Strong Internal Control Research Articles

Pengaruh Kompetensi SDM, Moralitas, Whistleblowing dan SPI Terhadap Pencegahan Fraud Dalam Pengelolaan Keuangan Desa

The purpose of this study was to empirically examine the effect of human resource competence, morality, whistleblowing and internal control systems on fraud prevention in partial village financial management. This research was conducted in 27 Dinas Villages in Denpasar City using total or census methods. Respondents used were 108 people. The data analysis technique used is multiple linear regression analysis. The results of this study indicate that human resource competence, morality, whistleblowing, and internal control systems have a positive effect on fraud prevention in village financial management. This means, with the competence of human resources, good morality and a strong internal control system, it can prevent fraud in the management of village finances.
 Keywords : Human Resource Competence; Morality; Whistleblowing; Internal Control System; Fraud.

Essentiality of internal control in Audit process

Internal control in the audit process gains much attraction from the last few decades. One basic needs to understand the audit process is to understand the internal control of business organizations. Auditors cannot express and present their true opinion unless they do not understand the mechanism and system of internal control. The need to understand the system of internal control develops when audited financial statements used more for decision making for stakeholders. The main objective of this paper is to emphasize the concept of internal control and its significance to comprehend the audit process. Further, the history of internal control with the auditing framework is also in discussion. This paper is based on the theoretical approach where the concept of internal control discussed the external audit process. This paper does not cover internal audits in the discussion, the discussion and concepts are limited to external auditing. Analysis of internal control in the audit process is an important concern for auditors to express their opinion and provide assurance services. Good and strong internal controls are essential to assuring the accomplishments of goals and objectives. They provide reliable financial reporting for management decision making. They ensure compliance with applicable laws and regulations to avoid the risk of public scandals. Poor or excessive internal controls reduce productivity, increase the complexity of the transaction and finally add no value to certain activities. Good internal controls help ensure efficient operations and protect organization image. This paper concluded the essentiality of the internal control system in the audit process as well as its urgency for meeting organization goals and objectives. It is recommended that internal controls should be proactive, and value-added. It plays a significant role in the auditing process and the report of external auditors based on the understanding of the internal control mechanism. The report of external auditors’ further guides to stakeholders in their decision-making process. If it does not depict the true picture, then it damages the integrity of financial reporting.

RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM OF NIGERIA’S BANKING SECTOR

Purpose: This study empirically observed the relationship between risk management and the internal control system of the banks in Nigeria. Methodology: In order to achieve the main objective of this paper, we made use of data from the annual reports of fifteen commercial banks, covering a period of ten years (2007 – 2016). The study is empirical in nature and adopted a cross-sectional research design. Furthermore, the Panel Data Regression estimation technique was employed to estimate the specified model of the study. Result: The results revealed the existence of a negative and significant relationship between credit risk and internal control. Liquidity risk which was measured using liquidity ratio has a positive and statistically significant relationship with internal control of banks in Nigeria. Based on the findings, the importance of strong and vibrant internal control policies across banks in Nigeria cannot be over-emphasized. This is because the more the internal control put in place, the greater the liquidity for banks to carry out their banking operations. On the other hand, the greater the internal control, the lesser the credit risk. Applications: This research can be used for the universities, teachers, and students. Novelty/Originality: Due to the recurring financial distress and eventual liquidation of some banks in Nigeria, this study is very necessary as it stresses the relevance and needs for effective internal control strategies in line with global best practices.

Fraud Intention and Machiavellianism: An Experimental Study of Fraud Triangle

This study aims to examine the causal relationships between fraud triangle and Machiavellianism and fraud intention. Besides the fraud triangle components (pressure, opportunity, and rationalization), Machiavellianism and fraud intention also likely affect fraud. We run our experimental study at several Indonesian universities and use undergraduate accounting students as our subjects. Further, this study uses a 3x2x2 experimental design with 309 students as the subjects acting as purchasing managers. The results show that 1) individuals with high life pressure exhibit greater fraud intention than individuals with low life pressures, 2) individuals who are in a weak internal control condition have greater fraud intention than individuals who are in strong internal control conditions, 3) individuals with high rationalization of fraud have greater fraud intention than individuals with low rationalization, and 4)individuals with high Machiavellianism exhibit greater fraud intention than individuals with low Machiavellianism.

