September 2012 Introduction Governance Ethics Risk and Fraud Governance Ethics Risk and Fraud Objectives Objectives To understand the concepts of corporate governance ethics risk and fraud ID: 232023
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Slide1
Facilitated by Goldengate Consulting
September 2012Slide2
Introduction
Governance, Ethics, Risk and FraudSlide3
Governance, Ethics, Risk and Fraud
Objectives
Objectives
To understand the concepts of corporate governance, ethics, risk and fraud
To appreciate the need for corporate governance and an
ethical
culture within an organisation
To understand how to manage risks in our businessesSlide4
Definitions
Definitions
The
Key Concepts
Governance
is the system of controlling and directing an entity
Ethics
is a set of principles of right conduct or a system of moral principles
Risk
is
the effect of uncertainty on objectives
Fraud
is a deception deliberately practiced to secure an unlawful or unfair gain
Governance, Ethics, Risk and FraudSlide5
Corporate GovernanceSlide6
Corporate Governance
Definition
Definition
What is Corporate Governance?
‘
Corporate Governance is a system by which a company is directed and controlled
’.
– Sir Adrian CadburySlide7
Corporate Governance
Issues
Corporate Governance Issues
Understanding corporate
g
overnance issues
Integrity and ethical
behaviour
Rights and equitable treatment of stakeholders
Role and responsibilities of the board
Disclosure and transparencySlide8
Corporate Governance
Need for CG
Corporate Governance
The need for
c
orporate governance
Transparency
Strengthens confidence in management
A form of protection for shareholders
Good corporate governance encourages
growth and sustainability for SMMEsSlide9
Key Principles
Principles
Corporate Governance
Corporate Governance Key Principles
Accountability
Responsibility
Honesty and Transparency
Integrity
Openness
Mutual respect
Performance Evaluation
CommitmentSlide10
Corporate Governance
King III
King III – Scope and Application
King III- scope & application
Applies to all entities
Apply or Explain
Impact on Board – effective leadershipSlide11
Corporate Governance
Stakeholder Relationships
Legislative Framework
Stakeholders in an organisation
Conflict of interestsSlide12
Corporate Governance
Board – effective leadership
Ethical Leadership & Corporate Citizenship
Board/ Directors – Focal
Point & Custodian of CG
Effective & Independent Audit Committee
Governance of Risk
Governance of IT
Compliance with Laws, Rules, Codes & Standards
Effective Risk Based Internal Audit
Governing Stakeholder Relationships
Integrated
Reporting & Disclosure
King IIISlide13
Corporate Governance
Conflict of interests
Financial Reporting and Auditing
Directors’ Remuneration
Board –
Stakeholder
Relations
Corporate governance & Risk
Management
Communication
frameworkSlide14
Corporate Governance
Conflict of interests
“What
makes corporate governance necessary? Put simply, the interests of those who have effective control over a firm can differ from the interests of those who supply the firm with external finance. The problem commonly referred to as a principal- agent problem, grows out of the separation of ownership and control and of corporate outsiders and insiders. In the absence of the protections that good governance supplies, asymmetries of information and difficulties of monitoring results in capital providers who lack control over the corporation, finding it risky and costly to protect themselves from the opportunistic behaviour of managers and controlling shareholders.”
(OECD)Slide15
Corporate Governance
Approaches to corporate governance
The shareholder value
approach
The stakeholder/ pluralist
approach
The enlightened shareholder
approachSlide16
Corporate Governance
Best approach to corporate governance
In your view, which approach is the best approach to corporate governance?Slide17
Corporate Governance
Corporate Governance Framework
Source: WikipediaSlide18
Corporate Governance
Integrated Sustainability Reporting
Economic Reporting
Social Reporting
Environmental
Reporting
TRIPLE BOTTOM LINESlide19
EthicsSlide20
Ethics
Ethics
What is Ethics?Slide21
Ethics
Basic ethics concepts and distinctions
Ethics is
a set of principles of right conduct or a system of moral principlesSlide22
Ethics
Basic ethics concepts and distinctions
I am an ethical person/ I am not an ethical person
I work for an ethical organisation/ I do not work for an ethical organisation
I live in an ethical country/ I do not live in an ethical country
What does ‘ethics’ mean to you?
?Slide23
Ethics
Basic ethics concepts and distinctions
Good
Myself
OthersSlide24
Ethics
Basic ethics concepts and distinctions
What is business ethics?
