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Home > India > Business > Columnists > Sunil Jain

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Do statutory auditors really catch corporate fraud?

February 05, 2009

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Most believe that statutory auditors are vital in helping catch corporate fraud -- after all, they examine the books of accounts and are in the best position to figure out just what's happening.

According to the KPMG India Fraud Survey Report, 2008, around 80 per cent of those surveyed said that frauds were a problem in their company, and 60 per cent said some fraud had taken place in their organisation in the last two years.

When asked what the sources of the fraud were, 30 per cent said the problem lay with service providers/suppliers, around 13 per cent said customers tended to cheat, another 14 per cent said the fraud lay in the interaction with government/regulatory agencies. A whopping 42 per cent said it was senior management and the company's board (think Satyam [Get Quote]!) which was most likely to commit fraud. Which is where the auditor comes in, right? Yes and no.

The external auditor, like Price Waterhouse in the case of Satyam, is supposed to be independent and therefore has a better chance of catching frauds. Yet, the KPMG Report points out that just four per cent of all frauds have been detected by external auditors � the largest proportion, 36 per cent, have been detected by internal auditors.

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