DHET Update on National Skills Fund and NSFAS investigations

Meeting report

The Chairperson welcomed everyone and announced he had received apologies from the Minister and Deputy Minister. The Committee expressed its dissatisfaction with the Department of Higher Education and Training (DHET) for its failure to submit the documents and presentations on time. He lambasted the Department, stating that this was a simple administrative task and stressed how it disadvantaged Members in their preparations for the meeting to engage the entities thoroughly and properly. Not only had the documents been submitted late, but they were submitted on the morning of the meeting, minutes before it started. He appealed to the accounting officer to address this issue, as it negatively impacted the work of the Committee.

Dr Nkosinathi Sishi, Director-General (DG), DHET, apologised for the inconvenience and assured Members that he would investigate the matter. He was not aware that the documents had not been submitted on time.

DHET on NSFAS investigations

Dr Sishi said it was important to consider the Act that had established the National Student Financial Aid Scheme (NSFAS) when they discuss the entity, as it provided clarity as to what NSFAS was about. The promulgation of the NSFAS Act 56 of 1999 established NSFAS and provided for its management, governance and administration, and clarified its roles and responsibilities, which were to grant loans and bursaries to eligible students at public higher education institutions. It repealed the provisions of the Tertiary Education Fund of South Africa (TEFSA) and incorporated them into NSFAS.

There have been several interventions since the establishment of NSFAS that were crucial to contextualise the work that they did today so that there was an understanding of where the DHET was coming from in trying to get NSFAS right.

The Minister had commissioned a review of NSFAS to assess its strengths and shortcomings. The Commission was chaired by Professor Malusi Balintulo, and its final report was submitted to Cabinet in 2010. Since then, the NSFAS has received disclaimers from the Auditor-General of South Africa (AGSA). A task team for the transformation project, comprising of the interim board chairperson and three of the new board members at the time, had been appointed to ensure that the recovery plan responded to the Balintulo Report. Thus, from the onset, there had been a thorough process of analysis of what the challenges at NSFAS were, or are.

In 2012, specific issues that Prof Balintulo had raised started becoming evident in relation to the systems at NSFAS, and ensuring that they were aligned with institutions. The new Phoenix loans and bursary management system, and a website-based central application process, were announced to be operational. All this time, NSFAS was beginning to respond to interventions.

By 2014, the new Phoenix Loans and Bursary Management System and the website-based central application process were in operation, and the beneficiaries of NSFAS were increasing in numbers. In September 2015, the Higher Education Transformation Summit in Durban, which had started because of the "FeesMustFall" campaign, resolved to implement supply chain management (SCM) at universities and colleges as soon as possible, to clean up their SCM processes.

On 21 August 2018, the Minister appointed an administrator for 12 months after several challenges had been reported. In 2019, the NSFAS received a non-compliance to regulations and legislation letter from the internal auditors, Ernst & Young, which led to the Ministerial Committee of Enquiry.

What the Department was doing at NSFAS today was to implement the recommendations of the Ministerial Committee of Enquiry into operations at NSFAS. The Scheme would also report on the current challenges at NSFAS, such as the direct payments and related matters. The Minister had recently made two new appointments, including Prof Lourens van Staden as Acting NSFAS Chairperson. They were confident in his ability to implement the recommendations of the Balim Report. A progress update on the implementation of other recommendations would also be provided.

Allegations against NSFAS CEO

Allegations against Mr Andile Nongogo, Chief Executive Officer (CEO), emerged last year, and this was followed by the Board deciding to investigate the allegations around the appointment of service providers related to direct payments. The Werkmans Report was tabled before the Board, and the CEO was subsequently dismissed in October 2023.

On 8 January 2024, Mr Nongogo took the entity to the labour court, which dismissed his application. A substantive chief operating officer had been appointed in December last year. The Department was currently dealing with the matter around the legal opinion on the termination. One of the recommendations of the Werkmans Report was not only to dismiss the CEO, but to address other matters. However, the legal opinion on the termination of the service providers had been received, and this would be reported to the Committee.

Following the release of the Organisation Undoing Tax Abuse (OUTA) recordings, Mr Ernst Khosa, who was the NSFAS board chairperson, took a leave of absence on 10 January. The Minister had then appointed Prof Van Staden, who assumed duty on 12 January. The Board had already met and started its work addressing outstanding matters from the Werkmans Report. 

He assured Members that the NSFAS team and the Board were committed to implementing the mandate of the Committee. Out of 1.5 million applications, 970000 applications had already been approved for funding. Therefore, as much as there were challenges in the entity, the work continued to function, and those found to be on the wrong side of the law were held accountable.

