POLICY FRAUD PREVENTION POLICY AND FRAUD RESPONSE PLAN – (POLICY NUMBER 25749A) REVISED AND APPROVED BY COUNCIL: 03 DECEMBER 2014 – C24/12/14 APPROVED BY COUNCIL : 29 OCTOBER 2008 C33/10/08
POLICY
FRAUD PREVENTION POLICY AND FRAUD RESPONSE PLAN – (POLICY
NUMBER 25749A)
REVISED AND APPROVED BY COUNCIL: 03 DECEMBER 2014 – C24/12/14
APPROVED BY COUNCIL : 29 OCTOBER 2008 C33/10/08
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CONTENTS
1. Policy Title ............................................................................................................. 3
2. Reference Codes ................................................................................................ 3
3. Document Control .............................................................................................. 3
4. Definitions and Abbreviations ............................................................................. 3
5 Problem Statement ............................................................................................. 7
6. Desired Outcomes ............................................................................................... 7
7. Strategic Intent .................................................................................................... 8
8. Policy Parameters ................................................................................................ 9
9 Role Players and Stakeholders ........................................................................... 9
10. Regulatory Context ........................................................................................... 10
11. Policy Directive Details ...................................................................................... 11
11.1 The City's Responsibilities .............................................................................. 11
11.3 The Executive Mayor, Responsibilities in consultation with the
Mayoral Committee and the City ............................................................... 14
11.4 Councillors’ Responsibilities .......................................................................... 15
11.5 Line Manager's Responsibilities ................................................................... 15
11.6 Internal Audit................................................................................................. 18
11.7 Integrated Risk Management ..................................................................... 18
11.8 Staff Responsibilities ........................................................................................ 20
11.9 Suppliers, Contractors, Consultants and the Community
Responsibilities ......................................................................................................... 22
11.10 Investigation .............................................................................................. 22
11.11 Disciplinary Action ..................................................................................... 23
12. Implementation ................................................................................................. 24
13 Monitoring, Evaluation and Review ................................................................. 24
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1. Policy Title
FRAUD PREVENTION POLICY
2. Reference Codes
3. Document Control
Responsible Director: Forensics, Ethics and
Integrity Department
Vincent Botto
Version First Version
Second Version
28 October 2008
Reviewed 06 January 2014 Patrick Fisher –
Manager:
Forensics, Ethics
and Integrity
Department
Reviewed 13 January 2014 Strategic Policy
Unit
Reviewed 13 January 2014 Legal Services
Reviewed 13 January 2014 Advise for public
participation
Reviewed 05 March 2014 Legal services
Reviewed 13 March 2014 Strategic Policy
Unit
Status Approved by Council
Reference
Code
Contact details [email protected] 021 487 2018
4. Definitions and Abbreviations
‘City’ means the City of Cape Town, a municipality established by the
City of Cape Town Establishment Notice No. 479 of 22 September 2000,
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issued in terms of the Local Government: Municipal Structures Act, 2000
(Act 117 of1998), or any structure or employee of the City acting in
terms of delegated authority;
‘City Manager’ means a person appointed in terms of section 82(1) (a)
or (b) of the Local Government: Municipal Structures Act, 2000 (Act No.
117 of 1998), and ‘Accounting Officer’ shall have the same meaning;
‘Code of Conduct for Councillors’ means the Code of conduct for
Councillors contained in Schedule 1 of the Local Government:
Municipal Systems Act, 2000 (Act 32 of 2000);
‘Code of Conduct for Municipal Staff Members’ means the Code of
conduct for employees contained in Schedule 2 of the Local
Government Municipal Systems, 2000 (Act No. 32 of 2000);
‘Constitution’ means the Constitution of the Republic of South Africa,
1996 (Act 108 of 1996);
‘Corporate crime’ means, inter alia, fraud, corruption, theft,
maladministration, negligence and other unethical behaviour, which, if
allowed to continue unchecked, would or may have a significant
effect on the City’s risk profile;
‘Corporate Governance’ means the structures and processes for the
direction and control of the City. Corporate governance concerns the
relationships among the management, Council, Stakeholders and staff
of the City. Good corporate governance contributes to sustainable
economic development by enhancing the performance of the City
and increasing access to outside capital;
‘Corruption’ is defined as dishonest or fraudulent conduct by those in
power, typically involving bribery;
‘Council’ means the Municipal Council of the City of Cape Town;
‘Councillor’ means a Councillor of the municipal council of the City
of Cape Town;
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‘Criminal Action’ means a legal proceeding in which the state
prosecutes a person who is charged with a public offense.
‘Delegation’, in relation to a duty, includes an instruction or request to
perform or to assist in performing the duty.
‘EMT’ means the Executive Management Team which consists out of
the City Manager and those Executive Directors, Directors, Strategic
Executives and/or other Directors, who serve together as the top
management committee of the City’s administration.
‘Fraud’ means a false representation of fact that deceives and is
intended to deceive another so that he or she will act upon the false
representation to his or her disadvantage.
