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Fraud Risk Program

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To formally document the risks of fraud and policy abuse to demonstrate due ... Fraud and reputation risk assessments focus on fraud schemes and scenarios. ... – PowerPoint PPT presentation

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Title: Fraud Risk Program


1
Fraud Risk Program
Draft Copy
2
Mission Statement
  • To formally document the risks of fraud and
    policy abuse to demonstrate due diligence around
    fraud prevention and to formalize mitigation
    strategies with better alignment of proactive
    fraud prevention and early detection efforts with
    Internal Audit activities.

DRAFT
3
What is a Fraud Risk Assessment?
  • Fraud and reputation risk assessments focus on
    fraud schemes and scenarios.
  • Purpose is to identify and document risks and
    controls for various scenarios schemes that can
    affect the company and its shareholders by
  • Significantly impacting the organizations
    reputation
  • Exposing the company to criminal or civil
    liability
  • Creating a financial reporting irregularity
  • Ensure compliance with corporate governance
    requirements.
  • Information taken from PWC Article Deeper
    Broader Performing Fraud Reputation Risk
    Assessments

DRAFT
4
Risk Assessment Benchmarking
DRAFT
5
IA/FIU Fraud Risk Program
  • IA/FIU process takes the benefits of a standard
    fraud risk assessment and raises it to a new
    level with tight integration into a program of
    fraud prevention and early detection.
  • Documents the audit risk of how the company
    determines risk and audit priority.
  • Coordinates an assessment of the perceived risk
    by the people in the trenches.
  • Integrates perceived risk to the IA function
    within an embedded process.

DRAFT
6
IA/FIU Phased Process
  • Risk Assessment Phase Now into May FY05
  • FIU - Develop an understanding of the external
    regulations/industry guidelines that exist on
    fraud prevention and detection. (DONE)
  • FIU - Benchmark Fraud Risk Assessment procedures
    at other companies to the the company process.
    (DONE)
  • FIU - Formal documentation and Identification of
    the types of risks that have been incurred and
    yet to occur at the company. (DONE)
  • Specialization leaders - Assessment of the
    likelihood and significance of a fraud occurring
    in their area. (To occur in May)
  • Control Documentation Phase Late Q1 FY06
  • Specialization leaders - Detail control alignment
    to the scenario types.
  • Specialization leaders - Mapping of each units
    risks to a risk map, with each quadrant having
    defined risk actions.
  • Fraud Experience Benchmarking Phase H1 FY06
  • FIU - Additional detailed benchmarking with other
    corporations to facilitate the sharing of best
    practices in identifying and mitigating fraud
    risks.
  • Survey Phase Q1 and Q3 FY06
  • FIU - Assessment of the risk that is perceived by
    the Sr. Management team throughout the world.
    This will give good benchmarking to our internal
    expectations and cases received.
  • Evaluation Phase Q4 FY06
  • FIU IA - Re-visit the initial assessment of
    risk and coordinate the perceived risk of
    Management to IA risk and learned best practices
    to the IA function.

DRAFT
7
Risk Assessment Phase
  • Organize the Assessment
  • Separate Cycle performed by IA/FIU on assessing
    the Fraud Risk at the company.
  • Determine Units Locations to Assess
  • Units determined by specialization lead, with
    regional breakdown for SMSG.
  • Identify Potential Fraud Misconduct Schemes
    Scenarios
  • FIU to prepare a master fraud list of known and
    potential fraud schemes involving company and
    break down to the specialization areas as defined
    in step B.
  • FIU to compare Transparency International listing
    of Corruption Perceptions Index to the company
    revenue and headcount.
  • FIU to compare recent well known corporate
    scandals to determine the viability of that
    specific fraud occurring at the company.
  • Specialization leaders to focus on areas of fraud
    labelled as A or B risk. FIU preventative
    presentations and targeted efforts for
    company-wide C risk mitigation.
  • Assess Likelihood of Fraud
  • Specialization leaders to assess the likelihood
    of the frauds on the master fraud list
    occurring based on a sliding scale
  • 1 - Remote (lt5 chance of occurrence)
  • 2 - Possible (5-50 chance of occurrence)
  • 3 - Somewhat likely (51-75 chance of occurrence)
  • 4 - Probable (gt75 chance of occurrence)
  • Assess Significance of Risk
  • Specialization leaders to assess the likelihood
    of the frauds on the master fraud list
    occurring based on a sliding scale (differs for
    each fraud type)
  • 1 - Negligible
  • 2 - Serious

