by Piet Coetzer

Financial misconduct flourishes

As officials go scot-free

Peter Allwright found a daunting task facing the public service in the fight against financial misconduct
Peter Allwright.jpg

Financial misconduct in the public service has grown rapidly over the past three years - from R100 million in 2008/2009, to R346 million in 2009/2010. It then soared another 269% to R932 million in 2010/2011. The Public Service Commission estimates that for 2011/2012 it could exceed R1 billion. According to a report by the senior forensics manager at law firm Edward Nathan Sonnenberg, Peter Allwright, the majority of the officials responsible do not only avoid real sanction but are often allowed to move on to other public service jobs.

This is the core finding of Allwright report called “The real state of the nation” about a probe into financial misconduct in the public service.

In our analysis of the factors underlying the “Gupta-affair” last week we noted “...some senior public servants seemingly acquiring an ‘untouchable’ status”.

Allwright reports: “The most troublesome finding is that there appeared to be no meaningful consequence to financial misconduct. Although 88% of officials were found guilty of misconduct in the cases, the most common sanction for financial misconduct was a final written warning (43%). Only 19% of officials found guilty of financial misconduct were discharged from the public service. The majority of perpetrators remain in their positions and often continue to commit financial misconduct.”

The findings furthermore reveal that the public service has consistently shunned instituting criminal charges in appropriate circumstances. In 2009/2010, no criminal action was taken in 57% cases, with criminal action only taken in 22%. The situation worsened during 2010/2011, where no criminal action was taken in 76% of cases, with criminal action only taken in 20%. The findings for 2011/2012 have not been published but preliminary statistics reveal that 39% of cases provide no indication of criminal or civil proceedings.

There is no reporting on the recovery of money lost or recovered from unlawful behaviour, and fewer than 1% of departments provide an indication of the trend of financial misconduct cases.

The situation is further exacerbated by insufficient investigative capacity within public entities, which often leads to substantial delays or the ultimate withdrawal and cancellation of investigations or cases. A further challenge is that public entities take several months to finalise investigations during which time the implicated officials resign and serve out their notice period without facing disciplinary sanctioning.

Allwright also reports that the Public Service Commission’s (PSC) annually published findings on the extent of precautionary suspensions by the public service show that for 2010/2011 58% of officials served suspensions greater than 91 days, while 16% served between 61 and 90 days, and 26% serve less than 60 days.

The majority of officials in the public service have notice periods of one calendar month. This means that considerable time and money spent on precautionary suspensions is often wasted and lost to the public service when the officials resign without facing disciplinary sanctioning or resign during disciplinary hearings before sanctioning is announced. Once the officials have served out their notice periods, the public service usually abandons disciplinary, criminal and civil proceedings allowing implicated officials to move to other institutions. This often results in corrupt officials not only avoiding sanctioning, but also finding a new hunting ground for unlawful behaviour,” the report said.

It is also a big concern that the director-general of the PSC believes that the reported cases of financial misconduct are underreported. This means that the real extent of the problem is not known. According to the PSC’s report for the financial year 2009/2010 there were 1135 incidents of financial misconduct. The most common types of financial misconduct were fraud (53%), financial mismanagement (17%), theft (12%) and misappropriation and abuse (10%).

KwaZulu-Natal saw the highest incidence of financial misconduct (21%), followed by the Western Cape (13%) and then National Departments (9%). Only 19% of officials found guilty of financial misconduct were discharged from the public service.

The majority of perpetrators remain in their positions and often continue to commit financial misconduct. The losses from the finalised cases of financial misconduct totalled R346 million, and only 13% of this amount was recovered from officials (R44 million) while 87% remained lost to the public service (R302 million).

Two forensic investigations were selected as case studies by Allwright as typical of the environment of institutions.

The two case studies selected confirm that in most instances, institutions do not pursue disciplinary, criminal or civil action against all officials found guilty of financial misconduct. The lack of appropriate sanctioning has allowed a culture of non-compliance to develop,” he writes.

In one of these cases the external business interests and resultant conflicts of interest involved the directors, managers and officials of the institution. The investigation found that directors failed to disclose 84% of their business interests (13 directors had 118 business interests), managers failed to disclose 100% of their business interests (13 managers had 48 business interests) and officials failed to disclose 98% of their business interests (111 officials had 175 business interests).

The most worrying aspect of the investigation is that we found almost 25% of the workforce had external business interests, which severely impacted on the institution being able to fulfil its legislative mandate,” he writes.

No disciplinary, criminal or civil sanctions were pursued. In his concluding remarks on the “road ahead”, he states: 

“The public service is facing a daunting mission to overcome financial misconduct. The leadership of the public service needs to set the appropriate ethical tone from the top stating that unlawful behaviour or financial misconduct is unacceptable. The tone needs to be supported by a statement of commitment to combat financial misconduct across national and provincial departments. The multi-pronged strategy needs to be implemented and constantly measured to ensure it is achieving the desired aims and objectives. This is a fight worth winning,” Allwright said.

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