The National Lotteries Commission (NLC) failed to act on a 2020 report it commissioned that identified major gaps in its funding process and warned that this made it vulnerable to fraud and corruption.
The report by audit firm SkX flagged proactive funding at the heart of the looting of hundreds of millions of rands from grants intended for “good causes”.
“Proactive grant funding processes appear flawed by design, creating fraud risk, contributory to enabling corruption and issues of enforcing grant agreements,” SkX told the NLC after its investigation.
Proactive funding was introduced in an amendment to the Lotteries Act that was promulgated in 2015. This allowed the Minister of Trade and Industry, who has oversight of the Lottery in consultation with the NLC board, to fund projects without requiring an application.
So concerned was SkX at the abuse of proactive grant funding that it recommended that it should be suspended “until process and control risks have been designed and implemented to reduce risk in the form of fraud and corruption”. This was never done.
SkX’s terms of reference included investigating media reports on Lottery corruption, as well as complaints to a fraud tip-off hotline it set up as part of the investigation. The company was appointed in February 2020.
SkX ultimately investigated 11 grants totalling R291-million and said that at least R100-million of this could be recovered. It referred four additional complaints it received via the hotline to the NLC to investigate and report the findings to its board.
In one case, only R598,000 of an R11-million grant to build a stadium was spent for the intended purpose. Rather than build a new facility, only minor work was done to a stadium built several years earlier by the local municipality.
Two firms paid R4.3-million and R4.7-million respectively to monitor building projects, only did work valued at R631,558 and R1.29-million respectively.
The NLC received an executive summary of the report from SkX on 10 November 2020, to be followed two days later by detailed reports with recommendations. But almost two years later none of its recommendations appear to have been implemented.
Despite this, former NLC commissioner Thabang Mampane told Parliament in a written reply in May 2021, in response to a question by DA MP Matt Cuthbert that the investigation had been delayed by Covid travel restrictions, “the voluminous matters to be investigated and many other factors”.
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The NLC kept the report under wraps for almost two years until its new board, the Department of Trade, Industry and Competition and the SIU recently managed to get their hands on a copy. GroundUp received a copy from a whistleblower who was concerned that it had not been made public, on condition that they were not identified, as they feared for their safety.
Damning findings against NLC officials
SkX says in the report it had identified some financial statements “that were submitted for various entities which appeared fraudulent and were produced by the same firm of accountants. Some of these accountants were servicing some of Mr [Phillemon] Letwaba’s [former NLC chief operations officer] business associates in their other companies,” according to the report.
It also found that the NLC was not properly monitoring grant-funded projects.
“The weaknesses in enforcing grant agreements and poor monitoring of projects is quite prevalent with the identified entities, leading to either incomplete or poorly constructed projects.”
SkX also recommended, “corrective action where it is established that NLC officials were negligent in the carrying out of their duties relating to project monitoring, and/or lack of enforcement of grant agreements”.
NLC chief operations officer Phillemon Letwaba, who resigned suddenly while on suspension and facing a disciplinary hearing, went to court earlier this year to try and have the report declared illegal. Letwaba claimed that SkX executive director Abel Dlamini was “biased” and had a conflict of interest. The matter is yet to be heard.
Letwaba went on a 17-month-long “leave of absence” soon after SkX was appointed in February 2020.
Abuse of proactive funding
GroundUp has identified widespread corruption involving proactively-funded, multimillion-rand infrastructure projects like old age homes, drug rehabilitation centres, and sports facilities during our more than four-year investigation.
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The SkX report identified major gaps in how proactive funding was implemented.
“We noted that whilst there are standard operating procedures for application-based funding, there are no standard operating procedures for proactive funding and the processes are generally governed in terms of the Act, Regulations and the Proactive Funding Policy.”
And despite SkX’s recommendation that proactive funding be suspended, the NLC continued to use proactive funding to hand out tens of millions of rand, without implementing the checks and balances recommended by SkX.
Investigation undermined and obstructed
It is clear from the report that SkX’s hands were tied in conducting its investigation. It did not have access to the bank accounts of funded organisations, so its investigators were unable to track the flow of Lottery money. Several of the organisations under investigation also refused to cooperate and share financial and other documents reflecting how the money was spent.
In some instances, the NLC did not assist SkX, even though it had commissioned and paid almost R10-million for the investigation.
SkX says that two computers belonging to senior NLC officials were “identified to be imaged” to assist the investigation.
