Internal Audit Research Articles

Analisys of Fraud Diamond Theory in Detecting Fraudulent Financial Statement: Study in Manufacturing Company in Indonesia

This study aims to analyze the application of the Fraud Diamond Theory in detecting fraudulent financial statements in manufacturing companies in Indonesia. The Fraud Diamond Theory, which consists of four key elements—pressure, opportunity, rationalization, and capability—provides a comprehensive framework for understanding the factors that drive individuals to commit financial fraud. Using a sample of financial data from selected manufacturing firms, this research examines how these four elements contribute to fraudulent behavior and evaluates their effectiveness in identifying financial statement irregularities. The study utilizes quantitative methods, employing financial ratio analysis, statistical tests, and data on corporate governance to assess the likelihood of fraud within these companies. The results indicate that the elements of pressure and opportunity play a significant role in facilitating fraudulent activities, while rationalization and capability also contribute but are more difficult to quantify. The findings suggest that incorporating Fraud Diamond indicators into corporate governance and internal audit systems can enhance the early detection of financial fraud in manufacturing firms in Indonesia. This research contributes to the growing body of literature on fraud detection, offering insights for regulators, auditors, and corporate stakeholders to strengthen financial oversight and prevent financial misstatements.

Analisa Kinerja Satuan Pengawasan Internal (SPI) dalam Pengelolaan Keuangan pada RSUD Ibnu Sina Kabupaten Gresik

This study aims to analyze the performance of the Internal Audit Unit (SPI) in financial management at Ibnu Sina Regional General Hospital (RSUD) in Gresik Regency. The research focuses on evaluating the effectiveness of SPI's duties, identifying challenges faced, and proposing solutions to improve performance in supporting financial transparency and accountability. The study employs a qualitative approach with data collected through in-depth interviews with SPI members, the head of the finance department, and the head of the accounting sub-section at RSUD Ibnu Sina. The findings reveal that SPI has not been functioning optimally due to several factors, such as insufficient incentives, limited training opportunities, the absence of a dedicated workspace, and an inadequate number of personne relative to their workload. Additionally, the lack of regular audit schedules and SPI's minimal involvement in identifying financial risks are significant challenges.

The Effect of Six Sigma Standards on the Quality of Financial Statements through Internal Auditing as a Mediating Variable (A field Study on commercial banks in city of Sana’a)

The Effect of Six Sigma Standards on the Quality of Financial Statements through Internal Auditing as a Mediating Variable (A field Study on commercial banks in city of Sana’a)

Internal auditors and crisis management: a post-crisis outcome evaluation

Purpose The purpose of the study is to understand how internal auditors in public US universities respond to and manage crises. As part of the post-crisis outcomes evaluation and learning process, the authors examine how internal auditors in public US universities manage their work and resources during the COVID-19 pandemic. Design/methodology/approach To motivate the study, the authors analyze internal audit-related information from universities’ audit committee meeting records during the pandemic. Subsequently, the authors conduct semi-structured interviews with chief audit executives (CAEs) and senior internal auditors to learn about their experiences during the pandemic crisis. Findings Through the lens of the organizational resilience framework, the authors find that when managing crises, CAEs in US universities play a leading role in providing institutional and emotional support to staff; securing organizational, financial and technical backing from management and audit committees and exercising flexibility in using available resources. Additionally, internal auditors must assess the internal and external environments during crises and adjust their operations accordingly. Increasing professional outreach also helps internal auditors mobilize additional resources in adversity. To thrive in the post-pandemic era, when remote working models become popular, internal auditors need to increase informal communication with management and audit committees and sharpen their data analytics skills. Originality/value The study provides an opportunity for internal auditors and their stakeholders to reflect on the wins and losses during the pandemic and prepare for future challenges. The authors propose extending Kimberlin et al.’s (2011) organizational resilience framework by adding a communication factor.

