14 May 2007: ISS Today: South Africa: Why Make Laws if There is No Will to Implement Them?

14 May 2007: South Africa: Why Make Laws if there is No Will to Implement Them?

 

By now, the devastating effects of mismanagement, fraud and corruption are well known to the South African community.  The public’s representatives hardly miss an opportunity to express their disapproval of fraud and corruption and their desire to fight and eradicate these evils. Their disapproval of mismanagement, fraud and corruption is laudable since such practices compromise service delivery and the general public suffers as a consequence.

 

Hardly a day passes without the media reporting corruption and fraud, particularly in the public service. Yet the public seldom gets to hear what has been done about those incidents after the initial media reports.  In South Africa we have an arsenal of excellent laws, which, if taken seriously and implemented, can put up a real, winnable fight against corruption and fraud. The Public Finance Management Act (PFMA), the Municipal Finance Management Act (MFMA), the Prevention and Combating of Corrupt Activities Act (PCCAA), the Prevention of Organised Crime Act (POCA), the Financial Intelligence Centre Act (FICA) and the Protected Disclosures Act (PDA), are but a few such laws, all of them comparing favourably with, or even surpassing, international norms and legislation. But who has heard of their implementation?

 

By way of an example, let us take a brief look at the Fidentia debacle, particularly focusing on the “investment” of an amount of some R245million by the Transport Seta (Teta) made in Fidentia.. A Seta is created by the Skills Development Act with a specific mandate to facilitate the development of skills in its specified economic sector, not to invest with a view to making profit.

 

A Seta is, however, authorised by the Act creating it, to invest surplus funds in savings accounts, fixed deposits, permanent shares in any registered bank or other financial institution; or in internal registered stock as contemplated in section 21(1) of the Exchequer Act. The last-mentioned method has, of course, been superseded by the PFMA, which requires that all investments by the Setas be made with a duly registered bank in South Africa, and approved by the National Treasury in writing, or in a unit trust scheme managed by a company registered as a management company in terms of section 4 or 30 of the Unit Trust Control Act. Any other form of investment outside these must be approved by the Minister of Labour before the investment is made.

 

The rationale for investing surplus funds exclusively as prescribed is that the funds must be available as and when needed for the conduct of skills development.

 

Fidentia was certainly not one of the financial institutions contemplated in the Skills Development Act at the time the investment was made, or thereafter. An enquiry at the Financial Services Board revealed that Fidentia was registered as an Asset Management company in terms of the Financial Advisory and Intermediary Services Act (FAIS Act), which was supposed to provide consumer protection in relation to financial advice and investment in financial products.

 

The PFMA places the financial management of a Seta (as a non-trading public entity) in the hands of a controlling body -- a board, for example. This body becomes the accounting authority of the Seta. As such, it must exercise its fiduciary duties including the exercise of reasonable protection of the assets and records of the Seta, act in the best interests of the Seta in managing its financial affairs and prevent any prejudice to the financial interests of the state. The PFMA, furthermore requires the accounting authority of a Seta to comply with the provisions of the Skills Development Act. It makes non-compliance a punishable offence.

 

According to reports, the investment in Fidentia was made during 2004. Setas are required to have annual audits of their books and to submit reports to the Minister for tabling before parliament.  Audits and reports must disclose all financial transactions. The Auditor-General must report on the financial records. These audit reports reach the Minister via the Director-General and are supposed to be interrogated by the parliamentary Standing Committee on Public Accounts (Scopa).

 

From the time the investment was made, all the above must have seen Teta’s investment of R245million in Fidentia, at least during 2005 audit. If not, they were guilty of dereliction in the execution of their duties. If Teta had not disclosed such a huge investment in the financial reports the matter would be simpler to understand.

 

Assuming the Minister did not authorise the investment, it is clearly outside the law; what he needed to do was to invoke the provisions of the PFMA and bring charges against those involved. The occurrence of mismanagement, fraud and corruption in the public sector cannot otherwise be addressed. The PFMA also provides for a recovery mechanism. This, of course, can be resorted to only once there is certainty Fidentia will not reimburse Teta.

 

The statement attributed to the Minister that he is considering tightening the financial activities of the Setas, if true, is redundant, as there are laws in place meant to deal with these issues; all that is required is to implement them.

 

How are we going to know if the PFMA and other laws work if they are not implemented and are merely left to decorate the statute book?

 

Jake Moloi, Senior Researcher, Crime and Justice Programme, ISS Tshwane (Pretoria)