Role of Internal AuditorAs Accounting Fraud Controller

Financial fraud is the deliberate fraud committed by management that injures investors and Creditors through materially misleading financial statements1. .As the statement states, a fraud is a deliberate attempt to cook the financial statements either to showcase greater profits or to boost personal fortunes. Several accounting frauds were reported during last two decades, chief among them were the Enron accounting fraud the Satyam Accounting Fraud and the Reebok India fraud. These frauds could have been curtailed through proper internal control system, internal audit and strict Implementation of regulations. This article throws light on the appointment of internal Auditor by outside stakeholders to empower him and consequently to detect and prevent fraud. The outcome of a Fraud being exposed is diabolical. It rattles investor confidence on the functioning of the markets and consequently dampens the economy of the nation as a whole. Hence, the internal Auditor needs to keep himself abreast of all changes happening in the organization and internal systems across the board. Appointment of Internal Auditor can be done by Regulators such as SEBI in India or SEC as in U.S or by Public Financial Institutions/Banks or by the Government. Accounting frauds may be due to employees involvement at senior, middle and lower levels, and it may also be caused due to involvement of promoters/owners of the company, as was the case in Satyam Computers Fraud. The reasons for fraud could be any of these, (1) Employees Pressure because of personal reasons (2) Opportunity to commit fraud while an employee is at a position of trust (3) Integrity of employees. The reason why an internal Auditor is better than an external one is for the following reasons:- Time available with internal Auditor is throughout the year, as compared to external Auditor who has limited time. Internal Auditors scope is much larger and is more accustomed with the Companys setup, its system and procedures including internal control systems, as compared to external Auditor. Internal Auditor remains in constant touch with all facets in the company be it internal control systems and business model, employees accessibility to various Resources of the organization and possibilities of misappropriation of business assets.

Some signals or symptoms of fraud can include Duplicate payments, Excessive credits, Outstanding receivable accounts over the long term, Continuous increase in stock, Excessive cash and bank balance, Unusual journal entries made at the end of the year, Journal entries without supporting documents, forging of documents, Cash shortage, unreasonable expenses or reimbursements, Products purchased in excess than required, Failure to follow up on past due receivables, Significant increase or decrease in account balances, Shortage in delivered goods, Unexplained adjustments in accounts receivables, accounts payable, revenues or expenses, Old checks received but not presented for payments, Unusual financial statement relationships such as Decreased revenue with increased receivables, Increased revenue with decreased purchases of inventory and Increased inventory with decreased purchases or payables to vendors. There are various steps that an internal Auditor can take to curb frauds in an organization such as planning an internal audit, Quality assurance in internal audit, Documentation, following Enterprise risk management etc. The reason for the appointment of internal auditor by an outside stakeholder is that fraud by management and owners/promoters has a much greater magnitude and grave consequences as it hampers investor's confidence and erodes corporate confidence. Take the case of Enron or Satyam Computers. All of these have misused the public funds and harmed the investors and institutions only because of their greed and avarice. Hence one should always keep in mind that the world is sufficient for everyone's need, not greed. References

1EBSCO Database. Internal Auditor as Accounting Fraud Buster (PDF File), downloaded from EBSCO database, http://eds.b.ebscohost.com/eds/search/basic?sid=06e518cd-ea34-4ba6-91c4-537497aec364%40sessionmgr112&vid=0&hid=116 , accessed August 31, 2014. Accounting fraud.Accounting Scandals, http://en.wikipedia.org/wiki/Accounting_scandals , accessed August 31, 2014.