Academic journal article Journal of Accountancy

How Audit Committees Can Help Deter Fraud

Academic journal article Journal of Accountancy

How Audit Committees Can Help Deter Fraud

Article excerpt

As the eyes and ears of the board, the audit committee plays a pivotal role in helping to stop or reverse the rise in reported fraud incidents worldwide.

Thirty-six percent of more than 6,000 respondents in PwC's global economic crime survey in 2016 said their organizations were affected by economic crime--down slightly from the 37% of respondents who reported being affected in the 2014 survey. The five most frequent frauds were asset misappropriation, cybercrime, bribery and corruption, procurement fraud, and accounting fraud.

"It's everybody's job in the company to deter fraud," said Chris Rogers, CPA, CGMA, the CFO at Infragistics, a New Jersey software developer with operations on five continents.

Among employees, CFOs and controllers often shoulder much of the responsibility to prevent fraud. On the board level, the independent business experts from outside the company who sit on the audit committee take on a special role as fraud busters.

Regulation has bolstered the role of the audit committee in past years. Audit committee members work with the independent auditor to ensure that the company's financial results are accurately portrayed, said Rogers, who has served on audit committees at different companies for more than a decade. They also make sure sound internal controls are in place and working to prevent fraud, and those controls should uncover fraud quickly and effectively when it occurs.

Given unfettered access, audit committee members can be invaluable conduits of information between the board and the CFO. "In my world [as CFO], the audit committee is my ally on the board," Rogers said.

Committee members should not underestimate their influence on the company's top management to act ethically, according to a recent PwC report on how audit committees can maximize their performance. …

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