Standard fraud investigation process: the missing link in the pork barrel scam expose

International NGOs (INGOs) as with supranational organizations (i.e. UN, World Bank) have fraud policies in place.  For new employees, orientation to the policy (along with other policies) is part of the induction process.  Regular employees as part of SOP are reminded of it on a regular basis.  In these venues, terminologies (e.g. fraud, corruption, collusion) and fraud risks pertinent to the organization are defined, elements of fraud and corruption (so workers can recognize these at once, whether in themselves or others; that fraud is a crime) and the investigation process introduced, and organizational sanctions against fraudulent and corruption acts made known.  The atmosphere in these sessions are very sober, none of the usual casual regard of meetings that development workers are infamous for.  Workers in these organizations due to the nature of their work are constantly exposed to fraud risks (e.g. I for one, when I was in direct field operations, managed something like PHP1M a year for the project; although I didn’t directly handle the funds, finance did that, I had a say in whether or not and how and where the funds will go; the head of office who had the final say trusted me that the papers I leave on his desk to sign are a product of prudent decision on my part.) hence the policy. Plus of course these organizations, who’ve been around a hundred years, have it in their best interest to maintain credibility of their names and brands.  To blacken your name and brand which has taken you a hundred years to build by a fraudulent act involving, say, USD1M, isn’t worth it from all angles not to mention a very unfortunate turn of events, one which you may never recover from.

But what I’d like to zero in on for this article is the fraud investigation process.  For illustration purposes, I will cite my own experience.  I have availed of the process once in an organization I worked in, having reported what I believed was a fraudulent act.  The instance I reported it and positions concerned responded, the process was activated up to the time when a final decision was declared and a report of the process given to me as well as to positions concerned.  It’s an efficient process, the objective being minimal disruption of my work duties as well as the others who were involved (although participation in the investigation process is considered as part of official functions) which meant we worked on the shortest time frame possible (no one wants to be stressed out so long!).

So when the pork barrel scam (before that, corruption in the Bureau of Customs) was exposed to the public by no less than the Commission of Audit I was expecting that the investigation process would be activated, by whoever the agency is supposed to take over for this case.  But it hasn’t until now.  In fact, it’s not clear who is in charge of fraud and corruption cases committed by public officials here. There’s the Ombudsman but after looking up its mandate, it’s still unclear whether or not fraud and corruption involving public money by Senators and members of Congress is within its jurisdiction.  And this is an example exposing the core of the problem in Philippine governance: weak (and to an extent, failure) of institutions (see Policy Reforms and Institutional Weaknesses: Closing the Gap, for example).

Responding to reports of fraud in government and management of the whole process should be SOP that doesn’t need the President before it can be activated.  If we wait for the President to be the eyes, ears, and mouth for the whole nation (how many thousands of barangays, cities, municipalities, provinces, regions, national government agencies?), we’ll have to wait it out until the end of the world because it’s humanly impossible for one person to do everything for everybody.  In a family of five, one person, say the mother, cannot do everything for the other four all the time without succumbing to stress or illness; eventually, when the children can, they’ll have to make up their own beds, clean up after themselves, help clean the house, contribute to running the household.

So yes SOP.  The SOP should be made public through various medium and channels accessible to all, not just to an elite few.  Once a report is received, what’s the next step? who’s in charge? what’s the protocol? and after that what’s the next step? and after?  These SOPs are a feature of democratic governance.  It’s what the world’s developed countries’ governments have that the rest haven’t.  It’s why they’re great, free, and developed.  The US, for instance, doesn’t wait for President Obama to say “OK you guys start the investigation” to a case involving tax misuse — there are agencies tasked, policies and procedures in place, and people in positions know what to do by rote.

The reason for why we’re so frustrated and seething with internal rage with our government is there is nothing of that sort here.

Let’s see a few examples outside of the Philippines.

The Australian National Audit Office, in its Better Practice Guide:  Fraud Control in Government Entities, reiterates that

The Australian Government is committed to protecting its revenue, expenditure and property from fraudulent activity by taking a systemic approach to the management of fraud across the Australian Public Service (APS).  This commitment is articulated in the provisions of the Financial Management and Accountability Act 1997 (the FMA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act).

The Australian Government first released a Commonwealth Fraud Control Policy in 1987. In 2002, the government recognised the need to update the policy to take into account developments in corporate governance, modern business practices and developments in fraud control. Accordingly, the then Minister for Justice and Customs issued the Commonwealth Fraud Control Guidelines (the Fraud Control Guidelines) under Regulation 19 of the Financial Management and Accountability Regulations 1997.  Following a review in 2010, the Minister for Home Affairs issued an updated version of the Fraud Control Guidelines in March 2011.

