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Latest fraud trends taking place in the public sector[Presenter: Zanele Mxunyelwa, CIA, CFE| Head : Specialised Audit Services, National Treasury]
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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.
5th Annual Audit Committee Conference
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CATEGORIES
Common Fraud in Public Sector
HUMAN RESOURCES FRAUD
FINANCIAL STATEMENTS FRAUD
PROCUREMENT FRAUD
5th Annual Audit Committee Conference
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HUMAN RESOURCES
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Curriculum vitae fraud
► IDENTITY FRAUD POSTHUMOUS ( SURNAME)
► DOCTORATES SEQUENCE OF QUALIFICATIONS
► UNCONFIRMABLE INTERNET QUALIFICATIONS
► EMPLOYMENT HISTORY GAPS
► UNCOMPLETED FIELDS Z83- CRIMINAL CASES & DISMISSAL
5th Annual Audit Committee Conference
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Financial Statements Fraud
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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
5th Annual Audit Committee Conference
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PROCUREMENT FRAUD
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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}
5th Annual Audit Committee Conference
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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
5th Annual Audit Committee Conference
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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”
5th Annual Audit Committee Conference
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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)
5th Annual Audit Committee Conference
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