SAHPRA, MRC & NHLS 2020/21 Annual Report

Meeting report

Introductory Remarks
The Chairperson made brief opening remarks. The South African Health Products Regulatory Authority (SAHPRA) would present its Annual Report for the 2020/21 financial year; this would be followed by the South African Medical Research Council’s (SAMRC) presentation on its Annual Report and then finally the National Health Laboratory Service (NHLS) on the same.

The Committee Secretary indicated those in attendance and the apologies of Ms M Sukers (ACDP) and Ms E Wilson (DA).

Briefing by SAHPRA’s on 2020/21 Annual Report
Introductory Remarks
Prof Helen Rees, Chairperson, SAHPRA, provided brief introductory remarks. She outlined a number of updates since SAHPRA had last been before the Committee. The term of office of the first Board of SAHPRA had come to an end; there was a new Board. The new Board consisted of some of the members from the previous Board, as the law allowed the Minister to re-appoint for a period of time. There were also a number of new members on the Board.  According to legislation, the Board should consist of 15 people. There were currently ten members on the Board, this included all the legally required expertise. The Minister had since re-advertised and was in the process of appointing a further five members, so that the Board would be fully constituted with 15 members. Ten of the members were broadly speaking in the regulatory public health, epidemiological and clinical space while five members had expertise in areas of law, human resources, finance, auditing and Information Technology (IT). She introduced Dr Obakeng Khaole, who was the newly appointed Vice-Chairperson.

Dr Obakeng Khaole, Vice-Chairperson, SAHPRA Board, introduced herself to the Committee. She had expertise in healthcare provision, National Health Insurance (NHI) and vaccinations against COVID-19 and other treatment modalities.

Prof Rees spoke to the targets that would be presented. She highlighted that the Board was keeping an eye on the targets and continued to be worried about backlogs. She encouraged members to look at the progress of each target. It had been a tough two years, the Regulator had played a critical role in COVID-19, there had been an outstanding response, not only from the Executive and the CEO’s team in SAHPRA, but also the expert committees. Many people were pulled in to assist with evaluations of everything from ventilators, vaccines to diagnostics. There had been a national effort amongst experts in response to the challenges faced. It had likely doubled the workload of the Regulator over the past two years. She believed SAHPRA had stood up to the task.

Dr Boitumelo Semete-Makokotlela, Chief Executive Officer (CEO), SAHPRA, and Mr Regardt Gouws, Chief Financial Officer (CFO), SAHPRA, presented to the Committee.

SAHPRA achieved 15 (56%) targets. 12 (44%) targets were not achieved in the period under review.

SAHPRA reported that it was at the heart of the South African national response strategy to the COVID-19 pandemic, it was required to address new and urgent issues outside its usual scope of work. This included the urgent approval of laboratory and point of care SARS-CoV-2 diagnostic tests, approval of locally manufactured ventilators and approval of the hospital end of personal protective equipment. In response to the pandemic and due to strong partnership with other regulators, SAHPRA was able to reduce timeframes for vaccine authorization from 20 months to 3 months.

SAHPRA indicated that it inherited a backlog of around 16 170 medicine applications (new registrations and variations, that is, changes to registered products). To address this backlog, SAHPRA introduced several optimisational processes and efficiencies using totally re-engineered approaches for medicines registration. This included digitalisation, reliance procedures that allowed SAHPRA to exchange information with recognised regional and international regulatory authorities and standardisation of evaluation processes allowing applicants and regulators to know what was expected of them and how long it would take. To this end, SAHPRA developed and implemented the re-engineered framework to eradicate the backlog of health product registrations. Additional resources, including international expert evaluators, were brought on board to support this. The backlog clearance programme utilised the following review pathways:  Full review – conducting complete scientific review for safety, quality, efficacy and Good Manufacturing Practice; Reliance pathways; Abridged review – assessing specific, pre-agreed areas of critical importance to SAHPRA’s mandate to ensure safety of the South African public and Verified review – validating that application conforms to reference authorisation and provide required information. As of 31 March 2021, the backlog was cleared by 78% through various mechanisms that included opt-out by applicants, clearing the variations applications, rejecting non-compliant applications and approving re-submitted applications. COVID-19 negatively impacted the progress of the backlog clearance programme significantly. The beginning of the 2020/21 financial year coincided with the global hard lockdown, which saw many industries grind to a halt. Within the backlog unit, all further resubmission windows had to be to be extended to accommodate applicants’ requests. Staff members had to adapt to working remotely before the Backlog Clearance Programme could increase its productivity. The negative effect of the global lockdown was that international manufacturing sites were operating with minimal staff and numerous requests for extensions to respond to evaluation queries were received. These delays significantly impacted the backlog time frames.

SAHPRA obtained a 68% positive rating for its effectiveness and efficiency as rated by private and public direct users of SAHPRAs services. SAHPRA obtained a 68% positive rating for its services and offerings.

Material misstatements of fee income identified by the auditors in the submitted financial statements were corrected, but the uncorrected material misstatements of income received in advance (deferred income) and fee income identified in the prior year resulted in the financial statements receiving a qualified opinion.

There was a significant reduction in the number of findings raised from 88 (2019/20) to 21 (2020/21).

The high balance as at 31 March 2021 related to previously raised Irregular Expenditure not addressed and new transgressions identified. The majority of the new irregular expenditure raised related to the extension of a data contract to ensure service availability during the lockdown period
Since May 2021 National Treasury condoned R5.8 million after following appropriate consequence management processes. The remaining R5.4 million relates to 5 transgressions for which the consequence management process is underway and expected to be finalised before March 2022
The SCM unit has been fully capacitated since July 2021 and standard operating procedures, templates and control environment has been reviewed to ensure the detection and prevention of future transgressions

(See Presentation)

Discussion
Ms H Ismail (DA) asked why SAHPRA was struggling to monitor its compliance with legislation. What steps would be taken to improve on this issue? What were the major challenges that impacted SAHPRA’s performance? There was a regression from the previous year to this year. COVID-19 was present in both years; what was different in the 2020/21 year? What were the reasons for SAHPRA’s R6.2 million irregular expenditure? What was the largest contributing factor? She noted that some of the positions had not been filled, due to reduced income received. How did this impact the functioning of the organisation in reaching its other targets? She asked a question about the Pfizer COVID-19 pills. Did separate trials need to be done before SAHPRA approved them? What was the efficacy rate and when did SAHPRA foresee South African approval of the Pfizer pills?

Ms S Gwarube (DA) asked about SAHPRA’s financials. The Auditor General had flagged SAHPRA’s financial woes as a problem as an entity of the Department. The audit outcomes as explained by SAHPRA’s leadership left much to be desired. There were a number of targets that had not been met. While improvements were said to be made; she requested further explanation about the root causes of some of the financial issues beyond the financially constrained environment. She suggested that there was a management issue that had been reflected in the audit outcomes.

The Regulator was central to the response to the COVID-19 pandemic. She asked if some of the audit outcomes or financial issues were linked to the fact that there was increased pressure on the Regulator, or was it an organisational issue? Were some of the issues historic? She asked what measures had been taken to address the issues. Members of Parliament (MPs) had received some complaints from SAHPRA employees. There had been an issue of employees not being paid. This seemed to be the appropriate forum to address the matter. She asked that SAHPRA provide the Committee with an update if the issues had been resolved. It seemed as if the issue had tapered off in the media. It was a huge concern as a regulator was incredibly important in any country, but particularly during a global pandemic. MPs needed to support SAHPRA, as an independent regulator, in their work. The Committee needed to be given an idea of the nature of the problems experienced, such as why there were poor audit outcomes and media reports of employees not being paid. She noted the CEO had spoken about change management and staff morale being boosted - that was fine. She requested clarity about the organisational issues and how MPs could assist, given their oversight role.

