ROUNDTABLE ON
FINANCIAL MISCONDUCT
THEME: “What constitutes Financial
Misconduct: Raising awareness on the
reporting of Financial Misconduct and its
implications in the Public Service”
28 February 2013
PRESENTATION OUTLINE
•
•
•
•
Introduction
Legislative Framework on Financial Misconduct
Reporting by Departments on Financial Misconduct
The PSC’s roles and responsibilities relating to
Financial Misconduct
•
•
•
Challenges encountered
Implications for the Public Service
Conclusion
2
INTRODUCTION
• The global economic position has deteriorated significantly in recent
years.
• “Great recession.”
• In South Africa the great recession has led to the need to tighten the
management of the fiscus, including financial resources in the Public
Service.
• The recent rating downgrades will
increase the
government.
cost
of
capital
to
• All these factors suggest the need for
effective, efficient and economic
management of public resources.
3
INTRODUCTION cont…
• Government has a responsibility towards its citizens to expend
•
•
public finances in an effective, efficient and economic manner. In
order to do so, sound financial management practices are required
in terms of legislation, thus placing a high burden of accountability
on all civil servants.
As the custodian of Good Governance, the Public Service
Commission (PSC) exercises its powers and functions in the interest
of the maintenance of effective and efficient administration and a
high standard of professional ethics in the Public Service.
The PFMA read in conjunction with the Treasury Regulations,
compel accounting officers of departments to report on the outcome
of the disciplinary proceedings relating to financial misconduct, to
amongst others, the PSC. In view of this, the PSC has since the
2001/2002 financial year, published reports on financial misconduct.
4
INTRODUCTION cont…
• It is required that an Accounting Officer of a department must
exercise all reasonable care to prevent and detect unauthorised,
irregular, fruitless and wasteful expenditure. The Accounting Officer
is further required to recover losses or damages resulting from such
acts, and keep records of such.
• Central to the above, it is vital that we share a common
understanding of what constitutes financial misconduct. The
National Treasury will talk more on what constitutes financial
misconduct and share a few examples with us.
• This roundtable will enable all role players to interact, debate and
share experiences on amongst others, the reporting on financial
misconduct and determine a way forward to deal with the
challenges currently encountered.
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LEGISLATIVE FRAMEWORK
Section 81 of the PFMA
“(1) An accounting officer … commits an act of
financial misconduct if that accounting officer
willfully or negligently(a) fails to comply with a requirement of sections
Responsibilities of AOs
38, 39, 40, 41 or 42; or
(b) makes or permits an unauthorized
expenditure, an irregular expenditure or a
fruitless and wasteful expenditure.
(2) An official …to whom a power or duty is assigned
in terms of section 44 commits an act of financial
misconduct if that official willfully or negligently
fails to exercise that power or perform that duty.”
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LEGISLATIVE FRAMEWORK
Treasury Regulations 4.3
• The accounting officer must, as soon as the
disciplinary proceedings are completed, report to
the executive authority, the DPSA and PSC on the
outcome including:
(a) the name and rank of the official against
whom the proceedings were instituted;
(b) the charges, indicating the financial
misconduct the official is alleged to have
committed;
(c) the findings;
(d) any sanction imposed on the official;
(e) any further action to be taken against the
official, including criminal charges or
civil proceedings.
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THE PSC’S ROLE AND
RESPONSIBILITIES
• In order to deepen analysis on finalised cases reported, a reporting
format was developed. In addition to the Treasury Regulations, the
PSC requires departments to report on the salary level of the employee (if the employee is at SMS level
a copy of the job description should be included);
 the amount involved;
 the recovery of the loss in the particular and previous financial
year;
 the reasons for the increase/decrease in financial misconduct
cases;
 any trend in relation to cases on a particular salary level and the
possible reasons for such a trend.
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THE PSC’S ROLE AND
RESPONSIBILITIES
• A database of reported cases has been established and maintained
since 2005.
• The PSC verifies the information provided by departments in those
cases where insufficient information is provided.
• It also monitors and investigates adherence to procedures through
data verification visits to sampled departments.
• It is imperative that national and
provincial departments submit a report
on finalised financial misconduct cases
to the PSC for every financial year.
Even if no financial misconduct cases
were finalised a nil return must be
submitted.
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CHALLENGES ENCOUNTERED (1)
• Departments are compelled to report the outcome of finalized
misconduct cases to the PSC. However, most departments do not
comply and must on a continuous basis be reminded to report to the
PSC.
• Departments do not adhere to the deadline for reporting.
