FRAUD, MONEY LAUNDERING AND FORENSIC AUDIT

APT Financial Consultants Sako Mayrick, 2008 1

Fraud is a deliberate misrepresentation which th t ff d causes another person to suffer damages,

usually, monetary lossesE i i t ti l i t t t i th Error is an unintentional misstatement in the financial statements


Irregularities are intentional misstatement or i i i fi i l t t t i l di omissions in financial statements, including

fraudulent financial reporting (management reporting) or misappropriation of assets reporting) or misappropriation of assets (defalcation)


Mistake in gather or processing data Mistake in gather or processing data from financial statementsIncorrect accounting estimate arising from oversight or misrepresentation g pof fact


Mistake in the application of accounting Mistake in the application of accounting principles relating to recognition, classification presentation or disclosure classification, presentation or disclosure measurement, recognition classification, presentation or disclosurepresentation or disclosure

Errors are therefore the normal risk factors f ll d i d ICS hi h i ki of a well designed ICS which is working

perfectly.


Intentional act by one or more individuals Intentional act by one or more individuals among management , those charged with governance, employee or third parties involving the use of deception to obtain an unjust or illegal advantageAuditor is concerned with material misstatement


Management fraud is a fraud which involves one or more members of management or those charged with governanceFraud involving employee of an organisation is referred as employees fraudh d b l d h lA third party may be involved in whole SCAM ( a clever but dishonest way to get money.


Larcency – is a wrongful taking and carrying Larcency is a wrongful taking and carrying away of personal property of anotherEmbezzlement is a fraudulent appropriation of pp pthe property by a person entrusted with its custody, thus breaching the trust or fiduciary responsibly


If the stealing occurs simultaneous with taking If the stealing occurs simultaneous with taking possession it is larcency If stealing occurs subsequent to possession the g q pcrime is embezzlement


Fraud may involveManipulation, falsification/alteration of p /records or documentsMisappropriation of assetsSuppression or omission of the effect of transaction from records or documentsR di t ti ith t b tRecording transaction without substanceMisapplication of accounting principles


Disguise – masking identity , activities so as to make it have appearance of legitimacyDivergence – departure from the norms, it must be maskedDiversion – distracting relaxingConversion - unauthorized at that deprive the owner his property permanently or for an indefinite time


Cash conversionsAccounts payable diversionsStock diversionsDebtors conversionsManipulations

LappingKitinggTeeming and ladingUndervaluation of stocksundercastinggPayments of fictitious debtorsGhost payroll registersCollusion with suppliers on discount or over invoicing Collusion with suppliers on discount or over invoicing


The primary responsibility for The primary responsibility for prevention/and detection of fraud and error rests with management and those error rests with management and those who are charged with governanceHowever the auditor should consider However, the auditor should consider the risk of material misstatement in F/S resulting from fraud or errorresulting from fraud or error.


Opportunity- due to weak A d id f t lAnd override of controls

Fraud Need/Rationalization•Every one

PressureUnrealistic Corporate Target can y

Does it•Simply borrow-money

Target can Force

Employees toCommit fraud


Fraudulent financial reportingFraudulent financial reportingMisappropriation of assets


Omission of amounts to deceive F/S usersDeception – manipulation, falsification or alteration of accounting records or supporting documentsMisrepresentation – intentional omission from, the pfinancial statement of events transactions or other significant informationIntentional misappropriation of accounting

lpp p g

principlesMisappropriation of assets

Embezzling receiptg pPayment of goods and services not received


Primary responsibility for prevention and d t ti f f d d t ith detection of frauds and errors rests with those charged with governance of an entity

Create a culture of honest and high ethicsCreate a culture of honest and high ethicsEstablish appropriate controls to prevent and detect frauds and errors within an entityy


Those charged with governanceE i ht f tEnsure oversight of managementIntegrity of organisationIntegrity of entity’s accounting and financial g y y greporting systemsAppropriate controls

