National Student Financial Aid Scheme (NSFAS) Investigation Overview

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The presentation outlines the investigation into the National Student Financial Aid Scheme (NSFAS) by the Special Investigating Unit (SIU), focusing on alleged maladministration, improper conduct, and unlawful use of public funds. The SIU's mandate, vision, key skills, outcomes, and areas of investigation are detailed, emphasizing the fight against corruption and malpractice.

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DRAFT PRESENTATION TO THE SCOPA IN RESPECT OF THE NATIONAL STUDENT FINANCIAL AID SCHEME ( NSFAS ) PROCLAMATION NO. R. 88 OF 2022 18 April 2023 2

SIU MANDATE 3

SIU VISION AND MISSION 4

THE SIUs LEGISLATIVE MANDATE Empowering Legislation Special Investigating Units and Special Tribunals Act, 1996 (Act no. 74 of 1996) ( SIU act ). Vision Mission The State s preferred and trusted forensic investigation and litigation agency. We are the State s preferred provider of forensic investigating and litigating services working together with other agencies in the fight to eradicate corruption, malpractice and maladministration from society. Out of SIU Mandate SIU Powers Major Functions Arrest or prosecute offenders Investigate corruption, malpractice and maladministration Able to subpoena, search and seize evidence, and interrogate witnesses under oath (once a proclamation has been issued) Implement disciplinary actions Works closely with other relevant agencies where its powers fall short Institute civil proceedings Institute civil litigation to recover state funds lost or to prevent future losses 5

SIU METHODOLOGY Forensic Data Analytics Forensic Accounting Forensic Investigation Civil litigation Legal's Cyber Forensics SIU KEY SKILLS 6

SIU OUTCOMES CONSEQUENCE MANAGEMENT CIVIL LITIGATION Institute civil proceedings where there are potential recoveries of assets. Apply for preservation orders at an early stage of investigation where there evidence. DISCIPLINARY ACTION REFERRALS TO ESKOM PROSECUTION REFERRALS TO THE NPA REFERRAL TO OTHER REGULATORY AUTHORITIES SUCH AS: SARS CIDB is prima facie SYSTEMIC RECOMMENDATIONS 7

FOCUS AREAS OF THE INVESTIGATION The Special Investigating Unit ( SIU ) has been mandated in termsof No. Proclamation R88 of 2022 issued by the President and published in the Government Gazette No. 46789 on 26 August 2022 ( the Proclamation ), to conduct an investigation as set out in section 2(2) of the Special Investigating Units and Special Tribunals Act, Act No 74 of 1996 ( SIU Act ), in respect of the affairs of the National Student Financial Aid Scheme ( NSFAS ). The Proclamation mandates the SIU to investigate any alleged (a) serious maladministration in connection with the affairs of the NSFAS; (b) improper or unlawful conduct by the employees or officials of the NSFAS; (c) unlawful appropriation or expenditure of public money or property; (d) unlawful, irregular or unapproved acquisitive act, transaction, measure or practice having a bearing upon State property; (e) intentional or negligent loss of public money or damage to public property; (f) offence referred to in Parts 1 to 4, or section 17, 20 or 21 (in so far as it relates to the aforementioned offences) of Chapter 2 of the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004), and which offences were committed in connection with the affairs of the NSFAS; or 8

FOCUS AREAS OF THE INVESTIGATION (CONTINUED) (g) unlawful or improper conduct by any person, which has caused or may cause serious harm to the interests of the public or any category thereof, which took place between 1 April 2016 and the date of publication of this Proclamation or which took place prior to 1 April 2016 or after the date of publication of this Proclamation, but is relevant to, connected with, incidental or ancillary to the matters mentioned in the Schedule or involve the same persons, entities or contracts investigated under authority of this Proclamation, and to exercise or perform all the functions and powers assigned to or conferred upon the said SIU by the Act. The Proclamation must be read with the Schedule thereto. The Schedule provides for the investigation of the following matters: Maladministration in the affairs of the NSFAS in relation to - 1. (a) the management of the finances of the NSFAS; and (b) the allocation of loans, bursaries and any other funding payable to students in terms of the provisions of the National Student Financial Aid Scheme Act, 1999, Act No. 56 of 1999, and any related unauthorised, irregular or fruitless and wasteful expenditure incurred by the NSFAS or the State, including the causes of such maladministration. 2. Any unlawful or improper conduct by employees or officials of the NSFAS or the service providers in question, their employees or any other person or entity, relating to the allegations set out in paragraph 1 of this Schedule. 9

