NCJ Number
73629
Journal
Internal Auditor Volume: 33 Issue: 44 Dated: (August 1976) Pages: 10-16
Date Published
1976
Length
7 pages
Annotation
Although reviews of inventories, capital expenditures, agency operations, car accounting, and intermodal services are auditors' principal responsibilities, the senior internal auditor for the Southern Railway System argues that internal auditors should aid efforts to detect company fraud.
Abstract
Most auditing literature suggests that the discovery of fraud is not the purpose of an audit. Nevertheless, auditors are often criticized when a fraud is discovered. Although fraud detection is not an audit's main purpose, it is an important secondary purpose. Internal auditors should examine all company activities, not just those which are most convenient to examine. The Equity Funding case illustrates the need for efforts by internal auditors to detect fraud. An independent internal audit department could also be of much help to boards of directors. The case of State Street Trust Company vs. Ernst is frequently cited as a precedent for auditors' responsibilities concerning fraud. Where written guidelines are absent, auditors can use reasonableness as a standard. The Southern Railway System has an internal audit manual as well as auditor training which includes a component on detection of fraud and conflict of interest. Internal auditors should try to prevent fraud through a speculation of what may happen based on conditions as they are. Prior fraud cases, the signs of fraud, and the common forms of fraud should be included in staff auditor training programs. It is concluded that auditors conducting audits according to professional standards should not be held responsible for fraud discovered after the audit; those not adhering to such standards are responsible in varying degrees for subsequently discovered fraud.