In the months of April 2021 to January 2022, the State Comptroller's Office examined the actions to prevent embezzlement and fraud in the 21 local authorities that manage the largest budgets, including Haifa. The actions of the Ministry of the Interior to settle the matter were also examined.
The picture of the situation emerging from the audit shows that in the area of regulatory operations, the Ministry of the Interior did not establish guidelines for taking organizational-wide actions to prevent embezzlement and fraud. Also, the audits carried out by the Ministry of the Interior in the local authorities do not deal directly with these aspects. The 21 audited authorities were asked to submit a report to the State Comptroller's Office on embezzlement and fraud that occurred in them and that were revealed in the period between January 2015 and May 2021.
No lessons learned
It was also found that the local authorities in Israel are not instructed to report to the Ministry of the Interior on cases of embezzlement or fraud that have been discovered, and the Ministry of the Interior does not have an internal procedure for handling reports, insofar as such are forwarded to it.
It was also found that, as a general rule, the Ministry of the Interior does not carry out a procedure for drawing lessons from cases of embezzlement or fraud that occurred in the local authorities and was made known to it, and does not publish centralized information to all local authorities about the lessons learned from those embezzlement and fraud cases and the actions to be taken.
There is no organizational procedure to prevent embezzlement and fraud
The 21 local authorities that were examined do not have a dedicated procedure for anchoring a policy on the prevention of embezzlement and fraud, which consolidates within it the actions required to prevent embezzlement and fraud, reporting mechanisms and the methods of handling discovered embezzlement. In addition, the 21 local authorities that were examined do not have an organization-wide and dedicated training program on the prevention of embezzlement and fraud and there is no means of anonymous reporting (hotline) to the management on suspicions of embezzlement and fraud.
Those in positions related to finances
On the subject of rotation between officials and surprise inspections, it appears that 20 authorities out of the 21 authorities inspected, among them Haifa, do not implement rotation between employees in positions that have a connection to financial issues or to the management of the Authority's resources, due to organizational difficulties and limitations.
Regarding the prevention of embezzlement and fraud related to payments to suppliers - It was found that there are no instructions from the Ministry of the Interior to manage the payment process to suppliers and the controls required to prevent embezzlement and fraud. and that it was found that the local authorities that were examined in depth among them Haifa are acting by various means to reduce the risks on the subject, but there are preventive, alerting and detection actions and controls that are recommended to be implemented, for example the implementation of rotations between officials, controls on the reliability of data entry when opening and updating a supplier card, adding computerized controls on the data of suppliers to prevent duplication or unauthorized engagements Integrity and creation of an interface between the financial and logistics systems.
Prevention of embezzlement and fraud related to the management of human capital - As a rule, the four authorities that were examined in depth between them Haifa, implements controls that allow to reduce the risks of embezzlement and fraud in the management of human capital. However, there are missing actions and controls.
The control is carried out by employees of the payroll department
Prevention of embezzlement and fraud related to salary payments - in the authorities that have been examined in depth, including Haifa, It was found that, as a rule, they implement controls that make it possible to avoid the risks of embezzlement and fraud in salary payments to employees. Although in the Haifa municipality There is no separate payroll control department, and the control is performed by employees in the payroll department. in the Haifa municipality Payroll accountants can also enter entitlements for themselves and their relatives working in the municipality. Also, controls are not performed to detect improper changes made in the master files of the employee data produced in the human resources department.
Prevention of embezzlement and fraud related to property tax billing and collection - As a rule, the authorities that have been examined in depth implement controls that make it possible to avoid the risks of embezzlement and fraud in property tax matters. For example, they all reported that they periodically examine the compatibility between the classification codes that appear in the computer systems and what is stipulated in their property tax decree and require that at least two different officials be involved in changing the classification of the property, erasing debts, or recovering funds collected in excess. However, in some of the processes the controls are not sufficient: Haifa municipality, does not perform analytical controls on the number of changes made to properties in the city in order to detect unusual actions and suspicions of embezzlement.
