Fraud Detection Has Taken a Front Row Seat for Auditors

With cases of fraud on the rise, auditors' jobs are becoming even more cumbersome. Cybersecurity and fraud detection are of the utmost importance to all businesses, and it's up to internal auditors within each organization to detect issues and mitigate risks to protect their organizations.

Auditor Responsibility

Internal auditors ensure that companies stay in compliance with regulations, maintain effective controls and mitigate risk. Fraud detection is another vital job duty for an auditor. According to Forensic Strategic Solutions President Ralph Summerford, auditors who overlook fraud, whether intentionally or unintentionally, are likely to find themselves sued by the organization. As Summerford explains, when an agency loses money as a result of fraud, its key players look for ways to retain the lost dollars, and this usually involves a lawsuit against anyone and everyone involved, including the auditor.

Cybersecurity

Summerford contends that cybersecurity is, more recently, becoming a big issue for firms large and small, and the responsibility of cybersecurity awareness also falls on auditors. He points out that, as of 2016, 26 accounting firms alone have been hacked by cybercriminals, putting sensitive client information at risk of exposure.

U.S. Securities and Exchange Commission

Internal auditors must be extra vigilant when it comes to examining the accounting practices used within their own organizations, as the U.S. Securities and Exchange Commission keeps a close eye on organizations. The SEC scrutinizes reported figures and profits from corporations, looking for unethical accounting procedures or possible tax evasion.

Risk Management

Internal auditors can establish formal risk assessment processes within their organizations to identify, address and mitigate potential risks. Their organizations should evaluate their own unique risks based on company culture, leadership and business processes, and establish corrective action plans to address any risks identified. Not just a one-time assessment, a formal risk mitigation process should be revisited regularly to identify new risks.

Employee Morale

According to Association of Certified Fraud Examiners President Jim Ratley, in addition to fraud detection processes, corporations can help deter fraud by ensuring employees are satisfied. Ratley contends that low-morale work environments are often at a higher risk for fraud. He rationalizes that employees who see a future with their organization have a much lower chance of committing fraud.

Artificial Intelligence

Many companies also rely on artificial intelligence to aid with fraud detection. BDO Consulting Director Adam Strayer explains how his organization uses computers to find patterns or irregularities within financial documents, often red flags that point to fraud. The SEC also makes use of computer programs in its fraud detection practices, searching financial reports for specific words that often imply shady accounting practices.

As con artists and cybercriminals become more devious in their attempts to defraud, it's imperative that companies become more proactive in their plans to circumvent fraud and corruption. Auditors play a big role in fraud detection and risk mitigation to ensure that organizations continue to thrive while reducing risk.

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