Housing schemes regulator goes from bad to worse
R80-million of taxpayers’ money that was irregularly invested with the discredited VBS Mutual Bank by the beleaguered Community Schemes Ombudsman Services (CSOS) has been written off by the organisation, and this is at the heart of its first adverse audit finding.
In only its second year, the entity has regressed from a qualified to an adverse audit, the second-worst possible finding. The investment was done without the necessary treasury approval.
The CSOS is the regulator and handler of disputes involving community housing schemes.
Internal CSOS documents seen by the Mail & Guardian show the organisation also incurred R26-million in irregular expenditure.
Auditor general Kimi Makwetu cannot comment on audits, even if they are final, until they are presented to Parliament.
The CSOS this week confirmed the final auditor general report had been presented to its board.
An adverse finding means the financial statements contain material misstatements that are not confined to specific amounts, or the misstatements represent a substantial portion of the financial statements. In terms of gravity, an adverse finding is only superseded by a disclaimer finding, which essentially means the audited party failed to provide sufficient evidence from which to form an opinion.
“As disclosed in note 6 to the financial statements, material impairment to the amount of R81 765 000 was incurred as a result of a write-off of irrecoverable investments,” according to the report.
It also highlighted other issues affecting the audit, including:
- The CSOS submitted its financial statements two months late without the approval of the accounting authority;
- The CSOS has still not managed to develop a complete database of community schemes, meaning its revenue was misstated; and
- The opening of new investment accounts and investments, and investment of surplus funds.
The report also highlighted an ongoing auditor general forensic investigation, believed to be related to investments with VBS (now under curatorship), which is due to be completed by the end of August. The investigation forms part of remedial action undertaken by Human Settlements Minister Nomaindia Mfeketo after she found out about the investment in March.
Mfeketo has been at loggerheads with the board over her insistence that the board should suspend chief ombud advocate Seeng Letele and chief financial officer Themba Mabuya. Her views were confirmed this week by a legal opinion given by senior counsel Craig Watt-Pringle, who said failing to act could open up the board to accusations of failing to discharge its fiduciary duties.
On Wednesday, the board gave the executives 24 hours to explain why they should not be suspended pending a disciplinary hearing. A statement issued by the CSOS said the two were alleged to have been grossly negligent, dishonest and in dereliction of duty by investing surplus funds with VBS.
They are also accused of failing to provide the board with information about other investments.
The CSOS on Thursday said: “The board has started a process of looking into the matter. In the interim, the board has written to the executives to request them to respond as to why they should not be suspended.
“The board has given them a deadline of close of business, August 23.”
Minutes contained in a CSOS report to Mfeketo dated March 13 show that the board’s finance subcommittee resolved last October that the organisation’s investment policy be adopted and that permission be sought from the treasury to invest surplus funds of R100-million with registered banks and private investment institutions after due diligence had been undertaken.
The report conceded no due diligence had been done but Mabuya had said at the time that the organisation intended seeking legal advice about this. Also at that time, a board member said they were worried about the “sentiment” the investment would have on schemes that paid levies to the CSOS.
The M&G also established that the board recently informed Mfeketo’s office that the two executives had allegedly doctored the March 13 policy document after it had been approved.
Mabuya referred questions to the human settlements department and Letele said she could not comment on internal issues and that she was consulting her attorneys.
“It is not true that the investments were done without the CSOS board because the board took the decision to invest surplus funds sitting in current account[s] so that it could earn interest,” she added.