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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and can be used in corporate governance documentation such as codes of conduct.The Theft Acts have been substantially repealed but two main offences remain – theft and false accounting.Theft is a criminal act that may not require deception whereas fraud usually does involve deception.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)

Fraud management in ten minutes presentation Fraud management in ten minutes presentation Presentation Transcript

  • Countering fraud
    A guide for managers
    Warren Park
  • Learning objectives
    Understand the nature of fraud
    Provide a thought process for countering fraud in any situation
  • 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
  • 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
  • Spot the fraudster?
  • People may commit fraud when …
    Motive / Pressure
    Aim to break up the Fraud Triangle
    Fraud
    Triangle
    Perceived Opportunity
    Attitude / Rationalization
  • Motives and pressures that may lead to fraud
    Business reversal
    Employee / employer relations
    Personal failure
    Physical isolation
    Status gaining
    Violation of ascribed obligations
  • 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
  • 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
  • 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
  • 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
  • Tackling the risk of fraud in any situation
    Motive / Pressure
    Aim to break up the Fraud Triangle
    Fraud
    Triangle
    Perceived Opportunity
    Attitude / Rationalization