Briefing by Special Investigations Unit on investigation of the Department

Meeting report

The Chairperson gave his opening remarks and cautioned the Committee that although they were free to ask any questions, some of the investigations were ongoing and were thus sensitive, containing information not to be revealed in public.

Special Investigating Unit Presentation
Mr Faiek Davids (Deputy Head: Special Investigation Unit) began by summarising his presentation and explaining the role of the SIU. Their mandate and legal scope was given, which included major functions such as their special powers, cooperation and what they could provide.

Threats to the departments within government were threefold; fraud, corruption and maladministration. The SIU used integrated forensic solutions. This meant that forensic audit and investigations, remedial legal action and systemic improvements were implemented. The SIU was able to provide complete forensic solution to state institutions and was a major counter to the private sector. The SIU methodology was to provide a project based forensic service, client focussed, included project management methodology, integrated forensic teams and a cooperative and integrated approach. It was considered a world-class forensic service.

The first partnership between the Department of Correctional Services (DCS) and SIU was signed in October 2002 and was primarily in response to the Jali Commission’s concerns. The SIU was focussed on medical aid and corruption in prisons. The SIU found various problems within the focus area of medical aid such as abuse of the DCS medical aid scheme and DCS officials and private doctors defrauding the scheme. The SIU provided the intervention, the success, the impact and the current position.

Their next focus was the correctional centres. The problems included corruption in the correctional centres. An intervention, success, impact and current position were described. The next focus area was pharmacies, first auto card fraud and asset management. The problems included the mismanagement of DCS pharmacies. The intervention, success, impact and the current position was explained. The DCS risks were prioritised. The DCS’s concerns shifted and the partnership between DCS and SIU had been extended in March 2006. Their focus area was procurement. Forensic audits in terms of tenders and quotes were performed. Irregularities and systemic concerns were identified.

Ms Suad Jacobs (Programme Manager for the DCS investigation) outlined the DCS Fraud Prevention Strategy. Case studies were presented to the Committee. Case studies were used to highlight the type of problems that occurred and the methodology used. The first case study was a feasibility study for a national tender and the allegation was that a consortium was to provide the feasibility study with a contract value of R1.5 million and had delivered no service, but had been paid. The investigation established among other things that the consortium should have been disqualified as they did not comply with VAT certificate requirements. They had also made various misrepresentations to the DCS and smaller partners had not benefited financially.

The second case study also involved a national tender. The allegation was that the service provider committed Black Economic Empowerment (BEE) ‘fronting’. Three front companies run by women were established to have commit fraud. The women did not receive any financial benefits.

The third case study outlined was a national tender awarded to an engineering consultant. The allegations were that the service provider submitted false invoices to DCS. The service provider had misrepresented to DCS and DPW that he was a qualified engineer. He was awarded a R10 million contract. The fourth case study was the undisclosed business interests of DCS officials.

The presentation concluded that although the SIU provided a range of forensic services, the fight against corruption was not the preserve of a single entity. Cooperation between DCS and SIU was vital to the success of the investigations. Working with other law enforcement agencies leveraged legal capacity and reached targets as part of a wider team.

Discussion
The Chairperson mentioned that the presenter had said that there was an improvement. However, in the presentation the same problem that had been investigated in 2002 was again later investigated.

Mr Davids replied it was correct to note that head office was not assessed as they currently were and neither had procurement matters been looked into. Many issues from a few years ago still existed, however, he did think that across the board there had been improvement. They wanted to curtail their submission to the areas that they had focussed on and to illustrate to the Committee whether there had been an improvement. Asset management at the pharmacies had not been looked into as intensely. Clearly there proper systems were not in place, but the system was only as good as the people who managed it.

Ms W Ngwenya (ANC) enquired as to the working relationship between the SIU and the DCS.

Mr Davids replied that initially they had worked very closely. Currently the relationship was managed at the senior level. The Commissioner took a strong interest. It was important that, when dealing with a department, one worked with senior management.

Ms Ngwenya asked if the DCS had implemented the recommendations of the SIU.

Mr Davids replied that DCS had recently established a Fraud Prevention Committee. Previously one of their difficulties had been to have a more structured and coordinated implementation of recommendations, and to ensure that at a senior level there was a drive to push the recommendations through the organisation. The Fraud Prevention committee had a brief that included monitoring the implementation of the recommendations. Progress had been made in the areas of the auto and petrol card and asset management.

Ms Ngwenya asked what measures did the SIU took to ensure compliance of their recommendations.

Mr Davids replied that unfortunately they did not have regularity orders. They did not have a mechanism that they could use follow up on whether implementations had taken place and how well they were working. It may be something for the Fraud Prevention Committee to be tasked with. He submitted that it could be an area that the Committee discuss with DCS.

Mr M Mahote (ANC) asked how often did the SIU monitor the implementation of their recommendations.

Mr Davids replied that the Fraud Prevention Committee could be improved. They had done a probe into the Fraud Prevention Committee's work done on governance to ensure that the committee become as effective as it intended to be. The head of the committee was knowledgeable in the area of fraud prevention.

