SIU on investigations related to UIF TERS paid during COVID-19

Meeting report

Opening remarks
The Chairperson greeted everyone and explained that the Committee was going to receive a briefing from the Special Investigating Unit (SIU) concerning the Unemployment Insurance Fund (UIF) and the Temporary Employment Relief Scheme (TERS). He received apologies from Mr B Hadebe (ANC) who was in another Committee meeting and was going to attend the meeting late. He then handed the meeting over to the SIU.

Briefing on the status of investigations on the Department of Employment and Labour UIF and TERS
Adv Andy Mothibi, Head,SIU, thanked the Committee for inviting the unit to brief it on the status of ongoing investigations. He introduced his team starting with Mr Leonard Lekgetho, Chief National Investigations Officer. This investigation fell under his portfolio. Also present in the meeting were Mr Johnny Le Roux, Lead Investigator; Mr Kaizer Kganyago, Spokesperson; and Ms Nosihle Gumbi, Senior Manager: Corporate Services. After the introductions he outlined the main issues that were going to be covered in the presentation.

He started by discussing the SIU’s legislative mandate and the Acts that govern its operations. He mentioned that in December the unit was going to be holding its next strategic meeting where the current investigations would be reviewed. He explained that during the investigations, the SIU dealt with unduly payments accordingly. Where it was appropriate it followed the civil route, i.e., the signing of Acknowledgement of Debt. However, where it was necessary disciplinary action was taken. At the end of the presentation the SIU was going to make systemic recommendations to the UIF with hope that irregularities would be prevented in the future. The SIU’s goal was to see consequence management being implemented followed by improvements in the administration. He then called upon his colleague to discuss the status of the investigations.

Mr Le Roux greeted everyone and expressed appreciation for being awarded the opportunity to present the SIU’s findings. He said on 22 August 2020 the Minister of Employment and Labour referred allegations relating to irregularities on the Unemployment Insurance Fund to the SIU. The Minister requested the SIU to review the AGSA Report on findings relating to the TERS paid during Covid-19. Because only one matter relating to the Covid 19 Awareness Campaign by UIF fell within the ambit of the Covid-19 PPE Proclamation R. 23 of 2020, the SIU commenced with an investigation in terms of a secondment agreement to review the information / records relating to the TERS payments. The SIU was able to secure sufficient evidence during the secondment investigation in support of a National UIF Proclamation. Proclamation, R.8 of 2021, was signed on 1 April 2021. This presentation provides an update on the matters investigated under the secondment and Proclamation R23 of 2020. It furthermore covers the progress to date on matters investigated under Proclamation R.8 of 2021. During the investigation period, a total of 13 447 006 employees received TERS payments/benefits from the UIF. These employees were linked to 1 156 565 companies/employers. A total of R 57 384 148 010. 44 were paid out by the UIF since inception of the scheme.

Mr Le Roux explained that findings on the AGSA revealed that proper Supply Chain Management (SCM) processes were not followed to appoint at least five companies for the Awareness Campaign relating to TERS. These appointments were not in accordance with section 217 (1) of the Constitution as well as Section 51 (1)(a)(iii) of the Public Finance Management Act (PFMA). In terms of Consequence Management, the SIU referred seven disciplinary referrals to the Acting Commissioner on the 11th of December 2020. Charges were brought against all the officials; five of them were found guilty and received written warnings and two matters were still ongoing. The SIU made further referrals to the DC against the Chief Operating Officer (COO) and the then Commissioner of the UIF.

Mr Le Roux stated that the Secondment investigation focused on government employees with perusal numbers, South African National Defence Force (SANDF) staff, inmates and deceased ID numbers claiming from the Relief Fund. Although the SIU initially experienced challenges with acquiring data from the UIF, it subsequently overcame this hurdle. It currently had all the data required from the UIF for further analysis and verification. He said Phase 1 of the investigation commenced on 1 June 2021 and was anticipated to take approximately six months to complete. Phase 2 was scheduled to commence immediately upon completion of Phase 1. This, however, was bound to vary in different provinces. He explained that the SIU, from the present date, was dealing with 107 ad hoc matters. He then broke Phase 1’s timeline into indicative key project milestones and indicative target dates (see presentation).

