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