IMFO ANNUAL AUDIT & RISK INDABA, EAST LONDON, 21-23 May 2014
Paper: Mr T Mthethwa
Chief Executive Officer
Public Protector South Africa
22 May 2013
ENHANCING SYSTEMS OF FUNCTIONAL INTERNAL
CONTROLS
AND
GOVERNANCE
PROCESS
TO
OVERCOME FRAUD AND CORRUPTION IN THE PUBLIC
SERVICE
2
Contents
1.
INTRODUCTION........................................................................................................................ 3
2.
CORRUPTION: EFFECT AND CAUSE ................................................................................. 4
3.
ENHANCING SYSTEMS OF FUNCTIONAL INTERNAL CONTROLS............................ 6
3.1
Building a national integrity framework in the fight against corruption............................... 6
3.2
Focus Areas and interventions ................................................................................................ 8
4.
GOVERNANCE PROCESS ..................................................................................................... 9
4.1
Governance in the public sector .............................................................................................. 9
4.2
Network of oversight and accountability bodies and the mandate of the Public
Protector .................................................................................................................................... 12
4.3
Public Protector’s role in promoting good governance in the fight against corruption .. 13
a)
Reinforcing a strong tradition of civil society........................................................................ 14
b)
Monitoring compliance with and respect for the Rule of law ............................................. 14
c)
Entrenching Constitutional values of transparency and accountability .......................... 15
d)
Reconciling the citizen with the State ................................................................................... 15
5.
CONCLUSION ........................................................................................................................ 15
3
1.
INTRODUCTION
In most economies, public expenditure forms a significant part of gross domestic
product (GDP) and public sector entities are substantial employers and major capital
market participants.
In order to fulfill its wide range of Constitutional functions, the South African public
sector must satisfy a complex range of political, economic, social, and environmental
objectives. This subjects it to a different set of external and internal constraints and
incentives from those in the private sector.
In South Africa, as in the rest of the world, there are growing concerns about the
massive consequences of non-adherence to sustainable economic practices in the
Public Sector. It diverts public funds into unnecessary, unsuitable, uneconomic and
actually, “undemocratic” projects with the primary objective to serve the interests of a
few individuals at the expense of the country and its citizenry.
While enhanced regulation and stricter law enforcement have been the usual
response to misconduct and corruption in the public sector, the very essence of
corruption, which is invariably committed in secrecy, with few witnesses, if any, and
between willing participants, means that the normal crime-busting agencies are illequipped to deal with it.
South Africa, like other countries, has embarked on a
significant reorientation to promote ethics and the principles of good governance,
stressing openness, transparency, information, competition, sanctions, incentives,
clear rules and regulations as adjuncts to the limitations of law.
It is increasingly evident that effective frameworks for controlling mishandling of
public funds have to embrace programmes for the development of a strategies for
strengthening the rule of law, judiciary systems and legal infrastructure, effective and
efficient civil services, and good governance in the public and private sector, which
include exchanging information and experiences.
A values-based approach alone, however, is inadequate: corruption is as much
about systems as about individual conduct. While prevention and control through
the enhancement of systems of functional internal controls are vital, the governance
process seeks to speak to the single most important factor in the combating of fraud
and corruption – the human element. Hence, codes of conduct, administrative law
4
mechanisms, whistle-blower protection, effective auditing, monitoring and law
enforcement systems, and training in and support of ethical conduct are essential
components of an ethical environment.
2.
CORRUPTION: EFFECT AND CAUSE
Corruption in public procurement is the primary cause of poverty in Africa, fostered
by poor governance and weak legislation. According to World Bank and African
Union surveys, public procurement corruption costs Africa $148-billion a year and
worldwide it is estimated to be $390-400 billion per year.1
In South Africa, a recent report of the Auditor-General found that unauthorised
expenditure of public funds amounted overall to R2.9-billion (per year), irregular
expenditure a staggering R28.3-billion, while fruitless and wasteful expenditure rose
to almost R1.8-billion.
The consequences are obviously immense.
The SA Institute of Race Relations
calculated what could have been paid for by the state with the wasted money:.
a) Child-support grants could have been paid for 7.4 million children – 70% of
those currently being paid out;
b) More than 400 schools could have been built;
c) At least 550 new prisons could have been built;
d) The country’s total water and sanitation infrastructure for one year could
have been covered;
The National perceptions on Local Government fraud and corruption2 reflect that
Nepotism is the most common form of corruption (73.2%). Other forms of
corruption include tender irregularities, maladministration and signing of
cheques without appropriate controls, as well as the misuse of council
1 Preventing Corruption in African Procurement, Professor Awadi Sadiki Mawenya, Number 9, August 2008 AU press release, Addis Ababa,
19 September 2002., Lengwiler Y and E Wolfstetter, Corruption in Procurement Auctions. Governance and the Efficiency of Economic Systems,
Discussions Paper No 90, January 2006
2
2009 Good Governance Survey Consolidated Report (Nkangala DM)
5
property.
