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

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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

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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

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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}

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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

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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”

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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)

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