Dr S Thembekwayo (EFF) asked a question in light of the survey conducted. The finding of the survey revealed only 50% positive responses. This meant that there were 50% negative responses from SAHPRA staff, that SAHPRA had not informed the Committee about. There was clearly low staff morale, as presented. She asked what had informed the change management programmes and how the programmes were formulated. She requested clarity about the negative responses received from staff in the survey. It suggested that there was a lot of dissatisfaction about the manner in which management treated staff. If there was no negative treatment by management to their staff, the positive findings would not have been as low as 50 percent.

Ms N Chirwa (EFF) noted that the Auditor General’s Report stated that there had been a general regression across all of the National Department of Health’s (NDoH) entities. She requested clarity about SAHPRA’s suggestion that the entity had ‘improved,’ in light of the Auditor General’s finding. She suggested that here was a disconnect somewhere. For SAHPRA to state that there had been improvement on their targets, suggested that the bar had been set very low. There were numerous red flags highlighted in the Auditor General’s Report about a number of entities, of which SAHPRA was included.

She asked that SAHPRA explain in detail what informed the irregular expenditure of R6 million. The presentation showed that the money was spent on the backlog programme, suggesting that there was work done to address the backlog. Why did that work not result in tangible results of reducing the backlog? She asked for clarity about how the money was spent, as it had not been spent to reduce the backlog. She asked SAHPRA what it had been spent on.

She requested an update about the resolutions of the meetings between the Health Professions Council of South Africa (HPCSA), Addington Hospital and SAHPRA on the hernia and transvaginal mesh debacle, specifically the case of Phindile Mncube. She had raised this issue countless times in Committee meetings. Why had SAHPRA not conducted in-depth research about victims or the people who had known to have had transvaginal and hernia mesh. SAHPRA repeatedly said that they had good relationships with other health entities and bodies across the globe; SAHPRA had not engaged with such bodies on this particular issue. She highlighted that Johnson and Johnson (J&J) had agreed to pay $117 million to settle the United States of America (USA) mesh probe. Why was information, such as this, not reaching SAHPRA? She noted that SAHPRA has previously committed to finding out the precise reason and circumstances surrounding the case of Phindile Mncube as well as a fully-fledged investigation. Corrective surgery was taking place in a number of countries. SAHPRA should be spear-heading this particular struggle, as people were suffering. The issue of the 2017 J&J mesh products, which were used in South Africa, repeatedly came up. The issue was not receiving adequate media coverage and there were not enough investigations taking place.

She asked what the current turnaround time for applications was, as it was stated in the presentation that this had improved. Particular mention was made about the vaccination application programme, which originally took 20 months but was reduced to three months – that was not across the board. She requested an update about the other vaccination applications to date, particularly Sinopharm and Sputnik.

She asked why proper record keeping had not taken place to ensure complete, relevant and accurate information was available to support financial reporting. She stated that SAHPRA had not reviewed nor monitored compliance of its finances, in line with the applicable legislation. What was the reason for this? It needed to be explained comprehensively.

She asked for an update about small cannabis growers and the issuing of licenses. It had previously been stated that SAHPRA would be increasing access for Black manufacturers specifically. This had followed Black manufacturers stating over the past couple of years that they had been isolated by SAHPRA’s red tape and procedures. She asked for an update from SAHPRA about how they were increasing access to Black manufacturers, as SAHPRA had failed to do so over the past two years. She emphasised that she had raised the issue since 2019 and there had not been a proper explanation, or report back, to the Committee on the issue to date.

She stated that the Committee was fatigued; despite the work the Committee and the Auditor General were putting in, where resolutions were made and needed to be implemented, SAHPRA was still failing to do so. She stated that SAHPRA had not improved, as suggested in its presentation, as SAHPRA had not implemented the resolutions year in, year out. SAHPRA set its own targets and then failed to meet them all. There was a general dissatisfaction with SAHPRA and the NDoH. She asked that her questions be responded to in detail.

Mr T Munyai (ANC) noted the Auditor General’s report about all entities, including SAHPRA. The first point of departure was to thank SAHPRA’s Board for intervening to bring a strong CEO into the organisation. The CEO had not been in that position very long, the entity seemed to be turning the situation around. SAHPRA’s Board had on a number of occasions come to the Committee and stated that the allocations of funds to SAHPRA were minimal. The funds did not allow SAHPRA to do its job successfully, according to the turnaround strategy originally presented to the Committee. He pleaded that it become a collective task of the Committee to ensure that the Ministry allocated funds to SAHPRA. He suggested that it should remain a standing item on the Committee’s agenda until there was a significant shift in the allocation from Treasury.

A new CFO had been appointed who would implement controls. Part of the Committee’s responsibility was to support the organisation. SAHPRA was in the process of turning around the corner and improving. There were entities that were getting clean audits, but those entities did not have the same commitment to service delivery, as shown by SAHPRA. There were a number of interventions that were made to introduce new technology, to approve biological medication, such as vaccines. SAHPRA had done a lot of work. The improvement was systematic and was taking place. He thanked SAHPRA’s Board and management for their work.

He anticipated that SAHPRA would have financial difficulties, as this had been the case for the past three financial years. The Committee had stated that they would engage with the Ministry about that. The Committee needed to ensure that SAHPRA ‘got given a lot of money so that they could become a powerful entity that had the teeth to regulate independently.’ He encouraged SAHPRA to continue to work to serve the Country.

He was disappointed, but not surprised, by the issue of non-payment of workers, as SAHPRA had previously raised issues around limited funds. He asked that SAHPRA try, within its means, to resolve the matter with the highest sensitivity. He was sure that SAHPRA would find ways of addressing the issues that were raised by Ms Gwarube. He agreed with the points she had raised. The Committee needed to engage the Department and hold them accountable to allocate more money to SAHPRA, as the entity needed to be ‘much more powerful.’ He asked how SAHPRA would deal with the issues of salary non-payment. He stated that he was proud of SAHPRA’s work to improve systematic issues, which would take time.

Ms M Hlengwa (IFP) asked a question about laboratory services, presented on slide 26. It was recorded that most provinces had, through extensive negotiations, substantially reduced their historic debt. She asked that more detail be provided about outstanding historic debt by province. Slide 22, outlined an update on medicine registration. The Committee was told that only 131 of 240 generic medicines, meaning 55%, were registered and finalised within 250 days. The reason provided for diversion was apparently due to inefficient human resources and capacity constraints. She asked that SAHPRA provide more detail on the nature of human resource constraints and what was being done by SAHPRA to address this.

The Chairperson thanked SAHPRA for the work it had done, stating that the pandemic could have been far worse in the Country, if it were not for SAHPRA’s role. There was a reprieve in the form of the lesser number of people hospitalised and fewer number of deaths. There had been a huge improvement. Despite the improvements, COVID-19 was a virus and could spread easily and quickly; it was thus important that pharmacovigilance be maintained. It was important to stress that his perspective, as a specialist medical practitioner and as a medical scientist, was that SAHPRA had done a good job and should keep doing its work. Despite trying times and challenges, SAHPRA had stood strong. SAHPRA had delivered on its mandate. He noted that SAHPRA had received a qualified audit opinion with material findings. From what was understood from the Auditor General, this had to do with historical problems. He asked that SAHPRA clarify that for the Committee – as to why it received that finding. He noted that there were no mis-statements and this had been improved on since the previous financial year. There were inefficiencies in internal controls to comply with legislation. He requested that SAHPRA provide the Committee with more information about what the entity was doing to address this, specifically in supply chain management and consequence management.

