1. Fraud
Prevention, Detection &
Control.
By FUH GEORGE CHEO
MBA PROJECT MANAGEMENT
SENIOR AGRIC ENGINEER
local enterprise/value chain development specialist
2014
The
fraudster

2. What is Fraud?
Fraud is anyFraud is any intentionalintentional act or omissionact or omission
designeddesigned to deceive othersto deceive others, resulting in, resulting in
thethe victim suffering a lossvictim suffering a loss and/or theand/or the
perpetrator achieving a gain,perpetrator achieving a gain, usually,usually,
monetary.monetary.
Some Dictionary Definitions……
“A deception deliberately practiced in order to
secure unfair or unlawful gain”
or
“Deliberate deception or cheating intended to
gain an illegal advantage”2
FUH GC MBA PROJECT MANAGEMENT

3. •Fraud is a broad legal concept that generally
refers to an intentional act committed to
secure an unfair or unlawful gain. Misconduct
is also a broad concept, generally referring to
violations of laws, regulations, internal
policies, and market expectations of ethical
business conduct. Intentional act by one or
more individuals among management, those
charged with governance, employee or third
parties involving the use of deception to
obtain an unjust or illegal advantage What is
fraud?
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4. What is Occupational Fraud
•The use of one’s occupation for personal
enrichment through the deliberate misuse or
application of the employing organization’s
resources or assets.
INCLUDES----
the intentional, false representation or
concealment of a material fact for the
purpose of inducing another to act upon it to
his or her injury.FUH GC MBA PROJECT MANAGEMENT4

5. Justification for the presentation
•Rampant in the Credit Union System
•Constitute huge/major source of financial
losses
•Discredits Credit Unions
•Loss of reputation
•Loss of confidence / trust
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6. Fraud black box in the Credit Union System
•Inter-branch transaction
•money transfer
•Loans
•Procurement process
•Reserve account/ Suspense
account6 FUH GC MBA PROJECT MANAGEMENT

7. four Common Types of Fraudfour Common Types of Fraud
•Corruption
•Asset Misappropriation
•Financial Statement Fraud
•Cash transaction fraud
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8. CorruptionCorruption
Corruption refers to schemes in which fraudsters
use their influence in business transactions in a way
that violates their duty to their employers in order to
obtain a benefit for themselves or someone else.
For example, employees through collusion with other
third parties might receive or offer bribes, extort
funds, or engage in conflicts of interest, payroll
fraud.
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9. Asset MisappropriationAsset Misappropriation
•Asset misappropriation schemes are frauds
in which the perpetrator steals or misuses an
organization’s resources.
An examples of asset misappropriation
include a staff using a company fuel and
vehicle to a private funeral.
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10. Financial Statement FraudFinancial Statement Fraud
•Financial statement fraud, involves the
intentional misstatement or omission of
material information from the organization’s
financial reports; these are the cases of
“cooking the books or figures”.
•.
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11. continue
•Financial statement fraud cases often involve
the reporting of fictitious revenues or the
concealment of expenses or liabilities in
order to make an organization appear more
profitable than its real situation
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12. CASH TRANSACTION FRAUD
Improperly accounting for revenues and
expenditures
Skimming cash receipts
Falsifying voids and refunds
Tampering with Credit Union’s checks
Overstating expenses
Creating a ghost employee
Creating fictitious loans/transfers.
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13. Who commits fraud?Who commits fraud?
Supplier4% Client5% Organised
Crime6%
Employees
30%
Management
55%
I AM NOT A THIEF
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14. How Trusted Employees Steal Millions and Why it is
so Hard for Credit Unions to Stop Them”
The personality profile of a typical employee that
commits this fraud is ironically the type of person
Credit Unions want to hire…often a committed
senior management staff, the trusted branch
manager, the loans officer who never missed a day
at work or the dependable accountant. It’s a fact that
fraudsters are often some of the institution’s top
performers. That is because the same creativity,
attention to detail, and intelligence that helps them
succeed at their jobs also helps them succeed at
fraud.
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15. Who Commits Fraud?Who Commits Fraud?
•Management
•Employees
•Organised Employee syndicate
•Customers
•Suppliers.
•Apex structure / BOD
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16. Typical perpetrators.
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17. continue
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18. The Fraud TriangleThe Fraud Triangle
(Basic factor influencing the occurrence of fraud)(Basic factor influencing the occurrence of fraud)
PressurePressure
OpportunityOpportunityRationalization (Attitude)Rationalization (Attitude)
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19. PRESSUREPRESSURE: This is what causes a person to commit fraud. This
includes bills, expensive tastes, addiction problems, significant
financial needs etc. Often this need/problem is non-disclosable in the
eyes of the fraudster. That is, the person believes, for whatever reason,
that their problem must be solved in secret.
RATIONALIZATIONRATIONALIZATION:: It occurs when the individual develops a
justification for their fraudulent activities. The rationalization varies by
case and individual. Some examples include:
“I really need this money and I’ll pay it back when I get my salary”
“Other people are doing it”
“I didn’t get a raise. The Credit Union owes me.”
OPPORTUNITYOPPORTUNITY:: Opportunity is the ability to commit fraud. Because
fraudsters don’t wish to be caught, they must also believe that their
activities will not be detected. Opportunity is created by weak internal
controls, poor management oversight, and through abuse of power.
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20. INDEPTH ANALYSIS OF TRIANGLE
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21. ”
Causes of High Pressure
•High personal debts.
•Living beyond their means.
•Excessive investment speculation.
•Excessive gambling.
•Substance abuse.
•Extra-marital affairs.
•Job frustration.
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22. ”
fraud windows - Opportunity
Inadequate internal controls.
Too “cozy” with suppliers.
Annual vacation or sick days not taken.
Weak management or excessive turnover.
Ineffective or no internal audit.
No rotation of job duties among employees.
Procedures not well understood/always in
crisis mode.
Large amounts of cash on hand or
processed.
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23. Self conviction (pretext) - Rationalization
•Not compensated fairly.
•No recent raises/cost of living adjustments.
•Everyone else does it.
•Intended to pay it back.
•Needed the money.
•Felt cheated and wanted revenge.
•Bribe/kickback too tempting.
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24. BEHAVIORAL WARNING SIGNS
Fraudsters exhibit behavioral warning signs of their
misdeeds. For example:
Living beyond their means.
Financial difficulties.
Exhibiting control issues – unwillingness to share duties.
Unusually close relationship with vendor/customer.
Wheeler dealer attitude.
Family problems.
Irritability, suspiciousness or defensiveness.
Addiction problems.
Refusal to take vacation.
Auditors and employees should be trained to recognize the common behavioral
signs that a fraud is occurring.
Effective fraud prevention measures are critical
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25. BREAKING THE FRAUD TRIANGLEBREAKING THE FRAUD TRIANGLE
Breaking the Fraud Triangle is the key to fraud
deterrence.
Breaking the Fraud Triangle entails removing one
of the elements in the fraud triangle in order to
reduce the likelihood of fraudulent activities. Of
the three elements.
Removal of opportunity is most directly affected
by the system of internal controls and generally
provides the most actionable route to deterrence
of fraud.
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26. detecting frauddetecting fraud
Indicators / windowsIndicators / windows
Receipt of tip-offs
Refusal to take vacation or sick leave
Significant personal debt and credit problems
Behavioral changes - These may be an indication of drugs, alcohol,
gambling, or just fear of losing the job
Low employee turnover, especially in those areas which are more vulnerable
to fraud
Lack of segregation of duties in a vulnerable area
Employee lifestyle changes: expensive cars, jewelry, homes, clothes
Management decisions are dominated by an individual or small group.
Managers display significant disrespect for regulatory bodies
Policies and procedures are not documented or enforced.
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27. FRAUD PREVENTION (Prevention – Is Better Than a Cure)
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28. 7 KEYS TO FRAUD PREVENTION
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29. Anti-Fraud Culture
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Set the tone at the top = Lead by Example
Responsibility of Directors and Officers
Conduct background checks for new employees.
Treat all employees equally
Zero tolerance
Behave ethically and openly communicate expectations to employees
Create a positive workplace environment
Focus on employee morale
Empower employees
Communicate
Hire and promote appropriate employees
Conduct background investigations before hiring or promoting
Check candidate’s education, employment history, references
Continuous and objective evaluation of compliance with entity values
Violations addressed immediately

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Code of Conduct
Formalized and founded on integrity
Defines acceptable employee behavior
Communicated to all employees
All employees are held accountable for
compliance
Discipline
Sends a strong message throughout the entity
Should be appropriate and consistent
Consequences of committing fraud clearly
communicated throughout the entity

