NSF Performance, Programmes, Audit Action Plan & Implementation of Nexus and MTT Reports (with Deputy Minister)

Meeting report

The Chairperson welcomed everyone present and acknowledged the Deputy Minister’s presence. He acknowledged the apologies of the Minister, Deputy Minister Gondwe, and other committee members.

Chairperson’s opening remarks
The Chairperson emphasised that the NSF plays a significant role in providing skills to unemployed South African youth, enabling them to participate in the economy. According to the Stats SA Labour Quarterly results, unemployment has been steadily increasing in South Africa. The NSF was created to help the government address unemployment with its substantial budget. The Committee recently engaged with CETA and Services Seta, which boasted over R4 billion in reserves. Members were not impressed because they wanted to see progress in reducing unemployment and poverty. Youth unemployment stats are scary in South Africa. The objective of this meeting is to part ways on the same page.

The SETAs were advised that their measurement of their targets was misleading because it did not reflect a meaningful impact on the lives of South Africans. Members want to see tangible results in performance. The plans and targets must reflect actual work on the ground. Targets should only be achieved when the learners have been successfully trained and placed in jobs. He also strongly criticised the performance of officials as appalling.

The NSF was already familiar to the Committee due to serious allegations of corruption. As a result, the Ministry initiated a forensic investigation conducted by Nexus. The report was released at the end of 2022. When the Committee scheduled a meeting with the NSF to discuss the report, the NSF only sent it to the Committee on the morning of the meeting. Members refused to meet, stating that a portfolio committee meeting should not be treated as a formality.

NSF had over 200 projects, but Nexus only investigated 10. All of them had challenges. Another project in KwaZulu-Natal called the Ukholo Lwakho was reported in the media. The state lost about R35 million for that project, while the project could only account for R2 million. The state had paid R37 million for it. Some NSF personnel claimed that work was completed and actioned for payments, but it turned out that the work was not done. Some officials responsible were put on precautionary leave to allow the 90-day suspension rule to lapse. The committee demands to know who has been held accountable. People were placed on precautionary leave but were never charged.

Members expect nothing less than being taken into confidence about the stoppage of leaking state funds and who is responsible for charging those responsible. South Africans can easily deduce that these officials were not charged because the person who was supposed to have them charged was also involved. AGSA has highlighted that NSF is following up on some of its challenges. The AGSA will soon present the audit outcomes to Parliament. The Committee wants to transition the NSF to a Schedule Three entity with a board, and Members want to know what the NSF has done about it so far. If not, the NSF must highlight how it implemented consequence management for failing to act upon the Committee’s instruction.

Mr M Shikwambana (EFF) expressed his concern about the information that would be presented to the Committee today. He stated that he has little confidence in the reports presented by NSF, one of the critical stakeholders. He mentioned that the reports seemed manipulated and disadvantaged the Committee. He suggested that the Committee closely focuses on NSF and conducts unannounced visits to verify the information presented. He emphasised the need for oversight and expressed concerns about using R5 billion in funds.

The Chairperson concurred with Mr Shikwambana. NSF must provide a list of all 200 projects so Members can visit and see what is happening in them. He did not understand how responsible persons had not been charged yet. Members anticipate being told the matters have been referred to the relevant enforcement agencies, which is unsatisfactory because it is moving slowly.

Deputy Minister Remarks
Mr. Buti Manamela, Deputy Minister of Higher Education and Training (DHET), expressed the Ministry's desire to have the opportunity to discuss the forensic investigation report with the Committee. He provided an overview of the National Skills Fund (NSF), explaining that it was established to oversee skills development in the country and operates as a Section 3A entity of the Public Finance Management Act. The Director General of DHET serves as the Accounting Officer of the NSF. The NSF is not limited to any specific sector; its role is catalytic. The Skills Development Levies Act funds it and supports projects identified as national priorities, allocating 10% of its revenue to administration.

The NSF has been under scrutiny, receiving consecutive disclaimer audit opinions from the Auditor-General of South Africa (AGSA). In response, the DHET initiated a forensic investigation and established a Ministerial Task Team (MTT) to address the situation. The DHET also filled critical vacancies and implemented monthly monitoring of the audit action plan. The NSF has been without a permanent CEO for an extended period. Although appointing one was started in the previous administration, a decision has not yet been finalised.

