South Africa: Accountants who helped lottery robbery

The special investigation unit names five companies in parliament

• A special investigative unit has identified five accounting and auditing firms that helped nonprofit companies steal lottery money intended for “good causes.”
• The SIU told parliament that accounting firms had prepared false financial statements used by the companies to apply for lottery funding.
• Acting Chief National Investigations Officer Zodwa Xesibe said the SIU would take action to blacklist the companies.

A four-year investigation by the Special Investigating Unit (SIU) has uncovered five accounting and auditing firms that helped shady not-for-profit companies loot hundreds of millions of rands from lotteries intended for “good causes”.

The SIU described the companies as “professional enablers” who “prepared false financial statements” that were used by the companies to apply for lottery funding.

The five companies in question were named in parliament by the SIU’s acting chief national investigation officer, Zodwa Xesibe. These are TTP Consulting, Dzata Accountants, Magodi Consulting, Mageba Ntuli Consulting and Tafta Consulting and Accounting Services.

An SIU presentation shows that fraudulent financial records prepared by these five accounting firms helped nearly 40 companies obtain lottery funds.

Based on tool containing data on all lottery grants since 2002, these companies have received over R314 million in funding.

“These NPCs were funded by the National Lotteries Commission (NLC) but the funds were not used for their intended purpose,” Xesibe told Parliament’s Trade, Industry and Competition Portfolio Committee last week.

The SIU, Jastrzębie and National Prosecuting Authority (NPA) were in Parliament to report to the committee on progress in bringing to book the people and organizations involved in the lottery robbery.

Xesibe told GroundUp that the SIU intends to lodge complaints against the accounting firms involved and is checking whether the firms are registered and, if so, with which professional bodies.

“We want these companies to be blacklisted,” she told GroundUp.

Xesibe explained in parliament that to qualify for lottery funding, the organization had to produce annual accounts for two years.

However, as an ongoing six-year investigation revealed that GroundUp engaged in lottery corruption, hijacked non-profit organizations (NPOs) or new non-profit companies (NPCs) with no financial history were used to apply for funding.

In some cases, almost identical financial statements were prepared for unrelated organizations, often only changing the names of the organizations, a GroundUp investigation found.

Documents submitted by real NPCs in connection with rejected grant applications were often used by new or acquired NPCs and nonprofits to apply for funding. Data and documents of rejected applicants were passed on to suspected applicants by senior Lottery officials.

After cursory or, often, no vetting, these dubious applicants were awarded millions of rands in grants. Sometimes additional tranches of funds were disbursed without further checking of the progress of the projects.

The vast majority of these grants were made through proactive financingwhich was the essence of lottery looting. Proactive funding enabled the Minister of Trade, Industry and Competition, or NLC, in conjunction with its board, to determine the reasons for funding without the need for a prior application. This was stopped after the appointment of a new NLC board.

Grants worth R2 billion under investigation

The SIU chief’s lawyer, Andy Mothibi, said the SIU was currently investigating grants worth more than R2 billion and the unit continued to regularly receive reports of greater corruption.

He told MPs that the SIU’s investigation had been divided into three phases: the first, which had been finalized, looked into suspicious grants amounting to R280 million, and the second, also completed, looked at R247 million. In the third phase, which is expected to end by the end of the year, SIU is exploring grants worth almost R906 million involving 40 nonprofits and NPCs, Mothibi said.

He said the SIU would submit an application “soon” o Presidential Proclamationoriginally awarded in October 2020 to investigate corruption related to lottery grants, to be extended to contracts awarded by the NLC.

The SIU investigation has so far resulted in 13 disciplinary cases being referred to the NLC and administrative referrals to SARS and the Companies and Intellectual Property Commission to blacklist those involved in the depredations. Complaints about two people were referred to the Legal Practice Council and the Institute of Chartered Accountants SA.

The SIU had noticed several trends under the previous NLC management and director – many of whom were involved in looting – Mothibi told MPs.

These included “a tendency of collusion between NLC officials and nonprofits and NPCs,” “hijacking of nonprofits and NPCs” and “general maladministration in grant approval,” he said.

