Only 4% of Frauds are Detected by an External Auditor

Posted By putri Articles prevention, whistleblowing

Organizations have been relying on external auditors to ensure the accuracy of financial statements as well as their compliance with law and regulations. However, many cases of financial statement issues involve fraudulent activities. The external auditors do check the integrity of the financial statements, but they do not necessarily detect fraud. Spotting fraud red flags is getting harder for external auditors, especially when collusions are involved – this is what happened with Garuda Indonesia, the flag carrier of Indonesia, in 2019. Thus, it is no wonder that only 4% of frauds are detected by external auditors according to the Report of the Nations 2020.

Financial statement fraud wreaks havoc on many businesses. Although financial statement fraud cases have the lowest frequency, the level of losses incurred from these cases is the costliest compared to other fraud cases with an average loss of $ 954,000. Therefore, relying on external auditors is not enough. It is necessary that organizations implement a whistleblowing system as a fraud detection tool.

The report mentioned that 43% of frauds are detected by tips or whistleblowing systems. The whistleblowing system requires the company to raise awareness among their stakeholders – in this case employees, to recognize red flags of frauds, as well as how important it is for the stakeholders to take part to mitigate the wrongdoings by reporting their findings. As more employees observe red flags, the more likely they will report the red flags and the more likely for the fraud to be prevented.

Integrity Indonesia, as a trusted company in the field of compliance has extensive experience in providing whistleblowing services for clients from various business backgrounds. Through the Canary Whistleblowing System, Integrity Indonesia presents a combination of several reporting channels that are centered on the website application, thus increasing the accessibility of our clients to the report, while still ensuring the anonymity of the reporter. While empowering employees is essential in the success of a whistleblowing system, it is also challenging. Therefore, we assist our clients in the education of whistleblowing systems to their employees.

Contact us for further information about the Canary Whistleblowing System.