13 March: Hello, this is a news headline.
About this case study: This narrative explains the nature of corrupt activities relating to high-profile cases, and is produced in the public interest. It relies on the final reports from the Judicial Commission of Inquiry into Allegations of State Capture, Corruption, and Fraud in the Public Sector, including Organs of State (the Zondo Commission), court documents, books, investigative journalism reporting, and other media articles, all in the public domain. The ISS has made all reasonable attempts to report the details accurately. Details for the cases in the Zondo Commission reports are provided up to December 2023. Further updates are in the ‘Recent Case Updates’ section below.
Story summary
During the COVID-19 pandemic, government institutions, particularly provincial governments, routinely abused the emergency procurement of Personal Protective Equipment (PPE). This involved collusion between officials and external companies that were not qualified to supply PPE or receive government contracts. Goods were typically purchased at higher than prescribed prices, with kickbacks to officials.
InsightISS Analysis
Our key insights on this case
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The apparently unstoppable nature of corruption during the pandemic indicates that it is impossible to stamp out corruption. Zero tolerance campaigns are misguided – the aim should be to reduce, not eliminate, corruption. Resources for anti-corruption measures are limited and should be focused on the area proven to deliver effective results – prevention.
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Lessons for prevention and early intervention
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Background
On 15 March 2020, President Cyril Ramaphosa declared a National State of Disaster due to the COVID-19 pandemic. Regulations under the Disaster Management Act were gazetted on 18 March.
On 28 April, National Treasury published an Instruction Note allowing emergency procurement to take place for goods, services and works that ‘address the programme of preventing the spread of COVID-19’. This allowed all government institutions to deviate from undertaking competitive tendering processes by using other means such as quotations or traversal contracts.
However, minimum prescripts still had to be followed, such as ensuring that procurements were fair, equitable, transparent, competitive and cost-effective, as required by the Constitution. In addition, emergency procurements would need to be approved by the institution’s accounting officer or accounting authority, with the reasons and details recorded. They would also need to be reported within 10 days to the relevant treasury (i.e. National Treasury or provincial treasuries) and to the Accountant General of South Africa (AGSA) if the amount exceeded R1m. In the case of municipalities, emergency procurements would need to be reported to the Council at its next meeting and recorded as a note in the annual financial statements. Any other deviations from normal procurement practice would require the approval of the relevant treasury.
Treasury’s Instruction Note also included specifications and maximum-allowed prices for procuring PPE. Updates were made on several occasions as developments warranted further amendments.
Location
The bulk of the problematic PPE contracts flagged for investigation were at the provincial level, making up R10.8bn of the total R14.3bn. Provincial contracts alleged to have irregularities were mostly in Gauteng (R6bn), followed by the Eastern Cape (R3bn), Kwa-Zulu Natal (R1.1bn), Mpumalanga (R730m), Limpopo (R473m) and the remaining provinces (less than R250m).
The provincial health and education departments had the most problematic contracts, estimated at R4.6bn by 30 September 2020. In a few provinces there were other departments that stood out, such Mpumalanga’s Department of Human Settlements, the Northern Cape’s Department of Social Development and Public Works, and the Eastern Cape’s Department of Public Works and Infrastructure.
The only province in which there were more municipal than provincial contracts flagged was Kwa-Zulu Natal. eThekwini accounted for 286 of the total 511 municipal contracts flagged for investigation and KwaDukuza accounted for 63.
Methods and modus operandi
Following the announcement by National Treasury of allowances for emergency procurement, many opportunist companies sought to be awarded contracts to supply PPE and make huge premiums. While Treasury had tried to prevent this by prescribing PPE specifications at the outset, many government officials were prepared to flout this.
Companies colluded with government procurement and finance officials who were prepared to flout Treasury’s PPE specifications, ignore minimum procurement prescripts and overlook basic controls. This enabled procurers to give contracts to suppliers that were not qualified to do so, with no competitive bidding contracts or basic compliance checks. In several instances, these officials ignored their own experts’ advice on the usefulness of the products.
Some companies made use of political connections, while others gave backhanders to officials – paid from the large illegal premiums being made.
Items were found to have been routinely procured at more than double and even up to five times the prescribed price. Some suppliers delivered PPE that did not meet the required specs, or they had not been contracted to deliver; some suppliers underdelivered or delivered late. But most of them were still paid by departments.
Officials rubber-stamped orders or accepted unlawful instructions from their seniors, leading to a complete breakdown in checks and balances.
