The document outlines a fraud management course by the Cooperative Bank of Oromia, focusing on defining fraud, understanding its causes via the fraud triangle, recognizing warning signs, and building an anti-fraud control environment. Key outcomes include identifying fraud risks, implementing strong anti-fraud culture, and conducting comprehensive fraud risk assessments. The course emphasizes the importance of awareness, effective controls, and a structured framework for fraud prevention, detection, and response in banking operations.

1. By: Risk and Compliance Management Process
in Collaboration with Digital Strategy and Transformation
Sub-process
November, 2023
FRAUD MANAGEMENT COURSE
©Cooperative Bank of Oromia Learning and Growth team

2. Objectives
1) Define fraud (COSO, Deloitte, CIMA, NBE etc.);
2) Understand why people commit fraud (fraud triangle);
3) Recognize the warning signs of different types of fraudulent activity;
4) Create awareness on fraud risk management; and
5) Building an anti-fraud control environment.
The objectives of this Course is:
Learning and Growth Team
©Cooperative Bank of Oromia

3. Outcomes
By the end of this training session, participants should be able to:
o Identify fraud risks and the factors that influence them;
o Identify and implement the elements of a strong anti-fraud
corporate culture; and
o Perform a comprehensive fraud risk assessment.
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

4. ► The Basics of Fraud and Its Elements
► Forms of Fraud in Banks
► Control Gaps (Causes of fraud)
► The Fraud Risk Management Framework and
► Fraud Management Strategy
Contents
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5. The easiest way of making money is to stop losing it.
Robert Heller
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6. What is Fraud?
Basics of Fraud and Its Elements
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7. ©Cooperative Bank of Oromia
Basics of Fraud and Its Elements….
1.1 Definition of Fraud
 Internal fraud risk: is the risk of unexpected financial,
material, or reputational loss as a result of fraudulent
action by persons internal to the firm.
 External fraud risk: is the risk of unexpected financial,
material or reputational loss as the result of fraudulent
action of persons external to the firm
Fraud is any intentional act or omission designed to
deceive others, resulting in the victim suffering a loss
and/or the perpetrator achieving a gain.
Fraud essentially involves using deception to dishonestly
make a personal gain for oneself and/or create a loss for
another
Fraud means an act or omission by shareholders,
directors, employees, and customers committed with the
intention of gaining dishonest or unlawful advantage for
the party committing fraud or for other parties
CIMA
NBE
COSO
BASEL II
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8. ©Cooperative Bank of Oromia
Basics of Fraud and Its Elements….
Take away
 Intentional act to illegally or unethically gain at the expense of
another.
 Take many forms including wrongful or improper use of
resources, theft of cash, inventories and other assets, computer
crimes, forgery and misuse of position or falsification of reports.
 Costs huge amount financial loss, permanent or temporary
suspension and jail time.
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9. Basics of Fraud and Its Elements….
1.2 Elements that Constitute Fraud
01
02
03
According to Deloitte, the three common elements that constitute fraud are:
Refers to the outcome or consequence of the fraud.
Deception:
Intention:
Refers to the deliberate and conscious decision to
commit fraud.
Refers to the act of misleading or concealing the truth.
Gain or loss:
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10. Basics of Fraud and Its Elements….
1.2 Elements that Constitute Fraud
o The method used to commit the fraud:
o The effectiveness of anti-fraud controls systems.
o The degree of dishonesty and skill level of the perpetrator:
According to McKinsey, Some of the factors that affect the degree
of dishonesty and skill level of the perpetrator are:
Greed, desperation, and revenge
The risk posed by fraud comprises three elements:
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

11. o Out of seven operational risk categories of Basel II two of them are fraud risks i.e.
internal fraud and external fraud.
Basics of Fraud and Its Elements….
1.3 Broad Categories of Fraud
o Fraud can be categorized in two broad groups,
namely, internal and external fraud
o Both internal fraud and external fraud are a
recognized risk category in regulatory frameworks
worldwide (Basel II standards).
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©Cooperative Bank of Oromia

12. Basics of Fraud and Its Elements….
Internal fraud is committed by employees and managers of
an organization, either acting alone or in groups or through
collusion with outside parties
External fraud is committed by third parties of organizations
such as suppliers, competitors, partners and customers
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

