Fraud Awareness
Meat Board of Namibia
Presented by
Kristian Endresen
Manager | Risk Advisory
(0)61 285 5043
[email protected]
April 20, 2016
Agenda
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What is fraud?
Profile of a fraudster
Detection
Reporting
Conflicts of Interest
Corruption
Q&A
© 2016 Deloitte Touche Tohmatsu Limited
What is Fraud?
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Deloitte
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.
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Fraud classification tree
Corruption
Conflicts of
Interest
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Asset
Misappropriation
Cash
Bribery
Theft of Cash on
Hand
Illegal Gratuities
Theft of Cash
Receipts
Economic
Extortion
Fraudulent
disbursements
Inventory and All
Other Assets
Association of Certified Fraud Examiners (ACFE) 2016 fraud classification tree
Financial
Statement Fraud
Net Worth/ Net
Income
Overstatements
Net Worth / Net
Income
Understatements
© 2016 Deloitte Touche Tohmatsu Limited
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 53
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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
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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
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© 2016 Deloitte Touche Tohmatsu Limited
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
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Why do people commit fraud?
Positions of Trust
Lack of Controls
Insufficient Segregation of
Duties
My daughter wants the perfect wedding
Bills, bills, bills
All my peers have new cars
Rationalisation
“My boss / colleague is dishonest, why shouldn’t I be?”
“I’m not hurting anyone”
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“I deserve this”
“If I didn’t, someone else would”
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Profile of a fraudster
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Deloitte
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
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Typical Fraudster – Beneath the Surface
• Gambler
• Drug or alcohol problem
• Behavioural changes
• Extramarital affairs
• Hostility to management
• General disenchantment with
compensation
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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
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ACFE 2016 Global Fraud Study.
© 2016 Deloitte Touche Tohmatsu Limited
Red flags displayed by perpetrators
(or at least the ones that were caught)
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ACFE 2016 Global Fraud Study
© 2016 Deloitte Touche Tohmatsu Limited
Detection
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Deloitte
What do you think is the top method of fraud detection?
Options:
a.
b.
c.
d.
e.
f.
g.
External Audits
Account reconciliations
Tip
IT controls
Confession
Management Review
Other
Answer:
(c) Numerous studies conclude that tips and complaints are by far the most
common way fraud is uncovered
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How is Fraud Detected?
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ACFE 2016 Global Fraud Study
© 2016 Deloitte Touche Tohmatsu Limited
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
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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
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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
•No record of disciplinary process
•Executive disclosures not required
•Overly dominant management
•Inadequate training programs
•Unrealistic productivity
measurements
procedures
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© 2016 Deloitte Touche Tohmatsu Limited
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
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© 2016 Deloitte Touche Tohmatsu Limited
Reporting Fraud
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Deloitte
Meat Board Fraud Reporting Structure
First place to report
suspected fraud or
irregularities
… unless the above are
implicated, in which case
reports should be made to
If all 3 are involved
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Finance Manager
General Manager
1
2
Board
Chairperson
Anti-Corruption Commission
Bank of Namibia Financial Intelligence Centre
NAMFISA
NAMPOL
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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”
email addresses to remain anonymous
General advice: Don’t contact a suspect or discuss a case with anyone else
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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
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Don’t do what most people do
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What motivates whistleblowers?
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Deloitte Tip-Offs Anonymous survey, 2015
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Conflicts of interest
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Deloitte
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
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© 2016 Deloitte Touche Tohmatsu Limited
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
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© 2016 Deloitte Touche Tohmatsu Limited
Corruption
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Deloitte
Corruption
Transparency International
“Corruption takes many forms, but always
involves the abuse of entrusted power for
private gain”
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© 2016 Deloitte Touche Tohmatsu Limited
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.
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© 2016 Deloitte Touche Tohmatsu Limited
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
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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
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ACFE 2016 Global Fraud Study
© 2016 Deloitte Touche Tohmatsu Limited
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.”
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Example of major fraud and corruption
Chinese baby milk scandal
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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 - 290 000 babies suffered urinary problems, 54 000 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
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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
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Sanlu attempted to pay Baidu (Chinese equivalent of Google) to censor search results,
and paid someone to remove a social media post
© 2016 Deloitte Touche Tohmatsu Limited
Q&A
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