Run on Numbers: The Guardian’s Fund - Gatekeepers found wanting
The Guardian’s Fund (GF) is a statutory trust established in terms of Chapter V of the Administration of Estates Act, 1965. The GF consists of all money received by the Master of the High Court under the Act or any other law or pursuant to an order of a court or any money accepted by the Master in trust for any known or unknown person. The Guardian’s Fund falls outside the statutory definition of a trust in South Africa but appears to fall within a wider, more general sense of the ambit of a trust.
- Despite having received an unqualified audit opinion from the Auditor-General for the 2020/2021 financial year, there appear to be some allegations that need a closer look.
- The purpose of the GF is to protect and manage the money of persons deemed to be legally incapable or of inadequate capacity to manage their own affairs, as well as undetermined, unknown, or absent heirs and untraceable persons. The GF is held under the management of the Master of the High Court of South Africa. Some of the functions performed within the prescripts of the said Act, inter alia, are to invest trust money held with the Public Investment Corporation (PIC). The Chief Financial Officer, with assistance from the office of the Chief Master, is responsible for the formulation and supervision of the mandate given to the Investment Manager (the Public Investment Corporation). With a balance sheet of over R16 billion, it should calculate interest accruing in respect of money received on behalf of beneficiaries at the interest rate as determined by the Minister for Justice and Correctional Services annually, process inheritance applications and make payments to persons entitled thereto.
- The GF has representation in six Masters’ offices, namely: Pretoria, Cape Town, Pietermaritzburg, Makhanda, Bloemfontein and Kimberley. The six offices in a country with nine provinces and a spatial reality look somewhat out of sorts with Makhanda - also known as Grahamstown - a town of about 140,000 people in the Eastern Cape having an office and the provinces of the Mpumalanga, North West and Limpopo not being represented at all. The High Court has offices in all provinces. The GF, however, has established 302 secondary service delivery points throughout the country to improve customer interaction and accessibility of services, thereby relieving the financial burden of the vulnerable beneficiaries having to travel long distances to the Masters’ offices to submit their applications. The GF highlights one of its achievements in the last financial year as embarking on a system modernisation project and finalising the appointment process of the preferred service provider. See the accompanying graph.
- In the financial statements, the Fund reports that it had written off certain investments being fair value losses of R129,096,000. The impairment losses are related to investments with Landbank, which are in default. The PIC conducted a valuation on the instruments, which led to the impairment as the fair value of the investments that were less than the carrying value. How the PIC can warrant using the GF to invest in bonds with the Landbank is beyond comprehension. It does not comply with prudent investment criteria considering the risk appetite of the client, nor does it have any appreciation of the risk associated with an investment in a Bank that traded itself into a position of insolvency through corrupt practices and had to be bailed out by the government only a few years earlier.
- The Guardian’s Fund expresses their approach to risk as follows: ”As a client of the PIC, the Fund specifies its desirable risk parameters in accordance with its own risk appetite. This risk appetite informs the formal investment mandate given to the PIC. The mandate consciously promotes a responsible approach to risk to ensure the long-term sustainability of the Fund and to protect the reputation of the Fund. The ultimate responsibility for investment risk management oversight lies with the PIC and not with the Guardian’s Fund.” It would be very interesting to see how the investment in the Landbank fitted into this “clear” mandate. According to the financials, the mandate states, “To mitigate this risk and minimise excessive credit exposure to one single counterparty, the Guardian’s Fund mandate to PIC states that PIC will only invest with local commercial banks or institutions that have a credit rating of at least “A” from one of the recognised domestic and/or international credit rating agencies.” As this is the case, the PIC has not kept to its mandate as the Landbank did not have a “A” credit rating. There should be consequences for the PIC and the individuals responsible for this loss.
Earlier this month, The Department of Justice and Constitutional Development announced that it had obtained a preservation order for some of the funds stolen from the Guardian's Fund. “Thanks to the hard work of law enforcement agencies, progress is being made on all possible leads. With the help of law enforcement agencies, we pledge to hold accountable all individuals involved in activities that seek to undermine the Guardian's Fund System (GFS)," the department said.
The Fund is duly administered by the Justice Department, using an online system called the GFS, which is linked to the bank system (of an appointed service provider) to enable swift and secure payments to the beneficiaries (heirs).
Early in April this year, the department discovered an illegal breach on the GFS, and found that over R17 million had been lost from the Guardian’s Fund. The department’s internal forensic investigation immediately set out to investigate the problem and discovered a potential violation
The South African Police Service, the Hawks, Financial Intelligence Centre and the Asset Forfeiture Unit are handling the ongoing investigation.
* Kruger is an independent analyst
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