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The Internal Auditors on Occupational Fraud: An Integrative Literature Review

Article · June 2021

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LINKER: The Journal of Business, Tourism, Public and Legal Management
Vol. 1, No. 1, June 2021, pp. 1-15 ISSN: 2815-1984

LINKER: TJBTPLM
The Journal of Business, Tourism, Public and Legal Management

The Internal Auditors on Occupational Fraud:

An Integrative Literature Review

Manuelito C. Macailao
College of Business and Management, Isabela State University, Philippines
[email protected]

ABSTRACT

This paper focused on giving qualitative overview of the purposively selected published literature and studies
concerning internal auditors and occupational fraud. The researcher followed the integrative literature review
approach and utilized online platforms. The researcher retrieved and purposively selected 67 literature and studies
which were deemed relevant to the topic on hand and will greatly support the foundation and discussion to
conceptualize and elaborate further studies on internal auditors and occupational fraud. Gathered literature and
studies were carefully reviewed, analyzed, organized thematically, and synthesized. Results were clustered into four
themes: (1) The Internal Audit Profession; (2) The Internal Audit Environment; (3) The Internal Auditor, Audit
Competencies, and Audit Activities, and; (4) Occupational Fraud. With the increasing number of occupational fraud
cases involving huge amount of losses to every business enterprise suggest internal auditors to adopt and implement
innovative professional services involving fraud prevention, detection, and mitigation. Through proper training,
experience, and constructive involvement of internal auditors on fraud investigation and assessment, as well
collaborative support from top management, legal officers, and other fraud experts, internal auditors can effectively
perform their audit functions relative to occupational fraud schemes.

Keywords – integrative, internal auditors, literature review, fraud, occupational fraud

Introduction alleged or actual incidence of fraud [2], internal

auditors are encouraged to have sufficient knowledge
Internal auditing is one of the most important structure and abilities in assessing and evaluating potential
in any organization. Manned by a common or diverse indicators of fraud, understand their characteristics,
pool of specialized and professional individuals or evaluate the techniques used, and recommend any
group of individuals, it assesses internal control further needs for fraud investigation [3].
operations, risk management, and corporate
governance as well as assisting the management in Among the multiple types of fraud which the business
achieving its goals and objectives in a form of organizations might be encountered with, occupational
advisory, consultancy, and training. Throughout the fraud is most likely the largest and predominant threat.
years, internal auditing continuously evolves to help Unfavorable to business management and economic
and support the management in evaluating and organizational affairs, it is an intentional action in
addressing the changing needs, challenges, and relation to their function or profession. Known as a
complexities of the business enterprises [1]. white collar crime and punishable by law,
occupational fraud constitutes a willful attack against
Internal auditing also includes assessing how the the organization in the practice of work or occupation
organization manages fraud risks and providing characterized by intentional deceit or concealment to
assistance to the management in evaluating the obtain money, property or services for personal gain or
effectiveness of internal control to prevent, detect or advantage. Comprising corruption scheme, asset
mitigate fraud. Often been asked or consulted on any misappropriation scheme, and financial statement

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fraud scheme, it poses a tremendous menace that most Methods

