State attorneys’ R80bn scam
Government lawyers, private firms ‘collude to loot public purse’
● State attorneys who collude with unscrupulous lawyers in elaborate scams to defraud the government have cost taxpayers more than R80bn by deliberately losing lawsuits against the state and settling claims out of court.
This wholesale looting of the state purse has prompted a probe by the Special Investigating Unit (SIU) — with government officials estimating that the figure may exceed R100bn.
Criminal cases have already been opened against several state attorneys and private legal firms that intentionally bungle claims against the state and then receive a portion of the payout as a kickback.
The Sunday Times understands that the biggest offender is the state attorney’s office in the Eastern Cape, which has settled more cases than any other province — and that health claims nationwide are particularly vulnerable to the scams.
Justice minister Michael Masutha and his health counterpart, Aaron Motsoaledi, said corruption was so widespread that since 2013, the department of health alone had paid out R60bn in fraudulent malpractice claims that could have been defended.
Motsoaledi said he recently intercepted a legal payment in Limpopo where the health department was being sued for R70m for a “botched circumcision”.
When the case came to his attention, Motsoaledi became suspicious about the extent of medical malpractice that could warrant such a huge figure.
“When my legal unit was asking for information, there was no co-operation. I then called the MEC and she knew nothing about it. I was shocked that there was a case of R70m and the MEC knew nothing about it.”
When he and an expert at Steve Biko Academic Hospital in Pretoria examined the file, Motsoaledi “found that no circumcision took place. This guy had an illness and the hospital saved his life.”
Motsoaledi said he suspected that if he had not taken an interest in the case, it would have been settled for millions.
“I suspect that this would have been settled out of court and a minimum of R10m would be paid and the state attorney would regard it as a win,” he said.
The case has been referred to the Hawks and the lawyer representing the case is also facing a probe.
In another case, the health department was being sued for R25m on behalf of a patient born with cerebral palsy 19 years ago in Limpopo.
But scrutiny of the medical file by a paediatric neurosurgeon at Steve Biko found that the patient did not in fact have cerebral palsy. Motsoaledi said his officials found that the so-called victim had also applied for a driver’s licence.
“We were going to pay for caretakers because they argued this guy couldn’t take care of himself. But actually this person had no illness,” he said.
Motsoaledi said the SIU investigation must get to the bottom of hundreds of cases in which the government enters into settlements without scrutinising the facts.
“It is a network involving a number of offices … When we have meetings we constantly complain about the state attorney.”
The SIU is also probing how 80% of claims against the Eastern Cape health department in one region are represented by just five lawyers.
When the SIU swooped on one firm’s office this week, it began dropping cases.
One notorious law firm in the Eastern Cape being investigated by the SIU has a total of 28 cases against the state, with each claim being R15.8m — a total of R442.4m.
The theft is thought to be prevalent in Gauteng too, with Motsoaledi saying: “Sometimes there are duplications. The cases are the same but the names are changed. There are so many. But you can’t say the state attorney is working by themselves. There are many people involved.”
An official with knowledge of the SIU investigation said they already have a list of kingpins.
“In some situations, officials earning under R20,000 a month are driving luxury vehicles. This investigation is going to be far bigger than planned,” the official said.
He said some law firms approached by officials to “play the game” had initially refused — but have now started coming forward with information.
Masutha’s own department may have been a victim of the scam.
A 2016 report by the Public Service Commission showed that the state attorney’s office was losing 70% of its cases. At the time this was attributed to inefficiency, but it may in fact be down to collusion.
“Some of those cases, the state attorney would deliberately lose the case,” said Masutha. In the case of the health department’s massive malpractice bill “there may have been collaboration. The police have also experienced a huge quantum of claims where there is collusion,” he said.
Masutha said rough estimates put the figure lost through corruption at the state attorney’s office at R80bn.
