siu report

SIU report on PPE fraud: Here’s a summary of shocking findings

Published by Andile Sicetsha

On Friday, the Special Investigating Unit (SIU) detailed the contents of a report that probed the government’s handling of procurement processes necessitated by the National State of Disaster (NSD) that was enacted in March 2020.

SIU report: What was the scope of the investigation?

President Cyril Ramaphosa launched the investigation after numerous allegations were made of irregular activity in various state institutions’ procurement processes.

According to Advocate Andy Mothibi, “the president deemed it appropriate that this report be released to the public.”

The report looked into instances of misappropriation of funds between 1 January 2020 – 23 July 2020. However, Adv. Mothibi explained that the SIU was allowed to probe beyond this scope, where it was necessary to do so.

PPE corruption in numbers

Here is a summary of the workload the SIU had to pile through to get to the root of corruption that was reported in state institutions across the country:

  • 189 corruption allegations were reported since 19 November 2020.
  • A total of R30.7 billion was spent by state institutions, R13.3 billion of which is under investigation. These, Adv. Mothibi explained, are tender contracts that were awarded to 1 774 service providers.
  • 164 contracts to the value of R3.5 billion have been finalised.
  • 1 541 contracts valued at R6.8 billion are still under investigation.
  • Investigations into 851 contracts have yet to be launched.

Observations made on findings

In its widescale investigation, the SIU noted the following observations in the report’s findings:

  • Persons in positions of authority in state institutions believed, for some reason, that the declaration of the NSD meant all procurement was to be conducted on an emergency basis. So, they flouted processes.
  • Various officials merely rubber-stamped decisions taken by authorities, accepted and gave unlawful instructions which resulted in the complete breakdown of checks and balances of procurement processes.
  • Officials working in support services flouted all control measures.
  • Provincial state institutions ignored prescripts of transversal contracts (centralising all procurement via National Treasury).
  • Certain service providers were only registered from February and March 2020. They could not provide track records. Other providers were not registered on CIPC. Also, the types of goods they supplied were not consistent with the type of company listed on CIPC.
  • Certain companies were awarded BBBEE quotas where they didn’t apply or quality.
  • Political pressure played a huge role in procurement of PPE tenders.
  • Substandard PPE and non-compliant equipment was a trend.
  • No attempt was made to negotiate prices, resulting in overpayment of goods supplied.
  • Control measures of ensuring what was ordered and delivered were not found.
  • Several suppliers claimed VAT when they were not registered.
  • Some companies were used as proxies for other companies. This showed signs of cover-coating by some supplies. Instances of the splitting of bids were also observed. In other instances, suppliers were not honest in disclosing close relationships with tender officials.

SIU report: Some of the evidence on irregular tenders

The Special Tribunal has been approached to declare tenders involved in some of the cases invalid and freeze all assets. State officials from implicated institutions are quick to resign, Adv. Mothibi noted. However, the tribunal has been asked to freeze all pensions pending the outcome of the mass-scale probe

Here is a summary of some of the priority cases that have been turned into the tribunal so far:

  • Dept of Health in Eastern Cape: The contract was valued at over R10 million (18 September 2020). This involved the irregular procurement of motorcycles to transport Covid-19 patients. The matter still sits with the tribunal and will be heard on 22 April 2021. For now, transactions between the dept and the contractor have been interdicted.
  • OR Tambo Municipality – Eastern Cape: The contract was valued at R4.8m (26 October 2020). The SIU found that the procurement process undertaken to fund the door-to-door awareness campaign was irregular. The matter has not been finalised. However, the SIU is not expecting any resilience from defendants involved in the probe.
  • A trading company (name unconfirmed) – Eastern Cape: The contract was valued at R2.7m (8 October 2020). The company was illegally awarded a contract to supply PPE equipment that never materialised. The matter still sits with the tribunal.
  • Ledla Structural Development – Gauteng: The contract was valued at R139m – The company was contracted to deliver PPE equipment to the Dept of Health. The SIU found that the tender was irregularly awarded and prices were inflated between 211% to 542%. According to Adv. Mothibi, the dept stopped almost all payments.

On 3 August 2020, the dept made a payment of over R38m. This, Mothibi added, didn’t reconcile with what SIU indicated. After that payment was made, substatnial amounts of money were moved from two business bank accounts, to that of 36 other entities. The SIU used the financial intelligence centre to freeze the funds of 39 entities for 10 days.

To-date, respondents in the case are prohibited from accessing the funds. Adv. Mothibi confirmed that the shoddy contract was suspended. Former CFO of Gauteng’s Dept of Health Kabelo Lehloenya resigned soon after the scandal. Mothibi confirmed, though, that his pension has been frozen pending the outcome of the tribunal process.

As of December 2020, the tribunal reviewed and set aside the R139m contract. The dept will not execute on the contract anymore. Lehloenya’s pension matter is still being contested and a hearing has been scheduled for 1-18 June 2021.

  • Dept of Social Development – KZN: Multiple companies are involved in a fraud scam valued at a cumulative R18.3 million. This, the SIU noted, has to do with the dept’s procurement of blankets for vulnerable in the province. However, fewer blankets were delivered by the supplier. Action has been taken to recover monies lost.
  • National Dept of Public Works – Beitbridge border: The contract was valued at R40m. The contractor was recruited to develop and erect a fence along the Beitbridge border. However, it was found that the procurement process was irregular The bank accounts of the companies involved in the scam will be frozen, Adv. Mothibi confirmed.

The tribunal heard the matter on 26 January 2021. The compnaies are challenging the jurisdiction of the tribunal and for now, judgment has been reserved.

“As at 20 November 2020, the SIU had instituted civil matters in the Special Tribunal to the value of R259 624 735 for review, which will include recovery of State funds,” Mothibi revealed.

Since Thursday 4 February 2021, 15 more irregular tenders were enrolled at the tribunal, all of which are valued at R365 million.

Other outcomes from the SIU report

Adv. Mothibi noted that 25 referrals have been ade to various state institutions for disciplinary action to be taken against guilty officials for “misconduct and contravening of the supply chain management policies.”

While names can’t be released as yet, the referrals are from these institutions:

Adv Mothibi revealed that implicated officials and companies are awarded the opportunity to repay the full amount stolen from the state. This can be done in a lump sum or through monthly instalments.

Most important, Mothibi stressed, was the fact that honouring to repay the debt owed to the state doesn’t admonish fraudsters from facing the music if it was found that criminal means were used to obtain the irregular contracts.

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