© 2014 grant thornton uk llp. all rights reserved. public sector fraud and the new cipfa fraud code...

© 2014 Grant Thornton UK LLP. All rights reserved.

Public Sector Fraud and the new CIPFA Fraud Code of Practice

Chris Clements, Partner Grant Thornton UK LLP

October 2014

© 2014 Grant Thornton UK LLP. All rights reserved.

Public Sector FraudIntroduction

• CIPFA Fraud Code of Practice • Setting the scene• Identifying fraud and corruption risks • How is fraud discovered• Counter fraud and corruption strategy• 11 things to do on an investigation

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Public Sector Fraud CIPFA Fraud Code of Practice

• Responsibility of the governing body for countering fraud and corruption

• What to do in identifying fraud and corruption risks• How to develop an appropriate a counter fraud and

corruption strategy• How to take action in response to fraud and

corruption• What resources are needed implement a counter

fraud and corruption strategy

© 2014 Grant Thornton UK LLP. All rights reserved.

Public Sector FraudSetting the scene – frauds and fraudstersQuestion

What, according to the National Fraud Authority, was the total value of UK fraud in 2012?

1. under £1bn

2. £1bn to £10bn

3. £11bn to £50bn

4. £50bn or more

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Public Sector Fraud Setting the scene – frauds and fraudstersAnswer

What, according to the National Fraud Authority, was the total value of UK fraud in 2012?

1. under £1bn

2. £1bn to £10bn

3. £11bn to £50bn

4. £50bn or more

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Public Sector FraudSetting the scene – frauds and fraudstersAnswer

Source: National Fraud Authority – Annual Fraud Indicator June 2013

Fraud loss £52 billion

£21.2 billion

£9.1 billion

£20.6 billion

Not for profit +Other £1.1 billion

Individuals

Public sector

Private sector

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Public Sector Fraud Setting the scene – frauds and fraudsters

• Bank mandate • Bribery • Dead man • Expenses• Fresh air invoicing • Money laundering • Theft of data/information

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Public Sector Fraud Setting the scene – frauds and fraudstersCyber fraud

• Electronic funds transfer/Bank mandate fraud• Electronic extortion – Ransomware• Data theft - including donor details• Piracy of software • Telecoms piracy • Vandalism

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Public Sector FraudSetting the scene – frauds and fraudsters

Would you spot a fraudster?

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Public Sector Fraud Setting the scene – frauds and fraudsters

Most occupational fraudsters are:• first-time offenders with clean employment

histories.• 87% of occupational fraudsters had never been

charged or convicted of a fraud related offense, • 84% had never been punished or terminated by an

employer for fraud-related conduct.

Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse

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Public Sector FraudSetting the scene – frauds and fraudstersQuestion

According to research by psychologists, what percentage of people in this room would be capable of committing fraud?

1. 0% to 25%

2. 26% to 50%

3. 51% to 75%

4. 75% to 100%

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Public Sector FraudSetting the scene – frauds and fraudstersAnswer

According to research by psychologists, what percentage of people in this room would be capable of committing fraud?

1. 0% to 25%

2. 26% to 50%

3. 51% to 75%

4. 75% to 100%

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Public Sector FraudSetting the scene – frauds and fraudsters Fraud triangle

Pressure or motive

Rationalisation of the act

Perceived opportunity

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags - Question

What is the top method of identifying a fraud?

1. Accident

2. External audit

3. Management

4. Whistleblowing

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags - Answer

What is the top method of identifying a fraud?

1. Accident

2. External audit

3. Management

4. Whistleblowing

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags - Answer

External audit

Document examination

Account reconciliation

Accident

Other

Internal audit

Management

Whistleblowing

3.3

4.1

4.8

7.0

8.5

14.4

14.6

43.3

Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags

Types of red flags• behavioural• transactional• system

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags

Fraudsters typically display more than one of the following behavioural red flags:• Living beyond means• Financial difficulties• Close association with vendors/customers• Overly controlling

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags

Transactional red flags, maybe limited to one or more, include:• Excessive year end transactions • Excessive credit notes • Transactions below authority levels• Transactions with high risk locations• Use of unusual email formats

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Public Sector FraudFraud - Identifying fraud and corruption risks Red flags

