Presentation
to
Portfolio Committee
on
Dept of Correctional Services
22 September 2009
Summary
1.
About the SIU
2.
SIU Mandate and Legal Scope
3.
Threats to Departments
4.
Integrated Forensic Solutions
5.
SIU Methodology
6.
First DCS/SIU Partnership
7.
Investigation Focus Areas and Successes
8.
DCS Prioritised Risks
9.
Extended Partnership
10. Investigation Focus Areas and Successes
11. Forensic Audit of Tenders
12. Procurement Red Flag Database
13. Case Studies
About the SIU
• Started out: Heath Commission 1995
• Set up ito SIU Act 74/1996 – independent of other LEA’s
• Early years: primarily criminal investigators and lawyers
• Last 5 years: developed multi-disciplinary forensic capability:
• Forensic investigators, lawyers, forensic accountants, cyber
forensics experts, data analysts and project management
professionals
• Guided by a vision, mission, strategic objectives and key
organisational values
• Definite focus on corruption, fraud, maladministration,
misconduct causing losses to State
• Success defined through statistical and systemic impact
SIU Mandate and Legal Scope
• Major functions of the SIU:
investigate corruption and maladministration
institute civil legal action to correct any wrongdoing
• Primary purpose of SIU: enable state to recover money lost
as a result of unlawful or corrupt action
• SIU also able to: use civil law to prevent huge losses (e.g. set
aside contracts) and facilitate systemic improvements
• Special powers: subpoena, search, seizure and interrogate
witnesses under oath – not power of arrest, prosecution
• Cooperation: work closely with SAPS, DSO and NPA when
encounter criminal conduct to ensure arrest and conviction
• Provide: a complete forensic service to Departments and
facilitate criminal legal action
Threats to Departments
• Departments’ face combined threats of fraud, corruption and
maladministration
• Also challenge to protect integrity of systems and processes,
e.g. social grants, service delivery, issuing drivers’ licences,
procurement, tax collection
• Both opportunistic and more organised exploitation
of system gaps
• Maladministration as much of a challenge as intentional
fraud / corruption
• Major problem of legislative compliance often resulting in
loss and weak delivery, e.g. PFMA, MFMA compliance
• AG: 30% of departments had expenditure-related
qualifications
Integrated Forensic Solutions
• Fraud, corruption and maladministration usually detected as
a result of escalating loss
• Dealing effectively with the problem requires interface
between the departments and other key agencies, e.g. AG,
SCOPA, State Attorney, SAPS, NPA, etc
• Critical part of cleaning up problem is a complete and
integrated forensic solution:
• Forensic audit and investigations
• Remedial legal action: civil, criminal and disciplinary
• Systemic improvements and risk management
Integrated Solutions cont
• Assistance to departments with risk management includes:
• Primarily fraud/corruption risk and systemic/process risk
• Fraud risk assessments and assistance with fraud prevention plans
• Transfer of skills to departments assisting with governance capacity
• Traditionally forensic solution primarily provided by private
accounting firms
• Result in outsourcing of forensic services by departments at
great cost – not effective
• In recent years, SIU able to provide complete forensic solution to
State Institutions – major counter to private sector
SIU Methodology
• Provide a project based forensic service - some LEA
powers but provide a forensic audit, investigation (similar to
big four accounting firms) and civil litigation
• Client focus - focused on client department’s needs
• Project management methodology
• Service Level Agreements
• Time lines and regular reports
• Investigation plans
• Integrated forensic teams
• Lawyers, accountants, investigators, computer specialists
• Co-operative and integrated approach with other
departments and law enforcement partners
First DCS / SIU partnership
• DCS requested SIU assistance
• Primarily in response to Jali Commission’s concerns
• SIU focus medical aid and corruption in prisons
• Concerns regarding correctional centres
 Corruption at correctional centres
 No reporting structure to expose corruption
 Concerns about lack of integrity amongst officials
• Abuse of DCS medical aid scheme
 DCS wholly funded medical aid scheme
 DCS officials and private doctors defrauding scheme
• Negative perception of large scale corruption in DCS
