Update by Minister on consequence management at National Skills Fund & NSFAS

Meeting report

Briefing by Minister

Dr Blade Nzimande, Minister of Higher Education and Training, said that after an instruction from the Committee, the Department had instituted an investigation into the National Skills Fund (NSF). This action was also informed by the adverse findings of the Auditor-General (AG). The process to appoint the service provide to undertake the investigation had been completed and the terms had been outlined, covering what the forensic investigator was expected to do in its investigation:

• The ten projects that formed part of the R2.5 billion unverified skills development expenditure;
• To interview fund adjudicator members;
• To establish if there was intentional concealing of information from the auditors by the officials of the NSF;
• To determine whether there was a conflict of interest, if any, with regard to relationships between officials from the DHET and the NSF, past and present;
• Projects awarded, as well as the service providers they were awarded to;
• The evaluation of funding adjudication processes and procedures;
• The evaluation of processes and procedures when awarding funding;
• Whether lifestyle audits were conducted, and the financial standing of officials.

 

The service provider had been given three months to complete its investigations and hand in the final report. At the conclusion of the investigations, the forensic investigators were also expected to assist in the drafting of charges, where applicable, and to assist with providing evidence for disciplinary charges against officials. In addition, the Department would share the findings with the Special Investigating Unit (SIU), who would then take action against implicated officials.

The Department would submit a roadmap to the Committee on what steps it intends to take in the next 14 days.

Referring to the suspension of the Mr Gwebinkundla Qonde, Director-General (DG), he said that as the employer of the DG (who also served as the Accounting Authority of the NSF), he had sought guidance from the President on what action should be taken against him. Having been satisfied with the merits of the course of action the Minister had proposed, the President had delegated the process of placing Mr Qonde on suspension to the Minister of the Department of Home Affairs (DHA), who had suspended him on 23 July. Using the same legal advice and process, the Acting DG had placed the Chief Executive Officer (CEO) of the NSF on precautionary suspension on 3 August. These suspensions had been done to ensure that the investigations could proceed without interference or hindrance.

He had appointed a ministerial task team (MTT) which consisted of three individuals to holistically review the efficiency, general operations, the operational model and the organisational mandate of the NSF. This review had been instituted as he was concerned that the operating model of the NSF had deficiencies which may have led to the various challenges it was currently facing. The terms of the reference for MTT's review were as follows:

• To look into the current strategic vision and plan of the NSF;
• Their relevance to the current challenges and policy objectives of the post-school innovation and training system;
• To look into the mandate of the NSF as a skills entity within the post-school education innovation and training system;
• The appropriateness and compatibility of the current model, its mandate, operations and efficacy;
• The efficacy of the current business model and systems;
• The governance and administration of the NSF.

 

The work of the MTT was distinct from the forensic investigations, although both would look to improve the governance and general functionality of the NSF. The review would assist in resolving the potential conflict arising from the dual role of the DG of the DHET, who also served as the Accounting Officer of the NSF.

The Department was taking the matters as directed by SCOPA seriously, and was working hard to resolve them.

The Chairperson opened the floor for discussion.

Discussion

Ms N Tolashe (ANC) asked whether the Department had timelines for the two processes that the Minister had initiated.

Mr S Somyo (ANC) said that the Committee had issued its directives to the Minister due to poor financial management, as shown by the audit outcomes. He advised that the forensic investigation should also include issues such as the poor financial management. 

Referring to the review process, he said that it was a policy matter and it should not cripple the forensic investigation. He recommended that the SIU should be involved in the forensic investigation. Furthermore, it should be central to the investigation, as advised by SCOPA previously.

Mr A Lees (DA) asked whether the Department also felt that the entire investigative process had taken too long, and if it could be sped up.

Minister Nzimande said that he had given the MTT six months to complete its review. The MTT had been provided this amount of time for two reasons. Firstly, it was primarily a policy review, and secondly, the NSF was a multi billion rand entity, which was of great importance to the country. 

On the terms of reference of the forensic investigation, he said that it would not be limited to the ten points that he mentioned.

Referring to the involvement of the SIU, he said he was not against their involvement, but this matter required professional and expert forensic investigators who would be able to trace the money stolen or irregularly spent on the projects. The SIU’s involvement in the investigation would require the Minister to have to take a polygraph test. Once the report was released, it would be shared with the SIU, which could then take further action.

