Fraud Auditing, Detection, and Prevention Blog
I think it is time for a change in my focus, so this blog will not address our profession directly but rather corporate management. I believe that the concealment of criminal fraud by management is a critical emerging issue that should be top of mind for fraud auditors. Maybe it has always been an issue, but nobody wanted to discuss it.
Consider Fraud. What does this really mean?
As you are aware, the auditing standards require an auditor to consider fraud in the conduct of an audit. Depending on the standards you follow, the meaning has different requirements. No, I have no intention of critiquing each standard but rather, I want to critique the phrase “consider fraud”
Before we start on this journey, I need to explain the premise of my blog. I want to explore whether there is business value in an organization incurring the cost of preparing a comprehensive fraud risk assessment.
There is an urgent question that I don’t think has been asked often enough: Is the conventional professional view of fraud risk broad enough to protect companies from both monetary and non-monetary impact associated with internal fraud?
There’s a notion in fraud auditing that the auditor should “think like a thief.” I am going to go out on a ledge and raise the question: Is the idea of thinking like a thief a silly suggestion? I ask you, were raised to think like a thief? Did your parents compliment you on your lying skills? Did your teachers praise you on your ability to cheat on a test? Do you and your associates discuss how to steal from your employer at the lunch table? Certainly, the answer is no!
Professional Skepticism… How we can become number one in fraud detection?
If audit desires to be the number one reason for fraud detection, then what does our profession need to do? This blog is written for auditors who desire the audit profession to be the number one reason for fraud detection. I will challenge our current beliefs and methodologies, not to say they are right or wrong but to cause you to think. After all, a key component of professional skepticism is a questioning mind.
Since I started my career in the professional practice of audit, there has been a debate about the auditor’s responsibility for detecting fraud. For some reason, the audit profession has shied away from this responsibility. And yet, whenever an incident of fraud is detected, everyone says “where were the auditors?” Henceforth the fraud detection dilemma, auditor’s responsibility, and public expectation.
I knew the title would catch your attention. But, I think it is a fair question for discussion. After all, a questioning mind is the cornerstone of professional skepticism.
Did you know that the lack of professional skepticism is cited as one of the main reasons for audit failure? The Cambridge English Dictionary defines audit failure “as a situation in which an audit wrongly states that a company's accounts are correct when they contain mistakes or false statements.”
Last month I introduced the concept of integrating fraud testing in your audit program. The blog discussed the pros and cons of the four approaches and offered advice to the CAEs. This month, I will discuss the four strategies and explain the “how to” for the auditors in the field. I will use a payroll fraud risk statement to illustrate the concepts. Please remember, I consider myself a practitioner first and a blogger second.