Services SETA corruption
Since 2018, OUTA has been investigating corruption and mismanagement in the Sector Education and Training Authorities (SETAs), particularly in the Services SETA.
There are 21 SETAs, funding through levies paid by employers, and they are intended to fund and oversee learnerships, internships, apprenticeships and skills training programmes. The SETAs cover different sectors of the economy.
In November 2018, OUTA exposed the Services SETA’s R163 million contract with Grayson Reed, a company which used a false name and charged the SETA exorbitant amounts for dubious services. In September 2019, the Services SETA finally ended that contract six months early, but failed to reclaim any of the money spent on it.
The SETAs are entrusted with enabling the youth to become skilled and gain a foothold in the economy.
The SETAs’ failure to manage their funds responsibly fails the unemployed youth and our country as a whole.
The Sectoral Education and Training Authorities (SETAs) are established in terms of the Skills Development Act, 1998 (SDA). There are currently 21 SETAs in South Africa, each responsible for managing and creating learnerships, internships, unit-based skills programmes, and apprenticeships within its specific sector of operation. In short, the SETAs cater for businesses and industries within a particular sector of the economy. They are intended to equip learners and potential employees with the necessary skills to empower them to obtain employment and earn a sustainable living.
OUTA contends that in some SETAs these objectives are not being realised. This results in industry and learners being deprived of development by the very institutions that promise to empower them. This in turn casts a shadow on the country’s skills development in general – which cannot be taken for granted in a society with a staggering unemployment rate of 30.1%.
The SETAs' funding, intended to be used to encourage learning and development in South Africa, is derived from the Skills Development Levy which is paid by employers. Employers with a total salary cost of at least R500 000 a year are liable to pay the levy, which is 1% of the total paid in salaries to employees (including overtime payments, leave pay, bonuses, commissions and lump sum payments) and is paid over to the South African Revenue Service (SARS).
In the 2019/20 financial year, the SETAs together received R14,861 billion in funding through the levies. In 2018/19, a total of R1.602 billion in levies was collected by SARS for Services SETA alone. OUTA’s research and investigations indicate that vast amounts of funds are being maladministered or are simply being misappropriated.
OUTA found that the Services SETA has for instance been “spending” an exorbitant amount of funds on service providers who were contracted to deliver services that the Services SETA is geared to deliver itself with in-house personnel. OUTA found that the Services SETA contracted a service provider to pay grant payments (stipends) to learners and manage a biometric learner attendance monitoring system. This agreement was worth R162.669 million, yet little to no services were rendered. To put this into perspective, the Services SETA is only one of 21 SETAs and this contract relates to a single service provider.
OUTA has been frequently approached by learners registered for courses funded by the Services SETA who say that they have not received their stipends for months at a time, with some of them yet to receive any stipends. Some learners were unaware of any biometric devices being used to record their attendance at training facilities or businesses. Rather, most roll calls were filled out manually by signing attendance registers. OUTA is concerned by the fact that services are procured by the Services SETA, yet the delivery of these services remains unclear.
OUTA’s continued investigation into the SETAs has suggested that corruption and maladministration are also present in other SETAs, effectively depriving many more learners and industries of much needed skills.
OUTA's investigations have focused on the Services SETA.
The Services SETA's annual reports list the revenue in skills development levies it received from SARS:
In 2017/18, it received R1.505 billion
In 2018/19, it received R1.602 billion
This is a total of R4.751 billion received over three years in levies from the business sector which it is meant to serve.
July 2018: The expensive lanyards
In July 2018, OUTA reported on corruption, irregular and wasteful expenditure at the Services SETA. Invoices and payment advice forms showed spending on exam pads, lanyards and USB sticks at exorbitant rates, to the same service provider. This included 20 000 exam pads at R214 each, 30 000 lanyards at R166.50 per lanyard, and 30 000 USB sticks at R167 each. A quick online search will reveal that basic USBs can be bought for as little as R59 and lanyards for as little as R3.
OUTA raised this matter with the Ministry for Higher Education and Training. In response, the Ministry of Higher Education and Training requested a meeting with OUTA; during this meeting the Ministry said that SETAs would be reassessed in March 2020. On 29 August 2018, when asked if there had been any investigation into those allegations, the Minister of Higher Education and Training Naledi Pandor told Parliament in a written reply that she had directed that the matter be investigated by the National Skills Authority.
