Accounting Frauds
Proactive Fraud Auditing
End of Chapter 4 in Albrecht
FRAUD DETECTION
Recognizing the Symptoms of Fraud
Identify Risk Exposures
Proactively Look for Symptoms & Exposures
1 2 Actg 537
Identify Fraud Symptoms for Each Exposure
3 4
Investigate Identified Symptoms
Symptoms of Fraud
What are some irregularities in source documents to look for?
Missing Documents Payee Names & Addresses = Employee “Stale Items” on Bank Items”
Reconciliation Excessive Voids or Credits Payee Names & Addresses = Customer Names & Addresses Photocopied Documents Names & Addresses
Red Flag = Danger But… a symptom = FRAUD
Past Due A/R increasing Reconciling Items increasing Altered Documents Duplicate Payments Second Endorsements on Checks
Early Detection = $ Saved
Accounting Anomalies
Accounting Anomalies
Faulty Journal Entries Inaccuracies in the Ledgers
Ledger Doesn’t Balance Doesn’ Master or Control Accounts Do Not Equal the Sum of Individual Customer or Vendor Accounts
1
Recognize Internal Control Weaknesses
Lack of Segregation of Duties Lack of Physical Safeguards Lack of Independent Checks & Reviews Lack of Proper Authorization Overriding of Existing Controls Inadequate Accounting System
Common Examples of Analytical Anomalies
Unexplained Inventory Significant increase or
Shortages or Adjustments decrease in account balances
Deviations from
Specifications
Physical Anomalies Cash Shortages or
Overages
Increased Scrap Excess Purchases Too Many Debit or
Credit Memos
Excessive Late Charges Unreasonable Expenses or Reimbursements
Strange Financial Statement Relationships
Revenues with Inventory Receivables Cash Flows Payables Cost Per Unit Revenues with Revenues with Inventory with Volume with
Financial Statement Fraud
A Preview
Volume with Scrap Inventory with Warehousing Costs
Strange Financial Statement Relationships
One change in one account, taken in
End of Chapter 4 in Albrecht
FRAUD DETECTION
Recognizing the Symptoms of Fraud
Identify Risk Exposures
Proactively Look for Symptoms & Exposures
1 2 Actg 537
Identify Fraud Symptoms for Each Exposure
3 4
Investigate Identified Symptoms
Symptoms of Fraud
What are some irregularities in source documents to look for?
Missing Documents Payee Names & Addresses = Employee “Stale Items” on Bank Items”
Reconciliation Excessive Voids or Credits Payee Names & Addresses = Customer Names & Addresses Photocopied Documents Names & Addresses
Red Flag = Danger But… a symptom = FRAUD
Past Due A/R increasing Reconciling Items increasing Altered Documents Duplicate Payments Second Endorsements on Checks
Early Detection = $ Saved
Accounting Anomalies
Accounting Anomalies
Faulty Journal Entries Inaccuracies in the Ledgers
Ledger Doesn’t Balance Doesn’ Master or Control Accounts Do Not Equal the Sum of Individual Customer or Vendor Accounts
1
Recognize Internal Control Weaknesses
Lack of Segregation of Duties Lack of Physical Safeguards Lack of Independent Checks & Reviews Lack of Proper Authorization Overriding of Existing Controls Inadequate Accounting System
Common Examples of Analytical Anomalies
Unexplained Inventory Significant increase or
Shortages or Adjustments decrease in account balances
Deviations from
Specifications
Physical Anomalies Cash Shortages or
Overages
Increased Scrap Excess Purchases Too Many Debit or
Credit Memos
Excessive Late Charges Unreasonable Expenses or Reimbursements
Strange Financial Statement Relationships
Revenues with Inventory Receivables Cash Flows Payables Cost Per Unit Revenues with Revenues with Inventory with Volume with
Financial Statement Fraud
A Preview
Volume with Scrap Inventory with Warehousing Costs
Strange Financial Statement Relationships
One change in one account, taken in