These forms of corruptions manifest itself at the local
government level through:
a) Bribery: the promise, offering or giving of a benefit that improperly affects
the actions or decisions of a public official.
b) Fraud: actions or behaviour by a public official, other person or entity that
deceive others into providing a benefit that would not normally accrue to
the public official, other persons or entity.
c) Embezzlement: involves theft of resources by persons entrusted with the
authority and control of such resources.
d) Extortion: involves coercing a person or entity to provide a benefit to a
public official, another person or entity in exchange for acting (or failing to
act) in a particular manner.
e) Abuse of power: involves a public official using his/her vested authority to
improperly benefit another public official, person or entity (or using the
vested authority to improperly discriminate against another person, official
or entity).
f) Conflict of interest: Any financial or other private interest or undertaking
that could directly or indirectly compromise the performance of a public
servant’s duties
g) Favouritism: the provision of services or resources according to personal
affiliations of a public official.
The high degree of discretion afforded to public officials in executing procurement
programmes, and the involvement of many private sector entities in the process, all
contribute to its susceptibility to corruption.
The major reasons for fraud and corruption as identified in the AuditorGeneral’s report relate to a lack of controls, mismanagement and lack
governance principle. Other reasons includea) Override of internal Controls
b) The improper political and administrative interface
of
6
c) Collusion between Employees and 3rd Parties
d) Poor Internal Controls
e) Lack of Accountability/ Weak accountability frameworks
f) Poor ethical culture and poor values
g) Poor hiring practice (Filling of vacant positions, nepotism, Cronyism
h) Weak national and provincial oversight of local government.
3. ENHANCING SYSTEMS OF FUNCTIONAL INTERNAL
CONTROLS
3.1 Building a national integrity framework in the fight against
corruption
Early in its democracy South Africa recognized the need to build a National Integrity
framework as key cornerstone in its fight against corruption. Such an approach has
its origins in October 1997 when Cabinet mandated a Ministerial Committee to
consider proposals for the implementation of a National Campaign Against
Corruption. Consequently, a National Anti-Corruption Summit was convened in April
of 1999
Since then, South Africa has responded by implementing an array of legislation and
the creation of democratic institutions as essential armour in its endeavours to build
national integrity and fight corruption.It is acknowledged by most stakeholders that a
comprehensive policy and regulatory framework is in place that provides for a
Generic Integrity Framework through international and national instruments such
as
o United Nations Convention against Corruption (UNCAC)
o Global Programme against Corruption designed by the Centre for
International Crime Prevention (CICP), in collaboration with the United
Nations Interregional Crime and Justice Research Institute (UNICRI),
o Transversally applicable (national level) constitutional provisions of the
Constitution such as fundamental rights (Bill of Rights, etct) founding
7
values in section 1, principles of public administration in section 195,
procurement regulation under section 217 and fiscal prudence guidelines.
o Transversal legislation and directives includingo The Constitution of the Republic of South Africa Act, 1996
o The Prevention and Combating of Corrupt Activities Act, 2004
o Prevention of Organised Crime Act, 1998
o Protected Disclosures Act, 2000
o Promotion of Access to Information Act, 2000
o Promotion of Administrative Justice Act, 2000
o Witness Protection Act, 2000
o The Public Finance Management Act, 1999
o Financial Intelligence Centre Act, 2001
A specific Integrity Framework for Local Government is also provided though a) The Municipal Finance Management Act, 2003;
b) The Constitution – sections 53, 152, 195 Chapt 3 & 7;
c) The Local Government: Municipal Structures Act, 1998;
d) The Local Government: Municipal Systems Act, 2000;
e) The Local Government: Municipal Demarcation Act, 1998; and
f) Codes of Conduct for Councillors and Municipal Employees
While the legislation provides a basis for the development of systems and
mechanisms for promoting integrity and preventing corruption in public life, the
effectiveness thereof is severely hampered by implementation gaps3, including
a) Non Reporting/ Ineffective implementation of the Protected Disclosures Act
b) Limited implementation and adherence to the Codes of Conduct
c) Non-compliance with the Financial Disclosure Framework
d) Non-compliance with the Minimum Anti- corruption Capacity Requirements
e) Supply chain management prescripts are not adhered to
f) Weak enforcement and inconsistent application of disciplinary measures
3 Source: Public Sector Integrity Management Framework
8
g) Resignation and transfer before disciplinary processes finalised
3.2 Focus Areas and interventions
One of the biggest challenges that face modern democracies is the management of
the competing interests that faces the incumbents of public office in terms of
national, constituency, political and personal interests. Public officials are often
entrusted with extensive executive powers and the power to approve the spending of
vast sums of public money . In addition, the increased financial value of transactions
between the private and public sectors provides ample opportunity for officials to
take advantage of their public positions for personal benefit. When public officials are
placed in
themselves.
