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Fraud management in ten minutes presentation

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  • Fraud is a commonly used term in language and the media.Until the Fraud Act 2006 there was no specific statutory offence of fraud and relevant offences were contained in the Theft Acts.The Fraud Act 2006 brought in specific offences and benefits include: Easier and far more successful prosecution Fraud Act offences do not require any proof that the victim was deceived and focus entirely on the intention and dishonesty of the defendant.The offences relating to fraud are now easily understood and can be used in corporate governance documentation such as codes of conduct.The Theft Acts have been substantially repealed but two main offences remain – theft and false accounting.Theft is a criminal act that may not require deception whereas fraud usually does involve deception.
  • Life time perspective.People change – not a consistent entity.Pressures change in people’s life environment.Motives: Seek happiness Avoid suffering.The right perspective - most of the population are a risk (including me).The incidence of fraud is under reported (e.g. secondary impact of losing stakeholder confidence in management).Inherent risk Some systems, procedures and situations managers face carry high inherent risk (e.g. cash handling, social security benefit payments).Cost / Benefit- The response to fraud should be proportionate to its likelihood and impact.
  • Fraud Triangle is a widely accepted model of fraud risk.PhD research by Donald Cressey focusing on convicted embezzlers and how they were overcome by temptation.Fraud may occur when three factors are present in the individual person: Motive / Pressure Perceived Opportunity Attitude / Rationalization.Criticisms of the model: Opportunity must be associated with capability (e.g. know a system) Only motive and opportunity are needed in modern society?The Fraud Triangle provides a framework for thinking about the risk of fraud in any management situation.The aim in countering fraud is simply to break up the triangle so that in any situation the factors needed for fraud do not occur (or at least not together).
  • Deception is not used to cover up the actual act of fraud.Deception is used to ensure personal status is improved or maintained / not lost.A loss of status could be the respect of family, friends or work colleagues. At a more extreme level loss of status involves actual freedom when a person is sent to jail.
  • Frauds often start off small and then escalate.That is because people have to overcome the values they hold which tell them that fraud is wrong.May invent an excuse – I’m only borrowing the money, everybody round here is taking money, this employer deserves it because they treat us all so badly, its not fair he is being paid more than me etc.On the first occasion rationalization is hard, but next time and the time after it becomes easier.The important thing is to tell people the behaviour expected of them.Another important thing is to lead by example because people engage in social learning all the time and when faced with an ambiguous situation they look at how others behave to learn how they should behave.
  • Fraud may occur when three factors are present in the individual person Motive / Pressure Perceived Opportunity Attitude / RationalizationThe Fraud Triangle provides a framework for thinking about the risk of fraud in any management situationThe aim in countering fraud is simply to break up the triangle so that in any situation the factors needed for fraud do not occur (or at least not together)
  • Transcript

    • 1. Countering fraud
      A guide for managers
      Warren Park
    • 2. Learning objectives
      Understand the nature of fraud
      Provide a thought process for countering fraud in any situation
    • 3. Fraud and theft offences
      Fraud Act 2006
      False representation
      Failing to disclose information
      Abuse of position
      Possession / making articles for fraud
      Participating in fraudulent business
      Obtaining services dishonestly
      Theft Act 1968
      Theft
      False accounting
    • 4. Common terms
      Gain
      Loss
      Money or other property
      Account or other record
      Intentional act or omission
      Not an error
      Dishonesty
      Seen as dishonest by an ordinary decent person
      Defendant knows this
    • 5. Spot the fraudster?
    • 6. People may commit fraud when …
      Motive / Pressure
      Aim to break up the Fraud Triangle
      Fraud
      Triangle
      Perceived Opportunity
      Attitude / Rationalization
    • 7. Motives and pressures that may lead to fraud
      Business reversal
      Employee / employer relations
      Personal failure
      Physical isolation
      Status gaining
      Violation of ascribed obligations
    • 8. Deception
      A person’s own perception of a financial problem that can’t be shared
      Fear of losing personal status
      Fraud offers a secret solution
    • 9. Reducing motives / pressures
      Provide easy access to confidential help and support
      Share the problem
      Identify alternative courses of action
      Follow good employment and other practices promoting fairness
      Help grievances come into the open and deal with them equitably
    • 10. Reduce opportunity through controls
      Impersonal
      Often low cost
      e.g. password
      Controls work unless
      Poorly designed
      Not operated properly
      Most common controls
      Restrict access
      Segregation of duties
      Checking and supervision
    • 11. Promoting the right attitudes
      Leadership by good example
      Sets the right culture
      Tell them
      Training
      Code of Conduct
      Signing publicly to have read and understood
      People want to believe they are good
      People must rationalize their bad behaviour
      Make rationalization of bad behaviour harder
    • 12. Tackling the risk of fraud in any situation
      Motive / Pressure
      Aim to break up the Fraud Triangle
      Fraud
      Triangle
      Perceived Opportunity
      Attitude / Rationalization