Policy on Fraud and Corruption

1. Purpose of Policy

The purpose of this policy is to provide guidelines within the existing legal framework, for dealing with fraud and corruption within the Moses Kotane Local Municipality

This policy endeavours to assist in the creation of an environment where fraud and other crimes of dishonesty are efficiently, economically and effectively prevented, detected, investigated and reported, and the consequent recovery of losses and action against guilty perpetrators.

2. Application of Policy

This policy shall apply to all Councillors, officials, service providers, authorised agents and nominees of the Municipality, or any other person who is involved or deals with the Municipality, directly, indirectly or otherwise.

3. Effective Date of Policy

This policy shall take effect on the date on which it is approved by Council. All transactions concluded with the Council and all actions concluded in the period preceding the effective date of this policy, may be subjected to the provisions of this policy in as far it is legally permissible to do so, failing which it will be dealt with in accordance with appropriate legislation or other legal instruments.

4. Meaning of “Fraud”

For purposes of this Policy “fraud” shall mean an illegal act or omission or a series of illegal acts or omissions committed by non-physical means and by concealment or guile, to obtain money or property, to avoid the payment of money or property or to obtain personal or undue advantage.

5. Meaning of “Corruption”

For purposes of this Policy “corruption” shall mean:

5.1 Any dishonest activity in which a person entrusted with authority in the Municipality, acts contrary to the interest of the Municipality and abuses his/her position of trust in order to achieve some personal gain for himself or herself or for another person or entity; and

5.2 Fraud and corruption are both dishonest activities causing actual or potential loss to any other person or entity including theft of moneys or other property by employees or person external to the Municipality and whether or not deception is used at the time, immediately before or immediately following the activity; and

5.3 It also includes the deliberate falsification, concealment, destruction or use of falsified documentation used or intended for use for a normal business purpose or improper or misuse of information or position; and

5.4 Fraud encompasses an array of irregularities and illegal acts characterised by intentional deception.

6. Preventative Approach

The Municipality must adopt a preventative approach rather than a reactive one and should therefore concentrate its efforts in preventing fraud and corruption, rather than responding thereto.

7. Key Principles

The management and combating of fraud and corruption must be carried out according to the normative factors of public administration as well as the Batho Pele principals, including the following:

8.1 Public accountability

The Municipality is as a public institution accountable to the community for its actions. Fraud and corruption management must place the best interests of the community at heart.

8.2 Underlying principles of democracy

The “underlying principles of democracy” are the hallmark of the way in which authority and power are exercised in every Municipality where the interests of citizens and the common good are at stake. The management processes should be open and transparent. This implies that fraud and corruption management is undertaken with no hidden agendas and is objective and just. Information must therefore be clear, concise and complete in order to facilitate efficient and effective decision-making.

8.3 Reasonableness and fairness

The viewpoint of “reasonableness and fairness” is that the Municipality and all office bearers and officials of the Municipality must promote the welfare of the community. All members of the community must be treated fairly and reasonably. When fraud and corruption management is undertaken all parties involved must be treated in accordance with the principles enshrined in the Constitution of South Africa.

8.4 Effectiveness and efficiency

The Municipality exist because there are specific needs that have to be catered for in the community. Community needs are usually greater than the resources available to satisfy them. Therefore measures implemented to combat fraud and corruption must be efficient in order to maximise service rendering with resources available, and managed in such a way as to realise set goals and objectives.

8.5 Counter Checks and Balances

This policy and procedures must provide for the development of a system of counter checks and balances as envisaged in the Municipal Finance Management Act.

9. Preventative Measures

9.1 Management of Prevention

All Councillors and staff must be encouraged through appropriate actions to make it their personal objective to eliminate fraud and corruption and to do all in their power to prevent and to report such fraud and corruption in accordance with this Policy and other legislative objectives.

The Municipality accepts that the principle means of preventing fraud and corruption is a proper system of checks and balances and the management, monitoring and control thereof.

9.2 Job rotation

Job rotation may be applied as a prevention method if it is done on a regular basis because it prevents individuals hiding illegal actions.

