AUDITING FOR INTERNAL FRAUD

Internal fraud is a very delicate issue that has capability of wrecking a company within a period of two days. It only takes two to conspire and the business is down. Internal fraud is a killer that every success thinking company should do all within its reach to keep at bay.


Auditing for internal fraud is the process of critically evaluating the internal control systems of a business to give reasonable assurance that frauds will not be perpetrated by insiders without being detected. Auditing for internal fraud does not only have to be a detective tool, it also has to be preventive and deterrent tool. This is part of the risk fraud analysis that organizations carryout to ensure that all is moving well. This means that auditing for internal fraud has one aim and that is to protect the asset of an organization.

As an auditor in this modern world, you will have to be concerned with issues that are beyond compliance with accounting rules. You must recognize that finding fraud is part of your responsibility too. Auditing for internal fraud will sharpen your existing skills and teach you new skills / techniques that are necessary for effective fraud detection.

TIPS ON HOW TO AUDIT FOR INTERNAL FRAUD

Evaluate the objectives of the company in the light of its objectives: the first thing that you must do in auditing for internal fraud is to have a working knowledge of the objectives of an organization. After gaining a working knowledge of the internal control of a business, the next thing that must be done will be to evaluate the actual operations in the organization.

Chances are that a company may have a high level internal but still do not implement the letters of the laid down procedures. A deviation will give you a clue on the likely crimes that could be perpetrated in this kind of control environment. The control environment in a business environment is in many cases more important than the controls themselves.

Review past incidents of frauds and financial crimes: understanding the kinds of frauds and financial crimes that have taken place in a company will give insight into how effective an organization’s internal control is in the area of fraud and crime prevention.

Test your internal controls: occupational frauds and other forms of frauds mostly occur in relatively weak controls. Testing your internal control is one way of finding out if your organization is prone to fall victim of frauds and economic crimes.

Evaluate the knowledge and competencies of responsible officers: you will get insight into how strong a company’s internal control is in respect to controlling internal control. You will be reasonably sure that fraud is likely to occur in a place where the head of internal control unit is being headed by a non-qualified and ill-experienced person.

As forensic accountants, we should endeavour to learn the basics of auditing for internal controls. Bear in mind that the content of this blog you are reading will not be enough for you to effectively hone your skills as an internal fraud auditor. In addition, you must have working knowledge of computer forensics.

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COMPUTER FORENSICS KNOWLEDGE; A MUST FOR EVERY FORENSIC ACCOUNTANTS

WHAT IS COMPUTER FORENSICS?


Computer forensics is the investigative arm of computer science that handles investigations in order to bring out evidences that could be used in the law court to prosecute a suspect when found guilty of an offence. Computer forensics investigators perform their duties through data analysis. The nature of forensic accounting requires that investigations be carried out in certain cases.

One may be asking; what concerns investigation with computer? Well, the answer is simple, most frauds if not all frauds are committed through the computer and other electronic devices.

HOW TO BECOME A COMPUTER FORENSICS PROFESSIONAL

You can become a computer forensics professional by becoming a member of any of the professional computing forensic organizations like; IACIS (International Association of Computer Investigative Specialists) one of the oldest bodies created by police officers that wanted to formalize credentials in computing investigations. Apart from joining a professional body, the most important thing in becoming a computer forensics professional is knowledge and experience. As a basic requirement, you must have a first degree.

This experience and knowledge can only be acquired through reading, learning and doing. I knew nothing in computer forensics when I started but today, I can reasonably conduct computer forensic analysis and investigation with little help from professional bodies where I belong. Since you are looking at becoming a computer forensics from the perspective of an accountant, it will really be nice if you top it up with a credential in fraud examination like the ACFE.

BASIC TOOLS NEEDED IN YOUR COMPUTER FORENSICS LAB

Note that the list of computer forensics tools listed here cannot be a comprehensive one but just to give an idea of what you need to ensure you take care of. Below are some of the tools needed in your office/ work area:

A work room built with copper

A well ventilated and well lighten place

Electrostatic discharge bags and other forensics storage bags

Software for data analysis like; spydrive, Encase, etc

Scheduled and routine lab auditing procedure

A well equipped library

Computers with different OSs like Macintosh, windows, vistas and other older operating systems.

You also need to consider the office ergonomic

Like I said before, you will get more requirements from your professional body.