conflict of interest situations, opportunities for corruption present
4
While an integrity framework is largely in place to deal with incidents of the violation
of the legislation and codes referred to above in both the public and private sectors,
there is general consensus that for anti- corruption efforts to be effective, early
detection and prevention measures need to focus on a strategic level on an
number of areas within an organisation5, include the following:
a) Focus on the Organisation throughi.
Effective implementation of Codes of Conduct, systems, policies and
procedures,
ii.
Sound internal controls to prevent and detect unethical conduct, fraud
and corruption,
iii.
Risk assessment and management,
iv.
Internal and External Audit; and physical and
v.
Information security management).
b) Focus on Employees though
4
i.
Vetting,
ii.
Induction Programmes,
iii.
Obligatory Leave Periods,
iv.
Exit Procedures,
Financial disclosure requirements in South Africa 2004–2008 - Holding elected politicians accountable. Collette
Schulz-Herzenberg & Rosemary Vickerman • ISS Paper 192 • August 2009
5
As identified in the Local
Government Anti-Corruption Strategy
9
v.
Asset Control
c) Focus on other Stakeholders
d) Focus on Enforcement by means of i.
Reporting and monitoring of allegations of unethical conduct, fraud and
corruption,
ii.
Whistle-blowing
e) Focus on Implementation thoughi.
Ongoing maintenance and review,
ii.
Ensuring a coordinated implementation effort,
iii.
Raising awareness on good governance that includes communication
on the anti-corruption work
On an operational level these objectives translate into practical measures within the
organisation to ensurea) Training of management & staff
b) Implementation and enforcement of
Risk Management and Fraud
Policies
c) Implementation and enforcement of IT Policy (Internet Use)
d) Promotion of ethical conduct and good business Practices- corporate code
of conduct/ethics
e) Implementation and adherence to a Whistleblower policy
f) Review and/or improve internal controls
g) Segregation of duties
h) Improvement of security measures
i) Enhancement of an ethical Organisational culture
j) Senior management commitment
4. GOVERNANCE PROCESS
4.1 Governance in the public sector
There is no universally agreed-upon definition for the term “public sector
governance.” What is understood by the term appears to vary considerably between
10
jurisdictions. “Good” governance is identified by a number of characteristics or pillars
rather than a single all-encompassing concept:

Constitutional compliance and the rule of law

Participation

Accountability

Checks and balances that include constrained and diffused power

Transparency, backed by freedom of the media

Equality and inclusiveness

Attention to human development

Integrity with no tolerance of corruption in dealing with state resources
In a Constitutional democracy, the framework of Constitution and law exemplifies
essential elements of good governance and accountability by, inter alia a) Prescribing the powers of government and the procedure of exercising
powers.
b) Ensuring equal treatment and equal protection of law.
c) Guaranteeing protection against arbitrariness of government and excess of
administrative powers.
d) Creating accountability mechanisms for the exercise of powers and
formulation of policies to the people/ representatives of the people
e) Ensuring procedural transparency of exercising all administrative powers.
f) Providing remedies against any kind of mal-administration and injustice done
to
the aggrieved citizens, as well as institutional mechanisms to redress
grievances.\
Governance failures include "inadequate connect between those that govern and
the power givers" with the problem being (in the case of for example the e-toll
debacle) communication. "Government says it consulted and the people say it didn't.
The truth is they are both right. There was consultation but it was not specific".
Others are poor planning, corruption, leadership and skills deficit, and a fragmented
state resulting in "left-behind" communities.