Ms Nolwazi Gasa, Acting Director-General, DHET, led today’s delegation and appreciated the opportunity to table the NSF update. The work laid out is appreciated, and the NSF’s performance issues date back over a longer period. However, NSF has since moved from a disclaimer to a qualified opinion. The impact does not reflect favourable outcomes.

The purpose is not to outline only positive stories to the Committee but to articulate the four interventions referred to by the Deputy Minister. It is the outcome of the forensic investigation and DHET’s attempt to determine what happened to the implicated NSF officials. Further, the referral of such persons to the Hawks. The Ministerial Task Team report will also be outlined, as will the prioritisation and filling of key vacancies. NSF will also present the implementation of the audit action plan.

She welcomed the proposal of unannounced visits throughout different provinces and the review of the Higher Education Act, particularly the provision relating to the DG’s accounting officer role for the NSF. She acknowledged that they have not been moving speedily with this process.

National Skills Fund
The Acting Chief Executive led Members through the presentation, which covered the National Skills Fund Legislated and Policy mandate, an overview of Skills Development Implementation Programmes, an audit action plan, the Nexus Forensic report, and the Ministerial Task Team project.

Based on the 2023/24 AGSA MR auditor’s conclusions, the AGSA's assessment highlighted improvements in the areas that management was required to address.

The NSF has moved from 37% resolved findings to 73%

Of the 30 action plan items, 22 have been confirmed as resolved, and the material finding correction was assessed as satisfactory and accepted by the AGSA (this is as per the 2023/24 AGSA Management Letter).

NSF Management has enhanced its control environment to address all repeat and new findings, including the incorporated corrective audit action plan for the current year 2024/25 to address the root cause and internal control deficiencies.

The quality assurance pilot function and task team for AAP are part of the NSF's plan to monitor and implement the AAP Methodology/Implementation plan to address the deficiencies.

(See Presentation)

Discussion
Mr S Ngubane (MK) mentioned his unannounced visit to CJC TVET College to support the call for unannounced institution visits. These visits are important, especially for institutions with large budgets, like CJC TVET College, which is reportedly struggling to pay R4 million. There seems to be a lack of monitoring of the implementation of projects at NSF. The entity needs to improve its monitoring measures. It was also noted that NSF should move away from relying solely on paper to pay service providers, as there are discrepancies between what service providers claim to have paid students R6000 and what students report they have been paid R2500. It is concerning that NSF is unaware of this, and they should conduct due diligence.

It was mentioned that the DHET had an outstanding disciplinary process, but there was confusion as to why the institution was waiting for the DHET to discipline its officials. Perhaps the legislation needs to close this gap. The NSF cannot rely on the DHET to enforce its policies on officials implicated in corruption. The DHET could be involved in senior management matters, allowing the institution to address issues related to officials below those ranks to avoid slow disciplinary processes.

Ms Y Govana (ANC) emphasised the critical issue of issuing certificates. The NSF must ensure that students receive their certificates upon completion of their programs. Additionally, students are not receiving their stipends, which presents a significant challenge when travelling to and attending their programs.

Members do not want to celebrate clean audits, but those clean audits must have a real impact and contribute to reducing the country's structural unemployment. Having clean audits does not mean anything if they do not positively impact the country's real socio-economic issues.

Mr Shikwambana expressed dissatisfaction with the presentation. He highlighted the serious issues that have not been addressed and further emphasised the need for the DHET to act regarding the corruption issues at the NSF. He noted a reported surplus in the 2022/23 financial year, questioning whether the NSF retained or utilised the funds. He also sought accountability for the funds. He also criticised the NSF for its reliance on acting personnel and how this impacts its effectiveness. He questioned the outcome of skills development projects in the Zululand District Municipality and other municipalities. He suggested unannounced visits to these institutions to ensure proper use of allocated funds.

He proposed decentralising NSF offices for easier accessibility, emphasising the need to serve the people. He also addressed the prolonged suspensions of officials and urged a prompt resolution to facilitate progress. Funding is being allocated to prisons to train prisoners. However, it is important to know how many prisoners have received training and what specific skills they have been trained in. Additionally, tracking whether these trained individuals are finding employment opportunities once they are out of prison is important.

