Risk Management and Assessing the Risk of Fraud...He told his helpers he was passing on the money to...


Background: Eric Hindson

• Partner at accountancy and business advisory firm PKF Littlejohn

• Head of Membership Organisations Team

• Governor of an FE and HE college

• 10 years chair of corporate clothing company

• Worked with Membership Organisations for over 30 years

• Advised on risk management to a number of organisations


Will Cover:

• What is fraud?

• The economic impact of fraud

• Examples

• Assessment tools

• Practical steps

• Conclusions

• Questions


Background: Jim Gee

• Partner and Head of Forensic and Counter Fraud Services

• Visiting Professor at the University of Portsmouth and Chair of the Centre for Counter Fraud Studies, Europe's leading centre for research into fraud and related issues

• More than 25 years as a counter fraud specialist, he has advised Secretaries of State, Ministers, Parliamentary Select Committees and the Attorney-General

• To date he has worked with clients from 38 countries, including national and multi-national companies, global organisations such as the World Bank and World Health Organisation, and some of the most prominent charities

• Recently advised the Chinese and New Zealand Governments on fraud and has worked with companies in Cameroon, Zambia, Indonesia and South Africa


What is fraud?

Let’s be clear …

NOT

• Corruption or bribery

• Money laundering

• Error or incompetence

NOT just a criminal matter

• Civil law

• Criminal law

• Regulatory sanctions

• Disciplinary sanctions.


The ‘Bottom Five’ examples

5. FATHER ANTOINE VIDEAU

A French priest who drove a Ferrari, lived with a mistress and had 28 bank accounts was jailed for fraud. Father Antoine Videau amassed a fortune equivalent to £2 million over 20 years by stealing donations to the church and rent from church property. He even siphoned off £500,000 from the estate of an archbishop after he was made executor of the senior churchman's will. He fleeced nuns by renting out their convent for private events and spent church funds on a 'pilgrimage' to Las Vegas. Father Videau, 64, received a three-year prison sentence in Corsica for crimes that led to him being known as the ‘Playboy Padre’.



4. THE FAMILY OF THE ‘ONE OF THE OLDEST MEN IN THE WORLD’

Japan has long boasted of having many of the oldest people in the world, but that was before the police found a body of a man, thought to be one of Japan’s oldest at 111 years, mummified in his bed, dead for more than three decades. His daughter, 81, hid his death to continue collecting his monthly pension payments. A woman of 125 is also missing, and probably has been for a long time. When Tokyo city officials tried to visit her at her registered address, they discovered that the site had been turned into a city park – in 1981. To date the authorities have been unable to find more than 281 Japanese who had been listed in the records as 100 years old or older.



3. LI YI, A TAOIST MONK

One of China’s most famous monks, who counts some of the country’s most senior figures among his followers, went on the run after being exposed as a fraud. Chinese government officials said that “Supreme master” Li Yi, a 41-year old Taoist monk, had faked a long list of improbable super powers. Mr Li had claimed that he could sit cross-legged under water for more than two hours because of his Taoist abilities and that he could withstand 220 volts of electricity circulating throughout his body. Mr Li used his fame to sell health and philosophy programmes to his 30,000 followers at the Shaolong Taoist Temple near Chongqing which cost up to 9,000 yuan (£900) a week.



2. OWEN CRUMLISH, LEO LARKIN AND TWO OTHERS

A pensioner starved himself to death after a gang of cowboy builders fleeced him of £7,000 – to replace a single roof tile. Cyril Jenkins, 88, was quoted £250 by four men who pulled up outside his house in a van. But after he agreed to the price the conmen drove him to the bank where he withdrew £3,000 and later £4,000 of his life savings. The former businessman was so shocked by the swindle that he stopped eating and lost five and a half stone. He died in hospital weighing just seven stone, too weak to fight off a heart problem. Two members of the gang, Owen Crumlish, 29 and Leo Larkin, 35, have been jailed for nine months at Bristol Crown Court.



1. PIER PAOLO BREGA MASSONE AND SEVEN OTHER ITALIAN DOCTORS

Eight Italian doctors performed unnecessary surgery in an attempt to defraud the Italian health service. The operations included unwarranted mastectomies and the unnecessary removal of a lung from a patient with pneumonia. Pier Paolo Brega Massone, the head surgeon at Milan’s Santa Rita clinic, was sentenced to 15 months. He oversaw 80 such operations. An anonymous tip-off lead to wiretaps which caught the doctors talking about earning more from more invasive surgery.Prosecutors stated that at least five patients died after operations that were too risky for their condition. The frauds cost the health service £2.2 million.


Examples of charity fraud

1. CHRISTOPHER COPELAND

Christopher Copeland organised bogus charity collections all over Britain using teams of volunteers from Devon and targeted shoppers at large supermarkets.

He told his helpers he was passing on the money to the Help for Heroes charity but put it straight into his own bank account.

He was caught when one of the volunteers became suspicious and tipped off Devon and Cornwall police, who discovered that almost nothing had been paid to the charity.


Examples of charity fraud

2. MARTIN LAWLEY

Martin Lawley set up a charity to help children in hospital with cancer and leukaemia but swindled more than £20,000, a court heard.

Jailing him for 18 months, Judge Niclas Parry said: "Any right-minded person would be sickened by what you have done. It beggars belief you stooped as low as to use the front of a charity to raise money for children suffering from cancer and leukaemia to deceive the public and fund personal expenditure, wasteful expenditure including on a holiday to the United States.


Why is fraud important?

• It is not a victimless crime

• Generally, it undermines the financial health and stability of companies and diverts resources from the provision of quality public services

• In the charity sector, it deprives charities of the money which they need to deliver on their charitable purposes

• It has direct and indirect negative impacts

• Its impact is Individual and Organisational

Economic and Financial


The economic impact of fraud

• The last recession was “fuelled by an epidemic of mortgage fraud” ...

Phil Angelides, Chair of the U.S. Congress Financial Crisis Inquiry Commission

• And how the last recession impacted on fraud ...

• An increase of 55% in online banking fraud

• Insurance fraud rose by 24% to £1.9 billion

• Identity fraud rose 74% in the first half of 2009

• A 72% increase in the number of directors disqualified for financial crime

• An increase of 72% in the number of reported frauds

• The Bank of England has revised its estimate of the percentage of counterfeit £1 coins from 2 to 2.5%


The impact of economics on fraud

What you would expect in a recession:

1980 - 1981

– GDP shrank by a total of 6.1%

– Reported fraud and forgery offences increased by 9.09%

1990 - 1991

– GDP shrank by a total of 2.5%

– Reported fraud and forgery offences increased by 30.52%

2008 – 2009

– GDP has shrunk by over 7%

– Fraud and forgery up by more than 40%

* UK data


A new approach

A new approach to fraud has developed over the last decade:

• Focussing on the financial cost of fraud not just the individual fraudsters

• Doing much more to prevent fraud taking place

• Accurate measurement of the nature and scale of the problem

• Reducing fraud losses and delivering a multiple return on the cost of the work

• Treating fraud like any other business cost.


What does the data show?

• 17 years of global data

• 382 loss analysis exercises in 46 organisations in 9 countries

• 40 types of expenditure

• Value of expenditure where measurement took place = over £9.76 trillion

• Excluding any figures based on detected or reported fraud or ‘guesstimates’ or surveys of opinion

• Statistically valid estimates : 90 – 95% statistical confidence

• Accurate : between plus or minus 1 – 2.5%

• Externally validated.


What is the cost of fraud?

