Fraud Risk Management Guide

Aldo P A Silitonga - 1606910866

1. What is the definition of Fraud?

Fraud is gaining an unfair advantage over another person. Legally, for an act to be fraudulent there must be:
1. A false statement, representation, or disclosure
2. A material fact, which is something that induces a person to act
3. An intent to deceive
4. A justifiable reliance; that is, the person relies on the misrepresentation to take an action
5. An injury or loss suffered by the victim

So the main reasons why people are doing fraud is shown by the triangle models below.

Its a common model that is called as Fraud Triangle. This model is built on the premise that fraud is likely to
result from a combination of three factors: motivation, opportunity and rationalisation.
2. Give some examples of Fraud
There are so many fraud exercise in some companies. And, here is an example of fraud exercise that
happened in Indonesia State Owned Enterprise (BUMN), Pertamina Tbk., in a few days ago. Its regarding with
the Pertaminas Investment in Australia. The case was started in 2009, when the PT Pertamina Tbk. through its
child entity, PT Pertamina Hulu Energi, bought 10% of RTC Oil ownership. The transaction agreement was
signed in May 1st 2009, valued AU$ 66,2 million, with an assumption to receive 812 barrel per day. However,
the BMG Australia block in 2009 only produced 252 barrel of Crude Oil per day. In 2010, BMG Australia
Block was shut down soon after the RTC Oil Ltd. stopped their production with a nonsense reason. As a result,
PT Pertamina Tbk. suffered loss up to millions dollar. This case is still undergoing the investigation process in
Jakarta Provincial Prosecutor (Kejaksaan Agung Jakarta). Pertaminas board of directors is suspected and being
checked by the Prosecutor in the past few weeks.

3. What controls that can effectively prevent the above frauds? (refer to your answer for no 2)
Controls are needed to prevent this to be happened. As a parent company, PT Pertamina Tbk. should put
their eyes to this high-valued investment. Company also should implement the control assurance, which is the
process whereby controls are reviewed by management and staff. There are various ways to conduct these
exercises, from highly interactive workshops based on behavioural models at one end of the spectrum to pre-
 packaged self-audit internal control questionnaires at the other. These models all include monitoring and risk
assessment among their principal components.

Furthermore, the company has to allowed external auditor to list the financial performance and reviewing
the transaction. As I know, the investment on BMG Australia Block has a significant value in the Pertaminas
reports. In addition, Pertamina should provide a transaction disclosure, an obligation to be given to OJK, as The
Financial Services Authority, to be reviewed.
4. Why the FRM guide is needed?

So basically, FRM is an ongoing process that provides organization with the tools to manage fraud risk in a
manner consistent with the regulatory requirements as well as entitys needs. Effective FRM encompasses
controls that achieve the following objective; Preventing, Detecting, and Response.

In my opinion, FRM guide is needed to prevent companies from the misconduct risks. Managing the risks
of fraud is the same in principal as managing any other business risks. Why? Because the threat of fraud can
come from inside or outside the organization. Furthermore, the FRM guide provides strategies to avoid financial
losses. It is really important for companies to control their fraud risks since there were gaps and opportunities to
do fraud. FRM guide also give contribution to the Good Corporate Governance. As FRM guide provides
companies audit committee with outlines and strategies for companies, it improves the system of risks
detection.