Risk monitoringRisk monitoringFinancial controlCompliance with law


Those charged with governanceE t bli h t l i t d i t i Establish a control environment and maintain policies and procedures to achieve objectivesEnsure as far as possible , the orderly and efficient Ensure as far as possible , the orderly and efficient conduct of entity’s business

Implementing and ensuring the continued i f i d ICS hi h operations of accounting and ICS which are

designed to prevent and detect frauds and errorsAudit risk can never be eliminated but can be reducedAudit risk can never be eliminated but can be reduced


Purpose of audit is to ensure F/S taken as a Purpose of audit is to ensure F/S taken as a whole are free from material misstatement whether caused by error or fraudAuditor should act with skill and care that would be exercised by a reasonably competent auditor in circumstances


Audit should design his work to have reasonable expectation of detecting material

i t t t hi h i ht i i th t th misstatement which might impair the truth and fairness of financial statementsMisstatement should either be corrected or Misstatement should either be corrected or properly disclosedHe should remind management of their He should remind management of their responsibility to maintain proper ICS

Auditor is not and can not be held responsible Auditor is not and can not be held responsible for fraud and error.


In planning an audit, audit team should In planning an audit, audit team should discuss the susceptibility of entity to material misstatements resulting fraud and errorDiscussion will help members of audit team to gain a better understanding of the potential material misstatement in F/S resulting from fraud and errors


In planning and the audit, auditors should make inquiries of management formake inquiries of management for

Management risk assessment on fraudICS should address such risksICS to prevent and detect fraudManagement awareness of any known fraud which has affected the entitywhich has affected the entityManagement discovered any material error


The auditor should approach his work with f i l k ti iprofessional skepticism

Need for management representationA k l d f ibili f ICSAcknowledgement of responsibility of ICSDisclosure of all significant fact on fraud.


Unrealistic time deadlines for audit completion Unrealistic time deadlines for audit completion imposed by managementReluctance for frank communication with third party e.g. bankerLimitation of scope imposed by mgtp p y gIdentification of significant matters not previously disclosed by mgtSignificant difficulties to audit figures in accounts


Aggressive application of accounting principlesgg pp g p pInformation provided unwillingly or after unreasonable delayUnsupported transactionsFewer confirmation responsesEvidence of unduly lifestyle by officers or employeesLong outstanding account receivable balancesLong outstanding account receivable balances


The type of fraud/error and likelihood of The type of fraud/error and likelihood of occurrence determines the nature, timing and extent of audit procedures


Additional tests ( procedures)If it th t i l it h If it appears that an error or irregularity has occurred, the auditor should consider its nature, cause and likely effect on F/snature, cause and likely effect on F/sIf satisfied that irregularities are not material to F/S, he should nevertheless concerns with appropriate level of management , in order to determine further action to be taken e.g. amendment of ICS in order to reduce or amendment of ICS, in order to reduce or eliminate such errors or irregularities in the future


Employee fraudE l t i ht th ft b l t Example : outright theft, embezzlement, defalcation, misappropriation and manipulation of records

Falsifying expense reports, staff claims, embezzling fund, using corporate property for personal benefit, stealing property, accepting gratuities from

d t t d livendors, contractors and supplies


CausesWeak ICSWeak ICSEmployment of dishonest employeesPersonal financial problems to staff bringing p g gfinancial difficulties

IndicatorsIndicatorsPoor documentationFalse & improper entries in recordsUnauthorized paymentsUnauthorized use of corporate assetsMisapplication of fundsMisapplication of funds


Deceitful practices, benefiting economically, socially or sustain jobs to detriment of the

i tiorganisationDue to absolute powers, faith and trustM t t bj t t di h k Management are not subject to ordinary checks like subordinates,; they can easily capitalize on opportunity to conceive or conceal fraudpp yCrimes are committed to deceive investors, owners, tax authorities or inflate profits to earn hi h l i d bhigher salaries and bonuses


Indicators Delay in submission of reportIncompatible functions done by one person

l d l d lFlouting corporate directives, rules and regulationsPersonal interestDuplicate entriesDuplicate entriesUncorrelated entriesHigh fly mgt decisions


