NCJ Number
65062
Journal
JOURNAL OF ACCOUNTING, AUDITING AND FINANCE Volume: 3 Issue: 2 Dated: (WINTER 1980) Pages: 178-184
Date Published
1980
Length
7 pages
Annotation
TYPES OF FRAUD PREPETRATED BY EMPLOYEES FOR THEIR PERSONAL GAIN AND WAYS AUDITORS CAN PREVENT OR DETECT SUCH FRAUD ARE DISCUSSED BY AN ACCOUNTANT.
Abstract
FRAUD MAY INVOLVE THEFT OF ASSETS AND/OR SERVICES OR UNAUTHORIZED INCURRENCE OF LIABILITIES FOLLOWED BY ASSET ABSTRACTION. FRAUD OPPORTUNITIES MAY BE ESPECIALLY TEMPTING TO EMPLOYEES WHOSE ACTIONS ARE NOT SUBJECT TO REVIEW BY INDEPENDENT PERSONS. MONITORING BY TELEVISION, INFRARED DEVICES, AND SONIC ALARMS IS A COMMON WAY TO PREVENT FRAUD. TWO ATYPICAL PREVENTIVE TECHNIQUES ARE USE OF UNDERCOVER AGENTS AND OF POLYGRAPHS. AUDITOR SENSITIVITY IS PERHAPS THE SINGLE MOST IMPORTANT FACTOR IN DETECTING FRAUD. THE AUDITOR SHOULD CONSIDER THE POSITION OF A POTENTIALLY DISHONEST AUDITEE AND THEN CONSIDER THE CONTROL PROCEDURES NECESSARY TO PREVENT OR DETECT FRAUD. THE AUDITOR SHOULD ALSO BE SENSITIVE TO FRAUD DURING AUDIT PROCEDURES. OPERATING INFORMATION SHOULD BE USED TO DOUBLE CHECK FINANCIAL INFORMATION. INTERVIEWS ARE BASIC TO OBTAINING AN UNDERSTANDING OF THE BUSINESS AND SYSTEM. THE AUDITOR SHOULD BE SENSITIVE TO THE INTERVIEWEE'S WILLINGNESS TO BE INTERVIEWED AND TO THE RESPONSES' CONSISTENCY AND DIRECTNESS. A TRANSACTION REVIEW CAN TEST THE ACCURACY OF FLOW CHARTS AND NARRATIVES. TESTS OF CONTROLS (COMPLIANCE TESTS) MAY DETECT MALFEASANCE. DOCUMENTS FOR TESTING SHOULD BE SELECTED RANDOMLY WHERE PRACTICAL. SUBSTANTIVE TESTS MAY DETECT FRAUD IN CASH ACCOUNTS OR INDIVIDUAL ACCOUNTS. CLUES TO IMPROPRIETIES INCLUDE (1) 'PLUG' FIGURES IN BANK RECONCILIATIONS, (2) THEFT OF CREDIT, (3) LAPPING, AGING, OR OFF-THE-BOOK ITEMS IN BANK RECONCILIATIONS; (4) RIPOFFS OF MATERIALS BEFORE ACCOUNTABILITY HAS BEEN ESTABLISHED; (5) DOWNGRADING OF FINISHED GOODS AND DISPOSAL OF UNAUTHORIZED SECONDS; (6) INVENTORY SHORTAGES; (7) MAINTENANCE SUPPLIES AND SCRAP; (8) COPYING OF CONFIDENTIAL INFORMATION; (9) PADDED OR FICTITIOUS INVOICES; (10) COMPLETING OF BLANK FORMS FOR BONDED INDEBTEDNESS OR CAPITAL STOCK; AND (11) INVENTORIES STORED OFF PREMISES. TO DEAL WITH FRAUD, VIGILANCE, AVOIDANCE OF REGULAR AUDITING PATTERNS, SURPRISE CASH COUNTS AND OTHER COUNTS, AND USE OF STATISTICAL SAMPLING TECHNIQUES WHERE APPROPRIATE ARE RECOMMENDED. CASE EXAMPLES AND ADDITIONAL FRAUD CONTROL PRACTICES ARE DESCRIBED. (CFW)