Strict new measures in place to combat Lottery corruption

The establishment of the new Inspectorate for Due Diligence and Compliance was revealed in a presentation to members of the Trade, Industry and Competition parliamentary portfolio committee during an oversight visit last week to the NLC’s Pretoria headquarters.

The NLC Risk Division has also implemented fraud risk assessments to “identify fraud trends”, while internal audits would test “internal control and conduct and forensic investigations”, the NLC told MPs.

The current head of the risk division Marubini Ramatsekisa is on suspension and facing a disciplinary hearing for his alleged role in the looting of lottery funds.

Judy Hermans (ANC), who is the portfolio committee’s chairperson, said the committee had made two unannounced visits to NLC projects. “The committee was concerned about what would happen to incomplete capital projects currently under investigation. It urged the NLC to resolve these matters as far as possible,” she said.

Hermans said she was not mandated to comment on behalf of the ANC, which had previously vigorously defended the NLC in the face of evidence of widespread corruption. Instead, she referred GroundUp to committee member and ANC whip Simanga Mbuyane.

But Mbuyane failed to respond to a WhatsApp message asking him for comment on behalf of the party.

Mbuyane previously unsuccessfully attempted to have the media and representatives of civil society organisations barred from a public virtual meeting of the committee at which the appointment of a new board chairperson was discussed.

He has also previously questioned why GroundUp was following the activities of the NLC and blamed “an element of the third force.”

With the exception of single MPs from the FF+, DA, and EFF, the rest of the group that conducted the oversight visit were from the ANC.

Jaco Mulder (FF+) said his party welcomed “ongoing investigations of the SIU into allegations of fraud under the previous administration … as well as investigations and reports on fraud and irregular expenditure.

“The committee should carry out more physical, unannounced oversight visits more often to ensure the transformation to an accountable NLC under a new board,” he said.

Mat Cuthbert (DA) said, “Whilst we welcome the opportunity to have visited several hijacked NLC projects in order to see the damage for ourselves, we remain sceptical about the Damascene conversion by ANC members of the portfolio committee. Since 2018 they were consistently warned about the industrial-scale looting that was taking place at the NLC and yet they chose to protect the NLC’s leadership at the expense of the vulnerable”.

He added that new NLC leadership has “inspired confidence thus far in terms of their transparency and willingness to deal with the rot in the organisation”.

Mgcini Tshwaku (EFF) did not respond to a WhatsApp message asking for comment.

New blood for NLC

The NLC presentation reveals extensive steps that the new NLC board has taken to uncover corruption and to hold those responsible to account, including acting against five senior officials who have been suspended. Of these, one has resigned and the other four are on suspension and will face disciplinary hearings. This does not include former NLC Commissioner Thabang Mampane and former chief operating officer Phillemon Letwaba, both of whom resigned last year ahead of facing disciplinary hearings.

New NLC board chair Barney Pityana and a board were appointed last year, and a new commissioner Jodi Scholtz took office on 1 February.

The portfolio committee delegation was told that interviews for a new Chief Financial Officer have been conducted and a preferred candidate recommended to the NLC board for consideration. Interviews for a Chief Audit Executive had also been conducted and the preferred candidates will now undergo a competency assessment.

Headhunting for a new Chief Operations Officer has begun, while the post of Executive Legal Services has been advertised.

Investigations launched

The NLC told the committee that it has also appointed audit firms, TSU Investigations, Funduzi Forensic Services, and Maphosa to investigate various aspects of fraud and corruption involving Lottery funds. These include questionable payments to service providers, irregular procurement, and sky-high spending on lawyers and other service providers.

Also under investigation are the tens of millions of rands in spending on media and communications, in many cases, expensive advertorials intended to counter GroundUp’s reporting on NLC corruption.

Two of these investigations have been completed and a third is in draft stage. A fourth investigation by SkX was completed in 2020 but then buried by the previous NLC administration.

The investigations are a direct response to issues highlighted in damning reports by the Auditor-General and issues flagged as needing further investigation in a series of reports by SkX report, a source with knowledge of the investigations, who asked not to be identified as they are not mandated to speak to the media, told GroundUp.

