1. Imfo Risk and Audit Indaba Cape Town
Topic: Are Forensic Investigations in Government Beneficial? Are there Consequences?
Imfo Risk and Audit Indaba
Cape Town
Adv Boyce Mkhize
Director: Forensic Audits
21 June 2017

2. Contents Trends Analysis - National Departments
Trends Analysis - Municipalities
Consequence Management Trends
Common Causes for Failure to Act
Benefits of Forensic Audits
Recommendations
© 2017 SekelaXabiso

3. National Departments Trends [Irregular Expenditure]
*AGSA Report
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4. Investigations / Consequences
*AGSA Report
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5. Consequence Management
Over 80% of the auditees conducted the required investigations into unauthorised, irregular and fruitless and wasteful expenditure.
There was a slight improvement from the previous year, but 24 of the 63 auditees that did not conduct investigations in also did not do the required investigations in
Recurring trend with those failing or neglecting to investigate and hold responsible officials accountable.
© 2017 SekelaXabiso

6. Consequence Management
Although investigations were done, insufficient steps were taken to, in compliance with the PFMA:
recover,
write-off,
approve or condone unauthorised, irregular and fruitless and wasteful expenditure for and
As a result, the year-end balance of irregular expenditure that has accumulated over many years and has not been dealt with as required in terms of the PFMA, was R100,7 billion, while that of unauthorised expenditure was R5 399 million and fruitless and wasteful expenditure R3 174 million.
© 2017 SekelaXabiso

7. Municipalities Irregular Expenditure Trends
*AGSA Report
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8. Consequences for Transgressions - Municipalities
*AGSA Report
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9. Consequences for Transgressions - Municipalities
The figure shows that at 45% of the municipalities ( : 47%) the council failed to conduct the required investigations for all instances of unauthorised, irregular and fruitless and wasteful expenditure.
Furthermore, 87 of the municipalities that failed to conduct investigations in attracted similar findings in
Recurring trend of failure to investigate and take action resulting in regression.
© 2017 SekelaXabiso

10. Common Transgressions
*AGSA Report
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11. Consequences for Transgressions - Municipalities
In , AG reported SCM-related findings for investigation to 139 municipalities. As shown in figure 2, findings in all areas except payments to possible fictitious suppliers have increased.
Furthermore, 105 of the municipalities that had such findings in had similar findings in This means that investigations are not conducted or are not yet having the desired impact of discouraging fraud and improper conduct.
© 2017 SekelaXabiso

12. Common Causes : Failure to Act
‘We all have our smallanyana skeletons’;
Collusion to compromise procurement system for personal gain;
No moral high ground for superiors to hold junior staff accountable because Superiors direct juniors to act in conflict with the frameworks;
Junior employees have a sense of impunity because of perceived protection from superiors; and
Lack of adequate internal forensic capacity to pursue investigations and limited resources for external resources.
© 2017 SekelaXabiso

13. Common Causes : Failure to Act
Deliberate destruction of evidence – no supporting documents (perception that absence of documents is a lesser offence than straight evidence of irregular expenditure);
Inconsistencies in application of discipline (labour law considerations);
Poor governance – lack of follow through on consequence management reporting;
Culture of impunity; and
Resignations without follow through principle.
© 2017 SekelaXabiso

14. Benefits of Forensic Audits
Heighten sense of governance and accountability;
Instill confidence in the rate payers to continue paying rates and local taxes;
Ability to approach local and foreign investors through PPP for major infrastructure projects if books and governance are in order;
Preventative interventions such as proactive fraud management, ICT reviews, probity reviews and transaction advisory; and
© 2017 SekelaXabiso

15. Benefits of Forensic Audits
Identification of weaknesses in internal controls and enhancement mechanisms.
© 2017 SekelaXabiso

16. Recommendations
Absence of records must be equally punishable as evidence of irregular expenditure;
Set a culture of accountability with a robust and obligatory reporting system – Municipal space to Provincial MEC; National Department to Cabinet Minister;
Obligatory consequence management reporting to Governance structures;
© 2017 SekelaXabiso

17. Recommendations Train Bid Committees on procurement framework;
Follow through individuals who resign to avoid consequences – possibly review employment contracts in this regard to create obligation for clean governance beyond organization with follow-through consequences in case of resignation;
Revive importance of Risk Management structures; and
Take pride in clean governance.
© 2017 SekelaXabiso

18. Thank You