ASLI Fraud Investigation Conference 2013 - Delving into the devil’s mind

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ASLI - Internal Fraud Investigation & Control Conference 2013
Delving into the devil’s mind – knowing the psyche of a fraudster and a corrupt employee
• Unleashing the mechanisms of a criminal mind
• How a fraudster reacts and behaves in a constrained environment
• How to recognize a fraudster – traits and personality of a corrupt and fraud employee

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  • Refer to Handout 1: Possible General Root Causes for Fraud
  • Refer to Handout 1: Possible General Root Causes for Fraud
  • Refer to Handout 1: Possible General Root Causes for Fraud
  • Refer to Handout 1: Possible General Root Causes for Fraud
  • Refer to Handout 1: Possible General Root Causes for Fraud
  • This looks better right? But… also still not good enough, right? Refer to Handout 4: 1. Priority, Targets and Standards
  • Refer to Handout 1: Possible General Root Causes for Fraud
  • Actions and Behaviors under “Zero Tolerance”: theft and fraud** violation of confidentiality or security of company information** possessing or consuming non-prescribed narcotics on company property reporting to work intoxicated/impaired instigating a fight on company property carrying a weapon on company property intentional harassment, including racial, religious, or sexual harassment directly or indirectly inciting racial or religious issues act of violence toward superior, an employee or customer physically threaten or abuse superior, an employee or distributor misrepresentation of important facts in seeking employment tampering or forging company information and property sabotage or intentionally harming the company Conflict of interest General Treatment for “Zero Tolerance” These are behaviors that are commonly excluded from a progressive discipline approach and that subject the employee to either immediate Domestic Inquiry (D.I.) or criminal prosecution. (upon professional legal advice) There should also be publication and circulation of the “Zero Tolerance” Handout for all employees.
  • Refer to Handout 2: General Strategies And Policies
  • is important.
  • Here are some ways to for leaders to create a better working environment: Educate our core employees all about the business so they understand their impact on its day-to-day success. Involve employees in important decisions relating to work processes and customer satisfaction. Teach core workers the skills that are traditionally reserved for managers. This helps them learn to make better decisions and support business objectives. Identify and eliminate obstacles to employee commitment. These can include giving managers too much status or privilege, micromanaging and restricting employees’ access to information.
  • ASLI Fraud Investigation Conference 2013 - Delving into the devil’s mind

    1. 1. DELVING IN THE DEVIL’S MINDKnowing the psyche of a fraudster and acorrupt employeeKenny OngTakaful IKHLAS Sdn Bhd 1
    2. 2. Business today… 13th April 2009 •Two Domino’s employees •YouTube •Apology from Domino’s after 48 hours •1 million hits •Twitter: questions on silence •LinkedIn: suggestions by users in forum 2 BusinessWeek, May 4, 2009
    3. 3. TAKAFUL IKHLAS CORPORATE PROFILE• Shareholder : MNRB Holdings Berhad (100%)• Established Date : 18 September 2002• Operational since : 2 July 2003• Takaful Model : Al-Wakalah• Business Portfolio : General and Family Takaful• Number Products : More than 90• Number of Participants : More than 1,800,000• Number of Agents : More than 6,000• Number of Staff : 490• Regional Offices : 11• Paid Up Capital : RM295 million 3
    4. 4. IKHLAS Customized HealthcareSolutions 4
    5. 5. Contents:A. The Criminal MindB. TriggersC. Minimizing IncidentsD. Future Fraud 5
    6. 6. When and how do you decide?
