Business Fraud and the Internal Auditor
Alfredo Popritkin
for El Auditor Interno
Introduction
Here we´ll develop some demeanors related to the interests conflict of the internal auditor as a participant in fraud prevention and the possibility of bing called to participate in lawsuits.
Once the invitation to provide some comments to fellow internal auditors is accepted, it is imposed to perform a mental transformation to give a defined sense to the task we contemplate.
It is acceptable to imagine that if it is difficult for the external auditor to take a clear position towards fraud while having diversity of clients, I imagine harder and uncomfortable position of the internal auditor, who has to, after having discovered fraud, continue to interact with the cheater and his coworkers.
In fact, there is a severe situation to face that is to decide whether if following a clue and collect enemies, or, on the other hand, to maintain firm convictions regardless the consequences. It is obvious that there will be a variety of degrees in between the extremes.
Beyond all of it, it is possible that even the management might feel upset by our attitude, misleading or disapproving us within the organization, when the fundamentals state the facts should be very different.
What a tough situation! How many internal auditors are willing to maintain their principles, at any cost, come what may?
This paradox remainds me of my experience in the Parliament where I had to investigate matters that involved my boss and even the very judge in charge of the case for alleged crimes and irregularities.
Neglect and convictions were my moto to carry on, but if things did not go wrong it was due to the fortune being on my side and a non-corrupted sector of the legal institution and the Fourth Estate, who were merciful at me.
The truth is my administrative superior wanted to have me disciplined, as the judge, when he felt my work could involve him personally, barked so loud he was heard in the whole court.
But as the providence turned to be on my side, I can tell these experiences today, without censures, as he who overcomes hell becomes inmune y there are few things that are to fear deeply.
If we would build a bridge, I don´t see how an internal auditor who incriminates his boss, can survive in an organization he expects to pay his salary. Aren´t we talking about impossible scenarios, about laboratory cases?
If so, internal auditors are in deep trouble, in the same trouble in which and external auditor would be if a client of his indicates him what to report, as a condition to pay him a salary. In that case I commiserate them.
The following section is dedicated to the courageous auditors willing to do anything, whatever happens. Otherwise, we would be wasting time and filling pages so pretty as useless.
The internal auditor(IA) and Fraud
It is not my purpose to enter in the field of the IA, where I have more to learn than I have to state. But I do feel in the position of moving on in the assessment of what can be done-and it is often ignored- and moreover, how the IA continues the process, in order not to falter.
I had the opportunity of seeing many elaborated reports in the pre-legal stage, after the crime has been detected. If I had to make recommendations, I would tell the IA who take part in the administrative stage, to get into the forense accountant and magistrate.
The empathy practice usually gives very good results, in all aspects, especially when the intervention of the IA happens at the beginning of a chain that originates a crime investigation.
If the IA keeps on mind that his report will probably be used by managers, stockholders, crime attourneys, lawyers and prosecutors, it is possible the reasons and terminology used will be convenient to those recipients.
If he is also aware of the chance of being called to explain, proof and testify about his work, it is almost certain that the IA will put effort and accuracy in the preparation of his report.
The IA work will be relevant enough for those who will make use of it, as it is supportive, solid and clear. The conclusions must be independent, be all contained in the report along with the analysis they are grounded on, that are held in a accounting system that has gone through the different validation stages, because it will face an extreme severity in the legal stage.
The proof obtained must be exposed crystal clear, as the defense goal is usually to worsen the case, meaning that the confusing the crime the greater is the cheater´s advantage, principle that lawyers call “in dubio pro reo”.
In matter of economical crime there is plenty of it, for the logical reasons; lawyers in general know a lot less about accounting, finance and economy, than accountants about law. They don´t like them and even more so attourneys. However, they just have to make an effort to understand, as the prosecutor must accuse and the court must condemn. In this situatio they make it easy: if the case is not clear, speaking in accounting language for a high school student, they title the case as “doubtful” and the cheater is absolved.
That is why lawyers name “complex crimes” some economical crimes. True that in some cases the strategies have atisbos that make them difficult to understand, but the fact is that lawyers- except some lucky cases- find these crimes very difficult to understand. And a prosecutor may incriminar a cheater or a judge may condenar him, if they do not thoroughly understand the vericuetos of the utilized maniobras.
Here is where the imprescindible, clear, precise and scientific preparation of and audit report takes place.
Management system for corporate fraud prevention
Under N° 17450, IRAM materialized a group of requirements for prevention and investigation of organizacional fraud.
This disposition, which is not mandatory, will serve to generate awareness about the crime existente within companies.
Over the past 3 years, according to a survey, one out of tour argentinian companies was victim of a fraud that affected, to some extent, its profitability. During 2005 the proportion of harm suffered by companies affected by fraud climbed to 10%.
