21 June 2024
The Gauteng Department of Social Development has acknowledged that the appointment of auditing firm Open Water Advanced Risk Solution was irregular. Open Water bungled the investigation into the R1-billion Free State housing scandal while Ace Magashule was Premier. Archive photo: Masego Mafata
The Gauteng Department of Social Development has acknowledged that its recent appointment of a controversial auditing firm was irregular.
The firm, Open Water Advanced Risk Solutions, was appointed in March to investigate the department’s school uniform project, at a cost of R8.5-million, without following the standard supply chain management protocol.
Matilda Gasela, who was Head of Department at the time, made the decision on 12 March, 19 days before the end of the 2023/24 financial year. This was one of several multi-million-rand funding decisions signed off by Gasela in her last few months in office.
The spokesperson for the Gauteng social development MEC, Themba Gadebe, confirmed to GroundUp that the appointment of Open Waters was irregular. Gadebe said the MEC, Mbali Hlophe, has instructed the department to restart the appointment process.
Open Water has a sketchy track record and has been accused of helping to cover up the role of former Free State Premier Ace Magashule and his allies in the Free State’s R1-billion housing scandal.
Hlophe was Communications and Information Manager in Magashule’s office while he was Secretary-General of the ANC, and has been described as an ally of Magashule. Magashule has since been suspended from the ANC and is currently on trial for corruption, theft, fraud and money laundering.
Former Head of Department Gasela, who approved the appointment of Open Water, left the department at the end of April when her contract came to an end. Before coming to Gauteng, Gasela was Head of the Free State Department of Social Development under Magashule.
She left the Gauteng department under a cloud of corruption allegations dating back to her time at the Gauteng Department of Human Settlements. The Special Investigations Unit has recommended criminal prosecution.
We asked Gadebe if there was any association between MEC Hlophe’s connection to Magashule and the appointment of Open Water.
“It’s truly unfortunate that GroundUp or those who feed it with misinformation, evidently have a targeted agenda against the youngest MEC in the province, geared at tarnishing and destroying her prospects of growth,” Gadebe told GroundUp.
Gadebe said that Hlophe was in Magashule’s office in Luthuli House for “less than two years”.
He added that Hlophe acted “immediately” upon learning of the irregular appointment of Open Water and “informed the Department to follow due process in line with Treasury Regulations”.
Open Water’s mandate was to investigate the department’s school uniform programme, according to a leaked application document. The document states that the firm was chosen from a National Treasury panel of forensic auditing firms. The Treasury appoints panels of companies that have tendered to provide certain goods or services, from which government entities can request quotations.
Open Water was the only firm on the panel to be asked for a quotation, according to the application document. Standard supply chain protocol for this size of transaction requires that at least three quotations be compared.
Gadebe, the MEC’s spokesperson, confirmed to GroundUp that the appointment was “not in line with Treasury regulations”.
The document approving the R8.5-million contract was signed only by Gasela and the director of Supply Chain Management, not by the Chief Financial Officer Johann Strauss, who had been placed on “special leave”. Strauss has since returned to work.
Gasela did not respond to questions sent to her via WhatsApp.
The budget for the investigation is for five months of work and a total of 1,880 hours. It includes salaries for a project director (R600,000), a legal specialist (R720,000), two senior investigators (R540,000 each), two senior managers (R480,000 each), a manager (R680,000), a finance and risk specialist (R640,000), and several investigators earning between R240,000 and R400,000.
The department’s school uniform programme, through which free uniforms are provided to children in need, was worth about R190-million, a source told GroundUp. But the programme has been riddled with problems. In May, sewing co-operatives held a sit-in at the department’s headquarters, saying they had not been paid for thousands of uniforms they had been instructed to make and had delivered to school children.
The department’s response was that rogue officials had instructed the co-operatives to make the uniforms while another contractor had already been appointed. GroundUp understands that Open Water’s mandate included identifying who these officials were.
In his reply to GroundUp, department spokesperson Gadebe said Open Water’s selection was also questionable because there were lower bidders. But the application document, signed by Gasela, says that Open Water was the only bidder.
“R8.5-million is high for only one project to be investigated,” a source in the department told GroundUp.
Another source told GroundUp that the project could have been investigated internally rather than paying millions to outside investigators.
“It would be a simple matter for GDSD to ask the co-ops who gave them the instruction to proceed with manufacturing the uniforms, rather than issue a multimillion-rand contract,” the source said.
The budget for the Open Water investigation includes a budget category for “Irregular Expenditure” in addition to the school uniform project, but neither the department’s approval memo nor Open Water’s project proposal explains what “irregular expenditure” is being investigated.
Gadebe told GroundUp that the “high costs” of the investigation is part of the reason the MEC has instructed the Department to restart the appointment process.
In 2012, Open Water was appointed by the Free State Department of Human Settlements to probe a R1-billion splurge on houses, many of which were never built. The firm’s initial draft report, delivered in ten days, led to the suspension of several officials. When some of the officials requested Open Water’s report to challenge their suspension, they were not given access. Open Water’s final report was completed in 2015.
Pieter-Louis Myburgh alleges in his book Gangster State that Open Water covered up key aspects of the saga, did not allow the suspended officials to state their case, and denied the SIU access to important documents. He says Magashule held several meetings with Open Water’s director Ricky Nkondo, a former National Intelligence Agency division head. One of these meetings took place in private in the Premier’s official residence.
Open Water’s director Peet Pieterse has vehemently denied that he participated in a cover-up and said that the meetings were standard, to update the Premier on the investigation.
Testifying before the Zondo Commission on State Capture years later, Mosebenzi Zwane, who was the human settlements MEC at the time of the scandal, admitted that the department officials had been unfairly suspended based on Open Water’s preliminary report.
Zwane said it was he, as the MEC, along with the head of department Gift Mokoena, and Seipati Dlamini the chief financial officer, who had devised an advance payment system to hundreds of contractors before any work had been done. But no disciplinary action was taken against Zwane, Dlamini or Mokoena.
The Special Investigations Unit, which also investigated the housing project, found that R831-million had been paid in advance and recommended Mokoena for criminal prosecution.
The Zondo Commission recommended that Zwane as well as Mokoena be further investigated for possible criminal prosecution, and that they be held liable for the unlawful expenditure through the advance payment scheme.
In addition, Open Water has come under fire in the following investigations:
Open Water responded to our questions after publication. Read the full responses here.