THE FRAUD)AND)CORRUPTION) SURVIVAL)GUIDE)AND)THE ... · GOOGLE is good with names but gives general...

Fraud and Corruption Survival Guide and The Investigator “virtual” toolbox

Belgrade 25.09.2012

© The Septia Group 2012 1

THE FRAUD AND CORRUPTION SURVIVAL GUIDE AND THE

INVESTIGATOR “VIRTUAL” TOOLBOX

Belgrade 25th of September 2012

Veronica Morino

What we are going to cover

Demystifying Fraud and Corruption Where can Fraud and Corruption strike? Spotting the red flags Developing a Fraud Risk Map The virtual investigation model Desktop research and remote investigation

techniques- doing it yourself Top tips A Holistic Approach to Fraud Risk Management Summary, debate and reflections


Belgrade 25.09.2012


The dark side of the coin…

Papering over the cracks


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Inflated expenses Nepotism & favoritism False marketing expenses Kickbacks Sexual Harassment Unfair dismissals Property frauds Managers owning suppliers Bribes to public officials Money laundering Physical threats

How far it can go…

Travel expenses…


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What do you think?

A typical company with sales of €100 million. How much do you estimate is (on average) lost because of fraud and corruption each year? € 0 – € 100,000 € 100,000 - € 1 million €1million – €5 million € 5 million - € 7 million > €7 million

The true extent

Examples

Overcharging Conflict of Interest False Claims False expenses Exaggerated results Kickbacks

• Deliberate/Dishonest

• The truth is Hidden • Controls bypassed

INDIRECT COSTS > Direct costs

• Rules are broken


Belgrade 25.09.2012


Who?

So what do you think?

A typical company with sales of €100 million. How much do you estimate is (on average) lost because of fraud and corruption each year? € 0 – € 100,000 € 100,000 - € 1 million €1million – €5 million € 5 million - € 7 million > €7 million


Belgrade 25.09.2012


Makes good business sense

Sales 1000

Costs 950

Profits 50

Profit Margin 5%

If fraud and corruption costs = 3 % of sales...

* *

*

920 80

8 % a 60% increase in profit margins!

Opportunity Motivation

$ $

$

$

$ $

$

$ $ $ $ $

$

Rationalisation

Where does it go?


Belgrade 25.09.2012


We believe...

Honest Dishonest

But the truth is…

Honest all depends Dishonest


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The “slippery slope”

Controls and loopholes

x x x x x x

x x x x x

x x x x x x

x x x x x

x x x x x

x x x x x x

o

o

o


Belgrade 25.09.2012


Your turn to assess the risk

Your task:

You can be whoever you like You have FIVE MINUTES to find two different ways to defraud YOUR COMPANY of €100.000 in the next 12 months. You will need:

A silver spoon of influence,

To identify the window of opportunity

...and have a bucket full of GR€€D!!!!!

xxx


Belgrade 25.09.2012


Some milestones in our history…

Founded in 1995 as the Minter Raleigh Uxington corpora:on following a European Merger Period 1995 -‐2008 characterised by the development of a strong posi:on in European and Eastern markets. There was a threefold increase in the number of employees, almost a quadrupling of revenues and a 50% improvement in profit margins In December 2008 Miralux experienced a severe downturn due largely to the world economic recession. Long-‐serving CEO Harald Minter steps down, is replaced by Antonio Svensson. New Code of Conduct introduced Jan 2011 – Signs of strong recovery. Antonio Svensson steps down for health reasons to make way for Anthony Scales


Belgrade 25.09.2012


Spotting the red flags


Belgrade 25.09.2012


Your turn to assess the risk

Where are the LOOPHOLES?

• In the organization? • Around the organization?

Risk Brainstorming

Fraud and Corrup:on Risk Profile

Assets / Value Opponents

Methods of fraud and corruption


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• Sales • Purchasing • Investments • Loans • Inventory • HR/ Payroll • Accounting/ reporting • Etc

Areas

– Conflict of interest? – Fictitious and/or fraudulent invoices? – Diversion of cash receipts? – Kickbacks or excessive gifts? – Travel and entertainment expense abuse? – Accounting fraud? – Loans to high risk customers? – Payments that bypass accounts payable? – Involvement with criminal groups?

What type of risks do you see?


Belgrade 25.09.2012


Workshop Method – Identification

Use yellow stickers to brainstorm risks – First the methods

An FX trader

could make unprofitabl

e deals with a friend -

counterparty

Think like a thief: H

ow could

YOU get 10,000 Euros ?

What could happen ?

Workshop Method – Assessment (1)

An FX trader



counterparty

M High - Likely to occur within one year

Medium - Likely to occur within five years

Low- Not likely to occur

How likely is it this will happen?

Consider existing

controls!


Belgrade 25.09.2012


An FX trader



counterparty

How serious are the consequences?

H - Major damage

M - Significant damage

L - Minor damage

M H

Workshop Method – Assessment (2)

Financial,

Reputational

& Cultural !

Consider the indirect consequences!

