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This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of EUC and can in no way be taken to reflect the views of the European Union.

Financial Investigation Coordination in Cyprus [OLAF/2016/D1/014]

5

nd

Training Workshop

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November 8:30

-16:30

Financial

Investigation

Coordination

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Cyprus

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Hercule III

Programme

Anti-Fraud Training 2014 -2020 Slide2

Asset Misappropriation

Dr. Loukia EvripidouSlide3

Overview

Surveys are regularly carried out to estimate the true scale and cost of fraud to business and society. While findings vary and it is difficult to ascertain the full extent of fraud, all surveys indicate that fraud is prevalent within organisations and remains a serious and costly problem.

Fraud may even be increasing due to greater globalisation, more competitive markets, rapid developments in technology and periods of economic difficulty. Despite the serious risk that fraud presents to business, many organisations still do not have formal systems and procedures in place to prevent, detect and respond to fraud. No system is completely fool proof, but business can take steps to deter fraud and make it much less attractive to commit. 3Slide4

Defining Fraud

“Error” refers to an unintentional misstatement in Financial Statements“Fraud” refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage (ISA 240 § 11

).A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.” -Black’s Law Dictionary page 5Common classifications of fraud: corruption asset misappropriation and fraudulent financial statements.4Slide5

three main categories of internal fraud that affect organisations

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Corruption: Definition

Corruption means any dishonest activity in which an organization’s employee abuses his/her position of trust in order to achieve some personal gain or advantage for him herself or for another person or entity. Examples:

Conflict of interest which puts a person’s interest ahead of the interest of the organization. Inappropriate application of the tender and procurement process. Accepting or seeking anything of value from any contractor, vendor or person providing services or materials to the organization.Bribing, or attempting to bribe, any public official, vendor, customer or other person.6Slide7

fraudulent financial reporting

Misstatements resulting from fraudulent financial reporting, including omissions of amounts or disclosures in financial statements to deceive financial statements users. Accomplished by manipulation, falsification or alteration of records and documentation, by mispresentation in or intentional omission from and by misapplication of accounting principles.

Often involves management override of controls using techniques as changing assumptions / judgments used to estimate account balances, recording fictitious journal entries, concealing or not disclosing facts. Management may take deliberate actions to meet earnings objectives that lead to fraudulent financial reporting by materially misstating the financial statements. Earnings management is performed in order to deceive users by influencing their perceptions as to the entity’s performance.7Slide8

Asset Misappropriation

Asset misappropriation fraud happens when people who entrusted to manage the assets steal from it. Asset misappropriation fraud involves third parties or employees in an organisation

who abuse their position to steal from it through fraudulent activity. It can also be known as insider fraud. This type of fraud can be committed by company directors, or its employees, or anyone else entrusted to hold and manage the assets and interests of an organization. In essence individuals committing asset misappropriation-type crimes may be: employees of an organization, customers or vendors of an organization, or could be individuals unrelated to the victim organization.Asset misappropriation schemes most often involve theft of cash, although this is not always the case. In a recent study by the Association of Certified Fraud Examiners, approximately 85% of all asset misappropriation cases involved the misuse of cash (ACFE, 2008). 8Slide9

Why do people commit fraud?

There are three identical conditions for fraudulent financial reporting and misappropriation of assets but with different risk factors risks factors are different . These are referred to as the fraud triangle (ISA 240)

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Why do people commit fraud: Fraud triangle

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…a Typical Fraudster

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Asset Misappropriation: a more detail perspective

Misappropriation of assets involves the theft of an entity’s assets and is often perpetrated by employees in relatively small and immaterial amounts. However, it can also involve management who are usually more able to disguise or conceal misappropriations in ways that are difficult to detect. Misappropriation of assets can be accomplished in a variety of ways including:

Embezzling receipts (for example, misappropriating collections on accounts receivable or diverting receipts in respect of written-off accounts to personal bank accounts). Stealing physical assets or intellectual property (for example, stealing inventory for personal use or for sale, stealing scrap for resale, colluding with a competitor by disclosing technological data in return for payment). Causing an entity to pay for goods and services not received (for example, payments to fictitious vendors, kickbacks paid by vendors to the entity’s purchasing agents in return for inflating prices, payments to fictitious employees). Using an entity’s assets for personal use (for example, using the entity’s assets as collateral for a personal loan or a loan to a related party). Misappropriation of assets is often accompanied by false or misleading records or documents in order to conceal the fact that the assets are missing or have been pledged without proper authorization. 12Slide13