BENEFITS OF BECOMING A COMPUTER FORENSICS PROFESSIONAL

A lot of benefits accrue to all those that have credential in computer forensics and other investigative fields in the society. The most prominent of them all is respect and honour in the society. Note however that there are risks associated with computer forensics credentials. But, that wouldn’t deter people from becoming computer forensics professional. Your professional organization will link you up to security agents that will see to your basic security needs. Even life itself is full of risk so do not be afraid of that.

Wow! A lot has been discussed about computer forensics, now that you have known all these, wouldn’t you rather become a computer forensics professional today? If you consider joining any of the professional bodies mentioned above, also consider buying any of these books on computer forensics displayed below.

To your success as a computer forensics professional!



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FRAUD RISK ASSESSMENT; THE ROLE OF FORENSIC ACCOUNTANTS

Fraud risk assessment has been identified by; regulatory bodies, professionals, professional standard setters, law enforcement authorities, and auditors as the most powerful proactive tool that can assist businesses in fighting fraud and economic crisis. Fraud risk is the probability that fraud can occur in a system and still go undetected.


Fraud risk assessment plays crucial role in the development and maintenance of effective fraud management programs, controls and systems. Fraud has been identified as one of the principal causes of global economic meltdown.

Managers of business and the business community at large have called upon forensic accountants to device better means of protecting business assets and resources. Hence, the development of this wonderful tool called fraud risk assessment. Below are the roles of a forensic accountant in the process of assessing the level of business exposure to fraud risk


DUTIES OF FORENSIC ACCOUNTANTS IN FRAUD RISK ASSESSMENT

Testing of internal controls: all my years of experience in the fraud fighting field has consistently proved to me that quality and implement-able internal controls are the key to successfully curbing of frauds and other financial misappropriations in any entity. It is the role of forensic accountant to test internal controls of organizations and help establish one where there is none. This is an important role in the risk assessment procedures.

Evaluation of recruitment procedures: poor recruitment procedures are the prime cause of fraud in an organization. A lot of employers of labour fail to adequately investigate the background of employees before engaging the service of the employee. It is the duty of forensic accountant to ensure that best practices in recruitment procedures are followed. Forensic accountants should also advise management on the best method of rotating employees.

Review of incident management process / business continuity plan: most frauds are hidden under the disguise of implementing change. A lot of frauds are perpetrated while pretending to implement change. It is the role of the forensic accountants to review change management procedures to ensure that frauds are not hidden while doing this.

Review of work ethics/ environment: workplace bullying is a fertile ground that breeds occupational fraud. Workers are likely to conceal fraud in a tensed atmosphere than they would do in a plain atmosphere. It is the duty of the forensic accountants as a fraud fighting professional to ensure that working environment is encouraging enough for fraud to be prevented, detected, and corrected. Work complaint documentation should be seriously reviewed for possible loopholes that are likely to lead to fraud.
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FORENSIC ACCOUNTANTS AS DATA ANALYST

Forensic accountants / fraud examiners are traditionally known for information measurement professionals. But, the digitalized nature of the world, forensic accountants finds themselves wearing the hat of data analysts. Today’s evidences are found in servers, databases, chat rooms, e-mails, electronic spreadsheet, html codes, iphones, ipads, laptops, etc.


Data analysis is the only basis upon which forensic accountants can lay their claims. Evidences are made credible when backed by proof of analysis. All these made it even more pertinent for fraud professionals like forensic accountants. The problem that many accountants have is; what data analysis skills are we supposed to have. If you are in this class, then read further as this article is written for you.

DATA ANALYSIS SKILLS REQUIRED OF A FRAUD ACCOUNTANT / FORENSIC ACCOUNTANT

Ability to carryout statistical analysis: some times, an accountant needs to get certain ratios and some other testamentary evidence for information to have weight in the law court. You must be proficient in the use of statistical tool and other analysis tools. I recommend that you take a course on operations research as this will give you the right kind of exposure you need in areas like: goal programming, integer programming, linear programming, regression analysis, etc. Most occupational frauds concealed in data are easily discovered by simply running any of these statistical tools on them.

Ability to use forensic data analysis tools: digital evidences are oftentimes hidden in digital formats that are impossible for human eyes to see and require the use of forensic tools to recover. This is the area where investigators of our time are now proving their worth. So, if you want to be a force to reckon with, it is a must that you acquire skills of data analysis.

You may be wondering at this point if it is a must that you acquire data analysis skills. Well, it is not a must as many investigators rely on third parties to get their data analysed but for the reasons I will be mentioning in the next paragraph, I would advise that you learn to do your analysis yourself.