Prevention of embezzlement and fraud in the management of the municipal inventory - Haifa municipality cannot associate the inventory items with the employees who received them in the dedicated computer systems. This is especially important during the Corona epidemic, as a significant number of employees were loaned laptops because they moved to work remotely. It was also found that Haifa municipality Does not apply analytical controls on inventory losses.
The main recommendations of the audit
actions of the regulator - It is recommended that the Ministry of the Interior examine the systemic and organizational issues concerning the prevention of embezzlement and fraud in the local authorities, in accordance with the development of knowledge on the subject and in the process establish guidelines regarding the characteristics of a control environment, risk assessment, control operations, information and communication within the organization and monitoring operations as well as instruct the accountants on its behalf to conduct audits on the subject It is as often as he will determine. As part of the exam, it is recommended to refer to the knowledge and principles that have developed in the field and international experience.
Carrying out a risk survey by the authorities' auditors and the authorities' management - on the auditors of the local authorities of the local authorities among them Haifa, If you have not yet conducted a risk survey - do so, as required in the circular of the Director General of the Ministry of the Interior. It is also recommended to update surveys that were conducted more than five years ago. It is recommended that the Ministry of the Interior set guidelines for the local authorities regarding the updating of the surveys. In addition, it is also recommended that the managements of the local authorities conduct risk surveys and derive multi-year work plans from them to reduce the risks arising from them.
Organization-wide preparation for the prevention of embezzlement and fraud - It is recommended that the 21 local authorities that were examined act to carry out organizational-wide actions to prevent embezzlement and fraud and thus reduce the risks in this area. Among the required actions: appointing a person responsible for the issue, writing a dedicated procedure for anchoring a policy on the issue, formulating an organization-wide and dedicated training plan on the issue, activating a means for anonymous reporting (hotline) to the Authority's management on suspicions of embezzlement and fraud and informing the employees about it, implementation, as far as possible, of Rotation mechanisms in positions whose core business is managing funds, resources and assets of the local authority and performing surprise audits on material issues.
Prevention of embezzlement and fraud related to payments to suppliers - It is recommended that the Ministry of the Interior publish instructions on the payment process to suppliers and the necessary controls to prevent embezzlement and fraud. It is further recommended that the Ministry of the Interior include in the audits it does in the local authorities other aspects besides the failure to reconcile accounts with banks, credit card companies and main suppliers.
It is recommended that Haifa municipality Map out all the controls that are carried out in the field of payment to suppliers and work to correct the deficiencies found in the audit, such as requiring the control of two officials on data entry when opening a supplier card, adding computerized controls on supplier data to detect duplication and prevent improper connections and creating an interface between the financial and logistics systems.
Prevention of embezzlement and fraud related to the management of human capital - It is recommended that the local authorities that were examined in depth, including Haifa, formulate internal procedures or guidelines regarding the missing controls in core processes and maintain the principle of separation of duties by reducing the sweeping privileges of employees; It is also recommended to introduce an obligation to go on a continuous vacation for employees in sensitive positions and to improve the controls on the process of opening an employee card.
Prevention of embezzlement and fraud related to salary payments - It is recommended that Haifa municipality Work to maintain the principle of separation of duties, so that payroll accountants cannot enter salary entitlements for their colleagues in the accounts or change details for employees whose employment with the Authority has ended. The municipality of Haifa is even advised that accountants will not be able to enter entitlements for themselves and their family members working in the authority. It is also recommended that the authorities implement controls to detect improper changes made in the master files produced in the human resources department.
Prevention of embezzlement and fraud related to property tax charges and collection - It is recommended that Haifa Municipality implement analytical controls on the number of changes made to the properties.
Prevention of embezzlement and fraud in the management of the municipal inventory - It is recommended that the Haifa Municipality associate the inventory items in the computer systems with the employees who received them. It is also recommended that the Haifa municipality implement analytical controls on inventory losses.
