An investigation has been launched into the National Lotteries Commission (NLC) following allegations of fraud and corruption involving grant allocations to "good causes".

The investigation by the department of trade and industry (DTI) follows numerous reports over the past 18 months by investigative journalists describing alleged fraud and corruption involving lottery grants running into hundreds of millions of rands. The commission is an agency of the DTI.

"The minister has instructed the National Lotteries Commission board and DTI's internal audit department to institute an investigation," DTI spokesman Sidwell Medupe said in a brief statement via WhatsApp. The investigation is continuing, he wrote.

The investigation began "a few weeks ago … at least a month", according to Moosa Ebrahim, chief of staff in the office of trade and ministry minister Rob Davies. Ebrahim declined to elaborate on the statement which he said was "the department's official position for the moment".

But a DTI source with knowledge of the investigation said it involved both "forensic and internal audits". Setting it up had involved "some back and forth" between the DTI and the NLC "on the scope of the investigation. Finality was reached on the terms of reference and the investigation had now begun," the source said.

A usually reliable senior lotteries source claimed that the DTI had not accepted a report by the lotteries board that found that lotteries chief operating officer Philemon Letwaba had declared a conflict of interest when a company of which his brother was sole director was awarded a R15m construction contract for a rehabilitation centre in Pretoria. The project, where at least R20m of a total of R27.5m in lottery grants is unaccounted for, is now the subject of litigation.

A preliminary report submitted by the NLC to the DTI contradicted the board’s report and Davies had requested a full forensic audit, the source said. The NLC had attempted to block the auditors' access to certain documents but had been told that access was "not negotiable", the source added.

Last year parliament's trade and industry committee said it would ask Davies to investigate the NLC's use of proactive funding, which amounts to about R140m annually. This type of funding was introduced in a 2015 amendment to the Lotteries Act and allows the minister, the NLC or its board to identify areas for funding without a grant application being received.

DA spokesperson on trade and industry Dean Macpherson claimed during a meeting of the portfolio committee that proactive funding was being used as a "slush fund" to enrich some people. "We know that there are shady characters that exist in the murkiness of proactive funding," Macpherson said. "There are some serious questions that exist within the proactive funding model. The only way to deal with this is to institute a forensic audit into all transactions that have taken place through the proactive fund."

Joan Fubbs, the chair of the committee in the previous Parliament which was dissolved before last week's election, said the investigation was ongoing.

"We asked the minister to investigate. Anything we started will be continued by the new committee when Parliament reconvenes," she said.

This article was first published by GroundUp

UPDATE

NLC response to reports of investigations of fraud and corruption

The National Lotteries Commission (NLC) was established in terms of the Lotteries Amendment Act (No 32 of 2013) as an entity of the Department of Trade and Industry to regulate the National Lottery as well as other lotteries.The NLC wishes to correct media reports from 13 May 2019 which seek to suggest that the organisation is “under investigation for fraud and corruption”.

The said investigations were rather commissioned by the Board of the NLC into two funded projects.On or about October 2018, allegations of misappropriation of funds surfaced in the media with regards to two projects: The first is Denzhe Primary Care which was funded for the construction of a rehabilitation center in Tshwane.

The second is Simba Community Development Foundation which was funded for the reconstruction of Vhafamadi Secondary School in Vuwani, Limpopo which was destroyed during community unrest in the area.

Following these allegations, the Board of the NLC commissioned independent investigations into the projects.The investigations are ongoing, and the Board continuously sends updates to the Minister of Trade and Industry.

As grant maker, it is inherent within our scope of work that from time to time there arise conflict, complaints and allegations amongst and within funded organizations.

We wish to indicate that the NLC has adequate monitoring and evaluation mechanisms as well as conflict and mediation processes to ensure that funded projects are delivered in accordance with the grant agreements.

All allegations of fraud and corruption are investigated as and when they arise.