The Mpumalanga department of health and social services yesterday suspended seven officials implicated in "acts of fraud and corruption".
Preliminary investigations had so far revealed that more than R1million had been fraudulently stolen since 2006.
Mpho Gabashane, departmental spokesman, said the officials work in the various units of the department and it appeared that they may have colluded with each other to defraud the department.
"It seems that they may have been using the letterheads of well-established companies pretending that these companies were actually providing services while they were not," Gabashane said.
"They seem to have done this without the knowledge of these companies. We have also reported a case of fraud and corruption to the police."
He said the department found out about these activities when one of the officials in the scam blew the whistle.
Said MEC William Lubisi: "We applaud this courageous person and appeal to others involved in the scam to come forward."