KZN- IIA Conference by sdsdfqw21

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									Fraud & Corruption in the Public Sector
                          Procurement




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Understanding….
◦ Procurement;
◦ Fraud … an unwanted phenomenon in SA

Efforts are underway to continue to fight fraud
and corruption
◦ 1999 and 2005 National Anti- corruption Summit
◦ Vigorous processes of auditing , reporting and
 prosecutions
For every effort made syndicates are getting
smater
Emphasis on implementation of policy
measures for prevention
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Applicable legislation and other frameworks:

 PFMA

 MFMA

 TREASURY REGULATIONS

 SCM Framework
 ◦ PPPFA
 ◦ BBBEE



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Must be efficient, fair, transparent and
equitable
Must promote government policies including
BEE
Implies that it cannot be an end in itself
◦ Must facilitate service delivery
◦ Must give the procurer or state value for money
◦ Must be measurable against stated objectives of the
  procuring organisation




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Most of the fraud perpetuated against
government is either on persal ie related to
payments of employees or bas ie related to
payments to creditors
It is very hard to detect given the collusive
nature of those involved
Usually involves employees of government
and service providers
The main objective of service provision gets
lost to quick money making schemes

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Government acquisition methods bypassed
 by officials

◦ competitive or advertising bidding processes;
◦ competitive proposals or; and
◦ sole sources – provision of specific products or
  services.




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Construction contracts as an area
susceptible to procurement fraud;

  •Potential fraud exist in the form of:
  •Product substitution;
  •Cost mischarging;
  •Defective pricing;
  •Progress payments fraud; and
  •Etc.

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Examples of common significant fraud indicators with
  regards to defective pricing…

 Falsification or alteration of supporting data;
 Failure to update costs or pricing data when past
 activity indicates price decreases;
 Failure to completely disclose data known to
 responsible contractor personnel;
 Distortion of overhead accounts or base line
 information by transferring charges or accounts that
 have material impact on the government contract;
 Protracted delay in release of data to the government
 to preclude possible price reductions; and
 Submission of fictitious documents.


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           2006 /07 financial misconduct cases reported by
                     Public Service Commission.
Province                No. of          Number of Cases
                        Departments
Eastern Cape                   5                 83
Free State                     5                 22
Gauteng                        7                 55
KZN                            5                 125
Limpopo                        9                 34
Mpumalanga                     7                 16
North west                     8                 24
Northern Cape                  6                 14
Western Cape                   8                 299
National Departments          21                 370
Grand Total                                     1042
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Province        Number of     Amount           Amount
                Departments                    Recovered
Eastern Cape          5          894 081,06        174 610.97
Free State            5          433 955,10        132 880,00
Gauteng               7         1 730 460,32       109 042.00
KZN                   5         1 022 514,17        46 633,50
Limpopo               9        61 789 793,89       372 710,58
Mpumalanga            7         7 409 100,19        34 800,00
North west            8         4 569 124,35        45 799,54
Northern Cape         6         1 490 368,83         3 675,00
Western Cape          8         5 301 129,17       273 836,38
National              21       45 973 467,74    19 644 693,77
Departments
Grand Total                   130 615 994,82    20 838 681,74
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Types of these financial misconducts..
Description of a misconduct   Number of Cases

Fraud                                     615

Theft                                     136

Misappropriation And Abuse                131

Gross negligence                           85

Financial Mismanagement                    67

Corruption                                 8




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Reported outcomes by National & Provincial
 Departments…
    % Outcomes                     Remarks
        83       Officials were found guilty
        7        Resigned prior to the disciplinary process
                 being finalized and so their cases were
                 withdrawn
        5        Resigned before disciplinary hearings were
                 held
        4        Were not found guilty
        1        Officials contracts
                 expired/retired/deceased/absconded


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Recent procurement fraud cases through use of Basic
Accounting System (BAS)

Other fraudulent transactions processed through PRESAL
system identified.

KZN Provincial government registered 27 BAS fraud cases –
R199,9m (2005/06 -07/08)

7 Provincial departments and SASSA affected

Other provinces affected – Limpopo, Mpumalanga, Eastern
Cape
Financial loss not yet quantified




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   The
Department




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Main members of the syndicate were arrested
on 27/11/2007 (include officials, suppliers
and others);
In total 32 suspects were arrested for 86
counts of fraud totaling R20,7m – Special
Commercial Crime Unit for DBN and PMB
magistrate court.
AFU orders have been issued.
Assets have been seized.
State employees have been dismissed..
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Primary purpose – assess IT systems and
network security vulnerabilities

Monitor and quantify risks

Implementation of preventative measures to
secure systems




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Through Unembeza 2008, Executive
 management is committed to:
   Quantifying the extent of fraud and corruption in the
   provincial departments
   Identifying specific areas of vulnerability
   Establishing underlying causal factors
   Categorising causal factors
   Identifying symptoms (indicating existence of causal
   factors)
   Identifying systems compromise factors
   Establishing policy vacuums
   Determining security of systems
   Determining potential and required management
    responses
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It may not be possible to eradicate fraud & corruption
   completely;

The leadership in government should send a strong signal
 about their integrity and how they feel about fraud and
 corruption

Leadership to act responsibly and build a culture in which
  public servants are able to report fraud and corruption

Political leaders, public servants, civil society, media,
  academics the private sector and international
  organizations should all play a role.

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