Evaluation of the Influence of IA roles and functions in preventing and detecting fraud in South African manufacturing SMEs

Ayodeji Adewumi and Omole Ilesanmi Isaac
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Ayodeji Adewumi: Durban University of Technology,Durban,South Africa
Omole Ilesanmi Isaac: Lead City University,Ibadan,Oyo State,Nigeria

Romanian Journal of Economics, 2023, vol. 56, issue 1(65), 109-131

Abstract: One of the significant challenges the African continent and South Africa are currently facing is fraud, theft, financial irregularities, and corrupt practices in all sectors, including manufacturing firms.There are numerous accounting scandals, financial fraud, asset and property misappropriation, alterations of financial statements, corruption, non-financial irregularities, non-compliance to accounting procedures, tax evasion, unethical practices and many more in manufacturing companies in Africa and South Africa.Due to this risk, confidence in the strength and dependability of the financial statements and reporting has significantly reduced, negatively affecting the economy.This study surveyed 89 IA and their accounts officer counterparts working as IA in a manufacturing company across South Africa.Data was collected February 2019 to October 2021 to assess the evaluation of IA’s roles and functions in preventing and detecting fraud and other financial irregularities.The study utilized SPSS 26, and a logistic regression model to analyze and unravel the influence of IA roles and functions.The findings show that the board should ensure an effective risk-based internal audit, which allows a risk-based approach in its policies, anti-fraud programs, and reports.Most of the IA confirms that theoretically, there is a whistleblowing policy but not practically effective and efficient.More fundamentally, most respondents confirmed that the functionality and effectiveness of IA programs and policies could shape corporate strategies and decisions.The implications or contribution of this study is to suggest that the board of directors and audit committee must engage more qualified and competent IA to develop more sophisticated internal control measures that will expose and report fraud, theft, unethical behavior and corrupt practices timeously, which is also in line with the report by the IIA 2019.In addition, management should provide technology and adequate resources to equip the IA department with the latest intelligence mechanisms.This will help prevent and detect fraud and other financial irregularities in South African manufacturing SMEs and produce cleaner audits for these companies.

Keywords: internal audit; manufacturing; logistic regression model,spearman correlation; South Africa (search for similar items in EconPapers)
JEL-codes: C20 M11 M42 (search for similar items in EconPapers)
Date: 2023
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