Spotting fraud.[check] This checklist is about how to spot fraud. The focus is on how an organisation, whether in the private or public sector, can put simple measures in place to prevent fraud. The underlying idea behind the checklist is that everyone has a role in the process of spotting and preventing fraud. In extreme cases, fraud has led to the total collapse of companies, leading to substantial job losses, zero-value shares, pensions shortfalls, imprisonment Imprisonment See also Isolation. Alcatraz Island former federal maximum security penitentiary, near San Francisco; “escapeproof.” [Am. Hist.: Flexner, 218] Altmark, the German prison ship in World War II. [Br. Hist. and extreme embarrassment. A recent survey suggests that many directors consider that the two most effective ways of preventing and detecting fraud are the normal internal controls and the internal audit. (Fraud--risk and prevention, CBI CBI abbr. cumulative book index CBI Confederation of British Industry CBI n abbr (= Confederation of British Industry) → C.E.O.E. ). It is not only employees who attempt fraud. It can be committed by external third parties acting independently, for example, by submitting invoices for bogus goods or services. Definition The following is based on the Audit Commission definition. Fraud is:</p> <pre> "the intentional distortion of financial statements or other records by persons internal or external to the organisation which is carried out to conceal the misappropriation misappropriation n. the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate, or by any of assets or otherwise for gain". </pre> <p>Fraud is not just limited to the misappropriation of funds. It also includes the theft of stock or equipment or other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. , as well as, for example, false claims for payment for goods or services not delivered. Advantages There are many obvious advantages to spotting fraud. These include: * saving money--it has been estimated that fraud costs the private sector alone 9 billion [pounds sterling] a year * avoiding damage to morale--no one wants to work for an organisation where fraud is rife rife adj. rif·er, rif·est 1. In widespread existence, practice, or use; increasingly prevalent. 2. Abundant or numerous. and never investigated * accountability--tackling fraud is one aspect of public, shareholder and stakeholder stakeholder n. a person having in his/her possession (holding) money or property in which he/she has no interest, right or title, awaiting the outcome of a dispute between two or more claimants to the money or property. accountability. Disadvantages If you don't tackle fraud: * it can seriously damage the organisation's reputation * it can affect the confidence of your organisation's funders, shareholders, customers and service users Action checklist The following checklist will help you to spot and tackle fraud. There are two elements to tackling fraud: * putting systems in place * putting an anti-fraud culture in place. Putting systems in place 1. Write a fraud strategy statement Write guidelines to help answer questions such as: * when does pilfering pil·fer v. pil·fered, pil·fer·ing, pil·fers v.tr. To steal (a small amount or item). See Synonyms at steal. v.intr. To steal or filch. become fraud and hospitality or perks perk 1 v. perked, perk·ing, perks v.intr. 1. To stick up or jut out: dogs' ears that perk. 2. To carry oneself in a lively and jaunty manner. become corruption? * can staff accept any gifts? Without guiding principles, it is difficult for people to differentiate between what is accepted custom and practice and what is not acceptable. So, set out a strategy on financial probity PROBITY. Justice, honesty. A man of probity is one who loves justice and honesty, and who dislikes the contrary. Wolff, Dr. de la Nat. Sec. 772. . Try to develop a separate procedure which spells out clearly: * who is responsible for dealing with fraud * the stages involved in raising and dealing with a concern. 2. Set up an audit committee Larger companies should establish an audit committee that can be a useful way of setting the framework for fraud control. The committee should consist of senior stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. from a range of different departments (people who have insight into the causes of fraud and sufficient influence to make any recommended changes stick) and committee members (if your organisation has a committee). Smaller organisations should seek professional advice. The job of an audit committee is to: * help to design fraud prevention measures and develop a more effective fraud prevention system * review the organisation's anti-fraud strategy * help to investigate examples of malpractice and suggest action when they are uncovered. The audit committee can act as a reporting line for an organisation's internal auditor Internal auditor An employee of a company who analyzes the company's accounting records to that the company is following and complying with all regulations. . It acts as a guiding and controlling influence, a policy and strategy forum and a vehicle for accountability. 3. Tighten up Verb 1. tighten up - restrict; "Tighten the rules"; "stiffen the regulations" constrain, stiffen, tighten confine, limit, throttle, trammel, restrain, restrict, bound - place limits on (extent or access); "restrict the use of this parking lot"; "limit the anti-fraud procedures Poorly documented procedures contribute to fraud. 4. Make the most of information technology Organisations often hold large amounts of information, and in particular, financial information. Fraudsters often perpetrate per·pe·trate tr.v. per·pe·trat·ed, per·pe·trat·ing, per·pe·trates To be responsible for; commit: perpetrate a crime; perpetrate a practical joke. their crimes because one department does not know what the others are doing--this may give them the chance to carry out multiple fraud. Integrated and relational databases relational database Database in which all data are represented in tabular form. The description of a particular entity is provided by the set of its attribute values, stored as one row or record of the table, called a tuple. enable organisations to cross-reference information--internally and indeed with other organisations. Use information technology to share information and spot fraud where it is occurring. Many local authorities, for example, share information about people who claim multiple housing benefit. This has proved a highly effective weapon against fraudsters. 