‘Internal Control’ means the process that is effected Council or EMT
to provide reasonable assurance regarding the achievement of
objectives in the following categories: (a) reliability of financial
reporting, (b) effectiveness and efficiency of operations, and (c)
compliance with applicable laws and regulations.
‘IRM’ means the Integrated Risk Management Department of the City;
‘Line Management’ means any staff member in reporting levels 1 to 4
and includes all City staff members that exercise a management
or supervisory function, including EMT;
‘Mayoral Committee’ means the Committee appointed by the Mayor,
in terms of section 60 of the Local Government Municipal Structures
Act, 1998 (Act 117 of 1998), to assist her/him in managing the City's
affairs on a day-to-day basis;
‘MFMA’ means the Local Government: Municipal Finance
Management Act, 2003 (Act 56 of 2003) and the Supply Chain
Management Regulations promulgated thereto;
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‘MPAC’ means the City's Municipal Public Accounts Committee, a
Committee established in order to ensure political accountability and
legislative oversight of the City's accounts;
‘Opinion’ means a statement of advice by an expert on a professional
matter;
‘Outside Parties’ means any person or entity with whom the City
interacts including contractors and suppliers, consultants and members
of the public;
‘Policy’ means the Fraud Prevention Policy;
‘Protected Disclosure’ means a protected disclosure as defined in the
Protected Disclosures, 2000 (Act 26 of 2000);
‘SAPS’ means the South African Police Services;
‘SCM’ means the Supply Chain Management Department of the City;
‘SCM Policy’ means the City’s Supply Chain Management Policy as
contemplated in the MFMA Supply Chain Management regulations;
‘System of Delegations’ means the City’s System of Delegations as
contemplated in the Municipal Systems Act, 2000 (Act 32 of 2000)
where a municipal council must develop a system of delegation that
will maximise administrative and operational efficiency and provide
adequate checks and balances and is approved and amended by
the Council from time to time;
‘Staff’ means the employees of the City of Cape Town including the
City Manager; and
‘Theft’ means the unlawful misappropriation of movable property or
money with the intention to permanently deprive the owner of his/her
property.
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5 Problem Statement
5.1 There is a continuing need to raise staff awareness of their
responsibility to safeguard public resources against the risk of
fraud. The overall purpose of the Fraud Prevention Policy is to detail
responsibilities regarding the prevention of fraud. The procedures to
be followed in the event of a corporate crime being detected or
suspected are detailed in the Fraud Response Plan attached to this
policy. Both documents relate to fraud and loss within the City.
6. Desired Outcomes
6.1 a) The City requires all staff, at all times, to act honestly and with
integrity, and to safeguard the public resources for which
they are responsible.
b) Corporate crime is an ever-present threat to public
resources and must be a concern to all members of staff;
c) The City will not tolerate any level of fraud, theft, corruption
or maladministration consequently;
d) The City intends to thoroughly investigate all complaints of
fraud and corruption, anonymous complaints, and where
appropriate refer it to the SAPS; and
e) The City is also committed to ensuring that opportunities for
fraud and corruption are reduced to the lowest possible level of
risk.
6.2 a) Appropriate action, including criminal action, will be taken
against any person employed by the City that is involved in, or
assists with committing fraud, theft, corruption, or associated
internal irregularities, and the City will actively seek legal
recourse against all employees (including temporary staff,
independent contractors, employees of contracted service
providers and applicable Municipal entities) involved in such
acts.
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b) Failure by any employee of the City to comply with this policy
could result in disciplinary as well as criminal action being taken
against that individual.
7. Strategic Intent
7.1 The Strategic Focus Areas of the City are enshrined in the City’s
Integrated Development Plan (IDP) and are categorised into five
pillars, that is:
a) The Opportunity City;
b) The Safe City;
c) The Caring City;
d) The Inclusive City; and
e) The Well-run City.
7.2 The City is committed to the fight against fraud and corruption and
the development of fraud and anti-corruption policies is a proactive
step that aligns itself with the City’s “Well-Run City” strategic focus
area with particular reference to its three key objectives, namely:
a) Ensure a transparent and corruption free government;
b) Establish an efficient and productive administration that
prioritises delivery; and
c) Ensure financial prudence with clean audits by the Auditor-
General.
7.3 The City’s “Well-Run City” strategic focus area is aligned with the
Western Cape Province’s objective of building the best-run regional
government in the world which is again aligned with National
Government Outcome 12, namely an efficient and development-
oriented public service and an empowered, fair and inclusive
citizenship.
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8. Policy Parameters
8.1 This Policy applies to all incidences of fraud, corruption, theft and
maladministration or suspected irregularities of this nature involving,
but not limited to, the following persons or entities:
a) Employees of the City;
b) Councillors; and
c) Consultants, suppliers, contractors and other providers of goods
and services to the City.
8.2 This Policy shall further be applied with due observance of the City’s
System of Delegations as amended from time to time with regard to
delegated powers. Such delegations refer to delegations between
the Council and the Executive Mayor as well as between the Council
and the City Manager and between the City Manager and other
responsible officials.
8.3 This Policy is applicable throughout the entire geographical area of
the City of Cape Town.
