What is an integrated fraud control
strategy, what are the
implementation challenges
Public Sector Anti-Corruption Conference
25 October 2007
Peter Achterstraat
Auditor-General of NSW
What is Fraud
‘An intentional act … involving the use of
deception to obtain an unjust or illegal
advantage’
Australian Auditing and Assurance Standards Board (AuASB)
‘The use of one’s occupation for personal
enrichment through the deliberate misuse or
misapplication of the employing organisation’s
resources or assets’
Potential Impact of Fraud
• Estimated 2–5% of turnover
• For the NSW public sector, potential fraud risk is
$2.6 billion annually, or about $400 per person
in NSW
Potential Impact of Fraud - cont
• $1.7 million per company – asset
misappropriation, false pretences and
counterfeiting
PWC Global Economies Crime Survey 2005
• Not just financial – reputation, staff
Role of the Audit Office – Fraud
Primary focus – opinion on financial report
Fraud obligations – ASA 240
• Restricted to:
– fraud risks that materially effect financial reports
– advising management of material fraud risks
– testing material fraud risks
• Maintain an attitude of professional scepticism
• Seek written confirmation from management on
adequacy of fraud control and any frauds
Agency management responsible for fraud
prevention, detection and investigation
Audit Office Performance Audits
Performance audits on fraud
• Fraud Control performance audits - 1993, 1998, 2005
• Better Practice Guide 1994 – updated 2005
• Fraud Control Improvement Kit - 1996
Performance audits -
Review effectiveness, efficiency,
What is required of
NSW Government Agencies
• 1990 – Premier’s Department – NSW public sector
agencies to have formal fraud control strategy
• 1994 – Audit Office Fraud Control guide endorsed
by Premier’s
Management Responsibility
Integrated Fraud Control Attributes
Prevention
1. Integrated macro policy
2. Responsibility structures
3. Fraud risk assessment
4. Employee awareness
5. Customer and community awareness
Detection
6. Notification systems
7. Detection systems
8. External notification systems
Investigation
9. Investigation systems
10.Conduct and disciplinary systems
Audit Office Fraud Control
Improvement Kit - 2006
Help with two main problems:
• Achieve effective fraud control in all work
areas – all 10 attributes
• Maintain long-term staff awareness of fraud
control
Two tools:
• Fraud Control Health Check
Health Check Questionnaire
P l e a s e p u t a t i c k i n t h e m o s t a p p r o p r i a t e b o x D i s a g r e e S t r o n g l y D i s a g r e e A g r e e S t r o n g l y A g r e e 1 . O u r f r a u d c o n t r o l p o l i c i e s a n d p r o c e d u r e s t e l l u s h o w t o d e a l e f f e c t i v e l y w i t h t h e f r a u d r i s k s w e f a c e 2 . M o s t s t a f f i n m y w o r k a r e a a r e a w a r e o f t h e i r r e s p o n s i b i l i t i e s f o r m i n i m i s i n g f r a u d i n o u r w o r k p l a c e 3 . T h e f u n c t i o n s o f m y w o r k a r e a a r e r e g u l a r l y a s s e s s e d t o i d e n t i f y a n d a d d r e s s t h e f r a u d r i s k s w e f a c e 4 . O u r o r g a n i s a t i o n c o n d u c t s r e g u l a r t r a i n i n g i n f r a u d c o n t r o l 5 . I a m c o n f i d e n t t h a t o u r c u s t o m e r s / c l i e n t s , s u p p l i e r s a n d c o n t r a c t o r s w o u l d u n d e r s t a n d t h a t o u r o r g a n i s a t i o n w i l l n o t a c c e p t f r a u d u l e n t d e a l i n g s / t r a n s a c t i o n s 6 . S t a f f a r e e n c o u r a g e d t o r e p o r t a l l e g e d f r a u d o r c o r r u p t i o n i n m y o r g a n i s a t i o n 7 . I a m c o n f i d e n t t h a t m y o r g a n is a t i o n s y s t e m a t i c a l l y m a k e s e f f o r t s t o d e t e c t f r a u d a n d c o r r u p t i o n 8 . I a m c o n f i d e n t t h a t m y o r g a n is a t i o n w o u l d r e p o r t f r a u d a n d c o r r u p t i o n t o e x t e r n a l o r g a n i s a t i o n s ( e g . I C A C , P o l i c e ) w h e r e i t w a s r e q u i r e d t o d o s o 9 . I a m c o n f i d e n t t h a t i n t e r n a l i n v e s t i g a t i o n s o f a l l e g e d f r a u d a n d c o r r u p t i o n w o u l d b e c a r r i e d o u t t o h i g h s t a n d a r d s i n m y o r g a n i s a t i o n 1 0 . M o s t s t a f f i n m y w o r k a r e a u n d e r s t a n d t h a t s t a f f w i l l b e d i s c i p l i n e d f o r f r a u d u l e n t o r c o r r u p t b e h a v i o u r , a n d f o r b r e a c h e s o f o u r c o d e o f c o n d u c t / e t h i c sAudit Office Fraud Control
Improvement Kit – cont
Health Check Report
Results for Individual Work Areas
Fraud Control Attribute
Overall Results for
Individual Fraud
Control Attributes
Work Area 1 Work Area 2 Work Area 3 Work Area 4
1. Fraud Control Policy
green
green
green
green
orange
2. Responsibility Structures
green
green
green
green
green
3. Fraud Risk Assessment
orange
green
orange
green
red
4. Employee Awareness
red
orange
red
red
red
5. Customer & Community Awareness
orange
green
green
orange
red
6. Notification Systems
orange
green
orange
green
red
7. Detection Systems
green
orange
green
green
green
8. External Notification Systems
red
green
red
orange
red
9. Investigation Systems
green
green
green
green
orange
10. Conduct & Disciplinary Systems
green
green
green
green
green
Overall Work Area Results
green
orange
orange
red
•Key •Urgent action •red
required •orange
•Action required •green
•Good performance
