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ECONOMIC INTEREST, LAW AND POLICIES OF FRAUD CONTROL

1Hycenth Amakiri Ajie, Ph.D and

2Akekere Jonah, Ph.D

1Department of Economics, Faculty of Social Sciences, University of Port Harcourt, Port Harcourt

2Department of Economics, Faculty of Social Sciences, Niger Delta University, Wilberforce Island, Bayelsa State.

E-mail: 1ajiehycenth@yahoo.com.

Abstract

The paper examines the behavior of leaders in relation to the oath of office they took on assumption. Formal economic and modern statistical techniques were employed in the model of voting behavior using the rational choice model. The economic model presumes that a leader was motivated by self-interest to maximize the satisfaction he received from the choice made. The economic model indicates that the leader weighed the benefits and the costs to himself of his actions. Thus a leader acted individually to maximize the net benefit he received from the society. The paper also sees law as a system of rules usually enforced through a set of institutions. It shapes policies and services as a primary social mediator of relations between people. Law thus provides a rich source of scholarly inquiry into legal history, philosophy economic analysis or sociology. The paper further posits that all legal systems have the same basic issues, but each country categories and identifies its legal subject in different ways. The paper describes fraud as “the misuse of an organisation’s resources or using one’s position and power for personal gain. Basic principles of effective fraud control were identified. Key Words: Economic Interest, Law, Fraud Control, Risk Assessment, Workplace.

Introduction Recently, economic historians have begun to re-examine the behaviour of leaders concerning the oath of office they took before assumption of office. This re-examination which employs formal economics and modern statistical techniques involves the application of an economic model of voting behaviour during the drafting and ratification processes and the collection and pro cessing of large amounts of data on the economic and financial interests. Economic Interest The rational choice model offers an economic model of the founding fathers that is based on rational choice and methodological

individualism and employ formal statistical techniques. Methodologically, such an approach analyses the choice of the individuals involved in decision making. The object of the analysis is the behaviour of the individual leader/manager/decision making, not the behaviour of some social class or group. The economic model presumes that a leader was motivated by self-interest to maximize the satisfaction he received from the choice made. But neither self-interest nor economic rationality implies that a leader was concerned only with his financial or material well being. The economic model indicates that a leader/manager weighed the benefits (the satisfaction) and the costs (sacrifice) to himself of his actions, making those choices, that were in his self-interest, broadly defined to include

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any pecuniary and non-pecuniary benefits and costs of his choices. This is the presumption of rational choice. More precisely economic interest, adopts an economic model which implies that a leader acted individually to maximize the net benefit he received from the society. A leader would have voted in favour of a particular issued or in favour of ratification, if he expected the net benefit he would receive would have been greater if the issue was adopted. The leader/manager must have come from a particular state or locality, he/she represents the citizen (constituents) or organization of the state or locality in which he/she resides as well as represented his/her own personal interest. The leader/manage must not allow his personal interest to override the state of organizational interest directly or indirectly. A leader’s personal interest dependent on his own economic interest and ideology and his constituent interests depends on the economic interest and ideologies of his constituents. The interest may be purely economic (pecuniary interests, such as the ownership or value of specific economic assets) or ideological (non-pecuniary interests, such as beliefs about the moral correctness of a particular form of government. The potential effect of personal interests on a leaders decision (vote) is straight forward; the leader would have benefited or been harmed directly. In sum the concept of economic interest, implies that a leader has an economic interest in the country and should therefore not work in favour of his personal interest. The interest of the nation or organization supercedes or overrides every other interest. So a situation whereby a leader/manager converts funds/resource under his control for personal purpose is against the spirit of national economic interests law (Obi Emeka Anthony et al, P. 159, 2008)

Law Law is a system of rules usually enforced through a set of institutions. It shapes politics, economics and society in numerous ways and serves as a primary social mediator of relations between people. Contract law regulates everything from buying a bus bread to trading on derivatives markets. Property law defines rights and obligations related to the transfer and title of personal (often referred to as chattel) and real property. Trust law applies to assets held for investment and financial security, while tort law allows claims for compensation if a person’s rights or property are harmed. If the harm is criminalized in a statute, criminal law offers means by which the state can prosecute the perpetrator. Constitutional law provides a framework for the creation of law, the protection of human rights and the election of political representatives. Administrative law is used to review the decisions of government agencies, while international law governs affairs between sovereign nation states in activities ranging from trade to environmental regulation or military action. Writing in 350BC, the Greek philosopher Aristotle declared, “The rule of law is better than the rule of any individual”. Legal systems elaborate rights and responsibilities in a variety of ways. A general distinction can be made between civil law jurisdictions, which codify their laws, and common law systems, where judge made law is not consolidated. In some countries, religion informs the law. Law provides a rich source of scholarly inquiry, into legal history, philosophy, economic analysis or sociology. Law also raises important and complex issues concerning equality, fairness and justice. “In its majestic equality”, said the author Anatole France in 1894, “the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread”. In a typical democracy, the central institutions for interpreting and creating law are the three main branches of government, namely an impartial judiciary, a democratic legislature, and an