    7. 7. How many of us drive with theultimate intention of breaking the speed limit? 7
    8. 8. Fraud-O-Scope™ Good 1. Character Bad4. Catchability 3. Situation Fraud Easy Hard Open Closed Smart 2. Intelligence Not Smart 8
    9. 9. The Criminal MindProfile of Potential Fraudster 9
    10. 10. “Everyone has a price” 10
    11. 11. Fraud-O-Scope™ Good 1. Character Bad Fraud Smart 2. Intelligence Not Smart 11
    12. 12. Fraud-O-Scope™ Good1. Family2. Education 1. Character3. Social4. Movies Bad5. Books6. Religion Fraud7. Record8. Attribution 12
    13. 13. Fraud-O-Scope™ 1. Education level 2. Talent 3. Analytical Fraud 4. Systems Smart 5. Ask questions 2. Intelligence 6. Years of Service Not Smart 13
    14. 14. How would you profile him? 14
    15. 15. How would you have profiled him? 15
    16. 16. Where are the Fraud Risks? IndustrySuppliers/Vendors Management Retail Front Staff Frontline 16
    17. 17. Real Fraud, Real Risks1. Channel Fraud 9. Credit Card2. Staff Fraud 10.Ghost Staff3. Management Fraud 11.Ghost Channels4. Distributor 12.Financial Reporting5. Retail Assistant 13.Theft6. Payroll 14.F/L7. Undercutting 15.eCommerce8. Purchasing 16.Share manipulation 18
    18. 18. GENERAL FRAUDSTER PROFILE• Profile: 68.6% – no prior criminal record, – Aged 26-40 years old, – Annual income between RM15k-RM30k, – 2-5 yrs of service• Struggling financially or large purchases – difficult time in their lives – gets out of hand• Merger and acquisition or reorganization activity. – ‘I don’t have a career here’ attitude. 19
    19. 19. Possible General Root Causes for Fraud Mindset1. "Everyone does it."2. "It was small potatoes."3. "They had it coming." – the revenge syndrome4. "I had it coming." – the equity syndrome 20
    20. 20. Possible General Root Causes for Fraud Mindset1. "Everyone does it.“ 1. Indiscipline employees commonly organize themselves in cliques or clusters - the inner circle 2. Rarely does a repeat offender not involve an accomplice or at least a confidant. 3. “If my superior can come to work late and still be promoted, it means I can steal RM10. Both are indiscipline cases anyway.” 21
    21. 21. Possible General Root Causes for Fraud Mindset1. “It was small potatoes.“ 1. “Whats a RM30 stolen calculator to a company that makes millions each year or to a boss who drives a Mercedes? 2. “Zero Tolerance Policy” for identified disciplinary cases in any form or for any amount? 22
    22. 22. Possible General Root Causes for Fraud Mindset1. "They had it coming." – the revenge syndrome 1. “The accounts department cuts down my lead time to submit my claims yet take 60 days to compensate my claims. So I purposely come late to work to compensate.” 2. “The company keeps cutting down our benefits and allowances but keep asking us to produce more. So I compensate by being calculative with the company even for one sen.” 23
    23. 23. Possible General Root Causes for Fraud Mindset1. "I had it coming." – the equity syndrome 1. Under-compensated or unrecognized -> self- devised "bonus" plan. 2. Employee has been turned down for a raise or promotion; after a company-wide salary freeze has been established; during periods of company turmoil (restructuring, takeover, new management, etc.). 24
    24. 24. Reminder: Very few people join an organization with the objective to commit fraud. 25
    25. 25. “Cow don’t drink water cannot push cow head down” 26
    26. 26. TriggersConditions for Fraud 27
    27. 27. Fraud-O-Scope™4. Catchability 3. Situation Fraud Easy Hard Open Closed 28
    28. 28. Fraud-O-Scope™1. Self/Family2. Straight road3. Conflicts4. Bad Bosses5. M&A6. Org Character 3. Situation7. Controls Fraud Open Closed8. No changes9. Power Imbalance10.Amount, $$11.Org Systems 29
