1. ANNUAL REPORT 2011 – PRESENTATION TO PCHET, 12 OCT 2011
National Student Financial Aid Scheme
ANNUAL REPORT 2011 – PRESENTATION TO PCHET, 12 OCT 2011

2. Overview NSFAS Annual Report 2011 Chairperson’s Report Board Report
Board Committee Reports
Annual Financial Statements
Annual Performance Report
Way forward
2011

3. Chairperson’s report 2010 was a challenging year for NSFAS
Auditor-General issued Disclaimer of Opinion
Board members resigned
New members were appointed with a mandate to:
Develop and implement a turnaround strategy
Maintain NSFAS functions while implementing turnaround
Address 2010 Disclaimer of Opinion by the Auditor-General
Achieved an unqualified audit in 2011
2011

4. Board Report - background & governance
NSFAS is a public entity which has 7 functions:
to develop criteria and conditions for the granting of loans and bursaries to eligible students in consultation with the Minister
to raise funds
to allocate funds for loans and bursaries to eligible students
to recover loans
to maintain and analyse a database and undertake research for the better utilisation of financial resources
to advise the Minister on matters relating to student financial aid
to perform other functions assigned to it by the NSFAS Act (56 0f 1999) or by the Minister
2011

5. Board – composition & committees
Board - 13 appointed members, 4 co-opted
Executive, Finance Committees
October Minister assessed board
performance and identified challenges
December 2010 – 5 resigned, 6 remained, 3
co-opted
2011 – DHET completed process to fill 8 vacancies
2011

6. Board Report – management
Chief Executive Officer
Jan 2011 – probation extended
Feb 2011 – suspended
April 2011 – employment not confirmed after probation, contract terminated
Executive, senior management
Number of vacancies – being filled in 2011
Capacity challenges
2011

7. Executive Committee Executive Committee (Exco)
Board chairperson - Zamayedwa Sogayise
DHET representative - Shai Makgoba
3 other members
Exco functions determined by the board in terms
of s10 of NSFAS Act:
To develop and implement a turnaround strategy
conduct a due diligence of the entity, its risks, commitments and resourcing needs
2011

8. Audit & Risk Committee Chairperson – Stephen Smith
Auditor-General Report (p45)
NSFAS moved from the Audit Disclaimer of 2010 to an Unqualified Audit in 2011
AG concurred on involvement of board in turnaround
“Although this might have increased the risk of loss of independence of the Audit Committee, the interventions were sound…”
- AG Management Letter, 2011
2011

9. From disclaimer to unqualified audit - background
In 2010 the A-G disclaimed an opinion on 5
grounds:
NSFAS did not value the loan book at “Fair value at initial recognition” in terms of IAS 39
did not correctly account for interest over the life of the loan in terms of GRAP 9; only started accruing for interest on repayment
was unable to justify on verifiable scientific grounds how we impaired the debtors. In addition, NSFAS wrote off R589m of interest and could not properly justify this
2011

10. From disclaimer to unqualified audit – background (cont)
Interest was incorrectly calculated on the system by R181m due to adjustments made without proper control
There was a reconciling difference of R42m which could not be explained
For these reasons the auditors had doubts about the accuracy of student loan balances in LMS. They had sufficient doubt about the valuation of the loan book for them to disclaim an audit opinion.
2011

11. 2011 year end interventions
To address the 2010 audit disclaimer, a
number of key interventions were
implemented:
Reconstituted Board, Executive Committee
Changing gear from 3 year to 1 year compliance
CEO contract terminated
Secondment of resources to Finance Department
Actuarial valuation of loan book
Completion of loan book amortisation
Independent data verification of loan book
Procurement review
2011

12. Actuarial valuation of loan book
We ran every transaction in the loan book to properly allocate all repayments, taking into account the in duplum rule
this was the first time NSFAS had ever had accurate data at an individual loan level;
Involved:
over 180 million lines of transactions
approximately debtors and
1,6 million loans
The model took 5 days to run;
2011

13. Actuarial valuation (cont)
Actuaries ran the data through a model which accounted for all the reasons for differences in loan values
Throughout the process we ensured that our auditors and their own actuaries were part of the process
Credit balances totalling R77,8m came to light for the first time ever
Refunding students who overpaid
Full provision made for this in 2011
2011

14. Audit findings Board did not exercise adequate oversight
Appointment of service providers too late
Technical aspects not started timeously, resulted in actuarial errors that needed to be corrected (misstatements)
SCM failure resulting in irregular expenditure
Management
Accounting Officer did not take steps to address irregular expenditure
No proper guidance, training to staff on SCM
Human resource vacancies (15% to 18%)
2011

