SIU investigation conducted into UIF

Meeting report

The Chairperson welcomed everyone to the meeting. He said the Committee would receive a briefing from the Special Investigating Unit (SIU) on its investigations into the Unemployment Insurance Fund (UIF) Temporary Employee Relief Scheme (TERS). He handed over to the SIU to take Members through the presentation.

Adv Andy Mothibi (Head of the Special Investigating Unit) expressed his appreciation to the Committee for allowing the SIU to present its findings on the investigations into the UIF TERS Scheme.

Briefing by the Special Investigating Unit on the investigations conducted into the Unemployment Insurance Fund TERS Scheme

Ms Zodwa Xesibe (Acting Chief National Investigations Officer of the SIU) and Mr Leonard Lekgetho (the SIU Chief Operating Officer) took the Committee through the presentation. The report covered two proclamations: Proclamation Number R23 of 2020, published on 23 July 2020, which has been finalised, and Proclamation Number R8 of 2021, published on 1 April 2021, which is ongoing.

Under the first proclamation, the SIU investigated allegations of maladministration during the procurement of media buying, the issuing of purchase orders, rendering of services, and the appointment of five media houses who were said to have the sole mandate of running a radio advertising campaign to create awareness about the TERS. These companies were appointed in a closed tender process by the UIF following a request from the UIF’s bid adjudication committee to deviate from normal procurement processes. The request was found to be misleading because the deviation was based on emergency and sole source. In its investigation, the SIU found that the five media houses were not the sole service providers, nor had they claimed to be. The media houses had only claimed a sole mandate regarding the products they offered, contrary to what the bid adjudication committee had claimed.

In consultations with the Independent Communications Authority of South Africa, the SIU found that the UIF was supposed to have gone out on an open tender process. It further found that the payments, amounting to R6.14 million, to the five media houses were irregular. Based on its findings, the SIU referred evidence pointing towards misconduct by senior officials in the UIF, all the way up to the Commissioner.

Under Proclamation Number R8, it was tasked with investigating maladministration in the payment of TERS to persons who were not entitled to receive the benefit or who submitted false, irregular, or defective applications, as well as any unlawful conduct by persons or entities. There are two phases of the investigation. Phase I focuses on government employees, South African National Defence (SANDF) members, and deceased persons who received the TERS benefit. Phase II looks into entities that claimed and received TERS benefits.

At least 6,000 employees were identified within 24 government departments. A total of 164 matters relating to SANDF members, inmates, and deceased individuals were received, of which 80 have been finalised so far. In most of the cases, identification documents (ID) were fraudulently used to receive TERS. Thus far, the SIU has been able to recover R229 million.

The report noted weaknesses in the UIF's risk mitigation systems and a lack of due diligence on the part of the entity’s officials. It also noted several instances where government employees had benefited from TERS, and how several companies submitted fraudulent claims for their ex-employees. To remedy some of the weaknesses, the report recommended that the UIF integrate its systems with those of the Department of Home Affairs to verify deceased persons, foreigners, and duplicate identities; for there to be an annual update of the employee and payroll database; and updating its information technology (IT) systems.

Adv Mothibi pointed out that the SIU would maintain contact with the UIF to assist it in consolidating a plan to implement the recommendations and a monitoring and evaluation (M&E) system, with the ultimate aim of drawing up a prevention plan.

All of the officials, the SIU, found evidence of wrongdoing in the procurement of the contracts worth R6.1 million, and were all given final written warnings and a deduction of one month’s salary. The SIU did not believe the sanction befitted the wrongdoing committed by the officials, and raised this with the UIF. Applying inadequate consequence management, or not at all, seemed to be a problem across state institutions. All the SIU can do in such instances, according to the legislation, is to review the outcomes of the disciplinary processes. In its deliberations with the UIF, the SIU suggested that the cases of those officials flagged for wrongdoing be referred for legal action.

The Chairperson asked how inmates ended up benefitting from TERS.

Adv Mothibi responded that those instances brought into question the efficacy and rigorousness of the TERS application process.

Ms Xesibe explained that the SIU audited the ID against the data it obtained from the Department of Correctional Services and discovered that some inmates had claimed to benefit from TERS.

Adv Mothibi said it appeared that when the Scheme was first announced, many individuals saw an opportunity to benefit by making fraudulent claims. One of the main problems at the time was that the UIF did not have the capacity to review each application to verify whether the applicants qualified to benefit from the Scheme or not.

Mr Lekgetho indicated that the SIU found that some foreigners had used stolen ID numbers of incarcerated individuals to make fraudulent claims to TERS. In other instances, the SIU found that certain companies claimed on behalf of their former employees, who were now found to be incarcerated.

The Chairperson explained to members of the public that the government introduced the UIF TERS during the height of the COVID-19 lockdowns. Employers must pay their employees a stipend to sustain them and avoid retrenchment.

Adv Mothibi added that TERS was one of the measures introduced to mitigate the disruptions caused by the lockdowns implemented during the Covid-19.

