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The Fraud Audit: Responding to the Risk of Fraud in Core Business Systems by Leonard W. Vona

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Chapter 5

Assessment of Fraud Likelihood

A fraud risk assessment is a critical tool for managing the cost of fraud to an organization. In its simplest form, the risk assessment is a listing of possible fraud risks to an organization. In its more advanced form, the document not only assesses the likelihood of fraud's occurring within an organization, but becomes an impact statement as well. From an audit perspective, the fraud risk assessment is the initiation point for the fraud audit program, as its substance is critical in the building of such a program. This substance should include the following:

  • A comprehensive listing of all fraud risks facing an organization.
  • A likelihood assessment of the fraud risk occurring.
  • An understanding of the resulting impact.
  • Ownership of the fraud risk for both control and audit responsibility.

Preparing a Fraud Risk Assessment

The fraud risk assessment can be thought of as a fraud deterrence control for organizations in their managing the cost of fraud. It is also the document auditors rely upon to plan their response to the risk of fraud. The preparer of the fraud risk assessment should strive for the following attributes:

  • The determination of the fraud likelihood assessment should be free from bias.
  • Provides a consistent qualitative and quantitative calculation for assessing the fraud likelihood and the exposure identification.
  • Ensures a complete identification of fraud risk based on the primary fraud classifications.
  • Evaluates internal ...

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