AN ASSESSMENT OF NATURE, CONTROL AND IMPACTS OF FRAUD IN TANZANIA PUBLIC OFFICES:
A CASE STUDY OF TMDA-SHZ.
By
"Victor Otuoma" & "Stewart Mbegu"
ABSTRACT
Fraud is one of the besetting evils of all time. While no one knows the exact extent of fraud, it hardly passes a day without some reference in the media to yet another fraud or alleged fraud. Fraud is a serious, underestimated and unchecked problem. Every public body is an active target for fraudsters.
This study aimed at assessing the nature, control and impacts of fraud in Tanzania public organizations. With specific objectives of assessing the nature or types of frauds in public organization, to appraise the adequacy and effectiveness of internal controls in managing frauds in public organization and lastly to assess impacts of frauds in public organization and suggest measures on how to manage and reduces the impacts in public organization and public in general. Following the definition of the problem, literature study was done in order to get insights of the problem.
The methodology used was survey study. The design used enabled the researcher to collect data from the targeted respondents through questionnaires, interviews and documentary sources. Data collected were analyzed careful by using both quantitative and descriptive techniques, in quantitative technique percentages were used for analysis and the results showed that cash theft, inventory theft, inventory misuse, payroll fraud, overstatement of expenses, improper asset valuation, illegal gratuities, fund diversion frauds, bribery, and procurement fraud are types of frauds occurring in public organizations.
Internal controls were found adequate and effective in some areas/ processes, however, other areas were found to be loopholes for fraud such as misuse of inventory and theft of inventory. In some instances, the areas highlighted by independent reviewers such as auditors for improvement, were given consideration for implementation as per the recommendations provided by independent reviewers.
Researcher found that public in general suffers both financial and non financial impacts from fraud. Financially, the trend and magnitude of fraud is increasing and mostly committed by staff. On non financial impact, Fraud against public bodies compromises the government’s ability to deliver services and achieve intended outcomes. Money and services are diverted away from the intended targets and the services delivered can be substandard or unsafe. This can have a direct impact on people’s life. It also leads to erosion of trust in government, and victims miss out on essential services and supports that they rely upon.
Based on the results of the study, the researcher concluded that fraud still occurs in public organizations due to weakness in internal controls, low remunerations to employees and lack management accountability in relation to who caused the loss.
To address the weakness noted, the researcher recommended that internal control in public organizations must ensure that controls are adhered to. Survey on salary should be done in order to commensurate with job responsibilities and fraud threshold to be established by both management and regulators. Lastly, whether you’re a public sector employee, government supplier or member of the public, you can take action to prevent corruption. Expose fraudulent activities and risks that may otherwise remain hidden. Keep the public sector honest, transparent and accountable, help to stop dishonest practices to ensure that public sector employees act in the public interest.
1.1 Background
Organizations face various risks to their success; economic risk, disaster risk, transaction risk, legal risk, and technical risk all affect organizations in different ways and at different stages. While the risk of fraud is just one of many factors included in this list, it is universally recognized by all businesses and government agencies. Any organization that owns assets is at risk of having those resources targeted at unscrupulous individuals. And, unfortunately, a significant portion of that threat comes from people who are actually hired to perform organizational tasks (ACFE, 2016)
The whole world is tainted by a history of fraud from generation to generation in almost every organization. Some of these fraudsters were reported and others were able to escape freely. Gough in his book "The con men" described the following cases of fraud; "In today's regulatory environment, it is almost impossible to break the rules." Bernard Madoff, in 2008, was sentenced to 150 years in prison in June 2009 for running a $ 65 billion Ponzi scheme (Gough, 2013).
"We are not breaking the law", Kenneth, CEO of Enron, 2001, died in 2006 while awaiting sentencing on fraud charges. "No one will find me deliberately cheating" Bernard Ebbers, the chief executive officer (CEO) of WorldCom, in 2002, was sentenced to 25 years in prison, in July 2005, for fraud. “I will die and go to hell if it is Ponzi's plan. It is not a Ponzi scheme. ”R. Allen Stanford, chief executive of Stanford Financial Group, in 2009, was sentenced to 110 years in prison for running a $ 7billion Ponzi scheme in June 2012.
In Tanzania many efforts have been made to ensure that fraud in state-owned enterprises is reduced, including the introduction of strict ethical and ethical requirements that require a public servant to protect public funds and other public property, and to provide material and financial security. (URT, 1961). In a broader sense, fraud can cover any crime with a profit that derives fraud as their primary means of operation. Specifically, fraud is defined by Black's Law Dictionary as misrepresentation of the truth or concealment of material truth to entice another to commit harmful acts (Garner, 2004).
Fraud can be divided into several categories, the most common types being the misappropriation of assets and the misappropriation of funds. The first is often referred to as employee fraud which includes fraud, embezzlement or inventory, employee fraud, personal use of property; the latter is considered a fraud on the financial statements, which are often carried out by management (Rlley, Hogan, & Rezaee, 2008).
Fraud, big or small, is a persistent problem in many organizations. If you dig deep into almost every organization’s world you will find a steady stream of almost unbelievable financial scandals at the level of their hypocrisy.
1.2 Background of the organization
Tanzania Medicines and Medical Devices Authority (TMDA) is an Executive Agency under the Ministry of Health, Community Development, Gender, Elderly and Children (MOHCDGE). TMDA which was formerly known as Tanzania Food and Drugs Authority (TFDA) was established in 2003 after enactment by the Parliament of the Tanzania Food, Drugs and Cosmetics Act, Cap 219. This Act was later amended in 2019 to Tanzania Medicines and Medical Devices Act, Cap 219 after the shift of responsibilities of regulating food and cosmetics to Tanzania Bureau of Standards (TBS). The change in legislative framework which was done through the Finance Act, No. 8 of 2019 also resulted into the change of name to TMDA
TMDA is now responsible for regulating quality, safety and effectiveness of medicines, medical devices, diagnostics, biocides and tobacco products. In order to improve public service delivery, TMDA is managed as an Executive Agency in accordance with the Executive Agencies Act, Cap.245 which was also amended in 2009
1.3 Statement of the Problem
Fraud is a serious, underestimated and unchecked problem (IPSFF, 2020). All civil society organizations are is an active target for fraudsters. Unfortunately, civil society organizations do not always seek fraud in the performance of their duties. Civil society organizations may find it difficult to explain, measure, and report problems without guidance. In addition, the focus may be on financial losses but in reality the impact of fraud outweighs financial losses (IPSFF, 2020)
A 2010 national survey conducted by the NGO Concern for Development in Africa (ForDIA) found that police were considered corrupt, followed by local health authorities, the judiciary, the Tanzania Electric Supply Company and the Tanzania Revenue Authority (U.S. Department Province, 2013). These results are also reflected in the GCB 2013 file, in which respondents identified the following as the most corrupt sectors: police (87%), law enforcement (86%), health sector (79%), public servants (75%) and education system (74%)
The impact of fraud on individuals, civil society, industry, social services and the environment can be irreparable damage. Understanding the nature, the necessary control and the full impact of fraud, not just financial losses allows public organizations to make better decisions regarding fraud (IPSFF, 2020).
Also, despite major advances in fraud detection technology, fraudulent losses continue to cause major problems in many industries, including government, banking, finance, and other sectors of public administration, manufacturing, education, insurance, health care, Internet retailers, commerce and security (ACFE). , 2012).
Tanzania is also protected from this problem as civil society organizations, banks and other institutions have been reporting fraud on various occasions (Wilhelm, 2004). The researcher intended to find out why deception took place in civil society despite the existing regulations and how fraud was committed.
The global market for fraud detection and prevention is estimated at USD 18.24 billion by 2020 and is expected to reach USD 40.8 billion by 2026 and grow at a compounded annual growth rate (CAGR) of 18.17% over the forecast period 2021-2026
In a global analysis conducted by Certified Fraud Examiners to help measure the financial damage caused by fraud, the 2016 international report on workplace fraud and harassment estimates that organizations lose 5% of their annual revenue. They also showed the magnitude of this estimate by applying this percentage to the World’s Greatest Product Estimated at $ 74.16 trillion in 2014 leading to a potential loss of up to $ 3.7 trillion worldwide. These estimates are based on the fact that they are based solely on the opinions of study participants and not on specific information about actual crime loss (ACFE, 2012).
