In a recent study, The Association of Certified Fraud Examiners presented findings that bring to light a number of questions about the effectiveness—or seeming ineffectiveness—of internal controls as a detection measure for financial statement fraud and abuse.
According to the ACFE’s 2004 Report to the Nation on Occupational Fraud and Abuse, which looked at the initial detection of occupational frauds, the most effective detection method was through tips, accounting for 39.6 percent of the incidents. Internal audit was the second most common way in which fraud had been detected, accounting for 23.8 percent of the incidents. Fraud was detected “by accident” in 21.3 percent of cases, followed by detection via internal controls in 18.4 percent of cases.