Business ethics can be defined as the principles, norms and standards that guide an organisation’s conduct of its activities, internal relations and interactions with external stakeholdersSlide25
Ethics
Basic ethics concepts and distinctions
What are values?
Personal Values
Personal values are your own convictions as a person about what is good, acceptable and desirable. Your values are your core values as an individualSlide26
Ethics
Basic ethics concepts and distinctions
Personal Values
Assuming that you enter into a retail shop to buy a few groceries for the week. You pay for the items at the till, and you leave the retail shop. However, as you are about to enter into your car at the parking lot, you
checked
the change the till attendant gave you, and you realise you have been given thirty rand (R30) more than you are entitled to. What will you do?Slide27
Ethics
Basic ethics concepts and distinctions
Values in Organisations
Strategic values
Work values
Ethical valuesSlide28
Ethics
Basic ethics concepts and distinctions
Ethics & Law
What is the difference between ethics and law?Slide29
Ethics
Basic ethics concepts and distinctions
Personal & Organisational Ethics
The good apple
vs
The bad appleSlide30
Ethics
Basic ethics concepts and distinctions
Personal & Organisational Values
Child labour may sometimes be
justified
If you could save a life by telling a lie, you should do
so
People who kill others for a cell phone should forfeit their
moral
right to
life
Smoking is not goodSlide31
Ethics
Basic ethics concepts and distinctions
Professional
Virtues
Professional
E
thics
A profession is a typical example of a group of people who adhere to a set of ethical
standards.
A
virtue is a trait that
intuitively
enables one to do what is right. Professional virtues are those character traits which members of a profession are expected to have , for example, virtues of an auditor are independence, integrity and objectivitySlide32
Ethics
Importance
Importance of Ethics to the Organisation
Importance of Ethics
Ethics is the cornerstone of corporate
governance
Ethics ensures the sustainability of a
business
Good corporate reputation is built on a solid foundation of ethical
cultureSlide33
Ethics
Importance
Importance of Ethics to the Organisation
Importance of Ethics
A
culture of trust must be built on a corporate framework of ethical principles which are transparency/ openness, competence, integrity and
benevolence
Ethics play a major role in the prevention of fraud. Fraud prevention becomes a shared responsibility among the members of the organisationSlide34
Ethics & Corporate Governance
Fairness
Accountability
Responsibility
Transparency
Ethics – Driver for Corporate Governance
EthicsSlide35
Ethics & Corporate Governance
Inclusive
Approach
Exclusive
Approach
Ethics of Governance
EthicsSlide36
Ethics
Ethics & Corporate Governance
Code of Ethics - Benefits
It enhances economic
performance
It helps build an ethical
culture
Stakeholders know where they stand (the contents of the code set clear parameters of desirable or undesirable behaviour
)Slide37
Ethics
Ethics & Corporate Governance
Code of Ethics - Benefits
It
provides security and predictability for
employees
It can contribute to building the organisation’s
reputation
It
creates customer and stakeholder
loyalty
It builds trust between you and your stakeholders (the “
others)Slide38
Ethics
Ethics & Corporate Governance
Code of Ethics – Six Key Elements
Purpose
Process
F
ormat
Content
Tone
ImplementationSlide39
Ethics
Ethics & Corporate Governance
Ethics as a Corporate Culture
Communication
Recruitment
Selection
Induction & Training
Disciplinary Procedures
Ethical Corporate Culture
Performance ManagementSlide40
Ethics
Ethics & Corporate Governance
What alternatives are available for my consideration?
Are the alternatives legal?
Do the alternatives meet with professional/ organisational ethical standards?
Will I be able to disclose my actions?
Ethical Decision Making ProcessSlide41
Ethics
Ethics & Corporate Governance
What alternatives are available for my consideration?
If Yes Are they legal? If No , Stop!
Do they meet with professional/ organisational ethical standards?
If Yes If No, Stop!
Will I be able to disclose my actions?
If Yes If No, Stop!
Ethical Decision
Ethical Decision Making ToolSlide42
Ethics
Ethics & Corporate Governance
At a function organised by your company in your company premises, shortly before the end of the function, you notice that your manager is busying putting cartons of drinks into the boot of his car. In that split of a second; he glances at you, smiles and says; ‘what the company doesn’t know wouldn’t hurt the company; erase this from your memory’. Then your supervisor says his goodbyes to everyone including you, and he drives out of the premises.
