OUTA exposes a R162m SETA contract that appears to be structured to loot funds intended to help desperate job-seekers and young graduates

When SETAs waste money, learners lose out on jobs and training, and companies which pay Skills Development Levies are robbed of their payments

The Organisation Undoing Tax Abuse (OUTA) is concerned that the Services SETA is siphoning off funds for learners into corrupt contracts.

“It is sad when greed and corruption robs our youth of much-needed skills and opportunities, and corporates are robbed blind, compelled to pay skills levies that are siphoned off to satisfy the gluttony of a few,” says Dominique Msibi, OUTA’s Portfolio Manager for Special Projects.

OUTA has found that the Services SETA is running a 29-month contract worth at least R162 million for buying equipment which apparently hasn’t been delivered or doesn’t work and for paying learner stipends to bogus businesses. This amounts to fraud.

The contract is with a service provider which hides behind another company’s name and sends the payments offshore, apparently paying more to buy equipment than invoiced to the SETA.

This is based on an investigation by OUTA which received documents from by a whistleblower.

“One can only cringe at the brazenness and impunity of those who are entrusted with improving our unemployed youths’ chances at a better life. They must somehow believe that they are above the laws of our country,” says Msibi.

This information is being handed over to the Ministry of Higher Education and Training.

The summary

Services SETA signed a contract with Grayson Reed Consortium to provide 3 333 biometric units at R5000 each and to pay learner stipends at R121.67 each, until March 2020.

Grayson Reed is not the business’s real name.

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 is paying stipends for 100 000 learners but its own records show it pays for a maximum of 28 715 learning opportunities a year, only 13 500 of these learnerships.

The details of the Services SETA deal with Grayson Reed

The contract: Why was it needed?

The contract is between the Services SETA and the Grayson Reed Consortium, for paying learner stipends and the provision of biometric units to track learner attendance. This contract arose from tender T434, started in November 2017 and runs until March 2020.

In terms of this, Grayson Reed sells the Services SETA 3 333 biometric units at R5 000 each, and charges R121.67 to make each monthly learner stipend payment for 100 000 learners (prices include VAT).

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.

Questions that arise:

(1) How did the Services SETA calculate the total of 3 333 biometric units?

(2) How did the Services SETA calculate the cost of distributing the learner stipends? Compare this to the South African Post Office charge of R13 to R51.77 to distribute each social grant each month.

(3) Why did the Services SETA need to hire a consultant which has just 12 fulltime and 10 part-time staff (according to the 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 that 17 interns weren’t paid by the Services SETA in April “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”.

The SETAs: Funded with R16.929bn from taxes on business

The 21 Sector Education and Training Authorities (SETAs) fund and oversee learnerships, internships,  apprenticeships and skills training programmes. They also implement strategic sector skills plans.

The Services SETA is responsible for disbursement of training levies for the services sector and oversees that sector’s training standards. This is intended to help young job-seekers to improve their skills with a view to getting employment in the sector.

During 2018/19, the SETAs received R16.929bn in funding, raised from employers through the skills levy. This was more than the NSFAS budget for 2017/18.

The Services SETA’s Annual Performance Plan for 2018/19 states that the levy revenue for 2018/19 was expected to be R1.684bn.

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.

In July, OUTA reported on corruption, irregular and wasteful expenditure at the Services SETA. This included spending on exam pads, lanyards and USB sticks at exorbitant rates, to the same service provider. 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.

What OUTA wants

• OUTA calls for the immediate suspension of the Grayson Reed contract and an investigation into this by an independent authority.

• OUTA calls for the reimbursement of any learners who were not paid as contracted.

• OUTA calls for the recovery of any misappropriated funds.

• 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.