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1
IRREGULAR
EXPENDITURE AND
CONSEQUENCE
MANAGEMENT
WHAT ELEMENTS REQUIRE
CONSEQUENCE MANAGEMENT?
2
• Unauthorised Expenditure ����
• Irregular Expenditure
• Fruitless and wasteful
Expenditure ����
• SCM abuse ����
Focus on Irregular
Expenditure and related
Consequence Management
3
1.What do we deal with?
2.Definition in law
3.Principles – the WHAT
4.Processes – the HOW
5.Way forward
LEGISLATIVE FRAMEWORK –
Irregular expenditure
4
s1 – Definitions
s32 – Management and treatment
s62 – AO responsibilities
s78 – Officials responsibilities
s125 - AFS
s171 – Financial misconduct
s173-174 – Criminal proceedings
SCM TR 36 & 38(1)(b) – ratification &
investigate and act re SCM abuse
MFMA circular 68 - Guidelines
LEGISLATIVE FRAMEWORK –
Financial Misconduct
5
PRESCRIPT PROVISION
MFMA s 171(4) • Investigate allegation.
• Institute disciplinary proceedings as per s 67 of the MSA.
MFMA s 173 • Deals with relevant offences.
MFMA s 174 • Deals with relevant penalties that may be imposed.
MFMA s 175 • Provides for the promulgation of regulations with
regards to the management of financial misconduct,
procedures and criminal proceedings.
Fin Misconduct
Regulations,
2014
Promulgated under Government Gazette Notice 37699, no.
R 430 on 30 May 2014.
MFMA circular
76 of 19 October
2015
Dealing with the Municipal Regulations on Financial
Misconduct Procedures and Criminal Proceedings
TEST for IRREGULAR EXPENDITURE
6
‘IE: Expenditure incurred
- In contravention of OR not in accordance with a
requirement of this Act* and which has not been condoned
in terms of section 170;
- In contravention of OR not in accordance with a
requirement of the MSA or public office-bearers Act; OR
- In contravention of OR not in accordance with a
requirement of the SCM Policy of a municipality or By-law
and which has not been condoned by such Policy or By-
law.
TEST for IRREGULAR EXPENDITURE
7
1. Expenditure incurred =
transaction
2. Contravention of law
3. Not condoned
PRINCIPLES for Ie –
1. EXPENDITURE INCURRED
8
1. There must be a transaction
2. Event that triggers Ie = non-compliance (i.e. financial misconduct/disciplinary action)
3. Conundrum = Trigger vs payment
within 30-days – who is liable?
4. Examples:(i) Courts: Cash Paymaster judgement; Gijima
judgement& Asla judgement
(ii) AGSA: contract irregularly procured
PRINCIPLES for Ie –
2. CONTRAVENTION OF LAW
9
• MFMA
• MSA
• POBA
• SCM POLICY
• Delegations, PPPFA, CIDBA and Regulations are included
• Practice Notes & Circulars not included as per MFMA
section 168 – MUST be adopted by Council
PRINCIPLES for Ie –
3 – NOT CONDONED
10
3 Mechanisms:
(i) MFMA condone, section 170 NT
(ii) SCM Policy condone
(iii) Ratification
i. NT condonation ���� - still maintain evidence
as part of consequence management PoE
ii. SCM Policy condonation – require process
aligned to law/NT guidelines
PRINCIPLES for Ie –
3 – NOT CONDONED
11
Ratification (MFMA circular 68) – AO to
consider merits of each case:i. Minor (nature, circumstances, intent, financial implication
= loss/benefit)
ii. Technical (Section 217 test)
iii. SCMP
iv. Linked to delegation
v. Ratify action, not condone expenditure
vi. Must still register and section 32-committee to consider
recoverability
vii. Report as per SCM TR 36(2)
NOTE: Nature of breach NOT monetary value
guide action
PRINCIPLES for Ie –
LIABILITY IN LAW
12
Liability determination = LAW:(i) Act says: “….Deliberately or negligently made, permit or
authorise…”
(ii) Circular 68 says: “ … Did not act in good faith… THERE WAS
A LOSS”
(iii) Admin law says: “forfeiture of statecover-liability”
Liability determination = HOW:(i) Reasonable man test
(ii) Through ‘investigation process’ and ‘labour process’
Liability determination = WHO:(i) MFMA section 32,
(ii) After investigation process, and
(iii) On recommendation of Disciplinary Board
SOP – LEGAL FRAMEWORK – Liability
in Law differs for role-players
13
WHO - Liability in Law:
(i) Officials:
- Forfeited state cover
- Financial Misconduct vs Disciplinary process
