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AFS FRAUD

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Title: AFS FRAUD


1
AFS FRAUD RISK MANAGEMENT SEMINAR
  • Thursday 25th June 2009

2
Fraud Risk Best of EnemiesRisk Management
  • Gail Chadwick
  • gail.chadwick_at_rsmbentleyjennison.com

3
  • THE BETTER THE RISK MANAGEMENT
  • THE LOWER THE INCIDENTS OF FRAUD

4
Fraud Risk
  • Number one fraud risk impact is reputational loss
    (Societe Generale)
  • Do you have a fraud risk register?
  • Should it be stand-alone or part of your main
    risk register?

5
Challenges (excuses) in managing fraud risk
  • Fraud and misconduct not considered High Risk
    within the organisation
  • No Fraud Here mentality
  • Fraud not defined
  • Availability and alignment of internal resources
  • Adequacy of funding for anti-fraud programme and
    initiatives
  • Reactive fraud management - focus on incident
    response
  • No unified Fraud Risk Management strategy
  • No senior management designated with ownership
    and responsibility for FRM

6
What should be done
  • Consider fraud risk as an integral part of an
    overall corporate risk management strategy
  • Develop an integrated strategy for fraud
    prevention and control
  • Develop an ownership structure which cascades
    downwards throughout the organisation
  • Introduce a fraud policy and ethics statement and
    actively promote them
  • Establish a sound control environment
  • Establish sound operational control procedures
  • Introduce a fraud education, training and
    awareness programme
  • Introduce a Fraud Response Plan as part of
    organisational contingency planning
  • Introduce a Whistle blowing Policy
  • Constantly monitor adherence to controls and
    procedures
  • Develop appropriate information and communication
    systems

7
Scenarios document areas of fraud
  • Administration
  • IT Director
  • CEO
  • Contracts
  • HR
  • Employees
  • Clients
  • IT
  • Suppliers
  • Company Secretarial

8
Whats your protection?
1st Line of Defence
2nd Line of Defence
3rd Line of Defence
Business Frontline
Independent Assurance
Oversight (Risk Compliance)
  • The Board sets risk strategy, policies and
    appetite for the firm
  • The second line is commonly Legal, Compliance,
    Finance, HR, Risk Actuarial
  • Risk provides support to the business through the
    risk management framework
  • Risk provides challenge to Group policies
  • Primary responsibility for identifying and
    managing risk
  • Management puts in place appropriate controls and
    monitors their effectiveness
  • Roles, responsibilities and relationships between
    functions should be clearly documented
  • Group Internal Audit provides independent
    assurance of the robustness of the model and
    systems and controls. They report to the Audit
    Committee (Board)

9
Whats your protection? (cont.)
  • Your 3rd line of defence - Internal Audit
  • Do Internal Audit review ALL aspects of your
    business from a risk and fraud prospective?
  • IT HR EUC contracts systems clients etc

10
of Internal Audits
  • Risk assessment
  • Risk audits
  • Controls evidence criteria
  • Education training
  • Developing risk plans
  • Implementing risk platforms
  • Developing risk databases
  • Policy strategy
  • Risk awareness training
  • Risk identification evaluation
  • Dashboard KPI integration
  • 3rd party risk management
  • Indirect uncontrolled risk
  • Risk software
  • IT Audits
  • Strategy
  • Network management
  • Data security (internal external)
  • HR
  • Human Resources services
  • Performance management
  • Employee motivation
  • People polices
  • Organisational change
  • Training development
  • Payroll
  • Human Resources planning
  • Human Resources function
  • Teaming
  • Corporate culture
  • Pensions
  • Operational Audits
  • Corporate Governance reviews
  • Board reviews
  • Controls assessment
  • Outsourcing
  • HS
  • Marketing
  • Supply chain
  • Project Programme Audit
  • Training education (I.A Ned)
  • Universe development
  • Annual plan
  • Methodology
  • Forensic investigations
  • SOX
  • Self assessments
  • Due diligence
  • Compliance
  • Sales management

