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Auditing/FRAUD WITH RESPECT TO AS5

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Expert: Don Sadler - 8/16/2007


Question
HOW DO WE DETERMINE THE SCOPE OF A FRAUD WITH RESPECT TO CASH DISBURSEMENT, FRAUD EXPENSE (SPECIFICALLY CASH) WITH AUDITING STANDARD NO 5.

Answer
This is not a specialty of mine and I almost did not respond.  However, I can offer some thoughts that may be useful.

Intuitively, I'd expect that a complete audit should be performed to determine unauthorized, unsupported disbursements if that is the nature of the issue.  I would think it inappropriate to make an estimate without a basis.

AS5 has a discussion of materiality of fraud but I don't think there is discussion of scoping fraud.

First you'd need to determine actual scope of fraud by investigation, determine the potential fraud scope that is implied by the lack of internal controls that allowed the fraud to occur, then determine its materiality in reference to the company's determination of materiality (each company defines materiality differently), with an exception for fraud perpetrated by those in authority with the privilege of management override, who have ability to perpetrate fraud on the financial statements.  Any amount of fraud that stains their hands specifically is deemed material because it casts a negative light on "tone at the top".

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Don Sadler

Expertise

I can answer regarding Internal Auditing - especially operational audits, audit management, and how to revitalize a dysfunctional audit department. Also give advice to "auditees" on how to deal with auditors.

I DO NOT ANSWER HOMEWORK OR CLASS PROJECT QUESTIONS. For those answers, I suggest you scan previously asked questions and search on your favorite search engine.

I ALSO DO NOT ANSWER TAX QUESTIONS AS THIS IS NOT WITHIN MY EXPERTISE. NOTE: I am not an accounting expert although i will try to help if I can... ask at your own risk.

Experience

I have worked in the public and private business management arena with experience in OMB, Resource Management, Internal Auditing and consulting. I am a former President of the Inland Empire Chapter Institute of Internal Auditors, previously held Director positions in the Orange County Information Systems Audit and Control Association and the Northern Telecom International User's Association. I am a Certified Fraud Examiner and a Certified Information Systems Auditor.

Organizations
Institute of Internal Auditors, Association of Certified Fraud Examiners, and Information Systems Audit and Control Association (ISACA)

Education/Credentials
MBA, CISA, CFE

Founder and Principal of Applied INTEGRITY Management Consulting Group

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