Ethics, Risk Governance and Fraud Presentation

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Facilitated by Goldengate Consulting
September 2012
Governance, Ethics, Risk and Fraud
Introduction
Objectives
Governance, Ethics, Risk and Fraud
Objectives
• To understand the concepts of corporate
governance, ethics, risk and fraud
• To appreciate the need for corporate governance
•
and an ethical culture within an organisation
To understand how to manage risks in our
businesses
Definitions
Governance, Ethics, Risk and Fraud
The Key Concepts
 Governance is the system of controlling and directing an
entity
 Ethics is a set of principles of right conduct or a system of
moral principles
 Risk is the effect of uncertainty on objectives
 Fraud is a deception deliberately practiced to secure an
unlawful or unfair gain
Definitions
Corporate Governance
Definition
Corporate Governance
What is Corporate Governance?
‘Corporate Governance is a system by which a company is directed
and controlled’.
– Sir Adrian Cadbury
Definition
Corporate Governance Issues
Understanding corporate governance issues
Rights and equitable treatment
of stakeholders
Role and responsibilities of the board
Integrity and ethical behaviour
Disclosure and transparency
Corporate Governance
Issues
Corporate Governance
The need for corporate governance




Transparency
Strengthens confidence in management
A form of protection for shareholders
Good corporate governance encourages
growth and sustainability for SMMEs
Corporate Governance
Need for CG
Corporate Governance
Corporate Governance Key Principles
• Accountability
• Responsibility
• Honesty and Transparency
• Integrity
• Openness
• Mutual respect
• Performance Evaluation
• Commitment
Key Principles
Principles
King III – Scope and Application
Corporate Governance
King III
King III- scope & application
Applies to all
entities
Apply or Explain
Impact on Board
– effective
leadership
Stakeholder Relationships
Stakeholders
in an
organisation
Conflict of
interests
Corporate Governance
Legislative Framework
Board – effective leadership
Corporate Governance
Ethical Leadership & Corporate Citizenship
Board/ Directors – Focal Point & Custodian of CG
Effective & Independent Audit Committee
Governance of Risk
Governance of IT
Compliance with Laws, Rules, Codes & Standards
Effective Risk Based Internal Audit
Governing Stakeholder Relationships
Integrated Reporting & Disclosure
King III
Conflict of interests
• Financial Reporting and
Auditing
• Directors’ Remuneration
• Board – Stakeholder Relations
• Corporate governance & Risk
Management
• Communication framework
Corporate Governance
Conflict of interests
Corporate Governance
“What makes corporate governance necessary? Put simply, the interests of
those who have effective control over a firm can differ from the interests of
those who supply the firm with external finance. The problem commonly
referred to as a principal- agent problem, grows out of the separation of
ownership and control and of corporate outsiders and insiders. In the
absence of the protections that good governance supplies, asymmetries of
information and difficulties of monitoring results in capital providers who
lack control over the corporation, finding it risky and costly to protect
themselves from the opportunistic behaviour of managers and controlling
shareholders.” (OECD)
Approaches to corporate governance
• The shareholder value approach
• The stakeholder/ pluralist approach
• The enlightened shareholder approach
Corporate Governance
Best approach to corporate governance
Corporate Governance
In your view, which approach is the best
approach to corporate governance?
Corporate Governance Framework
Source: Wikipedia
Corporate Governance
Integrated Sustainability Reporting
Corporate Governance
Economic Reporting
Social Reporting
Environmental Reporting
TRIPLE BOTTOM
LINE
Ethics
Ethics
Ethics
What is Ethics?
Basic ethics concepts and distinctions
Ethics is a set of
principles of right
conduct or a system of
moral principles
Ethics
Basic ethics concepts and distinctions
What does ‘ethics’ mean to you??
• I am an ethical person/ I am not an ethical
person
• I work for an ethical organisation/ I do not work
for an ethical organisation
• I live in an ethical country/ I do not live in an
ethical country
Ethics
Basic ethics concepts and distinctions
Ethics
Good
Myself
Others
Basic ethics concepts and distinctions
What is business ethics?
Business ethics can be defined
as the principles, norms and
standards that guide an
organisation’s conduct of its
activities, internal relations and
interactions with external
stakeholders
Ethics
Basic ethics concepts and distinctions
What are values?
