Pacific Islands Financial Managers’
Association (PIFMA) Heads: Annual
Meeting
by Ms Rosie Langi (ACFE,CICA,TA(Fiji)
Director, Transparency International -Fiji
Disclaimer
Neither this presentation nor the materials you have been provided
shall constitute legal advice or the opinions of the Transparency
International – Fiji or the professional entities that the presenter is
associated with (ACFE, IIC, FIIA, FAFE)
While the practices and methodologies which will be presented are
considered industry best-practices, specific circumstances and fact
patterns should drive your process and approach.
Any similarities of names or circumstances are purely coincidental
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Overview
• Interchangeable use of
terms (Corruption vs. Fraud)
• TI focus
- Global Perception Barometer
(The Barometer)
- Corruption Perception Index
(CPI)
• Professional focus
- Big Four (KPMG, PwC,
E&Y, Deloitte)
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- Association of Certified
Fraud Examiners (ACFE)
- (Prevention, Detection
and Deterrence)
• Integrated Methods
- The Corporate reporting
Supply Cycle
- Fraud Deterrence Cycle
- GRC Toolbox
• The Future –Where Do
We Go From Here
Corruption vs. Fraud defined
• Corruption
- “the abuse of trusted
authority for private
gain”.
(Transparency International)
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• Fraud (occupational)
- The use of one’s resources
for personal enrichment
through the deliberate
misuse or misapplication
of the organisation’s
resources or assets
(Association of Certified
Fraud Examiners)
THE FRAUD TREE
Corruption
Conflicts
of Interest
Bribery
Asset
Misappropriations
Fraudulent
Statements
Cash
Financial
Inventory &
All Other Assets
Non-financial
Illegal
Gratuities
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Economic
Extortion
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Fraud in Historic Perspective
• Fact of life for years
• Babylonian era (1800BC) – Code of Laws
• US-since colonies settled, 1616 Virginia case, Captain
Samuel Argall, Deputy Gov – “...only six goats were left...”
• Civil war –False Claims Act 1863
• Credit Mobilier scheme 1872 (double invoiced govt,
distributed $50m to shareholders. Politicians involved.
• Fiji cases (FMF, NBF,HA,C&E, Immigration, Agriculture,
Fisheries)
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Transparency International
• TI, is the global CSO leading the
fight against corruption.
• Over 90 chapters worldwide,
with its Secretariat in Berlin.
• TI raises awareness of the
damaging effects of corruption
and works with partners in
government, business and civil
society to develop and
implement effective measures to
tackle it. (advocacy)
• Membership is open (qualified)
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• Regional Classification within
the Asia Pacific
--------------------
-
Fiji
Papua New Guinea
Solomon Islands
Vanuatu
Global Corruption Barometer 2010
• The Barometer is the largest
cross-country survey collects
general public’s views on and
experiences of corruption.
• In 2010, over 91,500 people
in 86 countries
• most comprehensive edition
since 2003.
• general public’s views about
corruption levels in their
country
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• government’s efforts to fight
corruption.
• Complements Perception
Index & Bribe payers Index
on the general public’s
perceptions of key
institutions
• public willingness to engage
with the fight against
corruption.
TI Projects
Regional
• Advocacy and Legal Advice
Centres (ALAC)
• Forest Governance and
Integrity
• Preventing Corruption in
public contracting
• Transparency in political
financing
• National integrity systems
• Corruption prevention in
disaster relief
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National
• Corruption in politics
• Corruption in the public
sector
• International Anti Corruption conventions
• Anti-Corruption education
• Corruption in public
contracting
Changes in Corruption Levels in the
past 3 yrs, by Region.
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Perceived Levels of Corruption in Key
Institutions
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Corruption Affecting Key Institutions/
Sectors. Comparison Overtime, Overall
Results
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Assessment in Government Actions
Against Corruption
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Peoples’ Trust to Fight Corruption
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Peoples’ Trust to Fight Corruption – By
Region
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Transparency International Corruption
Perceptions Index (CPI)
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Professional Bodies - ACFE
• The world’s largest and
Certifying anti - fraud body
was formed in 1988
• The Association of Certified
Fraud Examiners (ACFE)
• based in Austin, Texas, USA.
• over 55,000 members world
– wide and offers the
Certified Fraud Examiners
(CFE) Examination.
www.acfe.com
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• Membership is open to those
of ‘good standing’.
