In a revealing session with Parliament in February 2024, the Special Investigating Unit (SIU) and the National Prosecuting Authority (NPA) provided a detailed account of a deep-rooted corruption scandal within the National Lotteries Commission (NLC). A three-year investigation has exposed a sophisticated "criminal syndicate" at the heart of the NLC, involving collusion among Lottery officials, former board members, lawyers, and non-profit organizations (NPOs).

Extent of the Fraud

Andy Mothibi, the head of the SIU, detailed how funds meant for charitable causes were systematically plundered, diverting millions meant for community upliftment into the pockets of a few. Luxury homes, farms, and high-end vehicles, including a Land Rover purchased for a former NLC chief operating officer’s wife, were bought with money intended to aid the most vulnerable sectors of society.

Mothibi uncovered that the corruption involved:

• A complex web of internal and external collusion.

• Non-profit organizations hijacked without member knowledge, and in some cases, with members' involvement.

• Misuse of funds across various projects, with only a fraction spent on their intended purposes.

Key examples include:

• Zibsicraft Project: Out of a R5-million grant for a chicken farming project to aid the MidVaal community, only R209,500 was spent on agricultural products. The rest was diverted, including over R3-million to companies linked to actress Terry Pheto.

• SASCOC Funding: Nearly R25-million intended for the 2016 South African Olympic team was misappropriated, with significant amounts funneled to businesses linked to NLC insiders.

• Limpopo Recreation Providers: None of a R9.5-million grant was used for its intended purpose, with funds diverted to buy luxury vehicles and support unrelated activities.

Challenges in Prosecution

Despite clear evidence of systemic fraud, the prosecution of those involved has been frustratingly slow. Rodney de Kock, head of prosecution services at the NPA, acknowledged the challenges faced due to the scale of corruption and the sophistication of the perpetrators. Critical documents necessary for prosecution have been deleted or are missing, with some evidence pointing to directives from the State Security Agency to remove sensitive documents from NLC systems.

Advocate Nkebe Kanyane, head of the Asset Forfeiture Unit, noted the difficulty in preserving properties and assets bought with stolen funds, as each step faces legal challenges from those implicated.

A Plan to Protect Lottery Funds

In the wake of the wave of lotteries fraud it's time to recognize the pivotal role that accountants can play in ensuring transparency and accountability. By harnessing their expertise, independence, and commitment to integrity, we can transform the funding landscape, safeguarding resources meant for charitable causes and restoring public trust. It's time to embrace the potential of accountants as guardians of financial integrity and champions of ethical practice within the NLC and beyond:

1. Panel of Approved Accountants

• Training and Licensing: Accountants should be required to undergo specific training related to lotteries funding and anti-fraud measures. This training would be certified by a reputable body such as the Chartered Institute for Business Accountants (CIBA).

• Role: These accountants would not be employed by the NPC applying for NLC funds. Instead, they would serve as external, independent reviewers.

• Accountability: If fraud or financial mismanagement occurs, these accountants could be held accountable, providing a strong incentive to maintain high standards of scrutiny.

2. Mandatory Use of Accounting Software

• Standardisation: All NLC applicants should be required to use an approved accounting software system to standardise record-keeping and reporting.

• Automated Working Paper System: A system like Draftworx should be mandated for completing schedules and control sheets, ensuring consistency and reliability in the documentation, and using XBRL to directly report into the NLC.

3. Enhanced Oversight Mechanisms

• Pre-Approval Review: The appointed accountant would review and verify the accuracy and legitimacy of the funding request before submission to the NLC.

• Ongoing Monitoring: Post-disbursement, the accountant would monitor the spending of the funds according to the approved plan and ensure that all transactions are properly documented and reported.

• Evidence Collection: The accountant would be responsible for ensuring that all necessary evidence of expenditures is collected and maintained.

Benefits

• Improved Accuracy and Integrity: With trained, independent accountants reviewing the applications and monitoring expenditures, the accuracy of financial reporting would improve, and the risk of fraud would decrease.

• Standardised Processes: Using a common software and working paper system would reduce errors and inconsistencies in how financial information is prepared and analyzed.

• Proactive Fraud Prevention: The involvement of accountants throughout the funding cycle would allow for earlier detection of irregularities, potentially stopping fraud before it results in significant losses.

• Enhanced Accountability: By holding accountants accountable, there is an added layer of professional responsibility that encourages thorough and honest reporting.

Implementation Steps

1. Develop and Approve the Training Curriculum: CIBA and other stakeholders to will develop a specialised training program for accountants in lottery funding and fraud prevention.

2. Create a Registry of Approved Accountants: Establish and maintain a public registry of accountants who have completed the training and are certified to work with NLC applicants.

3. Software and System Standardisation: Select and approve the accounting and working paper software systems that meet the NLC’s requirements for transparency and consistency.

Why factual finding engagements is an antidote to NLC fraud

ISRS 4400 (International Standard on Related Services) can be designed in a way to better protect against fraud and is a more appropriate choice for the situation described, especially when considering the need for engagements that provide factual findings in relation to financial information. ISRS 4400 is designed for engagements where practitioners perform procedures on financial information and report factual findings without providing an assurance opinion. This approach aligns well with the need for specific, focused reviews rather than full-scale audits to detect and prevent fraud within the National Lotteries Commission (NLC).