Asset Misappropriation: a more detail perspective

Typically the assets stolen are cash or cash equivalents such as credit notes and vouchers. However the fraud can be extend to include company’s data and intellectual property.At one end of the scale, asset misappropriation fraud my be limited to isolated cases of expense fiddling or an employing lying about his or hers qualification to a get a specific job

At the other end, it might involve organized crime groups penetrating to organizations to take advantage of weak processes and inadequate internal systems and controls.13Slide14

Asset Misappropriation Schemes

According to the 2008 Report to the Nation on Occupational Fraud and Abuse, asset misappropriation can be categorized according to different scheme types, including: skimming, cash larceny, and fraudulent disbursements (ACFE, 2008). 14Slide15

skimming

This type is very difficult to detect, investigate, and proof because it takes place before money is recorded in a company’s accounting system leaving no audit trail. That is why it is called an off-book scheme.

Skimming can be committed in numerous ways and detecting and preventing them varies from industry to industry. However, regardless of the industry, it is important to develop surprise audit procedures that would detect a skimming scheme Studies argued that since skimming is so difficult to detect and prove companies should rely heavily on preventive controls that would make employees reluctant to steal. 15Slide16

Types of Skimming

Skimming happens at the point of entry of money into a business, and usually occurs in small, cash intensive business. Typical jobs that might involve access to funds in this way include bank teller, waitress, store cashier, salesperson, or medical billing clerk There are two types of skimming schemes:

sales skimming receivables skimming. 16Slide17

How Sales Skimming happens

Register manipulation Ring a no sale and open cash drawer then steal the money Skimming during non business

hoursOpen business on weekends or after hours without management’s knowledgeSkimming of off-site salesSalespersons do not submit cash collected field visitsUnderstated salesLower amount is posted than what is actually receivedFalse discountsEmployee receives full amount but records as if customer was given discount and pockets the alleged discount amount.Theft of sales received through mailEmployee steals cheques from customers and fails to post them to customer accountsCheque for currency substitution Swap cheques for cash17Slide18

Receivables Skimming

Cash expected from account customers is stolenHow to conceal:Forcing account balancesDestruction of transaction records

LappingStolen statementsFalse account entriesDebits to expense accountsDebits to aging or fictitious receivables Writing off account balances Lapping involves crediting of one account through abstraction of money from another account ( i.e. robbing John to pay Peter)18Slide19

How to detect Skimming Schemes

Analytical procedures such as vertical and horizontal analysis of sales accounts and ratio analysisReview and analysis of all journal entry in cash and inventory accountsExamination of source documents such as bank

deposit slips; checking for dates of customer payments with the dates customer accounts are postedConfirmation of customer accounts( large ones)19Slide20

Skimming Red Flags

Missing transaction recordsInventory shortageCash receipts or deposit totals differ from expected patternsUnusual journal entries or unusual items on the bank reconciliation

Unusual behaviour of suspectsInadequate segregation of dutiesDifferent dates between deposits and entries to accounting booksDifferences between deposits slip names and amounts of credits to accountsUnauthorized write-offs of pledges or promises to giveUnusual journal entriesInadequate segregation of duties20Slide21

Prevention of Skimming Schemes

Segregation of duties Require that employees with similar duties regularly alternate specific tasksSeparate the custodial, record keeping and supervisory functions of the cash collection process.

Make sure individuals handling receipts do not have access to posting, write-offs or other accounting functions Require a person who is not responsible for handling or recording cash to perform bank records Increase Supervision and MonitoringPlace a video camera in a visible locationMake sure a manager or supervisor is present at all timesMake sure employees are informed about the audits that will be conducted21Slide22

Prevention of Skimming Schemes

Don’t just look at the numbers! Make sure your organization’s accounts receivables are valid by: Obtaining a bank deposit detail and comparing to cash and A/R posting on a periodic and surprise basisComparing

freight bills or shipping documents to sales records Comparing employee addresses and phone numbers to vendor master files Conducting a Cut-off Analysis Confirming receivables on a regular and surprise basis Reviewing exception reports and investigate deviation/exception files such as changes to Master File Requiring supervisory approval for write-offs Performing regular financial ratio analysis Switching to lock-box receipts Investigating long standing deposits-in-transit and unreconciled items on bank reconciliation Considering a lock-box for receivables Performing financial ratio analysis Eliminating off-book receivables22Slide23