9.3 Surprise auditing

The Unit: Internal Audit should do regular surprise audits to check to uncover any possible fraudulent or corruptive actions.

9.4 Systems and procedures

Departmental Heads must ensure that all preventative systems and procedures are in place to prevent and or expose any fraud and corruption.

9.6 Operating and Procedure manuals

Every Department must develop and describe their operations and procedures in manuals approved by Council. These manuals should be used for training new employees, setting the standards and to evaluate if operations are executed accordingly. Manuals would also prevent individuals to follow their own ways and do not replace duty sheets.

10. Hotline and the reporting of fraud

10.1 A reporting channel (Hotline) through which employees, suppliers, contractors and other third parties can report irregular activities, free from victimisation or repercussions, must be developed by the Municipality. The primary means of detecting fraud will and should always remain a sound system of internal control and regular internal audits. These measures should be supplemented with a fraud-reporting channel where information regarding fraud, theft and corruption is collected, and decisive corrective and protective steps are taken to limit the Municipality’s exposure to further or future loss. Vital to this function is the assurance of anonymity, commitment to investigate all irregularities, protection of the whistleblower and consistent application of the fraud policy, regardless of the seniority of the alleged offender.

10.2 Any suspected or actual fraud must be reported immediately to the Accounting Officer’s Fraud and Corruption Hotline. All calls will be treated with the utmost confidentiality. Reports may be made anonymously. This facility will be administrated independently by the Internal Audit Unit in the Accounting Officer’s department to ensure that this facility remains effective.

10.3 Every employee who becomes aware of fraud or acts of dishonesty must report this to his/her immediate supervisor. If the immediate supervisor is a party to the fraud, the next level of management must be informed. In addition to this the Office of the Accounting Officer and the Manager: Internal Audit must be informed.

10.4 No person in the Municipality, regardless of seniority, will and may have access to the identities of staff members or other persons that report irregularities or fraud, except the person being reported to.

10.5 Whenever any person has reasonable grounds for believing that there has been a contravention of this Policy, such person must in writing immediately inform–

10.5.1 The Chairperson of the Audit Committee, in a case involving the Accounting Officer; or

10.5.2 The Accounting Officer, in a case involving a departmental head; or

10.5.3 The departmental head in any other case.

11. Fraud and Corruption Response Plan

11.1 Response Plan

The Municipality must develop a Fraud and Corruption Action Plan the purpose of which is to guide a fraud response team in reacting appropriately to all uncovered fraud, minimising losses, maintaining control at a time of crisis and providing for maximum recoveries. It further guides the team on the processes of investigations, collecting and safeguarding evidence, report writing, and ultimately providing for a professional and appropriate closure on the case.

11.2 Fraud and Corruption Investigation

The aim of fraud investigation is to perform procedures in order to determine whether fraud as suggested by fraud indicators does exist or not.
The role players included in a fraud investigation can operate in a team or individually and include the following, subject to the directions of the Municipal Manager or the Mayor, as the case may be:

11.2.1 The Division: Internal Audit

11.2.2 The Division: Legal services

11.2.3 Other specialists with the approval of the Accounting Officer, such as the SAPS and Forensic Auditors.

11.3 Process to be followed

11.3.1 The process to be followed after fraud or corruption has been detected is to launch an investigation and if enough proof exist, then to start the prosecution process. Investigating starts with planning, obtaining statements, collecting documents and interviewing suspects.

11.3.2 The actions among others to be taken by the response team dealing with the fraud include:

• Understanding the fraud
• Knowing the offence
• Knowing your rights and the suspects
• Tracing witnesses, suspects and others to co-operate
• Covering the loop-holes
• Report it to the SAPS after consulting with the Accounting Officer

11.3.3 When taking action against perpetrators the Municipality must be seen to be firm and consistent. The message must be communicated to all prospective criminals. Perpetrators must be dealt with in terms of the disciplinary code according to the Service Conditions, civil law and criminal law where applicable.

