TVET colleges governance & management; NSFAS audit; MTBPS implications

Meeting report

Briefing on the Budgetary Review and Recommendations Report from the Auditor-General

Ms Sharonne Adams, Business Executive, AGSA, stated that in the current year the NSFAS has received a qualified audit report; however there are more qualification areas in comparison to last year. There are also areas of non-compliance which have been reported and areas on the performance information, specifically relating to the number of indicators. These indicators relate to usefulness and when one looks at the indicators in terms of the SMART principles, it was challenging to measure which impacted on the information which has been reported for the year under review.

Mr Luthando Mehlomakulu, Senior Manager: AGSA, stated that a comparison was made for 5 financial periods which ranged from 2014-2019. The NASFAS received financially unqualified audit outcomes with findings and those findings were due to material non-compliance and errors that were identified in financial statements which were subsequently corrected by management.

In the 2017/18 financial period, the NASFAS received a qualified audit opinion as a result of the completeness of irregular expenditure and student loans in the 2017/18 financial period.

The NSFAS has undergone a process of quantifying the full extent of irregular expenditure during the 2018-19 financial periods, but was qualified on other account balances, transactions and disclosures, including the cash flow statement.

Some material mistakes were made in calculating liability and currently it could not be rectified before the audit report was issued. In terms of amounts that are owed, it is mainly institutions that are funded and the amount that is owed by the institutions could not be quantified. Thus a particular institution could be over-paid for a student enrolled at the institution and there is an expectation that the institution needs to pay this amount back to the NSFAS, but by the time the audit was done, the exact amount to be paid back could not be quantified.

In relation to bursary expenditure, there were payments made to students, however the NSFAS could not provide any evidence for the amounts paid to these students. Thus the accuracy and validity of this could not be determined. In terms of the cash flow statement, the NSFAS is required to produce cash flow statements but it was found that there were some items which were allocated on a non-cash basis which were included in the cash flow, and this was not fixed by the time the audit report was produced resulting in a material misstatement.

To detail the credibility of the performance reporting, the NSFAS included students who should not have been included in the KPIs which were calculated as their population, and therefore reliable information could not be provided to confirm the accuracy and validity of this. There was also duplication of the identity of students in the population to produce the amount on the KPIs. The definition pertaining to the information that needed to be collected for the KPIs was not correct and therefore not useful to report achievements appropriately under those KPIs.

In terms of compliance with applicable legislation, in the 2018 financial period the NSFAS found that irregular expenditure reoccurred and financial statements which were provided for audit were not credible and contained many material misstatements which were subsequently corrected. Some material misstatements were not corrected and were eventually reported as qualifications.

Findings on supply chain management were not included in the audit report which meant that there was no material non-compliance in the supply chain when goods and services were procured. It was noted by Mr Mehlomakulu that if the NSFAS does not produce a credible action plan to improve the controls within the supply chain, non-compliance will eventually be reported in the audit report. Uncompetitive and unfair procurement processes were followed and non-compliance with local content regulations was also identified.

The increase in irregular expenditure was in contravention of the NSFAS Act, the National Credit Act and the PFMA when it disbursed bursaries and loans to institutions and students. It was found that from 2017-18 R3.3 billion of irregular expenditure was disclosed and in 2018-19, R7.6 billion was reported. The nature of this irregular expenditure pertains to: Payments made in excess of contract amounts; shifting of earmarked funds not approved by the National Treasury; disbursements with respect to Non-Compliance to Laws and Regulations - for example students who have been funded for courses that the NSFAS does not fund - and disbursements processed against the incorrect funder.

Mr Mehlomakulu pointed out to the Committee that asset management fees had been incurred due to investments made that were in non-compliance with Treasury regulations. In the prior year, it was identified that investments were made with asset managers or investment banks that were not in line with Treasury regulations requirements and subsequently the NSFAS incurred asset management fees that amounted to R5.3 million which had to be disclosed as irregular expenditure. Mr Mehlomakulu highlighted that investigations to determine the responsible individuals or institutions in relation to the irregular expenditure has not taken place as yet.

Internal controls, effective leadership and proper record keeping are amongst the concerns which the NSFAS needs to improve on.

It must be noted in relation to assurance provided that in the 2018-19 period, the Audit Committee was vacant thus there was no oversight from the Administrator and key advisors.

The key IT audit findings relate to user access controls where there are no approved policies and certain personnel may have been able to authorise payments to students or their own personal accounts as result of internal deficiencies on controls within the IT governance framework of the NSFAS.

In terms of the NSFAS’ financial health, it can be noted that the debtor’s payment period has decreased by 5 years. In the 2017-18 financial period, the NSFAS had a surplus of R4.3 billion however in the 2018-19 financial periods a loss of R5 billion was incurred.

