—clears Administrator of allegations of any criminal conduct
By Special Correspondents
South African law firm, Bowman Gilfillan Incorporated (Bowmans), has emerged as the institution appointed in July 2021 to probe allegations of financial malfeasance and/or irregularities by NBC Lesotho, the Administrator in charge of the Kingdom’s two main state pension funds.
NBC Lesotho is the founding administrator of the roughly M12 billion worth Public Officers’ Defined Contribution Pension Fund (PODCPF) and the Specified Offices Defined Contribution Pension Fund (SODCPF).
It re-won the tender to administer the PODCPF in March 2020 but was not immediately formalised in terms of a service provider agreement after a group of eighteen people – calling themselves “aggrieved pensioners” – went to court to try and interdict the company’s re-appointment while demanding that a forensic probe be launched by the Auditor-General into how it had administered the Fund and levied its fees since 2008. The “aggrieved-pensioners” and others had been bandying about various allegations of malfeasance against NBC Lesotho.
The company nonetheless continued as Administrator of the PODCPF after being given a letter of appointment pending the conclusion of the court case.
Bizarrely, the court case of the “aggrieved pensioners” is still pending. They have not gone to court to conclude the relief sought by them up to date of publication. The Board of Trustees of the PODCPF had nonetheless proceeded to institute the Bowmans inquiry to probe the litany of allegations, seemingly raised by those baying for NBC’s blood.
Draft Report
Bowmans concluded a “draft report” and submitted it to the PODCPF on 14 November 2022. Since then, the contents of the draft report have not been publicly released, yet efforts to terminate NBC Lesotho’s role as Administrator of the Fund have intensified. A number of NBC Lesotho’s detractors have been demanding that the report be released in the hope that it will aide their endeavours to have the company ousted, possibly in favour of the appointment of a new Administrator of their choice.
The report had nonetheless not been publicly released, presumably because it is still in draft format and needs to be finalised after all affected parties have been enabled to formally respond to it.
Indeed, a 14 November 2022 cover letter from Bowmans to PODCPF Principal Officer, Mamotlohi Mochebelele, accompanying the report, includes the caveat that “we reserve the right to supplement or amend this report upon the receipt of additional information…..”
That has nevertheless not stopped interested parties – who have had sight of the confidential draft report – from treating it as a final one and from making wild claims that it contains serious allegations of “criminal conduct” or “unlawful conduct” against NBC Lesotho.
Misleading epithets
Various unsavoury terms like NBC Lesotho “swindled”, “stole”, “defrauded’ or “fleeced” the PODCPF have been bandied around in the media to discredit the long-time Administrator. However, the draft report makes no such allegations. It makes no such conclusions.
The Lesotho Times has managed to obtain a copy of the draft report.
We sought the help of experienced independent observers and lawyers in the pensions industry to help unpack it. From their observations, the draft report will not assist those trying to discredit NBC. It is certainly not the smoking gun that its proponents had hoped it would be.
The draft report indeed censures NBC Lesotho for what it regards as ‘overcharges’ in certain administration fees. But it makes no conclusion that any criminal or deliberate wrongdoing was committed, suggesting that all issues under dispute can at best be characterized as stemming from different contractual interpretations than any conscious criminal intent.
Indeed, one insurance industry expert said considering the full value of the alleged “overcharges” for the period reviewed, it would have meant that NBC Lesotho – a sister company of the larger Johannesburg headquartered NBC Holdings – a pension funds administration conglomerate with operations in six African countries and several global partnerships, and significant annual turnover – would have made a conscious decision to “fleece” a few hundred thousand maloti a year from the PODCPF. That’s a wholly improbable and therefore untenable proposition to advance.
“It’s like accusing Elon Musk – with his $200 billion fortune – of seeking to enrich himself further by stealing two or three TESLAs from one of his manufacturing depots to prejudice his shareholders….. It sounds like a sick joke,” said the industry expert, who preferred not to be named for professional reasons.
Any pensions administrator draws their income from their work in administering the contributions of members to a pension fund. NBC Lesotho originally invoiced their work as a percentage of the total payroll that include employees who did not contribute for whatever reason. This later changed to a fixed fee levied on the number of the individual members of the Fund per month. The PODCPF has more than 35 000 members.
Mandate
Bowmans was roped in to probe if NBC Lesotho had performed its mandate as per the Service Level Agreement (SLA) and charged appropriate industry-based administration fees for the Financial Years ending 31st of March 2018, 2019, and 2020. The mandate was subsequently extended to cover the period from when the PODCPF began in 2008.
