Friday, 30 November 2012

Call for rigorous governance tools to cut escalating tender fraud in SA

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An estimated R30-billion of South Africa's annual government procurement budget is lost to corruption, incompetence and fraud according to recent reports to parliament by the Special Investigating Unit (SIU).

Furthermore, figures quoted in the press (Independent Online) estimate that South Africa as a nation has lost a staggering R385-billion since 1994 due to corruption at every level in government.

Statistics of tender fraud are on the increase clearly showing that the current system is fraught with governance control issues, requiring a more robust approach to combat criminal opportunists.

"These figures highlight the need for a sophisticated vetting process and audited decision making to eliminate fraudsters before they gain access to public funds", says André Stürmer, CEO of Inoxico, an online credit bureau specializing in risk management solutions.

"Corruption in procurement leads not only to waste of public money and resources, but inferior quality of products and services, and can deter more qualified suppliers from doing business with the state," he added.

Regulations issued under the Procurement Policy Framework Act of 2000 require an organ of state to act against any tenderer that has failed to fulfill the conditions of a contract or has fraudulently misrepresented its broad-based black economic empowerment (B-BBEE) status to obtain a tender.

"The issue many of our clients have raised with regard to tender fraud, is that determining what other business or tenders a supplier has been involved in previously, can be very difficult," Stürmer says.

"Our experience shows that an effective tool for managing stakeholder governance is the ability to generate a clear picture of all employees, managers and directors with external relationships, which may pre-dispose them to ethically questionable decisions with regards to stakeholder appointment," says Stürmer.

Inoxico recently introduced Association Matrix, a business intelligence application that allows companies to track and audit both company and individual associated relationships within their organisational ecosystem.

Companies face requirements within the New Companies Act for governance related to employees and directors involved with or associated to companies and entities within its supply chain.

While the relationships are not always indicative of fraudulent or non-compliant activity, the organization must take action where appropriate, and apply a measure of governance to ensure that areas of association are represented and that sound audit processes are in place.

Association Matrix provides both the platform to build and represent the associated structure within the business as well as the commensurate tools to create the investigative and forensic framework for reviewing any peculiar or unfavourable employee and director activity.

Through Association Matrix, clients are able to enforce stakeholder governance and mandated approval of supplier relationships and track these decisions .

According the KPMG Africa Fraud barometer 2011, government and corporate organisations are the greatest victims of fraud in Africa, at 40% and 17% respectively, of all reported cases.

"Given the high statistics, it has become imperative for the sustainability of organisations to ensure that these institutions are protected through some form of systematic relationship-mapping and mandated, auditable decision making," says Stürmer.