National Skills Fund

The National Skills Fund (NSF) had been invited to provide an update on implementing the forensic investigation and other related matters, the NSF audit action plan, and human resources-related matters. The Minister presented a full forensic investigation report in October 2022. After distributing the forensic report, the DG began to implement the recommendations of Nexus Forensic Services. Ten projects had been sampled for investigation. The service providers were spread across five provinces, including two service providers from KwaZulu-Natal (KZN), one each from the Eastern Cape and Western Cape, two from Limpopo, and four from Gauteng.

The summary of the investigative report included the following:

• Some NSF staff failed to do due diligence properly and implement sustainability standards, which resulted in incompetent entities being awarded funding.
• Site visit reports to monitor performance were not interrogated fully and used as reasons to release the next tranche of funds. The funds deposited into these entities were immediately transferred to third parties. It also appeared that NSF record-keeping remained a concern.
• Equipment paid for was not delivered.
• Overcharging by companies appointed to supply equipment was reported.
• Almost all the tender entities breached the provisions of the memorandums of agreement (MOAs) by not opening a dedicated bank account to deposit the funds paid by the NSF.
• NSF staff were not doing thorough verification of where learners were to benefit.
• Conflict of interest involving directors of companies doing business with the NSF being awarded funding by the entity.

He also provided the Committee with a summary of the commitments of the Department in response to the observations made above.

[See the presentation for details]

Audit history of NSFAS and NSF

Ms Sharonne Adams, Business Executive, AGSA, took Members through a presentation which outlined the NSFAS’s history of audit opinions, audit outcomes for the 2021/22 financial year, material irregularities and recommendations, among other things.

NSFAS had reported three material irregularities issued in 2020 to the accounting authority. These irregularities included disbursement above the contract amount (MI 01 of 2019/20), collection of money owed by tertiary institutions (MI 02 of 2019/20), and interest not charged on student loan accounts (MI 03 of 2019/20).

The audit of NSFAS for 2021/22 had been finalised on 31 July 2023, instead of the legislated timeline of 31 July 2022. This was due to NSFAS submitting revised versions of its financial statement on 29 July 2022 and 31 March 2023 to incorporate the corrected results of the close-out process, and to address audit findings from the initial audit process. NSFAS had regressed from the previous year by receiving an adverse opinion with material findings on compliance with laws and regulations, and predetermined objectives. The overarching root cause was that the organisational capacity and systems were inadequate to manage and maintain the growth that NSFAS had experienced since 2018.

[See the presentation for details]

The National Skills Fund had still obtained a qualified audit opinion in the current financial year. The qualification areas of the entity were mainly related to project management of skills development projects.

[See the presentation for details]

SIU probe into NSFAS

Adv Andy Mothibi, Head of the SIU, said that the SIU probe into NSFAS had led to recoveries to the tune of more than R700 million. The recoveries came from unallocated funds due to the entity's poor control systems and a lack of reconciliation processes. Funds were also not collected from institutions of higher learning, but when approached by the SIU, the institutions cooperated, leading to a quick recovery process.

The SIU had also interviewed more than 4 000 students and their parents who had signed debt agreements. Furthermore, it was found that the e-wallet/voucher payment system, Celbux, had many dormant accounts which amounted to an estimated value of R320 million. Regarding NSFAS-funded accommodation, the SIU had found that details of accommodation, such as physical addresses and particulars of the landlords or owners, had not been captured on the NSFAS system. Physical addresses and landlord or owner details were also not vetted by the NSFAS.

[See presentation for additional details]

The Chairperson recalled that when he was a student, students who came from rich families would use their grandparents' who were pensioners to get NSFAS funding. He questioned where one began drawing the line on corruption, because students falsified information and those who were deserving were pushed down in the process. This was family corruption, and it should be considered criminal.

NSFAS performance update

Mr Masile Ramorwesi, Acting Chief Executive, NSFAS, took Members through the presentation which covered an update on the annual reports, the performance of the entity and an update on the investigations conducted by the SIU.

The main reason for its delayed 2021/22 annual report was to allow NSFAS to complete the financial close-out process for the academic years from 2017 to 2021. Following the completion of the 2021/22 year, the AGSA had categorised the NSFAS audit findings into internal and external findings. NSFAS immediately sought to resolve the identified audit issues. Internal audit findings had been resolved and were currently undergoing NSFAS internal processes to be included in the 2022/23 annual financial statements.

