Misconduct relating to fraud and corruption in the public service

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MISCONDUCT RELATING TO FRAUD AND CORRUPTION IN

THE PUBLIC SERVICE

by

MPUMELELO PATRICK MADIKANE

Submitted in partial fulfilment of the requirements for the degree of

MAGISTER LEGUM

(LABOUR LAW)

in the Faculty of Law at the

Nelson Mandela Metropolitan University

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SUMMARY

In an article, “Corruption and Governance Challenges: The South African Experience”,1

the Public Protector commented that corruption and good governance sit at the opposite ends of the spectrum. While good governance represents the ideal for governments, corporations and nations globally, corruption is a scourge that decent people, organisations and governments seek to eradicate. In the simplest of terms, corruption involves the abuse of power for private gain.

The Public Protector further stated that it should be a concern to everybody that in post-independence Africa, certainly in South Africa, the accumulation of riches (in most cases, very sudden) is venerated even in the absence of visible means of accumulating the riches.

South Africa has battled with corruption since the days of apartheid. Post-apartheid South Africa is a more open society and more opportunities have been created for detecting, exposing and prosecuting corruption.

South Africa‟s approach to corruption is multipronged. The main pillars according to the Public Protector are the law, anti-corruption agencies, and public mobilisation.

This studyhas attempted to attend to the challenges of managing misconduct relating to fraud and corruption that appear to weaken our democracy. Fraud and corruption is a complex phenomenon that requires managers and supervisors to possess a specialist technical knowledge in order to be effective in punishing those that are involved in this type of misconduct. The tendency currently is for the managers and supervisors to place suspected corrupt employees on a prolonged pre-cautionary suspension for a period that is not supported by law. This of course weakens the employer‟s case as they tend to rely on the outcomes of the proceedings in the criminal procedure before they institute disciplinary action against such culprits. Workers could be criminally prosecuted for this type of misconduct in terms of the

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Address by the Public Protector of the Republic of South Africa, Advocate Thuli N Madonsela, at the National Conference on Corruption and Governance Challenges, in Nigeria on 21 January 2010.

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provisions of the Prevention and Combating of the Corrupt Activities Act. Employers always enjoy the right to criminally prosecute workers who have committed acts of fraud or corruption but that must go concurrently with the institution of the disciplinary proceedings in terms of the collective agreement, if there is any.

This study will show that the act of misconduct relating to fraud and corruption is a complex phenomenon that poses a threat to the global security.

This study also takes a closer view of the provisions of international instruments and institutions such as the United Nations and International Labour Organisation. It further, does a detailed analysis of the provisions in other foreign jurisdiction like Canada. This is consistent with the provisions of the Bill of Rights as enshrined in the Constitution:

Section 39(1) of the Constitution of the Republic of South Africa demands that when interpreting the Bill of Rights, a court, tribunal or forum –

a. Must promote the values that underlie an open and democratic society based on human dignity, equality and freedom;

b. Must consider international law; and

c. May consider foreign law.

Section 1 of the Labour Relations Act, states that the primary objects of the Act are:

(a) To give effect and regulate the fundamental rights conferred by section 23 of the Constitution;

(b) To give effect to obligations incurred by the Republic as a member state of the International Labour Organisation.

Section 3 of the LRA further stipulates that any person applying this Act must interpret its provisions –

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(a) To give effect to its primary objects; (b) in compliance with the Constitution;

(c) in compliance with the public international law obligations of the Republic.

This treatise further shows the importance of the Constitutional values and principles that govern the Public Administration in terms of Chapter 10, section 195.

Of importance the elements of fraud and corruption are discussed in this study.

This study also gives a detailed analysis of the case laws that give guidance on how best to deal with and successfully punish employees involved in misconduct relating to fraud and corruption.

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CHAPTER 1 INTRODUCTION

1.1 INTRODUCTION

This study is about the investigation of the management of misconduct relating to fraud and corruption in the Public Service. This study basically will look at how the courts of law and other forums have dealt with the cases of fraud and corruption. The effectiveness of the legislative instruments that are specifically promulgated to attack practices of dishonest, fraudulent and corrupt transactions will be seriously scrutinised from a point of view of the domestic and international jurisprudence. Foreign jurisprudence of Canada will be critically looked at for purposes of comparative analysis.

Fraud and corruption in the public service appears to be a more common occurrence than employers might think. Yet despite the acute nature of the problem, it is important to realize that dishonesty may not always amount to a reasonable ground for dismissal as the South African Courts‟ decisions had established. In order to dismiss an employee for misconduct relating to dishonesty, the employer must carefully assess the context of the alleged misconduct. Each case must be considered on its own particular facts and circumstances. Most importantly, the employer must assess the nature and seriousness of the dishonest conduct or behaviour to determine whether the continued employment relationship can be sustained.

Schedule 8: item 2(2) of the Labour Relations Act (LRA),2 recognizes three grounds on which a termination of employment might be legitimate. These are the conduct of the employee, the capacity of the employee and the operational requirements of the employer.

Further item 3(4) of Schedule 8 states that it is generally not appropriate to dismiss an employee for a first offence, except if the misconduct is serious and of such

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gravity that it makes continued employment relationship intolerable. An example of serious misconduct is gross dishonesty (fraud and corruption).

The employment contract is premised on a relationship of trust between the employer and the employee. When an employee is found guilty of dishonesty, the sanction of dismissal is normally justified irrespective of the degree of the dishonesty. This is because the trust relationship has been breached or broken down irretrievably.

Case laws from both the domestic and foreign jurisprudence will be analysed so as to get the meaning of the appropriateness of the dismissal for misconduct relating to fraud and corruption. A common dilemma, with which employers in all areas of the public sector are faced, is the question of when dishonesty by an employee is sufficient to justify dismissal.

The preamble of the Prevention and Combating of Corrupt Activities Act,3 encapsulates the effects of corrupt activities and what needs to be done in great length.

The preamble reads as follows:

 Corrupt and related corrupt activities undermine the Human Rights, endangers the stability and security of societies, undermines the institutions and values of democracy and ethical values and morality, jeopardise sustainable development, the rule of law.

