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Guidelines for Developing and Implementing Fraud Risk Management Framework in Public Sector Entities

Kampala, Uganda - To strengthen fraud risk management practices in public sector entities (PSEs), the government has released new guidelines aimed at ensuring transparency and accountability.

Background

According to Section 6(2) of the Public Finance Act, CAP 348, the Permanent Secretary-Treasury is mandated to issue directions and/or instructions from time to time to ensure safe and efficient use of public resources. The guidelines are also in line with Section 32 of the Public Finance Act, which requires the Internal Auditor General (IAG) to issue guidelines and ensure the effectiveness of risk management in PSEs.

Definition of Fraud

The guidelines define fraud as “any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain.” The term fraud involves activities such as:

  • Theft
  • Corruption
  • Conspiracy
  • Embezzlement
  • Money laundering
  • Bribery
  • Extortion

Types of Occupational Frauds

There are three key types of occupational frauds:

  • Asset Misappropriation: theft or misuse of PSE assets
  • Fraudulent Financial Statements: falsification of financial statements with the intention of obtaining improper benefits
  • Corruption: activities such as illegal gratuity, extortion, bribery, use of bribes, or acceptance of “kickbacks”

Reasons for Committing Fraud

The guidelines identify three key reasons for committing fraud:

  • Motivation: based on either selfishness or need
  • Opportunity: exists when there is a weak internal control system, poor security over organizational property, little fear of exposure and likelihood of detection, or unclear policies regarding acceptable behavior
  • Rationalization: justification for fraudulent behavior

Fraud Risk Management Framework

The guidelines aim to provide a comprehensive approach to managing fraud risk by identifying, assessing, and mitigating risks. They are designed to help PSEs strengthen their internal control systems, improve transparency and accountability, and prevent fraudulent activities.

Key Recommendations:

  • Develop a Comprehensive Fraud Risk Management Policy: outlines the framework for managing fraud risk
  • Establish a Fraud Risk Assessment Process: identifies, assesses, and prioritizes fraud risks
  • Implement Effective Internal Controls: to prevent or detect fraudulent activities
  • Provide Training on Fraud Prevention and Detection: to employees and contractors
  • Monitor and Review Fraud Risk Regularly: to ensure effectiveness of the fraud risk management framework

Conclusion

The guidelines are expected to enhance transparency and accountability in PSEs, reduce the incidence of fraud, and improve the overall efficiency of public resources.