Fraud in Non-Profit Organisations

“I wrote an article on this a few years ago and interviewed a few experts on fraud in non-profits and why it tends to go undetected for so long. One theory was that non-profits are too trusting and assume that people who work for them respect the spirit of charity that the organization is built on. Unfortunately this isn’t always the case and a lack of internal controls combined with the limited staffing typical of non-profits makes it easier for employees in accounts to steal. Accounts payable fraud seems to be among the most prevalent, possibly due to situations where due to staffing limitations, one employee is responsible for too many financial tasks without checks and balances. If you’re interested in reading the article, you can find it here: Fraud in Non-Profits

Dawn Lomer

Nssa boss externalizes $340 million

HARARE, Newsday (May 11, pg 3) National Social Security Authority (NSSA) acting general manager Hashmon Matemera appeared at the Harare Magistrates’ Court yesterday charged with externalizing about $340 million during his tenure as BancABC managing director. Matemera (52) was not asked to plead when he appeared before provincial magistrate Vakai Douglas Chikwekwe, who granted him $10 000 bail and remanded the matter to June 15. Allegations against Matemera are that he facilitated the externalization of $332 980 000 belonging to diamond miner Jinan to Botswana, Zambia, Sierra Leone, Mozambique, Dubai and China when he was still head of BancABC three years ago.

Blackmail Fraud 2.0

In my post of March 25 I lamented the distressing development of what I termed Blackmail Fraud. This phenomenon of “non-terminability” or “immunity from termination” is best illustrated by the topical case sited below.

WASHINGTON—

Zimbabwe’s leading platinum-mining firm, Zimplats Holdings, allegedly used an offshore company to pay salaries for senior managers in violation of exchange control laws, according to documents leaked from a Panamanian law firm. Read article..

Assuming that what is reported to have happened here did indeed occur (well, there’s no smoke without fire), then such a practice could ‘ve only been done by and/or at the behest of the C-Level management. Now, assume further that it was the Accountant in charge of the “Executive Salaries” function who would handle the transactions. Would he be touchable or indeed terminable of he, well, helped himself to some payroll funds. Wouldn’t the board have preferred a rather hushed solution to this scam had it come to their attention before these nosy journalists!

 Gudo picuringOur summary advice is:

(a) Tone at the top.
(b) Making certain Internal Controls are operating as they should at all times. This calls for an independent monitoring function.

(c) Periodic Fraud Vulnerability Review (also known as Fraud Risk Assessment) which follow the pretence of “prevention is better than cure”. Here experts assist with the process of risk analysis that proceeds from threat assessment to threat evaluation to the selection of countermeasures designed to contain or prevent that risk.

(d) Effective, conclusive investigations where a fraud is suspected or detected.

About 5wh Audit

5wh is a relationship-oriented professional services company that provides the following solutions to business challenges:
Ø Internal Audits
Ø Forensic Audits
Ø Compliance Audits
Ø Due Diligence Investigations
Ø Business Systems Design, Development and Reviews

We work with business owners and leaders who are set on blowing away those constraints blocking their way to success. We also assist our clients isolate hidden economic assets in their business and determine specific projects to optimize and leverage those assets for greater profit and growth.

We know that the only way to turn your potential for success into actual success is to blow away the constraints that block your path.
________________________________________
© Caleb Mutsumba

 

 

 

Blackmail Fraud: What is it?

Immunity from Termination

The one distressing development that we at 5wh are witnessing across many of our client organisations in Zimbabwe is what we have come to call “blackmail fraud”. In this situation, the fraudster – either amateur or professional and mostly in administrative or managerial position – commits acts of transactional or systematic non compliance as part of or adjacent to the fraud scheme.

When the fraud is detected, the fraudster calls attention to the non compliance issue. In many instances, because of the legal doctrine of vicarious liability, the non compliance issues tend to peril the employer more than the employee. In the end, employers are stopped from acting against the offender in a way they would have or what the Code of Conduct stipulates.