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accountable executive (S.H Bailey and M.J. Gunn, 93-97, 1999). To implement and enforce the law and provide services to the public, a government’s bureaucracy, the military and police are vital. While all these organs of the state are creatures created and bound by law, an independent legal profession and a vibrant civil society inform and support their progress. Legal Subjects All legal systems deal with the same basic issues, but each country categorises and identifies its legal subjects in different ways. A common distinction is that between “public law” (a term related closely to the state, and including constitutional, administrative and criminal law), and “private law” (which covers contract, tort and property). In civil law systems, contract and tort fall under a general law of obligations, while trusts law is dealt with under statutory regimes or international conventions. International, constitutional and administrative law, criminal law, contract, tort, property law and trusts are regarded as the “traditional core subjects”, although there are many further disciplines which may be of greater practical importance. International Law International law can refer to three things: public international law, private international law or conflict of laws and the law of supranational organizations. Public International Law: Concerns

relationships between sovereign nations. The sources for public international law development are custom, practice and treaties between sovereign nations, such as the Geneva Conventions. Public international law can be formed by international organizations, such as the United Nations (which was established after the failure of the League of Nations to

prevent the Second World War), the International Labour Organization, the World Trade.

Constitutional and Administrative Law Constitutional and administrative law govern the affairs of the state. Constitutional law concerns both the relationships between the executive, legislature and judiciary and the human rights or civil liberties of individuals against the state. Most jurisdictions, like the United States and France, have a single codified constitution, with a Bill of Rights. A few, like the United Kingdom, have no such document. A “constitution” is simple those laws which constitute the body politic, from statute, case law and convention. The great end, for which men entered into society, was to secure their property. That right is preserved sacred and incommunicable in all instances, where it has not been taken away or abridged by some public law for the good of the whole…if no excuse can be found or produced, the silence of the books is an authority against the defendant, and the plaintiff must have judgment. The fundamental constitutional principle, inspired by John Locke, holds that the individual can do anything but that which is forbidden by law, and the state may do nothing but that which is authorized by law. Criminal Law Criminal law, also known as penal law, pertains to crimes and punishment. It thus regulates the definition of and penalties for offences found to have a sufficiently deleterious social impact but, in itself, makes no moral judgement on an offender nor imposes restrictions on society that physically prevents people from committing a crime in the first place. Investigating, apprehending, charging, and trying suspected offenders is regulated by the law of criminal procedure. The paradigm case of a crime lies in the proof, beyond reasonable doubt, that a person is guilty of two things. First, the accused must

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commit an act which is deemed by society to be criminal, or actus reus (guilty act). Second, the accused must have the requisite malicious intent to do a criminal act, or mens rea (guilty mind). However for so called “strict liability” crimes, an actus reus is enough. Criminal systems of the civil law tradition distinguish between intention in the broad sense (dolus directus and dolus eventualis), and negligence. Negligence does not carry criminal responsibility unless a particular crime provides for its punishment. Examples of crimes include murder, assault, fraud and theft. In exceptional circumstances defences can apply to specific acts, such as killing in self defence, or pleading insanity. Criminal law offences are viewed as offences against not just individual victims, but the community as well. The state, usually with the help of police, takes the lead in prosecution, which is why in common law countries cases are cited as “The People v…” or “R (for Rex or Regina) v.. (Ese Malewi, P. 16, 2012).” Also, lay juries are often used to determine the guilt of defendants on points of fact: juries cannot change legal rules. Some developed countries still condone capital punishment for criminal activity, but the normal punishment for a crime will be imprisonment, fines, state supervision (such as probation), or community service. Modern criminal law has been affected considerably by the social sciences, especially with respect to sentencing, legal research, legislation, and rehabilitation. On the international field, 108 are members of the International Criminal Court, which was established to try people for crimes against humanity. Contract Law Contract law concerns enforceable promises, and can be summed up in the Latin phrase pacta sunt servanda (agreements must be kept). In common law jurisdictions, three key elements to the creation of a contract are necessary: offer and acceptance, consideration and the intention to create legal relations, In Carlill v carbolic Smoke Ball

