READY FOR ANYTHING, EXCEPT A SIMPLE TRAINING EXERCISE – A CASE ABOUT BANK FRAUD DETECTIONPart 2 of 2

A series of bank frauds at the Farmers & Merchants Bank persisted over a period of six decades, despite annual visits by both bank examiners and external auditors. Recent research in behavioral auditing suggests that those frauds possibly went undetected due to examiners’ or auditors’ failures to make changes in the nature of their procedures, rather than continually use more of the same procedures. Since fraudsters typically understand examination or audit methodology and procedures, they can effectively fly below the radar. The authors illustrate, that small changes in the nature of procedures, even when fraud is not initially suspected, may open possibilities to catch fraudsters red-handed. The actual case developed from an innocuous training assignment for a small-town financial institution.