CHAPTER FIVE

Funding

1. Introduction

A funding framework involves the determination of national priorities, objectives, targets and plans. It requires the definition of quality and can promote equity, efficiency gains and value for money, as well as the responsiveness and accountability of providers. It may embody a set of incentives that encourage certain types of responses and discourage others. A well-designed public funding framework can mobilise and optimise complementary private resources.

2. The present funding system

2.1 The Ministry notes with concern the finding of the NCFE that funding for FET is sub-optimal and, despite some positive features, displays many negative characteristics:

2.1.1 Lack of funding coherence: Different, unconnected funding mechanisms operate in the FET band, at national and provincial levels and across different departments of state. Without an over-arching funding strategy for FET, linked to a clear national policy, the funds available are not used to best effect.

2.1.2 Poor information: Data deficiencies even in the public sectors of schools and colleges are considerable, and there is no universal, reliable, comparable, up-to-date information about private providers. As a result, both financial planning and accountability are weak and the dearth of published information means that learners are unable to make informed choices concerning programmes or providers.

2.1.3 Inadequate and skewed funding: Funding of public sector FET providers has been extremely unequal, with most historically black institutions receiving poor levels of funding. As a result many FET institutions have been unable to function effectively.

Skewed funding is another problem. Funding of the 2.2 million learners in senior secondary schools absorbs 72 per cent of all FET expenditure. There is very little training of the unemployed and highly variable training of and expenditure on the employed.

2.1.4 Low rates of return: Low returns on the considerable investment of public and private resources in FET are cause for serious concern. Pass rates of 50 per cent in school-leaving examinations and the irrelevance of most of the curriculum to work have become the norm. Few training schemes have proved effective in securing jobs or self-employment for the unemployed, while training for the employed has generally failed to impart the generic competences that allow for transferable skills and lifelong learning.

2.1.5 High inefficiency: In many institutions, neither staff nor students put in a full school day. Resources are not used optimally. High repetition rates especially in senior secondary schools result in huge additional throughput inefficiencies. It has been calculated that the system invests 36 learner years of effort to produce one Grade 12 pass.

2.1.6 Weak and perverse incentives: There is only one tax incentive relevant to FET: section 18A of the Tax Act of 1962 provides tax relief for donations to certain educational institutions and funds including schools and colleges. Other forms of incentive, such as state technical assistance for companies who wish to train, are noticeably absent. There is no financial incentive for providers to address the learning needs of students from disadvantaged backgrounds, or those with other special needs.

Funding mechanisms also present no incentive for institutions to increase their efforts to enable students to pass. It is estimated that the cost of the repeats in Grades 10-12 is as much as R1,7bn - 17 per cent of all the funds expended on FET. Conversely, perverse incentives encourage institutions to expand provision in areas which are out of keeping with the country's needs.

2.1.7 Sectoral funding: Most public funding of FET is sectoral, allocated by the provincial education departments to the college/school (CS) sector. This type of full funding of activities provides no incentive to institutions to respond to the demands of the market.

2.1.8 Predominance of supply-side funding: In supply-side funding the money follows the providers rather than the learners. Full funding is the purest form of supply-side funding. Thus most FET providers have not been encouraged to be responsive to student demand and needs. Only in the case of state-aided colleges and schools, where budgets have been partially paid by the state, has there been a need to do this.

2.1.9 Minimal protection for the poor: There is no state bursary or loan scheme for disadvantaged or vulnerable FET learners.

2.2 Notwithstanding the weaknesses of present funding arrangements outlined above, it should be noted that there are some significant positive features:

2.2.1 Considerable public expenditure: The state is the most significant funder of FET, contributing 75 per cent of total expenditure.

2.2.2 Significant private sector contributions: Companies and individual households contribute about 25 per cent of expenditure, demonstrating a willingness to pay which is important for the future funding of FET.

2.2.3 Income generation: There is evidence of a growing willingness on the part of secondary schools and technical colleges to pursue income-generating activities. Income generation is a significant aspect of private provision.

3. Future challenges

The most immediate challenge for a new funding framework is to redress the bitter legacy of apartheid. However, not only are there backlogs and inequities to address. The developmental approach to education also requires that the education system address a range of socio-economic needs. Furthermore, as discussed in detail in the NCFE Report, and as noted earlier in this Green Paper, new powerful global and national forces will also exert huge pressures on FET. These pressures have important financial implications.

