In April 2012, the department received a comprehensive interim report from Marumofase Fivaz Security Solutions (Pty) Ltd relating to the status of the investigations into subsidies in some independent schools. This press conference is to present an updated report.
On 5 October 2011, LEAD SA referred a matter to the department. The matter related to the alleged abuse of subsidies by of the owners of Ekhukhanyeni Schools in Ramaphosa and Denver. The department appointed a registered audit firm to investigate the allegations of financial irregularities. Subsequently, LEAD SA, revealed that the owner of the same schools attempted to bribe their reporters and that they, together with the South African Police Service, assisted in his arrest. As prima facie evidence came to the fore suggesting the actions of the owner were fraudulent in nature, the Department appointed George Fivaz to undertake a full forensic audit at the two schools.
Rapid Audit of the 205 subsidised schools and actions taken
In response to the potential risk of similar mismanagement of subsidies in other schools, the department, in October 2011, undertook a rapid assessment of all 205 subsidised schools for compliance with the conditions for subsidies. The scope of the rapid assessment on subsidised schools was to determine if subsidised schools complied with the conditions related to, inter alia, the qualification of teachers, utilisation of the subsidies and the current registration status of legal entities operating independent schools. An external audit firm was also appointed to audit the finances in all 205 schools.
Subsidies to all schools were withheld pending the outcome of the rapid assessment and the outcome of the financial audits
Out of the rapid audit of the 205 subsidised independent schools, these were the following findings:
- 112 schools were found to be compliant and had the right financial management systems in place. They then received their subsidies in December 2011.
- 57 schools were found to have minor issues that could be addressed with the implementation of policy or controls. These schools were given the opportunity to present improvement plans and were subsequently paid their subsidies in December 2011.
- 36 schools were then referred to George Fivaz for a full forensic audit. 30 of these schools received their last subsidy payment for 2011/12 in March 2012 with conditions.
Progress to date:
1. Forensic Audit by George Fivaz and Actions Taken
From the 36 schools referred to George Fivaz, the following progress has been noted:
- Two schools were deregistered – Our Investigation revealed alleged serious fraud, corruption and non-compliance with the conditions for registration and subsidies in both Ekhukhanyeni Schools in Ramaphosa and Denver. During the period, following the arrest of the owner on alleged bribery charges, the department and its investigators have been working closely with the specialised units of the South African Police Service. The report from the investigation by George Fivaz has been handed over to the Police and the department has laid additional charges against the owner. After following due process with the owners of the schools, the schools were deregistered. The criminal investigation against the owner of the two Ekukhanyeni Schools, Pastor Josias Mabaso, is still in progress. One departmental official has been suspended and has been charged criminally for serious irregularity, corruption and contravention of policy.
- Five schools had sufficient financial management and controls in place and subsequently received their subsidies in April 2012.
- Seven schools were found to have serious instances of financial mismanagement. The findings from this investigation suggest that at this stage these schools do not have the ability to manage their own finances. The department, in the interests of the education of the children enrolled in the affected schools, formally proposed that the affected schools voluntarily place themselves under administration. This process will involve the department appointing independent administrators to receive the schools subsidy and undertake all financial management on their behalf.
- Four schools have voluntarily requested the appointment of an administrator. These schools are Mahlasedi High School, Ithuba-Lethu Secondary School, and New Model Private. Phakamani Education Centre is still to confirm whether it accepts the condition of the administrator. The department has appointed administrators for these schools. The administrator will assist the schools in correcting all irregular practices by putting in place financial policies, controls and accountability procedures. The administrator will also ensure that expenditure is in line with the educational objectives and will ensure that all teachers are paid on time.
- Three schools, Chrystal Springs Private School, Sinqobile and Vutomi, have rejected the offer from the department. We have referred two of the three schools to the South African Police Services for further investigation. The Department is proceeding with the withdrawal of subsidies as provided for in Notice Number 2147, Regarding Subsidisation of Independent Schools. As I am the appeal authority in this matter, I would not at this stage want to prejudge the outcome of the steps the department is taking against these schools, or the recourse they have in this regard.
- Forensic investigations into the remaining twenty-two schools are still in progress and the first quarter subsidy payments for 2012/13 have been made. To ensure proper utilisation of the subsidies in these 22 schools (and all the other subsidised schools) whilst Fivaz completes his work, the department has conducted two site inspections in each school to ensure that the funds transferred are being used in ensuring quality education. We will also use the inspectorate we are establishing to perform financial oversight over these schools until the final outcome from Fivaz is received.
This means that only 18% of the 205 subsidised independent schools required further forensic investigation of their subsidies.
2. Organisational and Policy Changes to improve centralised and specialist capacity
At the time when this incident occurred, the responsibility for inspecting independent schools was decentralised to district level and carried out by the district-based Institutional Development and Support Officer (IDSO). The findings suggest that it would be preferable to centralise the inspection of independent schools to ensure regular and standardised inspections. The findings also point to the weakness and gaps in policy. This would need to be strengthened to ensure uniformity and consistency in application.
To address the organisation and policy gaps, the department has:
- Established an inspectorate for independent schools using in-sourced expertise to provide an end-to-end service to audit the finances of subsidised independent schools, establish operational standards, and check for compliance through rigorous monitoring through announced and unannounced visits. The inspectorate will also detect potential instances of fraud early on;
- Centralised the functions related to the regulation of independent schools at the Head Office level and districts will no longer be expected to manage the independent schools within their boundaries;
- Increased its internal capacity for the regulation of independent schools through rigorous monitoring of all other registration conditions by means of announced and unannounced visits. The department will also introduce specialised capacity to ensure tighter monitoring of independent schools; and
- Drafted revised regulations, as provided for in terms of Sections 46 and 50 of SASA, to replace Notice Number 2147 of 2004 relating to the Notice Regarding Subsidisation of Independent Schools and Notice Number 2011 of 2004 relating to the Notice Regarding the Registration and Withdrawal of Registration of Independent Schools. The new regulations will improve the regulation of the independent schools sector.
Plans moving ahead
The provision of quality education is a top priority for this government. Owners of independent schools have a great role to play in supporting government in this initiative. We commend those schools that are using the subsidies for their intended purpose.
We will be reviewing the registration status of all the schools where we are initiating steps to withdraw subsidies. As a department, we try to strike a careful balance between the interests of parents and learners who attend independent schools as well as the interests of taxpayers who are subsidising these schools. Closing a registered independent school is not a decision we take lightly.
We will report back on the outcome of the remaining 22 schools in due course. It is estimated that the work will take six months to complete.
We are committed to ensuring that the independent school sector plays its role in delivering quality education in the province. The measures we have put in place, including the inspectorate, will ensure that the department plays its part in ensuring full compliance with the policy and regulatory framework of government.