Gaming the Lottery

Zibsifusion: a case study of Lottery corruption

Toilets were promised to schools with pit latrines, but never delivered

Much has been written about Lotto-funded projects, raising pertinent questions such as how beneficiaries are selected and where the millions dished out eventually end up. We took two projects to build toilets at schools in Limpopo and the Eastern Cape — which effectively are a single project — to show how the National Lotteries Commission (NLC) flouts its own rules, interprets legislation to suit its officials’ own ends, and channels millions to beneficiaries which do not have “good causes” as an ultimate goal.

The money for these projects was meant to benefit rural learners, many of whom have to use dangerous and unhygienic pit toilets.

Done properly, the project could have changed the lives of at least 6,000 children, but it ended up assisting only a few schools.

A project to restore dignity?

In November 2018 the NLC approved funding for two projects to provide proper sanitation at schools in Limpopo and the Eastern Cape. This came at a time when the problem of learners using dangerous pit toilets was receiving lots of media coverage.

It is difficult to establish exactly how many schools in Limpopo are without proper toilets. Based on various sources anything between 507 and 1,474 schools in the province only had pit toilets at the time the project was approved.

The challenge was to replace old and dangerous pit toilets with something safer.

Important to this story is the concept of “proactive funding”. This process, introduced in 2015, allows the NLC to take the initiative and identify “good causes”. The NLC’s Board, the Minister of Trade and Industry or the NLC itself identify a project and an organisation to manage it.

And the winner is … the Lottopreneur

The NLC identified two non-profit companies (NPCs) to handle the Limpopo and Eastern Cape sanitation projects. Each was awarded R10 million.

The Limpopo project for ten schools went to Zibsifusion NPC. In the Eastern Cape, the project to deliver toilets to 15 schools was awarded to Dinosys NPC.

But an examination of these two companies by the NLC should immediately have raised red flags.

Both are “shelf” companies registered in 2015 by a company specialising in setting up companies, making them tax and legally compliant and then later selling them off as going concerns.

Zibsifusion was bought early in 2017 and on 16 May that year the new directors were registered — Liesl Joy Moses, Tsietsi Joseph Tshabalala and controversial lawyer Lesley Ramulifho. Dinosys was probably purchased later in 2017, as new directors were only registered at the end of January 2018. The same three directors of Zibsifusion were appointed the directors of Dinosys. In previous articles it was reported that Moses and Tshabalala are actually employees of Ramulifho.

Ramulifho resigned as a director of Zibsifusion on 15 March 2018, and of Dinosys on 20 September 2018. In both cases, another of his employees, Louisa Molebogeng Mangwagape, was appointed.

The new address for both NPCs was registered as 21A Garsfontein Office Park, Jacqueline Street, Pretoria-East, which is also the address of Ramulifho’s law practice.

Ramulifho has benefitted hugely from Lottery funding and current and former NLC employees say he has been a familiar face at the NLC’s offices.

He previously did legal work for the NLC and was involved in a dodgy R27.5 million drug rehabilitation project funded by the NLC. Another connection to the NLC is that his girlfriend, Melanie du Plessis, is co-director with Daisy Letwaba, the wife of the NLC’s Chief Operations Officer (COO), Phillemon Letwaba, of a private company.

When the contract to give money to the two NPCs with direct connections to Ramulifho was signed, articles — here and here — had already appeared about problems with Lottery-funded projects he was involved in.

On 14 September 2018, a bank account was opened for Dinosys at the FNB Olympus Plaza branch in Pretoria, the same branch where Zibsifusion had opened an account on 3 May that year. A few days later, on 26 September 2018, the registered address of Dinosys was changed to 2 Namib Park, Lois Avenue, Erasmuskloof, Pretoria-East.

And, also on the same day, Zibsifusion’s address was changed to 66 Vista Valley Timbavati Street, Moreleta, Pretoria.

A few weeks later, on 6 November 2018, both Zibsifusion and Dinosys received letters from the NLC informing them that their applications for funding had been approved by the Charities Distributing Agency. The approval letters were signed by Letwaba (the NLC COO).

The address used for Dinosys in the NLC contract states that it is situated at 14 Summit Road, Beaconhurst, East London. But when the Daily Dispatch newspaper in East London visited that address it found that no such business existed there.

The address of Zibsifusion used by the NLC to draw up the contracts also differs from the one registered at the CIPC; the NLC had used Lesley Ramulifho’s office address for Zibsifusion. Louisa Mangwagape signed as chairperson of Zibsifusion and Liesl Moses as chairperson for Dinosys.