Though this is not a new phenomenon, we have seen that, with penalties getting so excessive (take tax penalties, for instance), it seems that even the smaller non-compliance issues give rise to this phenomenon of “non-terminability” or “immunity from termination”.

Where to Now?

Internal Control

An organization is a living entity which changes over time. As a result, the organization’s mission, goals and objectives must be regularly evaluated and periodically revised. Thus, internal control is an ongoing process known as the Internal Control Cycle. After an organization analyzes its goals and objectives to determine its risks, management must analyze these risks and evaluate the policies and procedures in the identified high-risk areas. Part of the management process includes monitoring the progress made toward meeting goals and objectives. Monitoring also helps to ensure the effectiveness of the organization’s internal controls and the effectiveness of the policies and procedures. Periodically, policies and procedures should be revised to mitigate risk and eliminate redundancy. They must also be communicated internally and externally, as necessary.

Everyone in an organization has responsibility for internal control.

Tone at the Top

Management’s attitude, actions, and values set the tone of an organization, influencing the control consciousness of its people. Internal controls are likely to function well if management believes that those controls are important and communicates that view to employees at all levels. If management views internal controls as unrelated to achieving its objectives, or even worse, as an obstacle, this attitude will also be communicated. Employees are aware of the practices followed by upper management including those that circumvent internal controls. Despite policies to the contrary, employees who note that their managers frequently override controls, will also view internal controls as “red tape” to be “cut through” to get the job done. Management can show a positive attitude toward internal control by such actions as complying with their own policies and procedures, discussing internal controls at management and staff meetings, and rewarding employees for following good internal control practices. Although it is important to establish and implement policies and procedures, it is equally important to follow them. In the “immunity from termination” scenario, the Code of Conduct is not only perceived to just another worthless document; it is in effect a hollow manuscript.

Management Ethics, Philosophy & Operating Style

An organization’s culture evolves from the values of its members and the culture, in turn, exerts a strong influence on the actions, decisions, and behaviors of all employees.

An ethical culture requires engaged employees and managers who understand why doing the right thing is important for the organization’s long-term viability; and they have the determination to see that in fact the right thing does get done.

What are some of the key attributes needed for an organization to be fully integrity-based?
• Employees feeling a sense of responsibility and accountability for their actions and for the actions of others.
• Employees freely raising issues and concerns without fear of retaliation.
• Managers modeling the behaviors they demand of others.
• Managers communicating the importance of integrity when making difficult decisions.
• Leadership understanding the pressure points that drive unethical behavior.
• Leadership developing processes to identify and remedy these areas where pressure points occur.
These attributes touch other aspects of the organization that go beyond the fundamental abilities of making a profit and maintaining high levels of quality and productivity: how well the organization adapts to change, or encourages employees to be engaged in decision making, how well the organization creates a collective sense of purpose around shared values. It is this broader set of skills and qualities that create the foundation needed to support an ethical culture. These higher-level behaviors are no longer “nice to haves.” These are the behaviors now demanded for survival in this economic environment of creative destruction.

Management’s philosophy and operating style affect the way the organization is managed. They determine, for example, whether the organization functions informally with verbal instructions or formally with written policies and procedures. They also define whether the organization is conservative or aggressive in its response to risks. In other words, they define the organization’s “risk appetite” or the level of risk that is acceptable to the organization. To be successful, the organization’s internal controls must be aligned with management’s philosophy.

Our summary advice is:

(a) Tone at the top.
(b) Making certain Internal Controls are operating as they should at all times. This calls for an independent monitoring function.

(c) Periodic Fraud Vulnerability Review (also known as Fraud Risk Assessment) which follow the pretence of “prevention is better than cure”. Here experts assist with the process of risk analysis that proceeds from threat assessment to threat evaluation to the selection of countermeasures designed to contain or prevent that risk.

(d) Effective, conclusive investigations where a fraud is suspected or detected.

