The critical role of Internal Auditing in addressing bank fraud: A conceptual framework

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 highlight the crucial role of internal auditing in addressing bank fraud. This is achieved by initially providing a review of both theoretical and empirical literature which helps in determining the value of internal auditing and then by proposing a conceptual framework in order to justify its interconnection with bank fraud, and also to serve as a guide for all future reference. The results confirm the fact that internal audit can play a major role in risk assurance and bank fraud management thus, ensuring banks’ normal and uninterrupted operation. The paper also provides some useful insights for future application of internal audit methods thus, laying the ground for a fruitful dialogue among the various stakeholders