Questions Of Integrity Risk Management For Sme

WorkshopQuestions of Integrity
A practical approach to integrity/fraud risk management for small and medium sized businesses
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Dierckx & Associates Ltd Christchurch NZ 2009

Some Facts on Fraud
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Facts on Fraud
Occupational fraud and abuse is one of the most serious threats to business nowadays and yet it is also the one most overlooked. The Association of Certified Fraud Examiners estimates the average losses to businesses running up to 7% of the revenues as a result of misappropriation of assets and corrupt activities such as kickbacks. With a Gross Domestic Product figure of 180 billion for the year end March 2009 in New Zealand, we are talking about a potential of $12.6 billion that was lost on fraud. Losses caused by those that are supposed to protect the bottom lines of business instead of threatening them. Damages are hardly ever recovered.
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Facts on Fraud
I have found no information that could indicate that the situation is any different in New Zealand. Reading these reports shows that smaller businesses especially are extra vulnerable. This seems consistent with my own experiences.
Economic times have put many under pressure and it is noted that occupational fraud and abuse appear to be on the rise. With times hard enough as they are, adequate protection should be maintained even though it does not directly contribute to the generation of revenues. The life of your business may well depend on it.
CAN YOU AFFORD TO LOSE 7% OF YOUR REVENUES?
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Facts on Fraud
Most incidents of internal theft and fraud remain hidden within your organisation. They are usually happening out of sight, until the organisation finds out the hard way that something is not ok. Often, if not mostly, frauds are discovered by accident. Many if not most of these incidents might very well have been prevented or detected earlier, if only you had learned to recognize their signs. Effective integrity management aims directly at preventing incidents, early detection, investigation and resolution and as a result limits damages immediately where fraud (attempts) do occur.
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Only the Tip of the Iceberg Is Detected
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The Damages
More than just financial
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Financial
Occupational fraud and theft directly affects your bottom line. If not prevented or detected early it can lead to the end of your business. Depending on which report your read, the average fraud still involves substantial amounts, ranging from a few thousand dollars to hundreds of thousands of dollars and even millions. And that is just the direct financial consequence.Add to that the indirect financial damages of having the fraud investigated and resolved, the loss of productivity as a result thereof, reputational damages and loss of competitive power. These are all able to cause considerable additional damages.
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Non-Financial
Victims of fraud often experience similar trauma as those that have been hit by ‘normal’ street crimes. Co-workers often break down in disbelief when they find that their colleague and/or friend was involved in such crimes right under their nose. The required trust in the workplace gets a serious blow leading to loss of productivity and effective collaboration.
Dealing with fraud and theft leads to additional costs and emotional distress and can have a serious impact on productivity of your business and its reputation. Where litigation or prosecution is involved that may be even more significant.
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The Fraud Triangle
Three elements of fraud
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PRO
Where occupational fraud or employee theft occurs three elements are always present:
Perceived Pressure
Rationalisation
Opportunity
The three elements are interrelated in that more of one element will lead to a reduced demand for any of the other elements.
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Perceived Pressure
Broadly, there are four different categories of pressures that motivate individuals to commit fraud:
• Financial Pressures;
• Vices;
• Work Related Pressures;
• Other pressures.
Financial pressures are probably the most important when it comes to committing fraud. The fact that someone has always been honest appears to be of little or no significance when severe financial pressures exist or are perceived to exist. Vices are closely related in that they will often lead to financial pressures but are even worse as rationality goes out the window.
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Rationalisation
At some point the pressures and opportunity reach a compelling level and what is needed at that point is some form of rationalization: a defence mechanism by which your true motivation is concealed. Actions and feelings are explained in a way that is not threatening. Psychologists describe this as the cognitive process of making your actions seemingly consistent with, or based on reason. Rationalizations help the fraudster to hide from the dishonest nature of their acts.
“Everyone else is doing it”
“I wasn’t stealing, I was borrowing”
“No one gets victimised, it is a victimless act”
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Opportunity
Opportunity is understood here as the objective possibility to commit a fraud, conceal it or avoid being punished by it.
There are 6 major factors (system weaknesses) that increase opportunities:
Weaknesses in the control structure
Inability to judge the quality of performance
Failure to discipline perpetrators
Lack of access to information
Ignorance, apathy and incapacity
Lack of audit trails
An important part of the workshop is aimed at opportunity which we consider to be the most important element in tackling fraud. Opportunity is the element on which you have the most influence.