ControlControlEnhancement of control environment e.g. junior officer enjoying lavish entertainment, luxurious lifestyleCreation of check and balances system


Realistic targets, standards and business normsRealistic targets, standards and business normsQuantitative and analytical techniques to discover diverse trends and abnormal behaviour in operationFeedback on quantitative and analytical q ytechniquesComparison with norms of the industry


Clear distinction btn acceptable performance and or p pefficiency operations

substandard Vs standardIntroduce surveillance review procedures by introducing strong IA or constituting surveillance committee with necessary independencey p

Consider departure from approved targetsIdentify instances or adverse trends in business operations


Crime committed by officers ( Directors, CEO, y ( , ,Employees, agents) to employer e.g. fraud, embezzlement or corruptionC i itt d b t l f i t th Crime committed by external forces against the company e.g. robbery, larcency, bulgarly, piracyCrime committed by senior offcers and other internal yagents on behalf of corporations e.g. non-compliance with regulations, tax evasion, bribery and false financial reportsfinancial reports


Fraud means intentional deception, lying cheating, f f d di d i l fi i l dimost of fraud are discovered in normal financial audit

Knowledge of existence of fraud comes to light when one or both of the following events takes place

Allegation/complaints by 3rd partyInvestigators’ intuition/ general suspicion that something is awryg yAuditor discovery of accounting discrepancySudden discovery that something is missing


Crimes committed for entityCrimes committed for entityCrimes committed against the entity


Violations of laws or regulations; tax laws; pension laws, labour lawsTh i i if i d The entity is perpetrator if convicted becomes victim of legal fees, fines, penalties/damagespenalties/damagesUsually are committed by senior managers who wish to enhance financial position through overstating incomes, sales, assets and by understating expense and liabilitiesEvasion of taxes of taxes and expenses ( Evasion of taxes of taxes and expenses ( overstated)


Theft, embezzlement of funds, corruption by , , p yvendors, contractors, by external agents or officers of the entityTh b i i f h i The company become victim of the crime e.g. purchasing officers defrauding the corporation by substituting an inferior quality/ by substituting an inferior quality/ merchandize or double billing an orderBribery of employees by vendors


Use of samplingAb l t V bl Absolute assurance Vs reasonable assuranceUse of judgement Inherent limitation of ICSInherent limitation of ICSPersuasive rather than conclusive evidence

The risk of not detecting material misstatement resulting g gfrom fraud is higher than the risk of not a material misstatement resulting from error, because fraud may involve sophisticated and carefully organized schemes involve sophisticated and carefully organized schemes designed to conceal it such as forgery, deliberate failure to record transaction


Skilfulness of the perpetratorp pFrequency and extent of manipulationDegree of collusion involvedgRelative size of the individual amountsThe seniority of those involved

Audit procedures that are effective for detecting errors may be ineffective for detecting fraud.


Possibility of override control proceduresG ll b t di f t i l Generally subsequent discovery of material

misstatement of f/s resulting from fraud or error does not in and of itself indicate

Failure to obtain reasonable assuranceInadequate planning, performance or judgementAbsence of professional competence and due careFailure to comply with ISAs

A dit i k d l t b d ll d f di f Audit risk model to be remodelled for discovery of fraud or error


The auditor should assess fraud risk factors e.g The auditor should assess fraud risk factors e.g missing document, G/L out of balance or ARP may not make senseHowever, fraud risk factors do not necessarily indicate the existence of fraud, they often have been present in circumstances where fraud have occurred.


