1. It’s Almost Midnight, Do You Know Where Your Assets Are?
January 18, 2018
Association of Government Accountants – Boston Chapter
2018 Annual Winter Seminar

2. Session Objectives
Identify and summarize fraud risks and control strengths and weaknesses through team brainstorming sessions Recognize how to evaluate fraud schemes and modify planned audit tests to determine if fraud is occurring

3. Session Agenda Fraud discussions (brainstorming)
Let’s play “Protect Those Assets”

4. Fraud Brainstorming

5. Discussions Among Engagement Personnel
During audit planning
Interactive exchange of ideas … brainstorming
Insights of more experienced team members
How and where the financial statements might be susceptible to fraud within the framework
Motive
Opportunity
Rationalization
Emphasize importance of proper state of mind (professional skepticism) during the audit
Include the risk of management override of controls
Thoroughly probe the issues
Consider audit responses to fraud susceptibility

6. Discussions Among Engagement Personnel
Summarize known fraud risks and control strengths and weaknesses
Brainstorm ways that fraud might be committed by someone within the entity (by management or employees) or on the entity (by an outsider)
Evaluate fraud schemes deemed viable or possible
React by modifying planned audit tests to ascertain if fraud is occurring

7. The purpose of brainstorming …
…is to get as many ideas as possible from a group of people in the shortest possible time. Quantity and not quality is the order of the day. It does not matter if the ideas are thought to be unworkable, or crazy, or outlandish by anybody within the group. Sometimes these ideas are the very ones that are adapted into other forms that solve the problem adequately. --

8. The rules for effective brainstorming …
There should be no criticism of any idea from any member of the group
There should be no evaluation of the ideas generated
The more ideas generated, the better
Combination or modification of the ideas generated is encouraged --

9. Discussions Among Engagement Personnel
Brainstorm the following: 
Specific ways in which the entity’s financial statements might be susceptible to material misstatement due to fraud.  
Focus on how management could perpetrate and conceal fraudulent financial reporting. For each potential fraud scheme discussed, identify
Likely perpetrators 
The likely perpetrators’ possible motives or pressures that might induce them to commit fraud 
The opportunities that might exist to enable the scheme to occur 
The likely perpetrators’ possible rationalizations 

10. Discussions Among Engagement Personnel
Focus on misappropriation of assets. For each potential fraud scheme discussed, identify:
Likely perpetrators 
The likely perpetrators’ possible motives or pressures that might induce them to commit fraud 
The opportunities that might exist to enable the scheme to occur 
The likely perpetrators’ possible rationalizations

11. Let’s play “Protect Those Assets”

12. What are Assets?

13. What are assets? Cash Accounts Receivable Marketable Equity Securities
Other Investments
Plant, Property & Equipment
Inventory

14. What are assets? Intellectual Property Human Resources Reputation
Market Share
Systems and Software
Taxpayer Base
Donor Base
Contracts/Grants

15. Let’s Play “Protect Those Assets”
Divide into teams of 5 to 10 players
Select a scribe
Teams on the debit side of the room will be the defenders
Teams on the credit side of the room will be the attackers
Teams may pick their assets, or I will assign the assets to be protected and defended

16. Let’s Play “Protect Those Assets”
Defenders: you have 20 minutes to design and define as many control procedures as you deem cost-effective and necessary to protect your assigned assets
Record your controls

17. Money is no object! Let’s Play “Protect Those Assets”
Defenders: you have 20 minutes to design and define as many control procedures as you deem cost-effective and necessary to protect your assigned assets
Record your controls
Money is no object!

18. Let’s Play “Protect Those Assets”
Attackers: you have 20 minutes to devise fraud schemes designed to obtain (or damage) some or all of the assets you are assigned to attack
Record your fraud schemes

19. The purpose of brainstorming …
…is to get as many ideas as possible from a group of people in the shortest possible time. Quantity and not quality is the order of the day. It does not matter if the ideas are thought to be unworkable, or crazy, or outlandish by anybody within the group. Sometimes these ideas are the very ones that are adapted into other forms that solve the problem adequately. --

20. The rules for effective brainstorming …
There should be no criticism of any idea from any member of the group
There should be no evaluation of the ideas generated
The more ideas generated, the better
Combination or modification of the ideas generated is encouraged --

21. Rules of Engagement
The defender team will read the group its list of controls
The attacker team will then read its list of fraud schemes
Our panel of judges will decide who wins each encounter

22. Sample: Cash Controls: Cash receipts under dual control at all times
Cash deposited into bank within 4 hours of receipt
Persons who receive and deposit cash do not have access to accounting records
Two signatures required on all checks
Check signers do not have access to accounting records
Bank statements go to reconciler who does not have routine access to checkbook or accounting records
Reconciliations completed within 3 days of receipt of statements

23. Sample: Cash
Schemes:
Diversion of cash receipts (person who receives cash pockets some cash or alters/diverts checks for own use)
Kiting (after diverting cash, move cash from account to account)
Lapping (record follow-on receipts to cover up diversion)
Forge signature on checks, records checks as “void”
Set up dummy supply company; process payments to that company
The two people assigned to record receipts collude to divert receipts for their own use

24. Consider this …
Designing and maintaining internal controls to protect assets is ….boring
Fraud perpetrators usually are more creative than asset protectors
Maybe a better approach to protecting assets is to:
Try thinking like the fraud perpetrators
Devise ways to steal assets—use brainstorming
Once you have identified the schemes, THEN design controls that would prevent or detect those schemes

25. Speaker Contact Information
Melinda J. DeCorte
CPA, CFE, CGFM, PMP
Direct (703)