KPMG FRAUD RISK. ppt

Fraud

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The Fourth Asian Roundtable on Corporate Governance
Shareholder Rights and the Equitable Treatment of Shareholders
Deepankar Sanwalka
KPMG
“Tools and Rules to Combat
Fraud”
Mumbai, India
11-12 November 2002
The views expressed in this paper are those of the author and do not necessarily represent the
opinions of the OECD or its Member countries, the ADB or the World Bank

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Contents
Fraud
Combating Fraud
Internal controls
Fraud diagnostic review
Fraud control planning
Keys to preventing fraud

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What is Fraud?
“A practically conclusive test as to the fraudulent
character of a deception for criminal purposes is this:
Did the author of the deceit derive any advantage from
it which he could not have had if the truth had been
known?”
-Stephen’s “History of the Criminal Law of England”

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isadeliberatedeceitwhichisplannedandexecuted
todepriveanindividualofproperty,moneyorany
othervaluablesecurity.Fraudmustbecommitted
with intentand includesactionsof
misrepresentationsand/oractsofomission
Fraud

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Combating Fraud
Controls structure to minimise fraud risk
Fraud riskmanagement
Identification of red flags
Disaster recovery plans
Managing the risk of fraud is essentially no different to
managing any other type of business risk

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Internal Control
An effective control system within the organisation is the
first deterrent to the occurrence of Fraud within the
organisation
Key principles:
Segregation of duties
Transparency in operations
Appropriate authosrisation procedures
Effective management supervision procedures
Safeguarding of Assets

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Fraud risk management
Principles of fraud risk management
Risk Assessment
Fraud control planning
Awareness training
Open channels of communication

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Diagnostic Review
Identify the specific andinherent fraud risks
Determine the overallrisk rating for each
inherent risk
Assess the effectivenessof internal controls
Develop measuresto counter the risk
Risk is an integral part of business. But how do you
effectively manage the risk of loss due to fraud?

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Fraud control planning
Definition of
Fraud / Statement
of attitude
FRAUD
CONTROL
PLAN
Reporting
protocols
Fraud prevention/
Internal control
training
Fraud Control
Responsibilities
Fraud risk
assessment
Internal audit
strategy
Documented
policy
and procedures
Pro-active fraud
detection by line
management

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Red Flags
Classification
Financial
Documents
Lifestyle &
Personality
Organisational
Structure
Accountability
and Controls
Ineffective/no
communication
channels
Inadequate
authorisation
procedures
Weak internal
controls
Tendency
towards crisis
management
Missing
documents/
alterations
Excessive
number of void
documents
No numerical
controls
Questionable
handwriting/
authorisation
Unusual billing
address/
arrangements
Lack of
separation of
duties
Lack of
physical
security and/
or key control
Weak links in
chain of
controls and
accountability
Missing
independent
checks on
performance
Dissatisfied
worker
No vacations
or sick time
off
Close
customer/
vendor
relationships
Excessive
overtime

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You’ve Been Defrauded!
Ten Steps to Consider
1.Shut the door
2.Safeguard the evidence
3.Notify your insurer
4.Do not confront a suspect without consulting an advisor who
has fraud investigation experience
5.Decide on your objectives
6.If you are considering prosecution, contact the police
7.Consider suspending the suspect employee
8.Determine whether external or internal resources will be used
to investigate the fraud
9.Determine who should be interviewed
10.Consider prevention measures to prevent future occurrences

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