It has been said that internal auditors are not responsible for detecting defalcation, embezzlement, or fraud.
Yet when fraud is uncovered, the question is usually asked, "Where were the auditors?"
While it is obvious that an internal auditor cannot be expected to guarantee that there is no fraud, there are a number of indicators which an alert internal auditor might spot and investigate as a deterrent to fraud or as an early disclosure of possible fraud.
Discuss the following six indicators or danger signs, including the potential fraud which could be involved, and the initial approach to take in each case:
1. Employees living beyond their apparent means.
2. Reluctance by a key employee to take a vacation.
3. Unreasonable association with supplier's personnel by member of the Purchasing Department.
4. Erasures, changes, or manually inserted entries on time cards.
5. Date of deposits per cash book is significantly different from date of deposits on bank statements.
6. Lack of cooperation in relinquishing records for audit.