Conflicts of interest and incomplete projects: How Lottery money is being spent
#DodgyLottery part one: National Lotteries Commission COO Phillemon Letwaba linked to controversial grants
Undeclared conflicts of interest and incomplete or shoddy construction characterise many projects funded by the National Lotteries Commission (NLC). Our research uncovers what is possibly only a fraction of the questionable grants involving Lottery money.
Over the next week, we will publish stories describing how companies linked to Phillemon Letwaba, the NLC’s Chief Operating Officer (COO), are involved in Lottery deals involving tens of millions of rands.
Several strategies underpin these projects:
First, money is directed to them making use of a 2015 amendment to the Lotteries Act that allows the Minister of Trade and Industry, the NLC or its board to identify projects to be funded without receiving applications. This is known as proactive funding. The problem with proactive funding is that there is often no rigorous prior scrutiny of the projects awarded money by NLC officials.
Second, the projects are often based in towns far from large cities, where reporters are less likely to venture.
Third, the appointment of service providers for multimillion-rand construction projects, like construction and engineering companies, is left to the recipients of the funding. In contrast to government departments, these projects often do not have transparent tender processes. The NLC’s own audits seldom check for conflicts of interest on the projects themselves. This is despite regulations of the Lotteries Act requiring organisations that receive grants to procure “goods or services” using a “transparent and competitive process”.
“The processes of the NLC are such that funded entities independently source services from the market to achieve whatever it is that they have been funded for,” the NLC’s communications head Ndivhuho Mafela said in an email in response to questions. “Technically, therefore, the NLC would not be aware of information about such service providers.”
And, often, the proactive funding is given to non-profit companies with no track record. These are formed by accountants or attorneys and made tax compliant. They are then sold “off-the-shelf” and ready for business, with the original directors who set them up resigning and new directors being appointed.
Kuruman’s Lottery-funded projects
For our latest stories we visited Kuruman in the Northern Cape to investigate three different projects: an old age home, a drug rehabilitation centre and a library and museum meant to celebrate the life and work of sangoma, author and African storyteller Credo Mutwa.
Almost R60 million was granted to the three projects but two are still under construction almost two years after they received Lottery funding, while the museum has a single exhibit and the library’s shelves are empty.
Responding to a question about the delays in construction, NLC spokesperson Ndivhuho Mafela said: “It is in the nature of construction that you have unplanned delays which impact on the overall completion of the facilities. This is however reported regularly by our engineers and we are satisfied with the progress on all the facilities that we are building. We have however indicated that all projects should be handed over to the communities this year.”
Links to NLC’s COO
PKT Consulting Engineers, which is involved in the construction of Lethabong Old Age, and the recently completed Credo Mutwa Museum and Library, has links to NLC Chief Operating Officer Phillemon Letwaba and members of his family.
Letwaba, his wife Daisy, and his brother Johannes, as well as their father Oupa, who has since died, were all directors of PKT before they resigned their directorships on March 1, 2017.
On the same day that the Letwabas resigned, Themba Mabundza was appointed as the sole director of PKT. Mabundza, 37, is an active director in 54 different companies across a wide spectrum of industries.
Two of the companies of which he is a director have received grants from the Lottery. One, Life for Impact in the 21st Century, was awarded R8 million on 19 April 2017, and a further R2,106,800 just over a month later on 31 May 2017, a total of R10,106,800. The grants were made via the NLC’s Arts, Culture and Natural Heritage sector.
The first payment to Life for Impact was made about six weeks after the purchase of an existing non-profit company, which appears to have been bought “off-the-shelf” as a tax compliant entity. The three original directors resigned and Mabundza, Ivonne Sibongile Kheswa and Patricia Dikeledi Nkosi were then appointed as directors on 3 March 2017.
Zibsimanzi, a second off-the-shelf company where Mabundza is a director, received a R4.8 million grant from the NLC’s Sports sector on 21 November 2017. The grant was made about eight months after Mabundza, Rebotile Mashaba and Judith Nonhlanhla were appointed directors on 4 May 2017.
It is unclear what projects the funds granted to Life for Impact and Zibsimanzi were for. A search of both turned up no NLC-funded or any other projects that they are – or have been - involved in. The NLC has not responded to our query asking for details.
Kaone Wethu, a second company involved in the construction of the museum and old age home, also has links to business associates of Letwaba. One of its former directors, Keneilwe Constance Maboa, is either still an active director or has resigned some of her directorships in at least five companies linked to Letwaba’s family. These include Mosadi Ditshabeng Modjadji, where she is a still a co-director with Letwaba’s younger brother, Thabo. She was also a co-director of Ironbridge Traveling Agency and Events and Redtaq with Thabo Letwaba before they resigned in March and June respectively.
The current listed director of Kaone Wethu is Karabo Charles Sithole, a former director of PKT, Redtaq, and Ironbridge. These companies are or were at one time linked to Letwaba or members of his family.
Phillemon Letwaba served as the NLC’s Chief Financial Officer (CFO) before being appointed COO in 2017. For at least two years he was simultaneously both CFO and the NLC’s acting executive on all grants.