Fraud Management among Small and Medium Enterprises in Lagos, Nigeria

Fraud is a debilitating factor that affects business growth and a major problem for many organizations especially SMEs since they have smaller resources to both prevent and recover from a fraud. SMEs have fewer anti- fraud controls hence they are more vulnerable to fraud. In a bid to reduce fraud and manage the risks proactively, SMEs needs to identify factors leading to fraudulent behavior. The paper seeks to evaluate fraud management among SMEs. Data was collected from two hundred (200) SME owners using questionnaire, however only 197 questionnaires were viable. The questionnaire was formulated using a five-point Likert scale. It was observed that the major causes of fraud are the weakling of societal values and financial pressure while changes in lifestyles indicate that fraud is being perpetuated. The study concluded that for effective fraud management, SMEs should implement fraud prevention measures such as strengthening societal values (integrity) building strong internal control measures to block the loopholes within the system, training programmes for SMEs operators and stringent disciplinary actions against erring officers.

Challenges to compliance with corporate governance mechanisms and accountability in emerging markets: Evidence from Libyan listed companies

This study aims to investigate the level of compliance with CG mechanisms and accountability in Libyan listed companies. It adopts a qualitative approach, using semi-structured interviews to collect the required data from two broad stakeholder groups: internal stakeholders (ISG) and external stakeholders (ESG). The findings of this study provide evidence that Libyan listed companies are to some extent committed to implementing CG mechanisms, but that CG and accountability practices are still at an early stage of development in the country and there are significant weaknesses in terms of practice. Listed companies’ commitment is most evident in their adherence to the BoD mechanism, but levels of disclosure and transparency are barely satisfactory; interviewees argued that at present, disclosure and transparency practices in Libya are designed only to meet local, not international, requirements. Listed companies have also taken practical steps towards meeting the LCGC’s requirements regarding the internal and external audit mechanisms, but the general view among ISG and ESG interviewees was that these mechanisms are currently not robust enough to ensure strong internal control systems. Finally, in terms of the shareholders’ rights mechanism, majority shareholders are seen to enjoy much greater protection, both legally and in practice, than minority shareholders. The results of the study reveal that the lack of knowledge and awareness about the concept of CG, the weakness of the Libyan legislative environment and the lack of accountability mechanisms are the most significant factors inhibiting the advance of CG in the Libyan environment. This study helps to enrich our understanding and knowledge of current CG and accountability practices by being the first to investigate CG mechanisms and accountability in Libyan listed companies.

El control financiero y presupuestario interno en las Cortes Generales cuarenta años después de la Constitución de 1978

El artículo describe la evolución y el establecimiento del control interno, mediante las Intervenciones de las Cortes Generales, el Congreso de los Diputados y el Senado, a partir de 1977. Asimismo, se exponen sus normas reguladoras y su organización. Finalmente se hace referencia a la necesidad de adaptarse a los retos de una intensificación de la fiscalización interna y la aplicación de técnicas de auditoría, relacionado con la transparencia.

Effects of Agency Banking on Bank Performance: A Case of Equity Bank Meru Branch, Kenya

The purpose of this study was to establish the effects of agency banking on bank performance with a focus of Equity Bank Meru Branch, Kenya. The reason for the selection of Equity Bank was because of its large customer base and because of its growth. The study adopted a descriptive research design and the target population was the eighteen agency bank agents. The study used stratified random sampling to select 11 agents that were used in the study. Both quantitative and qualitative data was collected by use of questionnaires with both open and closed ended questions. Data was analyzed and presented using descriptive statistical tools. The study findings indicated that the general cost such as operations and transactions cost were still high even for agency banking, security measures were in place that is physical security though it needed strengthening, transaction security and customer security were not good and needed improvement and the regulations that were in place for agency banking also needed to be improved. The study made the following recommendations: For agent banking operations to be effective, strong internal control systems should be put in place which should be flexible and be evaluated periodically to increase efficiency and effectiveness; there should also be frequent updates of regulations and policies that guide agency banking and procedures that are used in the banking and agency industry in Kenya. Bankers Association in consultation with the Central Bank of Kenya should carry out frequent audit and research in relationship to agency banking to determine any loopholes and challenges in order to advice the banks accordingly. Also banks should work closely with the agents in order to streamline the systems and processes to help achieve efficiency. The results gathered out of the audit and research will help the banks to keep their agents updated.

