Guardian's Fund & Master's Office: progress report by Department of Justice

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Justice and Correctional Services

07 September 2010
Chairperson: Mr N Ramatlodi (ANC)
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Meeting Summary

The Director-General of the Department of Justice and Constitutional Development and the Acting Chief Master briefed the Committee on the report on the Guardian’s Fund for the fiscal period 2008/09 and the progress report on the Master’s Office.

The presentation included the background to and purpose of the Guardian’s Fund; the response to its financial management challenges; the audit outcomes since 1993; the accounting challenges; a breakdown of the Fund’s investments in the Public Investment Corporation; the value and volume of receipt and payment transactions; a summary of the achievements and service delivery outputs; statistical data on the number of deceased estates, curatorships, trusts and insolvencies and the targets set for payouts from the Fund and the finalisation of deceased estates.

The Guardian’s Fund reported and investment surplus of R119 million in the 2009/10 financial year.  During 2009/10, the Fund received a total of R1.048 billion and paid out an amount of R753.95 million.  The total number of receipt transactions during the same period was 24,006 and the total number of payment transactions was 52,766.  The Fund reported a return on investment of 8.5% and a growth rate of 15%.  Other achievements included improved controls and turnaround times, the verification of fingerprints and beneficiary details and unqualified audit reports since 2007/08.  The challenges included its physical structures, the organisational structure, communication and capacity building.

The focus of the Office of the Master report was on its core responsibilities, legislative, policy and procedural reform and stakeholder management.  Highlights included an increase in the number of persons served on a daily basis, the implementation of a co-operative agreement with the Law Society of South Africa, the implementation of the Integrated Case Management System at 402 Magistrate’s Courts and the online verification of fingerprints at two offices.  Up to date information on the volume and value of payments from the Guardian’s Fund made in each of the major centres was available and a breakdown of the daily average number of new registrations was provided.  The presentation was concluded with an analysis of the monetary value of business in the Office of the Master during January and February 2010.  During the two-month period, the total value of estates registered amounted to R4.96 billion.

Members of the Committee asked questions about the monitoring of liquidations and the appointment of liquidators; the achievement of a return on investment of 8.5%; the extent of the losses incurred through theft and fraud; the extent of the risk of beneficiaries in the former TBCV countries; the lack of information on the actual performance in meeting key objectives; the current vacancy rate; the extent of collaboration between the Guardian’s Fund and social services agencies; the necessity for appointing an attorney to deal with a deceased estate; the information provided on the website; the disciplinary action taken against the Master of the Western Cape High Court for her failure to implement a court judgment; the commission element in the reported receipts and payments of the Guardian’s Fund;, the funds paid over to the National Revenue Fund by the Guardian’s Fund; the decline in the number of trusts; the access to the services of the Master throughout the country; the progress made in the electronic capturing of documents and the determination of beneficiaries under small estates.


Meeting report

Guardian’s Fund and Master’s Office: progress report by Department of Justice
Ms Nonkululeko Msomi, Director-General of the Department of Justice and Constitutional Development, presented the report on the Guardian’s Fund and the Master’s Office to the Committee (see attached document).

The presentation included the background to and purpose of the Guardian’s Fund; the response to the financial management challenges; audit outcomes since 1993 and the accounting challenges.  A breakdown of the Fund’s investments in the Public Investment Corporation (PIC) since 2007/09 was provided.  An investment surplus of R119 million was reported in the 2009/10 financial year.  During 2009/10, the Fund received a total of R1,048,563,000 and paid out an amount of R753,950,000.  The total number of receipt transactions during the same period was 24,006 and the total number of payment transactions was 52,766.  The presentation included graphs to illustrate transaction volumes and receipts and the growth in beneficiary receipts and payments over the previous five years.