The external audit findings mainly addressed the close-out process, which involved reconciling data between educational institutions and NSFAS. It was working closely with these institutions to resolve the issues identified. This included holding physical workshops to assist in the reconciliation process. While progress had been made, it was impacting the submission of the annual financial statements for the 2022/23 period. The AGSA had highlighted that due to the complexities of NSFAS, the audit may take longer than the anticipated time of two months.

[See the presentation for details]

HAWKS investigation at NSF

Mr David Mabusela, Acting CEO, NSF, provided an update on the investigation conducted by the Directorate for Priority Crime Investigation (DPCI/Hawks) on the ten projects that had been identified for investigation, and the progress on internal disciplinary processes.

During the last SCOPA session, the NSF had reported that the DPCI was collecting evidence for a determination to prosecute. Since then, the DPCI had informed the NSF that the investigation was still ongoing, witness statements had been obtained, and bank statements had been submitted for analysis. The National Prosecuting Authority (NPA) was aware of the progress on this case, and a decision would be made once the analysis of bank statements had been completed.

Further, during the last SCOPA session, the NSF had reported on the unfolding of the internal disciplinary process during which:

• Six officials were placed on precautionary suspension in October 2022 (5) and November 2022 (1) on various charges.
• Further investigation absolved two officials, as no concrete implicating evidence was found, and their suspensions were lifted in July 2023.
• One junior official had entered a plea bargain and paid R7 220, with a written warning.
• Another junior official, who was implicated in wrongdoing by association, was sanctioned to one month without pay.
• One senior official was dismissed outright and subsequently filed an appeal.
• Separate disciplinary hearings of two senior management service (SMS) officials at director levels were ongoing.
• Arising from one of the hearings above, another official at director level had been implicated, to whom the right of reply was afforded.

The time it would take to obtain criminal convictions and sanctions on both the skills development providers and officials, would be determined by the outcome of the DPCI's investigations.

Discussion

Mr S Somyo (ANC) said that the AG had revealed the material irregularities, and the slow pace in addressing them seemed to be happening at both the NSFAS and the NSF. At the former, it was even more risky regarding identification, fulfilment and attention to material irregularities (MIs). These issues ought to be responded to through the key offices in the institution, and if there was a lack of action at that level, things would fall apart. The biggest threat at NSFAS was an unstable operational environment, particularly regarding the CEO, with now an acting CEO creating a high risk in those areas mentioned above.

Secondly, the Balintulo recommendations revealed that the challenges that NSFAS experienced from 2010 until recently were still crippling the institution. There were other commissioned investigations which had provided recommendations that highlighted direct areas of intervention, and the AGSA also noted these in its report.

The NSFAS funding had increased rapidly and required a strong institution to manage it efficiently. He urged Prof Van Staden to take firm action against material irregularities, as NSFAS received a substantial amount of money from government. Additionally, the financial systems of NSFAS needed to be strengthened, which had been recommended by the Balintulo Commission a decade ago. If NSFAS continued to face these challenges while venturing into new products, it needed to be prepared to manage and administer them effectively, as advised by the SIU. The Minister had recently announced funding for "missing middle" students, but it must be complemented by a robust system and internal controls at NSFAS. The entity must urgently address its issues, because it was established for the betterment of South Africa's future. Providing funding for missing middle students was pointless if NSFAS could not disburse these funds effectively due to inadequate systems.

The funds recovered by the SIU amounting to R688 million should be returned to the fiscus because this amount might be used for other essential programmes that may not align with the institution's current voted funds. Perhaps National Treasury should be engaged on this. When the SIU recovers money, it should be paid through the recoveries that it makes.

Ms L Lubengo (ANC) agreed with Mr Somyo that NSFAS was facing numerous challenges, which indicated a lack of performance monitoring skills in financial management within its structure. She enquired about the measures in place to address these challenges. She also inquired about the situation regarding the student who had mistakenly received R14 million from NSFAS at the University of Walter Sisulu. She wanted to know the number of students earmarked for funding for the 2024 academic year, and whether NSFAS had met its target. If the NSFAS had failed to meet its target, she asked what steps the entity planned to take differently to ensure that its targets were met in the future.

The Chairperson said that ten projects were sampled by Nexus for investigation, but had the scale of the investigation been broadened to investigate other projects, or the entire portfolio of the funding? The sample of ten was a drop in the ocean, and he was uncertain how it had been arrived at.

