Managing Fraud Risk: A Practical Guide for Directors and Managers

The Role of Audit in Fraud Prevention and Detection

Overview

Audit is often thought to play a crucial role in reducing fraud risk. Indeed, if members of the public were to be canvassed at random and asked whether auditors were responsible for preventing and detecting fraud, I have no doubt that the answer would be a resounding “yes”! Much of this conviction might be to do with popular misconceptions about what auditors are actually there to do – there is little clear understanding of the roles of either internal auditors or external auditors outside of the respective auditing professions. However, in my experience, directors and managers also place too much reliance on traditional auditing to provide protection against fraud. Traditional auditing, as we shall see later in Chapter 6, will include a review of systems and controls in conjunction with a more detailed look at the documentary evidence for “samples” – a relatively small number of transactions, selected at random. The sample sizes will either be based on the laws of probability or on judgement. None of this should provide assurance to senior management that any frauds that are being committed in their organisation will be detected by the auditors.

Little Training for Auditors on Fraud Awareness

A big part of the problem is that auditors receive very little fraud awareness or investigation training. This was made absolutely clear to me by Teresa, an experienced internal auditor who has headed up internal audit departments ...