What do you do?
Case Studies
Case
1Slide43
Ethics & Corporate Governance
A supplier overhears a conversation amongst your colleagues that today is your birthday; she quickly goes out to the shopping mall next to your office building to buy you a card and a box of chocolate. She comes back to your office, meets you at the reception, and wishes you ‘a happy birthday’ and gives you the birthday card and the box of chocolate.
What do you do?
Case Studies
Case 2
EthicsSlide44
Ethics & Corporate Governance
A supplier overhears a conversation amongst your colleagues that today is your birthday; she quickly goes out to the shopping mall next to your office building to buy you a card and a box of chocolate. She comes back to your office, meets you at the reception, and wishes you ‘a happy birthday’ and gives you the birthday card and the box of chocolate. The supplier is one of the three bidders your department is considering for a current tender.
What do you do?
Case Studies
Case
3
EthicsSlide45
Ethics & Corporate Governance
One of the accountants in your department has resigned and needs to be replaced. Your manager tells you that he wants to appoint Tyler, an accountant with one of your suppliers. He tells you to nevertheless go through the motions of following procedure by advertising the post internally. You agree that Tyler has the requisite qualification for the post. Once the applications have all been received, you realize that several more competent candidates from your subsidiary companies have applied. Your manager is however adamant that Tyler should be appointed.
What do you do?
Case Studies
Case 4
EthicsSlide46
Ethics & Corporate Governance
You get a call from a recruitment company requesting a reference for a person who is your acquaintance. This person was introduced to you a week ago by a mutual friend. You cannot claim to know her so well. What do you tell the caller?
Case Studies
Case
5
EthicsSlide47
RiskSlide48
Risk
Agenda
5. Compliance
Risk
Introduction
to
Risk
2. The
Risk Management Process
3. King III and
the
Risk
Management
Process
4. Information Technology (IT) RiskSlide49
Risk
Introduction to Risk
Risk and Risk Management
Definition of Risk
T
he
effect of uncertainty on
objectives -
ISO
31000
Definition of Risk Management
The process of Identifying, Analysing and Ranking the importance of the identified
Risks
with a view
to Avoiding
,
Eliminating, Accepting or Reducing
the
Business’s
exposure
to Risk
that could
negatively affect the Start-up
,
the Management
or
the Growth
of a
Business.Slide50
Risk
Definition of Risk and Risk Management
So, Risk Management is something new that we need to learn about
Well ….. No!
It’s something we do every day without even thinking about itSlide51
Risk
Definition of Risk and Risk Management
So let’s look at an everyday example of Risk Management
The Objective
The
Risk
The Controls
To go out of the house but still stay Dry and Warm.
Getting cold or raining wet.
Putting on a long sleeve shirt, long pants, socks & shoes and taking a waterproof jacket with us.Slide52
Risk
Risk Management Process
V
ISION
M
ISSION
BUSINESS PROCESS
OBJECTIVES
States what we want
the
Business to achieve at a
M
acro Level
Which states where we wish the business to go
Define the Business
P
rocesses that will be needed to achieve this Vision and Mission
RISKS
What do we wish to achieve with each Business Process
What can prevent us from achieving the Objectives
The effect of uncertainty on objectivesSlide53
Risk
Business Processes
5 Risk Categories
Social & Ethics Risk
Financial Risk
Operational Risk
Information Technology Risk
Compliance to Laws and Regulations Risk
16 Business Areas
65 Business Processes
(Excluding the Business Specific Processes)
347 Risks
Risk UniverseSlide54
Risk
Universe
(Risk And Control Framework)
Social & Ethics
02- Stakeholder
01 -Governance
Board of Directors
Government
/ Country
Customer
Business Partner
Shareholder
Reputation
Strategic Planning
B.B.B.E.E.
