Ethics For Dummies

Take a moment if you will to answer this basic question.

A sweet, elderly lady comes into your business and mistakenly overpays for a $10 purchase by giving you $100. Now, do you or do you not tell your partner?

We’re here all week ladies and gentlemen.

Fraud and ethics have long been a flashpoint for the accounting profession and I won’t rehash the spate of accounting scandals of a decade ago that took the profession years to recover from, or the oversight legislation they spawned. But last week, the results of a survey of 900 auditors by Confirmation.com, a provider of audit confirmation services, revealed that more than 37 percent of them expected to uncover audit fraud among their clients.

And fully one-quarter of them expect the instances of that audit fraud to rise in 2012.

The poll also found that among auditors, the number of auditors expecting to catch fraud is lower than the percentage who believe fraud would occur within their current client base.

Now considering that corporate fraud approaches $1 trillion annually (yes, that’s with a “t”) and a company or external auditor is more than twice as likely to uncover fraud by accident than by strong  internal controls or exercising skepticism during the A&A process, that’s not a comforting result.

According to research from the Association of Certified Fraud Examiners,  company executives are six times more likely to commit fraud than line managers and 14 times greater than rank and file employees. Compounding this is the fact that auditors tend to overlook their inherent skepticism especially when trying to cultivate new clients.

Confirmation.com said that just 20 percent of the auditors in the poll said they walked away from potential business when they suspected fraud, but, conversely, 30 percent had not. That only serves to resurrect the dichotomy of the inherent conflict between performing both audits and higher-priced consulting engagements for the same client. That too may change as there is a groundswell of current discourse among regulators in Washington about the possibility of auditor rotation, which is a stand-alone topic for a future blog.

By the way, now that another tax season is behind us, I’m taking requests for proposals for a new preparer. Mine abruptly left his practice after April 17 to pursue what he explained was an MBA. Later I discovered  that MBA meant Mexico, Brazil and Argentina.

Please remember to tip your bartenders and waitresses.