of the organization may or may not be capable to
protect themselves [4]. The researcher applied integrative review of literature
following the guidelines of Torraco [7]. As cited by
The 2020 Report to the Nation on Occupational Fraud other researchers [8,9,10] integrative literature review
and Abuse of the Association of Certified Fraud approach is a distinctive non-experimental research
Examiners (ACFE) disclosed occupational fraud of design that objectively analyze, summarize, and make
approximately $3.6 billion reported total losses, with a conclusions on purposively selected representative
median loss of $125,000 per case and more than $1.5M literatures to provide greater knowledge, insights, and
average loss per case on 2,504 reported real cases from critical reflection of the subject matter. With the
125 countries worldwide [5]. In Asia-Pacific region, advent of technology, the researcher utilized the online
198 fraud cases were reported with a median loss of platforms of Google, Google Scholar, Research Gate,
$195,000 per case and more than $1.9M average loss and Educational Resources Information System
per case [6]. Most reported case at 86% is asset (ERIC) and browsed electronic journals, repositories
misappropriation, large median loss of $954,000 is the and databases using keywords “internal audit”,
financial statement fraud, and the most common the “internal auditor”, “fraud”, and “occupational fraud”.
global perspective is corruption. Industry with the Related articles and studies were also sourced from the
most number of reported fraud cases is in the banking websites of The Institute of Internal Auditors, a
and financial services and reported departments with renowned organization for internal auditing and as
high percentage and amount of median losses of fraud well as from the Association of Certified Fraud
cases are those in the executive/upper management, Examiners, an international organization focusing on
sales, operations, and accounting [5]. fraud. Purposively selected relevant literature and
studies were carefully reviewed, analyzed, organized
Similar to 2018 ACFE Report to the Nation on thematically, and synthesized [7,11,12].
Occupational Fraud and Abuse, living beyond means
and financial difficulties are still the two topmost
highest indicators of fraud. The most numbered fraud Results
cases reported at 41 percent were committed by the A total of sixty-seven (67) literature and studies were
rank and file employees while cases with huge median purposively selected by the researcher which were
losses of $600,000 are those committed by deemed relevant to support the topic on hand. More
owner/business executives. Fraud cases with highest than 29% were retrieved literatures from Google, 25%
median loss of $350,000 were committed by the from Google Scholar, 15% from Research Gate, 6%
collusion of three or more individuals. The most from Educational Resources Information System
commonly means of disguise used by the perpetrators (ERIC), 16% from The Institute of Internal Auditors,
are through modification and/or construction of and 7% from the Association of Certified Fraud
fraudulent physical or electronic documents. Examiners. Literatures were carefully reviewed and
Fraudsters commonly colluded with one or more analyzed. Related and significant statements were
perpetrators and concealed their crimes through cautiously gathered and clustered into four (4) themes:
creation, alteration or destruction of physical or (1) The Internal Audit Profession; (2) The Internal
electronic documents. Among the other organizational Audit Environment; (3) The Internal Auditor, Audit
detection mechanisms reported in the biennial studies Competencies, and Audit Activities, and; (4)
of the Association of Certified Fraud Examiners from Occupational Fraud. Synthesis of the gathered
2008 to 2020, above cited fraudulent occupational literatures was also presented to provide significant
undertakings were mostly uncovered by tips or and value-added knowledge and information on
whistleblowing followed by the conduct of internal internal auditors and the relativeness of their functions
audit activities [5]. on occupational fraud.
Thus, this study had focused on published literatures Theme 1: The Internal Audit Profession
and studies on internal auditors and occupational fraud Internal auditing is an objective process of gathering
to provide knowledge and pieces of information and evaluating evidence regarding assertions in an
beneficial to business organizations, internal auditors, organization’s economic events and actions. It is a
researchers, students, and other interested users service activity commonly vested on internal auditors,
regarding internal auditors and their relative functions a professional individual or group of individuals with
on occupational fraud.

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similar or diverse specialization or discipline who are procedures, evaluation of internal controls, and
entrusted by the governing body or top management to reporting on the functionality of internal control
look for sufficient evidence in assessing internal systems. In 2000 to 2001, audit activities involve
control, risk management, and governance; evaluating evaluation of risk management system resulted from
economic and operational activities; determining the the emergences of issues and concerns regarding risk
reliability of financial reports, and; compliance to identification, assessment, and implementation of
certain laws, policies, and specific regulatory internal control measures. In 2002, the result of the
requirements. internal audit work has appeared a necessity to be
reported to the highest level of organizational
Auditing has also been valued and demanded in the management. And in 2003 onwards, The Institute of
marketplace long before the advance in civilization Internal Auditors defined the term “to add value” as
brought about by the necessity of checking the the auditor’s role in bringing extra value or create
essentiality of trust and fidelity. Its objective advantages to the organizational stakeholders. Since
assessment and examination substantiate the trust of then, internal auditing has been accepted and
the employer to the employee as well as the principal recognized as an essential tool for the improvement of
to the agent in providing reasonable assurance that the both private and public organization’s performance
employee or the agent has not and did not take adverse and carried out in evaluating internal control systems
actions against the employer or the principal. The very and risk analysis associated with audit activities for the
essential nature of internal audit activities minimizes achievement of organizational objectives [14,15].
or eliminates the extent of erroneous information and
bias misstatements [13]. In the Philippines, organizations of various industries
have commonly accepted and continuously adopted
The concept of auditing has also been a practice since standards and issuances of The Institute of Internal
the ancient Romans, Greeks, and Egypt. Such activity Auditors in handling internal audit activities. As such,
was already conducted during those days by clerks the Commission on Higher Education had also issued
who were appointed to check the public accounts. The CHED Memorandum Order No. 29, series of 2017 to
auditor's role came into limelight during the period of provide guidance on higher educational institutions
large scale production, improved facilities in offering internal auditing programs in equipping
communication and joint stock form of capitalization students with sufficient knowledge, skills, and
in an organization in the 18th century to independently competencies required and demanded by the different
check accounts and ensure the safety of shareholders' organizations and industries [16].
investment [13].
Government legislation and executive issuances have
The establishment of The Institute of Internal Auditors also been made and issued to mainstream internal audit
in 1941 brought the rise of internal auditing as a activities in public entities. It includes among others,
profession. Headquartered in Altamonte Springs, Republic Act 3456 or Internal Auditing Act of 1962 as
Florida, USA, The Institute of Internal Auditors has amended by Republic Act 4177 which provides for the
been acknowledged and recognized as the leader in creation, organization, and operation of internal audit
standards, certification, and research to provide services in all departments, bureaus, and offices of the
professional guidance for internal auditors and internal national government as well as in local government
audit activities worldwide [1]. unit and government-owned and controlled
corporations [17].
Considered as one of the significant components of the
organizational structure, internal audit profession The Department of Budget and Management has also
serves as the key element of every business issued Circular Letter 2011-5 dated May 19, 2011
organization. In 1950, internal auditors were tasked to regarding Philippine Government Internal Audit
check the correctness of accounting records and their Manual (PGIAM) and Local Budget Circular No. 110
performances are being measured by the number of dated June 10, 2016, regarding Internal Audit Manual
identified incorrect accounting records. In 1960, for Local Government Units to strengthen the internal
internal auditors used to assess compliance with control systems of government offices, agencies,
financial procedures through the utilization of a government-owned and controlled entities including
checklist and their performance is measured based on government financial institutions, local government
the number of identified non-compliances. In 1970 to units, and state universities and colleges, and; to
1990, internal audit activities involve examination of provide guidance in establishing internal audit services

