Forensics Journal - Stevenson University 2015 | Page 14

STEVENSON UNIVERSITY

level of internal control testing. More work causes fee increases.
Preparing for an audit can also impact the human resources of
a company because of the significant time commitment from a
company’s financial employees. To endure an external audit, a
company needs to have strong financial controls in place prior
to the audit. This requires years of implementation and training.
Finally, an external audit is regularly a requirement for bank loans
and regulatory agencies, such as the SEC. When a company does
not need an external audit for these purposes, they may not want
to allocate company resources to this control.

they can allocate resources to find a resolution to variances.
When red flags arise, such as declining margins and lack of cash
flow, further investigation may be warranted to determine if fraud
is occurring. One of the strongest aspects of management’s review
of financial statements is the perception it gives to other employees.
If employees know that a knowledgeable executive is reviewing the
financial statements, it increases the perception that they might get
caught, which can prevent fraud from occurring in the first place.
The ACFE’s Report to the Nation on Fraud found that only 15%
of businesses under 100 employees performed proactive data analysis,
while 41.9% of businesses over 100 employees did (ACFE, 2014a,
p. 32). This is a sign that many small businesses could be doing a
basic level of data analysis, but are not. The largest costs associated
with data analysis are software costs and employee time to perform
the analysis. With respect to employee resources, data analysis is a
control that can be performed by a variety of employees, such as a
financial analyst, an accountant, an external consultant, a controller,
or even the CFO. The level of data analysis should be structured
to fit within the cost structure of the company. While larger
companies may be able to assign a full time analyst to handle
these responsibilities, smaller companies may only be able to allocate a
portion of their time to this \