Fraud in the Public Sector
- 1. Fraud in the Public Sector Welcome to the Financial Management Institute Webinar Thursday, December 12, 12:30pm EST
- 2. Panel: • Francis Liska, CGA, CISA, CICA, CMC - CEO OTUS Group Marc-André Audette, CMA, CFE, Director, Integrity Policy and Program Development, Service Canada Moderator: • Steve Whitla, Partner for Fraud Investigations and Dispute Services, Ernst & Young Canada 2
- 3. What is Fraud? Fraud is the use of one’s occupation for personal enrichment through deliberate misuse or misapplication of the employing organization’s resources or assets 3
- 4. • Nature and threat of fraud is almost universal across sectors and regions • Most commonly victimized industries in 2012 were the banking and financial services, government and public administration, and manufacturing sectors (2102 Global Fraud Study – Association of Certified Fraud Examiners) Where is Fraud Most Prevalent? 4
- 5. • Most fraudsters are first time offenders with clean employment history • The vast majority of frauds were committed by people in one of six departments – accounting, operations, sales, executive/upper management, customer service and purchasing (2102 Global Fraud Study – Association of Certified Fraud Examiners) Who Commits Fraud? 5
- 6. • We live in a culture of trust • There is a perception that that people are usually ethical • Adequate controls are not in place – fraud is most often a crime of opportunity Why Does Fraud Occur? 6
- 7. • Targets – Revenue – Income tax, HST, custom duties – Benefits – Employment Insurance, Retirement Benefits – Property – Computers, phones, supplies – Entitlements – Payroll, expenses, travel allowances – Facilities – Unauthorized use of vehicles, tools, etc. • Methods – Theft, credit card misuse – Counterfeiting documents, providing false information – Bribery, corruption, abuse of office, collusion (Australian Institute of Criminology) The Nature of Public Sector Fraud 7
- 8. Circumstances that Increase the Risk of Fraud 8
- 9. • Under stress without a high workload • Reluctance to take time off • High wealth inconsistent with salary • Key documentation missing • Supplier or contractor who will deal with only one staff member • Excessive variations or budgets or contracts Red Flags – Fraud Risk 9
- 10. • No code of ethical conduct • Policies not followed • Numerous adjusting entries • Refusal of a promotion • Ongoing management override of internal controls Red Flags – Fraud Risk (Office of the Auditor General of British Columbia) 10
- 11. • Charbonnneau Inquiry • Ornge • Mayor of London, ON accused of using taxpayer money to pay for family wedding • Senate expense scandal Recent Examples of Possible Public Sector Fraud 11
- 12. • Understand your fraud risks • Establish clear roles and responsibilities • Appropriately designed prevention and detection mechanisms in place • Appropriate detective, investigative, disciplinary and monitoring procedures in place • Regularly communicate fraud management results to stakeholders Five Steps to Reduce the Risk of Fraud (Office of the Auditor General of British Columbia) 12
- 13. Detection method of fraud in the government * 0 10 20 30 40 50 IT Controls Confession Notified by Policy Surveillance/Monitoring Document Examination Account reconcilliation By accident External Audit Management review Interanl Audit Tip DetectionMethod % Report to the Nations on Occupational Fraud and Abuse – Association of Certified Fraud Examiners How is Fraud Commonly Identified? 13
- 14. Fraud Risk Assessment Fraud Awareness and Education Training Fraud Policy Fraud Risk Management Program Fraud Prevention and Detection Fraud Reporting Fraud Investigation Fraud Risk Management 14
- 15. Attribute Description 1 Anti-fraud Culture & Governance An effective tone at the top is established to demonstrate a clear stance on fraud tolerance. An appropriate governance structure for the development and continued effectiveness of the fraud prevention/detection framework is formally established and maintained. 2 Accountability Structure A clear line of responsibility for fraud prevention/detection is established. 3 Fraud Risk Assessment Management has up-to-date information in order to decide how to allocate resources to treat and monitor exposure to fraud. 4 Fraud Reporting and Monitoring Systems Matters potentially affecting financial reporting are immediately communicated to the appropriate executive member(s). 5 Awareness Programs Employees, contractors and clients/recipients understand their responsibilities to contribute to the prevention/detection of fraud. 6 Protection for those who raise concern in good faith A clear and unequivocal commitment to supporting and protecting all complainants in identifying fraud and corruption within the organization is established. 7 Investigation/ Examination Standard Once reported, the allegation is promptly handled and investigated competently. Fraud Risk Management Program 15
- 16. Fraud Risk is an organization’s level of vulnerability to those capable of committing and concealing fraud, and may come from sources internal and/or external to the organization. Fraud Risk Assessment 16
- 17. LIKELIHOOD IMPACT 5 4 3 2 1 1 2 3 4 5 Fraud Risk Assessment 17
- 18. Questions and Answers Be sure to tune in to next month’s webinar! • “CFO Attestation” • Presenters: Jean Roussel and Donna Dériger • Thursday, January 16th, 2013 at 12:00pm EST 18