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unit, to plan and execute internal audit activities, to on Sponsoring Organizations of the Treadway
report and follow-up internal audit findings and Commission (COSO) composed of the Institute of
recommendations, and to evaluate the performances of Management Accountant (IMA), The Institute of
internal audit services unit [18]. Internal Auditors (The IIA), American Institute of
Certified Public Accountant (AICPA), the American
Moreover, Commission on Audit also issued Circular Accounting Association (AAA), and the Financial
2018-003 applicable to all agencies of the government Executives International (FEI). Interrelated
that prescribed the use of Internal Auditing Standards components of integrated internal control consists of:
for the Philippine Public Sector (IASPPS) to provide (1) control environment, which refers to the culture or
essential guidance for the professional practice of tone set within the organization and provides
internal auditing as well as the use of Internal Control foundation for all other control components; (2) the
Standards for Philippine Public Sector (ICSPPS) to risk assessment, which refers to the organizational
provide guidelines on the basic and integrated tools in identifying and assessing risks relevant to the
framework on internal control [19]. On the other hand, attainment of control objectives; (3) the control
Securities and Exchange Commission released activities, which refer to the control policies and
Memorandum Circular No. 19, series of 2016 to procedures of the organization; (4) information and
promote the development of a strong culture and keep communication, which refers to the exchange of
abreast with the developments in the governance of information in carrying out employees’
publicly-listed organization. It also specified responsibilities, and; (5) monitoring, which refers to
recommendation to the organization to have adequate the manner of evaluating the control environment
and effective internal control system and enterprise [18,25].
risk management in the conduct of business and
separate internal audit activities that essentially The internal control-integrated framework is also
monitor and guide the implementation of company complemented by the enterprise risk management-
policies towards the accomplishment of organizational integrated framework and provides guidance to
objectives [20]. auditors and business enterprises in developing and
applying enterprise risk management within the
Theme 2: The Internal Audit Environment organization through event identification, risk
Environment of internal auditing greatly contributes to assessment, and risk response [26]. A study explained
the fulfillment of internal audit activities. It that effective risk management must be structured,
significantly influences the achievements of the systematic, timely, dynamic, and tailored to
internal audit goals and objectives which includes organizational needs and facilitates continuous
among others, internal control, enterprise risk improvement [27]. Other studies further explained
management, internal audit charter, audit committee, that the choice of risk management and internal control
top management, external auditors, and government processes depends on the legal form, type of industry,
regulatory agencies. culture, and complexities of organizational structure [
28,29].
Committee on Sponsoring Organization (COSO) of
the Treadway Commission (COSO) defines internal Internal audit charter is a formal document that
control as the business process within the organization specifically defines the purpose, authority, scope, and
that are being designed, developed, and implemented responsibility of the internal auditors and as suggested,
to ensure achievements of their objectives [21]. The must be duly permitted by the board. It describes the
International Good Practice Guidance of the nature of audit activities on how the internal auditing
International Federation of Accountants (IFAC) also will provide assistance toward the achievement of the
described the internal control as a guide and organization’s objectives. It also includes among
mechanism for every organization to prevent or others, the functional reporting relationship of the
mitigate business failures [22]. The adequate and internal audit with the board, independent position of
effective internal control system helps the the internal audit within the organization, and; the
organizations in achieving their objectives, including access to organizational resources relevant to the
profitability and sustainability of the business as well independent and objective execution of audit
as minimizing corporate losses [23,24]. engagements [30]. The written charter is also the
document suggested by the National Commission on
The integrated framework of internal control was Fraudulent Financial Reporting, the Treadway
issued in 1992 and revised in 2013 by the Committee Commission of the United States formed in 1985, to