COMPANIES ACT

The Companies Act not fix any responsibility to auditor for fraud/ improprieties.The auditor is not bound to exercise more than reasonable skill and care even situations where h i i i f f d i dthere is suspicion of fraud committed

Apart from absence of legal requirements to d t t t f d th diti f i detect corporate fraud, the auditing profession points to the nature of fraud committed as a major reason for accepting extended detection major reason for accepting extended detection duties also the responsibilities on preceding partp


One of the characteristics features of fraud as opposed to error it is that the perpetration is

li h d ith tt t t l itaccomplished with attempts to conceal itThis apply particularly to frauds commitment by management who usually have power to introduce management who usually have power to introduce complexity in corporate structure to make transactions or systems to override IC. Influence accounting policies and manipulate e idenceaccounting policies and manipulate evidence


Input, processing and outputInput, processing and output


Factors that promote the discovery of computer theft fraud and embezzlementtheft, fraud and embezzlement

Internal accounting controlsSeparation of dutiesSeparation of dutiesRotation of dutiesInternal audit and surprise checksDevelopment of policies, procedures, operating programsP it f th i ti th i ti li it Parity of authorization, authorization limits and comparison with limit/budgets Off-line entry controlsy


Factors that promote the discovery of computer theft fraud and embezzlementtheft, fraud and embezzlement

Computer access controlsIdentification controlsIdentification controlsAuthentication controlsCompartmentalization (establish authorization by levels)Logging exceptions

O t f t i it b t d Out of sequence, out priority aborted runsVariance reporting


Auditor’s roleAuditor s roleAware of changes in control to avoid obsolescence of controls due to reorganisation, business re-engineering and business downsizing


Auditor’s and fraud investigators must be conversant with pre conditions for detecting conversant with pre-conditions for detecting fraud

Determining organisations risk of fraud by g g ystudying its operational and control environmentThoroughly understanding symptoms of fraudThoroughly understanding symptoms of fraudThoroughly understanding symptoms of fraudBeing alert of occurrence of these symptoms


Examine the operational environment and its Examine the operational environment and its controls to identify weakness and deficiencies (Opportunities)Deterrence, detection and reporting of fraud requires an auditor to have sufficient knowledge of possible frauds to be able to identify their symptoms


Unauthorized transactionsC h h tCash shortagesUnexplained variation in pricesMi i d t tiMissing documentationExcessive refunds

An effective approach is to develop a list of each An effective approach is to develop a list of each type of exposure identified during the planning stage of an audit by adjusting p g g y j ginventory files, increase amount of deposit in transit and unexplained variances


Once a typical symptoms have been outlined, dit t d t i th t ffi i t auditors must determine the most efficient

way of detecting their presenceOth ibl i f f dOther possible signs of fraud

Living beyond ones meansDrug and alcoholic abuseDrug and alcoholic abuseHigh personal debt/losesCompulsive gambling/stock speculationp g g/ p


Management Environment PPressureManagement style and attitude

Competitive and business environment e g Competitive and business environment e.g. technologyEmployee relationship ( spouse receiving non competitive contract)Attractive assets I t l t lInternal controlsLack of separation of dutiesToo much trust placed on few employeesToo much trust placed on few employees


Fraud risk factorsFraud risk factorsRisk of increase IT, increases the risk of manipulation, access controlp ,Remember the use of CAATs can help


It is primarily concerned with collecting, It is primarily concerned with collecting, analysing evidence to assess allegations of specific wrong doing. After a thorough evaluation of control framework, the weakness and fraud exposures identifies may prompt fraud examination but also they may not


Once the symptoms of fraud are found and y padditional tests have indicated that there is a strong possibility of fraud, the review enters the formal investigation phasethe formal investigation phaseAuditor must clarify;

Results of investigation can be used later as an Results of investigation can be used later as an educational tools for auditors, fraud investigators and other employees


Briefing by the client, followed by letter of engagement detailing the initial scope of workengagement detailing the initial scope of workCommunication with parties involved e.g. external auditors ( if not the firm) audit committee and accounting staffaccounting staffDetermining the extent of fraudInterviewing the defraudergInvestigating the known area with detailed audit test. E.g. Exhaustive checks, wages, cash debtors and stockand stockReport to the management on the findings, with copies to interested parties e.g. ex- auditor, audit committeecommittee.


Circumstances which led to investigationCircumstances which led to investigationFraud discovered and their extentIdentity of the defrauderIdentity of the defrauderEffects on the reported profit of the past periodEffects on f/s of current periodsEffects on f/s of current periods


IC weakness which allowed the fraud and recommendations for eliminating themrecommendations for eliminating themReport of any interviewing with the defrauder, including offers of restitution etc, defrauder, including offers of restitution etc, which may be relevant to management in deciding what action, if any they should t k i t hi /htake against him/herIf there is any suggestion that the external auditors has been negligent the extent of auditors has been negligent the extent of claim against him.


