1. 1 Presentationto Portfolio Committee on Dept of Correctional Services 20 May 2008

2. 2 2 Summary About the SIU SIU mandate and legal scope Threats to departments Integrated forensic solutions SIU methodology First SIU/DCS Service Level Agreement Medical Aid Correctional Centres Pharmacies, First Auto Card fraud and Asset Management DCS prioritized risk areas SIU/DCS extended SLA Procurement Forensic audit – Tenders and Quotes DCS Fraud Prevention Strategy Case studies Conclusion

3. 3 About the SIU Started out: Heath Commission 1995 Set up ito SIU Act 74/1996 – independent of other LEAs 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

4. 4 SIU mandate & legal scope SIU mandate & 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

5. 5 Threats to Departments Departments facing 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

6. 6 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 forensic solutions

7. 7 Integrated forensic 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

8. 8 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 SIU methodology

9. 9 International and national best practice Qualified professionals with international exposure Investigations performed on best practice methodologies – benchmarked Best in class integrated forensic structure Centres of Expertise house specialists in law, cyber forensics, forensic accounting, data analysis Recruit from private sector Drive professionalism Research capability Developing in-house research capability Best practices and systems identified in all government institutions and shared amongst our various clients Invited to participate in international think tank on best practice for forensic investigations World class forensic service

10. 10 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

11. 11 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 InterventionProblemSuccessImpact

12. 12 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 InterventionProblemSuccessImpact

13. 13 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 fraudAnalysis 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 InterventionProblemSuccessImpact

14. 14 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, eg procurement, pharmacies Inadequate asset management Lack of effective monitoring and evaluation system, eg First Auto Card investigations Inadequate corruption prevention, eg. Assist in setup of DIU Lack of coherence of new organisational culture, eg developing capability in key areas

15. 15 SIU/DCS 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 SIU requested Proclamation R44 of 2007 Proclamation authorises investigations into above focus areas Published 28 November 2007

16. 16 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) InterventionProblemSuccessImpact

17. 17 Forensic 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 identified Spiking 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 concerns Financial 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: Quotes

18. 18 DCS Fraud Prevention Strategy DCS Fraud Prevention & Compliance Plan DCS prioritised top risks for 2008/9 DCS developing plans to deal with all major risks such as Non compliance with policy and procedures, lack of internal controls Lack of effective monitoring and evaluation system Inadequate corruption prevention DCS Inspectorate will monitor internal compliance DCS Fraud Prevention Committee established

19. 19 Case studies... #1 National tender – Feasibility study DCS requested SIU to conduct investigation Allegation Consortium to provide DCS with a feasibility study – contract value R 5.1 million No service delivered but full payment effected Investigation established Minimal service delivery by service provider DCS Project Managers authorised payments of R 5.1 m to SP Consortium established shortly before tender advertisement closed One company did not comply with VAT certificate requirement Was given an opportunity to rectify Consortium should have been disqualified because of default Various misrepresentations made to DCS by main partner in consortium 3 payments effected on basis of misrepresentations Smaller partners did not benefit financially

20. 20 Case studies… #1 (cont.) National tender – Feasibility study Concerns Project management by DCS Not monitoring progress on project Authorising payment without ensuring DCS received service Adherence to procurement policy Service provider not disqualified for not complying with bid requirements Way forward SIU will finalise investigation shortly Co-operation with SAPS and AFU to secure arrest of accused and forfeiture of assets

21. 21 Case studies… #2 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

22. 22 Case studies… #2 (cont) National tender – GST Concerns Vetting of service providers Representations made by GST regarding BEE project not verified Way forward SIU should finalise investigation shortly Co-operation with SAPS and AFU to secure arrest of accused and forfeiture of assets

23. 23 Case studies… #3 National tender – Engineering consultant SIU identified investigation through tenders audit – RAMP project at 4 correctional centres Allegation Service provider submitting false invoices to DCS Investigation established SP misrepresented to DCS and DPW that he was a qualified engineer R 10 million contract awarded to service provider Service provider irregularly Charged DCS for buildings not erected Did not quality control work done by contractors – substandard service delivered to DCS SIU established 18 other contracts awarded to service provider

24. 24 Case studies… #3 (cont) National tender – Engineering consultant Concerns Vetting of service providers Qualifications of specialists are not verified Under performance by service providers not dealt with effectively Results SIU finalised investigation in cooperation with the SAPS and AFU Accused arrested and R 5.6 m assets seized

25. 25 Case studies… # 4 Undisclosed business interests of DCS officials SIU identified this irregularity during its procurement investigations at correctional centres 9 investigations finalised to date Allegation DCS officials with private companies contract with DCS without DCS Head Office being informed 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. 26 Case studies… #4 (cont) Undisclosed business interests cont Concerns Adherence to DCS procurement policy Integrity of DCS officials Results DCS pursuing disciplinary action against officials SAPS pursuing criminal action against officials SIU identified 27 other officials committing this type of irregularity The investigations will commence shortly

27. 27 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

28. 28 Thank you