association of certified fraud examiners (acfe)
TRANSCRIPT
RISK MANAGEMENT
ASSOCIATION OF CERTIFIED FRAUD
EXAMINERS (ACFE)
• ACFE SA background
•Fraud: a global problem
•Why the increase in fraud?
•What is risk management and how to apply
•Contact details
OUTLINE
The Association of Certified Fraud Examiners
(ACFE) is an international, professional
organization dedicated to fighting fraud and white-
collar crime. As fraud becomes increasingly more
prevalent and complicated in the 21st century, the
ACFE continually research and develop new
publications, self-study products, and cutting-
edge fraud training designed to educate and
prepare fraud examiners for the challenges they
face. There is no better time than today to
enhance your career and invest in your
future by becoming a Member
The South African Chapter
The need to raise the standard of fraud
examination in South Africa and for a
professional body which was not limited to a
specific profession such as accounting or law,
resulted in the establishment of a local chapter
in 1998 with the mission to provide a
community environment in which local forensic
examination practitioners can associate. This
chapter is a collection of individuals from all
industries and professionals, who all have
a single goal in mind; the reduction
of white-collar crime in South Africa.
MISSION ….
To reduce incidence of fraud
and white collar crime
through prevention, education and networking
ACFE OVERVIEW
To identify a
companies
vulnerabilities
to fraud
Fraud Risk =
Goals include
• Networking opportunities
• Practical training
• Technical updates
• Ethical standards
Regional interest groups vital for this
LOCAL CHAPTER OVERVIEW
MEMBERSHIP
Members comprise
• Accounting/auditing professionals
• Special investigators
• Law enforcement personnel
• Loss prevention specialists
• Attorneys and prosecutors
• Managers and Executives
• Academia/students
• Anti-fraud consultants
MEMBERSHIP
Membership
• Student
• Affiliate
• Associate
• Certified Fraud Examiner (CFE)
Degree with 2 years experience in Fraud
Prevention, Detection or Investigation
Benefits
1. Learnership - Certificate: Forensic Practitioner
2. CFE SAQA qualification - Adv. Cert. Fraud Examiner
(NQF6)
3. Practical training
4. Ethical standards
5. Regulating of the industry
6. Networking platform
7. Sharing of information and skills
8. Technical updates
9. Access to the ACFE Forensic Enquiry System.
Hi there!!
Missed me??
Looking at some definitions
Fraud prevention: services and skills aimed at
deterring/avoiding or anticipating fraud and other
types of abuse and misconduct
Commercial crime
Year end 2004 2005 2006 2007 2008 2009 2010 2011
Cases in MP 2,750 2,474 2,630 2,860 3,778 4,082 4,683 4,609
National Reported cases 55,869 53,931 54,214 61,690 65,286 77,474 84,842 88,388
55 869 53 931 54 214
61 690
65 286
77 474
84 842
88 388
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
90 000
100 000
2004 2005 2006 2007 2008 2009 2010 2011
Cases in MP
National Reported cases
SA Government - Corp. Governance
Framework Research Institute Crime experts, economists and NGOs were recently not
surprised that an estimated R30 billion was being lost annually
by South African taxpayers due to graft, incompetence and
negligence in the public service….
With the backdrop of these sober facts; notwithstanding the
government’s and COSATU‟s best intentions to root out
corruption -- such as Corruption Watch -- South Africa will first
need to address its more pressing problems such as the need
to address the bankruptcy of some of its provinces and
municipalities which has been caused mostly through
corruption, maladministration, tenderpreneurship, nepotism and
cronyism….
12 March 2012
…..complacency is the constant companion of corruption!
Our country and its people are being ravaged by corruption; it
is time for citizens and organisations to take a proactive
stand in combating and exposing corruption. Policies and
procedures to combat and curb corruption are very necessary,
but what is needed now more than ever before, is for
organisations and individuals to put into action practical tools
and solutions that make goals to rid South Africa of corruption,
achievable…. Government and corporates lead the way in which
society behaves and reacts to its environment and its challenges.
They both have tremendous influence and through good
governance guidelines such as the King Report on Governance
for South Africa 2009 (‘King III’), they are expected to promote and
encourage sound corporate citizenship, underpinned by fairness,
accountability, responsibility, transparent and ethical behaviour.
As good corporate citizens, they should be inspiring a responsible
social revolution towards combating and exposing corruption.
PWC - Economic Crime Survey 2009
• Over 3,000 senior representatives of organisations
in 54 countries
• 2/3 of all respondents reported a decline in their
financial performance over the past 12 months
• Countries highest fraud reported: Russia (71%), SA
(62%), Kenya (57%), Canada (56%), Mexico (51%).
• 78% said that the risk of economic crime had risen
due to the recession.
• 64% of those who experienced economic crime said
the cost of fraud had increased compared to 12
months ago
PWC finding ?
• Almost one-third of all respondents did not perform
fraud risk assessments in the past 12 months
• 68% made no change to the frequency of conducting
fraud risk assessments in the last 12 months,
compared to 12 months ago
• 16% of organisations did not amend fraud prevention
processes and controls to reflect changing fraud
threat levels
Anti-Fraud Controls are "Cultural"
• Today’s corporate culture is much more conducive to committing
fraud than was the case 40 or 50 years ago.
• Business culture today reveres wealth and fame, thereby creating a
constant and single-minded push at all levels for consistently
higher and increasingly generous pay and greater public adulation.
• Cultural controls promote the ethical environment and embolden
employees to stop fraud.
• A strong ethical environment encourages self-policing, thereby
enhancing oversight far beyond what internal control methods
alone provide.
• Top management should use its companywide ethics policy to set
a strong and consistent anti-fraud message at the top that defines
enforcement procedures and consequences of fraudulent
behaviour
• Safe whistle-blowing channels must be administered for people to
report questionable behaviour, and employees should be rewarded
for standing up for what is right
Is fraud only a local problem?
• Satyam Computer Services scandal in India proved that fraud is
not only in the US just because it is in the papers Chairman
admitted that more than 50 billion rupees (or $1 billion U.S.)
listed as assets = false
• France-based financial services company defrauded through
questionable transactions of more than 4.9 billion Euros ($7.2
billion U.S.)
• In SA a businessman with ties to retailers and pharmaceutical
companies are investigated for a Ponzi scheme estimated at as
much as R15 billion ($1.8 billion U.S.).
• Although in China committing fraud can lead to a death penalty,
two high-level Bank of China executives lived lavish lives
spending approximately $482 million on travelling and a lavish
lifestyle.
The Cost of Occupational Fraud
3/13/2013 ©2010 Association of Certified
Fraud Examiners, Inc.
27
• We asked each CFE who participated in our
survey to provide his or her best estimate of the
percentage of annual revenues that the typical
organization loses to fraud in a given year. The
median response was that the average
organization annually loses 5% of its revenues
to fraud.
• Applying this percentage to the 2010 estimated
Gross World Product of $58.07 trillion1 would
result in a projected total global fraud loss of
more than $2.9 trillion.
1United States Central Intelligence Agency,
The World Factbook (https://www.cia.gov/library/publications/the-world-factbook/geos/xx.html)
3/13/2013 ©2010 Association of Certified
Fraud Examiners, Inc.
28
RTN 2010
Previous ACFE research has identified three primary
categories of occupational fraud used by individuals
to defraud their employers:
1. Asset misappropriations are those schemes in which the perpetrator
steals or misuses an organization’s resources. skimming cash
receipts, falsifying expense reports and forging company checks.
2. Financial statement fraud schemes are those involving the
intentional misstatement or omission of material information in the
organization’s financial reports. recording fictitious revenues,
concealing liabilities or expenses and artificially inflating reported
assets.
3. Corruption schemes involve the employee’s use of his or her
influence in business transactions in a way that violates his or her
duty to the employer for the purpose of obtaining a benefit for him-
or herself or someone else. Bribery, extortion and conflict of
interest
• Fraudsters are generally first-time offenders (only
7% had prior convictions and only 12% had
employment terminated).
• Most common red flags
- Living beyond their means (39% of cases).
- Experiencing financial difficulty (34% of cases).
- Financial statement fraud cases – pressure to
perform.
The Global Scene - Madoff Case
• Bernard Madoff
– Born 29 April 1938
– 71 years old
– Former Chairman of
the NASDAQ stock
exchange
– Operated the largest
Ponzi scheme in
history
– Investors lost 50
billion dollars
ACFE Economic Survey
• More than half (55.4%) of respondents said that the
level of fraud has increased significantly higher than
in the previous 12 months.
• In addition, 49% ob-served an increase in the dollar
amount lost to fraud during the same period.
• We have seen increases in fraud in countries such
as Botswana and Namibia, who traditionally had low
levels of fraud and crime syndicate activity.
• About half (49.1%) of respondents cited increased
financial pressure as the biggest factor, compared to
increased opportunity (27.1 %) and increased
rationalization (23.7%). These are the three elements
making up the ‗fraud triangle‘.
• Employees pose the greatest fraud threat in the
current economy.
• Categories of fraud increased during the previous 12
months, the largest number of survey respondents
(48%) indicated that embezzlement was on the rise.
Embezzlement =Theft of money, under that
employee’s control, from an employer by an
employee using false entries in accounting records
to cover up the crime. An embezzler is typically an
accountant, bookkeeper or manager who is able to
divert income and then cover it up.
• 37% say frauds by unrelated third parties have
increased and roughly 20% indicate frauds by ven-
dors, financial statement fraud, and corruption have
increased.
• Layoffs are leaving holes in organizations' internal
control systems. Nearly 60% of CFE’s reported that
their companies had experienced layoffs during the
past year. Among those who had experienced
layoffs, almost 35% said company had eliminated
some controls. By retrenching employees
segregation of duties has been affected.
• Fraud levels are expected to continue rising. Almost
90% of respondents said they expect fraud to
continue to in-crease during the next 12 months.
James Ratley stated, prevention is the bigger issue.
“It’s such an uncomfortable topic; people are
hesitant to address it.”
COSO / Treadway commission 1. Controlled environment - corporate culture +
company risks
2. Risk assessment - tailor made plan (know
your industry and key opportunities)
3. Control activities - Implement plan in audit
programs
4. Communication - staff & clients about findings
5. Monitoring - continues reverting
Initial Detection of Occupational Frauds
Source of Tips
Detection in Africa — 111 Cases
The Perpetrators
EMPLOYMENT POSITION
TYPE OF FRAUD SCHEME
Position
Percentage
Median
Loss
Median
Duration
Of Fraud –
Months
Asset
Misappro-
priation
Corruption
Financial
Statement
Fraud
Owner/
Executive
23,3%
$834 000
24
22,2%
37,3%
53,3%
Manager 37,1% $150 000 24 37,9% 39,1% 35,6%
Employee 39,7% $70 000 12 39,9% 23,6% 11,1%
The Perpetrators
ANNUAL INCOME
Annual Income Percentage Median Loss
$500 000+ 3,5% Up to $50M
$200 000 - $499 999 6,1% $1 M
$150 000 - $199 999 5,2% $590 000
$100 000 - $149 999 11,8% $375 000
$50 000 - $99 999 32,7% $162 000
<$50 000 40,8% $75 000
The Perpetrators
Gender Percentage Median Loss
Male 59,1% $250 000
Female 40,9% $110 000
Education Level Percentage Median Loss
Postgraduate degree 10,9% $550 000
Bachelors degree 34,4% $210 000
Some College 20,8% $196 000
High School 33,9% $100 000
The Perpetrators
Behavioural
Red Flag
Percen-
tage
Median
Loss
Financial
Statement
Fraud
Corrup-
tion
Asset
Mis-appro-
priation
All
cases
Living beyond means 38.6% $250 000 1 1 1 1
Financial difficulties 34.1% $111 000 3 4 2 2
Wheeler-dealer
attitude
20.3% $405 000 2 3 3 3
Control issues
Unwillingness
to share duties
18.7% $250 000 4 5 4 4
Divorce/ family problems 17.1% $118 000 2 5 5
Unusually close
association with vendor
/customer
15.2% $410 000
Irritability, suspiciousness,
or defensiveness
13.6% $180 000
Addiction problems 13.3% $225 000
What is happening in SA?
• ID Theft in excess of R1 billion per annum
• Short term insurance in excess of R6 billion per
annum
• Material non disclosure in excess of R140 million
• Life insurance in excess of R3.5 billion per annum
(ASSISA = R264 Mil R376 Mil R3.5 bil)
• Banking in excess of R5.4 billion per annum
• Medical in excess of R6.5 billion per annum
Dealing with Fraud Risks
1. Assume the risks - accept risk
2. Transfer the risk - fidelity fund
3. Mitigate the risk - counter measures
4. Avoid the risk - don’t do business
5. Combination of the above
ACFE Forensic Enquiry
System
02-02-airline-china.wm
Managements responsibility
• Internal controls
• Fraud prevent, detect, deterrence
• Compliance program - King III, Company act,
etc..
• Risk management
• Document retention policies
• Ethics
• Corporate culture
• Audits
• Continues skills development
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Learnership
ACFE (CFE)
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