Northern Ireland Audit Office
Role of Good Governance and Risk Management In Countering Fraud
The Northern Ireland Audit Office Perspective
JACK NELSON
Audit Manager - NIAO
“Promoting Accountability and Best Use of Public Money”
Northern Ireland Audit Office
Fraud is not new
“Fraud and deceit abound in these days, more than in former times.”
Sir Edward Coke, Lord Chief Justice. 1602
Northern Ireland Audit Office
NIAO Reports
SSA : Prevention, Detection and Prosecution of Fraud DOE : Control of Belfast Action Teams’ Expenditure HPSS : Controls to Prevent and Detect Fraud in Family Practitioner Service Payments SSA : Internal Fraud DARD : National Agriculture Support Fraud LEDU : Internal Fraud Financial Auditing and Reporting 2001-02
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Examples of Other Frauds
Travel Claims Medical Certificates Theft of Money Theft of Fuel Theft of Documents
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What is Fraud?
No precise legal definition of fraud exists. Many of the offences referred to as fraud are covered by:
Theft Act (Northern Ireland) 1969 Theft (Northern Ireland) Order 1978
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What is Fraud?
For practical purposes, fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation or causing loss to another party. There are three main areas of concern: Theft False Accounting; and Bribery and Corruption. Departments face exposure in three ways: Internal Fraud External Fraud; and Collusion.
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Responsibilities
Department • Developing & maintaining anti-fraud culture • Controls to prevent and detect fraud • Prompt and vigorous investigations • Effective sanctions • Effective redress Managers • Risk assessments • Developing and maintaining effective controls • Ensure controls work Individual Members of Staff • Acting with propriety • Report suspicions
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Impact of Fraud
Direct financial cost Doubt on whether services are managed effectively Undermine public confidence
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Public Accounts Committee
“ Combating fraud is a challenge to which the public sector needs to rise. We [PAC] want to emphasise that there is no acceptable level of fraud.”
Mr Billy Bell, Chairman, Public Accounts Committee January 2001.
Northern Ireland Audit Office
Scale of the Problem – DFP Report
12 internal frauds 39 external frauds 15,700 benefit frauds 230 DARD frauds TOTAL £6,900 £318,000 £2,600,000 £196,000 £3,120,900
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DFP Report
NO Procurement Frauds NO Computer Frauds Two Frauds From the 5,000 Community & Voluntary Sector
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Out of £9.8 billion of revenue and spend across the Northern Ireland public sector only £3 million of fraud is reported. Or
0.03%
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Northern Ireland Crime Task Force
“Fraud against public money probably costs Northern Ireland around £350 million per annum.” Excludes fraud in health and education
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Examples of Government Action
Committee on Standards in Public Life Benefits Fraud Inspectorate Social Security Fraud Legislation Proceeds of Crime Legislation National Fraud Initiative Organised Crime Task Force
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Organised Crime Task Force
Strategic focus Public sector sub-group Linkages to OFMDFM Interdepartmental group
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Holistic Counter Fraud Strategy
Fraud Policy Fraud Response Plan Public Interest Disclosure Guidance Fraud Committee Code of Conduct Staff Awareness Client Awareness
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Holistic Counter Fraud Strategy
Notification & Reporting Procedures Sanctions Policy Professional Investigation Standards Risk Assessments Employee Pre-Screening Culture
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Cabinet Office Strategy Unit Report -
Risk: Improving government’s capability to handle risk and uncertainty.
November 2002
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Causes of Fraud – DFP Report
88 per cent of internal and external fraud was caused by a failure to observe existing controls or an absence of proper control. This means we could cut fraud by £308 million every year.
Northern Ireland Audit Office
Barbara Atwell’s Frauds
Stole £118,000 Created Fictitious Invoices Discovered by Mr Gribben Two years in prison
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Barbara Atwell’s Frauds
What Went Wrong Inadequate Supervision of Staff Lack of Separation of Duties Bypassed the Systems of Control Inadequate Management Information.
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Mr Gribben’s Frauds
Sole responsibility for administration and preparation of accounts of two projects Sole responsibility for bank statements, reconciliations and sole access to cheque books
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Mr Gribben’s Frauds
Unpaid travel invoices for private travel Private travel was charged to LEDU Not Suspended immediately – lost records Eventually suspended and dismissed
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Mr Gribben’s Frauds
Sought and then ignored Internal Audit advice Failed to undertake a wide-ranging investigation Other frauds lay undiscovered for 18 months
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Mr Gribben’s Frauds
Failed to Spot Warning Signals
Unrestricted access to financial records and cheque books Backlog of work Stalled the Auditors Missing Information
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Similarities in Both Frauds
Inadequate separation of duties Inadequate supervision Inadequate control of purchase orders
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Lessons
Early Suspension; Restitution & Prosecution are not alternative policies; Independent Investigation;
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Supervisory Negligence; Wide-ranging and Rigorous Fraud Investigations; Warning Signals and; Weaknesses are addressed.
PAC Report on Internal Fraud in LEDU – Session 2001/02, 11th Report 11/01/R(PAC) DFP Memorandum on 11th Report from PAC – NIA 14/02
Lessons
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Questions