About 5wh Audit

5wh is a relationship-oriented professional services company that provides the following solutions to business challenges:
Ø Internal Audits
Ø Forensic Audits
Ø Compliance Audits
Ø Due Diligence Investigations
Ø Business Systems Design, Development and Reviews

We work with business owners and leaders who are set on blowing away those constraints blocking their way to success. We also assist our clients isolate hidden economic assets in their business and determine specific projects to optimize and leverage those assets for greater profit and growth.
We know that the only way to turn your potential for success into actual success is to blow away the constraints that block your path.
________________________________________
© Caleb Mutsumba

Introduction to Fraud and Forensic Audit in Zimbabwe

Introduction to Fraud and Forensic Audit

1 Background

Fraud has always been a major business constraint in Zimbabwe. With the introduction of the multi-currency regime, the problem of fraud has gone beyond what was just a business challenge. Foreigners can now look into Zimbabwe for the much coveted US Dollar.

At 5wh we offer a series of services across the fraud control spectrum – from fraud prevention and detection, through to investigation, evidence collection and litigation support.

2 Definition

The Oxford Dictionary defines “Forensic” simply as, “Of or used in law courts.” Eagle

Forensic auditing is a blend of traditional accounting, auditing, and financial detective work. The emphasis is on the quality of work, as it has to satisfy the exacting demands of the law courts.

3 Investigate first – then act

This is the logical thing to do and in Zimbabwe this is what the law (Labour Relations Act [Chapter 28:01]) requires. If you suspect that your organisation is the target of financial crime you will need fast professional support to help you take action.

©Caleb Mutsumba

5 Quick Steps to Immediately Upgrade Your Current Business Controls

Here are five simple action steps for you to immediately upgrade your business’s existing controls.

BY DAVID FINKEL
Co-author, ‘Scale: Seven Proven Principles to Grow Your Business and Get Your Life Back’@DavidFinkel

The dream of most business owners is to build their businesses so that they are stable enough to thrive even without the owner there to oversee all the work and key decisions.
But most of us business owners (myself included) are control freaks, so we find letting go of decisions and responsibility tough. (This is often one of the hardest behaviors to get our business coaching clients to change–that of intelligently and incrementally letting go of direct control for areas of their businesses.)
One important tool to help you grow your comfort level with empowering your team to own functions of the business is to make sure sound internal controls are in place in the business.
“Controls” are specialized systems inside your company that protect it from poor decisions and careless behavior. They include things like your operational checklists, your marketing calendar, and your new hire on boarding process.

But as a growing business you need to balance off the benefits of implementing intelligent internal controls with the extra friction and red tape more structure can bring.
Here are five simple action steps for you to immediately upgrade your business’s existing controls.

1. Eliminate or amend wasteful controls you currently have in place.
Examples of wasteful business controls include: requiring the business owner to sign off on all purchasing decisions no matter what the amount; requiring staff to generate reports that don’t create value for the business or influence decisions of the management team; not allowing front-line employees to make simple decisions that thrill customers yet don’t cost the business too much money.
Pause for a moment right now, and list possibly wasteful controls you currently have in place along with how you can eliminate or improve them.

2. Review your financial controls, and (ideally) get a trained expert to help you easily upgrade them.

This is one area of your company that you should likely increase the level of controls you have in place and that you follow.

One statistic that we quoted in our recent book, “Scale: 7 Proven Principles to Grow Your Business and Get Your Life Back”, was from the Association of Certified Fraud Examiners.
In 2010, they reported that 42 percent of fraud cases happened in privately held companies with fewer than 100 employees, with the average fraud continuing for 18 months before it was even discovered. In case you’re wondering, the median loss in these fraud cases was $231,000. Hence my suggestion that you pay close attention and upgrade your financial controls, which most small and medium-sized companies are lax with.
You’ll likely need outside help in setting these controls up. This can be your CPA or, if you have one, your CFO. They will look at the flow of money through your business and the danger points where your business needs stronger controls in place.

3. Build a clear score board that makes it easy to see the score.

The best controls are there not to “catch” an employee doing something wrong, but rather, they give your employees direct, timely, and useful feedback so they can more effectively self-manage.
So give your pillars of your company (e.g. Sales, Marketing, Operations, etc.) clear score boards to see how things are really going. A visual scorecard will help the people doing the work measure their performance and give management a tool to ensure your business is functioning optimally.

