Audits, Fraud, and
Internal Controls
Presented by:
Michael W. Ammermon, CPA, CFE
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?
Audits, Fraud, and Internal Controls, cont.
CASE STUDY
ALBOR CHARTER SCHOOL
Watch Those Vendors
Fraud
There are many words for fraud
Fraud, cont.
What is your word for fraud?
Fraud, cont.
Misappropriation
Fraud, cont.
Theft
Fraud, cont.
Misappropriation
Theft
Embezzlement
Fraud, cont.
Let’s focus on the two terms of –
Misappropriation and fraud
Fraud, cont.
What is MISAPPROPRATION OF FUNDS?
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).”
Definition of Fraud
 Black’s 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.”
Fraud, cont.
DISSEMBLING
Adoption of a false appearance
Fraud, cont.
WHY ARE CHARTER SCHOOLS A
TARGET FOR FRAUD ?
Fraud, cont.
What Should We Be Looking For?
Fraud, cont.
What are Some Examples of Fraud?
List a few…
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
Fraud, cont.
Auditors that actively plan and search
for fraud
Fraud, cont.
What ingredients are needed for fraud?
How many ingredients?
Fraud, cont.
THREE INGREDIENTS NEEDED FOR FRAUD
Fraud, cont.
MOTIVE
Fraud, cont.
OPPORTUNITY
Fraud, cont.
ACCESS
Fraud, cont.
WHAT IS SO IMPORTANT ABOUT motive,
opportunity, and access?
Fraud, cont.
IT TAKES A PERSON TO ACT
• WHO?
•
•
WHO?
WHO?
Fraud, cont.
Think about these three things when planning
an audit or administering oversight
• WHO HAS OPPORTUNITY?
• WHO HAS MOTIVE?
• WHO HAS ACCESS?
Access or No Access?
Fraud, cont.
OPPORTUNITY and ACCESS is limited
with a good system of what?
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.
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.
What Do Internal Controls Include?
An organizational culture that promotes
awareness and takes fraud seriously at all
levels
What Do Internal Controls Include?, cont.
Fraud detection, oversight, and auditing is
more about awareness and observation
than checklists.
What Should We Consider?
What are some audit and oversight metrics
that should be considered when evaluating
a charter school’s financial performance?
How Do We Evaluate Performance?
How do you evaluate your charter school’s
performance and ability to continue as a
going concern?
How Do We Evaluate Performance?, cont.
Evaluate the audit report?
Compare the charter’s budget, first
interim, second interim, and unaudited
actuals?
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
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 charter’s attendance program.
• Evaluate the charter each year as a going concern.
Better Charter Oversight and Auditing Metrics, cont.
Better Charter Oversight and Auditing Metrics, cont.
Better Charter Oversight and Auditing Metrics, cont.
Attendance Mismatches
Going Concern Checklist
Going Concern Checklist, cont.
Going Concern Checklist, cont.
Going Concern Checklist, cont.