Cash Larceny

Cash larceny, involves the theft of funds that are already recorded in a company’s accounting system. Thus, cash larceny is called an on-book scheme. In

cash larceny because the funds have already been recorded somewhere in the company’s accounting system, action must be taken to conceal the theft. This might include something like entering a false refund into the cash register, voiding a transaction, or booking an adjustment in the accounting records. Cash larceny at the point of sale can be committed and concealed by many ways, such as: stealing by using someone else’s access code, stealing currency in very small amounts over an extended period of time so that theft can be credited to errors rather than fraud, altering the cash counts to make the cash on hand and the tape balance or by simply destroying the register tape. It can also be committed by making false voids or refunds which cause the register tape to reconcile to the amount of cash on hand after theft.Larceny from receivables can be committed by reversing entries to balance the victim company’s accounts or destroying records to conceal the identity of the thief. As for larceny from deposits, this can be committed by stealing cash from the deposit on the way to the bank and altering the deposit slip so that it reflects a lesser amount. This can be concealed by deposit lapping or carrying the missing money as deposits in transit which will appear on the next month’s bank statement. 23Slide24

Cash Larceny

How it happens: Cash theft at cash collection pointsCashier/ employee opens the cash drawer and steals the money or cheque.Transactions reversing. Employee may process reverse transactions which cause the books to reconcile to cash after the theft

Register manipulation Employee alters the cash register to reconcile it to the cashAltering cash countsWhen cash from the register is totalled and prepared for deposit, employee simply records the wrong amount so that cash on hand appears to balance with the total on the register tape. Destroying cash register tapes. Employee destroys the register tapes if he/she discovers that the cash and the tapes don’t reconcile to avoid being caught Deposit lapping. Employee steals deposits for day one and replaces with deposits for day two Deposit in transit. Employee may carry the cash missing as deposits in transit24Slide25

Detection of Cash Larceny

In-depth analysis of cash receipts and recording process Review and analysis of the relationship between sales, cost of sales and returns and allowances Regular

analysis all journal entries made to cash accounts25Slide26

Prevention of Cash Larceny

Segregation of dutiesAssignment rotation and mandatory vacationsSurprise cash counts and supervisionPhysical security of the cash-lockable drawers

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Cash Register Disbursements

► False refunds It happens when a refund is allegedly processed for a customer who returns an item to the company but in actual sense no refund was made to the

customer or the refund was actually requested the customer and item returned to the store but an employee processing the refund overstates it and pockets the excessHow to conceal it: Destroy the refund records-cash register Ensure that refunds made are below the review threshold Conceal shortages to inventory through forcing inventory totals, write of inventory as obsolete or lost, charge inventory to existing A/R, pad inventory, false credits to perpetual inventory27Slide28

False Voids

Employee fails to give the customer a sale receipt and uses that receipt to void the sale. He/she obtains the approval for the void sale by forging supervisors approval, use the supervisor’s rubber stamp approval, abuses his/her approval authority or

concludes with supervisorReceipt is usually attached for voided sale.Cash is then removed from the cash registerHow to conceal it:Similar to false refund28Slide29

Detection of Register Disbursement schemes

Evaluate refunds or discounts given by each cashier or sales person and check that and properly documentedReview

and analysis of the relationship between sales, cost of sales and returns and allowances29Slide30

Register Disbursement Schemes Red Flags

Inappropriate employee segregation of duties i.e. register counting and reconciliation done by by one individual Cashiers rather than supervisors have access to control keys for refunds and voids

Register employees have authority to void there own transactions Register refunds are not methodically reviewed Multiple cashiers operate from a single cash drawer without separate access codes Personal cheques from cashier found in the register or are not approved by supervisorVoided sales are not properly documented on fileVoided cash receipts forms are not retainedMissing or obviously altered register tapesInventory totals appear forced30Slide31

Prevention of Register Disbursement Scheme

Review segregation of duties of key employeesAccess to the register must be closely monitored and access codes must be kept securedPerform unannounced cash countsMaintain the presence of manager or supervisor near the area of cash register as a

deterrent to theftReview support documentation for voided and refunded transactions for legitimacyQuantity of refunds should be analysed to detect multiple small refundsRandom service calls to customers for refunds or voided salesMaintain signs at the register asking customers to ask for and examine their receipts31Slide32

fraudulent disbursement

Fraudulent disbursements are the most common form of asset misappropriation, and they occur when an. employee uses his position of employment to cause a payment for some inappropriate purpose. Fraudulent disbursements are on-book fraud schemes, meaning that cash (checks) leaves the entity.Fraudulent disbursement schemes are broken down into the following types:

