Internal company audits as a means of preventing fraud must be improved in The Bahamas, a partner at a leading accounting firm told delegates attending a one-day Institute of Internal Auditors (IIA) seminar held at the British Colonial Hilton June 26.

According to Kendrick Christie, a partner at the accounting firm Grant Thornton, it is an area that needs more focus.

“As an auditor, I would be the first to tell you that external audits are not effective in terms of the detection of fraud,” he advised. “The scope of an audit is not specifically for the purpose of detecting fraud. An external audit is effective as far as preventative [measures].”

Fraud, Christie said, is most often committed by the accounting department or an executive in upper management.

Additionally, he noted that many fraudsters were first time offenders. Small businesses, he said, were “especially vulnerable” to occupational fraud. 

There has, however, been an increase in the number of whistleblowers reporting suspected cases of frauds.

In 2010, 40 per cent of fraud cases came to the attention of local authorities via tips. In 2012, that number rose to 43 per cent. 

However, Christie says the most effective way to limit fraud losses is to prevent fraud from occurring in the first place.

Despite 65 per cent of companies referring fraud-related matters to the police, 49 per cent of businesses are unable to recover their loss.

“It’s important for businesses to have internal controls geared towards identifying red flags,” said Christie, who also touted the benefits of “retooling” auditors and managers.

The purpose of the one-day seminar is to sensitize professionals to the existence and prevalence of fraud, said IIA chapter president Edgar O Moxey.

Just under 100 delegates were in attendance representing the accounting, banking and insurance sectors, in addition to government agencies and utility companies.

tblair@dupuch.com