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Session Objective

Managing Fraud Risk in Government 2015 IIA District Conference March 10, 2015 David A. King, CPA, CFE – Director, Special Investigations North Carolina Office of the State Auditor. Session Objective. Discuss challenges, trends, and strategies for managing fraud risk in government.

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Session Objective

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  1. Managing Fraud Riskin Government2015 IIA District ConferenceMarch 10, 2015David A. King, CPA, CFE – Director, Special InvestigationsNorth Carolina Office of the State Auditor

  2. Session Objective Discuss challenges, trends, and strategies for managing fraud risk in government

  3. Managing fraud risk requires awareness, tools, and proactive efforts, including collaboration with professional peers

  4. Session Outline • The Tone at the Top • Discussion of Government Fraud Cases • ACFE Report to the Nations • Fraud Prevention and Mitigation

  5. The Tone at the Top AICPA / ACFE Video: “The Tone at the Top” https://www.youtube.com/watch?v=x2MjKe6X5nE https://na.theiia.org/periodicals/Public%20Documents/TAT-Jan-Feb-2015.pdf

  6. Steven SalbuGeorgia Institute of Technology – Atlanta, GA

  7. Four Things Leaders Can Do to Create An Ethical Climate within Their Organization

  8. Lead with Integrity • –By Example

  9. 2. State Clearly and Convincingly the Organization’s Ethical Requirements and Values

  10. 3. Create a Path for Reporting Misdeeds (e.g., – a WhistleblowerHotline)

  11. 4. Reward (at least recognize) Integrity

  12. Are you in a leadership role as an internal auditor?

  13. What are you doing in your organization to promote an ethical culture?

  14. From the Headlines……..

  15. Failed Charter School Mismanaged Taxpayer Funds

  16. Social Services Nonprofit Mismanaged Millions

  17. ACFE’s Report to the Nations • According to the 2014 ACFE’s Report to the Nations – tips were the most common means by which occupational fraud was detected • 45% of the fraud cases in the ACFE study were initially detected through tips • 14% of the fraud cases were detected through internal audits

  18. Initial Detection of Fraud Schemes

  19. Whistleblower Hotlines(Federal – State – Universities)

  20. Government FraudInternal Control Deficiencies?Circumvention of Internal Controls?Management Override of Internal Controls?

  21. The Elements of Fraud(The Fraud Triangle) Opportunity Rationalization Pressure / Need

  22. Fraud Prevention and Detection • Verify the deliverable – payments should always require adequate supporting documentation • Know the people in your organization • Perform proactive audits • Focus on internal control • Leverage technology – use data mining / data analysis

  23. The COSO Framework • Control Environment • Risk Assessment • Control Activities • Information and Communication • Monitoring Activities

  24. The Updated COSO CubeThe

  25. Control Activities • Authorization of Transactions and Activities • Segregation of Duties • Use of Adequate Documents and Records • Adequate Safeguards over Access to and Use of Assets and Records • Independent Verification of Transactions

  26. Data Mining / Predictive Analytics / Benford’s Law http://www.nigrini.com/

  27. Fraud Involves People • Systems Don’t Commit Fraud • Processes Don’t Commit Fraud • People Commit Fraud • Fraud Prevention Requires Effective Supervision

  28. Fraud Prevention and Detection • Internal Control / COSO Framework / Hotlines • Management Control / Effective Supervision • Employee Education and Training • The Role of Human Resources in Selecting and Screening Employees • Management Due Diligence in Selecting and Screening Employees • Establishing and Maintaining an Ethical Workplace

  29. Managing Fraud Risk Requires Effective Internal Controls and an Ethical Culture

  30. The State Auditor’s Hotline The State Auditor maintains a toll-free telephone number to report allegations of improper governmental activities. 1-800-730-TIPS (8477) Webpage link: www.ncauditor.net

  31. Resources http://antifraud.aicpa.org/ http://www.acfe.com/home.asp http://www.coso.org/ http://www.acua.org/ http://www.theiia.org/

  32. Contact Information David A. King, CPA, CFE Director of Special Investigations North Carolina Office of the State Auditor Phone (919) 807-7606 Email: david_king@ncauditor.net State Auditor’s Hotline: 800-730-TIPS (8477)

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