National Skills Fund & Services SETA 2020/21 Annual Reports; with Deputy Minister

Meeting report

Mr T Letsie (ANC) officially opened the meeting at the request of the Chairperson as she was running late for the meeting.

Deputy Minister’s Remarks

Mr Buti Manamela, Deputy Minister, Higher Education, Science and Technology, explained the mandate of the National Skills Fund (NSF). He said it was necessary to facilitate skills development and equip South Africans to enrich their livelihoods. A significant allocation of the budget was aimed towards education and training initiatives for bursaries and scholarships, learnerships, and skills programmes that were workplace based. The NSF was a crucial vehicle in securing and developing skills for the country.

Briefing by the National Skills Fund on its 2020/21 Annual Report

Mr David Mabusela, Acting Executive Officer, NSF, gave a summary of achievements. In Programme 1 - skills development funding - the NSF achieved only 11 percent of the output performance indicators. In programme 2 - organisational sustainability - achieved only 50 percent of the targets. Over all programmes, only 23 percent of targets were met.  He referred to the annual performance report, which detailed the reasons for deviations from the set targets. He said it was clear from the institutional performance that there was a lot of work that still needed to be done. He and his team were there to petition the Committee to give them time to come up with a comprehensive action plan to address the shortcomings of the entity. It would be a recovery plan and in the absence of that, it would be difficult for the entity to move out of its current dire situation. He appealed to the Committee to give him and his team some time.

Total revenue of R2.9 billion was significantly affected by factors such as the Covid-19 pandemic and the poor economy and dipped by over R1 billion from the previous year. The total administration expenses were R176 million. Disbursements of R1.7 billion were R800 million less than in the previous financial year. This spoke directly to the decline in revenue. The non-current assets increased while current assets declined by almost R1 billion. The accumulated surplus increased by almost R1 billion to R10.9 billion.

Mr Mabusela went on to outline contractual commitments; budgeted versus actual expenditure; detailed skills development disbursements; administrative expenditure; and reasons for variances.

Irregular expenditure amounted to R433 million compared to 432 million the previous year. It resulted from the appointment of TVET college contractors; travel and accommodation; payment to an events and conference organiser; production of the NSF annual report, which was condoned; and spending on the electronic mail network for the Department of Higher Education and Training (DHET) and the NSF.

Fruitless and wasteful expenditure amounted to R7.7 million compared to R5.6 million in the previous financial year. It came from the Centre for Education Policy Development Project; the Aliwal North TVET infrastructure project and the Sterkspruit infrastructure project.

The NSF received a disclaimer of opinion from the Auditor-General (AG) for the second year in a row. It was discovered during the audit process that the NSF did not have adequate systems in place to account for skills development funding, as expenses were not recorded in the correct period. The AG was unable to obtain sufficient audit evidence that skills development funding for the current and previous years had been properly accounted for, and that the services had been received. An internal audit process had been established to independently monitor and report implementation of the 2020/21 audit action plan. The plan detailed the findings and how the NSF had progressed in addressing them 

The entity had been struggling to fill in approved posts since 2015. There was now an urgent need to fill about 54 posts that were critical. These included those of Chief Financial Officer, director for ICT and director for fund management. Lastly, he touched on interventions, which included improving systems and business processes; managing risks and ensuring compliance, amongst others.

A Ministerial Task Team set up to strategically review the NSF had to date the interacted with the structures within the NSF, DHET branches and TVET colleges. It had also engaged with external stakeholders and consultation was ongoing.

An update on a forensic investigation into skills development expenditure incurred in the 2019/20 financial year would be submitted in writing.

The Chairperson thanked Mr Letsie for standing in for her at the inception of the meeting.