Company a medical firm advertised that its new wonder drug, the smoke ball, would cure people’s flu, and if it did not, the buyers would get £100 (Smith & Bailey Pp 885, 1999). Many people sued for their £100 when the drug did not work. Fearing bankruptcy, Carbolic argued the advert was not to be taken as a serious, legally binding offer. It was an invitation to treat, mere puff, a gimmick. But the court of appeal held that to a reasonable man Carbolic had made a serious offer. People had given good consideration for it by going to the “distinct inconvenience” of using a faulty product. “Read the advertisement how you will, and twist it about as you will”, said Lord Justice Lindley, “here is a distinct promise expressed in language which is perfectly unmistakable”. Tort Law Torts, sometimes called delicts, are civil wrongs. To have acted tortuously, one must have breached a duty to another person, or infringed some pre-existing legal right. A simple example might be accidentally hitting someone with a football. Under the law of negligence, the most common form of tort, the injured party could potentially claim compensation for his injuries from the party responsible. The principles of negligence are illustrated by Donoghue v Stevenson. A friend of Mrs A ordered an opaque bottle of ginger beer (intended for the consumption of his frend) in a restaurant in London. Having consumed half of it, Mrs A poured the remainder into a tumbler. The decomposing remains of a snail floated out. She claimed to have suffered from shock, fell ill with gastroenteritis and sued the manufacturer for carelessly allowing the drink to be contaminated. The Court decided that the manufacturer was liable for the friend’s illness, Lord Atkin took a distinctly moral approach, and said,

The liability for negligence…is no doubt based upon a general public sentiment of morel

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wrongdoing for which the offender must pay…The rule that you are to love your neighbor becomes in law, you must not injure your neighbor; and the lawyer’s question, who is my neighbor? Receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbor.

This became the basis for the four principles of negligence; (1) The defendant Owed the appallent a duty of care to provide safe drinks (2) he breached his duty of care (3) the harm would not have occurred but for his breach and (4) his act was the proximate cause, or not too remote a consequence, of her harm. Another example of tort might be a neighbor making excessively loud noises with machinery on his property. Under a nuisance claim the noise could be stopped. Torts can also involve intentional acts, such as result, battery or trespass. A better known tort is defamation, which occurs, for example, when a newspaper makes unsupportable allegations that damage a politician’s reputation. More infamous are economic torts, which form the basis of labour law in some countries by making trade unions liable for strikes, when statute does not provide immunity. Property Law Property law governs valuable things that people call ‘theirs’. Real property, sometimes called ‘real estate’ refers to ownership of land and things attached to it. Personal property refers to everything else; movable objects, such as computers, cars, jewelry, and sandwiches, or intangible rights, such as stocks and shares. A right in rem is a right to a specific piece of property, contrasting to a right in

personam which allows compensation for a loss, but not a particular thing back. Land law forms the basis for most kinds of property law, and is the most complex. It concerns mortgages, rental agreements, licences, covenants, easements and the statutory systems for land registration. Regulations on the use of personal property fall under intellectual property, company law, trusts and commercial law. Policies of Fraud Control Definition of Fraud: For the purpose of this write up, fraud is described as “The willful misuse of an organization’s resources or using one’s position and power for personal gain. This includes theft, and acts of omission; improper use of influence or position and/or improper use of information” it is also seen as;

Dishonestly obtaining a benefit by deception or other means

This definition includes:

Theft;

Obtaining property, a financial advantage or any other benefit by deception;

Causing a loss, or avoiding or creating a liability by deception

Providing false or misleading information to the organization, or failing to provide information where there is an obligation to do so;

Making, using or possessing forged or falsified documents;

Bribery, corruption or a buse of office;

Unlawful use of organization computers, vehicles, telephones and other property or services.

Finding of corrupt conduct against an individual is a serious matter. It may affect the individual personally, professionally or in employment, as well as in family and social relationships.