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set forth the duties and responsibilities of the audit audit activities for any appropriate notations and
committee and periodically reviewed, modified, and actions. Study showed that support of top
approved by the board of directors. management increases the level of confidence of
internal auditors to carry out their duties towards the
An audit committee is the central body of the effectiveness of their audit work. Such support
organization for audit functions. Regarded as the includes concurrence of top management on sufficient
subunit of the board of directors or trustees created for budget allocation for audit activities, freedom from
such purpose, it consists of duly elected members of any interference in internal audit scope, and
the board that allows internal audit activities fulfill its encourages compliance of audit recommendations
responsibilities and with sufficient authority to provide among departments of the organization [35].
audit oversight functions within the organization and
assesses elements of the internal audit activities such External auditors are independent external parties who
as independence, objectivity, compliance audit oversee compliance of the organization with publicly
methodology, quality of findings, and implementation acceptable accounting standards and other rules and
of recommendations. They also assess required audit regulations. They commonly performed objective
resources as well as competencies of both internal and examination of the fair presentation of the
external auditors and their professional relationship organizational financial information in conformity
with the organization [31]. with the applicable and acceptable accounting
standards. They also consider reliance on the work of
The audit committee is also a key governance structure internal auditors to address relevant issues on the
that should fully understand their oversight limitation of audit hours, human resource,
responsibilities with specific emphasis on their geographical location, and cost of audit engagement as
independence, experience, and knowledge. As part of well as to minimize duplication of audit work.
the corporate governance, audit committees are However, external auditor’s decision on the extent of
required to be accountable for auditing and reporting reliance depends on the assessment of internal audit
processes to ensure the reliability, integrity, and activities, the efficiencies and effectiveness of internal
transparent communications of the organization’s auditor's work, and the improve coordination and
pertinent information to the intended users including communication channels with the internal auditor
the external auditors and regulatory oversight bodies [36,37].
[32].
Regulatory agencies are governmental bodies created
Characteristics of audit committee whom internal by legislation to administer the execution of specific
audit is functionally directed have a significant laws. They are external parties that basically oversee
relationship on the effectiveness of organizational compliance of the organization with mandated
transparency. A study examined the influence of government regulatory rules and policies on respective
characteristics of audit committee on voluntary ethical areas of concern which includes among others,
disclosures of top companies in Malaysia and showed taxation, business permits, creation and operation of
that tenure and multiple directorships are associated business organization, financial regulations, human
with voluntary ethics disclosures while independence, resource, public safety, and environmental laws.
expertise, frequency of meetings and its sizes are
apparently inconsistent [33]. However, another study Theme 3: The Internal Auditor, Audit Competencies,
on the role of the audit committee in enhancing and Audit Activities
corporate voluntary disclosures of Malaysian listed Compared to other individuals or group of individuals
firms showed that the effectiveness of audit committee performing assurance and consultancy services,
on voluntary corporate disclosure is contingent on internal auditors are those employees working
their independence, size, and multiple directorships internally within the organization to provide audit
[34]. services. They adhere to the same administrative rules
and policies of the company being mandated to all
The top management or company executive are vested other employees and in the same manner; they are also
with the highest function in the organizational liable to any administrative sanctions in case of any
structure to manage and monitor the routinely violations. However, internal auditors are uniquely
activities of the organization. They are being informed positioned in the organization in such a way that they
and professionally coordinated with the necessary and could report their specific functions as well as the
relevant data gathered in the performance of internal results thereof directly to the board through the audit

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committee and not necessarily to course through the of audit commensurate to their functions and
top management [38]. responsibilities [43].

