Abstract
The institute of internal auditors formalised internal auditing standards and the profession in the 1900s, which birthed the establishment of an Internal Audit Function (IAF) as a unit within organisations. The standards were established to provide mandatory guidance to internal auditors and the IAF in performing their duties worldwide. In contemporary business, the IAF is deemed a necessity and used vastly as a management tool. In South Africa, the establishment of the IAF is mandatory for municipalities, as mandated by the Municipal Financial Management Act (MFMA).
IAFs are reported to have numerous benefits. However, studies have found that organisations do not always conform to the International Standards for the Professional Practice of Internal Auditing (ISPPIA) in that the requirements of organisations including municipalities in relation to fraud detection and prevention differ from what the ISPPIA requires of the IAF. This leads to an expectation gap in the requirements of the Standards and the requirements of the municipalities concerning the role of the IAF, particularly in relation to fraud detection and prevention. Further to this, a review of the literature has shown that there is limited research on the role of the IAF in the detecting and preventing fraud, particularly in South African municipalities. Therefore, the purpose of this study was to understand the role of the IAF in detecting and preventing fraud at a South African municipality located in Gauteng.
This study employed a qualitative approach based on the interpretivist paradigm, utilising a single case study. Participants were selected through purposive sampling, and the data were analysed using inductive analysis.
The study found nine roles required by the municipality of their IAF pertaining to fraud detection and prevention. Seven of these roles align with the requirements of the standards, which means that there is no expectation gap between the requirements of the municipality and the standards. These roles are: 1) identification of fraud risks, 2) providing recommendation to management, 3) conducting fraud awareness sessions, 4) reporting to the audit committee, 5) evaluating internal controls, 6) exercising due professional care, and 7) planning for annual audit. In addition, two roles required by
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the municipality were found to contravene the requirements of the standards, namely 1) designing fraud detection and prevention controls and 2) conducting fraud investigations. These two roles indicate that there is an expectation gap. To reduce the expectation gap, this study provided several recommendations to management and the Accounting Officer of the municipality.
Keywords: Internal Audit Function; Internal auditor; Fraud detection; Fraud prevention; Municipality, South Africa