Exploring the external factors affecting the effectiveness of internal audit in Moroccan public enterprises with commercial activities: A qualitative approach

The aim of this study is to identify the external factors affecting the effectiveness of internal auditing in public companies with commercial activities in Morocco. Using a qualitative methodology based on semi-directive interviews with 24 internal auditors, audit managers and managers, the study explored the challenges faced by these departments. The results highlight several key factors influencing the effectiveness of internal auditing. Top management support is essential to ensure auditors' independence and effectiveness. However, a lack of support from top management limits their ability to conduct effective audits. In addition, the human, financial and material resources allocated to auditing are often insufficient, which affects the quality of assessments. Implementation of audit recommendations is also a weak point: resistance to change and lack of follow-up prevent continuous improvement of practices. Finally, fluid communication between different departments is crucial, but is often hampered by organizational silos, limiting access to the information needed for a complete assessment. To improve the effectiveness of internal auditing, it is therefore necessary to strengthen managerial support, allocate more resources and improve inter-departmental communication and the implementation of recommendations.

Analysis of the Effectiveness of Internal Control as Fraud Prevention in the Kupang City Government

This study aims to evaluate the effectiveness of the implementation of the Internal Control System (ICS) in financial management and Government Regulation (PP) No. 06 of 2008 as a fraud prevention measure. This study employs a qualitative descriptive approach. Primary data were gathered through questionnaire about internal control system, completed by relevant officials, which where supplemented by additional insights obtained from interviews. Meanwhile, secondary data were sourced from the Summary of Audit Results (IHPD) for the East Nusa Tenggara Province. Given the paucity of research on internal control-based auditing in the government sector and the rising instances of corruption in public financial accountability and operations, it is critical to delve deeper into this issue to investigate the effectiveness of internal controls in preventing fraud within the government. This study identifies the causes of compliance findings in the Financial Statements of the Regional Government of Kupang City for the 2023 Fiscal Year, analyzed them in relation to the effectiveness of the Internal Control System (ICS). The findings reveal that ineffective implementation of internal control is a significant factor contributing to compliance violations of regulations, which result in state or regional losses that require recovery.

Implementation of the internal auditor policy of the North Sulawesi Regional Police in the South Minahasa Resort Police

This study aims to analyze and evaluate the implementation of internal auditor policies carried out by the Regional Supervisory Inspectorate (Itwasda) of the North Sulawesi Regional Police in the South Minahasa Resort Police. Internal auditors have an important role in ensuring accountability, transparency, and operational effectiveness in the police environment, especially related to budget management, compliance with procedures, and implementation of tasks according to applicable operational standards. This research uses a qualitative approach with descriptive method, which involves data collection through in-depth interviews, observation, and document analysis. The research findings show that the process of implementing the internal auditor policy at South Minahasa Police Station has been running, but there are still some obstacles such as the lack of human resources trained in auditing, less than optimal communication between auditors and audited parties, and limited technology used in conducting audits. Nevertheless, the support from the leadership of the Resort Police and Itwasda North Sulawesi is a significant supporting factor in ensuring that audit recommendations can be implemented. The conclusion of this study emphasizes the need to increase the capacity of internal auditors through continuous training, improvement of supporting technology, and optimization of communication and collaboration between auditors and audited parties. With these corrective measures, it is expected that the effectiveness and efficiency of internal audits within the South Minahasa Police can be further improved, thus helping to achieve better governance in the police institution.

The role of internal audit on the quality of financial reports

This study aims to provide empirical evidence regarding the importance of the role of Internal Audit in the quality of financial statements reviewed from the Literature Study using 53 Sinta 2 journals and Scopus 4 indexed journals with a total of 57 journals. Here, we classify articles based on topics and this research uses the literature review method of the Sinta 2 journal and some from Scopus. The researcher reviewed research related to internal audits in Indonesia in Sinta and Scopus indexed journals., then a mapping approach (Charting the field) was carried out using a prism approach, matrix tables and previous research that strengthened this research. The results of the study found that the quality of financial statements was the most researched. In addition, there is a research gap regarding the role of internal audit on the quality of financial statements as a proxy for Organizational Culture and Masculinity. It is evident that the results of previous studies are still inconsistent. Therefore, the researcher provides novelties that need to be reviewed regarding how Organizational Culture and Gender affect the quality of Financial Statements.

