• The Gauteng Department of Social Development has acknowledged that the R8.5-million appointment of Open Water Advanced Risk Solutions to probe its school uniform project was irregular.
• The appointment was made in the last three weeks of the 2023/24 financial year without inviting competitive bids.
• Open Water has a history of bungled investigations, including that of the R1 billion housing scandal in the Free State when Ace Magashule was premier.

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 standard supply chain management protocols, GroundUp reported.

Matilda Gasela, who was the 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 multimillion-rand funding decisions signed off by Gasela in her last few months in office.

Themba Gadebe, the spokesperson for Gauteng Social Development MEC Mbali Hlophe, confirmed to GroundUp that the appointment of Open Water was irregular.

Gadebe said Hlophe had instructed the department to restart the appointment process.

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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 the latter was the ANC’s secretary-general, and he has been described as an ally of Magashule.

Magashule has since been suspended from the ANC and is on trial for corruption, theft, fraud and money laundering.

Gasela left the department at the end of April, when her contract came to an end.

Before going to Gauteng, she was head of the Free State Department of Social Development under Magashule.

She left the Gauteng Department of Social Development under a cloud of corruption allegations dating back to her time at the province’s Department of Human Settlements.

The Special Investigating Unit (SIU) has recommended criminal prosecution.

READ | Gauteng social development dept bungles allocation of billions for non-profit organisations

GroundUp asked Gadebe if there was any association between 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, [an agenda] geared at tarnishing and destroying her prospects of growth,” Gadebe responded.

He said Hlophe was in Magashule’s office at Luthuli House for “less than two years”.

Gadebe added that Hlophe had acted “immediately” upon learning of the irregular appointment of Open Water and “informed the department to follow due process in line with Treasury regulations”.

Irregular appointment

According to a leaked application document, Open Water’s mandate was to investigate the department’s school uniform programme. 

The document states that the firm was chosen from a National Treasury panel of forensic auditing firms.

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 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 chief financial officer (CFO) 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 was for five months of work and a total of 1 880 hours. 

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 cooperatives 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 cooperatives to make the uniforms while another contractor had already been appointed. GroundUp understands that Open Water’s mandate included identifying who those officials were.

In his reply to GroundUp, Gadebe said Open Water’s selection was also questionable because there were bidders with more affordable quotes. However, the application document signed by Gasela says that Open Water was the only bidder.

A source in the department told GroundUp that “R8.5 million is high for only one project to be investigated”.

Another source said the project could have been investigated internally rather than paying millions to outside investigators.

“It would be a simple matter for [the Gauteng Department of Social Development] 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 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 were part of the reason Hlophe had instructed the department to restart the appointment process.

Open Water’s history

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 10 days, led to the suspension of several officials.

When some of the officials requested Open Water’s report to challenge their suspension, they were refused 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 director Ricky Nkondo, a former National Intelligence Agency division head. One of these meetings took place in private at the premier’s official residence.

Open Water director Peet Pieterse has vehemently denied that he participated in a cover-up and said the meetings were standard, to update the premier on the investigation.

Testifying before the State Capture Commission years later, Mosebenzi Zwane, who was 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 then-head of department Gift Mokoena, and then-CFO Seipati Dlamini who devised an advance payment system to hundreds of contractors before any work was done. But no disciplinary action was taken against Zwane, Dlamini or Mokoena.

The SIU, which also investigated the housing project, found that R831 million had been paid in advance and recommended Mokoena for criminal prosecution.

The State Capture Commission recommended that Zwane and 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 did not respond to questions sent via email.