1.4 Research Objectives
1.4.1 General Objective
The general objective of the research was to assess the nature, control and impact of fraud in Tanzania public organizations.
1.4.2 Specific Objectives
· Identifying the nature / types of fraud in public bodies and finding out why fraud occurs.
· Assess the adequacy and effectiveness of internal controls in the management of fraud in public bodies.
· Assess the impact of fraud on a public entity and suggest ways to manage and reduce the impact of fraud.
1.4.3 Research Questions
·What are the types of frauds that occur in public organizations?
·Are internal controls adequate and effective in managing frauds emanating in public organizations?
·What are the impacts of frauds in public organizations?
1.5 Rationale of the Study
There have been questions on frauds in Tanzania public organizations, in assisting other researchers and all members of the public this study aimed at assessing the nature, impact and management of fraud in public organizations, in which it is useful. The study provides knowledge to the general public, management and other stakeholders about nature of frauds that public organization are facing, the impact of frauds and the ways frauds can be mitigated.
• The study contributes to the current available literature on the issues relating to frauds in public organizations.
• The findings of the study will be used as the secondary source of data for making decision to organizations concerned with matters related items prone to fraud (example finance).
• The findings of the study can also be used by the organizations to improve their internal control processes.
• It was part of partial fulfillment for award of degree in accounting and finance in business sector.
1.6 Scope of the Study
The study was conducted at Tanzania medicine and medical devices authority (TMDA) southern highland zone. The researcher visited the zone offices at Mbeya where he was also conducting his field studies and collected reliable information but much time was devoted to the department of finance/ accounting for access of detailed information and data relating to frauds and its management.
1.7 Limitations of the Study
Time was the limiting factor. The researcher could not study all public organizations in Tanzania, as time was limited. So the researcher planned his work in advance and selected the organizations which provided valid and reliable data which were used to facilitate drawing conclusion and making recommendations to the management of the organizations.
Some people were reluctant on providing required data and information for unknown reasons, and on the other case some people according to their position (top management) and their responsibility was hard to spare much time on discussions; therefore to encounter this problem researcher simplified the questionnaire so that respondent could find it easy to give in formations.
Despite the limitations faced, the researcher tried to keep promise with some top management in order to get data and information which were useful to this study. Though, other information was not obtained at all, conclusion drawn was based on what was obtained and observed.
1.8 Organization of the Study
The study is organized in five chapters. Chapter one covers introduction of the study, statement of the problem and research objectives. Chapter two covers Literature review, chapter three research methodology, chapter four results of research findings and last chapter five covers conclusion and recommendations.
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter includes the review of theories that are related to fraud and its management. The review covered literature from theories and that from previous researchers. It also covered the literature gap from empirical studies which is fundamental for this research to bridge the gap.
2.1 Theoretical Literature Review
2.1.1 Meaning of Fraud
Fraud has many meanings but it is noteworthy that fraud is a crime and abuse. Fraud as a crime is called a common term that encompasses all the many methods that can be used by human ingenuity, which are reported as one person gaining advantage over another through false representation (Singleton, 2010).Fraud is a false representation or concealment of a fact or other unlawful act committed intentionally to improperly benefit oneself or others and unjust losses for others (URT, 2012) .
Fraud can also be defined as a series of illegal and illegal acts that are characterized by intentional deception. It can be done for the benefit of or against the organization and the people outside and within the organization
Fraud designed to benefit an organization often produces that profit through unjust or dishonest profits that can deceive even the outside party. The perpetrators of such scams often gain personal benefits
Ø Sale or distribution of fiction or misrepresented assets.
Ø Improper payments such as illegal political donations, bribery, and payments to government officials, mediators of government officials, customers or suppliers.
Ø Intentional representation, improper or limited transaction, Assets, liabilities, or revenue.
Ø Deliberate transfer price, improper (e.g., valuation of an asset transferred between related entities).
Ø By deliberately creating unfair pricing strategies, managers can improve the performance results of an organization involved in a transaction that harms another entity.
Fraud perpetrated to the detriment of the organization generally is for the direct or indirect benefit of an employee, outside individual, or another organization. Some examples are Embezzlement; misappropriation of money or property, and falsification of financial records to cover up the act, thus making detection difficult. It also includes intentional concealment or misrepresentation of events or data, false claims submitted for services or goods not actually provided to the organization
2.1 Forms of Frauds
Fraud is divided into different forms, but in particular there are three forms of fraud, namely; corruption, misappropriation of funds and fraud in the financial statements (URT, 2012).
2.1.1 Corruption
Is any conduct where a person accepts, agrees or offers any gratification for his/herself or for another person where the purpose is to benefit dishonestly or illegally. Some of the issues falling under this category are conflict of interest, bribery and extortion
Corruption is scheme in which an employee misuses his or her influence in a business transaction in a way that violates his or her duty to the employer in order to gain a direct or indirect benefit? Examples of corruptions are bribery, illegal gratuities, economic extortion and conflict of interest
Corruption is the misuse of entrusted power (by heritage, education, marriage, election, appointment, or whatever else) for private gain. This definition is similar to the definition of fraud provided by the Oxford Dictionary discussed before, in that the objective is personal gain. It is different in that it focuses on misuse of entrusted power. The definition covers as such a broad range of different subtypes of corruption, so does not only cover corruption by a politician or a public servant, but also, for example, by the CEO or CFO of a company, the notary public, the team leader at a workplace, the administrator or admissions-officer to a private school or hospital, the coach of a soccer team, and so on
2.1.2 Assets misappropriation
This involves third parties or employees of an organization who abuse their position to steal from it through fraudulent activities. The common features falling under this category are cash theft, stealing physical assets or intellectual property, fraudulent disbursements, using the entities assets for personal use, causing an entity to pay for services and goods not received, inventory fraud, embezzling receipts etc
Asset misappropriation fraud is fraud involving theft or misuse of company assets. It remains the most common type of fraud although it is not as expensive as the less frequent but much more costly as financial statement fraud. It occurs in almost every type of organization from nonprofit to governmental to for profit and from small to large. It can occur over and over again unless steps are taken to prevent it from happening and the controls put in place are maintained
2.1.3 Financial Statement Fraud
It is a type of fraud that involves material misstatement in the financial statement. It may be deliberate falsification of accounting records, omission of transactions, balances or disclosures from the financial statements or the misapplication of financial reporting standards.
Financial statement fraud is defined by the Association of certified Fraud Examiners (ACFE) as“The intentional, deliberate, misstatement or omission of material facts, or accounting data which is misleading and, when considered with all information made available, would cause the reader to change or alter his or her judgment or decision”.Financial statement fraud includes; fictitious revenue, concealed liabilities and expenses, improper asset valuations, improper disclosures
2.2 Reasons for Fraud Occurrence
Institute of Internal Auditors explained why fraud occurs by using the fraud triangle. The triangle is the composition of the insights why fraud occurred. The factors attributed in the triangle are motives of fraud which are due to pressure (incentive of fraud), opportunity and rationalization factors
2.2.1 Motive
Pressure or encouragement, which means it is necessary for a person to seek satisfaction through fraud. Often the pressure of big financial demand. You may need to keep your job or get a bonus. In addition, companies may compare or strike analysts' ratings. For example, as a big bonus, or a financial reward that can be earned on the basis of achieving certain performance goals
The attacker has a desire to maintain his position in the organization, and to maintain a certain standard of living. The low wages of the workers have a pattern of putting pressure to employee, and if they are able to participate in any fraudulent activities then maintain their standard of living they will commit fraud.
