RELEVANCE OF INTERNAL AUDIT IN PREVENTION AND DETECTION OF FRAUDS

LUKA ĐUKANOVIĆ, CIA

JANUARY 2017

69%

31%

The organization in which you are employee belongs to:

Private sectorPublic sector

72%

1%3%9%

16%

Internal audit is established as:

DepartmentDivisionSectorServiceUnit

160 responses in total

1%1%1%

28%

1%

14%9%

46%

Your current position:

Audit Manager Audit SeniorDeputy headHead of internal auditInternal Audit ManagerJunior internal auditorOtherSenior internal auditor

44%56%

Do you have certificate for internal audit?

YesNo

40%

60%

Do you have certificate for internal audit? - private

sector

YesNo

53%47%

Do you have certificate for internal audit? - public

sector

YesNo

64%14%

13%9%

On the current position you have been for:

1-5 years5-10 yearsLess than a yearMore than 10 years

37%

24%6%

34%

Your working experience in internal audit:

1-5 years5-10 yearsLess than a yearMore than 10 years

34%

44%

13%

6% 2%

Level of independence of internal audit in your organization you

assess as: 54321

11%

29%

317%

446%

528%

No certificate

13%

23% 3

9%

443%

543%

Yes certificate

215%

320%

445%

520%

Head of IA without certificate

38%

14%3%

45%

Management of your organization relies on internal audit reports:

CompletelyFormallyNot rely at allPartially 59%

41%

Does your organization have de-veloped anti-fraud policy?

YesNo

63%

37%

Does your organization have de-veloped anti-fraud policy? Private

sector

YesNo

49%51%

Does your organization have developed anti-fraud policy?

Public sector

YesNo

14%

13%

34%

25%

14%

Assess the level of development and implementation of anti-fraud

policy in your organization (if there is one). 1

2345(blank)

23%

47%

14%

17%

Did you have recommendations for the development and strengthening of anti-

fraud policy in your reports?No, there wasn't any recommendationYes, all recommendations are accepted and imple-mentation is ongoingYes, all recommendations are accepted and imple-mentedYes, but the majority of recommendations are not accepted

16%

9%

29%

38%

9%

Evaluate how much your recom-mendations influenced the

strengthening and development of anti-fraud policy:

12345 41%

59%

In your opinion the organization al-locates sufficient budget for the

training of internal auditors in the field of prevention and detection of

fraud?YesNo

9%

18%

1%6%

19%1%17%

18%

4% 7%

In your plans for internal audit, you assess fraud risk as a specific type of risk:

We don't consider fraud risk as specific type of risk

When preparing annual audit plan

When preparing annual audit plan, We don't consider fraud risk as specific type of risk

When preparing annual audit plan, When preparing strategic audit plan

When preparing audit engagement plan When preparing audit engagement plan, We don't consider fraud risk as specific type of risk

When preparing audit engagement plan, When preparing annual audit plan

When preparing audit engagement plan, When preparing annual audit plan, When preparing strategic audit plan

When preparing audit engagement plan, When preparing strategic audit plan

When preparing strategic audit plan

89%

11%

Are you familiar with the term "red flags"?

YesNo

83%

17%

Are you familiar with the term "red flags"? Without certificate

YesNo

96%

4%

Are you familiar with the term "red flags"? With certificate

YesNo

While you perform audit, did you encounter situations by which you can doubt that the employees in the organization had committed some kind

of fraud or other illegal activities ?No, I didn't encounter simillar situations Yes, all doubts and evidence that the fraud was

commited are part of the final reportYes, although this segment of business was not part of the audit plan I reported situation to my supervisor

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, all doubts and evidence that the fraud was commited are part of the final report

Yes, however this segment of the business was not part of the audit plan and I did not do any-thing about it

Yes, however through further investigation we found that the doubt was not grounded, and the finding has been removed from the final report

Yes, however through further investigation we found that the doubt was not grounded, and the finding has been removed from the final report, Yes, all doubts and evidence that the fraud was commited are part of the final report

Yes, however this segment of the business was not part of the audit plan and I did not do any-thing about it, Yes, although this segment of business was not part of the audit plan I re-ported situation to my supervisor