 The illicit acquisition of personal wealth can be particularly damaging to democratic institutions, national economies, ethical values and the rule of law.

 Corruption is a transnational phenomenon that crosses and affects all societies and economies, and is reprehensible(unacceptable) within both the public and private spheres of life therefore regional and international

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cooperation is essential to prevent and control corruption and related corrupt activities.

 It is against this background that a comprehensive, integrated and multidisciplinary approach is required to prevent and combat corruption and related corrupt activities efficiently and effectively.

 The United Nations has adopted various resolutions condemning all corrupt practices, and urged member states to take effective and concrete action to combat all forms of corrupt activities.

 It is desirable to unbundle the crime of corruption in terms of which, in addition to the creation of a general, broad and all-encompassing offence of corruption, various corrupt activities are criminalised.

It is of importance to note that generally speaking, dishonesty is always defined as a breach of fiduciary duty. Employees in general have a duty to render services and serve their employers with loyalty, diligence, impartiality, honesty, integrity, accountability, respect for the law and proper use of official information. There is a need to intensify the fight against misconduct relating to fraud and corruption if government will be able to deliver service to the citizens. The then State President of the Republic of South Africa, Nelson Mandela emphasised this in his opening address to Parliament:4

“Our hope for the future depends on our resolution as a nation in dealing with the scourge of corruption. Success will require an acceptance that, in many respects, we are a sick society. It is perfectly correct to assert that all this was spawned by apartheid. No amount of self-induced amnesia will change the reality of history. But it is also a reality of the present that among the new cadres in various levels of government you will find individuals who are more corrupt as-if not more than those they found in government. When a leader in a provincial legislature siphons off resources meant to fund service by legislators to the people; when employees of a government institution set up to help empower those who were excluded by apartheid, defraud it for their own enrichment then we must admit that we have a sick society. This problem manifests itself in all areas of life”.

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This emphasises the seriousness of the impact of corruption to the society at large and further adds to the importance of this study.

1.2 PROBLEM STATEMENT

Corruption undermines accountability and transparency in the management of public affairs as well as socio-economic development in South Africa. The corruption tolerance levels of the workers in the public service also frustrate the fight against corruption.

It would appear that even the highest echelons of the governments at all spheres of government also take advantage from corruption or embezzlement of the state resources to enrich themselves. Misconduct relating to fraud and corruption appears to be a growing phenomenon in South Africa. Pieces of legislation like the Public Finance Management Act,5 and Prevention and Combating of Corrupt Activities Act6 have been promulgated with a view to preventing and combating fraudulent and corrupt activities in the Public Service. The primary purpose of this study is to analyse the extent to which these legislations complement each other in attacking corrupt practices. Misconduct relating to fraud and corruption has traditionally been seen as an offence serious enough to warrant dismissal as it could render an employment relationship intolerable. More recently, though, there has been a noticeable shift that guilty verdict alone without the existence of an evidence of a broken trust in the employment relationship renders any dismissal substantively unfair. This is as a result of the abuse of the broken trust principle without providing real evidence to that effect. Also importantly, case laws in the labour law jurisprudence project a bleak picture that Managers in the Public Service are finding it difficult to provide prima facie evidence indeed that employment relationship has been fatally damaged.

A common dilemma, with which employers in all areas of the public service are faced, is the question of when dishonesty by an employee is sufficient to justify

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Act 1 of 1999.

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dismissal. Dishonesty is always an inherent requirement for corrupt and fraudulent behaviour to materialise. A detailed analysis of case laws even those that are found in the foreign jurisdiction will be conducted.

Whether it takes the form of misrepresentation, theft or fraud and corruption, dishonesty in the public service appears to be a more common occurrence than employers might think.

Karen Ainslie in “Dishonesty in the Workplace”7 provided an analysis of what is prevailing in our courts relating to the relationship between dishonesty and broken trust relationship this way:

That our courts have always emphasised the importance of trust relationship between the employer and the employee and have relied on the common law principle, namely that the relationship between the employer and employee is based on trust and that any conduct likely to destroy such trust warrants termination. Based on this principle, it has generally been accepted that, where an employee acts in a dishonest manner, dismissal is the appropriate sanction. When one pages through case law reports, however, it is reasonably clear that dishonest behaviour does not automatically warrant termination of employment contract. The breakdown in the trust relationship is the determining factor in justifying dismissal as substantively fair.

In many respects, the term “broken trust relationship” has been abused during disciplinary procedures and ensuing arbitrations. To a certain extent, the term has almost become a standard submission during these procedures. Over the years, our courts have alluded to the fact that an employee may not necessarily be dismissed for dishonest behaviour; as such behaviour does not necessarily destroy the trust relationship. Case laws to this effect will be analysed. According to the South African Institute of Professional Accountants, the concept of trust has always been considered to be a key ingredient of an employment relationship. As such, it generally has been accepted that when the trust in the employment is broken, this often means the end of the relationship as well. Proceeding from this basic premise,

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Ainslie, “Dishonesty in the Workplace”: HR risks: risk management: Enterprise Risk, Vol 4, Issue 10, (2010) 129, Director at Deneys Reitz: Sabinet online.

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our courts have over time come to regard any dishonest conduct as invariably destructive of the employment relationship.

The principle of „less is more‟ is definitely not applicable. No submission regarding a dismissal or a broken trust relationship should be made as a passing remark and it must be substantiated by a witness testifying under oath, concludes Ainslie.

Answers to this problem statement will be found specifically in various chapters of this study.

1.3 SIGNIFICANCE OF THE STUDY

The understanding of the practice of misconduct relating to fraud and corruption in the workplace is sacrosanct for decisive action against this type of complex misconduct. Corruption has a devastating effect on poor people. Corruption costs the government millions of rands, money that could have been spent on delivering services. Corruption also means that some people get an unfair advantage because they can afford to bribe officials to do them special favours. Understanding how the courts have dealt with dismissals for dishonesty (fraud and corruption) both domestically and in foreign jurisdiction is of cardinal importance if interference by courts in dismissal cases relating to this type of misconduct has to be avoided.