Environmental
impact
Competitor
15 - IT
Operations
04 - Intellectual
Property
14 - IT
Environment
IT Systems
Support
IT Systems
Operations
Information
Technology Strategy
Intangible Assets
Information / Data
Financial
06 - Liquidity
& Credit
Credit Exposure & Collectability
Cash Management
/ Treasury
08 - Capital
Structure & Investments
Equity
Funding / Debt
05 - Market
Exposure
Commodity
Interest Rate
Foreign Exchange
07 - Financial
Reporting
Tax
Financial
Accounting
Regulatory & Compliance
Operations
13 - Commercial
10 - Assets
Sales
Area
17
Production
Process
Service Delivery
Property & Estate
Fixed Assets and Plant
12 - Human
Resources
Recruitment and Retention
Payroll
11 - Legal
& Insurance
Legal Liability
Contracts
Derivatives
Under Performing
Assets
Information
Security
Continuous
Availability
Business Continuity
Planning
Supplier
Social
Responsibility
Code of Ethics
03 - S.H.E
. and
Sustainability
Sustainability
& Risk Reporting
Skills Development
Occupational
Hazards
Equity Employment
Industrial Relations
Performance
Management
Human Capital Management
09 - Accounting
Creditors
Monitoring
Debtors
16 - Compliance
to Laws
And Regulations
Marketing
Stock Control and Logistics
Management Accounting
Insurance
Leave
Fleet Control & Workshops
IT Environment
Modelling
Economy / Social
System
Development
Life Cycle
Purchasing & Procurement
Information
Technology
Pension Fund & Medical Aid
Retirement Funds
Business
Specific
Termination of
ServiceSlide55
Risk
Business Process Selection
If your Business does not sell on credit – you can eliminate the
Debtors Business Process
If your Business only buys for cash – you can eliminate the
Creditors
Business Process
However, not all of these BUSINESS PROCESSES will be applicable to your business – so you will need to select the ones that apply to
you.
The Risk Management ProcessSlide56
Risk
Risk Analysis
Identify
the Business Processes that are applicable to your
Business;
define
the Objectives of each of these Business
Processes;
identify
the Risks that could prevent you from achieving these
Objectives; then
Analyse the Risk and Rank these according
to:
The Likelihood that
the risk
would occur, and
The Impact that
this
would have if
it does occur
The process of
a
nalysing
and
ranking
the importance of the identified Risks Slide57
Risk
WikipediaSlide58
Risk
Risk Matrix
12
16
20
24
25
7
13
18
22
23
4
11
15
19
21
2
6
10
14
17
1
3
5
8
9
Impact
5
4
3
2
1
1
2
3 4
5
Likelihood
High Risk
Medium Risk
Low RiskSlide59
Risk
Risk Impact
Level
Non-Financial Impact Description
Quantitative
Reputation
Systems Availability
5. Severe
The impact is beyond the Stakeholders’ ability to manage or resource and as such may threaten the survival of, for example, a particular project or the company itself.
> R10 M
Suspension of business.
Systems unavailable for more than 2 days
4. Major
The impact would threaten the ability to achieve the Product and/or Organisational objectives in the medium term.
R2 M – R10 M
Adverse media comment that has a long term impact on Company’s image, significant brand damage.
Systems unavailable for more than 5 hours less than 2 days
3. Significant
The impact may threaten the ability to achieve the Product and/or Organisational objectives in the short term.
R500K – R2 M
Adverse media comment or regulatory action or fine that has a short term reputational impact, requiring corrective action and dedicated additional resources to rectify and recover.
Systems unavailable for more than 30 minutes but less than 5 hours
Minor
The impact can be absorbed within the day-to-day business running costs.
R50K – R500K
Adverse impact on some external customers, minor impact on objectives.
Systems unavailable for more than 5 minutes but less than 30 minutes
Insignificant
The impact has little or no effect on the day to day running costs of the business
< R50K
Breakdown in control but process performance unaffected.
Systems unavailable for less than 5 minutesSlide60
Risk
Risk Likelihood
Level
Description
Probability of Occurrence in the next 12 Months
5. Almost Certain
Expected to occur in most circumstances or occurs regularly
>70%
4. Likely
Occurrence is noticeable, starting to be of nuisance value
40% - 70%
3. Possible
Occurs occasionally
20%-40%
2. Unlikely
Occurs infrequently
5% - 20%
1. Rare
Only occurs in exceptional circumstances
<5%Slide61
Risk
Risk Mitigation
AVOIDING RISK
To avoid risk, a business would need to transfer the risk to another party e.g. Insuring against the Risk
ELIMINATING RISK
To eliminate risk, a business would need to exit from the business that is causing the risk – e.g. Manufacturing Risk - stop Manufacturing and buy in the item required
ACCEPT THE RISK
A business may decide to accept the risk where the impact of the risk is less than the cost of controlling the Risk
REDUCE THE BUSINESS’S EXPOSURE TO RISK
Introduce Control
Avoiding, Eliminating, Accepting or Reducing the Business’s exposure to Risk Slide62
Risk
Introduction of Control
Inherent Risk
: (Pre-Control)
A subjective measure of the threat of a Risk based on its Inherent Likelihood and Inherent Impact measures, without considering the effectiveness of controls,
even
if they exist. This produces a score that indicates the worst-case exposure in the
event
that there are no controls in place, or the controls fail to take effect during a risk event.
