DHET & DSI financial & audit performance: FFC & AGSA inputs

Meeting report

Financial Fiscal Commission evaluation of Higher Education, Science and Innovation
Dr Nombeko Mbava, FFC Chairperson, introduced her team and said that the aim of the FFC presentation is to assist the Committee with its budget review and recommendations process and to give a financial analysis of the two departments.

- Department of Higher Education and Training (DHET) evaluation
Ms Shafeeqa Davids, FFC Specialist: Division of Revenue - Local Government, provided the policy context noting that Higher Education is an investment where employment and salaries and better lives are created. Over the 2017-2021 period, the employment rate for people with post-matric certificates averaged 82.1% and those with non-tertiary education was 68%.

Collectively, there is a contribution to economic growth and development, conditions for promoting democratic values, social cohesion, cultural development and individual security and well-being.

An additional allocation of R194.5 million in 2022/23 and R209.2 million in 2023/24 to continue implementing initiatives started in the sector in 2021/22 as part of the Presidential Employment intervention. Of these amounts, the graduate employment programme implemented by universities receives R193.7 million to enhance the employability of a targeted 6 000 graduates through placements in universities to gain workplace experience. R210 million of the National Skills Fund provides demand‐responsive training for jobs in priority growth areas such as the digital and ICT sectors, targeting 16 000 jobs. To improve the quality of the post‐school education and training (PSET) system by supporting the establishment of nine entrepreneurship hubs for TVET college students to be actively engaged in the economy, either through employment in the labour market or self‐employment over the medium term.

Funding Approach
Funding of higher education is underpinned by four principles: sharing costs by government and students, autonomy in determining fees, funding for service delivery and funding as a steering mechanism. DHET will face continuous financial pressure due to the funding required to strengthen the Free Fee support to eligible candidates and the pressure is two-fold. DHET has to continue to support existing and new learners.

The FFC emphasised the urgency for finding a new funding model for higher education mentioned in the 2022 Division of Revenue and that it should be addressed swiftly to introduce the new funding model in 2023/24.

Policy Developments
The latest draft bills and policy were noted: Central Application Service Bill; National Qualification Framework Amendment Act; Language Policy Framework for Higher Education; Policy Framework for Internationalisation of Higher Education in South Africa.

Budget Analysis
Ms Sasha Peters, FFC Programme Manager: National Appropriations, noted for the period from 2018 to 2025 resources are divided into these budget programmes (from most to least-fee consuming):
- University Education
- Senior Education and Training Authorities (SETAs)
- Technical Vocation Education and Training (TVET)
- Planning, Policy and Strategy
- National Skills Fund
- Community Education and Training (CET)
- Administration
- Skills Development

Effects of Covid-19 pandemic and the need to reprioritise funding on a national scale
The pandemic led to the Special Adjustment Budget evident in the significant cuts to certain line items between 2019/20 and 2020/21. This meant the Planning, Policy and Strategy programme and allocations to SETAs and National Skills Fund saw significant reductions. Allocations to the University Education and TVET programmes were relatively protected.

For 2021/22, DHET was allocated R116.8 billion, a growth of 10.1% compared to 2020/21, where significant growth is to Skills Development and CET programmes. TVET programmes reflect marginal growth of 1.2% between 2020/21 and 2021/22.

The spending performance by programmes for 2020/21 and 2021/22 showed 100% spending maintained by University Education and an improvement in the CET programmes.

Compensation of employees average 8.5% and Goods and Services average 0.5% over the 2018-2025 period.

Largest transfer is to NSFAS (R40.5 billion) in 2021/22 because of its importance in helping poor learners. There was a very significant decline to the National Skills Fund and SETAs in 2020/21 but a recovery is noted in 2021/22.

Non-Financial Performance Analysis of 2021/22
Mr Sabelo Mtantato, FFC Senior Researcher, said University Education had a 118% growth in number of students enrolled and receiving funding through NSFAS in 2021/22. Targets for graduates in the Engineering, Physical Sciences and Health Sciences were not met due to the Covid-19 pandemic.

