red flags (ccsa study guide)
TRANSCRIPT
8/16/2019 Red Flags (CCSA Study Guide)
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.
Domain III: Elements
of
the
CSA
Process
95
m I I rio:
mt
nt nbl' , It_ tbe ndc lIae or current . . osed controls mitigating identified
ri k ,
In lh '::.;'
as S.
the issul' may
need to
be
discussed a ain or the)ack
of
consensus on the
• u
nH:l\
nt"
i
h.1
bt'
includl'd
in
the
fino report.
s
_ r
.J. F
n
d
UI fness
1. Reo laas/Sy mptoms
of Fraud
- - \ ,Hl UtKO\ er risk and control weaknesses that could be indicators of fraud. Also, internal
.?\lkiit
rs ilr responsible for h a v i n ~ sufficient knowledge of fraud to identify the indjcators that
fi ud
h : ~
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
Fraud 'Varning Signs: Personality Characteristics
• Significant behavioral changes
• Adversarial attItude toward auditors
• E-eluctance
to
be away from the office (e.g.,
r ~ f u s a l
to take vacations, working excessi\ e
hours)
• Personal problems or debts
• ~ h a n g e in lifestyle or spending habits
Fraud
Warning Signs: Organizational Characteristics
•
~ e a k
internal c o n t r ~ l s
®
• Insufficient supervisory review
-
~
lnadequate segregation of duties
• Unethicalleadership
,>?
f \o-uJ k ~ Q v
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 ;> •
~ c c o u n t
books difficult to decipher or show transactions not repre
~ n t a t i v
of
the
organization's ordinary business
~ . ~ x t r e m e l y
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
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I 1·
m flt
S ) Stud y Guide
•
•
11 • I I 1
IOWl a
dd
r
css ( -tow... we
<bn t
-P ''/'0
dz,
we ?)
r
1.
' 111 nt to one
pa
yee
or
address
•
in depos its
a ) ustments in inventory
or
accounts receivable balances
rning
ianals:
Accounts
Payable
,,",,-,-,urnl
H
identical amounts from the same vendor
Ie r ni ce addresses for the same
vendor
•
m 11t to vendor increase r
I
for
no
apparent reason
•
k k
f
egregation
f d u t i ~ s
between Rrocessing
0
accounts payable invoices and l pdates
t endor master s.
between ~ h e k
preparation and posting to vendor account, and
t \ \ een
~ e k
preparationand mailing
of£iSIleQ
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 n ~ 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 n v o i c ~ s
•
I .aid
invoices
ot
prOJ)erly c a n c e l ~ d a l l o w i n ~ for
r e p r o c e s s i n ~
• Unrestricted access to blank checks si ature plates, and check-si
ment
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 ofaccountabil jt¥ for invoice numbers issyed
• Lack
of
se e ation
of
dutie es in accounts receivable invoi
· ~ s
and
to
the subsidiary ledger
•
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Domain III: Elements
of
the CSA Process
97
• )Iicil.:: and procedures regardin writ -
ffs
• h
III
nt.
unlit
ollllcntl: an
or
unapproved adjustments, credits, and write-offs to accounts _
~ i V l b l
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
t T i ~ t c d
acct:.
s to subsidiary ledgers and general ledger
Fr 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
.
• ~ polic
re
arding identification, sale, and dis osal ofobsolete nd SUrPlus materials
• ~ segregation of duties between recelp of inventory and jssuing
of
materials, between
.recording
of
inventory accounts and ordering materials, and b ~ t w e e n identification qf
obsolete and surplus m a t e ~ i a l s and the sale and disposal of such materials
• ~ policy regarding inventory levels to be maintained
• ~ s u f f i c i e n t supervisory review of inventory accounts, write-offs, or physical access to
s., orage areas
•
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 investig
ation
ofp
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
nCdn ha
against fraud
and
other integrity violations. There
are
several
ways
organizati ns
e n . mmuni ale
th
importance ofadhering
to the
established control systems:
• Management
of
the
entity should exhibit a positive attitude (i.e.,
Tone
at
the
1
p)
t
ard
internal controls. Management should
make it
clear that
there i one
set of
rule l' I .
In addition
to
establishing a system
of
internal controls, management is r
l
n. ibl {; r
communicating what the controls are and the importance
of
ollowi
ng
them. Til lik lih t
t
integrity violations will occur increases when employees perceive that mana ...eOl nt n
take controls seriously.
• The
entity
should have written
policies
(e.g.,
code
ofethics. 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 · t r n h : g ~