DRAFT
Derived from PWC study on creating a Fraud
Risk Assessment
8
Risk Assessment Phase Schemes (Preliminary)
ACFE Fraud Categorization
Financial Statements
Asset Misappropriation
Corruption
A
Revenue Recognition
Antitrust
Treasury
Fictitious Employee
Journal Entries
DRAFT
Liability Reporting
Conflict of Interest
Pre-payments
Purchase Orders
B
C
Channel Stuffing
Reserves
TE
Identity Theft
Gift Cards
Disclosures
Vendors
Insider Trading
Petty Cash
FCPA/Bribery
Income Taxes
Benefits
Former Employee
Side Letters
Kickbacks
Time Attendance
9
Considerations in Assessing Fraud Risk
  • Specialization leaders to focus on A and B
    identified schemes.
  • Risk to be assessed is the inherent risk
  • Think of the risk of this fraud occurring should
    minimal controls be in place.
  • Consider the account balances
  • Treasury risk is rated as an A level risk, due
    to the large amount of cash on hand. Other
    misappropriation of assets are C level risks
    due to smaller potential impact on the
    organization.
  • Consider non-financial risks
  • In fraud, reputation risks may be as significant,
    or more significant than financial loss. Please
    consider all risks that are attributable to the
    area being assessed.

DRAFT
10
Risk Assessment Phase - Schemes
DRAFT
11
Risk Quadrants Actions
4
Quadrant 4 Prevent at Source
Quadrant 3 Detect Monitor
Focus Audit Programs and Control documentation
for risks in these areas.
3
Significance
DRAFT
2
Quadrant 1 Low Control
Quadrant 2 Monitor
1
1
2
3
4
Likelihood
12
Risk Assessment Phase - Likelihood Significance
DRAFT
FIU to develop significance levels
13
Risk Assessment Phase International
25 Least Corrupt Countries
DRAFT
To change
  • Benefits
  • Provide SMSG Specialization Leader with
    aggregate of Regional Risk
  • Worldwide analysis of how HC and
    allocation compares to known corruption indexes
  • Provide visibility to countries or regions
    that may need education on fraud risks

Information taken from 2004 Transparency
International Corruption Index
14
Risk Assessment Phase International
25 Most Corrupt Countries
DRAFT
To change
Information taken from 2004 Transparency
International Corruption Index
15
Risk Assessment Phase - Corporate Fraud Scandals
DRAFT
16
Control Documentation Phase
  • Specialization Leaders to take scenarios matrix
    for their areas and map each risk to specific SOX
    controls.
  • Late Q1 timeframe for rollout ensure that it
    doesnt affect 404 deliverables.

DRAFT
17
Fraud Experience Benchmarking Phase
  • Benchmark fraud prevention and detection within
    the company against other companies to better
    understand the trends in fraud and to build a
    fraud resource network within the business
    community.
  • Use of the Corporate Executive Board to
    facilitate a Fraud Summit that includes the other
    companies that have been heavily involved in
    fraud prevention and detection.
  • FIU annual meeting for discussing fraud trends in
    a formal setting.

DRAFT
18
Survey Phase
  • Creation of a fraud survey that would be
    circulated to large audience worldwide, in order
    to better identify trends and to get a better
    idea of the frauds that are not being reported to
    the FIU. Ideas for those to be included are
  • Vice Presidents (US)
  • General Managers (Regional)
  • Country Managers (In Country)
  • Controllers (all)
  • Compliance Managers
  • CFOs (BG)
  • LCA (Subsidiary)
  • HR (Subsidiary)
  • FIU to aggregate the data to see what the
    perceived risk by those in the field is, and
    where unknown risk may lie.
  • 2 surveys 1st would not be anonymous, 2nd would
    be 6 months later and be anonymous. Comparison
    of results would provide validation of responses.
  • FIU to determine what vehicle is best for surveys
    integrate with other surveys and ensure
    consistency with 302?

DRAFT
19
Evaluation Phase
  • Taking knowledge learned from previous phases,
    the FIU will work with IA to
  • Use survey feedback to identify regions or
    countries that may have significant risk that has
    been un-reported to the FIU.
  • Create a documented benchmark of how the FIU
    compares to similar investigative groups across
    the industry.
  • Develop a systematic plan for integrating fraud
    detection into the audit plan.

DRAFT
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