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Thinking Like an Auditor

  • The Holidays – A Time for Giving – or Taking?

    December 15, 2016 | By Stefan Davis MEng, MBA

    During the holidays, many people take the opportunity to share their time and talents with others. For example, TeamMate staff members from Wolters Kluwer in our Tampa office recently participated in various volunteer activities, which included stocking shelves with food and supplies at the Metropolitan Ministries Holiday Tent and packing meals (more than 8,000) for Meals of Hope and Feeding Tampa Bay. Acts of kindness like this are everywhere this time of year.

    .Unfortunately, some people see the holidays as a perfect opportunity to take advantage of others. In any organization, the holiday season could bring numerous additional fraud risks and fraud indicators that businesses and their auditors should bear in mind.

    Acts that can get you on the Naughty List:

    • The office is typically very quiet between Christmas and New Year. Is anybody in and posting questionable transactions while nobody else is around?
    • Are there people who regularly refuse to use their time off during the holidays? Are they just very loyal employees, or do they need to keep working to cover their tracks?
    • If you’re a retail business, the volume of transactions can increase significantly before and shortly after Christmas. Are erroneous or fraudulent transactions more likely to slip through the net?
    • Month-end and December year-end processes coincide with normal holiday periods. If you have fewer accounts staff working than usual or they may be eager to get home to their loved ones, is there a risk that the usual controls are bypassed, shortcut, or segregation of duties is lost?
    • Elsewhere in the business, is your skeleton crew holiday staff sufficient to maintain the usual controls?
    • With Christmas parties comes an increased risk of employees breaching expense policies or pushing them to their limits – how many bottles of Champagne are getting charged back?
    • With money tight and large volumes of goods moving around, do you have controls in place to prevent stock loss from employee theft?
    • With large amounts of cash coming through registers, do you have adequate controls over cash loss?
    • In the run up to Christmas, are employees sneaking through presents or personal expenditure through as expenses?
    • It’s not uncommon for people in procurement and other areas of the business to get a small ‘token of appreciation’ from suppliers. Has anybody received more than usual, which might indicate procurement fraud?
    • Many businesses (especially in retail) hire in temporary staff over Christmas. Have they been through the appropriate pre-employment checks?
    • Are all of these new employees real people, or have any ‘fake’ employees been created for a couple of months?

    Many of these risks are inevitable and prevention can be difficult. Because of this, it’s a good idea to step up detective controls throughout the period, and when the holiday season is over. Some fairly simple data analytics with a tool like TeamMate Analytics can pick up most of the risks described above with very little effort.

    How to stay on the Nice List:

    • Extract and examine manual journals posted between Christmas Eve and New Year’s Day and understand whether they’re authorized and legitimate.
    • Summarize vacation days that were taken and allowed by employees – see if is there anyone who has used up very little of their holiday allowance.
    • Summarize meal expenses per person and pull support (receipts) for any that are above normal limits or expectations – also make sure there are not more diners than employees attending Christmas meals!
    • Analyze the numbers of void transactions and price overrides going through registers for each cashier and variances from cash counts and look for any outliers.
    • Monitor the proportion of stock logged as damaged or missing to see if it is higher than usual, and who’s logging it.
    • Check bank details and national insurance or social security numbers for temporary employees, make sure they’re valid and there are no duplicates and they have had the appropriate deductions made.

    Finally, make sure that people know that you’ll be keeping an eye out for unusual activity over the period to prevent it happening in the first place!

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