2. Audit Procedures for Misappropriation of Assets Pertemuan XXIV Matakuliah: F0184/Audit atas Kecurangan Tahun: 2007

3. Bina Nusantara Mahasiswa diharapkan dapat melakukan audit kecurangan atas penyalahgunaan asset Learning Outcomes 3

4. Bina Nusantara Audit Procedures for: –Account Receivable –Inventory –Purchasing and Payroll –Cash –Computer Scheme Outline Materi 4

5. Account Receivable Typical Fraud: Lapping Posting bogus credits to the account Altering internal copies of invoices Bina Nusantara

6. Account Receivable What to look for: Unexplained differences noted by customers on their account receivable confirmations Significant delays between the time when the customer states a payment was made and the payment was recorded as received by the company A significant number of credit entries and other adjustments made to the accounts receivable records Unexplained or inadequately explained differences between the accounts receivable sub ledger and general ledger Bina Nusantara

7. Account Receivable Example Audit Procedures: Confirm the account activity not just the balance with the customer directly Perform analytical reviews of credit memo and write off activity Vouch credit memos and other write offs to all related supporting documentation Investigate all differences between the payment date reported by the customer and payment date recorded by the company Analyze recoveries of written off accounts Check the nature of aging and who has the access to that Bina Nusantara

8. Extended Audit Procedures Misappropriation of Assets Account Receivable Typical Fraud 1.Common technique for this fraud are: –Lapping. Used another customer payment –Posting bogus credits. Posting credit memo or other non cash reduction –Altering internal copies of invoice. Reporting lower amount than actually billed 2.Closed an account with an overdue receivable 3.Mutual arrangement between customer and employee 8

9. Bina Nusantara 9 What to Look For –Difference on account receivable confirmation –Delays between customer payment and company record –Credit entries and adjustment to account receivable record –Difference between account receivable subsidiary ledger and general ledger

10. Bina Nusantara 10 Example Audit Procedure –Confirm account activity to customer directly –Perform analytical reviews of credits memo and write-off activity –Vouch credits memo and other write-offs –Check the different payment date between customer and company record –Analyze recoveries of written-off accounts –Understand how account receivable aging and who is/are responsible for it

11. Bina Nusantara Extended Audit Procedures Misappropriation of Assets Inventory Typical Fraud 1.For personal use. 2.Small, easy to steal and valued by employee as a customer 3.For sale. 4.Steal from the receiving docks before physical custody 5.Coalition between receiving and vendor’s delivery personnel 6.Theft of scrap 11

12. Bina Nusantara 12 What to Look For –Large difference between physical and inventory records –Unusual increase in inventory turnover –Unusual entries in inventory records –Key inventory ratios –Shipping documents without corresponding sales documentation

13. Bina Nusantara 13 Example Audit Procedure –Analyze inventory shortage, compare key inventory ratios, look for unusual condition –Review receiving report –Review supporting documentation for reduction to inventory record –Compare between shipping and corresponding documents

14. Bina Nusantara Extended Audit Procedures Misappropriation of Assets Purchasing and Payroll Typical Fraud 1.Payment of invoices to a fictitious company 2.Coalition between vendors to company’s purchasing agent Allow vendor submit fake / false billing and approving payment Excess purchasing of property or services Bid-rigging 3.The use of ghost or terminated employee 14

15. Bina Nusantara 15 What to Look For 1.Fictitious vendors Tampered or photocopied invoice, same invoice number, P.O. box and no phone number company, same address and or phone number with employee, suspicious vendor names 2.Kickbacks Aggressively handle all matters related to vendor, no apparent business company, vendor frequent visit to employee, high price from particular vendor, low quality of goods or services, no formal bid process 3.Ghost employee Employee with duplicate address, checking account, no withholding taxes, no insurance

16. Bina Nusantara 16 Example Audit Procedure –Review invoice and look for evidence of tampered –Search for suspicious vendor (duplicate address, etc) –Matching between vendor and employee address –Sorting invoice for unusual pricing and volume trends –Review invoice and examine supporting document –Search payroll records for duplicate address or bank account –Review personnel files and look for person with little or no evidence of activity

17. Bina Nusantara Extended Audit Procedures Misappropriation of Assets Cash Typical Fraud 1.Withdraw cash directly for their own benefit 2.To pay personal expenses 3.Skimming. Cash is taken before entering system 4.Substituting personal checks for cash. Take money and substitute with personal checks 5.Fictitious refunds and discounts. 6.Altered credit card receipts. Usually restaurant where he or she or they intent to increase the tip on credit card receipt 17

18. Bina Nusantara 18 What to Look For 1.Large reconciling items in bank reconciliation 2.Bank statement didn’t include cancelled checks 3.Missing cancelled checks 4.Unsupported disbursement 5.Customer complaints 6.Altered or missing cash register tapes

19. Bina Nusantara 19 Example Audit Procedure –Examination of bank reconciliation –Review bank statement and cancelled checks –Obtain bank cut-off statement –Search and examine unusual expense account activity close to the end of accounting period –Surprise cash account –Analyze sales discount and returns

20. Bina Nusantara Extended Audit Procedures Misappropriation of Assets Computer Schemes Typical Fraud 1.Entering false transaction 2.Entering bogus file maintenance transaction 3.Failure to enter legitimate transaction or file maintenance instruction 4.Altering input data 5.Bogus instruction 6.Siphoning funds 7.Direct manipulation of accounts 20

21. Bina Nusantara 21 What to Look For 1.Inability to process computer application 2.Differences in batch or hash totals 3.Undocumented or unauthorized account posting, file changes, or modifications to program 4.Differences between general ledger and computerized accounting records 5.Lack of segregation of duties 6.Lack of logical access 7.Lack of adequate computer processing controls

22. Bina Nusantara 22 Example Audit Procedure –Reviews documentation supporting –Review control over input and processing of financial transactions or file maintenance procedures –Reconstruct accounts or files from original source documents