I've never had an auditing class and I can answer that one, and I don't even work for the SEC. First off, you verify cash balances against bank accounts for all cash accounts on the books. You verify balances with investors. You analyze accounts for transactional integrity (did the transactions recorded actually take place? Where's the paper trail? SHOW me the paper trail).
You perform a reasonableness test of the numbers. Does it look like the returns are reasonable? As an example (I don't have the real numbers), is the one being audited claiming 15% returns when everyone else is claiming 7%. Where are they invested? Are the investments the same ones that claim 7%?
Finding fraud CAN be done. There's a whole industry devoted to it. You can claim that fraud is hard to detect, which CPA's often do, but when you've been TIPPED to it, you have to do more due diligence to see if it's there.
This woman should at the least lose her cushy government job, and never be allowed back into the bureaucracy again.
I had a few auditing classes while earning my degree in public accounting, and speak from experience, as I've conducted audits of nonprofit agencies that received federal funding.
I am beyond appalled at the lack of professionalism shown by these regulators. It would not surprise me that competent attorneys will successfully sue the SEC/federal government on behalf of their clients.
I was fortunate to have received a real education at a fine university. I had the same accounting professor for over thirty hours. No matter the subject, he never used numbers...it was all about the underlying theory.
His tests (midterm and final) were a bear: five questions, all essay. On at least two of those five questions, the first sentence in reply would be "based on the information you've given me, I cannot answer this question". Then you'd have to explain why, analyzing the alternatives that were available.
Just bring in Frank Abengale Jr.