• First partnership signed October 2002 – 3 years
Medical Aid Focus Area
Problem
Intervention
Success
Impact
Current position
DCS wholly funded
medical aid scheme
Forensic Audit of entire
DCS medical aid
database
R 22 million recovered
R 3.4 billion in savings
Significant recovery of
loss suffered by DCS
through fraud
committed against
scheme
Remaining cases
finalised –
R 8 million recovered
last 2 years
Abuse of DCS medical
aid scheme
Analyse database;
Develop claims profile
for medical
practitioners; Conduct
preliminary
investigation into
excessive claims
Doctors and DCS
officials with excessive
claims investigated
Medical Professions
Council has taken
action against doctors;
DCS officials
disciplined
Decreased because of
action against doctors
and officials committing
fraud and contributory
medical aid scheme
introduced
DCS officials and
private doctors
defrauding scheme
Investigation of abusive
claims and collusion
between officials,
medical practitioners
and beneficiaries
26 doctors and 10 DCS
officials criminally
charged
Action against officials
resulted in an
immediate decrease in
fraudulent claims
Additional 433 DCS
officials disciplined
Concerns around
people, finances
Civil and criminal legal
action and disciplinary
inquiries instituted
DCS officials
disciplined and medical
practitioners deregistered
DCS Corporate
Services introduces
contributory medical
aid scheme
No new cases of fraud
identified
11
Correctional Centre Focus Area
Problem
Corruption in
correctional centres
Intervention
Visited 179 correctional
centres – interviewed
143 887 inmates and
33 132 DCS officials
Success
426 disciplinary cases
& 289 criminal cases
registered
Impact
Corruption at the
correctional centres
exposed
Current position
New cases referred to
DCS Departmental
Investigating Unit
DCS understood
nature of irregularities
at correctional centres
Spin-off investigation
areas of correctional
centre pharmacies and
First Auto Card
investigations identified
Concerns around
people, processes
SIU intervention to
advise DCS of current
state of correctional
centres
DCS established
Departmental
Investigating Unit to
investigate/facilitate
these matters
DCS established
capacity to deal with
these types of matters
internally
DCS DIU works closely
with the SAPS and SIU
to address irregularities
uncovered at
correctional centres
SIU assists with set-up
of DIU and capacity
building
12
Other Focus Area
Problem
First Auto card fraud
Intervention
Analysis of DCS
payments database –
750 000 transactions
Excessive
expenditure
investigated
Success
145 DCS officials
recommended for
disciplinary action
2 charged criminally
Impact
DIU able to conduct
these types of
investigations
Current position
DCS DIU developed
capacity to deal with
these investigations
internally
13
DCS Prioritised Risks
• 2006/07 DCS developed list of priority risk areas
• DCS select risks require mitigation
• Identified following relevant risk areas for SIU
• Non-compliance with policy and procedures, lack of internal
controls, e.g. procurement, pharmacies
• Inadequate asset management
• Lack of effective monitoring and evaluation system, e.g. First
Auto Card investigations
• Inadequate corruption prevention, e.g.. Assist in setup of DIU
• Lack of coherence of new organisational culture, e.g. developing
capability in key areas
Extended Partnership
• DCS concerns shifted to integrity of its financial systems and
control over assets
• SIU/DCS partnership extended March 2006 – 3 years
• SIU requested to focus on
• Procurement
 DCS entering into large contracts
 Concern re integrity of procurement officials, financial systems and
procurement process
 Investigation requires specialised forensic skills
• Asset Management at correctional centre farms
 DCS concerned about control over assets
• Pharmacies
 DCS concerned about management of centre pharmacies
• SIU requested Proclamation R44 of 2007
• Proclamation authorises investigations into above focus areas
• Published 28 November 2007
Procurement Focus Area
Problem
Integrity of DCS
procurement system –
tenders
Intervention
Forensic Audit of top
200 cases (value)
Success
23 cases identified for
investigation
DCS referred 10 cases
Various types of
irregularities identified
Impact
R 6.9 m recovered
R 12 m assets under
restraint
R 4.8m saving
22 DCS officials
recommended for
disciplining for
undisclosed private
business interest
Current position
All investigations being
finalised
Further asset seizures
pending
