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NSFAS terminates direct-payment service providers’ contracts

Simnikiwe Mzekandaba
By Simnikiwe Mzekandaba, IT in government editor
Johannesburg, 19 Oct 2023
The NSFAS has adopted the recommendation to terminate the contracts of all four direct payment service providers.
The NSFAS has adopted the recommendation to terminate the contracts of all four direct payment service providers.

The National Student Financial Aid Scheme (NSFAS) board has decided to cut ties with the fintech partners selected to disburse monthly allowances to tertiary students.

This, after an investigation into allegations surrounding their appointment to facilitate the direct payment of allowances to NSFAS students uncovered “conflict of interest”.

The NSFAS board appointed Werksmans Attorneys and advocate Tembeka Ngcukaitobi to investigate allegations against suspended CEO Andile Nongogo and the appointment of the four fintech partners, to assist the NSFAS to administer direct payment services to students.

Detailing the findings of the investigation at a media briefing yesterday, chairperson Ernest Khosa said the board has adopted the recommendations of the report and took a resolution to implement them.

Khosa noted the board wrote a letter to the CEO and gave him a copy of the report. Additionally, it met with the representatives of the four direct payment service providers, to bring the content of the report and its implication to their attention.

The four fintech firms are Coinvest, eZaga Holdings, Noracco Corporationand Tenet Technology.

As a result of the investigation’s findings, Khosa said the board has, among other measures, decided to: “Advise all the four direct payment service providers that their contracts will be terminated.

“As we’ve indicated, we’ve already spoken to the direct payment service providers…there’s further room for engagement with them but all that will be within the law and within the context of the recommendation of the investigators that found their appointment was irregular.”

Despite the challenges in the implementation of the direct payment system, the board remains committed to implementing it, said the chairperson.

“The board views the direct payment solution as a necessary measure to reduce instances of unauthorised access to beneficiaries’ allowances. Payment of ghost students, inconsistencies and delayed payments of allowances were some of the challenges that were faced.

“Having said that, the board has noted there was no feasibility study before the current implementation of the direct payment system, particularly the justification for the appointment of the four service providers.

“There was no reason furnished to the investigators why the feasibility study was not conducted, which is a critical part of the project preparation, or for the implementation of the project.

“Such an assessment would have enabled the NSFAS to make an informed decision on the proposed solution, and evaluate the practicability and chances of success of the proposed direct payment solution.”

According to Khosa, the NSFAS board has also taken note that the investigation report indicates there was an amendment to the bid specification to include fintech companies, which resulted in drastic changes in the mandatory requirements of the original bid.

“These changes would have required deeper analysis to be conducted on, among others, the need to appoint four fintech companies and their value-added services, the service direct costs to students, and the details and cancellation of the 2020 tender, which was a precursor to this bid under investigation.”

The investigation report established Nongogo actively participated in the presentation to the bid evaluation committee (BEC) of proposals by service providers – a material violation of public procurement processes of the NSFAS, which he was employed to safeguard and uphold.

Further, it found that the CEO appointed someone it identified only as “Dr Chirwa” to assist the BEC as a technical advisor.

“This appointment was inherently incorrect, as the 2021 supply chain management (SCM) policy does not provide for the appointment of an expert to the BEC.

“The report noted the aforementioned SCM policy and position was altered in the 2023 SCM policy to cure the defect of appointing Dr Chirwa in the BEC when the 2021 SCM policy did not provide for such.

“What is more noteworthy is Dr Chirwa’s association with certain companies that were appointed as service providers, both at the Service SETA (SSETA) and at the NSFAS.

“The companies in reference are eZaga, in which eZaga Remit is a subsidiary, Africawide Consulting and Africawide Foundation.”

The investigation report also flagged a possible relationship between Nongogo and Coinvest and eZaga. “Another concern raised in the report is the inability of not conducting a thorough due diligence of the service providers.

“For an example, in its presentations, Tenet Technology mentioned they would be subcontracting to a company known as Coralite. The investigators conducted a CIPC search on the company and the search revealed that some directors of Tenet Technology are the same directors of Coralite. This clearly indicates there is a relationship between the directors of Tenet Technology and Coralite.”

Ernest Khosa has resigned his role as NSFAS board chairperson.
Ernest Khosa has resigned his role as NSFAS board chairperson.

An entity of the Department of Higher Education and Training, the NSFAS runs a close to R50 billion annual budget, providing financial aid to eligible students at public TVET colleges and public universities.

The NSFAS has, however, faced a number of challenges over the years, including IT system failures and mismanagement within the scheme, and more recently, leadership instability.

Khosa noted that when something goes wrong at the NSFAS, it immediately affects 1.1 million students, and when factoring in parents and siblings, it affects more than six million people at a go.

The newly-implemented direct payment system resulted in the scheme being at odds with students on issues and allegations relating to the system.

Beneficiary students expressed their discontent over the direct payment system, engaging in protest action, as well as filing complaints with the Public Protector and the South African Human Rights Commission.

There were also cyber security threats posed by the direct payments to students, with the NSFAS revealing cyber criminals tried to gain unauthorised access to its payment infrastructure and that of its fintech partners.

At the time, Khosa expressed concern at the rising levels of targeted attacks on the student aid scheme’s payment partner companies, as hackers repeatedly tried to gain control of sensitive student data. The attacks had targeted the websites where beneficiaries’ accounts were hosted.

Responding to ITWeb’s request for comment on the allegations levelled against it, eZaga says it’s “deeply disappointed by NSFAS's decision to terminate its tender to disburse payments to student beneficiaries at select universities and TVETs. The allegations made against eZaga have raised significant concerns, including questions about the fairness and legality of the proceedings.

“eZaga strongly denies any association with or connection to Mr Nongogo before the tender was awarded. eZaga was awarded the tender having met all the necessary tender specifications and has consistently delivered on these requirements.

“As a result of the allegations made, eZaga is in the process of engaging legal counsel to address and respond to these accusations appropriately.”

eZaga says its primary concern remains the students who rely on the payments. “Their well-being and access to financial support is paramount, therefore, eZaga is fully committed to working closely with NSFAS to thoroughly investigate the allegations that led to this contract termination and ensure the students' needs are met.”

The other three providers had not responded to ITWeb’s request for comment by the time of publication.

Meanwhile, the Organisation Undoing Tax Abuse (Outa) welcomed the board’s decision to accept and implement the findings and recommendations of the Werksmans report on the NSFAS direct payment scheme.

Advocate Stefanie Fick, director of Outa’s accountability division, says: “Transparency is key in a democratic society. We look forward to reading the full report.”

Fick adds that the report vindicates students who complained about the scheme not functioning properly.