Annie Chan Managing Director Forensic & Investigation Services FCPA, LLB, LLM, MBA,CFE

Transcription

1 Forensic Accounting and Fraud Risks for MNCs in China Presented by: Annie Chan Managing Director Forensic & Investigation Services FCPA, LLB, LLM, MBA,CFE

2 What is Forensic Accounting A discipline that deals with the relationship and application of financial facts as they relate to legal issues in the court of law. An important tool that assists in investigating crimes such as bribery, fraud, money laundering and other white collar crimes. 2

3 Who are we Forensic Accountant Financial and fraud investigator Identifier of issues Gatherer of information Analyst of documentation Analyst of people Expert witness 3

4 What do forensic accountants do Fraud Prevention and Detection Forensic and Fraud Investigation Regulatory Compliance and Internal Control Review Asset Tracing and Recovery Anti-Money Laundering Investigation and Review Litigation Support Expert Witness Reporting and Testimony 4

5 Audit vs. Forensic Accounting Audit Forensic Accounting Objective F/S fairly represented Fraud/irregularity identification Scope Limited testing Detailed review Approach Professional skepticism Heightened scrutiny Standards IFRS Legal and regulatory Training Audit Forensic Accounting 5

6 Transparency International s 2012 Corruption Perceptions Index THE 2012 CORRUPTION PERCEPTIONS INDEX MEASURES THE PERCEIVED LEVELS OF PUBLIC SECTOR CORRUPTION IN 176 COUNTRIES AND TERRITORIES AROUND THE WORLD Rank Denmark, Finland and New Zealand 1 Sweden 4 Singapore 5 Canada, Netherlands 9 Germany 13 Hong Kong 14 Japan, United Kingdom 17 USA 19 France 22 Taiwan 37 Malaysia 54 China 80 Thailand 88 India 94 Philippines 105 Indonesia 118 Iran, Russia 133 Iraq 169 Myanmar 172 Afghanistan, Korea (North) and Somalia 174 6

7 2012 Report to the Nations on Occupation Fraud & Abuse, Association of Certified Fraud Examiners Typical organization loses 5% of its annual revenue to fraud. More than USD3.5 trillion was lost to fraud Frauds lasted a median of 18 months before being detected. Approximately 87% of fraudsters had never been previously charged or convicted for a fraud-related offence Association of Certified Fraud Examiners, USA 7

8 How fraud is detected 2012 Association of Certified Fraud Examiners, USA 8

9 How fraud is detected 2012 Association of Certified Fraud Examiners, USA 9

10 What is Fraud 10

11 Definition Fraud refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. (Adapted from HKICPA Handbook Hong Kong Standard of Auditing 240) 11

12 Elements of fraud Opportunity Motive Rationalization = FRAUD 12

13 People Could be dishonest in the wrong situation 20% Inherently honest 60% 20% Inherently dishonest 13

14 Factors which facilitate fraud Reward from fraud high Risk of detection low Penalty for being caught small Rationalization Red flags ignored by management Fraudster identifies opportunities e.g. weakness in control system 14

15 Fraud Prevention The key is to create a fraud adverse environment Setting various deterrents Physical System control Psychological 15

16 System Control Deterrents Adequate documents and records Proper procedures for authorization Supervision and control Segregation of duties New employee vetting Anonymous complaint hotline / channel Internal audit 16

17 Psychological Deterrents Internal control Fraud awareness training Code of conduct Ethical corporate culture Atmosphere to discuss problems Anti-fraud policy 17

18 Anti-Fraud Policy Management set an example Consistent approach to incidents: dismissal recovery report to police, other regulatory authorities report to Audit Committee / Board of Directors 18

19 Key Principles 5. Escalation, Investigation and Correction 4. Fraud Detection 1. Fraud Risk Management Program 2. Fraud Risk Assessment Fraud Detection Detective Controls Whistleblower Hotlines Process Controls Proactive detection procedures Identification of red flags 3. Fraud Prevention Documentation of detection techniques Assessing the effectiveness of detective controls Continuing monitoring 19

20 Whistleblower Hotlines Marketing the existence of hotline to increase awareness Preserving the confidentiality of callers Assurance that they will not be retaliated against for reporting suspicions of wrongdoing Result in appropriate and timely action 20

21 Contact Us Annie Chan Managing Director Mazars Corporate Recovery and Forensic Services annie.chan@mazars.hk Direct Tel: (852) Fax: (852) Address: 42nd Floor, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Website: 21