A Keynote Address by the former State President of the Republic of South Africa, Thabo Mbeki deserves attention: “I think all of us acknowledge that corruption is inimical to development, it constrains our ability to fight poverty, negatively affects our economic development, damages social values and undermines democracy and good governance.”8

Of importance is the fact that the Republic of South Africa (RSA) is a signatory to a number of multi-lateral anti-corruption agreements including those adopted by the regional and continental organizations such as: Southern African Development Community (SADC) and African Union (AU). It should further be noted that RSA is a

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signatory to the United Nations Convention against Corruption as from December 2003 in Mexico. It is of paramount importance to recognise that demonstrable political will and leadership are essential ingredients to wage an effective war against the scourge of fraud and corruption in the public sector in South Africa. The purpose of this treatise is to highlight some of the problems encountered when defending the fairness of the dismissal for misconduct relating to fraud and corruption.

This study will further provide conceptual clarity in respect of the definition of the essential elements and attributes of the acts of dishonesty, fraud and corruption.

1.4 CLARIFICATION/DEFINITION OF CONCEPTS

To have conceptual clarity about what is misconduct relating to fraud and corruption in a workplace context puts employers in the public service in a strong position to effectively manage discipline with reference to dismissals. Definition of terms is aimed at minimising confusion and ambiguities so that managers in the public sector do not, out of sheer ignorance prefer wrong charges where there is prima facie

evidence of dishonest behaviour/conduct against an employee. In the public service in particular it is common practice to find employees placed on a precautionary suspension for a period that ridiculously exceeds what is legally permissible. In

Mogotlhe v Premier of the North-West,9 Van Niekerk J, criticised the way in which precautionary suspensions in the public sector are often resorted to as the first option in cases of misconduct even in instances where there is no justification for that.It is however of importance to explain particular concepts as they will prominently feature in this study:

 Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

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Mogotlhe v Premier of the North-West Province and Another (J 2622/08) [2009] ZALC 1 (5 January 2009).

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 Dishonest is synonymous with deceitful, untruthful, crooked, corrupt, shady, underhand. Dishonesty deemed to be patently inimical to the employer is analogous to breach of trust and is valid cause for termination of employment.

 Fair dismissal may be defined as those lawful or valid grounds for termination of employment which arise from causes directly attributable to the fault or negligence of the recalcitrant employee.

 Remorse is an important mitigating factor. Many arbitrators view this as an important piece of the employer-employee relationship because remorse demonstrates that the employee has an interest in repairing the employer-employee relationship and that they understood what they did wrong and therefore should be given an opportunity to “redeem” themselves.

 Conflict of interest exists when one asserts an interest or performs acts adverse to one‟s employer, such as secretly engaging in a business which renders him/her a competitor and rival of his/her employer. It constitutes a breach of an implied condition of contract of employment.

 Honesty refers to a facet of moral character and denotes positive, virtuous attributes such as integrity, truthfulness, straightforwardness along with absence of lying, cheating or theft.

 Integrity means a sound, unimpaired, or perfect condition of the mind. It is associated with values such as honour, uprightness, incorruptibility, principle, sincerity, candor, virtue and probity.

 Ethics is derived from the Greek word “Ethos” which means “way of living”. In short, ethics is a set of moral values and principles which form the standards guiding the conduct of individuals, organizations and professions.

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1.5 RESEARCH METHODOLOGY

Relevant reports from various institutions such as the Public Service Commission (PSC), Public Protector and Department for Public Service and Administration (DPSA) will be evaluated with a view to getting an understanding of how misconduct cases relating to fraud and corruption in particular are dealt with in the public sector. Relevant pieces of legislation both domestically and internationally will be evaluated for purposes of comparative analysis. Arbitration Awards from the relevant Bargaining Councils in the public sector will be placed under microscope for proper analysis. Also of importance will be the extensive analysis of the relevant case laws.

1.6 DIVISION OF CHAPTERS

In conclusion it is important to briefly explain as to what various chapters of this treatise contain. Chapter 2 deals with the evaluation of the Legislative and Constitutional imperatives. Chapter 3 is what is described as the core business of this treatise as case laws pertaining to dismissal for dishonesty relating to fraud and corruption will be analysed. Chapter 4 examines international law. Chapter 5 analyses the foreign jurisprudence of Canada. Chapter 6 is about conclusion of this treatise.

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CHAPTER 2 LEGISLATIVE FRAMEWORK

2.1 INTRODUCTION

Corruption used to be a common law offence in South Africa, so it was not written down anywhere in law book (statute). The legal system and respect for the rule of law is an indispensable tool of an effective anti-corruption system.

Legislation now provides for a general criminal offence of corruption, the Prevention and Combating of Corrupt Activities Act,10 which is a legal instrument designed to specifically fight all forms of fraud and corruption. It is critically important to have a clear understanding of the legislative and constitutional imperatives that govern the public service in the Republic of South Africa (RSA). South Africa‟s approach to corruption is multipronged. However, for the purposes of this study, the main pillar that will be investigated is the law or legal framework. South Africa has enacted various pieces of legislation in the fight against corruption. These are:

a. Constitution11

b. Labour Relations Act12

c. Public Service Amendment Act13

d. Promotion of Administrative Justice Act14 (PAJA) e. Public Finance Management Act15 (PFMA) f. Promotion of Access to Information Act16 (PAIA) g. Municipal Finance Management Act17

h. Employment of Educators Act18

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Prevention and Combating of Corrupt Activities Act 12 of 2004.

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Constitution of the Republic of South Africa of 1996.

12 Act 66 of 1995. 13 Act 30 of 2007. 14 Act 3 of 2000. 15 Act 1 of 1999. 16 Act 2 of 2000. 17 Act 56 of 2003. 18

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i. Protected Disclosure Act19

j. Prevention and Combating of Corrupt Activities Act20

South Africa also has a National Anti-Corruption Framework which serves as a policy guide for fighting corruption. Fraud and corruption in procurement system and tendering processes appear more lucrative to the recalcitrant and dishonest employees in the public service. The primary purpose of these legislative instruments is to ensure that employees and managers in the public service ascribe to the highest possible standards of both professional and work ethics including organisational integrity. Reports by the Auditor-General also exposed a conflict of interests wherein employees conduct their own private business abusing power and authority as they preside over tender processes. Some employees have also failed to disclose their business interests as required in terms of Chapter 3(C) of the Public Service Regulations, 2010. The purpose of this requirement is to determine that the interests of the public service employees are not in conflict/competition with those of the State as an employer. This is also a measure to promote good governance. This Chapter 3 also empowers relevant Executive Authorities to institute disciplinary action in the event that there is failure to disclose such interests.

