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Occupational fraud and abuse is a widespread problem that affects practically every organization, regardless of size, location, or industry. It comes in many shapes and sizes and its growing faster than ever. From the report of the association of certified fraud examiners to the nation in 16, Fraud and abuse cost U.S. organizations more than $400 billion annually and is raised in 00 to be more than $600 billion annually. Thats why it is so important for us to learn about occupational fraud and abuse. Before we illustrate about causes and factors that effect directly to fraud, we will talk about its basic first.
I. What is Fraud?
What is Fraud? According to Blacks Law Dictionary, fraud is A generic term, emacing all multifarious means which human ingenuity can devise, and which are resorted to by one individual to get advantage over another by false suggestions or by suppression of truth, and includes all surprise, trickery, cunning, dissembling, and any unfair way by which another is cheated. In addition, we can decide what is fraud from the legal elements of fraud.
Online writing services offer help on Occupational Fraud and Abuse II. The legal elements of fraud
1. A false representation or willful omission was made regarding a material fact.
. The perpetrator knew that the representation was false. (Intent to mislead).
. The victim relied on the misrepresentation.
4. The victim suffered damages as a result of the misrepresentation.
III. Three categories of occupational fraud and abuse
The occupational fraud and abuse is divided in three categories; Asset misappropriation schemes, fraudulent statement and corruption.
Ø Asset Misappropriation Schemes. Asset misappropriation schemes include both the theft of company assets (e.g., cash and inventory) and the misuse of company assets (e.g., using a company car for a personal trip). Common examples include skimming revenues, stealing inventory, and payroll fraud.
Ø Fraudulent Statements. Fraudulent statements primarily consist of falsifying financial statements by overstating revenues and assets, or understating liabilities or expenses. Other fraudulent statements include falsifying credentials, altering test documents, and producing false work reports.
Ø Corruption. Corruption schemes are those in which fraudsters wrongfully use their influence in a business dealing to procure some benefit (personal or for another person). This action Is contrary to their duty to their employer or the rights of others
In 16 and 000 the Association of Certified Fraud Examiners (ACFE) survey found that of the three types of fraud schemes, asset misappropriation was by far the most common type of fraud scheme. However, whereas asset misappropriation schemes are the most common, they are the least costly per case.
Fraudulent statements are the most costly schemes per case. In spite of being the most common and the smallest lost per case, asset misappropriation represents the total largest losses of the categories. Fraudulent statements, on the other hand, have the lowest total losses. This result is because fewer cases of fraudulent statements are reported. As the illustrate in the following table that present a comparison between the 16 and 00 data regarding the frequency and cost of occupational fraud categories. We found that this data remained relatively stable.
00 16
Scheme Type Percentage of Cases Median Cost Percentage Cases Median Cost
Asset Misappropriations 85.7 $80,000 81.1 $65,000
Corruption Schemes 1.8 $50,000 14.8 $440,000
Fraudulent Statements 5.1 $4,50,000 4.1 $4,000,000
Table1. Comparison of major occupational fraud categories by 16&00 DATA
In studying the three types of fraud schemes, the common themes to fraudulent activity are
· Clandestine.
· Violates the employees fiduciary duties to the organization.
· Committed for the purpose of direct or indirect financial benefit to the employee.
· Costs the employer its assets, revenues, or reserves.
The ACFE drew the following conclusions as a result of its study
· Certified Fraud Examiners consider the problem of occupational fraud and abuse to be a very serious one.
· There is a direct correlation between the employees age, gender and position and the median loss due to fraud and abuse.
· Smaller organizations are the most vulnerable to occupational fraud and abuse.
· A lack of understanding of the nature of occupational fraud and abuse adds to its cost.
· Relatively few occupational fraud and abuse offenses are discovered during routine audits.
· The expansion of computers in organizations likely will increase losses due to occupational fraud and abuse.
· The rate of occupational fraud and abuse likely will increase.
IV. Fraud Triangle
When we consider about fraudulent activity, we know that most of them occur from three basic elements; pressure (some of reference call motivation), opportunity and rationalization. We call these three events as the fraud triangle. The absence of any one of the three reduces the chance that fraud will take place.