A summary of the achievements and service delivery outputs was presented.  The Fund reported a return on investment (ROI) of 8.5% and a growth rate of 15%.  The 1% difference between the ROI of 8.5% and the 7.5% payout to beneficiaries was paid over to the National Revenue Fund.  Other achievements included improved controls and turnaround times, the verification of fingerprints and beneficiary details and unqualified audit reports since 2007/08.

A comparison of the number of deceased estates, curatorships, trusts and insolvencies for the 14 major centres for 2008 and 2009 was provided.  The number of deceased estates, curatorships and insolvencies had increased but the number of trusts had declined.  For the period 1 January 2010 to 7 September 2010, a total of 125,172 deceased estates were registered.  A breakdown of the average Rand value and number of deceased estates for 2009 was provided.  80% of deceased estates had an average value of R23,684 while only 4.6% were valued at more than R1 million.  Details of the turnaround times and targets for the payout times and the finalisation of estates were included.  During 2010, a total of 94 Presidential Hotline complaints and enquiries were received.

The challenges faced by the Guardian’s Fund included the physical structure, the organisational structure, communication and capacity building.

With regard to the Office of the Master, the focus was on the core responsibilities, legislative, policy and procedural reform and stakeholder management.  Highlights included an increase in the number of persons served on a daily basis, the implementation of a co-operative agreement with the Law Society of South Africa (LASA), the implementation of the Integrated Case Management System (ICMS) at 402 Magistrate’s Courts and the online verification of fingerprints at two offices.  Up to date information on the volume and value of payments from the Guardian’s Fund made in each of the major centres was available.  The presentation included a breakdown of the daily average number of new registrations received for the period January to August 2010.

Advocate Lester Basson, Acting Chief Master, explained the analysis of the monetary value of business in the Office of the Master in January and February 2010.  During the two-month period, the total value of estates registered amounted to R4.96 billion.

Discussion
Mr N Swart (ACDP) thanked the Department for the presentation.  It would appear that there were major improvements from the management perspective.  He congratulated the Department on achieving an unqualified audit report.  He noted that 80% of estates were in the low value category (i.e. Section 18 (3)), which required safeguards to be put in place to protect the beneficiaries.  He wanted to know if sufficient steps had been taken to protect the vulnerable beneficiaries.  The statistics presented indicated a sharp increase in the number of liquidations.  He recalled certain examples where liquidated estates had been problematic and he wanted to know what had been done about monitoring liquidations.  The Law Society of South Africa had stated that it was imperative that the directive issued by the Chief Justice was implemented.

Mr Swart wanted to know how the Guardian’s Find had managed to achieve a return of 8.5% on investments.  He wanted to know what the extent of fraud and losses was in the Guardian’s Office and recalled an instance where a cheque for R81,000 was fraudulently cashed in spite of the fact that the cheque was marked “not negotiable”.  He wanted to know if the risk to the Guardian’s Fund from the former independent states (the TBVC countries) had been determined.

Mr J Jeffery (ANC) congratulated the Department on the unqualified audit report but felt that it was still difficult to measure the progress that had been made.  The Medium Term Expenditure Framework (MTEF) objectives for the Guardian’s Fund had included a number of specific key objectives but the presentation did not include the actual performance achievements.  The report presented was not in accordance with the required format of quarterly reports.  He asked what percentage of payouts was actually made within the timeframe target of 40 days and if a breakdown per province could be provided.  He asked what the current position was with regard to vacant posts.  He asked what had been done to improve access to the Master’s Office.  He wanted to know if the Office of the Guardian collaborated with the social services agencies, such as the South African Social Services Association (SASSA), to exchange information to prevent persons from receiving payouts from the Guardian’s Fund as well as claiming a social grant.

Mr Jeffery referred to the allegations of favouritism made against the Office of the Guardian and claims that the work was not being spread fairly to black attorneys and asked what was being done to address the issue.  He said that most deceased estates were not complicated and should not require the services of an attorney.  He queried the Master’s directive that required than an attorney was appointed, which resulted in exorbitant executor’s fees being charged on relatively small estates for very little work.  An attorney should only be necessary for disputed or complicated estates.  The website provided information on the registration of deceased estates but no information on requirements were given once an estate was registered.  Assistance to finalise estates was not provided by the Office of the Master.