DISADVANTAGES OF ANALYZING YOUR DATA EXTERNALLY AS FORENSIC ACCOUNTANT

Forensic data analysis in usually iterative in nature: you will spend more money paying data analyst if they spend more time on your data. And most data analysis is iterative in nature meaning that cost cannot be avoided in doing this. Then what is your worth as an accountant if you cannot safe cost? – after all, accounting is all about cost savings.

No ad hoc access to further and urgent analysis: you cannot always get the service of a data analyst when need them at all time. And this may create a vacuum in the fraud fighting process.

Lack of flexibility: you will lose the benefits of being flexible if you simply outsource all your data analysis jobs to IT specialists and outsiders. Also, you may not get all the privacy that you require to be successful in your investigative work.














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What level literacy of data analysis do I need to gain as a forensic accountant?

As far as data analysis skill is concerned, you can choose to be any of the following:

• Be totally ignorant of what can be done with data


• Understand data analysis possibility


• Know how to generate report from programmed and hidden system


• Ability to use query for data mining


• Full scripting and programming skill to analyse underlying database / data

The choice is yours. But if you really want to be effective and efficient in investigation as a forensic accountant; then you seriously need to acquire basic data analysis skill. This article will not be complete if I don’t say anything about data.

WHAT IS A DATA?

It is important to draw a line between a data and information. Data are statements accepted as they are without further query. That is, data are unprocessed information. Data becomes information when processed.

TYPES OF DATA / DATA TYPES

As a forensic accountant, you are supposed to have idea of the different types of data and how they interpret certain signs like ‘division sign (/)’. We basically have four types of data VIZ:

String (text, char or varchar)

Integer (long, int, bigint or smallint)

Date (time or timestamp)

Float (double or money)

I will not explain these data types now as this article is already too long. But, one thing to take home as regards data type is the fact that a particular symbol have different meaning in the eyes of the computer when processing information.

PONZI SCHEME: AN EPIDEMIC?

Ponzi scheme is a type of investment scam whereby perpetrators deceive their victims into believing in their pyramid scheme and entrust them with their hard earned money and other resources. The term Ponzi came after an Italian fraudster named Carlo Charles Ponzi, born in 1882.


Though, Bernard Madoff’s scandal created awareness of the resurgence of Ponzi scheme yet a lot of people still report cases of being victims of modernized Ponzi scheme. Bank accounts and retirement accounts have been drained as a result of the activities of these financial predators.

CAUSES OF PONZI SCHEME

The primary cause of Ponzi scheme is greed. This is true both from the perspective of the victims and perpetrators of Ponzi scheme. Individuals and corporate bodies would not be defrauded if they hadn’t craved to make unrealistic return from their investment. One common feature of Ponzi scheme is the promise of triple return or more.

The second principal factor that is responsible for the existence of Ponzi scheme is ignorance. People are oftentimes ignorant of the activities of the perpetrators of Ponzi scheme. This is where the forensic accountants and fraud examiners really come in. it is part of the duties of forensic accountant to educate the populace. Everyone cannot be a forensic accountant or a fraud examiner but with our help as fraud fighters, they all need information on the activities of fraudsters at all time. If you call yourself a fraud fighter or forensic accountant and you are educating people on the activities of fraudsters and how to prevent fraud, then you are not whom you claim to be.

Fraud examiners should continually look out for signs of fraud and immediately relate same to all those that look up to them for professional advice.

Unless we all team together to fight this phenomenon, Ponzi scheme will still continue to an epidemic that will continue to virally spread. All pointers are pointing to the fact that those saddled with the responsibility of eradicating fraud and Ponzi scheme are not doing their best. If this remains this way, I would then say that Ponzi scheme is not only an epidemic but a pandemic. Some people have even coined a word for this situation; Ponzi-demic.

But do you know what? There is hope as many fraud fighting professional bodies that we have today are beginning to take the bull by the horn. You too can become a fraud fighter today by buying any of the books displayed below.















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OCCUPATIONAL FRAUD IN SMALL AND MEDIUM BUSINESSES

Occupational fraud is the kind of fraud committed by employees of a company. This kind of fraud is also known as insider fraud and is always difficult to control in a situation where a company’s internal control is relatively weak. Small and medium sized businesses are particularly prone to falling to the tricks of occupational fraud perpetrators.


There are conditions that must be met before occupational fraud could take place. Those three conditions are what are called the fraud triangle. They are opportunity, pressure and rationalization.