Three basic elements of fraud
Ø Pressure. (Some reference call motivation) For a fraud perpetrator to commit a fraud, she has to feel some type of pressure to do so. The pressure may be financial, such as having to pay medical bills or living beyond her means. Alternatively, the pressure may be non-financial, such as desiring to report better than actual performance or self-imposing a challenge to beat the system.
Ø Opportunity. The second fraud element is opportunity, which may be real or perceived. Opportunity is the circumstances that allow the perpetrator to find a way to commit the fraud. The perpetrator may take advantage of weak internal control or his position in the organization. For example, a claims examiner in an insurance company may write claims checks to himself because of his ability to generate claims payments as a normal duty.
Ø Rationalization. The third element that is found in most fraud cases is rationalization. The perpetrator finds a way to make her improper actions consistent with her personal code of conduct. To the fraud perpetrator, she can rationalize that a crime has not actually been committed. Typical rationalizations include borrowing money on a temporary basis, justifying the theft from a sense of being underpaid, or de-personalizing the victim of the theft.
V. The factors that support to committee fraud
Situational pressures leading to fraud
Financial factors
· High personal debts (possibly from credit cards, divorce, medical bills, etc.)
· Significant personal losses
· Inadequate income
· Living beyond ones means
· Financial pressures of family members
Personal habits
· Extensive stock market or other speculation
· Extensive gambling (video poker)
· Illicit sexual involvement with others
· Heavy use of alcohol or drugs
Personal feelings
· Extreme community or social expectations to succeed
· Perception of being treated unfairly or inadequately by the organization
· Resentment of superiors
· Frustration with the job
· Peer group pressures within the community
· Insatiable desire for self-enrichment or personal gain
Opportunities leading to fraud
Personally created opportunities
· Familiarity with operations
· Close association with suppliers and other key people
· A fear encompassing working environment
Company characteristics that create opportunities
· Failure to inform employees about rules and disciplines of fraud perpetrators
· Rapid turnover of key employees
· Absence of mandatory vacations
· Absence of periodic rotations or transfers of employees
· Inadequate personnel screening policies for hiring new employees
· Absence of explicit and uniform personnel policies
· Failure to maintain accurate personnel records of disciplinary actions
· Dishonest or unethical management
· Dominant top management
· Constantly operating under crisis conditions
· Paying little attention to details
· Impersonal relationships or poor morale among employees and management
· Lack of internal security
Personal and psychological characteristic that suggest a high probability of fraud
· A person of low moral character.
· A person who rationalizes a contradictory behavior.
· A person without a strong code of personal ethics.
· A person who is a wheeler dealer.
· A person lacking stability.
· A person with a strong desire to beat the system.
· A person who has a criminal or questionable background.
· A person with a poor credit rating and/or financial status.
VI. The cost of Fraud
It is almost impossible to calculate the cost fraud impose because not all fraud is detected or reported. There is also no organization charged with accumulating data on fraud defense. In order to obtain an estimate of the total losses caused by occupational fraud, the expert who deal with the problem were polled for their opinion. However, the reader should be cautioned that any estimates regarding the cost of fraud are subjective.
From the survey of CFEs (Certified Fraud Examiners), the percentage of revenues that will lose in 00 as a result of occupational fraud and abuse, they projected a mean cost of six percent. This is the same rate as the survey in 16 Report. However, in the intervening period the Gross Domestic Product has risen from approximately $7 trillion to about $10 trillion. Although the expected rate of fraud has remained unchanged, the rising Gross Domestic Product would account for a $00 billion increase in fraud total six years ago.
Picture 1. Occupational Fraud Losses
VII. The Perpetrators
From the result of survey in report to nation in 00, we know that there are a lot of factors that affect the size of the losses that these perpetrators inflict upon their victims. And it is illustrated as the following.
The effect of position
One of the strongest indicators of the size of the loss in an occupational fraud scheme is the position that the perpetrator holds within the victim organization. As the following data shows, schemes committed by managers and executives, on average, cause median losses of $50,000, which was about .5 times as high as losses associated with frauds committed by rank and file employees. Such a relationship could be expected, since higher-level employees have a greater degree of control over company assets.