He commended SAHPRA for the letter he received, in response to his request for information about the surgical mesh issue to be sent to both Ms Chirwa, specifically, and the Committee. He suggested that SAHPRA speak to this when answering the other questions. The letter explained the challenges. He noted that the ‘person in question’ had not received a pelvic repair with surgical mesh but an abdominal surgery – which was something completely different. An explanation had been provided by SAHPRA on their search into the cause of the problem. He noted that other members had raised the issue of workers’ salaries – he hoped that this would be responded to.

Ms Chirwa stated that the issue of the abdominal surgeries was incorrect. Phindile Mncube received surgery at Steve Biko Hospital, but before that there was a specialist that overtly told ‘all of them’ that Phindile Mncube did have mesh inserted in her. She had the reports, from Steve Biko hospital, on the latest surgery that Phindile Mncube received.

Prof Rees stated that prior to COVID-19, most of the public did not know much about what a regulator did, this had changed. People were much more sensitive to the importance of a health regulatory authority. SAHPRA’s aim was to get an absolutely clean audit. That was important, as it would reflect, not only good governance, but the outputs and objectives of the entity.

A number of Members highlighted that there had been regression since the year before. If one looked at the Key Performance Areas (KPAs), extensive discussions took place with the executive and the Board as well as Auditor General. The KPAs were carefully considered. The reason for this was that it allowed SAHPRA to be held accountable to Parliament. The Auditor General’s finding on SAHPRA was that, from 88 findings previously, this had been reduced to 21 findings. 21 Findings was not where SAHPRA wanted to be but it was not a state of regression. Some of their targets had been knocked right out by COVID-19, such as the World Health Organisation (WHO) evaluation. About 70 percent of their targets had been affected by COVID-19. SAHPRA was unable to get to where they wanted to be for one reason or another as a result of COVID-19. It was not an excuse. For a regulatory authority, that had to be completely engaged in the COVID-19 pandemic – it was important to take the pandemic into consideration. It was important to look at this objectively, the KPAs were objective; the KPAs were going in the right direction.

SAHPRA was very careful in trying to be compliant with legislation. Where questions were raised, SAHPRA would look into it. SAHPRA would report back to the Committee on the finances specifically. SAHPRA had been unable to successfully recruit some of the senior staff members needed because the entity was not competitive. This was why benchmarking was taking place. SAHPRA was being benchmarked against other 3A Public Entities, similar health entities. A regulatory authority was a scientific clinical, pharmacological drug authority. SAHPRA was often looking for specialised scarce skills. SAHPRA’s aim was to move away, in the medium term, from its dependence on external evaluators to build up its own capacity. It was not easy to recruit such staff. SAHPRA had to be dependent, in some cases, on international expertise, as scarce skills were required. She appealed to the Committee, as the entity tried to attract such scarce skills, such as scientists, clinicians and experts in the drug regulatory field, to recognise the importance of SAHPRA. SAHPRA wanted the entity to become ‘the most powerful, if not the best regulatory authority in the African region.’ SAHPRA was already getting feedback that they had the potential to do that. SAHPRA welcomed feedback from Parliament when the entity had done wrong. However, if unsubstantiated attacks were put forward against the entity, it would create a disincentive for people to join the Secretariat or the Board.

She responded to the question asked by Ms Ismail about the approval of the Pfizer pills, there were two new oral products which appeared to be successful in early trials, if offered to people who had an early diagnosis of COVID-19. It was very exciting, the pills reduced hospitalisation by up to 85% in the clinical trials. There were some background discussions taking place but there had been no indication to the Regulator from an applicant applying for the product. This was the kind of product that SAHPRA would fast-track as it could make a huge difference to the pandemic, given that one would be able to treat early disease and prevent hospitalisation.

Dr Semete-Makokotlela responded to the question about the regression in performance. She used the backlog project as an example, when SAHPRA presented on the previous financial year, the entity had been sitting at 60%. What was being shown now for the previous financial year was about 79%. As of Quarter two of this financial year, SAHPRA was sitting at about 85-89% clearance of the backlog. Progress was being made. There were challenges in clearing the backlog that dated back to 1995 – that was how systemic some of the challenges were. It was not something that SAHPRA would resolve in a year. It required the entity to have very clear strategies and interventions of how, over time, SAHPRA would address the gaps. The funding that was allocated for the backlog project was ring-fenced for the project. It could not be used for any other programme in the organisation. While SAHPRA had not met its backlog targets, the funding had specifically been used for the backlog project. When one looked at the Annual Report, there was a section where SAHPRA reported purely on the backlog project. There was transparency about how the money was used and how SAHPRA was progressing. While SAHPRA had not met the outputs of clearing it this year, good progress had been made. Additional resources had needed to be sourced, as the resources SAHPRA initially had were not adequate to enable the entity to reduce the backlog. A large proportion of the backlog funding went toward internal resources and external evaluators. There was a dedicated internal team that supported the backlog project.

There were a number of vacancies that SAHPRA had not been able to fill. There were income challenges, as SAHPRA recruited the entity needed to balance that against the revenue base. SAHPRA had anticipated that the fees would be gazetted in time, which was not the case. This meant that there was a delay in implementing fees. This had a ripple effect, in that there was not sufficient funding available for all resources. That was why SAHPRA went through a reprioritisation exercise. The year before, the entity prioritised a number of positions linked to compliance. SAHPRA appointed its Supply-Chain Management (SCM) team, who put forward the policies. There was a quality management team and internal audit teams. There had been progress. These resources were brought in during the current financial year.

The organisation would fail when it came to compliance as there were no resources to ensure compliance. This was why there was more confidence this year, as there were people in place to address this and there would be a better outcome. She corrected the statement that ‘staff were not paid.’ There had been discrepancies with staff salaries. This was caused by the changeover to the new system as well as challenges getting information from the Department of Health. There was a time when they could not access the Civitas Building, which had affected SAHPRA’s ability to access the records of its employees. SAHPRA battled to get the correct information timeously. When SAHPRA got the correct information it was inputted into the system. There had been some system glitches during the input process. Every single person was paid, there were changes with taxes and medical aid not being paid – all of those issues had been addressed with the relevant stakeholders such as the Government Employees Medical Scheme (GEMS). The issue that remained to be resolved was some of the tax discrepancies. A consultant had been brought in to assist SAHPRA in this regard. SAHPRA had also engaged with the Labour Forum and had taken them through some of the challenges. There were not more than ten staff members who had experienced these challenges. HR was supporting them through Payroll. Those issues had been addressed.

The migration of staff from Pastel to Sage Payroll had required significant administrative effort. It had affected the payment of the external evaluators – there were about 140 external evaluators, only ten had not received payments for payments for about two months. She had been in meetings with those specific individuals, who had understood the challenges. In some instances, external evaluators were not paid because the claims were not submitted on time, there were others who were paid but not paid in full. Part of the complexity was that some of the members were brought in during COVID-19 to address the different committees. The claims went through different areas, which caused a bit of disruption. The issues with the external members had been resolved. SAHPRA was aware of the media article and had been given a right of response, which the entity provided. The issues were being addressed and resolved.

There were staff members who had migrated from the Department of Health and were now operating within the 3A public entity. There were a number of staff members who had not gone through an audit before. While management might state that there needed to be an unqualified audit, it must be taken into account that a large cohort of staff had never had to go through an audit before nor ensure that there was a proper repository of data. Many of the staff were used to work environments where a lot of the work was done manually and stored in boxes. These staff members were coming into an environment where they were expected to digitise and keep proper digitised records. There was a lot of pressure that was put on the team to ensure that, as a 3A entity, SAHPRA was compliant. Compliance included claims coming in on time. When a decision was made it needed to be properly recorded. A lot of the negative feedback received, resulted from staff not being used to digitisation. There was discomfort about the digital transition, as this was new territory for them. Close to 90 people needed to be trained on the use of a computer, some people were not able to switch on a computer, because when they were previously employed, they were employed to move boxes and make photocopies etc. SAHPRA needed to ensure that these staff members were up-skilled.

