In a seminar held by CPE Link instructor Larry Perry, a CPA firm partner shared an eye-opening story: Invited to submit a proposal for an audit of a medium-sized nonprofit, he arranged a meeting with the executive director. But during his meeting, something just didn’t feel right, the partner recalled.
“Call it intuition, the auditor’s sixth sense or psychic ability — the partner’s fraud detector was working,” Perry said.
Wanting to explore his discomfort further, the CPA firm partner invited the exec to a round of golf. He watched as the man cheated — major, no-holds-barred cheating — and became more convinced that his fraud detector was operating correctly. Sure enough, a short while later news came to light that the man had embezzled thousands of dollars from his organization.
Perry points out that many frauds, large and small, have been missed because auditors are too busy performing procedures to be attuned to the people around them. “SAS No. 99 instructed engagement teams to hold brainstorming meetings to identify fraud risks,” Perry points out. “Sadly, many frauds have occurred and gone undetected in spite of these meetings.”
Why? Some believe that after the first year the meetings become routine and our fraud detectors are desensitized.
“I don’t know about you,” Perry says, “but I can’t shut mine off! At the fast-food store when the clerk doesn’t ring up the sale, at the toll booth when I’m not offered a receipt, when a CEO pays for personal lunches with a company credit card, when friends pad their expense accounts — and on and on.”
He believes that experience should teach auditors to be constantly alert, and their fraud detectors should be tuned to “on” at all times.
He adds, “If it looks like a duck, walks like a duck … you know.”