11.4 Disclosure of Results of Investigation

The results of investigations will be disclosed on a need to know basis in order to avoid damaging the reputations of innocent persons initially suspected of wrongful conduct and to avoid civil liability claims against the Municipality. This means that results of fraud investigations can only be disclosed or discussed with authorised representatives of the South African Police services and those persons associated with the Council who have a legitimate need to know results in order to perform their duties and responsibilities.

11.5 Recovery of Losses

All losses suffered by the Municipality whether through negligence, bad management or dishonest acts must be recovered in accordance with the provisions of the MFMA. It is the responsibility of Management to report on all losses to the South African Police Services. Furthermore Management must report all losses to the Budget and Treasury Office for insurance claim purposes.

12. Confidential and Privileged Information

12.1 Disclosure of Confidential Information: Councillors

The prohibition on the disclosure of confidential and privileged information is governed by the Code of Conduct for Councillors as contained in the Local Government: Municipal Structures Act, 1998 (Act No.117of 1998) Schedule 5, as follows:

12.2 Disclosure of Information: Officials

The prohibition on the disclosure of confidential and privileged information is governed by the Code of Conduct for Officials as contained in the Local Government: Municipal Structures Act, 1998 (Act No.117of 1998) Schedule 5, as follows:

No official of the Municipality may –

12.2.1 directly or indirectly disclose confidential or privileged information known to him or her through employment by the Council, other than in discharging his or her official duties or pursuant to a lawful instruction or for the protection of his or her rights;

12.2.2 directly or indirectly use confidential or privileged information known to him or her through employment by the Council, for any purpose other than in discharging his or her official duties or for the protection of his or her rights;

12.2.3 directly or indirectly disclose to any company, partnership, association or similar organisation with which he or she, or his or her spouse, parent or child, is associated, such confidential or privileged information that is not openly available to any other company, partnership, association or similar organisation;

12.2.4 directly or indirectly disclose such confidential or privileged information to any person or organisation unless that person or organisation has a legal right to receive it;

12.2.5 use information gained in his or her official capacity and which is not available to the public generally, for his or her direct or indirect personal advantage.

13. Gifts

13.1 Types of Gifts

Gifts may come in different forms, some more apparent than others may. The following may be relevant:

• Overseas trip
• Discount on property purchases
• Weekend vacation - e.g. holiday to Sun City, etc.
• Hunting weekend on a game farm
• Yacht cruise
• Cases of liquor
• Liquor
• Lunch/dinner
• Pens and stationary
• Tie/shirt
• Box of chocolates/sweets
• Receipt of cash

Every instance must be judged on its own merit.

13.2 Declaration of gifts

The Municipality must develop a system to register or record all gifts that must be declared by the receiver.

The following guidelines are provided:

13.2.1 All Department Heads will be responsible for the administration of there own registers for their respective departments

13.2.2 Each Director will be responsible for the administration of a register for their respective department heads

13.2.3 The Accounting Officer will be responsible for the administration of a register for senior managers and the Speaker for councillors and the Office of the Executive Mayor.

13.3 No gifts should be accepted by employees that can be construed to influence decision making in respect of the performance of duties. If there is any doubt, it should first be discussed with the higher authority that the individual reports to, or alternatively the Accounting Officer

13.4 All gifts, which in the subjective mind of the recipient purports to be a bribe, must be declined and reported to higher authority as mentioned in above.

14. Use of Council Property

No person may–

14.1 Appropriate any property owned, managed or controlled by the Municipality for his or her direct or indirect personal use or benefit, or for the use or direct or indirect benefit of any other person to whom he or she is related, or with whom he or she is associated;

14.2 Make use Municipal office facilities or equipment, including telephones and motor vehicles, or other property of the Municipality for his or her personal use or direct or indirect personal benefit; or

14.3 Misappropriate or make other improper use of any property of the Municipality.

15. Material Interest in Contracts and Work of the Municipality

No person may without the prior written consent of the Municipality have a direct or indirect pecuniary interest in any contract or work done for the Municipality.

16. Other Employment Prohibited

No full-time official of a Municipality may be engaged, directly or indirectly, in any business, trade or profession other than the business of the Council, without its prior written consent.