To identify System red flags, requires consideration of information such as:• Transactions at odd times of day• Exporting of data to non-corporate accounts/media • Use of personal hardware (laptop/phone)• Attempts to breach data security

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Public Sector FraudFraud - Counter fraud and corruption strategyThe Fraud Circle Prevention Planning

Tone from the top - Set goals for stopping bribery

Assess the risk

Prepare strict policies and procedures

Implement policies and procedures

Reviewbenefits

Review procedures

Effective comms - Identify skills gaps and training needs

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Public Sector FraudFraud - Counter fraud and corruption strategy

Points to consider:• Strong whistleblowing policy• Appoint a senior person to be responsible• Fraud and corruption risk register• Regularly review your policies, procedures and

controls• Set the "Tone from the Top" and the "Message

from the Middle"• Watch out for behavioural issues

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Public Sector FraudFraud - Counter fraud and corruption strategy Cyber fraud

• Implement policies for the control, use, monitoring and movement of IT equipment

• Never access your bank from an email• Never leave a computer while logged on• Never share passwords• Regular equipment audits• Regularly change passwords • Secure premises and especially IT equipment• Segregate access • Update software• Wipe hard drives before disposal

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Public Sector FraudFraud - Counter fraud and corruption strategy Employee

• Checks on identity and qualifications Record what has been undertaken

• CRB• Insure• Look out for

– cv gaps / inconsistencies – financial red flags (eg bankruptcy)

• References• Reputation - internet

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Public Sector Fraud 11 things to do on an investigation1. DO NOTHING

• …until you have read the fraud response plan to know what to do next.

• Never do anything with the computers.

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Public Sector Fraud 11 things to do on an investigation2. FOLLOW INTERNAL PROCEDURES

• Obtain and review the employee manual and terms and conditions of employment.

• Is the Public Sector's disciplinary procedure being followed?

• PR advice.

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Public Sector Fraud 11 things to do on an investigation 3. FIND OUT THE STORY SO FAR

• How?• Who?• Disciplinary action?• Evidence?

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Public Sector Fraud 11 things to do on an investigation 4. USE OF APPROPRIATE SPECIALISTS

• Agree desired outcomes.• Any digital forensics work? • Regulated sector?• Potential tax implications?

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Public Sector Fraud 11 things to do on an investigation 5. CONSIDER LEGAL ADVICE & PRIVILEGE

• Maintain legal privilege re: investigation.• Instruct a solicitor.• Public sector investigations may be subject to

Freedom of Information Act 2000.• HR/Employment advice.

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Public Sector Fraud 11 things to do on an investigation 6. WHISTLE-BLOWERS

• Do you have a whistle-blowing/speak-up policy?• Public Interest Disclosure Act 1998.

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Public Sector Fraud 11 things to do on an investigation 7. SECURITY OF DATA EVIDENCE

• Where is it?• Is it at risk?• Should you 'image' IT equipment?• What data could be relevant to the investigation?

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Public Sector Fraud 11 things to do on an investigation 8. REPORTING TO ACTION FRAUD

• Central hotline to report all fraud to police.• Points allocated to each piece of information

reported. • Report information in a way that obtains the most

points.

To avoid invoking PACE we would recommend this report be made at the end of the investigation.

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Public Sector Fraud 11 things to do on an investigation 9. BACKGROUND RESEARCH

• Who?• Anything new revealed?

• Relationships? • Previous issues re: fraud?

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Public Sector Fraud 11 things to do on an investigation 10. REPORTING OUR FINDINGS

• Key decisions and reasons must be documented throughout.

• Different burdens of proof for criminal vs civil.• Employment tribunal vs police.

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Public Sector Fraud 11 things to do on an investigation 11. THINK ABOUT REMEDIAL ACTIONS

• Civil recovery.• POCA - Proceeds of Crime Act 2002.• Make sure you learns from mistakes.• Improve systems/controls.

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Public Sector FraudSummary

• No such thing as a typical fraud/fraudster• Remember the psychology behind fraud and the

fraud triangle• Watch out for the red flags• Put in place the simple steps

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Public Sector Fraud

Contact details

Mr Chris Clements

Grant Thornton UK LLP 4 Hardman Square

Spinningfields

MANCHESTER M3 3EB

chris.m.clements@uk.gt.com

+44 (0) 161 214 6309

October 2014

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