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Presentation Presentation toto
Portfolio Committee Portfolio Committee onon
Dept of Correctional Dept of Correctional Services Services
20 May 200820 May 2008
22
SummarySummaryAbout the SIU
SIU mandate and legal scopeThreats to departmentsIntegrated forensic solutionsSIU methodology
First SIU/DCS Service Level AgreementMedical AidCorrectional CentresPharmacies, First Auto Card fraud and Asset Management
DCS prioritized risk areas
SIU/DCS extended SLAProcurement Forensic audit – Tenders and Quotes
DCS Fraud Prevention Strategy
Case studies
Conclusion
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About the SIUAbout the SIUStarted out: Heath Commission 1995Set up ito SIU Act 74/1996 – independent of other LEAsEarly 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 valuesDefinite focus on corruption, fraud, maladministration, misconduct causing losses to StateSuccess defined through statistical and systemic impact
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SIU mandate & legal scopeSIU mandate & legal scopeMajor functions of the SIU:
investigate corruption and maladministrationinstitute civil legal action to correct any wrongdoing
Primary purpose of SIU: enable state to recover money lost as a result of unlawful or corrupt actionSIU also able to: use civil law to prevent huge losses (e.g. set aside contracts) and facilitate systemic improvementsSpecial powers: subpoena, search, seizure and interrogate witnesses under oath – not power of arrest, prosecutionCooperation: work closely with SAPS, DSO and NPA when encounter criminal conduct to ensure arrest and convictionProvide: a complete forensic service to Departments and facilitate criminal legal action
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Threats to DepartmentsThreats to DepartmentsDepartments facing combined threats of fraud, corruption and maladministrationAlso challenge to protect integrity of systems and processes, e.g. social grants, service delivery, issuing drivers’ licences, procurement, tax collectionBoth opportunistic and more organised exploitation of system gapsMaladministration as much of a challenge as intentional fraud / corruptionMajor problem of legislative compliance often resulting in loss and weak delivery, e.g. PFMA, MFMA complianceAG: 30% of Departments had expenditure-related qualifications
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Fraud, corruption and maladministration usually detected as a result of escalating lossDealing effectively with the problem requires interface between the departments and other key agencies, e.g. AG, SCOPA, state attorney, SAPS, NPA, etcCritical part of cleaning up problem is a complete and integrated forensic solution:
Forensic audit and investigationsRemedial legal action: civil, criminal and disciplinarySystemic improvements and Risk management
Integrated forensic solutionsIntegrated forensic solutions
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Integrated forensic solutions (cont)Integrated forensic solutions (cont)
Assistance to Departments with Risk management includes:Primarily fraud/corruption risk and systemic/process riskFraud risk assessments and assistance with fraud prevention plansTransfer of skills to departments assisting with governance capacity
Traditionally forensic solution primarily provided by private accounting firmsResult 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
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Provide a project based forensic service - some LEA powers but provide a forensic audit, investigation (similar to big four accounting firms) and civil litigationClient focus - focused on client department’s needsProject management methodology
Service Level AgreementsTime lines and regular reportsInvestigation plans
Integrated forensic teamsLawyers, accountants, investigators, computer specialists
Co-operative and integrated approach with other Departments and law enforcement partners
SIU methodologySIU methodology
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International and national best practiceQualified professionals with international exposureInvestigations performed on best practice methodologies – benchmarked
Best in class integrated forensic structureCentres of Expertise house specialists in law, cyber forensics, forensic accounting, data analysisRecruit from private sectorDrive professionalism
Research capabilityDeveloping in-house research capabilityBest practices and systems identified in all government institutions and shared amongst our various clientsInvited to participate in international think tank on best practice for forensic investigations
World class forensic serviceWorld class forensic service
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First DCS/SIU partnershipFirst DCS/SIU partnership
DCS requested SIU assistance
Primarily in response to Jali Commission’s concerns
SIU focus medical aid and corruption in prisonsConcerns regarding correctional centres
Corruption at correctional centresNo reporting structure to expose corruptionConcerns about lack of integrity amongst officials
Abuse of DCS medical aid schemeDCS wholly funded medical aid schemeDCS officials and private doctors defrauding scheme
Negative perception of large scale corruption in DCS
First partnership signed October 2002 – 3 years
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Current position
Focus Area: Medical Aid
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 de-registered
DCS Corporate Services introduces contributory medical aid scheme
No new cases of fraud identified
InterventionProblem Success Impact
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Current position
Focus Area: Correctional Centres
Corruption in correctional centres
Visited 179 correctional centres – interviewed 143 887 inmates and 33 132 DCS officials
426 disciplinary cases & 289 criminal cases registered
Corruption at the correctional centres exposed
DCS understood nature of irregularities at correctional centres
Spin-off investigation areas of correctional centre pharmacies and First Auto Card investigations identified
New cases referred to DCS Departmental Investigating Unit
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
SIU assists with set-up of DIU and capacity building
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
InterventionProblem Success Impact
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Current position
Focus Area: Pharmacies & First Auto Card fraud & Asset Management
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
First Auto card fraud Analysis of DCS payments database –750 000 transactions
Excessive expenditure investigated
145 DCS officials recommended for disciplinary action
2 charged criminally
DIU able to conduct these types of investigations
DCS DIU developed capacity to deal with these investigations internally
Mismanagement of assets at correctional centre farms
Review of management of 9 correctional centre farms
R 490 000 recovered
R 418 000 in savings
5 disciplinaries
Made systemic recommendations
DCS in process of reviewing management policy for correctional centre farms
Implementing systemic recommendations
DCS reviewing current management policy
InterventionProblem Success Impact
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DCS Prioritised Risks
2006/07 DCS developed list of priority risk areasDCS select risks require mitigationIdentified following relevant risk areas for SIU
Non-compliance with policy and procedures, lack of internal controls, eg procurement, pharmaciesInadequate asset managementLack of effective monitoring and evaluation system, eg First Auto Card investigationsInadequate corruption prevention, eg. Assist in setup of DIULack of coherence of new organisational culture, eg developing capability in key areas
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SIU/DCS Extended partnershipSIU/DCS Extended partnership
DCS concerns shifted to integrity of its financial systems and control over assetsSIU/DCS partnership extended March 2006 – 3 yearsSIU requested to focus on
Procurement DCS entering into large contractsConcern re integrity of procurement officials, financial systems and procurement processInvestigation requires specialised forensic skills
Asset Management at correctional centre farmsDCS concerned about control over assets
SIU requested Proclamation R44 of 2007Proclamation authorises investigations into above focus areas Published 28 November 2007
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Current position
Focus Area: Procurement
Integrity of DCS procurement system – tenders
Forensic Audit of top 200 cases (value) in areas of
RAMP,
IT contracts,
Nutrition, Clothing, Agriculture and Workshops,
Building and
Security at correctional centres
23 cases identified for investigation
DCS referred 10 cases
Various types of irregularities identified
R 6.9 m recovered
R 5.6 m assets under restraint
R 4.8m saving
12 DCS officials recommended for disciplining for undisclosed private business interest
Various systemic recommendations made to DCS – detailed later
Various other investigations pending
Further asset seizures planned for later this year
Integrity of DCS procurement system - quotes
Two phased pilot audit of procurement by quote at 5 correctional centres
Phase 1 identified various red flags contracts
Phase 2 investigation of red-flag contracts
Various systemic concerns raised with DCS
Investigation of red-flag contracts to commence 15 June
Concerns around people, processes, finances
Audits of DCS tender and quote procurement systems
Systemic concerns identified and communicated to DCS
DCS making systemic improvements to its financial systems and disciplining DCS officials
SIU to commence second audit of national procurement (in consultation with DCS)
InterventionProblem Success Impact
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Forensic Audit: TendersForensic Audit: Tenders
Contracts raising concern: 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 tenderers
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
Irregularities identifiedSpiking between R 25 000 & R 30 000
Indicative of splitting of order
Round number payments
Multiple suppliers using one bank account
Once off suppliers
Anomalies between price and quantity
Systemic concernsFinancial systems
No integration between BAS and PAS
No linking payments to orders – manual orders
Appropriate data fields
Linking payments to contracts
LOGIS will be introduced
