Update by Minister on National Skills Fund & NSFAS investigations

Meeting report

Minister’s opening remarks

Dr Blade Nzimande, Minister of Higher Education and Training, said that on 25 August 2021, he had briefed SCOPA on the corrective action he was taking concerning the accounting authority of the National Skills Fund and its chief executive. At that time, the accounting authority had been Mr Gwebinkundla Qonde, and the chief executive was Mr David Mabusela. The former had left the Department at the beginning of September last year, as his fixed-term contract had come to an end. Mr Mabusela was still under precautionary suspension, hence the current acting chief executive.

A forensic investigation was currently underway. He had appointed a forensic investigation company on 18 August 2021. At the time when SCOPA had raised the issue of a forensic investigator to conduct the forensic investigation, he had already engaged a forensic company that he was considering. The Minister had not been certain at the time but had sought legal opinion on the circumstances under which investigators could be appointed. This was his responsibility alone and SCOPA could not make such a recommendation and dictate who to appoint as investigators. Subsequently, he had met with the leaders of the SIU and concluded that if the investigators were already appointed, they may continue with the investigators. However, if anything came up that required the involvement of the SIU, then the SIU would be involved.

Dr Nkosinathi Sishi, Director-General (DG), Department of Higher Education and Training (DHET), would update the Committee on the status of the investigation, the additional actions taken, the recommendations, and the Auditor-General's (AG's) findings. He had decided that the Ministry should not wait for the investigation to tackle matters, but rather to resolve the obvious matters that did not necessarily require a forensic investigation.

DHET briefing on the National Skills Fund
 
Dr Sishi said the Minister had presented a report in August last year that outlined the seven commitments to resolve the issues at the NSF. Given the highlighted challenges, the Minister had appointed a Ministerial Task Team that had conducted an independent review of the NSF.

A service provider was also appointed, and a final report was expected to be provided to the Minister by 31 March. The report was expected at the beginning of January this year, but the workload had become heavy. A draft report had been presented in January, but it was preliminary because there were issues that were still outstanding. Given the challenges highlighted in the recent National Skills Authority (NSA) evaluation report and previous years' audit reports, the Minister had determined and appointed a Ministerial Task Team to conduct an independent review of the NSF with a strategic focus on its institutional mandate, the broadness of scope of operation, and its organisational model as related to structuring, systems, effectiveness, efficiency and cost.

The presentation covered mainly the audit action plan deliverables and the related progress achieved to date with:

the audit action plan on the enhancement of the human resources capacity of the NSF;
improvement of NSF systems and business processes;
NSF acceleration of the turnaround time for project/programme funding;
project monitoring and evaluation; and
managing external risks, ensuring compliance and repairing relationships and implementation of the 2020/21 consolidated audit action plan.

In conclusion, he shared some observations by the Department and indicated that since the last presentation made to the Committee, besides the matters covered today, a lot had been done. Although the final report had not yet been presented, two interim reports had already been presented to the Department, and those reports were clear on the matters that had to be resolved in the National Skills Fund. There had been comprehensive work that gave a sense of what needed to be done. The Department was working with the State Attorney on illegitimate contracts and subsequent litigation. He affirmed that it was committed to turning around the issues at the NSF. The Ministerial Task Team that was appointed by the Minister also looked at the operational model of the NSF.

SIU comments

The Chairperson called on the SIU delegates that were present to provide any comments.

Adv. Andy Mothibi, Head: Special Investigating Unit, said that it was appropriate to structure its comments. It had prepared a brief comment for the Committee.

He confirmed that the SIU had met with the Minister last year about the NSF and the National Student Financial Aid Scheme (NSFAS). The SIU Act provided that the SIU could second members to the state institutions and undertake investigations as directed. It generally conducted its investigations upon the proclamation of the President.

The SIU had provided a secondment to the Department of Justice (DoJ) for the investigation on NSFAS. However, as for the NSF, the DHET had appointed a service provider and the report would be made available to the SIU.

He then touched on the existing proclamation on NSFAS concerning the Central Johannesburg Technical and Vocational Education and Training (TVET) College to investigate maladministration concerning the disbursement of bursary and allowance funding received from NSFAS and the Retail Sector Education and Training Authority. The investigation was focusing on eight campuses. The investigation was ongoing and was expected to be finalised in May.

To date, it had been found that NSFAS was allocating money to the Central Johannesburg College for students who attended different colleges. Collusion had taken place between landlords and students concerning students claiming accommodation while staying at home, and landlords fraudulently amending the contracts to claim for more days.