2020 |
May to June: Concerns over the apparent abuse or mismanagement of emergency procurements by government institutions quickly began to mount during the months following National Treasury’s April Instruction Note. Hundreds of complaints were made to government authorities, such as the Special Investigating Unit (SIU), from both whistle blowers and accounting authorities in government institutions. July: On 9 July, the Competition Tribunal released a press statement on their investigations into numerous cases of alleged excessive pricing, with fines imposed on companies found guilty of excessive pricing. Settlements were reached in several cases, whereby donations would be made to the Solidarity Fund, which was created to support the country’s national health response to the pandemic and provide humanitarian relief. On 23 July, President Ramaphosa signed a proclamation for the SIU to investigate improprieties in COVID-19 procurements by any institution, after numerous allegations of corruption had been made to the SIU. The SIU’s mandate was to investigate PPE procurements from 1 January 2020 to 23 July 2020, but they could go beyond those dates where it was relevant to their investigations. This was by far the largest investigation the SIU had undertaken. Also on 23 July, the President announced the establishment of a ‘collaborative and coordinating centre’ to address COVID-19 corruption, which became known as the Fusion Centre. This included the Financial Intelligence Centre (FIC), the Independent Police Investigative Directorate, the National Prosecuting Authority (NPA), the Directorate for Priority Crime Investigation, the South African Police Service (SAPS) Detective Service, SAPS Crime Intelligence, the South African Revenue Service, the SIU and the State Security Agency. Their focus was on the distribution of food parcels, social relief grants, procurement of PPE and other medical supplies, and the Unemployment Insurance Fund special COVID-19 scheme. At the time of the announcement, 35 cases were already underway and at various stages of investigation and prosecution. On 31 July, Minister of Finance Tito Mboweni called on all provincial health Members of the Executive Council (MECs) to publish the list of companies who were being awarded tenders related to COVID-19 PPE. August: On 25 August, Treasury repealed its authorisation for emergency procurement and issued a new Instruction Note. Consensus was reached to revert to normal procurement regulations for COVID-19 procurements after Treasury briefed Parliament’s Standing and Select Committees on Finance on the shortcomings in transparency with which emergency procurement was taking place. Deviations would once again require the approval of the relevant treasury rather than the accounting officer or authority. September: The Auditor General shared the initial results of its special live audits into COVID-19 spending, which dated back to as early as May 2020. A data analytic system to flag potential fraud and high-risk suppliers was put in place and began identifying several instances of PPE being purchased at higher than the prescribed prices. The Auditor General’s audits found that the basic prescripts for emergency procurements were not followed in many cases, with a lack of proper controls in place and potential cases of fraud. The report did not make any specific findings or allegations about corruption, which was the work of the SIU and other law enforcement agencies. |
2021 |
February: The SIU reported on their investigations into COVID-19 expenditure related allegations for 189 state institutions and entities, involving 2 556 contracts awarded to 1 774 service providers and valued at R13.3bn. One quarter of the cases had been finalised, R259m worth of contracts had been referred to the SIU’s Special Tribunal for civil litigation and the potential recovery of R160m in cash or assets identified for recovery. Another 38 referrals had been made to the NPA for criminal investigation. December: The SIU released the final of seven reports into COVID-19 expenditure, which reflected that investigations into R14.5bn worth of contracts had been finalised, with another R1bn still ongoing. This involved 5 468 contracts to 3 067 service providers. With overall COVID-19 expenditure calculated at R152.5bn by National Treasury between April 2020 and September 2021, this meant almost 10 percent had been investigated. Of this, R5.3bn was found to have no irregularities, R7.9bn was identified as having irregularities and the remainder was found to be ‘out of the scope’ of the SIU’s mandate. By the end of 2021, 45 matters had been enrolled at the Special Tribunal, valued at R2.1bn, and 386 referrals made to the NPA. In addition, 224 referrals were made for disciplinaries, three for executive action and 330 for administrative action. The SIU estimated that R551.5m of cash or assets could potentially be recovered, with R34.3m already recovered. Contracts worth R170.4m had been set aside and an estimated R114.2m of losses to government prevented. |
2024 |
November: On 13 November, the SIU presented to Parliament’s Standing Committee on Public Accounts. They reported that, by the end of October 2024, there had been 304 PPE-specific referrals to the NPA relating to their COVID-19 investigations, which had resulted in 71 guilty convictions. There were 17 custodial sentences of an average of eight years, plus 22 custodial sentences with an option of a fine. In addition to this, there were 297 recommendations for disciplinary action, 98 cases would end in guilty findings, with 18 officials dismissed. Many of the key officials – including those who had left the service – were sued for damages and had their pensions frozen whilst awaiting the finalisation of damages claims. The highest number of referrals to the NPA by November 2024 were from the Free State (121), followed by KwaZulu Natal (76), Gauteng (63), national departments (60) and the Eastern Cape (34). There were very few or none from the North West, Northern Cape and Mpumalanga. |
Case studies
Gauteng Department of Health
The SIU investigated 218 contracts entered into by the Gauteng Department of Health (GDoH). The same set of individuals were involved in many cases.
