Fraud - n. A deception deliberately practiced in order to secure unfair or unlawful gain.

While a financial statement audit is not designed to detect fraud, it is one aspect of the company that any auditor is going to consider. In fact, most engagement letters and the corresponding representation letter you will provide to your auditor address the fact that the company is required to disclose any known or suspected fraud to the auditors.

As an auditor, one of the areas I get the greatest resistance and reluctance to answer is when it comes time to do our fraud inquiries. This is where we sit down with various members of the organization and go over a set list of questions discussing the potential for fraud. I sit down with an employee or member of management and they get very squeamish, uncomfortable, or most often defensive when I ask them about fraud. They want to know why I am asking them because they feel like we are accusing them. This is absolutely not the case. When your auditor comes to talk to you (or anyone else in your organization) about fraud, it is just a way to get some more information that helps us identify weaker control areas. We do not think the person we are talking to has done anything wrong. And if they have, or if they know of anyone that has, these discussions are the perfect opportunity to have an independent third-party come in and offer another avenue to discover fraud. However, this is not a substitute for a whistle-blower policy and a solid tone-at-the-top.

Katie Thomas, CPA