“Many requests were made and it took several meetings and other hurdles, to eventually obtain these for imaging,” according to the report. “To be exact, it took almost six weeks to obtain these and to perform the imaging that was necessary.”
Site visits and access to beneficiaries were other problems faced by SkX investigators.
“Beneficiaries refused consultations, threatened to take legal action and some did not provide information that they had promised to provide to the investigators,” the report said.
Even though SkX received information “indicating certain payments that were made between certain beneficiaries and two entities that were associated with the [former] COO [Letwaba] through either a family member or former business associate, we were unable to ascertain the basis for such payments and to determine whether there was any legitimate business purpose for such due to either absence of documents or lack of cooperation from the beneficiaries and/or third-party entities.
“Consequently, we were unable to conclude whether such payments were justified based on existing contractual arrangements or simply made in contravention of the money laundering provisions.”
Investigators also faced obstructions in obtaining documents from the NLC.
There were requests made to the NLC for documentation that would assist in the investigation of the matters reported in media articles, SkX said.
“There would be delays in providing these, whether by design or caused by systematic bottlenecks. Information files requested during the investigation were either found to be incomplete or missing pertinent documents, which raised concerns in relation to the record-keeping protocols that were being followed at the NLC for that period in question.”
This missing information included “… the financial records for the beneficiaries, as required by the terms of the grant agreement, were not in the files, nor were they provided by the beneficiaries,” according to the report.
“In some cases, the only financial records that were found were those provided by the beneficiaries during the application stage, and we noted that in some instances, the financial position presented by the beneficiaries appears to have been misrepresented and/or fraudulent. However, our procedures did not conclusively deal with this aspect due to limitations of information relating to the beneficiaries.”
Zibsimanzi, a shelf company in which Letwaba’s wife, Rebotile Malomane, was a director, received a grant of R4.8-million for a sports event. But, SkX says, the non-profit used fraudulent documents in its application for funding.
“The COO [Letwaba] alleged that Ms Rebotile [Malomane] was unaware of the application that had been lodged with the NLC, and neither was he aware of this until after the award. The COO should have declared this relationship as soon as he became aware that a related party was part of Zibsimanzi, which he neglected to do.”
Top officials identified
The report identified two top NLC executives, former Commissioner Thabang Mampane and Phillemon Letwaba, and two former board members, then chairperson Alfred Nevhutanda and William Huma, who were responsible for the NLC’s proactive funding policy.
“This policy was signed by Mr Letwaba as the compiler, Ms Mampane recommended, Adv William Huma recommended as chairperson of the DA committee and Prof A Nevhutanda approved as chairperson of the NLC Board.”
The report recommends that “corrective action” be taken “against NLC officials responsible for ensuring that the standard operating procedures (SOPs) for proactive funding were crafted and Implemented.”
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All four, who are no longer at the NLC, have been implicated in the abuse of Lottery funding and the NLC has been consumed with corruption on Nevhutanda’s, Mampane’s, Letwaba’s and Huma’s watch.
- Mampane and her husband live in a house in an upmarket North West golf estate belonging to a trust in which she and her husband and their two adult children are beneficiaries. The home was indirectly paid for from proactive funds allocated to build a school in Limpopo. Mampane resigned with immediate effect on 15 August, just six weeks before her 10-year-tenure as head of the NLC was due to end. She was also questioned by the SIU about the grant and the house a few weeks earlier.
- Nevhutanda’s scandal-ridden 11-year term as board chairperson ended on 30 November 2020, ten days after the report was submitted. His R27-million Pretoria mansion was frozen by the Special Tribunal in June after the Special Investigating Unit (SIU) produced evidence of how it had been paid for, directly and indirectly, with Lottery funds.
- William Huma resigned from the NLC board late last year after the SIU presented the NLC with evidence of corruption on his part. GroundUp has reported how R5-million of a grant to build an old age home in a rural Mpumalanga village was paid to an attorney handling the purchase of a luxury home in North West, by a company owned by Huma. We also revealed how millions of rands of a grant to uplift women in Marikana were used to build a state-of-the-art poultry farm in the area, as well as payments into the bond of his home in Pretoria. We revealed that this series of dodgy payments came from a lottery beneficiary and four companies that were used to launder money misappropriated from Lottery grants.
- Phillemon Letwaba was facing disciplinary charges of abusing his position to enrich himself and his family before he suddenly resigned.