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Part of the problem lies in failure to appreciate, internalise and institutionalise the
values underpinning a constitutional democracy, including human dignity, the
achievement of equality, freedom and constitutional supremacy. This is fuelled bya)
Inadequate or distorted accountability to shareholders/citizens with an
increasing trust deficit
b)
Inadequate skills, knowledge and values
c)
Inadequacies in the regulatory framework particularly at enterprise or
organisational levels
d)
Poor or inconsistent enforcement mechanisms
e)
Lapses in leadership and leadership ethics or integrity
Key factors that seem to contribute to governance failure include the following:
a)
Conflict of interest has become a major issue whether we are designing
policies, enforcing policies or executing core business processes. When
the decision-maker finds himself or herself serving two masters something
Personal interests are not only financial, they may include political has to
give. The interests of the organisation and shareholders or citizens are
more often than not abandoned i n favour of personal interests. Personal
interests transcend financial interests.
b)
An Animal Farm leadership Ethos instead of Batho Pele Ethos. In
this setting, the people are liberated and they choose to have a few
among them to manage resources on their behalf and regulate their lives
instead of a situation whereby everyone does as they please. As in the
book, Animal Farm, those chosen to manage the affairs of the people and
regulate their lives, start dedicating resources to their own comfort instead
of the people. When asked why, they say “we are eating for you.”
c)
Emerging culture of lack of respect for the rule of law.
During the
Annual Conference of the Black Management Forum, 2013 Professor
Heinz Klug referred to what he called “declining legal continuity”. This is
when the interpretation of laws is overtaken by expediency and not public
or organisational interest. The rule of law also requires that no one is
above the law. But in organisations and the state we often confront a
12
culture of some are more equal than others. Not knowing the law is a
problem too
d)
Power mongering and endless power struggles, often exacerbated
by external influences.
Power struggles within organisations are
counterproductive and compromises governance in a sense that tend to
people sabotage one another because they do not to see their boss or
colleagues shine.
e)
A fragmented integrity sector that does not operate seamlessly
When governance and accountability, and consequently the relationship between
citizens and the state is weak, this commonly leads to an opt out strategy, with
citizens withdrawing from state services: children dropping out of school, or parents
sending their children to sometimes unregistered - private schools; patients looking
for traditional health services, or choosing private clinics over free state services, etc.
In that situation, there is no accountability relationship and poor state services
perpetuate.6
Another form of “opting out” occurs when communities decide to take the delivery of
services into their own hands, rather than claiming it from the government. Within
such dysfunctional relations, citizens may experience such levels of frustration and
loss of trust in the governance structures that they totally “opt out” of the democratic
accountability processes and articulate their needs and demands through protest
action or civil unrest.
4.2 Network of oversight and accountability bodies and the
mandate of the Public Protector
The Public Protector is part of a network of oversight and accountability bodies that
include the Auditor-General, Public Service Commission, the Judiciary, Financial
Intelligence Centre, Legislature, media and society. These bodies play an important
role in enforcing Democratic values of good governance, the Rule of Law and quality
6
ACCOUNTABILITY AT LOCAL LEVEL: Experiences from the partnership with the Netherlands Ministry of
Development Cooperation on Domestic Accountability
13
of life. These constitute a critical pillar of the multipronged approach to combatting
fraud and corruption referred to earlier.
The Public Protector South Africa is national Ombudsman like institution,
established under section 181 of the Constitution, which forms part of the national
integrity framework. The Public Protectors anti-corruption mandate derives from its
broad mandate relating to investigating and correcting improper and prejudicial
conduct in state affairs as per se 182 of the Constitution and the Public Protector Act
of 1994; and its power as the sole agency for enforcing the Executive Ethics Act and
the Executive Ethics Code.
Some of the conduct that the Public Protector ordinarily investigates would constitute
corruption. The Public Protector’s role in anticorruption is also recognised in the key
anticorruption statutes including the Prevention and Combating of Corruption Act, the
Protected Disclosures Act ant the Public Finance Management Act. For example, the
Prevention and Combating of Corrupt Activities Act specifically gives the Public
Protector the authority to investigate any improper or dishonest act, or omission or
offences referred to in the Act, with respect to public money.
Shortly after assuming office as South Africa’s third Public Protector, Adv Madonsela
decided to add a unit that focuses on Anti-corruption and Good Governance on the
establishment of the Office of the Public Protector. She also publicly committed the
institution to the strengthening of its forensic competence. The implementation of
these initiatives is underway and is included in our draft institutional vision and
strategy.
However, the Public Protector has long history of playing an effective role in the
combating of corruption. This is not surprising as maladministration often involves
abuse of power for personal gain, which is corruption. The approach of the Public
Protector is two pronged. The first element of the approach is ensuring remedial
action and ending impunity where the state’s action has been improper or prejudicial.
The second element is to introduce or support systemic improvements with a view to
promoting good governance.