The root causes of the deficiencies identified and reported relate to the fact that the NSFAS board was dissolved, the audit committee was dissolved and the improvement of the action plan was not done appropriately because of the movement of staff within the institution.

Discussion

Ms J Mananiso (ANC) asked about the issues of non-compliance and wanted to know what these were. In terms of when SMART principles were not complied with, Ms Mananiso asked what NSFAS requested from the entities in order to quantify and compile the report.

Ms Adams responded that the areas of non-compliance related to the quality of financial statements submitted because of numerous statements that were corrected and in some instances they could not be corrected which lead to the qualified audit opinion which was received for the current year. The second relates to prevention of irregular expenditure and the irregular expenditure was repeated in the current year and as a result the AGSA said that there were not appropriate controls in place for the NSFAS to prevent this. 

When we look at any entity there are two criteria’s which we look at, the first of it is the usefulness of information, and what is important here is to note whether it is specific, measurable, attainable, realistic and time bound. Second, it must be considered whether there is consistency in terms of what has been committed to be reported on in the annual plan. Third, based on the relevance of the mandate it must be ensured that all the important indicators are included. The NSFAS had an issue in terms of usefulness when it comes to the SMART principles and the issues reported were not verifiable. The NSFAS was also unable to confirm the accuracy of information reported in the annual report.

Mr P Keetse (EFF) commented that the recommendations made by the AG (see slide 20 of presentation for details) are soft given the R8 billion of irregular expenditure, particularly given the need for the NSFAS funding by students. Mr Keetse stated that perhaps the extended mandate of the AG must be looked into as from 2014, the NSFAS has always had serious financial woes and the recommendations seem to be the same each time.

Ms Adams said she agreed harsher measures needed to be put in place in relation to the irregular expenditure. She said what was important to note in terms of the expanded mandate for the AG was that the NSFAS was not included in the Phase In Approach for the prior year. However, the NSFAS will be part of the Phase In Approach for the next year. Here material irregularities definition will be looked at and work will be done around this. If there were losses identified, it can be determined who should be held accountable for the recovery of those losses. 

Mr W Lestie (ANC) asked for clarity on the R7.6 billion of irregular expenditure that was said to be due to money that was paid to institutions and students and the subsequent commitment that this money had to be paid back to NSFAS. ‘What was this amount’?

Mr Letsie asked if the AG was saying that the irregular expenditure was not being investigated or were there ongoing investigations that have not yet been concluded?

Ms Adams said the accuracy of the amount of irregular expenditure could not be confirmed. Overpayments occurred, because payments were made in advance and the reconciliations are not performed. Investigations are taking place to determine if money should be recovered from institutions. Who should be held accountable in terms of the consequence management has not been investigated.

Mr B Nodada (DA) asked about the expenditure management audit and wanted to know if the irregular expenditure could be more than what was presented.  Mr Nodada asked about an indication on a NSFAS report which showed that money was transferred to VBS and Standard Bank and enquired whether the AG had noted any of this information and whether it was linked to any asset management on money invested in banks it should not have been invested in. Mr Nodada referred to a report from the Department of Higher Education which showed that a sample of 10 institutions were investigated for irregular expenditure and asked if the AG received such information indicating how much institutions owed.

Ms Adams stated that when the AG did investigations, it was important that they did this in terms of their own terms of reference, their charter and key terms and responsibilities and whether they fulfilled these responsibilities. She noted that the implementation of these did not always take place. The AG thus felt that when the NSFAS was evaluated as an assurance provider, adequate work was performed from their side which justifies the green rating that NSFAS received. In relation to investments made to VBS and Standard Bank, this could have occurred through fees paid to the asset management company to do the investment on behalf of the NSFAS. The money paid to institutions has been recovered and it is only the fees paid that are outstanding.

The Chairperson, commented that it was concerning that there was no audit committee.

Briefing on the Governance and Management of TVET Colleges

Mr Themba Msipha, Chief Director:TVET Systems Planning, stated that the enrolment target for TVET colleges for 2017, 2018 and 2019 is 710 535.

The target of 710 535 was capped in 2015 to ensure that the Department brings funding in line with enrolment numbers.

Mr Msipha stated that the TVET 80% programme funding (Direct transfers) as well as the Capital Infrastructure and Efficiency Grant has been increased by R1.081 Billion from 2018/19, which represents a 25.22% increase in baseline funding. Although the additional funding for 2018/19 and 2019/20 is substantial, it is only increasing the previous reported funding level of 54%, to approximately 65% over the next MTEF, as the next MTEF allocations are only increasing by CPI (or marginally less) as communicated by the National Treasury. This therefore indicates that the required 80% funding level which was expected to be achieved by 2022/23 would in fact be stagnant at 65% due to the lack of budget growth in support of the initially envisaged implementation of “fee-free higher Education”. Thus, the current TVET enrolment plans (for ministerial approved programmes) must remain constant without any increase in numbers going forward until the economy has been stabilized and additional funding is made available to the TVET system in excess of inflation. Therefore, if the TVET allocations over the next MTEF are not substantially increased to close the funding gap (65% to 80%), no enrolment growth for ministerial approved programmes is possible. The only option for growth is within the occupational domain, which is not reliant on Fiscus funding.

