The final report of the review of the NSFAS commissioned by the Minister highlighted the organisational, structural and policy challenges in the NSFAS. It was clear that the human capital and the operational capacity at NSFAS were placing the strategic positioning of the organisation at risk. This was confirmed in the recommendations made by the review committee, which included the need to:
- strengthen the governance and administration of NSFAS;
- review the NSFAS loan recovery practices;
- undertake an audit of the NSFAS student loan book and;
- ensure compliance of loan recovery practices with legislation and the Constitution.
The committee found that NSFAS allowed interest to accrue on loans, possibly in excess of what is permissible in law. Exacerbating this practice was the fact that some of the older loans may have prescribed, rendering them unenforceable in law and thus not recoverable. Given this information, the Minister requested the Chairperson of the NSFAS Board to review the loan book in order to ensure NSFAS complies with all the relevant legislation, including the National Credit Act and the Public Financial Management Act (PFMA), and Treasury Regulations.
NSFAS completed a comprehensive review of the student loan book for impairment. The review resulted in a significant and material adjustment, based on the NSFAS management’s estimates and assumptions which the Auditor-General could not verify.
The disclaimer opinion of the Auditor-General showed that the Minister’s decision to review the NSFAS was correct. NSFAS experienced difficulties in complying with certain requirements of the South African Standards of Generally Recognised Accounting Practice (SA Standards of GRAP) specifically related to the NSFAS loan book. The fair value adjustment on initial recognition to student loans was compromised. The Auditor-General could not reliably quantify the impact of not adjusting the student loans because significant information needed to estimate the fair value adjustment was not available. The practice at NSFAS was to only include interest on student loans once the student had initiated repayment. The Auditor-General determined that the interest should be recognised over the full term of the loan, but be suitably adjusted to reflect expected future cash payments. The Auditor-General could not assess the reasonability of the impairment losses determined by management and thus reliably determine the valuation of the student loans. The erroneous calculation of the interest income resulted in a misstatement of R181 million, affecting the materiality of the audit. Audit evidence did not support a reconciliatory amount of R42 million between the general ledger and student loans in the loan management system
The Minister met with the Chairperson of the Board of the NSFAS and agreed that the Department of Higher Education and Training will actively monitor the systems of NSFAS and support NSFAS to ensure that it complies with all statutory requirements. This included strict oversight in terms of the frequency, breadth and depth of reporting on progress. The NSFAS was requested to produce a recovery plan to address the findings and matters that gave rise to the audit disclaimer and to ensure that a disclaimer or qualified audit opinion for subsequent years will not be issued by the Auditor-General. The three year recovery plan submitted to the Department of Higher Education and Training by NSFAS was considered inadequate and prompted firm action by the Minister.
The resignation of a number of Board members late in 2010 prompted the Minister to appoint new members, including a new Chairperson. The Minister requested EXCO under the leadership of the newly appointed Chairperson to develop and oversee an immediate turnaround strategy, undertake a due diligence exercise and recovery plan in consultation with the DHET. EXCO has been tasked with providing the Minister with a detailed report by March 2011. The mandate of the Board is to ensure that an appropriate recovery plan is developed and that key recommendations of the Review Committee are taken on board.
Progress in the implementation of the recommendations of the NSFAS Ministerial Committee is as follows:
- The department identified an additional category of funding to assist final year students who qualify for NSFAS funding and who will be able to complete their studies. The loan agreement will stipulate the conversion of the final year loan amount to a 100 % bursary.
- A review of all existing debt management policies and practices were undertaken to ensure alignment to the National Credit Act and other relevant legislation.
- Restructuring of the loan awards administration and processing of loan applications following the recommendations by the Review Committee.
- Close monitoring of unutilised funds to ensure that all funds allocated to higher education institutions are utilised
Restructuring of the NSFAS board has begun to ensure the relevant expertise and skills needed to govern an organisation like NSFAS. The public process to nominate and appoint new members in terms of the NSFAS Act 56 of 1999 was initiated. A call for nominations was issued and the deadline for submissions is 14 February 2011. It is expected that the process to appoint new board members would be finalised by end of March 2011.