Analysis of Audit Competencies and Internal Control on Detecting Potential Fraud Occurrences

Mochammad Solichin,Tri Gunarsih,Razana Juhaida Johari,Nur Aima Shafie,Zuraidah Mohd Sanusi

doi:10.13189/ujaf.2022.100118

Abstract

It is stated that fraud in the government sector includes deceptive acts such as asset misappropriation, loss of state income, falsification of financial records and reports, and mark-ups in government financing. The purpose of this study is to investigate the potential impact of audit competences (professional skepticism and audit experience) and internal control on an auditor's capacity to detect potential fraud occurrences. Primary data were gathered via a printed questionnaire distributed to the 149 government auditors who work at Indonesia's Inspectorate Office. The findings, based on the Partial Least Squares of structural equation modelling, show that both audit competences have a significant impact on the capacity to detect probable fraud. Internal control, on the other hand, has no direct impact on the capacity to detect potential fraud. The findings show that internal control significantly moderates the link between audit competencies (professional skepticism and audit experience) and the auditor's ability to detect potential fraud occurrences. This research offers practical government suggestions for improving government auditors' professional audit competencies and abilities. Audit authorities should be able to create a more effective internal control structure that prioritizes feedback and learning. The limitations of the study as well as future research are highlighted.

Highlights

Internal auditing in Indonesia has emphasized attention in response to public demands for accountability in government administration [1]
The results indicate that a single factor explains only 44% of the variance, which is less than 50%, indicating that no Common Method Variance (CMV) was present in the data
The results of the moderation test for hypothesis H4a indicate that internal control has a moderating effect on the relationship between professional scepticism and auditors' ability to detect the possibility of fraud (p-value = 0.018). These findings suggest that internal control interacts with the sceptical attitude of government auditors to forecast the possibility of fraud

Summary

Introduction

Internal auditing in Indonesia has emphasized attention in response to public demands for accountability in government administration [1]. Reviews, evaluations, monitoring, and other supervisory activities, government auditors monitor the management of state/regional finances. Government auditors' broad scope of supervision should be used to prevent irregularities in financial management within their scope of supervision [3]. For Indonesia, two monitoring mechanisms are in place: (i) external oversight by the Audit Board of the Republic of Indonesia and (ii) internal oversight by government auditors. These supervisory agencies are expected to mitigate the negative consequences of regional autonomy implementation, in terms of fraud prevention. Fraud is still prevalent, in local governments [6]

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