11
Excellent!
  • We need an army of highly qualified,
  • experienced auditors
  • for our clients

12
Visiting times
  • What is your personal liability?
  • More SOX type regulations
  • Process owners face firms and jail sentences
  • Not just Board level
  • FSA fines

13
IT IS real
  • The Financial Services Authority (FSA) today
    arrested two people, including a senior corporate
    finance advisor, in connection with an ongoing
    investigation into suspected insider dealing
  • The FSA has banned Walthamstow-based mortgage
    adviser Ashfaq Ahmed for submitting mortgage
    applications on his own behalf that were based on
    false and misleading information about his income
  • The FSA has fined Blackburn insurance broker
    Aspray Ltd 21k for failings in control of its
    appointed representatives (ARs) and for
    misleading its clients and the FSA
  • Asprays did not maintain appropriate systems and
    controls for the recruitment, training and
    monitoring of its ARs

14
Fear factor
  • Company had Internal Audit team that
  • Did not fully understand risks or fraud
  • Did not undertake audits across the company
  • Apprehensive about interfaces with Executives and
    Non-Execs
  • No Governance reviews or Board reviews

15
What we did
  • We found a significant number of issues on the
    first Governance review
  • Results for the company
  • No more FSA letters
  • No Board worries about fraud
  • Improved compliance
  • Reduced costs

16
  • Tomorrow is too late

17
  • Any questions?

18
(No Transcript)
19
When the going gets tough, the tough go
claimingBusiness Integrity and Investigation
Services
  • Dave Foley
  • david.foley_at_rsmbentleyjennison.com

20
The Fraud Act 2006
  • Effective since 15th January 2007
  • Created for the first time a specific offence of
    fraud, split into three categories
  • Fraud by false representation (s.2)
  • Fraud by failure to disclose information (s.3)
  • Fraud by abuse of position (s.4)

21
Fraud in Insurance
  • Insurance fraud consists of
  • Knowingly providing false information when
    purchasing an insurance product in order to
    obtain insurance cover that either would have
    been provide had the true facts been disclosed
    or alternatively to obtain cover on materially
    favourable terms
  • Knowingly presenting a fraudulent insurance claim
    by
  • Fabricating a fictitious incident to enable a
    false claim to be made
  • Deliberately causing an incident to enable a
    false claim to be made
  • Including false items as part of a claim arising
    from a genuine incident

22
Some facts and figures
  • According to the Insurance Fraud Bureau,
    insurance fraud costs 1.6bn every year
  • Of this figure, the impact of organised fraud is
    estimated to be up to 200 million every year
  • Fraud can add up to 5 to every policy holders
    premiums
  • 1 in 5 state they would falsify or exaggerate an
    insurance claim
  • The insurance industry prevented over 700m of
    fraud in 2008

23
Fraud risks and exposures
  • Claims (insurance/death/pension) open to
    exaggeration and/or false documentation/ID fraud
    etc
  • Organised crime
  • Internal staff fraud
  • 3rd party outsource frauds
  • Mis-selling
  • Suppliers and contractor procurement frauds etc

24
What drives people to fraud?
Opportunity
Pressure
Rationalisation
25
  • Opportunist
  • Will try every product and angle Property,
    Motor, Personal Injury, Travel etc
  • Will earn from, and share with, others family,
    friends, colleagues
  • Organised
  • Always trying to keep ahead
  • Sophisticated, no boundaries or limits
  • Run as a business
  • Excellent risk managers

26
The emerging fraudsters
  • 150,000 bankruptcies forecast for 2009 and the
    Government announces serious public expenditure
    restrictions for years to come
  • Bank of England base rate at the lowest in its
    314 year history and GDP predicted to fall by
    4.1 during 2009
  • Unemployment predicted to rise to over 3,000,000
    by the end of the year
  • The prize is shifting to the public sector away
    from the financial, retail and services
    industires
  • Pressures increase to maintain current (or
    former) position
  • Better educated and acquainted with technology
    and systems