Fundamental to sound fraud management is an overall governance structure that appropriately reflects the operating environment of an entity. When developing or maintaining a fraud control governance structure, an entity needs to ensure it has formally
considered the three generally recognised conditions for fraud to occur: the presence of an opportunity (that is, poor internal and external controls); a motivated offender; and rationalisation (justification by the individual for the fraudulent activity).

To minimise these conditions occurring, fraud control measures need to be primarily focused on restricting the level of opportunity available to potential fraudsters through the development and implementation of an effective fraud control framework. Important elements for effective fraud control include: governance structures; organisational values and culture; and fraud control strategies. Appropriate governance structures are critical to the effective operation of fraud control within an entity and
support the role of the CEO and compliance with the Fraud Guidelines. These governance structures need to
be well understood and accepted by the organisation.

via Australian National Audit Office

Still in Australia, in New South Wales, the Independent Commission Against Corruption (ICAC), an independent state body tasked to investigate and expose corrupt conduct of state public sector departments, agencies, employees and members of parliament, has concluded among others concluded an investigation involving former government ministers implicated in the licensing of mining explorations.  The process took six months and decisions pertaining to corrupt acts committed by the ministers are set to be reported this month.  Documentation of the process and decisions arising from it are publicly available on the ICAC site.

Still in Australia, the Department of Human Services provides a service entertaining the reporting of fraud in Medicare, Centrelink, and Child Support programs:

On the SSS site here, the Citizen’s Charter is conspicuous among the SSS-pertinent documents and one wonders why it’s there.  If you ask me, this is an example of what ‘doing business in Asia’ is: most things are implied and may God help you puzzle out what’s not expressly said. I’m Asian but I have to say I haven’t figured out this business at all.  I prefer straightforward; this way I can save 10 hours that is otherwise spent agonizing over which is what.

In the UK, the HM Treasury, UK government’s economic and finance ministry that among others maintains control over public spending, is author to a guidance document, Managing Public Money, which sets out the main principles in dealing with resources in the UK public sector organizations.  The Chief Secretary, Danny Alexander, has interesting words in the foreword

Every government needs credibility. Without it, no government can raise the funds it needs for its policies – from taxpayers, from charge payers, or from borrowers. Recent international events have provided object lessons in how fragile sovereign credibility can be.  This handbook helps the UK government maintain public trust. It explains how to handle public funds with probity and in the public interest. There is a lot of common sense, with a little protocol about how to respect parliament’s requirements.  The origins of this document trace back through the Bill of Rights to Magna Carta. These events brought the monarchs of their day up against the demands of those they governed that the funds they provided should be used wisely. The principles which emerged also underpin the rule of law, for which the UK gains international respect and trust. In modern times it is the elected government that must account to parliament; but the theory is the same. Integrity is the common thread. Transparency and value for public money are the essential results.

Also in the UK, fighting fraud is a national strategy outlined in the document, Fighting Fraud Together.

…the threat from fraud continues to have a damaging effect on our country. Individuals, charities, public services and the private sector continue to pay a high financial price with the 2011 National Fraud Authority Annual Fraud Indicator 1 estimating losses of £38.4bn… As staggering as they are, the costs of fraud cannot be measured solely in terms of monetary loss. The effects permeate throughout society. Large businesses suffer reputational damage. Small and medium sized businesses can go out of business, affecting their owners, employees and their families and damaging the country’s economic prospects. Some individual victims, often among the most vulnerable people in our society, suffer serious emotional trauma; some have even taken their own lives.

Fighting Fraud Together sets out a new approach with the ambition that: By 2015 our country will be demonstrably more resilient to and less damaged by fraud through:

• Individuals, businesses, public and voluntary bodies detecting and preventing more fraud.
• Law enforcement and other partners increasing the risk of disruption and punishment to organised and opportunistic fraudsters, thus deterring potential criminal offenders.

We will deliver this mission through three strategic objectives:

AWARENESS: We will prevent more fraud by achieving a step change in awareness of fraud among the general public and organisations in the private, public and voluntary sectors and in their ability to protect and safeguard themselves.
PREVENTION: We will prevent more fraud through stronger systems and controls in our businesses, and public and voluntary services.
ENFORCEMENT: We will strengthen our response to be tougher on fraudsters by disrupting and punishing them more efficiently and effectively.

All in all, the message in the examples is that fraud, bribery, and corruption thrive when kept in the dark – it’s their natural habitat- (like Gollum and his caves), have damaging effects on society, and are serious offenses.  Crimes.  And we know what the law says about crime.

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