2.2 CONSTITUTIONAL IMPERATIVE

Important provisions of the Constitution that are relevant to this study are now analysed: Chapter 10 of the Constitution sets out the basic values and principles that govern public administration in every sphere of government, organs of state, and public enterprises. The values and principles promote a public administration that is free from the practices of fraud and corruption and bad governance. Section 195 of the Constitution in terms of this Chapter 10 provides the following:

(a) Promotion and maintenance of high standard of professional ethics.

(b) Promotion of efficient, economic and effective use of resources.

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Act 26 of 2000.

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(c) Public administration that must be development-oriented.

(d) Service should be provided impartially, fairly, equitably and without bias.

(e) Public administration that must be accountable.

(f) Fostering of transparency by providing the public with timely, accessible and accurate information.

In line with these provisions this is what the Constitutional Court in South African Association of Personal Injury Lawyers v Heath and others,21had to say,

“Corruption and maladministration are inconsistent with the rule of law and the fundamental values of our Constitution. They undermine the constitutional commitment to human dignity, the achievement of equality and advancement of human rights and freedoms. They are the antithesis of the open, accountable, democratic government required by the Constitution. If allowed to go unchecked and unpunished they will pose a serious threat to our democratic State”.

This statement is unambiguously instructive of how the courts of law should deal with cases of fraud and corruption. This statement further serves to protect the fundamental values of a democratic society on which the South African State is founded.

Section 23(1) deals with labour relations, as it states that everyone has the right to fair labour practice. The implication of this provision is that no employer can just arbitrarily dismiss an employee without having given him/her an opportunity to state his or her side of the story.

Section 33 which deals with just administrative action provides that:

(1) Everyone has the right to administrative action that is lawful, reasonable and procedurally fair.

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(2) Everyone whose rights have been adversely affected by administrative action has the right to be given written reasons.

(3) National legislation must be enacted to give effect to these rights.

Section 34 deals with the access to courts, everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.

2.3 ANALYSIS OF THE LEGISLATIVE INSTRUMENTS

Managing misconduct pertaining to fraud and corruption requires some knowledge of the laws that govern conditions of service in respect of the employees in the public sector. It is for this reason that specific Legislative Acts are analysed so as to determine their impact in the fight against fraud and corruption. In S v Selebi,22 Joffe J uncompromisingly said

“corruption is a serious offence and that it is scourge that must be eradicated. The seriousness of the misconduct relating to fraud and corruption cannot be over emphasized. It offends against the rule of law and the principles of good governance. It lowers the moral tone of a nation and negatively affects development and the promotion of human rights.

The State must make every effort to ensure that corruption with its putrefying effects is halted. Courts must send out an unequivocal message that corruption will not be tolerated and that punishment will be appropriately severe”.

As a response to the scourge of corruption that appears to have engulfed the country, the government on behalf of the state as directed by the Constitution has enacted a number of laws.

2.3.1 LABOUR RELATIONS ACT (LRA)

The Labour Relations Act23 provides that one of its primary objects is to give effect to and regulate the fundamental rights conferred by section 23 of the Constitution.

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S v Selebi (unreported Case No: SS 25/2009, JPV: 015/2008, South Gauteng High Court) www.saflii.org.za.

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It further gives effect to obligations incurred by the Republic as a member state of the International Labour Organisation (ILO).

Schedule 8 of the Code of Good Practice relating to dismissal prescribes the following:

The key principle in this Code is that employers and employees should treat one another with a measure of mutual respect. A premium is placed on both employment justice and efficient operation of business. While employees should be protected from arbitrary action, employers are entitled to satisfactory conduct and work performance from their employees. In summary the Code entails that a dismissal must be both procedurally and substantively fair. The Code further recognises only three grounds on which a termination of employment might be legitimate. These are: the conduct of the employee, the capacity of the employee, and the operational requirements of the employer‟s business. The Code further recognises that serious misconduct such as gross dishonesty may justify a sanction of dismissal.

In terms of this legislation, employees are required to loyally advance employer‟s business without fail. In the public service in particular there are other pieces of legislation that govern the conditions of service for employees. All these pieces of legislation prescribe how misconduct should be managed.

2.3.2 PUBLIC SERVICE ACT24

This is the legislation that governs the employment conditions, in terms of office, discipline, retirement and discharge of the government employees in the general public service. Section 7(3)(b) determines that the Head of Department shall be responsible for the efficient management and administration of his or her department, including the efficient utilisation and training of staff, the maintenance of discipline, the promotion of sound labour relations and proper use and care of State property. Section 16A deals with the failure to comply with this Act:

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(1) An Executive Authority shall -

(a) Immediately take appropriate disciplinary steps against a head of department who does not comply with the provisions of this Act or a regulation or directive made thereunder;

(b) Immediately report to the Minister the particulars of such non-compliance; and

(c) As soon as possible report to the Minister the disciplinary steps taken.

(2) A Head of Department shall –

(a) immediately take appropriate disciplinary steps against an employee of the department who does not comply with the provisions of this Act;

(b) immediately report to the Director-General: Public Service and Administration the particulars of such non-compliance; and

(c) as soon as possible report to that Director-General the particulars of the disciplinary steps taken.

Section 16B gives detail to the disciplinary procedure arising out of the non-compliance with this Act or any other law applicable in the efficient administration of State resources. Of critical importance is sub-section (4) which prescribes that if an employee is alleged to have committed misconduct in a department he or she was previously employed, the head of the new department (receiving authority) –

(a) May institute or continue disciplinary steps against that employee. (b) Shall institute or continue such steps if so requested –

(i) by the former executive authority if the employee is a head of department; or

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(ii) by the head of department of the former department, in the case of any other employee.

