The Role of Auditors in Preventing, Detecting, and Reporting Fraud
Fraud is an activity that is carried out intentionally which can cause losses without being noticed by the aggrieved party and provide benefits for the perpetrators of fraud. In principle, fraud can occur anytime and anywhere and is carried out by anyone, especially those who have great interests and authority over an entity.
Association of Certified Fraud Examinations divides fraud into 3 types or typologies based on actions, namely:
Financial Statement Fraud is fraud committed by management in the form of material misstatements of Financial Statements that are detrimental to investors and creditors.
Asset misappropriation can be classified into Cash Fraud and Inventory and Other Asset Fraud and fraudulent expenses.
Corruption is divided into conflict of interest, bribery, illegal gratuity, and economic extortion.
This fraud can occur due to pressure, opportunity to commit fraud, systems and procedures, as well as justification for the fraudulent act. This fraud is the biggest problem faced by companies around the world. This is because fraud will not only make the company lose money but will have more impacts such as; damage the company's reputation, damage employee morale, loss of shareholder confidence, can even cause the company to collapse. Therefore, every company needs to exercise control to overcome the potential for this fraud to emerge. The existence of a strong internal control will be able to reduce the level of fraud tendency, but on the contrary if the internal control is weak then the tendency of fraud will be even greater.
In internal control from this fraud, the role of internal auditors is also important to overcome the potential for fraud in the company. With the existence of an internal audit, the company increases the effectiveness and efficiency of the systems and procedures that are prepared correctly and systematically. This is because internal auditors is a managerial oversight that can measure and develop a control system with all members of management in managing their responsibilities effectively by providing analysis, assessment, recommendations, and comments related to the activities reviewed. Therefore, the Internal Auditor must have sufficient knowledge to deal with the risk of fraud and how to manage it by the organization.
In addition, the internal auditors themselves aim to assist the leadership or management of the company in carrying out their responsibilities by providing analysis, assessment, suggestions, and comments regarding audit activities. To achieve the goal, the activities that need to be carried out by the Internal Auditor for the company are as follows:
Suggest operational improvements in order to increase efficiency and effectiveness.
Evaluate the potential for fraud and manage fraud risk.
Consider the possibility of significant errors, fraud, non-compliance, and other exposures when developing engagement objectives.
Reviewing and assessing the goodness, adequacy and application of management control systems, internal control structures, and other operational controls and developing effective controls at a cost that is not too expensive.
Ensure compliance with policies, plans and procedures established by management.
Ensuring how far the company's assets are accounted for and protected from the possibility of all forms of theft, fraud and misuse.
Ensuring that the management of data developed within the organization can be trusted.
Assess the quality of the work of each section in carrying out the tasks assigned by management.
With this, it can be concluded that the role of internal auditors is very important . The internal auditors are the center of power in disclosing or limiting the misuse of asset schemes and corruption. In addition, internal audit is important for the company's success in uncovering fraud and abuse in the preparation of accurate financial statements. However, the internal auditor cannot always monitor the occurrence of fraud, but the role of the internal auditor is to prevent, detect and report fraud.