1. “Internal auditors support management\'s efforts to establish a culture that embraces ethics, honesty, and integrity. They assist management with the evaluation of internal controls used to detect or mitigate fraud, evaluate the organization\'s assessment of fraud risk, and are involved in any fraud investigations.The audit committee is responsible for overseeing controls to prevent or detect management fraud. Internal Audit standards regarding role of Internal Auditor with respect to fraud risk management 1.IIA Standard 1200: Proficiency and Due Professional Care 1210.A2 – “Internal auditors must have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by the organization, but are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud”. 2.IIA Standard 1220: Due Professional Care 1220.A1 – “Internal auditors must exercise due professional care by considering the: … Probability of significant errors, fraud, or noncompliance. 3.IIA Standard 2060: Reporting to Senior Management and the Board “The chief audit executive (CAE) must report periodically to senior management and the board on the internal audit activity’s purpose, authority, responsibility, and performance relative to its plan. Reporting must also include significant risk exposures and control issues, including fraud risks, governance issues, and other matters needed or requested by senior management and the board.” 4.IIA Standard 2120: Risk Management 2120.A2 – “The internal audit activity must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk.” 5.IIA Standard 2210: Engagement Objectives 2210.A2 – “Internal auditors must consider the probability of significant errors, fraud, noncompliance, and other exposures when developing the engagement objectives. 2.)Crazy Eddie Inc. was a family-run, consumer electronics chain that went public in 1984 and built itself on a massive fraud scheme. They employed a wide variety of deceptive practices and outright fraud, and conspired to fool their auditors over the course of many years (which is all described in fascinating detail on Sam\'s website). In 1987, they experienced a hostile takeover from some investors. And since that time, Sam has become an expert witness, served his jail time, and regularly speaks about white collar fraud. The fundamental problem at Crazy Eddie was a tone at the top at the company from the beginning. Even while Sam was a college accounting student he was helping the family skim money off the business and cook the books. The company started as a small family business, so they would be able generally to trust each other and many people were doing jobs for which they were not really qualified. Internal control was pivotal in uncovering the scandal 1.Use a system of checks and balances to ensure no one person has control over all parts of a financial transaction. 2.Reconcile agency ba.

1. 1. “Internal auditors support management's efforts to establish a culture that embraces ethics,
honesty, and integrity. They assist management with the evaluation of internal controls used to
detect or mitigate fraud, evaluate the organization's assessment of fraud risk, and are involved in
any fraud investigations.The audit committee is responsible for overseeing controls to prevent or
detect management fraud.
Internal Audit standards regarding role of Internal Auditor with respect to fraud risk management
1.IIA Standard 1200: Proficiency and Due Professional Care 1210.A2 – “Internal auditors must
have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by
the organization, but are not expected to have the expertise of a person whose primary
responsibility is detecting and investigating fraud”.
2.IIA Standard 1220: Due Professional Care 1220.A1 – “Internal auditors must exercise due
professional care by considering the: … Probability of significant errors, fraud, or
noncompliance.
3.IIA Standard 2060: Reporting to Senior Management and the Board “The chief audit executive
(CAE) must report periodically to senior management and the board on the internal audit
activity’s purpose, authority, responsibility, and performance relative to its plan. Reporting must
also include significant risk exposures and control issues, including fraud risks, governance
issues, and other matters needed or requested by senior management and the board.”
4.IIA Standard 2120: Risk Management 2120.A2 – “The internal audit activity must evaluate the
potential for the occurrence of fraud and how the organization manages fraud risk.”
5.IIA Standard 2210: Engagement Objectives 2210.A2 – “Internal auditors must consider the
probability of significant errors, fraud, noncompliance, and other exposures when developing the
engagement objectives.
2.)Crazy Eddie Inc. was a family-run, consumer electronics chain that went public in 1984 and
built itself on a massive fraud scheme. They employed a wide variety of deceptive practices and
outright fraud, and conspired to fool their auditors over the course of many years (which is all
described in fascinating detail on Sam's website). In 1987, they experienced a hostile takeover
from some investors. And since that time, Sam has become an expert witness, served his jail
time, and regularly speaks about white collar fraud. The fundamental problem at Crazy Eddie
was a tone at the top at the company from the beginning. Even while Sam was a college
accounting student he was helping the family skim money off the business and cook the books.
The company started as a small family business, so they would be able generally to trust each
other and many people were doing jobs for which they were not really qualified.
Internal control was pivotal in uncovering the scandal
1.Use a system of checks and balances to ensure no one person has control over all parts of a