Auditor should Consider the potential effects in F/sWhere the fraud is material the auditor should

dif th dit d t f modify the audit procedures so as to perform procedures appropriate to circumstances depending on the type of the fraud/error suspected, the lik lih d f th i d t t f d likelihood of their occurrence and extent of damage in the F/s


If some proof of fraud exists, management has If some proof of fraud exists, management has several options

Cause a deeper audit to be done if amount of loss appears substantialTerminate employee responsible if loss is minimalFil l i t l f li t fid lit File a claim to recover a loss from clients fidelity insurance agentArrange with law enforcement agents to probe into Arrange with law enforcement agents to probe into the matter


If some proof of fraud exists, management has If some proof of fraud exists, management has several options

Engage a private investigator to probe into the loss g g gand document it for claim purpose/prosecutionDisreard losses if minimal and tighetn controlsAl t th di t dit itt th b dAlert the directors, audit committees or the board


Strong ICS is not a warrant from fraudgClient should have an effective anti-fraud and corruption strategy which is aimed at encouraging prevention, promote early detection and respond to prevention, promote early detection and respond to concern raisedAwareness programs to employeesS i j b li tScreening job applicantsSound corporate policy on fraudAVOID atmosphere of distrust and paranoia by O at osp e e o d st ust a d pa a o a by over-emphasising fraud deterrence measures.


It is important to stick to facts, and to discount It is important to stick to facts, and to discount hearsay, rumour, or opinion and record what is relevant to the cause of the incident and its effectAudit reports on fraud and other improprieties should be addressed to the righ person who can take action


Report must contain all details of fraudpMust provide framework to analyse the fraud caseMust enable the user to develop improved management and security policies and detect and prevent fraud.Investigation and reporting should proceed in such a Investigation and reporting should proceed in such a way that the outcome will be litigated. Recording exact times, data, names of person and specific; description

f id iti l i i il i i l i ti ti of evidence are critical in civil or criminal investigation or litigation


Reporting to managementp g gSuspicion of fraud with potential effect on f/sFraud/significant errors

Reporting to users of the audit reportsQualified opinion/disclaimer or limitation of scope

Reporting to regulatory/enforcement Reporting to regulatory/enforcement authorities.



Understand the meaning of money launderingExemplify money laundering p y y gDescribe the money laundering processUnderstand Tanzania perspective of money l dlaunderingDescribe the audit implication of money launderinglaunderingDiscuss the challenges of combating money laundering in Tanzanialaundering in Tanzania


DefinitionDefinitionJust remember the literary word laundry ( cleaning) and therefore;Money laundering, the metaphorical "cleaning of money" with regard to appearances in law, is the practice of engaging in specific financial transactions practice of engaging in specific financial transactions in order to conceal the identity, source, and/or destination of money, and is a main operation of

d d underground economy


Definition“The process used to disguise the source of money or assets derived from criminal activity”C d t t d i d i h l i t t Conduct or acts designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of money (can be currency etcTo move illegally acquired cash through financial systems so that it appears to be legally acquired


DefinitionDefinitionMoney laundering is the process whereby the origin of dishonest and/or illegally obtained money is concealed

h f lso that it appears to come from a legitimate source.A process that makes money with an illegal origin appear legal so that it may be used. g ythe methods criminals use to hide and disguise the origin of the money they make from their crimes. The term laundering is used because criminals need to turn their laundering is used because criminals need to turn their "dirty" criminal money into clean funds that they can use without arousing suspicion.


DefinitionDefinitionthe willful concealment of the existence, illegal source, or illegal use of proceeds, and the disguise of them as llegitimate There is international concern that the multimillionaire Osama bin Laden and his wealthy backers have created a ysprawling global network of funds. the process of converting illegally earned assets, originating as cash to one or more alternative forms to originating as cash, to one or more alternative forms to conceal such incriminating factors as illegal origin and true ownership.