• Inaccurate and incomplete information provided, e.g.
 Outcome of the case not reported (1% in 2011/12).
 Sanction not reflected (1.7% in 2011/12).
 Criminal action/civil proceedings not reflected (39% of cases no
indication given in 2011/12).
 No reporting on the recovery of money lost/ recovered.
 Less than 1% of departments provide an analysis of trends on
financial misconduct cases.
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CHALLENGES ENCOUNTERED (2)
During data verification visits to departments the following
major challenges were identified:
 The information in individual files are not accurately maintained (e.g.
documents were left loose in the files and were are not filed
according to the sequence of events).
 Some departments do not maintain any form of a database of cases.
 Disciplinary cases are not recorded on the PERSAL system.
 Proper records of the recovery of monies lost through financial
misconduct were not maintained.
o Labour Relations/HR sections do not communicate the outcome
of disciplinary matters to the Finance section, thereby making
recovery of money lost to the State impossible.
 Some departments do not have sufficient investigative capacity,
resulting in delays in the finalisation of cases or the withdrawal of
cases.
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CHALLENGES ENCOUNTERED (3)
 Officials are not aware of the requirement to report offences of
theft, fraud, extortion, forgery or uttering of a forged document
involving amounts of R 100 000.00 or more to the SAPS
(Prevention and Combating of Corrupt Activities Act).
 Employees resign before the employer has an opportunity to
finalise the disciplinary process. Departments therefore have
limited time to finalise cases
of
financial
misconduct
during the notice period of
employees
(normally
a
calendar month) and hold
employees accountable for
their actions.
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CHALLENGES ENCOUNTERED (4)
• Individuals tasked with the responsibility of completing the PSC’s
reporting format indicated that they have great difficulty in
determining what constitutes financial misconduct.
• There is also no shared understanding amongst departments
regarding the date on which a case is regarded as finalised.
Departments report on cases that are still on appeal.
• Furthermore, the relevant prescripts (the PFMA and the Treasury
Regulations) do not provide for a definition for financial misconduct.
• This results in non-financial misconduct cases being reported (e.g.
alcohol abuse, absenteeism).
• The inaccuracy of information provided by departments has
reinforced the need for greater engagement to deepen the culture of
compliance, improve reporting on all aspects, and strengthen
internal controls and risk management within the Public Service.
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IMPLICATIONS (1)
R 229.9
1243
1035
R 346.5
1135
R 100.1
1204
868
R 500.0
R 21.7
R 1,000.0
R 130.6
1042
R 1,500.0
R 932.3
• The finalisation of cases of financial misconduct is one of the
important aspects that contribute to an accountable Public Service.
R 0.0
2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Cost of financial misconduct per financial year
•
No of cases
Increase in the cost of financial misconduct from 2006/07 to 2010/11.
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IMPLICATIONS (2)
• The PFMA requires accounting officers to take reasonable steps to
ensure that unauthorised, irregular as well as fruitless and wasteful
expenditure is prevented and detected.
NO OF NATIONAL
DEPARTMENTS
UNAUTHORISED EXPENDITURE
Incurred
6
IRREGULAR EXPENDITURE
Incurred
34
FRUITLESS AND WASTEFUL EXPENDITURE
Incurred
28
2009/10
AMOUNT
R802m
R2.3b
R1.6b
• Leadership’s inability to address issues relating to financial
discipline and the failure to reform the systems and internal controls
for financial reporting, are amongst the reasons for the poor
financial performance
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IMPLICATIONS (3)
• The failure to provide reliable, complete and accurate statistical
information pertaining to finalized cases of financial misconduct
impacts negatively on the analysis conducted by the PSC and the
advice rendered in this important area.
• The findings of the financial misconduct studies over the years
have further shown that there are weaknesses in risk management
and control systems in departments.
• Failure to put adequate systems
in
place
will
continue
to
undermine government’s efforts to
deal effectively with acts of
corruption.
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CONCLUSION
• The number of cases of financial misconduct reported to the PSC is
low given the high rate of unauthorised, irregular and fruitless and
wasteful expenditure, as well as the rate of non-compliance within
the Public Service.
• Leadership’s inability to address issues relating to financial discipline
and the failure to reform the systems and internal controls for
financial reporting, are among the reasons for poor financial
performance.
• This Roundtable is aimed at improving
compliance with reporting, the quality of
reporting and also to provide participants with a
broader, in-depth and shared understanding of
what constitutes financial misconduct.
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PSC Website: www.psc.gov.za
National Anti-Corruption Hotline for the Public Service: 0800 701 701