Indian companies need to give more independence to internal audits for effective monitoring of fraud risks, a KPMG report said.

"Increased expectations of internal audit in respect of fraud risk assessment and monitoring emphasises the need for greater independence," a joint survey by KPMG and the Bombay Stock Exchange said.

"Internal audit independence is vital to develop the confidence that it will report suspicious senior management activities to the Board and/or the audit committee," the report titled 'The Evolving Face of Internal Audit' said.

KPMG noted that the effectiveness of internal audits was hampered due to a relative lack of independence, shortage of specialist skills and low level of confidence in the use of technology.

"A shortage of specialist skills, low levels of skills and confidence in the use of technology and analytics and the relative lack of independence for Internal Audit are factors impeding its effectiveness in fraud risk monitoring," the report said.

Fifty six per cent of respondents surveyed said that internal audit has the primary responsibility for fraud risk assessment and monitoring.

However, many felt there was some slack in audits as far as monitoring fraud risk was concerned.

"It is somewhat disconcerting that 41 per cent respondents have indicated that internal audit either does not focus on fraud risk or conducts investigations concerning frauds only if required by the management," KPMG said.

Performing audits in a timely and cost efficient manner was one of the biggest challenges in terms of performing quality audit work, the report said.

"Other challenges include obtaining timely management concurrence on audit findings, retaining the right staff and consistent execution of the audit methodology," it added.

The report is based on findings of a survey conducted by KPMG and BSE between April and June this year.