D fi itiDefinitionconcealing the source of illegally g g ygotten moneyInclude:Include:Drug traffickingExtortionCorruptionCorruptionFraud


M l d i i th b hi h l t f Money laundering is the process by which large amounts of illegally obtained money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having ) g pp goriginated from a legitimate source.

If done successfully it allows the criminals to maintain control If done successfully, it allows the criminals to maintain control over their proceeds and ultimately to provide a legitimate cover for their source of income. Money laundering plays a f d t l l i f ilit ti th biti f th d fundamental role in facilitating the ambitions of the drug trafficker, the terrorist, the organised criminal, the insider dealer, the tax evader as well as the many others who need to

id h ki d f i f h h i i h dd avoid the kind of attention from the authorities that sudden wealth brings from illegal activities. By engaging in this type of activity it is hoped to place the proceeds beyond the reach of y p p p yany asset forfeiture laws.


Criminals want to:Avoid prosecution pIncrease profitsA id i f l t d lthAvoid seizure of accumulated wealthAppear legitimateTax evasion

They are trying to conceal the origin of the They are trying to conceal the origin of the cash


Money laundering is often described as y goccurring in three stages: placement, layering, and integration.Placement: refers to the initial point of entry Placement: refers to the initial point of entry for funds derived from criminal activities. Layering: refers to the creation of complex

t k f t ti hi h tt t t networks of transactions which attempt to obscure the link between the initial entry point, and the end of the laundering cycle. g yIntegration: refers to the return of funds to the legitimate economy for later extraction.


Money laundering is a complex process, which is y g p paccomplished through three main phases. The first phase is the physical disposal of the cash, i.e. placing the proceeds of predicate criminal activities into bank or non-p pbank financial institutions in order to disguise their illegal origins and make them appear to be legitimate funds. This may include the use of ‘front’ businesses such yas hotels, cinemas or casinos that may reasonably claim to do business in cash. It may also involve the use of ‘smurfing’ techniques, through which launderers make g q , gnumerous deposits of amounts of money that are small enough to avoid raising suspicion or triggering reporting mechanisms. This process is called ‘placement’. p p


The second phase is the movement of funds from i i i i i i hid h i i i d institution to institution to hide their origins and ownership, termed ‘layering’. It consists of putting the funds, which have entered into the financial system, through series of financial operations to mislead through series of financial operations to mislead potential investigators and to give the funds the appearance of having legal origins. For this launderers use financial institutions that provide legally protected use a c a st tut o s t at p o de ega y p otected banking or offshore mechanisms. The final stage is to integrate criminal assets into the mainstream of commerce and investment in an ostensibly legitimate business. This is termed ‘integration’. The funds may be re-introduced into the economy through, for instance, the purchase of luxury it th h i t t i t h h i items or through investment in assets such as shares in companies and real estate.


The main objectives of money launderers are thus to l h i f d i h fi i l i h place their funds in the financial system without

arousing suspicion, to move them around, often after a series of complex transactions crossing multiple jurisdictions so that it becomes difficult to identify their jurisdictions so that it becomes difficult to identify their original sources, and finally to move the funds back into the financial and business systems so that they appear legitimate. appea eg t ate.

Money laundering is performed systematically and clandestinely making it difficult to identify exactly clandestinely, making it difficult to identify exactly how much money is involved, what methods are employed and what the magnitude of the problem is. Likewise, secrecy makes it difficult to establish the ymagnitude of funds used for the funding of terrorism.


