Internal Audit Uncovers Alleged Fraud

A routine internal audit picked up on alleged fraud at a company that provided contracts for the unemployed back in 2009, which has led to numerous arrests and a further three as recently as this week.

The firm’s own audit and risk department examined the work of its top 20 recruiters and concluded that some of them were putting people into jobs that did not exist and fabricating paperwork to back up their claims.

The auditors concluded that some 4 per cent of the claims they examined were “potentially fraudulent” and that another 12 per cent were classified as containing reputational or other risks.

Of course, most internal audits will find no such irregularities, let alone activity that will lead to criminal investigation, as in this case, but it highlights the importance of a stringent approach to audit on both a financial and reputational level.

Not only are internal audits vital for detecting and preventing fraud but also for testing internal control, and monitoring compliance with company policy and government regulation.

Smaller companies may require these functions even more than large companies, as a small business simply cannot afford employee fraud, waste, or a Government fine.

Establishing an internal audit function provides a vital step in the growth of a small business, while examining policies and procedures on a regular basis ensures that the company minimises its exposure to fraud and other losses.

Extension of credit to customers provides one such area of loss prevention. If a firm has formulated a policy regarding extension of credit, internal audits test compliance with that policy, as designing a credit policy with the intention of reducing bad debt does no good if it is not followed.

As an accountant, Nigel Fry, specialises within the audit and accounting sector.

Posted in News.