Responding to the speed of the whole process, he agreed that it was concerning that it had taken so long. However, the Department had to ensure that it followed due process. After SCOPA had issued its directive to the DHET, he had had to obtain legal advice on its implications. The legal advisors had recommended that it would not be correct for the DG to remain in his position as the Accounting Officer of the NSF while the forensic investigations were ongoing. On the basis of this advice, the Minister had sought counsel from the President, who had then delegated the matter of his suspension to the Minister of the DHA, who had then placed the DG on precautionary suspension.

Mr Viven Govender, Chief Forensic Investigator at the SIU, said he had been informed by the Case Assessment Committee that the motivation for a proclamation by the SIU had been limited to conducting an investigation into the National Student Financial Aid Scheme (NSFAS). He advised that if there were specific allegations that the SIU was required to look into, a referral must be made to the entity.

Ms V Mente (EFF) commented that whether there were existing deficiencies in the system or not, there should be no excuse for not complying with National Treasury rules and regulations, and the Public Finance Management Act (PFMA). Both the DG and the CEO should have acted immediately once the AG had raised red flags on the financials of the entity. As such, the Department should not be apologetic about suspending both officials. She added that billions of rands had been lost, and the Department had not compiled a report on where the money had been spent. She asked whether the Department had leads on which officials had mismanaged the funds. In addition, had the Department suspended only the CEO and the DG? The CEO had not been suspended, yet he had been closer to the action. Why?

Ms Tolashe said that she was not convinced by the Minister’s response on the timeline. She requested that the Department provide the programme for the entire review process. She also insisted that the Minister take responsibility for all the irregularities that had occurred during the 2018-19 financial year, as this was when the majority of the irregularities had taken place. 

She raised her concern on the appointment of the forensic investigators, as the Department would spend a significant amount of taxpayer money for their services. Instead, the Department could request that the SIU investigate the irregularities in the NSF, as it would not cost the taxpayer as much, it had recently been conducting good work, and it had released its reports swiftly. She requested that the SIU clarify whether it had an instruction to investigate the NSF. If it had not received such an instruction, she asked why the Minister, in his response, had created the impression that the SIU had been on the same page as the Department.

She pleaded that the Minister, once he received the report, should act immediately and not allow it to gather dust like reports in the other Departments.

Mr Somyo said that both the Minister and the suspended DG were in court.

Advocating for the SIU's inclusion, he said that through its efforts to tackle corruption, it had proved its abilities, and their central involvement in the investigation would be important. Its involvement would ensure that action was taken against those responsible for wrongdoing, instead of the report gathering dust, as seen in other Departments.

Adv Andy Mothibi, Head of the SIU, clarified that the SIU had submitted the motivation for proclamation to investigate the alleged wrongdoing said to have taken place at NSFAS, and not the NSF. However, on the guidance of the Committee, the SIU would ensure that the NSF was included within the scope of the proclamation, before it was signed off by the President.

To ensure that it conducted its investigations effectively and speedily, the SIU had recruited skilled officials, who compared well with their peers in the private sector. Forensic accountants were utilised by the SIU when trying to retrieve money irregularly spent or stolen. The SIU had observed that more often than not, the state appointed private forensic investigators. In its perspective, the reports prepared by the forensic investigative companies were not conclusive. For instance, many of the reports recommend that the findings be referred to law enforcement agencies for further investigation. The entity was of the belief that it was in a position to investigate both NSFAS and the NSF concurrently. 

Mr M Dirks (ANC) asked, when the SIU had applied for the proclamation, whether it was currently with the Minister or the President, and when it expected the President to sign it off. 

Ms Tolashe said that she was disappointed by the Department’s choice to appoint the service provider, as she believed that it would cost the taxpayer even more. She suggested that the Committee deliberate on the Department’s decision to do so.

The Chairperson agreed with Ms Tolashe’s proposal. He proposed that Parliament look to create room in the legislation for the SIU to use the same model used by the AG, where if it was unable to conduct an audit, it could then delegate that function to another auditing institution. In this case, if the SIU was not able to conduct an investigation, it could delegate the function to another forensic institution. He requested that the Committee Secretary schedule a meeting with the Legal Division of Parliament so that the Members could move on that matter.

Minister Nzimande agreed that no one should be apologetic about the precautionary suspension of both officials, as they were important in carrying out the investigation.

Referring to the court case, he clarified that the DG had gone to the courts to challenge his suspension.

He said that his decision to appoint a service provider to conduct the investigations did not mean that the Department did not want to work with the SIU. After deliberation with legal advisors, he had been advised that appointing a service provider would ensure that the investigation was completed swiftly. SCOPA had not instructed the Department to utilise the services of the SIU, but it had decided that it would provide the SIU with the findings. Previously, the SIU did not have the capacity to investigate such matters.