Discussion

Ms J Mananiso (ANC) welcomed the report from the NSF. She was concerned about the acting Executive Officer asking the Committee to grant him and his team time to put together a comprehensive action plan. She was not pleased with those remarks and with the performance on targets. It was extremely disappointing to see how poorly the NSF had performed and it remained clear that not much had been done to resuscitate the entity. There was a need to fast track the process and to visit the entity. Personnel must be seen and people must provide their CVs. There should not be people who seemingly did not know what they were doing. It was a cost to the country.

What were the interventions in addressing the challenges of the entity? The DHET had challenges of its own in filling certain vacancies. How was it expected to fast track the NSF’s processes? It was extremely worrying to go through the report. It showed that the entity was in ICU and there were extreme internal bleedings. The reasons for deviations were vague. Members wanted direct answers on what was going to be done differently.

Referring to slide 15 of the presentation, she said the NSF could not provide sufficient evidence for both financial and non-financial accounting records. This showed that the entity had no capacity for accounting matters. There was an issue of consequence management. The disclaimer showed that people were not doing what they were employed to do. It showed that personnel in critical positions were not fit for purpose.

Dr W Boshoff (FF+) expressed the same sentiments. Reading this report was extremely worrying. There was a direct link between joblessness and lack of skills. Evidently, the biggest problem was not the lack of funds. Sometimes things were said to the Committee in a way that was not clear or direct. What would the community based skills development look like? What were the skills developed in that initiative? What was done to improve the systems and what was meant by providing access to systems?

Ms N Marchesi (DA) also expressed her disappointment with the NSF.  The entity was failing all-round. The Committee needed to see a plan from the DHET to tell the Committee how it was going to self-correct. The plan must come with timelines and be presented to the Committee when completed. What was the cost of the irregular expenditure and the steps that would be taken against those responsible?

Members needed to understand how the tender processes were allocated. The Committee might need to look into this when conducting an oversight visit. The NSF’s role was specifically to bring skills to those employed and unemployed, but the element of developing entrepreneurs was missing. Skills could be created. But employers needed to be created as well so that those given skills could also be employed. What was the reason for the irregular expenditure and what steps had been taken to identify those that were responsible?

There was a tendency to focus more on administrative skills instead of production. There should be an intention to groom people with maths, science and engineering skills. There were so many people who obtained qualifications and ended up staying at home because the labour market could absorb the skills they obtained. Which areas of employment had the entity been actively participating in and funding?

The Committee would like to see details about the people who received funding and which skills they were able to acquire, as well as whether they were able to secure employment and where. 

Mr Letsie echoed the same sentiments about the bad state of the entity. Some of the issues the entity was telling the Committee now had been raised by the AG in the previous year. This was a horror movie and it was depressing. Some of the issues were raised two years ago by the AG. There was nothing the Committee could do to help if the personnel of the NSF were not doing anything.

The NSF had paid service providers money when work was not done at the Aliwal North TVET College. The NSF had already identified that the contractor was unable to deliver the work but yet that contractor was still paid. The NSF must tell the Committee who was responsible for this. This was not even an error, it was clear corruption.  There were faults and errors in the work but money was still paid. The Committee needed to find out whether the money was recovered and what was done to those who were responsible.

Out of 13 targets, the entity achieved only three but when you measured this against the budget it did not link; where did the money go to if only three targets were achieved? What was the money utilised for if the targets were not achieved? He was also struggling to understand the reasons why the NSF could not meet its targets. The reasoning hovered around the Covid pandemic, yet money was spent. There were some targets that did not involve any physical interaction but yet were not met. What consequence management was implemented for employees who were responsible for the failure to meet targets that could have been met even during the pandemic? One would not be surprised if nothing was done because since 2018/19 the NSF had moved from an unqualified audit opinion with findings to achieving 56 percent of  the targets and receiving a disclaimer. The number of targets moved from seven to three in the current year.

It remained clear that there was a lack of appetite for people to do what they got paid for. They were giving the NSF a very bad reputation. If this was how things happened, it meant that the government would never achieve anything. It could not be that people wanted to sit and do nothing and get paid. There was significant irregular and wasteful and fruitless expenditure. What consequence management had there been in the last seven months.

