Fraud

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FRAUD ETHICS in Army Resource Management
Presenters Name Presenters Position
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Fraud
Waste and Abuse of Resources
Good Governance - Efficient, Effective and
Ethical Resource Management
Opportunity and Mismanagement
Checks and Balances
Risk Averse Environment
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FRAUD
Waste and Abuse of Resources
Good Governance - Efficient, Effective and
Ethical Resource Management
Opportunity and Mismanagement
Checks and Balances
Risk Averse Environment
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FRAUD
Dishonestly obtaining a benefit by deception or
other means
- Commonwealth Fraud Control Guidelines 2002
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BASIC TEST FOR FRAUD

• Does the action appear to be unlawful?
• If so, are the following three elements present?
• 1 - Deceit
• 2 - Intent
• 3 - Gain

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STATISTICS

• Number of investigations completed - 475
• Approximately one quarter lead to criminal,
  disciplinary or administrative action
• Defences determined loss - 1,200,000
• Armys determined loss - 233,083
• Over the past nine years determined fraud loss
  has averaged between 1.8m per year (1.1m to
  3.1m)

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AREAS OF HIGH FRAUD RISK IN ARMY

• Single Person Processing in ROMAN
• Reserve Attendance Diaries
• Employer Support Payment
• (particularly to Self Employed Members)

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SINGLE PERSON PROCESSING IN ROMAN

• Large number of suspected frauds have occurred
  against this function in recent years.
• Reason Code Managers (formation level) and ROMAN
  Supervisors (unit level) monitor these
  transactions for possible fraud
• Management Audit Branch review all suspect
  transactions (harvested from ROMAN using Computer
  Aided Auditing Techniques).

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RESERVE ATTENDANCE DIARIES (only for Units with
Reserve Members)

• Diaries (where authorised) or roll books (if
  used) should be processed centrally and promptly.
• Roll Book Reports and Reserve Forces Pay Advices
  are checked and signed promptly by the designated
  authority.
• All pay staff must have their Pay Advices signed
  by the unit CO/OC, CCLK or other suitable member
  not involved in pay.
• A suitable mbr not involved in pay should spot
  check transactions.

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EMPLOYER SUPPORT PAYMENTS(only for Units with
Reserve Members)

• This is a fraud and business risk due to the
  large number of erroneous transactions detected
  by audit.
• A biannual review of all claims should be
  conducted by a member not involved in claim
  processing to ensure the claims are properly
  approved and the requisite documentation is
  maintained.
• Management Audit Branch may review claims and
  approval process as part of Unit audits.

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AREAS OF CONCERN FOR ARMY

• Procurement and Contract Management
• Defence Purchasing Card (Credit Card)
• Defence Travel Card
• Theft of Computing Equipment

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PROCUREMENT AND CONTRACT MANAGEMENT FRAUD

• Influence Seeking
• False Invoicing
• Collusion
• Substitution

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PROPER PROCUREMENT

• Delegations must be be properly exercised prior
  to procurement by a properly authorised members.
• Delegations change depending on the type of
  procurement (Simple, Complex, Official
  Hospitality etc)
• Purchases are accordance with the requirements of
  Defence Procurement Policy Manual and the Chief
  Executive Instructions.
• Contracting Helpdesk ph1800 100 605 or
• email contracting_at_defence.gov.au
• All purchases must be an efficient, effective and
  ethical use of Commonwealth resources.
• Document your actions.

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DEFENCE PURCHASING CARD

• Used for Official Purposes only.
• Card Holders are exercising procurement
  delegations and must abided by the requirements
  of Defence Procurement Policy Manual and the
  Chief Executive Instructions.
• Report loss or theft of card immediately.
• Purchases are reviewed by Card Management System
  Supervisors and Computer Aided Auditing
  Techniques.
• Misuse card carries maximum penalty of 7 years
  imprisonment under the FMA Act 1997.