2. financial transaction.
2.Reconcile agency bank accounts every month.
3.Restrict use of agency credit cards and verify all charges made to credit cards or accounts to
ensure they were business-related.
4.Provide Board of Directors oversight of agency operations and management.
5.Prepare all fiscal policies and procedures in writing and obtain Board of Directors approval.
6.Protect petty cash funds and other cash funds.
7.Protect checks against fraudulent use.
8.Avoid or discourage related party transactions.
Solution
1. “Internal auditors support management's efforts to establish a culture that embraces ethics,
honesty, and integrity. They assist management with the evaluation of internal controls used to
detect or mitigate fraud, evaluate the organization's assessment of fraud risk, and are involved in
any fraud investigations.The audit committee is responsible for overseeing controls to prevent or
detect management fraud.
Internal Audit standards regarding role of Internal Auditor with respect to fraud risk management
1.IIA Standard 1200: Proficiency and Due Professional Care 1210.A2 – “Internal auditors must
have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by
the organization, but are not expected to have the expertise of a person whose primary
responsibility is detecting and investigating fraud”.
2.IIA Standard 1220: Due Professional Care 1220.A1 – “Internal auditors must exercise due
professional care by considering the: … Probability of significant errors, fraud, or
noncompliance.
3.IIA Standard 2060: Reporting to Senior Management and the Board “The chief audit executive
(CAE) must report periodically to senior management and the board on the internal audit
activity’s purpose, authority, responsibility, and performance relative to its plan. Reporting must
also include significant risk exposures and control issues, including fraud risks, governance
issues, and other matters needed or requested by senior management and the board.”
4.IIA Standard 2120: Risk Management 2120.A2 – “The internal audit activity must evaluate the
potential for the occurrence of fraud and how the organization manages fraud risk.”
5.IIA Standard 2210: Engagement Objectives 2210.A2 – “Internal auditors must consider the
probability of significant errors, fraud, noncompliance, and other exposures when developing the
engagement objectives.
2.)Crazy Eddie Inc. was a family-run, consumer electronics chain that went public in 1984 and

3. built itself on a massive fraud scheme. They employed a wide variety of deceptive practices and
outright fraud, and conspired to fool their auditors over the course of many years (which is all
described in fascinating detail on Sam's website). In 1987, they experienced a hostile takeover
from some investors. And since that time, Sam has become an expert witness, served his jail
time, and regularly speaks about white collar fraud. The fundamental problem at Crazy Eddie
was a tone at the top at the company from the beginning. Even while Sam was a college
accounting student he was helping the family skim money off the business and cook the books.
The company started as a small family business, so they would be able generally to trust each
other and many people were doing jobs for which they were not really qualified.
Internal control was pivotal in uncovering the scandal
1.Use a system of checks and balances to ensure no one person has control over all parts of a
financial transaction.
2.Reconcile agency bank accounts every month.
3.Restrict use of agency credit cards and verify all charges made to credit cards or accounts to
ensure they were business-related.
4.Provide Board of Directors oversight of agency operations and management.
5.Prepare all fiscal policies and procedures in writing and obtain Board of Directors approval.
6.Protect petty cash funds and other cash funds.
7.Protect checks against fraudulent use.
8.Avoid or discourage related party transactions.