The value of Property, Plant and Equipment was huge on the books, yet there was nothing that could physically be pointed to. 

The Committee acknowledged that there was a new acting Executive Officer. Maybe the Department should be telling the Committee about what was happening in this entity. The fact that the NSH did  not have a board created problems for it, particularly on governance. How far was the DHET in constructing a new NSF arrangement that would have a Board to assist management to fix the entity? He suggested that the personnel in critical positions must sign performance contracts and there must be consequences for failure to meet their targets. If they did not reach their targets, penalties must be enforced. People were submitting financial statements that were messy. People were claiming to have performed, yet the AG was saying there was no evidence supporting the performance.

Ms D Sibiya (ANC) lamented the bad shape of the entity. What were the cost implications of the forensic investigation? She sought clarity on the irregular expenditure on the TVET college infrastructure.

The Chairperson said the decline in the audit outcomes from 2018 was definitely of concern to the Members. The tone of the Members made clear that they were frustrated and wanted to see improvement. A point had been reached where sentiments and expressions were not going to be enough. The Committee needed to see practical changes taking place. The Committee supported the forensic investigation. It would like to see that report as well as the implementation of its recommendations. The Committee would also want to be updated on the Ministerial Task Team work.

At this point in time, the Committee needed a detailed report on the root causes of the decay of this entity. The NSF was still largely reliant on the Department. Hopefully, with the work of the Task Team, consideration would be given to cutting the umbilical between the NSF and the Department. Was there an audit action plan coming out of the previous financial year? If so, it was clear that it was not implemented because things had worsened. There was a need for quarterly monitoring of the work of the NSF based on what was outlined in the action plan.

Responses

Deputy Minister Manamela said that the Ministry was just as concerned about what was happening at the NSF. The Minister had put oversight measures in place to prevent the situation from worsening. The Minister had ensured that efforts were made to get the institution back to normality. These included rebuilding the team, having an acting Accounting Officer CEO and an action plan to improve the systems and internal control environment of the entity.

The Ministerial Task Team’s work was underway and the DHET intended to present its findings to the Committee. It was given six months to complete its report. The Task Team would look at some of the matters that the Committee had raised as well as the entity’s current capacity, personnel and systems in relation to its mandate.

The forensic investigation was in the pipeline. A forensic company had been appointed and its work was underway. The Committee might be aware that a previous Director General had been suspended along with various senior staff members at the NSF. As a result an acting Executive Officer was appointed as well as other senior personnel. .

Dr Nkosinathi Sishi, Director-General, DHET, said it was evident that the state of the NSF would not be tolerated. Actions taken by the Minister had prompted the forensic investigation. The previous day, he had received a draft report which outlined how the forensic investigation was proceeding and the plan which would be handed to the Minister to comment on whether he was satisfied with the work underway. Within a month after the receipt of that report, it would be presented to the Committee.

He had had a briefing with the acting Executive Officer where a commitment was made to present the entire shape of the NSF. The posture of the entity must give confidence that issues were going to be addressed. He was interested in the extent to which the entity met the targets or recommendations in the audit action plan.

Consequence management must be implemented but there must also be corrective measures.  Certain unclear terms presented in the report must be clarified.

Mr Zukile Mvalo, Deputy Director-General (DDG): Skills Development and Planning, DHET, said that the Skills Development Act empowered the DG to be the accounting authority of the National Skills Fund. This needed to be read along with the PFMA. There was a need to look into accountability levels at the NSF. The DHET had more than 100 institutions and entities. If the DG was to be the accounting authority of the NSF it would mean that he would not be able to do his work for his entire portfolio. There was a need to fast track the process of amending the Act. 

The work of the Task Team included looking at the efficacy of the current business model systems. Work undertaken in 2020/21 included a Microsoft pilot project for skills development. One could not run an entity like this without proper ICT systems working effectively.