    29. 29. Fraud-O-Scope™ 1. Check & Balance 2. Oversight 3. Automation4. Catchability 4. Burden of Fraud Proof Easy Hard 5. Line of Sight 30
    30. 30. Who is most likely to commit Fraud? Excellent Very Good Average Not Good Commit Suicide 31
    31. 31. The Four Desperates1. Desperate 2. DesperateCompetition Consumer3. Desperate 4. Desperate Achievers Changes 32
    32. 32. Dangers of Direct Incentives1. lessen internal motivation,2. switch to mercenary mode,3. do something and do not do something else,4. bribe and fraud culture,5. easier for competitors to recruit,6. lessen teamwork & helpful culture,7. less and less impact for same value,8. mockery of base salary and employment contract,9. rebellion from non-incentivised staff,10. end up incentivising everyone for everything?, 33
    33. 33. Curse of the Bell Curve ‘A’ ‘B’ ‘C’ ‘D’ ‘E’Staff Staff Staff Staff Staff 34
    34. 34. Biggest Issue in FinancialProduct Innovation? 35
    35. 35. Power Imbalance1. Propose2. Approve3. Execute4. Monitor 36
    36. 36. Possible General Root Causes for Fraud Mindset1. "Everyone does it."2. "It was small potatoes."3. "They had it coming." – the revenge syndrome4. "I had it coming." – the equity syndrome 37
    37. 37. Minimizing IncidentsPrevent. Deter. Kill. 38
    38. 38. "Fear not the 10,000 movespracticed once. Fear the one move practiced 10,000 times" Chandni Chow to China 39
    39. 39. How to minimize Fraudulentmindsets…. Attribution. 40
    40. 40. Risk Mitigation Strategies ERM ResourcesStructure Identified Fraud Risks Culture Leadership Person 41
    41. 41. Alignment: FrameworkStructure • Org Structure • Job Design – C.Fraud.O. • Policies & procedures • Governance, Internal Controls • Management Systems, SOPs • Central • Special Task Force • Internal Audit, Surprise Audit, Regular Audit (Surveillance) • Levels of Authority, Power Balancing* 42
    42. 42. *Power Balancing1. Propose2. Approve3. Execute4. Monitor BOD Set 1 BOD Set 2 Approval/Verification 43
    43. 43. Alignment: FrameworkResources • Tools • ICT Systems • Rules detection • Whistle Blower • PED • Profiling/Assessment Tools • Budget for Investigation, Litigation 44
    44. 44. Strategy: FrameworkLeadership • PED • Involuntary Role Modeling • Personal accountability and Commitment • Corporate Values • Watch out: Current people promoted to Key Positions • Promotional criteria 45
    45. 45. Alignment: Framework • New Employee BackgroundPerson checks • Willingness to Punish • Root Cause Analysis (Mager & Pipe) • Rotation • PED • Fraud Detection & Analysis Competency • High Risk Jobs • IT breaches through Frontline 46
    46. 46. • PED 47
    47. 47. GENERAL STRATEGIES AND POLICIES• B1. Classification of Behaviors – B1.1 Disrespectful Workplace Behavior – B1.2 Progressive Discipline – B1.3 Zero Tolerance 48
    48. 48. GENERAL STRATEGIES AND POLICIES• B2. Recruitment and Selection• B3. Exit• B4. Employee Assistance Program• B5. Anonymous Hotline• B6. Communication and Feedback• B7. Training and Education• B8. Formal Complaint and Grievance 49
    49. 49. GENERAL STRATEGIES AND POLICIES• B9 Leadership – 1. Leaders act as role models whether consciously or unconsciously – 2. Leaders determine the working environment 50
    50. 50. GENERAL STRATEGIES AND POLICIES• B9 Leadership – 1. Educate – 2. Involve – 3. Teach – 4. Eliminate 51
    51. 51. SPECIFIC STRATEGIES AND POLICIES• C1. Theft and Fraud – Root Causes – Profile: 68.6% - no prior criminal record, Aged 26-40 years old, Annual income between RM15k-RM30k, 2-5 yrs of service – Struggling financially or large purchases • difficult time in their lives • gets out of hand – Merger and acquisition or reorganization activity. • ‘I don’t have a career here’ attitude. 52
