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ACFE SA background Fraud: a global problem Why the increase in fraud?

What is risk management and how to apply

Contact details

The Association of Certified Fraud Examiners (ACFE) is an international, professional organization dedicated to fighting fraud and whitecollar crime. As fraud becomes increasingly more prevalent and complicated in the 21st century, the ACFE continually research and develop new publications, self-study products, and cuttingedge fraud training designed to educate and prepare fraud examiners for the challenges they face. There is no better time than today to enhance your career and invest in your future by becoming a Member

The South African Chapter The need to raise the standard of fraud examination in South Africa and for a professional body which was not limited to a specific profession such as accounting or law, resulted in the establishment of a local chapter in 1998 with the mission to provide a community environment in which local forensic examination practitioners can associate. This chapter is a collection of individuals from all industries and professionals, who all have a single goal in mind; the reduction of white-collar crime in South Africa.


To reduce incidence of fraud

and white collar crime

through prevention, education and networking

To identify a companies vulnerabilities to fraud Fraud Risk =


Goals include Networking opportunities Practical training Technical updates

Ethical standards
Regional interest groups vital for this

Members comprise Accounting/auditing professionals Special investigators Law enforcement personnel Loss prevention specialists Attorneys and prosecutors Managers and Executives Academia/students Anti-fraud consultants

Membership Student Affiliate Associate Certified Fraud Examiner (CFE)

Degree with 2 years experience in Fraud Prevention, Detection or Investigation

1. Learnership - Certificate: Forensic Practitioner 2. CFE SAQA qualification - Adv. Cert. Fraud Examiner (NQF6) 3. Practical training 4. Ethical standards 5. Regulating of the industry 6. Networking platform 7. Sharing of information and skills 8. Technical updates 9. Access to the ACFE Forensic Enquiry System.

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Looking at some definitions

Fraud prevention: services and skills aimed at deterring/avoiding or anticipating fraud and other types of abuse and misconduct

Commercial crime Year end 2004 2005 2006 2007 2008 2009 2010 2011

Cases in MP
National Reported cases
100 000 90 000 80 000 70 000









88 388 84 842 77 474

65 286 61 690 55 869

60 000 50 000 40 000 30 000 20 000 10 000 0

53 931

54 214 Cases in MP National Reported cases









SA Government - Corp. Governance Framework Research Institute

Crime experts, economists and NGOs were recently not surprised that an estimated R30 billion was being lost annually by South African taxpayers due to graft, incompetence and negligence in the public service. With the backdrop of these sober facts; notwithstanding the governments and COSATUs best intentions to root out corruption -- such as Corruption Watch -- South Africa will first need to address its more pressing problems such as the need to address the bankruptcy of some of its provinces and municipalities which has been caused mostly through corruption, maladministration, tenderpreneurship, nepotism and cronyism.
12 March 2012

..complacency is the constant companion of corruption! Our country and its people are being ravaged by corruption; it is time for citizens and organisations to take a proactive stand in combating and exposing corruption. Policies and procedures to combat and curb corruption are very necessary, but what is needed now more than ever before, is for organisations and individuals to put into action practical tools and solutions that make goals to rid South Africa of corruption, achievable. Government and corporates lead the way in which society behaves and reacts to its environment and its challenges. They both have tremendous influence and through good governance guidelines such as the King Report on Governance for South Africa 2009 (King III), they are expected to promote and encourage sound corporate citizenship, underpinned by fairness, accountability, responsibility, transparent and ethical behaviour. As good corporate citizens, they should be inspiring a responsible social revolution towards combating and exposing corruption.

PWC - Economic Crime Survey 2009

Over 3,000 senior representatives of organisations in 54 countries 2/3 of all respondents reported a decline in their financial performance over the past 12 months Countries highest fraud reported: Russia (71%), SA (62%), Kenya (57%), Canada (56%), Mexico (51%). 78% said that the risk of economic crime had risen due to the recession. 64% of those who experienced economic crime said the cost of fraud had increased compared to 12 months ago

PWC finding ?
Almost one-third of all respondents did not perform fraud risk assessments in the past 12 months 68% made no change to the frequency of conducting fraud risk assessments in the last 12 months, compared to 12 months ago 16% of organisations did not amend fraud prevention processes and controls to reflect changing fraud threat levels

Anti-Fraud Controls are "Cultural"

Todays corporate culture is much more conducive to committing fraud than was the case 40 or 50 years ago. Business culture today reveres wealth and fame, thereby creating a constant and single-minded push at all levels for consistently higher and increasingly generous pay and greater public adulation. Cultural controls promote the ethical environment and embolden employees to stop fraud. A strong ethical environment encourages self-policing, thereby enhancing oversight far beyond what internal control methods alone provide. Top management should use its companywide ethics policy to set a strong and consistent anti-fraud message at the top that defines enforcement procedures and consequences of fraudulent behaviour Safe whistle-blowing channels must be administered for people to report questionable behaviour, and employees should be rewarded for standing up for what is right

Is fraud only a local problem?

Satyam Computer Services scandal in India proved that fraud is not only in the US just because it is in the papers Chairman admitted that more than 50 billion rupees (or $1 billion U.S.) listed as assets = false France-based financial services company defrauded through questionable transactions of more than 4.9 billion Euros ($7.2 billion U.S.) In SA a businessman with ties to retailers and pharmaceutical companies are investigated for a Ponzi scheme estimated at as much as R15 billion ($1.8 billion U.S.). Although in China committing fraud can lead to a death penalty, two high-level Bank of China executives lived lavish lives spending approximately $482 million on travelling and a lavish lifestyle.