Personal Values
Personal values are your own
convictions as a person about
what is good, acceptable and
desirable. Your values are your
core values as an individual
Ethics
Basic ethics concepts and distinctions
Personal Values
Assuming that you enter into a retail shop to buy a
few groceries for the week. You pay for the items at
the till, and you leave the retail shop. However, as you
are about to enter into your car at the parking lot, you
checked the change the till attendant gave you, and
you realise you have been given thirty rand (R30)
more than you are entitled to. What will you do?
Ethics
Basic ethics concepts and distinctions
Values in Organisations
• Strategic values
• Work values
• Ethical values
Ethics
Basic ethics concepts and distinctions
Ethics & Law
Ethics
Basic ethics concepts and distinctions
Personal & Organisational Ethics
The good apple
vs
The bad apple
Ethics
Basic ethics concepts and distinctions
Personal & Organisational Values
• Child labour may sometimes be justified
• If you could save a life by telling a lie, you
should do so
• People who kill others for a cell phone
should forfeit their moral right to life
• Smoking is not good
Ethics
Basic ethics concepts and distinctions
Professional
Ethics
Professional
Virtues
Ethics
A profession is a typical example of a group of
people who adhere to a set of ethical standards.
A virtue is a trait that intuitively enables one to do
what is right. Professional virtues are those character
traits which members of a profession are expected
to have , for example, virtues of an auditor are
independence, integrity and objectivity
Importance of Ethics to the Organisation
Importance of Ethics
• Ethics is the cornerstone of corporate
governance
• Ethics ensures the sustainability of a
business
• Good corporate reputation is built on a
solid foundation of ethical culture
Ethics
Importance
Importance of Ethics to the Organisation
Importance of Ethics
• A culture of trust must be built on a
corporate framework of ethical principles
which are transparency/ openness,
competence, integrity and benevolence
• Ethics play a major role in the prevention
of fraud. Fraud prevention becomes a
shared responsibility among the members
of the organisation
Ethics
Importance
Ethics & Corporate Governance
Ethics
Ethics – Driver for Corporate Governance
Fairness
Accountability
Responsibility
Transparency
Ethics
Ethics & Corporate Governance
Ethics of Governance
Inclusive
Approach
Exclusive
Approach
Ethics & Corporate Governance
Ethics
Code of Ethics - Benefits
• It enhances economic performance
• It helps build an ethical culture
• Stakeholders know where they stand (the contents
of the code set clear parameters of desirable or
undesirable behaviour)
Ethics & Corporate Governance
Ethics
Code of Ethics - Benefits
• It provides security and predictability for
employees
• It can contribute to building the organisation’s
reputation
• It creates customer and stakeholder loyalty
• It builds trust between you and your stakeholders
(the “others)
Ethics & Corporate Governance
Ethics
Code of Ethics – Six Key Elements
Purpose
Process
Format
Content
Tone
Implementation
Ethics & Corporate Governance
Ethics
Ethics as a Corporate Culture
Communication
Selection
Performance
Management
Ethical Corporate
Culture
Disciplinary
Procedures
Recruitment
Induction & Training
Ethics & Corporate Governance
Ethics
Ethical Decision Making Process
• What alternatives are available for my consideration?
• Are the alternatives legal?
• Do the alternatives meet with professional/ organisational
ethical standards?
• Will I be able to disclose my actions?
Ethics & Corporate Governance
Ethical Decision Making Tool
What alternatives are available for my consideration?
If Yes
Are they legal?
If No , Stop!
Do they meet with professional/ organisational ethical standards?
If Yes
If No, Stop!
Will I be able to disclose my actions?
If Yes
Ethical Decision
If No, Stop!
Ethics
Ethics & Corporate Governance
Ethics
Case Studies
Case 1
At a function organised by your company in your company premises, shortly
before the end of the function, you notice that your manager is busying
putting cartons of drinks into the boot of his car. In that split of a second; he
glances at you, smiles and says; ‘what the company doesn’t know wouldn’t
hurt the company; erase this from your memory’. Then your supervisor says
his goodbyes to everyone including you, and he drives out of the premises.
What do you do?
Ethics & Corporate Governance
Ethics
Case Studies
Case 2
A supplier overhears a conversation amongst your colleagues that today is
your birthday; she quickly goes out to the shopping mall next to your office
building to buy you a card and a box of chocolate. She comes back to your
office, meets you at the reception, and wishes you ‘a happy birthday’ and
gives you the birthday card and the box of chocolate.
