PUBLIC SECTOR RISK MANAGEMENT FORUM

THEME: FRAUD RISK MANAGEMENTTHEME: FRAUD RISK MANAGEMENT

PresenterPresenter:: Zanele MxunyelwaZanele Mxunyelwa, CIA, CFE | , CIA, CFE | Specialised Audit Services, Specialised Audit Services, | | 16 March 2012 16 March 2012

Venue: 40 Church Square, NATIONAL TREASURYVenue: 40 Church Square, NATIONAL TREASURY

1

FRAUD RISK MANAGEMENT

CONTENTSCONTENTS

Introduction

Theft, Fraud & CorruptionTheft, Fraud & CorruptionFramework for Fraud Risk AssessmentRole of Risk OfficersIdentification &mitigation of fraud risksRole of Assurance ProvidersFraud Risk ReportsConclusion

1

FRAUD RISK MANAGEMENT

IntroductionIntroduction

vessel/ship approachvessel/ship approachBoat/Vessel/ Submarine: Department/Entity

Destination Strategic goals/Mandate

Captain Leader

Crew Management & Support

Compass Legislation/Policies/ Processes

Radar Risk Officer

Sea/Ocean Hazards- Bermuda triangle/ Storms/Sharks: Risk

1

FRAUD RISK MANAGEMENT

Theft, Fraud & CorruptionTheft, Fraud & Corruption

LEGAL DEFINITIONLEGAL DEFINITION

FraudFraud UnlawfulUnlawful IntentionalIntentional MisrepresentationMisrepresentation Actual or potential prejudice to anotherActual or potential prejudice to another

TheftTheft UnlawfulUnlawful Intentional misappropriationIntentional misappropriation Lawful possession property/ assetLawful possession property/ asset Intention to deprive owner’s rights permanentlyIntention to deprive owner’s rights permanently

1

FRAUD RISK MANAGEMENT

LEGAL DEFINITIONS (CONT.)

CORRUPTIONCORRUPTIONCorrupt ActivitiesCorrupt Activities (Prevention and Combating of Corrupt Activities Act. 2004)(Prevention and Combating of Corrupt Activities Act. 2004)

( Abuse of public office for private gain)( Abuse of public office for private gain)

Directly, indirectly accepting or agreeing to acceptDirectly, indirectly accepting or agreeing to accept Any gratification from another personAny gratification from another person Giving or agreeing to give any other personGiving or agreeing to give any other person To influence that person directly or indirectly To influence that person directly or indirectly Exercise power, duties or legal obligation that amounts:Exercise power, duties or legal obligation that amounts:

o Illegal, dishonest, unauthorised, incomplete or biased;Illegal, dishonest, unauthorised, incomplete or biased;o Misuse or selling of information or material acquired;Misuse or selling of information or material acquired;o Abuse of position of authority;Abuse of position of authority;o Breach of trust;Breach of trust;o Violation of legal duty or set of rules;Violation of legal duty or set of rules;o Designed to achieve an unjustified resultDesigned to achieve an unjustified resulto Unauthorised or improper inducement to do or not to do anythingUnauthorised or improper inducement to do or not to do anythingo Conflict of interestConflict of interest

1

FRAUD RISK MANAGEMENT

Fraud & Corruption RisksFraud & Corruption Risks

Fraud undermines any control measure implemented in the organisation

Critical Role players• Political Will (External)• Vision (Captain)• Competent Delivery: Management team & support• Cooperation: Assurance parties• Funding: Adequate resources• Audit beyond compliance-Internal Auditors• Audit for fraud approach

1

FRAUD RISK MANAGEMENT

Framework for Fraud Risk AssessmentFramework for Fraud Risk Assessment

Setting of Strategic objectivesComplexity of the business processesKnowledge Management/SourceIdentification of all challengesAnalysisEvaluationRisk TreatmentRisk ReportingMonitoring & Review

1

FRAUD RISK MANAGEMENT

Role of Risk OfficersRole of Risk Officers

RADARRADAR• Understanding Organisation’s objectives• Impact Fraud Risks: Reputation /Image• Coordination of efforts• Understand compass : Control Activities• Resource Management: Risk treatment• Conduct Monitoring• Reporting• Influential: Management & Assurance parties

1

FRAUD RISK MANAGEMENT

Indicators of fraud risksIndicators of fraud risks

Operational level( General Image of the department)• Lack of service delivery or delays• New procurement strategies inventions• Over-Under expenditure/ spending patterns/borrowings• Types of qualifications• Unverifiable performance information• High turnover at senior management level• Non committal to address problems- Management letter responses• Negative /Aggressiveness when caution to deal with controls

1

FRAUD RISK MANAGEMENT

Indicators of Fraud Risks (Cont.)Indicators of Fraud Risks (Cont.)

Operational level

( Example of Procurement fraud)

• Purpose & Resources• Procurement Strategy• Bidders documentation• Bid Evaluation & Adjudication• Appointment & Contract• Execution of the service• Progress Payments & Variation Orders• Change of life style- Management• Lack of commitments/ No corrective action

1

FRAUD RISK MANAGEMENT

Identification & mitigation of fraud risksIdentification & mitigation of fraud risks

Mandate of the organisation

Business processes

Corporate culture

Satisfied support staff

Control Environment

Applicable Legislation

Effectiveness of Assurance providers

Roles of law enforcement agencies

1

FRAUD RISK MANAGEMENT

SA Legislative FrameworkSA Legislative Framework

1994 Public Service act1996 Constitution of RSA 1998 Witness Protection Act1998 Prevention Of Organised Crime Act1998 Executive Members Ethics Act1998 Competition Act( amended 2009)1999 Public Finance Management Act2000 Municipal Systems Act2000 Protected Disclosure Act2000 Promotion Of Access to information act2000 Promotion Of Administrative justice Act2001 Financial Intelligence Centre Act2002 State Information Technology Act2003 Municipal Finance management Act2003 Broad Based Black Economic empowerment act2004 Prevention and combating Of Corrupt Activities act

1

LEGISLATIVE FRAMEWORK FRAUD & CORRUPTION

SA Legislative Framework (Cont.)SA Legislative Framework (Cont.)

Cabinet Memos

National Treasury Regulations

National Treasury Guidelines

National Treasury Practice Note

National Treasury Circulars

1

FRAUD RISK MANAGMENT

Role of Assurance Providers: Fraud RiskRole of Assurance Providers: Fraud Risk

1

FRAUD RISK MANAGEMENT

Role of Assurance ProvidersRole of Assurance Providers

Coordination

Cooperation

Integration

Combined link

Reliance

All assurance parties in an organisation have interest in the fraud report

1

FRAUD RISK MANAGEMENT

Fraud Risk ReportsFraud Risk Reports

Fraud Risk IdentificationProbabilityImpact AssessmentControl environmentTasking/ResponsibilitiesMonitoring

1

FRAUD RISK MANAGEMENT

CONCLUSIONCONCLUSION

“What is worse than being blind is having a sight without vision”

“Sight is a function of the eyes, while vision is a function of the heart”