A report by the Auditor-General (AG) into fraud and financial mismanagement associated with the Unemployment Insurance Fund’s (UIF) Covid-19 TERS benefit scheme, has uncovered poor financial management and verification controls, leading to millions in payments to the deceased, and people in prison.
AG Kimi Makwetu published the first of a series of special reports on the financial management of government’s R500 billion Covid-19 relief package, this week. The package was announced by president Cyril Ramaphosa in March in response to the impact of the Covid-19 pandemic on the economy.
Following the findings published in the report, employment and labour minister, Thulas Nxesi, announced that senior UIF officials, including commissioner Teboho Maruping, have been placed on precautionary suspension.
Due to the extent of the findings, the office of the AG has forwarded a list of potentially fraudulent cases to the multi-agency fusion centre – the Special Investigating Unit and law enforcement agencies – for swift follow-up investigations and possible prosecution.
While the relief package totalled R500 billion, the AG’s report focused on R147.4 billion allocated through the supplementary budget of June 2020.
A bulk of this was distributed to support for vulnerable households (R40.9 billion); health (R21.54 billion); support to municipalities (R20 billion); other frontline services (R13.62 billion); basic and higher education (R12.54 billion). The rest was distributed among other services.
Of this, R68.9 billion (47%) had been spent by July 2020.
Makwetu first cast the spotlight on the payment of the temporary employer/employee relief scheme (TERS) and social grants. These were introduced to provide economic relief to the vulnerable and assist employers to protect jobs.
“By 31 July, the Unemployment Insurance Fund (UIF) had paid just over R37 billion in TERS benefits and the South African Social Security Agency (SASSA) had paid R19.6 billion in social grants,” the AG said.
In this regard, Makwetu said the new system implemented for TERS incorrectly calculated the benefits for the first lockdown period (27 March to 30 April) by not taking into account the actual period of inactivity and the portion of the salary paid by employers, resulting in significant over payments.
Analysing payment data and checking the beneficiary information against other government databases, the Auditor-General flagged several payments that require investigation.
The office of the AG analysed TERS payments made by verifying the details of the employers, bargaining councils and employees against various existing government databases such as those of Home Affairs, the South African Revenue Service and the CIPCto confirm the eligibility of the beneficiaries, identify double dipping, and so forth.
It found the following 10 red flags with regard to payments made up to 30 June 2020:
1. Applicants below the legal age of employment
- Individuals below the legal age of employment of 15 years were paid by the UIF. A total amount of R224,677 was paid for 53 applications.
2. Identity number same as that of UIF employee
- A claim of R4,027 was paid to an individual who has the same identity number as a UIF employee.
3. Deceased individuals paid TERS benefit
- Individuals who were indicated as deceased per the Home Affairs database received TERS benefits totalling R441,144.
4. Imprisoned individuals paid TERS benefit
- A total amount of R169,900 was paid to individuals who were indicated as being in prison according to the Department of Correctional Services database.
5. Individuals with invalid identity numbers
- A total of 4,161 payments amounting to R30,071,248 were made to individuals with invalid identity numbers when checked against the Department of Home Affairs database.
6. Payments to foreign nationals
- Payments amounting to R685,846,671 were made for 166,619 applications relating to foreign nationals whose employers had not paid contributions for them for the past 12 months. The UIF did not confirm whether these non-South African citizens were possibly refugees or had valid work permits.
7. Double dipping
The UIF paid R140,556,822 to 35,043 applicants who received benefits from other state institutions (including remuneration in some instances), as follows:
- National student financial aid scheme students that received stipends,were paid TERS benefit claims of R10,335,344.
- Beneficiaries paid by the South African National Defence Force received TERS benefit claims of R327,638.
- Employees paid through the Personnel and Salary System were paid TERS benefit claims of R41,009,737.
- Disability grant recipients were paid TERS benefit claims of R69,419.
- Old-age grant recipients were paid TERS benefit claims of R88,814,684.
8. Banking details same as those of UIF employees
- Four applicants who had the same banking details as UIF employees were paid R14,614.
9. Individuals sharing banking details
- Twelve individuals who shared the same banking details were paid R53,971.
10. Double dipping within UIF
- Some individuals were indicated to have received payments on claims submitted for both normal benefits and TERS benefits. A total amount of R14,210,866 was paid for TERS benefits in this regard.
Makwetu said there was also poor input and validation controls on the new system and a manual claim submission process used in the first two weeks of implementation further heightened the risk of invalid or manipulated claim information.
This was also the case in the payment of the R350 relief funds which, the report finds, was paid to people who are not in distress or ineligible.
Turning attention to the procurement of personal protective equipment (PPE), Mkwetu said audits were in different stages of completion. However, the office’s data analyses of orders placed by health departments identified that some items were priced at more than double and even five times the prescribed price.
By June 30, R6.4 billion of R22 billion had been used on health related services.
“Similar instances were identified in the procurement of PPE in the education sector, where the national and provincial departments are not procuring PPE at market-related prices,” Makwetu said.
Although emergency procurement processes were allowed for procuring PPE, this did not mean all supply chain management requirements were relaxed.
“Teams are still busy auditing the procurement processes, but are identifying matters such as suppliers not having valid tax clearance certificates, quotation and competitive bidding processes not being correctly applied, inadequate or inaccurate specifications and evaluation criteria and the incorrect application thereof, conflicts of interest, and the awarding of a contract in the health sector to a supplier with no previous history of supplying or delivering PPE,” said the AG.
The Auditor-General said while 6 123 quarantine sites were initially targeted, only 510 sites had been identified by the Department of Public Works and only 192 activated for use by the Department of Health.
“It is unlikely that government will pursue the original target for quarantine sites, as the demand for such facilities has been relatively low,” he said.
While R4.8 billion was made available for 66 field hospitals across the country, only 18 of these projects had been completed by 30 June.
“The audit of the procurement processes for appointing contractors only recently commenced as a result of delays in providing us with the information and documentation requested, but the audit teams have already identified non-compliance with legislation in the processes followed,” Makwetu said.
This, he said, is another area in which there is a need for closer cooperation between the Health and Public Works Departments to monitor the demand for additional beds and the implementation of the initiative.