New measures to prevent Lotto looting

The National Lotteries Commission (NLC), overwhelmed by fraud and corruption in recent years, has told Parliament it is taking extensive measures to stamp out graft. The range of these steps, some quite basic, reveals the extent of the rot under the previous management.

• The National Lotteries Commission (NLC) briefed Parliament on the measures it is taking to stamp out corruption that was rampant under the previous management.
• The Special Investigating Unit (SIU) is currently investigating more than 700 dodgy projects involving more than R2-billion, and has seconded staff to the NLC.
• The NLC is also looking at reparations for staff threatened or dismissed for whistleblowing, and making amends with communities harmed by grant corruption.

The Special Investigating Unit (SIU) is currently investigating more than 700 dodgy projects involving over R2-billion, according to its spokesperson Kaizer Kganyago.

The SIU had seconded two of its staff to the NLC to assist with investigations into procurement, bolster capacity in the forensic investigations unit, and assist with the lifestyle audits of staff.

During the last financial year the NLC uncovered 53 fraud matters during forensic audits and reported these to SAPS, and uncovered a further 27 cases in the current year (commencing 1 April 2023), NLC chief audit executive Vincent Jones told the trade, industry and competition portfolio committee earlier this week. This was during a report back to Parliament on the NLC’s first-quarter performance.

The NLC has formed a panel to review proactive funding, which was at the heart of the looting.

NLC Commissioner Jodi Scholtz told MPs that the NLC is working on an anti-corruption and fraud framework. The bulk of the risk, she said, is with grant funding. “We’ve introduced a risk-based model and the inspectorate goes out and inspects each and every project against that model. This is a complete departure from the past, where we didn’t do these pre-inspections, but now it is part and parcel of the entire process.”

In a significant step to enhance the transparency in its funding of non-profit organisations, the NLC began publishing a monthly list of awarded grants. It is also considering publishing location details of funded projects to make it easier for activists and journalists to monitor them.

This is a far cry from the previous administration, which under the pretence of safeguarding the privacy of grant beneficiaries, stopped publishing details of grants in 2019 as GroundUp exposed more and more corruption. The NLC eventually relented and started publishing grant details again after pressure from Parliament, the Department of Trade, Industry and Competition (DTIC), Minister Ebrahim Patel, and media exposure.

Dodgy procurement

Both the NLC and the SIU have identified problems with procurement that did not follow required Treasury processes, some of which were highlighted by the Auditor-General. In many cases, tenders were awarded to a single supplier rather than put to tender, as required by law.

Non-compliance with supply chain management (SCM) rules had resulted in numerous incidences of irregular expenditure in the organisation, NLC chief financial officer Tina Maharaj told MPs.

“SCM was decentralised so that there were certain divisions in the organisations that took over SCM processes and created panels for themselves, which was not in line with the legislation.

“As a result of that we have had to cancel a significant number of contracts and go back to market and recontract with suppliers,” said Maharaj.

GroundUp exposed several examples of questionable procurement, such as advertising in Sunday World, which received about R24.7-million from the NLC. The NLC falsely claimed that Sunday World had a unique readership and there was no reason to go to tender.

In another example, ProEthics billed the NLC more than R28-million for media monitoring and ethics-related “interventions” at a time when the NLC was overwhelmed with allegations of corruption, fraud and conflicts of interest. The NLC has now suspended the company’s services and stopped payments, pending the outcome of an investigation.

The NLC has also cracked down on sky-high payments to lawyers. It suspended its panel of lawyers but has been unable to locate reports and documents relating to briefs and work done by many of them.

“Some of those reports were unfortunately swept under the carpet, so we are now looking at the recommendations to see where we can improve our internal processes,” she said.

Reparations and whistleblowers

A reparations process to compensate whistleblowers previously threatened or dismissed has been approved by the NLC board, Scholtz said.

The NLC has partnered with The Whistleblower House, which is guiding it on the process of compensating whistleblowers who spoke out publicly about corruption in the organisation.

“There is an absolute commitment to do right in terms of what was done wrong,” Scholtz said, adding that they planned to use a model based on one used by SARS to compensate staff who were hounded out during its period of state capture. She said the process would begin in October or November.

“In terms of the reparations, we will look at it on a case-by-case basis so that we can consider each person’s experiences and determine an appropriate response.”

Regarding communities affected by corruption, “it’s really heartbreaking to witness this level of destruction”, she said.

She said the SIU has a list of 19 projects and has advertised to bring in a quantity surveyor to do a value-for-money exercise to see what it will cost to fix each project.

“Based on that, we will engage with those communities as part of the reparation.”

Dodgy IT system

In a previous interview, Scholtz told GroundUp about serious issues with the IT system, which had enabled corruption.

“It was as if people sat around a boardroom table and planned how to corrupt and steal,” she said.

Responding to questions from MPs, Scholtz said it was important to distinguish between a process and a system.

“There were a lot of things that the system didn’t do,” she said.

For instance, ID numbers weren’t captured. The absence of this and other relatively basic functions was “part of the broader system of corruption”, Scholtz explained.

“Unfortunately, the proactive funding was actually implemented and managed outside the [NLC’s] Fusion platform and that made it a deviation from processes,” chief information officer Mothibi Ramusi told MPs. “So it wasn’t actually a technology issue, it was more a process that was implemented by the organisation.”

He said revised processes “will tighten our validation and verification with third parties within government, like the CIPC, Home Affairs, the Department of Education when it comes to IDs and names of associations and clubs that we fund”.

Lifestyle audits

The NLC has begun conducting integrity testing and lifestyle audits of NLC staff and board members.

“We have adopted a consequence and ethics management framework and the integrity testing process has begun,” Scholtz said.

However, at this stage it was voluntary.

“So far 96 staff members have participated and 21 have declined to participate. We are in the process of putting together an integrity testing and lifestyle audit policy.”

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Minister’s priorities

Scholtz said Minister Patel, who has oversight of the Lottery, had given the NLC a list of priorities. These include

• a complete implementation of all SIU findings;
• finalising investigations of all transactions involving consultants over the past ten years, including law firms, IT services and public relations services;
• initiating a wider investigation beyond proactively-funded projects, to include all contracts by the NLC and all channels through which payments were made by or on behalf of the NLC;
• initiate investigations into the activities of all the regional NLC offices; and
• review all previous forensic and internal reports and consider recommendations for systemic changes to avoid opportunities for corruption.

Published originally on Groundup | Raymond Joseph