Director - Audit and Assurance Vishal Modi Director - Audit and Assurance

Avoiding Fraud This session will cover: “At any given moment, there is a certain percentage of the population that’s up to no good” J. Edgar Hoover Director of the Federal Bureau of Investigation (FBI), USA This session will cover: How you can protect your organisation Why effective internal controls are important

Misappropriation of Assets Fraudulent Financial Statements Corruption Fraudulent Financial Statements

Fraud Tree Source: Association of Certified Fraud Examiners Fraud Tree Misappropriation of Assets Cash Theft of cash on hand Theft of cash receipts Skimming Sales/Services Receivables Refunds Cash larceny Fraudulent disbursements Billing Payroll Expense reimbursement Cheques/EFT All other assets Misuse Larceny / Theft Fraudulent Financial Statements Net assets/Net Income Understatement Overstatement Corruption Conflict of Interest Bribery Illegal gratuities Economic extortion Source: Association of Certified Fraud Examiners

Fraud Triangle Incentives/ Pressures Fraud Triangle Attitudes/ Personal financial problems Gambling problems Desire for status symbol Family pressures Need to meet with budgets Incentives/ Pressures Need to meet with fundraising targets High turnover of staff “I am only borrowing the money” Lack of segregation of duties Fraud Triangle “I am entitled to the money” Significant cash transactions “I am underpaid” Lack of controls Attitudes/ Rationalisation Opportunities “I have to steal to provide for my family” Informal governance

How you can protect your organisation It is important that you consider these aspects of your organisation: Ethical culture Communication flow Formal policies and procedures

Internal control weakness that contributed to fraud Source: Report to the Nations: Asia-Pacific Edition, Association of Certified Fraud Examiners

Steps for fraud prevention Be clear about the ethical values, e.g. honesty and accountability – set the “tone at the top” on fraudulent behaviour Be open about the possibility (risk) of fraud, even if it is only a small risk – if you don’t acknowledge that fraud happens, you are not going to find it Identify the types of fraud you may be at risk from – conduct a risk assessment Understand the red flags that act as a warning of possible issues – e.g. behavioural or lifestyle symptoms, accounting & analytical anomalies

Prevent fraud with proper internal controls Develop sound written policies and procedures – important they are clear about roles and responsibilities, and what steps must be taken, including: detailed and robust financial procedures, information technology & security fraud prevention policy human resources procedures Promptly report any suspected fraud or other criminal activity that takes place, and take steps to minimise any loss and prevent it from reoccurring

Why effective internal controls are important Implementing effective internal controls is critical to reducing your organisation’s exposure to fraud risk Reviewing the effectiveness of internal control is an essential part of the Board’s responsibilities; whilst management is accountable to the Board for developing, operating and monitoring the system of internal control and for providing assurance to the Board that it has done so The Board cannot rely solely on a process of internal control embedded within the organisation’s operations, but should regularly receive and review reports on internal control from management

Why effective internal controls are important As well as a regular review, do undertake an annual assessment Risk management and controls are not to be seen as a burden on business, rather the means by which business opportunities are maximised and potential losses associated with unwanted events reduced Develop a successful system of internal control that is responsive to change

About me – Vishal Modi Expertise in providing commercial entities and membership based organisations with expert advice and guidance with their assurance requirements Focused on building strong partnerships with clients Passionate about advising and implementing efficient risk management controls and affecting long term sustainable improvements in business outcomes Joined Hill Rogers in 2005 and appointed Director in 2012 Bachelor of Commerce Member of Chartered Accountants Australia and New Zealand Registered Company Auditor Vishal.Modi@hillrogers.com.au │m: 0434 129 005

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