Corruption Risks Update 2009

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Identifying Corruption OpportunitiesIdentifying Corruption Opportunities

Intellectual property rights are asserted by the presenter over the original content provided in this presentation. Fraud Control illustrations are Copyright to the Audit Office of NSW. Newspaper articles are Copyright to the publishers. Other illustrations are from the public domain.

The Public Sector Improvement SpecialistsThe Public Sector Improvement Specialists

IAB Services works with public sector bodies and their service-delivery partners to: Manage their risks Improve their performance Develop operating policies and processes Assure their compliance Maintain their integrity

• Corruption resistance• Fraud control• Misconduct investigations

What would I know?


Previously Assistant Auditor-General for NSWCreated the fraud control framework for NSWDeveloped & published:

Strategic Approach to Fraud Control (BPGuide) [AO] Fraud Control Improvement Kit [AO] Corruption Resistance Healthcheck [IAB] Transparency & Disclosure Handook [HB 405] Probity Assurance Handbook [HB 325: 2008]

Co-founded Corruption Prevention Network (www.corruptionprevention.net)

Other Perspectives


No need to worry







Open your mind


Going Concern Customers Finance (credit squeeze / cost of capital / debtors) People (if get nervous)

Service delivery & supply chain partnersInvestments & financial instrumentsRegulatory changesCompliance & QA (risk of corner cutting eg. environmental controls)

Changed BCP & risk profile (but have you worked through it?)

tension on ethical climate (who cares about that?)

Thumbnail Risk Assessment for Tough Economic Times


Conventional view – says yesEmpirical studies – uncertain

Many variables, and data issues Refer Clement, D “The Mystery of Crime”, Fedgazette Vol 21 No. 2, March 2009,

Federal Reserve Bank of Minneapolis, ISSN 1045-3334

Law enforcement practitioners – mostly say yesMisconduct / fraud investigators – mostly say yesCurrent practitioner evidence – mostly says yes

Will Corruption Rise in the Economic Downturn?


Let us consider why corruption might increase, and review some specific forms of corruption that current practice suggests are on the increase.

Let’s look more closely


A Perfect Storm?


Factor 1: the ethical climate shock news!! - staff have private lives, and these can over-ride corporate

behaviours partners/family/ friends ; investments/super losses the “you owe me” syndrome can kick in, even for the good apples

Factor 2: the ethical check & balances Restructures and cut-backs

• has the back-office taken the brunt? Have you weakened control?• NSW Auditor-General has expressed concern

Factor 3: leaky pipes under increased pressure• some high-corruption-risk systems are having more expenditure forced

through them at the very time that controls may be weaker (eg. Grants & capital programs for some Government agencies)

A Perfect Storm?


Increased losses from fraud at a time you can least afford them

reputation loss at a time you can least afford it could even be terminal, personally or corporately at the least, will significantly divert attention and

effort (and in a negative way)

The Consequences


Where might the pipes be leaking?


Procurement Simple stuff: false invoicing

• Over-invoicing (the “two coats of paint” scam)• Duplicate or phantom vendors• “Directory scams” and other creative schemes• values under the usual checking limits

More Complex (collusion)• Phantom transactions• False certifications• Refer to ICAC reports on Railcorp & Fire Brigades

Current Indications of Increased Corruption Risks


Simple theft cash /assets that are poorly controlled/accounted for revenue or funds diversion to private accounts

Payroll False timesheets variations (eg. overtime, allowances) ghosting

Credit cards dodgy or inflated expenses and cash withdrawls deliberate frauds or skimming attacks (collusion)



Acceptance of bribes / facilitation payments to favour decisions to avoid regulatory scrutiny/penalty (at a much lower

level than might normally be expected)Balance sheet fraud

to protect individuals at risk, and also the organisation. Most of the very major frauds have involved this)



Misuse Information or Intellectual property physical assets mobile phones internet

Grants Bogus applications False acquittals



Outsourcing and service delivery partners concealed failure to perform/deliver failure to commit promised resources over-servicing or over-invoicing Generally more and

heightened conflicts of interest situationsgenerally increased number and significance of

conflict of interest situations eg. bias in recruitment and procurement decisions



No pressure


Most problems can be anticipated and many can be either avoided/prevented or

minimised/mitigated it is worth stopping for moment to think, and develop

a few proactive strategies, rather than being fantastic at responding to disasters!

Review risk profile and action plansReview fraud risk assessmentReview audit and assurance plansReview service-delivery KPIs (lead, not lag)

Action points


Avoid Control Overconfidence


More than all of this, you MUST work on the single greatest control of all ……………..

But wait, there is MUCH more!


Policies and Controls Won’t Get You There


Fraud & Corruption is primarily an issue of People, and Culture.

So your key responses need to include: making people aware of the problem Being clear on your values Talking about ethics Generating trust so that people will report things that

they may see Cover staff, suppliers, service delivery partners etc

PEOPLE might (but will they?)


The Big Picture – needs big solutions


Set the “Tone at the Top” Lead by example and practice what you preach. “Walk the

talk”. Otherwise you can create a “rotten barrel” Executives need to weave the language of ethics into their

conversations with staff Need to explain ethics in a meaningful way Highlight and communicate good examples Take tough action on the “rotten apples” Look at you website, corporate publications and Annual

Report. What does it demonstrate about your organisation’s focus on integrity?

Perhaps Most Important of All


Working with Agencies to improve the Public Sector

Stephen HorneManaging Director

IAB Services is a NSW government trading enterprise operating since 1985 to assist State, Local and Commonwealth Government

bodies in NSW and the ACT to improve their performance and manage their risks

www.iab.nsw.gov.au

Ph: 9261 9104 email: [email protected]

Corruption Risks Update 2009

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