Presentation to Portfolio Committee on Dept of Correctional Services 22 September 2009

Summary 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 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

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 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

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

11 Current position Medical Aid Focus Area 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 Current position Correctional Centre Focus Area Corruption in correctional centres Visited 179 correctional centres – interviewed inmates and 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 Current position Other Focus Area First Auto card fraudAnalysis of DCS payments database – 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 Intervention Problem SuccessImpact

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

16 Current position Procurement Focus Area Integrity of DCS procurement system – tenders Forensic Audit of top 200 cases (value) 23 cases identified for investigation DCS referred 10 cases Various types of irregularities identified R 6.9 m recovered R 12 m assets under restraint R 4.8m saving 22 DCS officials recommended for disciplining for undisclosed private business interest Various systemic recommendations made to DCS All investigations being finalised Further asset seizures pending Recommended significant recoveries in R 2 billion tender investigation Integrity of DCS procurement system - quotes Developed a procurement database to analyse all of DCS procurement Phase 1 identified various red flags contracts/quotes Phase 2 pilot at Pretoria CC Various systemic concerns raised with DCS SIU contract not renewed Concerns around people, processes, finances Audits of DCS tender and quote procurement systems Analysis of all DCS procurement Systemic concerns identified and communicated to DCS DCS making systemic improvements to its financial systems and disciplining DCS officials SIU contract not renewed InterventionProblemSuccessImpact

17 Current position Other Focus Areas 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 Mismanagement of assets at correctional centre farms Review of management of 12 correctional centre farms R recovered R in savings 28 disciplinaries Made systemic recommendations DCS in process of reviewing management policy for correctional centre farms Implementing systemic recommendations DCS reviewing current management policy InterventionProblemSuccessImpact

18 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 Forensic Audit of Tenders

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. Designed Procurement Red-flag database

Design and set up Explore Design Implement Understand client environment Available data (and data dictionaries) Process flow of information Risk level Previous exposure Understand business Identify risk areas Design tests to detect red flags Review and interpret results Changes tests and additional tests Presentation of results Once off or continuous monitoring

Types of irregularities identified by tool Type of fraud Possible tests Fictitious vendors Check on addresses Comparison of information between employee and supplier master files Altered invoices Duplicates Invoice amounts not matching contracts or purchase orders Fixed bidding Summarise values per vendor, analysis of values over several years Calculate days between close for bids and contract submission date. Is last vendor submitting always winning? Goods not received Purchase quantities not agreeing to contract quantities Compare inventory levels to GRN Duplicate invoices Duplicate invoice numbers, dates, amounts, etc. Duplicate payments Identical invoice numbers and payment amounts Repeated refunds for invoices paid twice

Types of irregularities identified by tool cont Type of fraud Possible tests Inflated prices Compare prices across vendors Excess quantities purchased Unexplained increase in inventory Determine if quantities are appropriate for production levels Comparison of quantities over a number of months Carbon copies (cheques) Search for duplicates within all company cheques Search for gaps in the cheque numbers Payroll Terminated employees still on payroll Accounts Payable 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 region/province 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 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

24 Case studies… #1 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

25 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

26 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

27 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 evidence –SIU identified irregularities involving other service providers during this investigation

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

30 Case studies… #4 National tender – High Value Contracts Matter referred to SIU by Auditor General and Public Service Commission 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  Status  Report with the department for review  Disciplinary action recommended  Report referred to NPA for decision regarding prosecution

31Conclusion 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

32 Thank you