Accountants are required, as part of the audit, to inquire about management’s understanding of how or if potential fraud could be perpetrated, and document the responses. The audit is NOT looking for fraud but if fraud is discovered, reporting it to the highest level of management is necessary.
There are two general types of fraud:
- Fraudulent financial reporting, and
- Misappropriation of assets.
Three conditions are generally present when fraud exists:
- Incentive/pressures to perpetrate fraud,
- Opportunity to commit the fraud,
- Attitude/rationalization to justify the fraudulent action.
Internal controls are designed to safeguard assets and help or detect losses from employee dishonesty or error. A fundamental element in a good system of internal control is the segregation of certain key duties. In general, principal incompatible duties to be segregated are:
- Custody of assets,
- Authorization or approval of transactions,
- Recording or reporting of transactions.
Understanding these concepts can help a Plan implement a fraud prevention program that could help curtail and hopefully eliminate the possibility of fraud occurring.
If you have any suspicions of fraud in your plan, please contact the TBC Employee Benefit Plan Audit leaders Christine Oliver or Kathleen O’Neil by calling 456-6663 or contacting either of them via email at [email protected] or [email protected].