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NSFAS Financial Year End Audit Results and Improvement Plan

This report presents the financial year end results of NSFAS and highlights the auditor's disclaimer, technical financial reporting requirements, limitations in debtor management systems, and limited financial skills and capacity. The report also outlines the organization's improvement plan to address these issues.

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NSFAS Financial Year End Audit Results and Improvement Plan

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  1. 31st March 2010 Financial Year End Results The Annual Report hereby submitted includes: • A strong balance sheet incorporating a conservative impairment and provision for doubtful debts incorporated into the student loans outstanding. • The Impairment is an element of financial reporting required to adjust the value of loans reflected in the loan book as the recoverable value of the loan is affected by various factors. • The financial performance includes continued strong growth in bursary awards made over the reporting period.

  2. 31st March 2010 Financial Year End Audit outcome • The Auditor-General SA has issued a disclaimer for the past financial year largely as a result of a technical Accounting reporting nature. • The factors contributing to the AG SA Disclaimer of Audit Opinion includes: • Technical Financial Reporting Requirements • Limitations in the Debtor Management systems and processes • Limited financial skills and capacity within the organization. • The Board together with the Management has taken this audit outcome very seriously and therefore adopted an Audit improvement plan.

  3. 31st March 2010 Financial Year End Audit outcome Technical financial reporting Requirements: • Prior to the commencement of the past annual audit the NSFAS proactively retained the services of a service provider to undertake a technical financial reporting review that revealed a number of new technical financial reporting standards which became effective and applicable to the NSFAS for the first time in the past financial year such as the recognition and measurement of financial instruments per IAS39, GRAP 9 revenue from exchange transactions; • Compliance to IAS 39 require the determination of fair value recognition and measurement of the student loans using a valuation technique such as a discounted cash flow comparative calculation using both the subsidised interest rate and a market rate. The challenge with this method for the NSFAS is that there is no readily available/observable comparative market rate for similar type of instruments and given the loans are income contingent with no discernable amortising profile. The management recommendation of transaction/face value as appropriate financial instrument fair value financial reporting and disclosure therefore resulted in a disagreement with the AGSA.

  4. 31st March 2010 Financial Year End Audit outcome Technical financial reporting Requirements (cont): • The NSFAS has historically always recognised accrued interest on student loans in the annual financial statements only from the point onwards when the student exits and repayments commenced. This represents a departure from GRAP 9 as it impact on existing student loan agreements. The original intention was not to capitalise interest on student loans whilst the students are still studying. • The current interest accrual policy is under review and this would also consider the impact on this technical requirement and inform the management response. • The impairment and provision for doubtful debts was undertaken by management for the purposes of financial reporting only and within the operational systems limitations. The NSFAS remains committed to the recovery of all loan funding outstanding.

  5. 31st March 2010 Financial Year End Audit outcome Limitations in the Debtor Management systems and processes • Historically the NSFAS has always applied repayments to the overall outstanding balance without a split between capital and interest within the repayments. This has valuation implications and will be changed in the current financial year. • As part of a loan book review undertaken by management that informed the impairment and provision for doubtful debts for financial reporting purposes certain assumptions and management estimates were made. Given that this is the first such review undertaken by the NSFAS it has revealed the absence of meaningful historical data that supports the assumptions and estimates used namely data on default and delinquency rates, loss given default, etc. amongst others.

  6. 31st March 2010 Financial Year End Audit outcome Limited financial skills and capacity within the organization. • Annual awards Allocations budget has doubled in the past 4 yrs whilst the skills level, staffing and systems and resources have not changed meaningfully over the same period. • The NSFAS staff complement does not have all the required skills and proficiencies for the sound management of the current level of funds under management especially the finance function. • Regular and periodic financial reporting reconciliations have not be undertaken diligently during the period under review leading to significant unreconciled items at financial year end.

