Fraud Functions and Mechanism Feb 15
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Transcript of Fraud Functions and Mechanism Feb 15
8/3/2019 Fraud Functions and Mechanism Feb 15
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FRAUD AWARENESS AND PREVENTION
KEY FUNCTIONS AND MECHANISMS
Presented by:
The Office of Auditor-General of Pakistan
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SEQUENCE OF PRESENTATION
Introduction
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Auditor-General’s Mandate Our work
Basics of fraud
How we help against fraud?- Audit Planning
- Audit Execution
- Audit Reporting- Capacity Building
onc usion
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Fraud and corru tion are si ns of bad overnance
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They erode the legitimacy of state institutions The role of Su reme Audit Institutions SAIs in fi htin
fraud and corruption has been a subject of debate at
national and international forums
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The following working definition of Fraud & Corruption,4
derived from the ASOSAI Guidelines for Dealing withFraud & Corruption, has been adopted:
“FRAUD involves deliberate misrepresentation of facts
financial advantage.
CORRUPTION involves effort to influence and / or
abuse of public authority through giving or acceptance of
inducement or illegal reward for undue personal or
private advantage.”
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Detection and prevention of fraud and corruption is5
primary responsibility of executive . The mechanism fordetection and prevention of fraud includes;
System of Internal Control - designed to ensure
reliability of financial reporting, compliance with
efficiency of operations.
Communication plan to educate staff on fraud risk,
,
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The World Bank in its note series on Public Sector underlines:
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“ Although preventing corruption is not an explicitresponsibility of supreme audit institutions, audits may
detect fraud and abuse. Fostering strong financial
management based on reliable reporting and internal controls, is a crucial part of detecting and preventing
corruption because it promotes transparency and
”
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Irres ective of the rimar res onsibilit for detection
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& prevention of Fraud & Corruption which lies withexecutive, the external auditors are expected to be
alert to the possibilities of fraud & corruption in the
auditee organizations.
Standard on Auditing 240, dealing with Fraud andCorruption, require the auditors to incorporate
Procedures which provide them with reasonableassurance against the risk of materialmisstatements in the financial statements resultinfrom Fraud & Corruption.
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that the external auditor forms an opinion aboutthe possibilities and potential of corrupt practices in
an organization.
In dealing with Fraud & Corruption the principal
value of the external auditors work revolves around
assisting the management in improving the control
environment.
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’
The Auditor General’s mandate covers federal, provincial,9
an istrict governments, pu ic sector enterprises, another regulatory/autonomous bodies
The 18th Amendment has strengthened the independence of
the Auditor-General
As catalyst for good governance, we strengthen internal
Our role varies from limited involvement to complete responsibilityor e n erna nves ga on repor ng o rau
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Certification of accounts of federal, provincial and10
district governments. Compliance with authority audits, focusing on
comp ance w e aw, ru es, an regu a ons
Performance Audits, focusing on economy, efficiency, and
Special audits, focusing on risk-prone and public interest
areas in public sector operations
In carrying out these audits, we blend fraud risk into audit
process and continually update it until audit’s completion
t times SAI reports orm asis o NAB an FIA rau
investigations
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international standards Recover of ublic mone
Changes made in systems and procedures
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Inte rit
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Non partisan, zero tolerance towards fraud &corruption, compliance with international auditstandards
Quality me ness, re evance, re a y an cos
effectiveness
Alignment with government agenda, understandingaudit environment, facilitating government in goodgovernance
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Fre uenc and extent of fraud has increased
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Globalization and IT has made fraud complex
Preventive controls ( i.e. systems and procedures)
are n t effective
Detective controls ( i.e. oversight/monitoring) are
weak or absent.
Code of ethics are non existent and enforcement is
weak
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detective controls in government operations Focus on Hi h Risk areas in audit lannin
Use fraud examination tools in addition to other
techni ues and rocedures in audit execution;
Sensitize stakeholders to risks of fraud;
Build staff ca acit to detect otential fraud as
part of their regular audits
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AUDIT PLANNING
SAI Pakistan has an Audit Cycle of three years
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i. High risk entities are audited annually ii. Medium to low risk entities are covered at
High Risk entities have some/all of the following
attributes:i. Historical trends
ii. Large allocation of funds ( i.e. health, education)
iii. omp exity o perations i.e. egaProjects )
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v. Rural/Community development projects
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AUDIT EXECUTION
Understand the entity- structure and environment
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Assess controls ( preventive, detective) Preventive controls like segregation of duties,
au or za on, reconc a on, recor ng an repor ngDetective controls like monitoring/oversight, staff ‘s
fraud awareness Watch for red flags in detailed scrutiny
Make mid-course adjustments during execution
Communicate information on potential fraud detectionto management
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Building Awareness of Fraud - Parliament
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Audit reports indicate control failures ( preventiveand detective) and steps to strengthen controls
Parliamentarian in general and the Public Accounts
Committee (PAC) in particular are briefed on need forstrengthening controls in government operations
At the pointation of Audit PAC issues directives for;
Initiating disciplinary proceedings
Systemic improvements in internal controls
Changes in laws
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Building Awareness of Fraud - Management
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Auditors educate management on fraud risks andcontrols through out their engagement
Share internal control gaps and weaknesses with
management in Departmental Accounts Committeemeetings;
Recommend changes in systems and procedures to
prevent etect rau s; Internal control systems in public sector are continuously
s reng ene ase on au npu
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Through the PAC meetings, Audit Reports are sharedwith media
Media, in turn, educates masses, promotes fraud
awareness, and stren thens accountabilit and oodgovernance;
Media flashes potential frauds/risk areas. The AGP
orders special audits if deemed appropriate.
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We stren thened reventive and detective controls
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in public sector through high quality audit reports; Time lag between closing of a financial year and its
audit reports has been shrunk to eight months, thus
allowing timely reviews and accountability at PACeve
In the past five years, an amount of Rs.60 billion
as een recovere an epos e n e pu ctreasury at pointation of audit.
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CAPACITY BUILDING
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,
staff opportunities to learn good practices to dealwith fraud in audits
Capacity building initiatives:
Training in Fraud Risk Assessment;
Certifications for officers/officials
Devel in Master Trainers in Inf rmati n S stems
Auditing.
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government agencies Preventive detective control failures ointed out in the
Audit Reports need to be fixed through systemic
changes Government agencies need to implement the Auditor-
General’s recommendations
Civil Society Organization, Media and other non-government stakeholders also need to provide
oversig t over rau an corruption in government
operations
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Thank ou