Key Fraud Indicators Part 2:
Key Fraud Indicators Part 2: Understanding the indicators that can raise red flags. In this review Selected Material and Subcontract Cost Fraud Indicators Lets review the auditors role and thought process shared in Part 1: Designing audits to find fraud indicators and recognizing those indicators requires creativity and knowledge, along with a common sense level of professional skepticism and suspicion. Approaching each audit with fraud indicators in mind provides the auditor with the proper alertness and awareness needed to assess the different situations. Auditors are not responsible for proving fraud. This is the job of the investigator. Finding and reporting fraud indicators are an auditors responsibility and he/she should .think fraud. when performing a review. This awareness factor cannot be overemphasized. In cases where a Government official or agency may appear to have approved a suspected irregularity or illegal act, the auditor is still responsible for making a referral. The key issue is whether the auditor would have referred the suspected irregularity if the government official(s) or agency had not acted. On the other hand, an auditor must not automatically conclude that every contractor commits fraudulent acts or that every fraud indicator denotes fraud. By looking for fraud indicators and properly assessing them during an audit, the auditor is taking the proper approach to uncovering fraudulent acts and, thereby, protecting the Governments interests. Incurred Cost Audits of Direct and Indirect Costs and Rates: In the past, the highest number of fraud referrals have been found in incurred cost-type audits. Now lets look at: MATERIAL COSTS Material includes raw material, purchased parts, subcontracts and inter-company transfers. The cost of material is usually charged direct to a contract.
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