By Ms Rosie Langi (ACFE,CICA,TA(Fiji) Director, Transparency International -Fiji Pacific Islands...
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by Ms Rosie Langi (ACFE,CICA,TA(Fiji) Director, Transparency International -Fiji Pacific Islands Financial Managers’ Association (PIFMA) Heads: Annual Meeting
By Ms Rosie Langi (ACFE,CICA,TA(Fiji) Director, Transparency International -Fiji Pacific Islands Financial Managers’ Association (PIFMA) Heads: Annual
by Ms Rosie Langi (ACFE,CICA,TA(Fiji) Director, Transparency
International -Fiji Pacific Islands Financial Managers Association
(PIFMA) Heads: Annual Meeting
Slide 2
Disclaimer Neither this presentation nor the materials you have
been provided shall constitute legal advice or the opinions of the
Transparency International Fiji or the professional entities that
the presenter is associated with (ACFE, IIC, FIIA, FAFE) While the
practices and methodologies which will be presented are considered
industry best-practices, specific circumstances and fact patterns
should drive your process and approach. Any similarities of names
or circumstances are purely coincidental 2
Slide 3
Overview Interchangeable use of terms (Corruption vs. Fraud) TI
focus - Global Perception Barometer (The Barometer) - Corruption
Perception Index (CPI) Professional focus - Big Four (KPMG, PwC,
E&Y, Deloitte) - Association of Certified Fraud Examiners
(ACFE) - (Prevention, Detection and Deterrence) Integrated Methods
- The Corporate reporting Supply Cycle - Fraud Deterrence Cycle -
GRC Toolbox The Future Where Do We Go From Here 3
Slide 4
Corruption vs. Fraud defined Corruption - the abuse of trusted
authority for private gain. (Transparency International) Fraud
(occupational) - The use of ones resources for personal enrichment
through the deliberate misuse or misapplication of the
organisations resources or assets (Association of Certified Fraud
Examiners) 4
Slide 5
5 THE FRAUD TREE Asset Misappropriations Corruption Fraudulent
Statements Conflicts of Interest Bribery Illegal Gratuities
Economic Extortion Inventory & All Other Assets Cash
Non-financial Financial 5 5
Slide 6
Fraud in Historic Perspective Fact of life for years Babylonian
era (1800BC) Code of Laws US-since colonies settled, 1616 Virginia
case, Captain Samuel Argall, Deputy Gov ...only six goats were
left... Civil war False Claims Act 1863 Credit Mobilier scheme 1872
(double invoiced govt, distributed $50m to shareholders.
Politicians involved. Fiji cases (FMF, NBF,HA,C&E, Immigration,
Agriculture, Fisheries) 6
Slide 7
Transparency International TI, is the global CSO leading the
fight against corruption. Over 90 chapters worldwide, with its
Secretariat in Berlin. TI raises awareness of the damaging effects
of corruption and works with partners in government, business and
civil society to develop and implement effective measures to tackle
it. (advocacy) Membership is open (qualified) Regional
Classification within the Asia Pacific -------------------- - Fiji
- Papua New Guinea - Solomon Islands - Vanuatu 7
Slide 8
8 Global Corruption Barometer 2010 The Barometer is the largest
cross-country survey collects general publics views on and
experiences of corruption. In 2010, over 91,500 people in 86
countries most comprehensive edition since 2003. general publics
views about corruption levels in their country governments efforts
to fight corruption. Complements Perception Index & Bribe
payers Index on the general publics perceptions of key institutions
public willingness to engage with the fight against
corruption.
Slide 9
TI Projects Regional Advocacy and Legal Advice Centres (ALAC)
Forest Governance and Integrity Preventing Corruption in public
contracting Transparency in political financing National integrity
systems Corruption prevention in disaster relief National
Corruption in politics Corruption in the public sector
International Anti - Corruption conventions Anti-Corruption
education Corruption in public contracting 9
Slide 10
Changes in Corruption Levels in the past 3 yrs, by Region.