9 Role Players and Stakeholders
9.1 The following is role players and/or stake holders in respect of this
policy:
a) Council
b) City Manager
c) EMT
d) Executive Directors, Directors, Managers and Heads
e) All Employees
f) All registered consultants, suppliers, contractors and other
providers of goods and services to the City.
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10. Regulatory Context
10.1 The following legislation and regulations affect, inter alia, the subject
of this policy:
a) The Constitution of the Republic of South Africa, 1996;
b) Criminal Procedure Act, 1977, (Act 51 of 1977);
c) Prevention and Combating of Corrupt Activities Act, 2004, (Act
12 of 2004);
d) Local Government: Municipal Systems Act, 2000, (Act 32 of
2000), and the Regulations promulgated thereto;
e) Local Government: Municipal Finance Management Act, 2003,
(Act 56 of 2003), and its Supply Chain Management Regulations;
f) Code of Conduct for Councillors
g) Code of Conduct for Municipal Staff Members
h) Preferential Procurement Policy Framework Act, 2000, (Act 5 of
2000);
i) Prevention of Organised Crime Act, 1998, (Act 121 of 1998);
j) Protected Disclosures Act, 2000, (Act 26 of 2000);
k) City’s Supply Chain Management Policy;
l) City’s Combating Abuse of Supply Chain Management System
Policy;
m) City’s System of Delegations ; and
n) Any other legislation, by-law, policy and/or procedure that may
be applicable to an investigation.
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11. Policy Directive Details
11.1 The City's Responsibilities
11.1.1 In accordance with Chapter 8 (sections 60-79) of the MFMA
the City Manager is, inter al ia, responsib le for :
a) the establishing and maintaining of a sound system
of internal control that supports the achievement
of City policies, aims and objectives which is −
i) designed to respond to and manage the whole
range of risks that the City faces; a n d
ii) based on an on-going process designed to
identify the principal risks, to evaluate the nature
and extent of those risks and to manage them
effectively and
b) managing fraud risk which will be seen in the
context of the management of this wider range of
risks.
11.1.2 Overall responsibility for managing the risk of fraud has been
delegated to the Director: Forensics, Ethics and Integrity
Department. His/her responsibilities include:
(a) developing a fraud risk profile and undertaking a
regular review of the fraud risks associated with
each of the key organisational objectives to keep
the profile current;
(b) developing an effective fraud prevention policy and
fraud response plan;
(c) designing an effective control environment, in line
with the fraud risk profile, to prevent fraud;
(d) develop and implement appropriate pre-
employment screening measures;
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(e) establishing appropriate mechanisms for:
i) reporting fraud risk issues;
ii) reporting incidents of fraud to the City Manager;
iii) reporting to the Audit Committee in respect of
forensic investigations; and
iv) coordinating other role players to get the
assurance in respect of the effectiveness of
fraud prevention policies to support the
Statement on Internal Control;
(f) liaising with the Risk Committee;
(g) making sure that all staff are aware of the
organisation's fraud prevention policy and that
they know what their responsibilities are in relation
to combating fraud;
(h) ensuring fraud awareness training is provided, is
considered appropriate and, if necessary, more
specific fraud prevention training and development
is provided to relevant staff;
(i) ensuring that vigorous and prompt investigations are
carried out with due regard to available resources if
fraud occurs, is attempted or is suspected;
(j) ensuring that, disciplinary action is instituted and,
where necessary, criminal charges are instituted
against perpetrators of fraud;
(k) ensuring that disciplinary action is taken against
supervisors where supervisory failures have
contributed to the commission of fraud;
(I) ensuring that disciplinary action is taken against
staff who knowingly fail to report fraud;
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(m) taking appropriate action to recover; and
(n) ensuring that appropriate measures are adopted
to minimise the risk of similar fraud occurring in
future.
11.1.3 The City and the City Manager are compelled to investigate
allegations of fraud. These sections of the MFMA are, inter
alia, as follows:
a) Section 112(1)(m)(i) – ”combating fraud, corruption,
favouritism and unfair and irregular practices in
municipal supply chain management;
b) Section 115(1)(b) – ”take all reasonable steps to
ensure that proper mechanisms and separation of
duties in the supply chain management system are in
place to minimise the likelihood of fraud, corruption,
favouritism and unfair and irregular practices.”
c) Sections 171(4)(a) and 172(3)(a) – ”investigate
allegations of financial misconduct against the
accounting officer, the chief financial officer, a senior
manager or other official of the municipality unless
the those allegations are frivolous, vexatious,
speculative or obviously unfounded.”
d) SCM Regulation 46(2)(h)– “must assist the accounting
officer in combating fraud, corruption, favouritism
and unfair practices in the supply chain management
system”; and
e) SCM Regulation 46(2)(i) – “must report to the
accounting officer any alleged irregular conduct in
the supply chain management system which that
person may become aware of – (i) any alleged fraud
corruption, favouritism or unfair conduct.”
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11.1.4 The City and the City Manager are compelled to report
suspected fraud to the SAPS. These sections of the MFMA
are, inter alia, as follows:
Section 32(6) - ”The accounting officer must report to the
SAPS all cases of alleged –
(a) irregular expenditure that constitute a
criminal offence; and
(b) theft and fraud that occurred in the
municipality.”