(5) In order to give effect to sub-section (4), the two relevant departments shall co-operate, which may include exchanging documents and furnishing such written and oral evidence as may be necessary.

(6) If notice of a disciplinary hearing was given to an employee, the relevant executive authority shall not agree to a period notice of resignation which is shorter than the prescribed period of notice of resignation applicable to that employee.

The rationale behind all this is to deny employees from benefiting or profiting from their serious misconduct by simply resigning from one department and appointed in another department in the public service with no consequences. The co-operation between the departments is crucial and vital in seriously strengthening the fight against corrupt employees. Moreover, misconduct cases are captured on the Persal system. This makes it very difficult for an employee that has been dismissed elsewhere to get re-employment in another department. The Persal system does not allow any transaction to re-enter such an employee back into the employment system of the public service. Persal system is an electronic human resources network that stores personnel and salary information of an employee that is or was appointed in the public service.

Section 17, recognises that misconduct is one of the four grounds on which the termination of employment might be legitimate.

Section 30 which deals with other remunerative work by employees provides:

(1) No employee shall perform or engage him or herself to perform remunerative work outside his or her employment in the relevant department, except with written permission of the executive authority of the department.

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interfere with or impede the effective or efficient performance of the employee‟s function in the department or constitute a contravention of the code contemplated in section 41(1)(b)(v) and (vi).

2.3.3 PUBLIC FINANCE MANAGEMENT ACT (PFMA)

The Public Finance Management Act,25 governs the management and administration of government resources, including human and material resources.

Section 1 of this Act gives clear interpretation and definitions of the relevant concepts that are applicable to the accounting practices. Importantly, „fruitless and wasteful expenditure‟ means expenditure which was made in vain and would have been avoided had reasonable care been exercised; whereas “irregular expenditure” means expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in accordance with required of any applicable legislation including –

(a) this Act; or

(b) the State Tender Board Act 86 of 1968 or any regulations made in terms of that Act; or

(c) any provincial legislation providing for procurement procedures in that provincial government. In terms of section 2, the object of this Act is to secure transparency, accountability and sound management of the revenue, expenditure, assets and liabilities to which this Act applies. Section 3 deals with institutions to which this Act applies.

Responsibilities of accounting officers (sections 38-45) are detailed as follows:

Section 38 generally obliges the accounting officer for a department, trading entity or constitutional institution to:

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 Ensure maintenance of effective, efficient and transparent system of financial and risk management and internal control.

 A system for properly evaluating all major capital projects prior to final decision on the project is in place.

The accounting officer is further directed to take effective and appropriate disciplinary steps against any official in the service of the department, trading entity or constitutional institution who:

(i) Contravenes or fails to comply with a provision of this Act;

(ii) Commits an act which undermines the financial management and internal control system of the department, trading entity or constitutional institution or;

(iii) Makes or permits an unauthorised expenditure, irregular expenditure or fruitless and wasteful expenditure.

Section 45 deals with the responsibilities of other official:

(a) Must ensure that the system of financial management and internal control established for that department, trading entity or constitutional institution is carried out within the area of responsibility of that official;

(b) is responsible for the effective, efficient, economical and transparent use of financial and other resources within that official‟s area of responsibility;

(c) must take effective and appropriate steps to prevent within that official‟s area of responsibility any unauthorised expenditure and any under collection of revenue due;

(d) must comply with the provisions of this Act to the extent applicable to that official, including any delegations and instructions in terms of section 44; and

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(e) is responsible for the management, including the safeguarding of the assets and the management of the liabilities within that official‟s area of responsibility.

These PFMA provisions place profound obligations and responsibilities on the shoulders of the employee to be individually responsible for the consequences of his or her misconduct.

In terms of section 81(1), an accounting officer for a department or a constitutional institution commits an act of financial misconduct if that accounting officer wilfully or negligently –

(a) fails to comply with requirements of sections 38, 39, 40, 41 and 42, or

(b) makes or permits an unauthorised expenditure, an irregular expenditure or fruitless expenditure.

(2) An official of a department, trading entity or constitutional institution to whom a power or duty is assigned in terms of section 44 commits an act of financial misconduct if that official wilfully or negligently fails to exercise that power or perform that duty.

2.3.4 SENIOR MANAGEMENT SERVICE HANDBOOK26

The Senior Management Service Handbook is not legislation in the true sense of the law, but is a regulation whose primary objective is to govern and regulate the conditions of service of this class of senior bureaucrats.

Chapter 6 of this handbook governs and regulates ethics and conduct of members of the Senior Management Services (SMS). Section 4 dictates that senior managers are responsible for reporting criminal offences that are committed, or if they suspect that such offences could have been committed. They are further expected to be

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supportive of members of staff who make or intend to make protected disclosures. This Chapter further directs that senior managers should strictly comply with these key values and principles:

 Responsiveness and impartiality;  Accountability;

 Leadership;

 Communication;

 Management of misconduct;  Confidentiality of information;

 Disclosure of financial and other private interests.

Chapter 7 of this handbook regulates the disciplinary procedures that must be applied in cases of misconduct, incapacity due to poor performance and incapacity due to ill health of members of the SMS. In terms of Chapter 6, it is the responsibility of senior managers to ensure that the conduct of staff does not undermine service delivery of a department. Misconduct must therefore be dealt with and not be overlooked or swept under carpet. In dealing with the misconduct of staff, the senior managers must act promptly, fairly, consistently and according to the prevailing disciplinary procedure.

