SIU focus 2004 by 115cNMe1



    Portfolio Committee

Dept of Correctional Services

        22 September 2009

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
• 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
• 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
    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      Forensic Audit of entire   R 22 million recovered     Significant recovery of    Remaining cases
medical aid scheme     DCS medical aid            R 3.4 billion in savings   loss suffered by DCS       finalised –
                       database                                              through fraud              R 8 million recovered
                                                                             committed against          last 2 years

Abuse of DCS medical   Analyse database;          Doctors and DCS            Medical Professions        Decreased because of
aid scheme             Develop claims profile     officials with excessive   Council has taken          action against doctors
                       for medical                claims investigated        action against doctors;    and officials committing
                       practitioners; Conduct                                DCS officials              fraud and contributory
                       preliminary                                           disciplined                medical aid scheme
                       investigation into                                                               introduced
                       excessive claims

DCS officials and      Investigation of abusive   26 doctors and 10 DCS      Action against officials   Additional 433 DCS
private doctors        claims and collusion       officials criminally       resulted in an             officials disciplined
defrauding scheme      between officials,         charged                    immediate decrease in
                       medical practitioners                                 fraudulent claims
                       and beneficiaries

Concerns around        Civil and criminal legal   DCS officials              DCS Corporate              No new cases of fraud
people, finances       action and disciplinary    disciplined and medical    Services introduces        identified
                       inquiries instituted       practitioners de-          contributory medical
                                                  registered                 aid scheme

                Correctional Centre Focus Area
       Problem              Intervention                  Success                    Impact              Current position

Corruption in          Visited 179 correctional   426 disciplinary cases    Corruption at the           New cases referred to
correctional centres   centres – interviewed      & 289 criminal cases      correctional centres        DCS Departmental
                       143 887 inmates and        registered                exposed                     Investigating Unit
                       33 132 DCS officials
                                                                            DCS understood
                                                                            nature of irregularities
                                                                            at correctional centres

                                                                            Spin-off investigation
                                                                            areas of correctional
                                                                            centre pharmacies and
                                                                            First Auto Card
                                                                            investigations identified

Concerns around        SIU intervention to        DCS established           DCS established             DCS DIU works closely
people, processes      advise DCS of current      Departmental              capacity to deal with       with the SAPS and SIU
                       state of correctional      Investigating Unit to     these types of matters      to address irregularities
                       centres                    investigate/facilitate    internally                  uncovered at
                                                  these matters                                         correctional centres

                                                  SIU assists with set-up
                                                  of DIU and capacity

                  Other Focus Area

       Problem               Intervention               Success               Impact         Current position

First Auto card fraud   Analysis of DCS        145 DCS officials      DIU able to conduct   DCS DIU developed
                        payments database –    recommended for        these types of        capacity to deal with
                        750 000 transactions   disciplinary action    investigations        these investigations
                        Excessive              2 charged criminally                         internally

    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               Intervention               Success                      Impact          Current position

Integrity of DCS       Forensic Audit of top   23 cases identified for     R 6.9 m recovered       All investigations being
procurement system –   200 cases (value)       investigation               R 12 m assets under     finalised
tenders                                                                    restraint               Further asset seizures
                                               DCS referred 10 cases       R 4.8m saving           pending
                                               Various types of            22 DCS officials        significant recoveries in
                                                                                                   R 2 billion tender
                                               irregularities identified   recommended for
                                                                           disciplining for        investigation
                                                                           undisclosed private
                                                                           business interest

                                                                           Various systemic
                                                                           made to DCS
Integrity of DCS       Developed a             Phase 1 identified          Various systemic        SIU contract not
procurement system -   procurement database    various red flags           concerns raised with    renewed
quotes                 to analyse all of DCS   contracts/quotes            DCS
                                               Phase 2 pilot at
                                               Pretoria CC
Concerns around        Audits of DCS tender    Systemic concerns           DCS making systemic     SIU contract not
people, processes,     and quote procurement   identified and              improvements to its     renewed
finances               systems                 communicated to DCS         financial systems and
                       Analysis of all DCS                                 disciplining DCS
                       procurement                                         officials
                   Other Focus Areas
      Problem                 Intervention             Success                  Impact            Current position

Mismanagement of         Audit management of   Over 600 disciplinary   SIU make                  DCS in process of
DCS pharmacies           160 correctional      recommendations made    recommendations on        implementing SIU
                         centre pharmacies     Significant systemic    improvement of            recommendations
                         nationally            recommendations made    pharmacy
                                               to DCS                  management

Mismanagement of         Review of             R 490 000 recovered     DCS in process of         DCS reviewing current
assets at correctional   management of 12      R 418 000 in savings    reviewing management      management policy
centre farms             correctional centre   28 disciplinaries       policy for correctional
                         farms                                         centre farms
                                               Made systemic
                                               recommendations         Implementing systemic

                 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

    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              Design                  Implement

•Understand client     •Identify risk areas     •Presentation of
environment            •Design tests to         results
•Available data (and   detect red flags         •Once off or
data dictionaries)     •Review and interpret    continuous
•Process flow of       results                  monitoring
information            •Changes tests and
•Risk level            additional tests
•Previous exposure
     Types of irregularities identified by tool

Type of fraud
                                            Possible tests
   Fictitious    • Check on addresses
   vendors       • Comparison of information between employee and supplier master files

    Altered      • Duplicates
   invoices      • Invoice amounts not matching contracts or purchase orders
                 • Summarise values per vendor, analysis of values over several years
                 • Calculate days between close for bids and contract submission date. Is last
 Fixed bidding   vendor submitting always winning?

  Goods not      • Purchase quantities not agreeing to contract quantities
  received       • Compare inventory levels to GRN

   Duplicate     • Duplicate invoice numbers, dates, amounts, etc.
  Duplicate      • Identical invoice numbers and payment amounts
  payments       • Repeated refunds for invoices paid twice
  Types of irregularities identified by tool cont

Type of fraud
                                             Possible tests
                  • Compare prices across vendors
Inflated prices

   Excess         • Unexplained increase in inventory

  quantities      • Determine if quantities are appropriate for production levels
  purchased       • Comparison of quantities over a number of months

Carbon copies     • Search for duplicates within all company cheques
 (cheques)        • Search for gaps in the cheque numbers
                  •Terminated employees still on payroll

   Accounts       • 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
    •   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
     • Investigation established
          Tenders to the value of R 18 million awarded to service provider
          Service provider misrepresented to State Tender Board and DCS
                   – 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
          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
    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

    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
    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

       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
           – SIU identified irregularities involving other service providers during this
 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
     • 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
          Report with the department for review
          Disciplinary action recommended
          Report referred to NPA for decision regarding prosecution


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

Thank you


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