In the practice of internal auditing, auditors are The Institute of Internal Auditors also issued the
expected and demanded to uphold ethical standards concept of competencies of internal auditor in the
such as integrity- which refers to the performance of practice of their profession [44]. As cited in another
professional services with honesty, diligence, study, the global internal audit competency framework
responsibility, and in accordance with relevant laws is used in assessing competencies of the internal
and not being compromised for personal gain; auditors and recommended in every internal audit
confidentiality- which refers to the non-disclosure of department the development of competency plan;
pertinent organizational information for any reasons proper mentoring of individual auditors, and;
unless there are legal or professional obligations to do appropriate technical trainings and internal audit
so from appropriate authority, and; competency- experience for in-depth understanding of internal
which refers to the appropriate or sufficient level of auditing [45].
knowledge and skills, including intrapersonal and
interpersonal capabilities, necessary to perform audit Global study of the Institute of Internal Auditors
activities [39]. Internal auditors are also expected to Research Foundation also revealed the rising demands
uphold attribute standards of The Institute of Internal of competencies on entry and postgraduate
Auditors in relation to their audit independence, audit qualifications, certifications, and professional
objectivity, proficiency, and professional care. development of internal auditors; the adoption of
policies and guidelines on corporate governance; the
Gleim emphasized independence and objectivity as the multiple means of appointing chief audit executives;
freedom from any interference and conflict of interest the common evaluation of internal audit functions
that may threaten and compromise the ability of based on completion of audit plan; the increasing
internal auditors. It can also be facilitated by the involvement of internal audit function with audit
purposeful reporting of the internal auditors to the committees; the prevalent advantage of co-sourcing
audit committee and administrative reporting to the and outsourcing of internal audit activities for
chief executive officer or top management [1]. betterment of audit services; the increasing awareness
International Professional Practices Framework of on the positive impact of conformance with the
The Institute of Internal Auditors specified proficiency International Standard for the Professional Practice in
as standards in auditing that require internal auditors Internal Auditing [46]. The increasing level of
to have sufficient knowledge, technical and ethical competencies of internal auditors are being manifested
skills and other abilities to carry out their professional by growing great curiosity, broad-minded, ability to
responsibilities [40]. Due professional care must also handle uncertainty, and adaptability to work in teams;
be reasonably observed by the internal auditors in the accountability as manifested by vigorous effort and
conduct of auditing and exercise alertness to any careful examination of related transactions and
possibilities of fraud and other irregularities. Internal documents, proper supervision, and timeliness in the
auditors should also have an attitude of professional completion of audit engagements, and; objectivity as
skepticism with a reasonable questioning mind in manifested by the auditor’s attitude of impartiality,
evaluating audit evidence and not be satisfied that such trustworthy and reliability [47].
is less persuasive because of the auditor’s belief in the
honesty of the management [41]. Result of a study showed that ethics, experience, and
competency affect the quality of the internal auditing
A study regarding internal audit practices in Philippine [48]. In Thailand, another study also showed that
government agencies showed that compliance on the interpersonal communication skills as part of the
attribute standards is essential on the role of internal competencies of the internal auditor are significant to
auditors [42]. The understanding of the internal the effectiveness of internal audit output [49,50].
auditors on the business operations and administration Other study also found out that technical awareness,
taken as a whole was professed to be a contributory abilities, and adeptness are also indispensable to
factor to the effectiveness of internal auditors [43]. internal auditing. Though the result of the study
Government internal auditors are also mandated to regarding the organization’s enterprise resource
maintain technical, ethical, and professional integrity planning system did not significantly affect the skills
and competency and continuously develop the of the internal auditors, they are still encouraged to
knowledge and skills needed in enhancing the quality become flexible and skillful in accepting and using

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some of the software in extracting auditable data for effectiveness, audit scope and auditor’s experiences
them to become updated with the audit tools in contrary to the relationship between internal auditor’s
information technology [51]. effectiveness and senior management’s responses.
Awareness of managers and employees on the
The Institute of Internal Auditors cited value-adding functions of the internal auditors are encouraged to
assurance and consultancy services as the professional improve the application of audit engagements [55].
activities of internal auditors. Assurance activity Another study also disclosed the strongest relationship
provided by the internal auditor is an independent and of well-configured internal audit activities with key
objective examination or verification of economic organizational controls, risk management processes,
transactions and events to provide a reasonable and improvement of governance practices among local
assessment of organizational governance, risk government units [56]. Likewise, another study
management, and control processes. It may include disclosed essential challenges on the effectiveness of
financial statement audit, operational audit, internal audit activities in the public sector and it
compliance audit, and risk assessment audit. On the includes the organizational independence; a formal
other hand, consultancy activity is a service activity mandate through an audit charter; unrestricted access
provided by internal auditor in assisting the to manpower, records, and resources; sufficient
management in improving organizational governance, funding; competent leadership; objective and
risk management, and control processes. It includes competent internal audit staff; support from the
advisory, agreed-upon audit engagements, and related stakeholders, and; proper guidance from the
activities such as counseling, advising, facilitation, professional auditing standards [57].
and training [1].
In the Asia and the Pacific region, a study highlighted
Studies presented the role of the internal auditor in the issues on internal audit activities. Majority of the chief
contemporary life of the organization. It includes audit executives reports to the chief executive officer
continuous interference and evaluation of internal or board of directors rather than the audit committee;
control in order to address threats that could affect the many auditors are still focused mostly on financial and
attainment of the company's objectives. The existence regulatory compliance and least on the needs of the
of roles of internal auditors in the organization stakeholders; the need for risk assessment on strategic
increases the distinguished importance of the company and organizational levels; a wide gap of internal audit
in carrying out control in the financial field, activity related to information technology, and; the
safeguarding of assets, and ensuring the security of need to attract and retain audit manpower with diverse
accurate records [52]. To support the continuous skills to succeed growing complexities [58]. In
demand and challenges on internal audit activities Malaysia, another study also showed that internal
particularly the advances in information technology, auditors were often needed to support the management
another study considered moving forward for in refining control schemes in identified areas. They
expansion of automated internal audit programs and also have been appreciated as business partners, a
process. Both manual and automated audit procedures facilitator for transformation, and possible source of
may still be beneficial to the future of internal auditing. future business executives [59].
A gradual and careful advancement with strategically
formulated and implemented plan to include issues on Theme 4: Occupational Fraud
human resistance, cost and benefit tradeoffs, project Fraud, in general, poses risks to any organizations. A
scope, and adequate training may result to a more million-dollar unlawful business activities most
favorable outcome in venturing arena of audit companies may or may not be capable to protect
automation [53]. Further, another study also disclosed themselves. Fraud is an illegal act characterized by
the growing participation of internal auditors in purposeful dishonesty, disguise, or desecration of
deliberate planning and training of audit personnel, confidence perpetrated by individuals, parties or
and; the need to address the leadership and behavioral organizations to obtain personal gain or unjust
competencies of internal auditors [54]. business advantage and does not necessarily
dependent upon the threat of violence or physical
Effectiveness of internal auditor’s performances can force.
be influenced by different issues and perspectives.
Using descriptive analysis, correlational analysis, and According to Wolfe and Hermanson, fraud is most
multiple regressions, study showed that there is a likely to transpire when someone has provocation to
substantial relationship between internal auditor’s execute the deceitful act; chances to commit fraud; the

