TOP-MANAGEMENT FRAUD - SOMETHING CAN BE DONE NOW!

• NCJ Number: 69438
• Journal: Internal Auditor Volume: 33 Issue: 5 Dated: (OCTOBER 1976) Pages: 25-33
• Author(s): D W BAKER; M J BARRETT; L R RADDE
• Date Published: 1976
• Length: 9 pages
• Publication Format: Article
• Language: English
• Country: United States of America

Annotation

AUDITORS CAN DETECT AND DETER MANAGEMENT FRAUD WITH THE HELP OF CORPORATIONS THROUGH THREE CONTROLS--CLIMATE, TRANSACTIONAL, AND PERSONALLEVEL.

Abstract

WHILE FRAUD-DETECTION AUDITS GENERALLY ENCOMPASS TOO BROAD A SCOPE, REQUIRE TOO MUCH TIME, AND ARE TOO COSTLY IN AN ADEQUATE, COMPREHENSIVE CONTROL SYSTEM, FRAUD IS DETECTED WHEN WARNING FLAGS ARE RAISED BY UNEXPECTED EVENTS IN THE NORMAL COURSE OF BUSINESS. CLIMATE CONTROLS CAN IMPROVE THE ENVIRONMENTAL CONTEXT WITHIN WHICH TOP MANAGERS CONDUCT CORPORATE AFFAIRS THROUGH A FORMAL EDUCATION PROGRAM DESIGNED TO STRENGTHEN THE AWARENESS OF CORPORATE PERSONNEL AS TO THE CAUSES AND CONSEQUENCES OF FRAUDULENT BEHAVIOR. AN AUDIT COMMITTEE SHOULD BE STAFFED WITH BOARD MEMBERS WHO ARE TRULY OUTSIDERS, AND MAINTAIN AN EFFECTIVE AND EXTENSIVE INTERNAL AUDIT CHARTER AND A SOUND CORPORATE SECURITY PROGRAM WITH WELL-TRAINED LAW ENFORCEMENT PERSONNEL. TRANSACTIONAL CONTROLS DETER THE OCCURRENCES OF UNETHICAL OR ILLEGAL MANAGEMENT ACTIVITY. FOR INSTANCE, COMPREHENSIVE DISBURSEMENT MANUALS CAN BE PUBLISHED AND RIGOROUS PREDISBURSEMENT APPROVAL REVIEW PROCEDURES CAN BE INSTITUTED. ALSO, INTERNAL AUDITORS CAN APPLY EXTENSIVE, QUANTITATIVE ANALYTICAL REVIEW PROCEDURES (E.G., FINANCIAL TIME SERIES, INTERNAL FORECASTS OF EARNINGS) FOR LOCATING UNUSUAL TRANSACTIONS. FURTHER, THE AUDIT COMMITTEE CAN REVIEW INSIDER MANAGEMENT SECURITIES TRADING ACTIVITIES ANNUALLY. CONTROLS USED TO SCRUTINIZE THE BEHAVIOR OF CORPORATE MANAGEMENT, SHOULD BE USED WITH UTMOST CAUTION TO PROTECT CIVIL RIGHTS AND PRIVACY WHILE INSURING COMPETENCE AND INTEGRITY. PERSONALITY TESTS AND LIE DETECTORS CAN BE USED TO SCREEN APPLICANTS, ANNUAL REVIEWS OF MANAGERS CAN ENSURE CONTINUED COMPETENCE, AND PERSONAL TAX RETURNS AND PERSONAL WEALTH CAN BE AUDITED TO COMPARE MANAGERS' STYLE OF LIVING WITH THEIR REPORTED TAXABLE INCOME. AUDITORS CAN AND MUST PLAY AN IMPORTANT PART IN ALL THREE LEVELS OF CONTROL.