Picture . Position of Perpetrator
The effect of Gender
The following chart reflects the relative frequency and median losses for males and female. Although the number of schemes committed by the two sexes was roughly the same, losses from schemes committed by males were more than three times as high as the losses caused by females. We conclude that the link between gender and loss is reflective of the "glass ceiling" phenomenon. Losses are strongly related to the perpetrators position, and in many organizations the vast majority of managerial and executive positions are still held males.
Picture . Gender of perpetrator
The effect of age
There was a direct correlation between age and median loss as perpetrators got older their schemes got more costly. Median loses for the oldest employees (those older than 60) were $500,000, which was 7 times higher than losses caused by employees under 6 years old of age. As with gender, however, we postulate that age is a secondary factor with regard to losses, the primary factor being that older employees tend to occupy more senior positions with greater access to assets.
Although some studies suggest that younger employees are more likely to commit occupational crimes, the data in the report to nation of CFE in00 didnt not support that contention. Only six percent of frauds in their survey were committed individuals below the age of 6. Meanwhile, two-thirds of the frauds were committed by persons over the age of 5, and nearly half of all schemes were committed by individuals between the ages of 6 and 50.
The effect of education
In general, those with higher levels of education tend to have higher position in an organization and greater access to asset. As the age and gender, it would appear the link between education and loss is mainly a function of the employees position in the organization.
Losses caused be penetrates who had college degrees were about .5 times as high as losses causes by perpetrators with only high school with only high school diplomas. However, the mean loss for perpetrators with postgraduate degrees was approximately $80,000 less than the median loss for those with only undergraduate degrees.
The effect of collusion
From the report 00, we know that the cost of occupational fraud tends to rise when multiple parties act in collusion. The median cost of fraud based on the number of perpetrators, regardless of position. While it was much more common for a fraud to be committed by a single perpetrator (68% of cases), the mean loss in schemes with multiple perpetrators was $450,000, which was almost seven times higher than the losses caused by perpetrators who acted alone.
Criminal history of perpetrators
The following chart shows that only about seven percent of occupational fraud perpetrators were known to have been convicted for a previous crime, and only another three percent were know to have been previously charged for a fraud-related offense. This is consistent with other studies that have shown most people who commit fraud are first- time offenders.
Picture 4. Criminal history of perpetrators
VIII. How do we prevent, deter and detect fraud?
An organization can take to prevent, deter and detect fraud from three
fundamental actions
· Creating a culture of honesty and high ethics. It is the organizations responsibility to create a culture of honesty and high ethics and to clearly communicate acceptable behavior and expectations of each employee. Such a culture rooted in a strong set of core values (or value system) that provides the foundation for employees as to how the organization conducts its business. It also allows an entity to develop an ethical framework that covers (1) fraudulent financial reporting, () misappropriation of assets and () corruption .
An organization can creating a culture of honesty and high ethics by directors and officers of corporations set the tone at the top for ethical behavior within any organization. Senior financial officers hold an important and elevated role in corporate governance. As members of the management team, they are uniquely capable and empowered to ensure that all stakeholders interests are appropriately balanced, protected and preserved.
Second step is to creating a positive workplace environment. Research results indicate that wrongdoing occurs less frequently when employees have positive feelings about an entity than when they feel abused, threatened, or ignored. Without a positive workplace environment, there are more opportunities for poor employee morale, which can affect an employees attitude about committing fraud against an entity.
Third step is hiring and promoting appropriate employees. Each employees has a unique set of values and personal code of ethics. When face with sufficient pressure and a perceives opportunity, some employees will behave dishonestly rather face the negative consequences of honest behavior. Therefore, the company has to have effective policies that minimize the chance of hiring or promoting individuals with low levels of honesty, especially for position of trust.
Forth step is training. New employees should be trained at the time of hiring about the entitys values and its code of conduct. This training should explicitly cover expectations of all employees regarding (1) their duty to communicate certain matters; () a list of types of matters, including actual or suspected fraud, to be communicated along with specific examples; and () information on how to communicate those matters.