Section 102(2) – ”The board of a municipal entity must
report to SAPS any –
irregular expenditure that constitute a
criminal offence; and
other losses suffered by the municipal entity which
resulted from suspected criminal conduct”. ”
11.2 Council’s Responsibility
11.2.1 The Council is accountable to the community and other
stakeholders for the sound management of the City.
11.2.3 The Council’s general oversight role includes the
management of the risk to the City from corporate crime.
11.3 The Executive Mayor, Responsibilities in consultation with the Mayoral
Committee and the City Manager
11.3.1 In line with the requirements for good corporate
governance outlined in the King III Report and in
recognition of the way in which the City is currently
structured the Executive Mayor, the Mayoral Committee
and the City Manager, are jointly accountable to the
Council, the community and other stakeholders, at a
strategic level, for:
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a) managing the risk to the City from corporate
crime, bearing international best practice in mind;
b) preventing consequential loss to the City from such
corporate crime;
c) promoting, developing and sustaining a culture of
zero tolerance to corporate crime;
d) developing and implementing appropriate
corporate crime prevention, detection,
investigation and prosecution strategies, policies
and action plans to achieve these; and
e) monitoring and evaluating the success of such
strategies, policies and action plans.
11.3.2 In doing so, they will be guided by recommendations made
in this regard by the City’s Audit Committee and MPAC.
11.4 Councillors’ Responsibilities
11.4.1 Councillors are legally bound by the Code of Conduct for
Councillors and must comply with and actively promote the
policy.
11.4.2 Councillors must contribute to develop and sustain a culture
of zero tolerance of corporate crime in or against the City.
11.5 Line Manager's Responsibilities
11.5.1 Line manager's must –
a) promote and develop a culture in the organisation
of zero tolerance of corporate crime;
b) lead by example;
c) ensure that all cases of corporate crime or
alleged corporate crime are reported promptly to
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the Director: Forensics, Ethics and Integrity
Department; and
d) must support and actively assist in any forensic
investigations undertaken by the Forensics, Ethics
and Integrity Department.
11.5.2 Prevention and detection of fraud
a) Responsibility for the prevention and detection of
corporate crime, therefore, rests primarily with line
managers.
b) Line managers are responsible for ensuring that
an adequate system of internal control exists
within their areas of responsibility and that controls
operate effectively.
11.5.3 In order to ensure a sound assessment of the organisation's
business risks, line managers need to ensure that:
(a) fraud risks have been identified within Risk and
Control Frameworks encompassing all operations
for which they are responsible;
(b) each risk has been assessed for likelihood and
potential impact;
(c) adequate and effective controls have been
identified for each risk;
(d) controls are being complied with, through regular
review and testing of control systems;
(e) risks are reassessed as a result of the introduction of
new systems or amendments to existing systems;
(f) where fraud has occurred, or has been attempted,
controls are reviewed and new controls
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implemented, as necessary, to reduce the risk of
fraud recurring;
(g) fraud occurrences are quantified on an annual
basis and Risk Registers/Risk and Control
Frameworks updated to reflect the quantum of
fraud within the Business area; and
(h) where appropriate, strategies should be devised
to combat recurrence of fraud and targets set to
reduce the level of fraud.
11.5.4 In terms of establishing and maintaining effective controls, it
is generally desirable that:
(a) there is a regular rotation of staff, particularly in
critical posts where possible and practicable;
(b) wherever possible, there is a separation of duties
so that control of a key function is not vested in
one individual;
(c) backlogs of work are not allowed to accumulate;
and
(d) safeguards should be built in to detect and
prevent internal and external fraud.
11.5.5 As fraud prevention is the ultimate aim, anti-fraud measures
should be considered and incorporated in every system
and programme at the design stage, e.g. the design of
application forms, the statement of accountability in
respect of the content in completed applications deterring,
regular monitoring of expenditure etc. Internal Audit and IRM
are available to offer advice to managers on control and
risk issues respectively that relates to existing and developing
systems/programmes.
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11.5.6 Line management must adhere to the provisions of the SCM
Policy which controls the procurement of all goods and
services within the City. Any non-adherence to same should
be immediately reported.
11.6 Internal Audit
11.6.1 Internal audit is responsible for the provision of an
independent and objective opinion on internal controls and
governance to the City Manager. The adequacy of
arrangements for managing the risk of fraud and ensuring
the City promotes a fraud prevention culture is a
fundamental element in arriving at an overall audit opinion.
a) Internal Audit is not directly involved in the prevention,
detection or investigation of fraud.
b) Internal Auditors are however geared towards
exposing risks that could create opportunities for fraud
to be committed.
c) Individual audit assignments are planned and
prioritised to the potential risk exposure, in order to assist
in deterring and preventing fraud, by examining and
evaluating the effectiveness of controls developed for
each risk
11 .6 .3 The obligation is on the Internal Audit Department to report
immediately to the Director: Forensics, Ethics and Integrity
Department, should they detect any fraudulent or corrupt
activity or any other irregular activity which does not fall
under the ambit of Internal Audit.