Mr E Xolo (ANC) wanted to know if the SIU had been to the Durban-Westville Correctional Facility and what their observations were.

Mr Davids replied that the correctional centre had been visited a while ago as part of their programme when visiting the correctional centres. They had interviewed a number of inmates as part of the 140 000 national interviews. They had encountered a number of problems in pharmacy procurement. Organised fraud had taken place and the SIU had ensured the prosecution of a number of officials and of members of public and private sector.

Mr Xolo wanted to know how those suspected of maladministration were charged.

Mr Davids replied that the Public Finance Management Act (PFMA) made provision for a finance regulatory framework. Where they found that there was no compliance with the PFMA, it would be an area to probe maladministration. This often led to disciplinary enquiries.

Rev L Tolo (ANC) asked how the additional 433 officials were disciplined.

Mr Davids replied that when they made recommendations to departments there was often a time lag between their recommendations and the department acting on them. They would then submit a disciplinary file to the Department that included an allegation and what they recommended the person be charged with. Their engagement with the Department on the senior chief director level allowed them to track what had happened in those instances. The Department had made some inroads when dealing with some of the high profile discliplinary actions. At the monthly briefings the SIU received feedback.

The Chairperson interjected that the discipline of the officials was dealt with by the DCS and they should be questioned.

The Chairperson wanted to know what happened to the medical doctors.

Mr Davids replied it was a concern. Professionals that committed such blatant fraud appalled them. The Minister had raised the issue that there medical practitioners that gave medical certificates to people who were healthy and in this instance they were found to have colluded. They had found claims at the previous medical aid scheme, Enos, that included sunglasses and fridges. That had resulted in prosecution. Often they were not able to prove a criminal case. However but they could they liaise with the Medical Professions Council and to date they had struck four medical professionals off the role. They were a number of cases currently with the National Prosecuting Authority (NPA).

The Chairperson wanted to know when the cases would be prosecuted from the time that the SIU had investigated the issue. With other cases the NPA was quick to act.

Mr Davids replied that they had been involved since 2002 and the investigation had taken some time and that they worked with the Special Commercial Crimes Unit or the Scorpions. In 2005/06 they had begun to refer cases to the NPA for prosecution. They should give the Chairperson a written update and where delays were found unacceptable the Committee could take further steps.

Ms L Chikunga (ANC) asked how the SIU’s lack of powers to arrest affected their work.

Mr Davids replied that their focus was different but it did not mean that they were ineffective. They had been able to uncover criminal conduct. Along with the SAPS and other agencies they had been able to present a case as often as they needed assistance. They often liaised with the NPA to ensure that prosecutor was appointed that they could work with. They also had a lawyer internally that had prosecution experience. The emphasis was on cooperation. It was a challenge.

Ms Chikunga asked if SIU was immune to corruption.

Mr Davids replied that no agency was immune to corruption. They could only reduce the risk of their own members being corrupted and as yet had not experienced any instances of corruption. They had a rigorous integrity vetting and streaming system in place when members entered the organisation. Once they were part of the organisation they insisted on doing random lifestyle audits that included disclosure of business interests. Where they had come across improper behaviour it was dealt with decisively. He added that the SIU as established under the SIU Act. They reported to the President and to Parliament after an investigation. They did have a duty to Parliament to be objective and independent. Although they receive their funding from DCS they were not primarily responsible to DCS.

Mr M Cele (ANC) asked about the progress on the issue of the procurement contracts.

Mr Davids replied that they were dealing with the current service level agreement. The DCS concerns had shifted to integrity of their financial systems and control over assets management. The problem was quite severe. The perception would get worse before it got better. The partnership had been extended and its focus was specifically on procurement, large contracts, the integrity of procurement officials, the systems and the processes. The difficulty in this area was that it was skill intensive. It required multi-disciplinary skilled people such as forensic accountants and lawyers and investigators.

The Chairperson commented on the fact that R6 billion was paid for a hotel that was now standing empty and enquired as to what had happened in that investigation.

Mr Davids replied that part of the problem was that there was a lack of transparency in the bigger contracts in the Department. They had been able to look at the contracts and do an audit that they had started twelve to eighteen months ago, which was significant. There were some ongoing investigations that they were not permitted to discuss. There was a slide in their presentation that identified some systemic problems. They were looking at the red flag concept but also at improving things, such as document management, which was important. They were encouraged with the appointments made recently, especially at senior finance management level.

He added that the matter was an unfortunate set of events. They had finalised that investigation and made their recommendations, which included that the R6.9 million be recovered from the Department of Public Works (DPW) as improper payments had been made. There were accountability issues. They thought that the manner in which the contract had been entered into was not proper. He thought that there might be a transfer of the money.

The Chairperson noted that the money should be recovered. In the same vein DCS should take disciplinary action against the procurement officials. He asked who had signed the contract.