13. 1.4 Who Commits Fraud?
Professionalcriminals
BusinessPartners
Suppliers
Competitors
Employees
Customers
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Basics of Fraud and Its Elements….
Bank
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14. 1.4 Who Commits Fraud?...
1.Perpetrators are typically
college educated;
2.The majority of frauds
are committed by men;
3. A high percentage of frauds are
committed by senior management
(including owners and executives);
4.Longer term
employees tend to
commit much larger
frauds;
In 2007, KPMG carried out research on the Profile of a Fraudster (KPMG survey),
using details of fraud cases in Europe, India, the Middle East and South Africa. The
ACFE carried out similar research on frauds committed in the US.
These surveys highlight the following facts and figures in relation to fraudsters:
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

15. 1.5 Cost of Fraud / Impact of Fraud
Surveys are regularly carried out in an attempt to estimate the true scale and cost of fraud to business and society.
Among other findings, the various surveys highlight that:
• Organizations may be losing as much as 5-7% of their annual revenues as a result of fraud;
According to the FBI, fraud costs consumers, banks and businesses from $18 to $20 billion per
year.
• Only a small percentage of losses from fraud are recovered by organizations; A high percentage of
frauds are committed by senior management and executives;
• Over 43% of international businesses were victims of fraud
• Organizations that implement company-wide fraud awareness training cut fraud losses by 52%.
• According to the Ministry of Justice of Ethiopia, frauds worth 370 billion birr have been attempted
on banks in Ethiopia since 2017 and the banking industry in Ethiopia has suffered 1.8 billion birr
in fraud loses in five years.
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

16. 2. Fraud Triangle and Why People commit fraud?
Rationalization
Fraud Triangle
Fraud Triangle
Pressure – motivation or incentive to commit
the fraudulent act. E.g. Dissatisfaction with
pay, Overlooked for promotion, High bills,
Debt etc..
Opportunity – Circumstances that allow the fraudulent
act to take place. E.g. Weak controls, Lack of
segregation of duties, too much trust etc..
Rationalisation – mind-set that justifies the wrongdoing.
• Other people are doing it
• It does not hurt the organisation
• It is what I deserve
Learning and Growth Team & Risk and Compliance Management
©Cooperative Bank of Oromia

17. 2. Fraud Triangle…
 There is no single reason behind fraud and any explanation of it needs to take account of various factors. Looking from
the fraudster’s perspective, it is necessary to take account of:
Motivation of potential offenders;
Conditions under which people can rationalize their
prospective to commit fraud;
Opportunities to commit crime(s);
Perceived suitability of targets for fraud;
Technical ability of the fraudster;
 Expected and actual risk of discovery;
 Expectations of consequences of discovery;
 Actual consequences of discovery.
 A common model that brings together a number of these aspects is the fraud triangle.
 This model is built on the premise that fraud is likely to result from a combination of three factors: motivation, opportunity and
rationalisation.
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

18. 3. Forms of Fraud in Banks
What are Forms of Fraud in the Bank?
Cash Non-cash Financial Non-Financial
Conflicts of
Interest
Bribery and
Extortion
Corruption schemes and
misconducts
Misstatements of financial reports
and records
Asset misappropriation
Fraud
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©Cooperative Bank of Oromia

19. 3.1 Asset Misappropriation
Example. Theft of :
 Cash
 Negotiable instruments
 Computers and accessories
 confidential information,
 Merchandise and/or other inventory, (fuel)
 Equipment and supplies such as stationeries etc…
The first forms of fraud is asset misappropriations, which involves the theft or misuse of an
organization’s assets and can be committed by employees, vendors and others outside the
bank with collusion of employees working in the bank.
©Cooperative Bank of Oromia
 Cash and non-cash misappropriation are the two main categories of
asset misappropriation
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20. 3.2 Corruption Schemes and Misconducts
The second forms of fraud is corruption. Corruption refers to abuses of position
in order to achieve some personal gain or advantage for him or herself or for
another person.
Example:
 Receipt of cash/money and gifts from customers, suppliers or other parties to
influence decisions or actions in their favour;
 Inflating the value of the collateral
 Preparing forging documents and papers;
 Fraudulent recording of attendance and sick-leaves
 Inappropriate overtime requests and payments
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©Cooperative Bank of Oromia

