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SU7. Fraud and controlsd risk (7.1.Fraud risk & types (Types of Frauds…
SU7. Fraud and controlsd risk
7.1.Fraud risk & types
Frauds & fraud risk
Characteristics of fraud
Effects of fraud
Types of Frauds
Asset misappropriation
Skimming
Payment fraud
Expense reimbursement fraud
Payroll fraud
FS misrepresentation
Information misrepresentation
Corruption: nhan hoi lo
Bribery: dua hoi lo
Conflict of interest
Diversion
Wrongful use of information
Related party fraud
Tax evasion
Low level & Executive fraud
Low level: theft/embezzlement
Executive: mistate FS
Symptoms of fraud
a. Document symptom
b. Lifestyle symptom
c. Behavioral symptom
Indicators of possible fraud (red flags): 11
Types of fraudulent processes
Lapping receivables
Check kiting
Roles of IA
Fraud - Controls
Fraud Management Programe: 6 components
Controls
a. Control definition
b. COSO IC Framework
Control environment
Fraud risk assessment
Control activities: policies & procedures
Fraud-related information & communication practices
Monitoring
c. Preventing fraud: set correct tone at the top/instill a strong ethical culture
d. Detecting fraud: employee feedback
Responsibilities for controls
a. Management: establish & maintain control
b. IA: evaluate effectiveness & efficiency of control, promote continuous improvement
Fraud awareness
Fraud risk assessments, training, communications
7.3. Fraud investigation
Forensic auditing
Fraud investigation
a.An investigation gathers sufficient information for 4 purposes
b. IA, lawyers, specialist
c. Investigation: comply with local law -> IA works with legal counsel
d. Management implements controls over investigation
policies & procedures
preserve evidence
respond to the results
Reporting
Communications
e. Responsibilities of IA Activity: define in its charter and fraud P&P
f. Investigation plan is developed for each investigation
Interrogation of employees
a.
Differs from normal interview
Purpose: seek confirmation
Accusation: no time
Confession: use evidence
Document: chain-of-custody procedures
2 persons involved
b. Others
Conversation from general to specific (open -> closed questions -> confession, no-threating tone + close observation of body language
Not allowed to return to normal work area
Fraud reporting
a. CAE to report
b. Draft: submitted to legal counsel for review
c. Incident: report to SM & board
d. adversely affected to FS: SM& BOD be informed
Resolution of Fraud incidents
a. actions to be taken after investigation completed
b. Management and BOD are responsible (9 components in resolution)
Communication of Fraud incidents
Opinion on Fraud-related controls