FRAUDS FROM THE PERSPECTIVE OF INTERNAL AUDITORS – CROATIAN EXPERIENCES

Financial frauds and manipulations of financial statements occur frequently and represent a major problem for the organizations and society as a whole. According to fact that they can result in huge financial losses, frauds damage the reputation of the company and thus represent a problem for current and potential investors. For successful economic development and society as a whole, it is crucial to reduce the occurrence of frauds to a minimum level. Various factors, such as the increasing globalization of the market, the rapid development of modern technology, crises, recessions and even pandemics, complicate this process and frauds are becoming more frequent. Tools and techniques used by fraud perpetrators are rapidly developing, so that persons responsible for the prevention and detection of frauds are required to accelerate and train employees, improve the system of internal controls and use more intensively sophisticated technologies for fraud prevention and detection. Research results show that almost every second fraud perpetrator is a member of the organization’s management so the tone at the top is highlighted as a key challenge in frauds detection. The authors therefore believe that establishing a quality corporate governance system is essential to reduce the likelihood of frauds occurrence and to increase the likelihood of frauds detection. In doing so, the engagement of independent and competent members of supervisory and audit boards and ensuring the independence of internal udit through direct selection of its employees, or at least its person in charge, and direct responsibility to the supervisory board is one of the tools that would significantly contribute to reducing the incidence of fraud