Discussion

Mr S Somyo (ANC) said attention should be given to the myriad of findings by the AG, taking note of the various years where the problems of the NSF arose, besides the policy matters that had previously been attended to by the Minister. He referred to the previous engagement on matters that were related to expenditure issues, the absence of documentation, service providers who were found to be lacking in terms of the provision of feedback while money was paid to them, and the lack of accountability for the use of funds.

Ms V Mente (EFF) raised concern over the legal opinions. There was a problem with them, as they seemed to miss the mandates of the different arms of the state. It was within SCOPA’s mandate to guard against anything that sought to engage or embark on a mischievous or unnecessary expenditure of state resources, where it could be curbed. There was a legal opinion that said SCOPA could not do this, but it could. The NSF was in a dire state and directed SCOPA to a point where it was uncertain whether the NSF had qualified personnel in its organisation. It was therefore the Committee's responsibility to protect the NSF from spending further money unnecessarily.

Secondly, all the actions indicated in the presentation were worrisome to some extent, because the report of the AG as far as the NFS's annual financial statements (AFS) were concerned were not changing. There was a workshop that the AG had conducted in the NSF; were there really people who knew what they were doing in the NSF? Was there no way SCOPA could have a skills audit conducted on the personnel of the NSF? It could not have people work-shopped by the AG to do their jobs. SCOPA should get to a point where it knew who did what in that entity. The issues at the NSF had affected young people because the allocated funds had not fulfilled what they were intended to. All the projects were not getting into their final stages with proper structures and equipment, and this could be seen with the naked eye.

Ms N Tolashe (ANC) said she had been disappointed with the response of the Minister. She thought that there was a cordial relationship among the stakeholders in terms of assisting one another where clarity was needed, and she felt it was unnecessary for the Minister to go out and seek legal opinion on the matter that had been raised by SCOPA on appointing a service provider to conduct the investigation. She felt that there had been fruitless and wasteful expenditure in seeking to have a service provider that would need to be paid for something that the SIU could do. She also felt that the Minister could have engaged Members before the meeting to inform them that all the decisions that had been reached with the Minister could not be delivered. What had been the point of that meeting where had SCOPA engaged with the Minister and agreed on what would need to be done?

Investigations happened all the time and some of them did not result in action being taken. She was not pleased that the NSF personnel had been work-shopped by the AG, because that would mean SCOPA would have to wait and see whether the NSF personnel could now do the work. This was a waste of time and money. Evidence had now surfaced on corruption that had taken place, with some of the departments being involved. Money got wasted, but no justice was seen.

She suggested that the Department be released for SCOPA to engage on what the way forward would be from the Committee’s perspective. They should sit and engage on each stakeholder’s role separately so that they did not seemingly confuse these roles.

Ms A Beukes (ANC) said the DG had reported that 54 posts were submitted in January 2021, but only one post had been concluded. What was the challenge involved in not filling the posts? Secondly, the investigation report was supposed to have been submitted in January, but now the date had changed to 31 March -- was there a specific reason for this postponement?

DHET's response
 
The Minister said that from the time the Committee had last met with the Ministry, much had happened, and he assured Members that there was no undermining of the SCOPA’s powers on the part of him and the Department. He respected SCOPA, and none of the things he had done had violated that respect and relationship. None of his actions could lead to questioning his respect for SCOPA. Secondly, the claim that he did not understand the environment of corruption had no basis whatsoever -- this was why he was present and had instituted a forensic investigation of the NSF out of respect for SCOPA. If there was disagreement, Members should say so upfront and not through innuendos.

Ms Mente interjected and said that Members could not be told that they were talking in innuendos. The Minister had gone to seek a legal opinion after agreements had been reached, which speaks to the credibility of SCOPA.

The Chairperson noted her comment and suggested allowing the Minister to finish.

The Minister said he had no issue withdrawing the word ‘innuendos.'

He had not sought a legal opinion, but already had a contractual obligation with a private company. However, SCOPA had suggested that the Ministry should go to the SIU to resolve this matter. It was then that the Minister had sought a legal opinion on what he could do. The legal opinion simply stated that he had the right to appoint an investigator, but also that SCOPA had no right to instruct the Minister which service provider to appoint, which he had not pursued. He was not seeking a legal opinion on the role of SCOPA. The legal opinion was on a specific matter, not to question the credibility of SCOPA. It was on the specific matter relating to who had the authority to appoint an investigator.

