logo-newlogo-newlogo-newlogo-new
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books
✕
  • Home
  • Chambers on Internal Audit
  • Uncategorized
  • When You Spot Fraud, Don’t Break the Eggs

When You Spot Fraud, Don’t Break the Eggs

2021 Pulse of Internal Audit: We Are All in the Same Storm, But Not the Same Boat
March 15, 2021
​How Agents of Change Can Shape Internal Audit’s Future
March 22, 2021
March 17, 2021

Chambers When You Spot Fraud Don't Break the Eggs

The International Standards for the Professional Practice of Internal Auditing are clear: Internal auditors must possess the knowledge, skills, and competencies needed to carry out their responsibilities. Some internal auditors also have the knowledge and skills to carry out a fraud examination effectively, but most do not. And in an upcoming position paper, The IIA emphasizes that internal auditors should not be expected to have the expertise of those professionals whose primary responsibility is to investigate fraud. The IIA believes fraud investigations are best carried out by those experienced to undertake such assignments.

Hopefully, your organization has a fraud response plan that assigns specific duties and responsibilities. But if not, don’t automatically assume that, as an internal auditor, you should undertake a fraud investigation single-handedly or that you should lead a fraud investigation team yourself.  

We all need to be familiar with the indicators of fraud, and we need to be able to evaluate anti-fraud controls. But few internal auditors are fully equipped to be fraud investigators. An interrogation is very different from an audit interview, and there can be great risk between reviewing evidence and contaminating it. When fraud is suspected, a simple mistake can easily become a costly and career-limiting move.

I have seen too many instances during my career where well-intentioned internal auditors inadvertently damaged the chances of a successful fraud investigation because they were either careless or simply didn’t understand the risks of their actions. I always cautioned my teams to be careful not to “break the eggs” when they came upon a potential fraud during the course of an internal audit. From my experience, the following are just a few types of mistakes that internal auditors can make when they encounter evidence of fraud.

  1. Do not discuss the situation with anyone who does not have a need to know.Even the existence of an investigation should be kept confidential. Keep in mind that the scope of an occupational fraud is often bigger than it first appears, and you may not yet have identified everyone who is involved in the crime. Our profession’s Code of Ethics requires confidentiality, and it’s not appropriate to chat about new or ongoing investigations even with other internal auditors. 
  2. Do not make accusations or rush to judgment.The evidence may appear to indicate that someone has committed a crime, but accusations can lead to charges of slander, libel, or wrongful termination. It should rarely be an internal auditor’s job to accuse anyone of fraud, so contact your supervisor before saying something you might later regret.
  3. Do not disrupt operations.If you do, you may tip off potential fraudsters that they are under suspicion. Your actions may cause them to destroy important evidence, to warn accomplices, or to take other actions that can undermine an investigation.
  4. Do not disturb a potential crime scene or do anything that might contaminate or destroy digital evidence.Internal auditors are good at examining evidence, but special care must be taken during investigations. For example, it may seem appropriate to examine a suspect’s computer records or to make a backup copy of his or her files. But computer forensics experts never perform analysis on original media. Simply by turning on a suspect’s computer, opening a file, or making a backup, you are changing digital time stamps and hash values, potentially compromising important evidence. At times, action is unavoidable: It may be necessary to isolate a computer to prevent connections into and out of the system, for example. But preserving digital evidence is tricky. Unless you have specialized training in computer forensics, call for help before proceeding.
  5. Do not fail to swiftly alert legal counsel and human resources professionals. It’s likely your fraud response plan states that it’s necessary to brief legal counsel and a human resources (HR) representative before a formal investigation is launched. HR input can be especially important if termination or other disciplinary actions might result from the investigation. Depending upon the circumstances, your organization may be required to make disclosures about criminal activities to regulators, law enforcement, clients, shareholders, or other parties. Legal counsel can help to ensure that regulatory requirements are not overlooked; and attorney-client privilege can help protect your organization from disclosure of details that it might not want to make public immediately. 
  6. Do not assume you should perform interrogations.When performed with expertise, interrogations can be an excellent source of information. Without that expertise, an investigation can be irreparably damaged. Internal audit interviews and discussions often employ collaborative approaches that are not necessarily appropriate during investigations; but an accusative approach can also be a big mistake. Nobody wants a hostile or defensive suspect.
  7. Do not neglect your files. It’s never a good idea to leave internal audit workpapers unsecured, but when fraud is involved, keeping documentation safe and confidential is particularly important. Having a copy of a document is not as good as having the original.

Fraud investigations can be high-risk engagements. If you think there is a possibility of fraud, don’t break the eggs. You should not take any action that might tip off potential fraudsters or compromise evidence so that it can’t be investigated later. I don’t mean to imply that internal audit should never be involved in fraud investigations, but if the internal auditors are not fully trained investigators, it’s time to seek help from specialists. A wise internal auditor understands the limits of his or her own knowledge and knows when to ask for help.

I look forward to your thoughts on this important subject.

Share

Related posts

January 31, 2023

Recent Advice on Hiring Internal Auditor’s You Can ‘Trust’ Is Misdirected


Read more
January 24, 2023

Do Performance Bonuses Impair Internal Auditors’ Independence and Objectivity?


Read more
January 16, 2023

Are Internal Auditors to Blame When Boards Are in the Dark?


Read more

1 Comment

  1. Doreen says:
    April 20, 2021 at 7:46 am

    I totally agree with you Richard.

    However it is unfortunate that most organizations do not differentiate between internal audit and forensic audit roles.

    The expectation is that internal auditors are the same as forensic auditors . The roles of internal auditors are not duly comprehended by many including top management executives.

    We as internal auditors we need to sensitize our organizations on what the roles of internal audit are and recommend onboarding forensic auditors . Though many cite budget constraints as reasons for not onboarding forensic auditors.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

What’s Trending

01-31-23

Recent Advice on Hiring Internal Auditor’s You Can ‘Trust’ Is Misdirected


01-24-23

Do Performance Bonuses Impair Internal Auditors’ Independence and Objectivity?


01-16-23

Are Internal Auditors to Blame When Boards Are in the Dark?


Read More

Archive

  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009

Contact Us

PO Box 1441
New Smyrna Beach, FL 32170

+1-407-463-9389
rchambers@richardchambers.com

About AuditBeacon.com

AuditBeacon.com is a resource center for internal auditors and risk professionals from around the world. In addition to more than 500 blogs authored by Richard Chambers, the site includes links to news and insights on internal audit and other information that illuminates the value of this important profession. AuditBeacon.com is provided as a service by Richard F. Chambers and Associates, LLC.

Copyright © 2023 Richard F. Chambers & Associates. All Rights Reserved.
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books