He clarified that he had been attending to the issues raised by the AG prior to appearing before SCOPA, and was looking to hold officials accused of wrongdoing to account. Additionally, he had considered the option of instituting a forensic investigation into the NSF. 

He suggested that a discussion take place between the Department and the SIU on how to go forward in view of what SCOPA had said.

The Chairperson said that the Committee would deliberate on the Department’s choice to appoint a service provider to conduct the investigation, and would communicate the content of its resolution.

Mr Dirks clarified that he had asked when the SIU had applied for the proclamation, whether it was currently with the Minister or the President, and when it expected the President to sign it off. 

Ms Mente suggested that two areas in the NSF could be investigated by the SIU. The first was the R2.5 billion that was intended to build learning facilities and to purchase equipment for learning facilities, which had not been accounted for. The second area to investigate would be the lack of correlation between the entity’s reported spending and its invoices.

Mr Somyo agreed with the Minister’s suggestion that the Department should meet with the SIU to decide on a way forward. He added that the objective of the investigation was to respond to the AG’s findings and to ensure that these issues did not recur in the future. The Committee wanted to see the SIU at the centre of the process.

The Chairperson said that the Committee should keep an eye on the court case involving the DG and decide whether it should be involved, as it had been cited in the DG’s affidavit that forensic investigations should not be instituted, which was contrary to the Committee’s directive.

He said that the Committee was in agreement that the SIU must be involved in the forensic investigation, particularly as it had stated that it had the capability to do so.

Minister Nzimande indicated that he shared the concerns of Members regarding the non-implementation of reports, and he committed to appearing before the SCOPA to report on the findings once the investigations were concluded.

He requested guidance from the Committee on what action the Department should take now that the service provider had already begun its work, as it did not want to be involved in legal issues.

He recommended that the Committee observe the court matter relating to the DG.

The Chairperson said that the Committee agreed with his perspective on the court issue involving the DG. The Committee would also await the outcome of the meeting between the Department and the SIU. Any outstanding issues would be communicated to the Department by the Committee.

Minister Nzimande said that the delegation from the NSFAS would brief the Committee on the progress made.

Briefing on progress at NSFAS

Mr Ernest Khosa, Chairperson of NSFAS, said that the board had been appointed three months prior to the end of the previous financial year. Upon its appointment, it had identified four key challenges that needed addressing -- the audit outcomes, student funding, governance and administration.

Audit outcomes

For the first time in a long while, NSAFS had been able to submit its annual financial statement (AFS) to the AG on time. In addition, the entity had been able to reduce its audit findings by 59%. However, performance had not improved in the current financial year, as the board had been in place for a only short period.

Student funding

The board had sat down to investigate the weaknesses and challenges that had led to the instability witnessed in student funding, and the concerns raised by students. The board had since revisited a number of policies, such as eligibility, student accommodation, disability and qualifying criteria.

NSFAS had invested R11 billion into student accommodation, but until now it had not provided oversight on where the money had gone. Currently, the board was in discussions with the Department on how to better monitor these transactions.

Governance and administration

The board sub-committees had been established and were functional. The relevant risk function was also operational. One of the biggest operational challenges the board faced was the information technology (IT) system and its capacity to respond to the needs of students. Secondly, the administrative budget could not sustain the student base. However, the board was pleased that it had been able to better capacitate its IT system.

Mr Andile Nongogo, CEO of NSFAS, said that the entity’s audit outcome had not yet been concluded by the AG. At the request of the AG, the audit had been extended, and the delay was not attributed to NSFAS. The entity had been working closely with the AG and had been able to submit all the relevant information on time. The AG’s findings had been reduced by 59%, from 70 findings issued in the previous financial year, to around 20 in this financial year.

There were seven qualification issues raised in the audit of its AFS. In the draft management letter, NFSAS had informed the AG that it had provided the necessary information for six of those items, with one currently outstanding.

Referring to the performance information, he said that when the board took over in January, the annual performance plan (APP) had already been in place and as such, it could not correct many of the issues in the entity. However, during the current review, the board had revised the strategic plan and related APPs to make sure that they were aligned to "smart" principles, to avoid the qualifications on the usefulness and reliability of the performance information. He added that since the board had had limited time to improve its performance information, it had had to utilise external capacity to assist it, with a view to transferring skills internally.

