1. Audits, Fraud, and Internal Controls
Presented by:
Michael W. Ammermon, CPA, CFE

2. Audits, Fraud, and Internal Controls
Do you need internal controls if everyone is completely honest?
Can fraud occur if you have great internal controls?
Could your auditor miss ongoing fraud?

3. Audits, Fraud, and Internal Controls, cont.
CASE STUDY ALBOR CHARTER SCHOOL

5. Watch Those Vendors

6. Fraud
There are many words for fraud

7. What is your word for fraud?
Fraud, cont.
What is your word for fraud?

8. Fraud, cont.
Misappropriation

9. Fraud, cont.
Theft

10. Fraud, cont.
Misappropriation
Theft
Embezzlement

11. Let’s focus on the two terms of – Misappropriation and fraud
Fraud, cont.
Let’s focus on the two terms of –
Misappropriation and fraud

12. Fraud, cont.
What is MISAPPROPRATION OF FUNDS?

13. Definition of Misappropriation
“In law, misappropriation is the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate or by any person with a responsibility to care for and protect another's assets (a fiduciary duty).”

14. Definition of Fraud Black’s Law Dictionary defines fraud as:
“all multifarious means which human ingenuity
can devise, and which are resorted to by one
individual to get an advantage over another by
false suggestions or suppression of the truth. It
includes all surprise, trick, cunning or dissembling,
and any unfair way by which another
is cheated.”

15. Adoption of a false appearance
Fraud, cont.
dissembling
Adoption of a false appearance

16. WHY ARE CHARTER SCHOOLS A
Fraud, cont.
WHY ARE CHARTER SCHOOLS A
TARGET FOR FRAUD ?

17. Fraud, cont.
What Should We Be Looking For?

18. Fraud, cont.
What are Some Examples of Fraud? List a few…

19. Fraud, cont.
Falsified or exaggerated attendance
Not recording vacation or sick time off
Paying vendor “buddies” for no work product
Purchasing supply items for personal use
Unsubstantiated travel expenses
Duplicate or fictitious employees

20. Auditors that actively plan and search for fraud
Fraud, cont.
Auditors that actively plan and search for fraud

21. What ingredients are needed for fraud? How many ingredients?
Fraud, cont.
What ingredients are needed for fraud? How many ingredients?

22. Fraud, cont.
THREE INGREDIENTS NEEDED FOR FRAUD

23. Fraud, cont.
MOTIVE

24. Fraud, cont.
OPPORTUNITY

25. Fraud, cont.
ACCESS

26. WHAT IS SO IMPORTANT ABOUT motive, opportunity, and access?
Fraud, cont.
WHAT IS SO IMPORTANT ABOUT motive, opportunity, and access?

27. Fraud, cont.
IT TAKES A PERSON TO ACT
WHO?

28. Fraud, cont. Think about these three things when planning
Fraud, cont. Think about these three things when planning an audit or administering oversight
WHO HAS OPPORTUNITY?
WHO HAS MOTIVE?
WHO HAS ACCESS?

29. Access or No Access?

30. OPPORTUNITY and ACCESS is limited with a good system of what?
Fraud, cont.
OPPORTUNITY and ACCESS is limited with a good system of what?

31. Internal Controls
We have all heard the words “internal controls” over and over. Simple internal controls do a lot in helping to prevent fraud and errors that look like fraud.

32. Internal Controls, cont.
Simple INTERNAL CONTROLS help mitigate fraud, improve protections against motive, opportunity, and access, as well as shield employees from accusations of fraud.

33. What Do Internal Controls Include?
An organizational culture that promotes awareness and takes fraud seriously at all levels

34. What Do Internal Controls Include?, cont.
Fraud detection, oversight, and auditing is more about awareness and observation than checklists.

35. What Should We Consider?
What are some audit and oversight metrics that should be considered when evaluating a charter school’s financial performance?

36. How Do We Evaluate Performance?
How do you evaluate your charter school’s performance and ability to continue as a going concern?

37. How Do We Evaluate Performance?, cont.
Evaluate the audit report? Compare the charter’s budget, first interim, second interim, and unaudited actuals?

38. Better Charter Oversight and Auditing Metrics
Commonly Evaluated
More Details
Evaluate audit report
Compare budget, 1st, 2nd, and unaudited actuals
Prepare a comparison of audit reports and trend analysis
Compare budget and unaudited actuals within the year and against the prior year

39. Better Charter Oversight and Auditing Metrics, cont.
Trend analysis at the object code level.
Common size analysis with revenue and expenses.
Examine AGED accounts payable at the Individual Vendor level.
Audit ADA WITHIN the charter’s attendance program.
Evaluate the charter each year as a going concern.

40. Better Charter Oversight and Auditing Metrics, cont.

41. Better Charter Oversight and Auditing Metrics, cont.

42. Better Charter Oversight and Auditing Metrics, cont.

43. Attendance Mismatches

44. Going Concern Checklist

45. Going Concern Checklist, cont.

46. Going Concern Checklist, cont.

47. Going Concern Checklist, cont.