COVID-19 initiatives: Audit detects fraud and double-dipping

The Auditor-General of South Africa Kimi Makwetu has released the first report on the management of funds regarding COVID-19 initiatives and it doesn’t paint a pretty picture. According to the audit report, there have been indicators of fraud and double-dipping, particularly, regarding Unemployment Insurance Fund (UIF) TERS and social grants payments.

The COVID-19 audit is performed by multidisciplinary teams, which make up data analysts, fraud experts, supply chain management specialists, information technology auditors and performance auditors. The steps include fraud risk assessments, using fraud experts and using analytics to analyse beneficiary payment data with a strong forensic focus. 

The findings and data are being shared with the newly established fusion centre which deals with fraud and corruption investigations relating to COVID-19. 

OBSERVATIONS FROM THE COVID-19 INITIATIVES AUDIT

According to the report, the following observations have been made; 

• The rapid implementation of the initiatives in already compromised control environments created significant risks that most auditees were not able to address;
• The information technology systems used by government were not agile enough to respond to the changes required;
• Pre-existing deficiencies in the supply chain processes of government were amplified by the introduction of the emergency procurement processes;
• Poor record-keeping is a common feature across many initiatives, which also made it difficult for us to audit;
• The pre-existing inability to coordinate and oversee efforts that involve
• multiple departments, agencies and spheres of government continues to plague projects; and
• Our data analyses identified indicators of a higher risk of fraud and abuse of funds. 

The real-time audit approach and the depth of work done through data analyses have proven to be beneficial in identifying matters that auditees can address timeously, preventing only further recurrence.

TERS AND SOCIAL GRANTS: FRAUD AND DOUBLE DIPPING  

Audit work to date has found an increased risk of payments to ineligible beneficiaries, overpayments, underpayments, the invalid rejection of beneficiaries, fraud and double-dipping regarding the payments of UIF TERS and social grants. 

The auditor-general has put it down to significant changes being made to processes and systems within a very short period to enable pay-outs, without ensuring good preventative controls are in place and data not being shared across government or effectively used to check if those applying for benefits and grants qualify as beneficiaries. 

Regarding UIF TERS payments, the following irregularities were found; 

• Overpayments on benefits for the first lockdown period – the system did not take into account the actual period of inactivity and the portion of the salary paid by employers
• Data analytics identified a high number of payments that require further investigation e.g. people who are below the legal age of employment, deceased, working in government, receiving social grants or funded by the national student financial aid scheme; and 
• Recalculations identified overpayments, underpayments, duplicate payments and discrepancies such as payment approval made before the date of application. 

During a media briefing on Wednesday 2 September Employment and Labour Minister Thulas Nxesi said four members of UIF senior management were suspended, following the release of Makwetu’s report on COVID-19 initiatives. The Director-General of the Department of Employment and Labour suspended three UIF senior management officials; the CFO, COO and Head of the Supply Chain, while Nxesi suspended UIF Commissioner Teboho Maruping.  

Regarding social grants, the following irregularities were found;

• Limited verification in the application process for the R350 social relief grant increases the risk of payment to people who are not in distress;
• Data analytics identified payments of the R350 grant to over 30 000 beneficiaries that require further investigation e.g.people working in government and recipients of UIF payments, other social grants and government pension; and 
• Changes to the information technology system to enable the payment of the top-up grants could not be completed in time for the May grant payment and a manual workaround was used with few controls to prevent mistakes. This resulted in duplicate payments.  

The report also said there were clear indicators of fraudulent activities in procurement processes which will further investigate and share with the newly established fusion centre and other investigating agencies.