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Presentation on fraud prevention, detection & control

Presentaion on Fraud Detection, Prevention and Control.

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Presentation on fraud prevention, detection & control

  1. 1. Fraud Prevention, Detection & Control.
  2. 2. What is Fraud? <ul><li>Fraud is any intentional act or omission designed to deceive others , resulting in the victim suffering a loss and/or the perpetrator achieving a gain , usually, monetary. </li></ul><ul><li>Some Dictionary Definitions…… </li></ul><ul><li>“ A deception deliberately practiced in order to secure unfair or unlawful gain” </li></ul><ul><li>or </li></ul><ul><li>“ Deliberate deception or cheating intended to gain an illegal advantage” </li></ul>
  3. 3. Three Common Types of Fraud <ul><li>Corruption </li></ul><ul><li>Asset Misappropriation </li></ul><ul><li>Financial Statement Fraud </li></ul>
  4. 4. <ul><li>Corruption refers to schemes in which fraudsters use their influence in business transactions in a way that violates their duty to their employers in order to obtain a benefit for themselves or someone else. </li></ul><ul><li>For example, employees through collusion with other third parties might receive or offer bribes, extort funds, or engage in conflicts of interest, payroll fraud. </li></ul>Corruption
  5. 5. Asset Misappropriation <ul><li>Asset misappropriation schemes are frauds in which the perpetrator steals or misuses an organization’s resources. </li></ul><ul><li>An examples of asset misappropriation include a staff using a company fuel and vehicle to a private funeral. </li></ul>
  6. 6. Financial Statement Fraud <ul><li>Financial statement fraud, involves the intentional misstatement or omission of material information from the organization’s financial reports; these are the cases of “cooking the books or figures”. </li></ul><ul><li>Financial statement fraud cases often involve the reporting of fictitious revenues or the concealment of expenses or liabilities in order to make an organization appear more profitable than it really is. </li></ul>
  7. 7. Who commits fraud?
  8. 8. Who Commits Fraud? <ul><li>Management </li></ul><ul><li>Employees </li></ul><ul><li>Organised Employee syndicate </li></ul><ul><li>Clients </li></ul><ul><li>Suppliers . </li></ul>
  9. 9. Typical perpetrators. <ul><li>Gender – larger and higher volume of frauds committed by men </li></ul><ul><li>Age – typically middle aged </li></ul><ul><li>Education – as the level of education rises so do the losses caused </li></ul><ul><li>Criminal history – majority of perpetrators are first time offenders </li></ul><ul><li>Time with the company – the longer employed the bigger the loss </li></ul><ul><li>Department - Most likely to work in accounts, sales, customer service, purchasing, engineering and internal auditors. </li></ul>
  10. 10. The Fraud Triangle (Basic factor influencing the occurrence of fraud) Pressure Opportunity Rationalization (Attitude) (due to weak and override of controls) Medical bills, expensive tastes, addiction problems to Commit fraud Every one does it. Simply borrow the money
  11. 11. <ul><li>PRESSURE : This is what causes a person to commit fraud . This includes medical bills, expensive tastes, addiction problems, significant financial needs etc. Often this need/problem is non-discloseable in the eyes of the fraudster. That is, the person believes, for whatever reason, that their problem must be solved in secret. </li></ul><ul><li>RATIONALIZATION : It occurs when the individual develops a justification for their fraudulent activities. The rationalization varies by case and individual. Some examples include: </li></ul><ul><li>“ I really need this money and I’ll pay it back when I get my salary” </li></ul><ul><li>“ Other people are doing it” </li></ul><ul><li>“ I didn’t get a raise. The Company owes me.” </li></ul><ul><li>OPPORTUNITY : Opportunity is the ability to commit fraud. Because fraudsters don’t wish to be caught, they must also believe that their activities will not be detected. Opportunity is created by weak internal controls, poor management oversight, and through abuse of power. </li></ul>
  12. 12. BREAKING THE FRAUD TRIANGLE <ul><li>Breaking the Fraud Triangle is the key to fraud deterrence. Breaking the Fraud Triangle entails removing one of the elements in the fraud triangle in order to reduce the likelihood of fraudulent activities. Of the three elements, removal of opportunity is most directly affected by the system of internal controls and generally provides the most actionable route to deterrence of fraud. </li></ul>
  13. 13. Detection Fraud indicators <ul><li>Receipt of tip-offs </li></ul><ul><li>Refusal to take vacation or sick leave </li></ul><ul><li>Significant personal debt and credit problems </li></ul><ul><li>Behavioral changes - These may be an indication of drugs, alcohol, gambling, or just fear of losing the job </li></ul><ul><li>High employee turnover, especially in those areas which are more vulnerable to fraud </li></ul><ul><li>Lack of segregation of duties in a vulnerable area </li></ul><ul><li>Employee lifestyle changes: expensive cars, jewelry, homes, clothes </li></ul><ul><li>Management decisions are dominated by an individual or small group. </li></ul><ul><li>Managers display significant disrespect for regulatory bodies </li></ul><ul><li>Policies and procedures are not documented or enforced. </li></ul>
  14. 14. Prevention – Is Better Than a Cure <ul><li>Screen applicants thoroughly before hiring them: Hiring the right employees is the best way to stop fraud before it happens. It’s a good idea to perform background checks on potential employees . </li></ul><ul><li>Implement internal controls to reduce fraud risk: Many businesses depend on one person to process payments and invoices, make bank deposits, handle petty cash, and reconcile bank statements. This is asking for trouble. Your business should implement a system that spreads and, if possible, rotates the financial duties of the business among two or more employees. Insist that all employees, especially those with financial responsibilities, take a mandatory vacation of at least one week of consecutive days. </li></ul><ul><li>Be a role model and lead by example: An effective way to prevent fraud in your business is to create a positive work culture. It is important that the business owner and senior management serve as role models of honesty and integrity. Set clear standards example zero tolerance policy for fraud. </li></ul><ul><li>Whistle blower: Every company should establish a system that makes it easy for employees, vendors and customers to anonymously report suspected fraud activities. </li></ul><ul><li>Work with Professionals: Consider hiring a professional to conduct both regularly scheduled and surprise audits. Audits can serve as a deterrent because when employees are aware that there will be checks of their areas, they are more likely to stay honest . </li></ul>
  15. 15. Antifraud Programs and Controls.(CRIME) <ul><li>Identify fraud risk factors, fraud risks and fraud schemes </li></ul><ul><li>Link or map identified fraud risks to control activities </li></ul><ul><li>Effective communication of antifraud programs and controls </li></ul><ul><li>Monitoring effectiveness of antifraud programs and controls </li></ul><ul><li>Tone at the top </li></ul><ul><li>Code of Conduct/Ethics </li></ul><ul><li>Whistleblower Hotline </li></ul>CRIME Creating a Control Environment Performing Fraud Risk Assessments Designing and Implementing Antifraud Control Activities Sharing Information and Communication Monitoring Activities
  16. 16. Conclusion <ul><li>In today’s economic climate, it is more important than ever to take every precaution possible to reduce exposure to financial loss, reputational damage and service interruption which are the common consequences of fraud. </li></ul><ul><li>Thank You!!!! </li></ul><ul><li>By: Dominic Sroda Korkoryi. </li></ul><ul><li>Expresso Telecom Ghana. </li></ul>