Slow progress of NPA

The SIU has frozen homes, properties, cars and other assets worth tens of millions that were bought with lottery funds, but lawmakers have expressed concern about slow progress in prosecuting those involved in the looting. (The SIU only has the power to recover property purchased with stolen state funds and has no law enforcement powers).

Although the SIU has referred 15 cases to the NPA, only two people have been brought before the court so far. Two men appeared recently in court in Kimberley over misappropriation of funds raised for a project to combat gender-based violence.

In August 2022, Christopher Tshivule was sentenced to eight years in prison for his role in a R1.5 million lottery subsidy fraud. Charges against two people against him, whom the SIU described as “ringleaders” of the corruption that engulfed the NLC, were dropped.

Major General Mmeli Makinyane, acting divisional commissioner for priority crimes, told MPs the Hawks were currently investigating 16 lottery corruption cases. Another – the Kimberley case – is pending in court, and two have been sent to the NPA for a decision to initiate criminal proceedings. The SAPS detective and forensic services are investigating another five cases, he added.

Explaining the reasons for the delay in prosecution, NPA deputy national director Rodney de Kock said one of the reasons was that the Hawks needed to carry out further investigations after receiving documentation from the SIU.

“In fact, the investigations undertaken by the SIU do not meet criminal standards for prosecution.”

As such, the NPA had to work with investigators from DPCI (“Jastrzębie”) and SAPS to conduct criminal investigations and ensure that the evidence met the standards of criminal prosecution, he said, adding: “That said, the work of the SIU is important and the contribution of a hugely committed in this process.”

De Kock said the SIU investigation “often results in multiple referrals. Referrals may ultimately result in one docket and one court case.”

He said it 12 caseswhich are “approximately 85% complete,” were being investigated jointly by the Hawks and the SIU Specialized Economic Operations Unit. (Most of these cases, seven of which were filed in 2020, involve former NLC chief operating officer Phillemon Letwaba, who he resigned under a cloud in 2022AND Pretoria lawyer Leslie Ramulifho.)

De Kock said the NPA faces several “challenges” in handling criminal cases. These, he said, include

• the lapse of time between the commission of the offenses and the issuance of the Presidential Proclamation on November 1, 2020;
• “unavailability of witnesses and/or documentary evidence” (earlier this year SIU he told the committee that key documents needed in some criminal proceedings have been deleted from the NLC computer system or have gone missing from Metrofile – a warehouse where copies of documents are archived and stored);

• the fact that some related individuals continue to be employed by NLC; AND
• AND challenge to the legality of the presidential proclamation issued by former NLC chairman Alfred Nevhutanida.

“The NPA is committed to ensuring these matters are finalized. For this purpose, a team of specialized prosecutors has been assigned to oversee all NLC cases currently under investigation,” de Kock said. “Matters are being treated as a priority. Once the investigations are completed, the NPA will make a decision.”

What companies say (or don’t say)

GroundUp was only able to obtain comment from one of the five companies accused by the SIU in parliament of preparing false annual accounts, TTP Consulting.

Aubrey Moeng, one of TTP’s two principals, said in an email responding to questions: “Due to client confidentiality, we would like to advise you that TTP Consulting does not wish to disclose confidential client financial information to the public or the media… without the client’s consent or for reasons legal.”

According to its website, the company is a “partner” of several state entities, including SARS and CIPC.

Neither of the two directors of Dzata Accountants, who are both listed as inactive on the CIPC register of companies, responded to emailed questions. The company has been deregistered by CIPC for failing to submit financial statements from 2021.

According to official records, the sole director of Mageba Ntuli Trading and Consulting Service, Patrick Zulu, died three years ago. The company has been deregistered by CIPC for failing to submit financial statements from 2021.

Matamela Magodi, sole director of Magodi Consultants, did not respond to questions sent to him by email.

GroundUp was unable to find any listing for Tafta Consulting and Accounting Services on CIPC. We were also unable to contact any of the company’s directors for comment.