Deep dive into Audit & Assurance, Fraud, Ethics, Accountability and Transparency

• Audit:Disrupts Systematic,routine independentwork examinationto ofattend data,to statements, records, operations, and performances for a stated purpose.audit.

• Assurance:Auditors Independentask professionalfor servicelot of information which needs to improvebe informationlocated qualityand for better decision-making.shared.

• AuditAuditors ispoint ato typemistakes ofin assurance service.

Understanding Assurance:

• Three parties: data owner, independent practitioner, stakeholders.work.

• SubjectAuditors mattermake andwrong standardobservations/opinions criteria.

  or
misunderstand
• things

  Evidenceis collectionwhat andwe professional reporting.

• Assurance services deal with past data.think.

Rationale

• GovernanceAudit toolshould tobe assurewelcome, managementit and stakeholders.

• Continuous improvement of financial and administrative systems.

• Identify policy gaps and risks.

• Establish financial integrity.

Types of Audits

• Statutory Audits: Required by law (Income Tax Act, Societies Registration Act).

• Donor Audits: Assurance to donors on fund utilisation.

• Internal Audits: Assurance to management on compliance and asset protection.

Things about Audits

• Audits areis a badgeconstructive of honour and an opportunityactivity for improvement.

  the

• Self-audit regularly to stay ready.organization.

• Audits buildcreate stakeholdera trust.sense of wanting to improve post audit and working on removing findings in future.

• Cooperate fullywith auditors so that the audit process results in appropriate findings and be transparent with auditors.

Why We Dislike Audits

• Disrupt routine work.recommendations.

• RequireMutual timeunderstanding andof documentation.auditor-auditee is critical to success of an audit assignment.

• IdentifySuccessful mistakes.audit is like a badge of honor.

• PossibleAudit misunderstandings.should not be looked at negatively but as an opportunity to improve operations and organization.

• Audit builds trust in various stakeholders.

Dealing

• Statutory: Mandatory under Income Tax Act, FCRA, Societies Registration Act and Other Statutes. Mostly involves certifying figures are correct.

• Donor: Provides assurance to donors that funds allotted applied as per contract and laws of land.

• Internal: Provides Independent assurance to Management that policies are being followed, legal and contractual liabilities are met, assets are protected etc..

• Period/Reporting Period for audit.

• Management Representation Letter (MRL) Management Letter (ML).

• independent auditor report and qualifications if any, Unique Document Identification Number (UDIN) no from UDIN portal of ICAI.

• Action Taken Report (ATR).

• OrganiseOrganize documentsyour systematically.records and systems for easy review by anybody, whether superior management or donors or auditors.

• Obtain a copy of 'Scope of WorkWork' iffrom possible.the concerned before audit begins to understand your role in it.

• PrepareAuditors send a list of data or information required data.in advance. Keep such information ready or provide it to auditor beforehand.

• Appoint a knowledgeablestaff as point person.person for the auditors, the point person should be from the department being audited and has a fair idea about the rest of the operations in the organization.

• ArrangeFor onsite audit, keep a properdesignated workplaceplace forwhere auditors.

  the
auditors

Dealingwork withand Auditskeep -the When Audit Starts

• Hold an opening meeting.records.

• ClarifyRead auditthe requirements.

  Management
Representation
• Letter

  Planprovided fieldto trips if needed.

• Set schedules for clarifications.Auditor.

• ProvideSchedule timelyopening clarifications.meeting: except for internal auditors, other auditors will be outsiders and will need orientation about the organization, business, policies and procedures, projects etc... The better orientation you provide the less chances of misunderstandings at a later stage.

• RequestUnderstand draftwhat observationsthe early.

  auditor
wants

Dealing with Audits - After Audit

• Conduct a closing meeting.you.

• DiscussIf they want to undertake field trips, decide when and understandwhere they want to go and organize things accordingly.

• Designate point person for clarifications with a timeline for response. Clarifications are not final observations.

• PrepareProvide andClarifications implementto anthe actionauditors plan.as per schedule.

• PeriodicallyAsk reviewthe auditor to share draft observations as soon as possible. Prepare response for the closing meeting.