2.3.5 EMPLOYMENT OF EDUCATORS’ ACT

This Act regulates the employment of educators by the State. It governs and regulates the conditions of service, discipline, retirement and discharge of educators and for matters connected therewith. For purposes of this research it is only sections 17 and 18 of this Act that will be scrutinised to establish the anomaly that exists between this Act and the Public Service Act. Section 17(1) by prescribing dismissal for this type of misconduct it shows the serious impact that this type of misconduct has on the trust element. This provision appears to have no regard for any form of mitigation as it prescribes that an educator must be dismissed if he or she is found guilty of:

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(a) theft, bribery or an act of corruption with regard to examinations or promotional reports;

(b) committing an act of sexual assault on a learner, student or other employee;

(c) having a sexual relationship with a learner of the school where he or she is employed;

(d) seriously assaulting with the intention to cause grievous bodily harm to, a learner;

(e) illegal possession of an intoxicating, illegal or stupefying substance; and

(f) causing a learner or student to perform any acts contemplated in paragraphs (a) to (e).

The principles of natural justice dictate that mitigating factors be considered if educators are to be subjected to fair trial. Despite section 17(1) of this Act, educators are entitled to provide mitigating factors, however, the constitutionality of this section may not be guaranteed. Disciplinary codes provide for a procedure that allows for mitigation and aggravation circumstances to be considered when determining an appropriate sanction.

Section 17(2) provides that if it is alleged that an educator committed a serious misconduct contemplated in subsection (1), the employer must institute disciplinary proceedings in accordance with the disciplinary code provided for in Schedule 2. This probably removes the fear that an employee found guilty of contravening section 17(1) might be dismissed without mitigating factors being considered.

Section 18(1) uncompromisingly states that misconduct refers to a breakdown in the employment relationship and an educator commits misconduct if he or she deliberately or negligently made him or her guilty of any of the transgressions that are exhaustively listed in this section. Subsection (5)(a) is explicit in that an educator may be dismissed if she or he is found guilty of dishonesty.

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In terms of section 25(2) an educator has a right to appeal to the Minister or the Member of the Executive Council, as the case may be, against the finding of a guilty verdict by the presiding officer of a disciplinary hearing.

The Public Service Act appears to be constitutionally compliant as it does not prescribe dismissal pertaining to the specific transgressions. That choice resides with the discretion of the presiding officer based on the evidence before him or her.

It would appear in one Department of Education there are two sets of rules that are applicable to different classes of employees. This might cause a challenge in the management of misconduct as different technical skills are required for these different sets of rules.

2.3.6 PROTECTED DISCLOSURE ACT

This Act encourages whistle-blowing, and provides for the protection of employees in both the public and private sectors from occupational detriment by reason of having made a protected disclosure relating to unlawful or irregular conduct by an employer or employee of the employer. The Act inter alia provides the following:

 For the protection of employees who make a disclosure which is protected in terms of this Act;

 Section 1 of this Act defines “disclosure”, “occupational detriment”, and “protected disclosure”.

 Section 3 explicitly states that no employee may be subjected to any occupational detriment by his or her employer on account, or partly on account of having made a protected disclosure. The key word here is that for a disclosure to qualify for protection, it has to be made in good faith in terms of sections 6 and 9 of this Act. In Tshishonga v Minister of Justice and

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Constitutional Development and Another,27 the court held that an employee is protected from occupational detriment for general protected disclosure in terms of section 9 of this Act.

2.3.7 PREVENTION AND COMBATING OF CORRUPT ACTIVITIES ACT28

This Act provides for:

 The strengthening of measures to prevent and combat corruption and corrupt activities;

 the offence of corruption and offences relating to corrupt activities (dishonesty relating to fraud);

 investigative measures in respect of corruption and related corrupt activities;

 the establishment and endorsement of a Register in order to place certain restrictions on persons and enterprises convicted of corrupt activities relating to tenders and contracts;

 to place duty on certain persons holding a position of authority to report certain corrupt transactions;

 extraterritorial jurisdiction in respect of the offence of corruption and offences relating to corrupt activities;

 matters connected therewith.

The preamble of this Act, encapsulates absolutely well what the State needs to do in order to efficiently and effectively unbundle the crime of corruption. Chapter 1, deals

27

Tshishonga v Minister of Justice and Constitutional Development [2007] 4 BLLR 327 (LC).

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with definition pertaining to relevant concepts of importance specifically gratification. Chapter 2 determines offences in respect of corrupt activities.

It is worth highlighting some specific sections of this chapter for the purpose of this research.

Section 3 determines general offence of corruption:

Any person who directly or indirectly –

a. accepts or agrees or offers to accept any gratification from any other person, whether for the benefit of himself or herself or for the benefit of another person, or

b. gives or agrees or offers to accept any gratification from any other person, whether for the benefit of another person, in order to act, personally or by influencing another person so to act, in a manner –

(i) that amounts to the -

(a) illegal, dishonest, unauthorised, incomplete, or biased; or

(b) misuse or selling of information or material acquired in the course of the, exercise, carrying out or performance of any powers, duties or functions arising out of a constitutional, statutory, contractual or any other legal obligation; -

(ii) that amounts to –

(a) the abuse of a position of authority; (b) a breach of trust; or

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(iv) that amounts to any unauthorised or improper inducement to do or not to do anything, is guilty of the offence of corruption.

Section 4, outlines offences in respect of corrupt activities relating to public officers (public sector employees) –

Any public officer who, directly or indirectly –

(a) accepts or agrees or offers to accept any gratification from any other person, whether for the benefit of himself or herself or for the benefit of another person; or

(b) gives or agrees or offers to give any gratification to a public officer, whether for the benefit of that public officer or for the benefit of another person so to act, in a manner –

(i) that amounts to the -

(a) illegal, dishonest, unauthorised, incomplete, or biased; or

(b) misuse or selling of information or material acquired in the course of the, exercise, carrying out or performance of any powers, duties or functions arising out of a constitutional, statutory, contractual or any other legal obligations.

(ii) that amounts to –

(a) the abuse of position of authority; (b) a breach of trust; or

(c) the violation of a legal duty or a set of rules.

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(iv) that amounts to any unauthorised or improper inducement to do or not to do anything, is guilty of the offence of corrupt activities relating to public officers (persons who are party to an employment relationship in the public body).

