08

Nov

CPAs Can Help Protect Your Assets

Phillip Dalrymple, CPA, CFE, Shareholder, Assurance

CPAs Can Help Protect Your Assets

Small business owners take note: the Association of Certified Fraud Examiners (ACFE) reports that 30 percent of all reported frauds occur at businesses with fewer than one hundred employees. And that overlooks all those businesses that never discover the fraud.

Regardless of the size of your organization, a CPA can help you protect your organization’s assets. This is especially important when it seems like something is wrong, when things just don’t add up or feel right: “shouldn’t there be more cash?” or “that doesn’t look right to me!” It can also be true when your business is growing or changing and you want to head off such worries.

In such cases, an organization may consider engaging an auditor. Most often, an organization undergoes a financial statement audit because it is required—by shareholders, lenders, donors, or regulators. Sometimes though, it is a response to fraud, or an attempt at preventing fraud. An “attest service”—whether an audit or its less-strenuous siblings, a “review” or “compilation”—is an effective strategy when the concern is that management is misrepresenting the financial health or true condition of an organization in a way that affects the financial statements.

But when you are concerned about theft, misuse of assets, or fraud in specific areas of your operations, or when your concerns involve outsiders—vendors, competitors, and the like—an attest service may not be the best answer. Attest services focus on whether the financial statements are accurately representing the overall financial condition of your organization, but they may not address facets of your business that are more directly related to your concerns. Also, because attest services rely on sampling of assessed risk areas, it is possible that questionable transactions or critical evidence could be overlooked. For example, you may be worried about theft from your petty cash account, but by definition “petty cash” is less likely to materially affect your financials than does your payroll.

In these cases, you may be best served by a fraud or forensic service instead of an attest service.

This chart outlines some of the differences between attest services and forensic examination and fraud risk assessment.

Attest service (audit, review, or compilation)

  • looks at samples to assess overall operations
  • has the goal of generating financial statements
  • includes an auditors’/ accountants’ report
  • costs can range significantly depending on the scale of your operations and the level of service, each of which looks to tighten the tolerances against uncertainty or error—more time, more activity, more detail, and more work for both client and CPA
Forensic examination

  • is warranted when you know or suspect that fraud has occurred
  • is a comprehensive and detailed investigation of those specific areas where you suspect problems or where you are most vulnerable
  • because the forensic examiner will not issue a “report” on your financial statements, the examination
    • does not require the same level of documentation as an attest service unless litigation is or may be involved
    • is scalable—you pay for the hours worked and you can stop when the results have satisfied your concerns
    • you may also elect to have the examiner help with the legal recovery of misappropriated assets

 

Fraud risk assessment

  • is preventative, used when no fraud is suspected or alleged
  • evaluates the design of your internal control processes
  • is based on documentation, interviews, and inspection of documentation
  • because no “report” on your financial statements is issued, assessment
    • does not require the same level of documentation as an attest service
    • is scalable–you pay for the hours worked and you can stop when the results have satisfied your concerns

R&A offers all these services and can help you decide which is appropriate for your circumstances. If your organization has a concern about safeguarding assets, call us to discuss how we can help.

 

About this Author

A specialist in auditing and full disclosure financial reporting, Phil leads R&A’s assurance department and has extensive experience in resolving technical issues, communicating internal control and operational improvements, and implementing financial reporting and disclosure requirements. Additionally, Phil is a certified fraud examiner with experience in fraud risk assessments, fraud investigations, and litigation support. His industry experience includes investment companies, broker/dealers, real estate, construction, employee benefit plans, government contracting, and not-for-profit entities.