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On the Frontlines: A Shield Against Fraud

Blogs Hassan Khayal, PHD, CIA, CRMA, CFE Apr 17, 2024

The prospect of fraud looms large in the field of corporate governance, threatening not just the organization's ability to maintain financial stability but also its basic foundation of trust. Fraud can take on many different forms, and industries and businesses of all sizes can be impacted. Its expressions are always changing — manifesting as asset theft, financial misstatements, cybercrime or corruption.

Internal audit is a powerful partner in the ongoing fight against fraud. Internal auditors examine procedures, controls, and transactions in greater detail than external auditors, who mainly focus on financial statements. Fundamentally, the role of internal audit is to assess compliance frameworks, risk management procedures, and internal controls. As the defenders of corporate integrity, internal auditors work to protect resources, reduce risks, and ensure that business processes are carried out ethically through impartial evaluations and unbiased views.

Internal auditors possess a wide range of tools and methods that enable them to spot warning signs, uncover trends, and track fraudulent activity that may be going on beneath the surface. Internal audit’s approach should be customized to the particular needs and risk profiles of their organization, and includes:

  1. Risk assessments. The process starts with a thorough risk assessment, in which internal auditors rank prospective fraud risks according to variables like past incidents, organizational structure, and industry trends.
  2. Data analytics. Data becomes a powerful tool in the battle against fraud in the digital era. Using cutting-edge analytics technologies, internal auditors can comb through enormous amounts of data to find anomalies, outliers, and suspicious trends that could indicate fraudulent activity.
  3. Process reviews. Through the analysis of critical business procedures and transactional workflows, internal auditors acquire significant knowledge regarding susceptibilities, gaps in control, and areas that are vulnerable to fraudulent activity.
  4. Fraud investigations. When fraud suspicions are voiced, internal auditors may carry out focused interviews and forensic examinations, painstakingly compiling data, recording conclusions, and working with stakeholders to identify and eliminate fraudulent activity.

It’s important to remember that internal audit is not directly in charge of stopping fraud from occurring in the company. In its first-line role, management is accountable for this. It is unreasonable to expect an internal auditor to possess the knowledge and experience of someone whose main duty is to investigate fraud, and it is best for those with experience to conduct these investigations. However, internal auditors often possess the skills required for fraud investigations, and management often assigns the task to internal auditors when the need arises.

In addition to detecting fraud, internal audit can be essential in strengthening organizational defenses against fraud by promoting a culture of alertness, openness, and ethical behavior. Internal auditors work to reduce the risk of fraud and increase resilience through preventative measures, such as:

  1. Fraud awareness and training. Education is an effective tool in the fight against fraud. Leading awareness campaigns, training programs, and knowledge-sharing forums, internal auditors provide staff members the skills, mindset, and resources they need to spot and report fraudulent activity.
  2. Strengthening internal controls. Strong internal controls are the first line of protection against fraudulent activity. Internal auditors operate in tandem with management to evaluate control frameworks, improve the division of labor, and put in place monitoring systems intended to identify, prevent, and address fraudulent activity.
  3. Continuous monitoring and auditing. Fraud never sleeps. Internal audit functions maintain a state of alertness through ongoing monitoring and auditing initiatives. They adjust audit plans, re-evaluate techniques, and keep an eye out for new dangers in order to stay one step ahead of fraudulent actors.

The fight against fraud in the high-stakes field of corporate governance requires unflinching honesty, unrelenting attention, and unyielding dedication. In this context, internal audit shows up as a reliable friend in the fight for accountability, ethics, and openness.

The role of internal audit in fraud detection and prevention becomes increasingly important as firms navigate the complexity of a constantly changing risk landscape. Internal audit is well-positioned to protect corporate integrity, maintain stakeholder trust, and enforce good governance principles through its experience, methodology, and insights.

Organizations may overcome the threat of fraud by working together, remaining steadfast, and remaining dedicated to ethical behavior. This will help to create a more promising and resilient future for future generations.

Hassan Khayal, PHD, CIA, CRMA, CFE

Hassan Khayal, a 2020 IIA Emerging Leader, is an internal audit professional based in the United Arab Emirates.