4. Observe which of your current systems your team actually uses, and reformat, redesign, or eliminate the ones they don’t use.
Remember, a business control is a subset of a business system, and a system in the wrong format is of no value, even if it could technically work.
Observe your team’s behaviors to see if your systems are functional. Behaviors don’t lie.
If a system is significant and technically accurate but isn’t being used, tweak theformat of the system to make it more user-friendly.

5. Push decisions down to the lowest level they can competently be made.

Nothing is more deadening for your team members than requiring them to go to you for decisions they are competent and fully informed to make.
It kills initiative and arbitrarily creates a stifling bottleneck in your business–you!
The more you personally must decide, the more you must keep on deciding.
Your goal must be to create intelligent controls that allow your team to make decisions they are competent to make. But also put safeguards in place so big decisions get well thought out before it’s too late to change them.
For more ideas on growing your business, including a free tool kit with 21 in-depth video trainings to help you scale your business and get your life back, click here.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

TRAFFICKING IN FRAUDULENT MEDICINE

TRAFFICKING IN FRAUDULENT MEDICINE

TRAFFICKING IN FRAUDULENT MEDICINE

Fraudulent medicines pose a considerable public health threat as they can fail to cure, may harm and even kill patients. These threats to public health have led the international community to call for a stronger and more coordinated response. Compounding this public health risk is the fact that the supply chain for medicines operates at a global level, and therefore, a concerted effort at the international level is required to effectively detect and combat the introduction of fraudulent medicines along this supply chain.

The 20th session of the Commission on Crime Prevention and Criminal Justice (CCPCJ) adopted resolution 20/6 on fraudulent medicines, otherwise referred to as falsified medicines due to concern about the involvement of organized crime in the trafficking in fraudulent medicines. At the same time, resolution 20/6 highlights the potential utility of the United Nations Convention against Transnational Organized Crime (UNTOC) for which UNODC is the guardian, in re-enforcing international cooperation in the fight against trafficking, through, its provisions, inter alia, on mutual legal assistance, extradition and the seizing, freezing and forfeiture of the instrumentalities and proceeds of crime.

As with other forms of crime, criminal groups use, to their advantage, gaps in legal and regulatory frameworks, weaknesses in capacity and the lack of resources of regulatory, enforcement and criminal justice officials, as well as difficulties in international cooperation. At the same time, the prospect of the comparatively low risk of detection and prosecution in relation to the potential income make the production and trafficking in fraudulent medicines an attractive commodity to criminal groups, who conduct their activities with little regard to the physical and financial detriment, if not the exploitation, of others.

Resolution 20/6 contains nine action points among which paragraph nine requests that UNODC, in cooperation with other United Nations bodies and international organizations, such as the International Narcotics Control Board (INCB), the World Health Organization (WHO), the World Customs Organization (WCO) and the International Criminal Police Organization (ICPO/INTERPOL), as well as relevant regional organizations and mechanisms, national regulatory agencies for medicines and, where appropriate, the private sector, civil society organizations and professional associations, assist Member States in building capacity to disrupt and dismantle the organized criminal networks engaged in all stages of the illicit supply chain, in particular distribution and trafficking, to better utilize the experiences, technical expertise and resources of each organization and to create synergies with interested partners.

While focus has been given to the health and regulatory aspect of this problem, it appears that less attention has been given to the issue from a criminal justice perspective. Given its expertise and work to build effective and transparent criminal justice systems and to support states to prevent and combat all forms of organized crime, UNODC can support the fight against the illicit manufacture and trafficking of fraudulent medicines in coordination with other stakeholders.

Additional Information:
(i) Technical Conference of Experts on the Trafficking in Fraudulent Medicines, 14-15 February 2013 in Vienna
(ii) Report on the 20th session of the Commission on Crime Prevention and Criminal Justice (CCPCJ)
(iii) Resolution 20/6: English and French
(iv) Contact UNODC

Source: http://www.unodc.org/unodc/en/fraudulentmedicines/introduction.html