  7. 31st March 2010 Financial Year End Audit outcome The NSFAS Audit Improvement response plan which incorporates both immediate actions as well as medium to long term actions includes the following key items; • An re-organization of the finance function as part of the overall organization wide re-organization to optimally structure the division inclusive of consultations with staff and skills audit. • The appointment of a number of key staff in addition to other proficient skills within the finance area: • Chief Financial Officer CA(SA) • Chief Audit Executive CA(SA) • Legal Advisor and Company Secretary • Special Projects Executive • Chief Information Officer • A data analysis and verification project has been initiated to both validate the completeness and accuracy of the debtors database as well as all the transaction calculations. • ICT interventions which includes business systems and software renewal project to replace current legacy systems and automate monthly reporting

  8. 31st March 2010 Financial Year End Audit outcome The NSFAS Audit Improvement response plan which incorporates both immediate actions as well as medium to long term actions includes the following key items (cont); • Various policy interventions which includes a comprehensive debtor management policy, Institutional Escalation Protocols, institutional management policy, amongst others to inform operational procedures and management methodologies; • Engagement with the Office of the Accountant General, the Accounting Standards Board and the Auditor General in respect of the technical reporting requirements and the applicability to the NSFAS income contingent loan scheme debtors. • Wholesale review of the awards administration processes operationally and with the Institutions and Colleges with a view to increase the operational efficiencies for processing of awards to be finalised earlier in in the academic year. In addition the awards administration manual that the NSFAS makes available and provides training to institutions is expected to be revised and substantially updated to improve delivery from HEI and FET Colleges

  9. 31st March 2010 Financial Year End Audit outcome The NSFAS Audit Improvement response plan which incorporates both immediate actions as well as medium to long term actions includes the following key items (cont); • New Automated Integrated System – intended to replace the current Legacy database platform (LMS) with automated document handling functionality and a suitable debtors management module all involving new IT architecture; • Automated Systematic Validations – Including direct validation of various data inputs such as SARS data, Home Affairs data, HEMIS amongst others particularly at the origination of applications; • Institutional Support Team – intended to provided limited interventions at HEI’s and FET Colleges. • Graduate Development Program – including a focused annual 12 month program for recent NSFAS staff and NSFAS unemployed graduates and offer placement to certain graduates according to both performance and operational requirements. • International Benchmarking – including an international study tour to understand best practices in student financial aid models in developing and developed economies

  10. 31st March 2010 Financial YearUtilisation of Funds Performance • Significant improvement in utilisation of funds available for student financial aid • -Main pool of funds for loans – Dept of Education General – R10 m unused vs R37 m in previous year • -Funds for students with disabilities – R25 m disbursed vs only R7 m disbursed in previous year • -FET College bursary funds – less than R1 m unutilisedvs R12 m unutilised in previous year • Total unutilised across all categories of funds = 2% of available funds • Reflects progress in initiatives implemented for monitoring and management of unutilised funds

  11. 31st March 2010 Financial Year Utilization of Funds Performance Improvement in the receipting and processing of loan agreement forms and bursary schedules: • 90% received to date (in 2009, at 67% at same point in time) • 86% processed to date (in 2009, at 65% at same point in time) Revised work-flow which has improved the turn-around time for processing. Weekly monitoring of performance against pre-defined targets for the processing of forms – from point of receipt to point of payment to institution. Strict monitoring of institution claim patterns towards close on the 15th December 2010 (one-and-a-half months earlier than 2009 close) More regular communication through official NSFAS circulars to the Financial Aid Offices.

  12. 31st March 2010 Financial Year Utilization of Funds Performance Disability Funding Consistent R-value spend in the region of R25m to R30m since 2005 (see chart below): New initiatives between NSFAS, DHET and HEDSA to determine how better to identify and channel students with disabilities into the bursary programme. Improvements in the disability guidelines to facilitate an easier, more efficient process within institutions.

  13. Growth in the NSFAS loan book 2006 to 2009

  14. 31st March 2010 Financial Year Utilization of Funds Performance

  15. 31st March 2010 Financial Year Utilization of Funds Performance

  16. OTHER IMPORTANT INFORMATION FOR THE PAST YEAR Demographic information - NSFAS staff

  17. OTHER IMPORTANT INFORMATION FOR THE PAST YEAR Demographic information - NSFAS staff

  18. OTHER IMPORTANT INFORMATION FOR THE PAST YEAR

  19. OTHER IMPORTANT INFORMATION FOR THE PAST YEAR Demographic information – Awards by province, race and gender

  20. OTHER IMPORTANT INFORMATION FOR THE PAST YEAR

  21. Questions?

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