(ii) Executive Authority
(iii) Suppliers:
- NT:
- PPPFA - Restricted suppliers
- Corrupt Activities Act – tender defaulters
- BBBEE - Bid rigging & Fronting
- Competition Act - collusive tendering
- Municipality:
- Abuse of SCM System
- Breach of contract
CONSEQUENCE
MANAGEMENT
AGSA and MFMA circular 68
– Municipality to adopt
processes/mechanisms
CONSEQUENCE MANAGEMENT MAIN
PROCESSES
1. Discovery:
� Notification process
� Classification
� Validation
2. Council Reporting
3. Investigation & Liability in Law
4. Treatment & Recovery
5. Reporting
6. Monitoring & Evaluation
ROLEPLAYERS
16
• ‘CFO Office’ – to advise on incidents and whether such activity
resulted in an irregular expenditure, manage resultant
investigations, maintain a matrix/spreadsheet of such incidences to
monitor trends and institute improvement measures and to treat
any Ie activity (recovery), as well as to address any identified
control weaknesses and training requirements
• ‘Assurance providers’ – to advise on an incidents
• ‘SCM Unit practitioners’ – to advise on incidents of SCM System
abuse
• ‘FI/SAPS’ – to determine whether an irregular expenditure and/or
SCM System abuse activity resulted in financial offence, fraud or
corruption.
• ‘MFMA section 32 Council Committee/MPAC’ – to monitor and
advise on the management of Ie matters and to advise on the
recovery or not (condonation) of identified and confirmed Ie &
Appeals from restricted suppliers.
ROLEPLAYERS
17
• ‘Legal Services’ – to provide legal support on questions of
law, the management of resultant legal actions, assist with
the determination of liability in law and the management of
restriction of suppliers
• ‘‘Audit Committee’ – to monitor the impact and control
weaknesses of Ie on the effective financial management of
the municipality.
• ‘HRM’ – to assist with financial misconduct, determination of
liability in law and resultant disciplinary actions
• ‘Disciplinary Board’ – to confirm validity, support with
investigation and advise on outcome recommendations
• ‘AO’ - ratify minor errors, reject bids and report as
prescribed.
• ‘Council’ – approve recommendations (Ie) and disciplinary
actions.
CONSEQUENCE MANAGEMENT:
MAIN PROCESSES
1.DISCOVERY
2.INVESTIGATION
3.TREATMENT
4.RECOVERY
1.1.NOTIFCATION
1.2.CLASSIFICATION
1.3.VALIDITY DETERMINATION
2.1.INVESTIGATION
2.2.POLITICAL OFFICE BEARERS
2.3.OFFICIALS
2.4.SUPPLIERS
2.5.FINANCIAL OFFENCES
3.1.Ue
3.2.IFWe
3.3.SUPPLIERS (Restriction)
4.1.UIFWe
DISCOVERY: NOTIFICATION
Who notify How Notification venues Registration and processing
Officials
Assurance
providers
Financial
Control
FIU
Public
• E-mail to CFO governance @
……
• Box @ CFO Office Reception
• Hotline @ ……
• PO Box …….
Complete
notification
template
Form CM1
(Address to
CFO)
Register
Record
Open file
Pre-lim investigation
DISCOVERY: CLASSIFICATION
Consequence Management SOP @ 2018 (Author: Helen Venter)
1.2.2.1. Minor 1.2.2.2. Material
1.2.1. Classification Test 1.2.2. Materiality Test
1.2.1.3.Irregular
expenditure
1.2.1.4. Fruitless &
Wasteful expenditure1.2.1.5. SCM abuse
1.2.1.2. Fraud
‘Fraud’ means introducing
a course of action by deceit
or other dishonest conduct,
involv ing acts or omissions
of the making of false
statements, orally or in
writing, with the object of
obtaining money or other
benefit from, or of evading
a liability to, the
municipality. This definition
includes monetary gain
and any benefit that could
be gained, including
intangibles, such as
information. Fraud causes
actual or holds potential
financial loss to any person
or entity immediately
before or after the activ ity.
MFMA s1: Expenditure
incurred:
In contravention of OR not
in accordance with a
requirement of this Act and
which has not been
condoned in terms of
section 170;
In contravention of OR not
in accordance with a
requirement of the MSA or
public office-bearers Act;
OR
In contravention of OR not
in accordance with a
requirement of the SCM
Policy of a municipality or
By -law and which has not
been condoned by such
Policy or By -law.