She noted two other areas of staff discontent. The placement process had taken longer than expected because they could not implement the placement process without the HR team in place to support it. The other area of discontent was the move to a different building. The key learning area for SAHPRA’s management was that there needed to be effective engagement with staff around such issues. Staff meetings were set up to engage with staff. HR had weekly meetings with staff members who were transferred. Staff were taken through a digital payslip and how to access it off the new system.

She commented on the surgical mesh matter. She noted that the report had been shared with the Committee. As the Regulator, they had to go with the information that was provided to them. While Ms Chirwa indicated that the patient (she would not use names as SAHPRA was bound by confidentiality) did not receive an abdominal hernia mesh but a transvaginal mesh. SAHPRA was basing their information on what was stated by the patient. SAHPRA could not go with anything contrary to that, unless the patient stated otherwise. SAHPRA had engaged with the hospital. One of the key challenges with the investigation was that Addington Hospital did not have records that could be utilised to trace the product that was used, such as the batch numbers. While Addington Hospital knew which company it was, there were no records to check the products. SAHPRA had engaged with the Addington Hospital CEO, who had committed to ensuring that the information would be made available. The conclusion of the Report outlined where SAHPRA stood on the issue, given the information provided to them. SAHPRA had been engaging with the suppliers, and would continue to interact with the suppliers, gather information and conduct post-market surveillance. The matter was being looked into further. Unless a matter was raised to SAHPRA of concern, SAHPRA could not state that ‘there were issues,’ when reports to that effect had not been received.

Pharmacovigilance and post-market surveillance was critical; it was one area that SAHRPA wanted to increase its capacity and efforts, however it did not have the resources to do so at present. SAHPRA needed to be adequately capacitated financially. SAHPRA could not be compared to the Food and Drug Administration (FDA). The FDA was supported and had the capacity to do this. SAHPRA was aware that the fiscus was tight, the entity was busy engaging with some funders to see how to leverage support. On matters of capacity building, SAHPRA had to go out and raise funding so that it could train its own staff. SAHPRA wanted to ensure that they were not as reliant, as they currently were, on external evaluators – but SAHPRA did not have the financial resources to do so.

She responded to the question about turnaround times, the Report included turnaround times for new entities. SAHPRA was not able to meet the turnaround time on generics due to capacity constraints (specifically personnel constraints). The bid for purpose structure outlined that SAHPRA should have close to 500 staff members. SAHPRA was sitting at about 298 staff members. Of the 298 staff members, there were close to 90 staff members that were administrative, who were being trained with basic digital skills. From a skills perspective, SAHPRA was not where it needed to be nor in comparison to other regulators. It was therefore expected that there would be delays. SAHPRA was not giving up, the entity had been trying to raise funding. SAHPRA was collaborating with other entities, and using external evaluators, therefore there were still a significant number of external evaluators supporting SAHPRA.

SAHPRA was still reviewing Sinopharm and had issued queries to the applicant. SAHPRA was waiting for the two applicants to respond to those queries. SAHPRA released a media statement about why they had made a decision not to authorise the emergency use application for Sputnik. SAHPRA had kept the rolling review open for Sputnik and were waiting for that data to be provided. There was an indication that SAHPRA might receive an application for Sputnik Light, however this had not been received to date.

She noted that there had been questions about the laboratories and provinces, that was likely not a question for SAHPRA, as slide 26, referred to by the Member did not contain that information. She suggested that might be a question for NHLS.

A number of stakeholders played a role in the value chain in the Cannabis sector, there was the Department of Agriculture, Justice, Small Business as well as Science and Innovation. There was an inter-ministerial task team that was put together to address this. SAHPRA, as a regulator, played a small role in this matter. She noted the issues of access and funding for small holder farmers but highlighted that SAHPRA was sitting with its own funding challenges. As a regulator, SAHPRA could not fund these. In engagements, SAHPRA had been clear that when it came to funding of farmers, it was not within SAHPRA’s mandate. SAHPRA had referred these stakeholders to the Department of Trade and Industry and Competition and the Department of Small Business Development. SAHPRA had addressed the barriers to accessing licensing by implementing an interim measure, where an applicant who did not meet the requirements for licensing would be given a status letter to indicate the requirements met and not met. This provided clarity. The applicant could then provide this to their funders. It showed that the applicant had submitted an application to SAHPRA and the various areas that needed to be addressed. SAHPRA was not rejecting those applicants, SAHPRA was giving those applicants two years to address the gaps. This had been well-received by a number of stakeholders and applicants but there were others that had not accepted it. SAHPRA had engaged with the Industrial Development Corporation, Small Business, Department of Science and Innovation and Department of Agriculture to look at how to finance the applicants so that they were able to meet some of the fees. There was a cost associated with SAHPRA sending two inspectors out, who spent a number of days inspecting the facility. SAHPRA incurred costs in doing its work, all SAHPRA’s fees were based on a cost recovery model, thus engagements had taken place with those stakeholders. SAHPRA wanted to enable, but SAHPRA could only enable according to what was mandated in the Medicines Act. SAHPRA had engaged with the Minister of Health around matters of Broad Based Black Economic Empowerment (BBBEE) and SAHPRA hoped that these discussions would continue, now that things had settled.

Mr Gouws responded to the question about monitoring compliance. That paragraph addressed the irregular expenditure that was incurred during the 2020/2021 financial year. The steps that were taken to address the monitoring of compliance included the full capacitation of the SCM staff complement, the Standard Operating Procedures (SOPs) as well as the templates and checklists that were implemented. The checklists forced one to check if one was complaint with the relevant legislation. Some of the R6.2 million irregular expenditure was identified by SAHPRA, and some by the Auditor General, that was not picked up through the controls. About R3.4 million related to the data contract. The legislative component was not complied with and was around the variation in the contract amount over and above what was awarded. There had been an existing data contract to give access to data for staff. When lockdown took place, all of the staff moved to working from home, as SAHPRA had to work during that period. That significantly increased the cost of data. At that point in time a variation request was sent to National Treasury, the problem with the variation was that SAHPRA was late on a few items and the amount requested did not cover the full cost at the end of the period of the variation. It was likely difficult to estimate what the cost would be at the time (i.e. the majority of SAHPRA staff working from home and the increased cost thereof). There was about R1.6 million that was due to not obtaining the three required quotations. The legislative requirement was that three quotes needed to be obtained and justified and approved appropriately. The step missed there, after following that process, was that there were no reasons indicated why three quotations were not obtained. To some extent, in the delegation of authority there was no specific ‘approver’ to approve the transaction. The remainder of the balance related to delegations of authority, where the CFO signed off on the transaction but the delegation of authority required a higher level of approval, for example the CEO. There were a couple of those transgressions.

He responded to the question about the root causes of the qualification. When SAHPRA was established in the 2018/19 financial year, there was a purely manual process in place, where physical documents or flash drives were submitted. With the establishment of SAHPRA and the move out of the Civitas Building, a strike took place and the lockdown was implemented – this caused a complete disruption of the existing control environment for receiving records and keeping them up to date. Everybody had to move from on-site to off-site digital work. That was why SAHPRA still qualified in the opening balances. The data, documents, files and folders were hard to cross-trace and track, considering it dated back to 2018/19. That was what SAHPRA was struggling with.