11.7 Integrated Risk Management
11.7.1 Risk and Control Frameworks are also reviewed as a
constituent part of each audit assignment to ensure that
management have reviewed their risk exposures and,
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where appropriate, identified the possibility of fraud as a
business risk.
11.7.2 The objectives of Integrated Risk Management, inter alia,
include the following:
a) to achieve a more sustainable and reliable
delivery of services, in order to achieve the
business goals and objectives as determined in
the City’s IDP;
b) to enhance decision making strengthened by
appropriate thoroughness and by promoting a
more innovative, less risk averse culture in which
the taking of calculated risks in pursuit of
opportunities to the benefit of the City is
encouraged;
c) to prevent redundancies, inconsistencies and
gaps in the City’s policies, procedures and
guidelines;
d) o provide a sound basis for IRM and internal
control as components of good corporate
governance;
e) the reduction of waste;
f) minimisation of fraud and corruption;
g) to improve performance, outputs and outcomes
through improved project and programme
management;
h) better value for money through more effective,
efficient and economic use of scares resources;
i) fewer surprises and crises by placing
management in a position to effectively deal
with potential new and emerging risks that may
create uncertainty;
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j) help avoid damage to the City’s reputation and
image; and
k) assist management in ensuring more effective
reporting and compliance with applicable laws,
regulations and other corporate governance
requirements.
11.8 Staff Responsibilities
11.8.1 City staff members are bound by South African law (both
statute and common law), the terms and conditions of
their employment and also the Code of Conduct for
Municipal Staff Members, City policies and instructions
issued by management from time to time.
11.8.2 Every member of staff has a duty to ensure that public
funds are safeguarded and therefore, everyone is
responsible for:
(a) acting with propriety in the use of official resources
and the handling and use of public funds in all
instances. This includes cash and/or payment systems,
receipts and dealing with suppliers;
(b) aspiring to the following core principles, selflessness,
integrity, objectivity, accountability, openness, honesty
and leadership; and
(c) being vigilant to the possibility that unusual events or
transactions could be indicators of fraud and alerting
their line manager where they believe the opportunity
for fraud to exist. (Appendix l provides examples of
Fraud Indicators. In addition, Common Methods of
Good Management Practices Which May Assist in
Combating Fraud in Appendix ll, with Examples of
Good Management Practices Which May Assist in
Combating Fraud detailed in A).
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11.8.3 In addition, it is the responsibility of every member of staff to
report corporate crime immediately to their line manager or
to the Director: Forensics, Ethics and Integrity Department if
they suspect that same has been attempted or committed,
or see any suspicious acts or events. A Whistleblowing
Policy is in place to safeguard whistle blowers against
intimidation and/or victimisation.
11.8.4 An Anti-corruption hotline facility is available on
0800 32 31 30. The Hotline operates 24 hours a day and all
information received is treated in the strictest confidence.
11.8.5 Staff must assist any investigations by making available
all relevant information, by co-operating in interviews and
where appropriate providing a witness statement.
11.8.6 As agents/overseers of public funds, City Officials must
have, and be seen to have, high standards of personal
integrity. Staff should not accept gifts, hospitality or benefits
of any kind from a third party, which might be seen to
compromise their integrity (the City's Gifts Policy refers).
11.8.7 It is also essential that staff understand and adhere to laid
down systems and procedures including those of a
personnel/management nature such as submission of
expense claims and records of absence, flexi and annual
leave.
11.8.8 The dishonest reporting of an incident to line management
and/or the Director: Forensics, Ethics and Integrity
Department with the knowledge that such transmittal of
information is false or with wilful disregard of the truth shall
constitute misconduct, for which disciplinary measures may
be imposed.
11.8.9 All staff must adhere to the provisions of the SCM Policy
which controls the procurement of all goods and services
within the City. Any non-adherence to same should be
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immediately reported to the Director: Forensics, Ethics and
Integrity Department.
11.9 Suppliers, Contractors, Consultants and the Community
Responsibilities
11.9.1 a) Suppliers, contractors and consultants are expected to
act honestly and fairly in all their dealings with the City.
b) Failure to do so may result in one or more of the
following−
i) the cancellation or suspension of any tenders or
contracts awarded to them;
ii) their being deregistered by the City; and
iii) being reported to the South African Police
Services.
11.9.2 The Supply Chain Management Policy deals specifically with
the conditions of how to appoint service providers and
award contracts to same.
11.9.3 The community is encouraged to make use of the City's
Fraud Hotline 0800 32 31 30 or Fraud e-mail
( [email protected]) to report instances or
allegations of corporate crime involving the City or service
providers to the City.
11.10 Investigation
11.10.1 Line managers should be aware that fraud may be brought
to light through –
a) unusual events or transactions;
b) specific management checks; and
c) communication by a third party.
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11.10.2 The City will be consistent in the handling of all suspected
fraud cases without regard to position held or length of
service.
11.10.3 Forensic investigators shall have free access to all staff,
records and premises in order to carry out investigations.
