A Guide to the Role of Internal Auditors in Fraud Risk Management
Corporate fraud is on the rise across the world and it’s alarming that nearly 70% of the fraud is committed by insiders. In many cases, corporate fraud can bring an organisation to its knees. Both senior management and internal auditors in Dubai have an equal role to play in fraud risk management. Some organisations argue that internal auditors are ultimately responsible for detecting and preventing fraud. Another group thinks that fraud prevention is the responsibility of senior management as the first line of defence.
The misconception of internal auditors acting as fraud detectives has created unrealistic expectations in the corporate world. As fraudsters come up with sophisticated techniques, it has become imperative for businesses to build strong anti-fraud control frameworks to detect and prevent fraud. But we need to be clear on the responsibilities of internal auditors in helping an organisation in detecting, responding and preventing fraud. Here are some key insights regarding the hot topic:
The Role of Internal Audit in Fraud Detection & Prevention
The Institute of Internal Auditors (IIA) says that every organisation must develop an anti-fraud response plan that sets out important policies and investigation methodologies. The plan should clearly state the role of the internal audit when the management suspects fraud and related control failure in the organisation. The IIA’s ’Fraud and Internal Audit Position Paper’ outlines the fundamental responsibilities of an internal auditor as the following:
- Identify red flags where fraud may have occurred
- Get to know the nature of fraud, and the techniques, schemes and scenarios used by the fraudsters
- Assess the indicators of fraud and decide if further action or investigation is required
- Assess the efficacy of controls to stop or detect fraud
This means that though the internal auditors need not act like fraud investigators, they will use their skills in data analysis to identify trends and patterns that suggest fraudulent activity. As a general rule, we can say that the combination of external standards and an anti-fraud policy are the factors that determine the exact role of internal audits in fraud prevention.
Internal auditors in Dubai often play a significant part in helping organisations to cut down the financial or reputation impact of fraud. They can also assist corporate entities in removing the obstacles to business objectives. As the first line of defence against all kinds of corporate risks, here are some ways internal audit can respond to the challenge of fraud risks more specifically:
Review detection controls
The management should ask themselves whether they are confident about the organisation’s ability to identify fraud early on. If they are not confident, a review of annual plans must be performed to ensure that the controls to detect fraud are just as effective as the preventative controls. This is important because when fraud occurs, it can be identified through checks such as reconciliations and management monitoring.
Detection policies can also encompass whistle-blowing arrangements in which any staff member can provide a tip-off to stop in its tracks. Internal auditors can work with senior managers to ensure that the whistleblowing arrangements do not deter employees from coming forward at business-critical moments. It is advisable to avail of the services of top internal audit firms in Dubai to conduct a review of the internal controls.
Auditing Controls of Risk-prone Areas
Internal auditors will check the areas where the fraud risk is apparent within the organisation and audit the specific area’s controls. They will assess the potential for the incidence of fraud and will examine how the organisation manages the risk of fraud through risk assessment.
Analyse Data and Trends
The internal audit team of entities should impart their expertise in data analysis to identify trends and patterns that suggest the occurrence of fraud and funding misuse. However, not all companies may not be able to develop a strong internal audit team that possesses such expertise. However, such companies can engage resources with sufficient knowledge or expertise such as internal audit firms in Dubai.
Risk assessments and controls
Fraud risk management becomes effective when the management devolves the responsibility across all the levels in the business. Internal auditors help businesses by encouraging and facilitating periodic risk assessments in the organisations. Time spent for risk assessments will only add more value to the business by identifying threats and thereby cutting down likely losses. Internal auditors then incorporate these risk assessments results into the audit plan. The risk assessment enables the auditors in Dubai to identify high-risk areas and by targeting such areas they can undertake proactive anti-fraud work.
How can Jitendra Chartered Accountants Help?
Typically, the role of internal auditors varies across different industries, and organisations, but the predominantly internal auditors are expected to provide an objective assurance that will add value and improve an organisation’s operations. The responsibilities of internal auditors in Dubai include assessing the design and efficacy of controls in an organisation, such as controls related to fraud risk management. If the internal audit team lacks the experience and expertise for undertaking fraud risk management, the companies can entrust the best internal audit firms in Dubai such as Jitendra Chartered Accountants (JCA). JCA has completed twenty years of exemplary service in the UAE and boasts of some highly reputed clients. Our internal audit services in Dubai will help you implement the best practices of fraud prevention policies within your organisation.