What do you do?
Ethics & Corporate Governance
Ethics
Case Studies
Case 3
A supplier overhears a conversation amongst your colleagues that today is
your birthday; she quickly goes out to the shopping mall next to your office
building to buy you a card and a box of chocolate. She comes back to your
office, meets you at the reception, and wishes you ‘a happy birthday’ and
gives you the birthday card and the box of chocolate. The supplier is one of
the three bidders your department is considering for a current tender.
What do you do?
Ethics & Corporate Governance
Ethics
Case Studies
Case 4
One of the accountants in your department has resigned and needs to be
replaced. Your manager tells you that he wants to appoint Tyler, an
accountant with one of your suppliers. He tells you to nevertheless go
through the motions of following procedure by advertising the post
internally. You agree that Tyler has the requisite qualification for the post.
Once the applications have all been received, you realize that several more
competent candidates from your subsidiary companies have applied. Your
manager is however adamant that Tyler should be appointed.
What do you do?
Ethics & Corporate Governance
Ethics
Case Studies
Case 5
You get a call from a recruitment company requesting a reference for a
person who is your acquaintance. This person was introduced to you a week
ago by a mutual friend. You cannot claim to know her so well. What do you
tell the caller?
Risk
Agenda
1. Introduction to Risk
2. The Risk Management Process
3. King III and the Risk Management Process
4. Information Technology (IT) Risk
5. Compliance Risk
Risk
Introduction to Risk
Risk
Risk and Risk Management
Definition of Risk
The effect of uncertainty
on objectives - ISO
31000
Definition of Risk Management
The process of Identifying, Analysing and
Ranking the importance of the identified Risks
with a view to Avoiding, Eliminating, Accepting
or Reducing the Business’s exposure to Risk
that could negatively affect the Start-up, the
Management or the Growth of a Business.
Definition of Risk and Risk Management
So, Risk Management is
something new that we need to
learn about
Well ….. No!
It’s something we do every day
without even thinking about it
Risk
Definition of Risk and Risk Management
Risk
So let’s look at an everyday example of Risk
Management
The Objective
The Risk
The Controls
• To go out of the house but still
stay Dry and Warm.
• Getting cold or raining wet.
• Putting on a long sleeve shirt,
long pants, socks & shoes and
taking a waterproof jacket with
us.
Risk Management Process
Risk
The effect of uncertainty on objectives
VISION
Which states where we wish the business to go
States what we want the Business
to achieve at a Macro Level
MISSION
Define the Business Processes
that will be needed to achieve this
Vision and Mission
BUSINESS
PROCESS
OBJECTIVES
RISKS
What do we wish to achieve
with each Business Process
What can prevent
us from achieving
the Objectives
Business Processes
Risk Universe
 5 Risk Categories
 Social & Ethics Risk
 Financial Risk
 Operational Risk
 Information Technology Risk
 Compliance to Laws and Regulations Risk
 16 Business Areas
 65 Business Processes (Excluding the Business Specific
Processes)
 347 Risks
Risk
Retirement Funds
B.B.B.E.E.
Supplier
Skills
Development
Business Continuity
Planning
Competitor
Equity
Employment
Code of Ethics
Shareholder
Social
Responsibility
Derivatives
Strategic Planning
Business
Partner
Environmental
impact
Foreign Exchange
Reputation
Customer
Occupational
Hazards
Intangible Assets
Interest Rate
Board of Directors
Government
/ Country
Sustainability
& Risk Reporting
Information / Data
Commodity
Credit Exposure
& Collectability
03 - S.H.E. and
Sustainability
04 - Intellectual
Property
05 - Market
Exposure
06 - Liquidity
& Credit
01 -Governance
02- Stakeholder
Economy / Social
Cash Management
/ Treasury
Social & Ethics
Regulatory &
Compliance
Under Performing
Assets
Financial
Accounting
Funding / Debt
Equity
Tax
07 - Financial
Reporting
08 - Capital
Structure &
Investments
Financial
Risk Universe
16 - Compliance to Laws
And Regulations
09 - Accounting
10 - Assets
(Risk And Control Framework)
11 - Legal &
Insurance
12 - Human
Resources
13 - Commercial
Management
Accounting
Stock Control
and Logistics
Legal Liability
Recruitment
and Retention
Marketing
Creditors
Fixed Assets
and Plant
Contracts
Payroll
Sales
Property &
Estate
Insurance
Debtors
Information
Technology
Operations
Pension Fund
& Medical Aid
Fleet Control &
Workshops
Industrial
Relations
Performance
Management
Human Capital
Management
14 - IT Environment 15 - IT Operations
IT Environment
Modelling
Information
Technology Strategy
Purchasing &
Procurement
Leave
Termination of
Service
Business
Specific
Monitoring
Production
Process
Service
Delivery
Area 17 
System
Development
Life Cycle
IT Systems
Support
IT Systems
Operations
Information
Security
Continuous
Availability
The Risk Management Process
Risk
Business Process Selection
However, not all of these BUSINESS
PROCESSES will be applicable to
your business – so you will need to
select the ones that apply to you.