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person has an assertiveness to justify the fraudulent falter to abuse any ambiguities in any institutions for
behavior, and; the individual’s capacity to take personal advantage [64]. As such, a study considered
advantage of any circumstances for fraud. Termed as fraud as demand for assurance opportunities for both
fraud diamond theory, this is viewed as the expanded internal and external auditors. They will be needed by
version of Donald Cressey’s (1953) fraud triangle the institutions in providing services for anti-fraud
theory [60,61]. training and education, assistance in creating fraud
prevention programs or helping the organization in
Detrimental to organizations and punishable by law, actual detection of fraud [65].
occupational fraud is largely the outcome of the
intentional actions of individuals or group of Although the management is principally in authority
individuals in connection with their functions. Known for the uncovering of fraud, internal auditors are still
as a white-collar crime, occupational fraud constitutes stimulated to have appropriate understanding to
a willful attack against the organization committed by identify and recognize potential indicators of fraud,
white collar persons in occupational roles [4]. Further, evaluate the risk involved, and assess any
Edelhertz and Overcast redefined white-collar crime circumstances that may lead to occurrences of any
as an economic crime classified as an occupational illegal actions [66,67]. Indicators of fraud are the
crime, which refers to a fraudulent act committed warning signals intended to raise awareness on the
against a company in the course of one's occupation or possibility of fraud [66]. Because of the nearness of
profession, and organizational crime, which refers to internal auditors to actual operations of the
unlawful acts that an organization committed against organization taken as a whole, they are advantageously
the general public and consumers [62]. positioned and exposed to the process, the systems, the
people and culture, the incentive programs, and the
The Association of Certified Fraud Examiners further opportunities to help organizations on occupational
classified occupational fraud or crime into three fraud [68]. Internal auditors are also in the best
primary categories: (1) corruption scheme; (2) asset situation to determine the trustworthiness,
misappropriation scheme, and; (3) financial statement authenticity, and truthfulness of operational and
fraud scheme [4]. In their recent biennial global study financial information of different units in the
on occupational fraud and abuse conducted from July organization [69]. They are not expected to have
to October 2019 and participated by 51,608 expertise on fraud however, they may use their audit
individuals who have encountered and investigated expertise to identify trends and patterns that might
2,504 real cases from 125 countries worldwide, of suggest possibilities of fraud. Appropriate
whom are 10,837 internal auditors, results highlighted investigation activities are best carried out by those
and disclosed: more than $3.6 billion total losses; who are experienced to such undertakings [70].
$125,000 median loss per case, and; $1,509,000
average loss per case. Of the total reported losses, Studies explored the role of the internal control
54% is still unrecovered. Among the most prevalent framework and corporate culture in managing
detection method, occupational fraud was detected by occupational fraud and other researchers had cited that
internal audit activities (15%), secondary to the tips internal auditors are continuously tasked to assess the
(43%) provided mostly by the employees of victim control environment, risk assessment, control
organizations. Most numbered reported occupational activities, information and communication, and
cases involve rank and file employees; huge median monitoring to provide reasonable assurance on the
losses are either those committed by the business achievements of organizational objectives [71].
owners/executives and by collusion of the group of Others have also cited that having an environment of
individuals, and; topmost reasons of committing the highly sound ethical culture and values that uphold
fraud are financial difficulties and living beyond integrity and credibility among employees particularly
means [5]. those in top management can go a long way to prevent,
detect, and respond to minimize fraud. They further
In an increasingly multifaceted world, shifting disclosed the growing participation of accounting and
inequalities, developing trickeries, and various internal audit profession in governance processes,
ambiguous settings of occupational fraud, perpetrators compliance, impartial preparation and presentation of
of any generation label are able to continuously financial statements, and widen dispositions of
developing new scheme that will constantly demand assurance engagements [72,73].
and challenge the essentialities and competencies of
internal audit activities [63]. Fraudsters will never