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This policy applies to everyone who directly or indirectly has an interest in the organization employees. Employees include casual, part-time, full-time, temporary, permanent, contractors or consultants. There are two core elements to this policy:

Reducing losses through fraud by developing and implementing a Fraud Control Plan within a working environment which promotes honesty and integrity; and

A commitment to detecting, investigating and prosecuting individual cases of criminal behaviour, including fraud.

Examples of Fraud might include:

Theft of assets.

Unauthorised and./or illegal use of assets, information or services or private purposes.

Abuse of position and power for personal gain.

Manipulation and misuse of account payments.

Falsification of records for improper advantage.

The benefits referred to can be either tangible or intangible. Examples include:

hacking into, or interfering with a organization computer system;

using a false identity to obtain income support payments;

using organization systems to gain access to other systems without authority;

charging the organization for goods or services that are incomplete or not delivered;

hiding or disposing of assets by bankrupts to avoid paying creditors; and

making false statements under the National Electoral act 2005.

A Basic test for fraud could include the following question.

was deceit used was the action unlawful?

Did it result in money or other benefits being received to which the person was not entitled?

Was an attempt made to do this? Principles of Effective Fraud Control Fraud control in the developing nations is based on the following principles:

prevention, detection and investigation of fraud;

prosecution of offenders, including in routine or minor instances of fraud where appropriate;

application of appropriate civil, administrative or disciplinary penalties;

recovery of proceeds of fraudulent activity;

training of all employees in ethics, privacy and fraud awareness activities;

specialised training of employees involved in fraud control activities;

external scrutiny of fraud control activities; and

reporting to Government and accountability to Parliament.

Agencies will need to take account of the above documents to properly implement the Guidelines. Roles and Responsibilities for Fraud Control in the Nigeria Effective fraud control requires the commitment and involvement of all agencies, employees and external service providers. Chief Executive Officers (CEOs) are responsible, under section 44 of the FMA Act, for promoting efficient, effective and ethical use of a country’s resources. Sector 45 of the FMA Act requires CEOs to implement a fraud control plan for their agency. CEOs have principal responsibility for fraud control within their agencies and for complying with the nation’s fraud control guidelines. This includes:

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developing an overall fraud control strategy for the agency, including operational arrangement for dealing with fraud;

conducting risk assessments and producing fraud control plans;

investigating minor or routine instances of fraud against agency;

training of employees involved in fraud control to specified levels of competency;

fostering and maintaining the highest standards of ethical behaviour to comply with the Guidelines on Code of Conduct for Public Servants;

reporting on fraud control activities;

informing their Minister or Presiding Officer of all relevant fraud control initiatives undertaken by the agency.

Fraud Risk Assessments: Risk assessment is a process of continuing improvement. When the risk assessment process begins, agencies must attempt to gain an understanding of the very broad risks of fraud. However, agencies should continually refine their fraud risk assessment processes, so that they become more sensitive to their particular circumstances. Agencies should use emerging information and systems, such as management information systems, to build on previous knowledge and experience.

It is essential that employees at all levels are involved in the fraud risk assessment process. Employees working “on the ground” have detailed knowledge of agency practices and procedures. Their knowledge will help expose and determine the risks to the agency. Risk assessments must consider fraud risks to the agency, from both within the agency and from external factors. Risk assessments must also consider fraud risks that may emerge in the future. For example, agencies need to be aware of the changing nature of fraud arising from the greater use of external service providers, developments in information technology and links with communications infrastructure.

Core areas that a fraud risk assessment must consider include:

information technology and information security;

electronic commerce, electronic service delivery and the Internet;

outsourced functions;

grants and other payments or benefits programs;

tendering processes, purchasing and contract management;

services provided to the community;

revenue collection;

use of Government credit cards;

travel allowance and other common allowances;

salaries; and

property and other physical assets including physical security.

Agencies are responsible for determining the risk assessment approach that is most appropriate for their circumstances. Agencies should assess their fraud risks as part of their business risk management process. Agencies are to fully document the risk assessment process. While a number of risk assessment methodologies are available, the methodology selected must:

reflect the risks across the rang of functions performed by the agency;

be capable of adequately measuring risks in a comparable way;

be capable of providing a supportable rating of the risks of frauds;

be amenable to fine-tuning as appropriate; and

be able to be replicated. Decisions on how and why particular

criteria have been selected, as well as decisions on their weightings, must be included. Criteria must be defined and must be applicable to all areas and functions of the agency.

