Investigating and Preventing
Public Sector Fraud
4 April 2012
Lewis Rangott
Case study: Close relationships with vendors
► Senior
manager with a significant budget and complex projects requiring the appointment
of multiple vendors
► The
senior manager had significant technical expertise and a private sector background
► Email
/ CCR analysis showed extensive receipt of gifts, hospitality and friendships with
vendors
► Exposed
agency to watchdog scrutiny and jeopardised project delivery
Lessons:
► “Key
person risk” is rarely managed properly
► Arm’s
2
length procurement staff or probity advisors should be used on complex tenders
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Case study: Secondary employment risk
► Mid-ranking
► Had
officer in a government department
an outside business that overlapped with his public duties
► Poor
departmental controls around valuable equipment and resources
► Lead
to misappropriation of tens of thousands of dollars worth of equipment
Lessons:
► Approximately
620,000 Australians are multiple job holders (source: ABS Cat.
6105)
► Secondary
► Control
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employment risks trigger all points of the Fraud Triangle
of equipment and resources is often poor in the public sector
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The Fraud Triangle
Opportunity
Pressure
Rationalisation
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Case study: Résumé fraud
► Contract
► History
manager with procurement duties
of detectable fraudulent behaviour
► Changed
his name and falsified his résumé
► Detected
by chance
Lessons:
of résumés contain serious falsehoods (source: ICAC, ‘Operation
Avoca’ report, August 2010)
► 20%-30%
► Agencies
with poor employment screening are targeted
► Similarly,
inadequate vendor screening is a risk
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Effects of implementing fraud mitigation strategies
This is a comparison of the median losses at organisations that had implemented each
specified fraud control with the median losses for those organisations that did not have that
control.
Median loss based on presence of anti-fraud controls
Control
% of Cases
Implemented
Yes
($US)
No
($US)
% Reduction
Surprise audits
28.9%
$97,000
$200,000
51.5%
Job rotation/mandatory vacation
14.6%
$100,000
$188,000
46.8%
Hotline
48.6%
$100,000
$245,000
59.2%
Fraud training for managers/executives
41.5%
$100,000
$200,000
50.0%
Internal audit/Fraud investigation team
66.4%
$145,000
$209,000
30.6%
Fraud training for employees
39.6%
$100,000
$200,000
50.0%
Anti-fraud policy
39.0%
$120,000
$200,000
40.0%
Code of Conduct
69.9%
$140,000
$262,000
46.6%
Management review of internal controls
53.3%
$120,000
$200,000
40.0%
Source: Association of Certified Fraud Examiners – 2010 Report to the Nations on Occupational Fraud & Abuse – p.43
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Ernst & Young’s Anti-Fraud Framework
Practical steps that can enhance an organisation’s ability to mitigate fraud
risk and strengthen its corporate governance framework
Proactive
Setting the Proper Tone
Code of
Ethics
Anti Fraud
Program
Policies
Communications
and
Training
Fraud
Risk
Assessment
Reactive
Fraud
Controls
Monitoring
Fraud
Response
Plan
Example actions
•
8
Fraud Policy and
Procedures
•
Tone communication program
•
Code compliance confirmations
•
Whistleblower channels
•
Disciplinary code
•
Delegation of authority
•
Fraud awareness training
•
Ethical guidance
•
•
Fraud risk policy
Induction and training
processes
•
ASX 7 sign off
•
Insurance programs
•
Employment contracts
•
Annual Business
Ethics surveys
•
Deep dive reviews
by internal audit
•
Fraud vulnerability
assessments and
scenario analysis
•
Incident reporting
•
Annual and half
yearly self
assessment
•
Process Data
Analytics
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•
Escalation and
investigation
protocols
•
Discipline and
compliance
enforcement
•
Control remediation
for known issues
•
Financial recovery
Contact details
Brenton Steenkamp, Partner, Fraud Investigation and
Dispute Services, Ernst & Young
Email: brenton.steenkamp@au.ey.com
Lewis Rangott, Manager, Fraud Investigation and
Dispute Services, Ernst & Young
Email: lewis.rangott@au.ey.com
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