NCJ Number
66358
Journal
Internal Auditor Volume: 37 Issue: 2 Dated: ( APRIL 1980) Pages: 23-29
Date Published
1980
Length
7 pages
Annotation
BASED ON EXPERIENCES OF THE DEFENSE CONTRACT AUDIT AGENCY (DCAA), MEASURES THAT ALL AUDITORS SHOULD CONSIDER TO IMPROVE FRAUD DETECTION ARE EXAMINED.
Abstract
ALTHOUGH FRAUD CASES INVOLVING DEFENSE CONTRACTS ARE RARE, DCAA HAS DISCOVERED ABUSES THROUGH REGULAR AUDITS AND REPORTS FROM OUTSIDE SOURCES. CONGRESS, FEDERAL AGENCIES, AND PROFESSIONAL AUDITORS ARE CONCERNED WITH IMPROVING INTERNAL CONTROLS TO DETECT AND DISCOURAGE FRAUD, AS EVIDENCED IN THE FOREIGN CORRUPT PRACTICES ACT AND PUBLIC LAW 95-452. INTERNAL AUDITING CONTROLS ARE PARTICULARLY IMPORTANT WHERE AUTOMATIC DATA PROCESSING IS EMPLOYED. MANY DCAA CASES INVOLVED MISCHARGED LABOR COSTS WHICH CANNOT BE DETECTED UNLESS INTERNAL CONTROLS ARE INSTANTANEOUS AND RIGID. SINCE DCAA CANNOT EXAMINE EVERY TRANSACTION OF CONTRACTORS, IT MUST DEPEND ON EVALUATIONS OF THEIR INTERNAL CONTROL SYSTEMS AND MONITOR ACTIVITIES WHEN WEAKNESSES ARE DISCOVERED. LARGE COMPANIES SHOULD ESTABLISH A PERMANENT INTERNAL CONTROL AUDIT STAFF BEFORE A SUBSTANTIAL FRAUD OCCURS. AUDITORS ALSO NEED TRAINING IN AREAS OF FRAUD DETECTION, SUCH AS UNUSUAL TRANSACTIONS, CONCEALED PAYMENTS, CONSULTANTS' FEES, AND COMPANY HISTORIES. INTERNAL CONTROLS AND DETECTION TRAINING ARE USELESS UNLESS AN EFFECTIVE REPORTING SYSTEM EXISTS. THE PROFESSION MUST INSIST THAT INTERNAL AND EXTERNAL AUDITORS BE PERMITTED TO ISSUE INDEPENDENT REPORTS WITHOUT FEAR OF CENSURE OR REPRISAL.