Check tampering schemes Register disbursement schemes Billing schemesExpense reimbursement schemes Payroll schemes32Slide33

Billing scheme

The most common and costly example of a fraudulent disbursement is the billing scheme. Billing schemes attack the purchasing function of an organization. They cause the victim organization to buy goods or services that are nonexistent, overpriced, or not needed by the organization. A billing scheme can result in an

illegal gain of cash, goods, or services for the fraudster.The purpose of most billing schemes is to generate cash. In a typical scheme, the offender creates false support for a fraudulent purchase. The fraudulent support documents, which can include invoices, purchase orders, purchase requisitions, receiving reports, and so on, cause the victim organization to issue a check. The fraudster collects the check and cashes it, thereby reaping an illegal gain. 33Slide34

Billing Schemes types

Three principal types: False invoicing via shell companies: is basically a fake company, that issue invoices to the victim company for products or services never delivered or provided. The shell company can also inserts an intermediary into a company’s transaction in order to overcharge the company and keep the profits.

False invoicing via non-accomplice vendors: altering the invoice of a legitimate vendor to cause the company to pay more than is really owed and getting the excess money by contacting the vendor and explaining a mistake has happened so that the fraudster could take the money for his personal use Personal purchases made with company funds: Employees can use utilize false billings to receive goods or services rather than cash. In these cases, the fraudster makes a personal purchase and charges it to his employer as if the purchase were a business expense. This type of scheme is accomplished in one of two ways. One method is to run a voucher for a personal purchase through the payables system. The perpetrator misrepresents the nature of the purpose, claiming that the goods or services are being bought on the company‘s behalf. The second method is to purchase personal goods or services on the company‘s credit card or on a credit account34Slide35

Detection of Billing Schemes

Analytical review-review general events ledgers accounts for unusual eventsCheck for vendors with matching addressesSite

visits-observationReview of complaints from vendors and customers35Slide36

Prevention of Billing schemes

Training purchasing personnel on ethical standardsSufficient compensation for purchasing staff to reduce the motive and rationalisation for the fraud

Proper documentation-pre-numbered and controlled purchase requisitions; purchase orders; receiving reports; chequesProper approvals-for vendor additions; Local Chart of Authority with limits-’’who can approve what’’Segregation of duties-purchasing separate from payment functionsInvest in hotlinesEnforce policies on competitive bidding Purchases and inventory levels should be compared and analysedCredit card statements should be reviewed periodically for any irregularities36Slide37

Cheque tampering

Check tampering is a type of fraudulent disbursement scheme whereby an employee either (1) prepares a fraudulent check for his own benefit or (2) intercepts a check intended for a third-party and converts the check to his own benefitCheck tampering schemes are a more direct form of fraud. Instead of relying on false support to generate a fraudulent disbursement, the perpetrator of a check tampering scheme takes physical control of a check and places false information on that instrument.

The fraudster might forge a signature, alter a payee, alter the amount of the check, and/or forge an endorsement. The key is that the perpetrator places false information on a company check and that this action enables the fraudster to illegally obtain funds from his employer.37Slide38

Cheque tampering

Red Flags Missing checks or large gaps in the check register • Checks payable to employees •

Payee addresses that match employee addresses • Duplicate or counterfeit checks Prevention Checks mailed immediately after signing Bank reconciliations not made by signatories Establish maximum amounts with bank Use positive pay38Slide39

payroll scheme

Payroll schemes occur when an employee fraudulently generates overcompensation on his behalf. These schemes are similar to billing schemes in that the perpetrator generally produces some false document or otherwise makes a false claim for a distribution of funds by his employer. In billing schemes, the false claim typically comes in the form of a fraudulent invoice.

In payroll schemes, the false claim generally occurs when the fraudster falsifies payroll records, timekeeping records, or some other document concerned with the payroll function. 39Slide40

payroll scheme types

Ghost employee schemes Ghost added to the payroll. Timekeeping and wage rate information must be collected.