The stability of the treasury system as a result of treasury risk management

Relevance. The fundamentals of control activities are based on effective risk management. The main burden on the internal control system is aimed at ensuring compliance by the audit subject with regulatory and legislative acts governing the activities of treasury bodies, timely detection and prevention of treasury risks in order to implement the necessary preventive measures aimed at minimizing the likelihood of the occurrence of negative consequences associated with them for the activities of the department.The purpose of the study is to assess the stability of the treasury system as a result of treasury risk management.Objectives: consideration of theoretical and organizational and legal aspects of budget execution, assessment of the treasury system, determination of areas for improving treasury control as a factor in operational efficiency in managing the budget process at the regional level.Methodology. The authors used general scientific methods of research, vertical and horizontal analysis, comparison, summary and grouping, generalization of scientific practice, forecasting.Results. The conducted research allowed to form and highlight the following scientific results: to determine the role of treasury bodies in the system of state financial control at the regional level, to conduct a general analysis of the activities of the Federal Treasury Department in the Kursk Region and to analyze the treasury execution of the budget of the Kursk Region, to identify risks for the treasury system when introducing the digital ruble.Conclusions. Control is the main procedure of the treasury system of budget execution. Cash servicing of budget execution involves the implementation and accounting of cash transactions on income and expenses and sources of financing deficits. The Federal Treasury Department in the Kursk Region plays an important role in the financial system of the region and contributes to sustainable development. The use of a risk-oriented approach by treasury bodies involves the selection of objects of external control of entities of audit activity based on the analysis of the risks of their activities, the application of international audit standards, which is aimed at reducing the audit time, reducing duplicate control functions, forming a unified management paradigm of public management applied in related control and supervisory bodies in the financial and budgetary sphere of Russia.

RESEARCH ON VALUE-ADDED INTERNAL AUDITING IN ENTERPRISES BASED ON VALUE CHAIN THEORY

With the continuous development of the market economy, the business environment of enterprises has become increasingly complex. As a critical component of corporate governance, internal auditing plays a vital role in regulating business operations. However, traditional compliance-based internal auditing can no longer meet the development needs of modern enterprises. Researching value-added internal auditing to provide more effective value-added services for enterprises has become a significant topic in current internal auditing research and practice. Based on value chain theory, this paper introduces the concept of value-added internal auditing, explores the differences between traditional internal auditing and value-added internal auditing, analyzes existing problems in the implementation of value-added internal auditing in enterprises, and proposes a framework for constructing a value-added internal auditing system through organizational restructuring, institutional improvement, and the optimization of operational mechanisms. KEYWORDS: Value Chain, Internal Auditing, Value-Added Auditing

The digital (r)evolution in internal audits: are we there yet? Some insights from Italy

PurposeThis study aims to identify the principal changes that digitalization has brought about in the internal audit functions (IAFs), focusing on the main characteristics that have been affected by this phenomenon.Design/methodology/approachThe study follows a qualitative approach, involving the thematic analysis of semistructured interviews. A total of 22 professionals working in Italian-listed companies’ IAFs were interviewed. The framework of institutional theory was used to analyze the results.FindingsThe elements most affected by the digitalization of IAFs in Italy are: the skills required in IAFs, the relationship with external consultants and the types of activities performed by internal auditors (IArs). Nevertheless, the extent of the level digitalization within the IAFs of the companies analyzed appears to vary in accordance with the level of institutional pressures experienced by the organizations.Originality/valueThe study contributes to the literature on IA and digitalization by delineating the principal elements that are influenced by the digitalization process of IA. Moreover, it highlights how these elements develop and evolve as the level of digitalization of the IAF changes.

