piece together the puzzle of what went wrong at NSF.

The NSF needs to be kept on a short leash because the Committee has not received any joy in dealing with the NSF for a long time. It is in this context that the turnaround strategy, the work streams and so forth all boil down to implementation. When does the SIU anticipate the proclamation to be signed? The reason we are here is that investigation and Nexus report sampled ten projects, even though limited but it will be left to the SIU’s investigative powers, and the Nexus report also pointed out matters that needed attention.

Dr Sishi replied that what was presented today was an indication of the success achieved so far on the investigation of the NSF and the filling of critical vacancies. The NSF would make a written submission that provides details and breakdown of information requested by Mr Hlengwa.

There is an internal plan that the Department is working from. When the Nexus investigation commenced, the preference of SCOPA was that the SIU conduct the investigation. He was pleased that this point had been finally reached. The Department previously told SCOPA that it was worried about the implications of the Nexus NSF Report being released. The report was declared public and DHET sought legal advice and it heeded that legal advice. Now all stakeholders were now of the same view and the Nexus Report was made available.

Half of the officials going to court now were Department officials from TVET colleges to other branches of DHET. He assured the Committee that the Department was working well with the Hawks, SIU and the police. The question about cooperation emerged numerous times today, but Members should not doubt the cooperation strides achieved by all stakeholders now.

Adv Mothibi replied that there had been several interactions with the Department after previous meetings. The SIU also engaged and met with the Minister and the Deputy Minister. However, at that time the proclamation was not yet processed by SIU and the Deputy Minister was taken through the draft. The SIU met the Minister and the DG a few weeks ago to inform them about the processing of the proclamation.

The SIU will not duplicate the resources and where the Hawks have investigated, the SIU will not repeat. The Hawks investigations are criminal. Once the proclamation is signed, if SIU identifies areas where criminal acts might have been committed, the team will have to engage with the Hawks. The SIU investigation will be focusing on malpractice of policies and maladministration with a whole range of sub-categories such as NSF governance as per the SIU mandate.

The Fusion Centre is where the law enforcement agencies collaborate. It is a sub-structure of the Anti-Corruption Task Team, and it is used to ensure that law enforcement agencies and the Financial Intelligence Centre sit and ensure that all matters recorded on the system are coordinated appropriately among the agencies. The SIU will ensure that it collaborates as the investigation ensues.

The estimated cost for the investigation would be more than R10 million – perhaps up to R30 million but he was not certain at this point. However, he was certain that it is more than R10 million.

The SIU will follow up on the signing of the Proclamation. It has already been sent to the Department of Justice and Constitutional Development and it will be followed up on. The SIU expressed the urgency of processing this proclamation.

Ms Siweya sought clarity on the vacancies that have been filled and if they were permanent or on a fixed term. How long were these vacancies unfilled and how many of them were there?

Mr Mabusela replied that NSF will submit a written report in response to the questions on vacancies.

Acting Chairperson Somyo said that the Committee would be pleased if all critical information was submitted in detail in written form. Positions below the CEO were being filled. However, the unfilled CEO position poses a risk because that executive position is critical.

Dr Sishi replied that the Department was in the final stages of recruitment for the NSF CEO position. A date for interviews was already set.

Mr Somyo noted that the Acting NSF CEO was pleased that there has been positive movement away from an audit disclaimer.

Dr Sishi said that the Department was determined to strengthen NSF governance to ensure that there is a movement away from audit disclaimers. The movement away from an audit disclaimer is an indication of some work; but it was still not satisfactory. At some point, AGSA was very concerned about the poor cooperation from the NSF. The Department will submit all information required by AGSA.

Mr Somyo indicated that the Committee was pleased that there was some movement in critical areas but it remained concerned. The NSF will not achieve much if its vacancies were still at the current level. He asked the Department and NSF to update the Committee quarterly on NSF developments as this will inspire some confidence that indeed the NSF was moving in the right direction.

The Chairperson, Mr Hlengwa, announced that former Eskom CEO Andre de Ruyter will appear virtually before the Committee on Wednesday 26 April 2023. Mr De Ruyter was requested to appear in person in Parliament. The Chairperson had received a request from Mr De Ruyter through his legal representative to appear virtually and he acceded to that request.

The meeting was adjourned.