4.3 Public Protector’s role in promoting good governance in the
fight against corruption
14
One of the strategic entry points for the Public Protector is the monition of
government pronouncements on corruption and to use these as points of leverage in
holding state entities accountable. For example, the ruling party has identified as a
priority, the eradication of corruption and ending impunity for those responsible for
corruption. In the Public Protector’s interface with state entities we draw attention to
such pronouncements, especially when her interventions seem to be resisted.
Furthermore, in all of the Public Protector’s interactions with state entities and other
stakeholders we consistently refer to the values of accountability, integrity and
responsiveness as pillars of the good governance that the Public Protector seeks to
promote.
Public Protector’s relationship with the promotion good governance has a number of
dimensions:
a)
Reinforcing a strong tradition of civil society
Access to institutions such as the Public Protector plays a crucial role in the
empowerment of
civil society, facilitated by an active media enjoying
constitutionally entrenched right to freedom of expression, incorporating freedom of
the media.
Constitutional democracy is a constant dialogue between the people
and those they have entrusted with public power. People need to be empowered to
understand how government works, make informed inputs into policy processes, and
bolster their role in exacting accountability in state affairs.
b) Monitoring compliance with and respect for the Rule of law
The Rule of law intends to limit government within a framework of law. It is opposed
to arbitrary rule. The Rule of law presupposes that those governing do so in
compliance with the Constitution and other regulatory provisions, remain true to their
mandate and are accountable to the mandate givers while yielding value to all. The
Public Protector plays an important role supplementing legislative and judicial
method in ensuring that individuals receive appropriate consideration and protection
against adverse government action that does not comply with the framework and
principles of the law.
15
c) Entrenching Constitutional values of transparency and accountability
Accountability is the process and means by which public services and government
are held to account for their actions, ensuring that public resources are being used in
accordance with publicly stated intentions and polices, and that public service values
in Sect 195 of the Constitution , Batho Pele, etc are being adhered to.
A protected right to complain against public institutions is an essential part of
accountability is, which implies
i.
the obligation on state institutions to explain and justify conduct.
ii.
Interrogation of the conduct and questioning the adequacy of the
information or the legitimacy of the conduct
iii.
Adjudication by means of finding on the conduct under scrutiny and
remedying prejudice and impropriety
True accountability gives visible meaning to constitutional democracy by ensuring
that authorities are “fair and take responsibility, acknowledge failures and apologise
for them, make amends, and use the opportunity to improve their services”
d) Reconciling the citizen with the State
The Public Protector often acts as mediator between aggrieved individual and public
institutions to ensure fairness and legality in public administration.
The Public
Protector has an important role in remedying government’s administrative injustices
or failures and reconciling the people with the state, which helps to divert, dilute and
mitigate the anger and extreme frustration’ that could otherwise lead to violence or
frustration as seen in the so-called “Arab Spring”
5.
CONCLUSION
A huge part of the human element that is critical for promoting good governance
involves the values of the community within which we seek to fight corruption. In the
Public Protector’s view there are three dimensions to the human element. These are
(1) the values of each individual, (2) community values and (3) political will at all
levels of leadership. It is particular important that the community’s understanding of
corruption and consensus on what is inappropriate
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The concept of “good governance” is
essential for fulfillment of constitutionally
promised quality of life for all people in South Africa, particularly through delivery on
socio-economic rights and Millennium Development Goals(MDGs);
Maladministration and corruption are key factors derailing service delivery thus
delaying fulfillment of our constitutional dream, which includes redressing apartheid
imbalances, gender inequalities and other inequalities.
From the overview of the legislation it is evident that government has put in place a
comprehensive and regulatory framework to combat corruption, but reports by the
Auditor General and research by oversight bodies such as the PSC by has
consistently shown a decided weakness in implementation of the framework.
The next phase of the anti-corruption effort should be focused on the successful
institutionalization of principles of accountability, integrity and responsiveness in
public service, anchored in stewardship service ethos.
It is important that we as integrity institutions remind governments and their officials
of the promises that they make to provide a better life for all its citizens, and to instil
that “FIDELITY” to their public purpose and values in order for “integrity “ to
became a reality and not just another publicly approved panacea.
The reality though is that ending corruption in our societies and our continent lies in
our own hands. It is our countries, our people and our continent that are victims of
the underdevelopment that is caused by corruption and our people that suffer
poverty and other preventable maladies as a consequence. We cannot deny that
corruption is behind a lot of the underdevelopment in our countries and continent. It
causes, among others, poor quality goods and services, lack of efficiency, excessive
costs, and ineffective public
programmes. Corruption basically destabilises
societies. In many instances corruption also endangers the security of our states.
Thank You