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Slide 11
Perceived Levels of Corruption in Key Institutions 11
Assessment in Government Actions Against Corruption 13
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Peoples Trust to Fight Corruption 14
Slide 15
Peoples Trust to Fight Corruption By Region 15
Slide 16
Transparency International Corruption Perceptions Index (CPI)
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Slide 17
Professional Bodies - ACFE The worlds largest and Certifying
anti - fraud body was formed in 1988 The Association of Certified
Fraud Examiners (ACFE) based in Austin, Texas, USA. over 55,000
members world wide and offers the Certified Fraud Examiners (CFE)
Examination. www.acfe.com www.acfe.com Membership is open to those
of good standing. Certification is in Law, Finance, Criminology and
Ethics and Investigation (CFE) 17
Slide 18
Famous Quotes: Enron The company is probably in the strongest
and best shape that it has ever been inThere are no accounting
issues, no trading issues, no reserve issues, no previously unknown
problem or issues. (-Kenneth Lay, Enron CEO statement to Wall
Street) I am incredibly nervous we will implode in a wave of
accounting scandals, and our [successes are] nothing more than an
accounting hoax. (- Sherron Watkins, Former Enron, VP Corp
Development and Whistleblower) 18
Slide 19
International Fraud Cases Enron (US) 2000 - $US600 million
loss; - $85m settlement, 20 000 employees. Adelphia(US) 2002 -
$US2.3billion $0.01 per acct per month 1million clients = $10 000pm
= $120 000pa UK Insurance claims for 38 teeth UK pop 55 million,
social security number 70 + million 19
Slide 20
Fiji Fraud Cases National Bank Of Fiji (Fiji) 1990s
$F300million approx. Housing Authority of Fiji (1990) Customs &
Excise Department (1990s) Fiji Immigration Department Shell
companies Phantom employees (Education) Agriculture scam Tender
bidding Peter Foster 20
Slide 21
21 THE FRAUD TREE Asset Misappropriations Corruption Fraudulent
Statements Conflicts of Interest Bribery Illegal Gratuities
Economic Extortion Inventory & All Other Assets Cash
Nonfinancial Financial 21
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Initial Detection of Frauds 25
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Slide 27
Governance and Corruption Good governance is not a luxury but a
basic requirement for development. Corruption undermines
development and is generally an outcome and a symptom of poor
governance. It has reached global proportions and needs to be
attacked directly and explicitly. (Commonwealth Declaration) It is
now widely acknowledged that the control of corruption has to be an
integral component of good governance.(TI) Proactive and reactive
measures necessary (ACFE) 27
Slide 28
The Use of Integrated Methods To Fight Fraud Corporate
Reporting Supply Cycle The Fraud Deterrence Cycle The GRC Toolbox
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Slide 29
1. The Corporate Reporting Supply Cycle Corporate Executives
Board of Directors Independent Auditors Information Distributors
Third Party Analysts Investors and Other Stakeholders 29
Slide 30
2. The Fraud Deterrence Cycle Fraud Deterrence Cycle Corporate
Governance Transaction Level Controls Retrospective Examination of
Processes and Transactions Investigation and Remedial of Programmes
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Slide 31
Conceptual Overview of the Fraud Deterrence Cycle An
interactive process with 4 main elements; Establishment of
corporate governance Implementation of transaction level control
processes (Internal control processes) Retrospective examination of
governance and control processes through audit examinations
Investigation and remediation of suspected or alleged problems
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Slide 32
The Fraud Deterrence Cycle Corporate Governance Independent
board, chairperson, management, stakeholders Audit committee to
have at least a finance expert, all others financial literate,
Regular meetings Explicit ethical commitment (walking the talk)
Prompt and appropriate investigation Budgeting / forecasting
controls Internal audit reporting to audit Committee Clear, formal
policies and procedures, regular reviews, Well defined financial
approval authorities and limits Timely and complete Information
flow to the board. 32
Slide 33
Transaction Level Controls The Control Environment Risk
Assessment Control Activities Information and Communication
Monitoring 33
Slide 34
Important Control Processes Additions/changes/deletions to
master file of customers, Vendors, employees Disbursement approval
processes Write off approval processes Revenue recognition
procedures Inventory controls Segregation of duties Information
system access and security control Proper employment screening
procedures, background checks Timely reconciliations Cash
management controls Security of assets Top level reviews of actual
performance versus budgets, forecasts, prior periods and
competitors 34
Slide 35
3. The GRC Model Governance, Risk Management and Compliance
(GRC) to eliminate corporate silos integrate organizational
management, protection against fraud and theft and regulatory
adherence. Problem? GRC programs often underestimate fraud risk.
