Internal Audit - Bulwark Against Economic Crime

Economic crime is no longer a trivial offense. Damage in sometimes astronomical amounts occurs annually. 2016 was a record year in this sector for the Swiss economy. Although "only" 57 cases were prosecuted, they had a total damage sum of 1.4 billion francs. These offenses are most commonly committed by management. A functioning internal audit becomes even more important against this background.

Economic crime in Switzerland

‍The KPMG publishes annually the «KPMG Forensic Fraud Barometer». It analyzes court decisions that were publicly prosecuted and reported in the media over a calendar year. Last year, it involved 57 cases with the immense total damage of 1.441 billion francs. The previous year saw significantly more proceedings with 91 cases, though the total damage was "only" 282 million francs. It should be noted that last year the "Behring case" alone accounted for 800 million. Already this year there has been another major incident. The Swiss company ABB, or rather its South Korean subsidiary, had a fraud case come to light involving 100 million dollars.

‍Management and internal audit

‍According to KPMG, the vast majority of these cases were committed by individuals in management positions. In 58% of the cases, a leader acted alone, in 21% of the cases there was assistance, or collaboration with employees. Often, the act is intended to finance a luxurious lifestyle. The importance of internal audits in preventing such offenses is evident in the example of ABB. The annual report of ABB also cited errors in internal auditing as the reason for such damage. Specifically, five weaknesses were identified. For example, employees monitored their own work. Furthermore, there were instances where employees had access to areas of the accounting system that should have been denied to them. Thirdly, unauthorized persons could have accessed stamps that are used for contract conclusions in South Korea. Moreover, the prevention of unauthorized contracts was insufficient. Lastly, the inadequate supervision of the finance department in South Korea was mentioned. This case highlights how essential it is to have a functioning internal audit.

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