2.2.2 Opportunity
Opportunity is the ability to deceive and not be found. Since fraudsters do not want to be caught for their actions, they must believe that their jobs will not be found. Opportunity arises from the presence of weak internal control, mistreatment or lack of board appointments and / or by using a person’s position to violate controls. Failure to establish adequate procedures for obtaining fraudulent employment also increases the likelihood of fraud occurring. The process may be well designed in a general setting; however, a window of opportunity may arise, making the regulatory conditions fail. People in positions of responsibility can create opportunities to override existing controls because inferior or weaker controls allow them to bypass established controls
2.2.3 Rationalization
Rationalizing person’s ability to forgive deception, which is a very important part of much fraud; it involves a person's reconciliation with his behavior (e.g. stealing) and commonly accepted views of morality and honesty. For example, a deceiver puts himself or herself more important (self-centered) than in the welfare of an organization or society as a whole. Sometimes, a person simply calls theft as a loan and intends to repay the stolen money over time. Some people will do things that are described as unacceptable behavior by the organization but are common or accepted by other employers. Because of this, they may rationalize that their behavior does not apply to them
2.3 Causes of Fraud
Causes of fraud can be categorized into two that is, institutional factors and environmental/societal factors. Further, environmental factors are categorized into socio economic inadequacies
2.3.1 Institutional Factors
The institutional factor or causes are those that can be traced to internal environment of the organization. They are to a great extent the factors within the control of the management of the organization
A major institutional cause of fraud is poor management. This comes in form of inadequate supervision. A junior staff with fraudulent tendencies that is not adequately supervised would get the impression that the environment is safe for the perpetration of fraud. Poor management would also manifest in ineffective policies and procedures, which a fraudulent minded operator in the system will capitalize on.
Even where effective policies and procedures are in place, fraud can still occur deliberately with the testing of these policies and procedures. An inexperienced operator will probably not detect any fraudulent attempts and take the necessary steps to monitor the fraudster or initiate the detection process. Excessive escaping is another sign of abuse. This can help to create fraud on a large scale. An over-employed employee is unlikely to perform very well
Ordinarily, the longer a person stays at work, the more likely he/she can commit fraud. An operator who has worked hard for some time may be tempted to think that no one else can find out. The existence of this type of situation in any organization is clear evidence of fraud and such conditions encourage fraudulent practices.
Poor salaries and poor conditions of service can also cause and encourage fraud. Employees that are poorly paid are often tempted to fraudulently convert some of the employers’ monies to their own use in order to meet their personal and social needs
Frustration can also lead to fraud. When employees experience a temporary change in promotions and other financial rewards, they become frustrated, and such frustration can lead to fraud as the employee will try to compensate in his or her own actions. Among the internal causes of fraud, the Nigerian Deposit Insurance Corporation says the increase in fraud and fraud is an indication of weakness in the internal control system
2.3.2 External Factors/Environmental Factors
Environmental factors are those that can be traced to the organization immediate and remote environment. If the whole society of which the public organization is morally bankrupt it will be difficult if not impossible to expect this organization to be insulated from the effects of such moral bankruptcy
Public organizations are not immune from the going on in its external environment. Our present Society is morally bankrupt. Little or no premium is put on things like honest, integrity and good character. The society does not question the source of wealth. Any person who stumbles into wealth is instantly recognized and honored. It is a fact of our time that fraud has its root firmly entrenched in the social setting where wealth is honored without questions. Ours is a materialistic society which to a large extent encourages fraud
The desire to be with the high and mighty caliber of the society, extreme want that is often characterized by need, cultural demands or the cultivation of a life too expensive for the legitimate income of the individual. With reference to fraud, criminal motivation is said to be pathological when the state of mind of the criminal disposes and impels him to commit fraud even though he is not in desperate need of resources
2.4 Fraud Indicators - Warning Signs
The list below are warning signs which managers of organization should be alerted as might indicate that fraud is taking place
• Staff under stress without a high workload
• Always working late
• Reluctance to take leave
• Refusal of promotion
• Unexplained wealth
• Sudden change of lifestyle
• New staff resigning quickly
• Cozy relationships with suppliers/contractors
• Suppliers/ contractors who insist on dealing with one particular member of
Staff
According to Tommie Singleton (2006), warning signs or red flags of frauds varies from categories of frauds such as misappropriation of assets as those mentioned above and financial statements fraud such as rapid growth, unusual profits, internal control weakness and aggressiveness of executive management.
2.5 Internal Controls in public organizations
This refers to measures, arrangement and devices built-in into government’s financial system to ensure the proper use of public funds (Oshisami, 1992). Internal control consists of all the relevant mechanisms and measures adopted within the organization to protect its assets, strengthen the integrity of its accountability records, enhance efficiency, and ensure compliance with laws and regulations
2.5.1 A control environment
It is the responsibility of top management to make it clear that the organization values, integrity and ethics are observed. This component is often referred to as the “tone at the top
2.5.2 Risk assessment
Organizations should identify and analyze the various risk factors for the business and should determine how these risks can be managed.
2.5.3 Control activities
To reduce the occurrence of fraud, management must design policies and procedures to address the specific risks faced by the company. The six principles of control activities are; Establishment of responsibility, Segregation of duties, Documentation procedures, Physical controls, Independent internal verification, and Human resource controls.
2.5.4 Information and communication
The system of internal control must capture and transmit all relevant information up and down the organization, and transfer the information to the appropriate external parties
2.5.5 Monitoring
Internal control systems must be monitored periodically for their adequacy. Significant deficiencies need to be reported to top management. Given the strength of internal control in the public sector, it is important to identify the context in which public organizations operate and their characteristics. Therefore in examining internal control in the public sector, an understanding of the following is needed (Intosai, 2010); firstly, their focus on meeting social or political objectives, secondly, the use of public funds and the importance of the budget cycle, and thirdly, the equal scope of public accountability. And there, the complexity of their work that requires a balance between traditional values such as legitimacy, integrity and transparency as well as modern, managerial values such as efficiency and effectiveness
In other organizations “Internal Controls’’ are policies and procedures established and implemented individually or with other policies or procedures, to manage and control a particular risk or business activity, or combination of risks or business activities, to which the organization is exposed or in which it is engaged (BFI, 2005).
A strong system of internal controls is considered by the ACFE to be ‘the most valuable fraud prevention device by a wide margin’. Having sound internal control systems is also a requirement under the Companies Act, Sarbanes-Oxley act and various corporate governance codes
Internal controls can help an organization achieve its operational and profit objectives, and prevent resource losses. It can help ensure reliable financial reporting, and it can help ensure that the organization complies with the law and regulations, avoiding damage to its reputation and other consequences. In summary, it can help an organization get to where it wants to go, and avoid pitfalls and surprises along the way
2.6 Fraud Management
In the 21st century businesses, it is common to find various groups of internal auditors, business risk management experts, law enforcement authorities, internal control experts, quality inspectors, fraud investigators, other risk and regulatory experts working together to help their organizations manage risk. Each of these specialties has a unique vision and specific capabilities that can be of great help to the organizations working, but as disaster management and related activities grow they are divided into multiple departments and categories to perform carefully planned tasks to ensure risk management processes work as intended (IIA 2013).
2.6.1 The Fraud Management Lifecycle
Wilhelm explained eight Fraud Management Lifecycles which are; Deterrence, prevention, detection mitigation, analysis, policy, Investigation and lastly the prosecution. The terms “lifecycle stage” and “stage” according to Wilhelm’s journalare referred to a set of activities
Effective management lifecycle begins with a general understanding of the stages. Without this awareness and understanding, fraud management professionals will not be able to communicate effectively with others, with colleagues in other industries, and in their businesses
2.6.1.1 Deterrence
Prevention of fraud before it happens. Prevention or discouragement by fear, hence blocking from action by fear of consequences (Webster's, 1997). Reduction means putting a lot of things that make a fraudster work hard to commit fraud. For example, asking for a password or other information in online marketing. Therefore, successful prevention depends on the performance of other components of the Management Lifecycle (Wilhelm 2004).
2.6.1.2 Prevention
The activities in the prevention stage, though closely associated with deterrence and detection, occur after deterrence has failed and before the suspicion or detection of fraud has been accomplished
Webster defines prevention as “to stop or keep from doing or happening, to hinder a person from acting. Prevent is a general term meaning hindering, checking, or stopping. The ability to stop losses from occurring versus stopping fraudulent activity from continuing is an important distinction. The latter activities are more appropriately mitigation stage activities. Prevention, when perceived from a security perspective, can be thought of as hardening the target.