Section 10, deals with offences of receiving or offering of unauthorised gratification by or to party into an employment relationship, any person –

(a) who is party to an employment relationship and who, directly or indirectly, accepts or agrees to accept from any other person any unauthorised gratification, whether for the benefit of that person or for the benefit of another person; or

(b) who directly or indirectly, gives or agrees or offers to give any person who is party to an employment relationships any unauthorised gratification, whether for the benefit of that party or for the benefit of another person, in respect of that party doing any act in relation to the exercise carrying out or performance of that party‟s powers, duties or function within the scope of that party‟s employment relationship, is guilty of the offence of receiving or offering an unauthorised gratification.

In S v Shaik and others,29the court gave a definition of corruption in terms of section (1)(a)(i) and (ii) of the Corruption Act 94 of 1992, as the corrupt giving of, offering to give a benefit which is not legally due to a person upon whom any power has been conferred or who has been charged with a duty by virtue of any employment or holding of any office or any law or to anyone else with the intention to influence the person upon whom such power has been conferred or who has been charged with such duty to commit or omit to do any act in relation to such power or duty constitutes an offence.

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2.3.8 CONCLUSION

Whistle-blowers are the main source of information pertaining to corrupt individuals or practices. Therefore, they should be protected from the ostracisation which occurs to them. Similarly anti-corruption investigators may come across sensitive information in the course of their investigation pertaining to corrupt individuals or practices. The exposure of such practice may subject them to occupational detriment. The Protected Disclosure Act30 stipulates that no employee may be subjected to any occupational detriment by his or her employer on account of having made a protected disclosure. The Act, however, does not provide for the protection of identity of the whistle-blower to be kept confidential, particularly instances where the whistle-blower is the only available witness and secondly the investigators and whistle-blowers‟ safety pursuant to exposing fraud and corruption. This conclusion is derived from the Public Service Commission‟s 3rd

Biennial Report of June 2011. The effectiveness of these legislative instruments will be looked at in Chapter 3 that deals with the analysis of case laws.

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CHAPTER 3 ANALYSIS OF THE CASE LAWS

3.1 INTRODUCTION

The starting point in managing misconduct relating to fraud and corruption is to first understand the essential elements of these concepts. This is necessary in order to effectively deal with these forms of misconduct.

Corruption is the abuse of entrusted power for private gain. It hurts everyone who depends on the integrity of people in a position of authority. Corruption needs to be understood as an unlawful arrangement between two or more parties, those who give and those who take, in exchange for mutually beneficial favours and gains. There is a supply side and a demand side to corruption.

Fraud, essentially refers to intentional misrepresentation of financial information by one or more individuals among the management, employees or third parties. It involves the use of deception to obtain an illegal financial advantage.

Fraud involves some essential elements that must be present before it is committed:

 Unlawfulness

 Misrepresentation, manipulation, falsification or alteration of records or documents

 Prejudice

 Intention

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Corruption takes place in different forms:  Bribery  Embezzlement  Fraud  Extortion  Abuse of power

 Abuse of privileged information

 Favouritism

Procurement of goods and services is a major activity in the government sector and is traditionally prone to fraud and corruption.

According to Grogan,31 dismissal has been found to be appropriate for these acts of fraud. Falsification of records: Medical certificates are the favourite targets of workplace fraudsters, who may falsify either dates or the entire document. Where medical certificates are found to have been tampered with by employees, dismissal is invariably warranted.32 Falsification of time sheets is another widespread form of deception for which dismissal has generally been upheld. Falsification of any records or documents with a view to obtaining some advantage is a form of fraud as it constitutes the unlawful making, with intent to defraud, of a misrepresentation which causes actual prejudice or which is potentially prejudicial to another.

In cases of fraud, the employer is not required to prove actual loss. Potential loss is sufficient. So, if an employee obtained a company credit card by false pretences, dismissal would be justified even if the employee did not use the card to effect unlawful transaction according to Grogan.33

31

Grogan Dismissal (2010) 194.

32

CWU obo Knowledge v Telkom SA Ltd [1999] 2 BALR 135 (CCMA); SAMWU obo Biyela v North

Central & Southern Local Councils [1998] 10 BALR 1378 (IMSSA).

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3.2 DETAILED ANALYSIS OF CASE LAWS AND HOW THE COURTS HAVE APPROACHED CASES INVOLVING FRAUD AND CORRUPTION

In Ntshangase v MEC: Finance, KwaZulu Natal & another,34 the SCA confirmed the outcome of the LAC judgment in respect of this matter. This case is a useful decision for the state employers who may be dissatisfied with a weak sanction made by a presiding officer in an internal disciplinary enquiry. This case is precisely selected so that managers in the public service understand how to apply discipline to its logical conclusion.

The facts are briefly as follows: Mr Ntshangase was a director in the Department of Education in KwaZulu-Natal. In an internal enquiry, presided over by a panellist from the Public Service Co-ordinating Bargaining Council, he was found guilty of 12 charges of misconduct, which involved mismanagement of state finances and abuse of authority. The chairperson of the disciplinary enquiry merely imposed a final written warning as a sanction. The MEC was unhappy with the sanction and argued that in the light of the misconduct, the breakdown in the trust of the relationship and in the interest of proper governance Mr Ntshangase should have been dismissed.

The MEC approached the Labour Court to review the sanction. Initially the MEC lost and took the matter on appeal to the Labour Appeal Court (LAC). The LAC ordered Mr Ntshangase‟s immediate dismissal. Ntshangase then instituted an appeal to the Supreme Court of Appeal (SCA) which it confirmed the LAC decision. These courts held that the sanction of a warning was patently unfair to the employer and failed the test of rationality and reasonableness. Furthermore where a decision of the chairperson of a disciplinary hearing unfairly prejudices the employer, the employer not only has a right but a duty to approach the Labour Court to review such decision because the employer must protect the interest of the public. The Labour Court does have authority to review internal disciplinary proceedings at instance of the employer. The abuse of the internal disciplinary process by the presiding officers could no longer be tolerated in light of this judgement.

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One of the prominent cases involved the conviction and ultimately the incarceration of former National Police Commissioner Jacob Selebi. The SCA in Selebi v State35

also dealt with this appeal in a manner that fatally delivered a death blow to the appellant‟s legal fight for the dismissal of his conviction and sentence for being found guilty in terms of the provisions of the Prevention and Combating of Corrupt Activities Act.36 This is an appeal from a judgement of the South Gauteng High Court (Joffe J) in which the appellant, Mr Jacob Sello Selebi, a former National Commissioner of Police and former Head of Interpol, was convicted of corruption.

