DOUBLE CROSSING THE DONORS

After an internal audit report released by Kenya’s deputy prime minister and minister of finance, The World Bank has demanded that the government refund billions of shillings to donors, according to an article published in The Standard. The article reports that Ministry of Education officials embezzled the funds, which were allocated to the Kenya Education Sector Support Program.

The Kenyan Parliament has ordered the minister of education to reconcile the ineligible expenditures figures, as his explanation of how the money was lost conflicted with the audit report. The minister has absolved himself from the scam, saying he was not in charge of the ministry when the bulk of the money was embezzled between 2005 and 2009.”

Lessons Learned

Perhaps more than ever before, fraud is being actively investigated and prosecuted throughout the world. High-profile arrests and prosecutions during the past decade have heightened both public and business response to fraud, and the cost of fraud is increasingly being measured in terms of reputational risk as well as monetary risk. The reputation of the individual who committed the fraud, of the managers and CEOs who are being found guilty of culpable negligence, and of the organization itself are all at risk. Stakeholders are demanding that fraudsters be arrested, that restitution be made, and that senior officials be held accountable.

These types of situations raise important issues for internal audit and senior management. The current economic instability places increased financial pressure on individuals as well as organizations, and the streamlining of business, cutbacks in personnel, and mergers and acquisitions can present more opportunities for fraud. This combination of pressure and opportunity leave an organization vulnerable to fraud. As a result, management and internal audit must examine controls and identify fraud risks. This includes following up on allegations, instances of control deficiencies, and cases where employees deliberately circumvented controls. Additionally, managers who are new to an organization or department should carefully review what they have inherited. They cannot absolve themselves of responsibility for fraud simply because it had started before they arrived.


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