The summary of statements of monies kept in trust in the Guardian's Funds as set out on page , for the year ended 31 March 2005, has been audited in terms of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with the Public Audit Act, 2004 (Act No. 25 of 2004). The summary of statements, the maintenance of effective control measures and compliance with relevant laws and regulations are the responsibility of the Master of the High Court. My responsibility is to express an opinion on the summary of statements, based on the audit.
The audit was conducted in accordance with Statements of South African Auditing Standards. Those standards require that I plan and perform the audit to obtain reasonable assurance that the summary of statements is free of material misstatement.
examining, on a test basis, evidence supporting the amounts and disclosures in the ï¬nancial statements, assessing the accounting principles used and signiï¬cant estimates made by management, and evaluating the overall ï¬nancial statement presentation.
Furthermore, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations which came to my attention and are applicable to ï¬nancial matters.
The audit was completed in accordance with the Auditor General Directive No.
I believe that the audit provides a reasonable basis for my opinion.
The summary of statements prepared for the Guardian's Funds is a consolidation of the ï¬nancial statements of the 10 master's ofï¬ces into six regions that administered the Guardian's Funds. The summary of statements submitted for audit purposes for the year ended 31 March 2005 excluded the ï¬nancial amounts of the Mmabatho ofï¬ce. These statements had not been included due to inadequate/irreconcilable accounting records maintained.
At the time of ï¬nalising the audit report a signed summary of statements has not yet been presented for audit purposes.
The Guardian's Fund operated a manual ï¬nancial management system which could not produce timely ï¬nancial statements compliant with generally accepted accounting practice (gaap). The Guardian's Fund therefore could not comply with the requirements as set out in Audit Circular No. 1 of 2005, which states that the ï¬nancial statements should be prepared within two months of year-end and in accordance with gaap.
It is impractical to disclose the nature of the deviation from the statements of Generally Accepted Accounting Practice (GAAP) as this would involve a reproduction of all the ï¬nancial records.
Conï¬rmations received from a commercial bank reï¬ected a difference of R1 272 050 (2004: R44 million) which was not accounted for in the summary of statements. This was as a result of inadequate bank reconciliations.
Consequently, I could not satisfy myself regarding the completeness and accuracy of the information contained in the summary of statements.
Accounting for transactions in the funds, which were administered by the respective masters of the provincial divisions of the High Court, were still performed manually.
The current systems, prescripts and methods of work did not enable the production of ï¬nancial statements that were reliable, accurate and complete. The complexity of the manual system, the enormous number of interest calculations, the record-keeping of thousands of beneï¬ciary accounts as well as the calculation of the annual interest provision posed a material risk of error and hindered the compilation of timely and accurate records.
Notwithstanding the lack of computerisation, no alternative procedures were used to negate the risk of record cards being misï¬led, lost, stolen or destroyed. The risk of creating ï¬ctitious cards leading to the payment of ï¬ctitious beneï¬ciaries was therefore increased.
An outdated procedure manual was in place at the Guardian's Fund to guide the employees in their day-to-day duties and to ensure that functions were performed consistently and in accordance with relevant rules and regulations. Staff performing the functions could not adhere to the documented procedure manuals due to changes in the systems. Therefore they adapted the manuals in performing their functions on a daily basis. This, however, had not been approved. According to the documented policies there were also no speciï¬c controls in place to detect fraud.
The drafting of new policies and procedures to accommodate the proposed computerisation of the fund was still in progress.
Reconciliations between the obligations per the beneï¬ciaries' trust account cards and the monies in the bank identiï¬ed shortfalls in monies at Bisho and Umtata amounting to R5,55 million and R3,59 million, respectively.
The shortfalls for the Bisho ofï¬ce and the Umtata ofï¬ce have not been reconciled since 2003.
The Guardian's Fund is required to calculate interest on all interest-bearing accounts at the applicable interest rate, as determined annually by the Minister of Finance. No interest was calculated or accrued on the inactive account cards. The amount of the interest was not quantiï¬able due to the enormous manual records. Audit procedures for veriï¬cation could therefore not be performed.
Monthly reconciliations were not performed between the Guardian's Fund's records and the Public Investment Commissioner (PIC). Conï¬rmations received from the PIC reï¬ected a difference of R248 million, which had not been recorded in the books of the Guardian's Fund.
Included in the conï¬rmation received from the PIC were two accounts, namely the main account and the reserve fund account of the Guardian's Fund amounting to R807 844 (2004: R940 000) and R10.1 million (2004: R11,8 million), respectively. These accounts had not been accounted for in the books of the fund.
In terms of section 88(2)(b) of the Administration of Estates Act, 1965 (Act No. 66 of 1965) interest-bearing accounts in the funds that became legally claimable but remained unclaimed for any period must not earn interest after the expiry of ï¬ve years.
Due to the manual system used these monies could not be readily determined and were not transferred to non-interest-bearing monies in terms of the legal requirements. Interest was accrued on unclaimed monies that must not earn interest after the expiry of ï¬ve years. The overstatement of the interest calculation was not quantiï¬able due to the large volume of beneï¬ciary accounts and the incomplete ï¬nancial records. Audit procedures for veriï¬cation could therefore not be performed.
In terms of section 92 of the Administration of Estates Act, 1965 (Act No. 66 of 1965) those monies in the funds that have remained unclaimed by the persons entitled thereto for a period of 30 years from the date upon which such persons became entitled to claim the said money, must be forfeited to the state. Due to the current inefï¬cient manual accounting systems it could not be readily determined which unclaimed monies should be forfeited to the state. Therefore the ï¬nancial statements of the Guardian's Fund included funds that belonged to the state. Audit procedures for veriï¬cation could therefore not be performed.
In terms of section 93 of the Administration of Estates Act, 1965 (Act No. 66 of 1965) commission should be calculated on all unclaimed monies paid into the Guardian's Fund. If the monies are paid and cleared by the bank, the commission should be paid over to the South African Revenue Service (SARS). If the monies remain unclaimed, the entire amount including the commission, is paid over to SARS.
The commission, which should have been calculated and transferred could not be quantiï¬ed due to the large number of account cards and the manual accounting system. Audit procedures for veriï¬cation could therefore not be performed.
Because of the signiï¬cance of the matters discussed in paragraph 3.1 to 3.6 I do not express an opinion on the Summary of Statements as at 31 March 2005.
Tax certiï¬cates regarding interest allocated to beneï¬ciary accounts were not sent to the South African Revenue Service and to beneï¬ciaries on an annual basis as required by the Income Tax Act, 1962 (Act No. 58 of 1962).
In terms of an instruction issued by the National Treasury on 3 July 1998 the PMG account of the South African Reserve Bank was phased out on 31 January 1999 and a separate current bank account for each fund was opened with a commercial bank on 1 February 1999.
Conï¬rmation has been received that the PMG account has been closed since November 2004. However, the summary of statement reï¬ected a balance of R3 080 (2004: R4 million).
The annual reports of the Guardian's Fund for 2002-03 and 2003-04 have not been tabled in Parliament. However, the annual report for 2002-03 was made public on the website of the Master of the Supreme Court.
The assistance rendered by the staff of the Department of Justice and Constitutional Development during the audit is sincerely appreciated.