The conviction was in contravention of section 4(1)(a). The appellant was found to have received payment and provided quid pro quo for such payments as envisaged in section 5 of the PCCAA. This section deals with the public officer who, directly or indirectly, accepts or agrees or offers to accept or offers to give any gratification to a public officer, whether for the benefit of that public officer or for the benefit of another person, in order to act, personally or by influencing another person so to act, in a manner –

i) That amounts to the:

(aa) illegal, dishonest, unauthorised, incomplete, or biased; or

(bb) misuse or selling of information or material acquired in the course of the exercise, carry out or performance of any powers, duties or functions arising out of constitutional, statutory, contractual or any other legal obligations;

ii) That amounts to:

(aa) the abuse of a position of authority;

(bb) a breach of trust; or

(cc) the violation of a legal duty or a set of rules;

35

Selebi v State (240/2011) [2011] ZASCA 249 (02 December 2011).

36

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iii) Designed to achieve an unjust result; or

iv) That amounts to any unauthorised or improper inducement to do or not to do anything, is guilty of the offence of corrupt activities relating to public officers.

This case was concerned with a public officer (Selebi) who accepted gratification (money and clothing) from a person (Glen Agliotti) in return for information and favours. The essential elements of the general crime of corruption are the following:

(a) The acceptance;

(b) of a gratification (payment or some other benefit); (c) in order to act in a certain way (the inducement); (d) unlawfulness; and

(e) intention.

Mthiyane DP, further stated,

“Although „unlawfulness‟ is not expressly mentioned in the definition of crime, commentators are of the view that it must nevertheless be read into it. It connotes that the act (in this case the acceptance of payment) should be unjustified as this is a

requirement of every crime. The same applies to „intention‟. Therefore it has to be

considered even though it is not specifically mentioned.”

The presence of the intention / mens rea was proved beyond doubt given the abundance of evidence from which corrupt intention can be inferred. A sufficient proof of Selebi‟s guilty state of mind was established hence contravention of section 4(1)(a) of the PCCA Act. In the result the appeal was dismissed by Mthiyane DP. A sentence of 15 years in prison was confirmed.

In TEB properties CC v The MEC, Department of Health and Social Development, North West,37 the legality of these lease contracts in breach of the prescribed tender procedures was examined. The court declared the contracts invalid and unlawful. The facts of the case were: The Acting Head of Department (Miss Kgasi) committed

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the department in a lease agreement in respect of office accommodation. The monthly rental was R3 241 800 excluding VAT. A new Acting Head of Department (Mr Malaka) who had, in the meantime, succeeded Kgasi as acting head of department gave notice to the appellant of the department‟s summary termination of the purported lease agreement between the parties. In terminating the lease Malaka offered three grounds of justification for doing this so. Firstly, he relied on the basis that the leases were irregular for want of compliance with statutory prescripts. Secondly, he asserted that the appellant “knowingly participated in an irregular acquisition of accommodation and/or office space”. Thirdly, he claimed that the appellant failed to “provide any proof of his participation in a public bidding [system] for the said office space” nor could it advance any cogent reasons why the irregular lease should not be terminated. The consequence was this litigation which ended up in the Supreme Court of Appeal. This lease agreement was found to be in conflict with the relevant statutory matrix regarding tender processes:

Section 217(1) of the Constitution reads as follows:

„When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost effective.”

Section 38(1)(a)(iii) of the PFMA provides that an accounting officer for a department must ensure that the department has and maintains an appropriate procurement or provisioning system which is fair, equitable, transparent, competitive and cost- effective thus echoing the provisions of section 217(1) of the Constitution.

The Treasury Regulations relevant to this case are regulations 13.2 and 16A6.4 respectively. There was reliance on established authority for instance in CEO, South African Social Security Agency NO & others v Cash Paymaster Services (Pty) Ltd,38

where the SCA held that it is the provisions of section 217(1) of the Constitution that a system with the attributes contemplated therein “has to be put in place by means of legislation or other regulation. One such a system is in place and the system

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Chief Executive Officer, SA Social Security Agency NO & others v Cash Paymaster (Pty) Ltd

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complies with the constitutional demands of section 217(1) the question whether any procurement is valid must be answered with reference to the mentioned legislation or regulation”.

Knowledge of the relevant statutory medium is sacrosanct if managers in the public sector are to add value in the fight against fraud and corruption.

It is worth further taking notice to how the law protects whistle-blowers, in Tshishonga v Minister of Justice and Constitutional Development and Another,39 the Labour Court found it reasonable for the applicant to make the disclosure because it was made to the media. The media is one of the pillars that promote and uphold democracy. Corruption undermines democracy. The media‟s exposition of corruption is good for democracy. Whistle-blowers depend on the media and other organs of civil society to help level the playing fields as they are often lonely voices against powerful interests. As an employee the isolation and vulnerability are even more acute. Disclosures to media will not be justified if it is not in the public interest. Such disclosures if made to the police, a professional body or prescribed regulator would better serve the public interest. Disclosure to the media will also not be justified if the complaint has already been addressed internally or by a prescribed regulator. The court further stated that disclosure of wrongdoing cannot be a breach of confidence. Thus a defence that the employee breached confidentiality has to be approached so cautiously that it does not strip the PDA (Protected Disclosure Act 26/2000). The disclosures were in the public interest as it involved the public service and public officials. The applicant had a statutory obligation to disclose criminal and any other irregular conduct to report to the appropriate authorities, fraud, corruption, nepotism, maladministration and any other act which constitutes and offence, or which is prejudicial to the public interest. Legal representation is a necessity in case under PDA not least because employees need to test their beliefs and the information they intend to disclose against the objective, independent and trained mind of a lawyer. Disciplinary action for making a protected disclosure is detrimental action. Once the respondents were bound by the finding that the disclosures were protected it followed

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Misconduct relating to fraud and corruption in the public service