South Africa: Lottery Was Warned in 2014 About Fraud - and Yet It Continued

Had all the recommendations been taken seriously hundreds of millions of rands would not have been wasted in subsequent years

Several measures recommended in 2014 to stop dodgy, often fraudulent, applications for Lottery funding appear not to have been implemented, a GroundUp investigation has found.

So serious had the problem become at the time that former Chief Risk Officer Bathabile Kapumha submitted a report warning the (then) National Lotteries Board. She recommended steps to prevent it happening in the future.

Kapumha's report also flagged a number of questionable applications. She recommended that projects where "falsified information" had been included in grant applications be cancelled and referred to the police for investigation.

Over R289 million in dodgy applications is covered in the report, of which nearly R94 million had already been allocated. But thanks to the vigilance of the risks team, only R3 million of this was paid out, highlighting the value of the stringent due diligence procedures in place at the time.

Yet, six years later, many of the issues flagged in the 20 August 2014 report appear to be continuing.

The current NLC Commissioner Thabang Mampane and J Du Preez, the Senior Executive for Grant Funding, were also involved in compiling the report, which has been leaked to GroundUp.

With the number of "confirmed cases of fraudulent financial statements", falsified NPO certificates and non-existent organisations applying for funding, it became "imperative" to verify the authenticity of information submitted with applications, the report warned.

The report also explained the "lessons learned" and the steps and resources that needed to be put in place to detect fraudulent applications for Lottery funding in the future.

"... one of the key lessons learned from recent irregularities detected is the need to check/verify people involved with the applicant and/project given," the report's compilers wrote. Checks had also revealed "the recurrence of the same individuals in projects without being listed as part of the management committee or directors". They had found "individuals who register a number of NPOs/NPCs applying for funding for these organisations" the board was told.

The report's compilers recommended that the board cancel a variety of projects and also act against organisations that had submitted "falsified information" in support of grant applications. This should include reporting these organisations "to the SAPS for further investigation and possible criminal prosecution".

Letters describing the issues that had been uncovered and asking for explanations were then sent to all the identified organisations by Mampane, at the time the NLB's CEO.

What the 2014 report found

The 2014 report listed various "transgressions" that had been discovered in applications:

"the recurrence of the same individuals in projects without being listed as part of the management committee or directors";

"individuals who register a number of NPOs/NPCs applying for funding for these organisations";

false project addresses submitted with applications;

incorrect or falsified financial statements;

falsified progress reports; and

fraudulent invoices.

The report also highlighted several examples of dodgy applications that had been uncovered and made recommendations of what should be done. They included:

Bofaganang Women's Swimming Project, which applied for R2.1million on behalf of National Youth in Innovation and Tech (NYIT). But when the NLC visited the address in Orlando East, Soweto, listed for NYIT on the application they found that it was the home of an "elderly woman". "She only knew the name of her grandson who was listed as a member of the organisation. Therefore, the organisation does not exist," the report said. Bofaganang Women's Swimming Project had previously received a total of R1.7 million between 2011 and 2014, but progress reports were still outstanding for two funded projects. The report recommended that "all applications involving Bofaganang Women's Swimming Project should not be considered and all applications made should be cancelled".

Phakamani Women's Organisation, which was allocated a grant of R19.5 million for a project. It was also allocated more than R55 million more on behalf of three other organisations whom Phakamani was assisting. In all instances "major irregularities" were discovered and the report recommended that the allocations should be cancelled;

Thusang Adventures, which applied for and was allocated R9.4 million. Thsuang also applied for a total of R35.1 million on behalf of three other organisations, of which R28.3 million had been allocated. The report stated: "Verification done, major irregularities found" and that "falsification of information" had been uncovered. The report recommended that the allocation already made should be cancelled. It also revealed that the founder of Thusang was also the CEO of Phakamani, according to Department of Social Development records.

Emthonjeni Rural development, which applied for R39.7 million and had been allocated R31.1 million. "Major irregularities" were found and it was recommended that the allocation should be cancelled. Despite this, Emthonjeni was awarded a grant of almost R2.4 million in 2017.

Tawanda Productions, which applied for R25.4 million and R17.9 million. At the time the report was compiled, R12.4 million and R10 million had already been allocated. A third application of R15.9-million had yet to be adjudicated. The report called for the allocated grants to be cancelled and the third not to be considered because of "major irregularities". Tawanda also applied for R28.3 million and R7.9 million on behalf of other organisations, which were yet to be considered. Again, "major irregularities were uncovered and the report recommended that they not be considered for funding. Despite this, Tawanda subsequently received R2.7 million in 2017 and a further R670,000, R570 000 and R100,000 in 2019.

Had all the recommendations from the 2014 report been taken seriously hundreds of millions of rands in Lottery money would not have been wasted on fraudulent or highly questionable projects in subsequent years.

In response to detailed questions sent via email and WhatsApp, NLC head of communications Ndivhuho Mafela replied with a "Lockdown notice".

It reads: "Reminder! The NLC has suspended all operations during the national lockdown. This includes the call centre. All enquiries (funding, status of applications and media) will be attended to once operations resume. #StayHomeSafe"

GroundUp is being sued after we exposed dodgy Lottery deals involving millions of rands. Please help fund our defence. You can support us via Givengain, Snapscan, EFT, PayPal or PayFast.

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