1.  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers Introduction to Fraud Awareness

2. Definition of Fraud  In general, all acts of fraud can be distilled into four basic elements: 1.A false representation of a material nature 2.Knowledge that the representation is false, or reckless disregard for the truth 3.Reliance – the person receiving the representation reasonably and justifiably relied on it 4.Damages – financial damages resulting from all of the above

3. Key Findings  More than 1 in 3 companies impacted by economic crime  37% of respondents experienced economic crime in the last 12 months (up from 34% reported in 2011)  Five type of frauds consistently reported – asset misappropriation, procurement fraud, bribery and corruption, cybercrime and accounting fraud  Economic crime is a pervasive global threat – The highest level of economic crime are consistently reported by respondents in Africa (50%) and North America (41%). Reported cases in Asia Pacific is 32%  No industry is immune, however, economic crime is most commonly reported in Financial Services, retail and consumer and communications sectors  Economic crime erodes employee integrity, your reputation and the bottom line  Collateral damage: hard to quantify, hard to ignore PwC Global Economic Crime Survey 2014

4. Relative Financial Impact of Economic Crime on Organisations

5. PwC Global Economic Crime Survey 2014 Perception of the risk of Cybercrime

6. Agenda  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers

7. The Fraud Triangle The three conditions generally present in a fraud situation are: Opportunity to commit Incentive / Motivation to commit Justification

8. The Fraud Triangle (continued) Incentive/Pressure  Incentive – Fraud is often committed because perpetrators are in some form of financial difficulty or need (e.g. greed, gambling, drugs, living beyond means, etc.)  Pressure to meet loan covenants or forecast numbers  Pressure to meet market expectations

9. The Fraud Triangle (continued) Opportunity  Fraudsters are in the right positions at the right time  They can see and seize the opportunity to commit fraud  They have a good understanding of operations, policies and procedures, and have access to records/funds

10. The Fraud Triangle (continued) Rationalisation I’ll help expose my Company’s internal control weaknesses I’m doing the Company a favour. This will definitely enhance shareholder value. I’ll just borrow the money and return it later. I deserve…it since I’ve sacrificed so much for the company…

11. Agenda  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers

12. Profile of a Fraudster Who perpetrates fraud?  Male (77% surveyed)  Aged between 31 and 40 (39%)  Length of Service – 3 years up to 5 years (29%)  Educated to degree level or higher (35%)

13. Profile of a Fraudster Profile of internal fraudsters, by region

14. Agenda  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers

15. Fraud Scheme  Fraudulent Financial Reporting  Asset Misappropriation

16. Fraudulent Financial Reporting Common examples of fraudulent financial reporting include:  Recording revenue early  Fictitious revenue  Overstating assets (accounts receivables, inventory, etc., as well as expense capitalisation)  Omitting / understating liabilities

17. Misappropriation of Assets Expense Frauds  Fictitious / Inappropriate travel & expense claims  Duplicate / Fictitious payments (“ghost” vendors)  Fictitious credit notes issued to customers to conceal cash misappropriated  Fictitious payroll (“ghost” employees)

18. Misappropriation of Assets (continued) Kickbacks  Over-billing by suppliers, then share spoils  Unstructured processes for qualifying and selecting vendors and awarding contracts Related Party Transactions  Not on arm’s length terms  Procurement of products/services not required

19. Agenda  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers

20. Red Flags  Employees with unusual work habits - not taking leave.  Off-the-book accounts.  Living the high life inconsistent with remuneration.  Significant profit/revenue growth inconsistent with market.  Shell companies in tax havens created to receive revenues and facilitate transactions.  High accounts receivables and high revenue growth but facing cash flow issue.

21. Agenda  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers

22. Detection of Fraud Fraud reported by industries  Larger organizations are more likely to suffer fraud  They might be more successful as more resources and staff are dedicated to fraud detection and prevention

23. Detection of Fraud Trends in reported frauds  Top Five – asset misappropriation, procurement fraud, bribery and corruption, cybercrime and accounting fraud

24. Detection of Fraud Detection methods  Methods of fraud detection usually fall into one of three categories: corporate controls, corporate culture, or beyond corporate control  the percentage of fraud detected through transaction monitoring and data analytics increased by over a third, from 18% to 25%

25. Detection of Fraud (continued) Why is fraud not detected? Controllable factors - Unclear reporting line - Unclear duties and power - Inadequate segregation of duties - Non-compliance with procedures - Lack of an effective whistle-blowing programme

26. Ways to detect & prevent fraud Fraud often difficult to prevent but can be minimized through a combination of measures:  Prevention – Reduce opportunities for fraud occurrence  Deterrence – Create awareness i.e. there is a likelihood of detection and punishment  Detection

27. Ways to detect & prevent fraud Some techniques to detect fraud The following can help company detect fraud more effectively:  Employee’s obligation : - Be diligent in their responsibilities - Report any suspected problems to appropriate level of management or call company’s Hotline.  Internal auditors : Should have adequate training or experience in fraud detection and forensic accounting.  Adequate training - Common “red flags” - Correct corporate procedures.  Top management Send strong and repeated messages that fraud is taken seriously and concerns everyone.