Mr Mabusela concurred with the sentiments of the Members and welcomed the opportunity granted to construct an action plan that would address the systemic issues at the NSF. In spite of the challenges, they were operating and disbursing funds and processing requests for proposals in relation to the Economic Reconstruction and Recovery Plan (ERRP). There was a need to ramp up the business processes within the NSF to properly account for the disbursements. 

The sentiments by the AG about a lack of understanding of financial procedures were acknowledged and would form part of the recovery plan.

On the question about community based skills initiatives, he said these empowered communities to acquire skills for self-sustenance. They related mainly to rural areas.

Systems improvement projects aimed to fund infrastructure and capacity to facilitate broader access for those who needed to acquire skills.

The disappointment expressed by Members would be heeded. Timelines would be included in the action plan.

The internal audit function was still busy with determinations on the irregular expenditure as well as where the fault lay and what corrective measures needed to be implemented. Quite a number of these issues were recurring from the previous years. Once the determinations report had been received from the audit team, appropriate action would be taken. 

There was a quasi-governance structure within the NSF drawn from the broader management of the DHET. Once proposals were received, they underwent a technical analysis and due diligence process on the ability of the applicant to utilise the required funds.  Once the due diligence was completed recommendations were made on applications. The final arbiter was the DG who determined whether the funding application would go through or not.

He said the officials had come before the Committee not wanting to hide or cover up anything. They had presented the report as it was and expected the blows from Members, which would hasten the turnaround interventions. He noted the interest from Members in visiting the NSF, which he believed would have an impact on staff morale and push them to hasten the intervention measures. 

It was indeed true that some of the issues raised by the AG were recurring, but the action plan would  address those issues. On consequence management, there were interventions by the Minister in relation to the forensic investigation and the suspensions that had taken place. They were prepared to take all measures to address current and long term issues.

He reiterated the request for the NSF to be granted some time by the Committee to construct an action plan. That plan could be provided to the Committee.

Mr Sishi suggested that the responses to questions should be provided in writing in a detailed manner. The Ministerial intervention should not be confused with governance issues that spoke to performance of the organisation. There was no excuse for not delivering on governance. They would provide regular briefs to the Committee on the work being done.

The Chairperson said that the action plan must be informed by the forensic investigation recommendations as well as those by the Task Team and the AG. There must be appreciation that there were separate issues which impacted on one another. Ultimately, all agreed that there was a need to move the NSF from its current position.

Oversight visits mentioned by Members must be conducted and would be unannounced. She requested an audit action plan within three months as well as quarterly progress reports. The NSF should send a list of all active projects.

Briefing by the Services SETA on its 2020/21 Annual Report

Mr Stephen De Vries, Chairperson of the Board, introduced Mr Menzi Fakude, the new Chief Executive Officer (CEO) of the Services Sector Education and Training Authority (SETA). He briefly touched on the mandate of the entity and its background from 2011 until 2020. He outlined the external environment in which the entity had to operate. He said that the entity had set its target performance at 70 percent for the next financial year. He acknowledged that it had not been performing well but said it was committed to turning things around.

Mr Fakude took the Committee through the presentation and commenced with the SETA’s historical performance as well as its overall performance. In terms of meeting targets, there was a 49 percent decline in administration, an 11 percent decline in skills planning and a 53 percent decline in learning programmes. There was no change in the quality assurance programme which achieved 100 percent of targets.

The SETA incurred R1.8 billion in irregular expenditure resulting from non-compliance with legislation. Wasteful expenditure amounted to R12.2 million related to litigation of four cases. Most of this figure came from a discretionary grant (DG) for an SME capacitation programme in 2013/14. The settlement amount was R11.96 million. There was also a dispute regarding rural and disability allowances for a DG in 2016/17 in which the settlement amount was R800 000.

