The frequent theft of public funds by corrupt government officials is dominant in third world countries with South Sudan being among the worst in the world to suffer from its negative effects. South Sudan has elites that have developed a Kleptocratic system that controls all aspects of the nation’s economy.
With that, a report which was released in 2012, further stated that more than $4 billion in government funds have been stolen since self-rule in 2005. The major scandal since the beginning of self-rule has been the so-called “Dura Saga” although there have been multiple instances of similar wrongdoing.
All this has come about due to the problem of serious lack of transparency in South Sudan government records and business information. Any attempt to request official data can be turned down without any reasonable grounds.
As much as the government may pay a deaf ear, corruption scandals do reflect the failure of the government to contain the problem of fraudulent theft of public funds by its own officials. Its detrimental effect is affecting the standards of living of the people of South Sudan hence tainting South Sudan’s image globally.
So for the government to fight the problem of theft of public funds, it’s vital to first identify and understand different types of fraud indicators/risks before structuring solutions to combat them.
But before we go there, let’s first understand; What is Fraud?
In simple terms, fraud refers to the use of dishonest methods that is intentional and caused by an employee or organization for financial or personal gain. For example, obtaining money or property by deceiving people.
It’s usually intended to benefit one party while harming the other party.
There are 3 main types of fraud
- Asset misappropriation
- Bribery and Corruption
- Financial Statement deception
With that, let’s also understand: What is a Fraud Triangle?
A fraud triangle is used to explain the motive behind a person’s decision to commit fraud.
The fraud triangle consists of three components that increase the risk of fraud;
Opportunity refers to any situation that can allow fraud to take place. In the fraud triangle, it’s the only component that the entity has complete control over.
Examples that avail opportunities for committing fraud include:
- Weak Internal Controls such as lack of segregation of duties, lack of supervision and poor documentation of processes etc.
- Poor tone at the top which results in a company that is more susceptible to fraud.
- Lack of accounting policies which allows employees to easily manipulate figures
Incentive refers to an employee’s motivation to commit fraud. It includes;
- Bonuses based on financial metric which create pressure for employees to meet targets hence forcing them to commit fraud in order to achieve the objective.
- The pressure to achieve or surpass investor and analyst expectations can result to committing fraud.
- Personal incentives, the desire to earn much money, the pressure of paying bills and meeting datelines or gambling addictions.
Rationalization refers to an individual’s vindication for committing fraud.
Examples of common rationalizations that people who commit fraud use include:
- They treated me badly so am paying back
- Upper management is committing fraud, so who am I not to do it also.
- There is no other solution to my problems unless I commit fraud.
Having understood the meaning of fraud, the different types of fraud, and the fraud triangle, we can now identify some of the indicators (Red Flags) that can make us more alert to the indications of fraud. Some of the fraud indicators include;
1. Contractor Fraud Indicators
Contractor fraud is one of the most common ways public funds are stolen and transferred to the organization’s employees, political associates, friends, family members, etc.
Here are some of the indicators that can be used to identify this kind of fraud;
- A contractor is not licensed but awarded a contract
- A contractor is given an advance payment for a service yet to be rendered.
- A contractor is paid via wire transfer instead of cheque, because a cheque may require approval by a higher authority.
- Payments are made to the contractor without going through the standard procedures of approval.
- A contractor having very close contact with employees of the entity
- An advance payment is effected to the contractor for a service he/she hasn’t even rendered yet.
- A contractor’s official address is the same as that for an employee of the government parastatals, family member or close business associate affiliated to the key employees of the parastatals awarding the contract.
- A contractor has no actual address but contracts are awarded to them.
2. Procurement Fraud Indicators
This type of fraud is very similar to contractor fraud and it is carried out on an immensely large scale. Examples include;
- When the bid winner shares work with other bidders who lost or didn’t even follow bids
- When submitted bids are too small
- Awarding unnecessary prizes to the winner of the bid
- When contracts are awarded without bidding process
- When a contract is not awarded to the contractor company with the lowest bid, without and major explanation.
- When the same contracted is awarded multiple contracts from different parastatals that are similar.
- When there wasn’t any advertisement prior to bidding process.
- When all bids are made by the same contractor
- When the won bid is much higher than the budgeted cost.
- When most of the companies have never executed a similar project in the past.
- When the government parastatals fails to show history of its bids
- When a contractor is awarded multiple contracts in one bidding process.
