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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

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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

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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

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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