Detecting fraud within an organization is the responsibility of several groups including: financial executives, boards of directors, audit committees, internal auditors and external auditors. Yahoo! Finance reports several ways to avoid complacency, and according to Crowe Horwath LLP, one of the largest public accounting and consulting firms in the U.S., it is highly advised for each of these groups to practice professional skepticism.
Professional skepticism occurs when those responsible for fighting fraud take nothing for granted, continuously question what they hear and see, and critically assess all documents and statements, according to Jonathan Marks, a partner and the leader of Crowe fraud, ethics and anti-corruption services.
RELATED: Top 5 Summer Scams to Avoid
“Trust is a professional hazard and a fraudster will prey on it,” said Marks. “For example, a cunning fraudster will take advantage of audit deadline pressure by diverting an auditor’s time and attention to areas that are unlikely to raise concerns and saving problematic areas until the engagement’s end, when time is short. Recognizing and resisting this tactic requires the application of professional skepticism – not only on the part of the external auditor but by the others involved in the process as well.”
Marks suggests all stakeholders take the following steps to encourage professional skepticism:
- Play the role of the independent reviewer or inspector, particularly of your own assumptions. A professional skeptic continuously challenges his or her beliefs and belief-based risk assessments. Critical self-assessment is necessary to demonstrate to others why and how beliefs and assessments are justified.
- Make an effort to resist complacency. Question whether you are placing undue weight on prior risk assessments or discounting evidence inconsistent with your expectations.
- Be alert to pressure. Pay particular attention to pressure to truncate risk assessment procedures or make unwarranted assumptions to beat time constraints. This step is especially important as deadlines approach.
- Understand the sources of evidence. Identify and assess audit risks from multiple perspectives, using multiple sources of evidence.
- Be aware of the relative reliability of various types of evidence. In general, documentation from internally generated documents – particularly those that are generated manually or not linked to other reporting systems – is less reliable as evidence than documents generated by external sources such as banks or suppliers.
“Informed, knowledgeable skepticism is a professional asset for auditors, board members and financial executives. By challenging their own assumptions – and creating an environment in which challenges are encouraged and supported – companies will not just deter fraud but make its detection more likely,” Marks said.
Now, we want to hear from you! Would like to share your opinion or make a comment on the Unlock Your Wealth Radio Show? If so, then please leave your comment or questions in the space provided below and share this article with your friends and family on Facebook and Twitter. Your comments or question could be chosen as our featured Money Question Monday and a phone call by financial expert Heather Wagenhals could dial your way to be live on the Unlock Your Wealth Radio Show.
Source: Yahoo! Finance
