Fraud Awareness Meat Board of Namibia

Transcription

1 Fraud Awareness Meat Board of Namibia Presented by Kristian Endresen Manager Risk Advisory (0) April 20, 2016

2 Agenda What is fraud? Profile of a fraudster Detection Reporting Conflicts of Interest Corruption Q&A Deloitte Touche Tohmatsu Limited

3 What is Fraud? 3 Deloitte

4 What is fraud? Institute of Internal Auditors definition Any illegal act characterised by deceit, concealment, or violation of trust. These acts are not dependent upon the threat of violence or physical force. Frauds are perpetrated by parties and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage Deloitte Touche Tohmatsu Limited

5 Fraud classification tree Corruption Asset Misappropriation Financial Statement Fraud Conflicts of Interest Cash Inventory and All Other Assets Net Worth/ Net Income Overstatements Bribery Theft of Cash on Hand Net Worth / Net Income Understatements Illegal Gratuities Theft of Cash Receipts Economic Extortion Fraudulent disbursements 5 Association of Certified Fraud Examiners (ACFE) 2016 fraud classification tree 2016 Deloitte Touche Tohmatsu Limited

6 What is fraud? Actions constituting fraud MBN policies and procedures The terms defalcation, misappropriation, and other fiscal irregularities refer to, but are not limited to: 4.1 Any dishonest or fraudulent act 4.2. Misappropriation of funds, securities, supplies, or other assets 4.3. Impropriety in the handling or reporting of money or financial transactions 4.4. Profiteering as a result of insider knowledge of organisation activities 4.5. Disclosing confidential and proprietary information to outside parties 4.6. Accepting or seeking anything of material value from contractors, vendors, or persons providing services/materials to the Organisation without declaration of the gift thereof in the MBN gift register 4.7. Destruction, removal, or inappropriate use of records, furniture, fixtures, and equipment; and/or 4.8. Any similar or related irregularity Meat Board Policy and Procedures Manual August 2015 pg Deloitte Touche Tohmatsu Limited

7 What is fraud? Examples of potential fraud at MBN Misappropriation of funds, securities, supplies, or other assets. (MBN resources are there to support MBN operations) Taking stationary for non-mbn use Using a MBN vehicle for personal business, errands or holidays Printing non-mbn related material on office printers study materials, e-books, invitations etc. Impropriety in the handling or reporting of money or financial transactions Submitting expense claims for N$ 200 when the actual amount was N$ 100 Diverting payments intended for suppliers to your own accounts Paying the same invoice multiple times Deloitte Touche Tohmatsu Limited

8 What is fraud? Examples of potential fraud at MBN Profiteering as a result of insider knowledge of organisation activities Bidding for a tender using a front company, knowing confidential evaluation criteria Purchasing of all in country stock of item X, knowing that MBN / Ministryo of Agriculture / Meatco etc. needs to procure X urgently Disclosing confidential and proprietary information to outside parties Notifying a supplier of the MBN budget for procuring a service Tipping off someone of an inspection Deloitte Touche Tohmatsu Limited

9 What is fraud? Examples of potential fraud at MBN Destruction, removal, or inappropriate use of records, furniture, fixtures, and equipment Using your office for a private party Taking pages out of a vehicle log book to conceal your private road trip Accepting or seeking anything of material value from contractors, vendors, or persons providing services/materials to the Organisation without declaration of the gift thereof in the MBN gift register Contractors agreeing to perform work on your house for free Supplier paying for conference/workshop attendance Payment in exchange for influencing a tender award Deloitte Touche Tohmatsu Limited

10 Why do people commit fraud? My daughter wants the perfect wedding Bills, bills, bills All my peers have new cars Positions of Trust Lack of Controls Insufficient Segregation of Duties Rationalisation My boss / colleague is dishonest, why shouldn t I be? I deserve this I m not hurting anyone If I didn t, someone else would Deloitte Touche Tohmatsu Limited

11 Profile of a fraudster 11 Deloitte

12 Typical Fraudster On the Surface Long-time employee Position of trust Might not take vacations Appears to be extremely dedicated Unexplained cash or other wealth Deloitte Touche Tohmatsu Limited

