topic 6 role of audit in fighting fraud

7/25/2019 Topic 6 Role of Audit in Fighting Fraud

1/34

The Role of Internal Audit in FightingFraudThe EU perspective

Robert GIELISSE, CIA, CGAP

Principal Advisor in Charge of PIC/PIFC

DG !dget " PA#$%


2/34

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$"


3/34

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-

)


4/34

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


5/34

Internal "ontrol# the essence

Internal "ontrol

In essence $ it%s about

Process People

Reasonable Ass!rance

Clear ob*ectives

?


6/34

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


7/34

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


8/34

I''F

International 'rofessional practiceFrame+or, &I''F)

'@ De7nition of Internal Auditin& 6


9/34

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

(


10/34

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


11/34

E4amples of fraud in the public sector

'rocurement

5riber( and corruption

Recruitment

ata and I' theft Scam

'a(roll and e4pense management

''


12/34

Fight against Fraud/ the main Actors

The Fraudster

6anagement

Internal Audit

Inspection

E4ternal Audit

'"


13/34

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

')


14/34

The Fraudster/ the fraud triangle

'reconditions to fraud/

.) 7o+? @pportunit(

3) 9h(? 6otive


15/34

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

'?


16/34

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'


17/34

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-'


18/34

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

'#


19/34

Internal Auditor%s role *


25/34

Financial Inspection/ pro-active or re-

active

3modalit

ies

traditional

proact

ive

"@S@compatible

reacti

ve

"?


26/34

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


27/34

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

"


28/34

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"#


29/34

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-

"(


30/34

"onclusions .

Fraudster0

1pportunit-,


31/34

"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

)'


32/34

"onclusions

topic 6 role of audit in fighting fraud

Documents