Why Fraud?

Report
FRAUD AWARENESS
Lindiwe Ndlela
Chief Financial Officer
OBJECTIVES
• To encourage a culture within merSETA where all
employees continuously behave ethically in their
dealings with members of the public and other
stakeholders; and
• To encourage all employees and other stakeholders
to strive towards the prevention and detection of
fraud impacting, or having the potential to impact on
the merSETA.
TODAY’S TOPICS
 Why Fraud?
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What is Fraud?
Examples of Fraud
Who commits fraud
The fraud triangle
Motivation/Pressures
Opportunity and control issues
Rationalisation
 Fighting Fraud
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Fraud preventing
Early detection
Fraud response plan
Whistle-blowing guidelines
WHAT IS FRAUD?
“Fraud is the unlawful and intentional making of a
misrepresentation with the intent to deceive and to
defraud by causing actual and potential prejudice”
“Wrongful or criminal deception intended to result in
financial or personal gain”
“Unfair advantage by unlawful or unfair means”
EXAMPLES OF FRAUD & CORRUPTION
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Procurement Fraud;
Deliberate non-compliance to DOA limits;
Abuse of leave;
Inflated and falsified subsistence and travelling
claims;
Disclosing confidential or proprietary information to
outside parties;
Creditors fraud;
Suppliers submitting invalid invoices or invoicing for
work not done;
Failure to properly support the use of funds;
EXAMPLES OF FRAUD & CORRUPTION
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Inflated quotations or invoices;
Theft of assets, funds or supplies;
Personal use of resources;
Acceptance of “kick-backs”;
Pursuing private business interests without
permission;
 Transgression of prevailing legislation would also
amount to corruption.
 False or misleading information in application or
subsequent narrative progress or financial
status report.
WHO COMMITS FRAUD?

Who is a typical fraudster?
 Perceived as someone greedy and deceitful by nature.
 However, it’s someone driven by influencing factors –
financial worries, job dissatisfaction, aggressive targets
or simply an opportunity to commit fraud.
KPMG GLOBAL SURVEY 2011
Age of Fraudster
10%
Older than 55 years
13%
35%
46 to 55 years old
31%
41%
39%
36 to 45 years old
12%
14%
26 to 35 years old
18 to 25 years old
2%
3%
2011 Survey
2007 Survey
KPMG GLOBAL SURVEY 2011
Where the fraudster works
Back office
1%
Board level
5%
2%
7%
CEO
11%
26%
32%
Finance
Legal
0%
2%
25%
Operations/Sales
8%
9%
Procurement
Research & Development
36%
1%
3%
32%
2011 Survey
2007 Survey
KPMG GLOBAL SURVEY 2011
Time at the organization
More than 10
years
33%
22%
27%
29%
6 to 10 years
29%
3 to 5 years
36%
10%
9%
1 to 2 years
Less than 1
year
2011 Survey
2007 Survey
1%
4%
KPMG GLOBAL SURVEY 2011
Rank within the organization
Board Members
18%
11%
35%
Senior Management
49%
29%
26%
Management
Staff
18%
14%
2011 Survey
2007 Survey
FRAUD TRIANGLE
MOTIVATIONS FOR FRAUD
Do I have a reason to steal?
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Biggest driver of fraud – personal financial gain
Greed & work pressures
External pressures
OPPORTUNITY
Can I get away with it?
 Exploitation of weak internal controls
 Collusion to circumvent good controls
 Reckless dishonesty regardless of controls
RATIONALIZATION
Can I live with myself?
 The ability to persuade oneself that something
you know is wrong is really OK
 All internal restraints has been removed
 Entitlement mentality
 “Everyone is doing it”
 “The company owes me”
 “I will replace the money next month”
 “No one gets hurt”
PREVENTION
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Adopt a zero-tolerance culture;
Embrace an ethical workplace;
Identifying potential for fraud;
Reporting alleged fraud incidents;
Well designed & tested systems of
internal controls;
• Adherence to internal controls;
• Declarations; and
• Raise awareness
EARLY DETECTION/RED FLAGS
Behavioural red flags:
• Rarely takes holidays;
• Refuses or does not seek promotion and gives no
reasonable explanation;
• Does not or will not produce records/information
voluntarily or on request;
• Tends to shift blame and responsibility for errors;
• Unreliable and prone to mistakes and poor
performance;
• Surrounded by “favourites’ or people who don’t
challenge them;
EARLY DETECTION/RED FLAGS
Behavioural red flags:
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Bullies or intimidates colleagues;
Vendors/suppliers will only deal with this individual;
Lifestyle seems excessive for income;
Volatile and melodramatic, arrogant, confrontational,
threatening or aggressive when challenged;
• Is suspected to have over-extended personal
finances;
• Cuts corners and/or bends rules;
EARLY DETECTION/RED FLAGS
Behavioural red flags:
• Seems unhappy at work and is poorly motivated;
• Accepts hospitality that is excessive or contrary to
corporate rules;
• Seems stressed and under pressure;
• Self-interested and concerned with own agenda; and
• Micromanages some employees and keeps others at
arm’s length.
RESPONSE PLAN
• Reporting Channels
– Fraud Hotline (0800 36 36 36 )
– Direct Manager
– Chairperson of the Audit & Risk Committee
• Response Steps
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Evaluate allegation in terms of accuracy & completeness;
Secure all assets at risk;
Suspend the suspected employee;
Data back up & secure all records
Initiate an investigation process
RESPONSE PLAN
– Initiate disciplinary action where appropriate;
– Involve SAPS (or other Governmental agencies where
applicable) and other specialist service providers where
necessary.
– Audit internal procedures and improve processes where
applicable;
– Capture details into fraud register; and
– Report the outcome of the investigation to deter potential
perpetrators.
WHISTLE BLOWING
 Assurances to whistle blowers
 Protected in terms of the Protected Disclosure Act
 No victimisation or suffer any occupational detriment
 Allegations must not be malicious, must be in good faith and
must have reasonable grounds for believing the allegations
are substantially true
 Protection of identity
WHISTLE BLOWING
 Useful information when reporting:
 Background & history of concern (provide dates)
 Reason why concerned about the situation
 Extent to which you have personally witnessed or
experienced the problem (documented evidence where
possible)
 Anonymous reporting channel
 Vuvuzela Hotline at 0800 36 36 36 or
 [email protected]
THANK YOU
Questions?
Vuvuzela Hotline at 0800 36 36 36
[email protected]

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