2.6.1.3 Detection
The third stage of the Fraud Management Lifecycle is detection which is characterized by actions and activities intended to identify and locate fraud prior to, during, and subsequent to the completion of the fraudulent activity. To detect, is to uncover or reveal, to discover the existence or presence of the fact of something hidden or obscure. It means the fraud attempt has been initiated but yet to be successful, thus is uncovered before become successful.
Detection encompasses three closely related activities in the fraud arena: fraud testing, fraud attempts, and fraud successes. The separation is derived from the facts that not all fraud attempts are successful and that not all perceived fraud attempts are intended to be successful. It is therefore that detection is the one in all three of these areas that provides the required support for the rest of the stages in the fraud management lifecycle. To miss any of these is to run the risk of creating a vulnerability that the fraudster will turn to his advantage
Detection has further also studied based on the scheme of frauds which are asset misappropriation, corruption or financial statement fraud. Every organization has specific fraud risks based on the industry, location, size and several other factors. For example, publicly traded organizations have special concerns with respect to financial statement fraud and multinational companies often have increased corruption risks to consider. Management in such organizations should find it helpful to see how different scheme types are most commonly detected
2.6.1.4 Mitigation
Mitigation begins once the presence or a reasonable suspicion of fraudulent activity has been detected. In short, mitigation stops fraud. Other common and relevant terms for the activities in this stage are interdiction and intervention.
The definition of reducing a fraudulent platform prevents a fraudster from continuing or completing a fraudulent activity, reducing their success. Reduction operations may start in real time delays. Obviously faster mitigation activities can be done, it is better for all involved, otherwise, the fraudster. Immediate mitigation actions offer a quick end to the fraudulent event, reduced losses, and reduced costs and impact
2.6.1.5 Analysis
Analysis is characterized by activities to identify and understand losses that occurred despite the deterrence, detection, prevention, and mitigation stage activities. Analysis is defined as the examination of something in detail in order to understand it better or draw conclusions from it. Also it defined analysis as the separation of something into its constituents in order to find out what it contains, to examine individual parts, or to study the structure as a whole
For fraud management, the analysis section receives performance data from each section of the other stages and provides feedback on performance. The analysis provides performance reporting metrics that allow strategic management to make informed, accountable and appropriate decisions. Includes volume testing and causes of loss, evaluation and reporting of analyst and investigator performance
2.6.1.6 Policy
Policy is defined as, “prudent management, understanding or prudence in the management of matters, management focused on material interests” (Webster's, 1997). The policy functions create, evaluate, communicate and assist in the implementation of fraudulent policies to reduce the incidence of fraud and harassment by legitimate customers, as well as to allocate the resources needed to effectively combat fraud. The policy should seek to balance the amount of block chain, reduce losses, sales volume, efficiency and cost effectiveness. Policy development staffs are often leaders within a fraud management organization, because they should be able to follow all instructions. Within the fraud management department, as well as the needs of the rest of the organization.
2.6.1.7 Investigation
Investigation in fraud perspective is the process of obtaining enough evidence and information to stop fraudulent activity, to obtain recovery of assets or restitution, and to provide information and support for the successful prosecution and conviction of the fraudster(s)
2.6.1.8 Prosecution
Communication in this section is focused on prosecuting and judicial authorities and law enforcement. Persecution is defined as “the act or process of persecution; to take legal action, to pursue a legal process to remedy or to punish, especially as a result of a crime or offense
There are three purposes for prosecution in the fraud court. The first is to punish the fraudster in order to prevent further theft. Second, prosecutors want to establish, maintain, and improve the reputation of the fraud prevention business, so that the fraudulent public is aware of it. This is achieved by brutally and effectively catching and punishing fraudsters targeting the company. The third goal is to get recovery or refund where possible. Some may argue that there is a fourth purpose, that is, to be satisfied with punishment. Feelings of dissatisfaction, while direct, are fleeting and tend to obscure the real test of persecution. The importance of persecution should be limited to prevention, recovery and rehabilitation
2.7 Role of Information Technology in Fraud Management
Information technology plays an important role in the whole Fraud Management system. There is no section in the Lifecycle Management Lifecycle that does not benefit from the efficient use of information technology resources or suffers from dysfunctional information systems or processes. Information technology resources are often the key to the success or failure of jobs in each fraud category and have been successful or failed throughout the Fraud Management Department.
Appropriate information must be identified, captured, and submitted in a timely manner. Information systems generate reports, which contain performance, financial and compliance information, making it possible to manage and control the entire organization. Employees not only with information created internally, but also with information about external events, activities and the situation required to make informed business decisions and external reporting
Effective communication should also take place in a broader sense, going downhill, disconnecting and ascending the organization. All employees should receive a clear message from senior management that management responsibilities should be taken seriously. They need to understand their role in the internal control system, and how each person's activities relate to the work of others. They should have ways to convey important information above. Effective communication is also required with external organizations such as customers, suppliers, regulators and shareholders
2.8 Role of Internal Audit in Fraud Management
In the public sector, internal audit is part of monitoring and evaluation efforts. All public bodies are required by local financial law to have an internal auditor appointed by the relevant authority, to improve the standing and authority of the internal audit function
Internal audit aims to provide independent assurance and objectives designed to increase value and improve the performance of organizations. It assists the organization to achieve its goals by providing a systematic, targeted approach to evaluating and improving the effectiveness of disaster risk management processes.
The primary responsibility of the internal auditor is to ensure that an adequate system of internal control is established and maintained. The system should be sufficient to expose errors and define errors. Auditors are keenly interested in preventing, finding, and exposing errors. In the case of audits, internal auditors may design audit procedures that will assist in detecting criminal activity.
The internal auditor plays a very important role in detecting and preventing fraud. The most important tasks are to evaluate the merits and demerits of existing controls to prevent fraud and, at the same time, to inform all research engagements with indications that fraud may have occurred or may have occurred. Audit standard requires internal auditors to have sufficient knowledge of risk assessment and organizational procedures, but they are not expected to have the expertise of the person responsible for detecting and investigating fraud.
2.9 Empirical Study in Tanzania context
At a rate of 57% of economic crime, according to the results of the study, the Tanzanian organization continues to fight the rise in economic crime, even though it is better off than its East African neighbors outside Rwanda. It is noteworthy, however, that the Government of Tanzania has continued to put in place measures to ensure that this dictatorship is suppressed in the future
Leading the way, the late President, John Magufuli, was determined to create a climate of zero tolerance for corruption and other forms of economic crime in the country.
The actions of the Tanzania Ports Authority and the financial authorities and the massive public clean-up that led to the extermination of ghost workers and government employees who made illegal education certificates are examples of the purpose of eradicating corruption and preventing any gaps that could create economic crime.
In a report by the Association of Certified Fraud Examiners 2008 on work fraud, study participants estimated that US organizations lost 7% of their annual revenue from fraud, which would translate to USD 994 billion in fraudulent losses (IIA, 2019). A recent report released in 2012 showed fraudulent losses of about 5% of the organization's total revenue. The report explained that in 2011, global fraud was estimated at more than $ 3.5 trillion. The result was the results of a survey conducted in more than 100 countries around the world by a combination of certified fraud testers.
2.9.1 Fraud in Tanzania Context
Tanzania has in place a robust legal framework designed to counter occurrences of Bribery and Corruption. However, just as in most countries in Africa, enforcement requires to be tightened. The enactment in 2007 of the Prevention and Combating of Corruption Act (PCCA) and the consequent establishment of the Prevention and Combating Corruption Bureau (PCCB), were major milestones in the fight against corruption. The PCCA was aimed at implementing the UN Convention against Corruption (UNCAC) and the African Union Anti-Corruption Convention. It added new legal provisions such as the criminalization of gift giving and of the use of facilitation payments
Given these existing regulations, it is imperative that agencies responsible for investigating and prosecuting corruption be more involved and more vigilant in their implementation of the law to ensure that bribery and corruption are reduced. Our leaders and especially religious leaders, teachers and parents also have a role to play in raising a generation that sees Bribery and Corruption as unacceptable and intolerable
Further details regarding the state of fraud in the public body were collected by reviewing various documents related to the impact of fraud on Tanzanian public entities. The researcher visited risk and compliance especially the Tanzanian corruption report and the fraud status was assessed in the following sections.