Payment must be issued to the ghost. The check must be delivered to the committer or an accomplice. Falsified hours and salary Most common method is the overpayment of wages. Hourly employees falsify: Number of hours worked Rate of pay40Slide41

Payroll Fraud Detection

Analysis of Deductions from Payroll Checks Ghosts will often have no withholding taxes, insurance, or other deductionsCompare employee names, addresses, identification numbers, and bank account numbers for duplication

Compare employee payroll records to human resources employee files to ensure all individuals receiving payroll checks are employees41Slide42

Payroll Schemes Red Flags

Theft of cheques, missing payroll cheques or cheques out of sequence Cheques

to employees with incomplete or no personnel records Duplicate pay cheques or entries on payroll recordsEmployee complaints about improper pay or withholdings Unusual payees or endorsements of chequesUncontrolled unclaimed payroll chequesUnauthorized electronic funds transfersUnusual or unexpected fluctuations from budget in payroll expense or hoursUnapproved timesheets or time cardsTax authority notices about failure to make timely depositsLate tax depositsUnusual behaviour of suspectsInadequate segregation of duties42Slide43

Prevention of Payroll Schemes

Establish internal controls requiring separation of payroll duties. Personnel who create or maintain payroll data and lists should not be allowed to make changes or add employees without management approval.Payroll

changes should be approved by two designated individuals. People who compute pay rates and accumulated hours for payroll should not be allowed to write payroll checks or submit the hours for payment by a payroll service without supervisory approval.Have payroll accounts reconciled monthly and reviewed by management. Audit payroll information for duplicate deposit account information and repeated Social Security numbers or addresses.Most banks provide a positive pay service where check numbers, amounts and employee names provided by the company are checked against any incoming payroll check.If direct deposit is used exclusively, require employees to pick up their paychecks in person with photo ID at least once per year at human resources or another designated department.43Slide44

Expense Reimbursement Schemes (ERS)

Travel and expense budgets are a common target for occupational fraud. Employees may falsify information about their business expenses and cause their employers to overcompensate them in the form of inflated expense reimbursements. This type of scheme is most commonly perpetrated by sales personnel who overstate or create fictitious expenses in areas such as client entertainment and business travel.

Outside sales personnel are not the only employees who commit this type of fraud, however. Any person who is in a position to incur travel or business entertainment expenses is potentially capable of committing expense reimbursement fraud. 44Slide45

ERS fall into

4 categories: Mischaracterized expenses Requesting for reimbursements for personal expenses by

claiming that they business related expenses e.g. claiming personal related expenses as a business trip, listing dinner with a friend as business development.Overstated expenses Employees overstate the actual cost of business expenses through altering receipts, over purchasing, overstating another employee’sFictitious expensesEmployee ‘’invents’’ an expense and requests that be reimbursed. This can be by producing fictitious receipts, obtaining and using blank receipts from vendors, claiming expenses of others.Multiple reimbursements Involves submission of a single expense several times e.g. submission of several types support for the same expense.45Slide46

ERS Detection and Prevention

Detection Analysis of expense accounts—historical comparison; compare actual and budgeted expenses Prevention

Set policy that requires proof of expense reimbursement requestsRequire expenses over a designated amount to have advance management approvalPeople who process requests for expense reimbursement should not be allowed to issue checksPayments made for expenses should also be audited monthly Detailed review of expense reports bearing in mind the following points:Receipts and other support documentationSpecific business purposeTime period of when the expense was incurredPlace of expenditure Amount46Slide47

Fraud Statistics

The percentage of reported corporate frauds compared with all other reported incidents increased to 20.3% in the first quarter of 2011. In over 25% of fraud cases losses exceed $1 million. (CFO.com)

Frauds can last for long periods of time and usually last at least 2 years before being detectedFrauds are more likely to be detected by a tip (50%) than by audits, controls, or other means… but controls are still important.Slide48

Fraud Statistics

Fraudulent disbursements (as opposed to skimming or larceny) account for 70 percent of cash misappropriations, averaging about $100,000 per occurrence.

Billing schemes, whereby a fraudster causes the victim organization to issue payments for fictitious, inflated or personal purchases, account for almost half of fraudulent disbursements. Also popular are payroll schemes, check tampering, and expense reimbursement schemes. Most common red flags were individuals living beyond their means (39%) or experiencing financial difficulties (34%)Typical perpetrator is a first time offender – only 7% had prior fraud convictionSlide49

Fraud Statistics

Greater than two-thirds of frauds are committed by a single perpetrator.

Cash (as opposed to inventory, equipment or information) is the targeted asset in 90% of asset misappropriations.Over 80 percent of occupational frauds involve asset misappropriation. Other forms of fraud involve financial statements (7%) and corruption schemes (13%).Slide50

An anti-fraud strategy

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Fraud prevention: A sound ethical Culture

A mission statement that refers to ‘quality’ or ‘ethics’ and defines how the organisation wants to be regarded externally. Clear policy statements on business ethics and anti-fraud, with explanations about acceptable behaviour in risk-prone circumstances.