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Tackling Fraud
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Prevent Detect Examine Resolve
Dealing with fraud as a realistic possibility is not just a requirement for any business, but will contribute to a healthy working environment and a culture in which honesty, integrity, and loyalty are promoted. When approached as an integral part of the overall business strategy and operations it could actually lead to better results and not just prevention or limitation of damages. Four elements may be distinguished:
Prevention
Detection
Investigation
Resolution
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Prevention
Preventing fraud from occurring is by all means the best option. At the same time we need to realise that no system is 100% fail-safe.
The first most important step in preventing fraud is creating an environment of honesty and integrity. At the same time knowledge of very likely detection and punishment will deter many a “doubter” from actually committing the fraud. Scare tactics however will never be satisfactory in an environment where people need to work together constructively.
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Prevention
Some essential elements of creating an environment that promotes honesty and integrity:
Setting the tone at the top: management commitment and role modelling
Effective hiring policies
Clearly communicated ethical values
actions speak louder than words
fraud and abuse are not tolerated
clear and enforceable code of conduct
Clearly communicated expectations, roles and responsibilities
A positive work environment
open door policies
positive staffing and operating procedures
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Prevention
NO FRAUD OCCURS WITHOUT AN OPPORTUNITY.
While opportunities can never be eliminated completely, it is important that you eliminate opportunities as much as possible.
Asses your risks, weaknesses
Implement a structure/system that addresses the control weaknesses
Involvement of all staff in recognising and monitoring fraud risks and red flags
Implementation of independent checks
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Don’t Blame the Accountant
Fraud is most often constituted by a theft, that is concealed and whereby the proceeds are converted. Auditors are often blamed for not detecting fraud. Yet, the very nature of fraud makes that auditors are in the worst position to detect frauds. The parties in the best position to recognise the symptoms of fraud are managers, co-workers or colleagues. Auditors may be instrumental in detecting the concealments when they can be found in audit samples (if any).
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Detection: Red Flags
Given the nature of frauds, it is not likely that the commission of frauds can be observed up close. The key to early detection is to learn and recognise the signs or symptoms of fraud; the so called “red flags.” The following groups will be discussed in the workshop:
Lifestyle and behavioural red flags
Tips and complaints
Accounting anomalies, missing documents
Manifesting control weaknesses
Analytical anomalies (anomalies in aggregated figures)
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Detection Tools & Techniques
Different frauds and thefts, different signs
What are the traces of a specific fraud? How can you make them visible?
Using detection techniques
Non-financial
Financial
Analytical
Utilising your accounting system for monitoring and detection purposes
Data-mining
Whistleblower facility
Detection is aimed at monitoring and identifying POTENTIALLY fraudulent activity. At best, detection leads to a suspicion that may warrant further investigation.
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Investigation
Fraud investigations are reserved for those instances where circumstances as a whole would lead a reasonable and prudent professional to believe that a fraud has occurred or is occurring. The purpose of the investigation is to establish and document the who, what, where, when, how and why of the fraud, if any, and to identify and safeguard evidence relating to the fraud incident.
Fraud investigations do not generally take place without approval of the management. It is the stage where the “experts” are called in. Although there are documented DIY successes it is not recommended you try this yourself. DIY attempts could lead to loss/destruction of evidence, and grounds for personal grievance actions where proper procedure was not followed.
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Requirements
An investigation has to fulfil at least the following requirements:
• Undertaken to establish the facts of the questioned matter only!
• Undertaken by an experienced, and more importantly, objective investigator
• When the progress of an investigation is discussed, clear distinctions must be maintained between the facts and hypothesis based on the found facts.
• Those who need to be informed are kept informed and agree on techniques to be utilised before applying them
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Requirements
• The corroboration of all the evidence and information collected should be done by an independent investigator whilst care should be taken that the corroborated evidence and information is factually correct.
• Great care of the investigation should be exercised and at all times questionable techniques should be avoided.
• All facts will be reported fairly and objectively, whilst obscuring facts and opinions should be avoided. Exonerating facts are of equal importance and should be reported as well. Ignoring or failing to document evidence is considered to be a serious investigative flaw. In the same way limitations to an investigation should be reported.