3.1 A new funding framework for FET will have to cater for the expansion of FET to under-represented target groups, new modes of further learning, information technology, learner support, curriculum development, and the higher costs associated with practical work and technical and vocational training.

3.2 Increasing enrolments and net flow rates in senior secondary schools will place additional demands on FET funding.

3.3 The challenge of global competitiveness requires that the skills profile of the labour force be addressed as a matter of urgency. FET has a vital role to play in increasing the pool of intermediate / high level skills, by opening up new pathways for the development of skilled and highly skilled workers.

3.4 Similarly, new and expanded FET opportunities will have to be offered to unemployed youth and adults if unemployment levels are to drop. Expanding provision will demand that existing resources are better used and that additional resources are found.

3.5 In addition to these economic challenges, FET must also cater for a range of national development needs, from the consolidation of democracy, to the delivery of large-scale social programmes. FET must contribute to reducing poverty, supporting community development and promoting a more equitable distribution of wealth.

3.6 FET must also address the learning needs of individuals and offer opportunities for personal fulfilment and holistic development.

The diversity of needs above translates into growing demands on the resources for FET. Although government expenditure on education and training is likely to grow somewhat as the Medium-Term Expenditure Framework (MTEF) indicates (see point 5.1), other sources of FET funding will continue to be essential. Moreover, efficiency gains will be critical to funding quality-enhancement initiatives. Consequently, the central issues for the financing of FET are how to promote efficiency and optimise the contributions of government, employers and households. Government alone cannot meet the demands on FET and requires the assistance of other sectors of society if South Africa is to fulfil its democratic and economic promise and improve the quality of life of all its citizens. 

4. The division of financial responsibilities

4.1 Education departments and the DoL have different responsibilities for FET. No department has overall responsibility for FET funding.

4.2 The education departments and the DoL have two different but overlapping spheres of responsibility. The diagram below illustrates the dominant financial responsibility of each in terms of the three FET target groups.

Spheres of financial responsibility

4.3 The Ministry of Education has a responsibility to determine national policy and norms and standards for funding FET for 2.2 million pre-employed youth in public FET institutions. Another 2 million out-of-school and out-of-college youth aged 16-27 have never had a job and are more accurately classified as pre-employed. The education departments share responsibility with the DoL for this group.

4.4 The education departments face three specific access challenges, namely:

• keeping pace with senior secondary school enrolments
• expanding public colleges, and
• providing FET for out-of-school youth.

4.5 In terms of the Constitution, the provincial Departments of Education have responsibility for running and disbursing funds for colleges and schools to the end of Grade 12. In the case of FET this means some 6 400 senior secondary schools and some 170 public colleges. Moreover, the Ministry and the provincial education departments are bound by the constitutional provision that `the state, through reasonable measures, must make (FET) progressively available and accessible' (Section 29 (1)).

4.6 As the diagram on the previous page indicates, the DoL has directed its attention largely, though not exclusively, to skills development for the employed. It is also concerned with training the unemployed and has recently proposed a new form of modern apprenticeship or `learnership', which includes the pre-employed. Although the DoL historically has contributed only 1 per cent of total FET expenditure, its Skills Development Bill proposes the establishment of a new National Skills Fund (NSF) for skills development at all levels.

4.7 While the bulk of state funding for public FET providers is from the DoE, there is no reason why institutions should not obtain funding from other government departments or employers. This is already the practice in many colleges and will be encouraged.

5. A new funding framework

The deficiencies in existing funding arrangements and the scale and complexity of the challenges facing FET require the development of a completely new funding framework.

5.1 Funding policy

In 1997 the government developed the MTEF as a three-year rolling plan for advancing policy objectives through the national budget. The MTEF and the accompanying Medium Term Policy Statement provide the wider funding policy context for an FET funding framework.

Certain points in the MTEF Policy Statement are especially relevant to FET funding:

5.1.1 South Africa is undergoing a demographic transition, in which the present group of 10 to 14 year-olds represents a demographic peak. This means that primary school enrolments will slow down, but secondary school enrolments will continue to grow until the demographic peak has passed through the secondary phase. Consequently, FET provision will have to keep pace with increasing enrolments for at least the next 5-10 years.

5.1.2 Employment creation is a government priority. Inter alia, this involves improving the skills base of labour and identifying key employment-generating opportunities.