• Lost time • Reduced productivity

• Damaged reputation

• Loss of employee loyalty

• Lost customers and market share

• Fines and Penalties

• Contractual effects

• Political effects


Belgrade 25.09.2012


Fraud and Corruption Risk Profile

After Analysis - Risk response

• Avoid risk • Transfer risk • Reduce risk • Accept risk

….. Skip those activities ….. For example, insurance ….. Improve internal control ….. But monitor it !


Belgrade 25.09.2012


After analysis – Risk Reduction

Before During After

Reduce LIKELIHOOD with Preven:ve controls

Reduce CONSEQUENCES with Detec:ve controls

The “virtual” investigation model

How to avoid doing it the heavy way!


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What a criminal is interested in

Planning the investigation

Iden:fy Sources

Gather & Secure

Analyze

Lateral Research

Observa:on

Legal advice

Develop Fraud Theories

Iden:fy Sources

Gather & Secure

Analyze

Lateral Research

Observa:on

Interviews

Document


Belgrade 25.09.2012


A tale of 4 companies

PRO-ACT

RE-ACT

DE-FENCE

AD-JUST

Action

Responsibility

Desktop research and remote investigation techniques

What can be obtained from open sources without leaving your desk


Belgrade 25.09.2012


Background Research

Companies details

• Ownership/shareholder • Board members • Historical survey • Annual accounts • Company details • Updated status • Information in the market • Properties • Bank account • Trademark/Patent Activity • Prejudicial events • Credit/liquidity

Individual details

• Ownership/shareholders • Board members • Financial situation • Personal details • Information in the market • Properties • Bank account • Trademark/Patent • Activity • Prejudicial events • Credit/liquidity

Telephone directories

TELEPHONE DIRECTORIES

It is always good to use at least 2 different addresses and compare results

Combine local with what can be obtained through other countries


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Corporate registers

TIP: Compare with information which can be obtained through other countries

Research on the web


Belgrade 25.09.2012


Some examples….

GOOGLE is good with names but gives general information. Details are needed to get useful information.

COPERNIC structured research with history. Searches more than 10 engines at the same time

Maps and satellites


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What else is around there?

Yew Tree Close, Mobberley, Chesire


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UK ENGINES ARE BEST!

Tax havens

Tax havens


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Domain registers

Social Networks


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Scams

Even less intrusive


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Language barriers

Pretexts

The importance of screening is not just

limited to qualifications


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Tools

• Company House • Telephone directories • Other internet research • Pretexts • Media • Property register • Credit • Tax agency • Educational Institutions • Courts • Subcontractors

LATERAL THINKING!!!!

Be sceptical of external information providers

Internal information is gold

Plan before acting

Think laterally

There is a lot out there for free

”Top Tips”


Belgrade 25.09.2012


Create a database (Use mindmap!)

If local is not known try combination of global/local

Local is best (not always)

Use different engines according to what is to be found

In brief

NEVER use the same engine because "it is just a

quick search"

First round results are based ONLY a fraction of what could be found!

“Playing Poirot”


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Potential sources (where legal)

External

• Company house • Land records • Tax records • Vehicle registration • Passport office • Credit bureaus • Telephone registries • Patent office • Court records • Observation • Witnesses

Internal

• Financial reports • Accounting ledgers • Accounting documents • Travel expense records • Computer Systems • CD/DVD and other backup • Document archives • Email records • Telephone records • Hand held devices • Office search • Witnesses

Resources for complicated case

Inves:ga:on Leader

Fraud Response Team

Legal Advice

Control & documenta:on

Computer

Specialists

Forensic Accountant

Researcher

Forensic Laboratory

Detec:ve

Fraud auditor

Interviewer

Other experts


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7. Steps for Interview Strategy

The Interviewer The Respondent • Leads the interview • Sets the rules • Maintains Control

• Participates • Follows the rules • Not allowed to take over

Interview Ground Rules


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The respondent will have an impression of the interviewer before the interview even starts…

Age Body language Spoken

language

Objectives

Ethical background

Social status

Choice of clothes

Attitude Personal values

Type of interview

Consider

Putting together the puzzle

Accounting

Support Docs

Red Flags

Observation

Expense Reports

Email

Computer Records

Internet

Office Search

Interview

Interview

Interview

Interview

Interview


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Whistleblowing

Communication


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Summary

Becoming more resistant to outside threats of fraud and corruption.

Prevention Tools

• Training and awareness • Assessment • Find early warning sings: The Corporate Health Check

• Following the signals: Lateral Desktop research


Belgrade 25.09.2012


Winning the battle…

• Culture, not compliance!= Resilience • Know your risks (T.L.A.T.) • Don’t be fooled that compliance with

rules equals commitment • Developing and using your own fraud and

corruption profile • Healthy scepticism – Look for Red Flags –

they’re there (always) • A balanced approach - its easy to come

down too hard on the small “offences”

Governance Management

Culture

Risk

Controls

Awareness Communica:on

Monitoring

Inves:ga:on

Improvement

A Holistic approach towards fraud risk


Belgrade 25.09.2012


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