TG 02 - Fraud Risk Assessment
TG 02 - Fraud Risk Assessment
Lesson Facilitation
Brief
Slide 1 – 2 Definition of Fraud Risk Assessment
Read and explain the definition of FRA. Discuss with the participants that in
order for the COA auditor identifying relevant fraud risk of the agency, a detail
FRA must be conducted in order to get the bigger picture and document all the
possible Fraud Risk that might affect the mandate of a particular agency.
Show the diagram of the FRA and explain each item in the Diagram.
The Fraud Risk Universe is the same as the Government Risk Universe but the
main difference is that this focuses on the fraud risk and is compose of the
Fraud Triangle, Fraud Risk Category and the Fraud Database (fraud knowledge
of COA Auditors with the particular Agency).
Explain the benefits of the conducting the FRA and emphasize that this is the
main opportunity of COA auditors in proactively preventing fraud in happening
within their Agency.
Discuss that ideally the team composition in conducting FRA should include the
Team Supervisor (TS)/Supervising Auditor (SA), Team Leader (TL)/Audit Team
Leader (ATL), and Team Members. The role of the Directors (Cluster for HO and
Regional for RO) is to review the results of the FRA and consult with them if
there are instances that there is disagreement on the assessment of a particular
Fraud Risk. The FAIO on the other hand will be consulted if there is complexity
in the Fraud Risk identified and it cannot be disposed by the Director.
Enumerate the main procedures in planning of the FRA by the team members.
This are the following:
Identify COA audit team’s responsibilities
Conduct planning meeting
Document review
Document understanding of the Agency’s KFR
These procedures are further discussed in the FoAM and we could use it as
reference to the details of the procedures in planning the FRA.
In Slide 9 it summarizes the activities during the Fraud Brainstorming, which are
the following:
Preparing the agenda of the brainstorming
This is a Team Supervisor/Leader initiatives
It is needed that all fraud risks and schemes should be discuss
It is needed that brainstorming activities are documented
And finally all fraud risks and schemes documentation should be
reviewed by the TS/TL
In Slide 10, we provide some examples on what is being discussed in the Fraud
Brainstorming. You could also provide your own examples of possible
Brainstorming discussion.
In Slide 11, we discuss to the participants the step by step procedures on how to
conduct the fraud brainstorming.
In this slide, we refer ISSAI 1240 which requires the auditor to conduct Fraud
Risk Assessment to discuss the probability that the entire condition fraud
triangle (Incentive/pressure, rationalization, and opportunity) is present in the
agency being audited.
Slide 15, we discuss in details examples of Opportunity. There are two types of
possible opportunities to commit fraud, which is Direct and Indirect. Also we
would like to highlight that individuals who commit fraud may have different
types of opportunities. For example, if management is to commit the fraud,
then he has a much higher opportunity to commit it due to wide influence,
while for employee related fraud, there might be limitation for opportunity in
committing fraud, but it will be a bit difficult for them to commit.
Slide 16, we provide examples on regarding the pressures that may lead a
person in committing fraud. Discuss that in these area of the fraud triangle, we
must get information from the co-workers of the person-of-interest if the
indicators of pressure to commit fraud, such as those enumerated in the slide, is
existing.
Discuss the different type of fraud schemes that are enumerated in the fraud
tree. Explain to the participants that all of these are possible schemes that may
be committed against the agency they audit. Please note that in each category
of the fraud tree, there are certain individual who may commit them. E.g. for
Corruption, these are usually committed by people who are seated in power or
who has the ability to influence certain decision making; for Fraudulent
statements, this is usually committed by management or personnel who
prepares reports being use by the agency; Asset misappropriation may be done
both by Management and Employees.
Trainer’s Guide 4
TG 02: Introduction to Risk Assessment
Slide 20 – 23 Identify different resources of information that may used in assessing the
fraud risk
In this Slide, we show to the participants the elements of our fraud universe,
remember that the fraud universe is the laundry list or guide in identifying all
possible Key Fraud Risk within the agency. The Elements of the Fraud Universe
is the discussion of the Fraud Triangle, the identification of the Fraud Schemes
base on the Fraud Tree Category, the Agency Knowledge base (compose of the
brainstorming and the documentation in the IRRBA).
Discuss that after assessing the KFRs, resulting KFRs should be rank in order to
identify which KFRs will be tested during the audit. Slide 28-29 provides
examples on how to prioritize KFRs base on likelihood and impact.
Discuss how to document the responses to the KFRs after conducting the risk
assessment.
Trainer’s Guide 5
TG 02: Introduction to Risk Assessment
In here, we provide the instructions on how we will execute the case. Get the
CS
CS Doc_01 which is a pre-populated sample of FoAM Form-01. Ask the participants
to populate the form of the possible Fraud Risk within their respective agency
assigned. Ask the participants to use the Fraud Category in looking for possible
fraud schemes that may be committed against the agency.