Fraud

By M Iffan Fanani

IPPF says.. (1)• IIA Standard 1200: Proficiency and Due Professional Care

1210.A2 – Internal auditors must have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by the organization, but are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud.

• IIA Standard 2060: Reporting to Senior Management and the BoardThe chief audit executive (CAE) must report periodically to senior management and the board on the internal audit activity’s purpose, authority, responsibility, and performance relative to its plan. Reporting must also include significant risk exposures and control issues, including fraud risks, governance issues, and other matters needed or requested by senior management and the board.

IPPF says.. (2)

• IIA Standard 2120: Risk Management

2120.A2 – The internal audit activity must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk.

• IIA Standard 2210: Engagement Objectives

2210.A2 – Internal auditors must consider the probability of significant errors, fraud, noncompliance, and other exposures when developing the engagement objectives.

IPPF says.. (3)

Practice Guide: Internal Auditing and Fraud, Page 11The internal auditor’s roles in relation to fraud risk management could include initial or full investigation of suspected fraud, root cause analysis and control improvement recommendations, monitoring of a reporting/ whistleblower hotline, and providing ethics training sessions. If assigned such duties, internal auditing has a responsibility to obtain sufficient skills and competencies, including knowledge of fraud schemes, investigation techniques, and laws.

She is Our Hero

Cynthia Cooper

Whistleblower of 2002 “Worldcom”s

mega-fraud

and

She was its internal auditor (VP of Internal Audit)

Examples of Fraud

• Asset misappropriation• Skimming• Disbursement fraud• Expense reimbursement

fraud• Payroll fraud• Financial statement

fraud• Information

misrepresentation• Bribery

• Conflict of interest• Tax evasion

Red Flags of Fraud

• Some perpetrators act unusually irritable,• Some suddenly start spending lavishly,• Some become increasingly secretive about their activities,• Overrides of controls by management or officers, • Irregular or poorly explained management activities, • Consistently exceeding goals/objectives regardless of

changing business conditions and/or competition,• Problems or delays in providing requested information,• Significant or unusual changes in customers or suppliers, • Transactions that lack documentation or normal approval, • Employees or management hand-delivering checks, • Customer complaints about delivery, and • Poor IT access controls such as poor password controls.