“Managing the Risk of Fraud – How to Nigel Iyer

“Managing the Risk of Fraud – How to
turn hidden losses into Profits”
(a.k.a “Defence against the commercial “dark arts”)
For the British Chamber of Commerce / Surveilligence
14th June 2012
Nigel Iyer
Today
• Demystifying Fraud and
Corruption…in our midst
• Where will it occur and how
do we prevent it
• Cutting through the rhetoric
and protect our organisations
This week…
Russia, Turkey, the
“Wild West”?
….or…… are we in
fact in Denmark ?
Winning the battle...
• True Awareness and culture (not just nice
speeches for each other) = Resilience
• Fraud Risk Assessment (“Think Like A Thief”)
• Don’t be fooled that compliance with rules
equals commitment
• Healthy scepticism – Look for Red Flags
• A balanced approach - its easy to come down
too hard on the small “offences”
Enron and the rotten
apples
Elf
Parmalat
Siemens
British Aerospace, the
Saudi’s and ”Tony B”
 Worldcom
Tycho
UBS
Bernie ”Made off”
with the money
 and more....
The true cost
A typical company with sales of €100
million. How much do you estimate is
(on average) lost because of fraud and
corruption each year?
€ 0 – € 100,000
€ 100,000 - € 1 million
€1million – €5 million
€ 5 million - € 7 million
> €7 million
The true extent
• Deliberate/Dishonest
• Controls bypassed
• The truth is Hidden
• Rules are broken
Examples
Overcharging
Conflict of Interest
False Claims
False expenses
Exaggerated results
Kickbacks
INDIRECT COSTS > Direct costs
Fraud and Corruption
False reporting
False Claims
Conflicts of Interest
Supplier overcharging
Theft
Fraudulent
Bankruptcy
Kickbacks
Steal IP
Customer does not pay
False expenses
Exaggerated results
And more...
• Real Estate Flipping
• Leasing frauds – sell
assets / repo-sale back
• Credit Card Fraud
• Money Laundering
(both ways)
• Theft of passwords
• Moving assets offshore/
tax fraud
Stolen Cheques
Forgery
Uninsured deposits
Front bank (e.g.
Vanuatu)
• Pretext account.../
identity
• Rogue Trader
• Fraudulent loans/ loan
applications / grant
applications
•
•
•
•
And even more
•
•
•
•
•
•
•
•
•
Forged or fraudulent documents
Confidence tricks
Fake/ stolen payment cards
Skimming of information
Fake ATM or exchange counter
Prime Bank Guarantees etc
“Lottery”
Impersonation of officials
Etc etc etc
Who?
The true cost
A typical company with a turnover of
€100 million. How much do you
estimate is (on average) lost because
of fraud and corruption each year?
€ 0 – € 100,000
€ 100,000 - € 1 million
€1million – €5 million
€ 5 million - € 7 million
> €7 million
Makes good business sense
Sales
Costs
Profits
Profit Margin
1000
950
50
920 *
80 *
5%
*
8%
If fraud and corruption costs = 3 % of sales...
Milestones

76 Lockheed Bribery
Scandal

80s Savings & Loan
Frauds
 87 Treadway Commission

91 BCCI Crash

Bribery recognized as
major obstacle to global
development






02 Enron, Worldcom
02 – 04 constant flow of
new public bribery cases
 77 Foreign Corrupt Practices
Act
92 COSO Report
92 Cadbury Commission
95 Code of Conduct
97 OECD anti-bribery
convention
 02 Sarbanes-Oxley Act
 04 UN Global Compact (10th
Principle)
And more...
ISA 240
Federal Sentencing Guidelines
Basel III
UK Bribery Act
?
Do we really need these?
“Integrity has no need of rules”
Albert Camus (Nobel Prize in Literature 1957)
Please don’t take
advantage of the
room-maid
Opportunity
Motivation
$
$
$
$
$
$
$
$
$
$
$
$
$
Information
Cultural
Integration
OPPORTUNITY Material Desire
+
MOTIVATION
Technology
We assume
Reality?
Honest
It depends
Corrupt
The “slippery slope”
Travel Expenses
“Smoothing” results
Conflict of Interest
Extra vacation
Bribery
Nepotism
False invoices
Controls and loopholes
x
x
x
x
x
x
x
o
x
x
x
x
x
x
x
x
x
x
x
x
x
o
x
x
x
x
x
x x
x
x
o
x
x x
x
Out-smart the enemy…T.L.A.T.!
Get richer by at least CZK 1 million in the next
12 months!
You can be a supplier, customer or anyone in
a position of power in YOUR organisation
What you will need:
Influence
To find the Achilles heel in the system
...and plenty of GR€€D!!!!!
The concept of a “Red Flag”?
?
Vltava Transport and Logistics Ltd
a VLTAVA ENTERPRISES A.S. partner company
Pavel Svoboda
Former Logistics
Director
(Age 43)
Andrew Little
Transportation
and Logistics
Guru and former
advisor to UK
government
(Age 56)
The Integrity Health Check (Example 1)
Accounts
Payable
Transactions
and Suppliers
Analysis of
Management
Expenses
Analysis and
Correlation
Positions in
External
Companies
The Integrity Health Check (Example 2)
Accounts
Receivable
Transactions
and Customers
Accounts
Payable
Transactions
and Suppliers
Analysis and
Correlation
Positions in
External
Companies
Episode 3
You do your job!
Winning the battle...
• True Awareness and culture (not just nice
speeches for each other) = Resilience
• Know your risks (“Think Like A Thief”)
• Don’t be fooled that compliance with rules
equals commitment
• Healthy scepticism – Look for Red Flags
• A balanced approach - its easy to come down
too hard on the small “offences”
Thinking Globally
Cost of corruption and GDP/capita
CPI
Ranking1
COUNTRY
GDP/ Capita
($)2
Cost of
Fraud and
Corruption
%
Absolute
cost per
head of
population
> 50%?
≈ $ 695
≈ $ 1553
134
Nigeria
$ 1,389
22
United
Kingdom
Norway
$ 36,120
≈ 4.3%?
$ 84,444
> x.x %
10
1Transparency
International CPI (Latest). Norway #10, UK #20, Nigeria #134
2 IMF Rankings 2010. Norway ranked #2, UK # 22 and Nigeria #132
Thank you
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