To rectify the situation, SAHPRA had to establish an electronic or digitised system that could indicate how many applications were received in a particular month or quarter and where they were located – this cost money. SAHPRA did attempt to develop its own system. To some extent SAHPRA was successful in doing so for Section 21 applications. There were still some minor issues with that system. SAHPRA could not develop its own system to the extent needed. SAHPRA required funding to do this. It was an essential and critical part of a regulator. if one looked at the volumes, transactions and amount of back and forth, external evaluators assessing, and their access to the system, SAHPRA needed a comprehensive system to avoid future qualifications. SAHPRA had put in place in various excel spreadsheets in the interim, where everything had to be manually captured on spreadsheets – thousands of transactions. It was overwhelming for the core units to do this on top of their daily jobs. The CEO mentioned the capacity constraints. SAHPRA was in a really tough position and was trying to rectify it. SAHPRA was looking at an interim measure to procure a very basic track and trace system or a system that could facilitate electronic records of the applications being received.

The Auditor General would not indicate improvements unless an entity moved from qualified to unqualified. From SAHPRA’s perspective, targets were set internally to reduce the number of findings, to drop the current qualifications, which SAHPRA was able to do. Considering that most of the staff joined SAHPRA in late 2020 or early 2021, it was not easy to get that right. SAHPRA was moving in the right direction, toward an improved audit outcome. Note 17 in the Annual Report, showed a detailed breakdown about the backlog, and mentioned the cost of employment and external evaluators.

Prof Rees stated that there was a business plan when SAHPRA started, the business plan had stated, that to be fully capacitated, 500 staff members were needed. There were currently 298 staff members, 90 of whom were administrative support and were being supported, capacitated and trained. That meant that there were 200 staff members, the majority of whom were on the technical side. SAHPRA needed more funding, SAHPRA needed to be supported. It was absolutely correct, that SAHPRA needed to listen to the Committee’s criticisms and come back and be able to respond accordingly. SAHPRA would appeal to the Committee to help the entity – as SAHPRA was having to go outside and look for third-party funding. Such funding was often ring-fenced, as could be seen in the report, it was very specific. It was not only for finance. Modern regulation was completely digitised. The Civitas Building basement had been full of boxes – this was archaic management for a regulatory authority. The software systems were expensive to move to a digital system. She asked that Parliament support SAHPRA in this. Perhaps SAHPRA would have to continue to get third-party funding as it was understood that Treasury was constrained. The CFO and associated staff brought in for finance, were relatively new, but the Board had repeatedly commented that the quality of the finance reports being prepared, the outputs and remedial actions to address these things had been just a ‘seat change.’ There had been a remarkable difference. From the Board’s perspective, there was great confidence in the CEO, the CFO and new Executive that had been built up.

The Cannabis policy was one area where Parliament could assist. People seemed to feel that SAHPRA could solve problems that did not belong to SAHPRA. SAHPRA did research, it was a research organisation. In this instance, the issue of Cannabis required a national policy, which required a number of stakeholders, beyond the health sector. SAHPRA had issued about 30 licenses for medicinal Cannabis, there were more licenses issued from Agriculture for low THC Hemp containing products (well over 100 licenses). Yet, SAHPRA was continuously being asked to solve the problem of a Cannabis policy, which was a national policy, which should be handled by Parliament and Ministers in consultation with the broader population.

The Chairperson made brief remarks about the feedback given by SAHPRA. He noted the request for Parliament, within its mandate, to support SAHPRA and raise the issue with the necessary people. SAHPRA had played an important role in saving the lives of South Africans in the face of the COVID-19 pandemic. It was only fair to offer and look into support that could be given to SAHPRA to move toward digitisation and capacitation. The Auditor General had noted the challenge of moving toward full digitisation and the IT challenges. This was where the entity ought to be going. The Cannabis Policy was with the Department of Justice and Correctional Services; that Department was looking at the Bill. The Committee was aware of the mandate of SAHPRA around Cannabis. He suggested that a meeting could be held with SAHPRA, where SHAPRA could ‘thrash’ out their mandate with the Committee so that there was a better understanding from the Committee’s side of what SAHPRA’s mandate and role was.

Prof Rees stated that SAHPRA had taken note of the Committee’s concerns and would welcome the opportunity to discuss what the Regulator did and did not do. That would really clarify some of the issues. The Board was confident that SAHPRA was moving in the right direction. She welcomed any of the individual Committee Members to send direct communication to any of the Board Members or the CEO etc if there were further questions.

Briefing by the SAMRC on their Annual Report for the 2020/21 financial year
Prof Glenda Gray, President & CEO of SAMRC, introduced the members of the Executive Management Committee of SAMRC.

Prof Glenda Gray, Dr Mongezi Mdhluli, Chief Research Operation Officer at SAMRC, and Mr Nick Buick, CFO and Head of the Finance and Operations Directorate at SAMRC, presented to the Committee.
 

During the reporting period, the SAMRC stayed within its 20% target for administrative costs, and the total travel budget was reduced by R10 million. This is against a backdrop of 8 clean audits out of the last 9, including 2020/21.

Since the start of the pandemic, the SAMRC has supported studies on COVID-19 surveillance and epidemiology that have laid the foundation for enhanced infection control practices in health care settings, contributed to community surveillance initiatives and improved understanding of the pandemic in South Africa.

Over R260 million had been raised and allocated to more than 50 COVID-19 research and development projects, including 30 projects that are supported with Department of Science and Innovation (DSI) funds. The SAMRC, in partnership with the DSI and Technology Innovation Agency (TIA), is funding several COVID-19 diagnostic product development projects and has co-funded the participation of South Africa in vital global studies on COVID-19 treatment and prevention, including the Solidarity Trial, the CROWN Coronation study and several vaccine studies.

Revenue for the year showed an increase of 7.1% to R1169 593 (R1092 305). This consists of an increase in government grants of 24% to R743 168 (R 597 101) offset to some extent by a decrease in contract income of 13.9% to R426 425 (R495 204). Operating expenses reflected an increase of 2.3% to R1 128 037 (R1 103 131) mainly driven by an increase in collaborative research costs of 16.4% to R532 719 (R457 540). This has resulted in an operating surplus R57 330 for the year compared to an operating surplus of R12 246 in 2019/20. A decrease in investment income of 39.8% to R19 638 (R32 630) due to a decline in interest rates and a decrease in the average balance of investments during the year under review resulted in a net surplus for the year of R79 218 compared to a net surplus of R43 042 in 2019/2020. The organisation remains financially strong with accumulated reserves of R420 749 (R341 530). Total assets have increased by 36.6% to R922 077 (R674 862) due mainly to an increase in cash and cash equivalents of R230 576 from National Government as well as local and international funders to fund COVID-19 research. Deferred income has increased by R107 987 to R306 353 due to additional funds received for research activities not yet performed while payables from exchange transactions increased by R65 033 to R175 450 due to contractual liabilities recognised on research contracts. The SAMRC generated a positive operating cashflow of R284 646 compared to a negative operating cash flow of R59 139 in the prior period due to an increase in grant receipts and lower payments to suppliers. Net cash flows from investing activities were negative due mainly to capital expenditure of R49 318 (R30 857). The net impact of the above is an increase of R230 576 in cash and cash equivalents compared to a decrease of R92 905 in the prior year.

Employee related costs have decreased by 4.1% to R386 210 (R402 747). Basic salary costs have decreased by 2.5% to R 325 706 (R333 933). No salary increases were implemented in 2020/21 in line with National Treasury instructions.

