Risk management, top management support, internal audit activities and fraud mitigation

TLDR

The study investigates how top management support and risk management affect internal audit activities and fraud mitigation in Libya, being the first to examine fraud mitigation in an emerging economy by positioning internal audit as a mediator. Data from 16 Libyan commercial banks were surveyed and analyzed with structural equation modeling. Risk management and top management support are positively and significantly related to fraud mitigation, with both factors mediating the relationship, offering implications for regulators and bank management. The research is confined to Libya and calls for further studies in other contexts and sectors to assess technology and internal audit characteristics on fraud mitigation.

Abstract

Purpose This paper aims to examine the effect of top management support (TMS) and risk management (RM) on the internal audit activities (IAA) and fraud mitigation (FM) in the Libyan banking sector. Design/methodology/approach The data is collected using a survey questionnaire of 16 commercial banks in Libya and analysed using a structural equation modeling. Findings The study shows positive and significant relationships between RM and employees’ FM and TMS and employees’ FM. The study also demonstrates a significant mediating effect on the relationship between RM, TMS and FM. Research limitations/implications The study is conducted in the Libyan banking sector. Further research is needed in other contexts and sectors to understand the contribution of the RM and TMS on FM, including the impact of technology and internal audit characteristics in terms of experience, education and professional certificates on FM. Originality/value The study is the first attempt to explore FM in an emerging economy, particularly Libya, by introducing IAA as a mediator. The study provides implications for regulators and top management in the banking sector.