What Is the Fraud Tree?

In this episode of THE SAMPLE, Leita Hart-Fanta, CPA describes the fraud tree, and how it can be helpful during fraud brainstorming, to be sure due diligence is performed.

Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.

Transcript

In this episode, we answer the question, “What is the fraud tree?” The fraud tree is a super helpful model for helping us make sure that our fraud brainstorming, which is a required activity when you’re doing your due diligence for fraud, that you get together with your team and brainstorm all the possible fraud risks. The fraud tree is a model that helps make sure that that brainstorming session thought of everything. It’s like a benchmark. You take your brainstorm, then you look at this tree and you go:

• Hey, did we think of everything here?
• Did we think of corruption?
• Did we think of fraudulent statements?
• Did we think of the three different ways under asset misappropriation that cash can slip out of an organization?
• Did we think about other assets that could be taken from us?

There are different versions of this model, and the latest ones actually took this arm of the tree or this branch of the tree out, non-financial statements. I’m not crazy about that, because in government, financial statements aren’t as significant, oftentimes as performance measures and those would be considered non-financial reports. So find a version of the model that has that piece in it, I would recommend. Now this is of course promulgated by the Certified Fraud Examiners. They’ve not updated it significantly in a long time, as you can tell by some of this stuff down here regarding check tampering – not very many people use checks anymore.

You do want to supplement, let’s say, your fraud tree with the internet fraud tree, which is also available very readily online, but it talks about website hijacking online extortion, fishing and farming schemes. This could be relevant to your audit subject, so make sure you include this when you’re benchmarking your brainstorming session. The fraud tree helps us here.

In the next session, I’ll talk about the fraud triangle, and I’m not going to talk about the COSO model because I’ve already done that in previous videos. You’ve probably heard enough of that from me, but that’s another model that can help us here in making sure that we do all of our procedures, our due diligence for fraud.

Would you like to learn a little bit more about this topic and earn some CPE at the same time? Check out our fraud bundle for more information; it’s available on the website and it’s over 20 hours of continuing education credit, three different courses. We cover the fraud tree, the fraud triangle, the audit trifecta and the COSO model.

That wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me leita@yellowbook-cpe.com and I’ll do my best to fill in the blanks. Thanks for playing.

For More Info:

Fraud Bundle