In this regard, mention is made in the MTEF of the DoL's Skills Development Strategy and the creation of learnerships to bridge the gap between formal education and work experience, especially in the case of young work-seekers.

5.1.3 The evolution of training and vocational education is seen as crucial. A significant expansion in public spending on training and vocational education, for both the employed and unemployed is thus a macro-economic priority.

5.1.4 Increased private spending on education and training is also envisaged because of the benefits conferred on individuals and employers. Specifically, the financing of FET and HE should continue to draw strongly on private sources.

5.1.5 Because South Africa has near-universal schooling, the main challenge is to improve the quality of schooling by addressing glaring inequalities, increasing efficiency and improving effectiveness.

5.1.6 Accordingly, education and training are high priority commitments, reflecting the promotion of equal access to learning opportunities, the extension of FET and HE, and skills development throughout the economy.

5.1.7 However, growth of education spending on personnel must be curtailed because this absorbs too high a share of available funds. Additional resources must be assigned to key quality-enhancing initiatives and improved management to increase efficiency. There is also scope for rationalising FET and HE institutions.

5.1.8 Equity will be enhanced through government spending targeted on poor communities, and reduced subsidies to higher-income communities who are made responsible for meeting costs above their equitable entitlement, through fees and other own revenue. Loans and bursaries in FET and HE should be strengthened to ensure that poor students are not denied access.

5.1.9 The MTEF and the Minister of Finance's Budget Policy Statement are significant indicators of the government's recognition of the importance of the FET sector. They point to:

• the prioritising of training and vocational education because of their link to job creation
• the need for cost-sharing by government, employers and households
• the importance of quality
• the need for efficiency gains, and
• the targeting of state spending on poor communities. 

5.2 Funding principles

The following principles provide a basis for developing a new FET funding framework. However, the senior secondary schools will, for the foreseeable future, be subject to the national norms and standards for school funding in terms of the SA Schools Act, 1996:

• Education departments must be enabled to fulfil their constitutional obligation to make FET progressively available and accessible.
• Funding must be related to national human resource development priorities and should increase the responsiveness of FET providers to the market.
• Funding should be linked to a flow of information from providers to the funding authority in order to ensure proper planning and accountability, and to learners to promote informed learner choices.
• Funding must provide for both individual and institutional redress.
• The funding framework must aim at maximising all available resources, through cost-sharing arrangements and income generation by providers.
• Funding should include a performance-linked element, as a lever for improved efficiency and outcomes.
• Funding mechanisms must encourage efficiency gains, in order to free resources for the qualitative and quantitative improvement of FET programmes.
• The basis of funding should in principle be programme-based, in line with the NQF and as a means of promoting flexibility and responsiveness among diverse providers.
• Funding should be coherent and consistent, such that the same level of funding applies to the same programme, in order to prevent irrationalities and the unintended consequences that follow from variable funding levels.
• Financial responsibility should be devolved to the institutional level as soon as is practicable.
• Funding should give greater emphasis to demand than to supply, in order to re-orientate providers to the market and the needs of learners.
• Funding should incorporate user fees, linked to a learner's ability to contribute to the cost of the FET programme.
• Adequate funding must be set aside for capacity building, both to enable providers to satisfy the financial management requirements of the new funding framework and to provide relevant and high quality FET programmes.
• FET funding mechanisms must provide for stability of public funding to enable providers to plan effectively.
• The development of the new funding mechanisms should be participatory and all stakeholders, especially FET providers, should be consulted. Consultation will promote buy-in and understanding of the new funding methods on the part of practitioners, while the funding authorities will benefit from testing the feasibility of new mechanisms and the costing of programmes.
• The new framework must be phased in so that new demands are matched by appropriate capacity.

The following table  illustrates the transformation from the current funding system to the new funding framework, and its envisaged advantages.

Funding FET

6. Implementing the new funding framework

6.1 Strategy

6.1.1 In accordance with the principles outlined above, a coherent funding framework, which can be applied to all FET providers, is the ideal. However, after careful consideration, the Ministry believes that, for the foreseeable future, the new programme-based funding framework should not apply to senior secondary schools.