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Slide 36
How The GRC Works? Integration of governance, risk management
and compliance (GRC) and anti-fraud programs, creating synergies
and efficiencies that will better detect and deter fraud. Managers,
CEOs to recognize the ubiquity and seriousness of the fraud threat.
Everyone works together, sharing best practices and using common
tools to rely on each others work. No unilateral ownership, but
must be cooperative and well coordinated. Need to identify
appropriate strategic and tactical guidelines and best practices to
get there. 36
Slide 37
2010 KPMG Survey 1,200 members on boards worldwide oversight of
fraud risk was a great concern for only 6 percent only 72 say Yes,
fraud is a great concern to me. (1,128 believe either that fraud is
not a big threat or that ICs are very good) Interests more on Gulf
oil spill, Wiki Leaks disclosures of classified information,
Political unrest in the Middle East and North Africa, Earthquake
and tsunami in Japan. Tone at the top (5 th ) and Ensuring audit
committee effectiveness (7 th ) 37
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Slide 39
Opportunity PressureRationalization The Fraud Triangle 39
Slide 40
Beyond The Fraud Triangle Since 1950s to understand fraudsters
motivations Inadequate for Prevention, Detection and Deterrence of
fraud because Pressure and Rationalisation cannot be observed.
Case: 1978 Wal-Mart hired Thomas Coughlin, director of loss
prevention, 2005 VC, resigned amid allegations of fraud and deceit.
Alligator boots ($ 1359), dog pen ($2 500) Questionable
transactions $100 000 - $500 000 2004 compensation over $6m.
Inconsistency with Add Capability = The Fraud Diamond MICE Model
(Money, Ideology, Coercion, Ego/Entitlement) 40
Slide 41
Looking Forward - Where Do We Go From Here? Evolution of
discipline including boundary between financial auditing and
forensic accounting investigations Education and training for a new
generation of forensic accounting investigators and fraud
examiners. The changing regulatory and legislative environments The
changing corporate environment in which the decision to investigate
and the process and the results of investigation encounter real
world benefits Changes in corporate reporting especially re - non
financial operating data (NFOD). 41
Slide 42
Looking Forward - Where Do We Go From Here? A Historical
Account of the Auditors Role Auditing ancient history 4000BC.
Growth of the auditing profession in the 19 th Century...auditor
who is able to detect fraud is other things being equal a better
man than the auditor who cannot.(Auditing: A practical manual for
auditors by L R Dicksee) Current Environment Sarbanes Oxley Act
2002 - International Financial Reporting System (IFRS) AICPA s99
Consideration of Fraud in a Financial Statement Audit. Auditors are
Not Alone. 42
Slide 43
Looking Forward - Where Do We Go From Here? Reactive
Investigation & auditing (traditional) Proactive Prevention
& Detection & Deterrence Deterrence, Auditing and
Investigation - Increased size of reported scandals (Enron,
WorldCom, Tyco, Food for Iraq) - Issues e.g. executive pay,
benefits & perks, wilful deception, mumbo jumbo, creative
accounting,, cooking of the books Systematic, Rigorous approach
that uses both reactive & proactive methods. Partnerships TI,
NGOsand professional bodies 43
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Vinaka Vakalevu Valuable Sources
-http://www.transparency-international.orghttp://www.transparency-international.org
-http://www.acfe.comhttp://www.acfe.com -Golden Thomas et al, A
Guide to Forensic Accounting, 2006, John Wiley & Sons Inc.
-Wells, JT Corporate Fraud Handbook, 2004 John Wiley & Sons
Inc. -Hare, Robert D, Without Conscious, The Disturbing World of
Psychopaths Among Us, 1999 the Gilford Press, USA. -The GRG Toolbox
by Robert Tie, The Fraud Magazine, September /October Issue 2011,
ACFE. Ms Rosie Langi [email protected] 44