Fraud Audit

LEONARD W. VONA, CPA, CFE, is CEO of Fraud Auditing, Inc., and a world-renowned authority in fraud investigation. He has provided expert witness testimony in federal and state courts; consulted with corporations around the world; and is the author of Fraud Risk Assessment: Building a Fraud Audit Program, published by Wiley. A financial investigator with more than thirty years of diversified auditing and forensic accounting experience, including a distinguished eighteen-year private industry career, he regularly speaks at audit conferences and developed the Fraud Training Curriculum for the MIS Training Institute, an internationally recognized audit training organization.

• Preface xiChapter 1: What Is a Fraud Audit? 1Why Respond to Fraud Risk? 3The Fraud Paradigm 4Fraud Auditing 5Fraud Defined 8The Fraud Triangle 8Responses to the Risk of Fraud 12Summary 13Chapter 2: Professional Standards 15Overview 16Fraud Audit Standards 18Summary 25Chapter 3: Fraud Scenarios 27Key Definitions and Terms 28Fraud Risk Structure 30Classifying Fraud 32Identifying Fraud Scenarios 41Fraud Audit Considerations 46Summary 51Chapter 4: Brainstorming: The Implementation of Professional Standards 53What Is Brainstorming? 54When to Brainstorm 56Summary 66Chapter 5: Assessment of Fraud Likelihood 69Preparing a Fraud Risk Assessment 69Summary 81Chapter 6: Building the Fraud Audit Program 83Traditional Audit versus the Fraud Audit 84Responding to the Risk of Fraud 84A Fraud Audit Program 85Testing Procedures 89Fraud Concealment Effect on the Audit Response 97Audit Evidence Issues 103Fraud Scenario Examples 105Summary 110Chapter 7: Data Mining for Fraud 111The Art and Science of Data Mining 112Strategies for Data Mining 129Limitations of Data Mining 131Summary 132Chapter 8: Fraud Audit Procedures 133Basis of Fraud Audit Procedures 133Levels of Fraud Audit Procedures 135Design of Fraud Audit Procedures 138Summary 145Chapter 9: Document Analysis 147Document Analysis and the Fraud Audit 148Levels of Document Examination 148Document Red Flags 150Brainstorming Sessions and Document Red Flags 155The Fraud Audit Program and Document Red Flags 156Summary 156Contents & ixChapter 10: Disbursement Fraud 159Fraud Risk Structure 159Audit Approaches 166Summary 178Chapter 11: Procurement Fraud 179Fraud Risk Structure 181Audit Procedures 195Summary 202Chapter 12: Payroll Fraud 205Fraud Risk Structure 206Audit Procedures 212Summary 222Chapter 13: Revenue Misstatement 223Fraud Risk Structure 224Audit Approach 231Summary 236Chapter 14: Inventory Fraud 237Fraud Risk Structure 238Audit Procedures 243Summary 249Chapter 15: Journal Entry Fraud 251Fraud Risk Structure 252Audit Procedures 261Summary 266Chapter 16: Program Management Fraud 269Fraud Risk Structure 270Audit Approach 277Summary 282Chapter 17: Quantifying Fraud 283Conveying the Impact to Management 284Role of Evidence in Calculating a Fraud Loss 287Impact on the Fraud Audit 289Options for Management 292Case Studies 293Summary 296Appendixes 297Appendix A 298Appendix B 311Appendix c 325Appendix d 339Appendix E 347Appendix F 360Appendix G 363About the Author 365Index 367

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