    52. 52. SPECIFIC STRATEGIES AND POLICIES• C1. Theft and Fraud - Prevention – Background checks – Duties segregated – Anonymous hotline – Share the wealth – Communicate successes – Make a big noise when discovered – Video surveillance equipment 53
    53. 53. SPECIFIC STRATEGIES AND POLICIES• C2. Violation of confidentiality or security of company information - Prevention – a. ICT Security Policies* – b. Ownership of Intellectual Property – c. Inside Information and Trading of company shares 54
    54. 54. *ICT Security and Fraud (1/3)Biggest ICT risks1. Security – All matters relating to the ‘coming-in’ and ‘going-out’ of all systems and information2. Backup - including Storage of critical and non- critical information and Disaster Recovery3. Continuity – Availability of systems and information at a 24x7x365 standard 55
    55. 55. *ICT Security and Fraud (2/3)The following are threats faced by organizations from ‘inside’ the company:• Current Employees,• On-site Contractors,• Former Employees,• Vendors/Suppliers,• Strategic Partners, and• OEMs 56
    56. 56. *ICT Security and Fraud (3/3)ICT Security, Backup, and Continuity Strategies 2005-2008:1. Web browsing and 8. Physical Internet Access 9. PCs and laptops2. Username and 10.Remote access passwords 11.Servers, routers, and3. Instant Messaging switches4. E-Mail 12.Internet / external5. File access permissions network6. Backups 13.Wireless7. Crisis management, 14.PDA and cell phone Disaster recovery and 15.Documentation and Business Continuity change management 57
    57. 57. “Asking the people responsible for preventing a problem if there is a problem is like delivering lettuce by rabbit" Norman Augustine CEO & Chairman, Lockheed Martin 58
    58. 58. "He has 20 years experience: 1 year of bad experience repeated 20 times" 59
    59. 59. Future FraudWe all need help 60
    60. 60. Finance Today… $19.90 62
    61. 61. New Fraud OpportunitiesChange in Business Models: InexperiencedeCommercePartnersFranchiseDownstream/UpstreamM&A Targets 63
    62. 62. eCommerce Frauds Lost/Stolen Credit Cards Account Application Takeover eCom Frauds? Pharming Phishing Counterfeit Advances 64
    63. 63. Latest Fraud topics: General1. Whistle Blowing compensation: tied to $$ amount of fraud exposed2. New laws proposed -> Not allowed to sue Accountants, Auditors, Lawyers. What implications?3. Credit Crunch = Tighter Cash Flow = More desperate people = more Fraud?4. Sub-prime crisis + Société Générale = Transparency, Disclosure, Relationship Transparency 65
    64. 64. Fraud: Research Options?1. Profile of a Fraudster in Malaysia2. New Fraud Risks in the 21st century business environment3. Internet, eCommerce, and ICT related Fraud risks and prevention4. Company Culture and its influence on Fraud Risks5. HR practices that can decrease Fraud in a company 66
    65. 65. End Points 67
    66. 66. Mistakes and Lessons Learned1. Price to Pay for Fraud/Risk Mitigation => Business Flexibility2. Control vs. Growth3. Rules vs. Humanity/Motivation4. Not tackling the root cause i.e. Motive + Opportunity i.e. Humans5. Focus on FAC vs. Sales/Marketing => who has control?6. Relationship Role vs. Enforcement Role 68
    67. 67. In the end…• Great Wall of China – humans are the weakest link – bad treatment of staff will lead to weak link i.e. easier to bribe, easier to con, etc; – bad treatment examples: insulting, lose face, broken promises, no dignity, public criticism, restructure without communication 69
    68. 68. Thank You. soft copy of slides:http://totallyunrelatedrandomanddebatable. blogspot.com/

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