KEY OBJECTIVES The key objectives of the investigation, contained in the Schedule to the Proclamation, are as follows: To review the relevant procurement policies, procedures and practices that are applicable to NSFAS in order to ensure compatibility with the public sector prescripts; To review compliance with the prescribed legislation, regulations, policies, procedures, and directives in relation to the matters specified in the Schedule to the Proclamation; To identify irregular and/or unlawful conduct on the part of the NSFAS s officials and/or third parties in relation to the matters specified in the Schedule to the Proclamation; To collect lawfully admissible evidence with a view to facilitate the institution of disciplinary proceedings against complicit parties; To identify and quantify losses incurred by NSFAS in relation to the matters specified in the Schedule to the Proclamation; To pursue any applicable civil action, including action involving the cancellation of agreements, recovery of losses and/or undue payments made, etc, due to financial mismanagement and/or maladministration in relation to the matters specified in the Schedule to the Proclamation; To provide recommendations for possible disciplinary and/or criminal actions against implicated officials and/or parties; To facilitate the potential registration of criminal cases with the NPA; and To provide recommendations on improvements of systemic weaknesses identified in order to ensure that the irregular/unlawful conduct in question is detected and/or prevented in the future. 10

PROGRESS UPDATE 11

FOCUS AREA The SIU investigation commenced on 02 September 2022 and we estimate that the investigation to take approximately 18 months to complete. Numerous internal audit reports, forensic reports and other reports, as well as the Ministerial Committee of Inquiry s report dated August 2021 have been obtained and perused. THE INVESTIGATION FOCUS ON THE FOLLOWING: Incorrectly funded students NSFAS Financial Management Systems 4 projects The Close Out Reports per Institution overpayments to institutions 12

INCORRECTLY FUNDED STUDENTS This are students whose household income is above R350 000 and therefore would not qualify for NSFAS funding based on the funding rules. This students did not submit their parent's details upon application and therefore the means test was not properly conducted. Progress to date We have interviewed several affected students and parents to obtain addition information. Some students admitted that they did not qualify to receive the NSFAS funding. We are in the process of obtaining further data and calculate the amount received by the non-qualifying students. 13

INCORRECTLY FUNDED STUDENTS - STUDENTS WHO DID NOT QUALIFY FOR BURSARIES BREAKDOWN PER PROVINCE PROVINCE EC Free State Gauteng KZN Limpopo Mpumalanga NC North West WC TOTAL INSTITUTIONS 12 6 15 13 9 4 3 4 10 76 STUDENTS 3842 2688 17788 4409 2291 666 304 2575 5481 40 044 COST 2018 TO 2021 R597 792 612,00 R399 873 478,00 R1 992 784 618,00 R607 041 637,00 R282 357 730,00 R55 020 082,00 R22 431 433,00 R361 722 154,00 R787 537 829,00 R5 106 561 573,00 14