Corruption reports ignored by NLC
The SkX probe is just one of several other damning investigations that the NLC’s board commissioned since 2014, but then either ignored or else failed to implement the recommendations.
If the recommendations from these reports had been implemented, it may have helped stem the corruption that consumed the organisation, especially since the introduction of proactive funding.
A 2014 report by Bathabile Kapumha, the NLC’s former head of risk, identified areas of corruption and fraud in the grants process and recommended steps to prevent it. It was ignored. The many methods and loopholes she identified as enabling fraud and corruption were never addressed. In fact, they increased after proactive funding was implemented.
A report the following year by attorney Trevor Bailey was prompted by a grievance lodged by Kapumha. It identified irregularities at the NLC and recommended that disciplinary action be taken against Nevhutanda and Mampane “having due regard to the seriousness of the aggrieved employees’ grievances”. That never happened.
Instead, in early 2016 Nevhutanda challenged Bailey’s appointment, his process, and his conclusions. Neither the NLC board nor the responsible minister, Rob Davies, implemented Bailey’s recommendations. Instead, the report was quashed and chief risk officer Kapumha was effectively hounded out, while others who had supported her left or were sidelined.
A seven-month investigation in 2019 by attorneys Ndobela Lamola that resulted in three reports, was badly bungled. The reports, which were commissioned by the NLC board, found no evidence of corruption. They also cleared Phillemon Letwaba, who was accused of nepotism in connection with dodgy Lotteries grants, of any wrongdoing.
But a GroundUp investigation revealed that the reports were littered with forged documents, financial documents made no sense, and a key witness was never interviewed. Justice minister Ronald Lamola was a partner of the law firm at the time the first two reports were submitted.
Trade and Industry minister Ebrahim Patel eventually lost patience with the NLC and appointed forensic audit firm Nexus to investigate several proactively funded projects.
Reporting back to Parliament, former Trade and Industry Director-General Lionel October said the Nexus investigation had uncovered evidence of alleged corruption involving several grants. A dossier of the evidence was handed to the police to investigate.
But rather than cooperate, NLC Commissioner Mampane went to court to try and have the Nexus investigation declared “unlawful”. When the court rejected the application, Mampane approached the Supreme Court of Appeal to have the judgment set aside. The court is yet to decide on this appeal.
SkX found that the NLC’s whistleblower hotline was not working and should be resuscitated, as it says this was the most effective way of detecting fraud.
GroundUp made several calls to the fraud hotline number listed on the NLC’s website. On each occasion, the call either dropped after a few rings or else played a recorded message stating that the number was not available “at the moment”. SkX also set up a special hotline to receive submissions from the public. Four new allegations resulted and were not covered by SkX’s mandate, including a claim that a member of the Hawks and a prosecutor had to tried to extort R150,000 from the person who lodged the complaint. The extortion attempt was made through the law firm of an attorney who has benefited from Lottery grants, SkX said. All three people allegedly involved in soliciting the bribe are named in the report.
“The NLC needs to ensure that the four new matters reported through the SkX hotline are investigated immediately and that feedback is provided to the NLC Board”.
SkX said a request to publicise the hotline through different media, including community radio stations in remote areas of the country where NLC projects were delivered, were ignored. It also complained that the NLC had failed to publicise the hotline set up for the investigation, leading to a “poor response rate.”
Pay back the money
A quantity surveyor used by SkX to evaluate the value of the work done on proactively-funded infrastructure projects found that in many cases this was far less than the grant. It also listed the amounts that were recoverable for work that was never done. These include:
- R59-million paid via Konani Pfunzo Primary School to establish 200 boreholes in rural villages in different parts of South Africa, and for a “Ndebele Cultural Festival”. (The Sunday Times reported in 2018 that much of the borehole work was done by Tshikovha Graduates Academy, which has no students.) SkX reported: “Not all boreholes were drilled and some were on private property with no public access. And some boreholes could not be located.” SkX estimated that at least R3-million could be recovered from the borehole funding. It did not evaluate the festival.
- Simba Community Development Foundation received R28.3-million to rebuild a school that was destroyed during protests. SkX found that Simba Foundation submitted fraudulent statements to NLC as part of their application, but it was unable to assess the value of work that was done “as no drawings or bill of quantity available”.
- Denzhe Primary care, a hijacked non-profit organisation, received R28.5-million to build a drug rehabilitation centre near Pretoria. But SkX says the value of the work done was only R4.8-million and that R22.7-million could be recovered.
