Forensic Audit PresentationForensic Audit PresentationPortfolio CommitteePortfolio Committee

Cape Town 15 May 2007Cape Town 15 May 2007

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BACKGROUNDBACKGROUNDFINANCIAL MISMANAGEMENT FINANCIAL MISMANAGEMENT

CONCERNSCONCERNS Ministerial decision to institute a forensic auditMinisterial decision to institute a forensic audit PFMA compliance on Tender processesPFMA compliance on Tender processes

LEADERSHIP LEADERSHIP

General leadership wantingGeneral leadership wanting

Financial PerformanceFinancial Performance

Auditor General’s successive disclaimersAuditor General’s successive disclaimers

2002/20032002/2003 2003/20042003/2004 2004/20052004/2005

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PERIOD UNDER REVIEWPERIOD UNDER REVIEW

11stst April 2003 – 31 April 2003 – 31stst December 2004 December 2004

Tender awarded to Gobodo Forensic & Tender awarded to Gobodo Forensic & Investigative Accounting – 20Investigative Accounting – 20thth April 2005 April 2005

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GOBODO’s MANDATEGOBODO’s MANDATE

Data interrogationData interrogation Identify, classify and investigate irregularitiesIdentify, classify and investigate irregularities

Forensic Accounting & Financial InvestigationForensic Accounting & Financial Investigation Review tender & procurement processesReview tender & procurement processes Asset management disposalAsset management disposal Perform due diligence investigation of key suppliersPerform due diligence investigation of key suppliers General financial managementGeneral financial management

Information SecurityInformation Security Review the security, integrity & confidentiality of infoReview the security, integrity & confidentiality of info Review program change controlsReview program change controls Review business continuityReview business continuity Review EFT transactions & cash paymentsReview EFT transactions & cash payments General review of computer systemsGeneral review of computer systems

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FINDINGSFINDINGS

PECAS SystemsPECAS Systems (Printers Estimating (Printers Estimating Costing and Scheduling system) Costing and Scheduling system) violationviolation

SD K SD K Alpha - Alpha - Excessive procurementExcessive procurement 16 random samples between April 2003 and Dec 200416 random samples between April 2003 and Dec 2004 Irregular expenditure – R21,0mnIrregular expenditure – R21,0mn Violation of delegated authority – p58 art 6.18 & p75Violation of delegated authority – p58 art 6.18 & p75 Contraventions of section 45(b) & (c) PFMAContraventions of section 45(b) & (c) PFMA

SD K SD K BetaBeta Distribution not done “according to standard acquisition policy & Distribution not done “according to standard acquisition policy &

procedures” – R40,0mnprocedures” – R40,0mn Minutes and contracts missing!!!Minutes and contracts missing!!! Violation of delegated authorities – p57 art 6.17Violation of delegated authorities – p57 art 6.17 Contraventions of s 45(b) & (c) PFMAContraventions of s 45(b) & (c) PFMA

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FINDINGSFINDINGS

REDUNDANT STOCKREDUNDANT STOCK

Gross Mismanagement of storesGross Mismanagement of stores

Consistent Overstocking (Treasury Regulation Consistent Overstocking (Treasury Regulation 10.1.1(b))10.1.1(b))

Late delivery by suppliers not penalisedLate delivery by suppliers not penalised

Damage to paper (TR 10.1.1(a))Damage to paper (TR 10.1.1(a))

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FINDINGSFINDINGS

REASONS SUPPLIED FOR OVERSTOCKINGREASONS SUPPLIED FOR OVERSTOCKING

Latent defect in PECAS system re status of taskLatent defect in PECAS system re status of task

Improper calculation of paper needed – human Improper calculation of paper needed – human waste, consistent errors, etcwaste, consistent errors, etc

Lack of communication between operations and Lack of communication between operations and procurementprocurement

Late outsourcing of jobs – paper nevertheless procuredLate outsourcing of jobs – paper nevertheless procured

Urgent jobs not reflected on PECAS – system circumventedUrgent jobs not reflected on PECAS – system circumvented

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FINDINGSFINDINGS

PAPER PROCUREMENT – SUPPLY CHAINPAPER PROCUREMENT – SUPPLY CHAIN

Significant difference in value btwn AFS and PECASSignificant difference in value btwn AFS and PECAS

2002/3 AFS raw material R 26,4; PECAS R 40,1m (paper) 2002/3 AFS raw material R 26,4; PECAS R 40,1m (paper)

2003/4 AFS raw material R 23,5m; PECAS R 35,4m (paper)2003/4 AFS raw material R 23,5m; PECAS R 35,4m (paper)

2004/5 AFS raw material R 23,2m; PECAS R 29,5m (paper)2004/5 AFS raw material R 23,2m; PECAS R 29,5m (paper)

SIU could not confirm accuracy and validity of inventory SIU could not confirm accuracy and validity of inventory amounts reflected on AFS - documents lostamounts reflected on AFS - documents lost

Contravention of TR 10.1.2 Contravention of TR 10.1.2

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FINDINGSFINDINGS

CONTRAVENTION & VIOLATION OF CONTRAVENTION & VIOLATION OF PFMAPFMA

Security of recordsSecurity of records

Lack of controls within Procurement Lack of controls within Procurement Division Division

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STATUS REPORTSTATUS REPORT

SUSPENSIONSSUSPENSIONS

INVESTIGATIONS HAVE BEEN INVESTIGATIONS HAVE BEEN EXTENDEDEXTENDED

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MEASURES PROPOSEDMEASURES PROPOSEDPROPOSED DISCIPLINARY MEASURESPROPOSED DISCIPLINARY MEASURES

Charge Sheets issued to several individualsCharge Sheets issued to several individualsGross mismanagementGross mismanagementDereliction of dutyDereliction of dutyViolation of tender proceduresViolation of tender proceduresLack of duly delegated authority to procure any goodsLack of duly delegated authority to procure any goodsAll actions All actions ultra viresultra vires – TR 8.2.1 – TR 8.2.1PFMA 38(1)(h)(iii)PFMA 38(1)(h)(iii)Total of Irregular expenditure of R66,0mnTotal of Irregular expenditure of R66,0mn

Irregular expenditure – R1,5mnIrregular expenditure – R1,5mn Irregular expenditure – R3,0mnIrregular expenditure – R3,0mn Signed replenishment advises without written Signed replenishment advises without written

delegationdelegation

Be charged according to the precepts of the PFMA & Be charged according to the precepts of the PFMA & TRTR

Criminal and Civil charges be considered Criminal and Civil charges be considered

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THANK YOUTHANK YOU

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