Dodgy projects

The portfolio committee briefing at the NLC’s Pretoria headquarters came at the end of a four-day visit to projects funded by government entities, including the NLC, over which it has oversight. The visits were all unannounced.

Two Lottery-funded projects, one in Louis Trichardt in Limpopo and the other in Pretoria, were among those visited by the committee.

In Louis Trichardt, the MPs visited the supposed location of Musina Arts Development, a non-profit organisation that received R1.64-million in the 2018/19 financial year for a “jazz event.” But they found no sign of the funded non-profit at the address supplied on the organisation’s application for funding. A call was made to a phone number supplied for the project’s contact person on the original funding application, but they refused to meet with the MPs.

The following day, the MPs visited a drug rehabilitation centre in Pretoria, which received over R27.5-million between 2016 and 2018. Of the money given to Denzhe Primary Care, a non-profit that was hijacked and used to apply for lottery funding, over R22-million is still unaccounted for.

The MPs were taken on a tour of the poorly-built facility where two different independent quantity surveyors estimated that only R4.8-million of the grant was spent. Floors and walls are cracking because of poor construction and inadequate foundations; roofs are sagging because of a lack of supporting trusses; and doors are poorly fitted throughout the facility. A construction company has quoted R11.5-million to repair and complete the facility.

Ado Krige, who owns the property on which the facility is situated, told the MPs how he had tried to warn the NLC about the abuse of Lottery funding but was ignored. Instead, he was sued for R17-million by dodgy lawyer Lesley Ramulifho, who was behind the hijacking of Denzhe. The NLC used this civil lawsuit, which almost four-and-a-half years later Ramulifho has failed to pursue, as an excuse not to take action to recover the misappropriated millions meant for the drug rehab.

A series of reports by law firm Ndebele Lamola Inc, two of which were investigated at a time when Justice Minister Ronald Lamola was a director, recommended that the Lotteries Commission wait for the outcome of the civil lawsuit before deciding how to proceed.

“We were … unable to make any finding on issues that are currently before the court,” Ndebele Lamola Inc said in one of its reports. On “whether any funds could be recovered or frozen immediately” it stated: “This step will be triggered by the outcome of the court process.”

New rules for funding

The NLC told the MPs that it has introduced stringent new protocols for proactive funding, which was key to the looting of hundreds of millions of rands. This type of funding allowed the NLC, in consultation with its board, to allocate grants without requiring an application for funding.

The new board had placed a moratorium on proactive funding, but based on the presentation this will be lifted with strict new rules in place. These include setting up a panel of “strategic partners”, like food security organisations, with expertise in key areas. Their appointments will be “through a process of expression of interest” that would ensure “transparency in the funding process”. This would include conducting “probity checks … on strategic partners prior to appointment,” the NLC told the MPs.

“Funding for strategic [proactively-funded] projects will be allocated a percentage of the budget approved by the board,” the NLC said.

In the case of normal applications-based grant funding, the NLC says its controls have been “enhanced to strengthen internal controls”. The measures are very basic and the absence of some of them helped enable widespread fraud and corruption.

These include:

• Pre-Screening and verification of “credible applications” through the verification of directors with the Companies And Intellectual Property Commission (CIPC), which keeps a record of companies’ details, including directors and registered addresses. This is a new measure, according to the NLC.
• Physical verification of the existence of organisations prior to funding;
• Signing of affidavits by directors and management of the organisation prior to funding;
• Submission of bank statements to verify project spending, and;
• Regular monitoring of all funded projects. (NLCS’s emphasis).

Hotline bears fruit

Despite the rampant corruption, SkX previously reported that the NLC’s fraud hotline was not working, making it difficult for anyone with information to report corruption. As a result, the NLC is now using a Department of Trade, Industry and Competition anti-fraud hotline.

Between October and December 2022, there were eight reports to the hotline. Two were about the recruitment of specific NLC officials and a further two involved alleged procurement fraud. A further three tip-offs had been referred for forensic investigation, while a fourth led to “improvements” to the NLC’s supply chain management processes.

A total of 151 matters had also been directly reported to the NLC, of which 119 had so far been investigated, and 51 were reported to the police.