FRAUD AWARENESS

FRAUD AWARENESS

Lindiwe NdlelaChief 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.

Why Fraud? What is Fraud? Examples of Fraud Who commits fraud The fraud triangle Motivation/Pressures Opportunity and control issues Rationalization

Fighting Fraud Fraud preventing Early detection Fraud response plan Whistle-blowing guidelines

TODAY’S TOPICS

“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”

WHAT IS FRAUD?

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

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.

EXAMPLES OF FRAUD & CORRUPTION

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.

WHO COMMITS FRAUD?

KPMG GLOBAL SURVEY 2011

18 to 25 years old

26 to 35 years old

36 to 45 years old

46 to 55 years old

Older than 55 years

3%

14%

39%

31%

13%

2%

12%

41%

35%

10%

Age of Fraudster

2011 Survey2007 Survey


Research & Development

Procurement

Operations/Sales

Legal

Finance

CEO

Board level

Back office

3%

9%

32%

2%

36%

11%

2%

5%

1%

8%

25%

0%

32%

26%

7%

1%

Where the fraudster works



Less than 1 year

1 to 2 years

3 to 5 years

6 to 10 years

More than 10 years

4%

9%

36%

29%

22%

1%

10%

29%

27%

33%

Time at the organization



Staff

Management

Senior Management

Board Members

14%

26%

49%

11%

18%

29%

35%

18%

Rank within the organization


FRAUD TRIANGLE

Do I have a reason to steal?

Biggest driver of fraud – personal financial gain Greed & work pressures External pressures

MOTIVATIONS FOR FRAUD

Can I get away with it?

Exploitation of weak internal controls Collusion to circumvent good controls Reckless dishonesty regardless of controls

OPPORTUNITY

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”

RATIONALIZATION

• 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

PREVENTION

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:

• 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 FLAGSBehavioural 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– 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]

Documents

FRAUD AWARENESS