Help! What to Do When You Suspect Fraud

Cover Image for Help! What to Do When You Suspect Fraud

| Lindsay Webber

As an accountant, encountering suspected fraud during an audit can be a challenging and delicate situation. It is crucial to know how to handle such cases professionally and ethically. In this blog, we will discuss the steps to take when you suspect or identify fraud during an audit, including communication, investigation, reporting obligations, and considering the impact on financial statements.

1. Discuss it with your team

When you suspect or identify fraud, the first step is to discuss it with your entire audit team. Make sure that everyone is aware of the issue and knows what to do about it. Encourage junior staff members to come forward if they suspect fraud and ensure that everyone understands the importance of addressing the matter.

2. Investigate further

Once the team is aware of the potential fraud, you need to investigate further to understand what has happened. This may involve gathering more information, determining who committed the fraud, how much is involved, and how long it has been going on.

Depending on the level of fraud and your expertise, you may need to seek specialist advice.

3. Communicate with directors or management

In most cases, you should communicate your findings to the company's directors or management. However, if the suspected fraud involves money laundering, you must be cautious not to tip off your client, as this could lead to legal consequences. In such cases, proceed directly to reporting the issue to the relevant authorities.

4. Reporting obligations

If the fraud involves money laundering, you have an obligation to report it to the FIU and Revenue through GoAML and ROS.

You would also need to consider reporting the fraud to the Guards under section 59 of the Criminal Justice (Theft and Fraud Offences) Act where the fraud is an offence under that Act. You may also need to consider reporting to the CEA under section 392 or 393 of the Companies Act if the engagement is an audit.

Failure to report can result in fines for staff and even the loss of your practice. Be aware of your reporting obligations and ensure that you fulfil them in a timely manner.

5. Consider the impact on financial statements

You need to assess the impact of the fraud on the company's financial statements. If the financial statements are misstated, this could affect your opinion on them. Additionally, consider whether a full investigation into the matter is required. In some cases, smaller companies may not want to pursue an investigation due to the potential embarrassment and bad press.

6. Include fraud in the written representation letter

Ensure that any identified fraud is included in the written representation letter. This serves as documentation of the issue and helps maintain transparency in the audit process.

Conclusion

Handling suspected fraud during an audit requires a careful and professional approach. By discussing the issue with your team, investigating further, communicating with directors or management, fulfilling reporting obligations, and considering the impact on financial statements, you can navigate this challenging situation effectively. Remember, it is essential to maintain ethical standards and prioritise the best interests of your client and the public.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.

If you require assistance or advice in relation to any of the above matters, please contact our team on 053 91 000 00 or email [email protected].

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About the Author

As a member of our Practice Support team, Lindsay’s focus is on helping practices achieve on-going best practice compliance, providing in-house training, technical assistance, and file reviews. Lindsay is a member of the South African Institute of Chartered Accountants and Chartered Accountants Ireland. She trained with KPMG in Johannesburg and specialised in external audit of financial services companies. She then spent six years lecturing audit and financial reporting to under-grad and post-grad students at Rhodes University in South Africa before moving to Ireland and returning to practice in a small, and then a medium sized firm where she was an audit manager. Altogether, she has over six years external audit experience along with over six years academic experience specialising in Audit and Financial Accounting. She is passionate about combining her academic and practice backgrounds to provide technical information in a useful and practical way. Outside of her accounting qualifications Lindsay holds a PGDiploma in Higher Education from Rhodes University and graduated with distinction from the MBA course at Trinity College Dublin. She is currently working towards a Diploma in Forensic Accounting through Chartered Accountants Ireland.

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