MFMA s 1: Expenditure incurred:
in Vain AND Would have been
avoided had reasonable care been
exercised
•Fronting
•Collusion
•Influenced tender processes
•Misrepresentation
•Omitting information
•Fraud
•Extortion
•Falsely obtaining information
•Restrictive practices
•Non-performance
SCM TR 36: MFMA circular 68 of
2013:
•the specific nature of the breach: is
it simply technical in nature, not
impacting in any significant way on
the essential fairness, equity,
transparency , competitiveness or
cost effectiveness of the
procurement process?
•the circumstance surrounding the
breach: are the circumstances
justifiable or, at least, excusable?
•the intent of those responsible for
the breach: were they acting in good
faith?
•the financial implication as a result
of the breach: what was the ex tent of
the loss or benefit?
Does not fit in classification of
minor.
Expenditure incurred by a
municipality otherwise than in
budget and includes:
Overspending of the total amount
appropriated in the municipality ’s
approved budget;
Overspending of the total amount
appropriated for a vote in the approved
budget;
Expenditure from a vote unrelated to
the department or functional area
covered by the vote;
Expenditure of money appropriated for
a specific purpose, otherwise than that
specific purpose;
Spending of an allocation referred to in
paragraph (ii), (iii) or (iv ) of the
definition of “allocation” otherwise than
in accordance with any conditions of
the allocation; or
A grant by the municipality otherwise
than in accordance with the MFMA ‘
1.2.1.1. Unauthorised
expenditure
1. DISCOVERY: 1.2. CLASSIFICATION
DISCOVERY: VALIDATION
Consequence Management SOP @ 2018 (Author: Helen Venter)
1.3.1. Confirm Classification 1.3.2. Confirm Materiality
1.3.1.1.No case
1.3.1.3. Irregular expenditure
1.3.1.4. Fruitless & Wasteful
expenditure
1.3.1.6. SCM abuse
1.3.1.2. Fraud
1.3.2.1.Minor =
condone 1.3.2.2. Material
1.3.1.5. Unauthorised expenditure
1.3.3. Mandate further action,
considering
1.3.2. Control weakness
1.3.1.Investigation
1.3.3. Determination of
Liability in Law
1.3.4.Prescribed Reporting
See Figure 1.2.1.2
See Figure 1.2.1.3
See Figure 1.2.1.4
See Figure 1.2.1.1
See Figure 1.2.1.5
See Figure 1.2.2.1 See Figures 2.1 - 2.5
See Figures 2.2 - 2.5
See Figure 1.2.3.2.
1. DISCOVERY: 1.3. VALIDATION
INVESTIGATION: GENERAL
Consequence Management SOP @ 2018 (Author: Helen Venter)
General investigation Liability in Law -POB Liability in Law -Official Liability in Law -Supplier
Irregular
expenditure
Fruitless & Wasteful
expenditureFraudUnauthorised
expenditure
SAPS & SIU
Report confirms Fraud and related
UIFWe and SCM Abuse
Criminal/Civil action
Update register
Appoint invesitgating officer
ACTIONS
Sign Declaration of Interest and Confidentiality
Collect and review documents and evidence
Analyse financial and system reports
Conduct interviews and obtain affidavits, if required
Quantify expenditure
Identify implicated persons
Identify control weaknesses
Maintain a case-fie logbook
SCM Abuse
Conduct investigation
See Figures 2.1; 2.2 & 2.5 See Figures 2.1; 2.3 & 2.5 See Figures 2.1; 2.4 & 2.5
2. INVESTIGATION: 2.1. GENERAL
See Figure 2.5
INVESTIGATION: POLITICAL OFFICE BEARER
Consequence Management SOP @ 2018 (Author: Helen Venter)
2. INVESTIGATION – 2.2. LIABILITY IN LAW OF POLITICAL OFFICE BEARERS
UIFWe, Fraud or SCM Abuse event
Inform Designated Official & Ministers of Finance(Councillor)
or Mayor (Speaker) and deal with matter as per Code of
Conduct for Councillors in Schedule 1 of the MSA
DO submit report to Council on the outcome
of the investigation within 5-days
DO authorise formal investigation and informs
POB and allow 5-days to respond
Investigation confirms potential Financial Offence of POB
Inform Designated Official [DO] if offence does not ammount
to breaches of the Code of Conduct for Councillors in
Schedule 1 of the MSA
Submit report to Ministers for Local Gov and
Finance wihtin 5-days after submission to Council
See Figures 1.2; 1.3 & 2.1
INVESTIGATION: LIABILITY IN LAW OF OFFICIALS
Consequence Management SOP @ 2018 (Author: Helen Venter)
Fraud
SAPS & SIU
Civil/Criminal action
Investigation confirms potential Financial Misconduct of officials
Inform Council, PT & NT (AO or SM) or AO (other officials) within 7-days
Council/AO mandate Disciplinary Board to
conduct pre-lim investigation wihtin 7-days
Invalid
Decision by Council to commence
with Disciplinary action
Disciplinary outcome:
Valid
Senior Managers as per MSA Disciplinary Codes and Procedures
Officials as per Collective Bargaining Agreement
SCM Abuse eventUIFWe
Inform official and allow 7-days to respond
Terminate
processInform
Council within
7-days
Full
investigation
See FMR 5&6
Inform
Council within
30-days
Recovery sanction
Sanction (MSA section 57A(3)
Reporting as per FMR 14, within 5-
days & Annual Report.