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Agencies are to conduct fraud risk assessments at least every two years. Where appropriate, agencies may introduce a rolling program of updating risk assessments. Agencies are encouraged to develop dynamic risk assessment procedures and greater integration of the fraud risk assessment process with an overall general business risk approach.

Where an agency undergoes a substantial change in structure or function, or where there is a significant transfer in function (for example, as a result of outsourcing), the agency must undertake another fraud risk assessment in relation to the changed functions. This fraud risk assessment can be part of a general business risk assessment exercise. Producing a Fraud Control Plan

Having undertaken a fraud risk assessment, agencies must then develop a plan to manage the risks identified by the assessment. This may involve producing a new fraud control plan, or reviewing an existing plan to ensure that it takes account of new or emerging risks. Each agency’s audit committee should oversee the process of developing and implementing a fraud control plan.

Fraud control plans are to address the agency’s individual needs. Key features of effective fraud control plans are to include: o an outline of the structure of the organizations; o a statement of the agency’s attitude and approach to fraud control; o a summary of the risks identified in the fraud risk assessment; o details of the strategies that will address these risks, including:

allocation of responsibility for implementing the strategies;

timeframes, including expected start and completion dates for implementing the strategies; and

mechanisms for monitoring the implementation of the strategies.

o details of strategies to ensure compliance with the guidelines, including:

strategies and timetables to ensure the agency meets the training requirements;

strategies for collecting and reporting on fraud and fraud control information.

o details of how employees, contractors and members of the public can report fraud against the agency.

Fraud control plans should be user-friendly, and available to all relevant employees, subject to security requirements. Agencies should publicize a statement of their attitude and approach to fraud control. Fraud Prevention Fraud flourishes in an administrative environment where opportunities exist for waste, abuse and mis-management. We believes that an emphasis on fraud prevention rather than fraud investigation will lead to a reduction of these opportunities. The underlying thrust of an policy on fraud prevention is to encourage the public and staff to understand that fraudulent acts against the National/organization are unacceptable, may constitute a criminal offence and may be prosecuted. Any effective fraud prevention strategy must recognize that prompt action needs to be taken when fraud is detected, both to bring the fraud to an end and to discourage others who may be inclined to commit similar conduct. Responsibilities for Managers Managers need to lead by example, to demonstrate integrity and fairness in decision making and an open honest relationship in their dealings with others. Specific fraud prevention strategies must be implemented that are consistent with overall organizational strategies, which include:

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1. Defining clear lines for superior responsibilities and accountabilities. 2. Reinforcing the need for disciplinary measures when required. 3. Adopting preventative measures to deter

and detect instances of fraud – this places primary responsibility for deterrence and detection with each General Manager.

For a country like Nigeria, management of fraud prevention is a critical and integral element of good management. Three elements are involved: 1. The Management attitude towards internal

control, expressed through interest, involvement, policies and procedures.

2. The selection and development of quality staff whose practices demonstrate high ethical standards. The appropriate application of leadership and training to all staff will enhance the quality of performance and therefore, control.

3. The monitoring of systems, whether informal information gathering, active supervision or formal information systems.

Managers or Team Leaders are required to advise their management of instances of suspected or actual fraud. Fraud Control Plan The Manager Governance is responsible for developing and implementing organizations Fraud Risk Management Plan and monitoring its effectiveness. Trends, activities, complaints and compliments are monitored for signs of irregularity. The Internal Control Officer reports to the Chief Executive Officer on fraud risk issues ensuring that risks are identified and acted on. Fraud risk assessment will be integrated into the organisation’s risk management framework as well as being conducted separately every 2 years. Areas of risk could include:

Regularity and enforcement activities

Issue of penalty and other notices

Engagements of contractors and consultants

Finance receipt and expenditure

Personnel recruitment, deployment and records

Computer and data security

Purchase and control of stores and equipment

Use of stores and equipment

Use of motor vehicles

Lease/loan of equipment

Administrative activities

Remore telecommunication access e.g internet

All staff are to be involved in developing and implementing fraud prevention procedures for activities within their areas which will form part of the organization Fraud Control Plan. The promotion of this Plan will include activities such as:

training awareness seminars;

regular review and promotion of organization’s Co of Conduct

articles in staff newsletters and information bulletins.