- When there is conflict of interest as evidenced by close relationship between the contractor and the bidder.
3. Payroll Fraud Indicators
Payroll fraud is more rampant in government institutions ever since South Sudan’s independence, and they have taken so many forms including nepotism, ghosting employees and so much more. Here are some indicators of payroll fraud.
- No physical verification of terminated or current employees
- Addition of ghost employee(s) to the payroll.
- Several employees sharing the same salary account
- Employee payment based on falsified hours/rates.
- A bigger number of employees are registered but office premises are less populated.
- Too many former and existing employees are related to current employees.
- Multiple employees sharing same home address which is not official staff quarter.
- Theft of employee contributions to benefit plans
- Unexplainable changes in salary levels
- Commissions paid on inflated sales or commission rate.
4. Financial Fraud Indicators
While similar to the payroll indicators, financial fraud indicators are usually more direct and are easy to spot. Some of them include;
- Frequent cases of missing documents that relate to critical departments (For example, Financial reports, list of sales and purchases, checkbooks or inventory reports)
- Transactions in the ledger are back-dated
- Spikes in the number of invoices.
- A lot of complaints about a certain employee or hesitation to follow standard procedures.
- Ordering issuing documents and accounts department do not arrive at the same figures at the end of the day.
- Excessive adjusting entries in the books of accounts
- Incomplete reports
- Organization’s activities are digitalized but employees prefer doing work manually.
- A lot of large transactions that are complex in nature are recorded manually.
- When employees take long to present documents for audit or verification purposes.
- Undocumented money transfers from the organization’s bank account.
- So many bank accounts and few ledger reports
- When expenses recorded in a department are not relating to the department’s needs
5. Employee Fraud Indicators
A lot of fraud being experienced in government entities always come from within the entity itself, mainly from the government employees.
Some employee fraud indicators include:
- Sudden lifestyle change spending more than their paycheck allows
- Employee with history of bad debts and bad cheque writing.
- Excessive gambling addiction
- Employee stay up to late night working beyond normal working hours.
- When employees refuse to take leave off work for holiday or time off entitlement.
Other General Fraud Indicators
While contractor, financial, procurement, and payroll fraud are the major fraud sources in organizations, there are still other general fraud indicators that shouldn’t be overlooked as they are still loopholes that aid the theft of public funds. They include;
- An organization has been run by one individual for 12 years or more
- The leaders don’t want to follow standard procedures to get things done.
- There’s high number of lawsuits against the organization
- Leadership prioritizes part-time employees over permanent ones.
- When there is unprecedented rumor about corruption happening in the entity.
- When an ordinary email address is used to conduct official work.
- When there are no restrictions for transfer of money from the entity’s bank accounts.
So basing on the fraud indicators mentioned above, I think by now you will agree with me that implementing technology-driven systems is key to fighting the theft of public funds in South Sudan.
Ways through Which Government of South Sudan Can Use Technology to Fight Corruption in Government Entities
1. Provide a Platform Where People Can Share Information
The government should provide a platform where employees and whistle-blowers can easily report theft and fraud by their co-workers. Unless the government is happy seeing viral pictures or videos of fraud taking social media by storm each time, they should establish an anonymous computerized system that makes reporting suspicious fraudulent activities extremely easy.
The access to fraud report data should not be kept too private, because when a small clique of people controls information, they can easily alter it by deleting or modifying it. The data on fraudulent reports should be sent over a blockchain network so that it becomes easy to verify in case of an investigation.
Platforms, like I Paid a Bribe in India, provide crowd-sourced information on demand bribery happening in different contexts in the country. Having such a platform in South Sudan can raise awareness and act as a deterrent.
2. Automation and Digitization Of Entire Government Processes And Services
The government of South Sudan should automate and digitize the entire workflow of every government entity by setting up a single network-based revenue management system where all workflows regarding generating orders, receipts, payments, recording data, etc. can be linked to one centralized system that is monitored remotely.
In return, it will reduce the face time public officials in specific positions have with the public, limit the discretion of public officials, increase transparency and make it more difficult for corrupt transactions to take place.
For example, when Adam Smith International undertook a project in Afghanistan to modernize the tax administration system between 2002 and 2016, Corruption greatly reduced while tax revenue collection suddenly increased.
Therefore, if the government can install such a system, accounts can be easily reconciled since data is automatically recorded every time an activity takes place.
