FRN combines the high quality, authoritative anti-fraud and audit content from the leading providers, AuditNet ® LLC and White-Collar Crime 101 LLC/FraudAware.
The two entities designed FRN as the “go-to”, easy-to-use source of “how-to” fraud prevention, detection, audit and investigation templates, guidelines, policies, training programs (recorded no CPE and live with CPE) and articles from leading subject matter experts.
FRN is a continuously expanding and improving resource, offering auditors, fraud examiners, controllers, investigators and accountants a content-rich source of cutting-edge anti-fraud tools and techniques they will want to refer to again and again.
White-Collar Crime Fighter Newsletter Subscribe Now at No Cost! FraudResourceNet has made the premier Anti-Fraud newsletter, White-Collar Crime Fighter freely available to all. All this is required is to complete the registration form with your work email address! The widely read newsletter, White-Collar Crime Fighter brings you expert strategies and actionable advice from the most prominent experts in the fraud-fighting business. Every two months you'll learn about the latest frauds, scams and schemes... and the newest and most effective fraud-fighting tools, techniques and technologies to put to work immediately to protect your organization. When it comes to fraud, knowledge of the countless schemes, how they work and red flags to look for will help keep you, your organization and your clients safe. At FraudResourceNet we understand this and take great pride in providing our FREE White Collar Crime Fighter newsletter -- filled with exclusive articles and tips to provide the knowledge you need. Make sure you stay informed. Sign up for White Collar Crime Fighter newsletter and we’ll keep you up-to-date on special promos, training opportunities, and other news and offers from FraudResourceNet! Signing up is easy and FREE. If you have not already subscribed to our newsletter, please sign up to get started! Sign up for the White Collar Crime Fighter Newsletter (a $99 value ... now completely FREE)
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Webinar Housekeeping This webinar and its material are the property of FraudResourceNet
LLC. Unauthorized usage or recording of this webinar or any of its material is strictly forbidden. We are recording the webinar and you will be provided with a link access to that recording as detailed below. Downloading or otherwise duplicating the webinar recording is expressly prohibited.
Webinar recording link will be sent via email within 5-7 business days. NASBA rules require us to ask polling questions during the Webinar and
CPE certificates will be sent via email to those who answer ALL the polling questions
The CPE certificates and link to the recording will be sent to the email address you registered with in GTW. We are not responsible for delivery problems due to spam filters, attachment restrictions or other controls in place for your email client.
Submit questions via the chat box on your screen and we will answer them either during or at the conclusion.
After the Webinar is over you will have an opportunity to provide feedback. Please complete the feedback questionnaire to help us continuously improve our Webinars
If GTW stops working you may need to close and restart. You can always dial in and listen and follow along with the handout.
The views expressed by the presenters do not necessarily represent the views, positions, or opinions of FraudResourceNet LLC (FRN) or the presenters’ respective organizations. These materials, and the oral presentation accompanying them, are for educational purposes only and do not constitute accounting or legal advice or create an accountant-client relationship.
While FRN makes every effort to ensure information is accurate and complete, FRN makes no representations, guarantees, or warranties as to the accuracy or completeness of the information provided via this presentation. FRN specifically disclaims all liability for any claims or damages that may result from the information contained in this presentation, including any websites maintained by third parties and linked to the FRN website
Any mention of commercial products is for information only; it does not imply recommendation or endorsement by FraudResourceNet LLC
According to major accounting firms, professional fraud examiners and law enforcement:
Fraud jumps significantly during tough economic times
Business losses due to fraud increased 20% in last 12 months, from $1.4 million to $1.7 million per billion dollars of sales. (Kroll 2010/2011 Global Fraud Report)
Average cost to for each incident of fraud is $160,000 (ACFE) Of Financial Statement fraud: $2 million
Approx. 67% of corporate fraud committed by insiders (Kroll)
Approx. 50% of employees who commit fraud have been with their employers for over 5 years (ACFE)
From SAS 99, “Consideration of Fraud in a Financial Statement Audit”:Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud…
Prior to or in conjunction with the information-gathering proceduresdescribed [this document], members of the audit team should discuss the potential for material misstatement due to fraud. The discussion should include:An exchange of ideas or "brainstorming" among the audit team members,including the auditor with final responsibility for the audit, about how and where they believe the entity's financial statements might besusceptible to material misstatement due to fraud, how managementcould perpetrate and conceal fraudulent financial reporting, and howassets of the entity could be misappropriated.
(1) Tone set by top management, (2) internal accounting and audit functions, (3) Audit committee, (4) management and audit committee reports, (5) practice of seeking second opinions from independent public accountants, and (6) quarterly reporting. Operational risk
Risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Operational risk is the amount of exposure an organization has as a result of its operational structure. This includes risk due to processes, organizations, and technologies. Strategic Risk
The risk associated with future business plans and strategies. This risk category includes plans for entering new business lines, expanding existing services through mergers and acquisitions, and enhancing infrastructure (e.g., physical plant and equipment and information technology and networking). Strategic plans that include market expansion or addition of new products.
