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Auditing for Fraud. 2 0 1 3. Or What Does Fraud Look Like?. Red Flag. A set of circumstances that are unusual in nature or vary from the “normal activity”. Caution. Do not ignore a red flag Conduct inquiry to determine reason for abnormal circumstances - PowerPoint PPT Presentation
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AUDITING FOR FRAUD
OrWhat Does Fraud Look Like?
2013
RED FLAGA set of circumstances that are
unusual in nature or vary from the “normal activity”
CAUTION Do not ignore a red flag
Conduct inquiry to determine reason for abnormal circumstances
Sometimes an error is just an errorIs there intent?
QUOTE OF THE DAY
Fraud and Stupid Often look exactly
the same
FRAUD TRIANGLERationaleNeed
Opportunity
Control Environment
CONTROLLING OPPORTUNITY #1 Reason Fraud Occurs:
Blind Trust
EMPLOYEE RED FLAGS High employee turnover Refusal to take vacation or sick leave Lack of segregation of duties Lifestyle changes Significant personal debt and credit
problems Behavioral changes
Drug or alcohol relatedGamblingFear of losing job
EMPLOYEE RED FLAGS Low or inadequate salary Difficulty in obtaining audit evidence Severe disciplinary actions Lack of respect or appreciation by
superiors Resentment for not being treated fairly
WHAT DOES FRAUD LOOK LIKE Remember that employees will
circumvent internal controls not for the purpose of committing fraud, but because….
It makes their job easier, but by doing so, an opportunity is provided
Sooner or later, an employee will have a need
They only need to be able to rationalize in order to take advantage of the opportunity
MANAGEMENT RED FLAGS Reluctance to provide information to
auditors Frequent changes in P-Card accounts Frequent changes in external auditors Missing documentation Often misplacement of the P-Card Frequent reports of fraud reported at the
end of the cycle
MANAGEMENT RED FLAGS Excessive number of voids, discounts
and returns Accounts that are not reconciled in a
timely manner Split Purchasing Large number of charges to the same
vendor in a short time frame
MANAGEMENT RED FLAGS Missing receiving documentation High volume of purchases from a new
vendor Frequent requests for increase in P-card
monthly limits Turns in reports late or last minute Doctored receipts
REASONS FRAUD ISN’T SEEN We tend to accept any “Reasonable”
explanation We assume We just don’t want to find fraud It takes time Lack of training to recognize basic
internal controls
ACKNOWLEDGEMENT Recognizing the red flag is not sufficient Action must be taken to determine the cause
and the possible effect
Evaluate by: Observation Financial analysis Correct the situation Educate the responsible people
(red flags are most likely a warning that something is wrong either personally or professionally)
ACKNOWLEDGEMENT Red Flags are “Warnings” Do not ignore (They will be waiting for you!) There are no “Little Frauds”
OMES P-Card Team suggests that you internally audit a random selection of charges each month
Put consequences in place for your p-card holders if rules are not followed
Make sure your policy and procedures are up to date
ACKNOWLEDGEMENT Look for duplicate charges Look for multiple purchases at the same
vendor Look for vendor names that seem like
an unusual place to buy product for what is needed
Always read the comments put in by the cardholder- they can give you information that might raise a flag
KEY ROLES Cardholder responsibility Do and don’ts of the program Program manager responsibilities Approver responsibilities Auditors
Breakdown of any of these roles can cause fraud to slip through the cracks
PROMOTE COMPLIANCE FROM THE START
Training- P-Card initial class Training aids posted online Refresher training every 2 years
The agency can perform this training and highlight issues their agency is having
All communication should emphasize compliance
Does it meet the scrutiny test??
FRIENDLY FOLLOW-UP Communicate using multiple methods Ask very specific “detailed” questions
when transactions are “flagged” Direct cardholders to additional
resources Follow-up routinely and consistently
until adequate response is received Advise cardholder when the matter is
resolved End each communication with your
contact information
INCORPORATING AUDIT RECOMMENDATIONS
Compare historical audit findings Look at other agencies’ audit findings
and recommendations Clearly define violations Consistent follow-through
CONCLUSION Use the gathered information for
continuous improvement Make sure appropriate controls and
workflows are in place Train, communicate, respond
accordingly
Questions?