Nearly Four Out of 10 Auditors Expect Their Clients to Commit Fraud

Have auditors always been this cynical? More than 37 percent of them expect to find fraud among their own clients, according to a new survey of more than 900 auditors conducted by Confirmation.com, a company that provides 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 nearly four out of 10 (37.6 percent) expected to find fraud among accounts they audit, they believed competitors would find fraud at a much higher rate—66.9 percent—revealing a wide 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."

The anticipated increase in fraud along with recent legislation is good for job seekers with accounting and finance backgrounds. Nearly three out of four (73 percent) believe new regulations covering the accounting industry have led to a more labor intensive process. Translation? More jobs.

Other key findings of the study included:

• Nearly 25 percent of respondents expect audit fraud to increase in 2012.
• More than 60 percent of respondents expect their own 2012 revenues to increase, while 49 percent expect an increase in hiring.
• Technology (40 percent) narrowly edged increased internal audit staffing (37.2 percent) as the major means by which to catch fraud.
• 52.3 percent of responders would require third party verification of bank and corporate responders to fight confirmation fraud, while an additional 34.4 percent would mandate use of electronic confirmation platforms, thus far outpacing traditional checks like long-term client relationships (8.3 percent) and government programs that encourage whistle-blowers (5.0 percent).