The target for number of students in TVET Colleges was not met as lockdown disrupted enrolment and only 21% of the target graduated with their N6 qualifications. None of the TVET Colleges has offered 4IR aligned skills training.

The number of students in CET Colleges was 65% of the target. This was due to inadequate funding for CET Colleges, lack of physical and ICT structures and understaffed institutions.

Overall, DHET performance has been mixed due to Covid-19, poor results mean long-lasting challenges like youth unemployment, TVET allocation and declining proportional allocation, and CET poor uptakes. The FFC recommends that TVETs start with 4IR programmes as the skill is critical to development.

- Department of Science and Innovation (DSI) evaluation
Ms Shafeeqa Davids provided a policy context saying the NDP identifies Science, Technology and Innovation as primary drivers of economic growth, job creation and socio-economic reform. It creates a competitive and sustainable economy and addresses societal challenges such as education and health.

As the National System of Innovation (NSI) has not been fully inclusive with performance measurement related mainly to patents and products, the 2019 White Paper on Science, Technology and Innovation was introduced and the Decadal Plan was developed. The Decadal Plan is a holistic plan for the whole of society, government, and universities which sets out how to use technology, science and innovation to respond to the challenges the country faces.

Over the 2022 medium term, DSI will focus on developing human capital, effective use of publicly funded intellectual property, and implementing the national space strategy and the national integrated cyber infrastructure system.

An increase in the average annual rate of 2.4% from R9 billion in 2021/22 to R9.7 billion in 2024/25 of expenses is expected. An estimated 93.7% (R26.3 billion) of DSI expenditure arises from its six entities. R8.5 billion was allocated over the MTEF period to Human Capital and Science Promotions subprogramme.

Priorities of Science, Technology, and Innovation
Priorities include Climate Change, Education for the Future, the Future of Society, ICT and Support Systems, Water Security, Health Innovation and Sustainable Energy.

Budget Analysis
DSI has the following budget programmes (from most to least-fee consuming)
- Research Development and Support
- Socioeconomic Innovation Partnerships
- Technology Innovation
- Administration
- International Cooperation and Resources.

The programme that shows more growth is the Technology and Innovation Programme between 2018-2025. Given government-wide reprioritisation of funding due to Covid-19 pandemic, DSI saw a decline of 11.3% in its allocation in 2020/21. The R9 billion allocation in 2021/22 represents a significant increase of 25.7% from 2020/21

DSI spending performance in 2021/22 was healthy. The main spending item is transfers and subsidies to department agencies, public corporations and private enterprises. Largest transfer of R4.5 billion was to NRF in 2021/22.

Non-Financial Performance Analysis of 2021/22
Technology and Innovation division managed to exceed its targets by more than two times due to a high demand and the FFC commends DSI for this.

International Cooperation showed growth and good performance with 4 out of 5 targets achieved.

Research and Development support unit commendably over-achieved its goal of awarding PhD students bursaries.

Socio-Economic Innovation Partnerships unit did not reach its 392 target for high-level research students due to challenges faced when verifying some students.

DSI has achieved efficiencies as a number of targets under programme 3 were over-achieved within allocated budget and even less.

DSI is pivotal in promoting growth and development and the overall 2021/22 performance is good. The FFC recommends embracing the use of technology for virtual engagements. Assistance and funding to high-level research students at PhD and masters level in niche areas must remain a priority.

DHET 2021/22 Audit Outcomes: AGSA briefing
Ms Kgabo Komape, AGSA Business Executive, emphasised the importance of the network of stakeholders that contribute to the Higher Education sector and that each stakeholder should know their role and play it.