Occupational fraud has singly accounted for over 40% of the totality of frauds that has taken place in business community as a whole. It takes the activity of an insider for an outsider to successfully operate. Many company and businesses have started taking the right action in the right direction to combat this ugly situation by engaging the services of forensic accountants and other fraud fighters.

The presence of forensic accountants and fraud examiners in a business instills fear in the mind of workers thereby making them do their possible best to stay away from occupational fraud of all kind.

Good internal controls and high spirit of workforce is the key to curbing occupational fraud. It is not just enough for people to state rules, principles, and procedures on paper without implementing it. The contents of the internal control ‘bible’ should be implemented to the letter. Management should be prepared to adhere to the advice proffered by the internal control experts in the advisory board.

Access control and other security issues should be taken seriously by all that really wants to squarely face occupational frauds. Access control simply means restricting how resources are used in a business. There is the physical and logical access control. The physical access control deals with the physical protection given to assets, while logical access deals with rights to access information via the computer and other network devices.

Again, education of staff members can help reduce occupational fraud in small businesses. Educating your workers will place them in a situation to recognize fraudulent activities whenever they see them going on.

Establishing and upholding good corporate governance is another good tool to fight occupational fraud in our businesses. With good corporate governance in place, occupational fraud will have no place to hide its ugly work in our company. Good corporate environment will enhance the working experience of workers and make them become more productive in their work.

The company that I worked for as a forensic accountant successfully fought occupational fraud by creating a conducive work environment.

Occupational fraud is a threat to business community as a whole and needs to be seriously dealt with. It begins from you, learn the basics of fraud fighting today and be glad you did.

The following books can be bought to leanr more
Third highest occupational fraud rate afflicts health care.(PRACTICE TRENDS): An article from: Family Practice News

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FORENSIC ACCOUNTANTS, ROLES AND RESPONSIBILITIES

Forensic accountants are accountants that carryout investigative activities to; discover, prevent and deter fraud and other assets misappropriation. The high degree of fraud and financial crime today made it compulsory that every accountant should have forensic skill needed to fight fraud.


There are certification bodies now offering to train you as an accountant with the prowess to fight fraud. Do not hesitate to join one today.

The important question is; what are the roles of forensic accountants? This question will be addressed in this article. Before you read on, you may consider buying some of the books on forensic accounting displayed below:















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Forensic accountants

ROLES OF FORENSIC ACCOUNTANTS

Whistle blowing: forensic accountants are known for their whistle blowing ability. Whistle blowing is the term used to mean reporting of frauds or suspected frauds. This is usually made to superior authority in an organization. As an accountant employed to fit into the position of forensic personnel, it is your duty to always look for signs of fraud and blow whistle to help uncover the fraud.

Fraud detection, deterrence and prevention: there is no how fraud and other financial crime can be successfully perpetrated without being noticed by the accountants. The position of the accountant as information measurement professional places him or her at the heart of every information that comes in and goes out of a business entity. Forensic accountants employ the various internal control technique, auditing and information systems management skills acquired during the course of their training to read the handwriting before others could see it. Forensic accountants should be able to see the three elements of fraud present themselves and work to ensure that they either disappear or are made redundant. The three fraud element is also called the fraud triangle. They are; opportunity, pressure and rationalization.

The best way to fight fraud is to lookout for any sign that tells you when the fraud triangle is present.

Again, the institution of reasonably sound internal control is the surest way to detect, deter and prevent frauds and financial crimes. Therefore, forensic accountants should endeavor to set up internal control system and monitor it to ensure proper implementation.

Educating management: it is part of the duty and responsibility of forensic accountants to constantly educate the general public. Information on what to do in order to prevent and deter fraud should be spread by forensic accountants.

Forensic accountants are the backbone of fraud fighting profession. The importance of their services cannot be overemphasized. We all need them to save our already threatened business world and the global economy at large. I would like to point out one thing; forensic accountants and fraud examiners are not the same thing. Although the difference between forensic accounting and fraud examination is just a tiny line, it is good you know it. Both professionals are out to fight crime but, from different perspective. A fraud examiner is called in when fraud has been suspected while a forensic accountant is the one to suspect fraud and then figure out how, when and how it was perpetrated. I really wish not to bother you with this distinction but, would be giving you incomplete information if I don’t.

You too can join the forensic accountants and fraud examiners to make this fight against fraud and other misappropriations work. Together, we can achieve a relatively fraud free society!