Deterring financial fraud seems to be the job of finance executives who manage the company's books, but responsibility for detecting fraud is a little more difficult to pin down.
In a survey across several professional groups -- including board directors, internal and external auditors, and financial executives -- 87 percent agreed it is the job of senior executives in an organization to set the tone and establish the procedures necessary to deter financial reporting fraud. Only 10 percent said it was the job of the board of directors, and only 3 percent believed that responsibility falls to internal or external auditors.
When it comes to detecting fraud, however, the groups are not so united. Only 52 percent said it is senior management's duty to detect fraud, while 31 percent said internal auditors should catch it. Another 12 percent said it is the job of the external auditor, and 6 percent said it is up to the board to detect fraud.
The survey was conducted by the Anti-Fraud Collaboration, which comprises members of the Center for Audit Quality, Financial Executives International, Institute of Internal Auditors, and National Association of Corporate Directors. The survey across members of those four organizations yielded some split views on who holds primary responsibility for detecting financial reporting fraud.
In a breakdown of the survey results by group, only 2 percent of board directors believed it is their job to detect fraud, while nearly half said senior management holds primary responsibility. Nearly 30 percent of directors pointed to internal audit, and 23 percent pointed to external audit. Among external auditors in the poll, however, only 4 percent believed they are primarily responsible for finding fraud; 32 percent said the primary duty falls to internal auditors, and 56 percent said it belongs to senior management.
Executives, internal auditors, and external auditors expressed high levels of confidence in the ability of those groups to identify a potential material misstatement due to fraud. Directors placed the highest levels of confidence in those groups, in fact, with more than 90 percent showing confidence in each of those three groups. However, those groups don't hold the same level of confidence in board members. Only 36 percent of internal auditors, for example, and only 46 percent of external auditors held confidence in the board.
The four groups that conducted the survey held a roundtable session to discuss the results but did not attempt to define who should take the lead for deterring or detecting fraud, advocating instead a more collaborative approach. “To have the best chance of reducing the occurrence of financial statement fraud, everyone must understand their respective roles,” said Richard Chambers, president and CEO of the Institute of Internal Auditors, in a statement. “I think the big takeaway here is that communication is key.”