Residual Risk
:
(
Post Control
) A subjective measure of the threat of a Risk based on its Residual Likelihood and Residual Impact
measures
, giving the remaining level of risk after risk treatment
measures have been taken. Residual Risk can only be claimed if the controls are in place and work to reduce the risks and/or consequences to the level that is expected.
Control
:
Controls are the actions taken to prevent an event from occurring or reduces the impact of the risk
event.
The Introduction of Control leads to two concepts of RiskSlide63
Risk
Risk Assessment
The first task of the Risk Manager in performing a risk assessment would be to determine who the effective players are in each business process to be assessed.
The second step would be to determine the most effective mechanism to conduct the assessment. Two examples of these are:
Risk Management Workshops
– All participants in one room to discuss and determine Risk Ratings.
Risk Management Questionnaires
– completed by all participants,
collated and
summarised to form the final assessment – discussion only on contentious points where risk rating vary greatly.
Automated tools are available to assist with either of these assessment mechanismsSlide64
Risk
Risk and Control FrameworkSlide65
Risk
King III and the Risk Management Process
Chapter 7
INTERNAL AUDIT
7.1 Effective Risk Based
Internal Audit
7.2 Implement a Risk
Based
Audit Plan
7.3 Assessment of Systems of Internal Control and Risk
7.4 Audit Committee to Oversee Internal Audit
7.5 Internal Audit Strategically Positioned
Chapter 4
RISK MANAGEMENT
4.1 Board is Responsible
for
Risk
4.2 Set Levels of Tolerance
4.4 Management must Design & Implement
Risk Plan
4.5 Perform Risk Assessment
4.6 Implement a Framework
4.3 Assisted by Risk Committee
4.7 Respond Appropriately
4.8 Monitor Risk Continuously
4.9 Provided Assurance on Effectiveness of the
R
isk
Process
4.10 Adequate Risk Disclosure to Stakeholders
King III requires the segregation of Internal Audit and Risk Management FunctionsSlide66
Risk
The Board’s Responsibilities
1) The
Board should be responsible for the Governance of Risk
2) The
Board should determine the
levels
of Risk Tolerance
3) The Risk Committee or Audit Committee should assist the Board in
carrying
out its Risk Responsibilities.
King III defines 10
Principles
for Risk Management in Chapter 4 – The Governance of
RiskSlide67
Risk
The Board’s Responsibilities - Contd
The
Board should delegate to
management
the responsibility to Design, Implement and Monitor the Risk Management Plan
.
The Board should ensure that Risk Assessments are performed on a continual basis.
The Board should ensure that Frameworks and Methodologies are implemented to increase the probability of anticipating unpredictable risks.
The Board
should
ensure that
management
c
onsiders
and
implements
appropriate Risk Responses
.Slide68
Risk
The Board’s Responsibilities - Contd
Thus
Management must:
Design, Implement and Monitor the Risk Management Plan.
Ensure that Risk Assessments are performed on a continual basis.
Implement Frameworks and Methodologies to increase the probability of anticipating unpredictable risks.
Consider and Implement appropriate Risk Responses.
Monitor Risk on a continual basis
.Slide69
Risk
The Board’s Responsibilities - Contd
To facilitate
the Board’s responsibility
of
Oversight, Management must provide feedback to the Board, in the form of:
Risk Assessments,
Risk Registers,
Risk Mitigation Actions Plans,
Monitoring & Corrective Action Reports.
The Board should ensure continual risk monitoring by ManagementSlide70
Risk
The Board’s Responsibilities - Contd
The Role of Internal Audit
King III
requires companies to
establish an
internal audit function
which provides
assurance over the
company’s governance
, risk management
and internal
controls. Internal audit will
be required
to provide a
written assessment
of the system of
internal controls
and risk management to
the board
, as well as a
written assessment of
the internal financial controls to
the audit
committee.
