by:Peter GossDirector – Forensic Services

*connectedthinking

Corruption and Fraud Trends:Including 10-steps to preventing fraud*

Slide 2PricewaterhouseCoopers17 February 2006

Key elements

Control Environment

Fraud Risk Assessment

Control activities

Information and Communication

Investigation

Monitoring

The trend?

Slide 4PricewaterhouseCoopers17 February 2006

Companies reporting fraud worldwide

71

39

38

41

37

34

37

83

39

41

52

47

42

45

0 20 40 60 80 100

South Africa

Asia-Pacific

South & Central America

North America

Central & Eastern Europe

Western Europe

Global

% companies

20052003

Slide 5PricewaterhouseCoopers17 February 2006

Key elements

1. Control Environment

• Code of Ethics and Business Conduct- Conflicts of interest- Acceptance and offering of business courtesies- Private work

Slide 6PricewaterhouseCoopers17 February 2006

Key elements

1. Control Environment

• Anti-Fraud Policy• Whistle Blowing Policy• Fraud Response Plan

Slide 7PricewaterhouseCoopers17 February 2006

Key elements

2. Control Environment

• Systems, Policies and Procedures (HR and Finance)• Physical and information security measures

Slide 8PricewaterhouseCoopers17 February 2006

Focus on employees

3. Control Environment• Vetting and security clearance screening• Induction• Compulsory probationary periods• Performance management and appraisal• Screening prior to promotion• Reviews relating to employees in sensitive posts, including

security grading of sensitive posts• Disciplinary Code and Procedures• Exit procedures for employees leaving service

Fraudsters profile?

Slide 10PricewaterhouseCoopers17 February 2006

Fraudster profiles

Relationship to the entity?

Slide 12PricewaterhouseCoopers17 February 2006

Fraudster’s relation to the company

Slide 13PricewaterhouseCoopers17 February 2006

Focus on Employees

4. Control Environment

• Management accountability

• Assessment of risks identified in manager's area

• Prompt and in-depth follow up on audit findings

• Assessment of disciplinary actions

• Corrective action against managers

Slide 14PricewaterhouseCoopers17 February 2006

Key elements

5. Fraud Risk Assessment

• Enterprise wide• Significant BU Level• Significant Process/Account

level

Types of fraud?

Slide 16PricewaterhouseCoopers17 February 2006

Incidents of fraud - reported by companies that experienced fraud

Slide 17PricewaterhouseCoopers17 February 2006

The public sector - trends

• Procurement and tender fraud• Conflicts of interest• Contracts management – allowing scope creep• Computer-aided fraud – in accounts payable and

fraudulent access to financial systems• Creditors fraud – over-invoicing, fictitious invoicing• Asset misappropriation• Various types of petty fraud – personnel claims, and

resource abuse, etc

Slide 18PricewaterhouseCoopers17 February 2006

Key elements

6. Control activities

• Anti-fraud controls• Basic internal controls• Audits

Slide 19PricewaterhouseCoopers17 February 2006

Key elements

7. Information and communication

• Training and education

• Code of ethics and business conduct

• Anti-Fraud Strategy, Policy and Response Plan

• Fraud risks and red flags – general and process specific

• Allegations investigated

• Publication of sanctions

Impact on organisation?

Slide 21PricewaterhouseCoopers17 February 2006

Types of collateral damage experienced

54

42

43

56

54

33

0 10 20 30 40 50 60

Staff morale

Business relations

Brand reputation

Figure total more than 100% as respondents were able to provide multiple answers

South AfricaGlobal

Slide 22PricewaterhouseCoopers17 February 2006

Key elements

8. Investigation

• Investigation methodology

• Data mining

• Fraud detection reviews (high risk areas)

• Vetting procedures for suppliers and trading partners

Detection?

Slide 24PricewaterhouseCoopers17 February 2006

Means by which fraud was originally detected

Slide 25PricewaterhouseCoopers17 February 2006

Key elements

9. Investigation

• Comprehensive resolution

- Disciplinary Action

- Initiating recoveries

- Criminal prosecution

- Alternative dispute resolution – e.g. prohibition/restrictions

- Improving controls

Slide 26PricewaterhouseCoopers17 February 2006

Key elements

10. Monitoring and implementation

• Involvement of all relevant stakeholders in development and implementation

• Consolidation of fraud statistics

• Ongoing risk identification and remediation

• Documented strategy (with schedule of allocated tasks)

• Ongoing maintenance and review

Re-action?

Slide 28PricewaterhouseCoopers17 February 2006

Corporate reaction on detecting fraud

Slide 29PricewaterhouseCoopers17 February 2006

Companies that have taken out insurance to cover for economic losses

South Africa: % respondents who mentioned serious offences

19

81

NoYes

Global: % respondents who mentioned serious offences

5149 NoYes

Slide 30PricewaterhouseCoopers17 February 2006

How much of the amount lost has been recovered via insurance

9

7

84

22

22

56

0 20 40 60 80 100

61 up to 100%

Up to 60%

None

% respondents to the serious offences

South AfricaGlobal

Recovery of losses?

Slide 32PricewaterhouseCoopers17 February 2006

How much of the amount lost has been recovered from perpetrator

12

16

72

13

22

66

0 20 40 60 80

61 up to 100%

Up to 60%

None

% respondents to the serious offences

South AfricaGlobal

Sentencing?

Slide 34PricewaterhouseCoopers17 February 2006

Was the perpetrator sentenced

South Africa Global

An idea on implementing your prevention programme?

Slide 36PricewaterhouseCoopers17 February 2006

Approach to implementation

Implementation Including: Creating

awareness, training and communication

Enforcement

Focus on other stakeholders

Focus on the employee including management

Organisational focus

Implementation Including: Creating

awareness, training and communication

Enforcement

Focus on other stakeholders

Focus on the employee including management

Organisational focus

Slide 37PricewaterhouseCoopers17 February 2006

CONTACT DETAILS

PETER GOSS

DIRECTOR

FORENSIC SERVICES

PRICEWATERHOUSECOOPERS

TEL: 012 429 0331

CELL: 082 652 0024

E-MAIL: peter.goss@za.pwc.com

Slide 38PricewaterhouseCoopers17 February 2006

Questions?