© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud and the new CIPFA Fraud Code of Practice Chris Clements, Partner Grant Thornton UK LLP October 2014

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Introduction CIPFA Fraud Code of Practice Setting the scene Identifying fraud and corruption risks How is fraud discovered Counter fraud and corruption strategy 11 things to do on an investigation

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud CIPFA Fraud Code of Practice Responsibility of the governing body for countering fraud and corruption What to do in identifying fraud and corruption risks How to develop an appropriate a counter fraud and corruption strategy How to take action in response to fraud and corruption What resources are needed implement a counter fraud and corruption strategy

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Question What, according to the National Fraud Authority, was the total value of UK fraud in 2012? 1.under £1bn 2.£1bn to £10bn 3.£11bn to £50bn 4.£50bn or more

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Answer What, according to the National Fraud Authority, was the total value of UK fraud in 2012? 1.under £1bn 2.£1bn to £10bn 3.£11bn to £50bn 4.£50bn or more

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Answer Source: National Fraud Authority – Annual Fraud Indicator June 2013 Fraud loss £52 billion £21.2 billion £9.1 billion £20.6 billion Not for profit +Other £1.1 billion Individuals Public sector Private sector

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Bank mandate Bribery Dead man Expenses Fresh air invoicing Money laundering Theft of data/information

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Cyber fraud Electronic funds transfer/Bank mandate fraud Electronic extortion – Ransomware Data theft - including donor details Piracy of software Telecoms piracy Vandalism

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Would you spot a fraudster?

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Most occupational fraudsters are: first-time offenders with clean employment histories. 87% of occupational fraudsters had never been charged or convicted of a fraud related offense, 84% had never been punished or terminated by an employer for fraud-related conduct. Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Question According to research by psychologists, what percentage of people in this room would be capable of committing fraud? 1.0% to 25% 2.26% to 50% 3.51% to 75% 4.75% to 100%

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Answer According to research by psychologists, what percentage of people in this room would be capable of committing fraud? 1.0% to 25% 2.26% to 50% 3.51% to 75% 4.75% to 100%

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Setting the scene – frauds and fraudsters Fraud triangle Pressure or motive Rationalisation of the act Perceived opportunity

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags - Question What is the top method of identifying a fraud? 1.Accident 2.External audit 3.Management 4.Whistleblowing

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags - Answer What is the top method of identifying a fraud? 1.Accident 2.External audit 3.Management 4.Whistleblowing

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags - Answer Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags Types of red flags behavioural transactional system

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags Fraudsters typically display more than one of the following behavioural red flags: Living beyond means Financial difficulties Close association with vendors/customers Overly controlling

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags Transactional red flags, maybe limited to one or more, include: Excessive year end transactions Excessive credit notes Transactions below authority levels Transactions with high risk locations Use of unusual formats

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Identifying fraud and corruption risks Red flags To identify System red flags, requires consideration of information such as: Transactions at odd times of day Exporting of data to non-corporate accounts/media Use of personal hardware (laptop/phone) Attempts to breach data security

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Counter fraud and corruption strategy The Fraud Circle Prevention Planning Tone from the top - Set goals for stopping bribery Assess the risk Prepare strict policies and procedures Implement policies and procedures Review benefits Review procedures Effective comms - Identify skills gaps and training needs

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Counter fraud and corruption strategy Points to consider: Strong whistleblowing policy Appoint a senior person to be responsible Fraud and corruption risk register Regularly review your policies, procedures and controls Set the "Tone from the Top" and the "Message from the Middle" Watch out for behavioural issues

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Counter fraud and corruption strategy Cyber fraud Implement policies for the control, use, monitoring and movement of IT equipment Never access your bank from an Never leave a computer while logged on Never share passwords Regular equipment audits Regularly change passwords Secure premises and especially IT equipment Segregate access Update software Wipe hard drives before disposal

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Fraud - Counter fraud and corruption strategy Employee Checks on identity and qualifications Record what has been undertaken CRB Insure Look out for –cv gaps / inconsistencies –financial red flags (eg bankruptcy) References Reputation - internet

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 1. DO NOTHING …until you have read the fraud response plan to know what to do next. Never do anything with the computers.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 2. FOLLOW INTERNAL PROCEDURES Obtain and review the employee manual and terms and conditions of employment. Is the Public Sector's disciplinary procedure being followed? PR advice.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 3. FIND OUT THE STORY SO FAR How? Who? Disciplinary action? Evidence? How? Who? Disciplinary action? Evidence?

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 4. USE OF APPROPRIATE SPECIALISTS Agree desired outcomes. Any digital forensics work? Regulated sector? Potential tax implications?

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 5. CONSIDER LEGAL ADVICE & PRIVILEGE Maintain legal privilege re: investigation. Instruct a solicitor. Public sector investigations may be subject to Freedom of Information Act HR/Employment advice.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 6. WHISTLE-BLOWERS Do you have a whistle-blowing/speak-up policy? Public Interest Disclosure Act 1998.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 7. SECURITY OF DATA EVIDENCE Where is it? Is it at risk? Should you 'image' IT equipment? What data could be relevant to the investigation?

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 8. REPORTING TO ACTION FRAUD Central hotline to report all fraud to police. Points allocated to each piece of information reported. Report information in a way that obtains the most points. To avoid invoking PACE we would recommend this report be made at the end of the investigation.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 9. BACKGROUND RESEARCH Who? Anything new revealed? Relationships? Previous issues re: fraud?

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 10. REPORTING OUR FINDINGS Key decisions and reasons must be documented throughout. Different burdens of proof for criminal vs civil. Employment tribunal vs police.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud 11 things to do on an investigation 11. THINK ABOUT REMEDIAL ACTIONS Civil recovery. POCA - Proceeds of Crime Act Make sure you learns from mistakes. Improve systems/controls.

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Summary No such thing as a typical fraud/fraudster Remember the psychology behind fraud and the fraud triangle Watch out for the red flags Put in place the simple steps

© 2014 Grant Thornton UK LLP. All rights reserved. Public Sector Fraud Contact details Mr Chris Clements Grant Thornton UK LLP 4 Hardman Square Spinningfields MANCHESTER M3 3EB +44 (0) October 2014 © 2014 Grant Thornton UK LLP. All rights reserved. "Grant Thornton" means Grant Thornton UK LLP, a limited liability partnership. Grant Thornton UK LLP is a member firm within Grant Thornton International Ltd ('Grant Thornton International'). Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered by the member firms independently. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication.