RESEARCH PAPER

TITLE
ROLE OF INTERNAL AUDITORS IN FRAUD PREVENTION
AND DETECTION

SUB -TITLE
(EMPIRICAL FINDINGS FROM GENERAL BANKING)

PREPARED BY

(CA. ANITA PARIHAR, MEMBERSHIP NO - 135870)

(CHARTERED ACCOUNTANT- 12 YEARS EXPERIENCE SERVED AS SR
MANAGER(CREDIT) IN CANARA BANK AND NOW STARTED OWN
PRACTICE AT PUNE CAMP)

(FORENSIC ACCOUNTING AND FRAUD DETECTION - PUNE

(PHYSICAL)_DECEMBER 2023)

ABSTRACT

The purpose of this research is to investigate the role of internal auditors in fraud prevention
detection at general banking sector. The independent variable in this study is the role of the
internal auditor with fraud prevention and detection as the dependent variable.

This research uses primary data with questionnaires as research instruments which are
distributed to 80 internal auditors at general banking sector. Of the total respondents, there
were 78 respondents completed and returned the questionnaire and were used as samples in
this study.

The results of the analysis of this study indicate that the role of internal auditors has a
significant effect on fraud prevention and detection at general banking sector. This is evident
from the magnitude of the significance value of the two dependent variables, which means that
the greater the role of internal auditors can increase fraud prevention and fraud detection
efforts at general banking sectors.
(Keywords: Role of Internal Auditor in Fraud Prevention and Detection.)
 INTRODUCTION
 Fraud is a type of criminal activity, defined as 'abuse of position, or false
representation, or prejudicing someone's rights for personal gain'. Put simply, fraud is
an act of deception intended for personal gain or to cause a loss to another party. The
general criminal offence of fraud can include deception whereby someone knowingly
makes false representation, or they fail to disclose information, or they abuse a
position.
 Every year billions of dollars are lost to fraud and corruption resulting in
inefficiencies, aborted projects, financial challenges, organizational failure, and, in
extreme cases, humanitarian disaster. Often fraud occurs because of poorly designed
controls and weak governance undermining the organization’s processes.
 Organizations should have robust internal control procedures to limit the risk of fraud,
and internal audit’s role is to assess these controls. Fundamental Fraud Facts Fraud
can be defined as any illegal act characterized by deceit, concealment, or violation of
trust. These acts are not dependent upon the threat of violence or physical force.
Frauds are perpetrated by parties and organizations to obtain money, property, or
services; to avoid payment or loss of services; or to secure personal or business
advantage.
 Fraud is not unique to any organization type. It occurs in public and privately owned
businesses, not-for-profit, in organizations that seek to contribute to economic and
social well-being, such as government departments, financial institutions, and public
and private utilities (water, electricity, education, health care, etc.). In short, the
opportunity to commit fraud exists everywhere.
 How organizations deal with the risk of fraud may be influenced by legal jurisdiction
and the organization’s own risk assessment and appetite. Fraud can often lead to
litigation, dismissal, and recovery of assets. It is essential, therefore, that any
investigation is undertaken by suitably qualified individuals to reduce the risk of
compromising evidence, accusing wrongfully, or undermining prospective legal
actions. Consistent with The IIA’s International Standards for the Professional Practice
of Internal Auditing on proficiency (1210.A2), internal auditors must have sufficient
knowledge to evaluate the risk of fraud and the manner in which it is managed by the
organization.
 The IIA’s Perspective Internal auditing is an independent, objective assurance and
consulting activity designed to add value and improve an organization's operations. Its
role includes detecting, preventing, and monitoring fraud risks and addressing those
risks in audits and investigations. It should consider where fraud risk is present within
the business and respond appropriately by auditing the controls of that area, evaluating
the potential for the occurrence of fraud and how the organization manages fraud risk
(Standard 2120.A2) through risk assessment, and audit planning. It is not internal
audit’s direct responsibility to prevent fraud happening within the business.
 This is the responsibility of management as the first line of defense. The internal
auditor should not be expected to have the expertise of a person whose primary
responsibility is to investigate fraud. Such investigations are best carried out by those
 experienced to undertake such assignments. Internal audit should use its expertise to
analyse data sets to identify trends and patterns that might suggest fraud and funding
abuse. Where the experience is not available within the internal audit team, the
organization should consider recruiting or engaging resources with sufficient
knowledge or expertise.
 The organization should have a suitable anti-fraud response plan outlining key policies
and investigation methodologies. The plan should make clear the role of internal audit
when there is suspected fraud and associated control failure.
 Operationally, internal audit should have sufficient knowledge of fraud to:
o Identify red flags indicating fraud may have been committed.
o Understand the characteristics of fraud and the techniques used to commit
fraud, and the various fraud schemes and scenarios.
o Evaluate the indicators of fraud and decide whether further action is necessary
or whether an investigation should be recommended.
o Evaluate the effectiveness of controls to prevent or detect fraud. Where
electronic evidence is collected, internal audit should provide assurance on
whether necessary access rights and legislative requirements are being met.
 Where fraud has occurred, internal audit should understand how the controls failed
and identify opportunities for improvement. It should consider the probability of
further errors, fraud, or noncompliance across the organization and reassess the cost of
assurance in relation to potential benefits. Many factors, including available resources,
influence how organizations respond to fraud. Some organizations include fraud
awareness (proactive) and response (reactive) mechanisms within the internal audit
activity, and some internal auditors may investigate fraud.
 If internal audit is required to investigate fraud, the internal auditor should have the
necessary skills and experience to undertake the investigation and discharge their
professional responsibility without jeopardizing the investigation and associated
evidence. Investigation is not typically an internal audit task; therefore, internal
auditors should exercise due professional care (Standard 1220) by considering the
extent of work needed to achieve the engagement’s objectives and the related
complexity, materiality, or significance. They should decide if they are best placed to
undertake the investigation or whether to engage internal legal counsel, human
resources, qualified or certified fraud examiners, digital forensics, or outside legal and
investigative expertise.
 In the bank, it is undeniable that fraud can occur, fraud can occur in various kinds of
transactions, where the more transaction processes are carried out the potential for
fraud to occur is also higher. Bank is a financial institution that can be trusted to hold
the trust with a professional attitude, but a fraud scandal in the bank it can cause
customer losses.
 Frauds that occur in banks are very detrimental to their customers materially, because
banks as financial institutions can no longer be trusted, customers who are victims
must bear the losses themselves caused by fraud that occurred within the bank (Amel-
Zadeh & Barth, 2021). This shows that fraud that occurs in banks is very detrimental
and customers who are victims must be prepared for the occurrence of such cases.
 Internal auditing is essentially an independent internal auditing department that works
within a company to test and evaluate the actions taken by that company. This
 inspection aims to ensure whether the assigned duties and responsibilities have been
carried out properly. Because of this, the internal auditor must conduct an
investigation, make an assessment, and look for facts or evidence before suggesting to
management a course of action.
 Pressure, possibilities for fraud, systems and processes, as well as justifications for the
fraudulent act, all played a role in the occurrence of fraud. Scams are typically
difficult to recognize; frauds are typically only found accidentally or through
purposeful effort. Therefore, management must be aware of the potential for fraud in a
business or organization.
 To overcome the occurrence of fraud, the role of internal audit is needed, in
overcoming potential fraud there is a need for an Internal Audit within the Company
which is in charge of evaluating systems and procedures that are structured correctly
and systematically, through observation, research, and examination of each work unit.
With this Internal audit has a critical role in both preventing and detecting fraud.
 The Role of Internal Auditors on banking sectors are expected to always maintain
integrity on an ongoing basis by improving competence and always ready to be in
front and become a professional partner. The purpose of internal audit, an independent
review function within an organization, is to verify and evaluate the actions taken by
that company. As a result, the auditor's role is crucial in minimizing the likelihood that
something will go wrong.

THEORITICAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

 The main theory that underlies this research is Attribution Theory. According to
Heider (2013), Attribution Theory can explain how the behaviour of an individual can
determine the causes and motives of the behaviour of others or himself, such as
character, attitudes and actions.
 Attribution theory suggests that there are behaviours associated with individual
attitudes and qualities. It can be said that just by looking at one's behaviour one can
learn about one's attitude or nature, and it can also determine one's attitude in certain
scenarios. In general, Fritz Heider's 1958 Attribution Theory seeks to explain the
reasons behind a person's actions or roles.
 Prior studies have extensively employed attribution theory to explain auditor
behaviour, the auditor's function, performance evaluation, and decision-making in the
context of auditing, attribution theory is connected to assessment and describes how
an auditor behaves in their role.
 Attribution has a significant impact on the auditor's ability to spot fraud and stop it,
with the factors affecting this ability typically coming from within the auditor.
Attribution theory used in this study is considered appropriate to explain how auditors
perceive their role in preventing and detecting fraud. Research conducted by Narayana
(2020) also adopts Attribution Theory to explain the effect of auditor attitudes on
fraud prevention with organizational culture. Thus, this theory proposes that the level
of success of a job depends on the role and specific causes of previous success or
failure.

ROLE OF INTERNAL AUDITOR IN FRAUD PREVENTION AND

DETECTION
 As per Standard of internal Audit (SAI-2 para-6) Basic Principal Governing Internal
Audit states that “The internal auditor should exercise due professional care,
competence and diligence expected of him while carrying out the internal audit. Due
professional care signifies that the internal auditor exercises due professional care in
carrying out the work entrusted to him in terms of deciding on aspects such as the
extent of work required to achieve the objectives of the engagement, relative
complexity and materiality of the matters subjected to internal audit, assessment of
risk management, control and governance processes and cost benefit analysis. Due
professional care, however, neither implies nor guarantees infallibility, nor does it
require the internal auditor to travel beyond the scope of his engagement.” An internal
auditor should, therefore, use his knowledge and skills to reasonably enable him to
identify indicators of frauds. However, the internal auditor cannot be expected to
possess the expertise of a person with specialized knowledge and skills in detecting
and investigating frauds.
 Internal audit is a managerial oversight that functions to measure and develop a
control system with the aim of assisting all members of management in managing
their responsibilities effectively by means of analysis, recommendations, and
comments related to company activities.
 Risk Assessment:- Internal Audit performs comprehensive risk assessments to identify
areas within the organization that are most vulnerable to fraud. By understanding the
organization's operations, processes, and systems, Internal Audit can effectively
determine potential fraud risks and prioritize its efforts accordingly. This risk
assessment forms the foundation for developing a robust anti-fraud strategy.
 Control Evaluation:- Internal Audit evaluates the design and effectiveness of internal
controls established to prevent and detect fraud. Through a systematic review, Internal
Audit assesses the adequacy of segregation of duties, authorization and approval
processes, access controls, and other preventive measures. By identifying control
weaknesses, Internal Audit can recommend improvements to strengthen the control
environment and reduce the organization's vulnerability to fraudulent activities.
 Fraud Awareness and Training:- Internal Audit Role includes raising awareness about
fraud risks and educating employees about their responsibilities in preventing and
detecting fraudulent activities. By conducting training sessions, disseminating fraud
prevention policies, and promoting a strong ethical culture throughout the
organization.
Internal Audit fosters an environment of vigilance and integrity. This proactive
approach empowers employees to promptly identify and report suspicious activities,
reinforcing the organization's overall fraud prevention efforts.
 Investigative Procedures: When fraud is suspected or reported, Internal Audit
conducts thorough investigations to gather evidence, determine the extent and impact
of the fraud, and identify the individuals involved. Utilizing various techniques such
as data analysis, interviews, and forensic accounting, Internal Audit uncovers
fraudulent activities and provides management with actionable insights. These
findings are instrumental in taking appropriate actions, such as implementing
disciplinary measures, recovering losses, and strengthening controls to prevent similar
occurrences in the future.
 Continuous Monitoring: Internal Audit implements continuous monitoring processes
to detect potential fraud indicators and anomalies in financial transactions and
 operational activities. By analysing data and conducting regular audits, Internal Audit
can identify unusual patterns, trends, or deviations that may indicate fraudulent
activities. These ongoing monitoring efforts enable early detection of fraud,
minimizing financial losses and reducing the impact on the organization's reputation.
 Whistle-blower Hotline Management: Internal Audit often manages the organization's
whistle-blower hotline or similar reporting mechanisms. By providing a confidential
channel for reporting fraud, employees, suppliers, customers, or other stakeholders
can come forward without fear of reprisal. Internal Audit receives and investigates
these reports, ensuring that potential cases are promptly addressed. The whistle-
blower hotline acts as an important tool in fraud prevention and detection by
encouraging individuals to report suspicious activities and ensuring that necessary
actions are taken.
 Fraud Risk Management: Internal Audit actively participates in the development and
implementation of anti-fraud policies, procedures, and controls. By assessing the
organization's fraud risks and recommending appropriate preventive measures.
Internal Audit helps the organization proactively manage fraud risks. It also monitors
the effectiveness of these measures over time, ensuring that the organization's fraud
prevention efforts remain robust and adaptive to evolving threats.
 Techniques of Fraud Detection: Fraud detection techniques are essential tools used by
organizations to identify and prevent fraudulent activities. These techniques leverage
various approaches, including technology, data analysis, and behavioural patterns, to
detect anomalies and suspicious activities that may indicate fraudulent behaviour.
Here are some commonly used fraud detection techniques:
 Data Analysis and Analytics:
a) Trend Analysis: By analysing historical data, organizations can identify abnormal
trends or patterns that deviate significantly from the norm. Sudden spikes or
declines in financial transactions or operational activities can indicate potential
fraudulent behaviour.
b) Data Mining: Organizations can extract valuable insights from large datasets by
utilising advanced data mining techniques. By identifying hidden patterns and
correlations, data mining can highlight suspicious relationships or transactions
that may be indicative of fraudulent activities.
 Red Flag Indicators: Unusual Transactions: Monitoring for transactions that exceed
certain thresholds or fall outside typical patterns can help identify suspicious activities.
This includes large or frequent cash withdrawals, transactions involving high-risk
countries, or transactions inconsistent with an individual's profile. Duplicate or Ghost
Accounts: Identifying multiple accounts held by the same individual or fictitious
accounts created for fraudulent purposes can help detect fraudulent activities, such as
money laundering or embezzlement. Unauthorized Access: Monitoring for
unauthorized access attempts or changes in user behaviour within information systems
can help identify potential security breaches or fraudulent activities.
 Machine Learning and Artificial Intelligence:
Anomaly Detection: Machine learning algorithms can be trained to identify abnormal
patterns or behaviours within datasets. By learning from historical data, these
algorithms can flag unusual activities that may indicate fraudulent behaviour.
Predictive Modelling: Organizations can develop predictive models that identify
potential fraud risks by utilising historical data. These models can analyse various
 factors and assign risk scores to transactions or activities, allowing for proactive fraud
prevention measures.
 Internal Controls and Auditing: Segregation of Duties: Implementing proper
segregation of duties ensures that no single individual has complete control over a
process. This reduces the risk of fraudulent activities going undetected, as multiple
individuals are involved in critical tasks. Reconciliation and Verification: Regular
reconciliations of financial records, bank statements, and inventory can help identify
discrepancies or missing items that may be indicative of fraud.
 Internal auditing is a separate evaluation function that exists within the company to
evaluate and improve current operations. The internal auditor is the supervisor of this
action, the auditor’s important role is in preventing errors, management will be
assisted by the internal auditor to conduct tests and usually on controls that usually
occur frequently.
 There are five categories in the practice of internal auditors, namely independence,
scope of work, implementation of audit activities, and internal audit management. If
these five professional practices are carried out properly, then the role of internal audit
in detecting fraud will run well.
 Internal auditor is in charge of organizing and carrying out audit procedures to acquire
a reasonable assurance that the company’s financial statements are free from serious
misstatement, whether brought on by fraud or error, their function is becoming
increasingly crucial.
 Internal auditors have a role in preventing and detecting fraud. All entities require
internal audit for business efficiency in reducing costs while maximizing profits and
achieving medium- and long-term goals. Internal auditors need to supervise activities
that generate expenses but do not provide added value in the future.

