Can you fool an auditor?


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Presentation given at 3rd annual White Collar Crime Summit for Africa in Victoria Falls, Zimbabe

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Can you fool an auditor?

  1. 1.   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  
  2. 2. PresentaPon  Road  Map   •  DefiniPons     •  •      My  area  of  experPse  –  People  Risk           How  do  we  fool  an  auditor?       •  Whistleblowing     COMMON  DENOMINATOR  
  3. 3.                   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                        
  4. 4. How Much Does Bribery Actually Cost Market Cap Before >$5.5B 5 After <$3.7B 33% Loss in Value Plus $56M for the bribes
  5. 5. 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,  c  ollects  evidence,  evaluates  the  same  and  on  this  basis   formulates  his  judgment  which  is  communicated  through  his  audit  report.   Wikipedia  
  6. 6. Who  is  an  auditor?   Forensic           Cost             Quality   Performance   Internal   Statutory  
  7. 7. Who  is  a  whistleblower?   Buyer           Client             Member  of   the  public   Supplier   Accountant   Auditor  
  8. 8.                     What  are  the   COMMON  DENOMINATORS     ???  
  9. 9. Staff         AuthoriPes               Clients   Suppliers   PEOPLE   Management  
  10. 10. The problem with human resources is 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, responsible   and 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.
  11. 11. Can  we  fool  an  auditor?                         “Scamming  the  auditors  is  as  simple  as  cut  &   paste”  
  12. 12.                   External   Case  Study     iFacts  
  13. 13. •  Hardworking staff •  Need training •  Conference with team building activity
  14. 14. Supplier   Good service •  Nice guy •  Helpful •  Synergy in service offering
  15. 15. Finances   •  Possible business venture •  Rented a property from us •  Used his services again •  Discussed joint marketing strategy
  16. 16. MY  AIM   HELP  US  ALL  TO  GROW  and  $$$  
  17. 17. Finances   •  Introduction to my suppliers •  Introduction to my clients •  Access to our marketing contacts and systems •  PROVIDED INFORMATION FREELY
  18. 18. Colleague                     Tenant   PEOPLE   Supplier  
  19. 19. Colleague           THREAT             PEOPLE   Tenant   Supplier  
  20. 20. DID  WE  HOOK  THE  WORM?   YES  
  21. 21. 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   •  •  •  •  •  • 
  22. 22.                   Did  we  verify   any   informaPon?  
  23. 23.                   NO!!  
  24. 24. The  Result   Finances   •  Loss of US$3 000 •  Loss of reputation •  Hours of investigation
  25. 25. Inves6ga6on  Findings   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
  26. 26. Where  did  I  go  wrong?  
  27. 27. IFACTS  VENDOR  FRAUD  SURVEY   July  2012   100   96   90   73   80   70   60   50   40   30   20   10   0   4           27         Are  the     ocuments   d presented  to  the     procurement   65   61   39   35   70   57   43   30   Does  your   Does  your   Does  the   Is  the  employee   Are  contractor  /   procurement   procurement   procurement   screening  policy  of   supplier  documents   department  ask  for   department  ask   department  insist   contractors  assessed   verified  during  their   specific  documents   department  every   whether  any   that  employees  of   by  your  company  to   contract  Pme  with   when  a  supplier   verified  to  ensure   suppliers  are  related   contracPng   ensure  that  your   your  company?   wants  to  provide   that  the  informaPon   or  associated  to   companies  are   company’s  risk  is   services  to  your   presented  is  true   employees?   subjected  to   taken  care  of?   company?   and  correct?   employee   screening?   YES  (%)   NO  (%)  
  28. 28.                   Internal   People     Management  
  29. 29. 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  
  30. 30. Staff         AuthoriPes               Clients   Suppliers   PEOPLE   Management  
  31. 31. HOW  HAPPY  ARE     YOUR  EMPLOYEES?  
  32. 32. WHERE  DOES  INTEGRITY     BEGIN  &  END?  
  33. 33. ARE  YOUR  STAFF     MOTIVATED?  
  34. 34.                  
  35. 35.                  
  36. 36. People     Risk       Third  Party     Risk               People   People  Risk   Management   Programme   People  Safety   &   Security   Wellness   People   Management  
  37. 37. 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                
  38. 38.   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  
  39. 39. 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    
  40. 40.