2.9.2 Public services
The public service has a high risk of corruption. Licensing procedures are burdensome, time-consuming, and prone to corruption. The administration is plagued by a lack of resources and weak powers, poorly trained staff and political interference (BTI 2016). Government officials, in addition, are underpaid, which puts them at greater risk for corruption (BTI 2016). Indeed, gifts and other bribes are considered widespread when applying for public services and permits. In fact, businesses view the increase in unconventional payments and bribes within Tanzania's public services as one of the worst in the world (GCR 2015-2016). Similarly, more than a third of families report that they paid a bribe to access public services in Tanzania (GCB 2015).
The Tanzania Investment Center (TIC) operates as a single store for investors such as helping them obtain permits, licenses, visas among others (ICS 2016). Starting a business in Tanzania requires 9 processes and 26 days, which is almost the same as the regional average (DB 2016). Obtaining a construction permit, on the other hand, takes much time compared with neighboring countries
2.9.3 Public procurement
Tanzanian public procurement is rife with corruption that puts businesses at high risk. Businesses refer to government officials who are always interested in companies and individuals who are well-connected when awarding contracts, and public funds are often transferred to companies, individuals or groups as a result of corruption (GCR 2015-2016).
In addition, approximately seven out of every ten companies expect to donate gifts to secure a public contract (ES 2013). Bribes and other unconventional payments are also widely exchanged in the tender process (GCR 2015-2016). Companies or investors who submit tenders to the government are required to submit a written commitment to comply with anti-bribery policies (ICS 2016). To combat corruption and opposition, the Tanzanian government has joined the Construction Sector Transparency Initiative (CoST) to strengthen accountability and transparency in the sector.
In the 2015 incident, the director of the Tanzanian port authorities was suspended for violating procurement procedures (Africa Report, Feb. 2015).
In addition, in late 2014, Tanzania’s Public Procurement Regulatory Authority (PPRA) barred 19 firms from entering into government contracts after firms were found to be committing corrupt practices (All Africa, Oct. 2014). Another 2014 corruption scandal rocked the Tanzanian government following reports that more than USD 180 million of government funds were disbursed and directed to coastal accounts held by businessmen and public officials (The Guardian, Jan. 2015). The case led to the dismissal of a quarter of senior government politicians, including Energy Minister Sospeter Muhongo, attorney-general, secretary of energy and housing minister who lost his job by transferring USD 1 million to his bank account (The Guardian, Jan. 2015 ). Chairpersons of three parliamentary committees; The Energy and Minerals Committee, the Budget Committee and the Legal and Governance Committee have also resigned in this regard (The Guardian, Jan. 2015).
The investigation by the Prevention and Combating of Corruption Bureau (PCCB) has dragged on for a long time, reportedly due to the involvement of high-ranking officials in the case (Risk and compliance, 2020). Firms are recommended to use a special public procurement tool to reduce the risk of corruption associated with public procurement in Tanzania.
2.9.4 Tax administration
Officials at the Tanzania Revenue Service reportedly asked for a bribe when checking taxes. Companies point to unusual payments and bribes in the payment of annual taxes as an important issue in Tanzania, the country is ranked among the worst in the world in the category (Business Insider, 2014). Tax rates and tax management have also been set by companies as the second and third most important investment in investment, respectively (freedom house, 2016).
The Tanzania Revenue Authority (TRA) has recently intensified its efforts to fight corruption by building stronger and more effective controls to improve revenue collection and service delivery (Daily News, Mar. 2015). In 2014, Tanzania made corporate taxes even more difficult for companies by introducing a transfer tax. Paying taxes in Tanzania requires 49 payments and takes 179 hours a year on average; which is about half the regional average
2.9.5 Customs administration
Customs clearance in Tanzania are rife with corruption, and foreign companies have identified minor corruption among Tanzanian Customs officials as a barrier to investment (ICS 2016). In fact, bribes and unconventional payments are often exchanged when imported or exported (Business Insider, 2014). Tanzanian transport companies pay about USD 13,000 a month in bribes to authorities such as the police and customs officials to avoid unnecessary delays, harassment and the payment of penalties (TI & EAT 2012). Customary procedures are a burden on business and companies should be aware that time-consuming management related to cross-border trade opens the door for government officials to seek bribes in Tanzania (Business Insider, 2014).
Trade is hampered by inefficient cultural practices and import and export require time-consuming paperwork to clear goods across the border (freedom house, 2016). Tanzania is one of the worst performing countries in the world in terms of cross-border trade (DB 2016). The cost and median time associated with exports and imports is higher in Tanzania compared to the regional average and significantly higher than the OECD (WB, 1998). In addition, Tanzania has been able to reduce the time required to deal with exports and imports through the online Tanzania Customs Integrated System (TANCIS) system for downloading and processing Customs documents. In addition, in 2014 Tanzania facilitated cross-border trade by upgrading infrastructure in the Dar es Salaam port (WB, 2016).
2.9.6 Civil society
The Constitution of Tanzania provides for freedom of speech but does not explicitly provide for freedom of the press
Freedom of assembly is guaranteed under the law in Tanzania; however, the government didn’t respect these rights in practice. 17 NGOs reported facing frequent threats and intimidation during late 2014 and in 2015, the government revoked the licenses of 24 international NGOs with no clear justification
2.9.7 Natural resources
The mining sector in Tanzania, closely tied to matters over land and investment, is prone to corruption
2.9.8 Police
Corruption and punishment are rampant in the Tanzanian police force (HRR 2015). Foreign companies have identified minor corruption among traffic police as a barrier to investment (ICS 2016). In addition, companies have identified Tanzania as underperforming in terms of police integrity (GCR 2015-2016). Half of the families surveyed in Tanzania believe the police are corrupt and there are several reports of police corruption and arrests in 2015 (GCB 2015, HRR 2015). There are legal procedures in place to prosecute police corruption; however, this was not done successfully by management (HRR 2015). National police are reportedly acting as prosecutors in the lower courts, in nine of the country's 30 districts (HRR 2015).
2.9.9 Land administration
Land management in Tanzania can be subject to corrupt conduct and thus serious risks to businesses. More than three companies in ten companies expect to offer unusual gifts and payments to government officials to obtain building licenses (ES 2013). In addition, the cost of dealing with red tape and regulations in the construction sector is seen by businesses as being very high compared to other sectors (Tanzania Private Sector Foundation 2015). There are different laws in Tanzania that recognize and enforce protected interests in property, both real and real, but there is not a single complete law to protect property rights (ICS 2016). Although the rights to purchase and acquisition of property are legally guaranteed under different laws, corruption and inefficiency in land management and the justice system reduce their enforcement (BTI 2016). There is also an informal system of land redistribution in urban areas, leading to an increase in the number of disputes; this area could create opportunities for corruption in the sector (BTI, 2020).
Land ownership is limited in Tanzania. The procedures for obtaining a lease or residence certificate are complex and lengthy: Foreign investors must acquire the right to reside or work with the Tanzanian government to acquire land (GI, 2011). Investors can rent land with a TIC that has set specific sites available for investors. In early 2016, the government introduced the Land Support Program to increase transparency and efficiency in land administration (UDS, 2016). Registering goods in Tanzania is time consuming compared to the average in neighboring countries (GI, 2011).
2.10 Conceptual Framework
This attempts to define relationships among other things that are considered essential to the research problem
Fraud is the whole thing that has been around for so long. Its size cannot be determined with certainty, since most of it is not available or not available and not all findings are published. It is well-known that there is no place in the public sector that is not immune to fraud and that it is designed to prevent it. Its management has become a priority for the whole organization as the management of other risks. From the revised texts and the existing library, the researchers tried to explain the existence of fraud. However, they did not include why fraud occurred even though there were controls set by management and regulators
This study aims to find out why fraud occurs even though there are regulators in public organizations
Figure 2.1: Conceptual Framework for Fraud Management
Fraud Management
Independent Variables
Internal Control |
Dependent Variables
Policies and procedures |
Governance procedures |
Fraud |
Source: Drawn by Researcher, 2021
2.8 Research Hypotheses
H0:Weak controls/ management in public organizations results to occurrence of frauds
H1: Weak controls/ management in public organizations does not results to occurrence of frauds
H0: Low salaries to employees is not a factor for occurrence of frauds
H1: Low salaries to employees is a factor for occurrence of frauds
H0: Impacts of frauds in Tanzania public organizations are significant
H1: Impacts of frauds in Tanzania public organizations are not significant
Note: H0stands for null hypothesis.