RESEARCH METHODOLOGY
A) Research Variable :-
 Fraud Prevention and Fraud Detection are the two dependent variables in this study.
Fraud detection is an action that detects fraud that occurs, who is the perpetrator of the
fraud, who is the victim of the fraud and what causes the fraud to occur. This is done
to see the mistakes that have occurred, the signs of a fraud can be seen from the
changing nature of the perpetrators of fraud, lifestyle and treatment of perpetrators
inside and outside the organization.
 Without an internal audit function, directors and/or unit leaders would not have access
to an independent source of internal information about the performance of the
organization. The role of internal audit is to examine and assess the effectiveness and
sufficiency of the existing internal control system in the organization.
 To measure the role of the internal auditor, the author uses the measurement based on
the IIA or the Institute of Internal Audit, the measurement instrument includes
independency, professional ability, audit scope, audit responsibilities and authority for
audit implementation and audit department management.

B) Research Sample :-
 The sample used in this study is a non-probabilistic technique that involve purpose
sampling.
  The sample of this research is Internal Auditor Unit or Internal Control Unit are in
general banks.
 The researchers decided to take a sample from the internal auditor who works in
General Banking Sector, because researchers want to know how the internal auditors
at general banks in carrying out fraud prevention and fraud detection actions. This has
sparked the authors interest in researching the role of internal auditors in fraud
prevention and detection in general banking industry. The respondent criteria in this
study that must be met are as follows:
1. Internal Control Unit or Internal Audit Unit who work in banking sector.
2. Have a minimum educational background of S1 majoring in accounting.
3. Have at least 1 year of work experience as an Internal Control Systems Unit or
Internal Audit Unit in Banking Sector.

C) Analysis Method
 In this study, there are two dependent variables, author will perform a simple linear
regression test analysis twice. In the first stage of analysis, it was determined how the
independent variable, the role of internal auditors (X), affected the dependent variable,
fraud prevention (Y1), and in the second stage, it was determined how the influence of
the independent variable, the role of internal auditors (X), affected fraud detection
(Y2) at general banking sectors. The formula for
Simple Linear Regression as follows: 𝑌! = 𝑎 + 𝑏𝑋 + 𝑒
Formula Description:
Y’ = Fraud Prevention and Fraud Detection
a = Constant
b = Regression Coefficient
X = Role of Internal Auditor
e = Error

RESEARCH RESLUT AND DISSCUTIONS

Sample Descriptions
This study’s population consist of internal auditor unit in general banking sector with sample
selected using purposive sampling approach. Following the distribution of the questionnaires
with a total of 80 questionnaires given, there are 78 valid survey data returned.

Table 1. Respondents Description

Description Frequency Percentage

 Gender
MALE 47 60%
FEMALE 31 40%
TOTAL 78 100%
 Age
22 – 25 4 5%
26 – 30 7 9%
31 – 35 15 19%
36 – 40 19 24%
41 – 45 16 21%
46 – 50 13 17%
 52 – 54 4 5%
Total 78 100%
 Years of Services
0-2 Years 4 5%
3-5 Years 17 22%
6-10 Years 30 38%
> 10 Years 27 35%
Total 78 100%
 Education Stage
S1 (Graduate Degree) 55 71%
S2 (Postgraduate Degree) 23 29%
Total 78 100%
 Work Place

Bank BCA 10 13%

Bank BRI 23 29%
Bank BTN 7 9%
Bank BTPN 7 9%
Bank BBC 20 26%
Bank XYZ 11 14%
Total 78 100%
 Audit Training
0 – 3 Times 24 31%
4 – 6 Times 22 28%
7 – 10 Times 19 24%
11 – 15 Times 9 12%
> 15 Times 5 5%
Total 78 100%