11.10.4 a) Irrespective of the source of suspicion, it is for the
appropriate line management to undertake an initial
examination to ascertain the facts (normally the Head
of Branch) and to confirm or repudiate the suspicions,
which have arisen so that, if necessary, further
investigation may be instigated.
b) After suspicion has been roused, prompt action is
essential.
c) It is imperative that initial enquiries should not prejudice
subsequent investigations or corrupt evidence.
d) Where there is uncertainty with regards to any stage of
an initial investigation assistance from the Director:
Forensics, Ethics and Integrity Department is readily
available.
11.10.5 If the initial examination confirms the suspicion that a fraud
has been perpetrated or attempted, management must
follow the procedures provided in the City's Fraud
Response Plan, which forms part of this Policy.
11.11 Disciplinary Action
11.11. a) After completion of the full investigation the City will
take legal and/or disciplinary action in all cases where
it is considered appropriate.
b) Any member of staff found guilty of a criminal act or
misconduct of which dishonesty is an element will be
considered to have committed a serious disciplinary
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offence and is likely to be dismissed from the City on
the grounds of gross misconduct.
11.11.2 Where supervisory negligence is found to be a
contributory factor, disciplinary action may also be initiated
against managers and supervisors responsible for the
negligence
11.11.3 All cases of fraud, theft or corruption, whether a c t u a l l y
perpetrated or attempted by a s ta f f member or by
external organisations or persons providing services to the
City, must be referred to the SAPS.
11.11.4 Losses resulting from corporate crime should be recovered,
subject to legal opinion vis-à-vis any potential write-offs.
12. Implementation
12.1 This revised policy will be implemented once approved by Council
and will form part of the training material during Fraud Awareness
training sessions with all Directorates and Departments.
13 Monitoring, Evaluation and Review
13.1 The monitoring and evaluation of this Policy will be performed by the
Forensics, Ethics and Integrity Department on an on-going basis.
13.2 This Policy will be reviewed once every financial year and where
necessary, appropriate amendments will be made and submitted to
Council for approval.
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Appendix I
Indicators of Fraud, explaining the opportunities that could lead that fraud be
committed:
Missing expenditure vouchers and unavailable official records;
Crisis management coupled with a pressured business climate;
Excessive variations to budgets or contracts;
Refusals to produce files, minutes or other records;
Increased employee absences;
Borrowing from fellow employees;
An easily led personality;
Covering up inefficiencies;
Lack of management oversight;
No supervision;
Staff turnover is excessive;
Figures, trends or results which do not accord with expectations;
Bank reconciliations are not maintained or can't be balanced;
Excessive movement of cash funds;
Multiple cash collection points;
Remote locations;
Unauthorised changes to systems or work practices;
Employees with outside business interests or other jobs;
Large outstanding bad or doubtful debt;
Offices with excessively flamboyant characteristics;
Employees suffering financial hardships;
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Placing undated/post-dated personal cheques in petty cash;
Employees apparently living beyond their means;
Heavy gambling debts;
Signs of drinking or drug abuse problems;
Conflicts of interest;
Lowest tenders or quotes passed over with scant explanations
recorded;
Employees with an apparently excessive work situation for their
position;
Managers bypassing subordinates;
Subordinates bypassing managers;
Excessive generosity;
Large sums of unclaimed money;
Large sums held in petty cash;
Lack of clear financial delegations;
Secretiveness;
Apparent personal problems;
Marked character changes;
Excessive ambition;
Apparent lack of ambition;
Poor morale;
Excessive control of all records by one officer;
Poor security checking processes over staff be hired;
Unusual working hours on a regular basis;
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Refusal to comply with normal rules and practices;
Personal creditors appearing at his workplace;
Non-taking of leave;
Excessive overtime;
Large backlogs in high risk areas;
Lost assets;
Unwarranted organisation structure;
Absence of controls and audit trails;
Socialising with service providers - meals, drinks, holidays;
Seeking work for clients;
Favourable treatment of clients - eg allocation of work;
Altering contract specifications;
Contract not completed to specification;
Contractor paid for work not done; and
Grants not used for specified purpose.
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Appendix II
Common Methods and Types of Fraud
Payment for work not performed;
Altering amounts and details on documents;
Collusive bidding;
Overcharging;
Writing off recoverable assets or debts;
Unauthorised transactions;
Selling information;
Altering stock records;
Cheques made out to false persons;
False persons on payroll;
Unrecorded transactions;
Transactions (expenditure/receipts/deposits) recorded for incorrect
sums;
Cash stolen;
Supplies not recorded at all;
False official identification used;
Damaging/destroying documentation;
Using copies of records and receipts;
Using imaging and desktop publishing technology to produce
apparent original invoices;
Charging incorrect amounts;
Transferring amounts between accounts frequently;
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Delayed terminations from payroll;
Bribes;
Over claiming expenses;
Skimming and rounding;
Running a private business with official assets; and
Using facsimile signatures.