Secondly, the consequence management referred to in slide three of the NSF presentation reported that six officials had been placed on precautionary suspension in October 2023, and the number had escalated to seven from five. He wanted to find out more about the junior official who had entered a plea bargain and paid R7 220, with a written warning. What had been their role in this conveyor belt of corruption? What was the role of the official who had been dismissed? What were they charged for? What value was attached to their activities, and what recoveries had come out of it? He asked for details of the value attached to the activities of officials found to be on the wrong side. Furthermore, he wanted to know about the corrective measures put in place to safeguard against the activity these employees had engaged in, and whether investigations were still happening to extend the pool of people being investigated. There was too much money involved in this for junior officials to be at fault, but nothing was happening at the top.

He said NSFAS got pressured by time – from the time results were announced to when the universities must start teaching. Many students were spending time during teaching hours sorting out NSFAS administration. He questioned the convenience of the timetable for the placement of students and the administration of NSFAS. Results came out in January, and NSFAS had to place hundreds of thousands of students in a short space of time without the ability to attain heightened levels of quality assurance, hence the corruption involving undeserving and non-qualifying students.

The transition from basic education to higher education was problematic from a financial point of view, because NSFAS dealt with different students and institutions with varying amounts and needs, etc, in a short space of time. It had a potential for fiscal dumping and posed a high risk for first-year students. He believed that this was something that needed to be discussed further with the Department of Basic Education (DBE). Results had come out two weeks ago, yet they were expected to start university classes in February, which was an entire transition of life, and NSFAS somehow had to meet that demand. If one did not get NSFAS right at the first-year level, it had a ripple effect on how a student progressed further and this was a timing issue – billions of rands administered in two weeks was a significant administrative risk. There was a need to manage this transition better.

He remembered asking what universities did with all the application fees from students. It seemed unfair that students had to pay multiple institutions for an application fee when applying to different universities. He felt that this had become a money-making scheme, as the money paid for these fees did not necessarily circulate to assist access to education. Without an application fee, education became more accessible. Therefore, he believed there must be another way around the commodification of education. These fees acted as a barrier to access, and seemed like a money-making scheme. It was important to note that institutions had limited space, and no one received a refund of their application fee when they were rejected.

What happened to students who failed or who did not pass all their modules or progress to the following year? To what extent did failure contribute towards wasteful expenditure in the NSFAS portfolio? The model had to change to fund institutions based on their space and the services they provide, as opposed to the individual students, because a lot of money was leaking into the space of people not advancing to the next level, and dropouts, amongst others. It was too open-ended. How many NSFAS beneficiaries passed in record time? These were the types of questions one needed to have, as well as solutions to the sustainability and viability of NSFAS as an intervention for society. He was weary of throwing money into non-financial problems. One needed to emphasise the responsibility that was upon the student as well. Further deliberations must be held on the viability of NSFAS and the root causes of these challenges, because the system was bloated administratively. Perhaps, there should come a time when the costs of fees at higher institutions were standardised. There was a sense that NSFAS had become a money-making scheme.

He thanked the SIU for the work that it had done and the recoveries that had been made so far. He questioned if the reporting between the SIU and the NSFAS on the recoveries reconciled, because NSFAS had barely touched on this in its presentation.

Responses

DHET

Dr Sishi referred to what the Constitution says about basic education in South Africa, which was required, but when it came to post-school education and training (PSET), the Constitution says it shall be made available as the state develops the capacity to do so. This already posed a threat to the state’s ability to provide sufficient funding for PSET, because it competes with other national priorities. However, he thanked National Treasury for its commitment when engaging with the DHET on budget cuts, as both the Department and National Treasury often agreed upon these cuts.

Regarding the recent announcement on the missing middle students, every year when there were protests at institutions, it was largely due to this cohort of students – the missing middle. When the interventions were announced to support these students, one hoped that South Africans would embrace this initiative. It had taken a very long time to get to this point. Members would recall the Ministerial Task Team on the comprehensive funding model for PSET, which was presented to Parliament. It had now been tabled to Cabinet, and it had approved it and asked the Department to comprehensively consult, which it had done across the country. What had been presented was the first phase of implementing a new funding model which must be understood to address the issues around the sustainability of NSFAS.

This missing middle scheme was about developing an endowment scheme, which was a loan scheme that replenished itself as people paid back. NSFAS was not new in dealing with a loan system – the experience of the expertise at NSFAS was about disbursing a loan system, not a grant. The problems picked up at NSFAS had emerged and intensified immediately after disbursing grants, which started in December 2018 until now, but before this period, the implementation of the recommendations of the Balintulo Report had seen NSFAS stabilising all the time until the fee-free education policy was announced.