There are concerns about the National Skills Fund and how it is addressing the findings of the Auditor-General of South Africa. The presentation only mentions control systems without specifying who committed which crimes or the consequence management process for those individuals. It is important for the Department to monitor the NSF closely. Furthermore, instead of the Director-General being the accounting officer of the NSF, it is suggested that the NSF should have its own board of directors. The DG's responsibilities are spread across different entities and institutions, and having a board will help oversee the NSF's processes and governance.

Ms M Maseko (DA) said the NSF and NSFAS are enablers for the Department to achieve its mandate. If every cent was attached to programmes, would the NSF be satisfied with the outcome of the spending on those programmes? The utilisation of the funds must match the outcome. Where is the challenge for the NSF in achieving what is expected? There was no mention of the sustained plans of the NSF.

The labour processes have been dragging on for a long time, and she stressed the financial implications attached to these. The NSF does not mention any financial recovery from these officials. Some of the officials were moved from the NSF to the Department. Why were these officials moved to the Department? Because they could further manipulate the systems to favour the outcomes of the DC processes.

The presentation does not inspire Members on work done on the ground. Further, we cannot be discussing ICT-related issues when we are in the 4^th Industrial Revolution. In Citrusdal, students surround the shop areas and sit there instead of being at school. Surely, officials could have picked this up and done something about it. We need the Department to hold the NSF accountable.

Ms A Van Der Walt (DA) asked if the NSF had a right to exist despite the calls to shift it away from the DG as the accounting officer. If this were a private business, it probably would have closed for a long time. Its budget should be directed to TVET colleges to carry this mandate. Further, she lambasted the NSF about the 2022/23 annual report that was missing. Secondly, how does NSF operate when allocating millions to projects? Is it done as a desktop exercise, or do officials visit the sites where the projects will take place? Inspections must be conducted before allocations are done. Millions are given to people with no result on the delivery of the projects, and it is difficult for the state to recoup those funds. Officials must visit the sites and see the projects they are paying for.

Thirdly, what lessons were learned from the challenges identified by the AGSA? Perhaps lifestyle audits must be conducted and extended to associates. She noted that Nexus identified the ten projects, and billions of rands lost. These funds could be used elsewhere. People are unemployed, and the stats keep steadily increasing. She was not convinced that the NSF was not duplicating deliverables.

We are here fighting for people to be skilled and get jobs. She lambasted the NSF that it is not their money but the state’s resources intended for the desperate youth of South Africa who have no jobs. She believed the legal and consultant’s costs were astronomical. She also asked about the location of its offices and hoped they were not the same as NSFAS’s. Assessing the real benefits of some of the programmes is important.

Ms K Khaukhau (DA) added that beyond the NSF's worrisome performance, she cautioned against bloating the system. The NSF's function is crucial, but how it continues is another matter. Thus, the NSF should not be a stand-alone entity but within the Department. She believed this would have a greater impact on the department's function in relation to skills development. A lot that is wrong at NSF rests on the DG’s shoulders, and he missed the opportunity to tell the Committee how those challenges have been corrected. Thus, she did not take the DG's absence lightly. Even the presence of the Deputy Minister is to save face.

When presenting to the Committee, the NSF must give the Committee something to work with. She felt that the NSF was holding back on detail and critical information. Information must be given to Members voluntarily.

In addition, the audit action plan is naked. There is no indication of which audit findings have not been resolved and why they were not resolved. Further, the budget does not reflect the rural programmes for skills development. For example, Limpopo and Mpumalanga have 36 projects, but the Western Cape and Northern Cape have fewer, yet the budget does not reflect this. The former has more projects but is allocated less money than the latter. This indicates the NSF’s value is misplaced. Provinces have different socio-economic challenges and should be treated as such when funding allocations are done.

The NSF indicated that it was yet to research the kind of skills it would be funding. What has the NSF been doing the entire time? How is it structuring its budget and measuring its impact? The lack of consolidating the research on skills development is crippling the NSF further because it leaves more room to question how it has been carrying out its mandate and deliverables. Further, it is problematic for the Department to absorb NSF officials implicated in serious allegations. This also brings to question the appetite to correct, filter the system and get it where it should be.

Lastly, the missing audit action plans and the directorates listed in different provinces must be submitted to the Committee.