- I Am Made 4 God’s Glory, another hijacked non-profit organisation, received R10.8-million to build a new stadium in Limpopo. Instead, it only did minor work valued at R597,880. SkX said the NLC should recover the balance of the grant.
- Zibsifusion and Dynosys received R10-million each to build toilets in Limpopo and the Eastern Cape. Both companies are controlled by lawyer Leslie Ramulifho, who has received at least R60-million in Lottery grants. There was poor workmanship and materials used in the construction of the toilets, SkX reported. “Allegations of improper utilisation of funds allocated, due diligence not being done and project maladministration, were all founded.”
- Lethabong Old Age Home, Abrina Rehabilitation Centre, and the Taung museum and Library in Kuruman, to which R69-million was allocated by the NLC. SkX found that of the R26.8-million given to the old age home, only R10.6-million had been spent on the facility and the NLC should recover R16.2-million; of the almost R22-million for the rehab, only R5.3-million was spent on the centre and R16.7-million could be recovered; and, of the R20.1-million for the library and museum building, only R12.1-million was spent on the facility and R8-million could be recovered.
- Quantity surveyor SRSQS and construction engineers T2-Tech were paid R4.7-million and R4.3-million respectively to monitor the construction of the Lottery-funded school toilets in Limpopo and East London. Based on the actual work done, over R4-million could be recovered from SRSQS, and over R3-million from T2Tech, SkX reported.
- “The cost of constructing the sanitation facilities was overly inflated and the NLC did not receive value for money from this project. T2Tech and SRSQS, which were appointed to conduct quality assurance on behalf of the NLC were paid without performing any work,” SkX said.
SRSQS said they would not comment without seeing the report.
T2Tech said, “We are not able to comment on the findings of the report because we neither have seen nor are we aware of its existence. However, we can categorically deny that we were paid without doing any work. The scope of work we were appointed to do was done and successfully completed. The Scope included quality assurance for the construction of ablution blocks at ten schools in Limpopo. The Infrastructure (work) is there for inspection at the different schools and NLC have records of all payments made to us and project documentation we submitted.”
Ndivhuho Mafela, spokesperson for the NLC, told GroundUp:
“The Board of the NLC is considering all reports and allegations made against employees so as to determine the course of action if necessary. Decisions and actions on such matters will be communicated in due course.”
Letwaba, Nevhutanda, Huma and Mampane did not respond to requests for comment.
- Legislative, regulatory and policy regimes need to be strengthened to address internal control weaknesses.
- Project management structures must be revisited with “clearly articulated responsibilities” in terms of proactive grant management.
- Grant allocations must be paid in tranches, based on project progress reports.
- Grant agreement breaches must be vigorously enforced. And, the NLC must enforce specific performance by non-profit organisations “up to professionally certified completion of the projects”. And money “estimated not to have been utilised towards the project” must be repaid to the NLC.
- Where entities can no longer implement projects, the NLC must seek a legal opinion on instituting claims against individual directors or members “who may have been unduly enriched”.
- The NLC must institute recovery proceedings against directors or members of organisations who may have “misapplied or misappropriated funds” allocated to projects.
- The verification and vetting process of the organisations that apply to the NLC for funding must be rigorous and enforced.
- Annual conflict of interest forms and requirements for declarations, as well as regulations, “must be enhanced to address grey areas surrounding related party entities applying for grant funding from the NLC”.
- There must also be an upfront declaration of contractors used for the implementation of the projects.
- The Commissioner must consider the failure of project management structures within the NLC and call for accountability of the organisations and responsible NLC officials.
- The NLC must, using the mechanism of the grant agreements, ascertain the existence of contracts between non-profit organisations and contractors that were engaged to determine if the amounts paid to those entities were in line with the grant agreements.
- Where contracts do not exist, the NLC must pursue recovery remedies including possibly instituting criminal action against the parties involved. Where contractual relations cannot be ascertained like the payments to the third parties, it could have constituted misappropriation of these funds.
- The NLC must demand financial records from non-profit organisations as part of grant agreement requirements. This is to ascertain if the organisations made any payments of gratification to any of the NLC officials. If there is evidence of this, “appropriate disciplinary or criminal action” should be taken.
- The Commissioner should consider instituting an inquiry against Phillemon Letwaba to ascertain the circumstances surrounding his non-disclosure of a relationship with Rebotile [Malomane] who was a member of an NLC beneficiary, Zibsimanzi. DM
First published by GroundUp.