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PRESENTATION TO SCOPA ON THE OVERVIEW ON FINANCIAL MISCONDUCT AND REPORT ON INDEBTEDNESS OF PUBLIC SERVANTS Public Service Commission Date: 14 May 2008. Presentation outline. Introduction Reporting on financial misconduct Statistical overview on financial misconduct
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PRESENTATION TO SCOPA ON THE OVERVIEW ON FINANCIAL MISCONDUCT AND REPORT ON INDEBTEDNESS OF PUBLIC SERVANTS Public Service Commission Date: 14 May 2008
Presentation outline • Introduction • Reporting on financial misconduct • Statistical overview on financial misconduct • Trends analysis of financial misconduct cases reported since the 2001/2002 financial year • Indebtedness of public servants • Statistical overview and analysis: Micro-lending • Statistical overview and analysis: Garnishee orders • Implications for the Public Service • Recommendations • Conclusion 2
Introduction • The public expects government to operate in an open, transparent and accountable manner. This expectation includes effective accountability in respect of public funds. • The State and public servants are the custodians of public resources, and should administer it in an accountable and transparent manner on behalf of the entire citizenry. Effective accountability in respect of public funds is also one measure strengthening the fight against corruption. • The ability to manage the State’s financial resources requires competency in financial management, an ability to manage finances effectively and efficiently, financial discipline and planning. • Any doubt on the ability of public servants to manage their own resources creates uncertainty on the level of trust, honesty and integrity with which they would manage departmental budgets and assets. This places a responsibility on the Public Service to show concern about “financial wellness” of its employees. 3
Introduction • The PSC has been reporting on financial misconduct since 2001, and has published several reports in this regard. It was deemed appropriate to probe the role of individual behaviour, and underlying causes in financial misconduct. In this regard, the PSC commissioned a study into the issue of personal financial management by investigating the indebtedness of public servants. • This presentation focuses on the PSC’s Overview of financial misconduct for the 2006/2007 financial year and its Report on the Indebtedness of Public Servants. • These two documents, whilst independent of each other, contain complementary information and serve to focus attention on the personal financial debt challenges that confront public servants and the level of reported financial misconduct in the public service. • It is notable that the trends in the financial misconduct reports of the PSC are re-enforced by some of the findings in the indebtedness report. 4
Reporting on financial misconduct • In terms of the Public Finance Management Act, 1999 and the Treasury Regulations, the accounting officer must, as soon as the disciplinary proceedings are completed, report to, amongst others, the PSC on the outcome, including- • the name and rank of the official against whom the proceedings were instituted; • the charges, indicating the financial misconduct the official is alleged to have committed; • the findings; • any sanction imposed on the official; and • any further action to be taken against the official, including criminal charges or civil proceedings. 5
Reporting on financial misconduct • A Circular was disseminated to heads of all national and provincial departments, requesting them to report finalized financial misconduct cases for the financial year 2006/2007 to the PSC. • Since the introduction of the reporting requirements on financial misconduct in the PFMA and Treasury Regulations, this is the first financial year that all national and provincial departments have responded to the PSC. • Of the 35 national departments, 14 departments indicated that they finalised no financial misconduct cases in the particular financial year. • Of the 107 provincial departments, 47 departments indicated that they finalised no financial misconduct cases in the particular financial year. 6
Statistical overview • NUMBER OF CASES REPORTED 1042 cases of financial misconduct were reported for the 2006/2007 financial year • TYPES OF FINANCIAL MISCONDUCT CASES REPORTED Cases in the category “fraud” comprise a significant portion (59%) of the overall number of cases reported. 7
Statistical overview • LEVELS OF EMPLOYEES CHARGED WITH FINANCIAL MISCONDUCT 8
Statistical overview • OUTCOME OF FINANCIAL MISCONDUCT CASES • Of the 1042 cases where charges were brought against employees, 83% of employees were found guilty of financial misconduct. • In 7% of the total number of cases, the employees resigned prior to the disciplinary process being finalised. • SANCTIONS IMPOSED IN CASES OF FINANCIAL MISCONDUCT • Final written warnings constituted 36% (308 cases) of the sanctions imposed upon a finding of guilty. • Discharge was imposed in 18% (158) of the cases. • COST OF FINANCIAL MISCONDUCT • The total cost emanating from unauthorized, irregular and fruitless and wasteful expenditure and losses resulting from criminal conduct reported by departments and provinces for the 2006/07 financial year was R130 615 994,82. 9
