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Investigation Case Study 1

Tying The Tourniquet
by Dr Lombaard – Senior Investigator at JGL Forensic Services

One of our investigation teams recently completed an investigation into the procurement of two contracts, as well as income and expenditure by an educational institution. The management team reports to a board of trustees set in place by the SOE who is the funder of the trust.

No direct relationship exists between the educational institution as the beneficiary of the trust and the SOE as the funder of the trust. In spite of this, an attempt was made by the funder to directly impose certain responsibilities in relation to expenditure of funds on the management of the educational institution via a sponsorship agreement entered into directly with the management of the educational institution, even though funds were paid to the trust and therefore negated any authority the funder would have over the funds once received by the trust.  The trust is also not subject to public finance management rules.

Various other findings of irregularities resulting from this investigation also include:

  • A lack of certain crucial policies such as a finance policy
  • Policies that were drafted a number of years ago but never formally approved by the board of trustees
  • No person specific delegation of authority in place
  • Cover quoting in the procurement of one of the contracts via a three-quotation system, through the submission of fraudulent quotations for two “competing suppliers”
  • Procurement of the second contract was irregular in that the process followed was not fair and did not comply to the minimum standard required by the applicable SCM policy. It was also noted that the quotation from the winning bidder was signed as accepted before the bid evaluation and adjudication process had even been completed.   The winning bidder is also not experienced in the required field of expertise but this was blatantly ignored by committee members during the process of bid evaluation and adjudication
  • The management of the educational institution failed to report to the board of trustees on substantial income of in excess of R2.5million generated by the institution over a 24-month period
  • The management of the educational institution failed to effectively manage income and expenditure from of a bank account under their control
  • Theft of petty cash occurred through the use of duplicate transaction documentation. This was facilitated by the lack of a petty cash register and regular reconciliations
  • Theft of fuel occurred through the refuelling of private and official vehicles in a single transaction.

It was, inter alia, recommended to the client that:

  • Policies be reviewed, updated and approved by the board of trustees at regular intervals to ensure relevance and enforceability
  • Person specific delegation of authority be issued at least annually
  • The board of trustees hold the various relevant educational institution accountable for their respective actions in relation to the identified irregularities
  • Effective financial control procedures be institutes to manage the risks associated with petty cash
  • Regular fuel consumption reconciliation and control processes be implemented to allow for timeous and decisive action by the board of trustees where theft of fuel and other associated irregularities are noted
  • The educational institution compile and actively use a supplier database for procurement.

Lessons Learnt

It was apparent during the course of this investigation that a disconnect existed between the perceptions of the trustees and funder, and the true state of affairs that existed at the educational institution.  Through our report we not only addressed the various aspects required by the scope of the investigation, but also alerted them to this disconnect and the impact this has the day-to-day running of the institution as well as on future direction and planning.  In order to ensure the success of such an institution, all parties involved need to work closely together as a unit.