Security Blanket #7 – We Do an Audit Every Year

Nov 1, 10 • UncategorizedNo Comments

We do an audit every year.  Our auditors would have told us if anything was wrong…”

One of the mysteries of the Enron scandal was how could an auditing firm issue a clean opinion on the company only to have it collapse shortly after.  One of the reasons, in my humble opinion, is an expectation gap that exists between the accounting profession and the public. 

While it is true that an audit is “one” brick in the wall of fraud protection, discovering fraud is neither the primary nor the only task of the auditor.  CPAs are charged with assessing the risk of fraud of their audit client, but their primary task is to express an opinion of the financial statements of the client taken as a whole.  So, if having an outside audit is the only form of fraud prevention a church engages in, then the church is woefully unprotected.

Statistics generated by the Association of Certified Fraud Examiners bear this out.  Based on actual fraud cases reported to the ACFE, a certified audit was one of the least effective means of fraud detection.  Based on reported cases the Association reported that:

 49% of the fraud cases were detected by anonymous tips

25% were uncovered by the internal controls of the victimized organizations

11% were discovered by accident

However, external audits only accounted for 13% of the fraud cases discovered, not much above the fraud cases discovered by pure dumb luck.

The lesson is this. Don’t depend SOLELY on your auditors to prevent fraud.

Interested in an objective Fraud Risk Assessment to complement your independent audit?  Contact us today about scheduling one of our many Best Practice Engagements at 

One of the mysteries of the Enron scandal was how could an auditing firm issue a clean opinion on the company only to have it collapse shortly after.  One of the reasons, in my humble opinion, is an expectation gap that exists between the accounting profession and the public. 

While it is true that an audit is “one” brick in the wall of fraud protection, discovering fraud is neither the primary nor the only task of the auditor.  CPAs are charged with assessing the risk of fraud of their audit client, but their primary task is to express an opinion of the financial statements of the client taken as a whole.  So, if having an outside audit is the only form of fraud prevention a church engages in, then the church is woefully unprotected.

Statistics generated by the Association of Certified Fraud Examiners bear this out.  Based on actual fraud cases reported to the ACFE, a certified audit was one of the least effective means of fraud detection.  Based on reported cases the Association reported that:

 49% of the fraud cases were detected by anonymous tips

25% were uncovered by the internal controls of the victimized organizations

11% were discovered by accident

However, external audits only accounted for 13% of the fraud cases discovered, not much above the fraud cases discovered by pure dumb luck.

The lesson is this. Don’t depend SOLELY on your auditors to prevent fraud.

Interested in an objective Fraud Risk Assessment to complement your independent audit?  Contact us today about scheduling one of our many Best Practice Engagements at at (817)664-3000 or email us using our contact form.

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