Mr Davids replied that it was understood that DPW was responsible for payment. At the time the DCS had an account with the DPW and as such the transaction had been improperly entered into. It was recommended that the official be dealt with. He added that asset management remained a focus area and would continue to remain one until the SIU was satisfied.

Mr J Selfe (DA) noted that there was progress. In the initial presentation they spoke about tender rigging and the collusion between tenderers and officials. He asked if the SIU was aware of a well-documented case that alleged a tender was initiated for nutritional services and only one tenderer could bid for the tender. The allegation was that certain DCS officials had rigged the tender in such a way that only one company could bid for it.

Mr Davids was familiar with the general allegations and concerns regarding the nutrition service providers and bias towards particular service providers. They had looked at the allegations and were in the process of auditing the processes for the tenders. Where there was a concrete allegation they would take further steps.

The Chairperson added that if it was under investigation then the SIU should not be compelled to reveal too much. During the processes of the tender of the outsourcing of the kitchens one company’s bid was R30 million cheaper than the one that won the bid.

Ms Ngwenya suggested that perhaps the Department should be called to explain this to the committee.

The Chairperson responded that was exactly what they would do.

Mr Mahote referred to the consortium that did not comply with the VAT requirements and asked if they were awarded the tender.

Mr Davids replied that the tender was given and it should not have been given.

The Chairperson noted that the company was given the opportunity to rectify their situation. Furthermore, he asked, what rank of officials was dealing with tenders.

Ms Jacobs replied that they were senior managers above the level of director.

Mr Tolo asked about the twelve officials that were recommended for disciplining because of un-disclosed private business interests, if they were disciplined, and as to their rank.

Ms Jacobs replied that the investigation was completed in June 2007 and that they were all correctional officers at level one and two.

The Chairperson noted that it was senior people that the SIU indicated as perpetrators.

Mr Selfe was concerned with the extension of an already awarded contract and the issue was that it was awarded without it having to go through the tender process. He asked if the SIU had that information and if not should he give it to them.

Mr Davids replied that the SIU was not aware of this and would welcome the information.

The Chairperson wanted to know how many contracts were involved in undisclosed private business interests.

Ms Jacobs replied that there were various contracts, generally under R30 000.

The Chairperson wanted an indication of the building that cost R10 million and where it was situated and what was it supposed to be.

Ms Jacobs replied that the investigation all four correctional centres were within the Eastern Cape area. The four correctional centres had requested buildings to be built and repairs that needed to be done. The engineering consultants had failed to do the job that was required.

The Chairperson wanted clarification on the building sites.

Ms Jacobs replied that they related to small buildings. The process was that DCS would inform DPW that they needed changes. DPW would then place the advertisements. The service provider would then appointed. The service provider would complete the work for DCS and then report back to DPW that they had finished their work. The DCS had not received the service. The DPW acted as an agent in this sort of case and authorised the payments.

The Chairperson remarked that the DCS was also to blame as they did not perform any oversight duties.

The Chairperson asked about the three ladies who were the owners of the companies that had been defrauded and whether they had laid charges against those that had defrauded them.

Ms Jacobs replied that the three ladies had gone to the State Tender Board to complain that they had not been empowered. The SIU had obtained statements from them and had initiated the investigation.

The Chairperson asked about he building of four prisons since 2002 and if it was also being investigated. He asked this because there was an allegation that funds were re-channelled to other things.

Ms Jacobs replied that no investigation had been initiated into those re-channelled funds.

Mr Mahote was concerned by the involvement of the DPW. They had authorised a big amount and had not followed up. He suggested that when they met with DCS that DPW and the accommodation portfolio committee attend the meeting as well.

Mr Davids replied that the SIU were also working with the DPW. They would probably do a similar integrated intervention with DPW.

The Chairperson mentioned that DCS was busy with a big project. The SIU had discovered that the vetting process was not done properly at DCS. He asked if the concerns had been raised with regard to the project.

Mr Davids replied that their comments referred to the context and the project that the Chairperson was referring to he was vaguely aware of. DSC had recognised the gaps and the SIU had been asked to make an input.

The Chairperson asked why the SIU was not working with the National Intelligence Agency (NIA).

Mr Davids replied that they did not have an operational relationship with NIA. He had an informal discussion with the Deputy Director General of NIA with regard to a more collaborative arrangement.

The Chairperson asked what the cost had been for the investigation from 2002 to 2006.

Mr Davids replied that the first contract ranged from R5.5 million to R6 million per year. Currently the DCS's contribution was R10 million per year. Because of the particular focus of the contract they were also using their own baseline.

The Chairperson mentioned that it was taxpayers’ money. They needed an outcome. He used the example of the Jali Commission and that only one person that he knew of had been arrested and that approximately R40 million had been spent on that commission. The Committee would call the Minister and the national commissioner to report to the Committee on this issue.

He thanked the delegation from the SIU.

Consideration of Minutes
The Chairperson proposed the adoption and consideration of the minutes dated 6 and 13 May 2008 be moved to the first item of the agenda at their next meeting, since they were waiting for some documents.

The Chairperson adjourned the meeting.