Mr S Louw (ANC) said the entity was requested to present a comprehensive report on the NSF's strategic matters, including its challenges and achievements. Members are also expected to deliberate on operational matters, such as how far the NSF is in aligning the demands of the economic landscape with the skills offered through its projects.

It is imperative to relook the previous submissions from 2022/23 and the further detailed action plans. The presentation did not provide details or clarify how previous findings were addressed. The audit action plan should address corruption, financial mismanagement, internal control improvement, and how the findings are addressed. Further, the 90-day rule suspensions are extremely concerning. The NSF must provide a detailed report on what informed the delays in holding the responsible people accountable. Money meant for the youth of South Africa was looted, but no one is held accountable for it. We cannot discuss the same issues repeatedly.

Those who were not found guilty should be given their positions back. Otherwise, it comes across as if they are being protected from accountability. He instructed the delegation to review this information and assess it. Come back to the committee with details on all issues raised by Members.

He also requested additional information to be submitted so members can assess and advise where necessary to ensure the work gets done.

Deputy Minister Manamela provided some background on the National Skills Fund and why we need the Fund. The Skills Development Act establishes the National Skills Fund and the Authority. When the Skills Fund was established, it was under the Department of Labour and Employment until it was transferred to the DHET. It was still under a directorate, but due to the enormity of the Fund – the levies collected, it was prudent for DHET to install a chief executive instead of a director. The CEO is at the DDG level and is meant to report to the DDG of Skills. This makes governance matters difficult. The DG must account on behalf of the structure and must also provide oversight, which creates a conflict. Establishing an accounting authority structure to which the CEO would report was part of the MTT's recommendations. The MTT is proposing that a board be established for the NSF.

The Fund's mandate stems from the National Skills Development Strategy. It also provides bursaries. Some programmes at TVET colleges, including CET colleges, would not exist without this Fund, and its work greatly supports TVET colleges. The Fund supports about 21000 annually. About R2.5 billion was allocated to 30 companies to implement projects. The Nexus picked 10 of those companies to investigate any irregularities, and they made recommendations. It recommended that about five/six officials must face the consequences. This is the report that the ministry received.

The DHET cannot affect arrests. The SIU has indicated that even beyond the ten companies, it wants to investigate all 30 companies, which the Ministry supports. These were the 30 companies that the AGSA picked up. The DG must justify whether the actions taken against those responsible officials were adequate. He assured Members that the Department was attending to the MTT recommendations, which hinge on legislative review. The ministry has deliberated on this and agreed to fast-track this process.

The NSDS3 informs the NSF’s planning. The labour market study is already underway. The NSF must compile these studies and decide on its direction. One of the findings of the Nexus report was the issue of digital systems to eliminate manual capturing.

When funding is done, about six indicators are considered. NSF is an important institution that will help with skills development. It has been on the news for the wrong reasons, as some service providers were taking advantage of NSF’s shortcomings, but consequences will be affected where wrongdoing is found.

Chairperson’s input
The Chairperson noted that Members would have raised many challenges, some of which have been raised repeatedly and are contained in the 6th Administration Legacy Report. The challenges with the incompatible NSF ICT systems have been discussed at length, yet no concrete actions have been taken since March 9, 2022. The Chairperson is curious to hear what the AGSA will find in its upcoming audit of the NSF. In the same meeting on March 9, the poor record-keeping of the NSF was identified as a problem. Members made recommendations on how to improve it.

The Chairperson believes that the AGSA’s findings will reveal whether these matters have been given any attention or attempted to be resolved. Further issues in that meeting included unclear audit functions, limited or poor human resources capacity, and undercapacity.

In that meeting, it was indicated that even though the NSF is a Schedule 3A entity, it does not operate as such. Thus, it was requested that some work be done to establish a board. Members have been told the board process is underway, but that is not enough. What has been done, and who was responsible for ensuring this work commences? What has been done to push those people to do their jobs?

Before a department pays for any project, the department’s manager must assess the work the service provider or contractor claims they have done when submitting an invoice. The quality of the work must be evaluated, and a report compiled, which is then submitted to the finance unit. In the Ukholo Lwakho project, R35 million was paid, but the State lost the money, and the responsible individuals were not held accountable. Instead, some people were suspended for extended periods without facing charges. This raised concerns about the lack of accountability for those responsible for losing funds. Additionally, individuals who were supposed to be charged did not face consequences and were instead transferred to another department. This situation has left young people who rely on these projects living in very poor conditions.

