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How Does a “Fraud Audit report” look a like? This post provides an example of a fraud audit report. The allegation is that a company manager perpetrated a false billing scheme using a front company.

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I. Background and Assumptions

Scott Graham, Esq., counsel for Prudent Auditing Corp. in the matter of The XYZ Company, has engaged Lie Dharma Putra, CPA and CFE, to examine the Prudent Auditing Corp.’s documents and records for the direct purpose of offering opinions regarding the payments to The XYZ Company.

I have prepared this report summarizing the opinions I have formulated from reviewing documents on July 24, 2010. The documents were made available to me via the controller of Prudent Auditing Corp. I am qualified to issue such opinions based on my education, training, experience, and accreditations in such matters.

II. Statement of Opinions

My opinions are based on an independent examination of relevant materials provided by the controller and legal counsel of the Prudent Auditing Corp., independent research and investigation, authoritative treatises, and my past experience and professional knowledge in matters of this nature. The opinions contained in this report are as of October 31, 2010.

Insofar as discovery is continued in this matter, I reserve the right to supplement or otherwise amend this report regarding factual assumptions, theories of fraud, and statements of opinions.

1. Credible evidence exists to suggest that the XYZ Company is a front company.

2. Credible evidence exists to suggest that the services described on the XYZ invoices were not provided to the Prudent Auditing Corp.

3. Credible evidence exists to suggest that internal employees either conspired to commit or committed the possible misappropriation of funds.

4. Credible evidence exists to suggest that person(s) involved knowingly converted Prudent Auditing Corp. funds for their own personal benefit.

5. Credible evidence exists to suggest that the Prudent Auditing Corp. has suffered a loss of $ 120,000.

The reasons, causes, and motives for these occurrences can be resolved with a thorough and complete investigation of the XYZ Company’s financial records and the personal financial records of identified internal employees.

III. Relevant Information

I have relied on the preceding facts and information to formulate my opinion contained in this report.

1. The XYZ Company invoices, the supporting purchase orders, and purchase requisitions.

2. The Prudent Auditing Corp. general ledger and cash disbursement ledger for the 20X6 and 2010 calendar year.

3. Copies of the front and back of Prudent Auditing Corp. canceled checks issued to the XYZ Company.

4. Prudent Auditing Corp. personnel files.

5. Prudent Auditing Corp. purchasing and disbursement polices and procedures.

6. Interviews of Prudent Auditing Corp. employees.

IV. Exhibits

Exhibit 1: Listing of payments to The XYZ Company
Exhibit 2: Copies of XYZ Company invoices
Exhibit 3: Copies, front and back, of Prudent Auditing Corp. canceled checks payable to The XYZ Company

V. Factual Background and Assumptions

1. Credible evidence exists to suggest that The XYZ Company is a front company.

(a). The XYZ Company billing head indicates a mailing address of PO Box 934.
(b). The accounts payable function has no record of the physical address of The XYZ Company.
(c). The telephone number listed on the invoice was answered by an answering service on three different occasions over a ten – day period. The XYZ Company has not returned our messages.
(d). The manager who purported to engage The XYZ Company was not aware of the physical location of The XYZ Company.
(e). The incorporating documents for The XYZ Company were filed by the XYZ Formation Company.
(f). The Prudent Auditing Corp. checks were endorsed with a stamp that states “for deposit in Account Number 06041977”.

2. Credible evidence exists to suggest that the services described on the XYZ invoices were not provided.

(a). The XYZ Company provided no reports detailing the work performed under its consulting agreement.
(b). The agreement between the Fraud Audit Corp. and The XYZ Company is silent on providing a report summarizing results or recommendations.
(c). The Prudent Auditing Corp. manager who retained The XYZ Company indicated that all meetings with The XYZ Company occurred at the Prudent Auditing Corp offices.
(d). The Fraud Audit Corp. manager was unable to provide a list of other Prudent Auditing Corp. employees who were present at the meetings with The XYZ Company.
(e). There were no entries on the Fraud Audit Corp. manager’s calendar indicating meetings with The XYZ Company.
(f). We were unable to identify any Fraud Audit Corp. employees who had a recollection of meeting with The XYZ Company.
(g). The XYZ Company invoices ’ description of services stated “Services Rendered”.

3. Credible evidence exists to suggest that internal employees either conspired to commit or committed the misappropriation of funds.