Hide: to reflect the fact that cash is often introduced to the economy via commercial concerns which may knowingly or not knowingly be part of the laundering scheme, and it is these which ultimately prove to be y pthe interface between the criminal and the financial sector Move: clearly explains that the money launderer uses Move: clearly explains that the money launderer uses transfers, sales and purchase of assets, and changes the shape and size of the lump of money so as to obfuscate the trail between money and crime or money and the trail between money and crime or money and criminal. Invest: the criminal spends the money: he/she may invest it in assets or in his/her lifestyle invest it in assets, or in his/her lifestyle


If a person is making thousands of shillings in p g gsmall change a week from a business (not unusual for a store owner) and wishes to deposit that money in a bank, it cannot be done p y ,without possibly drawing suspicion. In Tanzania, for example, cash transactions and deposits of more than a certain shilling amount deposits of more than a certain shilling amount are required to be reported as "significant cash transactions"." In other jurisdictions suspicion-based requirements are placed on financial based requirements are placed on financial services employees and firms to report suspicious activity to the authorities. Methods to conceal the source are therefore requiredto conceal the source are therefore required.


One method of keeping this small change private would be for an individual to give

t i t di h i l d money to an intermediary who is already legitimately taking in large amounts of cash. The intermediary would then deposit that The intermediary would then deposit that money into an account, take a premium, and write a cheque to the individual. Thus, the i di id l d tt ti t hi lf d individual draws no attention to himself, and can deposit his cheque into a bank account without drawing suspicion. This works well for g pone-off transactions, but if it occurs on a regular basis then the cheque deposits themselves will form a paper trail and could raise suspicionform a paper trail and could raise suspicion.


Corruption ( if you get $100,000 today through p ( y g y gcorruption, will you deposit into your bank account?)Drug production and trafficking Drug production and trafficking Embezzlement, misappropriation and theft of public fundsTax exemptions and evasionsSmuggling of arms, minerals and dangerous materials (It is reported that between 1995 and materials (It is reported that between 1995 and 2002 Tanzania lost more than Tsh300 billion (US$300 million) through the smuggling of tanzanite from the country )tanzanite from the country )


Stolen motor vehicles Stolen motor vehicles (The trade in stolen motor vehicles or their parts generates substantial illicit proceeds. The police say they have identified the criminal syndicates responsible for these crimes. Gangs of motor vehicle thieves are concentrated in cities and towns such as Dar es Salaam, Arusha, Moshi, Mwanza and Mbeya


PoachingPoachingTrafficking of human Informal financial system (Another area that Informal financial system (Another area that has not been given sufficient attention, and which can be used to facilitate money ylaundering and terrorist financing in Tanzania, involves informal dealings in funds without h f h f l fi i l i i i )the use of the formal financial institutions)


TerrorismTerrorismTanzania has experienced the adverse effects ofterrorist attacks. On 7 August 1998, terroristsbombed the US Embassy in Dar es Salaam It is saidthat the terrorist attack in 1998 was co-ordinated,financed and/or carried out by al-Qaeda, led by the/ y Q , ySaudi fugitive, Osama Bin Laden.61


Several regulatory mechanisms are in place to dd th bl Th i l d th B k f

g y paddress these problems. They include the Bank of Tanzania (BoT) Circular No. 8 of 2000, which obligates banks and financial institutions to:

d t ti l d i li i d d adopt anti-money laundering policies and procedures; verify and identify customers before establishing relationship with them; develop procedures relating to retention of records of develop procedures relating to retention of records of transaction of their customers; establish reporting mechanisms of suspicions transactions of their customers to the relevant

h dauthorities; and provide training and guidance to their personnel relating to procedures and control of money laundering laundering.


Co-operation with other nations and with regional and global bodies

Tanzania co-operates with other nations and regional and global bodies in their efforts to combat money laundering and the financing of terrorism. For g ginstance, in compliance with the regional efforts of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Tanzania has established the p ( )National Multi-Disciplinary Anti-Money Laundering Committee, which reports regularly to the ESAAMLG Task Force. A Financial Intelligence Unit (FIU) to g ( )strengthen financial and economic intelligence gathering has been established. Tanzania also co-operates with regional groups such as SADC and the p g g pEast African Community (EAC) and various international organisations such as Interpol APT Financial Consultants

Sako Mayrick, 2008 90

Vienna conventionsPalermo conventionsUN resolution 1373UN Convention for Suppression of the Financing of TerrorismOther international agreements includesThe SADC Protocols (including the Protocol Against Corruption the Protocol on Against Corruption, the Protocol on Combating Illicit Drugs and the Protocol on Mutual Legal Assistance in Criminal Matters); g )


The Memorandum of Understanding among The Memorandum of Understanding among members of the ESAAMLG; The African Union Convention on Preventing gand Combating Corruption; and The African Union Convention on the Prevention and Combating of Terrorism.


