FRAUD PREVENTION, DETECTION & INVESTIGATION

Monthly Newsletter
June 2019

Welcome to the June issue!

Fraud Indicators for Company Secretaries Last month, the US DOJ’s

Part 5
Criminal Division released their
Here is part 5 of the article on fraud indicators. Last updated guidance document,
month we looked at fraud detection, the 3rd of 4 Evaluation of Corporate
pillars of managing fraud risk, and this month we look
at the fourth pillar, namely ‘Fraud Response’. Compliance Programs, which
is a great tool for internal
The fraud risk management programme must
include protocols for responding when potential auditors to use to benchmark
fraud is uncovered. The fraud response mechanism their organisation’s existing
should include clear, formalised procedures to
facilitate: compliance programs.
• investigating the allegations Remember, an effective
• taking action against the perpetrator, such
as employment sanctions, criminal prosecution, or a
corporate compliance
civil lawsuit program is the keystone to the
• recovering amounts lost through legally available means and successful prevention,
correcting any internal control deficiencies that allowed fraud to occur. detection & remediation of
Focus on fraud indicators corporate wrongdoing.

While the anti-fraud controls above are a necessary part of combating fraud,
addressing fraud risk involves more than just implementing internal control
mechanisms. To be effective, the fraud risk management process must be
anchored in understanding and identifying the red flags of potential fraud.

Throughout all anti-fraud activities, as well as while conducting daily operations,

compliance professionals and other involved staff members must focus on
recognising fraud indicators, and those charged with managing this risk must
consider such indicators while designing and implementing the fraud risk
management programme components.

The red flags of fraud typically fall into the following broad categories.

Internal control weaknesses, accounting anomalies, operational anomalies

and behavioral anomalies, which we’ll examine in the upcoming newsletter
editions.

Editor: Mario Fazekas Mobile: +27 (0)83 611 0161 Office: +27 (0)11 475 2525
www.exactech.co Email: mario.fazekas@exactech.co
The American Institute of Internal Auditors, The American Institute of Certified Public Accountants, and
the Association of Certified Fraud Examiners recently sponsored a guide to managing the business risk
of fraud. This guide spelled out key human resource practices that can be helpful in preventing fraud and
in the last 2 issue we looked at Background Screening and Anti-fraud Training, while this month we
look at on-going Performance evaluations:

3. On-going Performance Evaluations

Most employees in most companies are subject to evaluations, at least on an annual basis. These
evaluations are an opportunity for HR to identify mismatches between employees’ beliefs or expectations
and the true circumstances. We know that potential fraudsters can gain motivation from what they
perceive as slights or oversights, and the company needs to be alert to that. Fair compensation is always
a crucial issue. At the same time, you may be able to learn about changes in an employee’s life
circumstances that could affect his or her attitudes toward the company.

It’s important to remember that most fraudsters are made, not born. They begin as good employees and
continue to be seen as good employees even while they are stealing from the company. We are not
suggesting you “spy” on your employees. In fact, a fully transparent and fairly enforced fraud policy can
help to build trust in the organization. Nevertheless, you need to verify what your employees are feeling
about the company as early as possible in order to help them stay within the lines.

Evaluating employees’ attitudes should not be a once-off exercise and that’s why we survey the
attendees at in-house fraud workshops. We do this by providing pre and post workshop
questionnaires, which we then collate, evaluate and report back on the responses. The
questionnaires are anonymous and, because we are outsiders, the delegates tend to open up
as to what unethical behaviors they have seen and what fraud risks there may be.

The survey results provide the added value which is two-fold:

1. It is easy to measure the effectiveness of the training program by comparing the pre and
post questionnaire answers, and
2. Some of the answers provide an indication of fraud and unethical hotspots within the
business. Most employees tend to say nothing when confronted with unethical behaviour
but they tend to be honest with strangers

At the beginning of June, we delivered

a 2-day Forensic Investigations course
for part of the Central Bank of
eSwatini’s Security team, which was
hosted at the most scenic Sibanye
Hotel in Mbabane,
EXACTECH FORENSICS the Kingdom of Phone: (555) 555-5555
eSwatini
123 Fake Street, City,(Swaziland).
ST 12345 Fax: (555) 555-0000