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Resolution
An often more difficult issue to address is determining what kind of (legal) actions should be taken. The possibilities/options are broad and range from leaving things for what they are, to transferring or terminating a perpetrator to pursuing legal remedies such as civil litigation or a criminal complaint and prosecution. In addition, sometimes ADR is used to get matters resolved. Whatever path one chooses, it is recommended that consistency in approach is aimed for and that the resolution will have and need to be seen as having considerable consequences for any identified fraudster. While specific circumstances may warrant a different approach, a consistent message is of importance in a preventative sense.
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Why you can’t affordto miss this workshop
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A Unique Workshop
We developed a unique workshop that will keep you engaged from the first till the last minute.
You will be tapping straight into the knowledge and almost one and a half decades of experience, using real life examples and cases to illustrate what is being taught. The interactive set up will mean that you can test your own fraud awareness while you are learning. There is room for open discussion even when this involves your own business circumstances.
Post workshop updates and (online or off line) meetings.
If and when requested, additional insights may optionally be provided (via life link) by one of our expert partners, a formerly convicted fraudster.
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Program
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Some Highlights
Topics that will be discussed during the workshop include but are not limited to:
Integrity in your organisation
Understanding Fraud and Fraudsters
Common Types of Occupational Theftand Fraud (The Fraud Tree)
Learning to Recognize the Signs, plus Exercises
Non financial signs
Red flags
Developing an anti-fraud strategy
Implementation
Acceptance within your organisation
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Program
Introduction to Occupational Fraud & Abuse
Most common types
Recognizing the signs
Non-financial signs
Financial/Auditing Signs
An Integrity Management Program for Your organisation
Risk Assessment / Self Evaluation
Developing an Anti-Fraud /Integrity Management Strategy for Your organisation: Key components
Implementing the Program & Realizing Acceptance
Questions & Answers
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Program
The workshop is developed to take place over two full days or four afternoons or mornings or a combination thereof.
A shorter more condensed program can be made available upon request and further discussion.Expressions of interest may be forwarded to John Dierckx so you can be provided with the latest workshop dates and places as well as pricing information options.
The workshop can be made available in-house.
In order to ensure interactivity and an involved, hands-on approach (instead of sitting back and listening) groups of participants will ideally be around 5-6 participants and limited to 10-12 people per group.
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Materials & Extras
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What Do I Get?
At the end of the workshop you will be equipped to develop a strategy for integrity management within your organisation, using the knowledge and tools handed to you during the workshop. Practical and practicable information and tools that can be used immediately. Materials provided during the workshop include but are not limited to:
Hand-out of slides
E-book “A Guide to Fraud and Theft in the Workplace”
A selection of subject-related articles
Checklists, Document Templates and Fraud Analysis Templates & Tools
Fraud Risk Assessment
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After Care
In addition to the workshop program we offer one post-workshop (tele/web) meeting whereby participants are offered a possibility to share their experiences, ask for additional advice/tips and learn from each other’s experiences.
Further assistance on an individual basis is available at a 25% discounted rate for workshop participants for the first 10 hours.
Details may be discussed on an individual basis.
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Target Audience
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The workshop is developed with the small to medium size enterprise in mind but also holds valuable information for middle and even senior management of larger businesses.
Participants in the workshop would typically be involved in the management of businesses from 5-50 people and include but are not limited to:
Small Business Owners
Senior and Middle Management
CEO / Managing Director
General Managers
Financial Managers and Accounts Staff
HR Managers
Anyone else with an interest in Occupational Fraud & Abuse
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Price informationworkshop Dates and Times
Available on request
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About Us
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Dierckx & Associates Ltd
Dierckx & Associates is a boutique, risk and litigation related professional services provider based in Christchurch New Zealand. Established in 2003 and incorporated in 2006, the business has been involved in a wide range of cases.
Our reputation is built upon results achieved, often in the most difficult of circumstances or where others couldn’t. Such outcomes are attributable to the blended application of strategic, investigative, legal and innovation skills.
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Presenter Profile
John Dierckx LL.MCo-Founder ARCIS Fraud Discovery & Exposure Centre, Managing Director Dierckx & Associates Ltd15 Years of successful experience in fraud prevention, detection, investigation and resolution for clients ranging from private individuals to large multinationals, local and national governments, leading to successful prosecutions and out of court resolutions.
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Contact Information
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DIERCKX & ASSOCIATES LTD
John DierckxManaging Director
PO Box 13593Christchurch 8141
T 0064 (0)3 342 4232M 0064 (0)27 480 3371
E john@dierckx.co.nz
W www.dierckx.co.nz
www.dierckxassociates.com
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