We have detected that the browser you are using is no longer supported. As a result, some content may not display correctly.
We suggest that you upgrade to the latest version of any of the following browsers:
Source: Gauteng Provincial Government
Title: P Mashatile: Statement on Capstone 518 forensic audit
Statement by the Gauteng MEC for Finance and Economic Affairs, Mr
Paul Mashatile: Capstone 518 forensic audit recommends criminal
4 February 2005
A forensic audit conducted for the Gauteng Provincial Government
has recommended that a criminal investigation be launched into the
company that was awarded the information technology (IT) contract
for the Gauteng Shared Services Centre (GSSC).
The company, Capstone 518 (Pty) Ltd, traded under the name Infotech
Solution Services and was contracted as sole provider of IT
application software services to the GSSC.
In May 2004, when the MEC for Finance and Economic Affairs, Paul
Mashatile resumed duties, he found the arrangement to be improper
and against public policy and immediately took steps to review and
cancel the arrangement.
I found that the CEO of the GSSC, Mr Mike Roussos was a 50%
shareholder in the company, which received R52-million worth of
business from the GSSC while he was CEO. The other 50% of the
company was owned by Blue IQ Investment Holdings (Pty) Ltd, which
is wholly owned by the Gauteng Provincial Government (GPG).
The employment contract of Mr Roussos was terminated on 12 August
2004 after he disclosed his shareholding in Capstone 518 and the
potential profit he stood to make.
Since Mr Roussos' termination of employment, my department has
initiated two rigorous investigations into the legal status of the
Capstone 518 shareholders' agreement and its contract with the GPG,
to ensure we get to the bottom of this.
* Firstly, an investigation was conducted by the Resolve Group
during October 2004 to establish the legal status of Capstone 518
and identify, in particular, whether the correct legal steps were
taken in establishing the company.
* Secondly, a forensic audit was conducted by Gobodo during
November and December 2004, to look into the establishment and
activities of Capstone 518.
Both investigations have now been finalised and the progress report
on the investigations was tabled before the Gauteng Executive
Committee (Exco) on 26 January 2005 (last week).
The reports themselves will obviously not be released into the
public domain, as they contain confidential information pertaining
to the criminal investigations.
The salient details are, however, being released to the public,
through the media, in the interests of transparency and to
demonstrate Government's commitment to stamping out
The Resolve investigation
The Resolve investigation looked in particular into the
shareholders' agreement that was signed between Capstone and the
province. Its key findings are the following:
* The shareholders' agreement itself was flawed, both from a public
policy and corporate governance perspective, and contravenes
critical provisions of legislation applicable to this area.
* The shareholders' agreement is, according to legal advice sought
by the GPG, null and void because it is contrary to public
* Aspects of the implementation of the Capstone arrangement
contravened certain critical legislation.
* The arrangement with Mr Roussos - whereby he owned 50% of
Capstone 518, which was then appointed as a sole provider of
services to the GSSC - was "neither appropriate nor
* Mr Roussos "repeatedly misled his staff as well as the
Auditor-General" as to the true nature of his 50% shareholding and
failed to disclose his shareholding.
Resolve concluded that "serious consideration" should be given to
lodging criminal charges against Mr Roussos in terms of the Public
Finance Management Act and the Prevention and Combating of Corrupt
The Gobodo investigation
The shareholders' arrangement was explored in more detail in the
Gobodo investigation, which found that there had been, and I quote,
"very serious corporate governance irregularities and improprieties
in the operation of Capstone 518 in its relationship with the
These irregularities, according to Gobodo, are the following:
* Repeated misrepresentations by Mr Roussos regarding the equity
holding in Capstone 518.
* Conflict of interest by Mr Roussos' failure to disclose his
interest in Capstone 518.
* The fact that Mr Roussos made a potential secret profit.
* The fact that the GSSC budget was used irregularly, in that
approximately R38-million was paid to Capstone during March 2004.
This included numerous advance payments for services that had not
been rendered. Mr Roussos personally authorised payments to
There has been some speculation in the media as to the possible
role of my predecessor, Mr Jabu Moleketi, and the Premier of the
It is clear from the investigators that Mr Moleketi did not
structure the Capstone shareholders' agreement, nor did he sign any
documents relating to it. He was advised that the arrangement was
acceptable, and accepted this. Mr Pradeep Maharaj then proceeded to
conclude the arrangement, and signed it.
In the case of the Premier, no evidence was found that the Premier
was aware of or approved the structure of Capstone 518 or the
It is important to put these two issues clearly on record, and -
importantly - to point out that no-one but Mr Roussos had any
financial gain out of this arrangement.
As I indicated at the beginning of this statement, both
investigations have come to the same conclusion: that the Capstone
518 matter should be referred to the relevant authorities, with a
view to a criminal investigation.
As mandated by the Provincial Executive Committee, we have now done
this - in the interests of good governance and to demonstrate our
commitment to clean government. The matter is in the hands of the
country's law enforcement agencies, and we now wait for the law to
run its course.
Alongside this, we have taken legal steps to ensure redress and to
recover the state resources that may have been misappropriated. In
addition, and as is already public knowledge, we have reversed the
Capstone arrangement and have closed down the company.
We cannot, however, rule out additional action in future -
particularly as the provincial legislature's Standing Committee on
Public Accounts (SCOPA) will still need to consider the issue and
reflect on the findings of the two investigations.
Queries: Keith Khoza
Department of Finance and Economic Affairs
Cell: 082 908 7742
Issued by: Department of Finance and Economic Affairs, Gauteng
4 February 2005