• Certification is in Law,
Finance, Criminology and
Ethics and Investigation
(CFE)
Famous Quotes: Enron
• “The company is probably in the strongest and best shape that it
has ever been in…There are no accounting issues, no trading
issues, no reserve issues, no previously unknown problem or
issues.” (-Kenneth Lay, Enron CEO statement to Wall Street)
• “I am incredibly nervous we will implode in a wave of accounting
scandals, and our [successes are] nothing more than an accounting
hoax.” (- Sherron Watkins, Former Enron, VP Corp Development
and Whistleblower)
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International Fraud Cases
• Enron (US) 2000
- $US600 million loss;
- $85m settlement, 20 000 employees.
• Adelphia(US) 2002
- $US2.3billion
• $0.01 per acct per month – 1million clients = $10 000pm =
$120 000pa
• UK Insurance claims for 38 teeth
• UK pop 55 million, social security number 70 + million
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Fiji Fraud Cases
• National Bank Of Fiji (Fiji)
1990s $F300million approx.
• Housing Authority of Fiji
(1990’)
• Customs & Excise
Department (1990s)
• Fiji Immigration Department
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• Shell companies
• Phantom employees
(Education)
• Agriculture scam
• Tender bidding
• Peter Foster
THE FRAUD TREE
Corruption
Conflicts
of Interest
Bribery
Asset
Misappropriations
Fraudulent
Statements
Cash
Financial
Inventory &
All Other Assets
Nonfinancial
Illegal
Gratuities
Economic
Extortion
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Initial Detection of Frauds
23.8%
Internal Audit
18.6%
23.6%
Tip From Employee
26.3%
21.3%
By Accident
18.8%
18.4%
Internal Controls
15.4%
10.9%
External Audit
11.5%
7.8%
8.6%
Tip from Customer
6.2%
Tip from Vendor
5.1%
5.1%
Anonymous Tip
6.2%
0.9%
1.7%
Notified by Police
0%
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2001
2004
5%
10%
15%
20%
25%
30%
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Governance and Corruption
• Good governance is not a luxury but a basic requirement for
development.
• Corruption undermines development and is generally an
outcome and a symptom of poor governance.
• “It has reached global proportions and needs to be attacked
directly and explicitly.” (Commonwealth Declaration)
• It is now widely acknowledged that the control of corruption
has to be an integral component of good governance.(TI)
• Proactive and reactive measures necessary (ACFE)
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The Use of Integrated Methods To
Fight Fraud
• Corporate Reporting
Supply Cycle
• The Fraud Deterrence
Cycle
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• The GRC Toolbox
1. The Corporate Reporting Supply
Cycle
Corporate
Executives
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Board of
Directors
Independent
Auditors
Information
Distributors
Third
Party
Analysts
Investors and
Other
Stakeholders
2. The Fraud Deterrence Cycle
Corporate
Governance
Investigation and
Remedial of
Programmes
Fraud
Deterrence
Cycle
Retrospective
Examination of
Processes and
Transactions
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Transaction
Level Controls
Conceptual Overview of the Fraud
Deterrence Cycle
An interactive process with 4 main elements;
• Establishment of corporate governance
• Implementation of transaction – level control processes
(Internal control processes)
• Retrospective examination of governance and control processes
through audit examinations
• Investigation and remediation of suspected or alleged problems
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The Fraud Deterrence Cycle
Corporate Governance
• Budgeting / forecasting
• Independent board, chairperson,
controls
• management, stakeholders
• Internal audit reporting to
• Audit committee to have at
audit Committee
least a finance expert, all others
• Clear, formal policies and
financial literate, Regular meetings procedures, regular reviews, Well
• Explicit ethical commitment
defined financial approval
(“walking the talk”)
authorities and limits
• Prompt and appropriate
• Timely and complete
investigation
• Information flow to the board.
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Transaction – Level Controls
• The Control Environment
• Risk Assessment
• Control Activities
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• Information and
Communication
• Monitoring
Important Control Processes
• Additions/changes/deletions
to master file of customers,
Vendors, employees
• Disbursement approval
processes
• Write off approval processes
• Revenue recognition
procedures
• Inventory controls
• Segregation of duties
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• Information system access
and security control
• Proper employment
screening procedures,
background checks
• Timely reconciliations
• Cash management controls
• Security of assets
• Top level reviews of actual
performance versus budgets,
• forecasts, prior periods and
competitors
3. The GRC Model
• Governance, Risk Management • Problem?
and Compliance (GRC)
• GRC programs often
• to eliminate corporate ‘silos’
underestimate fraud risk.
