Home / Financial Services/ KPMG hosts the 15th Audit Committee Forum on deterring fraud

KPMG hosts the 15th Audit Committee Forum on deterring fraud


Comments / {{hitsCtrl.values.hits}} Views / Monday, 26 February 2018 00:00


Recognising the importance of Audit Committees as part of good corporate governance, the 15th Session of the Audit Committee Forum was hosted at KPMG recently on the theme ‘Significant repercussions of simple control lapses’. 



Setting the platform for discussion, four case studies of control lapses and the serious impacts arising from them were presented by Ernst and Young Partner Averil Ludowyke. The case studies were on fraud in Sri Lanka due to falsification of financial statements, inappropriate related party transactions, inadequate cash controls, and inadequate control over inventory. Ludowyke noted that such lapses were common, often starting small and ballooning over time and were seen to be “simple schemes” in hindsight. She also commented on the increasing incidence of senior management involvement in frauds and also the use of journal entries to manipulate financial records.

   The presentation was followed by an interactive discussion moderated by KPMG Partner and Head of Audit Suren Rajakarier. Commenting on deterring fraud through internal controls, Rajakarier suggested that the Internal Auditors’ mandate should include provisions to ensure sales cut-off is enforced, along with proper inventory records and the internal audit plans should include checking non-routine journal entries and the financial closure process. In addition, it was also noted that high-risk areas and also self-declarations of compliance are verified by Internal Audit.



The importance of Internal Audit along with empowering the Internal Auditors to do the right thing were stressed by many participants. Rajakarier also suggested that ensuring their independence from management is considered a best practice and noted that under a good governance set up, the Internal Auditor should report directly to the Audit Committee chair. Further, follow-up of issues raised by the Audit Committee were noted as critical to prevent the recurrence of issues reported to them.

In conclusion, Audit Committee members unanimously agreed that fraud cannot be dismissed as a potential one-off risk and treated as a remote possibility. Despite an increasing multiplicity of safeguards put in place, the recurrence of fraud in many companies indicates that only a proactive approach adopted by persons in charge of dealing with it, can help mitigate its risk. An Audit Committee should be sceptical and endorse the correctness of financial statements, where there are weak internal controls and/or where senior management consistently override controls in an entity. Therefore, Audit Committees should be ever on the alert about potential elements of fraud and red flags and also take serious note of minor control lapses that are recurrent.

 


Share This Article


DISCLAIMER:

1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.

COMMENTS

Today's Columnists

The rate of exchange, capital flight and the Central Bank

Friday, 21 September 2018

The Central Bank (CBSL) exists for the sole purpose of price stability. Its controls on the financial system and monetary policy exist to maintain price stability. As put forth many times by the Governor, the failing of the CBSL to control inflation


Red flag over the Sri Lankan Navy

Friday, 21 September 2018

Shocking story Rusiripala, a former banker in Sri Lanka, who has taken to writing in Daily FT, is perturbed by the red flag I have raised (Daily FT article 18 September) over the shocking charge that our Navy had operated a ransom gang that had abduc


The bald truth about fake news, etc.

Friday, 21 September 2018

In its most innocent forms, we may all enjoy a bit of ‘fake news’ and go to bed with a lighter heart and clean conscience. A meme on Facebook urging social media consumers to caution – “You can’t believe everything you read on the internet


Withholding Taxes – What, why, when?

Thursday, 20 September 2018

The tax regime in Sri Lanka historically imposes WHT on both domestic as well as cross border payments. WHT on domestic payments eases revenue collection (e.g.: PAYE) while WHT on cross border payments are adopted by most countries to ensure that the


Columnists More