The non-alignment between the administrative systems at NSFAS and institutions was the cause of the current challenges at NSFAS, hence it had struggled to finalise the close-out report. Fixing this problem required that all the institutional systems were also fixed and aligned with the NSFAS system. The gap analysis report had been finalised, which also investigated the sector education and training authorities (SETAs) because the Department had picked up, through the AG’s report, that there were beneficiaries who were double-dipping in the system. The challenge with the system was that the Department was unable to pick up immediately who the beneficiaries were when the double-dipping took place.

He expressed his appreciation to the State Attorney's office for its support in getting into the independent panels that were investigating the cases that had been reported upon. He would be pleased with a faster turnaround time, but the thoroughness of the process was going to assist the Hawks and the SIU, as all the data would be made available to them. One of the officials who entered plea bargains had admitted to wrongdoing, and those cases had been handed over to the Hawks and the SIU to investigate further. Sooner than later, the string of investigations would spread out and deal with top officials as well where they were found to be wanting.

The essence of the Nexus Report pointed to the third parties that had led to the limitation of the scope of the AGSA, which could not provide the required documents and as a result, the NSF could not supply those documents to the AG. As Members could see, there had been full compliance and cooperation with the AG concerning the audit process.

NSFAS

Prof Van Staden said that after Cabinet announced a loan scheme for the missing middle students, the NSFAS board had been compelled to return to the drawing board, as the announcement came at short notice, although it was a noble idea.

NSFAS was working on a turnaround strategy and plan in the short term to address some of the challenges, most of which pointed to its organisational structure. It was imperative to review the current structure to assess if it was suitable to execute the payments that had to be made by NSFAS. Thus far, it has conceptualised and approved the loan scheme guidelines and criteria. It also developed a policy framework and an implementation plan for the payout of the loan scheme. With this added responsibility, NSFAS’s capacity was constrained, and it was in the process of identifying service providers to assist with the disbursement and administration of the loan scheme and the bursary scheme.

The NSFAS board had adopted the Werkmans Report, and the SIU continued to do its work. The most important recommendation was the four fintech companies that had been irregularly appointed, and when their services were cancelled, NSFAS needed to have a plan in place to implement the bursary and loan scheme. This was what was keeping the Board and management up at night, working around the clock and consulting all the stakeholders to assess where NSFAS could improve.

National Skills Fund

Mr Mabusela responded that when the Hawks had initially engaged the NSF, it had stated up front that it would take up the ten projects, but the scope of its investigation would not be limited to the ten projects. This would be led by the investigation as it unfolded. What emanated out of the Hawks report would inform further steps and actions or investigations.

Secondly, the initial precautionary suspensions were six officials, but as the disciplinary processes were unfolding, other people became implicated, but only the ones that could be charged were accounted for. Often, the junior officials provided more reliable information. The line of command to which this junior official was reporting was the person who was finally dismissed, based on the evidence provided by the junior official. The plea bargain came from an admission that had been assessed to determine if it was gross negligence based on criminal intent or simply negligence that was derelict in nature, which had determined the outcome.

NSFAS

Mr Ramorwesi replied that NSFAS had an audit action plan that it had started implementing, and the internal issues had already been addressed. However, the external ones were still outstanding, as they required information from external institutions.

The action plan also identified the issue of capacity and staff turnover. Members would have noted that NSFAS had many acting roles, which indicated a high vacancy rate. However, the Board had prioritised filling vacancies to ensure the entity was capacitated and stable.

Regarding the targeted number of students, NSFAS annually conducts projections that inform the budget. For the 2023 academic year, the budget for universities had been R38.5 billion, which was over-subscribed – the target had been exceeded. The budget for the technical and vocational education and training (TVET) colleges had been within the target before the implementation of the budget cuts, but had subsequently become over-subscribed when the budget was cut. NSFAS had reviewed its reserves to assess possible funding for the over-subscription.

SIU

Adv Mothibi commented that the amounts reflected in the SIU’s presentation were actual findings and amounts. There were payment confirmations from institutions, and the SIU had also signed acknowledgement of debt certificates with the students who were wrongfully funded. This evidence could also be provided, and the SIU was aware that this evidence would be audited.

As part of the findings, the SIU made systemic recommendations meant to demonstrate what the SIU had found to avoid the same issues in the future. Thus, in the final report, the SIU must be able to pronounce that measures have been put in place for prevention.

The Chairperson advised that the NSFAS should reconcile its numbers with the SIU on the recoveries that had already been paid to NSFAS by the institutions, and those that had been paid to the SIU and still needed to be transferred to NSFAS.

He thanked the Members and officials for their responses.

The meeting was adjourned.