Using Nonfinancial Measures to Improve Fraud Risk Assessments

SUMMARY Nonfinancial measures (e.g., number of employees, square feet of operations, independent customer satisfaction, number of customer accounts) can be helpful in assessing the risk of revenue frauds. Companies committing such frauds may have a hard time falsifying nonfinancial measures, especially those produced independently (e.g., customer satisfaction). Auditors can benefit from examining relationships between nonfinancial measures and financial measures to validate financial statement data. A recent study, “Using Nonfinancial Measures to Assess Fraud Risk” (Brazel et al. 2009), provides empirical evidence concerning the relationship between various nonfinancial measures and revenue frauds. This article may be useful as a reference for auditors, or as a teaching tool in the classroom, as it reviews and summarizes Brazel et al.'s (2009) study and provides specific actual examples.