The escalating relevance of internal auditing as anti-fraud control
| DOI | https://doi.org/10.1108/JFC-06-2016-0041 |
| Pages | 322-328 |
| Published date | 02 May 2017 |
| Date | 02 May 2017 |
| Author | Hans-Ulrich Westhausen |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
The escalating relevance of
internal auditing as
anti-fraud control
Hans-Ulrich Westhausen
ANWR GROUP eG, Mainhausen, Germany
Abstract
Purpose –The purpose of this paper is to discuss critical success factors for the enormous development that
internal auditing (IA) as “third line of defense” (IIA, 2016) and one of the strongest anti-fraud controls has
reached within the past decades. Additionally, weaknesses of IA are identied and evaluated to allow further
improvement.
Design/methodology/approach –The anti-fraud requirements stipulated in the “International
Standards for the Professional Practice of Internal Auditing” are confronted with empirical data about
the current situation of the IA as anti-fraud control. The empirical data were extracted from global
sources such as “Fraud Reports” (Association of Certied Fraud Examiners – ACFE) and “common body
of knowledge (CBOK)” studies. The Institute of Internal Auditors (IIA).
Findings –Over the years, IA has been continuously increasing its auditing quality and effectiveness
with new analytical methods, specialized software tools and professional certications. But all these
efforts have hardly been reected in statistical or research data, especially not in the listing of the top
sources of fraud detection. The “ACFE-Fraud Report 2016” revealed that IA is now – for the rst time
ever – second among the initial detections of occupational frauds (nancial statement fraud, corruption
and asset misappropriation) worldwide. This positive trend of global anti-fraud auditing was probably
no “one-hit wonder”, but a result of a lengthy process of professionalization of IA.
Originality/value –It is hoped that this paper will facilitate the discussion about the value that IA can add
within an anti-fraud management system.
Keywords Internal auditing, Occupational fraud, Three lines of defense
Paper type Viewpoint
1. Background
Following tighter compliance requirements, never-ending corporate scandals and increasing
efforts to get released from liability by corporate management, internal auditing (IA) has
turned into a “Jack of all trades device”. Apart from its original auditing mandate, IA faces
more and more multifunctional tasks such as risk management, compliance or data
protection. This trend requires IA to bridge the gap between less available capacity for
operative auditing and the mandatory responsibility for the enhancement and protection of
organizational value by providing a “risk-based and objective assurance, advice and insight”
(IIA, 2017).
Within that “professional gap”, there is also the responsibility of IA in detecting,
preventing and monitoring fraud risks and addressing those risks in audits and
investigations (anti-fraud auditing). With respect to fraud, the “International Standards for
the Professional Practice of Internal Auditing” (Standards) strongly demand sufcient
knowledge (Standard no. 1210.A2), due professional care (1220.A1), regular reporting to
senior management (2060) and the consideration of fraud during audit planning and
evaluation (2120.A2 and 2210.A2).
The current issue and full text archive of this journal is available on Emerald Insight at:
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JFC
24,2
322
Journalof Financial Crime
Vol.24 No. 2, 2017
pp.322-328
©Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-06-2016-0041
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