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Oversight Process
Audit Committee or Board of Directors /supervisory Board
Evaluate management’s “tone at the top”
Identification of fraud risks and implementation of anti-fraud
controls
Ensure that management implements anti-fraud measures
Consider the potential for management override of controls
Management
Directs, implements and monitors anti-fraud controls
Sets the ethical tone
Trains employees
Internal Auditor
Identifies fraud indicators
Assesses fraud risks
Evaluates anti-fraud controls
Recommends actions to mitigate risks
Investigates potential frauds

32. Fraud Policy
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Demonstrate commitment to combating fraud
Apply to all Directors, Management, employees, consultants, vendors,
contractors, etc. Should include:
Statement of organization’s position on fraud
Scope of the policy – who does it apply to
Management’s responsibility for prevention and detection of fraud
Definition of fraud
Actions constituting fraud
Fraud reporting process/procedures
Fraud investigation process/procedures
Unit responsible for administration of the policy and investigating fraud
allegations
Statement on anonymity/confidentiality
Consequences

33. Fraud Awareness/Training
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new employees should be trained at time of hiring on
the Code of Conduct and Fraud Policy.
Training should include:
Their duty to communicate certain matters
A list of the types of matters to be communicated along
with examples
How to communicate those matters
Affirmation from senior management regarding
employee expectations and communication responsibilities
Refresher training periodically

34. Hotline
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Enable employees, vendors, customers and others
to communicate concerns about known or
suspected wrongd oing.
Telephone, email, internet.
Anonymous.
Adequately publicized.
Internal or External.
Complaint monitoring and
investigation/resolution.

35. Assess Fraud Risks
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Conduct an annual fraud risk assessment.
Assists management in systematically identifying where and
how fraud may occur and who may be in a position to commit
fraud
Focus on fraud schemes and scenarios to determine the
presence of internal controls and whether or not the controls
can be circumvented.
General steps:
Identify areas and processes to assess
Identify potential fraud schemes in each area/process
Assess likelihood and significant of each scheme
Map existing anti-fraud controls to potential fraud schemes
Test operating effectiveness of antifraud controls
Identify any control gaps and/or deficiencies = Residual risks
Document and report on the fraud risk assessment

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Mitigate Fraud Risks
Make changes to activities and/or processes = transfer or
eliminate the risks
Improve anti-fraud controls
Monitor Fraud Risks
Develop data analytics for management to use to monitor
fraud risks
Utilize Internal Audit to conduct audits of risk areas.

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Fraud Review/Investigation
All concerns/suspicions of wrong doing should be
reviewed and determination made whether a fraud
investigation is warranted.
Develop a policy for fraud reviews and
investigations that specifies:
Who is responsible for the review/investigation
Roles of Legal Counsel, Human Resources,
Internal Audit, others
Process for conducting the review/investigation
Documentation requirements
Reporting requirements
When to involve law enforcement

38. Fraud Review/Investigation
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Gather sufficient information and perform procedures
necessary to determine:
Whether fraud has occurred
Loss or exposure associated with the fraud
Who was involved and how it happened
Must prepare, document and preserve
evidence sufficient for potential legal
proceedings.
Include experts if possible.

39. Improved Controls
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Use lessons learned from any fraud reviews
or investigations to improve anti-fraud controls.
All fraud review and investigations should
include a report to management with
recommendations for control improvement.

40. Antifraud Programs and Controls.(CRIME)
• Identify fraud
risk factors,
fraud risks and
fraud schemes
• Link or map
identified fraud
risks to control
activities
• Effective
communication
of antifraud
programs and
controls
• Monitoring
effectiveness
of antifraud
programs
and controls
•Tone at the top
•Code of
Conduct/Ethics
•Whistleblower
Hotline
CreatingCreating
a Controla Control
EnvironmentEnvironment
PerformingPerforming
Fraud RiskFraud Risk
AssessmentsAssessments
Designing and
Implementing
Antifraud
Control
Activities
SharingSharing
Information andInformation and
CommunicationCommunication
MonitoringMonitoring
ActivitiesActivities
CRIME
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41. In today’s micro finance climate, it is more important
than ever to take every precaution possible to
reduce exposure to financial loss, reputational
damage and service interruption which are the
common consequences of fraud.
.
Conclusion
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42. 42 FUH GC MBA PROJECT MANAGEMENT

43. Questions/Discussions
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