Auditor's Role In Prevention And Detection Of Payroll Fraud

2114 words - 8 pages

“It is always right to detect a fraud and to perceive a folly; but it is very often wrong to expose either. A man of business should always have his eyes open, but must often seem to have them shut.” (Stanhope).

People are very weak when the power of money is involved. They believe that money is the answer to everyone’s problem. That is why they are easily attracted to commit fraud. This bad practice is still prevalent in the business world today. Business analysts say that it is already a part of the economic parlance.

With the state of our global and local economy today, businesses and individuals suffer a decline in their financial resources. Employees are pressured not only because their finances are declining but also their morale is down and their job security is threatened. These factors contribute to the commission of fraudulent activities in the organization.

Detecting fraud instantly is nearly impossible so it is very hard for a company’s management to identify the culprits outright. Some schemes are discovered after several years and when it has already damaged the company significantly.

Internal control system in business is essential to ensure check and balance and good governance in order to avoid the risk of losses. Despite the existence of internal control systems, these are not consistently implemented. Usually, employees have the tendency to deviate from the standard policies and procedures set by management, or make use of shortcuts

Internal auditors are necessary in the organization to ensure that policies and business processes are effectively implemented. They are vital in achieving organizational goals and used by management to safeguard the company’s resources, to evaluate the accuracy of financial reporting, and to detect possible misstatements and fraudulent acts. Internal auditing is a tool to maximize operational profit. (why?)

There are different kinds of fraud that auditors may encounter, in large as well as small companies. Some analysts say that fraud is possible to happen in the organization because there are individuals who will do certain actions just to satisfy their human needs. They believe that anyone in the company can commit this as long as this employee or manager is driven by his intention to earn more.

According to Cadmus and Child (1953), because payroll is so important as part of operating cost, and because it is usually controllable within rather wide limits, it is customary and correct that payroll should have continual executive attention.

The more common type of fraud is in the area of payroll by way of manipulating wages and salaries or making false claims for expense reimbursements. It is a type of fraud that is against the benefit of the company. They cause more financial loss in total to businesses than other third party frauds. It can be committed by employees who are involved in the payroll processing. How they are able to do so largely depend on the...

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