South African government urged to tackle fraud in wake of World Cup

9 July 2010

11 July 2010 | Nick Martindale

The South African government must to do more to address the billions of rand lost to corruption in public sector procurement.

The warning comes from fraud analysts speaking to SM at a time when the country is in the spotlight as the host of the football World Cup, the final of which takes place today.

Marko Vogler, chief executive and founder of South Africa-based the Fight Against Corruption and alliance partner to tendering tool supplier Sentigol, estimates around 20 per cent of the government’s annual procurement budget of R150 billion (£13 billion) is lost to corruption.

“Much of the loss is through rip-offs, overpricing, tender rigging and manipulation,” he said.

Legislation to challenge corruption has a limited impact, he said, but deploying effective IT packages to overhaul procurement could make it much harder for people to defraud the system.

Speaking elsewhere, Mike Roos, director at Barnstone Fraud and Risk Services, outlined some of the problem areas: “Bid-rigging, tender irregularities, fronting, and the many different ways to compromise payment processes, including changing bank account details or hacking into the system to change payment details, are all major national trouble spots.”

Developing comprehensive anti-fraud policies and effective risk management strategies were key to stamping out fraud in the country, he added.

But Hilda Mulock Houwer, advisory partner at KPMG Johannesburg, told SM better disclosure practices meant more fraud was now being reported in South Africa.

“There’s not necessarily been an increase in the number of fraudulent transactions,” she said. And much of the fraud that took place in South Africa tended to be lower-value transactions under €15,000 (R144,000), she added.

Meanwhile a global survey by PricewaterhouseCoopers into public sector fraud revealed 37 per cent of government-owned enterprises had seen an increase in economic crime in the past 12 months, higher than any other type of organisation.

Fears over job losses, more difficult targets and a desire among senior management to achieve better results were seen as the main motivations to commit fraud.

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