(See Presentation)

Discussion
Ms A Gela (ANC) congratulated the SAMRC for achieving a clean audit. Despite COVID-19, SAMRC was able to achieve most of their targets, which was a good sign. She asked that SAMRC explain the booster vaccines that were part of the Sisonke J&J healthcare worker programme. She asked how much was allocated toward the programme and the duration of the programme. There were four employees that were reported to have been injured on duty. She asked that SAMRC explain the measures put in place to prevent incidences of injury on duty. Had COVID-19 impacted the job security of employees? She asked that this be explained if this was the case. Were there cases of fraud and corruption involving the procurement of Personal Protective Equipment? If so, what measures had been taken to discipline the culprits? Bursaries and learnerships were outlined in the presentation; she appreciated that SAMRC were giving women the opportunity to grow in their careers. She asked that the SAMRC explain the conditions of the bursaries and scholarships.

Ms Ismail asked how National Health Insurance (NHI) would impact SAMRC’s ability to adequately implement innovative health solutions, as highlighted in programme three. The SAMRC had overachieved on its performance targets, which was excellent, but should the targets be increased in the annual performance plan going forward? Was the SAMRC doing any trials on the Pfizer COVID-19 pills at present?

Ms Chirwa stated that two of her questions dated back to 21 March 2021, when the Committee last met with the SAMRC. What were the statistics of Black women in senior management positions? She noted the race and gender statistics presented but no breakdown was given of Black women specifically. She enquired about the functionality of the laboratories, this was something asked at the meeting held on the 21 March 2021. She requested an update about what had happened since then in ensuring that the laboratories were fully functional. She noted that mention was made at the previous meeting of engagements taking place with the Minister on that. At the previous meeting, the Committee had recommended that the SAMRC should start insourcing financial services – she asked for a progress update on that.

Ms Hlengwa asked how many people who were vaccinated with the J&J vaccine, in comparison to the Pfizer vaccine, were infected with COVID-19. Of those who got infected with COVID-19 after being vaccinated, how many were infected by the Beta or Delta variants and how would their symptoms be described (i.e. mild to severe). What bottlenecks had SAMRC identified in the vaccine roll-out? What measures were being taken to vaccinate the Country fast enough to achieve the 40 million vaccinations targeted by the Government. The Electronic Vaccine Data System (EVDS) used to register for vaccinations had been described as slow, impractical, inefficient and slowing down the vaccination process. It was criticised as excluding walk-ins.

The Chairperson stated that SAMRC’s statement of financial performance and statement of financial position seemed to both be very good. SAMRC seemed to have a surplus, which had increased over this difficult period of time. Although SAMRC had an increase in total liabilities, there was an increase in their net assets, of R420 million – which was ‘quite a large amount of money.’ What were SAMRC’s plans in using this, considering their mandate? How many more people would SAMRC be able to grant scholarships to? The Committee would support the training of South Africans in the medical and health sciences – he hoped that some of the money would be put toward their training.

He was concerned that pre-1994, when the Country was fighting for liberation, Black people were considered to be all those ‘who were not White people,’ and did not receive the benefits of the previous regime. He was shocked to see what was happening to the Coloured group, which had dropped tremendously, 1.5 percent in one programme and then in the PhD development programme again the same. There seemed to be an imbalance. He hoped this would be addressed by the time the SAMRC was before the Committee again. He suggested it might be necessary to speak about race in the Country in a subsequent meeting – those ratios needed to be correct in terms of the Country’s demographics. He was concerned about young South Africans who wanted to pursue a career in research and be able to contribute to the health outcomes of South Africans, if the opportunities would be awarded in this manner. It was a serious concern. He thought there should be an engagement about where this was going and how it would be impacting on young people and the mid-career researchers in South Africa.

Prof Gray responded to the question about the Sisonke health worker J&J booster shots. Once the SAMRC had been given data that a booster of the J&J vaccine, given two months after the initial shot, increased vaccine efficacy, the SAMRC spoke to the Department of Health and made plans to improve the effectiveness of the single dose J&J given to the healthcare workers. This was done. The healthcare workers were the first recipients of the J&J vaccine in the Country, having got them between mid-February and mid-May 2021. SAMRC was concerned about the durability of their immune responses and concerned about a new wave. Given this new data, there was evidence to boost the healthcare workers. The data about the booster would be important, as there would be data from people who got the vaccine as far back as nine months before and as recently as four months ago. The SAMRC would be able to provide the government with important information about the timing of boosters. This was a very important study as it would inform the government’s boosting strategy.

The SAMRC experienced three deaths amongst its staff from COVID-19 infections, one of the first ones was Prof Gita Ramjee, who was one of the first people to pass away from COVID-19 in South Africa. The other deaths occurred before there was access to vaccines. The SAMRC staff were able to move to work-from-home and hybrid situations. The scientists that were in laboratories or in clinical research sites, were provided with PPE and were vaccinated. None of these researchers were adversely affected by COVID-19. There was also very little staff turnover, one of the lowest staff turnovers in the health sector. There was no PPE corruption in procurement, there were very strict tender processes, strict committees and independent supply chain management processes.

The learnership and bursary progamme was relatively new. In the past the National Research Foundation (NRF) used to run bursaries and scholarships for scientists. Since the academy of science programme that highlighted the lack of clinician scientists, the SAMRC has been targeting women and trying to find ways of supporting people throughout their careers. It was no use giving students PhD’s and letting them go out by themselves, the SAMRC had created post-doctorates and created career paths for scientists that supported them. It seemed to be working, the SAMRC was learning all the time on how to do this. The age of recipients had also been raised, as many women got their qualifications, started families, and by the time they looked around for research, were in their 40’s.

The EVDS system would help with NHI, as it had helped to develop electronic records for vaccine development. Moving toward electronic records, the SAMRC wanted to work with the Department of Health to leverage all their knowledge about systems and help with the introduction of NHI. SAMRC worked with the Department of Health looking at economic and other models for NHI. She noted the comment about adjusting targets – this would be taken back to the Board.

Although the SAMRC did fund drug research for COVID-19 treatment, SAMRC was not involved in the international studies looking at the Pfizer drug. Senior Management was committed to having Black women in senior management. When the SAMRC was next before the Committee, the new staff members could be presented from the Executive Management Committee, who were Black women. She noted the question about the laboratories but highlighted that this was likely a question for the NHLS, as the SAMRC laboratories were largely research laboratories, that were fully functioning. Most of the people on SAMRC’s payroll were in-sourced.

Just under 480 000 healthcare workers were vaccinated under the Sisonke programme, if one looked at the National dashboards, the roll-out of J&J had been in the millions. People who got severe COVID-19 infections, were hospitalised or died, had their SARS COVID-19 virus sequenced. Infections in the Beta and Delta period were mild infections, the severe cases were approximately 0.1 percent and deaths in the Delta period were 0.04 percent. She noted that any death or severe infection was a tragedy.

The most important lesson learned from the bottlenecks was how to take vaccines to the people instead of taking people to the vaccines. The SAMRC had been involved in innovative programmes with the South African Social Security Agency (SASSA), with rural mobile clinics and programmes to increase access and decrease hesitancy. South Africa had ‘great trust in vaccines.’ The lack of penetration was largely because the Country needed to deliver the vaccines to people instead of expecting them to get to the vaccines. Getting to rural areas in the first phase was problematic and hindered by the lack of supply of the J&J vaccine initially. The J&J vaccine was targeted to get to the rural areas, because one only needed one dose and it had good culture and management. At the beginning about 20 million doses had to be destroyed because of contamination – that caused stock-outs. The J&J vaccine stock was not secure. The Government was able to use that stock to get it to the more rural areas. The ‘Vooma’ campaign would help to keep on with the vaccine champions and the innovation around communication. The Government had to tread very carefully in the beginning of the vaccine programme, as it was hampered by supply. It was hard to create demand when supply was threatened. In the initial stages of the vaccine roll-out one had to be careful, as one did not want to create stampedes for limited product. Now that stock was secure in the Country, the campaigns could be bolder to create demand – this had been seen in bringing vaccines to children and the elderly.