27
High Risk Claims
  • Personal property
  • Loss of high-value personal possessions rings,
    necklaces, watches, cash etc
  • Burglaries staged or exaggerated
  • Accidental damage to televisions and electrical
    equipment
  • Loss of values close to or exceeding policy limits

28
High Risk Claims
  • Commercial property
  • Fire/arson
  • Malicious damage
  • Escape of water
  • Theft / burglary / robbery

29
Liability
  • Employers
  • Redundancy grudge against employer loyalty gone
  • Notification of injury during notice period
  • Copycat incidents
  • Exaggeration
  • Public
  • Aggressive tactics for compensation
  • Claims Management Companies behaviour/referral
    fees
  • Copycat incidents
  • Personal circumstances
  • family/friend/postcode connections

30
Trippers and Slippers
  • Multiple accidents involving the same defect
  • Duty of care is high maintenance and
    inspections requirements
  • Difficulty in proving that an accident didnt
    happen lack of witnesses, no duty to report the
    incident early
  • Organised crime

31
Case study
  • Cash for Crash Pair Sentenced
  • Two men, who were part of a gang that put
    hundreds of bogus car accident claims worth
    almost 3m, have been sentenced
  • The court heard details of how more than 300
    invented motor accidents, that were said to
    have happened in the London area between 2005-07,
    that amounted to a combined claims value of
    approximately 3m

32
Key messages
  • Fraud is on the increase due, at least, to the
    recession
  • Fraudsters are more organised than ever before
  • 1 in 5 surveyed would consider inflating an
    insurance claim
  • On average, organisations lose between 3-8 to
    fraud
  • Its not all bad newsfraud can be countered but
    needs appropriate and proportionate investment

33
  • Any questions?

34
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35
Forensic Accounting for Friendly Societies -
Fraud in Insurance Claims
  • Gordon Hodgen
  • gordon.hodgen_at_rsmbentleyjennison.com

36
Forensic Accounting in relation to claims
  • Analysing Accounting Data
  • Financial motives
  • Fraud vs over-optimistic Claimants

37
Analysing Accounting Data
  • Seasonality in figures
  • Trends
  • The appeal of percentages
  • The detail provided by monthly performance

38
Annual sales
39
Sales by month
40
Financial motives / causes other than
  • Identify issues such as over-trading
  • Cashflow analyses analysis of bank records in
    addition to accounting records
  • Inventory analysis working capital tied up in
    stock can cause many businesses significant
    problems
  • Even if the financial situation did not provide
    the reason for a fraud, a financial analysis can
    assist in identifying the prospects of a business

41
Fraud vs over-optimism
  • Insureds can often produce claims that appear
    overly optimistic. This can be because
  • They simply are optimistic for the prospects of
    the business
  • They have a misguided idea that a larger claim
    should give them a stronger negotiating position
    when it comes to settlement
  • They are unaware of the need to adjust for
    savings and other similar mitigation issues
  • Capacity issues Insureds need to show that the
    results they forecast are achievable this
    interacts with the possibility of underinsurance

42
Fraud vs over-optimism (Cont.)
  • Fraud very hard to prove overstatement must
    be extreme to qualify
  • Claims for items that did not exist or that were
    damaged are the most obvious form. Accounting
    work plays a large part in identifying these
    elements

43
Income Protection policies
  • Warning signs
  • Policies with claims very close to inception
  • Policies where the stated income and cover rise
    dramatically prior to a claim
  • Possible actions
  • As well as the possibility of investigation of
    medical or employers records, it pays to have an
    awareness of the availability of Replacement
    Payslips that can show whatever details the
    purchaser requires
  • If suspicion is aroused, bank statements showing
    receipt of net income may be required or, if
    allowed, contact the employer directly for
    confirmation of earnings

44
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45
  • Any questions?

46
(No Transcript)
47
Fraud, Corruption Your IT SystemsInformation
Systems Assurance
  • Stephen Temple
  • stephen.temple_at_rsmbentleyjennsion.com

48
Introduction
  • Partner leading Information Systems Assurance
    services in UK
  • Qualified Chartered Accountant and Information
    Systems Security
  • Previously with Deloitte and Mazars
  • Wide ranging experience in
  • Friendly Societies (Ancient Order of Foresters,
    Dentists Provident, Family Investments, National
    Deposit)
  • Retail Banking (National Savings Investments,
    Citibank)
  • Insurance (Cardiff Pinnacle, Groupama, Equity,
    Hastings Direct)

49
Agenda
  • The threat landscape
  • Trends in 2008
  • Forecast for 2009
  • The consequences
  • Suggested responses

50
The threat landscape
  • Very few organisations can now ignore the risks
    of the interconnected world
  • Any size
  • Any sector
  • Incidents have increased in recent years and will
    continue to do so
  • Significant increase in awareness amongst
    regulators and the general public

51
The threat landscape
  • Some interesting statistics
  • For businesses in 2008
  • 25 suffered business disruption by a virus
  • 14 have experienced the loss of company data
  • 10 have experiences the loss of a mobile device

52
The threat landscape
  • Its not just a technical risk - 37 of employees
    admit they would sell their companys secrets
  • Of these 37...
  • 67 would want gt 1m
  • 10 would want their mortgage paid off
  • 5 would like a holiday
  • 5 would do it for a new job
  • 4 want to clear their credit card debts
  • 2 would do it for a meal!
  • 88 believe they have access to valuable
    information
  • 67 believe it was easy to steal data
  • Polll at InfoSecurity Europe in April 2009

53
The threat landscape
  • Types of threat
  • Website infection
  • E-mail attachment
  • Malware
  • Spam
  • Mobile devices
  • Data leakage

54
The threat landscape
  • Website infection incidents in 2008
  • January Fortune 500 companies
  • February ITV (poisoned web advert)
  • March Site selling Euro 2008 tickets hacked
  • April Cambridge University Press website
    compromised
  • June Association of Tennis Professionals website
    infected
  • July Sonys US Playstaton (infected by
    scare-ware)
  • September Business Week magazine (malware
    attack)
  • October Adobe website
  • Sophos Security Threat Report 2009

55
The threat landscape
  • E-mail threat in 2008
  • Attachement based threats on the increase
  • Number of threats has declined since 2005 (1 in
    714 emails)
  • However, large increase since August 2008
  • - InvoZip Trojan a FedEx and UPS parcel
    delivery fake email
  • - Agent-HNY Trojan Apple iPhone game (Penguin
    Panic)
  • - EncPk-CZ Trojan fake Microsoft security patch
  • - Pushdo Trojan fake pictures of Angelina Jolie
    and Nicole Kidman!

56
The threat landscape
  • Malware threats in 2008
  • Becoming known as scare-ware or rogue-ware
  • Pretend bona fide security software
  • Five new sites every day
  • Norton AntiVirus and AVG have both been targeted
  • Not just limited to Microsoft based systems
  • Transferred through
  • Social networking sites
  • USB sticks
  • Other software (Adobe Flash and PDFs)
  • Sophos Security Threat Report 2009

57
The threat landscape
  • Spam
  • 97 of all business e-mail is spam
  • Most from unwitting home users
  • Significant amount from companies with weak
    anti-virus or system patching controls
  • Social networking sites also popular (Facebook
    and Twitter)

58
The threat landscape
  • Mobile devices
  • Increased reliance on flexible and mobile working
  • Obvious risk of devices being lost
  • But organisations are still not securing them
  • Fundamental question of whether sensitive data
    should be allowed to leave an organisation's
    network

59
The threat landscape
  • Data leakage
  • Incidents filled the headlines in 2008
  • TK Maxx
  • Home Office PA Consulting
  • HMRC NAO
  • Mobile and collaborative workforce
  • Users insufficiently aware of risks 30 store
    key data on removable media
  • Used hardware is a risk
  • Sophos Security Threat Report 2009

60
The impact
  • Numerous examples recently in Information
    Security failures
  • Data leakage (e.g staff emailing out customer
    lists)
  • Data loss (e.g laptops left on trains)
  • Data theft (outright or colluded)

61
Consequences
  • Damage to reputation and brand
  • Loss of stakeholder confidence
  • Loss of revenue
  • Loss of customers
  • Regulatory action
  • Litigation / legal action
  • Damage to employee relationships

62
Consequences
  • Disruption is the biggest single impact
  • From BERR (nee DTI) survey in 2008, the worst
    incidents cost
  • Small businesses 8k - 15k
  • Large businesses 80k - 130k
  • This is just business disruption cost and
    excludes other direct and indirect costs (e.g
    staff time)
  • Potential costs are larger for financial services
    firms because of the threat of an FSA fine

63
Response
  • Companies need to look more holistically at
    Information Security Management
  • There is no silver bullet but making information
    security part of the business is a key step. This
    is done by
  • Bring information security considerations into
    strategic discussions
  • Make those responsible for Information Security
    take a more business focused view
  • Focusing on changing culture and establishing
    reliable Information Security Management processes

64
Response
  • Other actions that are recommended
  • Educate staff
  • Record your security incidents
  • Have your security assesed
  • Enhance security access controls security
    tokens
  • Enhance data management controls encryption
    data classification and control

65
  • Any questions?

66
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67
Exploring the Myths of the NFRC June 2009
68
Overview
  • Reminder of NFIB NFRC
  • NFIB Objectives
  • High Level Design
  • Proof of Concept results
  • Next Steps
  • Myths explored
  • Question

69
National Fraud Reporting Centre
  • Public face of the 2005 Fraud Review
  • Web and telephone based fraud reporting and
    help/advice facility
  • Aimed at individuals and small businesses
  • Run by a 3rd party (not a police service)
  • Web-site part of DirectGov
  • Web reporting pilot from later part of 09
  • Telephone advice/support line from Autumn 2009
  • National roll-out from 2010
  • Data captured will feed in to NFIB

70
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71
Benefits for Citizens, Business Industry
  • Streamlined means of reporting confirmed frauds
  • Reduce bureaucracy
  • Clear Advice
  • URN issued
  • Referral where appropriate
  • Alerts issued
  • Information on Trends
  • Reduce time, effort cost
  • Fewer victims

72
National Fraud Intelligence Bureau
  • Confirmed frauds from public private sector
    data sets
  • Analysis and bulk data matching
  • Identify Persistent offenders Trends in
    enablers and methodologies Vulnerabilities and
    opportunities for prevention
  • Share outputs with law enforcement, government
    and private sector (as appropriate)
  • Reassure educate the public
  • SPOC

73
Strategic Objectives
  • Connect previously unconnected fraud data to add
    value to and make sense of existing fraud
    information.
  • Aim to identify what fraud affects the UK, where
    it is being carried out, by whom, against whom,
    in what form and at what cost

74
High Level Design
75
(No Transcript)
76
NFIB Proof of Concept
  • Datasets from
  • APACS (FISS)
  • CIFAS
  • OFT Consumer Direct complaints database
  • Selected SOCA datasets (false identity documents)
  • Data-matching exercise
  • High-level findings
  • Inform the next stage

77
NFIB Database
  • Records supplied from 15 FISS members, 270
    CIFAS members, Consumer Direct and SOCA
    (Amberhill, Pisces Macchie)
  • Fields containing data suitable for matching
    names, addresses, telephone numbers, bank account
    numbers, e-mail address, web sites
  • Working with data suppliers to verify and
    improve data quality

Note Of all the Consumer Direct data, only
trader complaints have been used
78
Next stage for the NFIB
  • Move to a pilot rather than a second proof of
    concept - trial the IT solution in an
    operational context people and structures
    supported by investigative and analytical
    processes 
  • In principle agreement reached to use a system
    developed by/for SOCA.
  • Pilot due to start August 09 initially 14 week
    period
  • Analytical team being expanded (contractors plus
    CoLP resources) Always interested in receiving
    secondees from non-police sector

79
Next stage for the NFIB
  • Increased number of data providers/broader
    provision
  • Engage data providers in the governance structure
  • High level output from Pilot will be shared with
    participating bodies but not at an individual
    (names) level
  • Evaluate fraud crimes in line with National Crime
    Recording Standards and Home Office Counting
    Rules
  • In-depth analysis development of intelligence
  • Pilot integration with West Midlands Police

80
Next stage -Pilot for NFIB
Confirmed
Target Partners
81
NFIB Myth Busting
  • How will the NFIB be populated?
  • Two main reporting channels Individuals and SMEs
    via the website or Call Centre
  • Bulk data uploads will come via trade
    organisation and trade bodies e.g. CIFAS, IFB etc

82
Data enters data warehouse
Cleansed and processed
De-duped
Rules applied and matching identified
Matches reviewed and developed to form intel
packages
UNIFI
Filtering
Results fed to appropriate agency
IMPACT
Police Forces
Lead Force
PNC
Other Law Enforcement and Regulators
83
NFIB Myth Busting
  • Will the NFIB take suspicions of fraud from
    trade bodies?
  • No only confirmed fraud data and data that is
    subject to a Fair Processing Notice will be
    accepted

84
NFIB Myth Busting
  • If we have data that does not meet FPN
    requirements, but is still a confirmed fraud how
    can this be passed through to the NFIB?
  • We encourage you to contact the National Lead
    Force for Fraud or the local police force in
    these cases. The NLF will have a case acceptance
    criteria.

85
NFIB Myth Busting
  • Will the NFIB be providing any data back to
    industry/trade bodies?
  • Top level details of matches will be shared with
    the trade organisations who feed in to the NFIB.

86
NFIB Myth Busting
  • Will private investigation teams be able to gain
    access to the NFIB?
  • No access will be only granted to police and
    law enforcement agencies
  • DPA requests will be evaluated on a case-by-case
    basis
  • Details of top level matches will be shared with
    the trade organisations who feed in to the NFIB

87
NFIB Myth Busting
  • How will the NFIB ensure they have the specialist
    skills to understand the data received from trade
    bodies?
  • The NFIB will be actively encouraging secondees
    from the private sector, with specialist fraud
    skills, for periods of up to 24 months

88
NFIB Myth Busting
  • Why is the NFIB only taking feeds from trade
    bodies rather than individual organisations?
  • It is more efficient for the project team to
    negotiate with a trade body (who can represent
    all its members) and sign an over-arching
    contract rather than contracts with each
    individual member

89
NFIB Myth Busting
  • We struggle to get some forces to accept our
    fraud cases at present what will change when
    the NFIB comes along?
  • With no central data base at present, it has been
    impossible for Chief Constables, or ACPO to know
    the frauds perpetrated in their force area.
  • The NFIB will facilitate a National co-ordinated
    approach to fraud investigations by providing NIM
    based products to all forces.

90
NFIB Myth Busting
  • How quickly will the NFIB be able to analyse the
    data will it be real-time analysis?
  • Regular data feeds into the NFIB will be received
    but it will not be a real time system.
  • Where organisations have time critical work that
    requires to be undertaken e.g. to preserve
    assets, they should continue to take the
    necessary precautions to protect assets

91
NFIB Myth Busting
  • Will the NFIB be both strategic operational?
  • The NFIB will be strategic and tactical.
  • Operational intel role but not conduct operations
    itself - crimes and intel packages will be
    disseminated out to law enforcement
  • Will work closely with the National Lead Force
    for Fraud and will work with operational teams
    through the provision of fraud packages and intel
    to support investigations

92
NFIB Myth Busting
  • Will the NFIB take on all investigations on
    behalf of the trade bodies who feed in to it?
  • No the NFIB will not replace existing processes
    or procedures.
  • It will perform a data matching/mining role
    passing intel packages to Forces for them to
    investigate further. Careful co-ordination at
    local level with be undertaken to prevent blue
    on blue

93
NFIB Myth Busting
  • How will the NFIB liaise with external agencies?
  • Where appropriate, a SPOC system will be in place
    for liaison with external agencies.

94
No hiding place for Fraudsters
95
(No Transcript)
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