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DEFENCE TRAVEL CARD

• A financial Delegate, other than the traveller
  must approve all travel.
• Diners utilises cash and card limits as well as
  merchant blocking (eg brothels) and operate fraud
  prevention software to mitigate against 3rd party
  fraud.
• A second person (Card Management System
  Supervisor) reviews actual expense to ensure it
  falls within the Delegate approved travel budget.
• Report loss or theft of card immediately.
• Misuse card carries maximum penalty of 7 years
  imprisonment under the FMA Act 1997.

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THEFT OF COMPUTING EQUIPMENT

• Theft of Computing Equipment is the main
  contributor to financial fraud loss across the
  department.
• Protect valuable, useful and easily portable
  assets (eg. laptops, lightpros, PDAs).
• Report all suspected thefts/losses immediately.
• Units must conduct regular spot checks and
  stocktakes of these asset types.

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FRAUD INDICATORS

• Continually circumvent established procedures
• Avoid the proper level of review
• Mismanage resources
• Improperly access other peoples logons
• Behave or spend extravagantly
• Take leave in an unusual pattern or are unwilling
  to take leave
• Dont retain documentation (lack of audit trail)
• Travel for unexplained reasons
• Have personnel problems (gambling, debt problems
  etc..)

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PROFILE OF A TYPICAL FRAUDSTER

• Male aged 31 years acting alone
• Non-management employee of the victim
  organisation with no known prior dishonesty with
  a previous employer
• Six years with the organisation and held his
  current position for four years at the time of
  detection
• Misappropriated funds to an average value of
  337,734 and was motivated by greed (38) or
  gambling (21)
• Detected by a workplace colleague 13 months after
  the commencement of the fraud
• The organisation recovered only 21 percent of the
  proceeds of the fraud
• Belong to organisations that do not take a
  pro-active approach to fraud control

KPMG Australian Fraud Survey 8 Nov 04
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I deserve this!
They all do it!
Its my turn!
No one cares!
I wont be caught!
FRAUD IS 90 OPPORTUNITY and 10 INTENT
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The Financial Management and Accountability Act,
1997 and You!
Section 14 of the FMA Act applies a maximum
penalty of seven years imprisonment for any
official who misapplies, improperly disposes of,
or improperly uses, public money.

• Section 41 of the FMA Act applies a maximum
  penalty of seven years imprisonment for any
  official who misapplies, improperly disposes of,
  or improperly uses, public property.

DFDA, Public Service Act and Crimes Act
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WARNING

• All Fraud WILL be prosecuted.
• ALL Monies (including Penalties Costs) will be
  recovered.
• ALL Penalties, Costs and Repayments can be
  recovered through your superannuation fund.

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• FRAUD IS A
• CAREER ENDING MOVE

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Fraud
WASTE AND ABUSE OF RESOURCES
Good Governance - Efficient, Effective and
Ethical Resource Management
Opportunity and Mismanagement
Checks and Balances
Risk Averse Environment
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Fraud
MISMANAGEMENT
Deliberate non-compliance with proper procedures.
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Fraud
WASTE OF RESOURCES
Waste of resources is the extravagant or needless
use of Defence Resources
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Fraud
ABUSE OF RESOURCES

Abuse of resources is the finding and/or use of
loopholes to obtain a benefit
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ABUSE OF POSITION FOR PERSONAL GAIN

• Conflicts of Interest
• gifts, hospitality, travel
• securing employment (post separation / second
  job)
• Misuse of Authority
• lack of role model behavior
• inappropriate directions or recommendations

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CONSEQUENCES OF FRAUD, WASTE AND ABUSE

• Loss of Army Resources
• Damaged relation between Defence and Industry
• Reduced Capability
• Delays in Army activities
• Loss of public confidence in Army
• Political embarrassment for the Government and
• Poor Morale.

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REDUCING FRAUD, WASTE AND ABUSE

• Prosecute offenders, including in routine or
  minor instances where appropriate (clear message
  of zero tolerance)
• Provide effective management and supervision
• Perform internal checks and audits
• Implement a Fraud Control Plan
• Ensure personnel follow set procedures and have
  adequate training and
• Ensure all resource management decisions are
  efficient, effective and ethical.

