The Britannica Dictionary defines the word “fraud” as “the crime of using dishonest methods to take something valuable from another person.” In general, it is very important to be aware of and understand the difference between fraud and error or mistake. In fact, fraud means the intentional action followed by the efforts to conceal the act of deceiving or misrepresenting.
According to the Association of Certified Fraud Examiners (ACFE) “Fraud” is any activity that relies on deception in order to achieve a gain. Fraud becomes a crime when it is a “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment” (Black’s Law Dictionary). In other words, if you lie in order to deprive a person or organization of their money or property, you’re committing [1]
Fraud is an intentionally deceptive action designed to provide the perpetrator with an unlawful gain or to deny a right to a victim. Types of fraud include tax fraud, credit card fraud, wire fraud, securities fraud, and bankruptcy fraud. Fraudulent activity can be carried out by one individual, multiple individuals or a business firm as a whole. [2]
The IIA standard also provides the clause and articles related to the profession of due care by the internal auditor in order to define the potential fraud risk which could occur in the organization.
According to the IIA standard 1220.A1, stated that internal auditors must exercise due professional care by considering the – probability of significant errors, fraud, or noncompliance.
Moreover the IIA standard in article 1210.A1 also defines the roles and responsibilities of the internal auditors to maintain and be up to date of professional knowledge in order to prevent and detect fraud risk in the organization. The IIA standard 1210. A2 stated that “the internal auditors must have significant knowledge to evaluate the risk of fraud and the manner in which it is managed by the organization but are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud.”
The internal auditors are required to specifically assess and review the quality of internal control and the risk matter of material misstatement in the business process due to fraud that might be occurred in every audit assignment. However, the internal auditors are not performing audits for fraud but to consider fraud in the business process flow. The fraudster or someone who creates the fraud within the organization might consider or identify their fraud and have developed the scenario or hide their fraud gain which is rarely discovered within the internal audit review whereas this requires a special investigation of fraud by the expertise resource.
The internal auditor has the role and responsibility to detect risk matters or material misstatements. they should design the audit programs or audit procedures to detect fraud that must be applied to carry out and help identify risk scenarios to “Think like a fraudster”. This is the scenario, the internal auditor is required to consider the review below:
- Fraud Brainstorming
- Testing on significant unusual Transaction
- Testing on Journal Entry
- Testing and reviewing the policy and manual on the accounting Estimation Method.
Citation
[1] “Fraud 101: What is Fraud?” https://www.acfe.com/fraud-resources/fraud-101-what-is-fraud (accessed Nov. 08, 2022).
[2] “What Is Fraud? Definition, Types, and Consequences.” https://www.investopedia.com/terms/f/fraud.asp (accessed Nov. 08, 2022).
[3] C. Dr. Hernan Murdock, CIA, (Internal audit and IT audit) Murdock, Hernan – Auditor essentials 100 concepts, tips, tools, and techniques for success-CRC Press, Auerbach book (2019). 2019.