NCJ Number
67271
Journal
Internal Auditor Volume: 932 Issue: 4 Dated: (JULY/AUGUST 1975) Pages: 13-22
Date Published
1975
Length
10 pages
Annotation
THIS ARTICLE ARGUES THAT AUDITORS MUST LEARN HOW TO DETECT CORPORATE FRAUD AS WELL AS THEY HANDLE OPERATIONAL AND FINANCIAL AUDITING.
Abstract
BUSINESS NEEDS TO BETTER PROTECT ITSELF FROM FRAUD AND THE POOR PUBLICITY RESULTING FROM IT. ONE STEP COMPANIES CAN TAKE IS TO STRENGTHEN THEIR INTERNAL AUDIT STAFF BY INTENSIVE TRAINING IN INVESTIGATIVE AUDITING AND BY AUTHORIZING AUDITORS TO MAKE EXAMINATIONS OF ANY COMPANY ACTIVITY. THE PUBLICATION OF A CAREFULLY PREPARED PROCEDURE ON THE SCOPE OF RESPONSIBILITY FOR DETECTING CRIMINAL ACTIVITY, THE SEQUENCE FOR NOTIFYING INDIVIDUALS WHEN SUSPICIONS ARE AROUSED, AND ACTIONS TO BE TAKEN TO APPREHEND THE CULPRITS ARE ALSO ADVISED. MANY COMPANIES HAVE PREPARED SPECIFIC PROCEDURES FOR THEIR AUDIT STAFF TO FOLLOW IN UNCOVERING CRIMINAL ACTS. A FORMER FBI AGENT ESTIMATES THAT 2 OUT OF EVERY 100 EMPLOYEES ARE HARDCORE CRIMINALS, WHEREAS ANOTHER 20 WOULD STEAL IF THEY SAW AN OPPORTUNITY. SUCH EMPLOYEES COULD BE SITUATED AT ANY RUNG OF THE CORPORATE LADDER, AND COULD BE SEASONED OR NEW EMPLOYEES. AUDITORS TOO FREQUENTLY DEVOTE TOO MUCH ATTENTION TO A SURVEY OF CORPORATE INTERNAL CONTROLS AND TOO LITTLE TO THE SUBSTANCE OF THE OPERATION UNDER REVIEW. THEY EITHER EXAMINE A CHART OF SEQUENTIAL STEPS IN A SYSTEM OR PREPARE ONE OF THEIR OWN AFTER A REVIEW OF THE SYSTEM. HOWEVER, THIS APPROACH HAS SEVERAL WEAKNESSES: (1) SEPARATION OF DUTIES DOES NOT GUARANTEE THE ABSENCE OF FRAUD, ESPECIALLY SINCE COLLUSION AMONG ERRANT EMPLOYEES IS BECOMING MORE COMMON; (2) DISBURSEMENTS OF MONEY APPROVED IN WRITING DOES NOT PREVENT A CLEVER EMBEZZLER WORKING WITH AN OUTSIDE ACCESSORY FROM FORGING APPROVALS OR USING FALSE INVOICES; AND (3) MANY ORGANIZATIONS FAIL TO PROVIDE FOR RECEIVABLE ACCOUNTABILITY FOR UNUSUAL OR POSSIBLE CONTINGENT CASH RECEIPTS. ANOTHER TYPE OF EMBEZZLER, OWNERS OF ENTERPRISES WHO STEAL FROM THEIR OWN BUSINESSES, IS SELDOM DISCOVERED BY AUDITORS BECAUSE THE OWNERS/EMBEZZLERS USUALLY DO NOT EMPLOY AUDITORS. THE MOST EFFECTIVE TOOL TO DETECT FRAUD IS A TREND ANALYSIS OF ACCOUNTS PREFERABLE OVER 7 YEARS. AUDITORS SHOULD EMPLOY THE SAME TALENTS GOOD POLICE OFFICERS USE: GET THE FACTS, AVOID BASING ACTION ON RUMOR OR HEARSAY, AND REPORT THE FINDINGS TO THE PROPER AUTHORITY. (PRG)