ARTIFICIAL INTELLIGENCE AND INTERNAL AUDIT STAFFING PRACTICES: NECESSITATING A DIFFERENT SKILL SET FROM AUDITORS

The integration of artificial intelligence (AI) into internal auditing practices has necessitated a significant transformation in the skill sets required of auditors. This paper explores the evolving competencies essential for internal auditors to remain effective in a rapidly changing technological landscape. As AI capabilities advance, auditors must not only possess traditional technical skills, such as risk management and knowledge of internal controls, but also a robust array of soft skills, including effective communication, critical thinking, and ethical conduct. The literature emphasizes the importance of continuous learning and professional development, highlighting that auditors should proactively seek opportunities to enhance their expertise through targeted workshops and certifications. Furthermore, the cultural context in which auditors operate influences the specific skills needed, with hierarchical cultures placing a premium on decision-making and adherence to protocols, while clan cultures prioritize teamwork and interpersonal relationships. Ultimately, the successful adaptation to AI and the changing demands of the auditing profession hinges on a comprehensive understanding of both cognitive and emotional skill sets, underscoring the necessity for auditors to evolve continuously to add value within their organizations.

ARTIFICIAL INTELLIGENCE INVESTMENT, REALISTIC REPORTS, AND FINANCIAL LOSS

During audit planning, auditors examine the business of their firms. Still, the target is to minimize the discrepancy in the real planned financial statement of inspection and summary reports of internal audits. On the other hand, expenditures on artificial intelligence have been increasing in Turkish firms; according to the National Artificial Strategy document, AI will be part of every organizational process, including internal audits. Moreover, the literature supports a positive relationship between internal audits and firms’ decreasing capital loss. So, this research aims to analyze the relationship between AI expenditures, internal audit reports, and the firms’ historical loss. To reach this aim, suitable data was analyzed from 732 incorporated companies that are members of the Chamber of Trade and Industry/Tekirdag/Turkey. Structural equation modeling results show that AI investments decrease the discrepancy between financial statements and internal audit reports (β=-0.045). On the other hand, discrepancies found in the internal audit reports compared to real financial statements are increasing firms’ financial losses by almost 10% (β=.118). In other words, investing in AI contributes to more realistic financial reports, resulting in fewer financial losses. From this perspective, this study is one of the leading studies that connects AI investment to internal audits and the financial performance of Turkish firms.

Enhancing internal audit effectiveness: The role of management support in South African provincial governance

Despite anecdotal evidence indicating that a lack of management support towards internal audits (IAs) affects their efficacy, only a few studies have been conducted on the topic in a provincial government (PG) context. Besides, studies on the lack of management support towards IA efficacy lack theoretical grounding. This research aims to address this knowledge gap. The paper applied principal–agent theory to identify barriers to efficient management support towards the IA role within PGs, using the case of the Western Cape Government (WCG). Initially, questionnaires were sent to 260 WCG participants. The results revealed that management has a bad perception of IA as adding value to the organisation and does not take timely corrective actions based on audit findings and recommendations. The study adds to the limited knowledge about management and the IA relationship within PGs.

The emergence of artificial intelligence ethics auditing

The emerging ecosystem of artificial intelligence (AI) ethics and governance auditing has grown rapidly in recent years in anticipation of impending regulatory efforts that encourage both internal and external auditing. Yet, there is limited understanding of this evolving landscape. We conduct an interview-based study of 34 individuals in the AI ethics auditing ecosystem across seven countries to examine the motivations, key auditing activities, and challenges associated with AI ethics auditing in the private sector. We find that AI ethics audits follow financial auditing stages, but tend to lack robust stakeholder involvement, measurement of success, and external reporting. Audits are hyper-focused on technically oriented AI ethics principles of bias, privacy, and explainability, to the exclusion of other principles and socio-technical approaches, reflecting a regulatory emphasis on technical risk management. Auditors face challenges, including competing demands across interdisciplinary functions, firm resource and staffing constraints, lack of technical and data infrastructure to enable auditing, and significant ambiguity in interpreting regulations and standards given limited (or absent) best practices and tractable regulatory guidance. Despite these roadblocks, AI ethics and governance auditors are playing a critical role in the early ecosystem: building auditing frameworks, interpreting regulations, curating practices, and sharing learnings with auditees, regulators, and other stakeholders.

