Auditors and fraud: Audit alternatives

Executives, attorneys, and board members may be left asking themselves why they pay for audits if the procedures aren’t going to detect all the potential problems with the numbers. Audits and reviews have their place in the business world, as they help companies identify risky areas of the financial reporting process, and they hopefully find material errors and frauds.

Since reviews and audits can only provide limited (but not absolute) assurance on the numbers, they are only one part of a company’s financial picture. If management wants to go a step further, they will look beyond audits and reviews.

Internal control reviews with a “focus on fraud” can help prevent fraud. They probably won’t detect old frauds, but the involvement of an anti-fraud professional during the review of controls will help the company identify areas of the company most at-risk for fraud.

The next step is the development of procedures specifically designed to prevent fraud. This requires management to take a proactive stance against fraud. Since management cannot fully rely on audits and reviews to detect fraud, the better alternative is to shore up controls so that the opportunities for fraud are decreased.

At the end of the day, the responsibility for fraud prevention and detection is on the company’s management. Executives and manager must clearly understand the inherent limitations of audits and reviews, and recognize that they cannot and will not detect all frauds. Audits and reviews should not be avoided or discarded, but management is advised to add proactive fraud prevention measures to help the company maintain better control over the potential for fraud.