If your Business does not sell
on credit – you can eliminate
the Debtors Business
Process
If your Business only buys for
cash – you can eliminate the
Creditors Business Process
Risk Analysis
Risk
The process of analysing and ranking the importance of the identified Risks
• Identify the Business Processes that are applicable to your
Business;
• define the Objectives of each of these Business Processes;
• identify the Risks that could prevent you from achieving
these Objectives; then
Analyse the Risk and Rank these according to:
 The Likelihood that the risk would occur, and
 The Impact that this would have if it does occur
Wikipedia
Risk
Impact
Risk Matrix
Risk
5
12
16
20
24
25
4
7
13
18
22
23
High
Risk
3
4
11
15
19
21
Medium
Risk
2
2
6
10
14
17
Low Risk
1
1
3
5
8
9
1
2
3
4
5
Likelihood
Risk Impact
Level
Risk
Non-Financial Impact Description
Quantitative
Reputation
Systems Availability
5. Severe
The impact is beyond the Stakeholders’
ability to manage or resource and as
such may threaten the survival of, for
example, a particular project or the
company itself.
> R10 M
Suspension of business.
Systems unavailable
for more than 2 days
4. Major
The impact would threaten the ability to
achieve the Product and/or
Organisational objectives in the
medium term.
R2 M – R10 M
Adverse media comment that
has a long term impact on
Company’s image, significant
brand damage.
Systems unavailable
for more than 5
hours less than 2
days
3. Significant
The impact may threaten the ability to
achieve
the
Product
and/or
Organisational objectives in the short
term.
R500K – R2 M
Adverse media comment or
regulatory action or fine that
has a short term reputational
impact, requiring corrective
action and dedicated
additional resources to rectify
and recover.
Systems unavailable
for more than 30
minutes but less
than 5 hours
2. Minor
The impact can be absorbed within the
day-to-day business running costs.
R50K – R500K
Adverse impact on some
external customers, minor
impact on objectives.
Systems unavailable
for more than 5
minutes but less
than 30 minutes
1. Insignificant
The impact has little or no effect on the
day to day running costs of the
business
< R50K
Breakdown in control but
process performance
unaffected.
Systems unavailable
for less than 5
minutes
Risk Likelihood
Level
Risk
Description
Probability of
Occurrence in
the next 12
Months
5. Almost Certain
Expected to occur in most circumstances or occurs regularly
>70%
4. Likely
Occurrence is noticeable, starting to be of nuisance value
40% - 70%
3. Possible
Occurs occasionally
20%-40%
2. Unlikely
Occurs infrequently
5% - 20%
1. Rare
Only occurs in exceptional circumstances
<5%
Risk
Risk Mitigation
Avoiding, Eliminating, Accepting or Reducing the Business’s exposure to Risk
AVOIDING RISK
To avoid risk, a business
would need to transfer the
risk to another party e.g.
Insuring against the Risk
ACCEPT THE RISK
A business may decide to
accept the risk where the
impact of the risk is less
than the cost of controlling
the Risk
ELIMINATING RISK
To eliminate risk, a
business would need to exit
from the business that is
causing the risk – e.g.
Manufacturing Risk - stop
Manufacturing and buy in
the item required
REDUCE THE BUSINESS’S
EXPOSURE TO RISK
Introduce Control
Introduction of Control
Control: Controls are the
actions taken to prevent an
event from occurring or reduces
the impact of the risk event.
Risk
The Introduction of Control
leads to two concepts of Risk
Inherent Risk: (Pre-Control) A subjective measure of the threat of a Risk
based on its Inherent Likelihood and Inherent Impact measures, without
considering the effectiveness of controls, even if they exist. This produces
a score that indicates the worst-case exposure in the event that there are
no controls in place, or the controls fail to take effect during a risk event.
