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The multi-dimensional functions of an internal auditor raise a question with regard to conducting investigations as a part of addressing fraud risk. In sophisticated and large organisations, internal auditor may don the role of an investigator but what should be the point of hand-off to forensic investigators and legal counsel? The answer depends mainly on two factors — management philosophy, skill sets and experience of the internal auditor.
Management philosophy
According to the PwC's Global Economic Crime Survey, 2009 – 54 per cent of the respondents believed that one of the top factors contributing to higher opportunities of risk of fraud in India is that internal audit is being asked to do more work and/or with less staff. There have also been instances, when internal audit function has faced budget constraints which may stall the process of investigating fraud issues further. This may put the company at greater risks.
Skills of an internal auditor
The point of hand-off is determined by internal auditors' skill set to continue to carry on with a fraud investigation. Any investigation has two integral components — examining documents and interrogating the suspects to determine and validate facts. An internal auditor may have the skills to examine documents meticulously; however, an interrogation requires tact, an understanding of human behaviour and experience. Hence it is advisable that the process of further investigation involving interrogation is conducted by a forensic accountant.
Key responsibility areas
Over and above the routine work, the key responsibility areas of an internal auditor include cost reduction and value addition. The value addition goal depends upon the internal auditor's interpersonal relationships in the organisation. During a fraud investigation, an internal auditor may jeopardise his interpersonal relationships which, as a consequence, may affect his value-addition goals.
Given the increased scope and complexity of the internal audit function, forensic accountant investigators can provide the necessary edge to carry out further investigations in a judicial manner.
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