Guidelines for Developing and Implementing Fraud Risk Management Framework in Public Sector Entities
Introduction
Tanzania’s public sector entities (PSEs) face numerous challenges related to fraud, corruption, and mismanagement of resources. The Prevention and Combating of Corruption Act, CAP 329, and other relevant laws and regulations emphasize the importance of effective fraud risk management to ensure transparency, accountability, and efficiency in public resource allocation.
To address this critical issue, the Permanent Secretary-Treasury has issued guidelines for developing and implementing a fraud risk management framework in PSEs. These guidelines are designed to complement existing laws and regulations, ensuring the safe and efficient use of public resources.
Understanding Fraud
Fraud is defined as an intentional act or omission designed to deceive others, resulting in loss and/or gain for the perpetrator. It involves activities such as theft, corruption, conspiracy, embezzlement, money laundering, bribery, and extortion. There are three key types of occupational fraud:
- Asset misappropriation
- Fraudulent financial statements
- Corruption
The Fraud Triangle
A deeper understanding of the fraud triangle reveals that there are three interrelated elements that enable someone to commit fraud:
- Motivation: Selfishness or greed, often driven by a desire for wealth or need.
- Opportunity: Weak internal control systems, poor security, and unclear policies create an environment conducive to fraud.
- Rationalization: The philosophy “if others are doing why not me” can lead individuals to justify fraudulent behavior.
Defining Fraud Risk and Fraud Risk Management
Fraud risk is the vulnerability of a PSE to the three interrelated elements that enable someone to commit fraud. Fraud risk management is a process aimed at identifying, assessing, and mitigating fraud risks to protect public resources.
These guidelines provide a framework for PSEs to develop and implement an effective fraud risk management system, ensuring transparency, accountability, and efficiency in their operations. By implementing these guidelines, PSEs can reduce the likelihood of fraudulent activities and promote a culture of integrity and transparency.
Implementation Guidelines
The guidelines outline the following steps:
Conduct a Risk Assessment
- Identify potential fraud risks and assess the likelihood and impact of each risk.
Develop a Fraud Prevention Plan
- Establish policies, procedures, and controls to prevent and detect fraud.
Implement Internal Controls
- Ensure that internal controls are in place to prevent fraud and ensure accountability.
Monitor and Review
- Regularly monitor and review fraud risks and the effectiveness of fraud prevention measures.
By implementing these guidelines, PSEs can reduce the risk of fraudulent activities, promote transparency and accountability, and ensure the efficient use of public resources.