Reporting Fraud Staff are encouraged to report anything in the workplace that they think is suspicious. However staff who report suspicious of fraud should not be led to believe that a person will automatically fall under suspicion or be punished. There are various ways to report fraud. Disclosures can be made to the management by telephone, in writing or via e-mail. Informants will be guaranteed strict confidentiality and advised of investigation outcomes. In some obvious cases (e.g armed hold-up or breaking and entering), Police presence will be required as a matter of urgency. The decision to call Police will normally be made by the management or

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by the most senior staff member on the site at the time of the emergency. Raising Community Awareness The management will take steps to ensure that customers and the community are aware that fraud committed against the organization is not acceptable. The community will be made aware through information provided in the Annual Report. Workplace Investigation The organization staff who carry out investigations must be rigorously impartial, sensitive to the rights of individuals and ensure that the purpose of any investigation is to discover all relevant facts and not just those that are suggestive of guilt. Training organization usually narrates to the General Manager as the principal-investigating officer and another governance officer to assist with investigations. At the conclusion of any investigation, the investigating officer in charge must submit a written report to the Management. When misconduct is suspected in the workplace, the first step is to begin a fact finding inquiry. If the inquiry uncovers fraud the inquiry is terminated Nigeria and a criminal investigation will commence through of the police. If it is clear immediately that a crime has occurred a fact finding inquiry will not occur. In summary an inquiry will comprise:

Maintaining confidentiality e.g identity of the source and the subject, including documents and the recoding of information.

Manager Governance (with written delegation or authority from the Chief Executive Officer) to discover facts and present them in a useful form.

Interviewing sources.

Inquiry into the circumstances surrounding the specific function.

The conduct in relation to the incident or

Relationship/association between the specific function.

An assessment of the information (for either referral to the Police or continuation of the fact finding inquiry).

Recording and filing important details.

Writing a report.

If the matter is significant to the organization the investigating officer will consider referring or seeking advice from another agency such as The Nigeria Police.

Matters relating to a criminal offence will be reported to the police as early as possible to avoid jeopardizing potential police investigation. e.g theft, assault, obtaining benefit be deception, embezzlement or misappropriation of money, bribery.

An interview of the suspect to allow a response to the allegations.

If the investigation confirms that a fraud has taken place and who is responsible disciplinary action is taken (refer ‘Management of Unsatisfactory Performance, Unacceptable behaviour and dismissal Procedure’) e.g criminal charges, suspension.

Responsibility The overall responsibility for co-ordinating fraud and corruption prevention rests with the management. The Senior Management teams are responsible for monitoring and promoting fraud prevention. Fraud and corruption prevention is the responsibility of all staff.

The Policy outlines the responsibilities of the Chief Executive, executives, managers, staff and others covered by this policy in relation to fraud control. All parties covered by the policy must be

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aware of and carry out their responsibilities for establishing controls and procedures for the prevention and detection of fraud. Governance Good governance recognizes the need for appropriate fraud risk management which includes fraud prevention, detection, reporting and monitoring organizational effectiveness of fraud risk management. An organizational culture that focuses on ethical behavior is fundamental to achieving this. Fraud risk assessment is a pro-active effort by the organization to identify areas where fraud risks exist and evaluate whether effective internal controls exist to reduce or eliminate those risks. This is the first step to establishing the different types of fraud risks that exist within the organization and identifying areas where internal control is weak. This helps prioritise corrective action that may need to be taken with regard to fraud prevention, detection and response initiatives. Effective fraud risk assessments should consider:

Fraud risks inherent in the business processes/activity that is undertaken and the controls that exist.

Potential for internal and external threats to data integrity, system security, access and override of system controls.

Potential for theft/misuse of sensitive business information.

Potential for theft/misuse of organizational assets/equipment.

Employee awareness regarding fraud risk.

Organizational culture, including sub-cultures that may exist in different parts of the organization.

The potential override of controls by management.

The Importance of Internal Control Internal controls are processes (including elements such as policies, procedures and systems)

that are established, operated and monitored by officers responsible for governance and management, to provide reasonable assurance regarding the achievement of the organizations objectives. Further information about internal controls is provided in below. Both preventative and detective/corrective controls are required to ensure a chosen strategy is cost effective and consistent with the organisation’s overall culture and operations. Robust monitoring strategies are fundamental to the effectiveness of detective and corrective controls and support the control environment. Prevention encompasses policies, procedures, training and communication that stop fraud from occurring. Detection focuses on activities and techniques that recognize in a timely manner whether fraud has occurred or is occurring. Prevention strategies are the first line of defence in minimizing fraud risk. A combination of preventive and detective controls enhance the effectiveness of a fraud risk management program by demonstrating that preventive controls are working as intended and identifying fraud if it does occur. Fraud prevention strategies should be integrated into management planning and policy processes and supplier contracts and agreements. All managers must create an environment in which staff members believe that dishonest acts will be detected and investigated. Therefore management has a responsibility to ensure:

Participation at all levels in training that deals with the implementation of this policy.