Recommended
significant recoveries in
R 2 billion tender
investigation
Various systemic
recommendations
made to DCS
Integrity of DCS
procurement system quotes
Developed a
procurement database
to analyse all of DCS
procurement
Phase 1 identified
various red flags
contracts/quotes
Various systemic
concerns raised with
DCS
SIU contract not
renewed
DCS making systemic
improvements to its
financial systems and
disciplining DCS
officials
SIU contract not
renewed
Phase 2 pilot at
Pretoria CC
Concerns around
people, processes,
finances
Audits of DCS tender
and quote procurement
systems
Analysis of all DCS
procurement
Systemic concerns
identified and
communicated to DCS
16
Other Focus Areas
Problem
Intervention
Success
Impact
Current position
Mismanagement of
DCS pharmacies
Audit management of
160 correctional
centre pharmacies
nationally
Over 600 disciplinary
recommendations made
Significant systemic
recommendations made
to DCS
SIU make
recommendations on
improvement of
pharmacy
management
DCS in process of
implementing SIU
recommendations
Mismanagement of
assets at correctional
centre farms
Review of
management of 12
correctional centre
farms
R 490 000 recovered
R 418 000 in savings
28 disciplinaries
Made systemic
recommendations
DCS in process of
reviewing management
policy for correctional
centre farms
Implementing systemic
recommendations
DCS reviewing current
management policy
17
Forensic Audit of Tenders
• Contracts raising concern:
–Reviewed top 200 contracts in areas of RAMP, Nutrition, Clothing and Correctional Centre Building
and Security contracts
• Irregularities identified:
–Black Economic Empowerment fronting
–Bidders submitting false qualifications
–Lack of contractual performance by service providers
–Tender rigging, including manipulation of tender specifications
–Collusion between DCS officials and suppliers
• Systemic concerns
–No vetting of personnel in tender process
–No vetting of service providers
–Low compliance with procurement policy
–Poor document management systems
–Unavailability of important sources documents in majority of cases
–Proper project management control over RAMP projects
–Ensuring service delivery to DCS
18
Designed Procurement Red-flag database
• Part of our multi disciplinary interactive forensic approach
focusing on people, processes and finance
• Database includes DCS procurement by tender and quote
•
Used a centralised integrated data approach to identify
anomalies, such as:
• Systemic problem areas
• Measuring changes over time (Statistics, Trends, Patterns)
• Assess effectiveness of programs in an organisation
• Measuring Impact of corrective actions
• Understanding complexities and phenomena in areas such as
fraud,
corruption and maladministration.
Design and set up
Explore
•Understand client
environment
•Available data (and
data dictionaries)
•Process flow of
information
•Risk level
•Previous exposure
•Understand
business
Design
•Identify risk areas
•Design tests to
detect red flags
•Review and interpret
results
•Changes tests and
additional tests
Implement
•Presentation of
results
•Once off or
continuous
monitoring
Types of irregularities identified by tool
Type of fraud
Possible tests
Fictitious
vendors
• Check on addresses
Altered
invoices
• Duplicates
• Comparison of information between employee and supplier master files
• Invoice amounts not matching contracts or purchase orders
• Summarise values per vendor, analysis of values over several years
Fixed bidding
• Calculate days between close for bids and contract submission date. Is last
vendor submitting always winning?
Goods not
received
• Purchase quantities not agreeing to contract quantities
Duplicate
invoices
• Duplicate invoice numbers, dates, amounts, etc.
Duplicate
payments
• Identical invoice numbers and payment amounts
• Compare inventory levels to GRN
• Repeated refunds for invoices paid twice
Types of irregularities identified by tool cont
Type of fraud
Inflated prices
Excess
quantities
purchased
Carbon copies
(cheques)
Payroll
Accounts
Payable
Possible tests
• Compare prices across vendors
• Unexplained increase in inventory
• Determine if quantities are appropriate for production levels
• Comparison of quantities over a number of months
• Search for duplicates within all company cheques
• Search for gaps in the cheque numbers
• Terminated employees still on payroll
• Reveal transactions not matching contract amounts by linking Accounts
payable file to contract and inventory files.