INVESTIGATION INTO THE NSFAS FINANCIAL MANAGEMENT SYSTEMS WESTERN CAPE PROVINCE MATTER DESCRIPTION SUB-FOCUS AREA The various IT systems used by NSFAS or i.r.o NSFAS funds (i.e. including the Cellbux system and the use of vouchers and voucher services) and taking and/or recommending corrective measures and/or suitable action. (With consideration of existing reports such as the Ministerial Committee of Inquiry dated August 2021.) Various procurement related matters Once scoping is finalised more details will be reported on. STATUS Considering the extent of the investigation ahead, it is at a very early stage. Over and above identification of flaws in the systems, it will inter alia entail identification and quantification of damage potentially suffered i.r.o. thousands of vouchers issued and voucher services rendered i.r.o. thousands of students over an extensive period of several years. Investigation will entail identification and quantification of potential overpayments and undue payments over a period of 7 years resulting from the flaws in the systems concerned. Investigation has commenced, but is at an early stage considering the amount of scoping involved. Identification of the flaws, weaknesses (including susceptibility to hacking and other abuse and/or risks) related to these systems The financial management system(s) used by NSFAS Identification and recovery of monies unlawfully paid to students and/or owing by students whether as a result of fraudulent misrepresentations made by applicants or other unlawful conduct, etc. Investigation i.r.o. individual matter to commence. Flaws and weaknesses in systems referred to above, etc. to be assessed first. Loans and bursaries to students 15

THE CLOSE OUT REPORTS PER INSTITUTION - OVERPAYMENTS TO INSTITUTIONS NSFAS failed to design and implement controls to ensure that there is an annual reconciliation between the funds disbursed to the institutions and the allocation of those funds to the students. This control weakness led to overpayments and underpayments of funds to the different institutions for the period 2017 to date, however they have recently appointed a service provider to assist them perform this reconciliation in a process called close out reporting . The investigation and/or verification of so-called Close Out reports and/or supporting documentation received from the NSFAS has commenced. This exercise comprise the reconciliation of the funds disbursed by NSFAS to institutions with the amounts that were actually due with a view to calculate and recover potential over-disbursements and/or amounts due to NSFAS or indicate the amount still owed to the institutions. However, the reconciliation process is in its initial phase as further reconciliations and verifications are underway. A pilot exercise with regard to two institutions has commenced. Based on the following table the provisional figure before confirmation by the SIU indicates that NSFAS is due a refund of around R326 242 112.61 16

PRELIMINARY NSFAS CLOSE OUT REPORT FIGURES PER PROVINCE (STILL AWAITING SIU VERIFICATION) Eastern Cape 12 PROVINCE NO. OF INSTITUTIONS REFUND/(PAYMENT)(R) 418 348 144.89 Gauteng 15 99 857 585.42 Kwazulu-Natal 13 290 730 786.46 Limpopo 9 (106 148 266.82) Mpumalanga 4 37 397 549.21 North West and Free State 10 (188 286 138.38) Northern Cape 3 42 825 190.39 Western Cape 10 (268 482 738.56) TOTAL 76 17

OUTCOMES TO DATE FROM PILOT OUTCOME NUMBER/ AMOUNT DATE REFERRED DESCRIPTION STATUS UPDATE Rand value of actual cash and/or assets recovered R33 489 884 02 November 2022 Recovery of funds due to NSFAS from an institution in the Western Cape. Deposit confirmed into SIU Trust Account. Rand value of actual cash and/or assets recovered R5 057 679 6 March 2023 Recovery of funds due to NSFAS from an institution in the Western Cape. Deposit confirmed into SIU Trust Account. Rand value of actual cash and/or assets recovered R342 672.50 24 March 2023 Recovery of funds due to NSFAS from an institution in the Mpumalanga province. Deposit confirmed into NSFAS Bank Account. TOTAL R38 890 235 18

OBSERVATIONS NO DESCRIPTION 1 In the past it was difficult for the NSFAS to identify fraudulent applications for student loans and/or bursaries inter alia - as they did not have access to systems such as SARS, Home Affairs, ITC etc. At this stage it seems that there is an improvement in their access to such information which puts them in a better position to verify the accuracy of the representations made in the applications (e.g. representations pertaining to income, family relationship, etc). 2 Inherent weaknesses and flaws in IT systems has prevailed. Systems are vulnerable and can be hacked with relative ease, resulting in (inter alia) the creation of fictitious students, payments being made to such fictitious students and/or to unauthorised persons. 3 Application documents were requested from certain institutions and provided timeously, although some were incomplete. 4 Payment information in respect of students have also been obtained. 5 Meetings were arranged with the Principals of Colleges and the Vice Chancellor of different University to discuss the purpose and scope of the investigation. 6 Historical problems with the payment of landlords for student accommodation. 7 Excess payments received outside the proclamation period (from 2013) 8 The lack of procedures to perform proper reconciliation of the funds disbursed to students and the funded list. This has lead to NSFAS hiring consultants to perform this reconciliation for them in the form of what is called the close out report , the consultants were hired to cover the period 2017 to date. 9 Involvement of syndicates in student accommodation. 19