6.1.2 Responses to the Draft National Norms and Standards for School Funding, which the Ministry released in 1997, indicate that there is a real lack of capacity in most schools, particularly with regard to financial management. The draft document is currently under revision. During this transitional period schools, and in particular secondary schools, will have to develop adequate financial management capacity to cope with delegated budgets as outlined in the Funding Norms. Because delegated budgets are a necessary base for introducing programme-based funding, the Ministry will monitor the progress made with a view to the eventual introduction of programme-based funding in senior secondary schools.

6.1.3 The advantage of programme-based funding is that it encourages responsiveness of institutions, can be linked to outputs and can be used to bring about efficiency gains. In accordance with MTEF policy, national and provincial Departments of Education will seek efficiency gains and enhanced outcomes in schools through other measures.

6.1.4 The new funding framework will presently apply to public FET colleges only. However, because capacity is also limited in many colleges, the new funding system will have to be phased in. Colleges will have to be prepared to undertake responsibility for their budgets. When a college displays the required capacity, the new funding framework will be applied.

6.2 Organisation, management, and administration

To ensure adequate control over public funds and the smooth operation of the new funding system, appropriate organisational and management structures must first be in place. Responsibilities must be clearly defined at all levels, along the following lines:

The Ministry of Education: The Minister will have responsibilities for determining the national funding norms and standards to be applied by the provinces in respect of FET and for announcing in good time those aspects of national policy which are to be taken into account by the funding system. The DoE will monitor and evaluate the application by the provinces of the national funding norms and standards.

The National Board for Further Education and Training: The NBFET will be established as a consultative body (as discussed in chapter 6) which will assist the Minister to determine the reasonable measures by which FET can be made progressively available and accessible. Amongst other things, the NBFET will advise the Minister on specific funding methods, norms and standards which promote the national policy. These will need to be manageable, and sufficiently transparent to enable providers to respond to intended incentives and disincentives. In framing its funding recommendations, the NBFET will consult widely with stakeholders and providers. It will advise the Minister on the development of a standard national information system, including a system of student records, and financial returns, sufficient to support the funding system, allow performance against targets to be monitored and performance indicators to be generated.

Provincial Departments of Education: The provinces will be responsible for implementing the funding methods, norms and standards determined by the Minister. They will establish provincial targets for FET, reach agreement with individual providers regarding their annual targets and budgets, and hold providers accountable for the achievement of their targets and for their control and use of public funds. Provinces will determine the point at which institutions have developed sufficient management capacity - including reliable data-collection systems and adequate financial and internal control systems - to be given a delegated budget and sufficient autonomy to manage it effectively. Provinces will implement the standard national information system in institutions, aggregate returns at the provincial level, and provide reports to the national DoE.

Public Colleges: Once the new funding framework is fully developed, institutions will be responsible for the management of their affairs and the delivery of their programmes. They will appoint their own staff, paid in accordance with national salary scales, be responsible for maintaining and developing their buildings, and assume full responsibility for their finances. They will have to develop the full array of internal controls necessary to ensure that public funds are adequately safeguarded and used only for the purposes for which they are provided.

They will need additional management capacity to:

• prepare strategic and operating plans for the institution
• prepare and control budgets derived from the funds made available to them by their provincial department, from user fees, and other sources
• implement and operate the national information system and compile the student, financial and other returns required by their province, and
• develop income-generating activities to supplement their state funds and user fees.

These capacities will have to be developed from scratch by most institutions. Capacity building will require additional funding and will take time. However, it is important to bear in mind that the state-aided colleges presently have site-based management and full or partially delegated budgets. This group may be able to move rapidly through the implementation stages and pilot the new funding methods.

7. Funding methods

The three components of the future FET funding framework will be formula funding, earmarked funding and student finance. These are described in detail to indicate how the new framework might operate when all public FET colleges have the capacity to implement it. As previously stated in point 6.1.4, colleges will need to be prepared to undertake full budget responsibility. The Funding Task Team described in chapter 7 will have the responsibility for taking this matter forward on the basis of government policy.

7.1 Formula funding

Formula funding will apply to recurrent costs in the following way:

7.1.1 Focus: The bulk of FET funding will be based on approved programmes leading to qualifications or credits. Thus FET funding will not be based on institutional factors but on the mix of programmes offered by a provider. As there are no FET providers which offer only FET programmes, institutional funding would be problematic.

7.1.2 Funding unit: The main basis for determining the funding unit will be learner enrolments expressed as FTEs. However, in order to include an outcomes-based element which will encourage throughput efficiency and reward performance, 5 per cent of the fund will be paid only when a learner has satisfactorily completed his or her programme. (A higher percentage is not advisable because it would tend to make providers exclude disadvantaged learners or lower the standard of their programmes to obtain high pass rates.)