17. Improper Obtaining of Grants

No official may try to obtain from the Municipality any benefit for a company, partnership, association or organisation with which he or she, or his or her spouse, parent, child or partner is associated, if that benefit is not available in common to any other company, partnership, association or organisation.

23. Bribery

23.1 Any person who, whether for him or her or any other person, solicits, receives or agrees to receive a fee, gift, advantage, or reward for doing or not doing any thing in respect of any matter or transaction in which the Municipality is or may be concerned, is guilty of an offence and liable on conviction to a fine or to imprisonment or both.

23.2 Any person to whom an offer has been made for doing or not doing any thing in respect of any matter or transaction in which the Municipality is or may be concerned, must immediately disclose full particulars to –

23.2.1 The Executive Mayor (Councillors)

23.2.2 his or her departmental head;

23.2.3 in the case of a departmental head, to the Accounting Officer; or

23.2.4 in the case of the Accounting Officer, to the Audit Committee.

23.3.5 A person who accepts or receives any fee, gift, advantage or reward must, notwithstanding any penalty or disciplinary action, pay to the Municipality an amount equal to the amount or value of that fee, gift, advantage or reward if it was not priory reported and approved by the Executive Mayor, Accounting Officer or Head of Department, as the case may be.

24. High Standard of Ethics

All officials and councillors of the Municipality must comply with the requirements of the Constitution of the Republic of South Africa, to maintain and promote a high standard of professional ethics in their public administration.

25. Code of Conduct for Officials

The Municipal Systems Act of 1998 has made provision for a code of conduct for municipal employees. The code stipulates the following:

25.1 Prohibition on Dealing with Certain Matters

An official must not deal in his or her official capacity with any matter in which the Council is involved and in which he or she has a direct or indirect private interest unless he or she discloses that interest to the Council and receives written permission in advance.

25.2 Certain Actions In Relation To Officials Prohibited

No official may –

• attempt to cultivate the friendship or favour of any member of the Council or approach any member with a view to obtaining any appointment, promotion, gain or advantage in the service of the Council for him- or herself or for a relative or friend;
• directly or indirectly be involved in a business venture with any member of the Council without the prior written consent of the Council.

25.3 Making of False Statements

No official may –

25.3.1 knowingly make a false statement with a view to obtaining, directly or indirectly, any privilege or advantage in relation to his or her official position or duties;

25.3.2 mislead or attempt to mislead the Municipality or a committee in its consideration of any matter;

25.3.3 influence or attempt to influence the Municipality or a committee in its consideration of any matter serving before it so as to gain a direct or indirect benefit for him- or herself, or a person to whom he or she is related, or a person or body with whom he or she is associated.

25.4 Participation in Unlawful Decisions

An official must not directly or indirectly encourage, advocate, incite or participate in the Council or a committee taking of any unlawful decisions.

25.5 Criticism of Employer Prohibited

Officials must not express public criticism of the Municipality or any member of the Council or act in a way that detracts from the good name of the Municipality or any member of the Council.

25.6 Special Treatment of Persons Prohibited

An official must not grant special treatment or an advantage to any person, company or organisation, which would not be made available to anyone else in similar circumstances.

25.7 Participation in Elections

An official may not participate actively in any election, other than in his or her official capacity or pursuant to any constitutional right.

26. Training and Awareness

26.1 It is vital in the Municipality’s efforts to minimise fraud and corruption that its people are aware of the risks and more importantly that they learn to recognise the symptoms of fraud and corruption. To achieve this, training initiatives are vital. The training programs should include different modules pitched at various levels, i.e. a fraud risk overview (pitched at management), early warning signs (pitched at supervisor level), practical fraud investigations courses (internal audit, in-house investigators or security personnel), workshop on disciplinary hearings (for presiding officer or in-house prosecutors), etc.

26.2 It is important that the concept of preventing fraud and corruption is embraced by the heads of departments and that the aims and objectives are “sold” to the staff. Effective marketing is therefore critical to the strategy’s success. As an additional marketing opportunity, a road show has huge potential benefits, especially at the initial implementation stage. This would further demonstrate management’s commitment to the project to its entire people.

