1. No category

Conrad Martens
Certified Fraud Examiner
Internal Investigations
brief: fraud and corruption investigations
www.ActiveAssurance.com.au 1300855025 +6173112 5175
International
Fraud Awareness Week
ACFE
IFAW ~ Nov. 11-17
¡  Largest anti-fraud organization 65,000 members
¡  Dedicated to Fraud Awareness,
Detection & Prevention
¡  Inspiring confidence in the
profession.
¡  Encourage leaders and employees to
proactively
act to minimize fraud.
Association of Certified
Fraud Examiners
Focus
¡  context of fraud and corruption investigation
¡  the ‘aware’ investigator
¡  examples discussed
¡  successful investigative techniques
¡  successful forensic techniques
¡  achieving outcomes that keep everyone happy
Context of local government
¡  organisational
¡  political
¡  sizes and budgets
¡  new governments
¡  long term employees
¡  proximity of councillors
¡  inertia to change
¡  related staff
¡  staff performance
¡  skills limitations
¡  external
¡  external funding
¡  remoteness
¡  community demands
Investigators be aware
¡  The main types of fraud
¡  Where fraud can occur in the organisation
¡  Characteristics of those who commit fraud
¡  Factors influencing fraud
Occupational fraud in LG
¡  Embezzlement
¡  Information leaks
¡  Procurement fraud
¡  Asset misuse
¡  cash
¡  stock and orders
¡  equipment & plant
¡  undersupply
¡  false quotes
¡  Favouritism
¡  conflict of interests
¡  incentives / bribes
¡  council decision-making
¡  commercial information
¡  complaints data
¡  Personal expenditure
¡  ordering for personal use
¡  misuse of expense account
¡  False claims
¡  time, overtime, penalty
¡  Computer system abuse
Where fraud occurs in LG
¡  purchasing
¡  pre-contract management
¡  post-contract
administration
¡  procurement
¡  stores
¡  accounts
¡  cash handling areas
¡  grants / funding
¡  upper management
¡  generally
¡  operations
¡  public works areas
¡  construction
¡  maintenance
¡  ICT operations
¡  the Council
Who commits fraud in LG
¡  High-level perpetrators
¡  the greatest damage
¡  much longer to detect
¡  mid-level indoor personnel
¡  knowledge of systems to complete and hide fraud
¡  more senior outdoor personnel
¡  ‘freedom’ from oversight
¡  control of works in the field
Factors influencing fraud
¡  External
¡  Internal
¡  societal
¡  opportunity
¡  economic
¡  incentive / pressure
¡  organisational
¡  attitude / rationalisation
Example 1
¡  Type: ghost employee, time sheet
fraud, equipment misuse
¡  Time to detection: 3 years
¡  Where: operations – capital works
¡  Detection: Supervisor saw him out of
area, targeted surveillance
(manual / electronic)
¡  Who: field supervisor
¡  Factors:
¡  Opportunity: Could override controls,
Lack of segregation, No independent
verification of supply, Procurement
documents not required
¡  Personal: Vague responses, Exempt
from accountability, Concern of Drugs,
Few friends, Changed behaviour.
Motivation: Drugs, Extramarital affair.
Pressures: Living beyond means
¡  Rationalization: Employer owed it to me
¡  Investigation: Targeted surveillance
manual / electronic, forensic
analysis of job data, investigation of
identified labour hire anomaly and
time sheet anomaly compared to
surveillance.
¡  Value: $325+, plus indirect cost of
time wasted.
¡  Outcome: Terminated. Charged.
Convicted and sentenced 3 years
plus restitution ordered. Accomplice
(labour hire employee also
convicted.
Example 2
¡  Type: (alleged) procurement – conflict of
interest, ordering and paying for services
not provided.
¡  Where: procurement – external goods and
services
¡  Who: Chief Executive Officer
¡  Factors:
¡  Opportunity: Excessive control, close
association with vendor, no
independent verification of delivery,
lack of segregation, Procurement
documents not required, lack of
awareness by other employees.
¡  Personal: Highly material personal
values, change in behaviour.
Motivation: Greed, Maintain lifestyle.
Pressures: Living beyond means, High
debt, Fear of loss of status
¡  Rationalization: I’m deserve more pay
¡  Time to detection: 1 year
¡  Detection: Employee tip off /
concern
¡  Investigation: Forensic analysis of
procurement records, investigation
to negate supply.
¡  Value: $275+, plus indirect costs
¡  Outcome: Terminated. Charged.
Awaiting trial. Accomplice wanted
by police.
Example 3
¡  Type: grants fraud
¡  Time to detection: 6 months
¡  Where: accounts – financial
subsidies and grants
¡  Detection: Manager tip off /
concern
¡  Who: grants system administrator
¡  Investigation: Forensic analysis of
documentation, forensic capture
and analysis of computer and email,
interview of witnesses, forensic
analysis of bank information.
¡  Factors:
¡  Opportunity: Could override controls,
Lack of segregation, Insufficient
supervision, Poor documentation
permitted
¡  Personal: Few friends, Changed
behaviour. Motivation: Gambling.
Pressures: Living beyond means
¡  Rationalization: I could do it
¡  Value: $45+
¡  Outcome: Terminated. Charged.
Convicted and sentenced 1 years
plus restitution ordered.
Accomplices (3) convicted and
fined. Supervisor terminated on
performance issue. Manager fined
on performance issue.
Example 4
¡  Type: false claim for workers
compensation
¡  Where: operations – works
maintenance
¡  Who: inside supervisor
¡  Factors:
¡  Opportunity: Lack of awareness
by other employees
¡  Personal: Excessive alcohol,
Gambling, Few friends, Weak
ethics, Lack of stability, Change in
behaviour, Exempt from
accountability, Vague
implausible responses. Motivation:
Alcohol. Pressures: Financial
losses.
¡  Rationalization: Weak ethics
¡  Time to detection: 3 months
¡  Detection: Employee tip off
¡  Investigation: Interview of internal
and external parties.
¡  Value: $65+, plus indirect costs
¡  Outcome: Terminated. Charged.
Convicted and sentenced to 6
months, plus restitution.
Points for successful
investigation
¡  Managing evidence capture
¡  Identifying and securing documents
¡  Identifying and interviewing witnesses
¡  Performing useful forensic investigation
¡  Simple methods for procedural fairness, how to:
¡  act promptly
¡  support people
¡  make a neutral decision
¡  maintain confidentiality
¡  recording interviews
¡  pull together a report containing the relevant evidence
Points for successful
forensic investigation
¡  How to find the evidence
¡  Identifying the storage areas
¡  Accessing and secure the storage areas
¡  Examining the data / evidence
¡  Use of Fuzzy Logic
¡  Identifying duplicate vendors and invoices
¡  Matching customers and staff, and peripheral detail
¡  Matching payroll and accounts payable data
¡  Use of CAATS
¡  Identifying pre-defined set of characteristics
¡  Identifying anomalous transations
¡  Identifying “missing” inventory
Points for
best outcomes
¡  Successful methods for
managing
¡  prompt completion of
investigations
¡  Implementation of
recommendations
¡  monitoring
¡  confidentiality
¡  reporting
¡  complainants
¡  keep management focused
¡  whistleblowers and witnesses
¡  work groups & business units
¡  peoples’ expectations
¡  Making yourself look good
¡  ‘soft’ measures to
¡  good investigation reports
¡  reduce risk
¡  communication with oversight
agencies
¡  make management proactive
¡  human impact on the work group
Any questions?
¡  workplace investigations
¡  fraud investigations
¡  corruption investigations
¡  industrial relations
¡  corporate governance