Mr. Ali AlMuwaijei, Board Member of the UAE IAA, delivered the opening remarks with presentation titled "Why auditors DO NOT discover Fraud" where he discussed the fraud triangle and the role of internal auditors in looking for the red flags and provided many statistical data about the fraud globally,

1. Why auditors DO NOT discover
Fraud
By
Ali Bin Mohammed AlMuwaijei
Board member, UAE IAA, United Arab Emirates

2. Why auditors DO NOT discover Fraud?
2

3. Anyone
heard of
CIA?
Anyone
heard of
CPI?
Corruption
Perception Index
3

4. Corruption Perception Index - 2012
1.
1.
1.
2.
3.
4.
5.
5.
Denmark
New Zealand
Finland
Sweden
Singapore
Switzerland
Australia
Norway
90
90
90
88
87
86
85
85
169. Iraq
170. Turkmenistan
170. Uzbekistan
172. Myanmar
173. Sudan
174. Afghanistan
174. North Korea
174. Somalia
Scale from 0 (highly corrupt) to 100 (very clean).
Transparency International
4
18
17
17
15
13
8
8
8

5. Rank
Country
Score
1
Denmark
90
1
New Zealand
90
1
Finland
90
5
Singapore
87
27
Qatar
68
27
United Arab Emirates
68
54
Malaysia
49
79
Sri Lanka
40
88
Thailand
37
94
India
36
118
Indonesia
32
5

6. Report to the Nations
On occupational FRAUD and abuse
1,388 cases
Patterns of fraud are however consistent
Note: This data is based on an ACFE study of 1,388 cases of occupational fraud in 94 countries- 2012.
6
6

7. ACFE's 2012 Report to the Nation:
What is the Percentage of revenue lost to Fraud?
3%
5%
7%
10%
7

8. Summary of Report Findings
Losses
Organizations
Affected
Indicators
Typically 5% of
annual revenue
Mostly those
lacking anti-fraud
controls
Tell-tale exists for
fraud
perpetrators
World-wide USD
3.5 trillion
Controls exist,
but not
implemented
Living beyond
financial means
8
8

9. The Fraud triangle
According to Donald Cressey, three elements
must be present for fraud to be executed:
a. Pressure/ motivation usually individual
characteristics and situational factors
b. opportunities eg available targets ie lack of
controls
c. rationalization/justification/ neutralization
This is known as the fraud triangle

10. The Fraud triangle

11. Pressure/ Motivation :
1. Greed
2. Gambling
3. Financial strain - personal
4. Financial strain - business
5. Maintaining own/ family business
6. Influenced/ implicated by others

12. Pressure/ Motivation (Cont.):
7.Pleasing others
8. drug/alcohol addiction
9. Financing new business interests
10. Terminal illness
11. Dissatisfaction with employer

13. Opportunity
1. Weak or non-existent internal control
2. Lack of segregation of duties
3. Highly decentralized organization
4. Lack of knowledge/awareness

14. Opportunity
5. Opportunity is the perception by someone believing
they can commit a fraud without getting caught
5. Management control and influences “opportunity”
more than any other factor in the Fraud Triangle

15. Rationalization:
1. Intention to conduct a reasonable business
2. Intention to repay
3. Influenced/ implicated by others
4. Underpaid by employer
5. Helping clients
6. Tone at the top: poor corporate governance

16. Difference between Audit and Fraud
Audit
• System / Process
Improvements
• Individual/Gangue
• Improvements
• Prosecution
Months
16

17. Auditors are policemen
How to deal with this issue?
Separate Audit and Fraud
17

18. What Names Would You Use for the Department?
• Incident Management Department (IMD)
• Fraud Prevention Department (FPD)
• Internal Affairs & Anti Fraud. (IAAF)
• Internal Affairs & Anti Fraud Dept. (IAAFD)
• Anti Fraud & Internal Affairs Dept. (AFIAD)
18

19. Audit and FPD reporting to ONE?
Disadvantages
Advantages
• Alteration to audit plan
• Director is seen wearing
two hates
• Audit detect fraud and
pass to FPD
• Use of Audit for initial
investigation
• Some overlapping of
investigations
• Communication problems
• Supplement resource
when needed (IT,
Technical and auditors)
between GIA & FPD
• Business unit mix
messages
19

20. Fraud Prevention Department
Role and Responsibilities Charter
Fraud Prevention policy
Code of conduct
20

21. Fraud Prevention Department
• Organization Structure requirement
– Legal/IT
• FPD Compensation
–
–
–
–
Salary
Risk Allowance
Bonus
Insurance
21

22. Interaction with Local/ Intl. Authorities
• State Security
• Courts
• Police
• Ministries/Embassies
• Prosecution
• Interpol
22

23. Fraud Prevention Department
Whistleblowing system
23

24. Setting a Whistle Blowing System
• Should you outsource or in source the system
• Protection system
• How far you can protect the identity of
individuals
• Reward system for informers
24

25. Initial Detection of Occupation Fraud
©2012 Association of Certified Fraud Examiners, Inc.
25

26. Sources of Tips
©2012 Association of Certified Fraud Examiners, Inc.
26

27. Lessons Learnt
27

28. Thank You
Ali.almuwaijei
+97150 7677757
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