Deterring Fraud and Corruption

KZN Provincial Treasury

Date : 14 August 2012

© 2009 Deloitte Touche Tohmatsu

Contents

1. Introduction

2. Pro-Active Activities to prevent

3. Re-Active Activities to allegations

4. Progress

5. Conclusion

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© 2009 Deloitte Touche Tohmatsu

Introduction

Fighting crime (including fraud and corruption) is one of the priorities in government’s program of action

The purpose:

- To prevent the wastage of our taxpayer’s money;- To create an environment for economic growth;- To move quicker towards the realization of the priorities outlined in the government program of action

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© 2009 Deloitte Touche Tohmatsu

Introduction (continued)

Implication of fraud and corruption: - Distorts economic and social development;

- Engenders wrong choices; - Encourages competition in bribery rather in the quality and

price of good and services;

We all have to take a firm stand: Leaders, employees & Civil society

It starts with good governance, which can be defined as accountable, participatory and transparent

“The poor pay the price of fraud and corruption”

• Distorts economic and social development

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© 2009 Deloitte Touche Tohmatsu

Steps by Provincial Treasury to deter fraud andcorruption

Pro-active Measures:Prevention initiatives to reduce the risk of fraud and corruption:-

- Fraud risk assessment has been conducted at all provincial departments. Other government institutions to follow;- IT fraud risk assessments conducted in all provincial departments – Project Unembeza.

- To identify potential incidents of IT fraud _ BAS & PERSAL in particular;

- Detecting and tracking down vulnerabilities in existing IT networks of government;

- Proposed roadmap towards a more secure information secure information security environment - to reduce remote potential exploitation o IT systems and processing

fraudulent transactions is in place;

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© 2009 Deloitte Touche Tohmatsu

Steps by Provincial Treasury to deter fraud andcorruption

Pro-active Measures:Prevention initiatives to reduce the risk of fraud and corruption:-

Case Management System is under development. - The system will assist with the registration and

monitoring (including tracking) of cases under investigation;- Improve accurate reporting on cases of fraud and corruption;- Will enable us to track the implementation of recommendations –

disciplinary actions, civil recoveries, criminal cases registered with law enforcement agencies.

Regular review on the effectiveness of fraud prevention plans Fraud Awareness Campaigns – Annual Anti Fraud & Corruption Summit by OTP - Integrity Management

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© 2009 Deloitte Touche Tohmatsu

Steps by Provincial Treasury to deter fraud andcorruption

PREVENTION:

Biometric access control system (BACS) has been implemented in all departments – BAS and PERSAL. It is designed to:

- Provide a much better audit trail;- Requires the use of a finger print to log onto BAS and PERSAL - Replaces password system;

- Will to a larger extent eliminates password irregularities & fraud.

economic and social development

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© 2009 Deloitte Touche Tohmatsu

Steps by Provincial Treasury to deter fraud andcorruption

PREVENTION : REVIEW OF SUPPLY CHAIN MANAGEMENT:

Conduct of officials:

Appeal to public: please notify us if know of anything suspicious re SCM officials. Compliance unit in SCM will investigate all allegations  considering the extension of compulsory declaration of interest to lower ranks

The Provincial Conflict of Interest Policy and the related guideline is at a draft stage. All officials in government will be required to declare their interests, irrespective of their levels.

• Distorts economic and social development

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

Conduct of SCM officials in all government institutions:

Lack of proper delegation and poor segregation of roles, e.g. very junior officials approve large orders and process payments.

• ‒ Treasury, jointly with National Treasury improving the assignment of SCM delegations to the

correct level – Accounting Officers instructed to implement clear SCM Decision Frameworks.

• Provincial Treasury to enforce compliance through audits and regular SCM compliance reviews. This includes the enforcement of the code of conduct for SCM practitioners.

• Ensure the establishment of bid committees that take decisions independently

 

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

Cover quoting

Loophole discussed with the National Treasury, and an amendment will soon be

made to the PFMA to define the conditions under which deviation may occur rather than leaving it to the Accounting Officers or authorities to decide.

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

Acquiring e-procurement tool: Total est. budget R6m

- - Designed to curb fraud and corruption done through cover-quoting and - many other similar fraudulent practices. - An automated system of suppliers rotation; - Used for invitation of quotations; - An electronic method of dealing with requisitions and issuing of orders.

Ready to be piloted but was delayed by the proposed implementation of IFMS

by National Treasury – similar system.

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

Inflation of prices of bidders in collusion with officials in SCM• Developing a daily updated price-list of all goods and services that

government procures will be developed.  Project is now on phase 2.

• - Purpose – to introduce price bench-marking in the procurement of goods and services;• - To curb a serious problem of price inflation by those that do business with government;• - Ensure that all government institutions pay market related prices;• - System will be linked with the proposed Strategic Sourcing System.

• The Provincial Treasury is also enforcing the use of transversal or general

period contracts in the Province.