Local legislationLocal legislationthe Economic and Organised Crime Control Act of 1984; the Mutual Assistance in Criminal Matters Act of 1991; the Proceeds of Crime Act of 1991; the Proceeds of Crime Act of 1991; the Drugs and Illicit Traffic in Drugs Act of 1995; the Extradition Act of 1965; the Extradition Act of 1965;


Local legislationLocal legislationthe Banking and Financial Institutions Act ,2006the Prevention of Corruption Act of 1971; pthe Prevention of Terrorism Act, 2002; the Armaments Control Act of 1991; the Ammunition Act of 1991; the Police Force Ordinance, Chapter 322; th P l C d Ch t 16 d the Penal Code, Chapter 16; and the Public Leadership Code of Ethics Act of 1995


the National Multi-Disciplinary Anti-Money p y yLaundering Committee; the Ministry of Finance; the BoT and banking financial institutions; the BoT and banking financial institutions; the Ministry of Justice and Constitutional Affairs; the Ministry of Home Affairs; the Police Force; h Cthe PCB;

the National Drug Control Commission; and the courts the courts.


Lack of force of administrative directivesf f fLack of specialised prosecutorial skills Corruption in legislative, judicial and enforcement activities enforcement activities Inter-sectoral conflict and lack of co-ordination ( Police Vs PCCB)Inordinate delays in police investigations and in court cases Lack of attention to the informal sector Lack of attention to the informal sector Resistance to anti-money laundering measures


Lack of specialised prosecutorial skills f p pCorruption in legislative, judicial and enforcement activities Inter-sectoral conflict and lack of co-ordination ( Police Vs PCCB)I di t d l i li i ti ti d Inordinate delays in police investigations and in court cases Lack of attention to the informal sector Lack of attention to the informal sector Resistance to anti-money laundering measures


Forensic auditing could be defined as the Forensic auditing could be defined as the application of auditing skills to situations that have legal consequences.

Forensic Auditing is the process of gathering g p g gand reporting on data , in a pre-defined context, for the purpose of finding facts and/or

id i h f fi i l /l l evidence in the context of financial /legal disputes and /or irregularities and giving preventive advice in this areapreventive advice in this area


Forensic investigation is carried out for civil or Forensic investigation is carried out for civil or criminal cases. These can involve fraud, . Asset tracing for money laundering.

Forensic accounting is undertaking a financial g ginvestigation in response to a particular event where the findings of the investigation may be

d id i h i h l used at evidence in court or to otherwise help resolve disputes.


Professional accounting skillsProfessional accounting skillsInvestigative skillsInvestigative mindsetCapability to understand disputes or Capability to understand disputes or anticipated disputesUnderstand risk concerns, fraud allegations and ethical requirementsg q


Corporate governance has increased the Corporate governance has increased the number of forensic audit due expectation of corporate governance codes

Company directors take seriously their responsibilities for the prevention and detection of fraudfraudGovernment addressing risks of criminal funding of terrorist groupg p


FraudQuantifying lossesBribes identification

l f lIntentional misstatement on financial statementsCreative accounting

Negligence by auditor or othersNegligence by auditor or othersInsurance claims when there are disputesContract disputesContract disputesMatrimonial disputesBusiness sales and purchase disputeBusiness sales and purchase dispute


Terrorist financingTerrorist financingExpert witness, owing a duty of skill and due care to those instruction him

Should be objectiveShould be aware of court consequencesShould provide independent opinion not biased to payersSh ld fi t t i l ttShould confine to material mattersShould inform client of change of opinion and reasons for it.


Index or list of contentsBrief CVInstructionsIssuesDocumentationChronologyTechnical backgroundOpinionReferencesDeclaration

