Does the Internal Control System Play a Strong Safeguarding Role Against Fraud in Local Communities?

Abstract

This paper investigates the application of appropriate mechanisms and procedures for identifying, reducing, and suppressing fraud. Challenges and obstacles faced by municipalities in the implementation of internal controls for the prevention of fraud are also discussed. A survey was conducted in various Belgrade municipalities, and 162 usable responses were received. It was observed that there is a lack of internal control or that, where it exists, it is not sufficient to effectively manage fraud. Further, the results of the study indicate that only one element of fraud risk management, the level of education of employees, is significant in reducing fraud incidents. Namely, the education and training of employees contribute the most to fraud detection. The implications of these findings are discussed. Through the analysis of the relevant literature and research, this paper offers recommendations for improving internal control in local municipalities in order to reduce the risk of fraud and to increase responsibility in the management of public resources.