• integrate organizational
• management, protection against
• fraud and theft and regulatory
• adherence.
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How The GRC Works?
• Integration of governance,
risk management and
compliance
• (GRC) and anti-fraud
programs, creating synergies
and efficiencies that will
better detect and deter fraud.
• Managers, CEOs’ to
recognize the ubiquity and
seriousness of the fraud
threat.
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• Everyone works together,
sharing best practices and
using common tools to rely
on each other’s work.
• No unilateral ownership, but
must be cooperative and well
coordinated.
• Need to identify appropriate
strategic and tactical
guidelines and best practices
to get there.
2010 KPMG Survey
• 1,200 members on
boards worldwide
• oversight of fraud risk was
a “great” concern for only 6
percent
• only 72 say “Yes, fraud is a
great concern to me.” (1,128
believe either that fraud is
not a big threat or that ICs’
are very good)
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• Interests more on Gulf oil
spill, Wiki Leaks’ disclosures of
classified information, Political
unrest in the Middle East and
North Africa, Earthquake and
tsunami in Japan.
• Tone at the top (5th) and
• Ensuring audit committee
effectiveness (7th)
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Opportunity
The Fraud
Triangle
Pressure
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Rationalization
Beyond The Fraud Triangle
• Since 1950s’ to understand
fraudsters’ motivations
• Inadequate for Prevention,
Detection and Deterrence
of fraud because Pressure
and Rationalisation cannot
be observed.
• Case: 1978 Wal-Mart hired
Thomas Coughlin, director of
loss prevention, 2005 VC,
resigned amid allegations of
fraud and deceit.
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• Alligator boots ($ 1359), dog
pen ($2 500)
• Questionable transactions
$100 000 - $500 000
• 2004 compensation over
$6m.
• Inconsistency with
• Add Capability = The Fraud
Diamond
• MICE Model (Money,
Ideology, Coercion,
Ego/Entitlement)
Looking Forward - Where Do We Go
From Here?
• Evolution of discipline
including boundary between
financial auditing and forensic
accounting investigations
• Education and training for a
new generation of forensic
accounting investigators
and fraud examiners.
• The changing regulatory and
legislative environments
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• The changing corporate
environment in which the
decision to investigate and the
process and the results of
investigation encounter real
world benefits
• Changes in corporate
reporting especially re - non
financial operating data
(NFOD) .
Looking Forward - Where Do We Go
From Here?
A Historical Account of the Auditors Role
• Auditing – ancient history 4000BC.
• Growth of the auditing profession in the 19th Century
• ...auditor who is able to detect fraud is – other things being
equal – a better man than the auditor who cannot.(Auditing:
A practical manual for auditors by L R Dicksee)
• Current Environment – Sarbanes –Oxley Act 2002
- International Financial Reporting System (IFRS)
• AICPA s99 Consideration of Fraud in a Financial Statement
Audit.
• Auditors are Not Alone.
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Looking Forward - Where Do We Go
From Here?
• Reactive – Investigation & auditing (traditional)
• Proactive – Prevention & Detection & Deterrence
• Deterrence , Auditing and Investigation
- Increased size of reported scandals (Enron, WorldCom,
Tyco, Food for Iraq) - Issues e.g. executive pay, benefits &
perks, wilful deception, mumbo – jumbo, creative
accounting, , cooking of the books
• Systematic, Rigorous approach that uses both reactive &
proactive methods.
• Partnerships – TI, NGOs’and professional bodies
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Vinaka Vakalevu
• Valuable Sources
- http://www.transparency-international.org
- http://www.acfe.com
- Golden Thomas et al, A Guide to Forensic Accounting, 2006, John Wiley & Sons Inc.
- Wells, JT Corporate Fraud Handbook, 2004 John Wiley & Sons Inc.
- Hare, Robert D, Without Conscious, The Disturbing World of Psychopaths Among Us,
1999 the Gilford Press, USA.
- The GRG Toolbox by Robert Tie, The Fraud Magazine, September /October Issue 2011,
ACFE.
Ms Rosie Langi
rosie_consult@yahoo.com.au
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