After years of awarding the NLC clean audits, the AG has given a qualified opinion for the third time in as many years. This was mainly due to a lack of records involving proactive funding, which was at the heart of the looting at the Lottery.

The NLC received a qualified audit opinion in 2021 and 2022. (A qualified opinion is when the financial statements contain material misstatements in specific amounts, or there is insufficient evidence to conclude that specific amounts included in the financial statements are not materially misstated, according to the AG.)

The NLC had previously boasted about achieving years of successive clean audits, including telling Parliament in 2020 that it had received six consecutive years of clean audits. This was untrue as the NLC had at that stage already received a qualified audit in 2018.

As far back as 2020, GroundUp reported concerns over the AG’s awarding clean audits despite extensive evidence of rampant corruption involving Lottery grants and payments to service providers.

Read more in Daily Maverick: Lottery to slap ex board members with criminal complaints as frustration with NPA, Hawks mounts

Minister of Trade, Industry and Competition Ebrahim Patel, who has oversight of the Lottery, Members of Parliament and the media had all raised concerns with governance at the scandal-ridden NLC.

Recently Barney Pityana, NLC board chairperson, strongly criticised the AG. “We are saying that the AG did not do their job over those years. We want those people [who were responsible for giving the NLC clean audits] held to account”, he said.

“It is inconceivable that the first time the AG reported problems was two years ago. They cannot just wash their hands. The AG must investigate their own staff involved in these audits.”

NLC Commissioner Jodi Scholtz told GroundUp that the qualified opinion from the AG for the 2021/22 and 2020/21 financial years “arose due to the completeness of irregular expenditure”. This was due to non-compliance with public procurement regulations, she said.

(Completeness is an auditing term that indicates the auditors were unable to confirm that all transactions and accounts that should be presented in the financial statements are included).

“The NLC was able to clear the completeness finding in the current year. However, irregular expenditure remains due to legacy contracts,” she said.

“The qualification received in the 2022/23 financial year related to the completeness of records relating to proactive funding. The AG was unable to satisfy themselves that all transactions related to proactive funding were accounted for.

“In order to resolve the legacy issues, the new leadership team is reviewing all policies and processes to ensure compliance with legislation. Further to this, we are trying to reconcile all proactive funding projects in the books. We are also ensuring we conduct site visits on all open projects to ensure validity.” Scholtz said.

GroundUp previously reported how all records of proactive funding, running into hundreds of millions of rands, were removed from the grants system in December 2018. After that, only a handful of senior executives had access to this information.

“We are also focusing on a modernisation project that will eliminate manual record-keeping,” she said.

Latest AG findings

In an abridged version published in the NLC 2022/2023 annual report, the auditor states that he “was unable to obtain sufficient appropriate audit evidence of whether all approved allocation of grants were recorded in the consolidated financial statements, due to the status of the accounting records”.

He continues: “I was unable to determine whether any adjustment was necessary to [the] allocation of grants stated at R972,353,000 in the consolidated financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified opinion.”

The AG found “material misstatements in the annual performance report submitted for auditing”. These material misstatements were in the reported performance information of the Grant Making programme where “management did not correct all of the misstatements, and I reported material findings in this regard”.

The SIU is currently investigating over 700 grants to non-profits worth over R2-billion, many involving proactive funding. SAPS and the Hawks are probing at least 30 lottery-related matters handed to them for investigation by the National Prosecuting Authority, which has been criticised for its failure to prosecute people and companies implicated in looting the Lottery.

The AG also issued a qualified opinion for 2023 for the National Lotteries Distribution Trust Fund, whose role is “to safeguard this money, invest it wisely, and ensure that it is put to the best possible use to benefit good causes”.

Missing documents and poor oversight

When the new board was appointed in March 2022, it soon discovered that the NLC’s records under the previous administration were in disarray. Former members of the NLC board and its top management have been implicated in corruption by both the Special Investigating Unit (SIU) and a series of independent investigations.

NLC staff investigating procurement and tenders running into hundreds of millions of rands have found that in many cases key documents are missing. The SIU has seconded members of its staff to the NLC to assist with these investigations.

Audit firm SkX Protiviti, commissioned by the NLC to investigate corruption, said in a 2020 report that when it had requested documents [from the NLC] there would be delays in providing these, whether by design or caused by systematic bottlenecks.

But, instead of acting on the damning report, the NLC buried it and it only came to light a few years later after the appointment of a new board and the replacement of the Commissioner and most of the senior executives. The same happened with several other damning reports commissioned by the NLC.

“Information files requested during the investigation were either found to be incomplete or missing pertinent documents, which raised concerns in relation to the record-keeping protocols that were being followed at the NLC for that period in question,” SkX said in its report.

Financial records for beneficiaries, as required by the terms of the grant agreement, were not in the files, nor were they provided by the beneficiaries, according to the report.

“In some cases, the only financial records that were found were those provided by the beneficiaries during the application stage, and we noted that in some instances, the financial position presented by the beneficiaries appears to have been misrepresented and/or fraudulent.”

There was also a lack of proper records for hundreds of millions of rands paid out by the NLC, including R150-million in grants to non-profits for Covid relief. Legal files, which would include documents and briefs to lawyers involving litigation running into tens of millions of rands, were also missing, Minister Patel told Parliament.

Files kept with Metrofile, a document storage company, have also disappeared after they were signed out by some NLC staff.

A leaked, damning copy of the AG 2021 management report — a confidential document normally only shared with the entity being audited — found evidence of R23-million in irregular expenditure and R36-million in accounting errors.

The following year the AG again awarded the NLC a qualified opinion, highlighting a series of issues. These included a “lack of consequence management”, “collusion at a high level” (a reference to high-ranking executives and senior officials implicated in aiding and abetting corruption), and a failure to follow legislation that required the NLC to obtain three written quotes before awarding multi-million rand contracts to service providers. DM

First published by GroundUp.