The Cost of Occupational Fraud


2010 Association of Certified Fraud Examiners, Inc.


We asked each CFE who participated in our survey to provide his or her best estimate of the percentage of annual revenues that the typical organization loses to fraud in a given year. The median response was that the average organization annually loses 5% of its revenues to fraud. Applying this percentage to the 2010 estimated Gross World Product of $58.07 trillion1 would result in a projected total global fraud loss of more than $2.9 trillion.

States Central Intelligence Agency, The World Factbook (


2010 Association of Certified Fraud Examiners, Inc.


RTN 2010
Previous ACFE research has identified three primary categories of occupational fraud used by individuals to defraud their employers:
1. Asset misappropriations are those schemes in which the perpetrator steals or misuses an organizations resources. skimming cash receipts, falsifying expense reports and forging company checks. 2. Financial statement fraud schemes are those involving the intentional misstatement or omission of material information in the organizations financial reports. recording fictitious revenues, concealing liabilities or expenses and artificially inflating reported assets. 3. Corruption schemes involve the employees use of his or her influence in business transactions in a way that violates his or her duty to the employer for the purpose of obtaining a benefit for himor herself or someone else. Bribery, extortion and conflict of interest

Fraudsters are generally first-time offenders (only 7% had prior convictions and only 12% had employment terminated). Most common red flags

Living beyond their means (39% of cases).

Experiencing financial difficulty (34% of cases). Financial statement fraud cases pressure to


The Global Scene - Madoff Case

Bernard Madoff Born 29 April 1938 71 years old Former Chairman of the NASDAQ stock exchange Operated the largest Ponzi scheme in history

Investors lost 50 billion dollars

ACFE Economic Survey

More than half (55.4%) of respondents said that the level of fraud has increased significantly higher than in the previous 12 months. In addition, 49% ob-served an increase in the dollar amount lost to fraud during the same period. We have seen increases in fraud in countries such as Botswana and Namibia, who traditionally had low levels of fraud and crime syndicate activity.

About half (49.1%) of respondents cited increased financial pressure as the biggest factor, compared to increased opportunity (27.1 %) and increased rationalization (23.7%). These are the three elements making up the fraud triangle. Employees pose the greatest fraud threat in the current economy. Categories of fraud increased during the previous 12 months, the largest number of survey respondents (48%) indicated that embezzlement was on the rise. Embezzlement =Theft of money, under that employees control, from an employer by an employee using false entries in accounting records to cover up the crime. An embezzler is typically an accountant, bookkeeper or manager who is able to divert income and then cover it up.

37% say frauds by unrelated third parties have increased and roughly 20% indicate frauds by vendors, financial statement fraud, and corruption have increased. Layoffs are leaving holes in organizations' internal control systems. Nearly 60% of CFEs reported that their companies had experienced layoffs during the past year. Among those who had experienced layoffs, almost 35% said company had eliminated some controls. By retrenching employees segregation of duties has been affected. Fraud levels are expected to continue rising. Almost 90% of respondents said they expect fraud to continue to in-crease during the next 12 months. James Ratley stated, prevention is the bigger issue. Its such an uncomfortable topic; people are hesitant to address it.

COSO / Treadway commission

1. Controlled environment - corporate culture +
company risks 2. Risk assessment - tailor made plan (know your industry and key opportunities) 3. Control activities - Implement plan in audit programs 4. Communication - staff & clients about findings

5. Monitoring - continues reverting

Initial Detection of Occupational Frauds

Source of Tips

Detection in Africa 111 Cases





Median Loss

Median Duration Of Fraud Months

Asset Misappropriation


Financial Statement Fraud

Owner/ Executive


$834 000







$150 000







$70 000





The Perpetrators ANNUAL INCOME

Annual Income
$500 000+ $200 000 - $499 999 $150 000 - $199 999 $100 000 - $149 999

3,5% 6,1% 5,2% 11,8%

Median Loss
Up to $50M $1 M $590 000 $375 000

$50 000
<$50 000

- $99 999


$162 000
$75 000

The Perpetrators

Gender Male

Percentage 59,1%

Median Loss $250 000



$110 000

Education Level Postgraduate degree Bachelors degree Some College High School

Percentage 10,9% 34,4% 20,8% 33,9%

Median Loss $550 000 $210 000 $196 000 $100 000

The Perpetrators
Behavioural Red Flag Living beyond means Financial difficulties Wheeler-dealer attitude Control issues Unwillingness to share duties Percentage 38.6% 34.1% 20.3% 18.7% Median Loss $250 000 $111 000 $405 000 $250 000 Financial Statement Fraud 1 3 2 4 Corruption 1 4 3 5 Asset Mis-appropriation 1 2 3 4 All cases 1 2 3 4

Divorce/ family problems

Unusually close association with vendor /customer


$118 000
$410 000

Irritability, suspiciousness, or defensiveness

Addiction problems


$180 000
$225 000

What is happening in SA?

ID Theft in excess of R1 billion per annum Short term insurance in excess of R6 billion per annum

Material non disclosure in excess of R140 million

Life insurance in excess of R3.5 billion per annum (ASSISA = R264 Mil R376 Mil R3.5 bil) Banking in excess of R5.4 billion per annum Medical in excess of R6.5 billion per annum

Dealing with Fraud Risks

1. Assume the risks - accept risk 2. Transfer the risk - fidelity fund 3. Mitigate the risk - counter measures

4. Avoid the risk - dont do business 5. Combination of the above

ACFE Forensic Enquiry System


Managements responsibility
Internal controls Fraud prevent, detect, deterrence Compliance program - King III, Company act, etc.. Risk management Document retention policies Ethics Corporate culture Audits Continues skills development

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