Statistical overview • CRIMINAL PROCEEDINGS INSTITUTED AGAINST EMPLOYEES CHARGED WITH FINANCIAL MISCONDUCT • When it appears that the State has suffered 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) • Not all acts of financial misconduct, such as gross negligence and financial mismanagement, will constitute a criminal act. 10
Trends Analysis • NUMBER OF EMPLOYEES CHARGED WITH MISCONDUCT • There has been a significant increase in the number of cases reported to the PSC for the 2006/2007 financial year in comparison to the previous financial years. • The most significant increases were Gauteng (817%), KwaZulu-Natal (146%) and Western Cape (299%). • Eastern Cape (108%) and Mpumalanga (150%) provinces had substantial decreases in the number of cases. 11
Trends Analysis • INCREASE IN CASES IN THE CATEGORIES “FRAUD” AND “THEFT” • The increase in the number of cases in the category “fraud” can largely be ascribed to the high number of social grant fraud cases reported by departments in the Western Cape. 12
Trends Analysis • HIGH PERCENTAGE OF SMS MEMBERS CHARGED WITH FINANCIAL MISCONDUCT 13
Trends Analysis • INCREASE IN WITHDRAWAL OF CASES AND FINDINGS OF GUILTY • In the 2006/2007 financial year, the highest number of employees (83%) was found guilty following charges of financial misconduct. • During the 2006/2007 financial year a substantial number of cases were withdrawn (7%), or the employees were found not guilty (4%). • This could possibly be ascribed to a lack of expertise on the part of departments to deal with allegations of financial misconduct effectively. • This trend is in keeping with the observations made in the PCS’s Report on Measuring the Effectiveness of the NACH indicating that investigative capacity in departments appears to be limited. 14
Trends Analysis • DECLINE IN DISCHARGE FROM THE PUBLIC SERVICE AS AN APPROPRIATE SANCTION 15
Trends Analysis • INCREASE IN THE COST OF FINANCIAL MISCONDUCT • The total cost of unauthorized, irregular and fruitless and wasteful expenditure and losses resulting from financial misconduct • There has been a significant increase (186%) in the cost of financial misconduct from the 2005/2006 to the 2006/2007 financial year. 16
Trends Analysis • This increase is largely ascribed to two cases involving very large amounts, namely the cases involving R16 million in the National Department of Agriculture and R60 million in the Department of Roads and Public Transport in Limpopo Province. The latter two cases comprise 58% of the total cost of financial misconduct for the 2006/2007 financial year. 17
Trends Analysis • LACK OF INFORMATION ON CRIMINAL PROCEEDINGS UNDERTAKEN IN CASES OF FINANCIAL MISCONDUCT 18
Trends Analysis • Similar to the 2005/2006 financial year, criminal proceedings were instituted in 25% of the finalized financial misconduct cases reported in the 2006/2007 financial year. • Overall since the 2002/2003 financial year, the percentage of cases in which departments instituted criminal action (31%), as compared to the total number of cases is relatively low. • Due to the fact that departments failed to provide adequate information in this regard, it is not possible to accurately determine any trends or the specific reasons for not instituting criminal action. 19
Trends Analysis • RATE OF RECOVERY OF DEBT • The rate of recovery of the value of the loss and damage as a result of financial misconduct in the Public Service in the 2005/06 and 2006/07 financial years has been very low. • However, there has been an increase in the overall rate of recovery from the 9.5% to 22.1%. • This figure is well below the overall recovery rate in the 2004/05 financial year at 50.3%. • The actual rate of recovery could be much higher. At the time that departments are required to report to the PSC on the outcome of the disciplinary process, the recovery of the value of the loss or damage has not necessarily taken place. • Of importance is that departments accelerate the rate of recovery to show their commitment to service delivery and that they take effective and appropriate steps to collect all monies due to the department. 20
Trends Analysis • TIMELINESS, ACCURACY AND CREDIBILITY OF INFORMATION • Despite the provision of the reporting format, some departments, once again failed to comply with the reporting format and others submitted insufficient information. • The information provided in many instances appeared not to have been quality checked. • In order to improve data integrity, follow-up enquiries had to be made with various departments, which delayed the completion of the report. • Accounting Officers should take responsibility to ensure the timeliness, accuracy and credibility of information being provided to the PSC. 21
Indebtedness of Public Servants • In considering the indebtedness of Public Servants, the PSC utilised information available on the PERSAL system and compiled a report. Information obtained from PERSAL was provided to the PSC on the basis of anonymity, thus no names, PERSAL numbers, identity numbers, etc, were revealed. This was done in view of the sensitivity of the subject as well as to ensure the confidentiality of the information provided. Payments to micro-lenders and garnishee orders paid by public servants during the 2006/07 financial year were considered. • Micro-lending is a financial term adopted by the micro-finance industry which refers to the practice of borrowing finance or a micro-loan from a micro-financier or a micro-lender. • The term over-indebtedness is used to describe debt which has become a major burden for the borrower. • In the event that a borrower fails to make payments or defaults in making repayments of a micro-loan, a micro-lender may approach the courts to apply for a garnishee or emolument attachment order to ensure the full recovery of the debt. A garnishee order or garnishment order is a court order or a civil judgment for the collection of debt. 22
