The Whole, Not the Parts
Discovering fraud with outcome-oriented auditing
Outcome-oriented fraud auditing - looking at a situation as a whole rather than its individual parts - will help you think like a fraudster and find deeply embedded crimes.
A retired federal auditor's instruction to focus on the whole and not just the parts of a fraud audit has helped me find fraud in numerous situations that I probably would have overlooked. Let me tell you about one case in which the auditor's advice helped me find thousands of dollars in well-hidden overcharges.
Early in my career, as a lowly staff auditor working for a municipality, I was assigned to an operational review of the convention and visitor's bureau (CVB). The project's leader - the assistant to the budget director - wasn't an auditor. In fact, I was the only auditor on the review team, which made the experience very interesting to say the least.
The team leader's efforts to obtain information from the CVB to review the advertising contract for compliance were totally ineffective. In desperation she said to me, "You review the contract. You have more power than I do!" I really had no power, but I did have auditing skills. Within a few hours, I had generated a report extrapolated from the municipality accounting information system that listed all the payments the municipality made to the advertising consultant going back several years. The report immediately identified that the municipality had made payments that exceeded the authorized contract amount by several million dollars. The budget director and team leader had suspected something was wrong for years. They weren't surprised by what I'd found but at the magnitude of it, how it was hidden, and how quickly I had found it. After they picked themselves up off the floor, they excitedly asked me to take a closer look at the contract.
In 1995, I attended a weeklong class sponsored by the U.S. Department of Agriculture taught by a retiree of the General Accounting Office (now the Government Accountability Office). When this instructor walked into the classroom, he looked older than dirt! I thought to myself, "What have I done? He can't possibly teach me anything state of the art!" I couldn't have been more wrong. He called his style of auditing "outcome oriented." Instead of looking at separate elements (such as each individual internal control in a transaction) and testing each individually, you look at the transaction or activity as a whole. You ask yourself these questions.
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