He asked the Department to respond in writing and cautioned that it is an offence to mislead Parliament, and the Committee needs this information submitted in detail and in writing. The recommendations were clear on charging such people, and Members need information on where these people are now and why they have not been charged. We are tired of people protecting their friends while South Africans are suffering.

The NSF is a critical entity for South Africa. It seeks to address past imbalances, such as when black South Africans were excluded from participating in programmes to attain skills. The NSF cannot continue in this fashion. One of the issues was a problem with the NSF’s office accommodation, and he asked if it was still within the Department. He also asked about the review process of the NSF Act and how far it is.

He instructed the Department and NSF to ensure that by next Wednesday, 11 September 2024, it submits the following:
- The NSF must provide a written report on the total costs incurred in the remuneration of suspended officials, including any performance bonuses they received.
- An itemised timeline for implementing the MTT recommendations and their current status is required.
- The profiles of members of the five workstreams, including the newly appointed NSF officials, must be submitted. Additionally, the NSF must outline the actions taken to address competency gaps identified by the MTT.
- The costs incurred in appointing the SIU, Hawks, and all attorneys for the investigations and any costs incurred by Nexus must be detailed.
- The status of risk mitigation from the risk register needs to be provided.
- Information on the outcome and timelines of the disciplinary process against officials implicated in corruption is required.
- Confirmation of the approval of organisational structure proposals and any challenges encountered in achieving that approval must be included.
- Details of the NSF office rental, including the lease, term, and related information are needed.
- The NSF's business processes must be explained, particularly how projects are delivered through service providers.
- The NSF must address issues related to the delay in project commencement, stipend payments to students, and the accurate reporting of student numbers by service providers.
- Information on whether the ten companies that defrauded the NSF have been blacklisted, along with details of their directors, must be provided.
- The NSF should outline a forecast audit plan to address audit findings and explain why it failed to achieve 23% of the audit action plan.

The Chairperson also wanted clarity on the service provider appointed to assist the entity with its audit and annual financial statements. He asked for details about who the service provider is, the costs, and why this specific service provider was appointed.

Due to time constraints, the NSF must only respond comprehensively to questions it can answer. The rest of the questions must be submitted in writing and comprehensively.

Ms Gasa reiterated the questions asked by each Member. She acknowledged that the Department needed to beef up its requisite monitoring of the NSF’s projects. Given the billions spent by the NSF, due diligence is required to ensure concurrence between the NSF and its service providers.

The list of projects will be provided within seven days, as requested. Further responses to be submitted in writing will include details on the R3.5 billion surplus, the decentralisation of the NSF and the locations of its offices, and comprehensive details on the matters raised by Members. She also noted all the advice from Members. She acknowledged the weaknesses regarding monitoring and oversight over the NSF and the unsustainability and backwards paper-based approach that the NSF still utilises.

The NSF Acting Chief Executive echoed the same response, saying that all pertinent issues will be addressed in writing. In mid-August, the NSF launched its website to create access to information, including information on its regional offices. The NSF has four regional offices in Cape Town, East London, KwaZulu-Natal, and Gauteng. In EL and KZN, the offices are located within the TVET colleges. In Pretoria, the NSF is housed in the Department’s building.

The Chairperson further asked the entity to provide a list of all NSF past and active projects and indicate whether any value for money was derived from them. Further questions will be sent to the Department and NSF by Friday. He encouraged Members to visit the PMG website to listen to their questions, identify which questions were not answered, and follow up on them.

Members would be shocked if the NSF received a clean audit outcome. The audit action plan and its implementation do not inspire confidence in a better audit outcome. A clean audit can be achieved before the end of the term, but only if the Committee intensifies its monitoring and oversight. Further, Members have agreed that the NSF’s annual performance plan is not aligned with the medium-term targets and NDP (National Development Plan) 2030.

He requested the NSF to outline its plan of action. Members also suggested opening cases against board members or directors implicated and found guilty of corruption to be declared insolvent.

Consideration and adoption of draft minutes
Committee draft minutes of the 24^th of July 2024 were considered and adopted without any amendments.

The meeting was adjourned.