FISA issued the following press release on 11 October 2010, following Justice Minister Jeff Radebe’s announcement about R80 million fraud in the Guardian’s Fund.
FISA calls for Guardian’s Fund to be outsourced
The Fiduciary Institute of South Africa (FISA) has called for responsibility for the Guardian’s Fund, beset by R80 million and corruption as acknowledged by Justice Minister Jeff Radebe on the weekend, to be placed with a regulated financial services institution and run similarly to a bank.
Such an institution, whether a financial services institution or a trust company, should have the necessary controls in place to administer the fund and have a national footprint in order to service clients all over the country.
At present, the Guardian’s Fund is run under the Master of the High Court, administering funds on behalf of minors, people who are incapable of managing their own affairs, unborn heirs and missing or absent heirs who cannot claim funds. There are various offices of the Master of the High Court, several of which have a Guardian’s Fund operation. The scattered administration of the Guardian’s Fund is one of the root causes of the problem, according to FISA, as are decrepit administration controls.
John Gibson, FISA Chairman, said: “We welcome Mr Radebe’s transparent announcement and also strongly support the strong stance that he has adopted in involving the Hawks and the National Prosecuting Authority in their investigation into the alleged misappropriated funds. We are available to meet with the Minister to discuss solutions to this matter.
“Over the past few years, the Master’s Offices have been working on improving their controls around the Guardian’s Fund, but yesterday’s confirmation by the Minister highlights the size of the problem.”
Gibson said that the Master’s Office acknowledged as far back as 2007 the chaos in the administration of the Guardian’s Fund and highlighted as one of the main concerns the poor accounting and payment process. Tenders were called for to outsource this function, yet FISA believes no tender was awarded to run the funds.
“In 2007 it was confirmed that the fund had approximately R2 billion under administration. The money is invested with the Public Investment Commission and audited annually. The department has never since 1994 received a clean and acceptable report and it is scandalous that no-one actually knows the current size of the fund, said Gibson.”
“The very sad part about the corruption scandal is that thousands of minor children will be victims of what has happened. FISA and its members are expecting numerous calls from beneficiaries and guardians about expected payments which were paid from member companies to the Guardian’s Fund on behalf of beneficiaries.”
Gibson said it was hard to believe that the administration of the Guardian’s Fund is not computerised but rather operated on a “hand system process.” Beneficiary details are written by hand, in pencil even, on a card filing system, making it impossible to reconcile records and leaving the door open to any form of corruption and mismanagement.
“Interest payments are another problem. The current process within government is that the interest payable on amounts paid into the Guardian’s Fund is calculated on a monthly basis at a rate per annum determined from time to time by the Minister of Finance. If the fund administration were outsourced to a financial institution, a further benefit to all beneficiaries and guardians would be higher interest rates payable on capital favouring all beneficiaries.”
Finally, Gibson said that in September each year the Master of the High Court advertises in the Government Gazette accounts that have been unclaimed. FISA suggests that all these unclaimed funds not be forfeited by the state but be paid back to the fund.
Gibson said that FISA will be closely monitoring the process and invited the Department of Justice to engage with the institute to discuss a sustainable and secure solution.