Can you fool an auditor?

HOW  FRAUDSTERS  FOOL  THE  AUDITOR  &  DOES  WHISTLE  BLOWING  FORM  PART  OF  YOUR  CORPORATE  GOVERNANCE  STRATEGY?  

Jenny  Reid  3rd  Annual  White  Collar  Crime  Summit  

for  Africa  29  October  2013  

PresentaPon  Road  Map  •  DefiniPons  

•  My  area  of  experPse  –  People  Risk  

•  How  do  we  fool  an  auditor?  

•  Whistleblowing    

COMMON  DENOMINATOR  

The  crime  vic*m's  prayer    “I  thank  Thee    1.  I  was  never  robbed  before;    2.  They  took  my  purse  but  they  did  not  take  

my  life;    3.  They  took  my  all,  it  was  not  much;    4.  It  was  I  who  was  robbed,  and  not  I  who  

robbed.”    

Ma_hew  Henry,  English  commentator  on  the  Bible  and  Presbyterian  minister,  1662-­‐1714                        

5

How Much Does Bribery Actually CostHow Much Does Bribery Actually Cost

Market Cap Before >$5.5B

After<$3.7B

33% Loss in Value

Plus $56M for the bribes

What  is  an  audit?  The  general  definiPon  of  an  audit  is  an  evaluaPon  of  a  person,  organizaPon,  system,  process,  enterprise,  project  or  product.  The  term  most  commonly  refers  to  audits  in  accounPng,  internal  audiPng,  and  government  audiPng,  but  similar  concepts  also  exist  in  project  management,  quality  management,  water  management,  and  energy  conservaPon.      In  any  audiPng  the  auditor  perceives  and  recognizes  the  proposiPons  before  him  for  examinaPon,  collects  evidence,  evaluates  the  same  and  on  this  basis  formulates  his  judgment  which  is  communicated  through  his  audit  report.  Wikipedia  

Who  is  an  auditor?  

Cost  

Statutory  

Forensic  

Performance  

Internal  

Quality  

Who  is  a  whistleblower?  

Client  

Auditor  

Buyer  

Supplier  

Accountant  

Member  of  the  public  

What  are  the    

COMMON  DENOMINATORS    ???  

Staff  

Suppliers  

Management  Clients  

AuthoriPes  

PEOPLE  

The problem with human resourcesis that they are resources that are human,

with all that entails.

Truthfully, the human condition is by and large good.Most people are honest, sincere, responsibleand prepared to work hard for a fair shake.

But there are others that give people a bad name. These are the ones that lie, cheat and steal.

They are the businessman's worst nightmare for the damage they can cause.

These are the people you don't want working for you.

But how do you avoid them? You call us.

i factswe remove the people risk

www.ifacts.co.za General Enquiries: [email protected]: 011 609 5124 / 011 452 7233 Fax: 086 274 1884 Cell: 082 895 2478 (Sonya)

Can  we  fool  an  auditor?      “Scamming  the  auditors  is  as  simple  as  cut  &  paste”    www.forbes.com  

Case  Study    

iFacts  

External  

•  Hardworking staff

•  Need training

•  Conference with team building activity

Good service •  Nice guy

•  Helpful

•  Synergy in service offering

Supplier  

Finances  •  Possible business

venture

•  Rented a property from us

•  Used his services again

•  Discussed joint marketing strategy

MY  AIM  

HELP  US  ALL  TO  GROW  and  $$$  

Finances  •  Introduction to my

suppliers

•  Introduction to my clients

•  Access to our marketing contacts and systems

•  PROVIDED INFORMATION FREELY

Colleague  

Supplier  Tenant  

PEOPLE  

Colleague  

Supplier  

Tenant  

THREAT   PEOPLE  

DID  WE  HOOK  THE  WORM?  

YES  

When  should  we  have    been  aware  of  the  risk?  

•  Gave  good  service  •  Nice  guy  •  Paid  his  rent  late  •  Reasons  for  delay  varied  from  Pme  to  Pme  •  Did  business  with  our  clients  and  did  not  pay  on  Pme  •  His  clients  always  let  him  down  and  this  caused  payment  delays  

•  Never  introduced  us  to  his  contacts  •  His  suppliers  were  always  unreliable  

Did  we  verify  any  

informaPon?  

NO!!  

Finances  •  Loss of US$3 000

•  Loss of reputation

•  Hours of investigation

The  Result  

Finances  •  6 fraud charges in New Zealand

•  6 months imprisonment in New Zealand for fraud

•  10 cases of fraud related charges in Gauteng

•  1 assault charge

•  Various civil charges

•  Shocking client references

Inves6ga6on  Findings  

Where  did  I  go  wrong?  

0  

10  

20  

30  

40  

50  

60  

70  

80  

90  

100  

Does  your  procurement  

department  ask  for  specific  documents  when  a  supplier  wants  to  provide  services  to  your  

company?  

Are  the  documents  presented  to  the  procurement  

department  every  verified  to  ensure  

that  the  informaPon  presented  is  true  and  correct?  

Does  your  procurement  

department  ask  whether  any  

suppliers  are  related  or  associated  to  employees?  

Does  the  procurement  

department  insist  that  employees  of  

contracPng  companies  are  subjected  to  employee  screening?  

Is  the  employee  screening  policy  of  contractors  assessed  by  your  company  to  ensure  that  your  company’s  risk  is  taken  care  of?  

Are  contractor  /  supplier  documents  verified  during  their  contract  Pme  with  your  company?  

96  

73  61  

35  

57  

70  

4  

27  39  

65  

43  

30  YES  (%)  

NO  (%)  

IFACTS  VENDOR  FRAUD  SURVEY  July  2012  

Internal  People    

Management  

Factors  necessary  for  a    successful  whistleblowing    programme  

•  Reward  mechanism  •  Independent  plaqorm  •  Ongoing  awareness  programmes  •  Provide  feedback  •  ExecuPve  commitment  •  Clear  reporPng  structure  for  receipt  of  reports  •  Commitment  and  buy  in  from  ALL  stakeholders  

Staff  

Suppliers  

Management  Clients  

AuthoriPes  

PEOPLE  

HOW  HAPPY  ARE    YOUR  EMPLOYEES?  

WHERE  DOES  INTEGRITY    BEGIN  &  END?  

ARE  YOUR  STAFF    MOTIVATED?  

People    Risk  

People  Wellness  

People  Management  

People  Safety  &  

Security  

Third  Party  Risk   People  Risk  

Management  Programme  

A  good  employee  wellness  programme  will  include  advice  and  recommenda6ons  on:    o      Good  Health  o      Stress  management  o      Mo6va6on  o      Counselling  services  o      Ethics  &  Fraud  awareness  o      Personal  financial  advice  o      Security  awareness                

The  people  risk  preven6on  programme  should  include  the  following:    ·∙            Employee  screening  ·∙            Integrity  assessments  ·∙            Truth  verifica6on  tests  ·∙            Hot  line  ·∙            Third  party  /  vendor  verifica6on  ·∙            People  Risk  Database  

Online  People  Management  tools  include:    ·∙            Induc6on  training  ·∙            HR  climate  &  employee  sa6sfac6on  surveys  ·∙            Appraisals  and  performance  assessments  ·∙            Recruitment  strategy  ·∙            Fraud  inves6ga6ons  ·∙            Exit  interviews  ·∙            Health  and  safety  assessments  &  training  ·∙            Security  and  risk  assessments  &  training  ·∙            Risk  policies  and  procedures