Fight Fraud by Auditing Internally

by Cynthia Rojo, Staff Associate

Posted on May 5, 2016

Fraud perpetrators justify fraud through of a combination of three factors that form the fraud triangle: (1) perceived pressure, (2) perceived opportunity, and (3) rationalization that the fraud is acceptable. Why not avoid fraud at your organization by eliminating one of the three components and constrain perpetrators from the perceived opportunity factor. Fraud can either be detected or prevented. What better way to fight fraud than by tackling both procedures at once by proactively auditing your organization.

Prevent fraud: Organizations that proactively audit for fraud identify problem areas and create awareness that actions are subject to review at any time which ultimately reduces fraudulent behavior and promotes a culture of compliance. It also helps to improve documentation processes within the organization.

Detect fraud: Proactive fraud auditing will also aid an organization at successfully detecting fraud. You will often hear that there is no such thing as a small fraud, just large frauds that are caught early. Auditing your own organization will give you the tools to detect fraud early and stop it from becoming a large scale fraud.

Steps to successful proactive auditing

Identify fraud risk exposures. Understand the different areas in your organization that could be risky areas or easy targets for fraud perpetrators. Knowing how certain accounts interrelate is important and will help in determining the possibility of fraud.

Identify fraud symptoms of each exposure. Fraud symptoms include accounting irregularities, internal control weaknesses, analytical variances, sudden employee extravagant lifestyles, unusual employee behavior, and tips and complaints reported to management or others.

Build audit programs to proactively look for fraud symptoms. Develop a system that will continually target the exposures and symptoms identified at your organization. Monitor this system and regularly audit the different accounts to identify changes or irregularities in fraud symptoms.

Investigate fraud symptoms identified. If a fraud symptom has been identified, it does not mean that fraud is actually occurring. Further investigation will be needed to determine whether the symptom relates to actual fraud or if it relates to a true unintentional error or fluctuation.

Eliminate opportunities for fraud at your organization and break the fraud triangle!