Python software for patient exposure analysis in radiology

Abstract Introduction: The values describing the patient’s exposure in X-ray diagnostics and interventional radiology should be compared with several independent criteria: diagnostic reference levels, dose levels associated with potential unintended exposure, and dose levels requiring specific action in interventional radiology. Radiation dose monitoring software (RDMS) is not always available, and may not perform all the tasks or cover all radiological devices. The aim of the work was to create software that would allow the analysis of dose data from various sources. Material and Methods: Python programming language was chosen due to the availability of libraries enabling access to information stored in DICOM files (pydicom, rdsr-navigator) and data analysis functions (pandas). The software was created, able to import data from various sources (Excel files, DICOM files, RDSR dosimetry reports), reject data based on the indicated criterion, multiply selected numerical data by the indicated factor, compare dose information with preset criteria (including diagnostic reference levels), and create summary reports. Data describing how to analyse data from a specific source has been placed in easy-to-modify external configuration files (Excel spreadsheets). The results of the dose analysis are saved in Excel spreadsheets. Results: The software was tested on DICOM files from mammography and radiography devices (obtained from PACS), RDSR dosimetry reports from interventional radiology units (obtained from PACS or exported directly from the radiology device), Excel files with data exported from a commercially available RDMS system. It has been confirmed that it is possible to change the data analysis method (e.g. add a new radiological device) by modifying the configuration file without changing the program code. Conclusion: The software allows users to analyse patient exposure data from various sources, compare it with different dose levels, and prepare reports useful in internal clinical audits.

Assessment of Selected Aspects of Safety Management In The Organization of Mass Events: A Case Study of a Football Club in Poland

This article was motivated by the need to address the knowledge gap identified in the literature analysis. The purpose of this article is to present an assessment of the safety of spectators attending a football match held at the stadium of one of Poland’s sports clubs. The analysis focused on three selected aspects of safety management: security provided by information and security services, medical safety, and the safety of the venue and its infrastructure. Additionally, a fourth aspect—spectators’ sense of safety—was included in the analysis. The study was preceded by a review of literature on the subject matter. The research tools used included a semi-structured interview, observation, an internal audit based on a prepared checklist, and a questionnaire survey. The combination of these research methods allowed for the use of triangulation to enhance the reliability of the study. Furthermore, a custom five-point rating scale was developed, which was used to assess both the overall level of safety at the mass event and management of its individual aspects. Based on the results, it was determined that the overall safety management level at the analyzed stadium ranged between 4 and 5, which corresponds to a range between acceptable and broadly acceptable risk. However, it is important to note the existence of a ‘bottleneck’ in this assessment, represented by the aspect of spectators’ sense of safety, which received an average rating of 3.43, indicating tolerable risk. Several possible improvements have been proposed to enhance safety levels in this particular area.

The Impact of Various Factors on the Effectiveness of Internal Audit in the Public Sector: The Case of Bosnia and Herzegovina

The Impact of Various Factors on the Effectiveness of Internal Audit in the Public Sector: The Case of Bosnia and Herzegovina

The impacts of internal audit quality and accounting information systems effectiveness on SME manager’s perceptions of external audits

The impacts of internal audit quality and accounting information systems effectiveness on SME manager’s perceptions of external audits

DETERMINAN PENCEGAHAN FRAUD PADA BANK BUMN DI KOTA BATAM

This study aims to analyze the influence of internal audit and internal control on fraud prevention at state-owned banks in Batam City. It's critical to comprehend the elements that can stop fraud. Employees of state-owned banks in Batam were given questionnaires as part of the quantitative approach utilized in this study to collect data. The results of the study indicate that internal audit has a significant influence on fraud prevention. This indicates that the effectiveness of the internal audit function in identifying weaknesses and ensuring compliance with operational procedures plays an important role in minimizing the potential for fraud. However, the results of the study also show that internal control does not have a significant influence on fraud prevention partially. However, when tested simultaneously, internal audit and internal control together have a significant influence on fraud prevention. This finding emphasizes the importance of synergy between internal audit and internal control in creating an effective system to prevent fraud in the banking sector. Therefore, banks need to increase the role of internal audit and ensure good coordination with the internal control system to achieve optimal results in fraud prevention efforts.