Mr Le Roux pointed out that in the Phase 1 investigations, it was found that at least 6000 employees were identified within 24 government departments with the assistance of the Department of Public Service and Administration. Upon signing of the Proclamation, the SIU used the placed approach to roll up investigation within the various provinces. All nine provinces, as well as the national office, were allocated matters that fell within their respective location. Slides 33 to 59 provided a provincial statistical distribution of employees who were allocated persal numbers, and who received TERS benefits during the COVID-19 pandemic. He then described methods used to carry out these investigations. Information was requested through the use of Section 5(2)(a) notices from the Heads of Departments to acquire perusal data. Interviews with employees then followed this process. In the event that the employers of the employees admitted to receiving undue benefits from the UIF, the Acknowledgement of Debt (AOD) process was considered. However, when criminality was detected, evidence was collected and handed to the SIU’s legal team for consideration of disciplinary and criminal referrals. From this point further investigations would be made on fraudulent activities between the UIF officials and the applicants.

Mr Le Roux also explained how the AOD process functioned. He described it as a faster and more cost effective form of litigation by the SIU. It was an efficient and effective method of recovering the money that was paid directly into the SIU trust account, which was later transferred back to the UIF. Deadlines for payments were agreed upon, and the interest rates were charged at the PFMA rates of 7%. When the debtors failed to meet the agreed payment schedule, the SIU had the option of using a default court order.

He highlighted that the SIU received ad hoc matters. These were received from various sources including Corruption Watch and the UIF. These were additional matters to the AGSA’s audit findings, and included allegations against entities and individuals as received from witnesses. He emphasised that all ad hoc matters fell within the ambit of the Proclamation were being investigated by different provincial offices (see slides 67-74).

He then narrowed down to an outstanding case that involved one Mr Simbini, the sole Director of the Impossible Services (PTY) Ltd Company. He submitted over 6000 TERS claims to the value of 111 million on behalf of his company for various employees using an online claiming process of the Department. He used over 1200 ID numbers that he duplicated in order to generate claims. What this meant was that he kept on using the same ID number in different claims. Investigations also discovered that Mr Simbini was the only registered employee of the Impossible Services Company. A criminal case was opened against him and he appeared in court in September 2021. The Asset Forfeiture Unit (AFU) was in the process of recovering the funds in this matter.

Mr Le Roux pointed out that seven inmates were found to have been receiving TERS benefits. This was related to identity theft by foreign nationals who used IDs of incarcerated South African citizens to apply for work. It was still not yet clear how these individuals obtained these IDs. Seven companies were also identified and interviewed, and affifdavits were obtained from their representatives. The SIU was in the process of referring these matters to the National Prosecuting Authority (NPA). He also said that until the present date, the SIU achieved 303 matters finalised, recovered a total of R23.4 million, and 80 criminal matters registered. In collaboration with the Hawks, the SIU managed to achieve 11 arrests and recovered R4.7 million out of a R14.4 potential loss. In terms of cases currently with the Special Commercial Crimes Unit in Pretoria, 70 criminal cases were registered although no arrests had been made on these matters. The total value of these cases amounted to R1.4 million. The SIU was working closely with the South African Police Service to speed up the investigation process. This included packaging and providing information received from the UIF. The cost of investigations relating to the 6000 perusal officials for Phase 1 amounted to R351 million. This cost was estimated to reach R40 million upon completion of the investigations. The costs included eight specific resources in ten provinces. In addition to this, the costs included the project set up and scoping, delivery and project close out and reporting.

Adv Mothibi thanked Mr Le Roux for the briefing and said the investigations uncovered the operations of corrupt private companies, individuals and government officials. He emphasised that individuals or companies that signed the Acknowledgement of Debt document were not exonerated from any criminal prosecution where evidence against them was presented. The investigations revealed collusion between government officials, private companies and individuals. The SIU was therefore committed to ensure that this kind of corruption was eliminated. Apart from this, he said the SIU was happy to see that criminal investigations and the criminal consequences management were also gaining traction. From the scenarios outlined in the report, it was clear that the actions were intentional and systematic approaches were used to illegally acquire state resources. Therefore, the SIU was going to compile a consequence management and systematic recommendation document which was to be shared with the Committee. The objective of this document was to address why this happened at such a large scale, as well as the weaknesses of the UIF’s administrative. There was clearly an indication of failed administration in the institution.

Adv Mothibi said the SIU recommended the UIF to review all these processes. It wished to issue guidelines on how to effectively process applications going forward, including the checks and balances to review who had applied and whether they qualified. There was evidence that this was not done properly. In addition, the SIU wished to find out who applied on behalf of all the individuals in question. It was at this point that the unit identified the involvement of private companies and government departments. He then handed over to his colleague to elaborate further one of the recently recorded scenarios.

Mr Lekgetho greeted everyone and explained that the recent scenario involved a syndicate that used unemployed individuals in a village. These individuals asked the Chief to organise all unemployed people with Matric certificates. They took their ID copies and went on to create a company. Using these documents they claimed money and did not pay anything to the people in the village. Later on, one of the individuals who submitted an ID copy applied for the National Student Financial Aid Scheme but received a notification stating that he was employed.

Adv Mothibi thanked Mr Lekgetho for sharing this scenario. He explained that the SIU felt it was necessary to provide these kinds of examples to show the need for immediate solutions. When these individuals were exposed, they needed to be dealt with appropriately. There was also a need to engage with the UIF in order to understand the methods of operation by these people. He pointed out that students were now being rejected from acquiring bursaries because they were fraudulently used to apply for UIF funds. He then thanked the Chairperson and the Committee, and said the SIU appreciated the time granted to it.

(See Presentation)

The Chairperson thanked the SIU for the comprehensive update on matters in the Department. He then opened the floor to discussion.

Discussion
Mr S Somyo (ANC) thanked the SIU and said although the presentation was frightening, he was pleased that investigations were making critical findings. He asked if system’s failure, particularly the case involving Mr Simbini, was not evidence that the UIF system together with the managerial group were sleeping on the job. He said the SIU’s investigations not only exposed the UIF but other government departments. This was evidenced by instances where other government departments could not detect that a single ID number was being used to defraud state services. Therefore, referrals by the SIU were were not for the UIF alone but other departments in general. He said the government had to be worried by the SIU’s findings, and that it had to fix its operational systems. Failure to do so had the potential to bring about more frightening outcomes; not only monetary risks but security as well.

Mr Somyo also asked if it was possible for the names of government officials found to be involved in these corrupt activities be shared with the various respective departments across the provinces. Using this information, government departments would then inform the individuals in question about the existing allegations against them. At this point, these individuals would either plead their cases, or pay the required amounts. This was both a time and cost effective approach to the investigations. Apart from this, he applauded the SIU for the good report and said that it indicated progress on the matters under investigation.

Adv Mothibi welcomed these comments and said Mr Somyo was accurate in his observation of a serious need to improve administration in the UIF. Indeed, there was operational risk in the programme. He said the SIU was going to unpack this further in its systemic recommendation to ensure that the UIF urgently developed a plan. He assured the Committee that the unit would speed up referrals of the names to the respective departments for action to be taken. He also believed that this was a cost effective way of recovering funds because, as highlighted in the presentation, most officials admitted to receiving money outside the official channels when approached by the SIU. Thus, instead of engaging in expensive litigation processes, the officials were invited to sign the acknowledgement of debt document. This, however, did not exonerate them from any criminal action. Where there was evidence pointing to that, disciplinary action was taken.

Adv Mothibi explained that in the past when irregularities were identified in state institutions, a separate arm of the SIU engaged them through a focused workshop. Here the SIU spelt out its findings and outlined its recommendations. These recommendations informed the implementation plan or the corrective action for the state institutions. This was the role of the specific department of the SIU which focused on the prevention side of the fight against corruption. This was therefore the intended approach by the SIU to the UIF matter. He also pointed out that the system had to enable the UIF to first check who the ID belonged to, if the persons applying for TERS qualified, and whether this same ID had been used before to avoid fraudulent activities.

The Chairperson thanked the SIU for its response and suggested that there was a need for a broader discussion with the security cluster around the issue of IDs. He acknowledged the solutions suggested in the discussion and said that they could significantly help in the fight against corruption. He said no concerted effort had been made to tighten citizen security and citizen information.

