The Fraud Audit

Preface xi
Chapter 1: What Is a Fraud Audit? 1
Why Respond to Fraud Risk? 3
The Fraud Paradigm 4
Fraud Auditing 5
Fraud Defined 8
The Fraud Triangle 8
Responses to the Risk of Fraud 12
Summary 13
Chapter 2: Professional Standards 15
Overview 16
Fraud Audit Standards 18
Summary 25
Chapter 3: Fraud Scenarios 27
Key Definitions and Terms 28
Fraud Risk Structure 30
Classifying Fraud 32
Identifying Fraud Scenarios 41
Fraud Audit Considerations 46
Summary 51
Chapter 4: Brainstorming: The Implementation of ProfessionalStandards 53
What Is Brainstorming? 54
When to Brainstorm 56
Summary 66
Chapter 5: Assessment of Fraud Likelihood 69
Preparing a Fraud Risk Assessment 69
Summary 81
Chapter 6: Building the Fraud Audit Program 83
Traditional Audit versus the Fraud Audit 84
Responding to the Risk of Fraud 84
A Fraud Audit Program 85
Testing Procedures 89
Fraud Concealment Effect on the Audit Response 97
Audit Evidence Issues 103
Fraud Scenario Examples 105
Summary 110
Chapter 7: Data Mining for Fraud 111
The Art and Science of Data Mining 112
Strategies for Data Mining 129
Limitations of Data Mining 131
Summary 132
Chapter 8: Fraud Audit Procedures 133
Basis of Fraud Audit Procedures 133
Levels of Fraud Audit Procedures 135
Design of Fraud Audit Procedures 138
Summary 145
Chapter 9: Document Analysis 147
Document Analysis and the Fraud Audit 148
Levels of Document Examination 148
Document Red Flags 150
Brainstorming Sessions and Document Red Flags 155
The Fraud Audit Program and Document Red Flags 156
Summary 156
Chapter 10: Disbursement Fraud 159
Fraud Risk Structure 159
Audit Approaches 166
Summary 178
Chapter 11: Procurement Fraud 179
Fraud Risk Structure 181
Audit Procedures 195
Summary 202
Chapter 12: Payroll Fraud 205
Fraud Risk Structure 206
Audit Procedures 212
Summary 222
Chapter 13: Revenue Misstatement 223
Fraud Risk Structure 224
Audit Approach 231
Summary 236
Chapter 14: Inventory Fraud 237
Fraud Risk Structure 238
Audit Procedures 243
Summary 249
Chapter 15: Journal Entry Fraud 251
Fraud Risk Structure 252
Audit Procedures 261
Summary 266
Chapter 16: Program Management Fraud 269
Fraud Risk Structure 270
Audit Approach 277
Summary 282
Chapter 17: Quantifying Fraud 283
Conveying the Impact to Management 284
Role of Evidence in Calculating a Fraud Loss 287
Impact on the Fraud Audit 289
Options for Management 292
Case Studies 293
Summary 296
Appendixes 297
Appendix A 298
Appendix B 311
Appendix C 325
Appendix D 339
Appendix E 347
Appendix F 360
Appendix G 363
About the Author 365
Index 367