The SETA also did not comply with supply chain management (SCM) procedures. There was a variation of R2.9 million. This was subject to investigation and action would be taken against those who did not comply.

In terms of commitments, there had been a decision to delay implementation of certain projects to maintain the solvency of the entity. The commitments came down from R5.1 billion to R3.4 billion due to stringent measures to prioritise projects and scrap inactive projects. Previously, the SETA had tried to reach out to as many unemployed people as possible, but that came with unintended consequences.

The SETA had started reorganising itself and upskilling the personnel already in the system to do the work that would otherwise be procured from consultants.

Mr Fakude outlined the audit action plan, elaborating on the root causes of the AG’s findings; the SETA’s planned action and when those actions would be implemented.

See presentation for details of the annual report. 

Discussion

The Chairperson said it was of great concern to the Committee that there had been a qualified audit outcome for the past three years. This was not something that could be normalised. Looking at the targets of the SETA, one could tell that there was commitment to obtain a clean audit, but due to external factors this was not achieved.

She asked what mitigation strategies there were to ensure that the targets would be met and whether the SETA would consider increasing the annual target as the economy opened up. What services of the SETA were extremely impacted by the pandemic? In future, the SETA could consider a different presentation format to avoid Members only listening to the voice of the presenter and not finding what the presenter was saying in the presentation.

Ms Mananiso asked the SETA for information on issues not related to Covid-19 that impacted on the ability to achieve the targets. Members were concerned about the declining performance. She was also concerned about the irregular expenditure of R1.8 billion. There were various reasons for non-compliance with legislation, SCM processes and other matters. It would make it easier if the SETA informed the Committee where the leaks came from and whether human capacity and internal controls were strong. What was going to be done to ensure that internal controls were strengthened? How many people internally had the ability to support progress?

She referred to a disclosure in the presentation that the SETA had paid a municipal fine for building a disability ramp without approval. How was this even possible? The Committee needed a detailed report on this fine.

The presentation failed to give Members confidence that there was a commitment to turn things around. It was not expected that one had people in high office talking about issues within the organisation instead of solutions to those problems. Who should be held responsible for the transgressions and what actions had the DHET taken on those transgressions? The SETA needed to do far better. It was not in order. The outcomes were very poor. There was a need for people who were committed to doing the right thing for the nation. 

Mr Letsie lamented that the day had not been a good one. Members would age very soon if they continued to be subjected to reports such as this.

In late 2019, the Committee had had a conversation with the previous board of Services SETA in which Members said that the Board had employed senior management without the requisite skills and qualifications. The board had said that was not true and the South African Qualifications Authority (SAQA), the Higher Education Council and the department had been brought in on this. Finally, in May the previous year, the SETA agreed that the people employed did not have the requisite qualifications. The new board was present at that meeting. It had been in office for a month or so when SAQA confirmed what the Committee had been saying all along. The new board then told the Committee that it would not do anything to correct that situation. The Committee was not on the same page with the Board at the time. Hopefully they might now be, because the audit painted a bleak picture. He was directly linking the poor performance to the lack of requisite skills of people occupying critical positions. There should be a conversation about people, whether in the board or management, who disregarded the issue. Perhaps they should be taken to court to have them declared unfit for the positions they occupied? Some of the officials needed to be declared unfit to occupy public office because things could not continue in this trajectory. 

In 2019, all SETAs combined had an irregular expenditure of R1.5 billion but this Seta alone now had R1.8 billion irregular expenditure. One wondered how far the SETA was into the year and whether the irregular expenditure was going to go down or increase. Surely, the internal audit function had already indicated whether this irregular expenditure figure would be going up or not?

In the previous year wasteful expenditure of all SETAs combined was R1.8 million but this SETA was sitting with over R12 million in wasteful expenditure. These figures were depressing and the SETA did not meet the majority of its targets. Meanwhile, it had over R600 million under-expenditure. Clearly, the entity had failed to deliver on its targets on learning interventions. The Seta had not achieved 89 percent of targets. The reason given was that funds were reprioritised, but they were not telling the Committee why. 