Ms Zamahlangu Mditshwa, AGSA Senior Audit Manager, noted the 2021/22 audit outcomes:
• Clean audits: FASSET, ETDPSETA, FPMSETA, PSETA, QCTO, SASSETA, NIHSS, MQA
• Unqualified audit with findings: DHET, AGRISETA, BANKSETA, CHIETA, CATHSSETA, EWSETA, FOODBEVSETA, HWSETA, MERSETA, MICTSETA, LGSETA, SAQA, TETA, CHE
• Qualified with findings: W&RSETA, CETA, INSETA, NSF and SSETA
• Outstanding audit: NSFAS

ETDPSETA, FASSET and MQA are commended for improving and obtaining a clean audit. There were four audit improvements and five audit declines. The five entities with qualified audits are of concern although NSF moved from an audit disclaimer to a qualified audit.

Financial Management and Compliance
Proper record keeping is not well maintained, daily and monthly controls are a high concern, in-year and year-end reporting is not followed on a regular basis and review and monitor compliance is lacking. The most qualified areas are expenditure, receivables, discretionary grant commitments and payables from non-exchange transactions.

Most common areas of non-compliance are contracts modified by incorrect delegation, bids advertised for shorter periods, quality of financial statements, procurement and contract management.

Irregular expenditure top contributors were: SSETA R138 million, NSF R1.3 billion, TETA R92 million, CETA R76 million and LGSETA R41 million. Most irregular expenditure was incurred by entities exceeding the approved budgeted expenditure.

In 2020/21, auditees tried dealing with the irregular expenditure by condoning R358m and writing off R408m. R3.9 billion is still not dealt due to slow investigations and implementation of consequence management. No amount has been recovered.

Fruitless expenditure totalled R88.9m: NSF R65.7m, CETA R16.7 m, CHIETA R2.1m, W&RSETA R1.5m, SSETA R1.4m.

Material Irregularities
Material irregularities are referred to relevant public bodies for investigations, then actions to resolve material irregularities will be recommended in audit reports. Binding remedial action is taken for failure to implement recommendations. Finally, AGSA issues a certificate of debt for failure to implement remedial action if financial loss is involved.
- Irregularities in the NSF included paying for three modules for a Security Officer Learnership programme twice in July and August 2021.
- Irregularities in CETA included entering into an agreement with a consulting firm to assist with analysing data for adequate decision making and to undertake conflict of interest verifications. Payments were made in excess of the rates agreed on in the service level agreement.

Portfolio Performance
Quality of performance reports before showed 88% with findings and after audit showed 48% with findings. SETAs provide learnerships, bursaries and provide opportunities for work skills to the youth. Deficiencies noted in the planning and reporting of targets and indicators may result in incorrect assessments of the contributions and impact that SETAs have on the achievement of MTSF targets. This will also hamper the accuracy of needs assessment to enable future planning for skills activities within the sector.

For 2021/22, DHET performance was 67% against its targets, SETAs 79% and Entities 83%. Key outcomes that indicate performance included enrolments; through rates; lecturers with relevant qualifications; and students receiving funding through NSFAS.

Data Analysis for SETAs - value add
The objective of the value-add analysis is to obtain deeper insights to determine patterns and identify opportunities. Budgeted expenditure was R22 billion and actual expenditure was R19 billion. Budgeted revenue was R20 billion and actual revenue was R21 billion. Budgeted discretionary grants for 2021/22 were R17.4 billion and actual discretionary grants were R14.8 billion.

The following concerns were noted with students who were awarded funding:
11 are deceased
10 006 are in multiple SETAs
3 have ID numbers that are on the Home Affairs system with different details
87 are registered companies
1 410 have capturing errors
76 are employed
53 are funded twice
140 are younger than 15 years and/or older than 65 years
454 were reported in multiple years
17 with ID numbers not on the Home Affairs system

It is recommended that DHET consider an integrated system between the SETAs. This will facilitate improved monitoring and reporting within the portfolio.

