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Red flags for fraud
How a business can prevent fraud
The former auditor of a nonprofit client failed to properly file key reports with the government, claiming that the accounting department was not operating as it should. We were engaged to evaluate how the department was run.
We took the following steps:
a) We conducted in-depth interviews with the appropriate people to piece together a comprehensive analysis of the department's procedures and protocols. We spotlighted possible risks and deficient internal controls.
b) We documented the department's workflow and raised a red flag about material system weaknesses. We found:
- Insufficient segregation of duties
- Routine approval of critical matters by low-level employees
- Possible use of incorrect account balances
- Fraud risk in susceptible areas
- Information technology vulnerabilities
- Risks associated with check disbursements
- Possible improper reporting
c) We conducted a walk through, following trial transactions from beginning to end, to uncover further possible operational deficiencies and risks.
d) We prepared a detailed internal-control analysis that identified root-cause issues and recommended changes. The report was delivered to the accounting department and the organization's audit committee.
Once it approved the changes, the organization engaged us to assist in implementing them. By pro-actively investigating the situation, we reduced the risk of fraud dramatically.
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