Lack of manpower leaves companies at risk of fraud

Many internal audit teams do not have the manpower to root out and manage the
full range of company risks as the chances of fraud rocket in the recession,
corporate governance experts have warned.

Robert Hirth, executive vice president at Protiviti, the risk advisers,
warned management and boards would need to look more critically at internal
audit resources and question whether that level of resource was adequate. ‘There
are many organisations that are well-staffed, but there are many more that
aren’t, leaving them understaffed qualitatively and quantitatively,’ he said.
‘If that internal audit by quantity or quality is ineffective or inadequate, you
will have a weakest link situation.’

‘Internal audit has two key factors ­ remit and risk assessment. A lot of
companies haven’t fully factored in these issues. If they did, they would find
that they were understaffed.’

Companies with complex treasury operations, subsidiaries in a number of
different countries and those with a lot of reliance on IT security were
particularly at risk.

‘Its hard for a small audit team to cover all those bases,’ said Hirth.

After high-profile cases like the Cattles scandal shook the market and led to
the suspensions of several senior managers, including the group and divisional
FDs, internal auditors would be under even more pressure to identity fraud
earlier, said Hirth.

‘With management, internal audit, external audit and the audit committee, the
theory is you will get the perfect governance business model but it will never
be good enough to cover everything. You can never take risk to zero,’ he added.

The Institute of Internal Auditors said: ‘It is crucial that organisations
assess the breadth of the assurance they are expecting their internal audit
departments to provide and that they resource the department accordingly.’

Related reading