Presentation to Portfolio Committee on Dept of Correctional Services

1. Presentation toPortfolio Committee onDept of Correctional Services 22 September 2009

3. Summary About the SIU SIU Mandate and Legal Scope Threats to Departments Integrated Forensic Solutions SIU Methodology First DCS/SIU Partnership Investigation Focus Areas and Successes DCS Prioritised Risks Extended Partnership Investigation Focus Areas and Successes Forensic Audit of Tenders Procurement Red Flag Database Case Studies

4. About the SIU • Started out: Heath Commission 1995 • Set up ito SIU Act 74/1996 – independent of other LEA’s • 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

5. SIU Mandate and 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

6. Threats to Departments Departments’ face 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

7. Integrated Forensic Solutions • 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

8. Integrated 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

9. SIU Methodology • 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

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. Medical Aid Focus Area Problem Intervention Success Impact Current position 11

12. Correctional Centre Focus Area Problem Intervention Success Impact Current position 12

13. Other Focus Area Problem Intervention Success Impact Current position 13

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

15. 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 • Pharmacies • DCS concerned about management of centre pharmacies • SIU requested Proclamation R44 of 2007 • Proclamation authorises investigations into above focus areas • Published 28 November 2007

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

17. Other Focus Areas Problem Intervention Success Impact Current position 17

18. Contracts raising concern: Reviewed top 200 contracts in areas of 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 suppliers 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 Forensic Audit of Tenders 18

19. Designed Procurement Red-flag database • • Part of our multi disciplinary interactive forensic approach focusing on people, processes and finance • • Database includes DCS procurement by tender and quote • Used a centralised integrated data approach to identify anomalies, such as: • • Systemic problem areas • • Measuring changes over time (Statistics, Trends, Patterns) • • Assess effectiveness of programs in an organisation • • Measuring Impact of corrective actions • • Understanding complexities and phenomena in areas such as fraud, corruption and maladministration.

20. Design and set up Explore Design Implement • Understand client environment • Available data (and data dictionaries) • Process flow of information • Risk level • Previous exposure • Understand business • Identify risk areas • Design tests to detect red flags • Review and interpret results • Changes tests and additional tests • Presentation of results • Once off or continuous monitoring

21. Types of irregularities identified by tool

22. Types of irregularities identified by tool cont

23. Analysis of DCS procurement • Database designed & provides: • Analysis of DCS expenditure on procurement per item, per cost centre, per region/province • Significant irregularities identified throughout DCS procurement system • DCS Pilot – 3 Quote System – Pretoria Correctional Centre • Pilot to test accuracy – confined to Logistics and Maintenance • Targeted transactions btw R 2 - 30 000 for period 1/4/04 to 28/11/07 • Investigation reveals: • 1024 of 6129 transactions were identified to have irregularities • Total value of transactions R 6.4 m • Types of irregularities • Cover quoting – R 2.6 million • Irregular expenditure – R 3.8 million • Splitting of orders – R 1.4 million • DCS informed of potential of database and indications of widespread irregularities

24. Case studies… #1 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 24 24

25. Case studies… #1 (cont) National tender – GST Concerns Vetting of service providers Representations made by GST regarding BEE project not verified Status of investigation Investigation finalised Accused arrested AFU launching application for assets Directors arrested and awaiting trial 25 25

26. Case studies… # 2 Undisclosed business interests of DCS officials SIU identified this irregularity during its procurement investigations at correctional centres 23 investigations finalised to date Allegation DCS officials with private companies contract with DCS without having the required authorisation & without knowledge of DCS Head Office 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 26 26

27. Case studies… #2 (cont) Undisclosed business interests cont Concerns Adherence to DCS procurement policy Integrity of DCS officials Status of investigations DCS pursuing disciplinary action against officials SAPS pursuing criminal action against officials SIU identified numerous other officials committing this type of irregularity 27 27

28. Case studies… #3 Corruption / Collusion – DCS officials and service providers Background Matter refered to SIU by DCS Allegations Numerous contracts allegedly awarded to entities owned by Mr X after he paid bribes to DCS officials Cover quoting Investigation required Complex analysis of financial source documents, bank statements and SCM policies Numerous interviews were conducted to substantiate the documentary evidence SIU identified irregularities involving other service providers during this investigation

29. Case studies… #3 (cont) Investigation established Corruption involving 8 entities and 3 DCS officials Monies paid to officials by service providers Concerns Integrity of DCS officials Adherence to DCS procurement policy Status Matter referred to NPA for decision regarding prosecution Matter referred to DCS for disciplinary action

30. Case studies… #4 National tender – High Value Contracts Matter referred to SIU by Auditor General and Public Service Commission Allegations Corruption in awarding the tenders to the service provider/s Bid rigging – supplier drafting specifications Investigation established Evidence of corruption – irregular relationship btw DCS officials and service provider Evidence of bid rigging – supplier drafting specifications Status Report with the department for review Disciplinary action recommended Report referred to NPA for decision regarding prosecution 30 30

31. 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 31

32. Thank you 32