Auditing in organizations is done in order to detect fraud, and consequently prevent it. All the time, some unscrupulous individuals are looking at ways to bypass all security features to commit crimes and tamper with systems. Fraudulent people can either be outsiders or even people working in the organization. Krishnan (2014), mentions that organizations should never be comfortable with their systems even if they are automated, as no system is 100% fraud-proof. Advanced technology sometimes drives people into complacency; they assume that everything is okay just because they have used novel software and security features to protect their systems. Such cases apply to organizations particularly in the banking and technology industries. It should always be remembered that some fraudsters are highly intelligent people who may be incessantly developing other technological tools to override novel protection software. Fraud detection does not only apply to technology or banking industries; rather, organizations still using manual and mundane systems also need auditing to detect fraudulent activities (Zager et al., 2016). For instance, people can steal important files in organizations, forge signatures, and even manipulate some employees to receive certain benefits.
When fraudulent activities are detected through auditing, the organizations need to develop mechanisms to prevent them from happening. Therefore, auditing in this case helps organizations to continuously improve on their systems and procedures of operation. Sometimes, organizations do not have discover fraudulent activities to improve on their systems; rather, they can always evaluate their systems with the objective of being one step ahead, which is to always be ahead of fraudsters or unscrupulous individuals. Responding to fraudulent activities or improving on systems through auditing can take the form of buying new equipment and tools to protect the systems or creating new rules in the organization to which all employees in the organization are supposed to adhere. For example, only authorized employees can be allowed to enter particular rooms or offices.
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Internal Control
According to Western Illinois University (2015), internal control is a process which is influenced by an organization’s board of directors, people in the management positions, and other individuals, and it is aimed at providing reasonable assurance concerning various objectives. Some of such objectives include reliability of financial reporting, efficiency and effectiveness of operations, and compliance with relevant regulations and laws. Therefore, auditing in relation to internal control evaluates internal mechanisms in the organization to ensure that everything flows smoothly. Such evaluation focuses on how well people are performing their responsibilities, if the organization has met all the government or relevant authorities’ policies, and is in total control of all other activities flowing within the organization. This kind of auditing can be equated to performance evaluation only that it is broad and more detailed.
There are various examples of internal controls in organizations. The first example is physical controls. These controls ensure that inventories, equipment, cash, securities, and other important assets are secured physically. These aspects can be secured through the use of safes, locks, and other environmental controls. In this case, access may be limited to only authorized individuals. The second type of controls concerns transaction and activity reviews. In this aspect, the management team may evaluate operating, transaction, and summary reports to track performance against the established goals. For instance, the management can review monthly budget statements and expenses in an attempt to see whether they are above organizational expenditure goals. Another important internal control relates to policies and procedures. This refers to the documentation that gives guidance and training to foster consistent performance at desired level of quality. The management can also review such documentation from time to time to determine whether they are at par with the prevailing levels of quality or trends.
Certification
Auditing also requires certification, the first aspect of this process means that individuals conducting the process need to be verified. In essence, individuals need to have the required knowledge and skills to conduct the process. From Isaca.org (n.d), examples of certified persons are provided such as certified information systems auditor, certified information security manager, and certified data privacy solutions engineer. In particular, Isaca.org provides the education and training to individuals who want to be certified auditors in various fields, especially those relating to technology. Therefore, one of the important things about the certification process is that individuals need to have the requisite knowledge to conduct auditing effectively. Additionally, organizations have to hire people with various certifications to audit different areas of the organization.
Also relating to certification is that firms operating in particular high-risk areas such as pressure vessels, toys, gas appliances, elevators, medical and electrical devices with the desire to operate in certain countries need to comply with certain regulations. For instance, in Europe, such companies need to have something called a CE Mark (Asq.org, n.d). Organizations can get this mark by having their management system certified by a third party audit organization. Meeting the required certification is important because sometimes customers may require that certain products be certified before they can purchase them. Therefore, certification may give the assurance that certain products are safe and of the desired quality.
References
Asq.org. (n.d). What is auditing ? https://asq.org/quality-resources/auditing
Isaca.org. (n.d). https://www.isaca.org/
Krishnan, V. (2014, April). 10 golden tenets of fraud prevention and deterrence, part 1. Fraud Magazine . https://www.fraud-magazine.com/article.aspx?id=4294982428
Western Illinois University. (2015). What are internal controls ? http://www.wiu.edu/internal_auditing/internal_controls/
Zager, L., Malis, S. S., & Novak, A. (2016). The role and responsibility of auditors in prevention and detection of fraudulent financial reporting. Procedia Economics and Finance , 39 (2), 693-700.