Mr A Lees (DA) greeted everyone and said a lot had been mentioned about systems failures. He pointed out that nearly three years ago, when the UIF appeared before the Committee, he raised the same issue of systems failure but unfortunately the UIF Commissioner had little consideration of the comments he made. Therefore, the Committee should have not been surprised by the SIU’s findings. Notwithstanding his comment, he hoped that Adv Mothibi would succeed with finding solutions for the UIF’s problems. He exclaimed that even the normal online system for the UIF was a “nightmare” to use because it broke down halfway, and generally did not work properly.

Mr Lees explained that the Committee did not want to design a system for TERS specifically because it did not wish to have another meeting with it in the near future. This was simply because everyone wanted the pandemic to be over and the lockdown to be lifted. However, if there was a need for such payments, competent people had to be appointed to design the system. He also stressed that the UIF needed to listen to criticism, not only from the SIU, but from the users of the system and Members of Parliament. He also said the system with the Compensation Fund was experiencing similar challenges. In his opinion the only system that was recovering was the South African Revenue Services although it almost collapsed under the reign of Mr Tom Moyane, former Commissioner of the South African Revenue Services (SARS). This was largely due to recovery measures that were put to resuscitate the institution. However, no such recovery programmes seems to have been embarked upon by either the Compensation Fund or the UIF. Finally, proposed that in the Committee’s report, there was need to strongly recommend to Parliament about the competence of people designing these systems and implementing them.

The Chairperson agreed with this suggestion and said it was best that these issues be flagged in the forthcoming meeting with to the Minister of the Department present.

Adv Mothibi thanked the Committee for its feedback. He said the SIU shared the same view that if the system was designed and developed in a manner that took into account all the business processes of UIF and to pick up these irregularities, there would be a great improvement. He said the SIU was going to document all these recommendations and forward them to the accounting officer of the Department and the UIF so that improvements would be taken into account. Apart from this, he stressed once again that the unit had its eyes on those who were responsible for defrauding the state. He said that these individuals needed to be dealt with and that consequence management was needed.

The Chairperson thanked the SIU for its response and asked if the Committee had more questions.

Mr Somyo replied that the responses the Committee had were best directed at the UIF leadership and the Department. It was therefore ideal to deal with these matters when the Committee met with these two entities.

The Chairperson then suggested that the Committee invites the National Treasury and the DPSA in the following week when the Committee met with the UIF. There were many system lapses that needed the Committee’s attention. These included the already mentioned issue about IDs. He also said the outbreak of the COVID-19 pandemic may have exposed the fault lines which ordinarily may have been overlooked in the past. The heightened use of UIF may have drawn attention to these areas. Inviting the departments then enabled the Committee to have a broad outlook on the matters raised.

Ms N Tolashe (ANC) greeted everyone and asked if it was possible for the Committee to call back the report it compiled in its last visit to the UIF headquarters. Systemic issues were raised in that report, therefore, calling it back could shed light on the extent to which recommendations were implemented. This was because the SIU raised similar issues in its presentation. She added that calling back the report could help with comparisons to see whether or not the departments concerned took the Committee’s recommendations.

The Chairperson agreed to this suggestion and said within this report were issues interlinked with the Compensation Fund and the forensic investigation concerned with both the prevailing problems with the UIF and the Compensation Fund. He then thanked the SIU for the good work that they were doing and described it as “an island of hope in a sea of trouble in chaos”. Although the unit could not achieve all its goals, significant progress was being made. He was glad that the SIU had a Strategic Action Plan (STRAP Plan) for December and explained that the COVID-19 pandemic had set back Parliamentary Committees from developing their own STRAP plans. However, they had since received the approval to proceed with their plans. He emphasised that collaboration was the key to fighting corruption, therefore, he invited the SIU to be present when the Committee was drafting its own plan. The outcomes from its STRAP plan were also important because they gave the Committee a sense of direction. He said there was a need to borrow from the period under discussion because it unearthed the source of the problems and exposed the problems that were neglected in the past. Overall, the Committee was satisfied with the work that had been done and that it was awaiting the SIU’s final report on Personal Protective Equipment (PPE) corruption.

The Chairperson reminded the Committee that it had to finalise the application to visit the South African Post Office as agreed in the previous meeting. Committee Members who were going to attend this oversight visit had to inform the Committee’s support staff in order to make logistical arrangements. Finally, he stated that the issues raised in this meeting were going to be taken up in the forthcoming meeting with the UIF and the Department.

He thanked the SIU and the Committee for attending the meeting.

The meeting was adjourned.