Fraud Findings

Fraud Findings Splash

Fraud findings | From the Headlines

Fraud expert David Coderre responds to real-life fraud cases — ripped from the media headlines — by sharing tips aimed at helping internal auditors navigate the massive fraud universe and deter would-be fraudsters.

February 7, 2012

PINCHING THE PTA FOR THOUSANDS OF DOLLARS

Contributed by Art Stewart

NBC Miami reports that the former volunteer treasurer of a Florida elementary school PTA was arrested for stealing US $32,000 from the organization. Authorities say the woman falsified documents to conceal her theft using a software program to show that the PTA’s bank account was higher than it actually was and by keeping bank statements to herself. When confronted, the former treasurer admitted to the crimes and signed a document promising to repay the stolen money, according to police records.

Lessons Learned

All organizations are vulnerable to fraud — even small, public organizations in which people may assume the level of ethical standards and public accountability are high.

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The PTA fraud should remind auditors about control weaknesses that warrant vigilant oversight of financial activities, including:

Regular board oversight. Monitoring and discussion of financial assets, budgets, and expenditures are more likely to present opportunities for active board questioning as well as disclose irregularities in financial accounting activities. Boards, particularly of not-for-profit or similar organizations, should demand that the structure of financial controls and reporting be appropriate for the organization’s mandate and business focus.
Clear roles and responsibilities in relation to financial controls. More than one person should be involved in receiving and monitoring financial statements from the organization’s bank or accountant. Smaller organizations also should consider splitting the roles of treasurer among two or more people.
Detective controls. In situations where there is not enough staff to provide sufficient segregation of duties, detective controls should be established. For example, a board member could review significant bank transactions while another board member could review and approve all changes of bank account information. This would include examining regular bank statements, which could reveal a change in format or detail.
Regular audits or assessments. Conducting a regular audit, fraud risk assessment, or similar external assessment of the organization’s financial situation could identify irregularities and unclear policies, procedures, or practices.

Guest contributor Art Stewart is the former senior director of Internal Audit Intelligence and Liaison in the Canadian federal government.

January 24, 2012

DISABLED FINANCIAL CONTROLS

A state audit has cited questionable expenditures at Michigan Rehabilitation Services, which helps disabled people find jobs, according to an article published in the Detroit Free Press. Michigan’s auditor general said the state agency failed to show public funds were spent appropriately and failed to recover expensive equipment from people with physical or mental disabilities who left the program and no longer needed it. The head of the agency said she’s taking steps to correct weak financial controls that led to questionable spending and that the agency has reviewed and clarified policies, as well as increased staff training.

Lessons Learned

When an audit uncovers weak financial controls — that permit various types of abuse and wasteful practices — and poor documentation and control over expenditures, it is surprising that fraudulent activities are not identified. Abuse is the breeding ground for fraud, and control weaknesses often lead to criminal acts.

The state agency should be commended for acting swiftly on the audit findings and strengthening the financial controls. However, this case reminds us of the importance of an annual fraud risk assessment that involves senior management and staff. Annual risk assessments often identify:

Unclear policies and procedures.
Insufficient staff training.
Inconsistent documentation to support purchase, use, and tracking of equipment.
Lack of clarity as to what constitutes a valid expense.
Wasteful purchase decisions (e.g., new versus used equipment).

It is important for internal auditors to verify that an organization’s policies and procedures clearly identify appropriate transactions, that staff training is provided on regular (e.g., yearly) basis, and that management is monitoring activities. Auditors also should strive to make management understand that a few hours spent on identifying and assessing fraud risks can go a long way toward ensuring that controls are adequate and functioning as intended.

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Fraud, lessons
Hello, its indeed disheartening how payrolls are handled in many companies and how weak controls are in many payroll systems. While one may want to conduct the verifications suggested in the article, the system may not be able to provide such infor. Segregation of duties is also missing in many systems as the area is assessed low in organisations with a few employees other than in those that have thousands of staff. It is imperative however that when benchmarking organisational structures and staff responsibilities within a dept. numbers should be considered or a higher than tolerable exposure to fraud risk through ghost workers can be experienced.
Posted By: Harold Phiri
2012-02-02 9:24 AM

Good info
Could you elaborate something on hotel revenue or Hotel fixed asset
Posted By: Shruti
2012-02-02 7:44 AM

Fraud findings and Lessons Learned
Interesting findings for internal auditors to understand, learn and look out for.
Posted By: S Sivanesan
2012-02-01 10:10 PM

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