As long as there was EVDS registration, anybody could walk-in. Walk-ins were accepted anywhere. Even if one had not registered online, anyone could come to any vaccine center and register. It should not affect walk-ins. The EVDS was very important for the government. It helped with stock-control. If it was not known who had been vaccinated, it would not be known where stock should be sent. It helped the Government look and consider why a municipality might not be vaccinating or a certain age-group in an area was not vaccinating. If there were areas that were getting 80 percent over- 60 year olds vaccinated, one could find out what was done in that area to improve the access to vaccines in other areas. The EVDS was critical to the way that Government responded to the vaccine programme.

She noted the concern about Coloured people. The SAMRC would work with its teams to ensure that no Black person was discriminated against in their programme. The SAMRC would be coming before the Committee over the next few years, and this progress could be tracked. The SAMRC would not disadvantage anyone who had a passion for science.

Dr Mdhluli responded to the point raised by Ms Chirwa. In senior management there were about 49 employees of which 23 were females, 20 males and six foreign nationals. Out of the 23 females, there were two who were Black Africans, six Coloureds, four Indians and 11 Whites. Thus, there were 12 females under the ‘umbrella term Blacks.’ There was one Black African male, four Coloureds, four Indians and 11 Whites. If one combined all the males under the umbrella term ‘Blacks,’ there were nine Black males. These issues were being attended to, it was unfortunate that the year before, one of the SAMRC’s top management members passed away, who had been one of their Coloured employees.

He responded to the questions about the injuries on duty. The SAMRC was attending to all the issues, the Health and Safety Officer tracked all the injuries on duty, and in instances where these needed to be reported, the injuries were reported accordingly. For example, if an employee slipped and fell, the manager would be required to complete a form which included stating what cautionary measures would be taken to ensure that the person did not slip again. Those matters were taken seriously. 

Mr Buick stated that in addition to what was said about the corruption and PPE procurement, there were no findings. The Auditor General did a specific audit of that and found no issues. In fact, as part of the audit, not one audit finding was made on procurement in the management letter – that was good. If one looked at the audited financial statements, it gave one an indication as well, in that there was zero irregular expenditure over the last financial year. The R420 million was an indication of how much SAMRC’s assets exceeded their liabilities. If one calculated the cash reserves, there was R235 million. Of that, there was a budget deficit approved by National Treasury of R122 million. The SAMRC was budgeting for a deficit the current year of R122 million against a surplus the year before.  The Sisonke money was only received late in the financial year. There were a lot of costs for the original Sisonke study and the boost study, which would only come through in the current financial year. R10 million had been ring-fenced for studies around the mRNA vaccine - the SMARC was hopeful that would attract significant leverage funding. Research into point of care diagnostics was R3.5 million, the Waste Water projects, was over R1 million. Research around COVID-19 and Human Immunodeficiency Virus (HIV) to which R7 million was budgeted. The SAMRC had budgeted to spend the bulk of that money on research. 

Dr Michelle Mulder, Executive Director of the Grants, innovation and product development unit at SAMRC, responded to the question about the NHI and how it would affect the SAMRC implementing new innovations. There were challenges in implementing innovations particularly in the public sector in South Africa, for various reasons, including procurement, budgets and new products. It was hard to get innovative products onto a tender system, it generally ended up mostly in the private sector. The SAMRC was hoping that through NHI, there would be increased efficiencies in public procurement, preference for local products and extended reach of the products into the public sector. The SAMRC had, to date, been supporting the Solidarity Trial, which was looking at repurposed drugs, it was looking at the efficacy of existing drugs in treating COVID-19. Unfortunately, the first study on the four existing drugs, did not show any difference in treatment outcomes and hospitalisation. A second study was started by the WHO. Unfortunately, it was not feasible for South Africa to participate in it because of the current standard of care in the Country and the amount of work-up that was required for treatment of those patients. The SAMRC had been looking at new drugs coming through the pipeline. These were generally dealt with directly by the pharmaceutical companies that were developing them.

Prof Glenda Gray reiterated that the SAMRC was committed to working with the Department of Health and taking the concerns of the Committee seriously. The SAMRC would endeavour to implement the recommendations that had come from the Committee during the meeting.

Briefing by the NHLS  on their Annual Report for the 2020/21 Financial year
Prof Eric Buch, Chairperson, NHLS Board, introduced the members of the NHLS in attendance.

Prof Eric Buch, Dr Karmani Chetty, CEO at NHLS, and Mr Jonas Shai, Acting CFO at NHLS, presented to the Committee.

The NHLS maintained an unqualified audit report for the 2020/21 financial period. It generated a surplus of R54.3 million for the financial year. The entity’s assets increased from a restated R7.0 billion to R7.3 billion. Turnover grew from R9.3 billion to R10.7 billion. Revenue for COVID-19 testing amounted to R1.9 billion, with over 4 million tests conducted between 1 April 2020 and 31 March 2021.

The NHLS was able to achieve 80% of its set targets in the 2020/21 financial year, despite the pressures presented by the COVID-19 outbreak.

The NHLS acted swiftly in preparation for COVID-19. The organisation started with two laboratories testing for COVID-19. By the end of the financial year, it had 128 laboratories dedicated to COVID-19 testing nationwide. A total of 67 mobile laboratory units were deployed across the country to fight the spread of COVID-19. A total of 52 laboratories have maintained or improved their accreditation from the previous year. There were 91 South African National Accreditation System (SANAS)- accredited laboratories.

The NHLS published 673 articles in peer-reviewed journals against a target of 620.

The NHLS’ creditor days increased to 35 days, which is a marginal increase from the prior year. The two main drivers for the increase are increased procurement due to the COVID-19 pandemic, as well as the severe business disruption that COVID-19 has caused to both the NHLS and its suppliers. The NHLS collected R9.2 billion from provincial departments compared to R8.7 billion in the prior year.

As of 31 March 2021, trade debtors amount to R5.1 billion. The majority of this debt pertains two Provincial Departments of Health. The majority of the debt is owed by KwaZulu-Natal and Gauteng. The settlement agreement that was reached with the Gauteng Department of Health has seen a reduction in the debt owed by Gauteng. The negotiations with the KwaZulu-Natal Department of Health regarding the settlement of overdue amounts owed to the NHLS are ongoing. The NHLS will continue to engage the provinces concerning the timely payments of debt in arrears.

The NHLS’ current liabilities increased from R1.7 billion to R1.9 billion (a 12% increase) due to an increase in the provision of leave pay. Creditors’ days have also been increased from 28 days to 35 days. I am pleased with the progress that has been made concerning our finances. This is a reflection of the commitment of the NHLS’ employees to the financial sustainability of the organisation, the effectiveness of measures that were put in place and the disciplined application of the cost management strategies that were implemented to strengthen our finances to enable us to remain financially sustainable in our operations.

The NHLS staff turnover rate, excluding the conclusion and termination of contracts, was 4.4%, which is considered a very healthy turnover for any organisation. The NHLS continued to fulfil its role in promoting and prioritising skills development through the analysis of its employees’ skills needs by implementing the Workplace Skills Plan. Multiple learning programmes are offered through short learning programmes, in-service conferences and congresses, as well as continuing professional development programmes to enable the organisation to comply with legislation, improve the quality of its services, ensure business continuity and assist in the mitigation of risks.

