Editor’s Corner: Are You At Risk For Audit Fraud?

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If you’re like most accounting firms, you’re small and probably don’t perform that many private company audits in a year. Maybe you review some financials for a potential loan or financing situation for your client and there’s an exchange of documents between them or a third party.

Do you feel at any risk for fraud?

Well, recently we conducted a survey in tandem with CPA.com and their Rivio document clearinghouse, to determine how at risk for audit related fraud firms may be, or felt they may be. As with any level of security, you live in a world of “you don’t know what you don’t know,” so here’s what we found out about actions and attitudes of surveyed firms that engage in the aforementioned activity.

For one, when it comes to the exchange of financial documents such as audit reports and financial statements, 65% indicated they do so via email but also use online portals (50%) or even standard postal mail (49%).

Similar statistics were recorded for business clients who share financial documents with third-party users such as vendors or lenders, as they indicated their clients use email (60%), postal service (40%) and online portals (23%).

For the firms that engage in audit activity, 42% indicated that efficiency was most important in the exchange of these materials, followed by security (37%) and added value/convenience (21%). Also of note related to feelings about potential audit fraud:

  • Most respondents had little to no concern their clients would alter details in an audit report or financial statement
  • Most respondents had little to no concern a business that was not their client would use a firm’s letterhead or logo to falsify an audit report
  • To the best of survey respondents’ knowledge, none were victims of fraud occurring through altering an audit report or a report created without their authorization.

The fact of the matter is, all of the above does occur and way more commonly than firms think, or have been exposed to.

In the coming weeks, we will be producing a practical guide to audit fraud prevention so please keep an eye out.

About Seth Fineberg

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