The investigation must continue, and the Department would share with the SIU what had emerged from the forensic investigation. The SIU could be involved in any investigation only after it had been given a presidential proclamation.

To say that the DHET's route was longer was not correct. The investigation had started in August and the final report would be provided in March -- eight months. SCOPA would have the report, and it would have an opportunity to interrogate it, and Members could then speak on what had been done and come to their own conclusions.

He emphasised and reiterated that he had not sought a legal opinion to undermine SCOPA. He had sought legal advice only on how to deal with the two routes that he could take. Also, SCOPA had never recommended that the Department should stop the process with the private investigator, but had rather expressed the view that it would have preferred to have the SIU investigate the entity.

Dr Sishi said that the issues raised could be resolved by providing a detailed audit action plan, which indicated specifically which issues had been detected, and the status update of each issue to be resolved. He believed that Members would be satisfied with the progress in some of the areas.

On the filling of vacancies, the human resources (HR) process of the NSF and the Department were currently still interlinked. For example, it advertised posts as part of the human resources of the DHET, not as part of the human resources of the NSF. Due to the bulk of the work that the HR had to do, it did not have the agility that was required, which would also be subject to interrogation in the operational design of the NSF, which the Minister had tasked the Ministerial Task Team to investigate. There had been suggestions to separate the operational mechanisms that were not delivered on time. Once the final report had been tabled, the Department would engage the operational models that were available to refine the operational model of the NSF. Most of the vacancies that had been advised were currently at the short-listing stage. He was pleased with the process at this stage.

The matters around expenditure, the lack of documents and accountability and so on, had already been ventilated, and the Department could still furnish additional information if required by the Committee. Since August last year, there had been some good progress in this respect.  

As for why the investigation was not completed by January 31, there was only one matter that had been still outstanding at the time, which concerned documents providing evidence that had been requested from some of the colleges, and the officials that were college-based had not been forthcoming. The Department thought this had been a reasonable request from the service provider (investigator). He was confident that a significant portion of the work had already been completed. This additional information would assist in having a complete picture.

He agreed on a skills audit being conducted at the NSF. As for the workshop conducted by the AG, this was to illustrate to Members that there was now newfound cooperation between the two entities, that the credibility of processes was no longer questioned, and that the leadership of the NSF would not tolerate any deviations. There were processes where auditees had been able to raise matters where they were not satisfied with the audit process, but he did not agree that officials could just challenge the AG in their individual capacity. Once Members engaged the audit action plan, the work that the Department was doing to clean up the NSF would become very clear.

The Minister commented on the functionality of the NSF as a serious matter of concern. He had already appointed a Ministerial Task Team to assess the functionality and operation of the NSF, which was separate from the forensic investigation. From the prior audits of the NSF, he was extremely concerned about the capacity of the NSF to manage the billions of rands required to fulfil its mandate. He was pleased to inform the Committee he had received the report from the Ministerial Task Team, which had provided information and made proposals on the organisation's strengths and weaknesses.  The report would be presented to the Portfolio Committee, and once the Department had perused it properly and provided its responses on the issues that were raised in it, the Department could share the report with SCOPA. Largely, the AG’s findings had to do with the lack of capacity by the NSF to monitor and track the funds that it had allocated and ensure that the service providers did the right thing. This had given rise to opportunistic behaviour by some of the service providers to "milk" the NSF.

Chairperson's comments

The Chairperson commented that the Committee’s outlook was on strengthening the state’s capacity, hence its tending towards empowering institutions like the SIU to ensure that there was cooperation among state organs and departments. Generally, SCOPA had a dim view of these private service providers for a host of reasons. The fundamental reality was that the work had commenced because there was already a process underway, and the Committee should await that report. The Committee would deal with the annual report, but one was interested in seeing the outcomes of the investigation. The nub of the issue was to ascertain why systems were absent to a point where the NSF had received a disclaimed audit report. The audit action plan was a tad bit premature, considering the Committee had not yet received the outcomes of the forensic investigation. The three main documents that must be before the Committee were the annual report, the audit action plan and the outcome of the forensic investigations.

He requested that the Minister provide the legal opinion, which he sought to include in its report when it closed the matters on the NSF. The fundamental issue was that the NSF was in a stagnant position of disclaimers, and it was always indicative of several issues including, but not limited to, a lack of cooperation and functionality of committees, structures and systems. The NSF found itself in the same position as the Unemployment Insurance Fund (UIF) in receiving repeated disclaimers every year. These disclaimers were deliberately engineered because there was no accountability, and the audit action plans created an enabling environment for a lack of consequence management because there were no systems in place.