In the year under review, the NHLS performed more tests compared to the previous financial year. It is mandated by the national DoH to provide services aimed at improving TB and HIV acquired immunodeficiency syndrome (AIDS) management for vulnerable communities in South Africa. During 2020/21, 5.8 million HIV viral load tests were performed, compared to 5.7 million during 2019/20, constituting a 1.85% increase. Of these, 87.1% met the WHO’s definition of viral suppression, i.e. less than 1 000 copies/ml.

(See Presentation)

Discussion
Ms Ismail stated that it seemed that a lot of the reasons for the unmet targets was due to COVID-19 safety protocols. It was well-known that COVID-19 was not going anywhere anytime soon – what measures would the NHLS put in place to ensure that targets would be met in future, despite COVID-19. One of the reasons for irregular expenditure was due to there being no tender processes – in the presentation this was stated to be a legacy issue. What was meant by this? The Auditor General’s Report stated that there were a few areas that needed to be strengthened. How would NHLS be strengthening these areas? The first point made in the Report was that Senior Management should review to ensure account balances and disclosure. The second issue was that items needed to be recorded in line with the reporting framework and supported by reliable evidence. The third was strengthening controls of proper record keeping of supply-chain management processes. Lastly, strengthening the supply chain management process to ensure that all procurement was performed in line with the relevant prescript - this was important when it came to legislation. What would the NHLS do to ensure that these areas would be adhered to?

The Chairperson noted that the NHLS received an unqualified audit opinion – the Committee commended the NHLS for that. There were a number of things he wanted to raise in the context of what was raised by Ms Ismail. With the continuation of COVID-19, the NHLS needed to explain what its contingency measures would be, or how it planned to recover, given that it provided an important service to the people of South Africa. The fact that revenue had grown from R9.3 billion to R10.7 billion was noted, as the NHLS was assisted by the Solidarity Fund. This was in line with the cost of sales which had increased quite substantially, approximately 30.3 percent. Whilst it showed the ability of the NHLS to upscale when necessary, especially during the COVID-19 period, it was concerning. It also meant that the operating deficit was much lower than what their operating surplus was – there was an operating deficit of R105.2 million versus the operating surplus the year before. It made one wonder what the NHLS was planning on doing about the situation. Recognising the surplus of R54.3 million and the prior year’s surplus of R1.1 billion – it was slowly beginning to eat into the NHLS’s operation ability. He requested the NHLS’s comment on that.

He highlighted the NHLS’s assets; considering that the NHLS’s current assets were made up of inventory, exchange transactions and non-exchange transactions. The exchange transactions were very worrisome. The Acting CFO spoke about there being a large amount that was impaired – R3.8 billion. What would be the way forward in dealing with this? If one considered some of the provinces, one noted that the debt had increased. Surely, it could not go on like this? There needed to be something that could be done. This was worrisome in light of the important task that the NHLS had in carrying out the pathology tests for people who were not well. It was critical that the NHLS came into a position where they were financially more liquid than that.

Dr Chetty stated that the issue about the COVID-19 safety protocols impacting a number of the targets, was already normalising. There were a lot of staff members, with the lockdown levels decreasing, the NHLS was almost back to normal. There were arrangements with South African National Accreditation System (SANAS) about the accreditation of the NHLS facilities. There was a dedicated workforce that throughout COVID-19 had gone beyond the call of duty in order to ensure that the NHLS met its mandate to South Africans.

She explained the issue around no tender processes having been followed and the legacy issues. What happened over the years was that there had been a number of pieces of equipment that were made by mainly sole suppliers – there was a situation, where if one bought a printer for example, a Lexmark printer, one could only use Lexmark ink for it and nothing else. There was a similar situation with diagnostic equipment. Over the years, when a Roche machine was bought, the reagents went onto a catalogue and NHLS would buy the item from the catalogue. Over the last few years, the NHLS had been trying to clear that up, as there still needed to be a deviation or closed tender. It started off as being billions of Rands, which had been brought down to under R500 000 – by going through an enormous task of getting all of those things regularised. There was still quite a bit of work to be done. That was what NHLS called ‘legacy issues.’ The catalogue was the irregular expenditure and NHLS was clearing it up. The dilemma was that the NHLS needed the reagents, without them, the NHLS would not have been able to provide the diagnostic services to South Africans.

COVID-19 was going to be with everyone for a long time, the NHLS had already put in place risk mitigation strategies. The NHLS wanted to ensure that it concentrated on other diseases as well. Over the last few months, the NHLS was increasing and playing catch-up – the NHLS was getting back to where it was before.

The cost of sales increased during COVID-19 because the NHLS had to buy re-agents and PPE upfront. The NHLS was fortunate to have had surplus to rapidly buy that equipment. That meant that the NHLS’s liquidity position would change fundamentally from the year before, the NHLS had already seen the effects of that this year. A lot of the COVID-19 expenditure was upfront, once the NHLS got the equipment in place, the liquidity in their cash-flow changed quite rapidly.

Mr Shai stated that about R2.9 billion had been available for direct material expenses – those spoke largely to the COVID-19 upfront costs. As far as financial sustainability was concerned, the expectation was that it should taper off because a lot of that expenditure had already been incurred. The NHLS was not spending as much money on PPE for example, because the NHLS now had a lot of that supply. This would have an impact on NHLS’s surplus. The NHLS expected most of these numbers to recover to where they were in the previous financial year. The NHLS had absorbed the shocks of COVID-19.

There had been a lot of engagement with the different provinces about the provincial debt. There was a lot of work to do, specifically on the outstanding amounts. The provincial departments were paying their current debt. The issues were specifically about the year 2016, where the NHLS still needed a couple of engagements with the different provincial departments, one example being KwaZulu Natal (KZN).

The four areas, as mentioned by Ms Ismail, spoke to senior management reviews the framework, record keeping and the SCM processes. The conclusion relating to the SCM processes was due to irregular expenditure. The Auditor’s viewpoint was that as long as the NHLS incurred that irregular expenditure it needed to be highlighted, despite having recognised that the NHLS was busy cleaning it up. Record keeping largely was the huge amounts of information that the Auditor General had requested from the NHLS – this needed to be handed over speedily – which the NHLS had not been able to in the audit. As far as the framework and views were concerned, this was around some of the disclosures. There were some judgement interpretation issues, specifically about the useful life of assets that was fixed during the audit process – that would be part of the NHLS’s audit action plan. This would be presented to the Committee, specifically what the NHLS would do from quarter to quarter to clear those issues. 

Dr Chetty stated that the NHLS was constantly engaging with KZN, around the historic debt and were having engagements with the Heads of Department (HoDs) on a regular basis. There were some provinces that were struggling. Each time that was seen, a discussion took place with the relevant province. The provinces had been attempting to ensure that they kept up. The collection the year before was slightly lower than the previous years, that was because of the problems around COVID-19. That situation would change. The funds received from the Solidarity Fund paid for the first 400 000 COVID-19 tests, which made a huge difference to the provinces. That support was appreciated. The Global Fund had assisted the NHLS in buying COVID-19 tests. This benefit could be passed on to the provinces. The NHLS was constantly looking at ways to reduce the burden on provinces. The NHLS tariff increases were very low so that the NHLS could continue to provide cost-effective quality services to the provinces.

Prof Jeffrey Mphahlele, Vice-Chairperson, NHLS Board, thanked the Committee and stated that such engagements were always useful for the NHLS, as it was a self-reflection and the NHLS used the engagement to improve their service to the Country.

Closing Remarks
The Chairperson thanked the NHLS. The Committee looked forward to the quarterly report on the NHLS’s action plan and other matters.

The meeting was adjourned.