The Services SETA's contract with Grayson Reed
In November 2018, OUTA exposed the Services SETA's contract with Grayson Reed, which appeared to have been structure to loot the SETA funds.
OUTA found that the Services SETA spent an exorbitant amount on service providers who were contracted to deliver services that the SETA is geared to deliver itself with in-house personnel. OUTA found that the Services SETA contracted a service provider, Grayson Reed, to pay grant payments (stipends) to learners and manage a biometric learner attendance monitoring system. This agreement was worth R162.669 million, yet little to no services were rendered.
Services SETA signed a contract with Grayson Reed Consortium to provide 3 333 biometric units at R5 000 each (to record learner attendance at the places they are working or training) and to pay learner stipends each month. The SETA also pays Grayson Reed R121.67 a month to pay each learner's stipend. This contract arose from tender T434, started in November 2017 and ran until March 2020.
OUTA was frequently approached by learners registered for courses funded by the Services SETA who say that they have not received their stipends for months at a time, with some of them yet to receive any stipends. Some learners were unaware of any biometric devices being used to record their attendance at training facilities or businesses. Rather, most roll calls were filled out manually by signing attendance registers. OUTA is concerned by the fact that services are procured by the Services SETA, yet the delivery of these services remains unclear.
In January 2019, OUTA sent the Services SETA a request for information on the Grayson Reed contract in terms of the Promotion of Access to Information Act (PAIA). The SETA provided only some of the information sought. In October 2019, OUTA filed court papers in the Johannesburg High Court to challenge this refusal.
In September 2019, the Services SETA cancelled the contract with Grayson Reed, six months before it was due to expire. However, OUTA believes that this is not enough but that the SETA should reclaim the money paid to Grayson Reed as much of the money appears to have been diverted from learners to corrupt recipients.
What OUTA found
OUTA established that Grayson Reed is not the business’s real name.
The tender was advertised only once in the Government Gazette, less than a week before the closing date. That advert failed to mention the biometric units.
Learners struggle to get stipend payments as the biometric units either weren’t delivered or don’t work.
A list of payments to businesses for learner stipends appears to have been falsified, with unregistered businesses listed as recipients for huge amounts and figures that don’t make sense.
The Services SETA paid stipends for 100 000 learners through the Grayson Reed contract, but the SETA's own records show it pays for a maximum of only 28 715 learning opportunities a year and only 13 500 of these are learnerships.
The Services SETA paid Grayson Reed R121.67 per stipend per month to process the payments, but this is much more than the South African Post Office charge of R13 to R51.77 to distribute each social grant each month.
It's not clear why the Services SETA hired a consultant which had just 12 fulltime and 10 part-time staff (according to the Grayson Reed bid document) to administer learner stipends when this is a process which could easily have been managed in-house.
The contractor: Irregularities and an unregistered name
Grayson Reed is not a registered business but appears to act as a front to hide another company, Muroba Group Holdings (Pty) Ltd. Grayson Reed uses Muroba’s registration and VAT details. In some documents, Grayson Reed is listed as “Grayson Reed (Pty) Ltd” which is a clear attempt to make it appear that this is the registered name. While some documents claim Grayson Reed is Muroba’s trading name, this is not backed up by clear use of both names in all the documents. This is in breach of the Companies Act, which states that a company must not “misstate its name or registration number in a manner likely to mislead or deceive”.
Grayson Reed claims in its bid documents to be a consortium, but two of the three consortium members are also not registered businesses.
Grayson Reed’s own website (www.graysonreed.co.za) does not mention Muroba. It refers to the business as “Grayson Reed Consulting Pty (Ltd)”, which does not exist. The explanation of its work is vague: “At Grayson Reed Consulting our management consulting services offer proven solutions and personalized tools that will improve your business processes.” No directors or management are named. No clients are named. One service it advertises is forensic investigation.
The Services SETA’s own internal procurement processes should have easily detected this fraud.
