As fraud becomes a corporate challenge, internal auditors, risk managers and fraud examiners – or even shareholders themselves must face their chief executive officers in the face and ask the tough questions. People must be held accountable.
The Association of Certified Fraud Examiners (ACFE) is the leading anti-fraud organization in the world with local chapters throughout the world. In Uganda, the ACFE Uganda Chapter provides resources for companies to effectively manage the problem of fraud. The ACFE’s Fraud Examiners Manual provides the best resources to manage the risk of fraud effectively. Below are the 22 questions an internal or external auditor can ask the chief executive during a normal audit excerpted from the 2012 ACFE Fraud Manual. They are in no particular order. For effective results, it is advised to start the interview with the CEO. Below is how to put him or her in the hot seat.
1. Mr. CEO, as you know, we are required to assess the risk that material fraud exists in every company, not just yours. This is sort of a sensitive area for everyone, but our professional responsibilities dictate that we address this area. Do you understand? (Wait for an affirmative response before proceeding).
2. Do you have any reason to believe that material fraud is being committed at any level within the organisation?
3. Mr. CEO, one trend in fraud is that small frauds are committed by employees with little authority, which means that the largest ones are usually committed with the knowledge of upper management. Do you understand that? (Wait for an affirmative response before proceeding.)
4. Because of that, we are required to at least look at the possibility that all CEOs, including you, might commit significant fraud against customers, investors, or shareholders. Do you understand our situation? (Wait for an affirmative response.)
5. So during this audit (examination) we need to ask direct questions about this subject to you and your staff. As a matter of fact, we will at least discuss the possibility of fraud with every employee we talk with in connection with this audit (examination). Do you have any problem with that? (Wait for a negative response. If the CEO protests, satisfy his objections. If he cannot be satisfied, assess the risk of whether the CEO is attempting to obstruct the audit or examination.)
6. First, let’s look at your CFO. Can you think of a reason he might have to get back at you or the company by committing fraud?
7. Has the CFO ever asked you to approve any financial transaction you thought might be improper or illegal?
8. Do you know whether the CFO has any outside business interests that might conflict with his duties here?
9. Does the CFO employ any friends or relatives in the company? (Look for possible conflicts or sweetheart deals.)
10. What information do you have about the CFO’s lifestyle? (Look for expensive homes, cars, toys, and habits.)
11. What is your general impression of how the CFO gets along with his staff? (Look for abuses of authority, etc., that would motivate employees directly below the CFO to participate in fraud.)
12. How do you think fraud in your company compares with others in the same industry?
13. Of course, Mr. CEO, I must ask you many of the same questions about yourself. Is there any reason that anyone below you might claim you are committing fraud against the company?
14. I must also ask you some personal financial questions. Do you have any problem with this? (Wait for negative response.)
15. Please give me a current estimate of your personal assets, liabilities, income, and expenses. (List) What percentage of your net worth is tied directly to this company? (Look for highly leveraged individuals whose company holdings are a significant portion of their net worth.)
16. Are you currently experiencing any personal financial problems? (Look for lawsuits, liens, judgments, or other indicators.)
17. Do you have friends or relatives working for this company? (Look for conflicts of interest.)
18. Do you have friends or relatives working for major suppliers or vendors to this company? (Look for conflicts of interest.)
19. Do you own any portion of a company that does business with this organisation? (Look for conflicts of interest.)
20. Hypothetically, if you wanted to pump up your company’s profits, what would be the easiest way to do it?
21. As I said, we will be required to ask many questions of your staff. Is there any reason why someone who works for you would say you are at risk to commit significant fraud against the company or its shareholders?
22. Mr. CEO, this is the last question, and it should be obvious why I have to ask it. Have you committed fraud or other illegal acts against the company? (Do not apologize for asking the question; it’s your job.)
Source: ACFE 2012 Fraud Examiners Manual; www.acfe.com