The Chairperson asked the SIU to elaborate on how the fraudulent schemes were carried out.

Mr Lekgheto said that in most instances, companies submitted a list to the UIF that included the names and ID numbers of individuals who had resigned or retired years before. In other cases, previously dormant companies approached certain communities' traditional authorities to offer individuals jobs falsely. Those interested were then requested to write down their ID numbers and other personal information. The companies in question falsely claimed that these individuals were their employees in their application to the UIF for TERS.

During the investigations, the SIU found that some beneficiaries were government employees doing remunerative work after hours, which they did not declare. These officials used the companies they were working for after hours to claim TERS benefits, while other government employees used their own, undeclared, companies to claim benefits. The investigation also found that certain schools made claims for their temporarily employed teachers.

Adv Mothibi indicated that the SIU could provide further details on how the fraudulent claims were made.

Ms Xesibe highlighted that in one instance a doctor purported to represent all of the taxi associations based in the Eastern Cape and made claims on behalf of all the taxi drivers in the province. The doctor subsequently misappropriated the funds released by the UIF for the drivers.

The Chairperson invited Members to pose questions or make comments.

Discussion

Mr A Beesley (ActionSA) was surprised that the UIF dismissed no officials for the offences committed, which underlined the broader issue of a lack of consequence management across government. He felt this was because those in charge of the disciplinary hearings had, at some point, committed misdemeanours and were thus conflicted. Moreover, some had been intimidated by external individuals. The government could consider having independent disciplinary hearings to resolve the conflict of interests.

In addition, he was disappointed to hear that the UIF did not do a few trial runs before making payments to beneficiaries because doing so would have saved money. In his view, it seemed commonplace for government IT systems not to be fit for purpose.

After saying that he asked the SIU questions on whether recommendations were made to request that the National Treasury blacklist the five media houses; why only 174 disciplinary referrals had been made when 6000 employees were found to be double dipping (receiving a salary from the state but also benefiting from TERS); whether recommendations to blacklist the 760 entities involved in the fraudulent claims had been made; and for clarity on what the acronym FORDAD stood for.

Ms H Neale-May (ANC) was surprised that the money allocated to the taxi drivers was misappropriated, and she asked which province this took place in and the association in question. In addition, she asked how the foreigners could obtain the IDs of the inmates; whether the inmates in question were found to be incarcerated in the same prison; and what the ranks of the SANDF members who were found to have fraudulently benefited from the Scheme were.

In her view, the investigations' findings provided a good opportunity to examine the declarations of state employees accused of double dipping and the prevalence of this practice across the government. She suggested that the committee should consider what mechanisms could be used to ensure that proper consequence management is taken against officials found to have been involved in wrongdoing.

Mr P Atkinson (DA) noted that several government employees were involved in the fraudulent claims, and he asked if they made those claims themselves or through officials in the SIU.

In his view, the senior officials in the UIF should lose their jobs because they cannot detect the extent of the fraud.

Mr F Essack (DA) noted that 545 cases had been finalised and asked what the progress was on the other 215 that were still outstanding. In addition, he said that the UIF hired 12 auditing firms to conduct the very same investigations being done by the SIU, and he asked how it was possible for the UIF commissioner to approve that decision. He stressed that strong action be taken at the UIF against those involved in the wrongdoing, particularly those at the senior level.

Mr D Skosana (MK) asked why the members of the bid adjudication committee were not dismissed after being found to have made a misleading recommendation.

Adv Mothibi agreed that the outcomes of the disciplinary processes against the 174 officials were demonstrative of weak consequence management and may warrant further consideration by the government regarding the use of independent disciplinary panels. He said the SIU would engage the Departments of Public Service and Administration and Monitoring and Evaluation on this suggestion.

Regarding the alleged fraud committed by the doctor, he said this took place in the Eastern Cape province.

On how the foreigners obtained the IDs, he mentioned that the SIU considered this question throughout the investigation, and it resolved that identity theft could not have been committed without some level of collusion. However, other law enforcement agencies would need to probe this further.

The SIU recommended to the Department of Public Service and Administration that the government use the findings to institute lifestyle audits on the officials who were found to have been double-dipping to determine whether they were using their own companies to claim for TERS.

The SIU was not pleased with the UIF’s decision to appoint 12 auditors to conduct parallel investigations on its own, as this would duplicate functions and lead to the agency incurring irregular expenditures. At present, the UIF commissioner is on suspension for allegations regarding an irregular contract, which the SIU is considering requesting a proclamation to investigate.

Ms Xesibe indicated that the five media houses submitted their letters to the department stating their sole mandates to sell campaigns, airtime, and to negotiate overall partnership on behalf of their radio stations. The media houses did not state they were solely mandated to provide media services. However, officials at the department misread the letters and then misled the bid adjudication committee by saying that the media houses had the sole mandate to provide all media services. As the error was on the part of the department, the SIU could not make any referrals for action to be taken against the companies in question.

