Responsibility of Internal Audit in the Detection of Fraud - Research Paper Example

Auditing is mostly of two types: Internal and external audit. The internal audit team is a team appointed by the management of the company which aims at ensuring that the company is acting according to the rules and operations are in compliance to all type of internal and external rules. Internal audit prepares a company for an external audit by evaluating the operations and checking for fraud within manageable levels. External audit, on the other hand, is conducted by independent authorities who have no personal concern or take in the company and are appointed by the SEC or legal authorities to check the company’s operations.

When an internal audit team audits, the company does not face any fine or legislation in case of fraud detection but in case of the external audit team, companies face legislation, fine and other legal processes in case of any fraud in their operations. Fraud in operations is one of the most occurring and costly issues faced by organizations. Studies show that US organizations have faced a very significant and increasing proportion of fraud in their operations every year. US economy faces the highest proportion of fraud in the period of economic downturn that is because employees and management do not get money enough for their survival or many other reasons contribute.

It has also been observed that proportion of fraud had been increasing with significant percentage each year since 2001 (Howe, 2009). As a proportion of fraud is increasing in the organizations, it has brought high concerns to the management. Organizations today strive their best to lessen fraud and corruption in their operations. For this purpose, they rely heavily on the internal audit team and internal auditing activities. Internal auditor reports only to the board of directors he gets better control on fraud and corruption because of the fact that board of directors have a stake in the company and hence they don’t tolerate any kind of fraud and don’t hold any other personal interest.

Organizations believe that as internal auditors review the activities in depth and monitor the operations independently without any personal take on them, they usually stem well in the areas where fraud is taking place. Internal audit teams get a good knowledge of the operations and organizational process over time and this is what makes it easy for them to detect any fraud happening. The internal auditors are believed to have better knowledge of the risk areas, control systems, employee profiles and this is what helps in effectively dealing with fraud in the organization.

It has been stated by ACFE US that the internal audit team has detected the highest proportion fraud in organizations. The survey elaborates that internal auditors have no concern or personal interest in the organization. Rather they are independent authorities. Contrary to them, management has a personal interest in bonuses, rewards, and promotions as well as job retention which given them the way to fraudulent behavior.