Anglo Irish Bank Limited is an example of a company that was audited by an outside source or external auditor. In December 2009, Ernest & Young carried out an exhaustive and far-reaching financial fraud investigations and auditing on the books of accounts of Anglo Irish Bank Limited to establish various controversies and malpractices by the bank.
The auditing methods that were used by Ernst & Young during the auditing process include checking posts or entries made in the books of accounts, physical examination of accounting records, conducting accounting inquiries as well as tracing and tracking transactions of subsequent financial periods. Ernst & Young also conducted bank reconciliations in order to determine the true financial position of Anglo Irish Bank. In addition, the ownership and value of both fixed, current and non-tangible assets as well as total liabilities of the bank were also determined.
The main auditing techniques that were used by Ernst & Young during the audit are test controls to check fraud control mechanisms at departmental and organizational levels. The test controls were also used to examine various procedures and processes of the bank and to establish whether or not the bank was compliant with regulatory standards of the banking industry. Various Computer Assisted Audit Tools and Techniques (CAATTs) and Business Intelligence tools were also used to conduct statistical analysis, generate data analysis reports and detect unexpected changes in data patterns of Anglo Irish Bank. According to Bologna and Lindquist (2010), transaction-based auditing was also used to track transactions and to determine accuracy and completeness of accounting records as per the transactions of the bank during the period in question.
The audit revealed that Anglo Irish Bank had given the chairman of the Board of Directors more than eighteen million sterling pounds in form of loans. However, this loan amount was not reflected in the books of accounts of the bank. This greatly affected the financial position of the Bank. The revelations of the audit led to massive change in management and leadership of the Bank. For instance, the bank was nationalized by the government of Ireland. In my view, such financial frauds and malpractices can be detected by internal auditors but they may fail to report the frauds due to influence from top management of the organization. Thus, it is important for organizations to seek services of external auditors frequently. Swartz, White and Books on Tape Incorporation (2008) and McLean and Elkind (2007) also assert that the accounting scandal that was experienced by Enron Corporation in 2001 could have been prevented easily if the company contracted the services of external auditors.
Contracting Services that Provide Security against Fraud
For my part, it is a wise investment to contract services that provide security against fraud from external sources because most financial frauds and business malpractices are generated from within the organization, hence in-house departments may not prevent, control and management such frauds effectively. In addition, most business frauds and malpractices are carried out by various departments of the organization; hence it would be a double risk if an in-house department is allowed to provide fraud security services to the organization because such a department would be prone to influence, manipulation and exploitation from the other departments.
However, I would like to accentuate that it is important for organizations to conduct internal audits frequently and to lay adequate emphasis on appropriate and ethical business practices in order to ensure that chances of fraudulent practices are minimized within the organizations.