Latest fraud trends taking place in the public sector [Presenter: Zanele Mxunyelwa, CIA, CFE| Head : Specialised Audit Services, National Treasury]

Page 2 INTRODUCTION Fraud & Corruption distorts incentives, undermines institutions, and redistributes wealth and power to undeserving; It slows economic progress in a country, hence National Treasury resolved to take a leading role to establish a Specialised Audit Services unit within the Office of Accountant-General to provide investigative capacity in all spheres of government. 5 th Annual Audit Committee Conference

Page 3 CATEGORIES Common Fraud in Public Sector  HUMAN RESOURCES FRAUD  FINANCIAL STATEMENTS FRAUD  PROCUREMENT FRAUD 5 th Annual Audit Committee Conference

Page 4 HUMAN RESOURCES

Page 5 Curriculum vitae fraud ► IDENTITY FRAUDPOSTHUMOUS ( SURNAME) ► DOCTORATESSEQUENCE OF QUALIFICATIONS ► UNCONFIRMABLEINTERNET QUALIFICATIONS ► EMPLOYMENT HISTORYGAPS ► UNCOMPLETED FIELDSZ83- CRIMINAL CASES & DISMISSAL 5 th Annual Audit Committee Conference

Page 6 Financial Statements Fraud

Page 7 Financial Statement/Annual Report Fraud ► Illegal Borrowing (s.66 PFMA) ► Delayed Payments at year end ( huge Arrears at year end) ► Recognition of income: services not rendered /not receivable (Performance bonuses) ► Fiscal Dumping: Recognition of Expenditure not delivered ( Implementing Agencies-TR 15.8 & 19.7: Surrendering of Voted Surplus Funds) ► Illegal Internet Banking Access (Payments vs Cash book-BAS) ► Cyber Fraud 5 th Annual Audit Committee Conference

Page 8 PROCUREMENT FRAUD

Page 9 Supply Chain Management Schemes ► Theft of bidders documentation to fraudsters (SCM Officials) ► Fraudulent purchase orders purported to be for State departments ► Theft of bidders documents for non-responsive in bids ► Fraudulent bank security by bidders ► Ghost companies for training services {advance payments} 5 th Annual Audit Committee Conference

Page 10 Procurement Fraud Scope Creeping / Variation Orders: ► Multiple change orders occur after the award of the contract or during implementation of the project. ► Contracts may not expended or varied more than 20% or R20 Million (Including all applicable taxes) for Construction related goods, works and/or services of the original contract value, whichever is lower. ► All other contracts for goods and/or services and 15% or R15 million (including all applicable taxes) services of the original contract value, whichever is lower. ► Note: Practice Note dated 31 May 2011 – Enhancing Compliance Monitoring and Improving Transparency and Accountability 5 th Annual Audit Committee Conference

Page 11 Procurement Fraud Bid rigging / Collusive bidding: ► Takes places when companies conspire to fix the price for goods and services purchased through a bidding process, to an artificially high level. ► Note: The additional funds obtained through the inflated contracted price tend to be distributed amongst the conspirators, this can be defined a cartel. ► The Loosing companies is usually provided with “Losers Fee”. ► Sub-contracting of a portion of the contract or another contract to the losing bidder or one of its subsidiaries “Plant Hire” 5 th Annual Audit Committee Conference

Page 12 Procurement Fraud Fronting: ► Misrepresenting HDI persons or ► The appointment of with or without their knowledge, and/or contrary to their status in the company as specified in the relevant legal documents or ► Fronting is the practice of making unsubstantial BBBEE claims, where no commensurate benefits accrue to the Black persons ostensibly involved in the enterprise. (Jack & Harris, 2007:470). ► Note: VIKING PONY AFRICA PUMPS (PTY) LTD t/a TRICOM AFRICA, AND ANOTHER v HIDRO-TECH SYSTEMS (PTY) LTD 2010 (3) SA 365 (SCA) 5 th Annual Audit Committee Conference

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