Fraud Risk Management

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1 Risk Management Preventing, deterring and detecting fraud Does your company have an anti-fraud program?

2 is a fact in business life. What thoughts will be on the minds of top management or those responsible for corporate governance when such fraudulent acts are costing the company severely? Studies show that businesses can lose up to 6% of revenues to fraud. That s a massive number. Companies need to find ways to prevent any fraudulent acts in order to avoid the financial and reputational damage that fraud can cause. Those with corporate governance responsibilities should be asking themselves what can be done to assess, tackle and mitigate the associated risks. Risks faced as a result of fraud can be severe and include not only loss of money and assets but also criminal prosecution, large fines, reputational damage and competitor litigation leading to loss of share value and investor confidence. Companies have to be alert. There must be effective ways to ensure the security and integrity of the enterprise and its value. The truth about antifraud programs today Most companies do not have a formal or explicit anti-fraud program. They focus on back-end fraud investigations, rather than proactively investing in prevention programs. Companies are beginning to understand the cost of fraud: Impact on stock price Damage to reputation Adverse financial and operational impact Personal risk to executives is being directly addressed by regulators such as BAPEPAM, stock exchanges, SEC, etc.

3 An effective anti-fraud program framework Assess Setting the proper tone Proactive Reactive Improve Code of ethics prevention policies Awareness training risk assessment Controls monitoring response plan Monitor An effective fraud prevention program should be embedded in the culture of a company through activities that prevent, deter and detect fraud, as well as comprehensive awareness and education of stakeholders. The program elements may include: Setting the proper tone within the organization: Code of Ethics Promotion of the honest and ethical conduct Prevention Policies Establishment of policies that guide employees through complex issues, provide procedures for the escalation of fraud allegations, and provide support/ protection for whistleblowers. Communicate Awareness Training Education of employees on code of conduct, understanding of the reporting process regarding suspicious activities, and communicating disciplinary actions that may be taken in the event of fraud. Proactive measures to identify and mitigate specific fraud risks: Risk Assessment Identification of areas of susceptibility to fraud including those fraud schemes common to most companies, specific to the organization s industry, and/or risks more prevalent in specific geographic locations. Controls Monitoring Linkage of fraud risks identified during the risk assessment process to internal controls and assessing the effectiveness of the controls to prevent or detect fraud. Reactive protocols to follow in the event fraud is suspected or detected: Response Plan Establishment of investigation protocol including root cause analysis to assist the client in determining remediation action steps to prevent or detect the fraud in the future, and enforcement of the uniform disciplinary procedures Risk Management 3

4 How Ernst & Young can help There are many components that contribute to a successful implementation of an anti-fraud program. Our Investigation and Dispute Services (FIDS) practice can help. Our team will be able to provide technical assistance to your company in the following areas: Develop and implement the anti-fraud control policy Assist in the fraud risk assessment Incorporate and implement a program of regular fraud risk assessment into existing Enterprise Risk Management activities Develop Risk Management framework, competency and training Ethics and compliance Additionally, we can also provide the following solutions: Integrity risks review Financial fraud investigation/forensic accounting Training on fraud awareness and investigative audit Regulatory compliance review Our approach will be through a series of stages which may include diagnostic, design and planning, solution development, implementation and post-implementation review, which enables management to assess the extent to which its business will be affected by these fundamental issues decide how and to address these business issues appropriately. Design and planning From the diagnostic impact study, we produce a report that enables us to work together with you to design, plan and develop a solution which will work for your company. Solution development We will work with you in developing appropriate ways to address the issues identified during the diagnostic. These solutions may involve training; reporting; creating policies; building and testing systems; process changes; and internal external communications. Solutions may be in the form of assessment, mitigation and implementing control activities. Implementation We will work with your company to help implement solutions and provide training, as needed, to relevant personnel. We will assist you in implementing systems and process changes. Post-implementation review Once a solution has been implemented, we will undertake a post-implementation review. We also provide on-going support for other business issues that may arise as a result of the solution. Diagnostic We will start with a diagnostic assessment of an existing anti-fraud program and the possible effects of Risk Management in your company. Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Diagnostic Design and planning Solution development Implementation Postimplementation review Risk Management 4

5 Why choose Ernst & Young? 1. We have a considerable track record in delivering Incident Management services on a local and global basis. 2. Our team to serve you has been carefully selected both to ensure appropriate experience, and to bring the right interpersonal skills. Ernst & Young Indonesia has been providing Business Integrity Risk & Forensic Services related assistances to local and multinational companies across several industries in Indonesia such as: Government agencies State-owned companies Manufacturing and finished products Distribution Oil and gas Construction Financial services Retailing Hospitality Telecommunications Entertainment Pharmacy & health care Foundation and NGOs We re a global organization of 152,000 people, in 140 countries Quality can never be taken for granted, and that it must be demonstrated by each of us Our success depends on the skills and experience, high-performance and quality of our people Our Global News Link Home site is a key tool in helping us build a great global culture and get connected Our professional team Amien Stevanus Sunaryadi Alexander B.P. Sianturi Tel: amien.sunaryadi@id.ey.com stevanus.a.sianturi@id.ey.com Risk Management 5

6 Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 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 potential. Dealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to achieve your company s potential. Better management of fraud risk and compliance exposure is a critical business priority no matter the industry sector. With our more than 1,000 fraud investigation and dispute professionals around the world, we assemble the right multi-disciplinary and culturally aligned team to work with you and your legal advisors. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It s how Ernst & Young makes a difference. For more information, please visit Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients Ernst & Young Indonesia All Rights Reserved.