Residual Risk: (Post Control) A subjective measure of the threat of a
Risk based on its Residual Likelihood and Residual Impact measures,
giving the remaining level of risk after risk treatment measures have been
taken. Residual Risk can only be claimed if the controls are in place and
work to reduce the risks and/or consequences to the level that is expected.
Risk Assessment
Risk
 The first task of the Risk Manager in performing a risk assessment
would be to determine who the effective players are in each
business process to be assessed.
 The second step would be to determine the most effective
mechanism to conduct the assessment. Two examples of these
are:
 Risk Management Workshops – All participants in one room to
discuss and determine Risk Ratings.
 Risk Management Questionnaires – completed by all
participants, collated and summarised to form the final
assessment – discussion only on contentious points where risk
rating vary greatly.
Automated tools are available to assist with either of these
assessment mechanisms
Risk and Control Framework
Risk
King III and the Risk Management Process
Risk
King III requires the segregation of
Internal Audit and Risk
Management Functions
Chapter 7 Chapter 4
RISK
INTERNAL AUDIT MANAGEMENT
7.1 Effective Risk Based
Internal Audit
7.2 Implement a Risk Based
Audit Plan
7.3 Assessment of Systems of Internal
Control and Risk
7.4 Audit Committee to Oversee Internal Audit
7.5 Internal Audit Strategically Positioned
4.1 Board is Responsible
for Risk
4.2 Set Levels of Tolerance
4.3 Assisted by Risk Committee
4.4 Management must Design & Implement
Risk Plan
4.5 Perform Risk Assessment
4.6 Implement a Framework
4.7 Respond Appropriately
4.8 Monitor Risk Continuously
4.9 Provided Assurance on Effectiveness of the Risk Process
4.10 Adequate Risk Disclosure to Stakeholders
The Board’s Responsibilities
Risk
King III defines 10 Principles for Risk Management in
Chapter 4 – The Governance of Risk
1) The Board should be responsible for the Governance of
Risk
2) The Board should determine the levels of Risk Tolerance
3) The Risk Committee or Audit Committee should assist the
Board in carrying out its Risk Responsibilities.
The Board’s Responsibilities - Contd
Risk
4) The Board should delegate to management the
responsibility to Design, Implement and Monitor the
Risk Management Plan.
5) The Board should ensure that Risk Assessments are
performed on a continual basis.
6) The Board should ensure that Frameworks and
Methodologies are implemented to increase the
probability of anticipating unpredictable risks.
7) The Board should ensure that management considers
and implements appropriate Risk Responses.
The Board’s Responsibilities - Contd
Risk
Thus Management must:
 Design, Implement and Monitor the Risk Management
Plan.
 Ensure that Risk Assessments are performed on a
continual basis.
 Implement Frameworks and Methodologies to increase
the probability of anticipating unpredictable risks.
 Consider and Implement appropriate Risk Responses.
 Monitor Risk on a continual basis.
The Board’s Responsibilities - Contd
Risk
8) The Board should ensure continual risk monitoring by
Management
To facilitate the Board’s responsibility of Oversight,
Management must provide feedback to the Board, in the
form of:
Risk Assessments,
Risk Registers,
Risk Mitigation Actions Plans,
Monitoring & Corrective Action Reports.
The Board’s Responsibilities - Contd
Risk
9) The Board should receive assurance regarding the
effectiveness of the Risk Management Process.
The Role of Internal Audit
King III requires companies to establish an internal audit
function which provides assurance over the company’s
governance, risk management and internal controls.
Internal audit will be required to provide a written
assessment of the system of internal controls and risk
management to the board, as well as a written assessment
of the internal financial controls to the audit committee.
The Board’s Responsibilities - Contd
Risk
10) The Board should ensure that there are processes in
place enabling complete, timely, relevant, accurate and
accessible risk disclosure to stakeholders.
Principle 10 covers the Relationship with Stakeholders and
the Integrated Reporting to Stakeholders. The King III
report details these two topics in Chapter 8 – Governing
Stakeholder Relationships, and in Chapter 9 – Integrated
Reporting and Disclosure.