Thus growth and output incentives will be built into the formula funding.

The potential problems of poor quality and discrimination against disadvantaged learners can and will be counteracted. Adequate quality assurance mechanisms will deal with the first problem, while the second will be addressed by making provision for additional funding which can be accessed by institutions to provide the necessary support to students with additional learning needs because of educational disadvantage or physical disability.

The precise working out of such a mechanism will be assigned to the Funding Task Team.

7.1.3 Modes of delivery: The funding formula should in principle be mode-neutral, allowing providers to determine what mix of modes to use in delivering a particular programme.

7.1.4 Allocation mechanism: To improve quality and outcomes, a performance-linked funding contract is proposed. Two forms of performance-linked funding will be used. As discussed above, the allocation to a provider will be determined by means of a formula based on FTEs in approved programmes, and on assigned prices. However, 5 per cent of the allocation will be based on student achievement of credits or qualifications. In addition, providers will be assessed against the targets agreed in their funding contract.

Government will formalise its relationship with providers in a contract which will set out the levels of funding available, the programmes to be delivered, target outputs, and the information to be provided. The contract will provide a basis for monitoring performance and will reinforce strategic planning processes. The funding contract should be broadly consistent with providers' strategic plans, which in turn should reflect national FET strategy. Successful performance may attract additional funding in the subsequent year.

7.1.5 Rates: A tariff of prices per FTE student will be determined for every FET programme. These prices will be based on the relative costs of providing the different programmes to the average student. They could include elements such as staff salaries, learning materials, building maintenance and student support services. The tariff prices will be the amounts per FTE student per year - or alternatively per programme - that the state is prepared to pay providers for the various programmes. The intention is that cost-based prices will be incentive-neutral. However, should government decide to weight certain prices to provide incentives for the attainment of particular policy goals, this will be made possible by the tariff system.

7.1.6 Planning: Manpower planning techniques have led to major distortions of education and training provision, and are generally discredited. The labour market operates in more complex and flexible ways than a manpower model suggests. In as complex a field as FET, the main determinant of provision should be the market, but this should be `steered' through the identification of critical needs and priorities and the development of strategic plans, using a range of information and labour market signals.

7.1.7 Stability: In order to ensure year-on-year funding stability, a simple `core and margin' approach is proposed, rather than the more complicated three-year rolling plan for HE institutions. FET providers should be guaranteed a core of, say, 90 per cent of their previous year's state funding in the subsequent year. 

The main elements of the formula funding approach are summarised in the following table:

Formula Funding Approach

7.2 Earmarked funding

7.2.1 At present there is no earmarked funding for FET. Earmarked funding consists of ring-fenced monies, which can only be spent according to certain terms and conditions. Earmarked funds are used to provide incentives to institutions to achieve specific national policy objectives, which might change over time.

7.2.2 Such national policy objectives could include:

• redress, through a range of capacity building programmes, such as management training and in-service education for teachers and trainers. Specialist support agencies which provide these services and other assistance required for capacity building will be able to compete for earmarked funds set aside for these purposes. Competition between agencies will help to promote quality and efficiency
• strategic priorities, such as the implementation of information systems, the development of quality assurance mechanisms, the upgrading of specialised plant and the promotion of intermediate-level technical training
• outreach to marginalised target groups
• piloting innovative programmes, and
• collaborative ventures among providers. 

7.2.3 It will be easier to implement a national strategy for the transformation of FET if it is possible to target funding for specific national policy objectives. This could be achieved in two ways, consonant with the provisions of the Constitution:

Determining national norms and standards: The Minister, on the advice of the NBFET, would set allocative norms and standards. These could indicate how the provinces should spend their money for FET, although they could not specify how much the provinces should spend.

Given provincial budgetary discretion, allocative norms and standards would not be adequate to prevent a province in financial straits from cutting back on its FET budget and hence on its FET targets. The National Education Policy Act provides a clear process for national monitoring of national standards for provision, delivery and preformance. This provision can be used to assess the progress made by provinces in meeting their constitutional obligation to make FET progressively available.

Conditional grants: Over and above the provinces equitable share, the Constitution does provide for other conditional and unconditional grants, which could be given to the provinces from the national share as the MTEF indicates. If a conditional grant were earmarked for FET by national government, the Minister, on the advice of the NBFET, could determine the purpose and conditions for its allocation to the provinces. These could include the achievement of specific national priorities, which would be monitored.

The leverage of conditional grants could be increased if provinces were required to put up matching amounts from their own resources. Clearly, the introduction of earmarked funds for FET will require careful consideration and investigation, especially as the National Skills Fund (NSF) proposed by the DoL is also a form of earmarked funding, part of which will apply to skills development at the FET level. The implications for the FET colleges, and possibly some senior secondary schools, are very significant and will be discussed in detail with the DoL.

7.2.4 It will be necessary to resolve the terms of earmarked funding for FET, including its purpose, mode of funding, administration and magnitude.

7.3 Student finance

7.3.1 The expansion and improvement of FET provision will depend on an increase in state funding, a significant level of payment for services rendered by FET institutions in terms of the new funding mechanism propsoed in the new Skills Development Bill and private sources, especially user fees. It is too early to say what proportion of the overall costs of a programme would need to come from user fees.  

7.3.2 User fees must be related to the ability to pay. For this purpose a sliding scale for fees could be established. This will involve means-testing of individual students or households, or the identification of some proxy measure for socio-economic disadvantage. Where learners are assessed as able to pay, there must be a clear policy on the consequences of non-payment.

7.3.3 Alternatives for assisting learners who are unable to pay fees include scholarships and bursaries, and student loans. Because the present state loan scheme for HE students is under-capitalised, its extension to FET learners would not be viable. Institutional loan schemes already in existence should be investigated for possible replication. Employers should also be encouraged to provide loans to learners, particularly in areas of skills shortage. A variant of this might be the introduction of learner bonds. A learner could be issued with a financial bond by an industry training board (ITB) or a SETA, and the bond used as collateral for a loan from the financial sector. When the bond matures on completion of training, the SETA would pay this off and the learner would pay back the loan to the financial institution. Since the number of bonds would be controlled by a SETA, it would be able to regulate the numbers pursuing any single programme, so that learners would not be unemployable through over-supply.

8. Some specific funding issues

8.1 Access and HE programmes

It will be consistent with national policy for approved HE programmes provided by FET institutions to be funded from the HE allocation. The issue of access programmes, however, requires further analysis and advice from the CHE. Where FET and HE institutions have formal linkages, the responsibilities and obligations of each should be set out in a contract. Such agreements, and the role of FET providers within HE, should be developed within an agreed policy framework, determined by the Minister on the advice of the NBFET and the CHE.

8.2 Tax incentives

The extension of Section 18A of the Tax Act of 1962 to all education, training and development organisations, including NGOs, is still being considered by a sub-committee of the Katz Commission on Taxation Policy.

Tax rebates for FET tuition fees are not recommended because as long as the SITE system is in place, the poor would receive no benefit.

8.3 State funding for private providers

In principle, registered private providers should be able to compete for earmarked funding which will be used for national priority programmes. However, in practice, it may be necessary to give public providers preference for a few years until they have the capacity to engage in competitive bidding.

If in time private providers are enabled to bid for public funds, they must comply with the same rigorous accountability measures as public providers.

8.4 Public colleges

8.4.1 The public colleges sector was identified by the NCFE as a critical area for intervention because it could offer increased access to vocationally-oriented education for all three target groups and because visible short-term gains would be possible. Moreover, relatively modest sums of money could provide considerable leverage for change, given that the entire FET college sector cost the state less than R400 million in 1996.

8.4.2 The Ministry therefore proposes the following strategy with regard to the funding of the public colleges:

• All publicly-funded colleges should be funded on a common basis. This will involve abolishing the distinction between state and state-aided institutions, and the phased introduction of programme-based funding
• The introduction of programme-based funding will support a diversity of public colleges with different foci and missions, because the mix of programmes rather than institutional types will determine the level of state funding.

The funding of public colleges must be driven by three strategic imperatives, namely:

• the need to provide increased access to vocational and vocationally oriented education and training
• the need to achieve efficiency gains in the college sector through economies of scale, and
• the need to improve the quality and effectiveness of programmes so that they are relevant to the world of work and to job creation.

Decisions about rationalising, expanding, merging or clustering of public colleges will need to be made in terms of these three imperatives, as will decisions about the upgrading of infrastructure and equipment.