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Appendix III
Examples of Good Management Practices Which May Assist in Combating
Fraud
All income is promptly entered in the accounting records with the
immediate endorsement of all cheques;
Regulations governing contracts and the supply of goods and
services are properly enforced;
Accounting records provide a reliable basis for the preparation of
financial statements;
Controls operate which ensure that errors and irregularities
become apparent during the processing of accounting information;
A strong internal audit presence;
Management encourages sound working practices;
All assets are properly recorded and provision is made known or
expected losses;
Accounting instructions and financial regulations are available to
all staff and are kept up to date;
Effective segregation of duties exists, particularly in financial
accounting and cash/securities handling areas;
Close relatives do not work together, particularly in financial,
accounting and cash/securities handling areas;
Promotion of ethical behaviour;
Act immediately on internal/external auditor's report to rectify
control weaknesses;
Review, where possible, the financial risks of employees;
Issue accounts payable promptly and follow-up any non-payments;
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Set standards of conduct for suppliers and contractors;
Maintain effective security of physical assets, accountable
documents (such as cheque books, order books), information,
payment and purchasing systems;
Review large and unusual payments;
Perpetrators should be suspended from duties pending investigation;
Proven perpetrators should be dismissed without reference and
prosecuted;
Undertake test checks and institute confirmation procedures;
Maintain good physical security of all premises;
Randomly change security locks and rotate shifts at times ( if feasible
and economical);
Conduct regular staff appraisals;
Review work practices open to collusion or manipulation;
Develop and routinely review and reset data processing controls;
Regularly review accounting and administrative controls
Set achievable targets and budgets, and stringently review results
Ensure staff take regular leave;
Rotate staff in key risk areas;
Ensure all expenditure is authorised;
Conduct periodic analytical reviews to highlight variations to norms;
Take swift and decisive action on all fraud situations; and
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Ensure staff members are fully aware of their rights and obligations
in all matters concerned with fraud.
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Contents
1. Introduction ............................................................................................................ 3
2. Formal Reporting Stage ......................................................................................... 4
3. Responding Effectively to Fraud When it Occurs ................................................ 5
4 Liaison with the South African Police Service ...................................................... 7
5. Post Event Action ................................................................................................... 7
6. Communication ..................................................................................................... 7
7 Reporting Arrangements ....................................................................................... 8
8. Conclusion ............................................................................................................. 8
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1. Introduction
1.1 The City of Cape Town has prepared this Fraud Response Plan to act as
a procedural guide and provide a checklist of the required actions,
which must be followed, in the event of a fraud, or attempted fraud,
being suspected.
1.2 Adherence to this plan will ensure that timely and effective action is
taken to prevent further losses, maximise the recovery and minimise
losses and the recurrence thereof, identify the fraudsters and maximise
the success if any disciplinary/legal action is taken.
1.3 The overarching theme of this p l a n is ‘IF IN DOUBT, ASK F O R ADVICE'.
This applies at any point in an investigation.
1.4 In the event of fraud, attempted fraud or other illegal act being
suspected, officials must immediately report the matter to their line
manager/head of branch. If there is concern that line management may
be involved, the matter should be reported to the next appropriate level.
Additionally, the Director: Forensics, Ethics and Integrity Department
should be informed. Where confidentiality is sought, staff may report their
suspicions direct to the Forensics, Ethics and Integrity Department vis the
Fraud Hotline, (telephone no 0800 32 31 30 or on-line via the e-mail
[email protected]). The Fraud Hotline operates 24/7 and all
information received is treated in the strictest of confidence.
1.5 The City will treat all disclosures in a confidential and sensitive manner. The
identity of the individual may be kept confidential provided this does not
hinder or frustrate any investigation. However, there will be occasions
where the identity needs to be revealed. For example, where the
individual is required to give evidence at a formal hearing, where
allegations of misconduct or criminal activity are involved.
1.6 In making a disclosure, the individual should take care to ensure the
accuracy of the information. Concerns which are found to have been
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raised frivolously, mischievously or maliciously or for personal gain may
result in disciplinary action being taken against the informant.
1.7 It is for line management to undertake an initial fact-finding exercise.
This discreet preliminary enquiry should be carried out as speedily as
possible and certainly within 24 hours of the suspicion being raised.
1.8 The purpose of the initial fact-finding exercise is to determine the
factors that gave rise to suspicion and to clarify whether a genuine
mistake has been made or if it is likely that 'fraud has been attempted or
has occurred. This may involve discreet enquir ies with staff or the
examination of documents. It i s imperative that such enquiries
should not prejudice subsequent investigations or corrupt evidence,
therefore, IF IN DOUBT, ASK FOR ADVICE. The Director: Forensics, Ethics and
Integrity Department can be contacted for advice on how to correctly
proceed at the preliminary enquiry stage and on what further enquiries
are necessary.
1.9 If the preliminary enquiry confirms that fraud has not been attempted nor
perpetrated, however, internal controls are deficient, management
should review their control systems with a view to ensuring they are
adequate and effective. The relevant Risk and Control Framework should
be updated. Internal Audit is available to offer advice and assistance on
matters relating to internal controls, if required.