Nil Contributors
The fees under dispute relate to what NBC charged in relation to its administration work for “Nil Contributors” to the Fund. These are members, who originally contributed to the Fund, but are no more contributing for a variety of reasons. This could be because these members were dismissed or resigned from the public service, got seconded to other institutions, were transferred to different departments within government, retired, went on study leave, withdrew participation, or even died, among other reasons.
Bowmans said that it had established that NBC Lesotho still charges the Fund some fees every month for these “Nil Contributors” although no transactions were reflected on their individual accounts. The law firm deems these charges inappropriate and describes them as “overcharges”.
In Bowmans’ opinion – when a member of the Fund is no longer a member, the administrative work associated with them should cease at most six months after they are no longer an actively contributing member, regardless of whether they have claimed their benefits or not. They opine that there would be no justification in the Administrator continuing to levy fees for a record that has become dormant. Bowmans then suggested that the Fund negotiates with NBC Lesotho for a refund of about M8 million in relation to the administration fees already levied on the “Nil Contributors” for the period under review.
Wrong Interpretation
However, in its submissions to Bowmans, NBC Lesotho vehemently rejected the law firm’s questionable interpretation of the law and insisted it was perfectly entitled to levy administration fees for “Nil Contributors” for the period under review. Not only is the law firm’s stance regarding “Nil Contributors” incorrect, it defies industry best practice.
NBC Lesotho Managing Director, Godfery Vatsha, amplifies this further as follows:
“When a person has contributed to a pension fund and they cease contributions at a later stage and become a ‘Nil Contributor’, they still remain a legitimate liability of the Fund. You cannot just delete them and nullify their previous contributions to the Fund. That is tantamount to fraud.
“We are obliged to continue administering the ‘Nil Contributors’ records because they have previously contributed and they have money in the Fund that will become due and payable to them at some undetermined point in the future. Their record must be kept and the status of the value of their pension benefit must be monitored, reported and administered until they come forward to lodge a legitimate claim.
“It is only after they (Nil Contributors) have lodged a claim for their pension benefits, or their beneficiaries have done so on their behalf, that the Administrator’s work stops with regards to their Fund records. That is when an Administrator can justifiably stop levying a fee on monthly basis.”
Mr Vatsha’s contention gets support from an expert in pensions law who insists that fund administration work does not stop until a claim is lodged by the member and settled in full thereafter. A member or former member will cease to be a member of the Fund only once such a person has received full and final settlement of the benefits due and payable to him/her..
“You may know that the pensions industry in South Africa is currently lumbered with R45 billion in unclaimed benefits and various efforts are being instituted to trace the beneficiaries…,” said the lawyer, who also preferred anonymity because he does not want to be seen wading into a dispute involving a competitor company.
“Some of the beneficiaries are expatriate workers who worked in the mines in South Africa for years, including Lesotho, and failed to claim their pensions for a variety of reasons.
“These are huge monies that cannot just be deleted and erased from the system for either the benefit of the insurance firms or for Santa Claus. In other jurisdictions, governments can seize this unclaimed money and use it for other purposes.
“To my understanding that is not the case in South Africa and Lesotho. Pension funds and their administrators must keep proper records and monitor these monies until they are claimed.
“Alternatively, they must transfer them to an entity that looks after these assets for the beneficiaries. You cannot expect them to do such humungous work for free. I have thus no clue what informed Bowmans’ position on this one.”
In any event, NBC Lesotho argued it must be informed by the relevant government institutions of members who, for a variety of reasons, leave their employment and cease to be members of the Fund to enable it to make the relevant fund data adjustments. Bowmans concedes as such.
It states: “The Gol (Government of Lesotho) ministries /departments are responsible for ensuring that all the employees are registered with the Fund and also to advise the Fund on the termination of the employment of employees by death, resignation or retirement in order for the Fund to commence the payment of benefits………”.
However, because the wheels of government bureaucracy move at a snail’s pace, this hardly happens. The Administrator – it seems – is thus left with no option but to continue administering the files of the supposedly departed employees until they lodge their claims.
Bowmans itself explains the difficulties it encountered in obtaining information from government departments via the Fund to enable it to complete its mandate. Some requested information was never furnished at all. It had requested from the government via the Fund full details of the “Nil Contributors”. The information was never furnished before the completion of the draft report.
Bowmans, in their report, suggest that NBC Lesotho should also actively seek to ascertain the status of “Nil Contributors” wherever possible and presumably facilitate their exit from the Fund and stop levying administration fees. That is neigh impossible unless furnished with the correct details of the “Nil Contributors” from the government of Lesotho, one industry observer said.
“If Bowmans itself concedes that it struggled to be furnished with information about the ‘Nil Contributors’, how does it expect the Administrator to find these people without being given their basic details….No Administrator has premonition or Sangoma powers to trace these people, at least from what I know….”
Bowmans nonetheless recommends that the Fund sits down and negotiates with NBC Lesotho to recover some of the fees levied on “Nil Contributors”. NBC Lesotho has verbalised its preparedness to do so.
“In our opinion, the Fund should negotiate with the NBC Lesotho to pay back the M7,425,788.44, or at least a portion of it,” the draft report states.
Alternatively, Bowmans suggests that NBC Lesotho levies a lower fee for administering “Nil Contributors” compared to what it charges for actively contributing members.
All this suggests this is an issue of different interpretations of contractual terms. There is no conclusion of any criminal behaviour in the draft report. Yet it has not stopped naysayers from deploying flowery epithets like “swindling’ or “fleecing” to besmirch NBC Lesotho.
Refunds
Another bone of contention relates to what are called Refunds. These are monies due to be paid back to employees because they were erroneously deducted from their salaries for a number of reasons.
The erroneous deductions could be from employees who have either died or resigned and the Administrator is not informed, a common problem in government. They could be a result of change of names (mostly upon marriage), or transfers of employees to other departments where they get new employee numbers resulting in duplicate contributions. They then become entitled to refunds.
But most of the refunds are in relation to civil servants employed temporarily as teachers – who are not entitled to become members of the Fund. Only permanent state employees are entitled to become members of the Fund. Other refunds pertain to a member who was not eligible to join the Fund because of age but their contributions were paid in error, or contributions were paid after member’s exit date, or a member was not a permanent employee but contributions were still paid in error.
Bowmans said the Refunds were originally processed by the Fund itself but had been subsequently transferred to NBC. It could not ascertain when this transfer happened. Its efforts to get that information from the Fund failed. The Fund had requested NBC Lesotho to administer the Refunds in a letter dated 17 January 2014 after the Ministry of Finance had declined to assume the role.
“The letter, however, does not mention that NBC Lesotho can charge a fee for this service, nor that it should administer all refunds; only those of Teacher services,” the Bowmans report states.
“We found from our review of the minutes of the Board meetings of the Fund that this matter was not discussed and approved by the board nor was a fee agreed for administering the refunds even though the former Principal Officer is of the opinion that it was approved by the Board…”
The report states NBC Lesotho believed it was entitled to charge a fee for administering the Refunds for it could not be expected to do the work involved for free. Some of those entitled to the refunds were not easily traceable or had furnished wrong, incorrect or inactive bank account details and administering the Refunds was a nightmare in itself. NBC Lesotho was charging the same fee for Refunds as that for “Nil Contributors”.
However, Bowmans took umbrage with the roughly M11 million NBC Lesotho had levied for the Refunds. The law firm insists there was no clearly defined agreement for the Refund fees. It thus elected to classify them as an ‘overcharge’.
Overcharge
“A total of M11, 455,401.28 was paid to NBC Lesotho for Refunds for the period under review. Of this amount, M11, 098,043.24 (96.88%) relates to Teaching Services,” the Bowmans draft report states.
“This total of M11, 455,401.28 is considered to be a potential over-charge by NBC Lesotho as no provision has been made in the SLA (service level agreement) for NBC Lesotho to charge for Refunds to non-members, and its appears that the Board did not approve this service…….”
The wording of the above paragraph alone suggests Bowmans is not conclusively sure of what was exactly agreed over the Refunds. Its use of the words “considered” as a “potential” refund confirms that. Those driving a crusade against NBC Lesotho could thus be running ahead of themselves, one observer said.
But again, all these issues would have to be negotiated and a way forward agreed between the Administrator and the Fund. Bowmans does not suggest any criminal activities occurred.
Indeed, if there had been any such activities, Bowmans – as a reputable legal firm, would naturally have been obliged to recommended criminal prosecution of NBC Lesotho executives. There is no such however.
Duplicate Charges
Although it again concedes that it was not mandated to do so, Bowmans inexplicably probed what it called “duplicate charges by NBC Lesotho with respect to members”. It said it had identified a substantial amount of duplicate charges by NBC Lesotho. The duplicate records arise when employees are either transferred to other departments and get new employee numbers or when names change due to marriage or on application of a new ID number. Bowmans quantifies the possible duplicates figure at a mere M209, 093.68 . It then concedes the amount could already be factored in the “Nil Contributors” amounts.
