Nearly 40% of Auditors Expect to Find Fraud At Their Clients in 2012

Last Updated: 04/25/2012

Survey of More Than 900 Auditors From Firms of All Sizes See Huge Fraud Risk

NASHVILLE, TN –  April 25, 2012 – More than 37 percent of auditors expect to find fraud among their own clients, according to a new survey of more than 900 auditors conducted by Confirmation.com, the creator and leading provider of secure audit confirmation services.

The survey polled global users of the Confirmation.com system, which includes all of the top 100 accounting firms. Auditors were asked about the perceived risk of uncovering fraud during the annual audit process and more generally about finding fraud within their own practices throughout the year.

While 37.6 percent of respondents expected to find fraud among accounts they audit, they expected competitors to find fraud at a much higher rate: 66.9 – a disconnect between a given auditor’s expected fraud exposure risk and the general expectations for the industry, according to Confirmation.com founder and chief marketing officer Brian Fox.

“Auditors often exhibit this particular form of disassociation bias,” said Fox.  “They are certain that they would never take on a client who they believe would commit fraud.  Since they know fraud exists, they believe it is something that will most likely happen on someone else’s watch.”

The survey also found that among auditors, the percentage expecting to catch fraud is lower than the percentage thinking fraud will occur within their client base.  Fox added, “This is reflective of other research into fraud, which typically shows that external audits historically have been among the least effective means of uncovering wrongdoing—well behind accidental discoveries and whistle-blowing.”

Auditors often overlook their own suspicions when sourcing business.  While 20.3% of respondents had walked away from a prospect they suspected of fraud, 30.9% had not, and 48.9% had never suspected a prospect of fraud at all.  Similar percentages reported firing existing clients because they suspected wrongdoing.

Other key findings of the study included:

• Nearly 25% of respondents expect audit fraud to increase in 2012.
• Nearly 73% believe new regulations on the accounting industry have led to a more labor-intensive, expensive process, while only 9% feel the process has become more streamlined.
• More than 60% of respondents expect their own 2012 revenues to increase, while 49% expect an increase in hiring.
• Technology (40%) narrowly edged increased internal audit staffing (37.2%) as the major means by which to catch fraud.
• 52.3% of responders would require third party verification of bank and corporate responders to fight confirmation fraud, while an additional 34.4% would mandate use of electronic confirmation platforms, thus far outpacing traditional checks like long-term client relationships (8.3%) and government programs that encourage whistleblowers (5.0%).

Auditors and financial institutions in more than 100 countries use Confirmation.com because the propensity for fraud and the magnitude of those frauds on a global scale are both increasing.  By verifying the authenticity of each user, the company’s cloud-based solution not only improves the quality of audits, it brings greater investor confidence into the financial statements.