Former Lottery board and management ignored fraud and corruption probes

Only two out of 15 forensic reports into fraud and corruption commissioned by the previous board of the National Lotteries Commission (NLC) were ever fully implemented, Parliament has been told.

One report was not implemented at all and 12 were only partially implemented, NLC Commissioner Jodi Scholtz told Parliament’s trade, industry and competition portfolio committee on Tuesday.

Scholtz led a team of senior executives and board members to give the NLC’s report back to the committee on its 2023/24 Quarter 3 financial and non-financial performance via a virtual meeting.

The delegation did not include a single member of the NLC’s former executive. They have all resigned or been suspended.

The entire NLC board has also been replaced. The previous board commissioned various forensic reports as revelations of rampant fraud and corruption emerged.

But when some investigations implicated board members and top management in the corruption, the NLC failed to act on recommendations against those named, and the investigations were voided, dismissed or suppressed.

When a new board and executive were appointed, a search for the investigative reports, which had cost millions of rands, was initiated.

“These reports were stuck in offices and safes littered across the building and we have now been able to centralise and properly record them in a consolidated database,” Scholtz said.

“We are now looking at all of the recommendations from external investigators and how best to implement them as part of our core work.”

NLC chief auditor executive Vincent Jones and his team have built a repository of all the forensic investigations and all their recommendations, which were now being “tracked”, Scholtz told MPs.

Jones told the committee that he had been “building up a relationship” with the Hawks. “I have been interacting with a general at the Hawks who, he said, were “instituting a project to look at all NLC cases”.

GroundUp reported in 2020 that the Hawks had set up a special unit to investigate NLC cases. It is unclear what happened with this initiative.

“We have also instructed all NLC staff to give investigators full cooperation if they are approached for affidavits,” Jones said.

End of proactive funding

Scholtz told the committee about the steps taken to mitigate the rampant fraud and corruption that overwhelmed the NLC under its previous executive and board. Based on what she told MPs, much progress has been made, but it was also clear that there is still a long way to go to rebuild the NLC, which was hollowed out by corruption.

One significant step has been to replace the discredited policy of proactive funding, which was at the heart of the looting. Hundreds of millions of rands were misappropriated this way. All proactive funding was suspended by the NLC last year. It has now been renamed research-based funding.

Investigations

The NLC Forensic Investigation Unit is probing all matters referred to it, including grant funding, irregularities, recruitment matters and non-compliance, Scholtz told MPs.

Contract management will also be investigated as part of an audit of the NLC’s supply chain management.

Two Special Investigating Unit (SIU) staff have been seconded to the NLC and they are currently looking at the Commission’s existing computer system, known as Fusion, she said.

Fusion was a new IT management platform introduced at the NLC around 2015. It did not work properly and staff were forced to navigate between the old and the new system because certain functions worked better in the old system.

A document leaked to GroundUp in 2018 blew the whistle on the high cost of the system, which had already cost R90-million and had been due to go live in 2017 but was still under development. An NLC source with detailed knowledge of the costs, who asked to remain anonymous, confirmed details in the leaked document last year and told GroundUp that the “new” system had cost R200-million “so far”, but still had problems.

The SIU deployees are also investigating the appointment of Ince (a service provider that supplied printed and digital NLC annual reports), Scholtz said.

She said an independent audit firm, TSU Investigations, has completed forensic investigations into the appointment of several service providers, who between them, were paid tens of millions of rands. They are:

• Fundudzi Media, the owners of the Sunday World, which scored millions from the NLC for advertorials and advertising, while also running stories to counter exposés of corruption;


• Board Effect, which supplies board meeting management software;


• MSG Group Sales, which owns Power FM in Johannesburg and Capricorn FM in Limpopo;


• NEO Solutions, which earned over R26-million from NLC contracts and contributed R2-million towards the purchase of a luxury mansion for Alfred Nevhutanda, the NLC’s former board chairperson; and


• Edge Consulting, a business consultancy.

On some reports, “consequence management” has already been meted out. The Fundudzi investigation has been completed; others are progressing or close to being concluded.

Additional cases will be assigned to the NLC’s panel of forensic investigators during the next quarter, Scholtz said.

Priorities

The NLC was also focusing on small grants, which make up 80% of all its grants, including checking to see “if we are making an impact”.

Trade and industry minister Ebrahim Patel, who has oversight over the Lottery, had instructed the NLC to ensure that “each and every [funded] project” is monitored, with 2,384 assessments completed during the third quarter. Previously, the NLC had monitored grant recipients on a sample basis.

“Our chief financial officer has been leading a team to ensure that all active projects on the books are monitored and we have reports for all by the end of the financial year,” said Scholtz.

Read more in Daily Maverick: Impatience grows in Parliament over slow pace of Lottery corruption prosecutions

Part of the corruption [under the previous administration] was that the monitoring of projects was done on a sample basis,” she said.

Another priority set by Patel was that the NLC implemented SIU findings to complement the work of law enforcement.

“We are also looking at the ways we can support law enforcement agencies,” said Scholtz.

Patel also instructed the NLC to review the findings of the Auditor-General. GroundUp reported last year how the Auditor-General had given the NLC three qualified audits in a row after previously giving it clean audits at a time when the organisation was overwhelmed by corruption.

“We have captured the Auditor-General findings into a single database. We have been able to see what recommendations were made and which ones have been implemented,” said Scholtz.

Portfolio committee member Darren Bergman (DA) said it had come to his attention that there was only one prosecutor at the National Prosecuting Authority assigned to NLC cases.

“There are some real bona fide cases that have been handed to this prosecutor that have either been declined or are still being investigated since 2020 and have not reached finality,” he said.

Chairperson of the committee, Judy Hermans (ANC), asked the NLC to ensure that its board and all members of staff underwent lifestyle audits “to flush out any wrongdoing”.

Scholtz said that staff would be asked to reveal personal information as part of lifestyle audits and it was necessary to ensure that the process was done legally.

“At the end of the third quarter, we completed the draft lifestyle audit investigation policy. It has made the rounds internally, gone before our policy review committee, and was approved by the board two weeks ago,” she said. DM

First published by GroundUp.

This article was updated on Friday, 15 March 2024, at 6.35pm to correct the name of the NLC chief auditor executive.