Preventing and detecting internal fraud risk: a critical analysis of the anti-fraud tools used by the Indian banking industry

Lalita Soni and Deepa Mangala

Journal of Money Laundering Control, 2025, vol. 28, issue 2, 424-441

Abstract: Purpose - Internal fraud is perhaps the most perilous of all risks confronting banks, forcing banking institutions to critically access their governance and control mechanism. Regarding combatting insider fraud in banking industry, this study aims to analyze the various anti-fraud measures used by banks in India and examine their effectiveness in combatting internal frauds. Design/methodology/approach - This study used the structured questionnaire administrating to 394 bank officials and internal auditors working within the Indian banking sector. Both descriptive (mean and standard deviation) and inferential statistical (exploratory factor analysis, regression analysis and one samplet-test) were used for analyzing the data. Findings - The results found that technological, administrative and physical controls – such as information technology, corporate governance, inspection tools, auditing and policies and procedures – significantly contribute to internal fraud detection and prevention by minimizing opportunity, pressure and rationalization. Corporate governance and information technology were found to be the most effective tools for detecting and preventing insider fraud, whereas auditing, despite its extensive usage, was found to be less effective. Practical implications - The study recommends the sufficient allocation of time and resources to enhance the effectiveness of auditing and technological tools in curbing internal frauds. Furthermore, the bank management should review the anti-fraud measures regularly to adapt to new fraud risks. Originality/value - The findings provide useful insights for financial regulators and policymakers to improve fraud detection and prevention mechanism in banking industry.

Keywords: Banks; Insider fraud; Fraud detection and prevention (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jmlcpp:jmlc-11-2024-0193

DOI: 10.1108/JMLC-11-2024-0193

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