R23-million in irregular expenditure; R36-million in accounting errors. By Daniel Steyn.
- The Auditor-General has found R23-million in irregular expenditure and R36-million in accounting errors at the National Lotteries Commission (NLC).
- The NLC had regularly bragged about having a track record of clean audits.
- Minister of Trade and Industry said compliance deficiencies must be addressed by the Board urgently.
The National Lotteries Commission (NLC) has regularly bragged about having a track record of clean audits, despite the organisation being consumed by corruption in recent years.
But the 2020/21 NLC Annual Report and the audit by the Auditor-General (AG) tell a different story, revealing more than R23-million in irregular expenditure and R36-million in accounting errors made in previous years.
The report should have been completed last year but was delayed due to misstatements found in the NLC’s financial statements. It was finally completed in February this year, when the AG issued a qualified audit opinion.
This followed extensive back-and-forth correspondence between the AG and the NLC, which had contested some of the findings.
The AG does not audit what grant beneficiaries do with the money they receive. Most of the corruption committed by the NLC’s leadership, as exposed by GroundUp and the Limpopo Mirror, has been in the form of transactions channelled through some of the NLC’s grant beneficiaries.
The NLC also received a qualified audit, related to a technical oversight in 2017/18.
A high-level NLC delegation, which included the commissioner, chair of the board, chief financial officer and head of legal, was left scrambling in 2020 after DA committee member Mat Cuthbert challenged them on a claim of six clean audits in a row, during a meeting of Parliament’s Trade, Industry and Competition Committee in 2018.
After hastily conferring with other members of the NLC delegation, Chief Financial Officer Xolile Ntuli back-pedalled and said, “The six refer to us achieving 100% of targets.”
According to the latest AG report for the 2020/21 financial year, the management of the NLC was asked to correct “material misstatements” found in the financial statements. Most of these mistakes were corrected, but the NLC did not include necessary information on more than R23-million in irregular expenditure, resulting in a qualified audit opinion.
A qualified audit opinion means that the AG has concerns about the accuracy of the financial statements and a departure from the Generally Recognised Accounting Practices, but not to such an extent that an adverse opinion or disclaimer of opinion is required.
According to the AG, the NLC “made payments in contravention of the supply chain management requirements, resulting in irregular expenditure of R23,410,550.” The NLC had procured goods and services “without obtaining the required price quotations” and “without inviting competitive bids and/or deviations”, the AG found.
The AG report reads: “The accounting authority did not effectively oversee financial reporting and compliance with legislation as well as related internal controls. Also, management did not adequately review and monitor financial reporting requirements as well as compliance with applicable legislation.”
Notes to the financial statements include lists of “prior period errors”: transactions that were incorrectly accounted for in previous years, and discovered within the current financial year.
These include R4.3-million in accruals mistakenly not accounted for, and R1-million in accruals mistakenly included in the 2019/20 financial year. Also, R9.6-million in withdrawals were not accounted for between 2017 and 2020. In total, R36-million in accounting errors from previous years are included in the 2020/21 financial statements.
In 2020/21, the NLC also settled a VAT liability of R900,000 for imported services procured between 2015 and 2020.
Minister of Trade and Industry Ebrahim Patel mentions in his contribution to the NLC 2020/21 annual report that the AG has “identified a number of internal controls and compliance deficiencies that the accounting authority did not effectively oversee relating to financial reporting and compliance with legislation. These must be addressed by the Board on an urgent basis.”
But then NLC commissioner Thabang Charlotte Mampane writes in her contribution to the same annual report that “whilst the NLC has taken recommendations of the AGSA and implementing action plans to improve future audit outcomes, we continue to seek clarity of the respective practice notes and rationale of the change in interpretation of related practice notes.”
Mampane resigned in August.
The NLC is currently under investigation by the Special Investigations Unit (SIU) and the Hawks. This is after ongoing investigations have exposed how top management and some board members of the NLC misused grant funds for personal gain.
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