The Chairperson asked the SIU to clarify whether this matter referred to five media houses or companies with a sole mandate to represent five media organisations.

Ms Xesibe said it was the latter.

The Chairperson then asked what the officials at the UIF had misread.

Ms Xesibe clarified that the officials misread the letters stating that the companies were the sole service providers in the media industry that could run the department’s radio campaigns.

The Chairperson asked what the impact of that assumption was.

Ms Xesibe said this meant that the tender was closed and not competitive.

The Chairperson did not understand why a tender would have been awarded for these services.

Mr Xesibe said the UIF required service providers that would run radio advertising campaigns to create awareness of TERS. The media houses availed themselves to the department and said they had the sole mandate from certain radio stations to offer the services required.

The Chairperson understood the SIU’s explanation but did not understand why the UIF had to publish a tender for these services. Nevertheless, he thought it would only be fair to pose the question directly to the UIF when it next appeared before the Committee.

Ms Xesibe, in response to the question of whether government officials had made the claims themselves, said the investigation found that companies and entities had submitted the applications on behalf of government employees. Many of the employees were left unaware and did not benefit from TERS.

She explained that FORDAD referred to the Forensic Data Analysis Division within the SIU. It is responsible for analysing data across government departments to detect anomalies.

Regarding the fraud committed by the doctor, she explained that the individual in question is not a medical doctor but received a doctorate in another discipline. Given his/her close relationship with taxi owners, the said individual entered into agreements with Eastern Cape taxi associations that gave him/her the right to represent the associations. The said individual charged R1500 per claim based on an administrative fee and received millions of Rands.

She added that some of the provinces were yet to conclude their investigations for Proclamation R8.

Mr Lekgetho, in response to the question on the rank of the SANDF members, said the SIU, through its investigation, found that most of the SANDF members did not claim for TERS and the claims were made by foreigners who had stolen their IDs. Most people who stole the IDs were prosecuted through the SIU, working with the South African Police Services (SAPS). The inmates whose IDs were stolen were located in different prisons, and not one. Some of the companies submitted claims unaware that their former employees had been incarcerated.

Most of the disciplinary hearings referred to people in the Department of Health who failed to declare that they worked after hours in other companies. The companies they worked for made claims using the correct procedures, but they did not know their employees also worked for the government. There were also recorded instances where companies that made legitimate claims did not pass on the funds to the recipient.

Regarding why members of the bid adjudication committee had not been dismissed, he indicated that the SIU will make a follow up with the UIF on its referrals.

Mr Mashudu Neshikweta (Forensic Investigator Specialist at the SIU) explained that when the SIU’s investigators were conducting phase II of the investigation they approached companies that submitted fraudulent claims or continued to claim even after their operations resumed. This went against the TERS claims memorandum of agreement signed between the employer and UIF, which stated that immediately once an employer fully resumes their operations, they are supposed to claim from UIF. However, several companies ignored this and continued making claims to TERS.

When the SIU investigators contacted the companies, they said they were negotiating with audit firms that had already approached them. The SIU approached the UIF to inquire about this development, and the UIF mentioned that it had hired 12 audit firms to conduct preliminary investigations on the allegations. The UIF added that it would provide the SIU with a final report on the findings of the investigations. The SIU was surprised by the UIF’s decision and argued it would amount to irregular expenditure because the audit firms would be conducting the same work it was tasked with under the proclamations.

The Chairperson asked if there were employers who were uncertain whether they could claim TERS. Moreover, were there instances where UIF officials appeared to have had difficulty applying the regulations?

Adv Mothibi said the regulations released by the National Treasury allowed for a measure of emergency to be applied in processing and releasing TERS funds. Many state institutions did not follow the rules correctly and acted as if it was a full emergency. The SIU was unable to obtain clear answers during the investigations, why the officials acted in this way. Based on its observations, the SIU believed that most officials did so to benefit irregularly, fraudulently, and in many instances, corruptly.

Mr Lekgetho highlighted that in most instances, the employer was unsure which employees they could claim for and when. In many instances, companies used this as an opportunity to make extra revenue, with some making claims even though they were operating during that period.

In its investigation, the SIU found an issue with the system integration with CIPC and others and that the officials did not perform proper due diligence.

The Chairperson was certain that many entities and individuals had taken advantage of the systems' weaknesses, which he felt gave the impression that the UIF was not properly prepared to roll out TERS.

Adv Mothibi felt that the investigation findings allowed the government to improve its risk mitigation processes, find better ways to integrate its systems across departments, and strengthen its checks and balances. The SIU believed that where officials were found to be conducting wrongdoing, they should be disciplined and referred for prosecution if necessary. The SIU, he continued, would continue offering its services to assist the government in building the capacity to implement these functions.

The Chairperson was pleased with the SIU’s contributions to the meeting and thanked the SIU for its work during the investigations. After that, he closed the meeting.

The meeting was adjourned.