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A Bear in the Forest

September 2009

Over and over and over again, we hear of instances where auditors miss fraudulent activity. Recently, SEC auditors missed detecting Bernie Madoff’s schemes.

If you are following professional auditing standards (such as the AICPA’s Statements on Auditing Standards, the GAO’s Yellow Book, or the IIA’s Professional Practices Framework), you will notice that our professional responsibilities to detect fraud are getting more intense with every revision. We are actually expected to find this stuff! But how?

So far, the AICPA has been the clearest and most straightforward information about our responsibilities and has given us a methodology for uncovering fraud. We will talk about that in future newsletters.

Interestingly enough, the Certified Fraud Examiners have not published standards for fraud examination, although they have given us plenty of guidance. Two of their core models are the fraud triangle—which we talked about last month—and the fraud tree. More on the fraud tree in next month’s newsletter.

But first, let’s have a little fun.

How aware are you?

Take a few minutes to look at these three YouTube videos that test your awareness:
Video 1

How did you do? Did you pass the test?

Try another one:
Video 2

And another one:
Video 3

These awareness tests remind me of the “new car phenomenon.” My husband recently found me a different car—a used Lexus (which I just LOVE by the way). Now I see them everywhere. It seems that everyone has them. Of course that isn’t true; there are no more of them on the road than there were a year ago, but my attention is now drawn to them instead of that sad old minivan tht I used to drive.

One of the benefits of using the fraud tree is that we become aware of more than just our car model. It is a comprehensive model that includes all types of fraud, not just the type your audit program or questionnaire leads you to focus on.

You have heard the old saying “he can’t see the forest for the trees.” Maybe, just maybe, you are using old tools that have you focus on one possible kind of tree, and you have missed the big picture—the forest (or should I say you missed the bear moon-walking in the forest?). More on the fraud tree in next month’s newsletter.

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Leita Hart-Fanta, CPA, CGFM
Resides in Austin, Texas and can be reached at www.auditskills.com.

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