Management which is seen to be committed through its actions. Fraud risk training and awareness for all employees and key business partners. A process of reminders about ethical and fraud policies, for example, an annual letter and/or declarations. Periodic assessment of fraud risk. A route through which suspected fraud can be reported. An aggressive audit process which concentrates on fraud risk areas. 51Slide52

Fraud prevention: Sound internal control systems

An internal control system comprises all those policies and procedures that collectively support an organisation’s operation. Internal controls typically deal with approval and authorisation processes, access restrictions, transaction controls, account reconciliations and physical security.

These procedures often include the division of responsibilities, and checks and balances to reduce risk. An internal control system comprises all those policies and procedures that collectively support an organisation’s operation. Internal controls typically deal with approval and authorisation processes, access restrictions, transaction controls, account reconciliations and physical security. These procedures often include the division of responsibilities, and checks and balances to reduce risk. 52Slide53

Fraud detection

It will never be possible to eliminate all fraud. No system is completely ‘fraud proof’ because many fraudsters can by pass the control systems put in place to stop them. However, if an organisation pays greater attention to the most common indicators, this can provide early warning that something is wrong and increase the likelihood of discovering the fraudster.

Fraud indicators fall into two categories: Warning signs Fraud alerts 53Slide54

Warning signs

Business risk can be indicated by the absence of an anti-fraud policy and culture, together with lack of staff management supervision. Bonus schemes linked to ambitious targets or directly to financial results can point to risky behaviour. Unusual staff

behaviour patterns, for example, employees who do not take their annual leave allocation or who are unwilling to share duties, can also indicate business risk. Financial risk: Significant pressures on management to obtain additional finance can indicate a financial risk. Other signs include the extensive use of tax havens without clear business justification, along with complex transactions or financial products. Environmental risk: This can occur when new accounting or other regulatory requirements are introduced. Highly competitive market conditions and decreasing profitability levels can also lead to environmental risk, as can significant changes in customer demand. IT and data risk: Unauthorised access to systems gives rise to IT and data risk, as do rapid changes in information technology. Users sharing or displaying passwords is also highly risky. 54Slide55

Fraud alerts

Fraud alerts have been described as specific events, or red flags, which may indicate fraud. Some examples of fraud red flags are: discrepancy between earnings and lifestyle photocopied documents in place of originals missing approvals or authorisation signatures extensive use of ‘suspense’ accounts

inappropriate or unusual journal entries above average number of failed login attempts. 55Slide56

Fraud detection tools and techniques

Available tools and techniques for identifying possible fraudulent activity include: ongoing risk assessment trend analysis data matching exception reporting internal audit reporting mechanisms.

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Fraud response

An organisation’s approach to dealing with fraud should be clearly described in its fraud policy and fraud response plan. The plan is intended to provide procedures which allow for evidence gathering and collation. In summary, a fraud response plan should include information under the following headings: purpose of the fraud response plan corporate policy

definition of fraud roles and responsibilities the response the investigation organisation’s objectives with respect to dealing with fraud follow up action. 57Slide58

Fraud response

Reasonable steps for responding to detected or suspected instances of fraud include: clear reporting mechanisms a thorough investigation disciplining of the individuals responsible (internal, civil and/or criminal) recovery of stolen funds or property

modification of the anti-fraud strategy to prevent similar behaviour in future. There are lessons to be learned from every identified fraud incident. The organisation’s willingness to learn from experience is as important as any other response. Organisations should examine the circumstances and conditions which allowed the fraud to occur, with a view to improving systems and procedures so that similar frauds do not occur in future. 58Slide59

Fraud deterrence

It is clear from the previous diagram that the various elements of an effective anti-fraud strategy are closely interlinked. Each plays a significant role in combating fraud, with fraud deterrence at the centre

. Fraud detection acts as a deterrent by sending a message to likely fraudsters that the organisation is actively fighting fraud and that procedures are in place to identify any illegal activity. The possibility of being caught will often persuade a potential perpetrator not to commit a fraud. There should also be complementary detection to counter the fact that the prevention controls may be insufficient in some cases. It is also important to have a consistent and comprehensive response to suspected and detected fraud incidents. This sends a message that fraud is taken seriously and that action will be taken against perpetrators. Each case that is detected and investigated should reinforce this deterrent and act as a form of fraud prevention. 59Slide60

THANK YOU!!!

QUESTIONS????60