What is clear is that the two companies were run from the same office by the same people.

How Smurfs dodge the radar

One can only speculate about the reason for splitting up the project and giving grants to two NPCs. The plausible explanation is that it relates to two provinces. However, then one must question the flow of money between the two NPCs. More likely is a Lotteries Act regulation that makes audited financial statements compulsory for amounts larger than R10 million. For R10 million and under, the less probing “independently reviewed” requirement is required.

Breaking up payments into smaller chunks is a strategy known as “smurfing” and is often done to launder money or to dodge scrutiny. A recent report, The Enablers: The bankers, accountants and lawyers that cashed in on state capture, describes this and on its website OpenSecrets states:

“Smurfing is where large sums are broken into smaller amounts to defeat anti-money laundering reporting requirements. The money is scattered around in a blizzard of transactions designed to hide the source and eventual destination.”

Beneficiaries are also supposed to provide the NLC with at least two years’ financial statements. The logic is that such statements should be used by NLC staff to judge whether an organisation has a financial track record indicating that it can handle grant money.

But in the case of Zibsifusion, leaked bank statements show that the company was dormant for most of its life before it got Lottery funding, with its bank account only opened in May 2018. In November 2018, when the grant was awarded, the company’s bank balance was R220.73 in the red.

The methods in cases like the Gupta’s Estina Dairy Farm scam are echoed in the dodgy NLC grants, with Lottopreneurs often using a layered payment system, where transactions are designed to hide the eventual destination of the money.

Where did the money go?

On 21 November 2018, the first tranche of R7 million was paid by the NLC into Zibsifusion’s bank account. The next day money started flowing out of the account and by 6 December, just 15 days later, the balance had dwindled to just over R40,000. R4 million was immediately transferred to an unknown account, with no proper referencing. A further R500,000 was paid to a well-known Pretoria law firm with no apparent link to Zibsifusion.

Judging from bank statements and other leaked documents, it is clear that Zibsifusion sometimes paid expenses of Dinosys and vice versa — a total flouting of corporate governance. In some instances money was transferred to specified recipients like a Pretoria-based IT company, which received R87,607. But in most cases payments were made with general references such as “bricks and cement”, as was the case with one payment for R450,000.

We analysed the statements and found:

  • Almost R340,000 was transferred from the account under the reference “Lee Moses”, who is the mother of Ramulifho’s child and is also employed in his legal practice. Lee (or Liesl) Moses’s name also pops up in the Lottery-funded Denzhe Primary Care scandal where Lottery money was used to pay for things unrelated to the funded project.
  • According to references on the bank statements, R101,000 was paid from the Zibsifusion account to Lesley Ramulifho.
  • Cash withdrawals were made, either at an ATM or by cash sending transactions, totalling R39,900.
  • A further R337,000 was paid for “site surveys”.
  • R150,000 went to “management fees”.
  • Legal fees were paid to, among others, one of Lesley Ramulifho’s personal lawyers, totalling R85,389.
  • Transactions took place at stores like Woolworths in Doringkloof and Pick n Pay in Hatfield.
  • There are also references to payments to at least two people with direct links to NLC officials.

Most of the transactions reflected during this period are in clear contravention of the NLC’s stipulations and the contract entered into with beneficiaries.

What happened to the toilets?

When the NLC released a statement on 25 March 2019 it disclosed some important information about the projects for the first time.

Ndivhuho Mafela (the spokesperson) said that it had been recommended that the old and dangerous pit toilets would be replaced with Enviro Loo toilet systems. The grant agreements, however, are more vague, only referring to “sanitation”. Ten schools in Limpopo and 15 schools in the Eastern Cape would soon receive new sanitation facilities, according to the grant agreements signed, respectively, by Zibsifusion and Dinosys.

The Enviro Loo system is impressive. It is clear why it was recommended ahead of other systems for rural areas where access to water for flushing is a challenge. It is an award-winning concept which is not only environmentally friendly and safe, but much easier to maintain than other systems.

But an Enviro Loo system cannot be bought “off-the-shelf”. It needs to be purchased from the registered suppliers and comes as a package, which includes two years’ supply of chemicals and training for local workers to be able to maintain the toilets.

The company supplying the toilets ensures that it is installed correctly and will only issue a certificate of compliance once it has passed a stringent final inspection.

The best attribute of the Enviro Loo system is that it is very reasonably priced and much cheaper to install and maintain than previously used systems. The company also has a very transparent pricing system, meaning that it is very easy to calculate the cost. This, unfortunately, is not a feature that is welcomed by tenderpreneurs wanting to inflate prices.

