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99 “Consideration of Fraud in a Financial Statement Audit” 17 Depending upon the nature of the client, of course consider recommending that the client adopt a mechanism to report suspected fraud and a whistleblower policy prohibiting retaliation. Clients typically appreciate this recommendation, and documenting the suggestion in audit work papers attests that the auditors have taken seriously their responsibility to improve internal controls and assist their client in exposing fraud and reducing fraud risk.

Ensure that all checks have been accounted for, and investigate any missing checks. b. Investigate any new or unusual bank debit memoranda. A common “window of opportunity” trick is to have insurance payments, car payments, and the like paid for by debit memoranda drawn against the checking account during this period, and canceling these prior to the auditors arriving to start field work. c. Investigate any out-of-sequence checks. d. Test deposits. Bank reconciliations, last month of the prior year: Here is another common scam: Someone approves a legitimate invoice for payment early in the last month of the fiscal year and forwards the approved invoice to finance for payment.

Of course, prospective employees have the right to deny permission and, legally, this is not supposed to be taken into consideration during the hiring process. If you have any doubt at all, check with your attorney. fm Page 24 Thursday, February 9, 2006 12:01 PM 24 Preventing Fraud in Nonprofit Organizations It is critically important to receive permission from prospective employees (always check with your attorney first for guidance) to conduct a thorough background check for the following positions: ➣ All employees in accounting and finance ➣ Other employees handling cash, checks, or credit cards ➣ The human resources manager ➣ Other positions that management feels are key There are services such as private investigative firms whose business it is to conduct these background checks; this fee is very affordable and offsets the possible risk of hiring the wrong person.