Fraud Policy p4

Appendix 1 - Indicators of Fraud

There are a number of recognised warning signs or ‘red flags’ which may indicate that there is fraudulent activity occurring.

These should not be taken alone as evidence that a fraud is occurring as there may be other legitimate explanations for the occurrence of these indicators.

Fraud indicators are inherently interrelated. However, for ease of reference they have been grouped together.

This list is not exhaustive.

Behavioural	Financial	Procedural
Employees who are excessively secretive in relation to their work Employees under apparent stress without identifiable pressure Employees with sudden change of lifestyle and/or social circle Employees who are reluctant to take holidays and/or time off Employees who consistently work longer hours that their colleagues for no apparent reason Employees who delay providing information or who provide different answers to different people Employees who are aggressive or defensive when challenged and/or controlling of certain colleagues Employees who are subject to complaints and/or tend to break the rules Employees with new and unusual relationships with other individuals or departments within the organisation Excessively high or low turnover and/or new employees resigning quickly Employees who request significant detail about proposed internal audit scopes or inspections Employees with drink, drug or gambling problems	Large volume of refunds to customers Unusual transactions or inter-account transfers (even for small amounts) Unusually large inventories Rising costs with no explanations or that are not in line with an increase in revenue Poorly reconciled cash expenses or customer accounts Bank reconciliations are not maintained or can’t be balanced Extensive use of suspense accounts Large outstanding bad or doubtful debts Missing or unavailable official records Employees who submit inconsistent and/or unreasonable expense claims Employees known by others to be under external financial pressure Employees who appear to make a greater than normal number of mistakes, especially where these lead to financial loss through cash or account transactions Employees with completing or undeclared external business interests Employees at the highest level of performance (eg sales) where there might be concern that they are achieving this through suspect activity	Customers or suppliers insisting on dealing with just one individual Tendering to one supplier only or to the same suppliers Lack of transparency Employees making procedural or computer system enquiries inconsistent or not related to their normal duties Key managers with too much hands-on control Insufficient oversight/audit applied An usual number of customer complaints Too much delegation by senior managers without proper review of procedures. Prospective employees who are reluctant to provide full background information or who provide inaccurate or inconsistent information Inadequate recruitment processes and staff screening Lack of segregation of duties Absence of key controls and audit trails Lack of thorough investigation of alleged wrongdoings Strained relationships between management and internal/external auditors Climate or fear or an unhealthy culture

Appendix 2 - Common Methods and Types of Fraud

Payment for work not performed False official identification used Forged endorsements Altering amounts and details on documents Collusive bidding Overcharging Writing off recoverable assets or debts Unauthorised transactions Selling information Altering stock records Altering sales records Cheques made out to false persons False persons on payroll Unrecorded transactions Transactions (expenditure/receipts/deposits) recorded for incorrect sums Cash stolen Supplies not recorded at all

Damaging/destroying documentation Using copies of records and receipts Using imaging and desktop publishing technology to produce apparent original invoices Charging incorrect amounts with amounts stolen Transferring amounts between accounts frequently Delayed terminations from payroll Bribes Over claiming expenses Fraudulent use of office resources- claiming more time than incurred; use of office time for personal purposes (eg. Inappropriate Internet usage) Time recording- claiming more time than incurred Selling waste and scrap Stealing of discounts False compensation and insurance claims Using facsimile signatures Running a private business with official assets Skimming odd pence and rounding

Appendix 3 - Examples of Good Management Practices Which May Assist in Combating Fraud

• All income is promptly entered in the accounting records with the immediate endorsement of all cheques
• Regulations governing contracts and the supply of goods and services are properly enforced
• Accounting records provide a reliable basis for the preparation of financial statements
• Controls operate which ensure that errors and irregularities become apparent during the processing of accounting information
• A strong internal audit presence
• Management encourages sound working practices
• All assets are properly recorded and provision is made for known or expected losses
• Accounting instructions and financial regulations are available to all staff and are kept up to date
• Effective segregation of duties exists, particularly in financial accounting and cash/securities handling areas
• Ensure proper authorisation of any changes to payee bank details
• Monitor use of suspense accounts and journal entries to ensure there is a valid reason for them.
• Ensure payment reports are subject to supervisory checks before there is any transfer of funds.
• Close relatives do not work together, particularly in financial, accounting and cash/securities handling areas
• Creation of a climate to promote ethical behaviour
• Act immediately on internal/external auditor’s report to rectify control weaknesses
• Review, where possible, the financial risks of employees
• Issue accounts payable promptly and follow-up any non-payments
• Set standards of conduct for suppliers and contractors
• Maintain effective security of physical assets; accountable documents (such as cheque books, order books); information, payment and purchasing systems
• Review large and unusual payments
• Perpetrators should be suspended from duties pending investigation
• Proven perpetrators should be dismissed without a reference and prosecuted
• Query mutilation of cheque stubs or cancelled cheques
• Store cheque stubs in numerical order
• Undertake test checks and institute confirmation procedures
• Develop well defined procedures for reporting fraud, investigating fraud and dealing with perpetrators
• Maintain good physical security of all premises
• Randomly change security locks and rotate shifts at times (if feasible and economical)
• Conduct regular staff appraisals
• Review work practices open to collusion or manipulation
• Develop and routinely review and reset data processing controls
• Regularly review accounting and administrative controls
• Ensure that access rights are regularly reviewed and updated as appropriate, for example when someone changes role or leaves.
• Implement a sound system of pre-employment screening and due diligence, to ensure the applicant is who they say they are.
• Set achievable targets and budgets, and stringently review results
• Ensure staff take regular leave
• Rotate staff
• Ensure all expenditure is authorised
• Conduct periodic analytical reviews to highlight variations to norms
• Take swift and decisive action on all fraud situations
• Ensure staff are fully aware of their rights and obligations in all matters concerned with fraud.