Presentation to Portfolio Committee on Dept of Correctional Services 20 May 2008

1. Presentation to Portfolio Committee on Dept of Correctional Services 20 May 2008

2. Summary About the SIU SIU mandate and legal scope Threats to departments Integrated forensic solutions SIU methodology First SIU/DCS Service Level Agreement Medical Aid Correctional Centres Pharmacies, First Auto Card fraud and Asset Management DCS prioritized risk areas SIU/DCS extended SLA Procurement Forensic audit – Tenders and Quotes DCS Fraud Prevention Strategy Case studies Conclusion 2

3. About the SIU Started out: Heath Commission 1995 Set up ito SIU Act 74/1996 – independent of other LEAs 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

4. SIU mandate & 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

5. Threats to Departments Departments facing 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

6. 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 forensic solutions

7. Integrated forensic 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

8. 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 SIU methodology

9. International and national best practice Qualified professionals with international exposure Investigations performed on best practice methodologies – benchmarked Best in class integrated forensic structure Centres of Expertise house specialists in law, cyber forensics, forensic accounting, data analysis Recruit from private sector Drive professionalism Research capability Developing in-house research capability Best practices and systems identified in all government institutions and shared amongst our various clients Invited to participate in international think tank on best practice for forensic investigations World class forensic service

10. 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. Focus Area: Medical Aid Problem Intervention Success Impact Current position

12. Focus Area: Correctional Centres Problem Intervention Success Impact Current position

13. Focus Area: Pharmacies & First Auto Card fraud & Asset Management Problem Intervention Success Impact Current position

14. 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, eg procurement, pharmacies • Inadequate asset management • Lack of effective monitoring and evaluation system, eg First Auto Card investigations • Inadequate corruption prevention, eg. Assist in setup of DIU • Lack of coherence of new organisational culture, eg developing capability in key areas

15. SIU/DCS 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 SIU requested Proclamation R44 of 2007 Proclamation authorises investigations into above focus areas Published 28 November 2007

16. Focus Area: Procurement Problem Intervention Success Impact Current position

17. Forensic Audit: Quotes Forensic Audit: Tenders • Irregularities identified • Spiking between R 25 000 & R 30 000 • Indicative of splitting of order • Round number payments • Multiple suppliers using one bank account • Once off suppliers • Anomalies between price and quantity • Systemic concerns • Financial systems • No integration between BAS and PAS • No linking payments to orders – manual orders • Appropriate data fields • Linking payments to contracts • LOGIS will be introduced • Cover quoting • Validation controls over data entered • Contracts raising concern: • RAMP, Nutrition, Clothing and Correctional Centre Building and Security contracts • Irregularitiesidentified: • 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 tenderers • 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

18. DCS Fraud Prevention Strategy • DCS Fraud Prevention & Compliance Plan • DCS prioritised top risks for 2008/9 • DCS developing plans to deal with all major risks such as • Non compliance with policy and procedures, lack of internal controls • Lack of effective monitoring and evaluation system • Inadequate corruption prevention • DCS Inspectorate will monitor internal compliance • DCS Fraud Prevention Committee established

19. Case studies... #1 National tender – Feasibility study DCS requested SIU to conduct investigation Allegation Consortium to provide DCS with a feasibility study – contract value R 5.1 million No service delivered but full payment effected Investigation established Minimal service delivery by service provider DCS Project Managers authorised payments of R 5.1 m to SP Consortium established shortly before tender advertisement closed One company did not comply with VAT certificate requirement Was given an opportunity to rectify Consortium should have been disqualified because of default Various misrepresentations made to DCS by main partner in consortium 3 payments effected on basis of misrepresentations Smaller partners did not benefit financially 19

20. Case studies… #1 (cont.) National tender – Feasibility study Concerns Project management by DCS Not monitoring progress on project Authorising payment without ensuring DCS received service Adherence to procurement policy Service provider not disqualified for not complying with bid requirements Way forward SIU will finalise investigation shortly Co-operation with SAPS and AFU to secure arrest of accused and forfeiture of assets 20

21. Case studies… #2 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 21

22. Case studies… #2 (cont) National tender – GST Concerns Vetting of service providers Representations made by GST regarding BEE project not verified Way forward SIU should finalise investigation shortly Co-operation with SAPS and AFU to secure arrest of accused and forfeiture of assets 22

23. Case studies… #3 National tender – Engineering consultant SIU identified investigation through tenders audit – RAMP project at 4 correctional centres Allegation Service provider submitting false invoices to DCS Investigation established SP misrepresented to DCS and DPW that he was a qualified engineer R 10 million contract awarded to service provider Service provider irregularly Charged DCS for buildings not erected Did not quality control work done by contractors – substandard service delivered to DCS SIU established 18 other contracts awarded to service provider 23

24. Case studies… #3 (cont) National tender – Engineering consultant Concerns Vetting of service providers Qualifications of specialists are not verified Under performance by service providers not dealt with effectively Results SIU finalised investigation in cooperation with the SAPS and AFU Accused arrested and R 5.6 m assets seized 24

25. Case studies… # 4 Undisclosed business interests of DCS officials SIU identified this irregularity during its procurement investigations at correctional centres 9 investigations finalised to date Allegation DCS officials with private companies contract with DCS without DCS Head Office being informed 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 25

26. Case studies… #4 (cont) Undisclosed business interests cont Concerns Adherence to DCS procurement policy Integrity of DCS officials Results DCS pursuing disciplinary action against officials SAPS pursuing criminal action against officials SIU identified 27 other officials committing this type of irregularity The investigations will commence shortly 26

27. Conclusion SIU provides range of forensic servicesbut: 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

28. Thank you