- The Auditor-General issued the National Lotteries Commission (NLC) a qualified audit opinion for 2023/24, citing poor internal controls and nearly R1-billion in underspent grant funds.
- Grant delays were mainly caused by vacancies and weaknesses in grant processing and oversight.
- The audit revealed repeated non-compliance, unachieved performance targets, asset mismanagement and failure to investigate irregular expenditure.
- Three material irregularities were flagged, including millions lost in incomplete or undelivered projects.
The Auditor-General of South Africa has urged the National Lotteries Commission (NLC) to urgently tighten its internal controls. For the 2023/24 financial year, the Auditor-General issued the NLC with a qualified audit, flagging poor financial oversight, non-compliance and nearly R1-billion in unspent grant funding.
In a briefing to Parliament’s Standing Committee on Public Accounts (SCOPA) on Tuesday, officials from the Auditor-General’s office highlighted several concerns, notably a massive underspending on grants. The NLC underspent R957-million in grant allocations. This was largely due to vacancies in the NLCs Distribution Agency committee, which delayed adjudicating grant applications, as well as systemic weaknesses in grant processing and internal controls.
Corne Myburgh, Auditor-General business unit leader, said the main qualification area remained grants management. “There have been a number of years where the NLC has received qualified opinions. For the last two years specifically, it was more in relation to the grants management,” said Myburgh.
She acknowledged some improvements, including the introduction of site visits before grant approval, changes to the NLC’s grants policy and adjustments to its accounting policy. However, she said the NLC still fell short of meeting audit requirements.
Auditor-General senior manager Aphendule Mantiyane said the audit outcome was consistent with the previous year, but the nature of the qualification had changed. In 2022/23, the NLC had not been able to provide reliable evidence that its expenditure on grant allocations was properly recorded, due to poor record-keeping.
But for 2023/24, the NLC had recorded grant spending in its financial statements, even though the conditions required to recognise this spending had not been fully met.
Mantiyane also flagged repeated non-compliance with legislation, performance targets, and financial controls. “We again identified instances of non-compliance … This is an area that needed attention and improvement from management,” she said.
On performance planning, the Auditor-General found that the NLC had removed a key indicator from its annual performance plan: the requirement to process grant applications within 150 days. Mantiyane said the NLC claimed it would be unable to meet the target, and so omitted it from the plan entirely.
“We found this to be unreasonable,” said Mantiyane. “Management was supposed to set a target that was achievable considering their circumstances. Because this indicator was not included in the annual performance plan or report … it undermines the system of transparency, accountability and oversight because there was simply no reflection on how the entity is performing against this particular indicator,” Mantiyane said.
The Auditor-General found that vacancies in the Distribution Agency committee, which adjudicates grant applications, severely affected the NLC’s performance. In previous years, separate committees were assigned to sectors like sport, arts and culture, and charities. For 2023/24, there was only one committee handling all sectors, causing delays and contributing to the underspending on grants.
The Auditor-General told Parliament that the NLC had not reactivated its pro-active funding stream, which the NLC Board suspended in 2023 to strengthen its internal controls. This funding mechanism was at the heart of the looting of the lottery. Pro-active funding was previously awarded by the NLC for emergency disaster assistance and areas identified as priorities. Unlike other lottery funding, pro-active funding did not require a grant application.
Vacancies in senior management also weakened the NLC. The Chief Operating Officer position has been vacant since August 2022 and remained unfilled by the end of the audit period. Key divisions like legal, finance, and Information and Communication Technology, also had high vacancy rates, which made it harder for the NLC to carry out its mandate.
The Auditor-General issued notice of three material irregularities. These included:
- The Motheo Sports Complex in Soweto, where R6-million in grant funding was paid out, but no sports complex was delivered.
- The eDumbe Old Age Home in KwaZulu-Natal, where R26-million was disbursed but construction was abandoned before completion.
- An additional R13-million was paid to a professional service provider appointed to help finalise the eDumbe project, but no work was delivered.
The audit also revealed gaps in the NLC’s financial management. Some grants were approved before mandatory conditions were met, while other grant agreements were not even signed before funds were disbursed, Parliament heard.
The Auditor-General also highlighted asset mismanagement. Mantiyane said the NLC sold assets to staff members via auction without first offering them to educational institutions and non-profit organisations, as legally required. In terms of consequence management, the NLC failed to investigate irregular expenditure within the required 30 days.
On the quality of financial statements, the NLC and its Distribution Trust Fund (a subsidiary of the NLC) failed to maintain proper records, particularly on grant allocations.
The Auditor-General said the NLC needed to tighten internal controls, ensure oversight bodies are kept informed, and prioritise credibility in its financial reporting.
“Inadequate financial statements impact operations and increase the cost of audits,” said Mantiyane. “They also hinder transparency and the ability to reflect accurately on how public funds are used.”
The NLC had been plagued by corruption for well over a decade until a new board took over in 2022 and a new commissioner came onboard in 2023. Several top-level managers, facing disciplinary action for facilitating corruption, have left. But based on the Auditor-General’s report, there is a long way to go before the new management gets the organisation right.
