The six fraud control levels

1. PROFILE
KAMUDONI NYASULU
LAW CONSULTANTS
Fraud and Corruption Examination * Rule of Law and Security Reforms * Litigation
DISFUNCTIONAL ANTI FRAUD
COMPLIANCE
Plot No. 584/585 Area 10 Tsoka Road P. O. Boc 1848 Lilongwe
Phone +265994368423/+265881424891 kamudoni@hotmail.com

2. Fraud in Our Laws
 Any false representation made by words, writing
or conduct which the maker knows to be false
 Made fraudulently or intended to defraud
 To induce public officer to act contrary to his duty
 Resulting in loss to the victim; or
 The maker achieving an ADVANTAGE (gain)
 The maker knows has no right to the Advantage

3. Advantage
 Benefit, service, enjoyment or gratification
 Payment, in cash or in kind, rebate, deduction,
concession or loan
 Condition or circumstance that puts one person
or class of persons in a favourable position over
another including a “gift”
 Public officers receiving property to show
favour
 Only exception is “entertainment”
Gift

4. Corruption
 Offering, giving, receiving, obtaining or soliciting of
any advantage to influence the action of any person
in the discharge of his or her duty
 Influence peddling
 Demanding or receiving by a person in office of a
fee or other payment for services, work, supplies
that should be gratuitous
Challenge: Citizens
Not willing to
Cooperate:
Patriot: Citizens
cooperating

5. Types of Fraud
 Corruption
 Generally bribes offered, given, solicited, and received
 Asset Appropriation: An employee or in collusion with an employee a
perpetrator steals or misuses an organisation’s resources; e.g.
 Use of organisation’s fuel to attend a Heritage Society celebration
 Financial statement fraud: involves the intentional misstatement or
omission of material information from the organization’s financial
statements; “cooking the books”

1.
Asset
Appropriation
Statement Fraud
Bribes

6. Examples of Fraud
 Embezzlement
 Forgery or alteration of documents
 Fraudulent financial reporting
 Misappropriation or misuse of Organisation’s resources
(e.g., funds, supplies, equipment, facilities, services,
inventory or other assets)
 Authorization or receipt of payment for goods not
received or services not performed
 Authorization or receipt of unearned wages or benefits
 Conflict of interest, ethics violations

7. Perpetrators
 Major frauds:
 Politicians, Senior Management,
Syndicates, Organisations, Employees,
Clients and Suppliers
 Pedestrian frauds:
 Employees, Clients and Suppliers

8.  Generally employees commit fraud because there is
 “Opportunity”, “Pressure”, and they “Rationalize”
their conduct
 We need to break the triangle: First step is to
remove or minimize “Opportunity”

9. Factors that Drive Fraud
 Opportunity
 No or weak: Supervision and review
 Management approval
 System or Internal controls
 Pressure (or motive)
 Personal financial problems; unforeseen expenses
 Personal vices/addictions such as gambling, luxury lifestyle
 Rationalization Individual develops justification for the
fraudulent activity e.g.
 “Everybody is doing it: we always do it” – Members of NCIC

10. Compliance: Remove or Minimise
Opportunity
REQUIREMENTS:
 Citizen, Organisations, Staff Aware of anti-fraud
framework (not fraud)
RED FLAGS:
 Organisations set anti-fraud systems and procedures
 Organisations, Staff Able to recognise indicators of
fraud
 Organisations, Staff compliance with systems and
procedures
 Regularly Examine the systems and procedures

11. Detection and Resolution
 Sector Wide Joint Programming
 Justice Chain Collaborative Planning
 Justice Chain Coordinated implementation
 Organisations’ structured record keeping practices

12. DAUNTING CHALLENGE

13. Levels of Fraud Control
PARLIAMENT
PUBLIC APPOINTMENTS
COMMITTEE
PUBLIC ACCOUNTS
COMMITTEE
LEGAL AFFAIRS
COMMITTEE
BUDGET AND FINANCE
COMMITTEE
JUDICIARY
MINISTER OF FINANCE CABINET MINISTER OF JUSTICE
RESERVE BANK OF MALAWI
TREASURY
DIRECTOR PROCUREMENT
DIRECTOR PUBLIC
PROSECUTIONS
ANTI-CORRUPTION BUREAU
MALAWI POLICE SERVICE
FIU, ACCGEN, AUDGEN, MRA
PRINCIPAL SECREATARIES
PROFESSIONAL BODIES
ACB, MPS (Fiscal) MALAWI LAW
SOCIETY
MALAWI ACCOUNTANTS
MINISTRIES, DEPARTMENTS, AGENCIES, STATUTORY BODIES, FINANCIAL
INSTITUTIONS, CIVIL SOCIETY ORGANISATIONS *** CITIZENS

