Transcript Managing Fraud Risk in Government

Managing Fraud Risk
in
Government
2015 IIA District Conference
March 10, 2015
David A. King, CPA, CFE – Director, Special Investigations
North Carolina Office of the State Auditor
Session Objective
Discuss challenges, trends,
and strategies for managing
fraud risk in government
Managing fraud risk
requires awareness, tools,
and proactive efforts,
including collaboration with
professional peers
Session Outline
The Tone at the Top
 Discussion of Government Fraud Cases
 ACFE Report to the Nations
 Fraud Prevention and Mitigation

The Tone at the Top
AICPA / ACFE Video: “The Tone at the Top”
https://www.youtube.com/watch?v=x2MjKe6X5nE
https://na.theiia.org/periodicals/Public%20Documents/TAT-Jan-Feb-2015.pdf
Steven Salbu
Georgia Institute of Technology – Atlanta, GA
Four Things Leaders Can Do to
Create An Ethical Climate within
Their Organization
1. Lead with Integrity
–By Example
2. State Clearly and
Convincingly the
Organization’s Ethical
Requirements and Values
3. Create a Path for
Reporting Misdeeds
(e.g., – a Whistleblower
Hotline)
4. Reward (at least
recognize) Integrity
Are you in a leadership role as an
internal auditor?
What are you doing in your
organization to promote an
ethical culture?
From the Headlines……..
Failed Charter School
Mismanaged Taxpayer Funds
Social Services Nonprofit
Mismanaged Millions
ACFE’s Report to the Nations

According to the 2014 ACFE’s Report to the
Nations – tips were the most common means
by which occupational fraud was detected

45% of the fraud cases in the ACFE study
were initially detected through tips

14% of the fraud cases were detected
through internal audits
Initial Detection of Fraud Schemes
Whistleblower Hotlines
(Federal – State – Universities)
Government Fraud
Internal Control Deficiencies?
Circumvention of Internal Controls?
Management Override of Internal
Controls?
The Elements of Fraud
(The Fraud Triangle)
Opportunity
Pressure / Need
Rationalization
Fraud Prevention and Detection
Verify the deliverable – payments
should always require adequate
supporting documentation
 Know the people in your organization
 Perform proactive audits
 Focus on internal control
 Leverage technology – use data mining
/ data analysis

The COSO Framework
Control Environment
 Risk Assessment
 Control Activities
 Information and Communication
 Monitoring Activities

The Updated COSO Cube
The
Control Activities
•
Authorization of Transactions and Activities
•
Segregation of Duties
•
Use of Adequate Documents and Records
•
Adequate Safeguards over Access to and
Use of Assets and Records
•
Independent Verification of Transactions
Data Mining / Predictive Analytics
/ Benford’s Law
http://www.nigrini.com/
Fraud Involves People
Systems Don’t Commit Fraud
 Processes Don’t Commit Fraud
 People Commit Fraud
 Fraud Prevention Requires Effective
Supervision

Fraud Prevention and Detection

Internal Control / COSO Framework / Hotlines

Management Control / Effective Supervision

Employee Education and Training

The Role of Human Resources in Selecting and Screening
Employees

Management Due Diligence in Selecting and Screening
Employees

Establishing and Maintaining an Ethical Workplace
Managing Fraud Risk Requires
Effective Internal Controls and an
Ethical Culture
The State Auditor’s Hotline
The State Auditor maintains a toll-free telephone
number to report allegations of improper
governmental activities.
1-800-730-TIPS (8477)
Webpage link: www.ncauditor.net
Resources
http://antifraud.aicpa.org/
http://www.acfe.com/home.asp
http://www.coso.org/
http://www.acua.org/
http://www.theiia.org/
Contact Information
David A. King, CPA, CFE
Director of Special Investigations
North Carolina Office of the State Auditor
Phone (919) 807-7606
Email: [email protected]
State Auditor’s Hotline: 800-730-TIPS (8477)