The biometric units: Interns are shortchanged on stipends
The biometric units weren’t made in South Africa. Instead, this part of the deal was subcontracted to Corncastle Ltd, a business based in London with a bank account in Mauritius and no apparent business track record. This appears to have been a mechanism to move the funds offshore, to Mauritius, as fast as possible. Procurement laws state that sub-contracting must be approved, but there is nothing in the documents referring to this.
Curiously, invoicing and payment documents show that Grayson Reed spent more buying the units from Corncastle than it charged the Services SETA. Grayson Reed bought a batch of 500 units for R2.505m (about R5 010 each), billed in US dollars, plus bank charges, but sold them to the SETA for R2.500m (R5 000 each). The price to the SETA supposedly included VAT, which would have increased the loss by 15%. If Grayson Reed paid import duties on the units, it would have made the loss even greater.
OUTA believes these payments indicate that the deal was faked, providing a cover to get money from the Services SETA and move it out of the country.
Whistleblowers have told OUTA that the biometric units don’t appear to have been delivered as, months later, learner attendance records were still processed manually.
Interns desperate for their stipends say the biometric units used are faulty and they are shortchanged.
“It pains to be going to work every day and clocking but come end of the month you get R750 continuation instead of R3 000 or R4 000,” an intern told the Klerksdorp Record, also pointing to Grayson Reed as the contractor.
Another intern told the complaints website HelloPeter in June 2018 that 17 interns weren’t paid by the Services SETA in April 2018 “because of an error with the biometrics system”, weren’t paid again in May and at the end of June were still waiting for stipend payments. “We had a meeting with Seta along with Greysonreed and the excuse they gave us was that it was a data capturing problem.”
The learners and businesses: Do they all exist?
The payment of learner stipends appears to be another means of siphoning funds out of the SETA.
A monthly invoice for payments employers or trainers for learner stipends totaling R16m (the original invoice was for R21m) for May 2018 appears to have been falsified.
There are about 180 payments listed to the businesses, with some businesses getting multiple payments. Some businesses are not legally registered or are deregistered, but received huge payments. Examples are: Beaufort West Recruitment (R302 000), 21st Century Life (R133 500), Botlehape Trading and Projects (R304 500), Ditsela Workers Education Institute (R102 500), Murraysburg Recruitment (R289 500) and Eclectic Opulence Inzliseko Centre (R252 000).
The Free State Premier’s Office is listed as a recipient of payments totaling R714 500 for one month’s stipend. If those payments include the stipends themselves, at the maximum budgeted rate of R3 500 a month listed in the Services SETA’s Annual Performance Plan for 2018/19 plus the R121.67 charge per payment, this would be for 197 learners in the Premier’s Office.
The Department of Social Development is named as a recipient of R693 000.
The contract is for paying stipends for 100 000 learners. However, the Services SETA’s Annual Performance Plan for 2018/19 lists a target of only 13 500 learnerships out of a total of 28 150 learning opportunities for the year.
The Services SETA budget for 2018/19 listed in the Performance Plan includes R221m for administration with R57.619m of this for “consultants, contractors and special services”: it’s not clear how the R162m Grayson Reed contract fits into this budget. There is no provision in the grants disbursement budgets for such administration or consultancy costs.
The contract lists the charge of R121.67 to process each monthly stipend but fails to mention how the funds for stipends themselves will be managed.
The service provider, Muroba Group Holdings, was deregistered in March 2014. When the registration was restored in March 2017, just five months before the bid was submitted, the directors changed. The new director took over from a man who appears to have used four identity numbers and three different dates of birth; the person linked to one of those identity numbers has a record for armed robbery. The Grayson Reed bid document states that it has been in business for five years; this thus includes the period under that former director.
Another SETA, another contract for Grayson Reed
In June 2018, the Construction SETA awarded a 21-month contract for R24.9m to Grayson Reed to provide a biometric system for learner attendance. The award lists the business as “Graysonreed Consulting (Pty) Ltd” which does not exist as a legal entity. The bid submission register lists 12 bidders, including “Grayson Consultants”.
After exposing the Services SETA's questionable R163 million contract with Grayson Reed in November 2018, OUTA called for the SETA to cancel this and for an investigation into the matter by an independent authority. No investigation took place. In September 2019, the SETA cancelled the contract six months before it was due to end, but failed to take further action.
OUTA calls for the reimbursement of any learners who were not paid as contracted.
