THE ROLE OF INTERNAL CONTROL AND INTERNAL AUDIT IN DETECTING FINANCIAL FRAUD RISKS

Abstract

Financial fraud remains a material threat to organizational value, financial reporting reliability, and stakeholder trust. Evidence from global fraud surveys indicates that losses are often significant (median loss of US$145,000; 22% of cases exceed US$1 million) and schemes tend to persist for extended periods (median duration of 12 months), highlighting detection gaps and delayed response mechanisms (ACFE, 2024). This article examines how internal control and internal audit jointly contribute to identifying (and reducing) financial fraud risks, with emphasis on practical detection pathways: controls design, monitoring, data analytics, and tip-based mechanisms. Using a structured synthesis of authoritative frameworks and professional standards (e.g., COSO-based fraud risk guidance, GAO’s fraud risk management framework, The IIA guidance and standards, and auditing standards addressing fraud), the study develops an integrated detection model and an operational control–audit mapping. Results propose a three-layer detection architecture-(1) preventive and detective internal controls, (2) continuous monitoring and analytics, and (3) independent internal audit assurance and advisory work-supported by governance, whistleblowing, and escalation protocols. The discussion outlines implementation implications, common failure modes (control absence and override), and a pragmatic maturity approach for organizations seeking measurable improvements in fraud detection.