2. Formal Reporting Stage
2.1 If the preliminary enquiry confirms the suspicion that fraud has been
attempted or perpetrated, management must ensure that all original
documentation is preserved in a safe place for further investigation.
This is to prevent the loss of evidence, which may be essential to
support subsequent disciplinary action and/or prosecution. The facts
should be reported immediately to the Director: Forensics, Ethics and
Integrity Department. Where there is a risk of financial loss to the City, the
Chief Financial Officer should also be notified.
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2.2 To remove any threat of further fraud or loss, management should
immediately change or strengthen procedures and if appropriate,
suspend any further payments pending full investigation.
2.3 The Director: Forensics, Ethics and Integrity Department will recommend to
either the Executive Mayor or the City Manager (dependant on the
delegated authority required under the circumstances) the appropriate
course of action, which may include a full formal investigation. The
scope of the investigation should be determined by the Forensics, Ethics
and Integrity Department, in line with the City’s System of Delegations.
Should the Forensics, Ethics and Integrity Department advise that further
expertise is required, for example Attorneys, Forensic Accountants or
Forensic Investigators, the Director: Forensics, Ethics and Integrity
Department will engage the appropriate assistance together with the
project management of the above.
3. Responding effectively to fraud when it occurs
3.1 Depending on the significance of the fraud, the fraud investigation
process involves some or all of the following:
3.1.1 Ensuring the actions to take if fraud is discovered are clearly
described in the organisation’s Fraud Response Plan.
3.1.2 The Director: Forensics, Ethics and Integrity Department provides
the direction for any fraud investigation, this includes the decision
to conduct an investigation whether in-house or on a co-sourced
or outsourced basis.
3.1.3 Establishing clear terms of reference for the investigation.
3.1.4 Appointing a Forensic Practitioner to take charge of the
investigation.
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3.1.5 Setting up a mechanism to report, on progress of the investigation,
to appropriate senior levels of management as and when
required to do so.
3.1.6 Controlling the investigation and ensuring that it complies with
and meets its objectives.
3.1.7 The overall investigation process involves:
a) maintaining confidentiality;
b) recovering assets;
c) forensic investigations and protection of evidence;
d) interviewing witnesses and dealing with employees under
suspicion;
e) controlling police involvement;
f) managing civil proceedings in conjunction and under the
auspices of the Legal Department;
g) liaising with experts and regulators;
h) preparing media statements; and
i) reporting progress and findings to senior management
3.1.8 Ensuring that effective controls are in place to preserve all forms of
evidence. This is a key factor if the fraudster is to be prosecuted
successfully as evidence must be legally admissible in court.
3.1.9 Making recommendation at an early stage on the action to be
taken with persons under suspicion and whether suspension or
dismissal is necessary in consultation with the Industrial Relations
Department. Arrangements for interviewing suspects must be made
and if criminal proceedings are initiated the South African Police
Services must be involved.
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3.1.10 Adhering to a “fair and reasonable” approach in interviews at all
times.
3.1.11 Setting up adequate measures to protect the City throughout the
investigation process particularly when issuing statements to the
media.
3.1.12 Initiating a thorough review of all operating procedures in areas
affected by the fraud. Comprehensive reports on the findings and
recommendations must be presented to management on
completion of the investigation.
4 Liaison with the South African Police Service
4.1 The Director: Forensics, Ethics and Integrity Department should ensure
that legal assistance and police assistance is sought where necessary.
5. Post Event Action
5.1 Where fraud, or attempted fraud, has occurred, management must
make any necessary changes to systems and procedures to ensure
that similar frauds or attempted frauds will not recur.
5.2 Internal Audit is available to offer advice and assistance on matters
relating to internal control, if considered appropriate.
6. Communication
6.1 The following communications may be observed:
6.1.1 The Forensics, Ethics and Integrity Department may communicate
in the appropriate media or forum, as determined by the Director:
Forensics, Ethics and Integrity Department, the outcome of
disciplinary, criminal and civil hearings resulting from a forensic
investigation; and
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6.1.2 The Fraud Response Plan should be reviewed annually to
determine whether it needs to be updated and if so, changes
should be circulated throughout the organisation.
7 Reporting Arrangements
7.1 The City's Audit Committee should be kept informed on a quarterly
basis of the developments of the prioritised investigations within the
Forensics, Ethics and Integrity Department.
7.2 The Director: Forensics, Ethics and Integrity Department will ensure that the
legislative requirements and obligations of reporting criminal conduct to
the South African Police Services are satisfied.
7.3 The Director: Forensics, Ethics and Integrity Department reports to MPAC
and/or the sub committees regarding any forensic investigation which
falls within the committee's jurisdiction.
7.4 All fraud, corruption and/or criminal conduct should be reported to
the City Manager and/or the Executive Mayor in terms of the Ci ty ’ s
System of Delegations.
8. Conclusion
8.1 Any queries in connection with this fraud response plan should be made
to the Director: Forensics, Ethics and Integrity Department.
8.2 Advice and assistance on internal control issues can be sought from the
Chief Audit Executive.
8.3 Advice and assistance on matters relating to risk management can be
sought from the Chief Risk Officer.