OUTA calls for the recovery of any misappropriated funds from this contract.
OUTA calls for criminal charges against those implicated in this fraud.
OUTA calls on the National Treasury’s Chief Procurement Officer to investigate the Services SETA’s procurement processes.
OUTA calls for a national reassessment of the entire SETA system, as this failure of governance raises concerns over the possibility of substantial sums being syphoned out of these entities. This is urgent and cannot wait for the planned reassessment in March 2020. OUTA is a proudly South African civil action organisation, that is purely crowd funded. Our work is supported by ordinary citizens who are passionate about holding government accountable and ensuring our taxes are used to the benefit of all South Africans.
The PAIA request for information:
On 23 January 2019, OUTA sent the Services SETA a request for information in terms of the Promotion of Access to Information Act (PAIA), asking for specific information relating to the Grayson Reed contract. Documents requested in a PAIA application should be provided within 30 days.
The list of documents requested is here.
On 4 March 2019, the Services SETA provided four dcouments and refused the rest.
The information requested included:
The Services SETA’s needs analysis which resulted in the tender;
The tender compliance checklist;
The Grayson Reed tender response;
The recommendations by the Bid Specification Committee, the Bid Evaluation Committee and the Bid Adjudication Committee to appoint Grayson Reed;
The master service level agreement between the Services SETA and Grayson Reed;
Billing documentation from 1 November 2017 to 31 January 2019, including proof of payments and deliveries;
The register of learners and entities which received stipends;
The schedule of payments by the Services SETA to Grayson Reed;
The attendance records generated by the biometric units supplied by Grayson Reed; and
The names and registration numbers of Grayson Reed subcontractors on this contract.
This was the information provided by the Services SETA:
The Services SETA’s latest supply chain management policy;
The needs analysis which resulted in the tender;
The tender advert;
The tender compliance checklist.
The PAIA court action:
On 16 October 2019, OUTA filed a court application in the Johannesburg High Court, challenging the Services SETA's refusal to provide all the information OUTA requested in the PAIA application. OUTA's notice of motion and founding affidavit are here.
On 20 January 2020, the Services SETA filed an answering affidavit. The Services SETA's answering affidavit is here.
On 2 April 2020, OUTA filed heads of argument. The OUTA heads of argument are here.
The Services SETA failed to file heads of argument. OUTA then set the matter down for 18 February 2021 to compel the Services SETA to file its heads of argument.
On 18 February 2021, OUTA and the Services SETA agreed that the SETA would file its heads of argument by close of business by 25 February 2021, which it did. The Services SETA heads of argument are here.
On 5 March 2021, OUTA applied for an opposed motion court date to be allocated.
On 5 June 2021, the Services SETA filed supplementary heads of argument; these heads are here.
On 6 June 2021, the Services SETA filed further arguments. This document is here.
The matter was set down for hearing on 7 June 2021, but was postponed by a day.
On 8 June 2021, the matter was heard in court.
Parliamentary Portfolio committee submission:
On 25 August 2020, OUTA made a presentation to Parliament's Portfolio Committee on Higher Education, Science and Technology on maladministration in the Services SETA, in particular on the contract with Grayson Reed.
OUTA trusts that our report will assist the members of the Portfolio Committee to hold the individuals to account for their roles in the looting of the Services SETA. The Portfolio Committee has been investigating the affairs of the SETAs, specifically the Services SETA, from 2019. In this meeting, OUTA called for the Portfolio Committee to call on the Minister of Higher Education to place the current board of Services SETA under administration. OUTA pointed out to the committee that the Skills Development Levy was not being used for its intended purpose. While the Services SETA dismissed OUTA's allegations at that meeting, the SETA's own presentation referred to the "former CEO and his executives" as having "fraudulently orchestrated payments of various amounts of money to themselves without the required authorisation" involving R40 million.
OUTA also calls for the Services SETA to do the right thing and institute action against services providers that benefited from irregular expenditure, in line with the provisions of the Public Finance Management Act.
"A culture of transparency demands open governance and the disclosure of information except in exceptional circumstances."
– The South African Human Rights Commission, on the pervasive failure by public bodies to honour PAIA requests for information from the public, in its annual PAIA report for 2019/20.
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