The Fraud Examiner

The Audit that Created a Fraud
 

Other than spiders, one of my greatest fears is hearing that I taught someone to commit fraud. One of the challenges auditors face is persuading management to implement preventive fraud controls without inadvertently teaching them how to commit the fraud. Unfortunately, sometimes we have to explain in great detail, or worse, show how a fraud can be committed. We worry about this. Well, I worry about this. A lot. Occasionally we find blatant opportunity that we are stunned to realize no one has exploited. The most frequent reasons: ignorance and luck. Not exactly the best controls. Unlike fraud examiners who are called in after a fraud is suspected or has occurred, auditors are frequently identifying the potential for fraud and it is our job to convince management to implement effective controls to ensure that opportunity never manifests into an actual fraud scenario. Here is our dilemma: how do we effectively convince management of the significance of the opportunity for fraud without teaching anyone how to commit the fraud we are working to prevent? The struggle is real. 

Several years ago, I worked for an organization that was referred to as having “a very large footprint,” which means we operated in approximately 40 countries on six continents. We had approximately 6,000 cars, trucks and other very large rolling assets all over the world. 

The company had just hired a new Director of Fleet Management tasked with implementing standard policies and procedures and standardizing and right-sizing the global fleet to meet the needs of the organization. The company knew that it had an aging fleet which meant disposing of approximately half the fleet and replacing about a third of those disposed assets with new vehicles. There was a lot of moving parts, literally. These expensive assets were constantly moving, oftentimes across international borders and even from one continent to another.

In conjunction with his hiring, my team conducted an entity-wide fixed asset audit for the organization. We wanted to arm him with all the information he needed to improve the operations. Our audit revealed several significant opportunities for waste, fraud and abuse. I personally sat down and went through the entire audit and all of our findings, both significant and not. I spent hours with this individual. My team met with him repetitively. He asked a lot of questions. He was routinely surprised about what we thought was an issue and wanted to know “how” something could be a problem or potential for fraud. We were thrilled that he was so interested with the work we had done and thought it was wonderful that our work was going to strongly contribute to the improvements he was there to make.

In hindsight I now realize he was very curious about “why” we thought there could be a problem in the various areas. We obligingly explained everything. Yay us. Foolish, foolish us.

One of the biggest problems caused by having “a very large footprint” is how long it takes to implement change. More than a year later, operations and management were “still working on it.” Most of those opportunities for fraud still existed. But that was okay, right? After all, we had explained everything to the Director of Fleet Management, and he was aware of all that potential for fraud. Surely he was keeping an eye on everything, right?



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