In numerous instances, Kabelo Lehloenya (Chief Financial Officer) and Thando Pino (Head of Supply Chain) would receive a quote from a company for PPE supplies. Without getting any approvals or conducting competitive bids, they would place an order within a very short period (e.g., 24 hours). The suppliers would not be checked for having the necessary licence from the South African Health Products Regulatory Authority (SAHPRA) for selling medical devices, being VAT-registered or on other compliance requirements.
In almost all cases, prices were artificially inflated, sometimes by two to five times the prescribed values. In many cases, goods delivered were not those ordered but cheap alternatives, or were incorrect products that could not be used. There were instances of fraudulent invoices being issued and paid.
The SIU investigated 211 matters in the department, 207 of which had been finalised by December 2021 – 107 of these were found to be irregular.
LGN Scientific was awarded a PPE contract worth R113.2m. After investigation by the SIU, this contract was set aside by the Special Tribunal and the decision was upheld by the High Court on 7 February 2024. LNG must divest its profits to the GDoH, and their directors and sub-directors have been referred to the NPA for possible prosecution for fraud, theft and money laundering.
Ledla Structural Development was awarded a PPE contract worth R139m. Even once the SIU investigation into the contract was underway, the GDoH still paid Ledla a further R38.7m. The monies received by Ledla were laundered to 39 different parties. Between these parties, a total amount of R26m in their bank accounts was frozen on the orders of the FIC, almost all of which was ultimately forfeited to the State. The Special Tribunal set aside the contract on 10 December 2020 and the remaining amount of R100m was not paid to Ledla. The SIU also made a referral to the NPA in support of criminal charges against the directors of Ledla.
Zakheni Strategic Supplies was awarded a PPE contract worth R103.7m. Zakheni’s company director was connected to the MEC for Health in Gauteng and a Presidential spokesperson. All remaining payments to Zakheni were stopped, the contract was set aside, and all profits must be divested to the GDoH. The case has been referred to the Competition Commission and SAHPRA for contraventions.
Government officials and public office holders faced a swathe of consequences:
- Head of the GDoH, Mkhululi Lukhele, resigned before he could face disciplinary consequences but was referred to the NPA for possible criminal prosecution and had his pension frozen pending the outcome of a damages claim.
- Lehloenya resigned before disciplinary action could be instituted against her, but also had her pension frozen pending the outcome of the damages claim against her.
- Pino was dismissed.
- The Acting Chief Director of Supply Chain, T Ravele, faces disciplinary action.
- The Deputy Director General for Human Resources and Corporate Services, Andile Gwabeni, was suspended and resigned before facing disciplinary action.
Matzikama Local Municipality (Western Cape)
After the announcement of the ‘hard lock-down’ in March 2020, Acting Municipal Manager Lionel Phillips established a COVID-19 team to arrange for the purchase of PPE, amongst other things. The team issued a request for quotes for PPE including 5 000 gloves, 5 000 bottles of hand sanitizer and 20 000 surgical masks, with a closing date of 1 April. On 1 April, Aldrich Hendricks replaced Phillips as the Acting Municipal Manager and was supplied with the quotes received by the COVID-19 team. The next day, Hendricks disbanded the team and appointed Isak Jenner as the COVID-19 co-ordinating officer. On the same day, there were telephone conversations between Hendricks and Nicolaas Jacobus Klazen from Duneco, who knew each other, and between Jenner and Klazen. Klazen had deposited a small amount of money into Hendrick’s wife’s bank account the year before, which Hendricks had failed to disclose.
After this, and two days after the closing date for the request for quotes, Klazen submitted a quote for PPEs – which had a different set of specifications to the request for quotes – to Jenner and not the Supply Chain Management unit. Jenner forward the quote to the CFO, Jafta Booysen, who gave a recommendation and passed it to Hendricks. That same evening, Hendricks approved the quote. No minimum procurement prescripts were followed, and a deviation request was only made the following week.
A PPE delivery was made and Duneco was paid R400 000.
Booysen, Hendricks and Jenner resigned when the SIU began investigating, with Booysen and Hendricks going on to be employed as municipal managers in the Laingsburg Local Municipality and Prince Albert Local Municipality in the Western Cape respectively. However, the SIU also referred the matter to the NPA – in May 2022, the Hawks arrested Booysen, Hendricks, Jenner and Klazen, charging them with fraud and colluding with a service provider. They were released on bail and the matter enrolled at the Special Commercial Crimes Court in Bellville for July 2023. On 23 June 2023, the Special Tribunal found the R400 000 contract with Duneco to be irregular and invalid, and ordered it to be set aside. The three municipal officials were ordered to pay R400 027.50 plus interest to the municipality.