• Hold a closing meeting at the end of the audit. It is not necessary to provide all responses at the time of Closing meeting but it is necessary that all observations are disclosed and discussed in the closing meeting. The Closing meeting is to understand the observations.

• Management Letter and Responses.

• Prepare an action plan after the Final Report is received and allot responsibility for implementing the action points.

Audit Understanding Points

• OrientReview auditorsthe properly.action plan periodically until implementation or next audit.

• SystemsAction evolve;Taken gapsReport should(ATR) notbefore benext harshlyaudit judged.cycle.

• ActFraud is an intentional act, often illegal, used to gain an unfair advantage or omission causingcause harm.

• IntentIt typically involves misrepresenting information, concealing facts, or using misleading tactics to deceive.deceive others for personal gain.

• Elements of Fraud: 1. Deception 2. Intent 3. Materiality 4. Harm to Organization.

• Red Flag: A signal that indicates something unusual and not normal.

• Prevent fraud through: 1. Internal Controls 2. Awareness training (deference) 3. Detection through Audit 4. Whistleblowing mechanism (report wrong doing without fear of retaliation).

• It is intentional, if not then it is an error.

• Corruption: Conflict of interest, rigged bids, unnecessary procurement.Interest.

• AssetPurchase: Misappropriation:Bid Theft,Rigging, skimming,Un-necessary fraudulentsole-source payments.justifications, Restriction in solicitation documents to restrict competition, Providing advance information to contractors, procuring goods which are not required.

• FinancialSales: StatementProduct Fraud:substitution, Non tracking of service deliverables, Issuing credit for false customer claims and returns.

• Others: Over/undervaluingBribery, assets,kickbacks, timingextortion differences, fictitious revenues.etc..

Fraud

• Embezzlement: Theft of Cash upon receipt and after accounting for it (Cash larceny).
• Skimming of Cash: Removing cash before the organization has accounted for it.
• Fraudulent Payments.
• Missing checks forged and paid for bogus transactions.
• Payee name altered.
• Check not released to the intended payee but diverted for a forgery resulting in un-cleared checks in bank reconciliation.
• Diverting advances to personal use.

• BehaviouralExchange issuesof currency at a higher rate (arrogance,black slowness,market) secrecy)and showing on books the exchange was made at official rate and pocketing the difference.

• Fraudulent write off and pocketing proceeds etc..

• DominatingAttempts employees.to overvalue/undervalue net worth or net income through:

  • Timing differences.

  • CloseFictitious/Understated tiesrevenues.

  • Concealing/ overstating liabilities and expenses.

  • Improper valuations and disclosures.

• Behavioral

• Extremes of arrogance or meekness.

• Slow in work.

• Advocating honesty, loyalty and faithfulness.

• Spending habits not commensurate with the known sources of income.

• One or two key employees dominating the company.

• Key employees having close relationship with vendors.

• DisorderlyEmployees accounting.having outside business interests conflicting with their job duties.

• Disorderliness: accounting/filing etc.

• OrphanDisaster funds.situations.

• Good systems but left in autopilot mode; no proper oversight.

• Sudden profits in loss making business or vice versa.

• Incomplete information/ absence of records.

• Situations which are TGTBT (Too goodGood to be trueTrue).

  deals.

• Existence of orphan funds (like a donation drive for a disaster or helping a staff etc.).

• Excess knowledge than the position warrants.

• Absence of rotation of duties.

• Several non material observations together creating material effect.

• Disclose plansyour early.Plans: Even if they don't pan out, it's safer to inform Staff about potential changes rather than spring it on them last minute. For instance, one of the best tips for relocating your office is to talk to your staff. Work with them to organize the move and loop them into the details.

• MakeOrganization salariesCulture: public.Having a Coaching culture is better than Command and control culture in organizations, which is important towards individuals feeling valued and comfortable within their roles.

• KeepFollow promises.Up on Promises: Stick to your word. Though it's a challenging thing to do as your company expands, it's worth it to stand by the promises you make.

• Bring Your Whole Self To Work: Build trust with your authenticemployees by bringing your whole self to work. Don't put on a façade; let people see the real you. You can form relationships with everyone in your company when you talk about your life. This will allow others to do the same, creating a culture of trust in your workplace.

Accountability