13 Typical Fraudster Beneath the Surface Gambler Drug or alcohol problem Behavioural changes Extramarital affairs Hostility to management General disenchantment with compensation Deloitte Touche Tohmatsu Limited

14 The higher placed in an organisation, the bigger the loss A man who has never gone to school may steal from a freight car; but if he has a university education, he may steal the whole railroad. Theodore Roosevelt 14 ACFE 2016 Global Fraud Study Deloitte Touche Tohmatsu Limited

15 Red flags displayed by perpetrators (or at least the ones that were caught) 15 ACFE 2016 Global Fraud Study 2016 Deloitte Touche Tohmatsu Limited

16 Detection 16 Deloitte

17 What do you think is the top method of fraud detection? Options: a. External Audits b. Account reconciliations c. Tip d. IT controls e. Confession f. Management Review g. Other Answer: (c) Numerous studies conclude that tips and complaints are by far the most common way fraud is uncovered Deloitte Touche Tohmatsu Limited

18 How is Fraud Detected? 18 ACFE 2016 Global Fraud Study 2016 Deloitte Touche Tohmatsu Limited

19 Organisational Red Flags Lack of segregation of duties No clear lines of responsibility No proper procedures for authorisation Lack of independent checks Management override of internal controls Deloitte Touche Tohmatsu Limited

20 Operational warning signs Lack of written corporate policies and operating procedures Lack of compliance with internal control policies Cheques for cash amounts Disorderly accounting / purchasing / receiving / warehousing Alteration of documents Photocopied documents & lack of supporting documents Questionable handwriting on documents Reconciliations not done for bank and subsidiary accounts Deloitte Touche Tohmatsu Limited

21 Opportunities that can be exploited Familiarity with operations Close association with suppliers No visible zero tolerance Rapid turnover of key staff No mandatory vacations Inadequate staff vetting Absence of explicit policies and procedures No record of disciplinary process Executive disclosures not required Overly dominant management Inadequate training programs Unrealistic productivity measurements Deloitte Touche Tohmatsu Limited

22 Top 3 methods for preventing fraud Adopt a culture of openness and honesty, and put in place a system for people to safely and anonymously report cases E.g. Whistleblowing policy and hotline, keeping a register of employees business interests Make people aware of the detective controls in place - people are less likely to commit fraud if they know they are going to get caught. E.g. if you know someone is going to check your purchase request before signing off, you re less likely to issue fraudulent ones. Efficient segregation of duties where possible E.g. the same person cannot place a purchase request, issue a purchase order and release funds for the same transaction Deloitte Touche Tohmatsu Limited

23 Reporting Fraud 23 Deloitte

24 Meat Board Fraud Reporting Structure First place to report suspected fraud or irregularities Finance Manager General Manager 1 unless the above are implicated, in which case reports should be made to Board Chairperson 2 If all 3 are involved Anti-Corruption Commission Bank of Namibia Financial Intelligence Centre NAMFISA NAMPOL Deloitte Touche Tohmatsu Limited

25 Reporting Anonymously? MBN policy is that you may choose to remain anonymous if you report something The subject(s) of the complaints must direct all queries through the FM or GM Use comment boxes or throwaway addresses to remain anonymous General advice: Don t contact a suspect or discuss a case with anyone else Deloitte Touche Tohmatsu Limited

26 Reporting Anonymously? Namibia has no special Whistle-blower protection yet. Reportedly being drafted this year. Anti-Corruption Act has provisions for protection of witness identity, but only for crimes reported to the ACC ACC informants are required to sign a statement Prevention of Organised Crime act has some limited provisions for some testimony to be given in camera (privately) General advice: Don t contact a suspect or discuss a case with anyone else Deloitte Touche Tohmatsu Limited

