PKF Forensic & Risk Services. Integrity Issues in the Australian Workforce Part 2 Integrity Corporate Governance 16 May 2017

Transcription

1 PKF Forensic & Risk Services Integrity Issues in the Australian Workforce Part 2 Integrity Corporate Governance 16 May 2017

2 Agenda Integrity Issues in the Australian Workforce Recap on Part 1: Emerging Integrity Issues Integrity Issues in the Australian Workforce What do we mean by Integrity Corporate Governance Seven Integrity Corporate Governance Case Studies 10 practical steps for getting these Integrity Corporate Governance measurements right

3 Integrity Issues in the Australian Workforce Recap on Emerging Integrity Issues

4 Recap - So, what are we talking about? Integrity The quality of being honest and having strong principles Ethics Moral principles that govern a person s behaviour and decisions Culture The way things are done around here when nobody is looking Corruption Dishonest or fraudulent behaviour by those in power Fraud Wrongful or criminal deception for financial or personal gain Maladministration Inefficient or dishonest administration of process Misconduct - unacceptable or improper behaviour, especially by an employee or professional person

5 Recap - Top 5 reasons why integrity issues can manifest 1. The fraud opportunity + rationalisation + motivation 2. Behavioural integrity e.g. leaders with a narcissistic personality 3. Too much focus on profit and fiscal performance 4. Ignorance it won t or does not happen here 5. Inadequate supervision

6 Recap - 10 Emerging and Old Integrity Risks 1. Banks rate rigging & financial planner scandals 2. Employees neglecting duties 3. Maladministration 4. Franchisees and other organisations underpaying staff 5. Workplace bullying 6. Cyber bullying 7. Inappropriate disclosure of sensitive information 8. Conflicts of interest 9. Corruption 10.Conflicts of interest

7 Integrity Issues in the Australian Workplace Integrity Corporate Governance Mechanisms

8 What mechanisms are we talking about first of all Integrity Corporate Governance: The system of rules, practices and processes by which an organisation is directed and controlled. 1. Whistleblower Program internal and external reporting mechanisms 2. Audit internal and external audit 3. Education Fraud, corruption and any other ethics related training 4. Risk Management Effective assessment and management of integrity risks 5. Data Analytics Tailored design, testing, review and protection of an organisations information 6. Investigation Skills Appropriate skill-set and approach to rectify an allegation 7. Organisational Responsibility People leading by example and taking individual responsibility for their actions

9 Some news stories to provide further insight on these mechanisms Council Mayor does not keep separate bank account in Council elections Seven warned on credit cards amid CEO sex scandal Chilling tale of Origin Energy Whistleblower No auditor can reasonably be expected to catch a well-organised and determined fraud Cyber Security market to reach $170 billion and ERM market to reach $12 billion by 2020

10 Five reasons why organisations are not doing enough 1. 87% of PKF s Forensic & Risk Business in FY17 is Investigation engagements. 2. A culture of silence still exists in Corporate Australia 3. A lack of basic risk management principals are being applied in many organisations, in particular the labour-hire, outsourced and contractor business models 4. 23% of organisations have no particular system of tracking wrongdoing or concerns additional resources to enhance AFP s Fraud and Anti Corruption Centre Federal government provides an additional $122M in funding to ASIC

11 Five reasons why organisations should do more 1. Organisations with specific anti-fraud controls suffered considerably less fraud losses than organisations without 2. Organisations with specific fraud related controls detected fraud more quickly than those organisations without 3. Integrity Corporate Governance costs are lower than investigation costs 4. Thanks to the recent education program we rolled out across the organisation, our investigation numbers have reduced dramatically. My sense is that this is because of a heighten alert by our staff 5. A key aspect of Corporate Good Governance is getting the culture of a company right. Poor culture often leads to poor behaviours which often adversely impacts an entity by it incurring significant additional financial costs.

12 Corporate Governance Case Studies

13 1. Audit Organisation: Manufacturing Business What happened: Audit Removed Why did the change occur: Change in Company Structure and Subsequent Cost Saving Opportunity Bigger Picture: Is this mechanism currently effective: Yes Why: Statutory Requirement under the Corporations Act & Many organisations following better practice guidelines in relation to IA

14 2. Education Programs Organisation: University What happened: Instances of Fraud reduced dramatically Why did the change occur: University staff more alert to risks and subsequently reduced the opportunity Bigger Picture: Is this mechanism currently effective: No Why: Little Investment in training staff on these issues

15 3. Risk Management Organisation: Manufacturing Business What happened: ATO demanding $10 million in tax evasion & staff committing Fraud Why did the engagement occur: Poor compliance Bigger Picture: Is this mechanism currently effective: No Why: Many people still view risk management as compliance and not value add

16 4. Data Analytics Organisation: Construction Business What happened: Growth Pains Why did the engagement occur: AP Team Ineffective Bigger Picture: Is this mechanism currently effective: No Why: Technology is good but design and implementation is ineffective

17 5. Whistle blower Programs Organisation: State Government Department What happened: Culture of Silence Why did the change occur: Anonymous independent hotline implemented Bigger Picture: Is this mechanism currently effective: No Why: Legislation and Standards not effective

18 6. Investigation Skills Organisation: Insurance Company What happened: Engaged to Conduct an Investigation Review Why did the engagement occur: Client had a concern that critical evidence had been missed in the first investigation Bigger Picture: Is this mechanism currently effective: No Why: Number of substitutes appearing in the market

19 7. Organisational Responsibility Organisation: Local Government What happened: Bullying Manager v Underperforming Employee Why did the engagement occur: A complaint made against the Bullying Manager by another staff member Bigger Picture: Is this mechanism currently effective: No Why: Failings by every stakeholder

20 10 questions to ask about your organisation when deciding on Corporate Governance Mechanisms

21 10 questions to ask about your organisations Integrity Corporate Governance Framework 1. Has your Integrity Policies got detailed, clear definitions and examples on unethical behaviour? 2. Are procedures being adhered to within your organisation? 3. Do your managers effectively supervise their staff where issues might be arising? 4. Are your ethical related training programs actually impacting staff behaviour in a positive way? 5. Does your organisation use intelligence from integrity related investigations to drive new corporate governance initives? 6. Does your company insurance policy cover you for fraud loss? Are you as across the exemptions of the policy? 7. How are integrity related issues being uncovered within your organisation? Does it suggest there is confidence in your Whistleblower Framework? 8. Have you had matters not substantiated which have subsequently re-arisen? 9. Have your data analytics programs have an objective of saving the organisation money? 10. Do your senior managers walk the talk on integrity enough?

22 Questions? Questions (07)