0.02%

5.60%

22.10%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

LOWEST PERCENTAGE LOSS AVERAGE PERCENTAGE LOSS HIGHEST PERCENTAGE LOSS



30.87%

45.65%

23.48%

PERCENTAGE LOSS < 3%

PERCENTAGE LOSS 3-8%

PERCENTAGE LOSS > 8%



5.01%

5.90%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

AVERAGE PERCENTAGE LOSS - 2010 - 2011 AVERAGE PERCENTAGE LOSS - 2012 - 2013

18

18%


Losses to fraud

• Globally, across all sectors £2.78 trillion ($4.23 trillion) is lost each year

• 50% more than UK GDP for 2013

• A 40% reduction (as has been achieved in several organisations) equates to £1.1 trillion – more than the GDP of 175 countries

• In the UK, this means losses of £98.6 billion each year

• Reducing these losses by 40% would free up £39 billion each year

• Equivalent to what the UK spent on education and military defence for 2013


Reductions in losses?

• Examples in “The Financial Cost of Fraud Report 2015”

• Our own track record: Reductions of up to 40% within 12 months

• i.e. if the average cost is 5.6% of expenditure then just over 2.2% of that expenditure is no longer being lost

• With up to a 12 : 1 return on the costs

• The benefits : more financially healthy and stable companies; in the public sector easier, less painful budget reductions

• How can these losses be reduced?

http://www.pkf-littlejohn.com/the-financial-cost-of-fraud-2015.php


Fraud resilience is central

• Fraud resilience is a Government-accepted measure of the extent of protection against fraud. It encompasses 29 different factors

• With University of Portsmouth we have built the largest fraud resilience database in the world with data concerning 29 aspects relating to more than 700 organisations

• Our work shows that what impacts most on the cost of fraud is fraud resilience, not the speed of response after it has happened and losses have been incurred


Fraud resilience tool

working together

The Self-Assessment Fraud Resilience tool (SAFR)

www.pkf-safr.com

Free - easy to use - provides clear information - data held securely and confidentially

A Charity Commission version of this tool goes live tomorrow for all charities with expenditure of over £1

million

http://www.pkf-safr.com/


A helicopter view of your organisationwww.pkf-safr.com


Fraud resilience is central

AVERAGE LOSSAVERAGE RESILIENCE

We control the largest database in the world concerning the fraud resilience of more than 700 organisations.

We control the largest database in the world concerning 382 fraud loss measurement exercises involving 40 types of expenditure with a total value of over £9.7 trillion.

• Resilience calibrated v. losses

• The most resilient losing 1.5% of expenditure or less

• The least resilient losing 10% of expenditure or more.

• Culture is essential

• Set the tone from the top

• Have a fraud policy that reduces tolerance to an absolute minimum

• Have whistleblowing procedures and protection for whistleblowers

• Make sure everyone in the organisation is aware of it

• Two messages – culture AND deterrent

Practical steps


• Have controls in place and follow them

• Nobody is above the rules – opportunity = temptation

• CEO has expenses reviewed

• Standing item on the agenda

• Regularly review the risks (and don’t assume)

• Understand the risks

• Take preventative action

Practical steps


• Identify and report related parties

• Disclosures on hospitality

• Budget holders have ownership AND responsibility

• If it’s not approved, it’s not paid

• Think about an individual’s change in circumstances

• Be vigilant and sceptical

Practical steps


Conclusions

• Fraud can be measured and managed as a business cost like any other

• More and more organisations recognise the value of doing this

• The data shows that fraud losses are significant – AND RISING

• They can be reduced by up to 40% within 12 months –if organisations become fraud resilient

• The pernicious impact of fraud can be reduced

• More resources can be freed up for charitable purposes or member services


Do not be afraid of using the“F”

word

Conclusion


Thank you for listening

Questions?

Presentation Title1 Westferry Circus, Canary Wharf, London E14 4HD

Eric Hindson020 7516 [email protected]

Jim Gee020 7516 [email protected]

For more information, contact:

Risk Management and Assessing the Risk of Fraud...He told his helpers he was passing on the money to...

Documents

Transcript of Risk Management and Assessing the Risk of Fraud...He told his helpers he was passing on the money to...