Minister Ebrahim Patel expressed doubts about the legality of the actions of the National Lotteries Commission (NLC) representatives. However, despite his statement, NLC only appeared in one suspicious audit in 2016. According to GroundUp, NLC was still involved in major corruption scandals that had previously been successfully solved by various reporters, especially Raymond Joseph and Anton van Zyl.

Over the past six years, NLC has received five clean audits from General. The NLC received one qualified report in 2017/18, but it was allegedly not related to fraud. The problem was related to the technological aspect and organizational flaws within NLC.

On 1 August 2019, NLC representatives published an official statement with the following text:

“The NLC has adequate controls in its grant-making processes. This is evidenced by the fact that a clean audit for the past four years has taken place. The clean audit covers the grants specifically and it is important to note that the NLC has achieved 100% performance on all its targets”.

In other words, the NLC speakers have denied any problems within the department. However, in November 2019, the NLC Board Alfred Nevhutanda addressed Parliament. Here is a quote from his speech:

“The NLC had conducted an investigation … The Auditor General gave the NLC a clean audit and the investigations confirmed that … The NLC was among the ten best-run government entities in the country and was nominated for an award. The NLC did not protect itself; it acted according to the PFMA. The Board cooperated with the Minister, launched an investigation and compiled a report. The Minister wrote that nothing was found related to a conflict of interest … If a conflict of interest had been detected, the Chairperson and the Commissioner would have acted.”

The journalists of GroundUp appealed to the General with the following questions:

• Have any cases of fraud, abuse of power, corruption or other similar matters been detected in the National Lotteries Commission or the National Lotteries Distribution Trust in the last year? If so, what exactly was noticed?
• Has the Auditor General noticed any notes on corruption within NLC from journalists of GroundUp?
• What comments can Auditor General’s representatives give on the statements made by NLC speakers?
• What explains the Auditor General’s clean audits of the NLC?
• Were there any cases of incorrect allocation of lottery grants at NLC?
• Is it true that the Auditor General has audited all grant projects, including pro-active grants?
• On what principle are NLC audits conducted?
• If not Auditor General, then who is responsible for auditing NLC grants for corruption?
• What steps should an official who discovers serious issues of fraud and corruption at a state owned entity take?

Auditor General’s answer:

The main purpose of the audit is to verify the truthfulness of the data presented in the financial statements of the organisation. In other words, the auditor checks the reliability of the information provided by the organisation as well as testing for compliance with identified laws and regulations. The list of audit objectives includes assessing financial stability, productivity and making development recommendations.

To ensure reasonable assurance, the audit is planned on the basis of the auditors’ detailed understanding of the audited organisation, including an understanding of the control environment and an assessment of the risk profile. The risk is identified through environmental scans, which include articles in the media, investigation reports and interviews with the internal audit unit, the board of directors and other key stakeholders. Thus, risks specific to NLC have also been identified through the investigation report that was made available to the auditors in FY 2018-19, discussions with internal audit staff, among others, and media articles, including those from Internal Audit. The risk identified had an impact on sample selection and procedures that were implemented to ensure an appropriate response to the risks identified.

An audit does not imply the application of different evidence gathering tactics based on the financial transactions of the organisation, including evidence of potential fraudulent activity. The audit does not test 100% of all financial transactions of the organisation. Furthermore, conflict of interest is tested to the extent that tests the involvement of management as directors in companies that receive grants. There are certain limitations to the process, such as the lack of verification of the financial activities of family members and friends of those closely associated with the organisation.

The responsibility for detecting fraud and deception lies within the responsibility of management and the executive branch of the organisation. The amended Public Audit Act (PAA) expands the mandate of the Auditor GeneralSA beyond auditing and reporting to include powers of referral, remedial action and the issuance of certificates of debt to recover material financial losses reported as part of a material irregularity (MI).

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