Fraud Risk Assessments: How to Perform

A new fraud brainstorming idea guaranteed to generate better results

Do your fraud brainstorming sessions lack vigor. In this video, I provide an idea that will liven up your discussions and result in better identification of potential thefts. I also discuss auditor’s responsibilities with regard to fraud and–as you perform risk assessments–ways to score points with your clients.

To see my previous (written) post about how to perform fraud risk assessments, click here.

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2 thoughts on “Fraud Risk Assessments: How to Perform

  1. My first reaction is, if the business is large enough to give up $800,000 in fraud before they notice or discover it, how come they are only willing to pay for a compilation?

    What is Risk Assessment?

    It’s where you start when thinking about where the organization is most vulnerable. It takes time. It’s VERY specific to each individual company and their staff.

    You cannot just turbo tick down a standard checklist, although a standard format or structure does help. How many firms turbo-tick last year’s assessment with SALY?

    Again, It takes some time and if the CPA firm is only chasing the almighty dollar, and time is money, they are incentivized to short-change this requirement.

    Don’t rush through it. There is a temptation to get to a certain point and then to go, “Well, I think we have quite enough at this point. Let’s just stop here.”

    It’s special and most accountants probably don’t do a very good job of it, as you point out. I will go out on a limb and suggest that many firms’ performance on this one issue rises to negligence.

    How can the CPA firm staff do a competent job of risk assessment without involving the client and their staff directly? The CPA staff HAS to have a deep knowledge of the specific industry and firm operations in order to have this have any value.

    Another aspect that decreases the effectiveness of many risk assessments is that the partner in charge is also likely to be on a personal friendship level with the owner(s) and this will necessarily impede his or her judgment in this process. Too many high-level CPA’s still don’t seriously understand or believe that trust is NOT an internal control. “I’ve known Jimmy the warehouse manager, for 10 years. We can trust him.” Well, Jimmy’s been visiting the warehouse early Sunday morning for the last 10 tears and filling his truck with inventory, and covering it up in the accounting records!

    I plan on funding my retirement by performing risk assessments and nothing but risk assessments. At the moment, there is zero competition.

    I think your video is right on target as a start. Thanks.

    • Benson,

      All very good comments, as usual. It’s obvious you understand the gravity of fraud.

      I think that most compilation clients would be better served to have risk assessment/fraud analysis in place of a compilation. In making this suggestion, it is my experience the client usually turns the CPA down. The client is often asking for the compilation to satisfy a loan covenant. But the value of the fraud prevention work is much higher than that of a compilation–as you are stating.

      I think many CPAs will not pursue performing fraud prevention or detection work because they don’t feel comfortable doing so. We would become better auditors if we would spend more time learning about how fraud occurs and how to prevent it. (Besides, it’s extremely interesting.)

      As you say, “trust is never a control.” I agree. Too many fail to recognize this truth–until it’s too late.

      Thanks for your comments.