Statistical overview: Micro-lending • AMOUNT OF MICRO-LENDING DEBT PAID THROUGH PERSAL • The total debt owed to micro-lenders by Public Servants amounted to R13, 3 million during the 2006/07 financial year. • The gender distribution in payments in respect of micro-lending debt is as follows: 23
Statistical overview: Micro-lending • The highest amounts paid to micro-lenders during 2006/2007 were paid by public servants occupying salary level 7 (R3,6 million). • The second highest amount paid to micro-lenders was for employees on salary level 8 (R2,4 million) followed by salary level 6 (R1,9 million) and salary level 2 (R1,5 million). • Persons in the age-groups 40 – 49 and 50 – 59 paid the highest amounts, namely R6,6 million and R3,6 million, respectively to micro-lenders during the 2006/2007 financial year. The two age-groups are collectively responsible for more than three quarters (77%) of all payments made to micro-lenders. 24
Statistical overview: Micro-lending • NUMBER OF PUBLIC SERVANTS WHO MADE PAYMENTS TO MICRO-LENDERS • In total 4 063 public servants made payments to micro-lenders through PERSAL during 2006/2007. • The highest number (1 381) is attributed to persons employed in the occupational category “Other occupations”. The SAPS recorded the 2nd highest number (843), followed by the occupational category Cleaners (299) and the Nursing occupational category (226). 25
Statistical overview: Micro-lending • In terms of the Overview on Financial Misconduct SAPS had fairly high number of cases on Financial Misconduct during the 2006/2007 financial year. • Gender representation of the total of 4 063 public servants who made payments to micro–lenders. This trend is also in keeping with trends observed in the Overview of Financial Misconduct whereby a higher number of female employees were found guilty of Financial Misconduct during the 2006/2007. 26
Statistical overview: Micro-lending • Most public servants who made payments to micro-lenders were African (3 459 or 85%) followed by Coloureds (397 or 10%), Whites (166 or 4%) and Indians (41 or 1%). • The majority of the 4 063 public servants who made payments to micro-lenders occupied salary level 7 (1 155). As mentioned earlier, this is also the level at which the highest number of financial misconduct cases occur. This trend has been observed in previous years as well. • The majority of public servants who made payments to micro-lenders falls within the age-group40 – 49, followed by those in the age-group 50 - 59.
Statistical overview: Garnishee orders • TOTAL COST OF GARNISHEE ORDERS PAID BY PUBLIC SERVANTS • The total cost of payments as a result of garnishee orders that were issued to public servants amounted to R1,01 billion during the 2006/2007 financial year. • Gender representation: Amount paid in respect of garnishee orders • Public servants on salary level 7 accounted for the largest amount of payments towards garnishee debt, namely R269 million. 28
Statistical overview: Garnishee orders • NUMBER OF PUBLIC SERVANTS WHO MADE GARNISHEE RELATED PAYMENTS • During 2006/2007 there were 216 857 public servants who made garnishee related payments through PERSAL, i.e. 20% of the total number of public servants. • Gender representation of public servants who made garnishee related payments 29
Statistical overview: Garnishee orders • Most public servants who made garnishee related payments were African (86%) followed by Coloureds (9%), Whites (4%), and Indians (1%). • 25% of public servants who made garnishee related payments were on salary level 7 (correlating with the fact that public servants at this level made the most payments to micro-lenders). The second highest number of payments were made by public servants at salary levels 6 (33 999), followed by those at salary level 8 (30 486). • Similar to the payments made to micro-lenders, it was found that the majority of public servants who made garnishee related payments (98 407), that is, 45% were within the age-group40 – 49. • The highest number of public servants (79 360) who made garnishee related payments is those in the occupational field“Other occupations”. SAPS recorded the second highest number (27 653) whilst the lowest number included Prosecutors, Youth Workers and Social Work. 30
Implications for the Public Service • ADMINISTRATIVE BURDEN • Personal financial matters of employees are made the responsibility of the State as a result of employees’ failure to meet their payment commitments for debt owed to micro-lenders. • A garnishee order is the most preferred way of collecting debt by micro-lenders as it is an effective and cost-efficient debt collection mechanism. • Given the 218 121 public servants who made garnishee related payments during 2006/2007, there is a possibility that National and Provincial departments are experiencing a certain level of administrative burden in this regard. 31