The minister said that in some instances, lawyers working for the state would file court papers late to “deliberately plunder the state’s case”. In other instances “the affected department knows nothing about [the case]”.
● An engineering consultancy is bleeding the City of Tshwane dry after being handed infrastructure projects worth R12bn to manage — raking in a quarter of a billion rands in middleman commissions in the past six months.
City officials who spoke to the Sunday Times described the deal as looting on a grand scale.
Now mayor Solly Msimanga wants answers from city manager Moeketsi Mosola, who brought the firm in against legal opinion that suggested doing so was illegal.
The Sunday Times can reveal that Mosola further disregarded resistance from senior officials in the city, some of whom were stripped of their powers when they questioned the move.
Msimanga has asked his legal adviser to investigate the contract and has written to Mosola demanding to know how it was entered into.
The engineering consultancy, Midrand-based GladAfrica, has scored R250m in consultancy fees from the city’s roads and transport division since it was brought on board in November 2017, according to sources within the city.
The company has overseen the management of mega projects such as the Tshwane bus rapid transport system, the Rooiwal wastewater treatment plant, and all road maintenance and construction projects.
Mosola chose GladAfrica from a list of suppliers he obtained from the Development Bank of Southern Africa (DBSA), using a procurement regulation that allows a municipality to use an existing contract with another state organ to obtain a supplier without going through normal tender processes. He signed a three-year open-ended contract.
In the legal opinion, senior counsel JD Maritz said the city should have followed proper supply chain management processes in contracting the firm, as regulations allowing it to bypass this process did not apply in this case.
Maritz advised that municipal supply chain management regulation 32, which allows for deviation from normal tender processes, could not apply because the contract that Tshwane entered into with GladAfrica differed significantly from the agreement it had with the DBSA.
In November, after the consultancy was appointed, the city’s COO, James Murphy, warned Mosola that bringing in GladAfrica was not a good idea as the company charged exorbitant consultancy rates, more than what had been paid for similar work in the past. “The agreed-to tariffs are higher than what the city has been and is paying for similar work. This may result in more money being paid for consultancy fees than actual project implementation, contrary to the directive on cost containment and the curtailment of using consultants,” the COO wrote.
In terms of the contract signed with GladAfrica, the company provides a variety of project management services including engineering, systems planning, financial planning and management, and legal and contract management.
Over and above pocketing a fee of 10% of the value of each project that it manages, the company also charges the city between R2,000 and R4,000 an hour for contracting skilled professionals such as engineers, project managers, accountants and legal experts.
An engineer who has done work for the city for years, and who asked not to be named, told the Sunday Times that fees for engineering services are normally between R800 and R1,200 an hour.
The engineer said contractors now had to approach GladAfrica for any Tshwane-related work as the company outsources all projects to outside professionals.
This was corroborated by another official in the city, who also views the contract as unnecessary and costly.
“These guys don’t do the work, they are middlemen. They subcontract all the work. This is looting,” said the city official, who asked not to be named.
He said the arrangement was the same as that which Guptalinked firm Trillian had with entities such as Eskom and Transnet. Msimanga’s spokesperson, Samkelo Mgobozi, said the mayor had “put a number of written questions to the city manager as custodian of the supply chain management process. The questions relate to how the contract was procured, tender specifications and operational risks to the city.”
Mosola confirmed that the mayor had asked him for an explanation. He declined to comment further.
“The executive mayor has formally written to me to compile a comprehensive response with regards to the same matter. My comprehensive memo of responses will be submitted on Monday,” he said.
GladAfrica said it was a competent project manager with 16 years’ experience and had been appointed following a clear procurement process.
“GladAfrica submitted a bid to the City of Tshwane and was appointed after the city followed its supply chain processes. The bid included proposed rates that were accepted by the city and the billing has since been in accordance with the accepted rates and services provided. The appointment is of a multidisciplinary nature and is implemented as such,” it said. It did not respond to detailed questions about the nature of its relationship with the city.