How corruption works at NSFAS

THIS year is the 21st anniversary of the Broad-Based Black Economic Empowerment Act. But in the last 30 years, the ANC has abused the justified moral grounds for black economic empowerment as a tool for corruption and cadre privilege rather than for economic transformation.

There is not a single act on the statute books with so much moral justification that has been used with such zeal to establish the roots of corruption in the South African economy.

I recently commented on X that the corruption perpetrated at NSFAS in the name of empowerment is a perfect practice run for what to expect with the government's plans for National Health Insurance.

But it is not only NSFAS that has been taken over under the guise of empowerment and transformation by a class of tenderpreneurs who recklessly and unscrupulously loot the public coffers on the back of political connections. Patronage systems connect civil servants, cadres and tenderpreneurs in almost every sector of the economy.

I have been associated with tertiary institutions for 30 years and there has been no greater and more meaningful political intervention in that time than NSFAS. The only problem is that it is becoming increasingly clear that NSFAS has become a cash cow for corrupt officials.

The scheme is being investigated by the Special Investigating Unit (SIU), and the Organisation Undoing Tax Abuse (Outa) published a report last year that directly and indirectly implicates the Minister of Higher Education, Science and Innovation, Blade Nzimande, and several NSFAS officials in atrocious mismanagement and corruption. They are stealing from poor students.

Colleague Ilse Salzwedel recently wrote extensively in Vrye Weekblad about the housing crisis students are experiencing due to the mismanagement at NSFAS. I spoke to Outa's investigations manager, Rudie Heyneke, to better understand the nature and origin of the corruption at NSFAS, but also fished for information about Nzimande's strange friends.

PC: There is so much maladministration of tax money, how did it happen that NSFAS ended up in your crosshairs?

In 2018, we received information from whistleblowers about illegal contracts at the Services Sector Education and Training Authority (SSETA). We then made an application in terms of the Promotion of Access to Information Act  and after two years the court instructed that SSETA should give us the details of those contracts. From there I could follow the service providers' trail.

This led to the Grayson Reed Report. Outa's investigation into the documents for the Grayson Reed contract uncovered maladministration, corrupt activities and non-performance of the contract by the Grayson Reed Consortium. The contract was eventually cancelled prematurely by SSETA.

It was also subsequently found that some of the same individuals involved in the cancelled Grayson Reed contract had registered new companies with family members as the directors. One of these companies was awarded a NSFAS tender for similar services to those provided to SSETA by the corrupt Grayson Reed Consortium. Andile Nongogo was the chief executive of SSETA and Themba Mhambi (currently chairperson of the South African National Roads Agency, Sanral) was the chairman of the board. With our NSFAS investigation, their names came up again.

PC: Where does Nzimande figure in this bleak world of abuse, corruption and mismanagement?

The circumstances that led to the establishment of the patronage system rooted in NSFAS have an obvious pattern.

Nzimande is fond of appointing inter-ministerial task forces. In this case, it is easy to get the impression that the minister knew exactly what he was doing when he set up an inter-ministerial team in 2014 to investigate student housing as a project. The people who would eventually take control of his project were opportunistic characters with dubious footprints in other state entities he was also involved with.

A name that is important but not often mentioned is that of Mhambi. He has came a long way with Nzimande in higher education since 2009. He was at one stage the administrator of the Construction Seta and also the chairman of SSETA. Nongogo and Mhambi are co-directors in different companies.

When Nzimande moved to the transport ministry between 2018 and 2019, he took Mhambi with him and made him chairman of Sanral. In this position, Mhambi followed a similar modus operandi to the one that led NSFAS to wrest control from universities and the private sector, when, under the guise of transformation, he harassed major construction companies with a new procurement system that alienated them from their rights.

PC: As far as NSFAS is concerned, Ernest Khosa and Nongogo are the terrible twin friends of the minister.

Indeed. Nzimande appointed Khosa to the board of the Civil Aviation Authority in 2017, and when he returned as education minister he appointed him as chairman of NSFAS's board. Khosa then appointed Nongogo as CEO of NSFAS.

Therefore, the connection between the minister and the individuals who have corrupted these institutions and the associated processes has come a long way. There could have been no doubt in the minister's mind about the ethical values ​​of these two cadres. It was a well-established relationship of trust. The question is, what was in it for the minister to give these characters access to the budgets of state entities?

PC: How does the process work according to which the money is divided between cadres and tenderpreneurs? Surely these cannot be normal bank transactions.

The kickback does not go directly to the beneficiaries. Use is made of “special vehicles", meaning a company or trust that is created for this purpose.