Fifth step is confirmation. Management need to clearly articulate that all employees will be hold accountable to act within the entitys code of product. All employees within senior management and the finance function, as well as other employees in area that might be exposed to unethical behavior should be required to sign a code of conduct statement annually, at a minimum. Requiring periodic confirmation by employees of their responsibilities will not only reinforce the policy but may also deter individuals from committing fraud and other violations and might identify problems before they become significant.
Final step is discipline. The way an entity reacts to incidents of alleged fraud will send a strong deterrent message throughout the entity, helping to reduce the number of future occurrences. Expectations about the consequences of committing fraud must be clearly communicated throughout the entity. Seeing that other people have been disciplined for wrongdoing can be effective deterrent, increasing the perceived likelihood of violators being caught and punished. It also can demonstrate that the entity is committed to an environment of high ethnical standard and integrity.
· Evaluating anti-fraud processes and controls. Neither fraudulent financial reporting nor misappropriation of assets can occur without a perceived opportunity to commit and conceal the act. Organizations should be proactive in reducing fraud opportunities by
- identifying and measuring fraud risks- In identifying fraud risks,
organization should consider organizational, industry, and country-specific characteristics that influence the risk of fraud. The nature and extent of managements risk assessment activities should be commensurate with the size of the entity and complexity of its operations. However, management should recognize that fraud can occur in organizations of any size or type, and that almost any employee may capable of committing fraud given the right set of circumstances. Accordingly, management should develop a heightened "fraud awareness" and an appropriate fraud risk-management program, with oversight from the board of directors or audit committee.
- taking steps to mitigate identified risks It may be possible to
reduce or eliminate certain fraud risk by making changes to the entitys activities and processes. An entity may choose to sell certain segments of its operations, cease doing business in certain locations, or reorganize its business processes to eliminate unacceptable risks.
- implementing and monitoring effective internal controls- Some risks are inherent in the environment of the entity, but most can be addressed with an appropriate system of internal control. Once fraud risk assessment has taken place the entity can identify the processes, controls, and other procedures that are needed to mitigate the identified risks. Effective internal control will include a well-developed control environment, an effective and secure information system, and appropriate control and monitoring activities. Because of the importance of information technology in supporting operations and the processing of transactions, management also needs to implement and maintain appropriate controls, whether automated or manual, over computer-generated information.
· Developing an appropriate oversight process. To prevent or deter fraud, an organization should have an appropriate oversight function in place. The audit committee should evaluate managements identification of fraud risks, implementation of anti-fraud measures and creation of the right tone at the top. It should also make sure that senior management, particularly the CEO, has anti-fraud measures in place to protect investors, employees and other stakeholders. The audit committee also plays an important role in helping the board of directors fulfill its responsibilities to oversee the companys financial reporting procedures and system of internal controls.
IX. Auditor Responsibilities
Responsibilities for fraud may differ by both the type of engagement and the type of auditor. The external auditor may take a different view than an internal auditor. Still, the fraud examiner may take a view different from that of the internal or external auditor. Each of the roles and responsibilities will be described.
External Auditor Responsibilities
The American Institute of Certified Public Accountants Auditing Standards Board (hereafter referred to as professional standards) issued the current fraud standard in 17, which provides guidance to external auditors in fulfilling responsibility for the detection and reporting of fraud. This standard is codified as AU 16 (SAS 8) in the Codification of Statements on Auditing Standards. Professional standards describe the external auditors responsibility as
The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Because of the nature of audit evidence and the characteristics of fraud, the auditor is able to obtain reasonable, but not absolute, assurance that material misstatements are detected. The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not material to the financial statements are detected.
Professional standards address seven major areas
· Describes fraud and its characteristics.
· Requires the auditor to specifically assess whether there is a heightened risk of fraud. Fraud risk factors are listed that should be considered in the auditors assessment.
· Guides the auditor on how to respond when there is a heightened risk of fraud.
· Assists the auditor in evaluating the audit test results as they related to the risk of fraud.
· Suggests documentation requirements if there is a heightened risk of fraud.