The
Board
should
receive
assurance
regarding
the effectiveness of the Risk Management Process.Slide71
Risk
The Board’s Responsibilities - Contd
The Board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible
risk
d
isclosure
to
stakeholders.
Principle
10 covers the Relationship with Stakeholders and the Integrated Reporting to
Stakeholders.
The
King III report details these two topics in Chapter 8 – Governing Stakeholder Relationships, and in Chapter 9 – Integrated Reporting and Disclosure. Slide72
Risk
Information Technology Risk
King III defines 7 Principles for IT Governance in Chapter 5 –
The Governance of Information Technology
The Governance of IT
The Impact of Information Technology of Risk
IT as an Integral part of the Company’s Risk Management ProcessSlide73
Risk
The Governance of IT
Principle 1
- The
Board should be responsible for Information Technology (IT)
Governance.
Principle 2
- IT
should be aligned with the performance and sustainability objectives of the
company.
Principle
3
- The Board should delegate to management the responsibility for the implementation of an IT Governance Framework
.
Principle
4
- The Board should monitor and evaluate significant IT Investments and Expenditure.Slide74
Risk
IT as an Integral part of the Company’s Risk Management
Process
Principle 5
- IT
should form an Integral part of the Company’s Risk
Management.
IT
Risk should form part of the Company’s Risk Management Activities and Considerations
.
IT Management need to ensure that they can demonstrate adequate business resilience.
IT Legal Risk arises from the possession, ownership and operational use of Technology.
Companies must comply with applicable IT laws, rules, codes and standards.
The Board must consider how IT could be used to aid the Company in the Management of Risk.Slide75
Risk
IT Risk
Principle 6 -
The Board should ensure that Information Assets are managed effectively.
The protection of Information
(Information Security)
The management of Information
(Information Management)
; and
The protection of personal information processed by companies
(Information Privacy)
Principle
7
-
A Risk Committee and Audit Committee should assist the Board in carrying out its IT responsibilities.Slide76
Compliance RiskSlide77
Risk
Compliance Risk
How Compliance impacts on Ethics, Governance, Risk and Fraud
King III defines
4 Principles
for
Compliance in
Chapter
6
–
Compliance with Laws, Rules, Codes and Standards.Slide78
Risk
Board Responsibility
The Board should ensure that the Company complies with all applicable laws and considers adherence to non-binding rules, codes and standards.
The Board and each individual Director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business.
Compliance Risk should form an integral part of the Company’s Risk Management Process.
The Board should delegate to Management the implementation of an effective Compliance Framework and Process.Slide79
FraudSlide80
Fraud
Agenda
What is Fraud
2. Faces of Fraud or Corruption
3.
Reducing Fraud Risk
4.
Detection of Fraud and Awareness ProgrammeSlide81
Fraud
Fraud Risk
“Fraud and deceit
abound now more than ever before”.
SIR EDWARD CODE (1602)Slide82
Fraud
What is Fraud
Definition of Fraud
It
is impossible to provide a comprehensive definition of fraud. However, all definitions have one thing in common - an element of
dishonesty or deceit
.
Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g., in Science, to gain prestige rather than immediate monetary gain
.
There is no single accepted definition of fraud
.Slide83
Fraud
What is Fraud
Elements of Fraud
Fraud is a crime, and also a civil law
violation.
Knowingly making a false
representation;
Something intended to deceive; deliberate trickery intended to gain an advantage;
An intentional perversion of truth; deceitful practice or device resorted to with intent to deprive another of property or other right;
The intentional and successful employment of cunning, deception, collusion; or artifice used to cheat or deceive another person whereby that person acts upon it to the loss of his property and to his legal injury
;Slide84
Fraud
What is Fraud
Elements of Fraud (contd)
Unfair advantage by unlawful or unfair means;
Intentional deception resulting in injury to another person
;
The
act of leading a person to believe something which you know to be false in a situation where you know the person will rely on that thing to their detriment;
A deception, intended to wrongfully obtain money or property from the reliance of another on the deceptive statements or acts, believing them to be true;
The intentional perversion of the truth in order to mislead someone into parting with something of value;Slide85
Fraud
What is Fraud
Elements of Fraud (contd)
For a fraud to occur there are 3 elements required, these are:
Need
– The first element is a need, whether actual (Spouse is retrenched) or perceived (just have to have that new Boat)
Justification
– Entitlement, this is owed to me because……
Opportunity
– the perpetrator has to have access to the Cash, Asset, persons to be used or whatever is to be used / removedSlide86
Fraud
Definition of Fraud
Fraud is
the intentional
deception to cause a person to give up property or some lawful right or to damage another individual using deceit, trickery or
cheating.
