The Critical Role of Internal Audit in Addressing Bank Fraud: A Conceptual Framework and Critical Review of the Literature with Future Extensions.

Abstract

The recent global financial recession highlighted the critical role that the banking system plays in the modern economy. Banks are complex financial institutions that operate in a constantly changing business environment and deal with high levels of risk, while facing fraudulent actions in regular basis. In order to address these problems, banks engage in various internal audit techniques such as the implementation of controls and prevention tools, the usage of anti-fraud methods and data mining. The aim of this paper is to redefine the contribution of internal audit in the banking system by highlighting its crucial role in addressing bank fraud. This is achieved by initially proposing a new conceptual framework and then by providing a thorough critical review of both theoretical and empirical literature which helps in determining the value of internal auditing. The results confirm the fact that internal audit can play a major role in risk assurance and bank fraud management thus, ensuring their normal and uninterrupted operation. The paper also provides some useful insights for future application of internal audit methods in the banking sector thus, laying the ground for a fruitful dialogue among the various stakeholders.