Why ISRS 4400 is Suitable

1. Nature of Engagements:

• Factual Findings: ISRS 4400 is ideal for engagements where the accountant or practitioner is asked to carry out procedures and report the factual findings. This is particularly useful for the NLC context, where the main interest is in identifying specific fraudulent activities or non-compliance with prescribed procedures.

• Flexibility: Unlike assurance standards that require a conclusion regarding the entire financial statements or a broad area, ISRS 4400 allows for narrow-scoped engagements that can focus on particular aspects of financial information or compliance.

2. Targeted Procedures:

• Agreed-Upon Procedures: The practitioner and the engaging parties (NLC, professional bodies, and NPCs) can agree upon the procedures to be performed. These can be precisely tailored to target areas where there is a higher risk of fraud or misappropriation of funds.

• Direct Reporting of Findings: The practitioner reports the results of the specific procedures performed, providing a list of factual findings that can directly highlight irregularities or discrepancies without the need to express an assurance opinion.

3. Enhancing Transparency and Accountability:

• Clear and Direct: The report from an ISRS 4400 engagement is straightforward, listing the procedures performed and the factual findings. This clarity is beneficial in a regulatory environment like the NLC's, where clear, detailed information can support further investigative or corrective actions.

• Supports Collaborative Oversight: The factual findings provide a foundation for further discussion and action among the NLC, the engaged accountants, and NPCs. This supports a collaborative approach to resolving issues and improving compliance.

Choosing ISRS 4400 for engagements related to NLC funding activities is a strategic move that aligns with the need for detailed, procedure-specific reviews rather than broad audits. This approach will enhance the ability of accountants to identify and report on specific fraud risks, supporting the NLC in its efforts to ensure that funds reach their intended beneficiaries and are used as intended. By focusing on factual findings and agreed-upon procedures, the collaboration between the NLC, professional bodies, and accountants becomes a powerful tool in the fight against fraud.

Why audits can’t stop the NLC fraud

To address the complex issues of fraud and mismanagement within the National Lotteries Commission (NLC), especially those involving grants and funding for non-profit organizations (NPOs), it's crucial to understand why a traditional audit of historical financial information might not be the most effective approach. Here’s an in-depth analysis:

Limitations of Traditional Audits in Detecting Specific Frauds

1. Purpose and Scope of Traditional Audits:

   • Financial Statement Focus: Traditional audits are primarily designed to provide assurance on the accuracy of historical financial statements as a whole. They aim to determine whether the financial statements are free from material misstatement, whether due to fraud or error.

   • Materiality Thresholds: Audits are governed by the concept of materiality, meaning that auditors focus on significant financial discrepancies that could affect the decisions of users of financial statements. Small but potentially fraudulent transactions can sometimes fall below these materiality thresholds and may not be scrutinized in detail.

2. Nature of Fraud in the NLC Context:

   • Complex Schemes: The fraud schemes uncovered within the NLC involve intricate networks of collusion among officials, board members, lawyers, and NPOs. These schemes are often designed to evade detection by standard audit procedures.

   • Non-Financial Indicators: Many signs of fraud in the NLC cases involve non-financial indicators, such as the legitimacy of the operations of NPOs or the authenticity of documents and transactions, which are not the primary focus of traditional financial audits.

3. Timing and Retroactive Analysis:

   • Periodic Review: Traditional audits are periodic reviews (usually annual) and are not designed to perform continuous monitoring of transactions throughout the year. Fraudulent activities can occur and be concealed between these periods.

   • Historical Data: While audits examine historical data, they may not effectively identify ongoing fraudulent schemes without real-time monitoring or the ability to analyze transactions soon after they occur.

4. Audit Techniques and Fraud Detection:

   • Predictable Procedures: Experienced fraudsters within organizations are often familiar with standard audit procedures and know how to circumvent them. Traditional audits might use predictable sampling techniques, which can be manipulated by those intending to commit fraud.

   • Limited Forensic Capability: Regular audits are not forensic audits. They do not usually involve specialized procedures such as detailed investigation of suspicious transactions, in-depth interviews, or digital forensic analysis, which are necessary to uncover sophisticated frauds.

In summary, while traditional audits of historical financial information are essential for general financial oversight, they are not specifically designed to detect the types of fraud and mismanagement seen in the NLC cases. The complexity, sophistication, and often non-financial nature of these frauds require more targeted, flexible, and collaborative approaches offered by engagements under standards like ISRS 4400, ISAE 3000, and ISRE 2400. These approaches ensure that the procedures are directly relevant to the risks faced, making them far more effective in the fight against fraud within the NLC.

Why This License Is Essential for Your Career

The Independent Review Specialist License isn't just a credential — it's your gateway to becoming a recognized expert in the field of independent reviews. If you're a Business Accountant in Practice (BAP(SA)) looking to expand your professional horizons, this license is crucial. It enables you to gain official recognition from the Companies and Intellectual Property Commission (CIPC) as an independent reviewer, allowing you to offer your services with confidence and authority.

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Pricing and Refunds

• License Fee: R2,500.00

• Annual Renewal: Starting from R550.00

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The license package includes extensive study materials to prepare you for the assessment, covering essential topics like:

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2. Ethics and Quality - Understand the ethical considerations and quality standards.

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Entry Requirements

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