Audit checks against fraud - possibility for a higher efficiency

Audit checks against fraud. A new possibility for a higher efficiency

A few decades ago a large Danish textiles company (Nordisk Fjer) was the victim of fraud at management level and was eventually forced into bankruptcy. Had the Successive Principle been applied, this train of events could have been averted long before the scandal was actually uncovered.

It is rare – and also unnecessary – to verify all assets, earnings etc. during an inspection or auditing process. But it is dangerous always to be convinced by even the finest, most credible letterhead.

If, rather than accepting the official figures more or less without question, one applies the Successive Principle, whereby, with an appropriately constituted analysis group one systematically identifies the uncertainty or risks which attach to significant items. An asset which is listed at a value of, for example, EUR 100 million could be shown in a triple estimate (minimum, most likely, maximum) as follows: EUR 10/100/110 million. The pessimistic value, if sufficiently serious by comparison with the scale of the project, could serve as a warning. There will typically be a powerful “20/80% effect”. It is therefore reasonable to verify that these – typically relatively few – assets actually do exist and have the stated value.

Some years ago now there was a case in Sweden which was in many ways similar to the Nordisk Fjer case. It was satisfactorily cleared up and reorganised by dint of extensive application of the Successive Principle.

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