Several high-profile and large-scale corporate fraud cases have made headlines in recent years. Investigations into a number of these frauds have identified that many of them took place over a significant period of time and often resulted in crippling impact to, and even the demise of, the victim organisations.
This trend has catalysed the debate about who is responsible for fraud risk management from a strategic perspective, as well as who should be involved in the prevention, detection, and investigation of fraud from an operations perspective. One question that has arisen in a number of these cases is, “Why was this not picked up by internal or external audit?”
It is a common belief that the responsibility for detecting fraud lies with the external (statutory) auditor, as demonstrated by recent parliamentary enquiries in the UK and other negligence claims against auditors worldwide.
External auditors defend their position as the commentators of the probity and lack of material error of the financial statements, rather than the fraud detectives. Internal audit teams are increasingly coming under pressure and scrutiny, both within organizations and from external stakeholders, to be clearer and more accountable in their role in fraud risk management.
While the role of internal audit teams varies significantly across different industries, jurisdictions, and organisations, the predominant role of internal audit is, according to The Institute of Internal Auditors (IIA), “to provide independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations.” This includes assessing the design and effectiveness of controls in an organisation, including controls involving fraud risk management, and providing assurance to management and the board that controls are designed appropriately and function effectively.
Among internal audit communities, there is some discrepancy around the role that internal audit plays in the fight against fraud.
To learn more about the findings from the survey please click on the Download button above.