15. Irregular expenditure – R25,6m in 2010
Opening balance R25 348
SABC
Vincent House Lease
Systems Link Cape (Pty) Ltd
Business Connexion (Pty) Ltd
*Lithotec Afric Mail Cape (Pty) Ltd
*Metrofile (Pty) Ltd
*Rennies Travel (Pty) Ltd
*SA Post Office
Other irregular expenditure
Less: amounts condoned ( )
Total
* Suppliers not rotated
2011

16. Irregular expenditure - remedial procedures
Disciplinary hearings of all management involved in procurement process underway
Independent adjudication
Appointment of SCM officer
Automation of purchase order system
Condonation of valid expenditure
Audit of potential fruitless and wasteful expenditure
2011

17. Information technology
No Chief Information Officer
No formal IT governance
No formal IT project or risk management framework
No formally approved Disaster Recovery and Business Continuity Planning
Remedial action - policies, plans, resourcing as part of turnaround
2011

18. Investigations Forensic audit completed into conduct of one employee
Misrepresentation to third parties
Employee suspended
Disciplinary hearing 19,20 October 2011
No financial harm to NSFAS
2011

19. Annual Financial Statements
The Annual Financial Statements (p45) show in detail
what NSFAS does and how it fulfils its mandate
Some highlights are:
In 2010, NSFAS distributed financial aid of R3.7 billion to students - 17% more than 2009
Since NSFAS started, R19 bn disbursed - in 2011, R5,5 bn will be distributed in loans and bursaries
Students who pass get 40% of loan converted to bursary - cost R1.85 bn last year, 15% of loan book
2011

20. AFS -Balance Sheet (p60)
Investments and bank R791 m (Inv R541m, Cash R213m, Inv current R37m)
Prepayments R298 m
Student loans R5,03 bn (Current R421m, Non current R4614m) - (LMS R12,2bn)
Fixed assets R12.8 m (PPE R8,6m; Intangibles R4,2m)
Payables R53,2 m
Credit balances due to debtors R77,8m
2011

21. Expenditure Operational expenses were R57 million
Salaries R23.8 m – 41,5%
Audit = R6.3 m – 11%
Communications = R6,4 m
Rent = R930k
Metrofile = R952 k
Recruitment = R1,7 m
Postage = R2,8 m
Stationery = R1,7 m
Phone = R1 m
2011

22. AFS – Why doesn’t NSFAS recover what it lends?
Monthly statement run is around R12,2 bn
This balance sheet reflects R5,2 bn
From books to balance sheet there is a difference of R7bn
In 2011, for the first time ever, NSFAS can substantiate this figure to A-G’s satisfaction
NSFAS is good at administering outstanding loans
charged R536 m in interest last year
But is not good at recovering loans
LMS R12,2 bn but only recovered R638 m – 5%
2011

23. Reasons for loan decreases
1 We don’t know IF the debtor will pay
Over 20 years there is a pattern of how many do start paying – below earnings threshold, we don’t find them, informal employment
2 We don’t know WHEN the debtor will pay
It depends on when they exit, if they find employment, what their level of earnings is and whether we can keep track of them
3 Time Value of Money
If we loan R now and only receive it back in 3 years’ time, the real value in today’s terms is not R10 000
2011

24. Reasons for loan decreases (cont)
Differential interest rates
We only charge 80% of repo as interest (currently 4.4%) but discount to present value at 8.5%. The difference between these two interest rates reduces the value if the loan; also limited by “in duplum” rule
Death and disability
We factor in actuarial estimates re death and disability
Bursary conversion
We write off of up to 40% depending on student’s academic success
The cut off point is 10 years
If debtors haven’t started paying within 10 years we fully impair the loan
2011

25. Finance Committee Finance Committee Chairperson – Nathan Johnstone
Functions
Advises the board on the financial management of NSFAS, including:
Raising funds
Loan recovery
Investment of repayments
Monitors and reports on performance quarterly, annually
2011

26. Annual Performance Report (p23)
Strategic Goals
Expanding the pool of funds available for disbursement as student loans and bursaries
2 Effectively managing the institutional utilisation of funds administered
3 Strengthening internal efficiencies in the processing of student awards/claims to ensure that funding reaches target population
2011

27. Strategic Goals (cont)
Strengthening the quality of internal management and operations inline with changing funding patterns
Effectively communicating the relationship with all NSFAS stakeholder groups and targeted audiences
6 Undertaking research that informs the effective
utilisation of available funds and serves to advise the Minister of matters related to student financial aid
2011

28. Way forward
Comprehensive policies and plans are being developed to improve operational efficiency and lay the foundation for a smooth transition to new, student-centred systems:
IT infrastructure, systems and operations, including acquisition and implementation of a new Loan Management System
Loans and bursaries administration
Finance
Credit Management, including debt recovery
Audit and risk management
HR management
Communications
2011