Tabel 2. Descriptive Statistics of each variable

Variable Question N Minimum Maximum Mean Std.
Items Statistic Deviation
Role of Internal 25 78 25 125 106.81 13.57
Auditor (X1)
Fraud Prevention 10 78 10 50 43.35 5.81
(Y1)
Fraud Detection 14 78 14 70 60.73 8.23
(Y2)
Valid N (listwise) 78
(Source: Output Data IBM SPSS 25, 2022)

Based on the results of table 2, It is clear that the mean values of the three variables in this
study
are higher than the standard deviation values. For example, the role of internal auditor variable
has a mean value of 106.81 and a standard deviation of 13.57, with the variable’s minimum
and maximum values of 25.00 and 125.00. The fraud prevention variable has a minimum
value of 10 and a maximum value of 50, with a mean value of 43.35 and a standard deviation
value of 5.81. The fraud detection variable has a mean value of 60.73 and 8.23 as standard
deviation value, the minimum value of fraud detection variable at 14 and 70 for the maximum
value.
The standard deviation value is less than the mean value and the data deviation is very low, the
results suggest that the results are quite good. This also suggests that the data is distributed
properly and has good data variation.

Validity and Reliability Test Result :- The level of accuracy of each statement in the
questionnaire is measured by validity test. Data can be declared valid when each item in the
questionnaire statement obtains a Pearson correlation > 0.3. All Pearson Correlation values
in this study show a value of > 0.3, therefore the questionnaire used in this study is valid. The
reliability test aims to determine the consistency of the respondents when answering each
question given in the questionnaire. Variables can be declared reliable if Cronbach Alpha
>0.60. Cronbach Alpha all the variables in this study value > 0.6. Therefore, every statement
on this ariable is reliable or consistent so that it can be used to further research

Response Bias Test Result :- the significance value of Levene’s test of the Role of Internal
auditor variable is 0.067, the value is above 0.05 which means that the sample variance is the
same. The t-test result of 0.569 with a significance of 0.571 supports the average overall
answer for the Role of Internal Auditor variable, which is 106.222 before the cutoff and
108.1250 after. The results of the mean and t-count values are more than 0.05, meaning that
there is no significant difference between the respondents who returned on time and which is
not on time. The results of the Fraud Prevention Variable Analysis (Y1) the Levene’ test value
of 0.345 and has an average of 43.4815 and 43.0417 after the cut off. With a t-count value of
0.306 and a significance of 0.760, it can be concluded that there is no difference between
respondents who returned on time and those who did not. The fraud detection variable (Y2)
has a Levene’s Test value of 0.052, so equal variances assumed is used for the t-test. The
average value of the fraud detection variable is 60.9259 and 60.2917 after the cut-off, which
means that there is no difference in answers from respondents who are on time in returning the
questionnaire and those who are not on time. The t value of 0.312 with a significance of 0.989
also supports the average value of the fraud detection variable.

Hypothesis 1 Analysis Result

Table 3. Coefficient of Determination Test (R2)

Model R R Square Adjusted R Std. Error of

Square The Estimate

1 0.916 0.838 0.836 2.3553

Based on the results of the aforementioned coefficient of determination test, the value of R2
from the regression model is used to evaluate the independent variable’s capacity to explain
the dependent variable. The contribution of the Role of Internal Auditor variable to Fraud
Prevention is presented as 83% in the table above, according to the coefficient of
determination (R2) value of 0.838, while the remaining 17% is influenced by other variables
outside of this study.

Table 4. T-Test Result

Model Unstandardized Coefficients Standardize
d
Coefficients
 B Std. Error Beta T Sig.
(Constant) 1.421 2.129 0.668 0.506
X 0.393 0.02 0.916 19.851 0.000

Based on table 4. the linear regression equations in this study may be stated mathematically as
follows:
𝒀𝟏 = 𝟏, 𝟒𝟐𝟏 + 𝟎, 𝟑𝟗𝟑𝑿
Description: Y1: Fraud Prevention X: Role of Internal Audit

The constant value in the aforementioned linear regression equation is 1.421, which denotes
that if the other variables are held constant, the value of the Y variable is 1.421. Role of
Internal Auditor Variable (X) Regression Coefficient is 0.393 which means that every 1 unit
increase in the Role of Internal Auditor value will positively impact on the Fraud Prevention
variable or an increase in the Fraud Prevention value of 0.393 with the assumption that other
values remain. It is known that the value of B (Unstandardized Coefficients) is 0.393>0 and is
positive. The efforts of the Fraud Prevention variable at general banking sectors are impacted
by the Role of Internal Auditor variable, despite the significance of 0.000 < 0.05, which
indicates H1 is accepted.

