mGovernment Magazine - Issue 25

XXVII / 11

communicating reports and information
about works and never be under influence
of personal interests or other parties
at making estimations and expressing
opinions.
Internal Audit and protection of
organization from fraud
If a government body suffers from fraud,
it is considered a failure in governance
system in absence of effective action
against fraud. No doubt, the internal audit
plays a significant role in protecting the
organization from fraud andmanipulation.
Especially, studies found that the external
independent auditors cannot detect all
cases of fraud and manipulation in the
financial statements because of its non-
existence at a permanent basis in the
project and it depends onstatistical samples
instead of full examination. Therefore, the
internal audit is the party can protect the
organization from fraud and manipulation
of assets and no one is better than internal
audit to do so.
International Federation of Accountants
defines the internal audit system that is all
internal policies, procedures and controls-
adopted by the organization management
as much as possible in order to achieve the
management goal. Such goal is business
management in an organized and effective
manner including compliance with the
management policies, assets protection,
detection of fraud and errors, completion
of accounting records, and preparation of
reliable financial statements.
The definition expressly refers to
correlation of internal audit system with
the organization objectives. This indicates
the importance of this system, which has
become the basic in all kinds and types
of organizations. These entities design
the internal audit system, which meet the
control requirements.
The fraud risk arises, as t is well known
from three main factors:
1- Certain pressures on someone could
drive him to commit fraud
2- An easy opportunity to commit fraud
such as gaps in the internal audit system
3- Personal tendency to fraud – i.e.
dishonesty – in person has certain
pressures and easy opportunity
These crimes risks have become high after
criminals usemodern technologies for illicit
purposes. There are many technology-
based fraud methods and techniques.
The stealth of money especially credit
cards is one of the most important fraud
crimes. The internal auditor is required
to be vigilant and constantly considers
previous fraud cases and all indications of
fraud. This is a traditional role of internal
audit.
Internal audit in fraud control
Theinternalauditorhasasignificantimpact
on control of all fraud kinds and types
at higher management or shareholders.
The internal audit is allowed to monitor
corruption control program in addition it
has powers to fill gaps. It is also important
that the internal audit is independent from
correction processes so that internal audit
assessment and review will not be subject
to influence.
Economics experts say that auditingmeans
a range of procedures and comprehensive
investigation process carried out by a
qualified person(s) to accounts and records
in order to express neutral opinion. It
provides information about whether
expenses and revenues are recorded into
accounting books and records correctly,
and whether the assets are properly
evaluated in a certain period of time. The
board of directors and executives assume
responsibilities for compliance with
governance arrangements and for fraud
control. Inmany cases, internal audit is also
supported by the audit committee, which
supervises process of development and
execution of fraud controls and reception
of all reports in addition to fraud control
frame and any suspected fraud cases.
Professional doubt
The reasonable doubt is one of the most
important skills the internal auditor must
have. It can assist the internal auditor in
his assignment. The materiality is not only
related to the fund amounts but it is also
connected with the certain effects for the
following reasons:-
1- If fraud is not prevented, it is probable that
manipulation aspects shall be significantly
spread.
2- The fraud expressly indicates to weakness
in the internal audit
3- Fraud includes other subjects hidden and
could be inaccessible
Some studies in USA on internal audit
role in detection of fraud in the financial
statements found that it is very important
that the internal audit submits its
reports to the board of directors not to
the higher management after sufficient
investigations made. The fraud is a
wrongdoing and the offender deserves
punishment in order to achieve justice,
furthermore, loss of pain and deprivation
in punishment shall make crime-
punishment equation meaningless as a
result of absence of either element.
The internal audit department plays a
significant role to limit and detect fraud.
Therefore, the government bodies internal
audit resources are required to assist limit
and detect fraud within audit processes
as part of annual internal audit programs.
The internal audit department should also
take part in effectively in fraud control
in audit processes that review and test
internal controls including collection of
transactions samples.
The legal department role is restricted
to present the directions to the assigned
investigation teamand to themanagement
on matters that could affect the
organization activities in order to control
fraud. It includes but not limited to due
diligence, reviewof third party transactions
–related records, advices on legal status in
case of prosecution of involved persons in
fraud in order to recover stolen assets or
compensation for damages resulted from
breach of trust.
By: Mohamed Fadhal Lari
Legal Consultant