The issue of the SIU had arisen out of the firm view of strengthening the state's capacity and working relations. He had noted the comments and statements made by the Minister in this regard, but he called upon Members to accept the current reality until the reports came out. There was no doubt that the disclaimers were indicative of criminality aspects that had to be investigated.
 
Discussion

Mr Somyo said that to manage the two extremes, the Committee could invite both the Department and the SIU once the forensic investigation report was completed.

The Chairperson indicated that the Committee could wait for the report and map it out in a manner that would be consistent with the desired outcome. It still had to hold hearings on the annual report, which remained an issue in the Committee’s purview.

Ms Mente requested a list of officials involved, especially when the Committee dealt with the annual report. She welcomed the assurance from the Minister regarding the issues between the NSF and the AG. Could Members get a list of the people that were not providing the necessary information per the financial prescripts that they had to comply with? In this way, the Committee would be able to have an impact.

The Minister sought clarity and said that the people who were not cooperating would be included as part of the forensic report, not as something that would be extracted from the forensic report. He suggested that the Committee receive this information along with the forensic report. It was forensic investigators who would be able to point out in their investigations who was cooperating or not.

Ms Mente said the list that she required referred to officials that interacted directly with the AG when it conducted its audit. This should not be difficult – whether their names would come up in the investigation report or not, was something else.

The Chairperson said that this may well come from the AG’s report. There were three sets of documents that needed to be read as one.

The Minister said that all the issues ventilated by Members had been subjected to forensic investigation. He also assured the Committee that he was equally concerned about the matters that were taking place in the entities that were under his ministry.

National Student Financial Aid Scheme briefing

Mr Andile Nongogo, Chief Executive Officer, NSFAS, said that he was presenting on three high-level matters -- the audit outcome, the review on maladministration, and the forensic investigation.

NSFAS had received an unqualified audit opinion with findings. In the previous year’s final management reports, the AG had issued 70 findings, with 60 findings being issued in the 2018/19 year. In the prior year, the AG had issued only 30 findings. This was indicative of a drastic improvement in the 2020/21 financial year.

Regarding, maladministration, the National Education, Health and Allied Workers Union (NEHAWU) had made allegations to the DHET's portfolio committee, which had prompted it to conduct an enquiry after several hearings. The proposed enquiry had coincided with the appointment of the new NSFAS board. The new board at the time had pleaded with the portfolio committee to allow it to conduct its own review into these matters, as it was still becoming familiar with the organisation, with the proviso that it would report back to it on the outcomes of this review.

Discussion

Mr Somyo felt that the Chairperson should have made a ruling on the high-level presentation made by NSFAS. The Committee had been promised a report in March last year, but now it was not being presented in a detailed fashion, because there were areas that the Committee was conscious about and wanted to deal with. He suggested that the engagement on NSFAS be left in abeyance until the detailed annual report that the Committee would receive.

The Chairperson said that it seemed the Committee would have to adopt a similar outlook with NSFAS. A hearing on the NSFAS audit outcome would have to be scheduled. The Committee was still going to see the rollout of the issue of funding only now, as the institutions of higher learning were opening. The Committee may be preemptive now, but the reality on the ground unfolded in a completely different way.

He requested that the presentation made by NSFAS be juxtaposed to the submissions that it had been making, and the requests made by the Committee to ascertain whether answers had been answered adequately.

Ms Mente said that yesterday there had been a court ruling on the student who had received an erroneous allocation of money. They had not been told who had been responsible for actioning that money, yet it was the student who had been held responsible.

The Minister said he had noted the progress in terms of its audit outcome, which illustrated the energy of the new board and the new executive. This was important to note. However, there were still challenges, and SCOPA also had to be sensitive to NSFAS. One of the main challenges was that NSFAS had grown substantially over the past five years. The cumulative increase had been 198%. Both the Department and NSFAS budgets had not grown in parallel with the cumulative increase of NSFAS. Much as SCOPA was aware that NSFAS must be prudent, its administration budget was wholly inadequate. There was a great danger if there was a significant difference between the amount of money that was managed and the administration budget that allowed the entity to manage those funds. The Department was working with National Treasury on how it could increase the capacity of NSFAS to manage these billions of rands.

Mr Ernest Khosa, Chairperson, NSFAS Board, said that the transfer of funds to the students was not done by NSFAS, and it had been a hiccup that had occurred at the Walter Sisulu University. Consequently, if there was action to be taken to recover those funds, the institution was involved, but not NSFAS. This raised the issue of capacity at the institutions. One of the biggest issues was accommodation, as students were subjected to appalling living conditions while NSFAS paid for their accommodation. This all happened at the level of the institutions, and this was something that the public was often misinformed about.

