ISSAI 1240

ISSAI 1240
practice note 240
Appendix 3: Additional Examples of Circumstances in the Public Sector
Environment that May Indicate the Possibility of Fraud
The following are examples of circumstances that may indicate the possibility that the financial statements
may contain a material misstatement resulting from fraud.
Discrepancies in the accounting records:
• Significant transfer of transactions between funds and/or programs.
Abnormal Budget Processes:
• Significant budget adjustments;
• Requests for additional funding;
• Non-approval of budget adjustments;
• Large amounts of over- or under spending;
• Performance information indicates significant non-delivery.
Procurement Processes:
• Legal proceedings;
• Lack of procurement legislation;
• Recent changes to procurement legislation;
• Complex or unclear legislation;
• Significant monetary amounts are involved (such as in the defense area);
• Inspection by regulatory authorities;
• Complaints received from potential suppliers about unfair practices related to awarding of tenders;
• Ex-government officials functioning as executives of companies to which tenders have been awarded.
Grants and Donor Funding:
• Non-compliance with grant requirements;
• Unclear grant requirements;
• Grants not reaching the originally intended recipient;
• Complaints from intended recipients or interest groups.
Assets:
• Unauthorized use of assets;
• Equipment that is subject to personal or non-program use, such as cellular phones, digital cameras,
computers, vehicles, tools etc;
• Physical assets susceptible to personal use or redirection, such as unused or out-of-the way buildings,
vacant land, obsolete equipment, abandoned assets etc;
• Loss of materials used in confidential government processes such as identification documents and
passports.
234 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements