fraud functions and mechanism feb 15

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FRAUD AWARENESS AND PREVENTION

KEY FUNCTIONS AND MECHANISMS

Presented by:

The Office of Auditor-General of Pakistan



SEQUENCE OF PRESENTATION

Introduction

2

Auditor-General’s Mandate Our work

Basics of fraud

How we help against fraud?- Audit Planning

- Audit Execution

- Audit Reporting- Capacity Building

onc usion



Fraud and corru tion are si ns of bad overnance

3

They erode the legitimacy of state institutions The role of Su reme Audit Institutions SAIs in fi htin

fraud and corruption has been a subject of debate at

national and international forums



The following working definition of Fraud & Corruption,4

derived from the ASOSAI Guidelines for Dealing withFraud & Corruption, has been adopted:

“FRAUD involves deliberate misrepresentation of facts

financial advantage.

CORRUPTION involves effort to influence and / or

abuse of public authority through giving or acceptance of

inducement or illegal reward for undue personal or

private advantage.”



Detection and prevention of fraud and corruption is5

primary responsibility of executive . The mechanism fordetection and prevention of fraud includes;

System of Internal Control - designed to ensure

reliability of financial reporting, compliance with

efficiency of operations.

Communication plan to educate staff on fraud risk,

,



- ..

The World Bank in its note series on Public Sector underlines:

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“ Although preventing corruption is not an explicitresponsibility of supreme audit institutions, audits may

detect fraud and abuse. Fostering strong financial

management based on reliable reporting and internal controls, is a crucial part of detecting and preventing

corruption because it promotes transparency and

”



- ..

Irres ective of the rimar res onsibilit for detection

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& prevention of Fraud & Corruption which lies withexecutive, the external auditors are expected to be

alert to the possibilities of fraud & corruption in the

auditee organizations.

Standard on Auditing 240, dealing with Fraud andCorruption, require the auditors to incorporate

Procedures which provide them with reasonableassurance against the risk of materialmisstatements in the financial statements resultinfrom Fraud & Corruption.



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that the external auditor forms an opinion aboutthe possibilities and potential of corrupt practices in

an organization.

In dealing with Fraud & Corruption the principal

value of the external auditors work revolves around

assisting the management in improving the control

environment.



’

The Auditor General’s mandate covers federal, provincial,9

an istrict governments, pu ic sector enterprises, another regulatory/autonomous bodies

The 18th Amendment has strengthened the independence of

the Auditor-General

As catalyst for good governance, we strengthen internal

Our role varies from limited involvement to complete responsibilityor e n erna nves ga on repor ng o rau



Certification of accounts of federal, provincial and10

district governments. Compliance with authority audits, focusing on

comp ance w e aw, ru es, an regu a ons

Performance Audits, focusing on economy, efficiency, and

Special audits, focusing on risk-prone and public interest

areas in public sector operations

In carrying out these audits, we blend fraud risk into audit

process and continually update it until audit’s completion

t times SAI reports orm asis o NAB an FIA rau

investigations



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international standards Recover of ublic mone

Changes made in systems and procedures



Inte rit

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Non partisan, zero tolerance towards fraud &corruption, compliance with international auditstandards

Quality me ness, re evance, re a y an cos

effectiveness

Alignment with government agenda, understandingaudit environment, facilitating government in goodgovernance



Fre uenc and extent of fraud has increased

13

Globalization and IT has made fraud complex

Preventive controls ( i.e. systems and procedures)

are n t effective

Detective controls ( i.e. oversight/monitoring) are

weak or absent.

Code of ethics are non existent and enforcement is

weak



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detective controls in government operations Focus on Hi h Risk areas in audit lannin

Use fraud examination tools in addition to other

techni ues and rocedures in audit execution;

Sensitize stakeholders to risks of fraud;

Build staff ca acit to detect otential fraud as

part of their regular audits



AUDIT PLANNING

SAI Pakistan has an Audit Cycle of three years

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i. High risk entities are audited annually ii. Medium to low risk entities are covered at

High Risk entities have some/all of the following

attributes:i. Historical trends

ii. Large allocation of funds ( i.e. health, education)

iii. omp exity o perations i.e. egaProjects )

. -

v. Rural/Community development projects



AUDIT EXECUTION

Understand the entity- structure and environment

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Assess controls ( preventive, detective) Preventive controls like segregation of duties,

au or za on, reconc a on, recor ng an repor ngDetective controls like monitoring/oversight, staff ‘s

fraud awareness Watch for red flags in detailed scrutiny

Make mid-course adjustments during execution

Communicate information on potential fraud detectionto management



Building Awareness of Fraud - Parliament

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Audit reports indicate control failures ( preventiveand detective) and steps to strengthen controls

Parliamentarian in general and the Public Accounts

Committee (PAC) in particular are briefed on need forstrengthening controls in government operations

At the pointation of Audit PAC issues directives for;

Initiating disciplinary proceedings

Systemic improvements in internal controls

Changes in laws



Building Awareness of Fraud - Management

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Auditors educate management on fraud risks andcontrols through out their engagement

Share internal control gaps and weaknesses with

management in Departmental Accounts Committeemeetings;

Recommend changes in systems and procedures to

prevent etect rau s; Internal control systems in public sector are continuously

s reng ene ase on au npu



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Through the PAC meetings, Audit Reports are sharedwith media

Media, in turn, educates masses, promotes fraud

awareness, and stren thens accountabilit and oodgovernance;

Media flashes potential frauds/risk areas. The AGP

orders special audits if deemed appropriate.



We stren thened reventive and detective controls

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in public sector through high quality audit reports; Time lag between closing of a financial year and its

audit reports has been shrunk to eight months, thus

allowing timely reviews and accountability at PACeve

In the past five years, an amount of Rs.60 billion

as een recovere an epos e n e pu ctreasury at pointation of audit.



CAPACITY BUILDING

-

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,

staff opportunities to learn good practices to dealwith fraud in audits

Capacity building initiatives:

Training in Fraud Risk Assessment;

Certifications for officers/officials

Devel in Master Trainers in Inf rmati n S stems

Auditing.



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government agencies Preventive detective control failures ointed out in the

Audit Reports need to be fixed through systemic

changes Government agencies need to implement the Auditor-

General’s recommendations

Civil Society Organization, Media and other non-government stakeholders also need to provide

oversig t over rau an corruption in government

operations



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Thank ou

fraud functions and mechanism feb 15

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