The Chairperson asked Mr Khosa if the money belonged to the institutions or NSFAS.

Mr Khosa confirmed it belonged to NSFAS.

The Chairperson said that surely NSFAS would have an interest in the management of the money that it transferred to an institution. The question remained why NSFAS was not pursuing this matter as well. This was not a matter of what the public knew or does did not know. This was not just R100 000, it was millions of rands. That response was not satisfactory –transferring the funds did not transfer the responsibility and accountability -- it remained in the purview of NSFAS.

Mr Khosa said he accepted that, but the loss of R14 million was the loss of the institution, not of NSFAS. This matter had been raised with the institution, and it spoke directly to a systems failure that had happened on the side of the institution. This was not to say that NSFAS was not concerned about the matter.

The Chairperson maintained his position that the NSFAS had lost R14 million because of this. What interventions had NSFAS made to ensure the safeguarding of the funds transferred to the universities? He could not accept that NSFAS was not taking responsibility for this matter.

Ms Mente said that NSFAS was the custodian of the funds, and the allocation made to Walter Sisulu University remained the money of NSFAS. The fact that the public did not even know the name of the responsible official was an indictment on NSFAS when a poor student was being pursued. A poor student had been jailed and appeared in court and there was a verdict against her, but there was nothing against the official involved with the government’s money. It was utterly wrong that this matter was seemingly not NSFAS’s business when students applied directly to NSFAS.

Mr Nongogo explained the process of applications for funding by students. When a student applied for funding, NSFAS would find the student to be eligible for funding, and the student was funded by NSFAS only when they were registered by the institution. Thereafter, the institution submits claims to NSFAS based on who was funded and not. NSFAS then pays institutions based on the claims submitted by the institution to the NSFAS. In this case, on the side of NSFAS, the correct amount would have been paid by NSFAS on behalf of the student. When the institution was disbursing the funds to the students, the Water Sisulu official had paid more than what was supposed to be paid to the student. The loss was incurred by the WSU.

The Chairperson interjected and asked whether the money belonged to NSFAS or not.

Mr Nongogo replied that the R14 million had not come from NSFAS, but from the WSU’s accounts. From the NSFAS perspective, there was no loss incurred by NSFAS.

The Chairperson said the WSU submitted claims to NSFAS and asked if, in those claims submitted by the institution, it covered all the claims.

Mr Nongogo said that the claims that were paid by NSFAS covered all the students, but the excess that was paid by WSU to the student had been from its own account, not from the NSFAS.

The Chairperson asked why the NSFAS team did not tell the country that this money had not come from NSFAS.

Mr Nongogo said that NSFAS was not part of the case, and the only link in the matter was that the student was a NSFAS beneficiary. She was being paid a NSFAS allowance, and in that process, she had been paid R14 million instead of R1 400.

The Chairperson said he found it odd that this matter had been in the public domain for so long and an explanation was sought -- but suddenly it was not an NSFAS matter.

Mr Nongogo said that from the time he took office, the NSFAS had been consistent in its submission that it was not an NSFAS matter.

Ms Mente said that the WSU had its own money, and this student was the beneficiary of NSFAS.
She had been waiting for her NSFAS allowance through the WSU, which had deposited R14 million instead of the R1 400 that WSU had claimed from NSFAS for this student. Was it the same account to which the money had been transferred by NSFAS that was used to transfer the money to the student? If this was so, why had NSFAS not found it necessary to follow up on it?

Mr Nongogo replied that NSFAS had no basis for knowing which accounts the institutions used to pay money to the students. Some of the institutions even used third parties to make payments to students. NSFAS had investigated this matter and concluded that it had paid the correct amount to the institution. NSFAS had not incurred a deficit of R14 million.

The Chairperson was not satisfied with the responses. He found it very odd, but SCOPA would interact with the Portfolio Committee on Higher Education on this matter and perhaps invite the WSU to come and account on consequence management on this matter, given these new revelations. If NSFAS did not have a concrete response to its money trail, this was extremely worrisome.

The Committee would receive the forensic report, the annual report and the audit outcomes. It wanted to see a functional NSFAS. The majority of NSFAS students spent as much time in queues as they did in classes, which may constitute wasteful expenditure because NSFAS was not paying for students to stand in queues, but to be in class.

The meeting was adjourned.