Technical and Vocational Educational Training (TVETs)
For the 2017-2022 period, there has been an improvement with TVETs that have unqualified audits and the qualified TVETs are decreasing impressively. On TVET financial management and compliance, assessment of financial reporting showed that proper record keeping is not well maintained, daily and monthly controls are a high concern, in-year and year-end reporting is not followed on a regular basis and review and monitoring of compliance is lacking. Inadequate financial management controls result in the TVETs not being able to produce credible financial statements that are free from material misstatements. Most common areas of non-compliance are effecting consequences, prevention of irregular, unauthorised and fruitless and wasteful expenditure, quality of financial statements and procurement and contract management. Irregular expenditure for 2021/22 was R12 million, with Taletso contributing R7.5 million, South Cape R3.9 million and Nkangala R0.5 million.

Universities
From 2020 to 2022, there has been a decline in unqualified audit outcomes and for 2022, there is an outstanding audit at UNISA. Of the 25 auditees, 22 submitted financial statements supported by reliable supporting evidence. University of Venda, Sefako Makgatho Health Sciences University, and Vaal University of Technology had to effect adjustments to the financial statements to obtain an unqualified audit. 11 out of 25 universities have received findings of non-compliance with legislation. The non-compliance was mainly for not having the required processes in place for members of staff to declare their conflicts of interest proactively, or when conducting business with the institution. Tshwane University of Technology and Sol Plaatje University had findings on predetermined objectives as some of the reported achievements were not supported by accurate and reliable information, or the reported achievements were not aligned to what was initially planned.

Conclusions and Recommendations
DHET and its entities lack daily and monthly controls to enable accurate preparation of financial reports and budget monitoring process is not always adequate as some entities do not budget for expenditure, resulting in exceeding the approved budget. It is recommended that responsive audit action plans should be developed and their implementation should be monitored.

TVETs have poor record keeping of supporting evidence causing information not to be readily retrievable. It is recommended that the internal audit units should be fully capacitated to ensure that they assist with monitoring of audit action plans.

SETAs could benefit from an integrated system that will enable them to capitalise on opportunities. The system will allow for transparency and benefit SETAs and South African citizens looking for skill interventions.

Discussion:
Ms C King (DA) asked to what extent the FFC gives input to the Ministerial Task Team and reports on the sustainability and new funding framework and how they plan to take TVET Colleges to rank under the new Higher Education Institutional types. She asked AGSA if guidelines were given to TVETs on how to comply with regulations. She agreed that the SETAs need an integrated system to avoid the complications happening now.

Ms J Mananiso (ANC) recommended that based on the FFC presentation on DSI that DSI should mentor the other departments, especially the SETAs, on how to run an organisation successfully. She raised her concerns about the students registered with SETAs who are deceased. She suggested the Committee visit the SETAs, especially the Construction SETA to investigate. She asked AGSA what the matter with Supply Chain Management was. She asked FFC to draft a presentation on the recommendations they have made to the department and the process thereof. She suggested that AGSA should publicly expose entities that are continually non-compliant with laws and regulations.

Mr B Yabo (ANC) asked how it is possible that a person can be a beneficiary of two SETAs at the same time and that the SETA systems cannot pick up if an applicant is too young, too old or deceased. He noted his concern about colleges not abiding by the PFMA and regulations. The NSF shift from an audit disclaimer to a qualified audit is not worth celebrating. There must be people working behind the scenes to protect those responsible for irregular expenditure. It does not make sense that so much money is lost but no one takes responsibility for the loss.

Ms D Sibiya (ANC) asked why entities justify material irregularities as being unresolved by saying that further investigations are still being made.

Mr T Letsie (ANC) addressed the mismanagement of SETA funds as a “horror movie” and agreed to the suggestion of integrated systems between the SETAs. It might not be the learners responsible for the multiple funding by SETAs but the staff responsible for the SETA systems. He said that it did not make sense that when they visited the universities during Covid lockdown, they received a report that students were doing well studying from home; yet they then used Covid as a reason for underperformance in 2021/22 as indicated by FFC. He proposed that the Committee arrange a meeting with the NSF to look into everything going wrong there. He appreciated AGSA for a job well done with all the audit findings.