Information Technology Risk
King III defines 7 Principles for IT
Governance in Chapter 5 –
The Governance of Information
Technology
• The Governance of IT
• The Impact of Information Technology of Risk
– IT as an Integral part of the Company’s Risk
Management Process
Risk
The Governance of IT
Risk
Principle 1 - The Board should be responsible for Information
Technology (IT) Governance.
Principle 2 - IT should be aligned with the performance and
sustainability objectives of the company.
Principle 3 - The Board should delegate to management the
responsibility for the implementation of an IT Governance
Framework.
Principle 4 - The Board should monitor and evaluate
significant IT Investments and Expenditure.
IT as an Integral part of the Company’s Risk
Management Process
Risk
Principle 5 - IT should form an Integral part of the
Company’s Risk Management.
 IT Risk should form part of the Company’s Risk Management
Activities and Considerations.
 IT Management need to ensure that they can demonstrate adequate
business resilience.
 IT Legal Risk arises from the possession, ownership and operational
use of Technology.
 Companies must comply with applicable IT laws, rules, codes and
standards.
 The Board must consider how IT could be used to aid the Company in
the Management of Risk.
IT Risk
Risk
Principle 6 - The Board should ensure that Information
Assets are managed effectively.
 The protection of Information (Information Security)
 The management of Information (Information Management);
and
 The protection of personal information processed by companies
(Information Privacy)
Principle 7 - A Risk Committee and Audit Committee
should assist the Board in carrying out its IT
responsibilities.
Compliance Risk
Compliance Risk
King III defines 4 Principles for
Compliance in Chapter 6 –
Compliance with Laws, Rules, Codes
and Standards.
How Compliance impacts on Ethics,
Governance, Risk and Fraud
Risk
Board Responsibility
Risk
1) The Board should ensure that the Company complies with all
applicable laws and considers adherence to non-binding rules,
codes and standards.
2) The Board and each individual Director should have a working
understanding of the effect of the applicable laws, rules, codes
and standards on the company and its business.
3) Compliance Risk should form an integral part of the
Company’s Risk Management Process.
4) The Board should delegate to Management the implementation
of an effective Compliance Framework and Process.
Fraud
Agenda
1. What is Fraud
2. Faces of Fraud or Corruption
3. Reducing Fraud Risk
4. Detection of Fraud and Awareness Programme
Fraud
Fraud Risk
Fraud
“Fraud and deceit
abound now more
than ever before”.
SIR EDWARD CODE (1602)
What is Fraud
Definition of Fraud
Fraud
There is no single
accepted definition
of fraud.
It is impossible to provide a comprehensive definition of
fraud. However, all definitions have one thing in common an element of dishonesty or deceit.
Defrauding people or entities of money or valuables is a
common purpose of fraud, but there have also been
fraudulent "discoveries", e.g., in Science, to gain prestige
rather than immediate monetary gain.
What is Fraud
Fraud
Elements of Fraud
Fraud is a crime, and
also a civil law
violation.
• Knowingly making a false representation;
• Something intended to deceive; deliberate trickery intended to
gain an advantage;
• An intentional perversion of truth; deceitful practice or device
resorted to with intent to deprive another of property or other right;
• The intentional and successful employment of cunning,
deception, collusion; or artifice used to cheat or deceive another
person whereby that person acts upon it to the loss of his
property and to his legal injury;
What is Fraud
Fraud
Elements of Fraud (contd)
• Unfair advantage by unlawful or unfair means;
• Intentional deception resulting in injury to another person;
• The act of leading a person to believe something which
you know to be false in a situation where you know the
person will rely on that thing to their detriment;
• A deception, intended to wrongfully obtain money or
property from the reliance of another on the deceptive
statements or acts, believing them to be true;
• The intentional perversion of the truth in order to mislead
someone into parting with something of value;
What is Fraud
Fraud
Elements of Fraud (contd)
For a fraud to occur there are 3 elements required, these are:
 Need – The first element is a need, whether actual (Spouse
is retrenched) or perceived (just have to have that new
Boat)
 Justification – Entitlement, this is owed to me because……
 Opportunity – the perpetrator has to have access to the
Cash, Asset, persons to be used or whatever is to be used
/ removed
Definition of Fraud
Fraud
For purposes of this
presentation, we will
use the following
definition.
Fraud is the intentional deception to cause a
person to give up property or some lawful right or
to damage another individual using deceit, trickery
or cheating.