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

CONTRACT MANAGEMENT: Total Est. Project budget R26,8m

• Phase 1: The development of a contract inventory of all existing contracts in all departments – 6 pilot departments and 3 municipalities.

• Shortcomings identified during phase 1 include:• - Awarding contracts to service providers not registered in the provincial suppliers database;• - Payments made with amounts exceeding the amounts reflected in orders issued;• - Continued provision of services after expiry of contracts without any legal extensions or

variations; etc•

• The diagnosis phase (second phase): a clause-by-clause review of each contract to ensure that delivery has met promise. Followed by a thorough review of these contracts.

• 2010/11 expenditure approximately R6,3m

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

TENDER APPEALS TRIBUNAL: Total est. budget R3,5m

• The Tender Appeals tribunal, which is already in place for provincial departments, has reversed several cases. It offers the public the opportunity to question any process in the awarding of tenders.

• It will now also be implemented in municipalities. Phase one (a pilot project) is in progress. Potential members to sit in the Municipal Tribunals has been identified.

• MT’s will provide a mechanism of reporting irregularities in the award of contracts by municipalities in the province.

    2010/11 Expenditure is approximately R2m

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PREVENTION: REVIEW OF SUPPLY CHAIN MANAGEMENT:

REVAMPING OF DATABASE: R1,7m

• Cleaning up and establishing a new single suppliers’ database for all provincial departments and municipalities to promote accountability and compliance.

• Suppliers asked to re-register. It acts as a deterrent for fraud and corruption and is now also linked with external organizations (SARS, CIPRO, and CIDB).

• Will identify service providers with poor track records or under investigation and for black listing. All suppliers to give stipulate their core businesses and their locations.

• Project has been completed and system came alive in September 2010.

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PREVENTION:  CASH MANAGEMENT CONTROLS:

•- All payments of R1m (where quotes had to be used for some reason) to be verified by Treasury (bank accounts).

• - Challenge is that fraudster can still split the amounts, e.g. Two payments of R499 999.

•- Treasury currently working on measures to tighten the screws also on smaller amounts.

•- Constantly updating Practice Notes to cover loopholes.•- A special TreasuryTask Team has been established to follow up on

irregular and unauthorized expenditure reported by the departments

 

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RE-ACTIVE :

HOW FRAUD & CORRUPTION IS PICKED UP BY TREASURY:

• Allegations of fraud, corruption, maladministration, theft, mismanagement of funds and misrepresentations constantly received through:

- NACH (Hotline) via the Office of the Premier

- Directly from whistle blowers - Executing authorities - Senior management of government institutions

- Identified through normal assurance reviews

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FORENSIC INVESTIGATIONS ARE CONDUCTED BY THE INTERNAL AUDIT SERVICES:

 The Unit presents the outcomes of the investigations to

the relevant institutions with recommendations, e.g. civil recoveries, disciplinary action or referring the case to the law enforcement institutions for criminal investigation.

‒ Established a good and close relationships with law enforcement agencies with the HAWKS, SAPS, SIU, SARS, AFU, ACTT, NPA and NIA.

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FORENSIC INVESTIGATIONS ARE CONDUCTED BY THE INTERNAL AUDIT SERVICES:

 RECOMMENDED CIVIL RECOVERIES

INSTITUTIONS SERVICE PROVIDER ® EST.

OFFICIALS ® EST.

ASSETS SEIZED ® EST.

DEPARTMENTS 90 267 044 25 950 254m

MUNICIPALITIES/PUBLIC ENTITIES/OTHERS

101 383 21 000

TOTAL 90 368 427 46 959 254m

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FORENSIC INVESTIGATIONS ARE CONDUCTED BY THE INTERNAL AUDIT SERVICES:

 CRIMINAL ACTIONS RECOMMENDED

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OTHER THE INTERNAL AUDIT INITIATIVES: 

Working with the Office of the Premier

- Most critical criminal cases and prioritisation discussed with law enforcement agencies . Special arrangements with the High Court.

• - Disciplinary courts are yet to be established to address existing backlogs of the disciplinary cases. In the interim -OTP has appointed a Task Team to start addressing the backlog

• - Also Provincial Audit and Risk Committee provides oversight on Supply Chain Management, other financial mismanagement & other governance issues.

• - Interim Financial Statements Audits are now conducted to indentify irregular and unauthorized expenditure in time.

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PROGRESS• The Audit Outcomes (both for municipalities and provincial government

departments) clearly shows a general improvement in compliance with financial reporting.

•   The phasing in of performance auditing to government expenditure has been adding more value by shifting the focus to results-oriented auditing.  

• The cost-cutting measures have certainly also acted as a deterrent by making top management more aware of managing finances in their departments.

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PLEASE ASSIST US:  

• Corruption can be reported anonymously by any member of society to the National Anti-Corruption Hotline (NACH) at

0800 701 701.

• In terms of a National Cabinet resolution any member of the public can also alert Treasury to fraudulent activities and

we encourage members to come forward.

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