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Result of the study on the importance of perceived

management support or tone from the top and its effect Synthesis of the Reviewed Literature
on organizational culture disclosed that employees are The literature and studies of Vaiphei, 2018 [13],
indeed aware of corporate ethical standards however; Gleim, 2018 [1], and Pickett, 2004 [14] in Munteanu
they hesitate to engage or involve themselves due to and Zaharia, 2014 [15] focused on the birth and
lack of commitments of the overall organizations in evolution of internal audit profession resulted from
upholding these standards. Internal auditors may concept of trust and fidelity and progressed through
continually assess the ethical standards of the years to address the increasing demand and
organization but having a clear internal policy and complexities of business processes while literature and
credible attitude of top executives with access to government policies from Commission on Higher
governing bodies can help improve the overall Education, 2017 [16]; Carlos, Sarmiento, and Dela
perception and morale of employees on prevention of Merced-Litonjua, 2018 [17]; Echavez et al., 2016 [18];
fraud [74]. Similarly, qualitative study on Aguinaldo, Fabia, and Pondoc, 2018 [19], and;
determinants of auditor’s ability or expertise in fraud Herbosa, 2016 [20] focused on the government
detection participated by those individuals who have legislations in the Philippines to provide essential
worked in multinational accounting firms in various guidelines on the inclusion and adoption of internal
countries in Asia-Pacific, North America, and Europe audit activities and processes in academic programs,
also disclosed that internal auditors should have private organizations, and all government agencies.
sufficient knowledge and need not be a forensic
specialist to detect fraud. Further, this study showed Moreover, literature and studies of Iwejor, 2017 [21];
that proper mentoring of internal auditors, inter- Law, 2014 [22]; Bogani, 2013 [23] in Abdulkadir,
personal ability to work within the audit team, and 2014 [24]; Landsittel et al., 2013 [25] as cited by
good communication skills as additional determinants Echaves et al., 2016 [18]; Sobel et al., 2018 [26];
to fraud related audit task will greatly contribute to the McNally, 2015 [27]; Verovska, 2014 [28] in Lachney,
competencies of auditors on detection of fraud [40]. 2018 [29]; Chartered Institute of Internal Auditors,
2018 [30]; Vasile and Croitoru, 2015 [31]; Rahim,
On the other hand, a study reflected methodical and Johari, and Takril, 2015 [32]; Othman et al., 2014 [33];
scientific accounting skills as one of the proficiencies Madi, Ishak, and Manaf, 2014 [34]; Endaya and
of internal auditors in preventing and detecting Hanefah, 2016 [35], and; Pilcher et al., 2013 [36] in
financial fraud. It is a discipline that combines Hakansson and Johansson, 2014 [37] focused on the
knowledge and skills on auditing, accounting, environmental factors that significantly influences the
investigation, and preparing documents for possible achievements of internal audit goals and objectives
legal action and its demanded investigative services such as internal control, risk management, internal
will continue to grow in the foreseeable future [75]. audit charter, audit committee, top management,
Other researchers also regarded forensic accounting external auditors and government regulatory agencies.
and auditing as one of the growing expertise demanded
to transcend all the critical problems in the Further, literature and studies of The Institute of
organization. Aside from analytical skills, they should Internal Auditors, 2016 [38]; The Institute of Internal
also possess thorough knowledge in various laws and Auditors, 2017 [39]; Gleim, 2018 [1]; Mui, 2018 [40];
legal processes, sufficient expertise in tracking and Suryandari and Yuesti, 2017 [41]; Junio-Sabio, 2013
analyzing digitalized financial information to uncover [42] as cited by Sondh, 2017 [43]; Sobel et al., 2013
any fraudulent transactions, and reasonable [44] as cited by Rose, 2015 [45]; Institute of Internal
communication skills to convey complex financial Auditors Research Foundation, 2015 [46]; Furiady and
information for better understanding of fraud issues Kurnia, 2015 [47]; Andreas and Zarefar, 2016 [48];
[76]. Further, other study identified technology and Sarens, Decaux, and Lenz, 2012 [50] in Narkchai and
technology loops as an exploitable area of a savvy Fadzil, 2017 [49], and; Elbardan, Ali, and Ghoneim,
fraudster to commit fraud. As such, they recognized 2016 [51] discussed the internal auditors and their
the need for training and development of technical characteristics and abilities, including knowledge,
skills of forensic auditors on latest and available audit technical skills, personal skills, and other
software to better detect and combat fraud [77]. Lack competencies, in the preparation, execution, and
of appropriate training and skills may result in an wrapping up internal audit activities. Literature and
apparent failure of internal auditors to effectively studies of The Institute of Internal Auditors in Gleim,
practice their profession [78,79]. 2018 [1]; Caratas and Spatariu, 2014 [52]; Byrnes et
al., 2015 [53]; Selim et al., 2014 [54]; Shamki and