H1stands for alternative hypothesis.
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Research Design
Brian and Bell suggested five useful researches designs which included case study, comparative, longitudinal, experimental, and cross sectional. There are Other research designs such as survey, action research and grounded theory in additional to case study and experimental design but any research design adopted will depend on the research questions and targeted objective the researcher want to archive
The researcher adopted a survey study design. The researcher adopted this design since most of the research questions are of what and how model that respondents were asked to choose appropriate answer.
3.1 Area of the Study
The research was conducted at TMDA-SHZ offices that are located at NHIF-TOWER in Mbeya city.
3.2 Study population
The study population involved fifty (50) staff working at audit department, Finance department, legal department which are found within NHIF-Tower Mbeya town and other places within southern highland zone.
3.3 Sample size
With regard to sample size Manheim asserts that a sample is a part of the population which is studied in order to make inferences about the whole population. The selection of the sample for this study based on the statement found in ( Rwegoshora, 2006) asserting that the study of a very large population would require a long time, a large number of interviews, large amount of money, and uncertainty of data collected by numerous investigators. In order to save the limited time, money and reduce the number of interviews, this study was limited to a sample of forty (40) respondents which is eighty percent (80%) of the population, supported by Huysamen (1991) who asserted that there are several ways of determining a sample size such as mathematical formula principle(Manheim, 1977).
The study covered size of 40 staff working in the organization. The composition of the sample frame is as follows;
Table 3.1 Sample Size Composition
population | Sample size | Category in the sample | Sample size |
50 | 40 respondents | Manager | 1 |
Head of Departments | 5 | ||
Professionals | 20 | ||
Other employee | 14 | ||
|
| Total | 40 |
Source: drawn by researcher, 2021
3.4 Sampling Techniques
Convenience or accidental sampling procedure involves selecting respondents primarily on the basis of their availability and willingness to respond. Thus, the researcher had to select respondents from their respective strata on the basis of their readiness to provide data for the realization of this work. Under this sampling technique, the researcher selected fourty (40) respondents who were willing to cooperate with her (Shaughnessy et al, 2000).
Again, the purposive/ judgmental sampling technique was used in selecting the sample size for staff at management level. This was applied since some information regarding frauds was sought to be obtained from specific personnel whom fraud issues are reported to them. Also the method was easy to apply and was cheap in terms of cost.
3.5 Types and Source of Data
To be able to answer the research questions and test hypotheses, both primary (raw) and secondary data were collected and used. The primary data was collected from the field by using Questionnaires and Interviews. While for secondary data, documentary sources were used. Primary data was collected from the TMDA staff working at zonal office and branches in order to get their views concern nature, control and impact of fraud in public organization.
3.6 Data Collection Techniques
3.6.1 Questionnaires
The closed and open ended questionnaires primarily made up of statements requiring the respondents to opt for one answer out of three was used for data collection. However respondents were encouraged to put comments alongside the statements if they fill that some of the issues raised required further explanation on their part.
Questionnaires was used as a method of data collection as time and fund was not enough to conduct interviews to many people and also depend on the nature of data that were required. Information such as nature of frauds and why they occur, adequacy and effectiveness of internal controls in managing frauds data were collected through questionnaires.
3.6.2 Interviews
Data was also gathered through in-depth, face-to-face interviews. Interviews were chosen as the primary mode of data collection as it provided an appropriate vehicle for gaining an in depth understanding of the nature of frauds, control and its impacts.
Interview was specific to some people in order to get detailed control gap which facilitate occurrence of frauds despite the existing controls has been established by management and regulator. Organizations’ staffs under level of manager, and head of department were interviewed. Manager and heads of department were purposively selected as they were able to provide information concerning the impact organizations has suffered due to fraud. And interview guide was used to lead the interview.
3.6.3 Documentary Sources
Some data were obtained through reviewing documents. Such documentary sources included internal auditing manual which lay down policies for auditing. Fraud Policy and Procedures which details fraud and it is management in the organizations. Also the report to the nation for ACFE 2018 was reviewed.
3.7 Data Analysis Techniques
Data were analyzed through qualitative method and quantitative method. The analysis of data requires a number of closely related operations such as establishment of categories, the application of these categories to show data through coding tabulation and then drawing statistical inferences. The unwieldy data were necessarily condensed into a few manageable groups and tables for further analysis.
3.7.1 Quantitative Method
In this method, numerical methods such as tables and numbers were used to explain the findings. This analysis was employed by the researcher for data that could be quantified. For example losses the organization has encountered as a result of frauds. Tables have been used to supplement the discussion.
Therefore data obtained were validated, edited, coded, and tabulated. Validating Data obtained gave the researcher the answer to such questions as Who, Why, How, What, When and Consistency of occurrence.
3.7.2 Qualitative Method
In this method the findings are explained in terms of statement, and it does not show the numerical values. The method was used in making comparison between two or more events.
The method used by the researcher in examination and interpretation of data that could not be quantified. For example measures on managing frauds in public organization.
3.8 Validity of Data
In the process of data collection, the researcher ensures that the data obtained from questionnaires, interview and documentation were correct, valid and reliable. The reliability and validity were determined by editing and coding
3.9 Ethical Considerations
While undertaking the research, ethical issues were considered by the researcher. Among the issues considered were maintaining confidentiality and anonymity of respondents, voluntary participation, and informed consent and reporting the results. The researcher hidden the identity of respondents and ensured that what was collected or observed is what communicated as findings.
CHAPTER FOUR
DATA ANALYSES AND DISCUSSIONS ON THE FINDINGS
4.0 Introduction
The chapter describes the way data from the field study were analyzed. The researcher used percentages to analyze data and tables to present the findings. Data which were collected and analyzed are the one based on the research objectives. The research objectives were as follows; to identify the nature/ types of frauds in public organizations and establish why fraud occurs, to assess the effectiveness of internal controls in managing frauds in public organizations, and to evaluate impacts of frauds in public organization and suggest measures on how to manage and reduces the impacts of fraud.
4.1 Demographic Characteristics
Taking into account the nature of the research and data required, the researcher respondents were Directors, Managers and professionals. Professionals in this study were auditors, accountant and lawyers. The respondents experience ranges from those working with at TMDA for period less than a year, one year or above but less than five years and those with five years or above. Number of the respondents with experience less than a year were 4 (10%), experience of one year or more but less than five years were 10 (25%) and those with experience of five years or above were 26(65%) implying most of the findings were from experienced staff whose as well are graduates and others with postgraduate education. Demographic information in this research was useful in determining if the findings portrayed the actual situation by considering whether the respondents are knowledgeable on fraud issues.
Table 4.1 Experience of Survey of Respondents
Respondent experience | Number Respondents | of | % |
Less than 1 year | 4 |
| 10 |
1-5 years | 10 |
| 25 |
Greater than 5 years | 26 |
| 65 |
Source:Field study results, 2021.
