Fraud & Corruption
Transcript of Fraud & Corruption
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Fraud & Corruption:
An Introduction to Fraud Risk Management
within La Trobe University
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Objectives
Provide awareness on:
�The nature of fraud and corruption risks�The nature of fraud and corruption risks
�LTU’s management of fraud and corruption risks
�Your responsibilities for the management of fraud and corruption risk
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� “Dishonestly obtaining a benefit by deception or other means.”[Source: Commonwealth Fraud Control Guidelines 2002, p. 4]
� “Any act which involves the use of deception to obtain an illegal advantage.” [Source: AUS210 (Auditing standard on fraud and error)]
What is Fraud?
� Encompasses a wide variety of deceptive, dishonest, unethical OR corrupt behavior.
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LTU Definition of Corruption
“any dishonest activity
in which an employee, Council member, adjunct, volunteer, student or contractor of the University
acts contrary to the interests of the University and abuses their position of trust
Based on Australian Standard for Fraud and Corruption Control AAS8001:2003
in order to achieve some personal gain or advantage for themselves or another person
or entity”
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Types of Fraud
Obtaining
financial advantage
property
any other benefit
by deception
a loss
a liability
a loss
Creating
Avoiding
by deception
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Types of Fraud
Providing
false information
misleading information
Failing information
where there is an Failing to provide
informationwhere there is an obligation to do so
forged
falsified
Making
Using
Possessing
documents
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Types of Fraud - examples
Unlawful use
computers
vehicles
telephones
other property
services
Theft
Bribery
Corruption
Abuse of office
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The Nature of Fraud
�85 % of the worst frauds – internal (employees & contractors)
�50% fraud – by managers
�50% of fraudulent managers - < 1 year in their position
Source: Ernst & Young’s 8th Global Fraud Survey
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Issues in understanding
� Lack of common definition
� Infallibility of fraud controls
� Direct cost is outweighed by the hidden cost
� Modernisation of fraud (greed, speed, anonymity, trust, capability)� Modernisation of fraud (greed, speed, anonymity, trust, capability)
� Management as techno dinosaurs
� Lack of recognition
� Resistance
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Fraud on Public Service
Agencies
� Fraud does not happen within government departments!
� Popular misconception:§ 40% Commonwealth Departments – experienced fraud – previous 2 years
§ An estimated 94% of this fraud – external§ An estimated 94% of this fraud – external
§ The estimated total cost of this fraud - $146 million
§ NSW government agencies - $52m - $95m pa
Source: Parliament of Victoria –
Inquiry into Fraud and Electronic Commerce [Jan 2004], p. 57)
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Fraud Costs
� Australia
§ Fraud: $1bn - $50bn pa
§ ID fraud: $2.6bn - $4.5bn pa
� Finance sector
§ Fraud: Largest driver for spend on IT
� 50% of major fraud is identity fraud
� 48% of non-major fraud is identity fraud
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Basics of identity fraud
� The possession and/or use or intent to use fraudulent and/or stolen documentation and/or identity information to deceive a third party for a benefit
(AUSTRAC)
� Obtaining an advantage (eg services, products, etc) by:� Obtaining an advantage (eg services, products, etc) by:
§ Using a totally fictitious name
§ Adopting a real persons name
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Identity Fraud
� Shoulder surfing: eg EFTPOS pin numbers
� Dumpster diving: eg personal correspondence
� Spam scam: eg unsolicited email
� Unbelievable deal: eg telemarketing
� 419 Fraud: eg Nigerian oil scam� 419 Fraud: eg Nigerian oil scam
� Data digging: eg electronic databases
� Pocket pick: eg stolen wallet
� Cyber snatch: eg spyware, viruses etc
� Transaction trail: eg credit application form
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Frequency of identity fraud
� Credit card 42%
� Telecom/utility 22%
� Bank 17%� Bank 17%
� Employment 9%
� Loans 6%
� Government 8%
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Increasing ID Fraud
� Becoming easier
§ Globalisation – increasing information flows
§ Technology improvements – forgery easier
§ Increasing use of internet - transactions
§ Complex interdependencies
� Organised crime
§ increasing attention on exploiting POI
� Risk-reward payoff
§ Probability of detection/capture
§ Revenue stream
§ Punishment
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Basic elements of identity
� Biometric
§ Face, fingerprints, retinal patterns, face, hair, height, etc.
� Attributed
§ Resulting from birth: name, place of birth, date of birth, family relationships & details, etc.family relationships & details, etc.
� Biographical
§ Interactions with society: permits, addresses, credit history, employment record, etc.
