PUBLIC SECTOR RISK MANAGEMENT FORUM
THEME: FRAUD RISK MANAGEMENT
Presenter: Zanele Mxunyelwa, CIA, CFE | Specialised Audit Services, | 16 March 2012
Venue: 40 Church Square, NATIONAL TREASURY
FRAUD RISK MANAGEMENT
CONTENTS
Introduction
Theft, Fraud & Corruption
Framework for Fraud Risk Assessment
Role of Risk Officers
Identification &mitigation of fraud risks
Role of Assurance Providers
Fraud Risk Reports
Conclusion
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FRAUD RISK MANAGEMENT
Introduction
vessel/ship approach
Boat/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
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FRAUD RISK MANAGEMENT
Theft, Fraud & Corruption
LEGAL DEFINITION
Fraud
 Unlawful
 Intentional
 Misrepresentation
 Actual or potential prejudice to another
Theft
 Unlawful
 Intentional misappropriation
 Lawful possession property/ asset
 Intention to deprive owner’s rights permanently
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FRAUD RISK MANAGEMENT
LEGAL DEFINITIONS (CONT.)
CORRUPTION
Corrupt Activities
(Prevention and Combating of Corrupt Activities Act. 2004)
( Abuse of public office for private gain)
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Directly, indirectly accepting or agreeing to accept
Any gratification from another person
Giving or agreeing to give any other person
To influence that person directly or indirectly
Exercise power, duties or legal obligation that amounts:
o
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Illegal, dishonest, unauthorised, incomplete or biased;
Misuse or selling of information or material acquired;
Abuse of position of authority;
Breach of trust;
Violation of legal duty or set of rules;
Designed to achieve an unjustified result
Unauthorised or improper inducement to do or not to do anything
Conflict of interest
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FRAUD RISK MANAGEMENT
Fraud & Corruption Risks
Fraud undermines any control measure implemented in the organisation
Critical Role players
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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
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FRAUD RISK MANAGEMENT
Framework for Fraud Risk Assessment
Setting of Strategic objectives
Complexity of the business processes
Knowledge Management/Source
Identification of all challenges
Analysis
Evaluation
Risk Treatment
Risk Reporting
Monitoring & Review
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FRAUD RISK MANAGEMENT
Role of Risk Officers
RADAR
• 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
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FRAUD RISK MANAGEMENT
Indicators of fraud risks
Operational level
( General Image of the department)
• Lack of service delivery or delays
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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
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FRAUD RISK MANAGEMENT
Indicators of Fraud Risks (Cont.)
Operational level
( Example of Procurement fraud)
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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
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FRAUD RISK MANAGEMENT
Identification & 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
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FRAUD RISK MANAGEMENT
SA Legislative Framework
1994
1996
1998
1998
1998
1998
1999
2000
2000
2000
2000
2001
2002
2003
2003
2004
Public Service act
Constitution of RSA
Witness Protection Act
Prevention Of Organised Crime Act
Executive Members Ethics Act
Competition Act( amended 2009)
Public Finance Management Act
Municipal Systems Act
Protected Disclosure Act
Promotion Of Access to information act
Promotion Of Administrative justice Act
Financial Intelligence Centre Act
State Information Technology Act
Municipal Finance management Act
Broad Based Black Economic empowerment act
Prevention and combating Of Corrupt Activities act
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LEGISLATIVE FRAMEWORK FRAUD & CORRUPTION
SA Legislative Framework (Cont.)
Cabinet Memos
National Treasury Regulations
National Treasury Guidelines
National Treasury Practice Note
National Treasury Circulars
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FRAUD RISK MANAGMENT
Role of Assurance Providers: Fraud Risk
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FRAUD RISK MANAGEMENT
Role of Assurance Providers
Coordination
Cooperation
Integration
Combined link
Reliance
All assurance parties in an organisation have interest in the
fraud report
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FRAUD RISK MANAGEMENT
Fraud Risk Reports
Fraud Risk Identification
Probability
Impact Assessment
Control environment
Tasking/Responsibilities
Monitoring
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FRAUD RISK MANAGEMENT
CONCLUSION
“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”
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