Over 37 percent of auditors expect to find fraud at their own clients this year, according to a new survey.
The survey of more than 900 auditors from firms of all sizes, by audit confirmation service provider Confirmation.com, asked auditors about the risk they perceive of uncovering fraud during the annual audit process and more generally about finding fraud within their own practices throughout the year.
While 37.6 percent of respondents expected to find fraud among the accounts they audit, they anticipated their competitors would find fraud at a much higher rate of 66.9. That represents a disconnect between a given auditor's expected fraud exposure risk and the general expectations for the industry, according to Confirmation.com chief marketing officer Brian Fox.
“Auditors often exhibit this particular form of disassociation bias,” he said in a statement. “They are certain that they would never take on a client who they believe would commit fraud. Since they know fraud exists, they believe it is something that will most likely happen on someone else's watch.”
The survey also found that among auditors, the percentage expecting to catch fraud is lower than the percentage who believe fraud will occur within their client base. Fox believes this reflects other research into fraud, which typically shows that external audits historically have been among the least effective means of uncovering wrongdoing—well behind accidental discoveries and whistle-blowing.
Auditors often overlook their own suspicions when sourcing business. While 20.3 percent of the survey respondents said they had walked away from a prospect they suspected of fraud, 30.9 percent had not, and 48.9 percent had never suspected a prospect of fraud at all. Similar percentages reported firing existing clients because they suspected wrongdoing.
Nearly 25 percent of the survey respondents expect audit fraud to increase in 2012. Nearly 73 percent believe new regulations on the accounting industry have led to a more labor-intensive, expensive process, while only 9 percent feel the process has become more streamlined.
More than 60 percent of the survey respondents expect their own 2012 revenues to increase, while 49 percent expect an increase in hiring.
When the survey respondents were asked about the major means by which to catch fraud, technology, at 40 percent, narrowly edged out increased internal audit staffing, at 37.2 percent.
The survey also found that 52.3 percent of the respondents would require third-party verification of bank and corporate responders to fight confirmation fraud, while an additional 34.4 percent would mandate use of electronic confirmation platforms. Those figures far outpace traditional checks such as long-term client relationships, at 8.3 percent, and government programs that encourage whistleblowers, at 5.0 percent.