Definition of Corruption
Corruption is the abuse of entrusted
power for private gain
It hurts everyone who depends on
the integrity of people in a position
of authority
Fraud
Prevention and Combating of Corrupt Activities Act,
Act No. 12 of 2004
(CHAPTER 2 - OFFENCES IN RESPECT OF CORRUPT ACTIVITIES)
(Part I: General offence of corruption)
3. Any person who directly or indirectly (a) accepts or agrees or offers to accept any gratification from any other person,
whether for the benefit of himself or herself or for the benefit of another person: or
(b) gives or agrees or offers to give to any other person any gratification, whether for
the benefit of that other person or for the benefit of another person,
in order to act personally or by influencing another person so to act in a manner (i) that amounts to the(aa) illegal, dishonest, unauthorised, incomplete, or biased: or
(bb) misuse or selling of information or material acquired in the course of the
exercise, carrying out or performance of any powers, duties or functions
arising out of a constitutional, statutory, contractual or any other legal obligation:
(ii) that amounts to (aa) the abuse of a position of authority:
(bb) a breach of trust; or
(cc) the violation of a legal duty or a set of rules:
(iii) designed to achieve an unjustified result: or
(iv) that amounts to any other unauthorised or improper inducement to do or not to do
anything.
is guilty of the offence of corruption
Fraud
Key Drivers in the Current Economic Climate
Fraud
One of the Key Drivers for Fraud and Corruption is :
PEER INFLUENCE.
If the Politicians and Government not only in South
Africa, but around the world are open to Corruption,
then why not me?
What's Good for the Goose is Good for the
Gander
Key Drivers in the Current Economic Climate (Contd)
Fraud
Transparency International
--- The global coalition against Corruption --The Corruption Perceptions Index ranks countries / territories based on
how corrupt a country’s public sector is perceived to be.
It is a composite index, drawing on corruption-related data from experts
and business surveys carried out by a variety of independent and reputable
institutions.
SCORES
Scores range from 0 (highly corrupt) to 10 (very clean).
Corruption Perception Index (2011)
SOUTH AFRICA
POPULATION (2010):
50 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$363.7 BILLION
* INFANT MORTALITY RATE
(PER 1,000 LIVE BIRTHS - 2010):
40.7
* LIFE EXPECTANCY (2009)
51.61 YEARS
* LITERACY RATE (2007)
88.7%
Ranking
64 / 183
Score
4.1 / 10
0 (Highly Corrupt) to 10 (Very Clean)
Fraud
Corruption Perception Index (2011) - contd
UNITED KINGDOM
* POPULATION (2010):
62.2 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$2.25 TRILLION
* INFANT MORTALITY RATE
(PER 1,000 LIVE BIRTHS - 2010):
4.6
Ranking
16 / 183
Score
* LIFE EXPECTANCY (2009)
80.05 YEARS
Stats from World Bank
7.8 / 10
0 (Highly Corrupt) to 10 (Very Clean)
One of the Three Giants
Fraud
Corruption Perception Index (2011) - contd
UNITED STATES OF AMERICA
* POPULATION (2010):
309.1 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$14.59 TRILLION
* INFANT MORTALITY RATE
(PER 1,000 LIVE BIRTHS - 2010):
6.5
Ranking
24 / 183
Score
* LIFE EXPECTANCY (2009)
78.09 YEARS
7.1 / 10
0 (Highly Corrupt) to 10 (Very Clean)
One of the Three Giants
Fraud
Corruption Perception Index (2011) - contd
AUSTRALIA
* POPULATION (2010):
22.3 MILLION
* GDP (2009):
Corruption Perception
Index (2011)
Ranking
$924.84 BILLION
* INFANT MORTALITY RATE
(PER 1,000 LIVE BIRTHS - 2010):
4.1
* LIFE EXPECTANCY (2009)
81.54 YEARS
8 / 183
Score
8.8 / 10
0 (Highly Corrupt) to 10 (Very Clean)
One of the Three Giants
Fraud
Corruption Perception Index (2011) - Contd
BRAZIL
* POPULATION (2010):
