1. PUBLIC SECTOR RISK MANAGEMENT FORUM THEME: FRAUD RISK MANAGEMENT Presenter : Zanele Mxunyelwa, CIA, CFE | Specialised Audit Services, | 16 March 2012 Venue: 40 Church Square, NATIONAL TREASURY

2. 1 FRAUD RISK MANAGEMENT CONTENTS Introduction Theft, Fraud & Corruption Framework for Fraud Risk Assessment Role of Risk Officers Identification &mitigation of fraud risks Role of Assurance Providers Fraud Risk Reports Conclusion

3. 1 FRAUD RISK MANAGEMENT Introduction vessel/ship approach Boat/Vessel/ Submarine: Department/Entity DestinationStrategic goals/Mandate CaptainLeader CrewManagement & Support CompassLegislation/Policies/ Processes RadarRisk Officer Sea/OceanHazards- Bermuda triangle/ Storms/Sharks: Risk

4. 1 FRAUD RISK MANAGEMENT Theft, Fraud & Corruption LEGAL DEFINITION Fraud Unlawful Unlawful Intentional Intentional Misrepresentation Misrepresentation Actual or potential prejudice to another Actual or potential prejudice to anotherTheft Unlawful Unlawful Intentional misappropriation Intentional misappropriation Lawful possession property/ asset Lawful possession property/ asset Intention to deprive owner’s rights permanently Intention to deprive owner’s rights permanently

5. 1 FRAUD RISK MANAGEMENT LEGAL DEFINITIONS (CONT.)CORRUPTION Corrupt Activities (Prevention and Combating of Corrupt Activities Act. 2004) ( Abuse of public office for private gain) Directly, indirectly accepting or agreeing to accept Directly, indirectly accepting or agreeing to accept Any gratification from another person Any gratification from another person Giving or agreeing to give any other person Giving or agreeing to give any other person To influence that person directly or indirectly To influence that person directly or indirectly Exercise power, duties or legal obligation that amounts: Exercise power, duties or legal obligation that amounts: oIllegal, dishonest, unauthorised, incomplete or biased; oMisuse or selling of information or material acquired; oAbuse of position of authority; oBreach of trust; oViolation of legal duty or set of rules; oDesigned to achieve an unjustified result oUnauthorised or improper inducement to do or not to do anything oConflict of interest

6. 1 FRAUD RISK MANAGEMENT Fraud & Corruption Risks Fraud undermines any control measure implemented in the organisation Critical Role players Political Will(External) Vision(Captain) Competent Delivery: Management team & support Cooperation: Assurance parties Funding: Adequate resources Audit beyond compliance-Internal Auditors Audit for fraud approach

7. 1 FRAUD RISK MANAGEMENT Framework for Fraud Risk Assessment Setting of Strategic objectives Complexity of the business processes Knowledge Management/Source Identification of all challenges Analysis Evaluation Risk Treatment Risk Reporting Monitoring & Review

8. 1 FRAUD RISK MANAGEMENT Role of Risk Officers RADAR Understanding Organisation’s objectives Impact Fraud Risks: Reputation /Image Coordination of efforts Understand compass : Control Activities Resource Management: Risk treatment Conduct Monitoring Reporting Influential: Management & Assurance parties

9. 1 FRAUD RISK MANAGEMENT Indicators of fraud risks Operational level ( General Image of the department) Lack of service delivery or delays New procurement strategies inventions Over-Under expenditure/ spending patterns/borrowings Types of qualifications Unverifiable performance information High turnover at senior management level Non committal to address problems- Management letter responses Negative /Aggressiveness when caution to deal with controls

10. 1 FRAUD RISK MANAGEMENT Indicators of Fraud Risks (Cont.) Operational level ( Example of Procurement fraud) Purpose & Resources Procurement Strategy Bidders documentation Bid Evaluation & Adjudication Appointment & Contract Execution of the service Progress Payments & Variation Orders Change of life style- Management Lack of commitments/ No corrective action

11. 1 FRAUD RISK MANAGEMENT Identification & mitigation of fraud risks Mandate of the organisation Business processes Corporate culture Satisfied support staff Control Environment Applicable Legislation Effectiveness of Assurance providers Roles of law enforcement agencies

12. 1 FRAUD RISK MANAGEMENT SA Legislative Framework 1994Public Service act 1996Constitution of RSA 1998 Witness Protection Act 1998Prevention Of Organised Crime Act 1998Executive Members Ethics Act 1998Competition Act( amended 2009) 1999Public Finance Management Act 2000Municipal Systems Act 2000Protected Disclosure Act 2000Promotion Of Access to information act 2000Promotion Of Administrative justice Act 2001Financial Intelligence Centre Act 2002State Information Technology Act 2003Municipal Finance management Act 2003Broad Based Black Economic empowerment act 2004 Prevention and combating Of Corrupt Activities act

13. 1 LEGISLATIVE FRAMEWORK FRAUD & CORRUPTION SA Legislative Framework (Cont.) Cabinet Memos National Treasury Regulations National Treasury Guidelines National Treasury Practice Note National Treasury Circulars

14. 1 FRAUD RISK MANAGMENT Role of Assurance Providers: Fraud Risk

15. 1 FRAUD RISK MANAGEMENT Role of Assurance Providers Coordination Cooperation Integration Combined link Reliance All assurance parties in an organisation have interest in the fraud report

16. 1 FRAUD RISK MANAGEMENT Fraud Risk Reports Fraud Risk Identification Probability Impact Assessment Control environment Tasking/Responsibilities Monitoring

17. 1 FRAUD RISK MANAGEMENT CONCLUSION “ What is worse than being blind is having a sight without vision” “Sight is a function of the eyes, while vision is a function of the heart”