Auditor-General Terence Nombembe. Picture: PUXLEY MAKGATHO
Auditor-General Terence Nombembe. Picture: PUXLEY MAKGATHO

CAPE TOWN — Poor financial management and a lack of internal controls at the Compensation Fund are among the reasons cited for the auditor-general giving it a qualified audit opinion on its 2011-12 financial statements.

The fund — which provides financial assistance and support for those who are injured or take sick at work — has been in financial disarray for a number of years and has been plagued by fraud amounting to millions of rand perpetrated by health care providers.

It failed to keep accurate records for R5bn of contributions received from employers.

The fund’s risk management unit did not function well, auditor-general Terence Nombembe found, and it did not implement proper record-keeping. Laws were not complied with, employers were not correctly assessed, and supply-chain management and fraud prevention was seriously deficient.

Mr Nombembe said he could not express an opinion on the completeness and accuracy of the contributions paid by employers in the year to end-March 2012 as well as of assessment debtors amounting to R5.7bn and accruals amounting to R1.5bn. He said there was "inadequate monitoring of controls" over these items.

"Furthermore the fund does not have processes in place to ensure that all employers are registered with the fund and assessed", as required by the law. The auditor-general was also unable to verify the accuracy and completeness of interest and penalties for late submissions and late payments of assessments amounting to R347m.

No opinion could be expressed on the completeness, accuracy and occurrence of benefits paid.

The auditor-general’s report noted that the fund was investigating 71 cases of fraud and services not rendered by service providers.

Last year the fund’s risk management unit conducted investigations of alleged fraudulent transactions as a result of internal control weaknesses. It also investigated allegations of service providers colluding with internal employees to process fraudulent and fictitious transactions on medical claims, pension payments assessment revenue and supply chain management.

The annual report noted that 208 cases of fraud and other unethical behaviour were investigated during the year, related to an estimated R26m, of which R3m was recovered. It also discovered that R7m was paid to beneficiaries whose cheques were intercepted and cashed fraudulently.

The fund paid compensation claims amounting to R549m last year and medical claims of R1.9bn. It generated a surplus of R2bn (R3.6bn). At the end of the financial year it had an outstanding claims reserve of R4.9bn and an accumulated surplus of R14.2bn.

Compensation commissioner Shadrack Mkhonto said in the fund’s annual report, tabled in Parliament on Friday morning, that a new system of electronic submission of returns would be launched this year. This would hopefully improve revenue collection.

In 2010-11 the fund received a disclaimer from the auditor-general on its financial statements, so a qualified opinion last year represented some progress.