Internal Auditing’s Role in Preventing and Detecting Fraud: An Empirical Analysis

Abstract

Internal auditing is a core function in detecting and preventing fraudulent activities. However, the orientation and role of internal auditing in dealing with fraud varies considerably in different companies. Against this background, this study examines the connection between internal au-diting and fraud and provides new insights into the as-is practice of internal auditing. Using 311 observations from Chief Audit Executives, we find that the corporate governance environ-ment significantly affects the level to which internal auditing strives for detecting and prevent-ing fraud. We also emphasize the overall ethical impact regarding fraud in organizational struc-tures. Shedding light on the positioning of internal auditing between management and the audit committee with respect to fraud, our results show that additional meetings with management have a positive effect on the level of activities to prevent and detect fraud, while additional meetings with the audit committee have the opposite effect. Our results not only underscore the significance of technologically advanced working methods but also holistically address the am-biguity regarding the responsibility for detecting and preventing fraud. Our results have impli-cations for building an appropriate protection against the steadily increasing risk of fraud within organizations.