PRESENTATION TO THE PORTFOLIO COMMITTEE ON THE

FORENSIC AUDIT THAT WAS CONDUCTED DURING 2005

29 May 2006

PURPOSETo:-

– Brief the Portfolio Committee on the background on issues leading to the institution of forensic audit.

– Brief the Portfolio Committee on the Department’s response to the findings of the forensic audit report.

– Provide the Portfolio Committee with Planned corrective action to avoid recurrence of the situation.

BACKGROUND ON ISSUES LEADING TO COMMISSIONING A FORENSIC AUDIT

Towards the last quarter of the previous financial year (2004/05) a large number of suppliers lodged complaints ranging from delays by the Departments in effecting payments subsequent to the delivery of goods and/or services rendered, some officials within the Department demanded that some service providers resubmit copies of the delivered invoices more than once before a payment could be effected and certain officials of the Department could not explain or get back to them with regard to the queried payments.

Follow up internal reviews indicated that Basic Accounting System (BAS) payments that have been effected to some service providers/suppliers were diverted to different bank accounts which were not of the service providers/suppliers as indicated in the Department’s accounting records but belonged to fraudsters.

BACKGROUND ON ISSUES LEADING TO COMMISSIONING A FORENSIC AUDIT

Officials responsible for effecting payments and maintaining records in this regard could not explain these anomalies and sent signals to management that there were problems.

The Accounting Officer was immediately briefed, requested appoint a firm of forensic auditors and to suspend the implicated officials with immediate effect.

AUDIT PROCESS

A tender was advertised in June 2005.Awarded to the consortium of accounting firms July

2005.Auditors obtained an understanding of operations of

the Department’s finance and Logistics processes during August and September 2005.

BAS and PERSAL Data obtained from National Treasury’s systems division between September and October 2005.

AUDIT PROCESS

Final BAS data provided to the Forensic Auditors in November 2005 after clarification of several discrepancies between data on BAS and the data maintained by Systems.

Forensic audit report presented to the Director of Finance 14 December 2005 and distributed to the Accounting Officer , Chief Financial Officer and Director Internal Audit.

16 January 2006 Director Financial Administration briefed Accounting Officer and internal stakeholders on the findings.

DEPARTMENT’S RESPONSE TO THE FINDINGS OF THE FORENSIC REPORT

February 2006

Accounting Officer task Security and Counter Corruption and Internal Audit units to liaise with Financial Intelligence Centre and other Law enforcement agencies to seek support and cooperation in dealing with the findings.

Accounting Officer consider and accept the recommendations of the Chief Financial Officer in light of the Findings.

The matter is handed to Labour Relations to proceed with the recommendations.

DEPARTMENT’S RESPONSE TO THE FINDINGS OF THE FORENSIC REPORT

March to May 2006Due to the sensitive nature of the case several

workshops between Finance , Labour Relations, Forensic Auditors and Labour specialists were held to design strategy in dealing with all officials who were implicated by the report.

Charge sheets signed off.Disciplinary hearing scheduled (29 May 2005 to 15

June 2006)

DEPARTMENT’S RESPONSE TO THE FINDINGS OF THE FORENSIC REPORT

Action plan Since the suspension of the twelve officials the Branch has reprioritised,

streamlined its processes and increased its capacity through new appointments in the logistical services to relieve the remaining personnel in the Branch. Based on the evidence gathered against the nine suspended officials we believe that the disciplinary action will result in a dismissal of the nine officials and the Branch has put the following corrective measures in place:

• All identified control weaknesses within the payment section have addressed;

• Data capturing unit has been incorporated into the financial administration directorate with the purpose of retraining data capturers to become accounting administrators;

DEPARTMENT’S RESPONSE TO THE FINDINGS OF THE FORENSIC REPORT

• All funded vacant posts in the four directorates are in the process of being filled and the process is to be finalised before the end of the 2005/06 financial year;

• Units and methods of handling and processing requisitions, orders and suppliers’ invoices have been reviewed;

• All officials at the financial administration directorate are receiving twenty hours per month on the job training that relates to the financial operations and related controls;

DEPARTMENT’S RESPONSE TO THE FINDINGS OF THE FORENSIC REPORT

• Banking has been automated to allow an independent verification of suppliers’ banking particulars;

• Formalisation of service level agreement (SLA) with National

Treasury and three Commercial Banks (ABSA,FNB and Standard) is on course in order to combat money laundering and to confidentially report all suspicious account holders that get deposits from the Department of Home Affairs; and

• Implementation of periodical (every Wednesdays) processing suppliers’ invoices with a credit transfers in order to control the verification of payments from Departments’ Pay-Master General account on Thursdays.

I THANK YOU