8.4.3 The funding of learnerships in public colleges deserves priority attention. These are mentioned in the MTEF as vocational programmes that will connect formal education to work experience. Further discussions with the DoL and the Department of Finance will be undertaken to clarify the implications of the new Skills Development Bill.

9. Implementation plan

9.1 Implementing the new FET funding system will involve five main strands of activity, namely:

• developing management capacity at all levels
• devising adequate information systems at all levels
• developing the qualification system, as a basis for programme-based funding. FET programmes and qualifications will have to be clearly defined so that standard prices can be assigned
• progressively delegating budgets to institutions as they demonstrate the competence to manage their own affairs. This stage is to be preceded by a period of `shadow budgets' and a pre-audit of internal controls before each institution assumes full operational responsibility, and
• devising funding methods to be applied to all providers of FET programmes and managing the transition from existing funding arrangements in the various sectors.

9.2 Given the urgent national need for an improved system of FET, work should proceed in all five areas without delay, although it is essential that some implementation stages precede others. Most importantly, additional responsibilities will not be assigned at any level of the system until the management capacity to discharge the responsibility has been shown to be present and has proved under test to be competent.

9.3 The early establishment of a Steering Group and four Task Teams for management, information systems, funding and qualifications (see chapter 7, point 3) will be crucial for the successful implementation of the new funding framework. The composition and functions of these groups are outlined in the final chapter of the Green Paper.

9.4 In view of their critical importance in the implementation of the new funding system, budget delegation and the devising of the new funding methods are briefly discussed below.

9.4.1 Delegating budgets

The most significant step in the development of management capacity in institutions is the delegation of budgetary authority and control. It is a vital step in developing the ability of institutions to respond to students' and employers' needs and to enable resources to be managed with the greatest effectiveness and efficiency. But it is also a danger point where, if the necessary skills and controls are not present, there could be a serious loss of financial control, resulting in real financial losses and, as important, a loss of public confidence in the FET system.

Consequently, it is vital that management capacity building is stringently overseen by the Management Task Team and the provinces, and that each institution is required to pass an independent professional audit of its readiness to receive and handle public funds, before any public budget is delegated to it.

While institutions are developing their management capacity, there will be benefit in sharing with them a `shadow' or `paper' budget in which all elements of the budget are made clear without any authority over the budget being transferred. This will help institutions to understand the structure of their finances, to test their budgetary control systems, and to familiarise themselves with the funding system, before they assume full operational responsibility.

It will not be necessary for all institutions to assume responsibility for their budgets on the same date. At the point where an institution is assessed as ready to assume delegated budgetary authority, the relationship between it and the province should be defined and governed by a `financial memorandum'. This will set out the general terms and conditions under which funds are allocated to the institution and define the financial framework within which the institution will operate. Institutions would enter into a separate contract each year.

9.4.2 Devising the new funding methods

Devising the new funding arrangements in detail will be the job of the Funding Task Team.

9.5 Timetable

The size and complexity of the task is such that full implementation of the new funding system will take four to five years from the publication of the White Paper. The phasing of the implementation process is outlined in the last chapter. 

What this chapter means in practice

An entirely new FET funding framework will be developed. This will involve delegated budgets for FET providers, responsiveness to national policy objectives and the market, programme-based funding and a flow of information from providers to funding authorities and learners.

The main funding responsibility of the education departments will be the provision of FET for the pre-employed: 2,2 million learners in some 6400 public schools and 170 public colleges, and 2 million learners, aged 16 to 27, who are outside schools and colleges. This translates into three access challenges: keeping pace with secondary school enrolments, expanding public colleges, and providing new programmes for the out-of-school/college youth.

The new funding approach has three main components:

• formula funding for recurrent costs, based on FTE students in approved programmes leading to qualifications or parts thereof
• earmarked funding for specific national policy objectives, and
• user fees related to the ability to pay.

Additional elements include:

• an output incentive based on student achievement of credit/qualifications, and
• support for learners with additional learning needs.

The new funding framework will for the foreseeable future only apply to public FET colleges, not to senior secondary schools.

Financial responsibility will be increased in accordance with proven institutional capacity.

Funding contracts based on strategic planning and targets will be developed for colleges.

Contents | Chapter1 | Chapter 2 | Chapter 3 | Chapter 4
Chapter 5 | Chapter 6 | Chapter 7 | Appendicies