Scenes from a conference: Gauteng MEC for finance Mandla Nkomfe with Jaco de Jager
Johann Barnard
One of the most astonishing acknow-ledgements at the International Fraud Awareness Seminar hosted at Gallagher Estate in Midrand on November 16 was that there are no reliable or conclusive figures on the extent of fraud and corruption in the country.
This admission was made by Jaco de Jager, chief executive of the local chapter of the fraud examiners industry body ACFE, who said that statistics were not gathered centrally and that organisations and industries used differing definitions, thereby further complicating the issue.
"You won't get a statistic from the banking sector or the insurance sector — it's all thumb-suck, unfortunately," he said. "And that leaves another loophole, something that we need to work towards to really know the impact of fraud. We need to understand that known losses are an indicator that there is a problem, but we have more fraud occurring that we are unaware of.
"We are fighting a war for our economic freedom and to get rid of all the syndicates and fraudsters because what they do has huge impact on all of us."
He proposed that a structure be created through which statistics on all cases could be gathered, using standardised metrics and definitions to ensure the accuracy of the information.
The event was hosted by the Gauteng provincial treasury in recognition of International Fraud Awareness Week, and in the lead-up to International Anti-Corruption Day, as a means to create partnership between the public and private sectors to upskill and educate provincial officials on ways to combat this scourge.
"Organisations around the world lose an estimated 5% of their annual revenue to fraud. We are in this together; that is why there is a need for the public and private sector to work very closely to develop and implement strategies aimed at combating this challenge," said Gauteng finance MEC Mandla Nkomfe in his opening address. "We need to urgently work to prevent those who operate with impunity and continue to pillage the resources that we could have used to facilitate growth and development in this country and beyond."
He said that Gauteng accounts for the majority of the cases of alleged fraud and corruption reported through the national anti-corruption hotline, with 42 cases reported between April and September this year. This included allegations of corruption, fraud, procurement irregularities, misappropriation of funds, unethical behaviour, reckless driving, appointment irregularities and theft.
"Action must be taken against those who will be found guilty, even if people need to be criminally charged and prosecuted. This will send a strong message that fraud and corruption will not be tolerated under any circumstances, no matter the status and position of the person involved," he said.
Beerson Baboojee, chief director for risk management support at the national treasury, said that it appeared that the incidence of fraud was decreasing, but that the value was increasing. He said that bodies such as the Gauteng provincial treasury were showing good progress in reducing both the incidence and value.
"In a developing state, the effects of corruption are amplified, so every tax rand that is pilfered has a magnified effect," he said. "Investigating fraud and corruption are not the prime responsibility of the national treasury, but we will step in when the accounting officer is unable or unwilling to deal with fraud or corruption in their department. Treasury's strategy is centred more on preventative measures." The country's ability to develop was being hampered by the allocated money being diverted to the pockets of the greedy and corrupt. The impact was also felt in ratings agencies losing confidence in the economy and South Africa as an investment destination.
Baboojee said that the area hit hardest by fraudulent and corrupt practices was supply chain management. Problems in supply chain management seem to be a free-for-all.
"The special investigations unit has reported annually about R30-billion is lost to fraud, corruption and waste in the procurement system. It is an area that needs specific attention," said Baboojee.
He said that there is significant disregard for due process and manipulation of bids. In certain cases this may be due to ignorance, but the majority showed deliberate manipulation to subvert the system.
Typical practices that were used include procuring outside of transversal contracts that are managed and monitored through the national treasury, conflicts of interest and fronting, and excessive use of variation orders.
One disturbing trend, he said, was the creation of so-called "project management offices" in departments to flout the regulations.
"They often become a law unto themselves and create their own processes that are contrary to the supply chain framework," he said.
Discussing the contributors to fraud and corruption, he said that one in 20 individuals were likely to look for such opportunities, while as many as one in five would take an opportunity if it presented itself.
"It occurs where motive, opportunity and justification converge. And opportunity exists where there is weak legislation or where there is poor oversight of that legislation. The paradox is that in this country, anti-corruption legislation is quite robust.
"One reason why our legislative frameworks are not as robust in application as they should be is that there seems to be a lack of political will to deal with it holistically," said Baboojee.
The weak whistle-blower framework was another inhibitor for instilling a sense of fear in those perpetrating such actions.
Nkomfe committed himself and the provincial government to dealing decisively with fraud and corruption, which he said was guided by the Gauteng anti-corruption strategic framework. This calls for a holistic, integrated and pragmatic approach to intensifying the fight against crime and corruption.
"This strategy applies to all unethical conduct, fraud, corruption, or suspected irregularities involving political principals, all employees and officials and municipalities, consultants, suppliers, contractors and other providers, non-governmental organisations and agencies. We are also aware that there is more work to be done."
De Jager is sure to applaud the call for an integrated approach, as he believes it is needed to start calculating and collating the cost of criminal activities.
He intimated that the nature and target of fraud and corruption are expected to change, with the ACFE reporting this year that it foresees an increase in healthcare and medical fraud in the next five years.