Internal audit organisational status, competencies, activities and fraud management in the financial services sector

TLDR

No prior research has examined the individual contributions of internal audit organisational status, competence, and activities to fraud management. This study investigates how internal audit organisational status, competence, and activities relate to fraud management in financial services firms and calls for further research in other sectors. Using a cross‑sectional, correlational design, the authors surveyed 54 financial services firms in Kampala, Uganda, collecting firm‑level data via questionnaire. Internal audit organisational status and competence significantly predict fraud management, whereas activities do not, suggesting that competent auditors with appropriate status are likely to perform activities that enhance fraud management and informing policy on auditor competences and reporting lines. The results are limited to financial services firms in Uganda and may not generalize to other sectors.

Abstract

Purpose The purpose of this paper is to study the relationship between internal audit organisational status, competencies, activities and fraud management. As a corollary, this paper examines the contribution made by the internal audit organisational status, the internal audit competence and the internal audit activities on fraud management in financial services firms. Design/methodology/approach This study is cross-sectional and correlational, and it uses firm-level data that were collected by means of a questionnaire survey from a sample of 54 financial services firms in Kampala – Uganda. Findings Results suggest that the internal audit organisational status and the internal audit competence are significant predictors of fraud management. Contrary to previous thinking, internal audit activities do not significantly predict fraud management. Therefore, once internal auditors have appropriate status and are competent in an organisation, they are likely to perform activities that enhance fraud management. Research limitations/implications This study focuses on financial services firms in Uganda, and it is possible that these results are only applicable to the financial services sector. More research is therefore needed to further understand the contribution of the internal audit constructs on fraud management in other sectors such as the public sector. Practical implications The results are important for internal audit policy development, for example, in terms of prescribing the competences and reporting lines for the internal auditors to enhance fraud management in the financial services sector. Originality/value As far as the authors are aware, no research has hitherto been undertaken that investigates the individual contribution of internal audit organisation status, competence and its activities as internal audit constructs on fraud management.