Association of Integrated Schools Bursars Conference

1. www.pwc.com Association of Integrated Schools Bursars Conference September 2017

2. What is Fraud ? • “Something said or done in a dishonest way to deceive people” • “Dishonestywith the intention to create advantage” • “Wrongful or criminal deception” • “Deceit, trickery, or breach of confidence, perpetrated forprofitortogain some unfair or dishonest advantage” • Therefore, fraud can include theft, dishonesty, deception and misstatement of fact.

3. The Fraud Triangle • A framework for high-risk fraud situations Pressure Financial or emotional force encouraging fraud FRAUD Opportunity Ability to execute planwithout being caught Rationalisation Personal justification of dishonest actions

4. Pressure • Drives a person to want to commit the fraud and may include pressure to show good performance or results, financial problems, addictions like gambling, shopping or drugs, or just the thrill of being able to get away with something. • Is the motivation behind the crime and can be either personal financial pressure, such as debt problems, or workplace debt problems, such as a shortfall in revenue. The pressure is seen by the individual as unsolvable by orthodox, legal, sanctioned routes and unshareable with others who may be able to offer assistance. A common example of a perceived unshareable financial problem is gambling debt. Maintenance of a lifestyle is another common example.

5. Opportunity • Enables one to commit the fraud and is created when there are weaknesses in control mechanism. Individuals think they won't get caught because nobody is controlling, performing reconciliations and reviewing records. • Is the means by which the individual will defraud the organisation? In this stage the worker sees a clear course of action by which they can abuse their position to solve the perceived unshareable financial problem in a way that – again, perceived by them – is unlikely to be discovered. In many cases the ability to solve the problem in secret is key to the perception of a viable opportunity.

6. Rationalisation • Is when individuals think that they are justified to commit the fraud because of various reasons like being underpaid, that it's for their family, or that they'll return it back before anyone notices? • Is the final stage in the fraud triangle? This is a cognitive stage and requires the fraudster to be able to justify the crime in a way that is acceptable to his or her internal moral compass. Most fraudsters are first-time criminals and do not see themselves as criminals, but rather a victim of circumstance. Rationalisations are often based on external factors, such as a need to take care of a family, or a dishonest employer which is seen to minimise or mitigate the harm done by the crime.

7. Real life examples in Corporates • Corporate financial reporting fraud: • Pressure to achieve monthly result; and • Opportunity to post entries without any formal review • Fraud for personal gain; • Weak controls provided an opportunity; and • Financial pressure at home

8. Real life examples • School Related Examples • False Invoices • Services or product not provided – Tessa Grant • Altering bank account details – Physical Education NZ (May 2017) • Teaming and Lading • Receipt of incoming funds (ie Locally Raised Funds)

9. Fraud risk areas in Schools • Capital expenditure projects • New suppliers or changes to supplier bank accounts • Approval of payments • Petty cash / cash receipting • Credit cards / staff reimbursements • Conflicts of interest • Theft of assets / resources • Misstatement of financial information / roll information

10. Fraud mitigation • Ways to mitigate fraud risk: • Preventative controls • Detective controls • Education and training • Key controls designed to mitigate risk: • Dual authorisation on payments • Segregation of duties (where possible) • Formal review and approval of invoices and reconciliations • Approval of changes to standing data i.e. bank details of suppliers and employees • Changes to roles and responsibilities • Awareness of cyber attacks and phishing scams that are becoming more pervasive

11. Questions