27 Don t do what most people do Deloitte Touche Tohmatsu Limited

28 What motivates whistleblowers? 28 Deloitte Tip-Offs Anonymous survey, Deloitte Touche Tohmatsu Limited

29 Conflicts of interest 29 Deloitte

30 Meat Board Policies Conflict of Interest Conflict of interest is when you are involved in activity that has the possibility to influence your actions or decisions within MBN MBN employees must deal with suppliers, stakeholders and other parties interacting with the Organisation in a manner that avoids even the appearance of conflict between personal interests and those of the Organisation Disclosures must be made in writing to Managers, who will report to the General Manager. GM will then decide if activity can continue and/or what safeguards must be put in place in this instance Managers conflicts of interest to be reviewed by Human Resource Committee (and GM s by the Board) Play it safe if you re not sure if something is a conflict, report it anyway Deloitte Touche Tohmatsu Limited

31 Meat Board Policies Conflict of Interest - example MBN is preparing to launch a campaign to increase awareness of new tagging regulations. They have asked for proposals from different companies to design and print flyers. You work in the marketing department and are part of a team that needs to choose the supplier, and notice that your brother-in-law is bidding. You did not even know that he was in this line of business and have not spoken for years. Is this a conflict of interest? Answer: Maybe. From an outside perspective it might be seen that you would favour your brother-in-law, even if this is not the case. Even if you think you would be objective, you should inform your manager / the GM Deloitte Touche Tohmatsu Limited

32 Corruption 32 Deloitte

33 Corruption Transparency International Corruption takes many forms, but always involves the abuse of entrusted power for private gain Deloitte Touche Tohmatsu Limited

34 Corruption Anti-Corruption Act (Act 8 of 2003) 32. [.] corruptly means in contravention of or against the spirit of any law, provision, rule, procedure, process, system, policy, practice, directive, order or any other term or condition pertaining to - (a) any employment relationship; (b) any agreement; or (c) the performance of any function in whatever capacity; [.] 33. A person commits an offence who, directly or indirectly, corruptly solicits or accepts or agrees to accept for the benefit of himself or herself or any other person any gratification as - (a) an inducement to do or to omit doing anything; (b) a reward for having done or having omitted to do anything Deloitte Touche Tohmatsu Limited

35 Corruption - Examples Awarding a tender in exchange for money Losing tender documents of a bidder because another bidder is a close friend Hiring a colleague s relative in exchange for a positive performance review from them Promising someone employment for money, whether you employ them or not Awarding the Meat Board seal of Quality to a butchery in exchange for them supplying your year end function with meat Deloitte Touche Tohmatsu Limited

36 Corruption Perception Index Namibia ranked 45th (out of 167) countries in the 2015 Transparency International CPI. There are many worse places, but plenty of room for improvement 36 ACFE 2016 Global Fraud Study 2016 Deloitte Touche Tohmatsu Limited

37 It s a small world Many national corruption laws criminalise activity taking place outside of their normal jurisdiction US : Foreign Corrupt Practises Act UK : Anti-Bribery Act Namibia : Anti-Corruption Act The provisions of this Act shall, in relation to Namibian citizens and persons domiciled or permanently resident in Namibia, have effect also outside Namibia, and when an offence under this Act is committed outside Namibia by any such citizen or a person so domiciled or resident, such person may be dealt with in respect of that offence as if it had been committed at any place within Namibia Deloitte Touche Tohmatsu Limited

38 Example of major fraud and corruption Chinese baby milk scandal The toxic substance melamine (a type of plastic) was added to milk to make the protein content seem higher. This allowed substandard milk to be sold at a higher price. This milk was then used to produce baby milk powder. Infants most vulnerable babies suffered urinary problems, hospitalised and at least 6 died. (Other milk products affected) Chinese food exports suffered across the board not just Sanlu or the dairy industry were affected Some collusion between farmers and purchasing agents; some agents turned a blind eye in exchange for cash, or even suggested the addition The main baby powder producer, Sanlu, bribed officials in an attempt to cover up the story Sanlu attempted to pay Baidu (Chinese equivalent of Google) to censor search results, and paid someone to remove a social media post Deloitte Touche Tohmatsu Limited

39 Q & A 39 Deloitte

40 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte provides audit, tax, consulting and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. The more than professionals of Deloitte are committed to becoming the standard of excellence. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte Network ) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication Deloitte & Touche. All rights reserved. Member of Deloitte Touche Tohmatsu Limited Deloitte Touche Tohmatsu Limited