ENGLISH PRESENTATION

Subject :Fraud and Internal

Audit

Realised by :
Ayoub M’BARKI
Khaled FOURATI
Hamza AIM
©2017 Grant Thornton Limited
 Introduction

Every year billions of dollars are lost to fraud and corruption resulting in
inefficiencies, aborted projects, financial challenges, organizational failure,
and, in extreme cases, humanitarian disaster. Often fraud occurs because of
poorly designed controls and weak governance undermining the organization’s
processes.
Organizations should have robust internal control procedures to limit the risk of
fraud, and internal audit’s role is to assess these controls.

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 Fraud definition

A knowing Abuse of position, or Wrongful or criminal

misrepresentation false representation, or deception intended to
of the truth or prejudicing someone's result in financial or
concealment rights for personal gain
personal gain Oxford Dictionary
Black’s Law Dictionary
Serious Fraud Office

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 Occupational fraud - examples
• Asset misappropriation e.g. theft of cash; skimming of receivables;
transfer of assets; theft of stock

• Fraudulent disbursements e.g. falsified wages; ‘ghost employee’; fictitious

expenses

• Financial statement fraud e.g. improper asset valuations;

understated revenue/overstated expenses

• Corruption e.g. invoice kickbacks; illegal gratuities

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 Fundamental Fraud Facts
• Fraud can be defined as any illegal act characterized by deceit,
concealment, or violation of trust. These acts are not dependent upon the
threat of violence or physical force. Frauds are perpetrated by parties and
organizations to obtain money, property, or services; to avoid payment or
loss of services; or to secure personal or business advantage.

• Fraud is not unique to any organization type. It occurs in public and

privately owned businesses, not-for-profit, in organizations that seek to
contribute to economic and social well-being, such as government
departments, financial institutions, and public and private utilities (water,
electricity, education, health care, etc.). In short, the opportunity to commit
fraud exists everywhere.

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 Fundamental Fraud Facts

• How organizations deal with the risk of fraud may be influenced by legal
jurisdiction and the organization’s own risk assessment.

• Fraud can often lead to litigation, dismissal, and recovery of assets. It is

essential, therefore, that any investigation is undertaken by suitably
qualified individuals to reduce the risk of compromising evidence,
accusing wrongfully, or undermining prospective legal actions.

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 Who is responsible to detect
fraud?

• It is not the role of the IA to identify fraud, but it’s management’s primary
responsibility

• Management is responsible to implement controls, and to develop a healthy

tone at the top that deters fraud

• With increased regulatory focus and widespread negative impact of frauds,

organizations are increasingly concerned about the vulnerability and
exposure, and whether or not they are adequately protected.

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 Who is responsible to detect
fraud?

• Internal auditors are nowadays expected to have sufficient knowledge to

evaluate the risk of fraud in their organizations, and are required to report to
the BOD on any fraud risks found during their investigations.

• Internal auditors should provide objective assurance to the BOD that fraud
controls are sufficient for identified fraud risks and ensure that the controls
are functioning effectively.

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 Financial cost
• Typical organisation loses 5% of revenue to fraud each year

• Figure translates to a potential annual fraud loss of $3.7 trillion

• Median loss of $150k; 23% of cases losses of $1m+

• 58% of organisations do not recover any losses

The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

©2017 Grant Thornton Limited

 Other costs
• Reputational costs

• Stakeholder relationships

• Decreased morale/productivity
The 2016 Report to the Nations on Occupational Fraud and Abuse:
ACFE Global Fraud Study

©2017 Grant Thornton Limited

 Perpetrators
• Those with greater authority cause larger losses

• The longer a perpetrator has worked for an organisation,

the higher the losses

• Other misconduct: bullying or intimidation

• Risk areas: accounting; operations; sales; senior management

• Greater losses from people conspiring

The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

©2017 Grant Thornton Limited

 The Fraud Triangle
• I cannot afford to pay my bills • I can submit expenses
without invoices
• I need to deliver targets at work
• The other directors
• I have a gambling addiction don’t review what I do
• I want a bigger house • I am sole signatory on
to show how successful the bank account
I am
• There is no
• I cannot afford to segregation of
maintain my duties
lifestyle

• I am only borrowing the money

• I am not paid enough for what I do
• I need to provide for my family

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 Fraud detection
Detection typically by way of:
1. Tip-off (39.1%)
2. Internal audit (16.5%)
3. Management review (13.4%)

The 2016 Report to the Nations on Occupational Fraud and

Abuse: ACFE Global Fraud Study

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 Fraud detection – cont.
Others:
- By accident (5.6%)
- External audit (3.8%)
- Confession (1.3%)

The 2016 Report to the Nations on Occupational Fraud and Abuse:

ACFE Global Fraud Study

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Fraud and Internal Audit
• Internal auditing is an independent, objective assurance and
consulting activity designed to add value and improve an
organization's operations. Its role includes detecting,
preventing, and monitoring fraud risks and addressing those
risks in audits and investigations.

• It should consider where fraud risk is present within the

business and respond appropriately by auditing the controls of
that area, evaluating the potential for the occurrence of fraud
and how the organization manages fraud risk through risk
assessment, and audit planning. It is not internal audit’s direct
responsibility to prevent fraud happening within the business.
This is the responsibility of management as the first line of
defense.

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Fraud and Internal Audit

• The internal auditor should not be expected to have the

expertise of a person whose primary responsibility is to
investigate fraud. Such investigations are best carried out by
those experienced to undertake such assignments.

• Internal audit should use its expertise to analyze data sets to

identify trends and patterns that might suggest fraud and
funding abuse. Where the experience is not available within
the internal audit team, the organization should consider
recruiting or engaging resources with sufficient knowledge or
expertise.

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 Fraud prevention checklist
1. Anti-fraud training
2. Fraud reporting mechanism
3. Employee perception of detection
4. Management culture: honesty and integrity
5. Fraud risk assessments
6. Anti-fraud controls

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 Fraud prevention checklist
– cont.
7. Internal audit resources/authority
8. Hiring policy
9. Employee support programmes
10. Open-door policy
11. Anonymous surveys on employee morale

Association of Certified Fraud Examiners

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 Conclusion
The threat of fraud is one of the most common challenges to governance that
organizations face without regard to size, industry, or location. Having proper
internal control procedures in place that include an appropriate response plan is
fundamental to battling fraud. Internal audit possesses intimate control knowledge of
the organization. A combined assurance approach is key in this regard to understand
the gaps in controls to allow for the manifestation of fraud.

Fraud investigations are best carried out by those experienced to undertake such
assignments. Organizations should not expect internal audit’s skill set to include fraud
investigation. Instead, internal audit should support the organization’s anti-fraud
management efforts by providing necessary assurance services over internal controls
designed to detect and prevent fraud. If circumstances require internal audit to take
on an investigatory role, internal auditors should exercise due professional care.

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 Thank you

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