MFMA s 32 to consider
recoverabiity of funds at special
meeting
2. INVESTIGATION – 2.3. LIABILITY IN LAW OF OFFICIALS
See Figures 1.2; 1.3 & 2.5
See Figures 1.2; 1.3 & 2.1
INVESTIGATION: SUPPLIERS
Consequence Management SOP @ 2018 (Author: Helen Venter)
Fraud/FO
SAPS & SIU
Investigation confirms SCM Abuse
Other SCM Abuse events
Inform supplier of resolution and allow
them 14 days to respond
Consideration of evidence by relevant Body
Written/Hearing
Decision by relevant Body
No action
Inform bidder
Restriction
Collusion/Restrictive Practices
Competition Commission
Investigation confirms SCM Abuse
UIFWe
Investigation confirms
UIFWe resulting from
SCM Abuse
Investigation confirms SCM Abuse
Appeal to Council Committee
Confirm decisionReject decision
Inform bidder
2. INVESTIGATION – 2.4. LIABILITY IN LAW OF SUPPLIERS
See Figures 1.2; 1.3 & 2.1
See Figures 1.2; 1.3 & 2.5
See Figures 1.2; 1.3 & 2.1
INVESTIGATION: FINANCIAL OFFENCES
Consequence Management SOP @ 2018 (Author: Helen Venter)
UIFWe, Fraud and/or SCM abuse event linked to a financial
offence as per MFMA section 173
Council or AO report matter to SAPS After formal investigation
confirms Financial Offence of AO, officials or other persons
Likelihood of further financial loss, Council or AO must immediately
report matter to SAPS and not wait for completion of invstigation
Inform NT after successful prosecution
See Figures 2.1 - 2.4
2. INVESTIGATION – 2.5. LIABILITY IN LAW FOR FINANCIAL OFFENCES
TREATMENT: Ue
Consequence Management SOP @ 2018 (Author: Helen Venter)
Council authorise through Adjustments Budget
Unforeseen and
Unavoidable Expenditure
MFMA s 29(3)
Within 60 days
Main Adjustments
MBBR 23(6)(a)
By 28 Feb
Special Adjustments
MFMA s 32(2)(a)(i) &
MBBR 23(6)(b)
With Annual Report
No authorisation by Council
Recovery
See Figure 4.1
3.TREATMENT: 3.1. Ue
TREATMENT: IFWe
Consequence Management SOP @ 2018 (Author: Helen Venter)
Irregular
expenditure
Fruitless & Wasteful
expenditureFraud
SAPS & SIU
Report confirms Fraud and related
UIFWe and SCM Abuse
Criminal/Civil action
Update register
Appoint investigating officer
Conduct investigation
Prepare Draft Report
Independent Certificate of Review
Finalise report
Formal decision
Condonation/Irrecoverable Recovery
SCM Abuse
See Figure 4.1
See Figures 2.1 - 2.5
3.TREATMENT: 3.2. IFWe
See Figure 2.5
TREATMENT: SUPPLIERS (Restriction/Rejection)
Consequence Management SOP @ 2018 (Author: Helen Venter)
Rejection event
Inform supplier of resolution and allow
them 7 days to respond, unless
restricted (then just notify)
Consideration of evidence by relevant Body
Written/
Hearing
Decision by relevant Body (A0)
No action
Inform bidder
Right to appeal (MSA section 62)
Rejection
See Figure 2.4
3.TREATMENT: 3.3. SUPPLIERS (Restriction/Rejection)
See Figure 3.3
RECOVERY
Consequence Management SOP @ 2018 (Author: Helen Venter)
Investigation confirmed liability in law (POB/Official/Supplier)
Commence
Recovery
Raise Debtor
Debt Policy
Resolution by Authority