Yes, the issue was resolved in silence, but I removed this finding from report at discretion of my superior

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, however through further inves-tigation we found that the doubt was not grounded, and the finding has been removed from the final report

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, however through further inves-tigation we found that the doubt was not grounded, and the finding has been removed from the final report, Yes, a

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, the issue was resolved in si-lence, but I removed this finding from report at discretion of my superior

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, the issue was resolved in si-lence, but I removed this finding from report at its sole discretion

Yes, the issue was resolved in silence, but I re-moved this finding from report at its sole discre-tion, Yes, all doubts and evidence that the fraud was commited are part of the final report

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, the issue was resolved in si-lence, but I removed this finding from report at its sole discretion, Yes, however through further investigation w

Yes, although this segment of business was not part of the audit plan I reported situation to my supervisor, Yes, the issue was resolved in si-lence, but I removed this finding from report at its sole discretion, Yes, the issue was resolved in silence, but

Yes, however this segment of the business was not part of the audit plan and I did not do any-thing about it, Yes, all doubts and evidence that the fraud was commited are part of the final report

Yes, however this segment of the business was not part of the audit plan and I did not do any-thing about it, Yes, although this segment of business was not part of the audit plan I re-ported situation to my supervisor, Yes, the issue was resolved in silence

Yes, however this segment of the business was not part of the audit plan and I did not do any-thing about it, Yes, the issue was resolved in si-lence, but I removed this finding from report at discretion of my superior, Yes, all doubts and ev-idence that the

Yes, the issue was resolved in silence, but I removed this finding from report at discretion of our Chairman of the Board

Yes, the issue was resolved in silence, but I re-moved this finding from report at its sole discre-tion

I donn't know ??? Evidence seen but was subsequently replaced by client. Though reported to Head, there was no evidence to support claim

Yes, the issue was resolved in silence, but I re-moved this finding from report at its sole discre-tion, Yes, however through further investigation we found that the doubt was not grounded, and the finding has been removed from the final re-port

Yes, the issue was resolved in silence, but I re-moved this finding from report at its sole discre-tion, Yes, however through further investigation we found that the doubt was not grounded, and the finding has been removed from the final re-port, Yes, all dou

0

5

10

15

20

2521 22

20

79

7 7

1

13

69

5

1 2 13

Private sectorPublic sector

30%

41%

29%

Number of initiated criminal and disciplinary proceedings for de-tected fraud in the organization (for the period when you are an employee of the organization):0

1-3More than 3

39%

47%

14%

Number of initiated criminal and disciplinary proceedings for de-tected fraud in the organization (for the period when you are an employee of the organization):

public sector01-3More than 3

60%

40%

Have you ever got a tip where it is suspected that one of the employ-

ees in organization committed fraud or other illegal activity?

YesNo

40%

34%

26%

Number of initiated criminal and disciplinary proceedings for de-

tected fraud in the organization as a result of work of internal audit:

01-3More than 3

53%33%

14%

Number of initiated criminal and disciplinary proceedings for de-

tected fraud in the organization as a result of work of internal audit -

public sector:

01-3More than 3

29%

38%

33%

Number of frauds detected by performing internal audit:

01-3More than 3

Private sector Public sector0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Number of frauds detected by per-forming internal audit:

0 1-3 More than 3

1 2 3 4 50.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Number of frauds detected by performing internal audit in relation to the level of independence of IA

0 1-3 More than 3

66.67%

30.00%

14.29%

23.94%

38.18%33.33%

40.00%

47.62%

38.03%34.55%

30.00%

38.10% 38.03%

27.27%

0 1-3 More than 30.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Number of frauds detected by performing internal audit in relation to the Number of initiated criminal and disciplinary proceedings for detected fraud

in the organization:

0 1-3 More than 3

CONCLUSIONS• Stronger management commitment in developing and implementation of

anti – fraud policy

• Higher budget for trainings and certification of IA related to the anti – fraud

issues

• IA assessment of governance of fraud risk management and tone of the

top

• Employees commitment to the ethical codex

• More recommendation for developing adequate anti fraud policy and

improvements of internal controls where the level of risk of fraud is

highest.