Forensic auditing as a powerful tool to enhance non-government organisations’ fraud risk management: a study of selected NGOs in eThekwini region, South Africa.
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Date
2022
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Abstract
Financial statement fraud is of serious concern to professional auditors, funders, and regulators.
Although responsibility for fraud prevention and detection falls on management and those in
charge of governing entities, external auditors are likely to come under strong criticism if fraud is
not detected. This study empirically investigated the relationship between forensic auditing and
fraud risk management, focusing on financial statement fraud among non-government
organisations (NGOs). It aimed to determine whether forensic auditors prevent, detect, investigate,
and respond to the risk of financial statement fraud among these organisations.
To achieve these objectives, the study explored the significance of various fraud risk factors to
propose how forensic auditors could respond to this risk using proactive forensic auditing
techniques. It also explored the motivation for financial statement fraud. Four research questions
guided the study, and four hypotheses were tested. Thirty large NGOs in the eThekwini region,
South Africa constituted the sample, and the study population was 87 staff (internal auditors,
forensic auditors, managers, accountants and bookkeepers, audit committees, finance officers,
Chief Operations Officers, Chief Executive Officers, and directors). Data were gathered by means
of an online questionnaire and semi-structured interviews via Zoom.
Structural Equation Modelling (SEM) and Confirmatory Factor Analysis (CFA) were employed to
test the fitness of the model and to evaluate the independent variables. Robustness analysis was
performed using Analysis of Moment Structures (AMOS) software version 27 for CFA (alongside
SPSS Version 27) to estimate statistical models. Structural Equation Modelling was
simultaneously used to estimate the link between fraud risk management factors, preventive fraud
practices, detective fraud practices, responsive fraud practices and proactive forensic auditing
techniques among NGOs. The responses to the interview questions were analysed using
conventional thematic analysis via qualitative data analytic software NVivo 12.
The study’s results revealed that the proactive approach to forensic auditing has a significant
impact on fraud risk management among NGOs in eThekwini region. A new, holistic fraud
combination theory is proposed to address the shortcomings of the fraud triangle theory and
improve fraud prevention, identification, and detection, and it is recommended that NGO
governance structures adopt proactive forensic audit techniques.
As the first to explore financial statement fraud and the extent to which forensic auditors could
assist in the NGO context, this study deepens understanding of forensic auditing as the main driver
of fraud risk management among NGOs by providing field-based evidence. It also contributes to
the application of critical realism, interpretivism and positivism to accounting and auditing
research.
Description
Doctoral Degree. University of KwaZulu-Natal, Durban.