Internal Auditing Case Study Example | Topics and Well Written Essays - 500 words

Internal Auditing - Case Study Example One of the internal control mechanisms that the organization failed to utilize optimally is preventive control. Preventing control in internal auditing is essential because it is the first barrier that protects the organization from risks that are detrimental to its performance, growth and financial stand. The principal risks are operating errors, technological malfunction, negative regulatory pronouncements such as unfair suspensions of employees, and fraud. In Krenik’s case, the risk that internal audit failed to stop was Fraud. Had there been a strong internal control, the organization would have developed a transparent payment system such as e payables systems that would have prevented fraud (Rezaee, 2002). Detective control plays a key role in spotting irregularities that have already happened within the organization. The aim of detective control is to develop necessary methodologies and tools that can easily spot errors and irregularity within the functional areas of the organization. In this internal auditing measure, internal auditors are useful when testing risky processes and procedures. In Krenik's case, the organization failed to detect fraud because it did not have an ardent detective control mechanism that would have detected financial malpractices and it took the intervention of the bank to detect the fraud. Failure to regularly reconcile financial documents between US Airforce and the supplier and inability to make appropriate and regular follow -up of payment procedures provided a loophole through which fraud occurred (Frigo, 2002). Corrective control in internal auditing assists in correcting irregularities and errors that have been spotted within the organization’s financial data and operations. In Krenik’s case, the corrective measures to prevent future frauds are developing strong preventive control measures such as prompt and through reconciliation of transactions with the suppliers, developing an electronic payment system that is efficient and fast, and conducting regular checks on financial statements’ information.