4.2 Presentation and Analysis of Data
4.2.1 The Nature/ Types of Frauds in Public organization
The researcher wanted to assess the nature/ types of frauds in public organization in Tanzania. The findings from the study are summarized in the table 4.2 below;
Percentage of response (Yes/No) = Number of respondent Yes/No x100%
Total number of sample
Theories have classified various categories of frauds in the world which has led collapse of many companies. Report to the Nations on Occupational Fraud and Abuseclassified Fraud in public organization into three categories: Asset misappropriation, financial statement fraud and corruption
Table 4.2: Summary of assessment of nature/ types of frauds in public organizations
Questions |
Yes | % |
No | % | Not sure | % |
Total |
Are there cases of illegal gratuities (small amount of money given for service rendered) in your organization? | 5 | 12.5% | 32 | 80% | 3 | 7.5% | 40 |
Is there expense reimbursement fraud (e. g overstated expenses)? | 21 | 52% | 14 | 35% | 5 | 13% | 40 |
Are there thefts or misuse of inventory? | 27 | 68% | - | - | 13 | 32% | 40 |
Is there payroll fraud (example, ghost employee, claiming overtime for hours not worked)? | 5 | 13% | 24 | 60% | 11 | 37% | 40 |
Are there cases of bribery in your organization? | 6 | 15% | 15 | 37.5% | 19 | 47.5% | 40
|
Are thefts of cash common in your organization? | - | - | 27 | 67.5% | 13 | 32.5% | 40 |
Are there fund diversions i.e. from one vote to another? | 5 | 12.5% | 31 | 75.5% | 4 | 10% | 40 |
Are there case(s) of improper disclosures | 3 | 7.5% | 11 | 27.5% | 26 | 65% | 40 |
Are there case(s) improper asset valuation? | 19 | 47.5% | 13 | 32.5% | 8 | 20% | 40 |
Are there case(s) of over/understated liabilities? | - | - | 35 | 87.5% | 5 | 12.5% | 40 |
Source: drawn by researcher, 2021.
The structured questionnaire aimed at analyzing common fraud in public organization, the research findings from 40 respondents established that the mentioned above classes of frauds are common in Tanzania Medicine and Medical Devices Authority (TMDA) as follows: theft of cash (0%), payroll fraud (13%), expense reimbursement fraud (52%), misuse or theft of inventory (68%), fund diversions (12.5%), improper disclosures (7.5%), improper asset valuation (47.5%), and over/understated liabilities (0%), bribery (15%), and illegal gratuities (12.5%).
Researcher found that there is zero percent cash theft at TMDA southern highlands zone, this was further evidenced by respondents’ comment that they only keep petty cash for emergency and the rest of money is banked and every payment is done through bank and cheque system.
Misuse and theft of inventory was the most prevalent fraud and this was influenced by personal use of inventory as it was commented by some respondents. Other forms of fraud are less prevalent as per researcher’s analysis of responses provided.
4.2.2 Adequacy and Effectiveness of Internal Controls in Managing Frauds in public organization
The researcher wanted to appraise the adequacy and effectiveness of internal controls in managing frauds in public organizations and here under were the research findings as shown in table 4.3 below;
Table 4.3: Summary of findings on adequacy and effectiveness of internal controls in public organization.
Question |
Yes | % |
No | % |
Not sure | % |
Total |
Is there fraud policy in your organization? | 40 | 100% | - | - | - | - | 40 |
Is there fraud procedure in your organization? | 40 | 100% | - | - | - | - | 40 |
Are all detected frauds in your organization being investigated? | 40 | 100% | - | - | - | - | 40 |
Is there operating procedure for each activity or processes in your organization? | 33 | 82.5% | 5 | 12.5% | 2 | 5% | 40 |
Are the operating procedures and policies in your organization being reviewed annually to capture new changes and developments? | 35 | 87.5% | 2 | 5% | 3 | 7.5% | 40 |
Do assurance providers review the adequacy and effectiveness of the fraud procedures and policies? | 40 | 80% | 7 | 14% | 3 | 6% | 40 |
Does the management take action or implement auditor’s recommendations fully? | 40 | 100% | - | - | - | - | 40 |
Does your organization conduct fraud audits? | 30 | 75% | 7 | 17.5% | 3 | 7.5% | 40 |
Is the actions taken by management to fraudsters appropriate to deter the fraud schemes in the organization? | 38 | 95% | 2 | 5% | - | - | 40 |
Are state organs such as police works closely in ensuring fraudsters are heavily punished? | 33 | 82.5% | - | - | 7 | 17.5% | 40 |
Are state organs such as PCCB works closely in ensuring fraudsters are heavily punished? | 33 | 82.5% | - | - | 7 | 17.5% | 40 |
Do frauds perpetrate because of inadequate controls? | 15 | 37.5% | 5 | 12.5% | 20 | 50% | 40 |
Does low pay prompt staff engage in fraudulent activities? | 26 | 65% | 3 | 7.5% | 11 | 27.5% | 40 |
Are staff members trained on how to prevent, detect and report fraud? | 36 | 90% | - | - | 4 | 10% | 40 |
Source: drawn by researcher, 2021.
Fraud occurrence depends on so many factors including availability of opportunities resulted from weak internal controls. As explained else in this report regulators imposed strict controls including establishment of internal audit and risk management.
With the objective of exploring the adequacy and effectiveness of internal control against fraud in public organization the researcher found out that; 100% of all respondents said there is fraud policy and it was stated as follows “TMDA is committed to, and places a high priority on managing its fraud risks strategically and systematically. Fraud risk management will apply tone at the top approach. The Authority will maintain robust control mechanisms to prevent and detect fraud. The effectiveness of controls will be subject to periodic reviews by the Authority’s Internal Auditors”.
For implementation of the policies, management converts/ translates the policies to procedures which are more detailed explaining how things should be done at the organization. Any decision made by management and actions of staff should be guided by the procedures set by the management.
It is the responsibility of the management to ensure there is adequate and effective policies and procedures governing operations. The management through their internal audit department and risk management department assist reviewing and provide assurance on the adequacy and effectiveness of policies and procedures.
The researcher wanted to explore if TMDA has adequate and effective internal controls responsible for managing fraud by evaluating policies and procedures, check if independent reviewers review the policies and procedures to capture new developments in operations and regulations. The researcher explored actions taken by management against fraudster, He also explored the board responding to fraud issues i.e. the responsiveness of state organs such as regulator, and Bureau for Prevention and Combating of Corruption (PCCB).
The information stated above was collected through the questionnaire administered to respondents and the findings were as follows. Availability of policies and procedures for each activity performed by the organization, the responses were positive by 100%. Implying each activity is governed by the organization procedure. Reviewing adequacy and effectiveness of the organizations’ procedure and policies (87.5%), however it was revealed that policies were annually reviewed but some procedures were reviewed when the need arises. It can be deduced that, if the trend continue of not reviewing procedures annually, it may create opportunity for fraud to perpetrate as development in operations and regulations may not captured and communicated to staff. The research findings indicated that actions taken by management are appropriate to deter frauds in public organization. 95% of respondents commented positively on actions taken by management to be appropriate. The action taken ranges from disciplinary to legal action.
Regarding the state organs such as police, PCCB and judicial system working closely with the organization to deter fraud, the 82.5% of the respondents commented that the state organs works closely with the organization in ensuring fraudsters are heavily punished. This was also evidenced by presence of publications that addressed prohibition of bribery, illegal gratuities on the office walls.
4.3.3 Impacts of Frauds
Researcher wanted to assess the impact of fraud in public organizations and the public in general, in doing so, the researcher requested respondents to provide the probable impact that would be caused by occurrence of fraud and the analysis was as follows:
Table 4.4: summary of findings of the impacts of fraud in public organization
Question | YES | % | NO | % | NOT SURE | % | TOTAL |
If your program was defrauded, would be potential human impacts? | 38 | 95% | - | - | 2 | 5% | 40 |
Could fraud against your program result in mental health problems, psychological or emotional problems by individuals who should be benefiting from your program? | 35 | 87.5% | 1 | 2.5% | 4 | 10% | 40 |
If fraud diverted money out of your program, would the victims of fraud miss out on services, opportunities or payments they rely on? | 40 | 100% | - | - | - | - | 40 |
Could fraud against your program impact on the family or careers of individuals who should be benefiting from your program? | 36 | 90% | - | - | 4 | 10% | 40 |
Could fraud against your program put people’s health or lives at risk? | 40 | 100% | - | - | - | - | 40 |
Source: drawn by researcher, 2021.
95% of respondents said there will be potential human impacts in case fraud would occur, this imply that many life depends on the integrity of work performed by this authority. 87.5% agree that fraud in this organization would result in mental health problems, psychological or emotional problems by individuals who should be benefiting from this authority.
Diverting fund or other resources out of this authority deprives the general public the services, opportunities or payments they rely on, this was evidenced by 100% of respondents who agree to this question. Also this 100% of respondents agreed that fraud would put people’s health or lives at risk. And 90% said fraud would impact on the family or careers of individuals who should be benefiting.