For purposes of this presentation, we will use the following definition.Slide87
Fraud
Definition of Corruption
Corruption is the abuse of entrusted power for private gain
It hurts everyone who depends on the integrity of people in a position of authoritySlide88
Fraud
Prevention
and Combating of Corrupt Activities Act,
Act
No. 12 of 2004
(
CHAPTER 2 - OFFENCES IN RESPECT OF CORRUPT ACTIVITIES)
(Part I: General offence of corruption)
3. Any
person who directly or indirectly -
accepts
or agrees or offers to accept any gratification from any other person,
whether
for the benefit of himself or herself or for the benefit of another person: or
gives
or agrees or offers to give to any other person any gratification, whether
for
the
benefit of that other person or for the benefit of another person,
in order to act personally or by influencing another person so to act in a manner -
that
amounts to
the-
(
aa)
illegal, dishonest, unauthorised, incomplete, or biased:
or
(bb
)
misuse or selling of information or material acquired in the course of
the
exercise
, carrying out or performance of any powers, duties or functions
arising
out of a constitutional, statutory, contractual or any other legal
obligation
:
(
ii)
that
amounts to -
(
aa)
the
abuse of a position of authority:
(
bb)
a
breach of trust; or
(
cc)
the
violation of a legal duty or a set of rules:
(
iii) designed
to achieve an unjustified result: or
that
amounts to any other unauthorised or improper inducement to do or not to do
anything
.
is guilty of the offence of
corruptionSlide89
Fraud
Key Drivers in the Current Economic Climate
One of the Key Drivers for Fraud and Corruption is :
PEER INFLUENCE.
If the
Politicians
and
Government
not only in South Africa, but around the world are open to Corruption, then why not me?
What's Good for the Goose is Good for the Gander Slide90
Fraud
Key Drivers in the Current Economic Climate (Contd)
Transparency International
--- The global coalition against Corruption ---
The
Corruption Perceptions Index
ranks
countries / territories
based on how corrupt a country’s public sector is perceived to be.
It
is a composite index, drawing on corruption-related data from
experts
and business surveys carried out by a variety of independent and reputable institutions.
Scores
Scores range from 0 (highly corrupt) to 10 (very clean).Slide91
Fraud
Corruption Perception Index (2011)
SOUTH AFRICA
Population (2010):
50 million
* GDP (2010):
$363.7 billion
* Infant mortality rate
(per 1,000 live births - 2010):
40.7
* Life expectancy (2009)
51.61 years
* Literacy rate (2007)
88.7%
Corruption Perception Index (2011)
Ranking
64
/ 183
Score
4.1
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide92
Fraud
Corruption Perception Index (2011) - contd
UNITED
KINGDOM
* Population (2010):
62.2 million
* GDP (2010):
$2.25 trillion
* Infant mortality rate
(per 1,000 live births - 2010):
4.6
* Life expectancy (2009)
80.05
years
Corruption Perception Index (2011)
Ranking
16
/ 183
Score
7.8
/ 10
0 (Highly Corrupt) to 10 (Very Clean)
Stats from World Bank
One of the Three GiantsSlide93
Fraud
Corruption Perception Index (2011) - contd
UNITED STATES OF AMERICA
* Population (2010):
309.1 million
* GDP (2010):
$14.59 trillion
* Infant mortality rate
(per 1,000 live births - 2010):
6.5
* Life expectancy (2009)
78.09 years
Corruption Perception Index (2011)
Ranking
24
/ 183
Score
7.1
/ 10
0 (Highly Corrupt) to 10 (Very Clean)
One of the Three GiantsSlide94
Fraud
Corruption Perception Index (2011) - contd
AUSTRALIA
* Population (2010):
22.3 million
* GDP (2009):
$924.84 billion
* Infant mortality rate
(per 1,000 live births - 2010):
4.1
* Life expectancy (2009)
81.54 years
Corruption Perception Index (2011)
Ranking
8
/ 183
Score
8.8
/ 10
0 (Highly Corrupt) to 10 (Very Clean)
One of the Three GiantsSlide95
Fraud
Corruption Perception Index (2011) - Contd
