Why Auditors Fail to Detect Fraud As investigative and forensic accountants (CAIFAs), we far too often hear the familiar refrain, “Where in hell were the auditors?
“, when we report to our clients the extent of a fraud within their organization. Research shows that fraud is detected only 2 to 5% of the time by external auditors. Given their financial expertise and accessibility to information, how is it that auditors fail to detect fraud? To begin with, the responsibility for fraud and error detection belongs to a company’s governance and management. The CICA Handbook goes so far as to state that the discovery of a material misstatement in audited financial statements, whether due to fraud or error, does not necessarily indicate inadequate performance on the part of the auditor. While the public may find it difficult to digest this assignment of responsibility, in our experience, there can be serious instances of fraud in situations where there are no apparent problems with management skills and integrity or with financial reporting systems. However, this doesn’t mean auditors can afford to be complacent. In some cases subsequently investigated b