The bank makes more of an effort to conduct fraud prevention the more important the internal
auditor’s role is. With a significance of 0.05 and df n-2 or 78-2 = 76, the t table is 1.991.
Based on table 4.6, the results of the t test are 19.851> t table 1.991, then H1 is accepted.
Therefore, it may be said that the internal auditor’s role affects fraud prevention. The
Coefficient values and positive t values mean that they have an influence. The Bank will boost
its efforts to prevent fraud if the internal auditor’s job is appropriately played.

Hypothesis 2 Analysis Result

Table 5. Coefficient of Determination Test (R2)
Model R R Square Adjusted R Std. Error of The
Square Estimate

1 0,884 0,781 0,778 3,87943

Based on the results of the aforementioned coefficient of determination test, the value of R2
from the regression model is used to evaluate the independent variable’s capacity to explain
the dependent variable. According to the aforementioned table, the coefficient of
determination (R2) result is 0.781, which indicates that 78% of the contribution of the Role of
Internal Auditor variable to Fraud Detection is shown, with the remaining 22% being
influenced by other variables outside of this study.

Table 6. T-Test Result

Model Unstandardized Coefficients Standardize
d
Coefficients
B Std. Error Beta t Sig.
 (Constant) 3.458 3.506 0.986 0.327
X 0.536 0.033 0.884 16.464 0.000

Based on table 6, the linear regression equations in this study may be stated mathematically as
follows: 𝒀𝟐 = 𝟑.𝟒𝟓𝟖 + 𝟎.𝟓𝟑𝟔𝑿
Description: Y2: Fraud Detection X: Role of Internal Audit

The constant value in the aforementioned linear regression equation is 3,458, meaning that if
the other variables are held constant, the value of the Y variable will be 3,458. The regression
coefficient of Role of Internal Auditor variable (X) is 0.536, which means that every 1 unit
increase in the Role of Internal Auditor value will positively impact on the Fraud Detection
variable or an increase in the Fraud Detection value of 0.536 with the assumption that other
values remain. It is known that B (Unstandardized Coefficients) has a positive value of
0.536>0.000 Although H2 is accepted based on the significance of 0.000 < 0.05, the Role of
Internal Auditor variable has an impact on fraud detection at general banking sectors. The
Bank makes more of an effort to undertake fraud detection the more important the internal
auditor’s position is.
(With a significance of 0.05 and df n-2 or 78-2 = 76, the t table is 1.991. Based on table 4.12,
the results of the t test are 15.050> t table 1.991, then H2 is accepted).
Therefore, it can be said that the role of an internal auditor affects fraud detection. Positive t
values and Coefficient values indicate that they are having an effect. The Bank’s efforts to
detect fraud will increase if the internal auditor’s job is done properly.

IMPACT OF THE ROLE OF INTERNAL AUDITOR ON FRAUD PREVENTION (H1)