194.9 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$2.09 TRILLION
* INFANT MORTALITY RATE (PER 1,000 LIVE
BIRTHS - 2010):
17.3
* LIFE EXPECTANCY (2009)
72.76 YEARS
* LITERACY RATE (2008)
90%
Ranking
73 / 183
Score
3.8 / 10
0 (Highly Corrupt) to 10 (Very Clean)
One of Our Trading Partners
Fraud
Corruption Perception Index (2011) - Contd
NIGERIA
* POPULATION (2010):
158.4 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$193.67 BILLION
* INFANT MORTALITY RATE
(PER 1,000 LIVE BIRTHS - 2010):
88.4
* LIFE EXPECTANCY (2009)
50.95 YEARS
* LITERACY RATE (2009)
60.8%
Ranking
143 / 183
Score
2.4 / 10
0 (Highly Corrupt) to 10 (Very Clean)
One of Our Trading Partners
Fraud
Corruption Perception Index (2011) - Contd
CHINA
* POPULATION (2010):
1.3 BILLION
Corruption Perception
Index (2011)
* GDP (2010):
$5.93 TRILLION
* INFANT MORTALITY RATE
(PER 1,000 LIVE BIRTHS - 2010):
15.8
* LIFE EXPECTANCY (2009)
73.06 YEARS
* LITERACY RATE (2009)
94%
Ranking
75 / 183
Score
3.6 / 10
0 (Highly Corrupt) to 10 (Very Clean)
One of Our Trading Partners
Fraud
Corruption Perception Index (2011) - Contd
NAMIBIA
* POPULATION (2010):
2.3 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$12.17 BILLION
* INFANT MORTALITY RATE (PER 1,000 LIVE
BIRTHS - 2010):
29.3
* LIFE EXPECTANCY (2009)
61.62 YEARS
* LITERACY RATE (2009)
88.5%
Ranking
57 / 183
Score
4.4 / 10
0 (Highly Corrupt) to 10 (Very Clean)
Our Closest Neighbours
Fraud
Corruption Perception Index (2011) - Contd
BOTSWANA
* POPULATION (2010):
2 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$14.86 BILLION
* INFANT MORTALITY RATE (PER 1,000 LIVE
BIRTHS - 2010):
36.1
* LIFE EXPECTANCY (2009)
53.01 YEARS
* LITERACY RATE (2009)
84.1%
Ranking
32 / 183
Score
6.1 / 10
0 (Highly Corrupt) to 10 (Very Clean)
Our Closest Neighbours
Fraud
Corruption Perception Index (2011) - Contd
ZIMBABWE
* POPULATION (2010):
12.6 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$7.47 BILLION
* INFANT MORTALITY RATE (PER 1,000 LIVE
BIRTHS - 2010):
50.9
* LIFE EXPECTANCY (2009)
48.45 YEARS
* LITERACY RATE (2009)
91.9%
Ranking
154 / 183
Score
2.2 / 10
0 (Highly Corrupt) to 10 (Very Clean)
Our Closest Neighbours
Fraud
Corruption Perception Index (2011) - Contd
MOZAMBIQUE
* POPULATION (2010):
23.4 MILLION
Corruption Perception
Index (2011)
* GDP (2010):
$9.59 BILLION
* INFANT MORTALITY RATE (PER 1,000 LIVE
BIRTHS - 2010):
92.2
* LIFE EXPECTANCY (2009)
49.28 YEARS
* LITERACY RATE (2009)
55.1%
Ranking
120 / 183
Score
2.7 / 10
0 (Highly Corrupt) to 10 (Very Clean)
Our Closest Neighbours
Fraud
Faces of Fraud and Corruption
Fraud
From amongst the many Faces of Fraud, we have chosen to
focus on the following four:
 Asset Misappropriation
 Financial Misstatement
 Computer Crime
 Identity Theft
Tips and Techniques
Techniques to monitor or detect Asset Misappropriation:
 Customer returns, credits or write-offs
 Unallocated payment / Suspense accounts
 Inventory scrap, spoilage, obsolescence
 Inventory shrinkage
 Fixed asset write-offs
Fraud
Tips and Techniques
Techniques to Prevent Asset Misappropriation:
 Employee monitoring via CCTV or Management-bywalk-about
 Segregation of duties
 Examination and countersigning of documentation
 Examination of cancelled cheques
 Independent verification
 Surprise audits
 Job rotation
 Physical security
Fraud
Reducing Fraud Risk
 Understanding your Risk of Fraud
 Hardening your Controls against
Fraud
Fraud
Detection of Fraud and Awareness Programme
 Embedding Fraud Awareness in the
Workplace
 Whistle Blowing – Methods and Protection
Fraud
Questions ?
Thank You
For more information
please contact the
Fasset Call Centre
on 086 101 0001
or visit www.fasset.org.za
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