WHAT IS THE INTERNAL AUDITOR'S ROLE? - FRAUD INVESTIGATION

• NCJ Number: 65213
• Journal: Internal Auditor Volume: 35 Issue: 2 Dated: (APRIL 1978) Pages: 26-32
• Author(s): J BAILEY
• Date Published: 1978
• Length: 7 pages
• Corporate Author: Institute of Internal Auditors, Inc
• Publication Format: Article
• Language: English
• Country: United States of America
• Note: THIE ARTICLE WAS ADOPTED FROM A SPEECH JIM BAILEY MADE TO THE TORONTO CHAPTER OF THE INSTITUTE OF INTERNAL AFFAIRS

Annotation

SIX STAGES IN THE INVESTIGATION OF FRAUD PERPETRATED BY CORPORATE EMPLOYEES ARE EXAMINED, WITH FOCUS ON THE ROLE OF THE INTERNAL AUDITOR.

Abstract

MOST FRAUD IS DISCOVERED BY LUCK. THE FIRST STAGE IN FRAUD INVESTIGATION IS A NOTIFICATION PROCEDURE. LOCAL MANAGEMENT SHOULD REPORT SUSPECTED FRAUD TO THE HEAD OFFICE, TO INTERNAL AUDIT MANAGEMENT, TO THE GENERAL INSURANCE MANAGER, AND TO DIVISIONAL MANAGEMENT AS SOON AS SUSPICIONS ARE CONFIRMED OR ARE AT LEAST REASONABLY CERTAIN. INDUSTRIAL RELATIONS MANAGEMENT SHOULD BE NOTIFIED IF BARGAINING UNIT EMPLOYEES ARE INVOLVED. TOP MANAGEMENT SHOULD DECIDE WHEN TO CALL THE POLICE AND FILE CHARGES. THE NEXT STAGE, INITIAL ACTION, MUST INVOLVE THE AUDIT DEPARTMENT, WHICH RECORDS ALL KNOWN FACTS AND DECIDES WHETHER FURTHER INVESTIGATION OR SETTING OF A TRAP FOR THE CULPRIT IS JUSTIFIED. QUESTIONING OR INTERROGATION IS THE NEXT STEP. A WITNESS SHOULD BE PRESENT AT THE MEETING. THE AUDITOR SHOULD CONTROL THE MEETING, REMAIN COOL AND CALM, AND OBTAIN FACTS, NOT UNSUPPORTED OPINIONS. THE SUSPECT MUST NOT BE THREATENED OR HARASSED. A CONFESSION GIVING FULL DETAILS AND STATING THAT THE AMOUNT RECORDED REPRESENTS EVERYTHING INVOLVED SHOULD BE OBTAINED. THE EMPLOYEE SHOULD BE SUSPENDED BUT NOT DISMISSED. INVESTIGATION, THE FOURTH STAGE, WILL USUALLY INVOLVE CHECKING A TREMENDOUS NUMBER OF TRANSACTIONS. THE INVESTIGATOR SHOULD USE LOCALLY RECRUITED STAFF AND BE DIRECTED BY A SENIOR MEMBER OF THE AUDIT DEPARTMENT. THE FIFTH STAGE, REPORTING, SHOULD INCLUDE BOTH INTERIM REPORTS AND A FINAL REPORT TO SENIOR MANAGEMENT. REPORTS SHOULD NOTE CONTROL WEAKNESSES AND RECOMMEND CORRECTIVE ACTION. THE LAST STAGE, RESTITUTION, IDEALLY INVOLVES REPAYMENT BY THE INCRIMINATED EMPLOYEE. REPAYMENT MUST NOT PRECLUDE REPORTING THE FRAUD TO THE AUTHORITIES, HOWEVER. ALL COMPANIES SHOULD HAVE FIDELITY INSURANCE TO AVOID LOSSES FROM FRAUD. IF ALL THESE STEPS ARE USED, THE OPPORTUNITIES FOR FRAUD CAN BE NARROWED AT MOST COMPANIES. (CFW)