Ms M Smuts (DA) referred to the matter concerning the Master of the Western Cape High Court, Ms Z Agulhas.  Ms Agulhas had twice refused to implement a judgment in the Klopper case.  Her actions had been considered to be unlawful.  She was accused of gross impropriety and her actions had resulted in punitive costs being awarded against her.  She asked what disciplinary action was taken and why Ms Agulhas remained in her post.

Mr S Holomisa (ANC) asked for further details of the investments made by the Guardian’s Fund in the PIC.  He asked what measures were taken to address the challenges listed in the presentation.  He asked for an explanation of the commission element of income and expenditure and the reasons for paying over money to the National Revenue Fund.  He wanted to know why the number of trusts had declined and what instrument was being used instead of a trust.  He asked what progress had been made to provide the services of the Master’s Office at Magistrate’s Courts and how the services available were communicated.

Mr Jeffery asked what the status was of the computerisation of documents

Ms Msomi explained that documents were electronically captured at the 402 service centres, which were the first point of entry.  The documents were electronically mailed to the central offices.  The ICMS system allowed for real-time reporting.  There were challenges with the capturing of documents but progress was being made.  A document management strategy was developed and personnel were trained to capture the data.  It was essential that the information technology (IT) system worked.  The Department had obtained approval for the re-direction of a total of R180 million to the development if the IT system.  An amount of R50 million was diverted for the development of the document management system.

Ms Msomi acknowledged that there were challenges associated with communication and more work had to be done to correctly identify stakeholders and to develop an effective communications strategy.  In the past, the services of the Master was only available at the six regional centres but had been expanded to 402 service centres.  The DOJ&CD was in the process of developing an advertising campaign.

Ms Msomi was unable to advise what alternative instruments were being used to replace trusts.  The use of trusts had declined because of changes in taxation and legislation.  She explained that the Department had no access to the Guardian’s Fund and could not use the money in the Fund to cover administration costs.  The cost of administering the Fund was borne by Government.  The money transferred to the National Revenue Fund was the 1% difference between the investment growth of 8.5% and the 7.5% interest paid to beneficiaries and was paid over in accordance with the applicable legislation.

Ms Msomi explained that the commission element derived from the 5% commission levied for administering and managing the Fund in cases where beneficiaries had failed to claim the benefits that they were entitled to.  Commission was not charged in cases where beneficiaries had been identified and received payouts and interest payments from the Fund.

Ms Msomi apologised for not specifically indicating the measures taken to address the challenges listed in the presentation.  The measures included the development of the IT system.  The other challenge was the adequacy of human and financial resources.  The current vacancy rate was 14%, which she felt was far too high.  She pointed out that the rate of recruitment in the entire Department had been slowed down because of a lack of funding.  The DOJ&CD suffered from a high staff turnover rate as well.  She undertook to provide the Committee with detailed statistics on the staffing situation.  The Department had approached the National Treasury to request more funding.

Mr Basson responded to the question concerning liquidations.  He said that a key solution would be the issuing of a ministerial policy on the appointment of liquidators.  An Executive Committee (EXCO) sub-committee had been established to address the development of a ministerial policy.  The Master’s directives contained certain principles as well.  Once input from the stakeholders had been received, the ministerial policy could be finalised and submitted to Parliament for approval.  Interim measures included the appointment of attorneys from previously disadvantaged groups as liquidators on a roster basis.  Information on the appointment of liquidators was published on the website as well.

Mr Basson explained that the ROI of 8.5% was based on the value of the investments made by the Guardian’s Fund in the PCI.  Details of the investments were included in the annual financial statements.  A conservative investment strategy was followed and most investments were made in low-risk instruments for periods of less than one year, such as the money market.  The intention of the Guardian’s Fund was not to generate large profits.  The instances of fraud uncovered were included in the annual financial statements as well.  The loss associated with the former TBVC countries was approximately R45 million.  The major loss was incurred by the requirement that beneficiaries from the former TBVC countries had to be treated in the same manner as beneficiaries from the rest of South Africa.  There had been cases of fraud in the former TBVC countries and legal steps had been taken to recover the losses incurred.  He cited an example of one court case underway, that had taken a long time for the law to take its course.

Mr Basson apologised for misinterpreting the kind of report that was required by the Committee.  He confirmed that quarterly MTEF reports in the required format were available.  He advised that the 402 service points were established at Magistrate’s Courts and provided access to probate services.  The IT system was developed for this reason.  He explained that the percentage of payouts within the target time of 40 days was satisfactory.  The IT system that replaced the previous manual system had significantly speeded up the process.  The electronic capturing of data allowed for certain documents to be automatically generated.  The electronic documents were immediately available, even if the hard copy file was mislaid.

Mr Basson advised that there was close interaction between the Office of the Master and the social services entities, in particular with regard to orphans.  He acknowledged that more had to be done to ensure that information on beneficiaries of the Guardian’s Fund and grant recipients was shared and undertook to flag the matter for further attention.  Concerning the issue of appointing an attorney to register a deceased estate, he pointed out that the directive issued by the Chief Master made provision for the requirement to be waived.  He agreed that the directive could be made clearer on this point.

Mr Jeffery suggested that the information was included in the website as well.  He asked why the Office of the Master could not provide assistance to people dealing with an estate in a similar manner as the assistance provided by the South African Revenue Services (SARS).

Mr Basson acknowledged the point raised by Mr Jeffery and undertook to look into the provision of such services.  He said that there had been more than 33,000 hits on the website since it was launched.  The majority of the hits had been to access the forms that were available from the site.

Concerning the matter of Ms Agulhas, Mr Basson informed the Committee that the Department had taken speedy disciplinary action.  He declined to disclose the exact nature of the action taken but confirmed that the DOJ&CD considered Ms Agulhas’ actions to have been unacceptable.  He said that many trusts were previously used in cases where land was jointly owned.  However, there were difficulties associated with the use of trusts.  Currently, the Communal Property Act was used to administer property owned by more than one person.  The decline in the utilisation of trusts was an indication of the state of the economy as well.  He acknowledged that the 125,000 Section 18 (3) estates were a matter of concern to the Office of the Master.

Mr Holomisa noted that there tended to be more beneficiaries under smaller estates and asked how the beneficiaries were determined.

Mr Basson agreed that the minor beneficiaries of small estates were at risk.  Such cases were referred to LASA, who could act as the executor of the estate and was tasked to protect the claims of beneficiaries and administer the estate.  He said that the agreement reached with LASA was a major achievement that would result in the protection of the interests of the vulnerable parties.  Previously, the Office of the Master was reliant on pro bono services, which had not been satisfactory.  The details of beneficiaries of the Guardian’s Fund were known and captured on the IT system.  The beneficiaries under deceased estates were not always known but LASA would be able to assist with the identification of beneficiaries in future.

Ms D Schäfer (DA) asked why the published report on the Guardian’s Fund was for the period 2008/09 and when the report for 2009/10 would be available.

Mr Swart explained that the report for the current fiscal year had to be tabled by the end of September.

Ms Schäfer cast some doubt over the ability of LASA to provide an adequate service.  In her experience, the Legal Aid Board had not provided an acceptable level of service in the past.

Mr Basson offered to make the agreement with LASA and the reports on the cases dealt with available to the Committee.  He said that the agreement was successfully implemented in a pilot programme in Bloemfontein and was currently being rolled out in the rest of the country.

Mr Basson concluded the presentation with a demonstration of the ICMS system to the Committee, using the example of the estate of a person that had passed away in Lady Frere in April 2006 but was only reported to the Office of the Master on 8 September 2010.

The meeting was adjourned.

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