NSFAS News

NSFAS Audit Reveals Numerous Systemic Failures

Published

6 months ago

December 6, 2024

NSFAS Audit Reveals Numerous Systemic Failures. In a comprehensive audit report presented by the Auditor-General (AG) of South Africa, the National Student Financial Aid Scheme (NSFAS) has been found to have systemic financial mismanagement, irregular expenditures, and governance failures. This report highlights ongoing issues within the scheme for the 2022/23 financial year, casting doubt on NSFAS’s ability to fulfill its primary mission of providing financial aid to South African students.

Irregular Expenditure and Governance Failures

The audit revealed shocking levels of irregular expenditure within NSFAS, with a reported total of R84 billion for the financial year 2022/23. However, according to AG’s deputy business unit leader, Thomas Mamogwe, this figure is not final. He cautioned that it may be even higher due to incomplete disclosures, which means that the full extent of irregularities is yet to be revealed.

Mamogwe explained, “The R84 billion reported is not the full picture. We identified significant gaps in the completeness of this amount, which means there could be more irregularities that have yet to be accounted for.”

This aligns with NSFAS’s history of financial mismanagement, which has been ongoing for several years. Notably, in the 2019/20 and 2020/21 financial years, irregular expenditures amounted to R25 billion and R32 billion, respectively.

Despite these recurring problems, the 2022/23 financial year saw a slight reduction in irregularities, with the total dropping to R136 million. However, Mamogwe emphasized that while progress was made, these issues remain a concern, especially when considering the scheme’s growing role in funding South African students.

Tenders and Procurement Violations

One of the most alarming discoveries involved irregularities linked to two tenders that NSFAS had issued—one for direct payments and another for an office lease. Both tenders were riddled with violations of procurement regulations, including improperly constituted bid adjudication committees, which directly contravene procurement laws.

In his testimony, Mamogwe highlighted the severity of these issues, stating, “In one instance, the bid adjudication committee was not properly constituted, which directly contravenes procurement regulations.” Such breaches in procurement are not just legal violations, but also undermine the credibility of NSFAS and its ability to manage public funds effectively.

Owed Amounts and Incomplete Reconciliation

Another significant issue raised by the AG’s report was the discrepancy in financial statements, which indicated discrepancies of R10 billion in amounts owed to institutions and R11 billion owed by institutions. These discrepancies stemmed from the close-out project, a crucial initiative designed to reconcile payments and allocations dating back to 2017.

The close-out project is vital for NSFAS to accurately track its spending, and while some progress has been made, it remains incomplete. Mamogwe explained, “While some progress has been made, the project remains incomplete, and this has led to significant qualifications in our audit findings.” This incompleteness is a reflection of broader systemic weaknesses within the organization that hamper its ability to manage funds properly.

Lack of Transparency and Compliance Issues

Apart from financial mismanagement, the AG’s audit identified significant compliance and performance reporting issues within NSFAS. Several of NSFAS’s claims about its key performance indicators (KPIs) were unsupported or inadequately supported by documentation. When asked to provide evidence, the institution failed to offer adequate explanations for discrepancies between its reported targets and actual outcomes.

Mamogwe expressed concern about the lack of transparency, noting, “The institution would report certain achievements, but when we asked for supporting evidence, it was either inadequate or missing entirely.” This lack of transparency further damages NSFAS’s credibility, as it calls into question the veracity of its reports and its ability to meet performance expectations.

Compliance violations were also noted in areas like the late submission of financial statements, ineffective revenue collection, and violations in supply chain management. Mamogwe added, “Contracts were awarded based on criteria not stipulated in the original tender documents, which is a clear breach of procurement rules.”

Outdated Systems and Insufficient Capacity

One of the core issues driving these failures is NSFAS’s outdated infrastructure. The institution’s manual systems, which are no longer adequate to handle the growing volume of transactions, are at the root of many problems.

Additionally, NSFAS has struggled with insufficient IT infrastructure and a lack of skilled personnel, both of which have hindered the organization’s capacity to scale effectively in line with the increasing demand for financial aid.

Mamogwe explained, “The scheme has grown significantly over the years, but its systems and capacity have not evolved to meet the increased demand.” The leadership within NSFAS has also been criticized for not providing proper oversight, with Mamogwe noting, “There was a failure to properly monitor and address these issues at a governance level, which has compounded the problems.”

Investigation and Efforts for Improvement

The Special Investigating Unit (SIU) is currently probing allegations of misconduct within NSFAS as part of Proclamation R88 of 2022. This investigation is focused on uncovering irregularities in service providers involved in direct payments. Mamogwe stated, “This investigation is ongoing, and its findings will be critical in addressing the root causes of these issues.”

While the findings of the audit are grim, the Auditor-General’s office has acknowledged some steps taken by NSFAS to improve governance and transparency. These include efforts to reduce reliance on manual payments and the introduction of credibility checks.

Progress and Areas for Improvement

Sithembiso Freeman Nomvalo, the NSFAS administrator, updated Members of Parliament (MPs) on the scheme’s ongoing improvements. These include the establishment of a disbursements unit, the appointment of a manager to oversee annual internal reconciliations, and the development of a real-time dashboard to track disbursements.

Nomvalo also highlighted improvements in contract management and the digital transformation of NSFAS, with 62% of its ICT strategy now implemented. He emphasized that while improvements have been made, continuous improvements remain a priority for NSFAS to restore credibility and ensure financial accountability.

Audit Findings and Progress

Audit Findings	Amount/Issue Identified	Status
Irregular Expenditure (2022/23)	R84 billion	Incomplete disclosures, further gaps identified
Outstanding Payments	R10 billion owed to institutions, R11 billion owed by institutions	Ongoing reconciliation efforts
Tenders with Governance Violations	Direct payments & office lease	Tender violations and procurement issues identified
Manual Systems and Insufficient Capacity	Outdated IT systems	62% of ICT strategy implemented
Lack of Transparency in Reporting	Unsupported KPIs, missing evidence	Improvements in reporting and digital transformation underway

Conclusion

The findings from the Auditor-General’s report paint a bleak picture of NSFAS’s financial management, governance, and overall accountability. While the organization has made some strides in addressing its weaknesses, including digital transformation and improved contract management, much work remains to be done.

Continued oversight, improved systems, and a commitment to transparency will be key to restoring confidence in NSFAS and ensuring that it can continue to support South African students effectively.