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Identity fraud mechanisms
� Use of legitimate documents
§ Real person - eg documents stolen/misrepresented
§ Created identity – fictitious identity registered
§ Other known name – eg previous identity
§ Variations in real name
� Use of forged documents
§ Fictitious name
§ Identity theft
� No document used
§ Exceptional circumstances
§ Electronic registration
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Who Commits Identity Fraud?
15%
20%
25%
30%
35%
0%
5%
10%
15%
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Obtaining personal information
10%
20%
30%
10%
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Australian reliance on POI
� Drivers licences 31%
� Passports 22%
� Credit cards 22%
� Medicare cards 15%
� Birth certificates 8%� Birth certificates 8%
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POI issues
� NSW
§ Mismatch between Westpac & BDM – 13%
� Victoria
§ Mismatch between Vic Roads & BDM – 18%
§ Vic Roads estimate – up to 65,000 ‘false’ licences
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POI Interdependency
� High level interdependencies between POI issuers
� Circular path of identity
� Weak link in the loop – obtaining POI from organisations with the weakest controls
Driver licence
Crane licence
Birth certificate
Credit statement
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POI ‘Standards’
� Financial Transaction Reports (FTR) Act 1988� 100 point POI
§ Birth/marriage/change of name certificate§ Passport§ Drivers licence§ Visa (incl Citizenship certificate, record of immigration status,
residency status)§ Medicare card§ Medicare card§ Firearms licence§ Credit/debit card§ Pensioner/social security card§ Security licence§ TFN§ ABN§ Bank statement§ Utility statements§ Registration of business name§ Registration of company name
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Personal Protection Against
Identity Fraud
Use SCAM
�SECURE: ensure personal information is secure
�CHECK: check financial information on a regular basis�CHECK: check financial information on a regular basis
�ASK: for a regular personal credit regularly1
�MAINTAIN: maintain records of financial transactions
1www.mycredit.com.au Based on advice provide by the US Department of Justice
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Three Ingredients of
Crime/Fraud
OPPORTUNITY
Attractivetarget
Controls
presence
absence
INTENT CAPABILITY
FRAUDKnowledge
Skills
Ethical culture
Motivation
personality environment stressors
Ethical culture
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Elements of Fraud and
Corruption Control
DETERRENCE
Punitive
ManageRecovery
Visible controls
DETERRENCERECOVERY
Criminal remedies
Administrative Civil
RECOVERY
Punitive actions
Detect Investigate
PREVENTION
CultureValidation
Awareness
Expertise
BehavioursControls
DETECTION
IndicatorsDiscovery
Verification Investigation
PREVENTIONDETECTION
Administrativeremedies
Civilremedies
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Prevention & Detection of
Fraud
42Management review
11Internal controls
DetectionPreventionFactor
56Accident
25Whistleblowers
64External audit
33Internal audit
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The LTU Fraud & Corruption
Management Framework
Conduct & behavioural expectations
Understanding of fraud and risk
Objectives & Outcomes
Identification of potential for fraud
Prevention and detection capability
Investigation of fraud
Improved fraud mgt capability
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The LTU Fraud & Corruption
Management Framework
Code of ConductConduct & behavioural
expectations
Understanding of fraud
Awareness & training program
Objectives & OutcomesEnablers Monitoring & Reporting
Compliance reporting to CGAC
Learning outcomesIssues referred
Fraud Risk Mgt Handbook
Identification of potential for fraud
Prevention and detection capability
Control systems, procedures & practices
Investigations policy Whistleblower policy
Investigation of fraud
Fraud and Corruption Control Plan
Improved fraud mgt capability
Fraud Risk RegisterCGAC reporting
CSA reviewInternal audit review
CSA reviewCGAC review
Tracking registerCGAC reporting
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Total Cost of Fraud
� Loss event
� Anticipatory
§ Risk assessment
§ Prevention
§ Deterrence§ Deterrence
§ Detection
� Reactionary
§ Investigation
§ Recovery
§ Restoration
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Reporting an Incident/Allegation
No
Incident
Protected Disclosure?
Supervisoravailable?
Yes
Yes
Whistleblower ProtectionProcedure
Supervisorappropriate?
Yes
Notify Supervisor
Initial Assessment
Notify RMUNo
No
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Decision: to investigate or not
NoSubmit Report
to RMUInvestigationrequired?
Initial Assessment
Decision
No
Decision appropriate?
Review and improvement
Yes
Registry report
Yes
Internal Investigation?
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Conducting an Investigation
Internal Investigation?
Yes
Appoint Investigating Officer
No Appoint Investigation Coordinator
Develop initial investigation planOfficer
Develop & approve investigation plan
Conduct investigation
Report to VC / CGAC
investigation plan
Appoint external investigator