Investigations have exposed a sophisticated fraud network at the National Lottery Commission (NLC), where five small accounting and auditing firms allegedly helped criminals siphon hundreds of millions of rands through fake nonprofit organisations (NPOs). The firms reportedly created fraudulent financial statements for over 30 NPOs, enabling them to secure large grants under false pretenses.

Hijacked NPOs and Collusion to Falsify Records

The scam exploited a key NLC requirement: grant applications must include two years of audited financial statements. Investigators revealed that the accounting firms acted as “professional enablers,” colluding with lottery executives to submit falsified financial records for "hijacked" NPOs. The investigation identified R2 billion in questionable deals dating back to 2014.

How Did it Go Unnoticed?

1. Fake Professional Memberships: Executives and accountants involved in the scheme falsely claimed professional qualifications or membership in recognized accounting bodies.

2. Lack of Verification: No one verified whether these accountants were registered with professional bodies, enabling unqualified individuals to operate unchecked.

3. Professional Bodies Not Alerted: Despite evidence of misconduct, accounting professional bodies such as SAICA or ACCA were not informed, leaving fraudulent practitioners unmonitored.

4. Absence of Practice Reviews: Routine practice reviews by professional bodies, which could have flagged irregularities, were either insufficient or non-existent.

5. No Centralised Database: There is no comprehensive system for listing and verifying qualified accountants, leaving room for fake credentials.

Accountability and the Way Forward

To avoid such fraud in the future, there are several measures that could be implemented:

1. Professional bodies and regulatory authorities must conduct more rigorous audits and reviews of accounting firms to ensure strict compliance with ethical and professional standards.

2. Introducing a centralised, publicly accessible database to verify accountants' qualifications and professional memberships in real-time. Verifying accountants and practices against professional databases such as CIBA’s verify a member or SAGE’s Find an Accountant can be used to establish the status of accountants hired by clients.

3. Require accountants and firms to report irregularities to both professional bodies and regulators to address potential misconduct promptly.

4. Funding bodies, such as the NLC, should adopt stricter verification mechanisms for financial statements submitted with applications.

5. Raise awareness among businesses and funding organisations about the risks of engaging unverified accounting professionals and the importance of thorough due diligence.

By strengthening these systems and fostering a culture of accountability, South Africa can better protect its financial systems from fraud and corruption.