Best Practice Fraud Basics
- 1. Fraud Basics Best Practice Series 2011
- 2. Know Fraud The intentional misrepresentation of facts that causes victims to lose money or property or is simply ‘Use of deceit to secure unlawful gain’ causing 5% loss of Corporate Revenues-ACFE 2010 Report Occupational Fraud – Fraud committed in the course of one’s occupation. White-collar Crime – A variety of nonviolent crimes committed in commercial settings for personal financial gain. Benefit is may be monetary or material benefits, and may be tangible or intangible, including the unauthorised provision of access to or disclosure of information. A benefit may also be obtained by a third party rather than, or in addition to, the perpetrator of the fraud
- 3. Break the Triangle Opportunity Pressure/Incentive Rationalization Is your operating environment ripe for fraud? Elements of the Perfect Fraud Storm?
- 4. Source of Fraud Risk Fraud within (internal fraud) i.e. from its employees or contractors \ Or Intruders (External fraud) i.e. from external parties, such as clients, service providers or other members of public The Hybrid ‘Most adverse Fraud Risk’- Complex fraud involving collusion between employees and external parties which may also constitute corrupt conduct and can include instances where an employee or group of employees
- 6. How to Limit Fraud Cost Effectively 10 key things in the to do list 1 Introduce ongoing anti-fraud training to all employees 2 Effective fraud reporting mechanism 3 Increase employees’ perception of Fraud detection 4 Set right tone at the top one ( honesty and integrity) 5 Undertake Proactive fraud risk assessments performed 6 Embed strong anti-fraud controls 7 Enusre Indipendency of Anti-Fraud team 8 Institute Health recruitment programme 9 Operate employee support programs 10 Apply open-door policy and Regellary assess employee morale
- 7. Preventing Fraud Duty for all Only the Healthy and Strong can win the race Only the FIT and healthy entity can be assured of sustainable success in the long term It is our (all of us) call of Duty to prevent Fraud and Corruption knowing that shareholder and employees are all stakeholders- We all eat from the same vine. We must take good care of it.
- 8. Thank You Patrick Gitau-CFE
Editor's Notes
- #4: Opportunity The first point on the triangle is Opportunity. Management has primary control over this element – they sometimes facilitate fraud by maintaining an environment with weak internal controls. Decreasing the opportunity for fraudulent activity is crucial for prevention. In one Emory department, the department administrator performed all the duties from hiring and firing of personnel to P-Card transaction review and approval, budget preparation and review, expense approvals, and etc.; this department administrator performed multiple fraudulent transactions ranging from accounts payable to payroll to P-Card to human resources because the opportunity was available. Management should ensure that, although tasks can be delegated, accountability for your area or unit cannot be delegated. Management must provide oversight and monitoring. At Emory, an Administrative Assistant who had access to add/delete employees from payroll reformatted the labor distribution reports and provided them to the human resources manager. Unbeknownst to the manager was that the employee was omitting the ghost employees documented on the labor reports. The review of system generated reports would have identified the ghost employees. Not all employees will exploit opportunity. Typically, these individuals also experience “Pressure” or “Incentive” to do so. This brings me to the second point on the fraud triangle. Pressure/Incentive Typically, pressure stems from lifestyle habits, personal debts, and other non-sharable problems. These non-sharable problems may be problems the individual experiences him or herself OR extends out to close family members and friends. In an attempt to lessen the problem, the fraudster is pressured to carry his/her plan out. Rationalization Once the individual has opportunity and personal pressure, the fraud is executed with a rationalization: “ I deserve to get paid more. The company makes so much money.” “ I am only borrowing it for now. I’ll pay it back when I can.” ****The ability to rationalize is influenced by the “tone at the top” and perceptions the employee has regarding management’s commitment to the “rules.” ****