Fraud in the Ministry of Social Affairs' Subsidies Function

Abstract

Public sector fraud scandals have seen their rise in Denmark in the recent decade, indicating that it is a much bigger issue than first expected. The phenomena is causing immense corporate and societal losses, and therefore needs consideration and priority from both management and auditors.
This thesis is based on the fraud case in The Ministry of Social Affairs committed by Britta Nielsen, which has been analyzed and used as such for management and auditors to draw lessons from, for the two parties to be more effective in their ways of combatting fraud in the future. The framework of the thesis takes its outset in an analysis of fraud in general, explaining details about the typical fraudster and reasons for committing fraud based on international studies made on the subject. Furthermore, the thesis examines the mutual responsibilities, which the management and the auditors face regarding combatting fraud.
The study finds that auditors’ responsibility is limited to finding significant misstatements in the financial statements - whether due to fraud or errors, which limits the auditor’s possibility and responsibility in discovering minor fraud cases.
The thesis also examines the theories behind internal controls and finds that there usually is a lack of these in the public sector, which makes public organizations more susceptible to fraud. This leads on to a discussion on management responsibility in organizations regarding implementing internal controls and ensuring enough precaution measures to limit the possibilities of committing fraud.
The thesis concludes by explaining the learning points, which the research of the fraud case in The Ministry of Social Affairs, based on its problem, limitations and methodology, has resulted in. The main results are:
• Management should be more steadfast in fulfilling their responsibilities in regards to implementing effective internal controls and ensuring an effective control environment. In case management is having difficulties therein, they should consider an internal auditing function which can assist the implementation of the internal controls.
• Auditors should adjust their audit procedures to address the identified risks more accurately, and consider additional procedures in cases where there is a lack of internal controls, as it elevates the risks of fraud.
• Auditors should be more precise in their communication, when communicating recommendations or improvements, and should if possible, assist management implementing the improvements in cases where they find that management is lacking in action.