The board was at an advanced stage of appointing a chief financial officer and a chief information officer.

There had been high levels of irregular expenditure recorded in the previous financial year. As a result, the board had decided to conduct an in-depth investigation into irregular expenditure. It had begun a process of improving the systems, and decided to do in-house developments of key modules like the disbursement of student allowances. It was also improving the application portal for 2022, and this included immediate appeals for students.

To improve financial management in the entity, the board had begun to institute risk and reliance in the institution. The audit committee had approved the combined assurance framework, which would be implemented in the current financial year. A review of the policy framework and ongoing risk compliance assessments were also some of the measures implemented by the board. However, the administration budget had made it difficult to implement many of the changes intended. Presently, NSFAS was engaging with the Department to obtain funding.

On the IT model, he said that management had implemented a processing model which seeks to tap into external resources to support the entity’s internal resources. Additionally, the requirements for the user systems had been completed.

Mr Somyo commented that it had been three months since the Committee had voiced its concerns to the board regarding the issues faced by NSFAS. During the previous meeting with the Committee, the board had committed to submitting a report on the progress made at the entity, but it had not yet done so. He asked where the report was.

Mr Khosa confirmed that in the previous engagement with the Committee, the board did commit to conducting an overview of its term in office, which it believed would assist in understanding the organisation better, and the reasons students had lodged complaints against it. After its discussions with the Committee, the board had tried to secure an engagement with an external service provider, but it had realised that there were challenges within the SCM processes of NSFAS. It had then instructed the CEO to correct the SCM profile of the organisation, which had delayed its ability to appoint a service provider to deal with the overview. Nonetheless, this issue had been corrected. He apologised for the board failing to meet its three month deadline, and explained that it had had to consider completing the process correctly and ensuring it was in line with the law. 

Mr Nongogo confirmed that the SCM process had been concluded, and the entity had informed the service provider that the work must be completed by the end of September.

Minister Nzimande said that the Department hoped that NSFAS would return and provide a full report on the SCM process by the end of September. The Department would engage with NSFAS to ensure that it met its deadline.

He said he had appointed a MTT which had looked into the entire operational model of NSFAS. This review had since been concluded, and the report had been submitted to Cabinet. It would be released by the Minister shortly. This report would cover some of the matters that would be mentioned in the board’s own report. He asked whether the reports should be presented concurrently to the Committee.

Mr Somyo appreciated the undertaking by the board. He said that the flexibility shown by the Committee towards the board in the previous engagement had been because it acknowledged that it was still new and required time to acclimatise.

He expressed his disappointment with the lack of transparency shown by the board in conducting its overview. He urged that they find time to deal with the issues highlighted by the AG, and that they then furnish the Committee with the report. NSFAS should not be allowed to fail. 

The Chairperson said that this matter would be prioritised in the next term, as the report would be released only at the end of September. The Committee noted the apology provided by the board.

Adv Mothibi said that the SIU had submitted the proclamation, but it had not been signed off yet by the President. The SIU would impress on the Presidency the urgency to sign off on it as soon as possible. This delay would allow for the SIU to expand the scope of its investigations to include the NSF. However, if it had already been signed off, it could then make a request to include it.

As the SIU had noted that the service provider had already begun its work, it was looking for clarity on its role and how it could assist. 

The Chairperson said that it was clear that the problems faced by NSFAS were a work in progress. However, due to the number of students who were disadvantaged, there should be urgency in solving the issues. The Committee would await an update from the Department and NSFAS. In addition, the Committee would schedule a meeting between it, the Department, NSFAS and the NSF, no later than the second week of November.  The Committee expected the board of NSFAS to present its report at the next engagement.

The Committee hoped that the SIU would ensure that the proclamation to investigate NSFAS was signed off as soon as possible, to ensure that people were held accountable through consequence management. The Committee wanted systems that would ensure that taxpayers' money was used efficiently and there was no mismanagement of funds.

Minister's concluding remarks

Minister Nzimande said that the Department had noted the comments made by the Members, and expressed the hope that the officials from NSFAS would be able to present the report as promised.

He added that it would be important to meet with the SIU to discuss how it could be involved in the investigations into alleged wrongdoing in the NSF. 

He thanked the Members for their input.

The Chairperson said that the Committee would attend to the Department’s choice of appointing a service provider to conduct the forensic investigations into the alleged wrongdoing in the NSF.

On behalf of the Committee, he thanked the officials from the Department, NSFAS, the NSF and the SIU for the engagement.

The meeting was adjourned.