(a). The hiring manager has stated he has no specific recollection of approving The XYZ Company invoices.
(b). The approval signature purported to be that of the Fraud Audit Corp. ’ s manager is similar to other known writing samples of the Fraud Audit Corp. ’ s manager.
(c). The accounts payable function has no specific recollection of processing The XYZ Company invoices for payment.
(d). The first payment date on the Prudent Auditing Corp.’s canceled check to The XYZ Company occurred five days after the incorporation of the date of The XYZ Company.
(e). The incorporation data was obtained from the Secretary of State’s Web site.

4. Credible evidence exists to suggest that person(s) involved knowingly converted Prudent Auditing Corp. funds for their own personal benefit.

(a). The Fraud Audit Corp. manager is unable to provide any evidence that the services described on the vendor invoices were provided.
(b). The XYZ Company is unwilling to respond to our inquiries regarding the investigation.

5. Credible evidence exists to suggest that the Prudent Auditing Corp. has suffered a loss of $ 120,000.

(a). As identified on Exhibit 1, there are 12 payments to The XYZ Company totaling $ 120,000.
(b). Each payment was for $ 10,000.

VI. Documents Necessary to Determine that the XYZ Company Is a Front Company

1. Documents submitted to the formation company to create the corporation.

2. Application for Creation of a Corporation used by the formation company to create The XYZ Company.

3. Documents submitted to the formation company for payment of services rendered to The XYZ Company.

4. The formation company telephone records for the month of creation and the month before and after the creation.

VII. Documents Necessary to Determine that Services Described on The XYZ Invoices Were Not Provided to the Prudent Auditing Corp.

1. No additional documents are required.

2. A formal statement from the Prudent Auditing Corp. manager ’ s recollection of the business relationship with The XYZ Company.

VIII. Documents Necessary to Determine that Internal Employees Either Conspired to Commit or Committed the Misappropriation of Funds

1. No additional documents are required.

2. A handwriting expert should be considered to establish the authenticity of the approval signature on The XYZ Company ’ s invoices.

IX. Documents Necessary to Determine that Prudent Auditing Corp. has Suffered a Loss of $ 120,000

1. No additional records are required.

X. Documents Necessary to Determine that Person(s) Involved Knowingly Converted Prudent Auditing Corp. Funds for Their Own Personal Benefit

1. All XYZ Company bank records of any and all accounts under signature authority of any of the named parties or entities, including but not limited to the known account numbers.

2. All personal bank records of any and all accounts under signature authority of any of the named parties or entities, including but not limited to the known account numbers.

3. All open or closed checking, savings, and money market accounts.

(a). Account opening documents including signature cards, copies of identification documents provided, and, if business account, copy of corporate resolution to open account and other business documents provided, which may include articles of incorporation for the business.
(b). Bank statements.
(c). Canceled checks (both sides).
(d). Deposit tickets and items (both sides of items, including ATM anddirect deposits).
(e). ATM withdrawals.
(f). Credit and debit memos.
(g). Telephone transfer slips.
(h). Wire transfer records.
(i). Forms 1099 or backup withholding statements.

XI. Document Request General Counsel of the Prudent Auditing

Corporation has been requested to obtain the documents requested in this report. The bank providing the bank records of The XYZ Company should provide a certification letter as to the authenticity of the bank records.

The examination of the requested documents could result in a further request for documents for an expanded period of time, either greater than the document request date or a more historical time frame.

XII. Compensation

I am being compensated for my services in this matter at my firm’s standard hourly rates for my work in analyzing the defendant’s data and underlying documentation and for preparing this report.

XIII. Professional Background

My CV has been provided to the General Counsel of the Prudent Auditing Corp.

XIV. End of Report

Insofar as discovery is continued in this matter, I reserve the right to supplement or otherwise amend this report regarding factual assumptions, theories of fraud, and statements of opinions.

Respectfully submitted,
Lie Dharma Putra, CPA & CFE

Note:

As you have seen the above, fraud audit report consisted of fourteen sections. The most important part of the report is on the 1st, 2nd and 3rd section (Background and Assumptions, Statement of Opinions, Relevant Information). The rest are list of relevant documents that support examiner’s opinion. Fraud audit report is always closed with “Compensation”, “End of Report” Section, and name of the examiner with her/his professional credentials.