Five anti-fraud New Year resolutions - Part 2
Continued from yesterday
3. WHISTLE-BLOWING POLICY
Fraud surfaces through many sources, including management review and other controls, internal audit; external audit; risk assessment; law enforcement, concerned employees; outside informants; and unsolicited confession. The Institute of Chartered Accountants in England and Wales, in their Guidance for Audit Committees (March 2004), stated, "A company's workforce represents a valuable source of information that can be utilised to identify a potential problem and to deal with it, before it causes significant damage to the company's reputation or its stakeholders". Also, the ACFE's 2014 survey showed the initial detection of occupational frauds as follows:
Also, a KPMG forensic survey titled Survey, Profile of a Fraudster, reveals that not less than 25 % of the occurrences of fraud discovered in the enterprises surveyed came to light thanks to a whistle-blowing system put into place by these companies. Clearly, an organisation that lacks a mechanism which can garner these tips is eliminating its main source of detecting unacceptable acts as, according to the International Chamber of Commerce (ICC), a company's workforce represents a valuable source of information that can be utilised to identify a potential problem, and to deal with it, before it causes significant damage to the company's reputation or its stakeholders.
4. EFFECTIVE AUDIT COMMITTEE/INTERNAL AUDIT
The benefits of proficient internal audit services, monitored by an effective audit committee of the board of directors, are well known. Ideally, the audit committee should maintain an active role in discussing controversial accounting issues, disagreements with upper management, deficiencies in the company's internal control structure, and problems encountered during audits. An audit committee that is actively involved in keeping the communication lines open with the internal and external auditors, and addressing the issues in a timely and just manner, is an effective way of reducing the opportunity for fraudulent financial reporting. To be effective, audit committees should be informed, vigilant and effective overseers of the financial reporting process and the company's internal controls; have adequate resources and authority to discharge their responsibilities; review management's evaluation of factors related to the independence of the company's auditors; review management's plan for engaging the company's external auditor to perform management advisory services during the coming years, and consider both the types of services that may be rendered and the projected fees.
Internal Auditors should possess the knowledge, skills and competencies needed to perform their individual responsibilities, but should also possess or obtain the knowledge, skills and competences needed to identify indicators that fraud may have been committed. These require that the internal auditor knows the characteristics of fraud, the techniques used to commit fraud, and the types of frauds associated with the activities audited. The internal auditor is not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud. However, they should be alert to the significant risks that might affect an organisation's objectives, operations, or resources; keep an eye on the corporate climate; serve as a safety net for an organisation; find out what's working and what's not; tell it like it is; assess risks; uncover corporate misbehaviour; look at things with fresh eyes; raise red flags; and advocate a culture within organisations to do the right thing.
5. UTILISE FORENSIC ACCOUNTING SERVICES
The consensus among researchers and practitioners today is that board members, management and other stakeholders continue to expect assurances that an organisation is adhering to industry best practices regarding governance and internal controls and that the organisation is on sound financial footing. Increasingly, in light of recent financial scandals, new and more stringent legal requirements and the complexity of financial reporting place higher demands on managers and auditors, and all stakeholders' awareness for risk management is growing.
Happy New Year to all mankind, but in the case of our local private and public organisations, without the above five resolutions, fraud may continue to cause us great unhappiness.
- Collin Greenland is a forensic accountant.