See Figures 2.2; 2.3; 2.4 & 2.5
4.RECOVERY
CONSEQUENCE MANAGEMENT SOP content
PART 1 ABBREVIATIONS, DEFINITIONS AND DESCRIPTIONS
PART 2 CONTEXT
PART 3 OBJECTIVES
PART 4 APPROACH
PART 5 APPLICATION
PART 6 MAINTENANCE
PART 7 IMPLEMENTATION
PART 8 GOVERNANCE AND REGULATORY FRAMEWORK
PART 9 ROLEPLAYERS ROLES AND RESPONSIBILITIES
CONSEQUENCE MANAGEMENT SOP content
PART 10 MANAGEMENT AND TREATMENT OF
UIFWe:
• RATIFICATION OF MINOR BREACHES
• UNAUTHORISED EXPENDITURE
• IRREGULAR EXPENDITURE
• FRUITLESS AND WASTEFULL
EXPENDITURE
• CONSIDERATION OF
CONDONATION/IRRECOVERABILITY
• ACCOUNTING TREATMENT
CONSEQUENCE MANAGEMENT SOP content
PART 11 MANAGEMENT AND TREATMENT OF
FINANCIAL MISCONDUCT/OFFENCES• NOTIFICATION
• RECORDING
• DETERMINATION OF VIABILITY
• FORMAL INVESTIGATION
• FORMAL DISCIPINARY PROCESS
• REPORTING AFTER FINALISATION OF
DISCIPLINARY PROCESS
• CONFIDENTIALITY OF PROCESS AND
OFFICIALS
• CLOSURE, MONITORING, EVALUATION
AND GENERAL REPORTING
CONSEQUENCE MANAGEMENT SOP content
PART 12 MANAGEMENT AND TREATMENT OF
SCM ABUSERESTRICTION OF SUPPLIERS/SERVICE PROVIDERS OR REJECTION OF BIDS:
• DUTY TO ACT
• POWERS OF THE MUNICIPALITY TO RESTRICT SUPPLIERS
• RESTRICTION OF SUPPLIERS/SERVICE PROVIDERS:
o NOTICE
o ACCESS TO INFORMATION
o ADJUDICATION MATTERS
o SANCTIONS
o NOTIFICATION OF DECISION
o INFORMING NATIONAL TREASURY
o UPLIFTING SANCTIONS
o ONUS
• REJECTION OF BIDS:
o NOTICE
o ACCESS TO INFORMATION
o DECISION
o NOTIFICATION OF DECISION
CONSEQUENCE MANAGEMENT SOP content
PART 13 GOVERNANCE STRUCTURES:
• MFMA section 32 COMMITTEE
• DISCIPLINARY BOARD
• SUPPLIER RESTRICTION COMMITTEE
CONSEQUENCE MANAGEMENT SOP contentPART 14 COMMITTEE FUNCTIONS:
• BUSINESS CASE
• TERMS OF REFERENCE
• BUSINESS OF COMMITTEE
• ETHICAL STANDARDS AND CONFIDENTIALITY
• ADMINISTRATION
• MEETING PROCEDURES
• MANDATES
• COMMITTEE FUNCTIONS
• COMMITTEE POWERS
• COMMITTEE HEARINGS
• APPEALS
CONSEQUENCE MANAGEMENT SOP content
PART 15 TAKING AN AFFIDAVIT
PART 16 FORM CONTROL
Consequence Management SOP templatesCM 001 Notification Form
CM 002 Case file cover page Form
CM 003 Checklist Form
CM 004 Registers
CM 005 Classification
CM 006 Declaration of interest and confidentiality
CM 007 SCM system abuse Management Decision Form re validity/viability of allegation
CM 008 IFW&U Management Decision Form re validity/viability of allegation
CM 009 Financial Misconduct Management Decision Form re validity/viability of allegation
CM 010 Referral to CFO Form
CM 011 Reporting to AO/Mayor Form
CM 012 Reporting to [State] Attorney Form
CM 013 Reporting to Ministers/AGSA/PT/NT Form
CM 014 Reporting to HRM Form
CM 015 Referral to FI/SAPS Form
CM 016 Referral to Chief Audit Executive Form
CM 017 Affidavit and Oath Form
CM 018 Case file logbook
CM 019 Report on IFW&U investigation to Committee
CM 020 Review Certificate Form
CM 021 File Closure Form
CM 022 Mandate for Investigating Officer
CM 023 Letter of demand
CM 024 Submission for condonation template
NOW FOR YOUR INPUTS
082 440 1886