OVERVIEW ON FINANCIAL MISCONDUCT AND DISCIPLINE PRESENTATION TO THE PORTFOLIO COMMITTEE ON PUBLIC SERVICE AND ADMINISTRATION/PERFORMANCE MONITORING & EVALUATION 27 MAY 2015

PRESENTATION OUTLINE Introduction Legislative Framework on Financial Misconduct The Public Service Commission’s (PSC) analysis of finalised cases of Financial Misconduct The PSC’s role and responsibilities relating to Financial Misconduct Trends on Financial Misconduct PSC interventions Conclusion 2

INTRODUCTION [1] Accountability required of public financial management is defined in the Public Finance Management Act (PFMA). Amongst others, it provides for the frequency, level of detail and responsibility for reporting to promote greater transparency in the financial affairs of departments. Read together with the Regulations, it requires departments to report on finalized financial misconduct cases to the executive authority, the PSC and the DPSA. The PSC reports annually on the status of financial misconduct reported by departments to determine whether departments are adhering to applicable prescripts and public servants are held accountable for behavior in contravention of the PFMA. 3

INTRODUCTION [2] The PSC hosted Roundtable Discussions on Financial Misconduct in 2005 and February 2013, where key stakeholders such as the National Treasury, DPSA, AGSA and the DPME, made presentations. The main concern raised at the 2013 Roundtable Discussion was that there was not a shared and common understanding of what constitutes Financial Misconduct in the Public Service. To this end, the PSC has developed “Discussion Document on What Constitutes Financial Misconduct in the Public Service” and will host a roundtable to this effect. 4

“(1)An accounting officer … commits an act of financial misconduct if that accounting officer willfully or negligently- (a)fails to comply with a requirement of sections 38, 39, 40, 41 or 42; or (b)makes or permits an unauthorized expenditure, an irregular expenditure or a fruitless and wasteful expenditure. (2)An official …to whom a power or duty is assigned in terms of section 44 commits an act of financial misconduct if that official willfully or negligently fails to exercise that power or perform that duty.” LEGISLATIVE FRAMEWORK [1] 5 Section 81 of the PFMA: Responsibilities of Accounting Officers

The accounting officer must, as soon as the disciplinary proceedings are completed, report to the executive authority, the DPSA and PSC on the outcome including: (a)the name and rank of the official against whom the proceedings were instituted; (b)the charges, indicating the financial misconduct the official is alleged to have committed; (c)the findings; (d)any sanction imposed on the official; (e)any further action to be taken against the official, including criminal charges or civil proceedings. LEGISLATIVE FRAMEWORK [2] 6 Treasury Regulations 4.3

THE PSC’S ROLE AND RESPONSIBILITIES 7 The PSC has since 2001 established and maintained a database of reported cases. The PSC verifies the information provided by departments in those cases where insufficient information is provided. It also monitors and investigates adherence to procedures through data verification visits to sampled departments. In order to deepen analysis, the PSC developed a reporting format. In addition to the Treasury Regulations, the PSC requires departments to report on- o the salary level of the employee; o the amount involved; o the recovery of the loss in the particular and previous financial year; and o the reasons for the increase/decrease in financial misconduct cases.

TRENDS ON FINANCIAL MISCONDUCT [1] TOTAL NUMBER OF FINALISED CASES REPORTED The total number of finalised cases of financial misconduct reported by departments from the 2001/2002 financial year to the 2012/2013 is

For the financial years 2011/2012 and 2012/2013, the national departments and provinces that reported the highest number of cases were: 9 TRENDS ON FINANCIAL MISCONDUCT [2] 2011/ /2013

10 The figure shows the total number of financial misconduct cases reported since the 2006/07 financial year (where the salary level was indicated). Financial misconduct prevails at all levels of the Public Service. TRENDS ON FINANCIAL MISCONDUCT [3] SALARY LEVELS OF EMPLOYEES CHARGED WITH MISCONDUCT The largest number of financial misconduct cases are encountered at salary levels 1 to 8.

The number of SMS members found guilty of financial misconduct increased between the 2004/2005 and 2012/2013 financial years. This is a worrying trend because SMS members play a critical role in the promotion and maintenance of sound financial management, and are the primary stewards of public resources in their respective departments. 11 TOTAL NUMBER OF SMS MEMBERS FOUND GUILTY OF FINANCIAL MISCONDUCT TRENDS ON FINANCIAL MISCONDUCT [4]

DISCIPLINARY ACTION INSTITUTED Out of the finalised cases of financial misconduct, reported between 2001/2002 and 2012/2013 financial years, employees were found guilty of financial misconduct in (83%) cases. 918 cases were withdrawn (i.e. there was lack of evidence to proceed with the case or the lengthy timeframe since the incident occurred) or the employee resigned, died or retired. 12 TRENDS ON FINANCIAL MISCONDUCT [5]

SANCTIONS IMPOSED The sanction of a final written warning is the most prevalent sanction imposed in the past five financial years. This is followed by discharge from the Public Service and a combination of sanctions. 13 TRENDS ON FINANCIAL MISCONDUCT [6]

INCONSISTENCY IN SANCTIONS Sanctions imposed in disciplinary cases are at the discretion of the Chairperson of the disciplinary hearing, having considered the merits of the case and the mitigating and aggravating circumstances. Reports submitted by departments since the 2001/2002 financial year show that there are inconsistencies in the sanctions imposed for cases of a similar nature. The creation of a Public Administration Ethics, Integrity and Disciplinary Technical Assistance Unit, as provided for in the Public Administration Management Act, could contribute to greater consistency. 14 TRENDS ON FINANCIAL MISCONDUCT [7]

INCONSISTENCY IN SANCTIONS An example of such a case is whereby an employee was found guilty of theft of an amount of R33.34 and the sanction imposed was discharge, whilst employees who committed fraud with a larger amount involved were issued with a sanction of final written warning or suspension without pay. Departments should make sure that the Chairpersons they appoint are capable and credible. 15 TRENDS ON FINANCIAL MISCONDUCT [7]

CRIMINAL PROCEEDINGS INSTITUTED When the State suffers losses or damages through criminal acts or possible criminal acts or omissions, the matter must be reported, in writing, to the accounting officer and the SAPS (Treasury Regulations) Out of the employees found guilty of financial misconduct, criminal proceedings were instituted in cases. 16 Not all acts of financial misconduct, such as gross negligence and financial mismanagement, will constitute a criminal act. TRENDS ON FINANCIAL MISCONDUCT [8]

COST OF FINANCIAL MISCONDUCT 17 TRENDS ON FINANCIAL MISCONDUCT [9] R ‘mil

18 TRENDS ON FINANCIAL MISCONDUCT [10] REASONS FOR INCREASE IN THE COST OF FINANCIAL MISCONDUCT BETWEEN 2009/2010 TO 2011/ 2012 In 2009/2010, the cost of financial misconduct was the highest in the Department of Arts and Culture with the total cost of R (49.7%) of the total cost reported by national departments. In 2010/ 2011, a drastic increase in the cost of financial misconduct reported by provinces, was due to one case of fraud amounting to R (89.8%) reported by the Department of Public Works, Roads and Transport in the North West Province. In 2011/ 2012, the cost of financial misconduct was the highest in the Department of Human settlements with the total cost of R (66.9%) of the total cost reported by national departments.

The total cost of financial misconduct between 2001/2002 and 2012/2013 financial years is about R2 billion. The PSC has since the 2004/2005 financial year requested departments to report annually on the amount recovered from employees found guilty of financial misconduct. From the 2004/2005 to the 2012/2013 financial years, departments reported that an amount close to R400 million was recovered. The recovery is continuous but slow, upon finalization of the disciplinary process, the recovery of the loss to the State has not necessarily taken place. 19 TRENDS ON FINANCIAL MISCONDUCT [10]

PSC INTERVENTIONS Most departments do not report on the outcome of finalized cases although the PSC continuously reminds departments to report to it. To improve the quality of reports submitted to the PSC, a reporting format has been developed that is available on the PSC Website and these reports should be signed off by Accounting Officers. The PSC conducts data verification visits to departments and provides advice and guidance on the maintenance of a database of cases, the definition of misconduct, the recovery of monies, etc. The number of cases of financial misconduct reported is low when compared to the high rate of unauthorised, irregular and fruitless and wasteful expenditure, as well as the rate of non-compliance within the Public Service. This implies under-reporting. 20

CONCLUSION Overall, there is a need for departments to put in place effective systems that would enable them to finalise all cases of financial misconduct effectively and to keep accurate data to identify trends. Failure to put such systems in place will continue to undermine efforts to deal effectively with acts of corruption. The PSC has called upon Accounting Officers to be hands-on in dealing with cases of financial misconduct and has requested them to ensure that: Fully completed and accurate reports are submitted to the PSC in compliance with the Treasury Regulations by the due date. Measures are implemented to ensure that cases where the state has suffered loses or damages as a result of financial misconduct are reported to the SAPS. 21

CONCLUSION (2) The MPAT 2013 results showed that 90% of departments assessed in respect of the finalization of disciplinary cases are not finalising disciplinary cases within the period prescribed (90 days) by the Public Service Regulations and agreed to in the Public Service Coordinating Bargaining Chamber. It was also found that most departments do not have capacity, the skills to finalise cases in the stipulated time frame. Cases are not captured on PERSAL which also makes it difficult to monitor how departments handle disciplinary cases. The Public Administration Ethics, Integrity and Disciplinary Technical Assistance Unit will be established in terms of PAMA to support the management of disciplinary matters. 20

PSC Website: National Anti-Corruption Hotline for the Public Service: