Enhancing the Auditor's Fraud Detection Ability: An Interdisciplinary Approach
| Date | 01 August 2001 |
| DOI | 10.1177/000486580103400208 |
| Published date | 01 August 2001 |
| Subject Matter | Reviews |
204
-iR
EV
lEW
S
Enhancing the Auditor's Fraud Detection Ability:
An Interdisciplinary Approach
By
Maria Krambia-Kapardis
European
University
Studies,
Series
5
(Economics
and
management),
vol
27,
Peter
Long,
Frankfurt
am
Main
(2001)
Fraud is a form of crime that, although both costly and enduring, has not received
commensurate attention by criminologists. This book makes a significant contribu-
tion to redressing the imbalance. Focusing on management and employee
frauds,
as opposed to consumer scams and direct interpersonal "cons", it is an important
contribution to the literature of white collar crime.
The
all too frequent failure of auditors to prevent, detect, or disclose client ill-
egality has been a contributing factor to financial collapses in Australia and around
the world. Auditors are quick to defend themselves by saying
that
they are "watch-
dogs,
not
bloodhounds" Unfortunately,
the
annals of fraud have shown some
auditors to have been hardly watchdogs, but rather lapdogsof their criminal clients.
The
author's exhaustive overview of audit failure is a major contribution
in itself. But this, and the book's title, do not fully describe the scope of this work.
Krambia-Kapardis offers the best review of literature on the psychology of fraud
that
Ihave seen.
Her
discussion of red flags and their limitation as the basis
for fraud control is thought provoking.
One
chapter analyses 50 case files of the
Victoria Police Major Fraud Group, providing a rare insight into the nature of mat-
ters which make up
the
work of a police fraud squad.
Another
chapter reports
on the findings of a postal surveyof 108 auditors, providing a practitioner's perspec-
tive on the experience of detecting material irregularities in financial statements.
The
author observes
that
perpetrators of fraud tend to engage in a process
of rationalisation, which facilitates offending by reducing inhibition.
That
offend-
ers may trivialise or deny (in a psychological sense) their acts is
not
surprisinggiven
the
degree to which many jurisdictions tolerate fraud. Offenders' vocabularies
of extenuation are reinforced by the fact that in many jurisdictions, all but the most
serious
cases
avoid
police
scrutiny,
and
the
unlucky
few
offenders
who
are convicted tend to receive relatively lenient sentences.
The
author's other significant finding is that the presence of red
flags
on their
own is
not
terribly helpful in fraud detection. Rather, there are more general
properties of an organisation which are indicative of fraud risk. Foremost among
these are the absence of effective systems of internal control, and the lack of a code
of conduct for
the
organisation and its members.
What
is to be
done
then,
to reduce fraud?
The
author concludes
that
the
offender's rationalisation of the crime should be made more difficult.
It
would
therefore be useful to demonstrate
that
fraud is
not
a victimless crime, and that
organisations, their employees, their shareholders and their creditors among others
suffer because of fraud. Further research on fraud victim impact would seem to be
in order.
THE
AUSTRAUAN
AND NEW
ZEALAND
JOURNAL
OF
CRIMINOLOGY
VOLUME
J.4
NUMBER
2
2001
PP.
204-207
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