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Alhajri, 2017 [55]; Sabado et al., 2016 [56]; MacRae accepted that they are primarily responsible for the
and van Gils, 2014 [57]; Piper, 2015 [58], and; assessment of risk and implementation of necessary
Shahimi, Mahzan, and Zulkifli, 2016 [59] discussed control measures to prevent, detect, and mitigate
the internal audit activities and its corresponding possible and actual occurrences of fraud, they still
issues, demands, and challenges towards the effective need the assistance and respective support of internal
achievement of the audit goals and objectives. auditors, legal officers, and other fraud experts.
However, among these organizational supports,
Lastly, Wolfe and Hermanson in Shelton, 2014 [60] internal auditors are the individuals who are most
and Abdullahi and Manson, 2015 [61]; Edelhertz and commonly vested with professional functions to assist
Overcast in Soley, 2017 [62]; Association of Certified the management in assessing internal control
Fraud Examiners, 2019 [4]; Association of Certified operations, risk management, and corporate
Fraud Examiners, 2020a [5]; Association of Certified governance and have been given with the functional
Fraud Examiners, 2020b [6]; Mack, 2016 [62]; authority, best position, and opportunity to know every
Western Kentucky University Internal Auditor, 2018 details of business transactions and operations to
[64]; Carroll, 2015 [65]; Elsayed, 2017 [66]; Breslin, assess records, compliance and evaluation of internal
2017 [68]; Al-Matari, Al-Swidi, and Fadzil, 2014 [69]; controls in which fraudulent actions may occur. They
The Institute of Internal Auditors, 2019 [70]; Ocansey may not really be fraud experts who are experienced
and Ganu, 2017 [71]; Sabau, Sendroiu, and Sgardea, to assess and investigate possibilities or actual
2013 [72] as cited by Schillermann, 2018 [73]; occurrences of fraud; however, increase in
Rubasundram, 2015 [74]; Mui, 2018 [40]; Matson, occupational fraud cases suggest internal auditors to
2016 [75]; Lakshmi and Menon, 2016 [76]; Simha and adopt and implement innovative professional services
Satyanarayan, 2016 [77], and; Chui and Pike, 2013 involving fraud prevention, detection, and mitigation.
[78] in Awolowo, 2016 [79] focused on the nature, Through proper training, experience, and constructive
concept, category, indicators, and the increasing involvement of internal auditors on fraud investigation
number of occupational fraud cases that challenges the and assessment, as well as collaborative support from
organization and internal audit activities. They also top management, legal officers, and other fraud
discussed the importance of internal control, business experts, internal auditors can effectively perform their
integrity and culture of the top management and the audit functions relative to occupational fraud schemes.
organization as a whole, and the sufficient knowledge,
technological skills, forensic skills, and proper training Ethical Considerations
of the internal auditors to assess, evaluate, and address
potential indicators and occurrences of occupational The researcher cautiously gathered literature
fraud. and utilized the online platforms with objectivity and
professionalism. Relevant and significant information
On the overall, the reviewed literature on internal audit were presented in an unbiased manner and all
profession; internal audit environment; internal references were properly cited in this paper.
auditors, audit competencies and audit activities, and;
the internal auditors on occupational fraud will greatly
Acknowledgement
support the foundation and discussions to
conceptualize and elaborate further studies on internal
auditors and occupational fraud. As a matter of fact, The researcher extends his deepest gratitude
some of these literatures have already been utilized to the Graduate School of University of Perpetual Help
and reinforced the published studies of the researcher System-Laguna, the Isabela State University, and the
[2,80,81]. Commission on Higher Education-Philippines for
their moral and/or financial support to this research.
Conclusion
Authors Bio note
With the increasing number of occupational fraud
The researcher is an Assistant
cases involving huge amount of losses to every
Professor of Isabela State University-
business enterprise, the top management have been
Cauayan Campus, Philippines teaching
continuously challenged by the changing complexities
accounting, auditing, business
of fraud schemes and applied strategies of fraudsters.
management, and academic research.
While it has also been globally recognized and
He is a Certified Public Accountant-Philippines, a

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Licensed Professional Teacher-Philippines, and a [10] Cristmals, C.D. and Gross, J.J. (2017). An
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