Version in Spanish
for El Auditor Interno
Introduction
Here we´ll develop some demeanors related to the interests conflict of the internal auditor as a participant in fraud prevention and the possibility of bing called to participate in lawsuits.
Once the invitation to provide some comments to fellow internal auditors is accepted, it is imposed to perform a mental transformation to give a defined sense to the task we contemplate.
It is acceptable to imagine that if it is difficult for the external auditor to take a clear position towards fraud while having diversity of clients, I imagine harder and uncomfortable position of the internal auditor, who has to, after having discovered fraud, continue to interact with the cheater and his coworkers.
In fact, there is a severe situation to face that is to decide whether if following a clue and collect enemies, or, on the other hand, to maintain firm convictions regardless the consequences. It is obvious that there will be a variety of degrees in between the extremes.
Beyond all of it, it is possible that even the management might feel upset by our attitude, misleading or disapproving us within the organization, when the fundamentals state the facts should be very different.
What a tough situation! How many internal auditors are willing to maintain their principles, at any cost, come what may?
This paradox remainds me of my experience in the Parliament where I had to investigate matters that involved my boss and even the very judge in charge of the case for alleged crimes and irregularities.
Neglect and convictions were my moto to carry on, but if things did not go wrong it was due to the fortune being on my side and a non-corrupted sector of the legal institution and the Fourth Estate, who were merciful at me.
The truth is my administrative superior wanted to have me disciplined, as the judge, when he felt my work could involve him personally, barked so loud he was heard in the whole court.
But as the providence turned to be on my side, I can tell these experiences today, without censures, as he who overcomes hell becomes inmune y there are few things that are to fear deeply.
If we would build a bridge, I don´t see how an internal auditor who incriminates his boss, can survive in an organization he expects to pay his salary. Aren´t we talking about impossible scenarios, about laboratory cases?
If so, internal auditors are in deep trouble, in the same trouble in which and external auditor would be if a client of his indicates him what to report, as a condition to pay him a salary. In that case I commiserate them.
The following section is dedicated to the courageous auditors willing to do anything, whatever happens. Otherwise, we would be wasting time and filling pages so pretty as useless.
The internal auditor(IA) and Fraud
It is not my purpose to enter in the field of the IA, where I have more to learn than I have to state. But I do feel in the position of moving on in the assessment of what can be done-and it is often ignored- and moreover, how the IA continues the process, in order not to falter.
I had the opportunity of seeing many elaborated reports in the pre-legal stage, after the crime has been detected. If I had to make recommendations, I would tell the IA who take part in the administrative stage, to get into the forense accountant and magistrate.
The empathy practice usually gives very good results, in all aspects, especially when the intervention of the IA happens at the beginning of a chain that originates a crime investigation.
If the IA keeps on mind that his report will probably be used by managers, stockholders, crime attourneys, lawyers and prosecutors, it is possible the reasons and terminology used will be convenient to those recipients.
If he is also aware of the chance of being called to explain, proof and testify about his work, it is almost certain that the IA will put effort and accuracy in the preparation of his report.
The IA work will be relevant enough for those who will make use of it, as it is supportive, solid and clear. The conclusions must be independent, be all contained in the report along with the analysis they are grounded on, that are held in a accounting system that has gone through the different validation stages, because it will face an extreme severity in the legal stage.
The proof obtained must be exposed crystal clear, as the defense goal is usually to worsen the case, meaning that the confusing the crime the greater is the cheater´s advantage, principle that lawyers call “in dubio pro reo”.
In matter of economical crime there is plenty of it, for the logical reasons; lawyers in general know a lot less about accounting, finance and economy, than accountants about law. They don´t like them and even more so attourneys. However, they just have to make an effort to understand, as the prosecutor must accuse and the court must condemn. In this situatio they make it easy: if the case is not clear, speaking in accounting language for a high school student, they title the case as “doubtful” and the cheater is absolved.
That is why lawyers name “complex crimes” some economical crimes. True that in some cases the strategies have atisbos that make them difficult to understand, but the fact is that lawyers- except some lucky cases- find these crimes very difficult to understand. And a prosecutor may incriminar a cheater or a judge may condenar him, if they do not thoroughly understand the vericuetos of the utilized maniobras.
Here is where the imprescindible, clear, precise and scientific preparation of and audit report takes place.
Management system for corporate fraud prevention
Under N° 17450, IRAM materialized a group of requirements for prevention and investigation of organizacional fraud.
This disposition, which is not mandatory, will serve to generate awareness about the crime existente within companies.
Over the past 3 years, according to a survey, one out of tour argentinian companies was victim of a fraud that affected, to some extent, its profitability. During 2005 the proportion of harm suffered by companies affected by fraud climbed to 10%.
Version in Spanish
posted by AP at 5:31 AM
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