The Effectiveness of Internal Controls in Rural Community Banks: Evidence from Ghana

Internal control is relevant in every business establishment, though its presence may not be a guarantee that fraud and corporate scandals would cease to occur. From the rural banking communities in Ghana, this study examines the significance of internal control element on the performance of elected rural banks. The statistical analysis and inferential judgment is based on the responses gathered from 650 bank employees on the functioning of internal controls. Based on the quantitative results and analysis, the study found a highly significant relationship between internal controls and performance of banks with respect to the principles prescribed by the Committee of Sponsoring Organization of the Treadway Commission framework –COSO. There exist a very strong internal control systems in the rural banks of Ghana, however monitoring, control activities and issues of corporate governance need to be addressed.

Internal control beliefs and reference frame concurrently impact early performance monitoring ERPs

This study investigated the impact of criterion-based vs. social reference frames on behavioural and neural correlates of performance monitoring while taking individual differences in control beliefs into account. We conducted two experiments administering a time estimation task in which feedback was either delivered pertaining to participants’ own performance (nonsocial/criterion-based reference) or to the performance of a reference group of previous participants (social reference). In Experiment 1, 34 male volunteers participated. To test generalizability of the observed results to both sexes/genders, we recruited 36 female volunteers for Experiment 2. P2 and P300 amplitudes were generally larger in social than in nonsocial reference trials in the male participants of Experiment 1. ΔFRN amplitudes were larger for social compared to non-social reference trials in Experiment 1. No effects of reference frame were found in the female sample of Experiment 2. Rather, P2 and ΔFRN effects showed opposing patterns for nonsocial versus social reference frames. However, stronger internal control beliefs were accompanied by larger FRN amplitudes of negative social reference trials in both samples, suggesting generalizable effects independent of sex/gender. Enhanced P2 and ΔFRN amplitudes for social versus nonsocial reference trials suggest enhanced attentional capture and higher saliency of socially framed feedback in male participants only. In both sexes/genders, however, the social reference frame possibly challenges internal control beliefs and by this enhances performance monitoring. Our results demonstrate the complex interplay of trait variables and reference frames during performance monitoring influencing our daily lives-reference frames are omnipresent in education and one’s working environment.

Experimental evidence on external auditor reliance on the internal audit

With the revised version of ISA 610 (revised 2013), external auditors now face both requirements and guidance addressing their responsibilities when relying on the internal audit function (IAF). The reliance decision of an external auditor has important economic consequences and implications for the efficiency and effectiveness of the annual audit. Using an experimental design, we explore how German external auditors’ reliance decisions regarding the IAF are affected by varying levels of environmental factors, like client business risk, effectiveness of the internal control system, and quality of the corporate governance. Furthermore, the experiences of external auditors in collaborating with an IAF are taken into consideration. The results indicate main effects for each factor and a two-way interaction between the effectiveness of the internal control system and the quality of corporate governance. Specifically, a strong internal control system can compensate for weaknesses in corporate governance with respect to the confidence of external auditors in the IAF. Also, the type of audit procedure influences the willingness of auditors to rely on the IAF, and the inherent risk of the examined transaction strengthens the negative impact of client business risk on the reliance decision. Moreover, past experiences of external auditors with an IAF have a significant impact on their reliance decision. Overall, the findings suggest that organizations can foster internal–external auditor coordination by enhancing corporate governance effectiveness and strengthening the internal control system.