POTENTIAL SYSTEMIC RECOMMENDATIONS DESCRIPTION NO ITEM 1 Once the areas of weaknesses are identified, it is important to develop a comprehensive security policy that outlines the security controls that needs to be implemented. This policy should cover everything from user access control to password management, segregation of duties, user activity logs (server logs), and data backup. If such a policy exists at present, it should be reviewed as part of effective ICT Governance. Development of a Comprehensive Security Policy 2 Role-based access control (RBAC) is a security model that restricts access to resources based on the roles and responsibilities of individual users within an organisation. Implementing RBAC can assist in controlling access to sensitive data and limit the damage caused by unauthorized access. Implement Role- Based Access Control 3 Educating NSFAS employees about security best practices is crucial to maintaining a secure environment and can assist to with the risks associated with poor user control and help them identify potential security threats. Conduct Regular Security Training 4 The implementation of a user activity monitoring system can assist NSFAS to identify suspicious behavior and potential unauthorised access to systems containing sensitive and financial data. This should include the monitoring login attempts, user activity, and changes to the database or server configuration. Monitor User Activity 5 The lack of procedures to be able to perform proper reconciliation of the funds disbursed to students and the funded list. Internal Audit must perform a root cause analysis of the misalignment between the funded student list that NSFAS has and the one that the Institutions has. Financial Reconciliations 20

PROJECT TEAM AND COSTS ESTIMATES Number of Resources Rank Commitment as per Manager for the Group Total hours per month Charge Out Rate Total Cost Estimate CHIEF FORENSIC INVESTIGATORS PRI (CYBER) FOR INV FORENSIC INVESTIGATORS CHIEF ADMIN OFFICER: INVESTIGATIONS CHIEF ADMIN OFFICERS: INVESTIGATION FORENSIC INVESTIGATION SPECIALIST 50.00% 7.50% 50.00% 20.00% 1,300 12 1,950 260 R990.00 R1,385.00 R730.00 R275.00 R1,287,198 R16,882 R1,423,719 R71,511 16 1 24 8 50.00% 163 R275.00 R44,694 2 80.00% 130 R1,385.00 R180,078 1 PRINCIPAL FORENSIC INVESTIGATORS 30.00% 390 R1,230.00 R479,774 8 FORENSIC ACCOUNTANT FORENSIC DATA ANALYSTS CHIEF FORENSIC LAWYERS PRINCIPAL FORENSIC LAWYER 50.00% 5.00% 15.00% 10.00% 81 16 195 16 R1,385.00 R1,385.00 R1,200.00 R1,530.00 R112,549 R22,510 R234,036 R24,866 R3,897,817 1 2 8 1 72 R70,160,702 TOTAL COST ESTIMATE FOR DURATION The above is merely a projection based on estimates. In practice, the actual recoverable costs are usually lower. It is noteworthy that the SIU has already recovered R38,9 million during the pilot project 21

SIU RATES DETERMINATION The SIU charge out rates in the previous slide were historically determined by utilizing the Auditor General s methodology of calculating recovery rates based on actual salary costs and a factor to arrive at a recovery rate per hour, and discounting it by 40% for the SIU The SIU rates have not been increased for the last 9 years During the 2023/24 financial year, a full rate review will be undertaken and a formal benchmark with the private sector will also be done 22