14. Crime
Legislation Competent
Authority
Supervisory
Authority
Subject
Activity
Legal Education and Legal Practitioners
Council of Legal Education
Legal Education
Chief Justice Minister Admission to practice law
High Court
Chief Justice
Attorney General
Malawi Law Society
Discipline
Practice and Conduct
Courts and Judicature Judicial Service Commission Chief Justice Administration
Practice
Discipline
Penal Laws
(+CP&EC)
Director of Public Prosecutions (DPP) Legal Affairs Committee
Attorney General
Chief Justice
Practice
Malawi Police Service (MPS)
DPP
Courts
Practice
Police Service Commission Administration
Conduct

15. Fraud
Fraud
Director of Public Prosecutions
Financial Intelligence Unit (FIU)
Attorney General
Practice
Reserve Bank of Malawi (RBM)
FIU
Minister of Finance
Administration
Practice
Anti-Corruption Bureau DPP, FIU
Legal Affairs Committee
Practice
Minister, President Administration
Malawi Police Service
(Fiscal and Fraud) DPP
Courts
FIU
Practice
Auditor General Secretary to Treasury
Minister of Finance
Public Accounts Committee
Practice
Malawi Revenue Authority (MRA) DPP, ACB, MPS
FIU
Practice
Secretary to Treasury
Minister of Finance
Practice
Conduct
Administration

16. Financial Services
Financial Services and
Financial Institutions
Reserve Bank of
Malawi
Minister of Finance
Board of Directors
FIU, DPP, MRA, ACB
MPS Fiscal, Bankers Association
Insurance Institute
Other professional societies
Administration
Conduct
Practice
Conduct
Director of Public
Procurement (DoPP)
Internal Procurement Committees Administration
Practice
Cabinet
Minister of Finance
Public Private Partnership Commission Administration
Conduct
Practice
REGISTRARS Administrator General Practice
Registrar General Practice
Land Registrar Practice
Commissioner for Mines and Minerals
Commissioner for Petroleum Exploration and Production Administration
Practice
Conduct
Director of Forestry
Malawi Legal Council Malawi Law Society
Practice
Conduct
Malawi Accountants
Board
Society of Accountants in Malawi (SOCAM)
Professional Societies
National Construction
Industry Council
Master Builders’ Association
Malawian Building Contractors and Allied Trades Association, Board of Architects
and Quantity Surveyors
Board of Engineers; Association of Consulting Engineers; Board of Land Economy
Surveyors, Valuers, Estate Agents and Auctioneers; Chamber of Commerce and
Industry

17. SUGGESTIONS

18. Sectors of Recent
Fraud
 Procurement and Finance
 Financial Services
 Land, Forestry and Local
Government
 Land, Mining (Petroleum) and Local
Government
 Public Private Partnerships
(Privatization)

19. Penal and Financial Laws
 Money Laundering
 Corrupt Practices
 Financial Services
 Public Procurement
 Taxation
 Consumer Protection
 Mining and Petroleum
 Bureau of Standards

20. Possible Steps for Government
Competent and Supervisory Authorities to:
 Review their obligations on compliance
 Jointly review current performance plans
 Plan coordinated implementation

21. Possible Steps for Others
Professional Bodies, Boards, Councils to:
 Review outstanding obligations on compliance
 Financial Institutions review compliance regime
 Recruit, where required, compliance officers
 Create systems and procedures for compliance
 Train staff to understand anti-fraud requirements
 Train staff on how to recognize indicators of fraud

22. A Sample of Requirements for
Compliance
 Ascertain purpose of transaction large amounts; ascertain
origin and ultimate destination
 Maintain records of all transactions and correspondence for
minimum seven years
 Records must be kept in a manner and form that would
make them usable by the Director of Public Prosecutions
(DPP) or the FIU
 Appoint Compliance Officer
 Train staff on the compliance requirements
 Train staff on the procedures and systems
 Train staff to recognize suspicious transactions (red flags)

23. A Sample of Indicators (Red Flags)
Out of common 42 indicators the following were present in “Capital Hill
Cashgate”
 Business cannot be found on the internet
 Client wants to take short cuts
 Back to back property transactions
 Client uses multiple bank accounts
 Parties connected without an apparent business
reason
 Requests for payments to third parties

24. Attention
THIS IS THE LAW
YOU OR YOUR COMPANY
COULD END UP IN COURT !!!