21. 3. Forms of Fraud in Banks…
3.3 Misstatements of Financial Reports and Records
The final of the three fraud forms is fraudulent statements. It is intentional misstatements or omissions
of amounts or disclosures in financial statements designed to deceive financial statements (balance
sheet, income statement and cash flow projection) user.
Example:
Presentation of misleading and biased
performance and other various reports.
Writing overstated balance
confirmation letters
Improper disclosure of material
information such as receivable accounts.
Reimbursement claims of employees for false
travel claims or accounting changes.
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

22. 4. Control Gaps
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E
Lack of adequate policies
and procedures to guide the
staff and management on
how to prevent, detect and
respond to fraud.
Lack of appropriate segregation
of duties and responsibilities to
ensure that no one person has
too much authority or access to
sensitive information or assets.
Lack of effective monitoring and
follow up system to ensure that
the policies and procedures are
implemented and complied with,
and that any deviations are
identified and corrected.
Lack of restriction on access
to areas containing sensitive
documents and computer
systems to prevent tampering,
manipulation or destruction of
evidence.
Lack of clear organizational
responsibilities to define the
roles and expectations of
each staff and management
level in relation to fraud risk
management.

23. 4. Control Gaps Cont..
 Lack of adequate physical
security over cash holdings
to prevent misappropriation,
embezzlement or theft.
 Lack of verification of
bidders documents to allow
them to participate in the
purchase process to
prevent collusion, bribery or
favouritism
 Lack of regular backup and off-
site storage of data to prevent
loss or damage of vital
information in case of disaster or
sabotage.
 Lack of regular checks on
compliance with rules and
regulations to ensure that the
organization is operating within
the legal and ethical framework
 Lack of commitment of top
management to fraud risk
management
 Lack of proper security
over confidential
information and assets to
prevent unauthorized
access, use, disclosure,
modification or theft.
©Cooperative Bank of Oromia Learning and Growth Team & Risk and Compliance Management

24. 5. The Fraud Risk Management Framework
Fraud Risk Management Framework
 Board of Directors
 The Executive Management
 All Employee of the Bank
 Third Party Service /product providers
 Policy and Procedure
 Separation of duty
 Authentication
 Due Diligence
 Training and Awareness
 Use Advance Technology
 Whistleblower hotline
 Technology tools
 Surprise Visits
 File Report
 Investigation
 Remediation
Fraud Prevention Fraud Detection Fraud Response
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25. 6. The Fraud Management Strategy
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26. 6.1 Fraud Prevention
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Fraud Prevention is an important
aspect of fraud management that
aims to reduce the risk and impact of
fraud on an organization.
Some of the common fraud prevention
strategies are:
 Policy and procedure,
 Separation of duty,
 Authentication,
 Due diligence,
 Training and awareness and
 Use advance technology.
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©Cooperative Bank of Oromia

27. 6.2 Fraud Detection
Fraud Detection
A whistle-blower hotline is a service that
allows employees or other stakeholder to
report: Misconduct, Fraud or Other issues
anonymously and safely
Fraud Detection is a set of activities undertaken
to detect and block the attempt of fraudsters
from obtaining money or property fraudulently.
E s t a b l i s h i n g W h i s t l e -
b l o w i n g P r o c e s s
Te c h n o l o g y t o o l s
S u r p r i s e V i s i t s
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28. 6.3 The Fraud Response
File Report
Fraud Remediation
Investigation
Filing a report can help document the fraud, initiate an
investigation, and recover any losses or damages. It is important to
report the fraud as soon as possible and provide accurate and
complete information.
Fraud remediation can include actions
such as recovering any stolen funds or
assets, disciplining or prosecuting the fraudsters, enhancing the
internal controls and policies, improving the fraud awareness and
culture, and monitoring and evaluating the effectiveness of the
fraud response plan.
This is the step that involves conducting a thorough and
objective inquiry into the fraud incident to determine the
facts, causes, and parties involved.
.
Investigation can help establish the extent and
impact of the fraud, collect and preserve
evidence, identify any control weaknesses or
gaps, and recommend corrective actions.
.
Fraud
Response
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©Cooperative Bank of Oromia

29. The End
Galatoomaa!