SIU RATES DETERMINATION PRIVATE SECTOR SIU PANEL Name of the company No Description of Services Appointment of Project Manager to manage forensic investigations projects in the Energy industry/sector Appointment of Project Manager to manage forensic investigations projects in the Energy industry/sector Appointment of Forensic Accountant for PPE Appointment of Forensic Accountant for PPE Appointment of Project Manager for PPE Appointment ofProcurement Specialist PPE Appointment of Procurement Specialist for PPE Appointment of Procurement Specialist for PPE Appointment of Procurement Specialist for PPE Appointment of Procurement Specialist for PPE Appointment of Procurement Specialist for PPE Appointment of Procurement Specialist for PPE Appointment of Forensic Accountant for Eskom Appointment of Forensic Accountant for Eskom Proclamation/Investigation Role Rate Per Hour 1 Proclamation R3 of 2020 - Eskom Company G Project Manager R1 295.00 2 3 4 5 6 7 8 9 Proclamation R3 of 2020 - Eskom National - R23 of 2020 PPE/National - R23 of 2020 PPE/National- R23 of 2020 PPE/Gauteng - R23 of 2020 PPE/Gauteng- R23 of 2020 PPE/Gauteng - R23 of 2020 PPE/Polokwane - R23 of 2020 PPE/National - R23 of 2020 PPE/National - R23 of 2020 PPE/North West -R23 of 2020 Proclamation R3 of 2020 - Eskom Proclamation R3 of 2020 - Eskom Company C Company A Company A Company G Company A Company A Company F Company F Company F Company E Company E Company A Company A Project Manager Forensic Accountant Forensic Accountant Project Manager Project Manager Procurement Specialist Procurement Specialist Procurement Specialist Procurement Specialist Procurement Specialist Procurement Specialist Forensic Accountant Forensic Accountant Procurement specilaist/investigations Project Manager Project Manager Procurement specilaist/investigations Procurement specilaist/investigations R1 520.00 R1 690.00 R1 690.00 R1 395.00 R1 060.00 R1 060.00 R1220.15 R1220.15 R1006.25 R1 380.00 R1 500.00 R1 670.00 R1 150.00 10 11 12 13 14 16 17 18 Appointment of a procurement specilaist/investigations Appointment of Project Manager Appointment of Project Manager Proclamation R 40 of 2020 : Two SCM Experts Proclamation R11 of 2018 - Transnet Company F Company C 3 Company G R1 220.00 R1 520.00 R1 295.00 19 Appointment of a procurement specilaist/investigations Proclamation R3 of 2020 - Eskom Company E R880 20 Appointment of a procurement specilaist/investigations Proclamation R3 of 2020-Eskom Company E R1 890 24 25 26 28 29 Appointment of a procurement specialist/investigations - Master Court. Appointment of foresnsic Accountant for Transnet Project Appointment of a digital (cyber) forensic expert - transnet investigation Appointment of Quantity Surveyor Services Appointment of Quantity Surveyor Services Proclamation R7 of 2020 Proclamation R11 of 2018 - Transnet Company F Company D Company C Company B Company B Associate Director Forensic Accountant digital (cyber) forensic expert Quantity Surveyor Quantity Surveyor R1 150.00 R1 725.00 R1 633 R900.00 R1150.00 Procurement Specialist/Investigator Analyst Specialist Procurement Specialist 31 34 35 Appointment of a procurement specilaist/investigations Appointment of Forensic profiler, analyst and researcher Appointment of Procurement Specialist for PPE SAA Investigation Proclamation R7 of 2014-DRDLR Proclamation R11 of 2018 - Transnet Company A Company A Company H R 1,295.00 R1,355 R 1,250.00 23

CHALLENGES AND RISKS RISKS TABLE NO RISK 1 Possible lack of co-operation from relevant officials. 2 Possible destruction or loss of relevant documents. 3 Loss of memory by affected officials. 4 Possible intimidation of witnesses. 5 Whether the defendants would not be able to pay for civil MITIGATION Utilize the SIU powers Conduct search and seizure Identify additional witnesses Utilize the services of the Witness Protection Unit Conduct lifestyle analysis recoveries. Prescription of claims. Volatile climate in respect of students at Institutions of Higher 6 7 Refer matter to the Assets Forfeiture Unit Conduct interviews and consultations outside the Learning. Institution of Higher Learning 24