1. Investigating and Preventing Public Sector Fraud 4 April 2012 Lewis Rangott

2. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. Case study: Close relationships with vendors ► Senior manager with a significant budget and complex projects requiring the appointment of multiple vendors ► The senior manager had significant technical expertise and a private sector background ► Email / CCR analysis showed extensive receipt of gifts, hospitality and friendships with vendors ► Exposed agency to watchdog scrutiny and jeopardised project delivery Lessons: ► “Key person risk” is rarely managed properly ► Arm’s length procurement staff or probity advisors should be used on complex tenders 2

3. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. Case study: Secondary employment risk ► Mid-ranking officer in a government department ► Had an outside business that overlapped with his public duties ► Poor departmental controls around valuable equipment and resources ► Lead to misappropriation of tens of thousands of dollars worth of equipment Lessons: ► Approximately 620,000 Australians are multiple job holders (source: ABS Cat. 6105) ► Secondary employment risks trigger all points of the Fraud Triangle ► Control of equipment and resources is often poor in the public sector 3

4. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. The Fraud Triangle Pressure Opportunity Rationalisation

5. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. Case study: Résumé fraud ► Contract manager with procurement duties ► History of detectable fraudulent behaviour ► Changed his name and falsified his résumé ► Detected by chance Lessons: ► 20%-30% of résumés contain serious falsehoods (source: ICAC, ‘Operation Avoca’ report, August 2010) ► Agencies with poor employment screening are targeted ► Similarly, inadequate vendor screening is a risk 5

6. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. 6

7. 7 Effects of implementing fraud mitigation strategies This is a comparison of the median losses at organisations that had implemented each specified fraud control with the median losses for those organisations that did not have that control. Median loss based on presence of anti-fraud controls Control% of Cases Implemented Yes ($US) No ($US) % Reduction Surprise audits28.9%$97,000$200,00051.5% Job rotation/mandatory vacation14.6%$100,000$188,00046.8% Hotline48.6%$100,000$245,00059.2% Fraud training for managers/executives41.5%$100,000$200,00050.0% Internal audit/Fraud investigation team66.4%$145,000$209,00030.6% Fraud training for employees39.6%$100,000$200,00050.0% Anti-fraud policy39.0%$120,000$200,00040.0% Code of Conduct69.9%$140,000$262,00046.6% Management review of internal controls53.3%$120,000$200,00040.0% Source: Association of Certified Fraud Examiners – 2010 Report to the Nations on Occupational Fraud & Abuse – p.43

8. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. 8 Ernst & Young ’ s Anti-Fraud Framework Example actions Fraud Policy and Procedures Disciplinary code Delegation of authority Ethical guidance Fraud risk policy Insurance programs Employment contracts Practical steps that can enhance an organisation’s ability to mitigate fraud risk and strengthen its corporate governance framework Tone communication program Code compliance confirmations Whistleblower channels Fraud awareness training Induction and training processes ASX 7 sign off Annual Business Ethics surveys Fraud vulnerability assessments and scenario analysis Deep dive reviews by internal audit Incident reporting Annual and half yearly self assessment Process Data Analytics Escalation and investigation protocols Discipline and compliance enforcement Control remediation for known issues Financial recovery ReactiveProactive Setting the Proper Tone Code of Ethics Anti Fraud Program Policies Fraud Risk Assessment Fraud Controls Monitoring Communications and Training Fraud Response Plan

9. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. 9 Brenton Steenkamp, Partner, Fraud Investigation and Dispute Services, Ernst & Young Email: brenton.steenkamp@au.ey.combrenton.steenkamp@au.ey.com Lewis Rangott, Manager, Fraud Investigation and Dispute Services, Ernst & Young Email: lewis.rangott@au.ey.comlewis.rangott@au.ey.com Contact details

10. © 2010 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. 10 Ernst & Young Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit www.ey.com/au © 2011 Ernst & Young Australia. Liability limited by a scheme approved under Professional Standards Legislation. Adelaide Ernst & Young Building 121 King William Street Adelaide SA 5000 Tel: +61 8 8417 1600 Fax: +61 8 8417 1775 Brisbane 1 Eagle Street Brisbane QLD 4000 Tel: +61 7 3011 3333 Fax: +61 7 3011 3100 Canberra 121 Marcus Clarke Street Canberra, ACT 2601 Tel: +61 2 6267 3888 Fax: +61 2 6246 1500 Melbourne Ernst & Young Building 8 Exhibition Street Melbourne VIC 3000 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 Perth Ernst & Young Building 11 Mounts Bay Road Perth WA 6000 Tel: +61 8 9429 2222 Fax: +61 8 9429 2436 Sydney Ernst & Young Centre 680 George Street Sydney NSW 2000 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959