Analysis of DCS procurement
•Database designed & provides:
•
•
Analysis of DCS expenditure on procurement per item, per cost centre, per
region/province
Significant irregularities identified throughout DCS procurement system
•DCS Pilot – 3 Quote System – Pretoria Correctional Centre
•
•
•
•
Pilot to test accuracy – confined to Logistics and Maintenance
Targeted transactions btw R 2 - 30 000 for period 1/4/04 to 28/11/07
Investigation reveals:
• 1024 of 6129 transactions were identified to have irregularities
• Total value of transactions R 6.4 m
Types of irregularities
• Cover quoting – R 2.6 million
• Irregular expenditure – R 3.8 million
• Splitting of orders – R 1.4 million
•DCS informed of potential of database and indications of
widespread irregularities
Case studies… #1
•
National tender - GST
• SIU identified investigation through tenders audit
• Allegation
Service provider committed Black Economic Empowerment
fronting
• Investigation established
Tenders to the value of R 18 million awarded to service provider
Service provider misrepresented to State Tender Board and DCS
that
– they were conducting a BEE project that would empower
3 African women to provide services to DCS
– the women would share in the profits of the tenders
awarded
3 front companies established to commit fraud
Payments made by DCS immediately redirected to GST
– Women were paid nominal amount for filling in tender
documents if GST successful in obtaining tender
24
Case studies… #1 (cont)
•
National tender – GST
• Concerns
 Vetting of service providers
– Representations made by GST regarding BEE
project not verified
• Status of investigation
 Investigation finalised
 Accused arrested
 AFU launching application for assets
 Directors arrested and awaiting trial
25
Case studies… # 2
•
Undisclosed business interests of DCS officials
• SIU identified this irregularity during its procurement investigations
at correctional centres
• 23 investigations finalised to date
• Allegation
 DCS officials with private companies contract with DCS
without having the required authorisation & without
knowledge of DCS Head Office
• Investigation established
 Officials did not request permission from DCS Commissioner
to conduct private business
– Contravention of s 30 of Public Service Administration
Act – disciplinary contravention
 Officials engaged in business dealings with DCS
– Contravention of s 118 of the Correctional Services Act criminal offence
26
Case studies… #2 (cont)
•
Undisclosed business interests cont
– Concerns
• Adherence to DCS procurement policy
• Integrity of DCS officials
– Status of investigations
• DCS pursuing disciplinary action against officials
• SAPS pursuing criminal action against officials
• SIU identified numerous other officials committing this
type of irregularity
27
Case studies… #3
• Corruption / Collusion – DCS officials and service providers
• Background
• Matter refered to SIU by DCS
• Allegations
– Numerous contracts allegedly awarded to entities owned by Mr X after
he paid bribes to DCS officials
– Cover quoting
• Investigation required
– Complex analysis of financial source documents, bank statements and
SCM policies
– Numerous interviews were conducted to substantiate the documentary
evidence
– SIU identified irregularities involving other service providers during this
investigation
Case studies… #3 (cont)
• Investigation established
• Corruption involving 8 entities and 3 DCS officials
• Monies paid to officials by service providers
• Concerns
• Integrity of DCS officials
• Adherence to DCS procurement policy
• Status
• Matter referred to NPA for decision regarding prosecution
• Matter referred to DCS for disciplinary action
Case studies… #4
•
National tender – High Value Contracts
• Matter referred to SIU by Auditor General and Public Service
Commission
• Allegations
 Corruption in awarding the tenders to the service provider/s
 Bid rigging – supplier drafting specifications
• Investigation established
 Evidence of corruption – irregular relationship btw DCS
officials and service provider
 Evidence of bid rigging – supplier drafting specifications
Status
 Report with the department for review
 Disciplinary action recommended
 Report referred to NPA for decision regarding prosecution
30
Conclusion
SIU provides range of forensic services but:
• fight against corruption is not preserve of a single entity
• co-operation between DCS and SIU in this partnership has been
vital to the success of the project
• works with other law enforcement agencies, leverages legal
capacity and reaches targets as part of a wider team
• also maintains partnerships with Provincial and National
Departments, SAPS, NPA, AG, DSO and SARS
31
Thank you
32