Cover quoting
Validation controls over data entered
Forensic Audit: QuotesForensic Audit: Quotes
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DCS Fraud Prevention StrategyDCS Fraud Prevention Strategy
DCS Fraud Prevention & Compliance PlanDCS prioritised top risks for 2008/9DCS developing plans to deal with all major risks such as
Non compliance with policy and procedures, lack of internal controlsLack of effective monitoring and evaluation systemInadequate corruption prevention
DCS Inspectorate will monitor internal compliance DCS Fraud Prevention Committee established
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Case studies... #1Case studies... #1National tender – Feasibility study
DCS requested SIU to conduct investigationAllegation
Consortium to provide DCS with a feasibility study – contract value R 5.1 million No service delivered but full payment effected
Investigation establishedMinimal service delivery by service providerDCS Project Managers authorised payments of R 5.1 m to SPConsortium established shortly before tender advertisement closed
One company did not comply with VAT certificate requirementWas given an opportunity to rectifyConsortium should have been disqualified because of default
Various misrepresentations made to DCS by main partner in consortium3 payments effected on basis of misrepresentations
Smaller partners did not benefit financially
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Case studies… #1 (cont.)Case studies… #1 (cont.)
National tender – Feasibility studyConcerns
Project management by DCSNot monitoring progress on projectAuthorising payment without ensuring DCS received service
Adherence to procurement policyService provider not disqualified for not complying with bid requirements
Way forwardSIU will finalise investigation shortlyCo-operation with SAPS and AFU to secure arrest of accused and forfeiture of assets
2121
Case studies… #2Case studies… #2National tender - GST
SIU identified investigation through tenders auditAllegation
Service provider committed Black Economic Empowerment fronting
Investigation establishedTenders to the value of R 18 million awarded to service providerService 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 DCSthe women would share in the profits of the tenders awarded
3 front companies established to commit fraudPayments made by DCS immediately redirected to GST
Women were paid nominal amount for filling in tender documents if GST successful in obtaining tender
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Case studies… #2 (cont)Case studies… #2 (cont)
National tender – GSTConcerns
Vetting of service providersRepresentations made by GST regarding BEE project not verified
Way forwardSIU should finalise investigation shortlyCo-operation with SAPS and AFU to secure arrest of accused and forfeiture of assets
2323
Case studies… #3Case studies… #3
National tender – Engineering consultant SIU identified investigation through tenders audit – RAMP project at 4 correctional centresAllegation
Service provider submitting false invoices to DCS
Investigation establishedSP misrepresented to DCS and DPW that he was a qualified engineerR 10 million contract awarded to service providerService provider irregularly
Charged DCS for buildings not erectedDid not quality control work done by contractors – substandard service delivered to DCS
SIU established 18 other contracts awarded to service provider
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Case studies… #3 (cont)Case studies… #3 (cont)
National tender – Engineering consultantConcerns
Vetting of service providersQualifications of specialists are not verifiedUnder performance by service providers not dealt with effectively
ResultsSIU finalised investigation in cooperation with the SAPS and AFU Accused arrested and R 5.6 m assets seized
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Case studies… # 4Case studies… # 4
Undisclosed business interests of DCS officialsSIU identified this irregularity during its procurement investigations at correctional centres9 investigations finalised to dateAllegation
DCS officials with private companies contract with DCS without DCS Head Office being informed
Investigation establishedOfficials 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
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Case studies… #4 (cont)Case studies… #4 (cont)
Undisclosed business interests contConcerns
Adherence to DCS procurement policy Integrity of DCS officials
Results DCS pursuing disciplinary action against officialsSAPS pursuing criminal action against officialsSIU identified 27 other officials committing this type of irregularityThe investigations will commence shortly
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ConclusionConclusion
SIU provides range of forensic services but: fight against corruption is not preserve of a single entityco-operation between DCS and SIU in this partnership has been vital to the success of the projectworks with other law enforcement agencies, leverages legal capacity and reaches targets as part of a wider teamalso maintains partnerships with Provincial and National Departments, SAPS, NPA, AG, DSO and SARS
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Thank you