· Guides the auditor in modifying the opinion.
· Describes appropriate communications for management, the audit committee and others.
Fraud is considered to be in one of two categories Fraudulent financial reporting (management fraud) and misappropriation of assets (employee fraud).
The risk factors associated with each of the fraud categories are
· Fraudulent financial reporting.
· Management characteristics and influence over the control environment.
· Industry conditions.
· Operating characteristics and financial stability.
· Misappropriation of assets.
· Susceptibility of assets to misappropriation.
· Controls.
In addition to these specific risk factors, auditors may encounter conditions that change or support the initial assessment of fraud risk, including discrepancies in the accounting records, conflicting or missing evidential matter, and problematic or unusual relationships between the auditor and client.
Specific Requirements Under AU 16
· Consider the presence of fraud risk factors. Because certain conditions often have been observed in fraud situations, the auditor should be familiar with these risk factors and be alert for their presence.
· Assess the risk of material misstatement of the financial statements due to fraud. An assessment of the risk of material misstatement due to fraud is required. Although separate from other risk assessments performed during the audit (e.g., control risk, detection risk, inherent risk), it may be performed in conjunction with these. Professional standards require a reevaluation of the assessment if other conditions are identified during fieldwork.
· Develop a response. Based on the fraud risk assessment, an appropriate audit response is required. Depending on the circumstances, the response may be that the existing audit procedures are sufficient to obtain reasonable assurance that the financial statements are free of material misstatement due to fraud, or planned audit procedures may need to be extended.
· Document certain items in the workpapers. Professional standards require documentation of the evidence of the performance of the risk assessment. Documentation should include risk factors identified as being present as well as the response to the risk factors.
· Communicate to management. If evidence is found that indicates fraud may exist, the appropriate level of management should be informed. If the suspected fraud would materially misstate the financial statements or was committed by senior management, the auditor is required to communicate directly with the audit committee.
Risk Factors of Management Fraud
Professional standards set for the examples of the types of items the auditor should consider as heightening the risk of fraud
· Managements characteristics and influence over the control environment (1) Compensation tied to reported measures. () Failure to display appropriate attitude about internal control. () Non-financial managements excessive participation in accounting principles and estimates. (4) High turnover of senior management, counsel or board members. (5) Strained relationship with current or predecessor auditor. (6) Known history of securities law violations.
· Industry conditions (1) New accounting, statutory, or regulatory requirements that could impair financial stability or profitability. () High degree of competition accompanied by declining margins. () Declining industry with increasing business failures. (4) Rapid changes in the industry (e.g., product obsolescence, changing technology).
· Operating characteristics and financial stability (1) Inability to generate cash flow while reporting earnings. () Pressure to obtain capital to stay competitive. () Accounts based on significant estimates. (4) Significant related-party transactions. (5) Complex transactions. (6) Bank accounts in tax-haven jurisdictions. (7) Overly complex organizational structure. (8) Difficulty in determining who controls the entity. () Unusually rapid growth or profitability. (10) High vulnerability to interest rates. (11) High dependence on debt. (1) Unrealistically aggressive incentive programs. (1) Threat of bankruptcy. (14) Adverse effect on pending transactions if poor performance reported. (15) Poor financial position and management has guaranteed the debts.
Risk Factors of Employee Fraud
Professional standards set for the examples of the types of items the auditor should
consider as heightening the risk of fraud
· Susceptibility of assets to misappropriation. (1) Large amounts of cash on hand or processed. () Inventory characteristics, such as small size, high value, or high demand. () Easily convertible assets, such as bearer bonds, diamonds or computer chips. (4) Fixed asset characteristics, such as small size, marketability or lack of ownership identification.
· Risk factors relating to controls. (1) Lack of appropriate management oversight. () Lack of job applicant screening procedures for employees with access to assets. () Inadequate record keeping with respect to assets. (4) Lack of appropriate segregation of duties. (5) Lack of appropriate system of authorization and approval. (6) Poor physical safeguards over cash, investments, inventory, or fixed assets. (7) Lack of timely and appropriate documentation for transactions. (8) Lack of mandatory vacations for employees performing key control functions.