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Fraud
Waste and Abuse of Resources
Good Governance - Efficient, Effective and
Ethical Resource Management
Opportunity and Mismanagement
Checks and Balances
RISK AVERSE ENVIRONMENT
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RISK AVERSE ENVIRONMENT

• an overly-bureaucratic decision and approval
  processes that give the false impression of
  managing risk
• a failure to devolve responsibility to the
  appropriate level
• stovepipe mentality with the resultant
  piecemeal rather than holistic view
• can be overcome through the application of proper
  risk management principles

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Fraud
Waste and Abuse of Resources
GOOD GOVERNANCE - Efficient, Effective and
Ethical Resource Management
Opportunity and Mismanagement
Checks and Balances
Risk Averse Environment
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• Army members have a legal duty to act
  efficiently, effectively and ethically when
  making decisions involving Commonwealth
  resources. Personal interests must not be
  allowed to affect their decisions.
• FMA Act 1997 DI(G) PERS 25-2 to 25-6

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EFFICIENT AND EFFECTIVE

• Efficiency (output)
• Avoid waste and abuse of resources
• Properly manage and address risk
• Must be measured against effectiveness
• Effectiveness (outcome)
• Define Requirements
• Plan
• Document
• Consult
• Completeness and Quality

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ETHICS?

• Ethics is a set of principles by which your
  actions may be judged good or bad, right or wrong

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THE AUSTRALIAN ARMYS PRINCIPLES
Our Ethos Service to the Nation Service before
Self
Our Values Courage Initiative Teamwork
Our Standards of Behaviour Abide by the laws set
by society Abide by Military Law Abide by the Law
of Armed Conflict Follow the Rules for a Fair Go
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ETHICS AT WORK

• Understand Defence position on ethical issues
• Be honest, truthful and forthright
• Maintain integrity in the face of ethical
  dilemmas
• Consider the consequences of your actions
• Take responsibility for your actions

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SOLVING ETHICAL DILEMMAS

• 1. Do you have the authority/responsibility?
• 2. Identify and Explore all options
• 3. Discuss the Matter
• 4. Recognise the potential consequences
• 5. Own the decision
• 6. Be able to justify the decision (document
  everything)

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DUE DILIGENCE(in your area of responsibility)

• Must be able to prove that you have taken all
  care to ensure that the appropriate controls are
  in place.
• Making sure that you have taken all care to
  get it right (true accurate),
• That you have the whole picture, and that there
  aren't any skeletons in the cupboard.

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ETHICS IS A CULTUREEveryone needs to be
involvedDont turn a blind eye
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Fraud
Waste and Abuse of Resources
Good Governance - Efficient, Effective and
Ethical Resource Management
Opportunity and Mismanagement
Checks and Balances
Risk Averse Environment
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ETHICS AND FRAUD STRATEGY
Leaders are responsible accountable for
upholding and promoting the Values, Ethos and
Standards of the Australian Army All decisions
are based on Values Instructions All units
have Fraud Control Plans in place All Fraud is
reported and investigated.
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HOW DO I REPORT FRAUD?
Defence Whistleblowers Scheme 1800 673 502
Suspected Fraud or Irregularity
(Chain of Command)
Refer to Senior Officer or NCO

• Debrief person who formed suspicion
• Document action
• Report action and send documentation to superior
  HQ.

(Clearly without foundation)
Refer to Unit Commander
(May be founded)
Refer to Military Police for investigation and
advice
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WHEN SHOULD I USE THE WHISTLEBLOWER HOTLINE?

• the chain of command is perceived to be corrupted
  or ineffective
• the individual believes that they may be
  victimised, discriminated against or
  disadvantaged
• Were the chain of command has been tried and
  failed

1800 673 502
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FURTHER INFORMATION
Army Fraud Control Web Site http//intranet.defe
nce.gov.au/armyweb/Sites/DGCMPA/Load.asp?Page2586
9TitleFraud Control
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Questions?