BRAZIL
One of Our
T
rading Partners
* Population (2010):
194.9 million
* GDP (2010):
$2.09 trillion
* Infant mortality rate (per 1,000 live births - 2010):
17.3
* Life expectancy (2009)
72.76 years
* Literacy rate (2008)
90%
Corruption Perception Index (2011)
Ranking
73
/ 183
Score
3.8
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide96
Fraud
Corruption Perception Index (2011) - Contd
NIGERIA
One of Our
T
rading Partners
* Population (2010):
158.4 million
* GDP (2010):
$193.67 billion
* Infant mortality rate
(per 1,000 live births - 2010):
88.4
* Life expectancy (2009)
50.95 years
* Literacy rate (2009)
60.8%
Corruption Perception Index (2011)
Ranking
143
/ 183
Score
2.4
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide97
Fraud
Corruption Perception Index (2011) - Contd
CHINA
One of Our
T
rading Partners
* Population (2010):
1.3 billion
* GDP (2010):
$5.93 trillion
* Infant mortality rate
(per 1,000 live births - 2010):
15.8
* Life expectancy (2009)
73.06 years
* Literacy rate (2009)
94%
Corruption Perception Index (2011)
Ranking
75
/ 183
Score
3.6
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide98
Fraud
Corruption Perception Index (2011) - Contd
NAMIBIA
Our Closest Neighbours
* Population (2010):
2.3 million
* GDP (2010):
$12.17 billion
* Infant mortality rate (per 1,000 live births - 2010):
29.3
* Life expectancy (2009)
61.62 years
* Literacy rate (2009)
88.5%
Corruption Perception Index (2011)
Ranking
57
/ 183
Score
4.4
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide99
Fraud
Corruption Perception Index (2011) - Contd
BOTSWANA
Our Closest Neighbours
* Population (2010):
2 million
* GDP (2010):
$14.86 billion
* Infant mortality rate (per 1,000 live births - 2010):
36.1
* Life expectancy (2009)
53.01 years
* Literacy rate (2009)
84.1%
Corruption Perception Index (2011)
Ranking
32
/ 183
Score
6.1
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide100
Fraud
Corruption Perception Index (2011) - Contd
ZIMBABWE
Our Closest Neighbours
*
Population (2010):
12.6 million
* GDP (2010):
$7.47 billion
* Infant mortality rate (per 1,000 live births - 2010):
50.9
* Life expectancy (2009)
48.45 years
* Literacy rate (2009)
91.9%
Corruption Perception Index (2011)
Ranking
154
/ 183
Score
2.2
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide101
Fraud
Corruption Perception Index (2011) - Contd
MOZAMBIQUE
Our Closest Neighbours
* Population (2010):
23.4 million
* GDP (2010):
$9.59 billion
* Infant mortality rate (per 1,000 live births - 2010):
92.2
* Life expectancy (2009)
49.28 years
* Literacy rate (2009)
55.1%
Corruption Perception Index (2011)
Ranking
120
/ 183
Score
2.7
/ 10
0 (Highly Corrupt) to 10 (Very Clean)Slide102
Fraud
Faces of Fraud and Corruption
From amongst the many
F
aces of Fraud, we have chosen to focus on the following four:
Asset
Misappropriation
Financial
Misstatement
Computer
Crime
Identity
TheftSlide103
Fraud
Tips and Techniques
Techniques to
monitor
or
detect
Asset Misappropriation
:
Customer returns, credits or write-offs
Unallocated payment / Suspense accounts
Inventory scrap, spoilage, obsolescence
Inventory shrinkage
Fixed asset write-offsSlide104
Fraud
Tips and Techniques
Techniques to Prevent Asset Misappropriation
:
Employee monitoring via CCTV or
Management-by-walk-about
Segregation of duties
Examination and countersigning of documentation
Examination of cancelled cheques
Independent verification
Surprise audits
Job rotation
Physical securitySlide105
Fraud
Reducing Fraud Risk
Understanding your Risk of Fraud
Hardening your Controls against FraudSlide106
Fraud
Detection of Fraud and Awareness Programme
E
mbedding
Fraud Awareness in the Workplace
Whistle Blowing – Methods and ProtectionSlide107
Questions
?Slide108
Thank You
For more information
please contact the
Fasset Call Centre
on 086 101 0001
or visit
www.fasset.org.za