In the report, it is explained that the risk of embezzlement and fraud is an inherent risk in the activities of any organization. In recent decades, professional knowledge regarding the prevention of embezzlement and fraud has developed in the world, principles for its regulation and guidelines for improving the control environment and risk management have been formulated. However, the audit found deficiencies in the regulation of the Ministry of the Interior. Manifested in the lack of action guidelines in the set of aspects related to the prevention of embezzlement and fraud regarding the organization-wide level and regarding the control environment, in the lack of reporting and lessons learned and in the paucity of audits focused in this area.
The audit of the 21 largest authorities in terms of the scope of the budgets they manage, revealed that they do not implement many organizational-wide actions that the international standards and the professional literature have found to be effective for reducing the damage from embezzlement and fraud and for their quick exposure. In the audit of the four municipalities that were examined in depth, deficiencies were found such as the paucity of audits by the Ministry of the Interior and the auditors of the authorities regarding the prevention of embezzlement and fraud. It was also found that, as a general rule, the municipalities that were examined in depth implement preventive and detection controls in the areas examined, however there are individual work processes that need to be improved, add individual controls and tighten some of the controls.
to protect public funds
As a fiduciary of the public, the local authorities are obliged to manage their financial affairs and assets with care and to act to maintain the integrity of the assets and public funds. The Ministry of the Interior must act to comprehensively regulate the issue and the local authorities must formulate a policy on the issue and implement operations and controls to prevent embezzlement and fraud and to safeguard public funds.
The municipality of Haifa formulated strategic plans regarding the information systems but did not budget for them and they were not implemented
In the months of July-November 2021, the State Comptroller's Office examined the issue of managing information systems in local authorities. The inspection was carried out in eight selected local authorities, while giving expression to the administrative districts in which the authorities are located, to their municipal status and to the socio-economic index to which they are associated, to the index of peripherality to which they are associated, to the sector to which most of their residents belong and the number of residents living within their jurisdiction.
Regarding work plans regarding information systems - It appears that the Haifa Municipality, which formulated strategic plans regarding the information systems, did not budget for them and therefore the plans were not implemented.
Disaster recovery plan in the event of a cyber incident - Regarding having a plan for disaster recovery, it was found that there is none in the Haifa municipality There is a regulated mechanism for the continuity of computing activity at the Authority in the event of a cyber incident and no disaster recovery plans have been prepared at all.
In view of the importance of preparing a disaster recovery plan, the State Comptroller's Office recommends that all local authorities, including the authorities that were audited Haifa municipality, as mentioned, to act to prepare a plan for disaster recovery suitable for the needs of the authority, in accordance with the guidelines of the cyber system.
Only a called and urgent committee
A total reorganization of all municipal departments is required immediately.
Preventing waste and unnecessary duplication of wings.
Reduction of the 4500st monument from 4000 to XNUMX workers
Streamlining the number of senior positions
and bringing in professional teams to handle municipal information systems
A called committee
Total reorganization of all municipal departments.
Preventing waste and unnecessary duplication of wings.
Reduction of the 4500st monument from 4000 to XNUMX workers
Streamlining the number of senior positions
and bringing in professional teams to handle municipal information systems
and use your internet package on your phone instead of connecting to public WiFi.
There is no one to trust today, take care of yourself and protect your information.
In short, the heads of the computing and information systems department in the Haifa Municipality - did nothing in the most critical area for information system security.
will anyone go home Will the city council discuss the state auditor's report? Will someone in the computer and information systems department give answers??
Second thing, the salary department without supervision and without rotation in the municipality, great. 4,500 officials and it is impossible to maintain a basic rotation that is possible in other municipalities a tenth of the size.
Third thing, in Corona, it turns out that taxpayers' money was used to distribute hundreds of laptops to Haifa municipality employees to work from home.. No one supervised the distribution of equipment worth millions of shekels and they didn't even record who got what.. you understand. Not a computer for every child but a computer for every official, a gift. take Why will you return it? Why would there be supervision? Have we already said the municipality of Harfa??
It turns out that all the municipal plans are contingency plans. An unimplemented plan is equivalent to no plan at all. The municipality of Haifa must carry out a financial inspection and audit by external parties that are completely objective without any relation to any of the municipality's employees, you can certainly find such.
I did not find the figure for the municipal employees' debts to the property tax department.