‘The Citizen’ previously revealed how the Compensation Fund’s financial losses have ballooned to a staggering R71 million over the past two financial years.
This story has been updated to include a response from the Department of Employment and Labour, which was received but not included at the time of publishing.
The Compensation Fund allegedly blew over R96 million on consultants to perform work that had already been largely completed by a previous contractor at a cost of approximately R46 million, with a whistle-blower claiming there is little to show for the total of R142 million.
According to the whistle-blower, the entity had previously engaged FTMG Africa Advisory Services in 2022 to assist in addressing its long-standing audit failures and governance weaknesses.
Questions over legality of consultant appointment
The intervention was authorised by then employment and labour minister Thulas Nxesi through Section 15 of the Public Service Act and involved the deployment of 20 consultants tasked with improving audit outcomes, strengthening financial controls and transferring critical skills to fund officials.
However, the arrangement may itself have been unlawful. While Section 15 provides for the secondment of public servants, it is alleged that FTMG, a private company, was effectively contracted through procurement processes and paid approximately R46.6 million between January 2022 and January 2024.
The Department of Employment and Labour on Wednesday disputed this characterisation.
“The then Minister’s authorisation of the FTMG arrangement under Section 15 of the Public Service Act was effected in accordance with the approved Human Resources delegations and the prevailing interpretation of Section 15 at the time,” the department told The Citizen.
Under the Public Finance Management Act (PFMA), service contracts above R1 million must go through competitive bidding.
Sources point out that this transformed the arrangement into a service contract that should have been subjected to normal supply chain management requirements.
These are requirements that were allegedly bypassed entirely.
Concerns raised over duplicate tender process
The concerns deepened when the Compensation Fund subsequently issued Tender TCF 03:2024-25 for what is alleged to have been substantially the same scope of work previously assigned to FTMG.
FTMG had reportedly completed between 75% and 85% of the project when EMS Solutions was awarded the new contract.
“The logical step would have been to conduct a gap analysis and procure only the outstanding work. Instead, the entire scope was retendered at more than double the cost,” said a senior official with direct knowledge of the procurement process.
The department denied the tender duplicated prior work.
“The department does not regard Bid TCF 03:2024/25 as a retender of previous work, but rather as a distinct procurement process aligned to the current operational needs of the Department and the Compensation Fund,” it said.
Regarding whether the R96-million contract awarded to EMS Solutions represented value for money, the department expressed confidence in the outcome.
“The R96 million contract awarded to EMS Solutions followed an open and competitive bidding process and was assessed against the department’s requirements for capacity building and system improvement,” it said.
The contracts raise further questions about whether public money was being adequately protected at an entity whose core mandate is to provide insurance to workers injured, diseased or killed on the job.
Audit failures continue despite consultant spending
Additional concerns include allegations that supply chain officials were excluded from parts of the evaluation process, that the director of financial reporting position has remained vacant for years, and that key acting appointments may have enabled the approval of consultant invoices despite limited and, in some instances, negligible improvements in audit outcomes.
The Citizen has previously revealed how the Compensation Fund’s financial losses have ballooned to a staggering R71 million over the past two financial years, up from R10 million in the 2022-23 financial year, due to alleged fraudulent activities.
The department said it was taking steps to turn the situation around.
“The Compensation Fund has implemented a comprehensive audit action plan to address longstanding audit findings,” it said.
“Key interventions include strengthening internal controls, improving data integrity, enhancing financial reporting processes, and investing in critical skills through targeted appointments and external specialist support. Additional controls, such as account verification systems and biometric measures, have also been introduced.”
Asked whether it had referred any procurement irregularities to law enforcement or an investigative body, the department said, at this stage, “no confirmed procurement irregularities have been identified.”
“Accordingly, no matters have been referred to law enforcement or investigative authorities.”
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