 According to the first hypothesis, internal auditors’ work contributes to effective fraud
prevention. This is supported by empirical evidence which shows significant results,
thus the H1 is accepted.
 This demonstrates that the more the internal auditor’s involvement, the better the
influence on fraud prevention will be, or vice versa, the lower the internal auditor’s
position, the lower the effectiveness of fraud protection,
 To prevent manipulation of financial statements in the form of material misstatements,
internal auditors conduct regular monthly inspections of the company’s financial
statements.
 According to the analysis, the internal auditor at the general banking sector did a
decent job, as evidenced by the outcomes of independence, scope of work,
implementation of audit operations, and internal audit management. If the internal
auditor can carry out five categories of professional practices which include
independence, scope of work, implementation of audit activities, and internal audit
management, then the role of internal auditors in preventing fraud is going well.
 Internal auditors that are able to see the potential for fraud can help prevent it. The
findings of the analysis of the first hypothesis, which reveal that the importance of the
internal auditor’s function in fraud prevention is demonstrated by the coefficient of
determination of the internal auditor’s involvement in fraud prevention being equal to
0.838, or 83%, further corroborate this assertion.
 Based on the findings and assertions made in the discussion above, it can be
concluded that the internal auditor’s job is performing satisfactorily at the general
banking sectors, it can be ensured that it can help achieve the company’s or bank’s
 targets. All entities require internal audit for business efficiency in reducing costs
while maximizing profits and achieving medium- and long-term goals. Internal
auditors need to supervise activities that generate expenses but do not provide added
value in the future.
 If an internal auditor plays their part well, the study’s findings which indicate that the
role of the internal auditor positively impacts fraud prevention are consistent with the
theory that underlies the study. The job of internal audit is not only in the form of
creating recommendations and techniques, but also involves corrective activities that
minimize and eradicate vulnerabilities that have been planned by the organization. If
an auditor plays a good role in any interest, they will produce excellent audit findings,
its related to attribution theory, f the internal auditor has performed its role well, it can
prevent fraud.

IMPACT OF THE ROLE OF INTERNAL AUDITOR ON FRAUD DETECTION (H2)

 The efficiency of fraud prevention is said to be enhanced by the presence of internal

auditors, according to the second hypothesis. Empirical data that demonstrates
meaningful results and supports this holds true, so the H2 is accepted. This shows that
the higher role of internal auditor, the better effect on the fraud detection will be or
vice versa if the role of internal auditor is low, the fraud detection will be low. The
importance of the internal auditor’s involvement in fraud detection is demonstrated by
the detection rate, which is 0.781 or 78%.
 The results of this study also show that the internal auditors at general banks have
carried out their responsibilities well, because they have shown professionalism and
are obedient to regulations in their work to detect fraud, the role of a good internal
auditor in detecting fraud must be based on professional responsibility and
commitment to develop their duties accompanied by thoroughness and accuracy in
fraud detection.
 For the implementation of fraud detection, internal auditors must know what are the
job limitations and rights of internal auditors to take action to detect fraud in an
organization or company.
 Considering that this study’s findings indicate that the internal auditor’s job positively
affects fraud detection, if the internal auditor performs effectively, it is correlated with
the theory used in this study. One of the duties of professionalism is to be able to fulfil
professional obligations in carrying out one’s duties while adhering to the principles
of caution, thoroughness, correctness, and guidance by norms and rules, in this case
the identification of fraud.

CONCLUSION
 Internal Audit Role in fraud prevention and detection is indispensable for
organizations. Internal Audit provides essential safeguards against fraudulent
activities with its independent and objective perspective.
 The internal auditor’s function contributes to effective fraud prevention. This is
consistent with the idea underlying this research, attribution theory which is reflected
by the role of an individual in determining the causes and motives of the behaviour of
others. Therefore, the greater the contribution of internal audit to avoiding fraud, the
better the fraud prevention strategies, which improve audit quality outcomes and
 internal business operations. With the presence of internal auditors and information on
supervisory activities, it can narrow the gaps in crimes that exist in an organization or
company. According to the data, internal auditors have an 83% influence on fraud
prevention, the remaining 17% is influenced by other factors.
 Fraud detection benefits from the internal auditor’s position. This is in line with the
theory used in this study, namely Attribution theory which is reflected by the role of
an individual in determining the causes and motives of the behaviour of others,
therefore the higher the role of internal audit in fraud detection, the better the fraud
detection actions that lead to audit quality results, company internal activities and
better discipline and responsibility within the company.
 According to the study’s findings, internal auditors play a crucial role in the banking
industry’s efforts to detect and prevent fraud, so the general banking sector need to
improve their internal controls, including internal auditors who can improve fraud
prevention and detection so that they can have better improvement in the future.