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...Oversight Board's report auditors responsibilities detect fraud and Audit Standard No. 5, Auditing of Internal Control--have increased the need to implement controls designed to reduce the likelihood of fraud within an organization. To meet these requirements and reduce the risk of fraud, organizations should consider performing regular enterprisewide fraud risk assessments.
When faced with the threat of fraud in today's highly regulated environment, organizations tend to turn to the external auditor. Instead, to combat the potential for substantial fines, penalties, and loss, companies should consider using their internal audit department to establish robust internal fraud risk assessment and mitigation programs. Although the organization maintains ownership for assessing various risks impacting the organizations, internal auditing plays a key role when assessing fraud risk. This role is in line with internal auditing's overall charter, as auditors are often involved with risk assessments for other areas and can apply some of the same methodologies to address fraud risk. Additionally, internal auditing is responsible for evaluating whether internal controls are designed to meet their overall objectives. This evaluation includes controls designed to reduce the risk of fraud.
Benefits of having internal auditing perform a fraud risk assessment include the auditors':
* Knowledge of fraud risks and ability to design audit programs to address those risks.
* Awareness of business operations and risks associated with the nature of operations.
* Ability to assess internal controls and antifraud programs.
* Ability to design audit programs to detect red flags for fraud schemes identified as high priority during the fraud risk assessment project.
Chief audit executives (CAEs) sometimes struggle with the best approach to implementing a fraud risk assessment. Even though most CAEs clearly recognize the importance of creating such a program, they are often unable to determine the most effective and efficient way of doing so. This stems from a variety of issues, including limited human and financial capital, lack of knowledge of fraud schemes and scenarios,...
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