Again, duplicates can be easily avoided if government departments through the Fund can expeditiously inform the Administrator of any changes to employee situations. NBC Lesotho concedes that where there have been legitimate duplicate payments as a result of delays in getting relevant information, it will happily process refunds.
Still, one lawyer suggested that a reputable company like Bowmans should not be trigger happy in extending its terms of reference without being sanctioned to do so officially.
“It will otherwise open itself to suggestions that it is being directed to achieve a certain outcome in its reporting,” the lawyer said.
Report Delays
Even though the draft report was submitted to the Fund way back in November 2022, it was only submitted to NBC Lesotho for comment a year later in 2023.
Notably, the draft report hasn’t yet featured in what looks like spirited efforts to kick out NBC from administration of the Fund. It doesn’t even feature in ongoing court processes over NBC’s continued role as Administrator.
Independent observers said this could be because the report is largely a damp squib. Those who had hoped to rely on it to drive their agenda to kick out a long-experienced Administrator have probably been disappointed. The report does not contain the flowery language they have been using to besmirch NBC.
“They were expecting a report that would declare NBC Lesotho executives as criminals and then demand they be locked up….That obviously has not happened….Those clamouring for the release of the report will be disappointed once they see it. It certainly is not the smoking gun they needed for their agenda,” the observer said.
Consultations
The PODCPF’s Principal Officer, ‘Mamotlohi Mochebelele, said the Fund was still engaging NBC Lesotho over the report. The Fund’s Board of Trustees was still seized with the matter. That’s is why it has not bowed down to pressure to make it public, she said.
But if there were any overcharges in the end, she vowed they would “demand what is ours”. For now, she conceded the matter was still under discussion.
“Right now, it is only a possibility of overcharge. It (the dispute) is yet to be finalised in engagements with the Administrator. We must give them (Administrator) a chance to respond to the findings…..”
NBC-Lesotho’s, Moeketsi Motsosi, maintains that his company has rendered an honest and honourable service to the Fund and is hurt by the machinations of those trying to have it ousted after many years of hard-work and loyal service to the Fund.
“We believe that NBC’s execution of its services to the PODCPF, its members and pensioners have always been professional, ethical and of the highest possible standards in terms of integrity and mutual trust,” Mr Motsosi said.
His colleague, Mr Vatsha, says NBC Lesotho has never at any stage charged any fees that it was not entitled to in terms of its service level agreement or contract with the PODCPF. Furthermore, all invoices levied in lieu of the Nil Contributors and Refunds were approved by the PODCPF prior to payment.
Aluta Continua
However, for those demanding the ouster of NBC Lesotho, it’s seems its aluta continua. They are not relenting despite that the Administrator has thus far won an interdict against their efforts.
Ithabeleng Phamotse, the secretary general of the Public Officer’s Defined Contributions Pensions Association (PODCPA), an association of various public sector worker representative bodies, with a seat on the Fund, said they were yet to get a copy of the Bowmans report. However, despite not having seen the report and studied its contents she still said they wanted NBC Lesotho to be released from its administrative duties.
Her remarks seem to stem from the unrelenting banter that M20 million had – in her own words been “fleeced” – by NBC.
“We have not been given the report, we don’t know the details of the report. But since those who saw the report state that there is a short fall of M20 million as per the report, this emphasises our worries that there is something fishy that is being hidden,” Adv Phamotse told the Lesotho Times.
Perhaps when Adv Phamotse gets to see and read the actual report, she will discover how wrong her stance is. The report does not refer to any “shortfall” in as much as it does not impute any criminal conduct. It does not contain any of the gratuitous insults that are being flaunted.
NBC Lesotho remains in court fighting efforts to oust it from its work.
Industry observers say the long-term Administrator’s woes are partly attributable to the skulduggery that generally epitomises the cut- throat pensions fund and asset management sector in which companies fiercely contest to gain access to assets to manage.
In Lesotho’s case, initial investigations, show that a cabal of well-connected individuals are in cahoots with comprised trustees of the Fund. They want to have companies in which they have interests control the entire value chain of the industry from being Fund Consultants, Administrators, Advisors and Asset Managers. This would then enable them the full leeway to do as they please with the humongous M12 billion assets of the two public sector Funds at the expense of pensioners and the national interest.
