Finding  and  fighting  fraud  By LaDonna Sinning Q: I see that our local governments, larger nonprofits and larger

companies have an audit every year. Is that to make sure there isn’t any fraud? A: A CPA, upon completion of their audit, will issue an audit opinion.

This is a letter to the governing body or board of directors that speaks to whether or not the financial statements present the financial condition of the entity in accordance with accounting principles generally accepted in the United States. You will note that the opinion does not speak directly to fraud. While auditing standards require the auditor to assess the risk of fraud and design an audit that looks for fraud, one should not rely on the external auditor to ensure there is no

fraud. Q: But shouldn’t the auditor find the fraud if they do a good job on the audit? A: Not necessarily. The nature of an audit is focused on the accuracy of the financial

statements. A number of significant frauds would not result in the misstatement of the financial statements and are, therefore, unlikely to be found in an audit. In addition, the auditors’ opinion is that the financial statements are presented fairly in all material respects, thus smaller frauds are also unlikely to be uncovered by the auditor. A better approach is for the entity to have strong internal controls and a robust internal audit. However, the tone at the top has been found to be the largest fraud deterrent and a fraud tip line is generally the best way to uncover fraud. Q: What do you mean by tone at the top? A: This is the message sent daily by the governing body and senior management in

their actions, attitudes and reactions to fraud. A strong tone at the top includes members of the governing body and senior management who are above reproach in their own actions. This sets the tone for the organization. In addition, when those same people have zero tolerance for unethical or fraudulent behavior within their organization, they also set a tone for employees. An example of zero tolerance is the immediate removal of an employee for charging a personal expense to the organization’s business credit card on the first infraction. Q: How does a fraud tip line work and why is it more effective? A: A fraud tip line gives employees, vendors, customers and anyone else the ability to

report known or suspected fraud without repercussion to them. Ideally the tip line is managed by someone outside of the organization who can take an unbiased look into the information received. It’s most effective because many times another person either knows of the fraud or strongly suspects it. When setting up the tip line, it’s important to remember that most large frauds are conducted by management and the person who is aware of the fraud is often a lower-level employee who is afraid for their job if they report their boss. Therefore, the key to an effective tip line is that employees believe it is, indeed, safe for them to use.

LaDonna Sinning is a Certified Public Accountant, Certified Fraud Examiner and partner at Arledge and Associates, PC, an Edmond-based accounting firm. Arledge & Associates, PC is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.