There was no record of financial loss that resulted from fraudulent activities at TMDA southern highland zone; this was evidenced by the response from interview with the manager.
Fraud impacts on people, industries, public bodies, services and the environment and all of these can be irreversibly harmed. Understanding the total impact of fraud and not just the financial loss allows public bodies to make better informed decisions.
Serious impacts can arise from any type of fraud whether it’s perpetrated by opportunistic individuals or serious and organized crime groups. However, serious and organized crime can often amplify the scale and impacts of fraud, and professional facilitators make their activities more difficult to detect and uproot.
Further findings on impacts of fraud were found through the review of several online document one of them being Global Corruption Barometer – People and Corruption Africa Survey 2015. And the following were found.
Human impacts
Public bodies exist to improve the lives of the citizens they serve. Considering the human impact of fraud will help them approach fraud in a way that is most meaningful to those citizens. While the direct financial loss is borne by public bodies, behind every story of fraud, there are real individuals, families and communities whose lives have been impacted or even destroyed.
Fraud committed against public bodies, such as services being delivered by someone without qualifications, can directly impact those who rely on government services.
The damage to these individuals can be financial, physical or mental. Opportunistic individuals and serious organized crime groups target public bodies, including programs designed to assist vulnerable people, with little regard for the victims of that fraud. All too often the victims of fraud are those that already face the most challenges in their day to day lives.
Human impacts can often occur through the provision of sub-standard services or products, services or products being stolen or not being delivered, or identity theft. Impacts are not limited to individuals, but can also extend to their families and communities. Fraud can also impact physical safety (IPSFF, 2020).
Government outcomes impact
When fraud against a public body occurs, it diverts finite resources and compromises the government’s ability to deliver services and achieve intended outcomes. This can happen in the following ways:
• Services not delivered: finite money and resources are diverted away from the intended target, or services are not delivered to the standard required.
• Program objectives not met: the vision, objectives, and goal of the policy or program are compromised.
• Program/service shut down: in some circumstances the entire program is shut down, which can negatively impact those relying on that service.
• Customer/client experience: the customer experience is compromised.
• Opportunity cost: fraud can result in lost opportunities to a program or service. Programs or services lose the opportunity to improve if shut down as a result of fraud, or if they are constrained by fraud financial losses and the business costs of responding to fraud (IPSFF, 2020).
Government systems impact
The occurrence of fraud can result in costs and capacity drain in a wide range of government systems and services. Finite resources are diverted to deal with the fraud responses and outcomes. This reduces governments’ abilities to deal with other issues. Examples of government system impacts include:
• Investigations and compliance agencies: public bodies with compliance and investigatory functions, including police and law enforcement, have finite resources.
• Prosecution services, courts, tribunals and legal aid: Court proceedings and legal representation are extremely expensive. Systemic fraud leading to a larger number of prosecutions may require government to provide additional funding for courts and legal aid organizations in recognition of the increased workload on the justice system. There can also be victim support costs.
• Prison: if prosecution of fraudsters leads to conviction, this results in prison costs.
• Welfare system: fraudsters who are caught may move to government welfare and other services for support and assistance, this result in additional cost on welfare and other government services.
• Identification system: identity fraud can lead to costs for authorities that regulate passports, permits and licenses, eligibility to other programs, vetting systems and Fit and Proper Person checks.
• Other public bodies: where a fraudster has been accepted as a service provider, program recipient or employee in one public body, the documents generated can be used as proof of identity by another public body. Fraud occurring against one public body can enable fraud against another (IPSFF, 2020).
4.4 Test of Hypothesis
Three hypotheses were tested in this study which were;
H0: | Weak control/management in public organizations results to occurrence of frauds |
HI: | Weak control/ management in public organizations does not results to occurrence of fraud |
H0: | Low salaries to public servants is not a factor for occurrence of frauds |
H1: | Low salaries to public organizations is a factor for occurrence of frauds |
H0: | Impacts of frauds in Tanzania public organizations are significant |
H1: | Impacts of frauds in Tanzania public organizations are not significant |
The research findings confirmed that weak control/ management in public organizations results to occurrence of frauds. As a result of observed strong control at TMDA-SHZ there was no record of fraud or financial loss resulting from fraudulent activities. 85% of respondents agreed that there is adequate and effective policy and procedure against fraud. Therefore, according to the findings the null hypothesis (H0) that weak controls/ management results to occurrence of fraud was accepted and the alternative hypothesis (H1) was rejected.
It was also confirmed that low salaries to public servant is a factor for occurrence of frauds by 68%. Hence the null hypothesis (H0) that low salaries to public servant is not a factor for occurrence of frauds is rejected while the alternative hypothesis (H1) Low salaries to public organizations is a factor for occurrence of frauds was accepted.
Regarding impacts of frauds in Tanzania public organizations, it was established that it is significant as 100% of respondents agreed that fraud would put people’s health or lives at risk. Thus, the null hypothesis (H0) Impacts of frauds in Tanzania public organizations are significant was accepted and alternative hypothesis (H1) Impacts of frauds in Tanzania public organizations are not significant was rejected.
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
The study was conducted at the Tanzania medicine and medical devices authority southern highland zone (TMDA-SHZ) located in 3rdfloor of NHIF tower Mbeya town. The study was on assessment of nature, control and impacts of fraud in Tanzania public organizations. The specific objectives of the study were to analyze the nature/ types of frauds in public organizations and establish why fraud occurs. It was also to analyze adequacy and effectiveness of internal controls in managing frauds in public organizations and to evaluate impacts of frauds in public organizations and suggest measures on how to manage and reduces the impacts in public organizations. Following the definition of the problem, literature study was done and after that research questions was developed and answers obtained from the research questions were critically analyzed and resulted to the following conclusion.
5.2 Conclusion
The general objective of the research was to assess and evaluating the nature, control and impact of fraud in Tanzania public organizations. The other motive of the study was also to uncover why frauds is still occurring in public organizations despite the available controls. The research analyzed that frauds in public organizations occurs because in some areas controls are inadequate and areas where controls are adequate and effective, there are no cases of fraud.
Although public organizations in some areas have adequate controls to deter frauds, the risk and threat of fraud is still high. The research study noted different types/nature of frauds committed in public organizations as well as organizational approaches to prevent and detecting them, however, trends indicates that regardless of modalities of their occurrences total losses due to frauds is significant and is increasing year after year, therefore, the researcher recommend for some improvement in order to minimize the impact of frauds.
5.3 Recommendations
5.3.1 Recommendation to public organizations
Management of public organizations should ensure fraud audits are conducted to ensure elements of frauds or gaps in controls are early identified before resulting to loss.
In order to ensure fully accountability for making decision to deter frauds in public organizations management are advised to set fraud threshold on which either single incident of fraud or cumulative beyond the set limit the top management would be accountable irrespective of who caused the fraud. This will create proactive prevention of frauds to avoid accountability.
Management of public organizations are further advised to ensure there is program for public awareness on common frauds such as theft of inventory, bribery and all other forms of corruptions.
If you are a manager or leader in the public sector, you must take responsibility for preventing corruption in your organization. If you are a Principle Officer, you have mandatory reporting obligations. This is not just because you are a leader, but you also have the best understanding of your work environment in order to:identify and remove or mitigate the risks specific to your work area or organizationpromote public sector values with reference to the Public Administration Act, the Code of Conduct or local policies and procedures,establish and maintain a corruption-resistant culture.
5.3.2 Recommendation to the general public
We can all help prevent public sector corruption and make sure public funds are spent as intended - maintaining schools, hospitals, roads and other vital public services and projects. Whether you’re a public sector employee, government supplier or member of the public, you can take action to prevent corruption. Expose corrupt activities and risks that may otherwise remain hidden, keep the public sector honest, transparent and accountable helps stop dishonest practices, ensure that public sector employees act in the public interest.
5.3.3 Recommendation for Further Studies
Other researchers are recommended to conduct study to establish why people commit procurement fraud in public sector. This weakness if left unattended may expose the public organizations to financial losses which would have been prevented.
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