Reputation RiskBusiness reputation is established by gaining and retaining the confidence and trust of the stakeholders in the business: customers, suppliers and employees, as well as shareholders. Reputation is gained over time. Regulatory/Compliance RiskRisk of Civil and Criminal violations. Regulatory risk, a term describing the problems arising from new or existing regulations, is now one of the greatest threats to business. Compliance with regulatory requirements and ethical conduct standards is a major concern of Boards of Directors and Audit Committees.
Common Fraud Scenarios, or “If I were going tocommit fraud, I’d….”
Per SAS 99, PCAOB, AS 2 and 5, fraud risk must be considered using a Common Fraud Scenario approach.
This allows the auditor to enlist the detailed knowledge of the stakeholders in the organization in identifying and prioritizing fraud risks at both the entity, process and account levels.
Common Fraud Scenarios, or “If I were going tocommit fraud, I’d….”
Fraud Scenarios – Treasury – Cash
Executive management in Australia sets up two bank accounts for deposit of COMPANY receipts. Funds deposited to the first account is reported to COMPANY Corporate headquarters. Funds deposited to the second account are used for the personal pleasure of Executive management in Australia. Bank reconciliations are conducted by COMPANY Executive management in Australia and no other accounting is reported to COMPANY headquarters Continued
Common Fraud Scenarios, or “If I were going to commit fraud, I’d….”Fraud Scenario – Tax LawBribes are paid to tax authorities in China to reduce outstanding liabilities and/or audit adjustments. The bribe payments are disguised as consulting or contracting expense.Fraud Scenarios - PayrollThe payroll analyst records time and attendance and a salary of $500,000.00 per year for her boyfriend who never worked at XXXX. Subsequent to the time the payroll information is sent to ADP but prior to the time the payroll report is reviewed by the Payroll Supervisor, the payroll analyst reverses the entry. The disbursement to the boyfriend is made by ADP but does not show up on payroll reports.
By brainstorming the types of fraud schemes the organization is potentially vulnerable to, the team and the stakeholders can make estimates of …
i) Vulnerability - how likely the occurrence of these schemes are (very low to very high), and
ii) Magnitude - what is the potential qualitative impact (very low to very high).
Using the vulnerability criteria discussed previously, auditors can produce a risk “heat map” that can assist in identifying HIGH RISK accounts and processes.
Controls, testing, monitoring & reporting are very effective; no previous adverse experience, very significant skills influence & knowledge to mitigate risk
Very Low 1
Remote Controls, testing, monitoring & reporting are effective; previous minor adverse experience, significant skills, influence & knowledge to mitigate risk; and/or no process or system issue.
Low 2
Reasonably Possible
Controls, testing, monitoring & reporting are somewhat effective; previous moderate adverse experience, minor skills, influence & knowledge to mitigate risk; and/or moderate process or system issue.
Medium 3
Probable Controls, testing, monitoring & reporting are minimally effective; previous major adverse experience; limited skills, influence & knowledge to mitigate risk; and/or major process or system issue.
High 4
Almost Certain
Very High
Probability Per Occurrence
Vulnerability Description Descriptor Level
5
Rare
Controls, testing, monitoring & reporting are non-existent or ineffective; previous significant adverse experience; lack of skills, influence & knowledge to mitigate risk; and/or significant process or system issue.
Vertical – a/k/a “common-sized statements”Analyzes each line as a % of its relevant totalIncome items as a % of total revenueExpenses as a % of total expense
Identifies disproportionate items Identifies fluctuations between periods
Horizontal – a/k/a “time-series analysis”Measures $ and % changes from period to periodIdentifies fluctuations and seasonality
When comparing companies in the same industry, which analytic tool is least helpful?a. Industry benchmarks b. Time series analysisc. Common-sized statementsd. None of the above
BIG DATAForget the cloud; Big Data is the new thing. Here are some commonly available tools to help manage, analyze and present findings:
ACL or IDEA – data interrogator, capable of extracting information from a variety of file formats. Can run pre-scripted tests and handle unlimited amount of data. Interfaces with Excel and Access.
MICROSOFT ACCESS – database program, programmable input screens, data validation, ad hoc queries and formatted report outputs.
MICROSOFT EXCEL– spreadsheet program, versatile and almost universally accepted business and data analysis tool. Pivot tables can present field-by-field analytical views of huge data files
The best approach for using data analytics for auditing at the process level is:a. Bottom-up approachb. Top-down approachc. Aggregated approachd. None of the above