Frequently Asked Questions - Audit

Audit
Webster’s Dictionary defines the noun “audit” as “a methodical examination and review." As a verb, it means to “examine with intent to verify.” But here is another view. Auditors:

• Verify what’s really going on at a point in time;
• Find out about potential problems (hopefully before it’s too late to fix them);
• Evaluate the City of Fort Smith departments situations objectively;
• Make informed and sometimes difficult decisions;
• Consult with management/directors and suggest corrective actions, changes and improvements where needed.
We need audits to assist employees of the City with the effective discharge of their responsibilities. Internal auditing provides management with analyses, appraisals, recommendations and information concerning the internal control structure and the quality of performance in carrying out assigned activities and established objectives
Internal controls comprise the plan of organization and all the coordinated methods within an organization to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribe managerial policies. Internal controls extend beyond those matters which relate directly to their functions of accounting or finance.
The best way to prepare for an audit and to ensure that an audit flows smoothly is to create and maintain good records. Audits rely on central database and records whenever possible. Having complete and orderly departmental records is extremely important.
Departments throughout the city may be audited for different reasons. Many audits are simply randomly generated or they may be generated due to a change in management. Being selected for an audit does not mean that you are doing something wrong. The fact is that audits of one type or another are a regular part of the business process.
Each year the auditor performs a risk assessment. Audit resources are directed to the program areas deemed high risk. The goal is to evaluate and to help improve the management of those risk.
There is no easy answer to this question, as each audit’s length will depend on the nature and the scope of the review. Small audits might last 10-80 hours, while more complex reviews can last several months.
Absolutely, if you have questions on policies, procedures, or best practices the auditor will be glad to help. In some cases the auditor will know the answer to your question, but if not, the auditor will be glad to research the answer to your question.

Simply put, internal controls are anything done at the City that helps to achieve planned objectives. Everyone uses internal controls in the day-to-day activities. Here are some examples of internal controls:

• Reconciliations – fuel, bank accounts, tax, bonds, etc… ensure that you have the correct amount/balance, it also ensures no one has accessed those funds, and it makes sure that mistakes have not been made in the account.

• Security of assets – all governmental entities must make the most of every dollar received, and it would not be prudent use of funds to constantly replace things that are lost because the assets are not secured. For instance, tools, equipment, computers, etc…

• Segregation of duties – ensure that one person does not have full control over certain activities. For instance, a person maintains and/or distributes fuel cards, receives the fuel reports, reconciles the fuel reports and pays the fuel reports.

 

Internal controls have many purposes. They allow the City of Fort Smith to:

1. Protect the City’s assets.
2. Ensure records are accurate.
3. Promote operational efficiency.
4. Encourage adherence to policies and procedures.

Yes, generally speaking, there are two different types of internal controls: preventive and detective controls.

• Preventive controls discourage errors, fraud, or irregularities from occurring.
• Detective controls are designed to find errors after they have occurred.

 

You can perform a self-assessment of your internal controls. Or, you can contact the auditor for assistance with the process. The auditor can provide you with tips to enhance your internal control structure; do an audit; or provide you with benchmarks and training on internal controls.

 

Fraud is the intentional false representation or concealment of a material fact that causes a person or business to suffer damages, often in the form of monetary loss.

 

There are many types of fraud, but most fraudulent actions can be grouped into three categories: government, employee, and consumer. Government fraud involves activities designed to deceive the government such as tax evasion. Employee fraud is when a worker defrauds his or her employer through embezzlement or falsifying expense reports. Consumer fraud includes cons or scams designed to bilk an individual out of money such as investment scams.

 

• Check tampering
• Misuse of Assets
• Omissions
• Conspiracy
• Embezzlement
• extortion
• False Statements
• Breach of Duty
• Forgery/Alteration
• Bribery
• Kickbacks
• Identity Theft

 

Employee fraud in the form of embezzlement, theft of assets, and falsifying expense reports.

 

It can be either. If treated as a civil violation, the person or business that was defrauded will be granted monetary judgment against the fraudster. If fraud is charged as a crime, the fraudster may face criminal penalties such as incarceration or probation.

 

The person who is likely to commit fraud has the following characteristics:

• Honest and trustworthy
• Has a position of responsibility
• Male or female
• In a position of trust
• Fewer restrictions or controls placed on them
• Any age

 

Fraud is committed by one who is capable of deceiving another. When a person is in a position of trust, has responsibility, and has been around for a while they usually are deemed to be trustworthy. That same trust and reputable character is what allows the fraudster to never be suspected and oftentimes get away with fraudulent activity.

 

• Personal financial pressure
• Substance abuse
• Increased stress
• Unexplained hours
• Domination personality
• Perfect “employee”
• Real or imagined grievances against the company or management
• Extravagant purchases or lifestyle
• Gambling abuse
• No vacation or sick time taken
• Missing files or data
• Excessive overtime
• Poor money management

 

1. Employee takes lunch break from 11:30 to 1:30 p.m., but punches time clock as having taken a break from 1:30 to 2:30.
2. Employee does not enter into the time keeping system as being absent from work.

 

1. Employee takes lunch break from 11:30 to 1:30 p.m., but punches time clock as having taken a break from 1:30 to 2:30.
1. Most people will not commit fraud.
2. Fraud is usually not material enough to matter.
3. Fraud can’t happen at my job.
4. Auditors will find fraud if it exists.
5. Trusted employees do not commit fraud.

 

1. Tips and complaints from employees and others – 46.2%
2. Audits – 30.1%
3. Accidental discovery – 23.7%