3. Loss Prevention Function
• Loss Prevention-Function Organization is
responsible for establishing:
- Control procedures to protect against the loss of
assets,
- To detect incidences where those losses could
occur.
- to identify and apprehend persons responsible for
taking or attempting to take organization assets.
4. Loss Prevention Function
• LPF often works very closely with IA, and some
organization now have LPF even reporting to the
director of IA
• LPF and IA should be coordinated, sharing of
information
• IA follow Professional standards, while LPF
follow mixture of control and legal protection
standards.
• IA Vs LPF common body of knowledge.
5. LPF Activity
• LPF in Consumer Products Organizations
• LPF in Industrial Organizations
• Other Loss-Prevention Activities
6. LPF in consumer Product Org
• Help design stores
• Develop store procedures
• Install systems to prevent theft, both by customers and
employees
• Reviewing plans and making recommendations For :
- Clear lines of sight throughout the facility so that a thief cannot
operate behind a counter or rack without fear of detection
- Store entrances clearly observable by personnel within the store.
- Cash collection station in protective areas appropriate to the
nature of the business.
- Storage areas located in secure rooms such that merchandise
cannot leave these rooms without detection either through store or
back door entrances
7. LPF in consumer Product Org
• Modern LPF can move beyond the role of
“Store policeman” and over advice to
management to help prevent losses.
• IA Should periodically review LPF
activities to determine that they are
operating in an effective manner.
9. LPF in Industrial Organizations
LPF responsible for developing safety and
security facilities, establishing assets
protection programs within the
organization, and helping with investigation
of potential wrongdoing
10. LPF in Industrial Organizations
• Responsible for implementing procedures such
as:
- establishing and manning a metal-scanning device at
employee exits to prevent the theft of goods; this is similar
to airport passenger security systems.
- Monitoring delivery trucks arriving or leaving from
facility gates and reviewing paperwork to document the
outbound shipments
- Reviewing employee desk and office areas during off
shifts to determine that no key drawing or other
confidential documents are left in the open.
11. IA activities for loss Prevention
• Operational Audits of the LPF
( see figure 31.1, loss prevention operational Audit
Procedures)
• LP sample audit findings
12. FRAUD
(Key Concept Overview)
• Fraud-Detection Internal Audit Activities
• Internal and External Auditor
Responsibility for fraud
• Internal Controls to Prevent and Detect
Fraud
• Personal Characteristics for Fraudulent
Behavior
13. Fraud Detection Internal Audit
Activities
• Existing fraud needs to be detected,
potential fraud to the extent practicable.
• Its impossible for an internal auditor to
detect and prevent all fraudulent activities
14. Internal Auditor Responsibility
• In exercising due professional care, internal
auditor should be alert to the possibility of
intentional wrongdoing. Error and omissions,
inefficiency, waste, ineffectiveness, and conflicts
of interest.
• They should also be alert to those conditions and
activities where irregularities are most likely to
occur….
• Internal audit can not give absolute assurance
that noncompliance should be considered
whenever internal audit undertakes an internal
auditing assignment.
15. External Auditor Responsibility
• The responsibility of the independent auditor for failure
to detect fraud arise only when such failure clearly
results from non compliance with GAAS.
• Under GAAS, the independent auditor has the
responsibility, with the inherent limitations of the
auditing process, to plan his examination to search for
errors or irregularities that would have a material affect
on the FS, and to exercise due skill and care in the
conduct of that examination.
16. Factors that may causes Irregularities
(see page 31-15)
• Management Characteristics
• Operating and Industry
Characteristic
• Engagement characteristic
17. Internal Controls to Prevent and
Detect Fraud
• Consideration of Fraud in Operational
Auditing
Fraud detection and prevention control
procedures should not be the major control
procedures in all audit, they should always
be given greater emphasis when the audit
covers an area with a higher potential risk
of fraud ( see pg 30-20)
18. Internal Controls to Prevent and
Detect Fraud
• Warning signals for fraud (pg 31-21)
• Representative types of fraudulent financial
activities (pg. 31-23)
19. Personal Characteristics For
Fraudulent Behavior
• High personal debt or financial losses
• Expensive lifestyle
• Extensive gambling habits
• Excessive use of alcohol or drugs
• Extensive overtime and skipping vacations
• Domination of specific activities
• Questionable background and references
20. FRAUD AND LOSS-PREVENTION
INVESTIGATION
Key Overview
Identification of Fraudulent Activities
Conducting the Investigation
Fraud-Auditing Interviewing Techniques
Concluding the Fraud Related Audit
