Medical scheme to be probed

by Aug 10, 2009All Articles

Independent on Line July 11 2009

By Laura du Preez

An investigation has been ordered into the the country’s third largest medical scheme Bonitas Medical Fund, as well as into the scheme’s administrator Medscheme after Bonitas allegedly used members’ money for investments and incomplete property development including one in Pretoria.

It is alleged that Bonitas, which has 500 000 members, has left about R80 million of members’ money at risk.

The inquiry into the activities of the principal officer and trustees of the scheme will extend to the role of Medscheme in making irregular payments for the property development on behalf of the scheme.

It will also look into whether Medscheme, the country’s third largest medical scheme administrator, is fit to hold its licence to administers medical schemes. Medscheme administers schemes covering more than a million lives.

And the investigation will also consider whether the trustees and the principal officer of the scheme are fit to continue in their roles.

The broad investigation will focus on a host of seemingly irregular transactions Bonitas’s trustees have performed with regard to the KZN north-coast property scheme, township clinics and a Pretoria hospital.
Deals the trustees have made with pharmacies and a broker, as well their decision to establish a marketing company to which they lent R10m, will also be examined. The Johannesburg High Court ordered the investigation this week after the acting Registrar of Medical Schemes Patrick Matshidze lodged an urgent application that was heard without the parties named being in court.

In his papers Matshidze said it appeared the trustees never had control and management of scheme’s affairs and did not act with the necessary care and diligence.

The court ordered that Cornelius Potgieter, an independent forensic investigator previously employed by the Financial Services Board, be appointed to conduct the investigation.

There are three main investments Potgieter will be expected to look at. According to the court papers, the scheme invested about R58.2m in a KZN property development, Clansthal Properties and Phase 2 Properties.

In his affidavit, Matshidze said his office advised the scheme that it was not appropriate for it to be involved in the development as this was beyond the scope of the business of a medical scheme.

Nevertheless, the scheme invested in the development through an entity called Pegma 36.
The registrar’s inquires prompted the trustees to appoint auditors and accountants Deloitte to prepare a report on the development but, according to parts of the report quoted in the court papers, they then failed to co-operate fully with Deloitte.

The report was finalised in June and states that:

o    Even if the units that have been built are sold at what appears to be an inflated market value based on a feasibility study conduced in October last year, Bonitas would lose R21.5 million.

o    There were irregularities in the appointment of the building contractor, Mondli Homes, and the scheme had contravened its own tender policy and procedures.

o    The contractor left the site in October last year after it was paid and has yet to return to complete the development.

o    The former and current board of trustees did not apply their minds to the issues and risks involved in this investment.

o    There was no separation between the affairs of Pegma 36 and Bonitas – there were no separate books of account for Pegma 36 and all expenses relating to the development were paid by the scheme. There was also no loan account in the Bonitas’s accounts for the money it paid for the development.

Matshidze says in his application the entities were appointed without proper agreements and records.

The scheme’s principal officer Bafana Nkosi told Personal Finance that the scheme obtained the property as part of a settlement after a former scheme chairman, who has died, misused some of its funds.

Nkosi said the scheme decided to develop the property rather than sell it. The development is now 90 percent complete, and has exceeded its budget as it took longer than initially expected.

He said when the current downturn in the property market improved, the scheme could again be in a position to profit from the development.

Despite the investigation, Bonitas is financially strong with about R2.1 billion in reserves and had a solvency ratio (reserves as a percentage of contribution income) of 48 percent as at the end of 2007 – way above the 25 percent required by law.

o This article was originally published on page 1 of Pretoria News  / Cape Argus on July 11, 2009

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