Whistle Blowing

Blowing the Whistle on Fraud and Corruption

What is fraud?
What is corruption?

DIMENSIONS OF CORRUPTION
Bribery
Embezzlement
Fraud
Extortion
Abuse of power
Conflict of interest
Abuse of privileged information
Favouritism
Nepotism

INDICATORS OF FRAUD AND CORRUPTION
Indicators that individuals may be susceptible to committing fraud
Indicators that the Department may be a target for fraudsters
Indicators of opportunities to commit fraud

LEGAL FRAMEWORKPROTECTION OF WHISTLE BLOWERS
What is whistle blowing?
The Protected Disclosures Act
Gauteng Anti-Corruption Hotline

DEFINITION OF CORRUPTION
Corruption is described as any conduct or behaviour in relation to persons entrusted with responsibilities in public office which violates their duties as public officials and which is aimed at obtaining undue gratification of any kind for themselves or for others.

DEFINITION OF FRAUD
What is fraud?
In South Africa fraud is defined as “the unlawful and intentional making of a misrepresentation which causes actual and or potential prejudice to another”. The use of the term is in its widest possible meaning and is intended to include all aspects of economic crime and acts of dishonesty.
In other words, fraud can be described as any conduct or behaviour of which a dishonest representation and/or appropriation forms an element.

DIMENSIONS OF CORRUPTION
Corruption takes various forms in the public service and elsewhere in society. The following are examples of different types of corruption.

Bribery
Bribery involves the promise, offering or giving of a benefit that improperly affects the actions or decisions of public servants. This benefit may accrue to the public servant, another person or an entity. A variation of this manifestation occurs where a political party or government is offered, promised or given a benefit that improperly affects the actions or decisions of the political party or government. Example: A traffic officer accepts a cash payment in order not to issue a speed fine.

Embezzlement
This involves theft of resources by persons entrusted with the authority and control of such resources. Example: Hospital staff that steal medicine and in turn sell this to private pharmacists.

Fraud
This involves actions or behaviour by a public servant or other person or entity that fools others into providing a benefit that would not normally accrue to the public servant, or other persons or entity. Example: A public servant that registers a fictitious employee in order to collect the salary of that fictitious employee.

Extortion
This involves coercing a person or entity to provide a benefit to a public servant, another person or an entity in exchange for acting (or failing to act) in a particular manner. Example: A public health official threatens to close a restaurant on the basis of fabricated health transgressions unless the owner provides the public health official with regular meals.

Abuse of power
This involves a public servant using his or her vested authority to improperly benefit another public servant, person or entity (or using vested authority to improperly discriminate against another public
servant, person or entity). Example: During a tendering process but before actual selection of a successful contractor, the head of department expresses his or her wish to see the contract awarded to a specific person.

Conflict of interest
This involves a public servant acting or failing to act on a matter where the public servant has an interest or another person or entity that stands in a relationship with the public servant has an interest. Example: A public servant considers tenders for a contract and awards the tender to a company of which his or her partner is a director.

Abuse of privileged information
This involves the use of privileged information and knowledge that a public servant possesses as a result of his or her office to provide unfair advantage to another person or entity to obtain a benefit, or to accrue a benefit him or herself. Example: A local government official has, as a result of his or her office, knowledge of residential areas that are to be rezoned as business areas, and then informs friends and family to acquire the residential properties with a view to sell these as business properties at a premium.

Favouritism
This involves the provision of services or resources according to personal affiliation (for example ethic or religious) of a public servant. Example: A regional manager in a particular province ensures that only persons from the same ethnic group are successful in tendering for the supply of food.

Nepotism
This involves a public servant ensuring that family members are appointed to public service positions or that family members receive contracts from the state. Example: A head of department appoint his or her sister’s child to a position when a more suitable candidate has applied for the position.

The above illustration of the manifestations of corruption is by no means complete or exhaustive. Corruption appears in various permutations and degrees of intensity.

INDICATORS OF FRAUD AND CORRUPTION

The following are indicators (red flags) that could be an indication of the potential existence of fraud and corruption:
Indicators that individuals may be susceptible to committing fraud
Unusually high personal debts
Living beyond one’s means
Excessive gambling habits
Alcohol / drug problems
Undue family or peer pressure to succeed
Feeling of being underpaid
Feeling of insufficient recognition for job performance
Close association with suppliers
Wheeler-dealer attitude
Desire to “beat the system”
Criminal record
Not taking vacations
Not allowing someone access to area of responsibility
Undisclosed conflict of interest and
Rationalisation for conflicting behavioural patterns.
Indicators that the Department may be a target for fraudsters
A Department that lacks competent personnel
A Department that does not enforce clear lines of authority and responsibility
A Department that does not enforce proper procedures for authorization of transactions
A Department that lacks adequate documents and records
No separation of responsibilities between the various duties within a business cycle
Inadequate disclosure of personal investment and other income;
Operating on a crisis basis
Too much trust placed on key employees
Failure to discipline violators of company policy; and
Inadequate background and reference checking before hiring new employees.
Indicators of opportunities to commit fraud
Rapid turnover of key employees through resignation or dismissal
Dishonest and dominant management
Inadequate training programmes
Complex business structures
No effective internal audit function
Continuous problems with regulatory agencies and
Large year-end and unusual accounting transactions.

PROTECTION OF WHISTLE BLOWERS

What is whistle blowing?

Traditionally, the term ‘whistle blowing’ has been associated with the image of anonymous police informants or ‘impimpis’ – people who informed on their comrades during the apartheid era, often with devastating consequences. In today’s usage, whistle blowing is the process by which employees or other individuals can raise a concern about serious malpractice within an organization. It is akin to an early warning system and a means of enabling employers to find out when something is going wrong in time to take corrective action.

What are examples of fraud and corruption?
The following actions can be considered to be fraudulent:
Any dishonest, fraudulent or corrupt act
Theft of funds, supplies, or other assets
Maladministration or financial misconduct in handling or reporting of money, financial transactions or other assets
Making a profit from insider knowledge
Disclosing confidential, proprietary, classified or restricted information to outside parties
Irregularly accepting, requesting, offering or giving anything of material value to or from contractors, suppliers, or other persons providing services/goods to the Department
Irregular destruction, removal, or abuse of records, furniture, and equipment
Deliberately omitting or refusing to report or act upon reports of any such irregular or dishonest conduct
Incidents of unauthorized, irregular or fruitless and wasteful expenditure as defined in the Public Finance Management Act and
Any similar or related irregularity.

Why should I report incidents of fraud and corruption?

It is every member of society’s responsibility to report incidents of fraud and corruption because:
It adversely affects all sectors in society and impacts most directly on the poor
It corrodes the national culture and ethos of democracy and good governance at all levels and sectors of society
It depletes both government and civil society of scarce resources that are needed to ensure economic prosperity, equality and a better life for all
It is a blight on society caused by the worship of self and
It is wrong.