INTERNAL AUDIT CAN catch the fraud?

Perhaps this question would be quite impossible, if fraud was created by the company management. Meanwhile, one of the objectives of internal audit is precisely to find irregularities, whether as a result of an intentional misstatement (fraud) or not. Yet according to the report "2002 Report to the Nation on Occupatinal Fraud and Abuses" states that the internal audit activity can suppress 35% of the occurrence of fraud.
Answer the questions above will be even more difficult to find, even if the top management plays an active role by designing an internal audit tasks diperusahaannya be a task that is "merely" to assess the performance of a part, instead of working to meet the internal control function. Thus, the management intends to make fraud be untouched by the internal audit, and even become impossible to find.
Typically, in addition to designing for internal audit activities to be paralyzed, the massive fraud carried out through the double trick of making the financial statements. The financial statements that have been manipulated, specially prepared for consumption by the auditors, while the actual report - the report truly describe the actual conditions of financial companies - is only distributed to the exclusive environment of top management.
Massive Fraud at Phar Mor Inc..
History records the case of Phar Mor Inc.. as a fraud case that had a legend among the financial auditor. Executives at Phar Mor deliberate fraud to gain financial benefits that go into the private pockets of individuals in the top ranks of corporate management.
Phar Mor Inc., including the largest retail company in the United States declared bangkrupt in August 1992 based on U.S. legislation Bangkruptcy Code.
At the height of its power, Phar Mor has 300 outlets in almost all major states and employs 23.000 employees. The products sold vary widely, from medicines, furniture, electronics, apparel sports to the videotape. In doing fraud, Phar Mor top management to create 2 duplicate reports. The inventory report, whereas other reports is the monthly financial reports (monthly financial report). A set of inventory reports contain a true inventory reports (true report), while a set of other reports containing information about the inventory adjustment and is intended for the auditor's use only.
Likewise, the monthly financial reports, financial statements which is true - contains about the losses suffered by the company, is intended only for the executive ranks. Another report is a report that has been manipulated so as if corporate profits are plentiful.
In preparing these reports, management Phar Mor deliberately recruited staff from Public Accounting Firm (KAP) Cooper & Lybrand. Staff which is then promoted to Vice President of Financial and controllers, who were later proved actively involved in the fraud.
In the case of Phar Mor, one of the requirements of internal audit in order to function, the function of the control environment were muzzled. Control environment is largely determined by attituted of management. Ideally, management should fully support the internal audit activity and declare it's support all of the ranks of the company's operations. Top management Phar Mor, did not show a good attitude. Management then recruited staff auditors instead of KAP Cooper & Librand to participate in the fraud played. This step is not without careful planning. Former staff auditor and was promoted to occupy an important position, but in return have to make multiple financial reports.
Phar Mor management so far has proved the theory: The Fraud Triangle. That is the theory that explains the causes of fraud occurs. According to this theory, the causes of fraud occurs due to three things: incentive / Pressure, Opportunity and Rationalization / Attitude.
Incentive / Pressure is when management or employee incentive or just getting under pressure (presure) so that they "commited" to conduct fraud. Opportunity is the possibility of fraud due to weak or no control efektivenya thus opening the possibility of fraud. While Rationalization / Attitude describes the theory that fraud occurred because the condition of local ethical values ​​that allow the occurrence of fraud.
In the case of Phar Mor, at least, top management has proved one of the three constituent triangle, namely: top management has incentives / Pressure.
Underlying Case L / C at BNI
Case of fraud at BNI that caused state losses of Rp. 1.7 trillion, interesting to study.
This case actually revealed by the Head of International Division suspicion of irregularities procedure L / C BNI Kebayoran Baru branch.
Based on the Report of the International Division which was released on August 7, 2003, then Director of BNI lower the special audit team to explore this case. The result, a special audit team's report released in early September 2003 to prove the truth of burglary state funds amounting to Rp. 1.7 trillion.
The fundamental question is: why the internal audit team can not catch this fraud? So the reports of fraud-release it on the head of the International Division of suspicion over the deviation procedures of L / C at BNI Kebayoran Baru branch? whether at the time of internal audit activity is paralyzed by unscrupulous management BNI Kebayoran Baru branch? Or unscrupulous management BNI Kebayoran Baru branch have designed the reports and activities that are not touched by the internal audit activity?
BNI leaders might have done a thorough evaluation of the failure of internal audit in uncovering fraud. But if the fraud had indeed been designed by unscrupulous management in BNI Kebayoran Baru branch, then one of the top management task of BNI is to create a control environment so that the internal audit activity can be run according to its function as an internal control.
Top management needs to declare its full support for the internal audit activity throughout the ranks of the environmental department at BNI. After that just re-arrange the auditor's integrity and morale officer, so that the internal audit function can function properly.