Domain III: Elements of the CSA Process 95

. . osed controls j~ mitigating identified

ri k , In lh '::.;' 'as'S. the issul' may need to be discussed a ain or the)ack of consensus on the
i~ u nH:l\ nt" i h.1 bt' includl'd in the fino report. s
m I I
_

'rio: 'mt nt nbl'!,! It_ tbe ndc lIae or current

.J. F nll d . .
1. Reo

'UI fness

laas/Sy mptoms of Fraud

er risk and control weaknesses that could be indicators of fraud. Also, internal
.?\lkiit rs ilr responsible for havin~ sufficient knowledge of fraud to identify the indjcators that
fi ud h:1~ been committt:d. Therefore, training related to CSA should include information on the
fi II wing ,ed flags or symptoms that may increase the risk offraud. 6

..-

- \

',Hl UtKO\

Fraud 'Varning Signs: Personality Characteristics

Significant behavioral changes
Adversarial" attItude toward auditors
E-eluctance to be away from the office (e.g., r~fusal to take vacations, working excessi\ e
hours)
Personal problems or debts
~hange in lifestyle or spending habits
Fraud Warning Signs: Organizational Characteristics
~eak internal contr~ls
Insufficient supervisory review
- ~. lnadequate segregation of duties
U nethicalleadership
,>? f'\o-uJ k ~Qv kv..e-vJ
. '> !--ack of fraud policy
.0
Lack of effective internal auditjng fimction
Management requires unreasonable productivity by employees
Disagreements between employer and emplQ)'ees
..-,-~. Fiscal problems
_.-:b1". Inadequate screening of job applicants vendors, or contractors

-'t;> ~ccount books difficult to decipher or show transactions not repre '~ntativ of the
organization's ordinary business
'-~.
~xtremely low or high employee turnover rates in key positions

Adj usting entries made without formal a

roval
fhec s payable to individuals in large, even sum amounts..

'Z

nf

m flt

S ) Study Guide

11 I
I 1 IOWl add rcss
11. ' 111 'nt to one payee

(&-tow... we... <bn.t'-P ~~ ''''/'0 dz, we"?)

or address

111~

in depos its
a ) ustments in inventory or accounts receivable balances

rning '"' ianals: Accounts Payable

,,",,-,-,urn lH! identical amounts from the same vendor

Ie r Ini . ce addresses for the same vendor
~ m 11t to vendor increase r
I for no apparent reason
k k f egregation ofduti~s between Rrocessing 0 accounts payable invoices and l!pdates
t
endor master
s. between ~heck preparation and posting to vendor account, and
t\\ een ~eck preparation and mailing ofiSIleQ cbecks
Rroper documentation of adds, changes, or deletions to vendor master file
E. 'cessive credit ad'ustments to a articular vendor and/or credit issued by unauthorized
d partment (credits involving ll:antities an~ rice
..
.
~o reconciliation pet fanned 0 acoounts a able subsidia ledge to eneral led er control
account
....
Insuttlcient S'PMSOry review of accounts payable activity
Lack of documentation for payment of invoic~s
I!.aid invoices not prOJ)erly cancel~d, allowin~ for reprocessin~
ment
Unrestricted access to blank checks si ature plates, and check-si

Fraud Warning Signals: Cash Recei ts

{mpro r safe
ding 0 cash under lock and ke
0 segregation 0
uties between rec . .
sh and ostin it to customer accou
Infrequent batik epos.its. allowing cash to accumulate
Consistent shorta es of cash on hand
Consisten uctuatlOns In an
ount bal
<;:losing out t e cash drawer before end of shift
issing copies of pre-numbered receipts
ot balancing cash to accounts receivable subsidiary ledger
insufficient supervisory review of cashier's daily activity

Fraud Warning Signals: Accounts Receivable

Lack ofaccountabiljt for invoice numbers issyed
Lack of se e ation of dutie
es in accounts receivable invoi ~s and
to the subsidiary ledger

Domain III: Elements of the CSA Process 97

)Iicil.:: and procedures regardin writ - ffs

nt. unlit

an or unapproved adjustments, credits, and write-offs to accounts _

! ~iVlbl' suh, idi. I) kdger
) ["t . )Ill'ilhtion offIce unts receivable subsidiary led er
neralledger control account
It ~ urn 'iI.'m supt::rvlsory revIew 0 customer account aging schedule /
UIlI tTi~tcd acct:. s to subsidiary ledgers and general ledger
h

III

olllllcntl:

F r Iud \

'I riling

Signals: Inventory

ledll balance in inventory accounts

~~~~--~,

. 'cessive inventory write-offs without documentation or approvals

llnrestricted access to inventory storage areas,..by non-responsible employees and/or
-.vendors
~o polic re arding identification, sale, and dis osal of obsolete nd SUrPlus materials
~o segregation of duties between recelp of inventory and jssuing of materials, between
.recording of inventory accounts and ordering materials, and b~tween identification qf
..obsolete and surplus mate~ials and the sale and disposal of such materials
~o policy regarding inventory levels to be maintained
~sufficient supervisory review of inventory accounts, write-offs, or physical access to
s.,!orage area..s
I.:,ack of regular physical inventories carried out by independent personnel

2. Communication and Investigation Channels

Management is responsible not only for establishing and maintaining an effective int rn I ntr01
system, but also for communicating the controls and their importance throughout th r, t iznti n.
Internal auditors are responsible for evaluating the need for additional investigation of p t ntial ud
situations and notifying the appropriate authorities when fraud is detected.
An effective and proactive system of control is the most important deterr nt an 1rgani

tic n Cdn ha
against fraud and other integrity violations. There are several ways organizati ns en" . mmuni ale th

importance of adhering to the established control systems:

Management of the entity should exhibit a positive attitude (i.e., Tone at the 1 p) t
internal controls. Management should make it clear that there i one set of rule ~ l'
In addition to establishing a system of internal controls, management is r l n. ibl
communicating what the controls are and the importance of followi ng them. Til lik lih
integrity violations will occur increases when employees perceive that mana . . eOl nt
take controls seriously.
The entity should have written policies (e.g., code of ethics. fraud policy) that d 'crit
conduct and prohibited activities. These policies should also describe ho\\ int brit) ,i( 1 ti
would be handled if detected. This is a critical preventative control and trnh:g~.

ard
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