Is regular use of physiotherapy treatment associated with health locus of control and self-management competency? A study of patients with musculoskeletal disorders undergoing physiotherapy in primary health care

ObjectiveTo investigate the relationship between regular use of physiotherapy treatment, health locus of control and self-management competency in people with musculoskeletal disorders. MethodsThis cross-sectional study included 507 patients between 18 and 70 years of age with musculoskeletal disorders who attended a physiotherapy clinic. The Health Education Impact Questionnaire (heiQ) was used to assess self-management competency; the Health Locus of Control Scale (HLCS) was used to assess health locus of control. Multiple linear regression analyses were performed to estimate the relationships between variables. ResultsResults showed that patients who attended physiotherapy on a regular basis had lower levels of internal control than those who did not. Furthermore, regular patients reported more health-directed activities and more emotional distress than patients not attending physiotherapy on a regular basis. Finally, internal health locus of control showed statistically significant associations with all heiQ domains, indicating that a stronger internal control is associated with higher levels of self-management competency. ConclusionOur findings suggest that attending physiotherapy on a regular basis is related to self-management competency and internal health locus of control. Practical implicationsA treatment aim in primary care for people with long term conditions should include development of self-management capacity.

Operational Choices for Risk Aggregation in Insurance: PSDization and SCR Sensitivity

This work addresses crucial questions about the robustness of the PSDization process for applications in insurance. PSDization refers to the process that forces a matrix to become positive semidefinite. For companies using copulas to aggregate risks in their internal model, PSDization occurs when working with correlation matrices to compute the Solvency Capital Requirement (SCR). We examine how classical operational choices concerning the modelling of risk dependence impacts the SCR during PSDization. These operations refer to the permutations of risks (or business lines) in the correlation matrix, the addition of a new risk, and the introduction of confidence weights given to the correlation coefficients. The use of genetic algorithms shows that theoretically neutral transformations of the correlation matrix can surprisingly lead to significant sensitivities of the SCR (up to 6%). This highlights the need for a very strong internal control around the PSDization step.

Factors affecting the voluntary use of internal audit: evidence from the UK

PurposeThis study aims to identify the factors that lead non-financial companies listed in the UK to use an internal audit function (IAF) as a monitoring mechanism. Although the use of an IAF in the UK is voluntary, no prior research has examined the drivers for using one.Design/methodology/approachFinancial and non-financial data were collected from the annual reports of 332 UK non-financial companies listed on the London Stock Exchange (LSE) Main Market. Univariate tests and multivariate logistic regression tests were used to test the research hypotheses. A theoretical framework based on both agency theory and transaction cost economics (TCE) theory was used to explain the economic factors affecting the use of an IAF.FindingsThe study provides evidence that firm size, level of internal risks, agency problem between owners and managers and existence of an effective audit committee are associated with the existence of an IAF. Thus, the need to have strong internal control and risk management systems and to reduce both internal and external agency costs drives companies to have an IAF. These results suggest the importance of IAF as an internal corporate governance tool and the effectiveness of UK governance regulations in monitoring the effectiveness of internal control systems.Practical implicationsGiven the importance of the IAF’s corporate governance role, the study provides some policy implications. Regulators should pay more attention to the issue of maintaining an IAF, especially by large companies, the relationship between the IAF and other governance parties, especially the audit committee, and the disclosure of more relevant information about the IAF’s characteristics and practices.Originality/valueThis is the first study to examine the factors affecting the existence of the IAF within the UK’s distinctive regulatory approach of “comply or disclose reasons”. Furthermore, it provides a theoretical framework that explains how both the agency theory and TCE theory can interpret the adoption of internal audit.

Integrating Religiosity into Fraud Triangle Theory: Empirical Findings from Enforcement Officers

Recently, employee-fraud has drawn extensive attention due to huge amount of losses of various organizations.This study developed a new model of fraud risk by integrating new elements into a fraud triangle theory.This study simultaneously analyzed religiosity and the three elements of fraud risk factors of employee fraud committed by low and mid-level public officials.The data collected from 120 enforcement officers indicated that religiosity is negatively related to employee fraud.By contrast, all the three elements of fraud triangle theory, namely, pressure, opportunity, and rationalization, are positively related to employee fraud.These results imply that strong religiosity is crucial to mitigate employee fraud. To minimize employee fraud, the opportunity to commit such fraud should be reduced through strong internal control, reduction of negative rationalization, and employee financial pressure. This study contributes to the literature by introducing a new model on employee-fraud occurrence that is not extensively discussed, particularly in the context of local authority in developing countries.

