How Does Friehling Have A Clear Understanding Of Relevant Controls

matters worse, it seems as if Friehling did not have a clear understanding of relevant controls. For example, the first component of relevant controls is auditability. At this phase it is the auditors duty, in this case it was Friehlings duty to practice due diligence to assess the integrity of management and whether or not there is sufficient evidence to support the financial records. Had he done this he would have discovered management’s true intentions and could have put in place internal controls to rectify the issue. In addition Friehling failed to perform an adequate test of controls. For example he made no effort in testing controls in areas such as redeeming client funds, or the purchase of securities on by BMIS on behalf of its clientele.
For that reason it is imperative to practice professional skepticism when conducting business. Professional skepticism in essence is having a questioning mind. This means being alert to evidence indicating that misstatement, errors or intentional alteration of books, records and documents has taken place. Professional skepticism doesn’t necessarily mean placing distrust in management but rather approaching the audit objectively. Had investors, the auditor, feeder funds, the Financial Industry Regulatory Authority, Inc. (FINRA), and SEC inspectors practiced professional skepticism, losses could have been substantially reduced and BMIS could have been dealt with a lot
For example, lets say an individual wanted to alert management about irregularities they had discovered internally. Firstly, many companies state internal complaints will be anonymous, although many are not, and the individual who made the complaint can be pointed out. If there identity is discovered they can face retaliatory actions and harassment by other employees. Hence it can make the individuals work environment extremely stressful to say the least. In addition if the employee is officially “anonymous” action can be taken against them while they are unable to complain. As a result, the employee can lose the safety offered by whistle blower protection laws. Secondly, if an employee does complain internally to management there is high a chance management can be in on it, especially at a smaller firm. This was clearly evident at BMIS as only 2 dozen employees worked out of the US, while 28 worked in the London offices. Subsequently if an employee was aware of the fraudulent activities taking place at BMIS, they would be hesitant in reporting it, as it was highly likely the ringleaders in management would