Month: September 2025

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Why Traditional Audit Confirmations Fail (and What to Do Instead)?

what is audit Failures

Auditors are under constant scrutiny with changing regulations. Internal auditors are under pressure to comply with regulations, impress stakeholders, and keep public data safe. Third-party regulators that conduct balance and audit confirmations are under pressure to ensure there are no red flags hidden. 

With multiple recent cases of audit failures due to a lack of a proper framework, or a failure of being able to identify a hidden red flag. As the pressure continues to rise, auditors need to understand the underlying causes behind audit failures and the steps that can be taken to prevent them.

Let’s break it down in this article.

Why Do Traditional Audits Fail?

There are tons of reasons why traditional audits could fail. Let’s break them down:

1. Overwhelming Amount of Data

Big Data, yes, we’ve all heard of Big Data and how it has changed the way we do business. Across all industries, the creation and access to more data have allowed companies to measure and optimize business processes.

Big data can also completely transform the audit processes. If it’s used effectively, data empowers the auditors to ask the right questions, find red flags, and conduct balance and audit confirmations.

But the problem is that most auditors just don’t have the methods or means to handle that much data. Moreover, there’s just no way to handle the completeness and authenticity of the data. This is where balance and audit confirmation software come in.

With DIRO’s balance and audit confirmation API, auditors don’t have to sort through endless data; they can confirm balances by confirming them directly from the issuing source.

2. Traditional Audit Timelines

Most companies and clients want their audits to be completed quickly and with minimal friction and cost. Auditors have to find the balance between completeness with their client’s tight timelines.

Most audits have to be completed within 1-3 months at the end of the corporate year. To meet the deadlines, auditors have to sort through endless data while carefully auditing all the data to find mismatches in the data. 

Moreover, the speed at which an auditor can provide their end-of-the-year audit report also depends on the client’s speed of collecting appropriate business process documentation. If the business fails to provide the documentation at the right time, the audit reports can fail, and it can be a potential blind spot in the company’s financials.

3. Remote Work Trends

The COVID-19 pandemic is also a reason behind the recent rise in audit failures. After COVID-19, the trend of remote work has risen drastically. On the other hand, it caused the business to digitize its already weak audit processes. A recent survey found that 95% of companies increased the digitization of the overall audit process after the pandemic.

While digitization is great and it makes doing audits remotely easier, it hasn’t led to an increase in the efficiency of the process. As a matter of fact, the remote audit process actually reduced efficiency, with companies not being able to meet the digitization demand due to poor technological support.

4. Increased Business Complexity

Businesses of today have gotten more complex. Companies that operate on a global level tend to have transactions that are spread across multiple jurisdictions. They conduct business in multiple languages, with endless suppliers, customers, contracts, and other partners. There are multiple parameters to account for while conducting an audit, which makes it a huge challenge.

To make the audit process even more challenging, companies structure themselves using multiple subsidiaries, shelf companies, offices, and business units, depending on their business goals. 

The complexity does not suggest that the business has something to hide; it could be because of the goals of the business. However, for the auditor, the complexity makes it even harder to take care of audits.

5. Regulatory Challenges

Auditors play an important role in making sure companies’ financial reports are accurate and trustworthy. Part of their job is to look out for fraud and give reasonable assurance that the financial statements don’t contain major mistakes, whether intentional or not.

But in recent years, some big audit failures have exposed the limits of current audit tools and methods. These failures, along with large regulatory fines, have put auditors under the spotlight. There’s growing pressure on them to catch critical risks before it’s too late.

Regulators have responded by tightening the rules. This has made audits more costly and raised the stakes for mistakes. Even a small oversight can now lead to serious consequences – damaged reputation, lost clients, fines, or lawsuits.

Cases like the collapse of FTX or the lawsuit against auditors of a major UK construction firm show just how crucial it is for auditors to carry out thorough, independent audits and make full use of the data available to them.

How to Fix Traditional Audit Failures?

Audit failures don’t happen overnight. They’re usually the result of outdated methods, weak processes, or over-reliance on manual work. The good news is, there are ways to fix these problems and make audits more reliable:

1. Embrace Technology and Automation

Manual confirmations and spreadsheets can’t keep up with the speed and scale of modern businesses. Using balance and audit confirmation software like DIRO, auditors verify data directly from original sources, cutting down errors and saving time.

2. Strengthen Data Handling

Big Data isn’t the enemy—it’s an opportunity. Auditors need tools that can sift through large amounts of information and highlight anomalies, rather than relying on sample-based checks that miss hidden risks.

3. Build Stronger Collaboration with Clients

A large part of audit delays and failures comes from late or incomplete documentation from clients. Setting clear timelines, using secure document portals, and encouraging proactive communication help keep the process on track.

4. Invest in Continuous Training

Audit regulations and business models evolve quickly. Auditors need ongoing training to stay updated on new risks, technologies, and industry standards so they don’t fall behind.

5. Adapt to Remote and Hybrid Work

Instead of patching together remote audits with weak digital systems, firms should invest in robust digital audit workflows that maintain the same level of scrutiny as traditional in-person processes.

6. Prioritize Risk-Based Auditing

Not every piece of data deserves equal attention. Focusing on high-risk areas and using data-driven insights ensures critical red flags aren’t buried under routine checks.

By adopting these practices, auditors can move away from outdated confirmation processes and build audits that are faster, more accurate, and better equipped to handle the demands of today’s business environment.

Conclusion 

Traditional audit confirmations are no longer enough to keep up with the speed, complexity, and risks of modern businesses. With tighter regulations, growing data volumes, and more pressure on auditors, sticking to outdated methods only increases the chance of failures.

The way forward is clear: auditors need to adopt better technology, strengthen their processes, and stay ahead of new challenges. By using smarter tools, focusing on risk, and working closely with clients, audits can be more accurate, efficient, and trustworthy.

In the end, it’s about more than just avoiding fines or lawsuits; it’s about restoring confidence in financial reporting and making sure businesses are held accountable.

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Positive vs. Negative vs. Blank Confirmations: What Is the Difference?

Positive vs. Negative vs. Blank Confirmations

Positive vs. Negative vs. Blank confirmation is something auditors struggle to choose between when doing balance and audit confirmation. Auditors use their professional judgement to determine which balance confirmation method works best in reference to the audit’s risk of material misstatement. A good auditor must use analytics, systematic thinking, and objective judgments to determine which confirmation method to apply. Before making a decision, an auditor has to make 2 primary judgments to accept an external confirmation from a third party.

  • The external party’s independence
  • External party’s knowledge of the account and intent

The value of the confirmation relies completely on the independence of the external party. Example – When an auditor sends a confirmation of a fraudulent account receivable to the person who committed the fraud, in this case, the value of the confirmation is nil, as the fraudster would try their best to conceal their activities.

This is why it becomes crucial to confirm the account balance with a third party, as it explains the managerial assertions behind the stated balance. In this blog, we’ll break down the difference between the types of confirmation decisions an auditor has to make:

Types of Confirmation Decisions

1. Positive Confirmation

A positive confirmation is when a letter is sent to the debtor requesting direct confirmation of the account balance. If the balance is inaccurate, the debtor has to provide a reason why there’s a difference between the numbers. If the balance is accurate, then the debtor simply has to confirm the account balance by sending back a written letter. 

Some examples of information that’s needed from auditors include confirming the following:

  • The amounts and descriptions of various types of liabilities
  • Bank account information, including balance at the time of verification
  • Inventory amounts and the type of inventory
  • Investments or securities associated with the account
  • Copies of sales invoices to make sure sales were legit
  • Information or copies of shipping invoices to ensure products/services were provided

2. Negative Confirmation

In a Negative confirmation, a letter is sent to the debtor that highlights a specific account and the balance in the account. The third party can then choose to reject the balance in the account and share their number for a suggested account, or they can choose to just not respond to the letter. If the debtor suggests that the balance is different or doesn’t send a response, it is considered a negative confirmation. Here are all the places where negative confirmations are most effective:

  • The risk of material misstatement is low
  • The items are similar and have relatively small value
  • Low probability of the external party’s number being inaccurate with internal figures
  • Expectation that the third party will read and consider confirmation.

3. Blank Confirmation Form

In the end, Blank Confirmations are also a type of positive confirmation. In a Blank Confirmation Form, the debtor has to return a letter detailing the account balance. The auditors then use the stated number by debtor to cross-reference against the listed receivable balance to ensure accuracy.

Why Use Positive Confirmations?

Positive confirmation is an auditing inquiry that requires customers to respond to confirm the accuracy of an item. A positive confirmation requires proof of accuracy by affirming that the original information was correct or by providing correct information if the information is incorrect. 

Positive confirmation can also be used to verify accounts payable and accounts receivable, or companies. Auditors can verify the accuracy of the accounts receivable records being examined by determining if the records reflect the transactions that happened between the company and the customers. Auditors can sometimes also contact the customers directly to ensure that the listed account actually exists.

Why Use Negative Confirmations?

Negative confirmations are better in terms of cost and efficiency. It’s far easier to distribute negative confirmations in comparison to positive confirmations. So, auditors are able to distribute more for the same total cost.

Based on the auditor’s level of risk detected, they may need to confirm with hundreds of customers. In this specific case, negative confirmations are far more efficient than positive confirmations.

Negative confirmation can also be used to provide an audit balance of the account balance while an auditor is testing internal controls. Generally, negative confirmations are most often used in audits, where the consumer is the general public. Municipalities, retail stores, and banks are all typical audit clients, and they tend to use negative confirmations. 

The primary factors that dictate a confirmation decision are:

  • Materiality of receivables
  • Number and size of individual accounts
  • Control risk
  • Inherent risk
  • Effectiveness of the confirmation technique
  • Availability of corroborative audit evidence

Why Use Blank Confirmation Forms?

From the auditor’s perspective, blank confirmations provide stronger audit evidence than both positive and negative confirmations. The reasoning is simple: a blank space is harder to ignore or mechanically tick off, forcing the respondent to actively engage with the numbers. That said, they’re also more costly and time-consuming, so auditors typically reserve them for situations where accuracy is critical and the risk of misstatement is high.

Practical use cases for blank confirmations often appear in industries or accounts where fraud risk or misstatements are more likely. For example, when auditing financial institutions, high-value receivables, or related-party transactions, blank confirmations help verify balances with an extra layer of assurance.

Auditors typically decide to use blank confirmations when these factors weigh in:

  • High risk of misstatement where standard confirmations may not be reliable.
  • Material accounts where errors could significantly affect financial statements.
  • Suspicion of fraud or manipulation in reported balances.
  • When corroborative evidence is weak, the confirmation itself carries more weight.

Frequently Asked Questions

  1. Why do auditors use confirmations?

    Confirmations give auditors independent verification to confirm account balances directly from third parties. This is done to reduce reliance on client-provided numbers and strengthen the reliability of audit evidence.

  2. What’s the difference between positive, negative, and blank confirmations?

    There are some core differences between the 3 types of confirmations, such as:* Positive confirmations – They require the recipient to confirm whether the stated balance is correct or not.* Negative confirmations – They require a recipient to only confirm if the balance is wrong than the stated balance.* Blank confirmations – They don’t show any balance at all; the recipient has to fill it in, and the auditor confirms it from their sources.

  3. When are negative confirmations typically used?

    Negative confirmations are usually sent when the risk of misstatement is low, internal controls are tightly monitored, and there are many small, homogenous balances (such as retail and banking industries).

  4. What are some instances where an auditor would choose blank confirmations?

    Blank confirmations are harder for recipients to rubber-stamp, so they provide stronger evidence whether the balance is true or not. Auditors use them when there’s a higher risk of fraud, material misstatements, or when other evidence is weak.

  5. Which type of confirmation is most reliable?

    Blank confirmations are the strongest type of confirmation method, followed by positive confirmations. Negative confirmations are the least reliable but most cost-effective, as silence is treated as an agreement, which may not reflect reliability.

Conclusion

Every type of confirmation (Positive, negative, and blank) has its own type of role in the audit process. Positive confirmation provides the perfect middle ground, negative confirmation is effective, and blank confirmations offer the highest assurance in sensitive high-risk areas.

Not one method is better than another; it depends on the specific use case and factors such as materiality, control risk, and the reliability of other evidence. The best way to go about it is to mix and match these techniques to balance efficiency, accuracy, and match the approach to a specific risk profile.

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How Bank Account Verification Helps Prevent Financial Fraud?

fraud prevention tips with bank verification

Fraud isn’t just “on the rise”; it’s growing at an unprecedented rate, and most businesses don’t know how to handle it. In just 2024 alone, the U.S. FTC reported that consumers lost over $12.5 billion, up 25% from 2023.

On the B2B side, 79% of organizations faced attempted or actual payments fraud in 2024, with check fraud and business email compromise still biting hard.

Checks still is one of the biggest targets for fraud: 63% of organizations encountered attempted or actual check fraud in 2024, while ACH fraud rates were materially lower by comparison.

With all that data, it’s clear that bank account verification isn’t just a ‘nice to have’, but a must-have. In this blog, we’ll break down how bank account verification, balance and audit conversion prevent financial fraud and how businesses can implement it in their pipeline.

What is bank account fraud?

Bank account fraud includes any misuse of bank credentials or account facilities to steal money or launder it. Typical patterns: stolen or fabricated account/routing numbers, synthetic identities opening new accounts, mule accounts used to move illicit funds, and altered or fake bank statements presented during onboarding or disbursements. 

The surge in AI-aided social engineering and identity fabrication makes these attacks faster and more convincing.

What is bank account verification?

Bank account verification confirms that a bank account exists, can be debited/credited, and is owned by the party claiming it. Depending on the method, it can also check balances, historical transactions, and ownership signals pulled via bank APIs, open banking connections, or secure document capture. 

In the U.S., NACHA requires account validation for first-use WEB debits as part of a “commercially reasonable” fraud detection program; ownership verification goes a step further and ties the account to the actual user.

7 Ways Bank Verification Prevents Fraud

Stops invalid or mistyped accounts at the gate

Before any transaction happens, bank account verification confirms the account/routing combo is real and “debit-capable.”

That blocks mistyped bank account errors and opportunistic use of non-existent accounts that would bounce and create chargeback risk. This also aligns with NACHA’s Account Validation Rule for online debit origination.

Reduces check exposure by routing to ACH with verified accounts

Checks continue to be the fraud magnet. Shifting disbursements from checks to ACH after verifying the counterparty’s account lowers exposure. AFP data shows check fraud outpaces ACH fraud by a wide margin (63% vs. 38% for ACH debit fraud).

Ownership checks throttle synthetic identity and mule activity

It’s not enough to confirm that an account exists. Businesses need to take a step forward and confirm that the owner of the account is the one currently using the account. This helps counter synthetic identities and mule accounts that fuel scams and money laundering.

Identity-fraud pressure is rising sharply; tying identity to bank ownership is one of the most reliable friction points.

Prevents fake and altered bank statements at onboarding

Attackers still love to use uploaded doctored PDFs to pass manual reviews. Verification that sources data directly from banks (or captures tamper-evident, bank-originated data) neutralizes altered statements and reduces manual ops overhead.

Compliance alignment for WEB debits and broader KYC/AML

NACHA requires first-use account validation for consumer WEB debits. Also, regulators and auditors increasingly expect controls that are “commercially reasonable.” Automated account verification documents that control and strengthen your KYC/AML story for auditors.

Faster, safer payouts and refunds

Real-time or near-real-time verification supports instant payouts without inviting instant regret. By confirming account status and ownership, you reduce reversals and post-disbursement investigations, which spike when fraud volumes rise. 

Industry pulse surveys show rising fraud attempts and losses across banks and fintechs, so front-loading verification pays for itself.

Using a specialized solution: DIRO Bank verification Solution

DIRO provides instant bank account verification, with coverage across 195 countries and 44,000 banks, and can verify ownership and statements as part of KYC/KYB/AML workflows. For teams fighting fabricated bank data at scale, DIRO’s “Internet Original Document” approach helps detect tampering and accelerate approval flows.

How can businesses implement bank verification pipelines?

  • Map risk by use case –  For businesses to reduce fraud, they need to build separate flows for vendor onboarding, customer payouts, loan servicing, and marketplace seller activation. Don’t force the same checks everywhere. High-risk flows (first disbursement, limits increase, account changes) get stricter verification and rechecks.
  • Choose your verification method mix. Combine account/routing validation, ownership matching, balance checks where needed, and document-based verification as a fallback. Use open banking or direct-bank APIs when available; fall back to microdeposits only where necessary. Align to NACHA’s requirements for first-use WEB debits. 
  • Orchestrate with step-up logic. Start with passive signals and database checks, step up to real-time bank API verification if risk signals fire (velocity, device mismatch, identity model score, cross-account linkages).
  • Automate decisioning and auditing. Log verification results, response payloads, timestamps, and user/account IDs. Store immutable evidence for audits.
  • Re-verify on sensitive events. Trigger rechecks for bank account changes, large first payouts, dormancy breaks, or repeated failed debit attempts.
  • Educate users and cut checks where possible. Where you can move users from checks to verified ACH, do it. The delta in fraud exposure is not theoretical. 
  • Monitor outcomes. Track false positives, time-to-first-payout, return/NOC rates, and fraud write-offs. Expect to see fewer returns, lower check volumes, and improved payout speed.

FAQs

  1. What’s the difference between account validation and ownership verification?

    Validation checks whether the account/routing numbers are real and can be debited; ownership verification confirms the person or business claiming the account truly owns it. NACHA mandates validation for first-use consumer WEB debits; ownership checks are a stronger fraud control but not mandated by NACHA.

  2. Do I still need microdeposits if I use open banking APIs?

    Not necessarily. Open banking connectivity or vendor APIs can instantly confirm account status and ownership. Microdeposits are now a fallback where direct connectivity doesn’t exist or where you need a second factor.

  3. Will verification hurt conversion?

    It doesn’t have to. Friction comes from poor UX, not from verification itself. Done well, instant verification reduces abandonment versus manual document uploads, and it prevents painful post-onboarding reviews. Experian’s global research shows consumers drop out when onboarding feels clunky; instant verification counters that without sacrificing risk control.

  4. Where does this help the most: onboarding or payouts?

    Both. At onboarding, you block fake/mismatched accounts and stop synthetic identities from getting through. On payouts, you avoid misdirected funds and reduce reversals. Given the 2024–2025 surge in fraud attempts and check fraud, verification on first payout and account changes is a high-ROI control.

  5. We operate in the U.S. only. Is NACHA compliance enough?

    NACHA validation is a baseline for WEB debits. You’ll still want ownership verification, rechecks on sensitive events, and monitoring. Fraudsters don’t care about your compliance scope; they care about your easiest gap.

Conclusion

Bank account verification is one of the few controls that both tighten risk, improve customer experience, and speed up transactions. Businesses that build it into the onboarding and payout changes pipelines tend to step it up where risk spikes, log everything, and retire checks wherever you can. 

And if you need coverage beyond your home market with evidence-grade outputs, solutions like DIRO Bank verification Solution can compress verification from days to minutes while deterring doctored documents and fake ownership claims.