21 May How Walkthroughs Help Companies Prevent Fraud
You have internal controls to fraud-proof your company’s checks. Every check requires two signatures, and one of them must be yours. Sure, you have a signature stamp to make the job easier on your hand, but it is locked in your office when you are away and no one has access besides you.
And yet, fraudulent checks have been getting through for months. An expert walkthrough of your controls reveals that a trusted manager with heavy gambling debts has a master key and has been stamping checks with your signature.
Best & most efficient
Before Auditing Standard No. 5 (AS5) was issued in 2007, public companies were required to hire auditors to trace a transaction through organizational procedures from start to finish — a process known as a walkthrough. These days, auditors still must achieve all the objectives of a walkthrough, but only by ensuring that the company’s staff or a third party performs one.
Even though public and private companies are not required to hire auditors to conduct walkthroughs, it is still the best and most efficient way to identify weaknesses in procedures and controls. Your staff may not be able to approach the process with the same level of objective assessment that an outside professional could. Where an external auditor might, for example, ask employees to explain why they perform particular steps in an operation, a staff auditor may believe he or she already knows the answer — and miss hearing about a critical flaw.
Although AS5 gives auditors leeway in deciding how to conduct walkthroughs, it also codifies the need for a risk-based approach to audits. This means auditors focus on identifying control weaknesses and potential loopholes that fraud perpetrators might be able to exploit.
If nothing else, walkthroughs can reveal inconsistencies that might otherwise go unnoticed. One accounts receivable employee may believe errors are to be handled a certain way, for example, while another interprets the instructions differently and uses an alternative technique.
Not required, but recommended
Even though your company is not required to hire an auditor to conduct a walkthrough, you should consider it. It remains one of the best defenses against fraud for everyone.