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Deeper Weekend 2014

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Greg Kyte 2Fraud is awesome. Because if nobody committed fraud, we would never get to find fraud. And finding fraud is the sexiest part of accounting. Sure, that’s like saying the sexiest part of Steve Buscemi is his forearm¹. But at least there’s some part of our job that’s materially sexier than sales tax compliance ².

Unfortunately, we suck at being sexy. It’s embarrassing how seldom we find fraud. Depending on which report you look at, only two to nine percent of fraud is discovered by the external auditor. And all of those studies have a margin of error of two to nine percent.

More fraud is discovered by accident than by the external auditor. Way more. The same way more people lose those last stubborn ten pounds not by following the South Beach Diet, but because of a cryptosporidium outbreak at the public pool.

Most of the time, an auditor finding fraud is like a 13-year-old boy finding a supermodel. If he ever actually got ahold of one, he wouldn’t know what to do with it. I mean, technically, he’d know what to do with it, but theory is different than reality. In real life, you often know the person who committed the fraud. You may even be able identify with the pressure that motivated him or her to commit fraud. You also understand that regardless of who committed the fraud, it’s going to give the client a black eye, and – because the median duration of any type of fraud is 12 months or more – it’s probably going to give your firm a black eye because you didn’t discover it earlier. Don’t lie to yourself. Instead of blowing the doors off the fraud, we tend to work with the client to sweep it under the rug.

On top of this, our job as auditor is just weird. We’re being paid to answer the question, “Is fraud happening in my company?” It’s like being paid to answer the question, “Does this dress make my butt look big?” You may be able to do an incredibly sophisticated analysis of the appearance of your client’s butt, and benchmark their butt against trends and ratios of other butts in their industry or geographic region. But at the end of the day, they don’t want to hear – and you don’t want to say – that their butt looks bigger than Bernie Ebbers’ ego.

As professional fraud detectors, we hedge our fraud-detecting abilities to an insane degree. In the part of the engagement letter that no one reads³, we say things like, “despite our amazing fraud-finding skills, there might be fraud that we don’t find, and since you signed this letter, you’re cool with that.” And in our report on internal controls we say things like, “Your internal controls look great to us, but then so does the food at Del Taco, and we all know how that turns out.”

So to sum up, Steve Buscemi’s forearms are hot, cryptosporidium can get your body bikini-ready, and every company needs a whistleblower hotline because external auditors aren’t that great at uncovering fraud.

¹It’s a hypothetical example. I’ve never noticed Steve Buscemi’s forearms. All I know is that the sexiest
part of Steve Buscemi is not his face.
²10,000 businesses use Avalara every day, and as a result, their accounting departments are way sexy.
³The entire part of the engagement letter

Greg was born in Akron, Ohio, in the shadow of the Firestone tire factory. He began to swim competitively when he was eight, swimming for the Mountlake Terrace Lemmings. He graduated in 1995 from the University of Washington with a math degree. He chose math for the ladies. After serving ten-years as an 8th grade math teacher, he decided it was time for a career change, mainly because he “couldn’t stand those little bastards.” He began his accounting career with a local CPA firm in Orem, Utah, where he consistently failed the QuickBooks ProAdvisor advanced certification exam. Greg currently works as the Controller for the Utah Valley Physicians Plaza. He lives in Provo, Utah, with his wife and two kids. He enjoys eating maple bars, drinking Diet Pepsi, and swearing.
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