5. Establish procedures for an effective fraud investigation The following is based on a good practice checklist for an effective fraud investigation: * appoint a steering officer for the investigation * agree the target dates and key issues * hold steering meetings to discuss progress, agree variations and identify future targets * identify the actions required * consider the likely outcomes, i.e. internal disciplinary action or prosecution * if the indications appear serious, contact the police at an early stage and get their advice. Putting an anti-fraud culture in place Creating the right environment to tackle fraud needs a range of initiatives, some of which are difficult to evaluate but important nonetheless. In many organisations there is a good deal of apparently trivial fraud which is accepted as the norm. Changing this perception, and changing this practice, can be difficult, and cause some resentment. 1. Leadership from managers Any initiative aimed at openness is only as good as its leaders. It is likely that there may be some cynicism from staff about any new approach. They may well have had experience of concerns being brushed under the carpet in the past. The message about fraud and corruption needs to come clearly from the top and be reinforced with action. 2. Make communication work Involve your employees, listen to their sense of right and wrong. Explain what fraud is and the effect it has on their jobs and the services they provide to their customers (both internal and external). * Make it known how seriously you treat the problem. * If it is fraud, call it fraud when you find it. * Use seminars, newsletters and briefing sessions to explain your commitment to tackling fraud and to report on your successes. 3. Other anti-fraud training Any new system needs to be reinforced with training. You can use training to stress your key messages about fraud and the need for vigilance and openness and to explain the way the system works. More importantly, training can also help to instil in·still also in·stil tr.v. in·stilled, in·still·ing, in·stills also in·stils 1. To introduce by gradual, persistent efforts; implant: "Morality . . . new coaching and counselling skills that managers will need to handle concerns effectively. 4. Whistleblowing It is important to open up routes through which concerns about fraud can be channelled. Apart from line managers, staff need the option of another route to raise their concerns. This could be the Chief Executive or finance officer, an employee in internal audit or another named senior manager in a larger business. Staff should feel able to raise their concerns, in strict confidence, without recrimination A charge made by an individual who is being accused of some act against the accuser. Recrimination is sometimes used as a defense in actions for Divorce. Traditionally the underlying theory was that a divorce could be granted only when one individual was innocent and the . A final word The measures above are suggestions. You may already do many of the things mentioned. The key is to keep a balance between the procedures and guidelines and to work at developing a feedback culture. Dos and don'ts for spotting fraud Do * Take fraud seriously. * Define it clearly. * Set up a system to deal with it. * Reinforce key messages about fraud for senior managers. * Act and be seen to act when you uncover fraud. Don't * Brush fraud under the carpet. * Be soft on it. * Block your ears to the concerns of staff--they are the ones who are most likely to spot fraud. * Just put a system in place without working on the softer culture issues. Useful reading Risky business: corruption fraud terrorism and other threats to global business. Rev ed. Stuart Poole-Robb and Alan Bailey London: Kogan Page, 2003 The computer security and fraud prevention audit: an in-depth security check on your computer systems and the information they hold, Kenneth Lindup and Lance Reeve REEVE. The name of an ancient English officer of justice, inferior in rank to an alderman. 2. He was a ministerial officer, appointed to execute process, keep the king's peace, and put the laws in execution. London: Financial Times Prentice Hall Prentice Hall is a leading educational publisher. It is an imprint of Pearson Education, Inc., based in Upper Saddle River, New Jersey, USA. Prentice Hall publishes print and digital content for the 6-12 and higher education market. History In 1913, law professor Dr. , 2000 Fraud risk and prevention, Confederation of British Industry The Confederation of British Industry is a not for profit organisation incorporated by Royal charter[1] which promotes the interests of its members, some 200,000 British businesses, a figure which includes some 80% of FTSE 100 companies and around 50% of FTSE 350 and Ernst and Young London: Caspian Publishing, 2000 Fraud watch, 2nd ed. David Davies There have been several well-known people named David Davies. It is a particularly common name in Wales, and in most cases the combination of names comes from the Welsh tradition of naming children with first names similar to their surname (ie, John Jones). London: ABG ABG abbr. arterial blood gas ABG 1. Arterial blood gas 2. Axiobuccogingival–dentistry Professional Information, 2000 Useful addresses Public Concern at Work, Suite 306, 16 Baldwins Gardens, London, EC1N 7RJ Tel: 020 7404 6609 www.pcaw.co.uk Institute of Internal Auditors “IIA” redirects here. For IIA in decision theory, see Independence of irrelevant alternatives. Established in 1941, The Institute of Internal Auditors (IIA) is an international professional association of more than 128,000 members with global headquarters in , UK and Ireland 13 Abbeville Mews, 88 Clapham Park Clapham Park is an area in the Borough of Lambeth in London, to the south of central Clapham and west of Brixton. The original Clapham Park estate was a speculative development by Thomas Cubitt, who bought 229 acres of Bleak Hall Farm in 1825, and marked out plots for Road, London, SW4 7BX Tel: 020 7498 www.iia.org.uk Thought starters * There are many ways by which fraud can be attempted. * In many cases fraud has continued undetected for years. * Are your anti-fraud procedures clear and thought through? * Are staff encouraged to voice concerns? |
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