Implications for the Public Service • ILL-HEALTH DUE TO FINANCIAL DISTRESS • Financial difficulties are among the known causes of stress and anxiety. • If a person already suffers from one or another type of illness, financial distress could worsen his/her condition, resulting in the employee being away from work for an extensive period. • Persons who are affected by micro-lending debt and especially garnishee orders will tend to get sick more often than persons not affected by such a problem. • Given the rate of indebtedness and the high cost of garnishees issued against public servants, the situation regarding ill-health, particularly financial distress, within the Public Service is cause for concern. 32
Implications for the Public Service • LOW PRODUCTIVITY • Productivity is a fundamental aspect of service delivery. However, various factors, such as ill-health, absenteeism and poor performance can negatively influence the level of productivity. • For productivity to take place effectively, employees need to be of a good state of health. Once health problems are experienced by employees as a result of financial distress, this is bound to have a negative impact on their level of productivity. • According to the findings of the PSC’s report on Sick Leave Trends, the level that is most prone to take sick leave are public servants at salary levels 1 – 8. These are the levels where most public servants who made both the highest number of micro-lending and garnishee related payments are employed. This highlights the serious problems that beset this level within the Public Service. 33
Implications for the Public Service • IRREGULAR REMUNERATIVE WORK OUTISDE THE PUBLIC SERVICE (RWOPS) • Public servants who engage in RWOPS do so with a view to source additional income. While engagement in RWOPS cannot be attributed to one particular reason, the need to service debt or ease their level of indebtedness cannot be ruled out. • Although the Public Service has regulatory provisions in this regard, some public servants continue to carry out RWOPS without complying with the regulatory framework. The latter was confirmed during previous studies by the PSC into the dual employment of medical personnel in the Gauteng Province, as well as the management of public servants elected as Municipal Councillors in the Limpopo and Western Cape Provinces. • The fatigue and stress that is associated with holding two jobs at the same time is likely to impact negatively on the State’s capacity to deliver on its service delivery mandate. 34
Implications for the Public Service • ETHICAL CONSIDERATIONS • By virtue of being the first constitutional principle under section 195 of the Constitution of the Republic of South Africa, there is a clear intention by policy makers to place emphasis on professional ethical conduct within the Public Service. • To ensure that this is achieved, public servants have a responsibility to ensure that during the performance of their duties within and outside the workplace, they conduct themselves in a manner that promotes ethical conduct. • A sound framework has been instituted to promote a strong culture of ethics within the Public Service. However, the over-indebtedness of public servants could result in an erosion of ethics among public servants as they could be enticed to commit unethical or corrupt practices by accepting bribes and committing fraud as a remedy to their financial strife. 35
Recommendations • Departments should ensure that information is provided in line with the PERSAL data fields to avoid the creation of supplementary data fields such as “other” or “unknown”. • A fully fledged EAP should be embarked upon that would look into personal financial wellness with a key focus on legislative framework on micro-lending, procedure for the issuing of garnishee orders, credit rights, and budgeting, borrowing, saving and how to manage these effectively. • The implementation of the ethical framework in place should be strengthened. • Departments are to keep abreast of the level of indebtedness of employees through the continuous monitoring of the records relating to micro-lending debt repayments and garnishee orders issued. 36
Recommendations • The policy framework around disclosure of financial interests should be amended to include such aspects as debt, the nature of the debt and the credit grantor(s) involved. • The financial disclosure framework for the SMS should be amended to also include information on liabilities to ensure an overall assessment of a public servant’s financial situation. • In order to alleviate the challenges experienced by the affected public servants, it is recommended that the Accounting Officers of Departments comply with paragraph 23 of the Treasury Regulations, 2001 which reads, amongst others that “… after the deduction, the official will have sufficient means for maintenance for him or herself and any dependants”. 37
Conclusion • In view thereof that 20% of all public servants made garnishee related payments during 2006/07, it appears as if public servants are struggling to cope with their personal financial planning. This raises questions about their ability to manage the State’s resources with which they are entrusted. • Based on the PSC’s assessment the extent of indebtedness by public servants has negative consequences to both them as individuals and to the Public Service as employer. These consequences can be mitigated if such public servants are provided with guidance on financial planning and management. Whilst the use of EAPs by providing financial counseling must be encouraged, it is incumbent on the Public Service leadership to promote the rendering of such assistance to its employees. 38