Ms N Chirwa (EFF) asked the FFC what they are advising the department with the financial assistance of the missing middle as government does not cater for it, have there been any engagements between the department about this matter and if so, what was their nature. She addressed the reoccurring wasteful and irregular expenditure within the DHET but put emphasis on the R5 billion that has not been accounted for in the NSF. She spoke about the funding gap, considering the misuse of funds as presented and called this act a crime. She lastly asked the FFC what they recommend to the Committee in ensuring that accountability is taken by the ministers. She then asked the AGSA about the interventions they implemented to the NSF about R5 billion loss incurred and why have they not launched a formal criminal investigation against the departments as the department cannot investigate itself and deliver a reliable report.

Ms D Mahlatsi (ANC) appreciated the work done by AGSA and asked that the Committee support the AGSA recommendations by ensuring that they are implemented. AGSA should investigate non-compliance with conflict of interest declarations when it comes to universities and review performance indicators to ensure they are appropriate to measure quality performance by the department and its entities. She does not understand how the department and its entities are unable to achieve targets when they set them for themselves. She asked why UNISA has a challenge in submitting its financial statements. What were the contributing factors for the slow improvements of the TVETs? It is essential that TVETs and universities adhere to the PFMA regulations. She was concerned about fraudulent activities happening and noted the material irregularities at some SETAs. She commended DSI for its work and achievements. However, she was concerned about the type of innovations stating that they do not cater for poor people which is the majority of the population of South Africa.

Mr W Boshoff (FF+) asked FFC if they had any suggestions for a more sustainable level of student funding as it is an area of concern for the political parties and the Ministry. He asked AGSA what the NSF does that the SETAs and NSFAS cannot do and what the SETAs can do separately which cannot be done by one SETA. He was concerned about funding being mostly directed at PhD and Masters degrees as it seems the department neglects Honours degrees which are a prerequisite for most Masters degrees

The Chairperson noted the questions were complex and it would be understandable if the FFC and the AGSA cannot answer all questions due to the time constraints of this meeting. She proposed that they form an ongoing relationship with the Committee to continually report and follow up on the matters discussed in the meeting.

FFC response
Dr Mbava acknowledged the questions and agreed to the Chairperson's suggestion about having a relationship with the Committee. They would capture and send to the Committee the FFC recommendations on a template for tracking the performance of the department and its entities. FFC has previously partnered with government to prevent corruption, establishing anti-corruption agencies, and has made strong recommendations about that; but given the current circumstances, it will do a deep-dive analysis about the Post School Education Sector.

Mr Aubrey Mokadi, FFC Commissioner, replied that the FFC was not invited to participate in developing the new funding model. It is only aware of comments and is due for implementation in 2023/24. The FFC is concerned about the non-existent substantive engagement between the parties involved and stakeholders. Those robust discussions need to happen and be finalised ahead of time. There seems to be a lack of urgency, which is a concern for the FFC. This is a sign that the development of the funding model may take longer than the expected implementation year of 2023/24. The 'missing middle' should be considered as part of that approach.

The FFC Commissioner explained that in TVETs, engineering students must do lab practicals on campus and were scheduled around the time of Level 5 lockdown; hence the reason for not meeting targets was Covid-19. The effects of Covid-19 continue and have a bearing in later years, not only in 2020 and 2021, as more practicals are required in the senior years of engineering. There is no standardisation for accounting in TVETs. The TVET sector needs to be accommodated but unless the weaknesses in the TVET system are resolved, it would be premature to factor them in. Before they can be migrated and accommodated into the new Higher Education Institutional type, those factors bedevilling TVET colleges since inception must be resolved. For example, the target for 4IR which is so critical was 0% and meeting the target for N6 completion was 21% which is really in decline. Enrolments in universities are increasing and TVETs are not increasing proportionally due to challenges in governance and TVET outcomes are not attractive to students because the completion rate at N6 is very low. Students are more inclined to think attending university has better job prospects than TVET and this is aggravated by the poor performance of TVET colleges in general due to lack of standardisation and fragmentation at play.

