1.1 IntroductionThis work will elaborate on the role and responsibilities of internal auditors towardsmanagement, in the detection and prevention of fraud. In recent years, the significanceof good corporate governance has received notable regulatory and public attention.
Afundamental part on an organisation which is its internal audit department, has for dutyto safeguard the integrity of the organisation, by giving judgments based on its findings,and to all decisions taken by the management to ensure the normal and efficientfunctioning of its activities.Over time as the internal auditors inspects the organisation’s systems, they develop anenlarged knowledge about the organisation’s processes, risks, internal control systemand staff. In this view, they are better equipped to detect and limit frauds in theorganisation that they are working.1.2 Background of the problemFraud has been ever existent in the human history, with numerous cases peoples usingtricks and different kinds of manipulations in order to get a profit, at the detriment ofsomeone else. Throughout the recent years, there has been a number of fraud caseswhich occurred around the world.
Arguably the most famous case is the Enron Corporation, which was situated in Texas,which was unveiled in 2001 as being as huge scandal where the company kept hugeamounts of debts off its balance sheets. Thousands of employees lost their jobs afterthe company was declared bankrupt and shareholders lost $74 billion. In fact, it wasfound that Enron had no fraud examiners and also no internal audit department tomanage their accounts. (The Enron scandal, 2012)2Another such case can be the WorldCom scandal which occurred in 2002, in the UnitedStates. The company accountants had forged the accounts and later an internal auditrevealed as much $3.
8 billion of fraud has been committed. (David Hancock June 26,2002)1.3 Problem StatementIn this study, the goal is to investigate about the importance and effectiveness of internalauditors in detecting and preventing frauds which may occur in their respectiveorganisations, in view of enhancing a true and fair view of the performance of theinstitution. Internal auditors have a major role to play fraud detection as stipulated bythe IIA’S International Standards for the Professional Practice of Internal Auditing(Standard) which makes provision for specific reliable guidance for internal auditors infraud detection.
Internal Auditors are expected to have sufficient knowhow to assess the risks of fraudand the way in which it is managed by the management but does not however expectedto have the expertise and primary responsibility to be the detecting and investigatingfraud. (The IIA)