Mr Msipha stated that the data presented indicated that some colleges have over-enrolled whilst in certain instances they have under-enrolled. The Department is engaging with colleges on remedial interventions. (See presentation slides for detailed information relating to the various provinces).

In terms of the gender composition of employees in the TVET sector, there is a total of 26 113 employees at TVET Colleges of which 9 991 are male and 16 122 are female. A total of 31 employees at TVET Colleges have disabilities and 20 of them are male and 11 are female.

Council appointments and Challenges

To date, 49 colleges have five Ministerial council members appointed;

Of the 9 provinces, 3 provinces have completed the processes of appointing section 10(6) additional external council members;

Of the 49 colleges, 17 colleges have not completed the processes of appointment of section 10(6) additional external council members;

One college in Gauteng Province is under administration;

Colleges are not reading the vetting reports of the nominees and are submitting nominees to the Department with credit listings and other records;

Colleges are not submitting all annexures as required by the Government Gazette and Circular;

The late publishing of calls for nominations by certain colleges created delays in achieving the full constitution of college councils; and

CVs of nominees submitted by colleges were not comprehensive. Comprehensive CVs of nominees are required so that the Minister can make informed decisions. It must be noted that the Minister is not obliged to concur with any appointment.

(See presentation slides for graphs relating to Industry Analysis of Council Members per province)

TVET College challenges and investigations

A number of colleges acted inappropriately in one form or another during 2018 and 2019;

Allegations ranged from mismanagement, maladministration, nepotism, theft, corruption and racism;

Buffalo City TVET College – Accusations of mismanagement against college management which was submitted to the Department through a report from Council;

Central Johannesburg TVET College – The college has been placed under administration and the Minister has approved phase 2 of the investigation into the college. Disciplinary hearings have been conducted for the implicated officials; and

Coastal TVET College – There is an investigation of fraud at the college and the HAWKS are currently undertaking this investigation. The Principal has since resigned from the college and the CFO has been suspended.

(See presentation slides for a list detailing more colleges experiencing challenges)

Management and Governance Achievements

Governing Councils have been appointed, inducted and are functioning in all 50 TVET Colleges;

College Strategic and Operational Plans – the process is systematised and college management capacitated in the running of this process;

College enrolment processes have been systematised and management capacitated. Standard operating procedures (SOPs) have been developed; and

Monitoring and evaluation –monitoring of college performance against the set APP targets is conducted and quarterly reports are prepared.

(See presentation slides for tables indicating colleges graded according to the level of completeness in terms of Council appointments)

Progress update- 10(6) Council Members

Of the 50 TVET colleges, 36 colleges have complied with the appointment requirements in terms of section 10(6) of the CET Act;

Submissions of ten colleges are in process; 

Challenges are experienced at Ingwe (i.e. financial constraints) and Letaba (i.e. dispute on recommended nominees). The Department is intervening to finalise these processes; and

The term of office of Tshwane South TVET College expires in October 2021 and Central Johannesburg TVET College is under administration.

Colleges with poor management capacity and weak governance oversight

Buffalo City TVET College –The Department has established a team to investigate the matter of maladministration and weak governance;

Eastcape Midlands TVET College – Maladministration was reported by a labour union;

Ingwe TVET College – Financial mismanagement by the college has been reported. The college does not have a constituted council (section 10 (6) additional external members not appointed);

King Hintsa TVET College – The college operates under an acting principal resulting in the collapse of the culture of teaching and learning; and

King Sabata Dalinyebo TVET College – Lack of security and safety management.

Gauteng and Free State region

Central Johannesburg TVET College – The college is under administration;

Sedibeng TVET College – Maladministration and financial mismanagement have been reported and an investigation is ensuing;

South West Gauteng TVET College – Maladministration reported and allegations levelled against the principal; and

Western TVET College – Maladministration resulting from poor management capacity. The College is currently operating with an acting principal.

Kwa-Zulu Natal region

The Coastal TVET College was beset with gross maladministration and financial mismanagement. The Principal resigned from the college and the CFO has been suspended. College operates with an acting principal; and

Umgungundlovu TVET College – Reported maladministration by the NEHAWU. Allegations levelled against the Principal.

Limpopo region

Letaba TVET College – Weak governance and council not fully constituted. Council members require a comprehensive induction and training on governance oversight matters.