A leaked document compiled three years ago by a concerned high-up NLC whistleblower emphasises the power Letwaba wielded through holding these joint positions. The whistleblower also raised the potential for “conflicts of interest” and the “manipulation” of grants
“The sudden urgency of approving so many proactive funding applicants whilst long-standing grant agreements are not being finalised for payment are worrisome.”
In November last year, GroundUp revealed how Upbrand Properties, a company in which Letwaba’s brother, Johannes, was the sole director, signed a R15 million contract to build a rehabilitation centre near Pretoria. Although Johannes Letwaba subsequently resigned his directorship, Companies and Intellectual Property Commission records confirm that he was a director at the time of the signing of the multimillion-rand contract.
Despite this, the NLC issued a statement clearing its COO of any conflict of interest. “The NLC follows strict prescribed processes and continually encourages its employees to disclose matters of conflict of interest where applicable. It has since engaged individuals who may have been highlighted in some of the issues raised around the implementation and funding of the project [the rehab] and is satisfied with explanations provided.”
The NLC has also released a statement saying it received a clean audit for 2018/19.
Letwaba’s wife, Daisy, and Melanie du Plessis are directors of a company called Signature Kitchen Design that was registered on 20 September 2016. Du Plessis is the girlfriend of a controversial lawyer who is associated with companies and organisations that have received tens of millions of rands in Lottery funding.
In response to questions about Letwaba, the NLC wrote: “We have been advised by the official that he has referred the matter to his lawyers but he has denied any conflict of interest on this matter.”
Letwaba’s lawyer later said in an email that Letwaba had been given insufficient time to respond to our questions, but nevertheless said his client had nothing further to add to the NLC’s responses. (We gave Letwaba ample time. He has had sight of the questions sent to the NLC for several days. Despite this we gave him an additional day after receiving this letter. We have received no response.)
His wife also did not respond to questions we sent to Letwaba’s lawyer for her.
After becoming aware of this writer’s visit to Kuruman, the NLC distributed a media statement claiming that I had approached Lottery-funded projects “requesting sensitive information”.
And, despite the fact that I had identified myself to all the people I spoke to in Kuruman as a journalist on assignment for GroundUp, the NLC alleged that I was falsely “claiming to be from a mine that is working in partnership with the NLC”.
The NLC statement added: “We encourage beneficiaries who have been approached in this manner or by anybody claiming to be a representative of the NLC to report this to the organisation’s fraud line.”
The South African Editors Forum subsequently issued a statement condemning the NLC’s media release.
Themba Mabundza failed to respond to questions sent to his official PKT email address.
Melanie du Plessis did not respond to questions sent to her via WhatsApp.
We will publish part two of this series on Monday.
The role of proactive funding
All three of the projects in Kuruman were “proactively” funded using a 2015 amendment to the Lotteries Act that makes provision for the Minister of Trade and Industry, the NLC or its board to identify projects to be funded without receiving applications.
There are two types of proactive funding: planning and unplanned. Planning proactive funding starts with research before approval from the Commission, the Minister and the Board. Unplanned proactive funding is a response to emergencies and disasters. It’s unclear why Life for Impact should have needed proactive funding on such short notice.
Since the amendment hundreds of millions of rands have been granted via proactive funding, with much of it going towards infrastructural projects. These have included old age homes, drug rehabilitation facilities, schools and early childhood development facilities.
For example, the NLC proactively funded 20 projects valued at R285 million in 2017 and 2018, according to its Integrated Report covering that period.
“The majority of projects funded under proactive funding were in the Charities Sector at 57%, followed by Sports at 27%, Arts and Miscellaneous at 14% and 2% respectively,” according to the report. “Most of the funding under the Charities Sector was for the construction of Old Age Homes and a Drug Rehabilitation Centre”.
The NLC has funded several drug rehabilitation centres around South Africa. One near Pretoria received R27.5 million in proactive funding. The project is mired in controversy and at least R20 million is unaccounted for. It is now the subject of litigation and under investigation by the Department of Trade and Industry and the NLC’s Board.
Another rehab near Nelspruit has never been built, despite receiving R22 million in Lottery grants dating back to 2016.
GroundUp also revealed how the NLC used proactive funding to pay R20 million to two companies associated with controversial lawyer Lesley Ramulifho to build toilets at schools in Limpopo and the Eastern Cape. It later transpired that the NLC may have paid twice as much for the toilets than necessary.
The Democratic Alliance DA spokesperson on trade and industry Dean Macpherson last year called for an investigation of the proactive fund, after claiming that it was being used as a “slush fund” to enrich very few people.
“We know that there are shady characters that exist in the murkiness of proactive funding,” Macpherson said.
This resulted in the then Minister of Trade and Industry Rob Davies instructing the NLC’s board to investigate allegations of fraud and corruption involving Lottery grants.
Additional research by Kirsten Pearson and Candy Chan.
The lotteries have a licence to make money. Ungoverned and uncontrolled, they are usually skimmed/scammed two ways: the fat percentage straight off the top in admin 'fees' and salaries from monies collected; and sticky hands involved with the 'lucky' recipients. It's been a worldwide problem. Nothing new in South Africa which is particularly vulnerable by having a single lottery operator.
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