For the same reason you wouldn’t expect your eye doctor to repair your tooth, you shouldn’t depend on your annual audit to detect occupational fraud in your business. A financial statement audit validates your financial records and provides reasonable assurance that they are materially accurate. It does not look for fraudulent activity.
Of course, if your auditor comes across suspicious transactions or questionable information, they will certainly share their findings with you. In addition, a good auditor will be able to recommend a fraud detection expert to help you dig deeper into the questionable activity.
So, if your audit won’t detect fraud, how will you know if it’s happening in your organization?
According to the Association of Certified Fraud Examiners’ Report to the Nations on Occupational Fraud and Abuse, only 3 percent of the nearly 1,500 reported cases of occupational fraud were detected by an external audit. According to the study, employee tips continue to be the most common way in which fraudulent activity is reported – usually through a fraud reporting hotline.
Your employees are likely honest, hard-working individuals who would never do anything to jeopardize your business. But until you empower them with a secure, anonymous outlet to tip off this behavior, you will never truly know for sure.
This article was published in the September 2015 issue of Columbus Business First – Ask The Expert.