27. Specific Responsibilities

27.1 Heads of Departments

The primary responsibility for establishing and maintaining internal control measures is with the Heads of Departments. The heads must ensure that all employees under their supervision are aware of all relevant legislation, conditions of service and policies and procedures and that they abide by them.

The primary objectives of internal control are to ensure:

• The reliability and integrity of information
• Compliance with policies, plans, procedures, laws, regulations, and contracts
• The safeguarding of assets
• The economical and efficient use of resources
• The accomplishment of established operational objectives and goals

Heads of Departments must undertake to:

• investigate all reported or suspected fraudulent activities,
• have no regard for the position of the alleged offender,
• apply a policy of censure to all, regardless of seniority,
• comply with the principle of “innocent until proven guilty,
• maintain absolute confidentiality, and
• reward loyalty

Departmental Heads must ensure that all employees are made fully aware of this Policy.

Directing and monitoring are part of the functions of management. This entails the authorisation and monitoring of performance. Irregularities and non-compliance can be detected in this way.

27.2 Internal audit

Internal audit is responsible for assisting management in the prevention of fraud and corruption by examining and evaluating the adequacy and effectiveness of the system of internal control. The role of Internal Audit pertaining to fraud investigations refer to in paragraph 9 is the following:

• Assess the probable level of complicity in the fraud within the Council in order to protect information and evaluate the credibility of information provided.
• Determine the knowledge, skills and disciplines needed to effectively carry out the investigation.
• Co-ordinate the investigation with management, legal council, and other specialists as may be appropriate.
• Be aware of the rights of alleged perpetrators and personnel involved in the investigation.

On conclusion of the investigation the internal auditors should determine whether controls need to be implemented or improved in order to reduce future vulnerability. Furthermore audit tests should be designed in such a way as to disclose similar frauds and corruption in the future.

The reporting responsibility of the internal auditors entails oral or written interim and final communications to management, the Audit Committee and Council regarding the status and results of fraud investigations undertaken by them. The lines of communication will depend on what level the suspected fraud or act of dishonesty is prevalent.

The Manager: Internal Audit must ensure that quality standards within the Division: Internal Audit is maintained in order to ensure that audits are carried out with “due professional care”.

The role of internal audit is to conduct examinations and verifications to a reasonable extent, but does not require detailed audits of all transactions.

The auditor must however display due care when conducting examinations and verifications. According to the standards for the Professional Practice of Internal auditing (Institute of Internal Auditors) “Due care implies reasonable care and competence, not infallibility or extraordinary performance.” Therefore internal auditors cannot give absolute assurance that fraud and corruption does not exist. The internal auditor is responsible for the following when conducting an internal assignment:

• Have sufficient knowledge in order to identify fraud indicators.
• Be alert to opportunities like weak internal controls that could allow fraud and corruption.
• Evaluate indicators in order to decide if further investigation is necessary.
• Notify the relevant management structures and authorities if an investigation is to take place.

It must be remembered that fraud auditing and forensic accounting is a specialised discipline on its own. Audit procedures carried out with due professional care alone cannot guarantee that fraud will be detected. Furthermore a mere rumour of fraud is not enough to justify a fraud investigation. Preliminary fieldwork must be done in order to gather relevant information so as to ascertain whether the necessary fraud indicators exist. In order to detect fraud and carry out investigations effectively and efficiently the Division: Internal Audit will have access to all information pertaining to investigations

27.3 Personal Administration

27.3.1 Departmental Heads in conjunction with the Human Resources Management must ensure that all relevant background checks are carried out on prospective employees of the Municipality in order to promote the appointment of honest and credible people.

27.3.2 Human Resources Management must distribute this Policy to all employees of the Municipality.

27.3.3 This Policy must form part of any Induction Programme offered to new employees of the Municipality.

28. Actions and Penalties for Breach of Policy

Disciplinary Action

Civil Action

Criminal Action

29. Amendment of Policy

This policy may only be amended by formal resolution of a majority of the Council.

30. Amendment of National or Provincial Legislation

When National and Provincial legislation regulating fraud or corruption is amended, this Policy shall be amended accordingly.