Joshua Maluleke, one of the voices in the recordings we published earlier this year, created one of these special vehicles for Khosa's money. Theoretically, Maluleke can pay Khosa's bills from a special vehicle trust. To understand these relationships, an investigator must have access to the bank statements as well as the contra-statements from financial institutions' record systems. The contra-statements give comprehensive information about the account as well as the account holder and only the police or the SIU can obtain them.

PC: There has already been evidence that Nzimande tried to cover the tracks of his corrupt friends?

As a rule, the SIU does not have to give its investigations to a relevant minister, such as Nzimande, to sign off, but the practice has now been established that the reports will be presented to the minister.

On one occasion, Nzimande was at odds with the National Assembly when he refused to allow the Nexus report — an investigation into the National Skills Fund — to be made available to the Standing Committee on Public Accounts. The reason is because some directors who are pointed out in the report for irregularities could be linked to him. Among others, these were people whom he appointed as chairmen of Seta boards. Nexus Forensic Services unearthed irregularities of R5 billion there. Millions of rands were stolen under the pretext that a farm would be set up to breed rabbits. There were never any rabbits but the money is gone. As simple as that.

Sometimes the theft is not complicated, but it happens because there is little oversight within a patronage system. Not many entities with a clean record report to Nzimande. Tenderpreneurs, cadres and the corrupt find his bureaucratic jurisdictions to be safe spaces.

PC: There were other strange developments as well, but which may now be called off.

Yes, in November 2022 NSFAS launched an advertising campaign for landlords with whom it wanted to enter into “offtake" agreements. This was probably Khosa's brilliant plan. In terms of these agreements, NSFAS would take over the entire building from a selected lessor for a 20-year contract. We suspect Khosa personally entered into these agreements with owners of apartment buildings. In the voice recordings, Maluleke says to Khosa: “Chairman, what about those letters, has the CEO signed them yet?" This conversation was about the offtake agreements.

Maluleke is an interesting character who requires more investigation. He probably created the special vehicle for Khosa's access to bribes. He is  rarely written about. He serves on the board of the OR Tambo School of Leadership and actively does business with the president's younger brother, Douglas Ramaphosa. 

PC: How would the financing work?

The financing would be put in place by the Development Bank of SA. If you had Khosa's approval, money would be arranged for you to go and buy a place, after which you would get a 20-year lease. Now I bet you, if this Khosa scheme had worked the minister would have said in a year's time, “we made a mistake with that amount, we will have to increase it". Because there is no overview of the minister's discretion and the contract is already in place for 20 years.

This is how this patronage system's long-term plans unfold, almost without exception. This is how the minister as the master of patronage obliges his clients. Nothing is illegal. It is unethical and a waste of public money, but within the powers of the minister.

PC: Sometimes corruption falls within the limits of the law.

We also suspect, and we are still working on confirming it, that a man with the surname Moodley, son of the confirmed state capturer Roy Moodley, is involved. He has a very old closed corporation and if my information is correct, Moodley is buying up buildings in Durban that are no longer fit for human use for next to nothing and fixing them up as best they can. The idea was to use these buildings as student housing with Khosa's support. We went to have a look and  there are indeed buildings in Durban that are in a terrible state that have been touched up with a paintbrush. We do not yet have confirmation that these are indeed his buildings, but our information points to it.

PC: Have there been any actions to test your claims in the courts?

Shortly after we released the voice recordings of the conversations, the minister said he was going to take us to court. Meanwhile, Khosa served court documents on us. But he only asked that we retract the report until he is granted a right of reply, after which we can publish the report again. By the way, we have no legal obligation to give anyone a right of reply. He also requests that Outa pay the damages amount of R50,000, which will then go to a church in Giyani.

We shared all information we obtained with the SIU, which the president appointed in August 2022 to investigate NSFAS. For the first time since we started working with the SIU, they really joined hands with the Hawks to take the matter further. Brigadier Xolani Matroos of the Hawks and advocate Andy Mothibi from the SIU told me they were very satisfied with the investigation. So the investigation seems to be on the right track.

PC: Of all the investigations you've done, has anyone ever gone to jail?

No, no one. In fact, not a single one of these companies was ever blacklisted by the Treasury. Not a company nor a director. The Treasury can only blacklist a person or a company after receiving an application from another entity. The new Public Procurement Bill, which is now in its final stages, will make it possible for the Treasury to initiate the process itself.

SSETA's answer to our inquiry and recommendation that certain identified companies be reported to the Treasury for these purposes was “we no longer do business with the companies, why should we put them on a blacklist?"

These compromised businesses and individuals will now only do business with other government entities. The process is so bureaucratic that it can take up to three years to get a person or a company on the Treasury's blacklist.

♦ VWB ♦

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