Following a three-month investigation, two Jacksonville, Fla., division chiefs of the city’s Equal Business Opportunity Division have resigned after being caught forging documents for city park work on behalf of an unlicensed contracting company they were responsible for regulating, according to a recent article published in The Florida Times-Union. Two other employees returned to work after being cleared of any wrongdoing. This marks the second time in two weeks that the division, which auditors recently criticized after discovering employees spent hours using the Internet because they didn’t have enough work to do, has gained negative attention.Who was responsible for monitoring the division chiefs’ work? What controls should have been in place to verify the contractor’s licensing? Can internal auditors learn anything from this fraud that may help them identify future frauds?

Lessons Learned

  • Fraud is more difficult to detect when collusion is involved, particularly when the persons responsible for the controls are able to bypass them.
  • A manager should not be allowed to change a policy or a key control unilaterally.
  • It is important to protect employees from unfounded allegations. In this situation, two employees were cleared of any wrongdoing.
  • The auditors should have questioned why employees didn’t have “enough work to do”; this is a red flag for fraud.
  • IIA Standard 2120 states that the internal audit activity must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk. According to Standard 2130, internal auditing must assist the organization in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement. In this case, internal auditing could have verified that the controls were in place to ensure that only licensed companies were awarded the work.

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