topic 6 role of audit in fighting fraud
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The Role of Internal Audit in FightingFraudThe EU perspective
Robert GIELISSE, CIA, CGAP
Principal Advisor in Charge of PIC/PIFC
DG !dget " PA#$%
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Your presenter
Robert GIELISSE Dutch National
CIA, CGAP Principal Adviser, Head of EC PIC/PIFC Tas
Force
Chairperson of E!"# PIC Net$or and
%orin& Group In EC since '(#), various *ana&erial
positions since '(()
Dutch Ta+ Ad*inistration '(# '(#)
!niversit- de&rees in Econo*- and .a$"
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Assumptions
eference for Internal Control0 C121fra*e$or/INT12AI &uidelines
eference for Internal Audit0 IPPF 3- IIA IC/IA are e+ecuted at entit- level 4IA *a- 3e
centralised or decentralised5
Inspection 4$here present5 at central level as
e+6post 4non6proactive5 activit-
)
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e!nition of Internal "ontrol
Internal Control 4C121 de7nition5
Aprocess, e8ected 3- an entit-9s :oard ofDirectors, *ana&e*ent and other sta8,
desi&ned to provide reasonable assurancere&ardin& the achieve*ents of o3;ectives in thefollo$in& cate&ories0
e&cienc' and e(ectiveness of operations
Acco*plish
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Internal "ontrol# the essence
Internal "ontrol
In essence $ it%s about
Process People
Reasonable Ass!rance
Clear ob*ectives
?
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e!nition of Internal Audit &I''F b( IIA)
Internal Audit &I''F)
Internal audit is an independent and o3;ectiveassurance and consultin& activit- desi&ned toadd value and improve the or&anisation9soperations@
It helps the or&anisation in achievin& itso3;ectives 3- 3rin&in& a s-ste*atic, disciplinedapproach to evaluate and improvethee8ectiveness of the ris *ana&e*ent, controland &overnance processes
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Internal Audit# the essence
Internal Audit &assurance services)
In essence * it%s about
Adding val!e+ )eaning that it intends to
i)prove operations Reasonable not absol!te- ass!rance that+
Ris. )anage)ent , control and governanceprocesses operate as intended
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I''F
International 'rofessional practiceFrame+or, &I''F)
'@ De7nition of Internal Auditin& 6
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e!nition of Fraud - .
Fraud/
The "BB# de7nition 3- IIA, AICPA and ACFE
0An( intentional act or omission designedto deceive others# resulting in the victimsu1ering a loss and 2or the perpetratorachieving a gain0
(
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e!nition of Fraud - 3
Fraud can 3e har*ful to the or&anisation 4pu3lic and
private sector5
can 3e 3ene7cial to the or&anisation 4*ostl-
private sector5
Fraud
to the 3ene7t of one or *ore individuals 4pu3licand private sector5
to the 3ene7t of the or&anisation 4*ostl- privatesector5
Focus is on thefraud that is harmful to theorganisation and to the bene!t of one or'B
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E4amples of fraud in the public sector
'rocurement
5riber( and corruption
Recruitment
ata and I' theft Scam
'a(roll and e4pense management
''
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Fight against Fraud/ the main Actors
The Fraudster
6anagement
Internal Audit
Inspection
E4ternal Audit
'"
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The Fraudster - 'ro!le
7is2her pro!le
An(one is in the position to commit fraud
but
8e( 'ro!le &'9" 3:.; * 'rivate sector)/
6ale
(ears of service
Graduate level
')
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The Fraudster/ the fraud triangle
'reconditions to fraud/
.) 7o+? @pportunit(
3) 9h(? 6otive
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6anagement and Fraud
6anagements role in !ghting fraud/
Preventive, Detective and esponsive
6anagements ,e( responsibilit( is to
ensure proper Internal "ontrol Governance structures to include Fraud ris0
1utspoen Anti6Fraud 2trate&- and policies
Ethical environ*ent that sets the ri&ht tone 4incl@Tone at the Top5
Fraud ris to 3e included in ris Assess*ent
Desi&n e8ective preventive and detective controls
Consistent and open response to fraud incidents
eport on Fraud
'?
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Internal Audit and Fraud
'5 1ne of Internal audit9s *ain o3;ectives is to &ivereasonableassurance that the internal control s-ste*operates as intended@
"5 This includes that the IC s-ste* should 3e sucientl-fraud9 proof and Internal Audit sees to test the IC
s-ste* ro3ustness to *ost liel- t-pes of fraud0$hether controls are in place to prevent and detectfraud occurrence and $hether these controls aree8ective
)5 Internal Auditor *ust have sucient no$led&e to
identif- fraud indicators, 3ut the- are not e+pected tohave the e+pertise of persons $hose pri*ar-responsi3ilit- is detectin& and investi&atin& fraud
>5 If Internal Audit provides reasona3le assurance a3outthe ualit- of the IC s-ste*, this does not *ean that
fraud has not occurred or $ill not occur 4Audit Gap95'
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Internal Auditors role * .
Applicable I''F StandardsIPPF International 2tandards for Internal Audit relatin& toFraud
.3.:BA3 8no+ledge 4sucient no$led&e to
evaluate the ris of fraud5 .33:BA. - ue 'rofessional "are 4consider
pro3a3ilit- of fraud5
3:=: - Reporting to Senior 6anagement andthe 5oard 4reportin& includin& fraud riss5
3..:BA. Ethics programmes 4evaluateor&anisation9s ethics6related o3;ectives, pro&ra*s 5
3.3:BA3 Fraud Ris, E4amination 4evaluate thepotential for fraud occurrence and fraud ris*ana&e*ent5
33.:BA3 Signi!cant Fraud 4consider the pro3a3ilit-'
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Internal Auditor%s role * 3
Internal Auditors responsibilities relating to fraud
13;ective assess*ent on or&anisationsfra*e$or of &overnance, ris *ana&e*entand internal control
Appl- due professional care and professionalscepticis*
Preventin& and detectin& fraud and corruptionis not a primar( role of internal audit
Internal auditors are not e+pected to act asprofessional investi&ators
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Internal Auditor%s role *
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Financial Inspection/ pro-active or re-
active
3modalit
ies
traditional
proact
ive
"@S@compatible
reacti
ve
"?
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Traditional role of Inspection &in the absence ofdecentralised Internal control2internal audit)
Proactive approach e+ercised 3- re&ularchecs, $or plan 3ased
Financial control of individual operations
E+6ante control to prevent non6co*pliance$ith re&ulations, irre&ularities or fraud
E+6post control to correct non6co*pliance
eportin& to the
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Role of Inspection compatible +ith
decentralised Internal control &"@S@) C121 co*pliant 6 reactive approach e+6post
control on a case 3- case 3asis
Inspection tri&&ered 3- suspicion of fraud,4docu*ented5 alle&ation, $histle3lo$in&, auditreports 4internal and e+ternal5
Inspection ai*in& to investi&ate irre&ularitiesand fraud= i*pose sanctions, penalties $here
relevant Police function
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Role of E4ternal Audit
Financial and perfor*ance auditin& 4INT12AIco*pliant5
Assess the functionin& of IC s-ste* in thepu3lic sector
and infor* *ana&e*ent 4INT12AI G1J ('BB5 Consider fraud ris $hen plannin& and
perfor*in& audit
Focus is not on fraud detection or investi&ation
3ut IC oversi&ht= unless a3sence of IC in thepu3lic sector
eports to the Parlia*ent
Has 7nancial and functional independence
fro* the e+ecutive"#
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Internal Audit versus Inspection/ a birds e(e vie+
Di8erences 3et$een Internal Audit and InspectionInternal audit Inspection
Trigger :ased on ris :ased on alle&ations,suspicion
@bDective easona3le
assurance on&overnance, ris*ana&e*ent,control
Focus on $ron&doin& and
its correction
Scope :road *ana&e*entissues
.e&al
T(pe relation Cordial 4criticalfriend5
Adversarial , interro&ative
Assumption Pro3a3l- propriet- Possi3le i*propriet-
river Addin& value Corrective action
Environment Part of Internal
Control
E+ternal to the entit-
"(
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"onclusions .
Fraudster0
1pportunit-,
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"onclusions 3
Internal Audit/ Assesses $hether controls $or
.ooin& for red La&s
eport on cases of presu*ed fraud
Inspection/ E+a*ines cases of suspected fraud
2ees to repair the 7nancial da*a&e
Ensures that fraudster is reported forprosecution
E4ternal audit ole co*pati3le $ith internal audit
)'
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"onclusions