Private Securities Litigation Reform Act
The Private Securities Litigation Reform Act has drastically changed the procedures
and proof required in securities fraud cases. The Reform Act also includes new responsibilities for independent auditors of public companies. Audits of the financial statements of a public company must include the following
· Procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts.
· Procedures designed to identify related-party transactions that are material to the financial statements or otherwise require disclosure therein.
· An evaluation of whether there is substantial doubt about the ability of the issuer to continue as a going concern during the ensuing fiscal year.
The term illegal act is defined to mean any act or omission that violates any law, rule or regulation having the force of law.
Additionally, if in the course of an audit, an auditor detects or otherwise becomes aware that an illegal act (whether or not perceived to have a material effect on the financial statements of the user) has or may have occurred, the auditor must then
· Determine whether it is likely that an illegal act has occurred.
· Determine and consider the possible effect of the illegal act on the financial statements of the entity, including any contingent monetary effects such as fines, penalties and damages.
· Inform the appropriate level of management as soon as practical and assure that the audit committee or board of directors is adequately informed of the illegal acts that have been detected unless such acts are clearly inconsequential.
The Reform Act also provides that the auditor must take notice of what, if any, action is taken by the company in response. If the auditor concludes that the illegal act has a material effect on the financial statements of the entity, the auditor must then determine whether senior management has taken timely and appropriate remedial actions, and whether the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor, when made, or warrant resignation from the audit engagement.
If the answer to these questions is yes, then the auditor must report her conclusions to the board of directors. If the board receives such a report, it is required to notify the SEC within one business day and send a copy of the SEC notice to the auditor. If the auditor does not receive a copy of this notice before the one-day deadline, then the auditor is required to furnish the SEC with a copy of her report to the board.
The auditor is provided with some protection, however. The Reform Act expressly provides that the auditor cannot be liable in a private action for any statements contained in the auditors report to the SEC.
Internal Auditor Responsibilities
The source of professional guidance for internal auditors is the Institute of Internal Auditors Statement on Internal Auditing Standards No. , Deterrence, Detection, Investigation, and Reporting of Fraud, which was issued in 185.
Deterrence consists of those actions taken to discourage the perpetration of fraud and to limit the exposure if fraud does occur. The principal mechanism for deterring fraud is control. Primary responsibility for establishing and maintaining control rests with management. Internal auditors are responsible for helping to deter fraud by examining and evaluating the adequacy and the effectiveness of control, commensurate with the extent of the potential exposure or risk in the various segments of the entitys operations.
Detection consists of identifying indicators of fraud that warrant recommending an internal audit examination. These indicators may arise as a result of
· Controls established by management.
· Tests conducted by auditors.
· Other sources within and outside the entity.
The internal auditors responsibilities for detecting fraud during an audit are
· Have sufficient knowledge of fraud to be able to identify indicators that fraud might have been committed.
· Be alert to opportunities, such as control weaknesses, that would allow fraud to occur. Should significant control weaknesses become apparent, internal auditors should conduct additional tests, including tests designed to identify other indicators of fraud.
The internal auditor should recognize that the presence of more than one indicator at any one time increases the probability that fraud might have occurred
· Evaluate indicators that fraud might have been committed and decide whether any further action is necessary, or whether an investigation should be recommended.
· Notify the appropriate authorities within the entity if a determination is made that there are sufficient indicators of fraud to recommend a formal investigation.
The internal auditor is not expected to have knowledge equivalent to that of a person whose primary responsibility is detecting and preventing fraud. Also, audit procedures alone, even when carried out with due professional care, do not guarantee that fraud will be detected.
Fraud examination consists of performing the extended procedures necessary to determine whether fraud has occurred as suggested by the indicators. Examination includes gathering sufficient evidence about the specific details of a discovered fraud.
Internal auditors, lawyers, investigators, security personnel and other specialists from inside or outside the organization are the parties that usually conduct or participate in fraud examinations.
When conducting a fraud examination, the internal auditor should
· Assess the probable level and extent of complicity in the fraud within the entity. This step can be critical in ensuring that the internal auditor does not provide information to, or obtains misleading information from, persons who may be involved.
· Determine the knowledge, skills and disciplines necessary to effectively carry out the examination.
· Assess the qualifications and skills of the internal auditors and specialists available to ensure that individuals conduct the examination whom have the appropriate type and level of expertise.
· Design procedural methodology to identify the perpetrators, extent of the fraud, techniques used and cause of the fraud.
· Coordinate activities with management personnel, legal counsel and other specialists as appropriate throughout the course of the examination.
· Know the rights of the alleged perpetrators and personnel within the scope of the examination and the reputation of the organization itself.
After a fraud examination is concluded, the internal auditor should assess the facts to
· Determine if controls need to be implemented or strengthened to reduce future vulnerability.
· Design audit tests to help discover the existence of similar frauds in the future.
· Help the internal auditor meet his responsibility to maintain sufficient knowledge of fraud to be able to identify indicators in the future.
Reporting of Fraud
Reporting consists of the various oral or written final communications to
management regarding the status and results of the fraud examination. A preliminary or final report often is desirable at the conclusion of the detection phase of an examination. The report should include the auditors conclusion regarding whether sufficient information exists to warrant an examination. The report also should summarize findings that serve as the basis for any action taken.
Professional Reporting Standards for Internal Auditors
SIAS No. , Communicating Results, applies to internal audit reports that are issued as a result of fraud examinations
· Management should be notified immediately after the incidence of significant fraud has been established.
· The results of a fraud examination may indicate that the fraud has had a previously undiscovered, materially adverse effect on the financial position and productivity of an entity for which financial statements have already been issued. The internal auditor should inform appropriate management and the audit committee of such a discovery.
· A written report should be completed at the conclusion of the examination phase. It should include all findings, conclusions, recommendations and corrective actions taken.
· A draft of the proposed report on fraud should be submitted to legal counsel for review. The report should be addressed to counsel in those cases where the auditor chooses to invoke client privilege.
X. Anti-Fraud in 00.
AICPA has developed the design to fight with occupational fraud and abuse and created eight initiatives design to strengthen investor confidence by enhancing the quality of audits in 00. As the foundation of the Anti-Fraud and Corporate Responsibility Program, these initiatives underscore the professions core values and represent opportunities where the profession can lead the way in reform.
· The Institute for Fraud Studies
A collaboration of the AICPA, the University of Texas at Austin and the Association of Certified Fraud Examiners, the Institute will explore the origin of and circumstances surrounding fraud so that its frequency and effects can be minimized.
· New Fraud Standard, SAS
Statement of Auditing Standards , Consideration of Fraud in a Financial Statement Audit, recently approved by the Auditing Standard Board, gives auditors more guidance for detecting material fraud.
· Free Corporate Governance Training Programs
The AICPA is urging the stock exchanges to mandate anti-fraud training for all members of management, boards of directors and audit committees. It is also making available, free of charge, training programs focusing on the roles and responsibilities of management and corporate officials.
· Anti-Fraud Criteria and Controls
The Auditing Standards Board will be working to design new anti-fraud criteria and controls intended to help corporations combat fraud.
· Additional CPE Recommendations for CPAs
The AICPA is calling on CPAs to dedicate 10% of their CPE to fraud.
· Fraud Summit
The summit willing together corporate leaders, the CPA Profession, and the financial reporting community to identify ways to reduce the incidence of fraud.
· Fraud Specialist Competency Model
The new Fraud Specialist Competency Assessment Tool will help CPAs identify necessary skill sets in the area of fraud detection and deterrence.
· Academia Outreach and Center Support
The AICPA is working with academic institutions and college textbook authors to incorporate anti-fraud education in training materials, courses and textbooks.
Conclusion
Even though occupational fraud and abuse is a serious problem for an organization, it still has a lot of ways to manage and prevent these problems as we refer in this report. The corporation between private and public organization will decrease the degree of violation. However, we need to continue a present program and develop the new program to fight with occupational fraud and abuse that always change their form and increase their complexity. These will help an organization to reduce their cost from occupational fraud and abuse.
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