Material misstatements were identified. Nothing was done on the recruitment plan. There was regression everywhere. The number of learners had declined from 5 000 to only 200. What consequence management was implemented for people who failed dismally to achieve this target?

Why was the Chief Financial Officer (CFO) still employed if these matters continued year-in and year-out? Was it the same CFO that the Committee had been told the previous year did not meet the requirements for the position?

The money that had been used did not correspond to the targets that were achieved. What was going to be done now in the last quarter to ensure that those targets were achieved? Clearly, the AG was  going to come to the Committee every year telling it the same stories about material misstatements, irregular expenditure, wasteful and fruitless expenditure, issues of incapacity, etc.

The AG had claimed that the Board was not appointed in accordance with the legislation. The Committee needed to be provided with a progress report on how the SETA was addressing the issues that the AG had raised

The Board must tell the Committee of the mitigating factors that had been introduced for management to fix all the issues raised by the AG. What had the Board done to try and fix all these issues?

Members were generally reluctant to ask the SETA any further questions because they believed that the SETA would not have adequate and satisfactory responses.

The Chairperson asked whether the SETA was able to reconcile its financial commitments with services actually received. She asked whether there could be situations where the SETA was “paying above the offer” to service providers.

On the role of the Board and executive management, she asked if the Board made time to play its oversight role on some of the institutions involved and, if so, what were the findings?

Referring to irregular expenditure on contracts awarded to non-qualifying service providers, she wondered how the SETA found itself in this situation. People who did not meet the criteria should not be awarded contracts given the challenges in terms of skills shortages in the country. Were there any measures in place to ensure that no awards were made to non-qualifying service providers?

She said the Committee strongly requested that the SETA furnish it with an audit action plan and that on a quarterly basis, they monitor and evaluate the progress in implementing that action plan.

It was frustrating that the Committee was so consumed by the fact that people could not run institutions or get to the crux of what they were meant to be doing. The bulk of the conversation ended up being consumed by lack of record keeping or evidence of funds being used adequately. It could not get to the crux of the mandate of programmes and that was frustrating. The whole morning should not be spent hearing about people who could not do their job. The Committee would keep a close eye on the SETA and the NSF. 

Responses

Mr Fakude said that a lot of work was underway to turn things around. The fact that the SETA had been sitting in the same position for three years was worrying.

He noted that the SETA had started to support SMMEs in KZN and Gauteng to try and deal with the business disruptions that took place. They were also engaging with the DHET to train more artisans. 

As for capacity internally, the internal auditors had advised on many ways to improve the internal control environment. With the expertise of the internal audit function, the SETA should be able to develop mitigating measures. 

On irregular expenditure, a difficult root cause was project support costs which should not exceed 7.5 percent of the expenditure. The costs incurred had remained fairly constant even though they went above the 7.5 percent levels of expenditure. Discretionary grant expenditure was expected to rise, given the projects and the commitments that had already been made. The SETA might not be able to stay below the 7.5 percent level in the current year, but it would be implemented in the following years.

Mr De Vries said that if the SETA had continued to do recruitment, it would have increased irregular expenditure due to the 7.5 percent limit. A decision was taken to not take a route that would exorbitantly increase it.

Commitments made had resulted in the entity being taken to court several times for not meeting them.  The audit plan would be submitted to the Committee as well as the document covering the current consequence management processes. 

A report on the matter of requisite qualifications had been submitted to Parliament. The Board did implement corrective measures and these would be submitted to the Committee. A lot had been done in the past to put the SETA on a healthier path. There were joint meetings to monitor the implementation of approved plans.

The Chairperson said that the Committee would now monitor and evaluate the progress made by the SETA. Hopefully, the picture would be different in the next financial year. The Committee needed the action plan on the audit outcomes.

The meeting was adjourned.