control, and governance
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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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. |
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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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January 9, 2012 REVEALING GHOST EMPLOYEES The Star-Advertiser reports that a federal grand jury has indicted a Kaneohe, Hawaii, woman for allegedly attempting to embezzle more than US $200,000 from the security guard contracting firm for which she worked. The woman was in charge of entering time sheet and payroll data into the company’s computer system and allegedly placed two associates on the payroll even though they were not employed by the company, kept two terminated employees on the payroll, and directed checks from the “salaries” into her bank account as well as that of a relative and friend. Lessons Learned This alleged fraud demonstrates that ghost employees are still a fraud risk even when payroll is performed through electronic payment and automatic bank deposits. Adding ghost employees to a company’s payroll as well as not removing terminated employees from the payroll are simple ways for employees to embezzle from their companies. Ghost employee fraud schemes often exploit major control weakness, such as poor segregation of duties. For example, an employee responsible for entering time sheet and payroll data may be able to create fictitious employees and alter bank deposit information. In situations where there is insufficient staff to provide for appropriate segregation of duties to serve as a preventive control, detective controls should be established. The payroll manager, for example, could review all new employee transactions, and someone else could monitor all changes to bank account information. Performing two simple tests can help an auditor expose ghost employee fraud schemes: running a report that identifies all cases where employees have the same bank account, as well as a report that shows payments made to employees after their termination date. It is important for employers to check their other operations to verify that another payroll clerk is not taking advantage of the same control weaknesses, as it is likely that similar fraudulent schemes are occurring across the organization. |
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Share This Article:
Good info
Could you elaborate something on hotel revenue or Hotel fixed asset
Posted By: Shruti
2012-02-02 7:44 AM
Fraud findings and Lessons Learned
Interesting findings for internal auditors to understand, learn and look out for.
Posted By: S Sivanesan
2012-02-01 10:10 PM
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