28. Ways to detect & prevent fraud Some measures on fraud prevention  Supervisor review  Segregation of duties  IT controls − Firewalls − Encryptions − Digital signatures  Review of internal controls  Develop a Fraud Risk Management Framework

29. Ways to detect & prevent fraud Fraud risk management framework An effective & comprehensive way of preventing fraud Fraud Risk Management Staff Integrity Culture Control Framework Monitoring System

30. Agenda  Definition of Fraud  The Fraud Triangle  Profile of a Fraudster  Fraud Schemes  Red Flag  Detection of Fraud  Case Studies  Questions & Answers

31. Case Studies: Asia-Pacific Breweries Singapore Pte Ltd (APB) Brewery man gets 42 years Chalked up gambling losses of $62m after he swindled banks of $117m HE STARTED with wagers of $200. Before long, Asia Pacific Breweries finance manager Chia Teck Leng was punting A$400,000 ($512,000) at a go. By the time the law found out he had obtained the cash to bet by cheating banks here, he had blown $62 million in casinos around the world. In all, he swindled them out of $117 million over four years in Singapore's largest case of commercial fraud. Yesterday, High Court Judge Tay Yong Kwang sent him to jail for 42 years, the longest jail term ever meted out for a commercial crime. The dubious honour was previously held by Singapore Airlines employee Teo Cheng Kiat, who embezzled $35 million from the airline over 13 years. He was jailed for 24 years, coincidentally by the same judge. Chia was convicted after he pleaded guilty to six charges of forgery and eight charges of cheating yesterday. Another 32 charges were considered during sentencing. Between January 1999 and March last year, he faked documents to get four foreign banks to extend him credit. He claimed he was acting for his company, Asia Pacific Breweries, but was the only one doing the signing. He forged the signatures of APB directors by getting specimens from annual reports and internal documents. Chia channelled the money he swindled into his personal account at DBS Bank and then remitted it to casinos in Australia, Britain, Hong Kong, Malaysia, Cambodia and the

32. Case Studies: Asia-Pacific Breweries Singapore Pte Ltd (APB)  What Happened?  Why was it Committed?  Why wasn’t it Detected?  Red Flags Brewery man gets 42 years Chalked up gambling losses of $62m after he swindled banks of $117m HE STARTED with wagers of $200. Before long, Asia Pacific Breweries finance manager Chia Teck Leng was punting A$400,000 ($512,000) at a go. By the time the law found out he had obtained the cash to bet by cheating banks here, he had blown $62 million in casinos around the world. In all, he swindled them out of $117 million over four years in Singapore's largest case of commercial fraud. Yesterday, High Court Judge Tay Yong Kwang sent him to jail for 42 years, the longest jail term ever meted out for a commercial crime. The dubious honour was previously held by Singapore Airlines employee Teo Cheng Kiat, who embezzled $35 million from the airline over 13 years. He was jailed for 24 years, coincidentally by the same judge. Chia was convicted after he pleaded guilty to six charges of forgery and eight charges of cheating yesterday. Another 32 charges were considered during sentencing. Between January 1999 and March last year, he faked documents to get four foreign banks to extend him credit. He claimed he was acting for his company, Asia Pacific Breweries, but was the only one doing the signing. He forged the signatures of APB directors by getting specimens from annual reports and internal documents. Chia channelled the money he swindled into his personal account at DBS Bank and then remitted it to casinos in Australia, Britain, Hong Kong, Malaysia, Cambodia and the

33. What Happened?  Forged signatures used to open bank account with SEB – Chia can operate as a single signatory  Over draft facility with SEB utilised to pay for personal expenses  Other bank accounts opened to obtain more short-term facilities – SMBC, Mizuho Corporation, HVB  Shortage of funds when short-term facilities mature  Company funds used to cover shortfall and subsequently returned  Typical teeming and lading

34. What Happened? (continued)  Treasury function managed centrally at holding company level, e.g. Fixed Deposit Placement  Company should only manage operating bank account  Chia could initiate, approve and sign cheques – Cheque signatories were Chia and a subordinate  Manual cheques issued with APB Singapore as payee were recorded as fixed deposit placements  Cheques were then deposited into unauthorised bank accounts  Funds returned before the financial year end, so that the balance date reconciliations were okay

35. What Happened? (continued) Total losses S$117 million - Recovered S$35 million with balance of S$82 million loss primarily being:  S$53 million – Crown Casino, Melbourne, Australia  S$8.1 million – Star Cruise, Singapore & Hong Kong  S$8.8 million – Ritz Hotel Casino, U.K.  S$1.2 million – Conrad Jupiter, Gold Coast, Australia  S$3.2 million – Genting, Malaysia

36. What Happened? (continued)  Chia was transferred to Head Office a few months before he was arrested  During the transfer, he instructed IT personnel to wipe out his hard disk  Hard disk was reformatted and issued out for reuse  Computer forensic team was able to retrieve critical information from hard disk  Information enabled team to identify all unauthorised bank accounts and establish some of Chia’s action

37. Why was it Committed? Motivations  Incentive/pressure – Gambling, lavish lifestyle and woman (Li Jin)  Opportunity – Finance manager, knew operating environment  Rationalisation – Only borrowing from company and paid back with interest

38. Why wasn’t it Detected? Controllable factors  Unclear reporting line within Company  Unclear duties and responsibilities  Non-compliance with procedure  Lack of whistle-blower programme Uncontrollable factors  Forgery

39. Red Flags Monthly bank reconciliations did not reconcile but year end reconciliations did

40. Concluding Messages  Fraud can never be eliminated. Focus on controllable factors to minimise fraud risk and early detection  Many companies have very good controls on paper. Control only as good as the people enforcing it. Auditors should be vigilant  Professional scepticism. Does it make commercial sense? If it’s too good to be true, it’s often not true If it’s too good to be true, it’s often not true