At the end of January 2019, Zibsifusion purchased the first two sets of Enviro Loo toilets for R213,374,86. The toilets were delivered to Ncheleleng Secondary (school 1) and Tibanefontein Primary (school 2), both close to Polokwane, the capital of Limpopo province.

But some schools already had toilets

When the R7 million was paid to Zibsifusion in November 2018, not a single school earmarked to receive new toilets had been visited by the NLC according to a report based on an on-the-ground inspection by the anti-corruption body, the Organisation Undoing Tax Abuse (OUTA).

In December 2018 construction of new toilets was completed at Reahlahlwa Primary School in Limpopo (school 3), one of the schools later mentioned in an NLC report as being a recipient of new toilets.

The problem is that the project at this school was completed thanks to a grant by the Construction Sector Seta. Even though mentioned in Zibsifusion’s “progress report”, the school did not benefit from NLC money. The toilets were officially handed over by the Seta representatives on 4 February 2019.

On 23 January 2019 school 1, Ncheleleng Secondary, received a visit from two people claiming that they represented the NLC and that the school would receive new toilets, according to the OUTA report.

A week later, on 30 January, Waterval High near Elim (school 4) was visited by Ofentse Modibane, a Zibsifusion representative. Modibane explained that he had been tasked to donate toilets. But there was a problem: Waterval High already had flush toilets. So, during a second meeting with the school on 8 February, it was agreed that renovation work would be done to the existing toilets.

Somewhere during February or early March, Tibanefontein Primary (school 2) was also visited by Modibane according to the OUTA report.

By the beginning of February, Zibsifusion’s bank account was in a sorry state. Not a single school project was complete and the balance stood at R1,750.44. Money had to be topped up from other accounts as and when bills were paid. For example R10,000 was received from Sunkambe, a music business — and R3,000 paid back to it on the same day. Other money was received from Denzhe, but most payments came from another Zibsifusion account.

And then a spotlight was switched on

On 1 March 2019 investigative reporter Raymond Joseph sent a list of questions to the NLC. He was following up a story on the links between Lesley Ramulifho and NLC-funded projects. A section of the detailed questions concerned Zibsifusion and Dinosys. Questions were also sent to Ramulifho on 4 March.

The NLC’s short response to the questions was to state that all standard processes were followed. “It is bizarre, to say the least, to expect the NLC to respond to questions about private individuals’ relations,” said Mafela.

An email to NLC Commissioner Charlotte Mampane pointing out that Ramulifho previously admitted to using NLC funds as a “loan” to pay for two Ocean Basket franchises also elicited no response.

Joseph’s media inquiry, however, seemed to have triggered panic. On 4 March Liesl Moses started to put together a PowerPoint “progress report”. Large deposits were also made into the Zibsifusion account and by 15 March the account had been boosted with R400,000.

In a 19 March article, Joseph revealed links between Ramulifho and more NLC beneficiaries. The NLC responded on 22 March with a press release which, for the most part, was a defamatory attack on Joseph.

The press release, which also attempted to explain the sanitation project, concluded with the statement: “The progress reports depicting work done to date in all schools within the aforementioned provinces are attached hereto for ease of reference.”

But there were no progress reports attached. Asked by journalists to provide the reports, the NLC’s Mafela at first ignored the requests.

But more than a week later, on 2 April, after he was pressed to provide the reports, Mafela emailed a PowerPoint “progress report” presentation. The document properties, however, show that the last changes to it were made on 25 March, several days after the NLC had released its statement.

Things unravelled further after protest action erupted at Waterval High on 12 April 2019, with learners complaining about the dilapidated state of the school buildings and toilets. When journalists asked why there were complaints about the toilets, it quickly transpired that no new toilets had been built, in spite of what the NLC had claimed.

Closer scrutiny of the “progress report” revealed that it was partly fabricated and it also included incorrect details. The same “progress” photos were being used for more than one school. The NLC’s attempt to assure journalists that all was well backfired when it was discovered that only minor, very sloppy, repair works had been done at Waterval.

The report also raised further questions as it only listed eight schools and not ten as the NLC initially stated it had funded.

Let’s throw more money at it

While the questions about the project escalated, the NLC seemed to have adopted a rather pragmatic approach. Instead of dealing with the issues raised, it approved payment of the second tranche on 4 April and R3 million was paid into the Zibsifusion account. At that stage, the only progress that could be shown was two unfinished toilet blocks (Ncheleleng and Tibanefontein) and a disastrous repair effort at Waterval High.

On 8 April a building contractor, Seopa Open Construction, visited Ngwanabahlalerwa Secondary School (school no 5) to inspect the site and take soil samples. On 15 April construction teams arrived at the school to start building the new toilets (or renovate the existing toilets).

In a press release issued by the NLC that day, mainly to address a Carte Blanche exposé of Lottery shenanigans that aired the previous night, Mafela also commented on the Zibsifusion and Dinosys projects, even though it did not form part of the Carte Blanche programme.

“The Commission has funded the construction of ablution facilities in 20 schools within the jurisdiction of the most disadvantaged communities in Limpopo and the Eastern Cape,” he said. Suddenly the project had changed from 25 schools to 20 schools.

On 25 April the NLC announced ceremonies to officially hand over the “new” toilets at three Limpopo Schools: Ncheleleng, Tibanefontein and Waterval.

Toilets were handed over at the first two schools, but at Waterval the event turned into a fiasco. The NLC’s representatives cancelled the event after it admitted that the work done was not up to standard. The NLC promised that the matter would be addressed.

Sometime during May construction work started at Tshikhovhokhovho Primary (School no 6). The same company (Shatadi Trading) that apparently did the work at Tshikhovhokhovho apparently also contacted the principal of Tshilapfene (School no 7), saying that it was there to build toilets.

School no 8, Nthabalala Primary also said it did not need the toilets as Thusanani Projects, a company based in Centurion, had donated money for the building of its toilets.

So why does it matter?

When the NLC uses the option of proactive funding it needs to be for an urgent need or exceptional cause. The sanitation project would probably qualify. It is, however, not the NLC’s mandate to channel money to government departments to do basic maintenance. The example of Waterval is interesting, because the NLC did not address an urgent need but merely provided funds for maintenance.

By the end of May, even though Zibsifusion had received R10 million in Lottery funding, there was just R141,556 left.

Zibsifusion ended up paying a grand total of R1,008,872.99 for Enviro Loo systems, but apart from the units installed at Ncheleleng and Tibanefontein, all the other units (which included repair systems for existing Enviro Loo setups) went to the Eastern Cape.

Of the eight schools mentioned in the Zibsifusion report, only two had received toilets by the end of May 2019 and one school had existing toilets refurbished.

The OUTA report indicates that three more schools were visited and it is possible that construction commenced after its visit. But it is difficult to check progress at these schools as at least two principals said that they were “instructed” not to talk about the projects, according to the OUTA report.

But no Enviro Loo systems were installed at these schools. Even if one presumes that five of the schools eventually received new toilets, the cost per toilet is astronomical.

So what did the toilets end up costing?

In its August 2018 sanitation audit, the Department of Basic Education stated that the average “cost per toilet seat” for Limpopo was set at R94,071. The department estimated that it would cost R918 million to build new toilets at 507 schools (9,412 seats) in Limpopo. This estimate includes construction costs, sinking and equipping boreholes, demolishing old structures and professional fees. Although considered a “worst-case scenario”, these estimates were used by President Ramaphosa during his SAFE presentation in 2018.

To get a more local and “on-the-ground” opinion, a Vhembe-based building contractor compiled a detailed dummy quote on building two ablution blocks (boys’ and girls’ sections) with an eight-seat Enviro Loo toilet setup, exactly the same as was built at Tibanefontein and Ncheleleng.

The contractor is a fully accredited builder who uses appropriate professionals to oversee its projects. The company has previous experience with similar projects and the quote is at “commercial” rates with no discounts.

Its estimate for the construction of a standard four-toilet block was R248,802 without VAT. It included 18% for professional fees, a 5% contingency allowance and 22% for preliminaries. The cost per seat worked out at R62,200 before VAT.

Using this estimate, the toilet blocks would have cost R572,246 with VAT included for each school. The estimated cost to build toilets at the schools mentioned in the report that needed toilets (not Waterval and Reahlahlwa) would be about R4 million.

The NLC allocated R10 million to Zibsifusion to build the toilets. This works out at R138,888 per toilet seat, more than double the cost that the local contractor quoted, and 47% more than the education department’s estimate.

Had the NLC done proper vetting, ensuring that the money was used to its fullest potential, thousands more children would have been spared the need to use undignified and dangerous pit toilets.

A comprehensive list of questions was sent to the NLC, Lesley Ramulifho, Liesl Moses and Louisa Mangwagape. They were given the opportunity to respond before 1pm on Monday, 2 March 2020, but none of them did.