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Fraud Insights Derived from Stories of Auditors of Financial Institutions

July 25, 2012 Comments off

Fraud Insights Derived from Stories of Auditors of Financial Institutions (PDF)

Source:  Journal of Forensic & Investigative Accounting
For decades, fraud information was difficult to find, as companies would shy away from the negative publicity associated with fraud (Albrecht and Schmoldt, 1988). As a result of SAS 99, auditors now consider and test for fraud; prior to SAS 99, the auditor’s obligation was to inform management if fraud was found during the ordinary course of the audit (AICPA, 2002). The use of non-financial performance measures can serve as a tool for fraud discovery (Brazel, Jones, and Zimbelman, 2009), which suggests that fraud scenarios are not always foretold by mere numbers or financial statistics alone. Much can be learned from a review of real world fraud cases.
The analysis of fraud risk factors is a proactive audit tool in today’s environment. The current study used hindsight to analyze fraud risk factors from a convenience sample of one audit partner’s recollections of the financial institutional environment of credit unions. The first part of the study used content analysis to uncover emerging themes in a sort of ethnographic study of five fraud and five non-fraud stories pertaining to credit unions. Only after this part was completed was a more grounded audit tool utilized to expand the qualitative study. The tool was a published fraud risk assessment checklist that was applied to the fraud stories. The research question of interest in this study was how can the frequency and patterns of fraud risk factors tell us about the likelihood of fraud in the form of misappropriation of assets? Secondly, what lesson or moral of the story emerge that are relevant to auditors, management, and perpetrators?
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