Internal Control Quality and Bank Performance During the Financial Crisis

Using a sample of bank-years from 2005 to 2017, we examine the effect of internal control quality on future risk-taking and performance. We find that banks that disclose a material weakness in internal controls have higher risk-taking and worse performance in the future, including having a higher (lower) likelihood of experiencing large losses (gains). These findings suggest that weak controls increase (reduce) downside (upside) risk-taking or conversely that strong controls increase (reduce) upside (downside) risk-taking. Path analyses suggest that 22.3 to 43.7 percent of the effect of internal control quality on future performance is through risk-taking. Additionally, material weaknesses are negatively associated with total asset, loan, interest income, and non-interest income growth, suggesting that internal control quality affects both core and non-core activities of banks. Overall, results suggest that strong internal controls improve bank risk-taking, in part through asymmetrically reducing downside risk-taking while facilitating upside risk-taking, ultimately improving bank performance.

The Impact of Enterprise Risk Management on the Audit Process: Evidence from Audit Fees and Audit Delay

SUMMARY Prior research examining enterprise risk management (ERM) focuses mainly on entity-level measures, relying heavily on the link between ERM and internal controls. We argue that auditors leverage the client's ERM system at the application level to create audit efficiencies beyond those created by strong internal controls. Using a Heckman two-stage analysis for our sample of insurance/reinsurance firms rated on ERM quality by Standard & Poor's, we find results consistent with our expectations that higher-quality ERM systems incrementally reduce audit fees, audit delay, and the likelihood of late filing. However, we find that this association is nonlinear and that much of the assurance benefit from ERM systems is captured when firms improve their ratings from Weak to Adequate. JEL Classifications: G22; M41. Data Availability: The Standard & Poor's data on ERM quality is available at: http://www.standardandpoors.com/ratingsdirect/.

Communicate to achieve a positive audit experience

An annual audit of the organization's finances emphasizes the importance of strong internal controls and assures the board that the nonprofit isn't facing legal or financial issues.

Bank Fraud and Preventive Measures in Nigeria: An Empirical Review

This study examines the measures for fraud prevention in banking industry. Primary data were used for this study. This study was carried out by collecting data from 15 quoted commercial banks in Nigeria as at 31st December, 2015. The study utilized ordinary least square regression model. It was observed that strong internal control system, good corporate governance and compliance with banking ethics have positive and significant influence on fraud prevention in banking industry. This indicates that a commitment in the implementation of the variables of this study will reduce fraud, errors and misappropriations in the banking sector. The study recommended that banking institutions should establish and ensure effective and strict implementation of all these variables which is strong enough to prevent fraud, errors and misappropriations.

The Effect of the SEC's XBRL Mandate on Audit Report Lags

SYNOPSIS: There is considerable debate about whether the adoption of eXtensible Business Reporting Language (XBRL) will result in timelier SEC filings. We provide empirical evidence on this debate by investigating the effect of XBRL adoption on audit report lags. Using a hand-collected panel of S&P 1500 clients' XBRL financial report filings and both levels and difference-in-differences analyses, we show that audit report lags decrease following the mandatory adoption of XBRL. These results are robust to various subsamples and model specifications. On average, audit report lags decrease anywhere from 0.4 to 3.4 percent (0.21 to 1.93 days) in the post-adoption period, depending on the specification used. We further document that these results are concentrated among filers with strong internal control systems and no prior XBRL reporting experience. We also find that audit report lags continue to decline in the years following adoption, which is indicative of a learning curve and improvements in XBRL reporting quality. Additional tests reveal that XBRL is negatively associated with audit fees, suggesting that the XBRL effect is at least partially driven by auditor efficiency gains. Our findings are informative for assessing the economic consequences of requiring XBRL adoption, which should be of interest to regulators, managers, and researchers. JEL Classifications: M41; M42. Data Availability: All data are publicly available from sources quoted in the text.