Dr Chen-Wei Tseng, FFC Head of Research, said that at the macro level, there had been commendable investments in the higher education sector. However, the lessons learnt through the years need to include paying attention to meeting labour supply and labour demand, especially educated labour supply and educated labour demand. Education augments labour supply as one operates at higher capacity with scarce skills and expertise which sees an outcome in terms of employment creation. This has not happened. One of the issues is South Africa leans towards classroom-based rather than practical-based learning. Practical knowledge in the work field in the form of artisans, apprenticeships and learnerships are needed as there is a gap between a theoretical qualification and the practical knowledge a person needs to perform their duties in the workplace. Whatever they learn must be able to tap into creating that job on the supply side. There is an imbalance in labour supply and demand as there are more unemployed people than jobs.

AGSA response
Ms Kompane appreciated the valuable comments and reflections from the Committee on how to move the country forward. She emphasised the importance of the key control elements and everyone doing their part. Therefore is there a need why we are keeping systems and officials that are not assisting the mandate of the entity? We need to go to the core of the problem if they are not giving government what it should be giving. The accountability eco-system has layers and layers of consequence management activators but the PFMA is clear about the importance of going to the core of the problem – the official or accounting officer must first do their part. If they are not doing their work and creating a bottleneck in the system that all of us must work around – the internal audit, audit committee, AGSA, Portfolio Committee by putting in recommendations, monitoring, coming back in six months time – instead of getting the right people in the right spaces. We need to speak to that directly and tackle that. She suggested that this should be the way of solving the problems in an entity. The same goes for an IT system. She gave the analogy of National Assembly Rule 227 that empowers the Portfolio Committee - but it is hard for the Committee to function if someone at entity level is not fulfilling their duties.

She would be more than happy to share the SETA contributors to the findings of the value-add data analysis. She acknowledged the Department for being supportive and cooperative with AGSA when performing its duties as the auditing job is not taken well by some auditees.

Ms Kompane clarified the purpose of the SETAs and other bodies. The Skills Development Act (SDA) is clear that the SETAs function for the industries. Section 28 of the SDA provides for any work skill that is of national importance to be provided by the NSF. Finally the Quality Council for Trades and Occupations (QCTO) does the quality grading and quality assures the qualifications for the training.

Ms Kompane explained that AGSA could pick up the employment of SETA beneficiaries using the UIF system. On the investigations that SETAs must do, the accounting officer is responsible for ensuring an investigation, before pinpointing those responsible for the material irregularity. She noted that since the Public Audit Amendment Act, AGSA notified Construction SETA and NSFAS of material irregularities. AGSA does a proactive review of the targets and indicators of the Annual Performance Plan (APP) to ensure the targets are not ambiguous but crisp. AGSA also leans on the Portfolio Committee to reflect on the targets and ensure the entity can demonstrate how impactful the targets are in dealing with problems on the ground. A private firm audits UNISA and it had requested an extension for the release of its financial report as it must expand coverage and the scope of its risk management. The Department will indicate when it plans to submit the audit report. Declaration of conflict of interest needs to be covered by all entities. She agreed to the request by the Chairperson to have ongoing reports on performance, recommendations and support.

Ms Sangeeta Kallen, AGSA Business Unit Leader, explained that the NSFAS audit was outstanding because NSFAS had activated a dispute process with AGSA. They are currently in the process and AGSA requested time to process the dispute with NSFAS so that they can report back to the Committee.

The Chairperson thanked everyone for their participation in the meeting which had taken longer than expected and adjourned the meeting.