Mpumalanga and North West region

Gert Sibande TVET College –Financial mismanagement reported and the CFO and Finance Manager suspended resulting in poor management capacity;

Taletso TVET College – Maladministration and dereliction of duty by the principal were reported. Principal’s liability resulted in in poor management capacity; and

Vuselela TVET College – Lack of human resources’ management skills and financial mismanagement.

Briefing on the Medium Term Budget Policy Statement Implications and the 2019/20 Adjusted Estimates for the Department of Higher Education and Training

Mr Theuns Tredoux, Chief Financial Officer (CFO), DHET, stated that there were two key aspects where the Department wished to prevent the impact of budget reductions: It was to prevent a reduction of planned enrolments; and to limit the baseline reduction of subsidies to public entities. The functional distribution and estimated amounts include the budget of the Department, all its entities and other Government wide functions that are not part of the budget of the Department.

In terms of the bursary programme for poor and working-class students: The Medium Term Budget Policy Statement (MTBPS) indicates that the scheme dominates spending in the Post-School Education and Training system. The Department is developing a student funding framework that will clarify food, book, and transport and accommodation allowances. There will be a focus on expanding student support services, improving lecturer qualifications through new hiring and training, and testing new approaches to contact and online learning.

In terms of the Student Housing and Infrastructure programme, it receives funds to construct student housing at universities and TVET Colleges. For the current financial year, funds have been allocated to the Universities of Limpopo and North West as well as King Hintsa TVET College. The Student Housing Infrastructure Project is part of a larger project to provide 300 000 new beds at universities and TVET colleges over the next 10 years.

(See presentation slides for the current funding provided to date)

It was noted that historically, higher education and training costs have outpaced inflation, largely because of above-inflation wage increases and some purchases in foreign currency. If this trend continues, the cost of university education would grow to 2% of GDP by 2040. This would make it difficult to sustain the current policy of fully subsidised higher education training. A more sustainable fees policy, closely aligned with CPI inflation, would result in a more gradual increase in spending on university education to reach approximately 1.5% of GDP by 2040.

(See presentation slides for tables indicating adjusted estimates performance data)

Mr Tredoux stated that expanding the numbers of students at TVET colleges were thus affected by the weak economy and the fiscal environment. The government’s 2013 white paper for post-school education and training proposed expanding enrolment in the TVET college sector to 2.5-million by 2030, however this number was capped in 2015 at 710,535 due to funding constraints.

The figures presented to parliament indicate enrolments for 2019 are sitting at 436,525.

Mr Msipha stated that enrolment growth would not be possible over the next three years unless there was an increase to the TVET college budget allocation, which was unlikely in the current fiscal environment.

Mr Tredoux said the MTBPS showed that the government spending on goods, services and infrastructure is to be reduced by 2% a year over the next two years; however it was unclear how this would affect higher education. He said the department would work on preventing a reduction in student enrolments and the subsidies given to public entities.

Discussion  

Ms Mananiso urged the department to prioritise TVET colleges. She asked if there was a budget within the DHET for gender-based violence and if not is there a plan for this.

Mr B Yabo (ANC) asked how students of TVET colleges would be housed with the total of these students sitting at 149 451. He asked if this number was correct or if it was a tying error.

Mr Msipha said that the information was presented as it was extracted as the entity did not want to tamper with the information. One needs to determine what underlies this discrepancy. Colleges must account for whether it is a human or system error so that the figures can be corrected and the source of the issue cam be ascertained.

Ms NT Mkhatshwa (ANC) asked for time frames on when the issues with poor governance at TVET colleges would be resolved. She asked about the Student Representative Council’s (SRC) status in these institutions.

Mr Msipha said a timeline was set for the end of October for finalisation of appointment of council members and it has not been adhered to by some colleges, while some have taken responsibility. Departmental members have been sent out to assist in finalising appointments.

Ms Singh said that the SRC’s at some colleges lag behind in their electoral processes and support is provided to colleges by the DHET to ensure colleges have functional SRC’s that can meet the governance mandates in their institutions.

Mr Nodada asked about the number of students in TVET colleges being decreased and the high amount of funding spent on employing more people to cater for increasing students. He asked how this information was correlated.

Mr Msipha stated that as the number of colleges decrease, state funding increases which mean those that were previously funded by private colleges are now funded by the state. This says that colleges are unable to sustain previous enrolments which are then taken over by the state.

Mr Keetse commented on the R400 million for TVET colleges and asked about infrastructure of TVET colleges when the DG previously said there was no money for this.

Ms Aruna Singh, Director: VET Curriculum, DHET, spoke to issues of infrastructure and capacity and stated that certain colleges funded themselves for this. The infrastructure grant goes to 50 colleges at present and site visits must be done, and criteria must be developed for how money is allocated to colleges.

The Director General at the DHET, Mr Gwebinkundla Qonde, clairified that issues of infrastructure did not only affect TVET colleges, but also universities.

Meeting adjourned.