PUBLIC SECTOR RISK MANAGEMENT FORUM THEME FRAUD RISK

PUBLIC SECTOR RISK MANAGEMENT FORUM THEME: FRAUD RISK MANAGEMENT Presenter: Zanele Mxunyelwa, CIA, CFE | Specialised Audit Services, | 16 March 2012 Venue: 40 Church Square, NATIONAL TREASURY

FRAUD RISK MANAGEMENT CONTENTS Introduction Theft, Fraud & Corruption Framework for Fraud Risk Assessment Role of Risk Officers Identification &mitigation of fraud risks Role of Assurance Providers Fraud Risk Reports Conclusion 1

FRAUD RISK MANAGEMENT Introduction vessel/ship approach Boat/Vessel/ Submarine: Department/Entity Destination Strategic goals/Mandate Captain Leader Crew Management & Support Compass Legislation/Policies/ Processes Radar Risk Officer Sea/Ocean Hazards- Bermuda triangle/ Storms/Sharks: Risk 1

FRAUD RISK MANAGEMENT Theft, Fraud & Corruption LEGAL DEFINITION Fraud ü Unlawful ü Intentional ü Misrepresentation ü Actual or potential prejudice to another Theft ü Unlawful ü Intentional misappropriation ü Lawful possession property/ asset ü Intention to deprive owner’s rights permanently 1

FRAUD RISK MANAGEMENT LEGAL DEFINITIONS (CONT. ) CORRUPTION Corrupt Activities (Prevention and Combating of Corrupt Activities Act. 2004) ( Abuse of public office for private gain) ü ü ü Directly, indirectly accepting or agreeing to accept Any gratification from another person Giving or agreeing to give any other person To influence that person directly or indirectly Exercise power, duties or legal obligation that amounts: o o o o Illegal, dishonest, unauthorised, incomplete or biased; Misuse or selling of information or material acquired; Abuse of position of authority; Breach of trust; Violation of legal duty or set of rules; Designed to achieve an unjustified result Unauthorised or improper inducement to do or not to do anything Conflict of interest 1

FRAUD RISK MANAGEMENT Fraud & Corruption Risks Fraud undermines any control measure implemented in the organisation Critical Role players • • Political Will (External) Vision (Captain) Competent Delivery: Management team & support Cooperation: Assurance parties Funding: Adequate resources Audit beyond compliance-Internal Auditors Audit for fraud approach 1

FRAUD RISK MANAGEMENT Framework for Fraud Risk Assessment Setting of Strategic objectives Complexity of the business processes Knowledge Management/Source Identification of all challenges Analysis Evaluation Risk Treatment Risk Reporting Monitoring & Review 1

FRAUD RISK MANAGEMENT Role of Risk Officers RADAR • Understanding Organisation’s objectives • Impact Fraud Risks: Reputation /Image • Coordination of efforts • Understand compass : Control Activities • Resource Management: Risk treatment • Conduct Monitoring • Reporting • Influential: Management & Assurance parties 1

FRAUD RISK MANAGEMENT Indicators of fraud risks Operational level ( General Image of the department) • Lack of service delivery or delays • New procurement strategies inventions • Over-Under expenditure/ spending patterns/borrowings • Types of qualifications • Unverifiable performance information • High turnover at senior management level • Non committal to address problems- Management letter responses • Negative /Aggressiveness when caution to deal with controls 1

FRAUD RISK MANAGEMENT Indicators of Fraud Risks (Cont. ) Operational level ( Example of Procurement fraud) • • • Purpose & Resources Procurement Strategy Bidders documentation Bid Evaluation & Adjudication Appointment & Contract Execution of the service Progress Payments & Variation Orders Change of life style- Management Lack of commitments/ No corrective action 1

FRAUD RISK MANAGEMENT Identification & mitigation of fraud risks Mandate of the organisation Business processes Corporate culture Satisfied support staff Control Environment Applicable Legislation Effectiveness of Assurance providers Roles of law enforcement agencies 1

FRAUD RISK MANAGEMENT SA Legislative Framework 1994 Public Service act 1996 Constitution of RSA 1998 Witness Protection Act 1998 Prevention Of Organised Crime Act 1998 Executive Members Ethics Act 1998 Competition Act( amended 2009) 1999 Public Finance Management Act 2000 Municipal Systems Act 2000 Protected Disclosure Act 2000 Promotion Of Access to information act 2000 Promotion Of Administrative justice Act 2001 Financial Intelligence Centre Act 2002 State Information Technology Act 2003 Municipal Finance management Act 2003 Broad Based Black Economic empowerment act 2004 Prevention and combating Of Corrupt Activities act 1

LEGISLATIVE FRAMEWORK FRAUD & CORRUPTION SA Legislative Framework (Cont. ) Cabinet Memos National Treasury Regulations National Treasury Guidelines National Treasury Practice Note National Treasury Circulars 1

FRAUD RISK MANAGMENT Role of Assurance Providers: Fraud Risk 1

FRAUD RISK MANAGEMENT Role of Assurance Providers Coordination Cooperation Integration Combined link Reliance All assurance parties in an organisation have interest in the fraud report 1

FRAUD RISK MANAGEMENT Fraud Risk Reports Fraud Risk Identification Probability Impact Assessment Control environment Tasking/Responsibilities Monitoring 1

FRAUD RISK MANAGEMENT CONCLUSION “What is worse than being blind is having a sight without vision” “Sight is a function of the eyes, while vision is a function of the heart” 1