Michael W. Ammermon, CPA, CFE

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Audits, Fraud, and Internal Controls

• Presented by
• Michael W. Ammermon, CPA, CFE

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Audits, Fraud, and Internal Controls

• Do you need internal controls if everyone is
  completely honest?
• Can fraud occur if you have great internal
  controls?
• Could your auditor miss ongoing fraud?

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Audits, Fraud, and Internal Controls, cont.

• CASE STUDYALBOR CHARTER SCHOOL

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(No Transcript)
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Watch Those Vendors
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Fraud

• There are many words for fraud

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Fraud, cont.

• What is your word for fraud?

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Fraud, cont.

• Misappropriation

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Fraud, cont.

• Theft

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Fraud, cont.

• Misappropriation
• Theft
• Embezzlement

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Fraud, cont.

• Lets focus on the two terms of
• Misappropriation and fraud

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Fraud, cont.

• What is MISAPPROPRATION OF FUNDS?

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Definition of Misappropriation

• In law, misappropriation is the intentional,
  illegal use of the property or funds of another
  person for one's own use or other unauthorized
  purpose, particularly by a public official, a
  trustee of a trust, an executor or administrator
  of a dead person's estate or by any person with a
  responsibility to care for and protect another's
  assets (a fiduciary duty).

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Definition of Fraud

• Blacks Law Dictionary defines fraud as
• all multifarious means which human ingenuity
• can devise, and which are resorted to by one
• individual to get an advantage over another
  by
• false suggestions or suppression of the
  truth. It
• includes all surprise, trick, cunning or
  dissembling,
• and any unfair way by which another
• is cheated.

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Fraud, cont.

• dissembling
• Adoption of a false appearance

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Fraud, cont.

• WHY ARE CHARTER SCHOOLS A
• TARGET FOR FRAUD ?

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Fraud, cont.

• What Should We Be Looking For?

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Fraud, cont.

• What are Some Examples of Fraud?List a few

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Fraud, cont.

• Falsified or exaggerated attendance
• Not recording vacation or sick time off
• Paying vendor buddies for no work product
• Purchasing supply items for personal use
• Unsubstantiated travel expenses
• Duplicate or fictitious employees

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Fraud, cont.

• Auditors that actively plan and search for fraud

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Fraud, cont.

• What ingredients are needed for fraud?How many
  ingredients?

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Fraud, cont.

• THREE INGREDIENTS NEEDED FOR FRAUD

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Fraud, cont.

• MOTIVE

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Fraud, cont.

• OPPORTUNITY

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Fraud, cont.

• ACCESS

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Fraud, cont.

• WHAT IS SO IMPORTANT ABOUT motive, opportunity,
  and access?

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Fraud, cont.

• IT TAKES A PERSON TO ACT
• WHO?
• WHO?
• WHO?

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Fraud, cont. Think
about these three things when planning an audit
or administering oversight

• WHO HAS OPPORTUNITY?
• WHO HAS MOTIVE?
• WHO HAS ACCESS?

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Access or No Access?
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Fraud, cont.

• OPPORTUNITY and ACCESS is limited
• with a good system of what?

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Internal Controls

• We have all heard the words internal controls
  over and over. Simple internal controls do a lot
  in helping to prevent fraud and errors that look
  like fraud.

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Internal Controls, cont.

• Simple INTERNAL CONTROLS help mitigate fraud,
  improve protections against motive, opportunity,
  and access, as well as shield employees from
  accusations of fraud.

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What Do Internal Controls Include?

• An organizational culture that promotes awareness
  and takes fraud seriously at all levels

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What Do Internal Controls Include?, cont.

• Fraud detection, oversight, and auditing is more
  about awareness and observation than checklists.

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What Should We Consider?

• What are some audit and oversight metrics that
  should be considered when evaluating a charter
  schools financial performance?

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How Do We Evaluate Performance?

• How do you evaluate your charter schools
  performance and ability to continue as a going
  concern?

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How Do We Evaluate Performance?, cont.

• Evaluate the audit report?Compare the charters
  budget, first interim, second interim, and
  unaudited actuals?

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Better Charter Oversight and Auditing Metrics

• Commonly Evaluated

More Details

• Evaluate audit report
• Compare budget, 1st, 2nd, and unaudited actuals

• Prepare a comparison of audit reports and trend
  analysis
• Compare budget and unaudited actuals within the
  year and against the prior year

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Better Charter Oversight and Auditing Metrics,
cont.

• Trend analysis at the object code level.
• Common size analysis with revenue and expenses.
• Examine AGED accounts payable at the Individual
  Vendor level.
• Audit ADA WITHIN the charters attendance
  program.
• Evaluate the charter each year as a going concern.

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Better Charter Oversight and Auditing Metrics,
cont.
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Better Charter Oversight and Auditing Metrics,
cont.
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Better Charter Oversight and Auditing Metrics,
cont.
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Attendance Mismatches
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Going Concern Checklist
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Going Concern Checklist, cont.
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Going Concern Checklist, cont.
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Going Concern Checklist, cont.