Corporate fraud remains one of the world's most costly business risks. Beyond direct financial losses, fraudulent activities damage corporate reputation, weaken investor confidence, disrupt operations, and reduce organizational sustainability. As digital technologies continue transforming business operations, organizations face new challenges because technology not only improves efficiency but also creates increasingly sophisticated opportunities for fraud.
The study cites the Association of Certified Fraud Examiners (ACFE) Report to the Nations 2025, which estimated organizational fraud losses at approximately US$3.6 million. These growing risks have increased the importance of preventive governance mechanisms, particularly internal audit, internal control, and enterprise risk management.
Why Internal Audit and Internal Control Matter
According to Amrulloh and Jasmadeti, fraud rarely occurs without organizational weaknesses.
Poor segregation of duties, inadequate authorization procedures, weak supervision, and ineffective monitoring create opportunities for individuals to commit fraudulent activities without immediate detection.
Internal control serves as the organization's first line of defense by establishing structured procedures for financial reporting, operational activities, compliance, and asset protection.
Internal audit complements this system by independently evaluating whether internal controls function effectively. Rather than simply identifying problems after they occur, internal auditors provide recommendations that strengthen governance, improve operational efficiency, and reduce future fraud risks.
The researchers emphasize that preventing fraud requires a combination of strong governance, management commitment, organizational culture, and continuous oversight rather than relying on a single control mechanism.
How the Study Was Conducted
The researchers applied a quantitative research design using a structured questionnaire distributed to employees of PT Anjungan Maju Bersama.
The study included:
- 47 employees using saturated sampling, meaning every member of the population participated.
- Five-point Likert-scale questionnaires.
- Multiple linear regression analysis using SPSS software.
- Statistical testing that included validity, reliability, classical assumption tests, partial (t) tests, simultaneous (F) tests, and coefficient of determination (R²).
The research evaluated three principal variables:
- Internal Audit
- Internal Control
- Fraud Prevention
This approach enabled the researchers to measure both the individual and combined influence of internal audit and internal control on fraud prevention.
Internal Audit Significantly Reduces Fraud Risk
One of the study's strongest findings is the significant contribution of internal audit to fraud prevention.
The statistical analysis produced:
- Regression coefficient: 0.435
- t-value: 3.520
- Significance level: 0.001
These results indicate that improvements in internal audit practices are associated with higher levels of fraud prevention within the organization.
According to the researchers, effective internal audit strengthens organizational oversight by:
- Evaluating compliance with operational procedures.
- Identifying weaknesses in internal processes.
- Detecting potential risks before they escalate.
- Providing recommendations that improve internal control systems.
The findings support Donald R. Cressey's Fraud Triangle Theory, particularly the concept of opportunity. Fraud becomes less likely when organizations strengthen supervision and reduce opportunities for unethical behavior through systematic auditing.
Internal Control Has an Even Stronger Influence
The study also found that internal control has a positive and statistically significant effect on fraud prevention.
The results showed:
- Regression coefficient: 0.482
- t-value: 3.162
- Significance level: 0.003
These figures suggest that stronger internal control systems contribute even more to fraud prevention than internal audit alone.
Effective internal control includes:
- Clear segregation of responsibilities.
- Proper transaction authorization.
- Accurate financial recording.
- Continuous supervision.
- Regular communication and monitoring.
The researchers explain that these elements create a work environment where fraudulent behavior becomes significantly more difficult to carry out.
The study also references the COSO Internal Control Framework, which identifies five integrated components of effective internal control: control environment, risk assessment, control activities, information and communication, and monitoring. Together, these components strengthen accountability while protecting organizational assets and ensuring reliable financial reporting.
Combining Both Systems Produces the Strongest Protection
Perhaps the study's most important conclusion is that internal audit and internal control produce the greatest benefits when implemented together.
The simultaneous statistical analysis generated:
- F-value: 28.870
- Significance: 0.000
These results demonstrate that both variables jointly have a significant influence on fraud prevention.
The model's R² value of 0.568 indicates that internal audit and internal control explain 56.8% of the variation in fraud prevention effectiveness.
The remaining 43.2% is influenced by other organizational factors outside the research model, such as leadership, corporate culture, employee ethics, incentive systems, or external business conditions.
The researchers argue that organizations should avoid relying solely on internal control systems without regular internal audits. Likewise, audit recommendations become less effective when organizations lack strong underlying control mechanisms.
Implications for Businesses
The findings offer practical lessons for companies seeking stronger corporate governance.
Organizations should:
- Invest in independent internal audit functions.
- Continuously improve internal control systems.
- Strengthen employee awareness of ethical conduct.
- Regularly evaluate operational procedures.
- Integrate digital monitoring technologies with governance systems.
As Amrulloh and Jasmadeti from the Institut Bisnis dan Informatika Kesatuan explain through their findings, internal audit and internal control complement one another by reducing opportunities for fraud and strengthening organizational accountability. Their research demonstrates that fraud prevention depends on the continuous integration of supervision, governance, and management commitment rather than isolated compliance activities.
The study also highlights that as organizations become increasingly digital, maintaining effective governance systems will be essential to protecting financial integrity, sustaining stakeholder trust, and ensuring long-term business resilience.
Author Profile
Amrulloh is a researcher from the Faculty of Business, Institut Bisnis dan Informatika Kesatuan (IBIK), Indonesia. His research focuses on internal auditing, fraud prevention, accounting, corporate governance, and organizational risk management.
Jasmadeti is a lecturer and researcher at the Faculty of Business, Institut Bisnis dan Informatika Kesatuan (IBIK), Indonesia. Her areas of expertise include accounting, internal control systems, financial governance, corporate risk management, and fraud prevention.
Source
Article Title: The Effect of Internal Audit and Internal Control on Fraud Prevention
Authors: Amrulloh; Jasmadeti
Journal: International Journal of Sustainable Applied Sciences (IJSAS)
Publication Year: 2026
DOI: https://doi.org/10.59890/ijsas.v4i6.3
URL: http://ijsasjournal.my.id/index.php/ijsas
0 Komentar