3. Adopting Block Chain Technology
Blockchain refers to a method of recording data in a way that makes it hard to change, hack or even cheat the system. In other words, it’s a public growing list of records called blocks. The blocks are linked using cryptography.
The technology became popular because of its ability to transfer data in a safe, tamper-proof, and transparent manner. The data is stored in many devices rather than on one centralized server, coupled with heavy-duty encryption that makes the system impossible to be hacked.
With encryption, you can neither change nor delete information once it enters the system. So any illicit transaction can never be modified or removed.
The blockchain’s open-source code also makes the information publicly available and easy to trace at any time.
Countries like Rwanda, India, and many others around the world have already adopted blockchain technology as a way to ensure secure and transparent activities across all government entities.
4. Use Of Big Data Analytics
Big data analytics is the use of advanced analytical techniques on data sets that are too large or complex for traditional data processing software. It includes structured, semi-structured, and unstructured data from different sources and in different sizes from terabytes to zettabytes.
Data sets can reveal interesting patterns and red flags that cannot be easily picked up in the procurement process.
Big data is often used by citizens and civil society actors to assist them in targeted change and reforms and in understanding trends and patterns relevant to anti-corruption enforcement.
For instance, data sets like financial disclosure, beneficial ownership, company data, tax authority, financial intelligence, and procurement data could be analyzed to provide patterns and evidence of procurement fraud or any acts of corruption.
5. Perform unexpected Informal Audits
The government must carry out audits without prior notice. They should never announce information on when audit activity will take place across the different government entities and the auditor should be completely an independent firm with zero ties to the government entity in question or its staff members to avoid any conflict of interest.
Unannounced audits can be nerve-wracking for even the most buttoned-up government entities.
6. Generate Enough Data On Every Single Government Employee
The government should collect and build up in-depth information on every employee or officeholder at the time of employment and after employment. This will make it very easy to track what the employee does when entrusted with responsibility and also reflect if the employee is susceptible to fraudulent activities.
Some information that should be gathered from employees and stakeholders are;
- A sudden devotion to work and working late beyond normal work hours even after people have gone home
- Conduct at work with fellow employees.
- Their alcohol and drug usage levels
- Lifestyles that are above their salary level
- Addiction to gambling and borrowing
- Bad cheque writing
- Abrupt closeness to fellow employees which maybe personal or official
- Having them declare their assets every after six months
When the government holds such in-depth information about employees and stakeholders of any entity, it can be pretty easy to identify which employees are most likely to involve themselves in illicit activities in an entity.
7. Prosecute Corrupt Officials
A country that doesn’t prosecute corrupt officials is a lawless country. In order to stop the rampant looting of public funds, the guilty party must answer for their crimes.
Just like it pains when a thief breaks into your house and steals all your hard-earned money, that’s the same way taxpayers feel when public funds are looted by corrupt officials.
In South Sudan Context, there is fear that when the corrupt officials are prosecuted they will resort to going to the bush to fight which makes them pig-headed openly looting public funds with impunity.
There is no better way to instill fear and discipline than prosecuting guilty offenders by heavy imprisonment, seizing their assets, and freezing their accounts whether offshore or in the country.
The would-be-offenders of similar fraud activities would get scared and learn a lesson.
8. Stop Appointing Incompetent Officials
The majority of the officials that commit fraud are always incompetent people appointed in positions, they are not fit for. What happens, is that they always want to loot whatever resources are available before their time expires. They know that anytime they can be removed from the office and so they get greedy to maximize the opportunity by committing fraud.
However, when professionals are appointed to prestigious positions, they always display a high level of professionalism no matter what duty calls.
There are eight characteristics that display professionalism;
- Emotional Intelligence
The government should appoint professionals that don’t involve in the politics of tribes to ensure the smooth running of the state. Recall, when the top-notch is rotten, the entire system becomes corrupt.
The theft of public funds is mainstream in South Sudan and will continue to create a bigger problem to South Sudan’s economy unless if measures are put in place to stop these vices on an aggressive scale. If South Sudan is to curb fraudulent theft of public funds from its confines, it must implement measures that don’t just target guilty individuals but measures that frustrate the whole theft process and quickly prosecute guilty individuals with lofty punishments.
What are your thoughts on how the government of South Sudan can use technology to stop the looting of public funds? Share in the comments section below.