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OUTA raises red flag about Services SETA contract

The Organisation Undoing Tax Abuse (OUTA) has raised a red flag about a more than R162-million contract entered into by the Services Sector Education and Training Authority (Seta), which was subcontracted out to an offshore company in breach of procurement regulations.

OUTA investigated the contract after it was approached by a whistleblower and as part of a broader investigation into maladministration in SETA’s and their service providers. There are currently 21 Setas that are tasked with managing funding and overseeing internships, learnerships and other forms of on-the-job experience and skills development.

The Services Seta contract investigated by OUTA was for the purchase of 3 333 biometric devices or “units” to track attendance of students participating in service-related learnership programmes and for the payment of monthly stipends for 100 000 learners at a charge of R121.67 per payment.

To reach the amount of R162 669 000 — specified in the contract — the 3333 biometric units were valued at R5000 each, totalling R16 665 000. The charges for the learners’ stipends, when calculated for 12 months, total R146 004 000. This is how the R162 669 000 total for the contract was calculated. However the contract was actually for 29 months – it started in November 2017 and is due to end in March 2020 – this means that the total for this contract would amount to much more than the given total at the end of this period.

The contract was awarded to Grayson Reed Consortium, which is made up of Grayson Reed Consulting (Pty) Ltd, Kulanati Financial Solutions and The Dram Group Holdings. Grayson Reed was the member of the consortium with 70% responsibility of the work sharing and financial benefit according to the contract.

But Kulanati is the only company out of the three that is officially registered with the Companies and Intellectual Property Commission (CIPC). Grayson Reed Consulting (Pty) Ltd is described as the trading name of a company called Muroba Group Holdings, whose value added tax (VAT) registration number and company registration were used in the tender documents.

According to an OUTA statement, Muroba’s use of Grayson Reed as a trading name raises a legal problem. The Companies Act requires that if a trading name is used, then all documents such as invoices must have both names on them. Also, in documents, Grayson Reed is presented as Grayson Reed (Pty) Ltd which is misleading as it pretends that this is its real registered name.

OUTA has also obtained a series of invoices, which the Mail & Guardian has seen, which show that in March 2018, a London-based company called Corncastle Limited sent Johannesburg-based Grayson Reed an invoice for the supply of 500 biometric devices at $420 each. This invoice gave two banking account details for the payment of the $210 000 – one at AfrAsia Bank Limited in Mauritius and the other at Citibank in New York.

On April 3 2018, FNB Forex sent Muroba Group Holdings a payment confirmation for the payment of the $210 000 – which exchanged to R2 505 300 plus bank charges of R877.62 – into Corncastle’s Mauritius account.

Grayson Reed then invoiced the Services Seta on April 5 2018 for 500 biometric units, two days after the FNB Forex confirmation. On the same day that the Service Seta received the invoice in May 2018, the training authority authorised the R2 499 997.20.

OUTA says Grayson Reed is in breach of section 12(1) of the Preferential Procurement Regulations of 2017, which state that “a person awarded a contract may only enter into a subcontracting arrangement with the approval of the organ of state”. Both the tender bid and the contract do not indicate the Services Seta’s approval.

Seta spokesperson Duduzile Mwelase responded to M&G’s questions regarding the offshore company where she said the Seta is not aware of an overseas company working with Grayson on this contract.

“This speaks to Grayson Reed and the commercial relationships it has with its suppliers. We are not aware of any offshore company invoicing Grayson Reed. It is possible that Grayson Reed could have sourced the units from somewhere, be it an internal or an offshore company. However, such commercial proprietary information is not in the domain of the organisation. Thus, we cannot provide a factual response to this allegation.”

A further anomaly is that the amount Grayson Reed requested from the Seta in this invoice, which also includes a 14% VAT, is less than what it paid to the offshore company Corncastle. In a media statement, OUTA says the subcontracting of the biometric units to Corncastle, which has “no apparent business track record” is a “mechanism to move funds offshore as fast as possible”.

Both OUTA and the M&G were not able to establish the reason for the discrepancy in the payment or whether the 500 biometric units were indeed delivered and where they are being used, if at all.

Mwelase said the Seta does have delivery notes for the biometric units delivered but the Seta requested to see the invoices that OUTA is in possession of before sharing this information.

The M&G sent questions to Corncastle three weeks ago but to date, no response has been received.

Update: This article has been amended to reflect Grayson Reed’s response to the M&G’s questions. In their response, they confirmed that Grayson Reed is the trading name for Muroba Group Holdings (Pty) Ltd. The Dram Group Holdings which forms part of the consortium is registered but under the name Dram Holdings (Pty) Ltd according to documentation provided by Grayson Reed. 

Grayson Reed also said that it did purchase biometric devices “from an overseas distributor” because local distributor pricing was “inflexible”. The company says Corncastle is a “supplier NOT a subcontractor” and that due to the criteria for the units, they could not find a local supplier.

In response to where the biometric units are currently, Grayson Reed says some of the units have been “deployed to sites” or are in stock pending new sites/companies coming on board through the Services Seta. 

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