Proper supervision of staff members.

That staff members understand that controls are designed and intended to prevent or detect fraudulent behavior.

That staff members report suspected fraudulent and corrupt behavior directly to

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the appropriate manager without fear of disclosure or retribution.

That vendors (such as contractors, consultants, outsourced service providers, suppliers) are required to agree in writing, as part of the contracting process, to abide by management policies and procedures.

That known conflicts of interest are avoided by:

disclosing interests

not entering into contracts with parities known to have a conflict of interest without the express permission of a member of the Corporate Executive Team.

encouraging vendors to disclose potential conflicts of interest.

Documentation of Investigations An investigations file should be maintained during the course of the investigation into suspected acts of criminal misconduct and containing at a minimum:

report of inappropriate activity

original informant documentation

a running sheet

file notes

witness statements

letters

seized documents

respondent statements

an evidence log Conclusion Economic interest, Law and Effective Fraud control measures are vital for efficient operation of private sector services, public services and government services aimed at enhancing sustainable development.

References 1. Obi Emeka Anthony et al (2008) Public

Policy Analysis and Decision Making, Book Point Educational Ltd, Onitsha, Nigeria.

2. Ese Malewi (2012) Public Policy Analyisis and Decision Making, Lagos, Concept Publications.

3. Smith and Bailey (1999) The Modern English Legal System, Sweet & Maxwell, London.

4. Egonmwan J.A (2000) Public Policy Analysis: Concepts and Applications. Benin City: Ressyin (Nig.) Company.

5. Okey Marcellus and I. Joseph (2007) Enhancing Consensus among Analysts in Public Policy Delivery in Nigeria. Public Policy Journal (2007) Vol. 1, No. 1, May-August 2007.

6. http//europa.eu/Legislation. 7. http.//controller.berkeley.edu/conflict of

Interest 8. http.//eh.net/encyclopedia. constitution.

us. economic. interests. 9. Fraud control Guidelines – May 2002.

http//www.etnc.org/a/3167.

Appendix 1 Internal Controls

Definition of Internal Control: Internal control is the integration of the activities, plans, attitudes, policies, and efforts of the people of an organization working together to provide reasonable assurance that the organization will achieve its objectives and mission. What are Internal Controls: Internal controls are processes (including elements such as policies, procedures and systems) that are established, operated and monitored by officers responsible for governance and management of the public authority, to provide reasonable assurance regarding the achievement of the public authority’s objectives. Internal controls are designed to provide reasonable assurance to the responsible Chief Executive/Governing Authority/management in relation to the:

effectiveness and efficiency of operations;

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reliability of management, financial an taxation reporting;

appropriate management and control risk; and

compliance with applicable legislation, sub-ordinate legislation and other

financial management policies of the State. An effective internal control environment involves the systematic review, appraisal and reporting of financial (including management, taxation and budgetary) and operational control systems and their effectiveness, including (but not limited to) the:

relevance of established plans, policies, and procedures and the extent to which the public authority is complying with these;

review of committees, operations and programs and outcomes to ascertain whether results are consistent with established objectives and goals;

economy and efficiency with which resources are employed;

appropriateness of the public authority’s personnel and supervision arrangements;

integrity of information systems;

extent to which assets are accounted for and safeguarded from losses (eg waste, extravagance, inefficient administration, fraud or poor value for money);

appropriateness, reliability and integrity of financial and other management information, including the ability to identify,

measure, classify, report and act upon that information;

extent to which financial management, financial administration and financial reporting matters comply with applicable legislation, sub-ordinate legislation and other financial management policies of the State; and

monitoring of information and appropriateness of action taken.

There are three types of internal controls that exist in an organisation, they include:

Directive or Entity Level Controls: Directive controls relate to high level direction from legislators, governance bodies, senior management, standards organizations and other accountable individuals and groups to promote compliance with independence rules e.g. legislation and policies.

Preventive: Preventive controls attempt to deter or prevent undesirable events from occurring, they are measures taken to deter non-compliance with policies and procedures. Examples may include separation of duties, proper authorization, adequate documentation and physical control over assets.