IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925. Volume 12, Issue 4 Ser. IV (Jul. –Aug. 2021), PP 51-65 www.iosrjournals.org DOI: 10.9790/5933-1204045165 www.iosrjournals.org 55 | Page Internal Audit And Fraud Detection In Selected Banks Listed In Nigeria 1 Nwaobia, Appolos Nwabuisi, * 2 Omotayo, Idowu Israel, & 3 Ajibade, Ayodeji Babcock University, Ilishan- Remo, Ogun State, Nigeria. *2 Corresponding author Abstract The incidence of fraud in organizations reduces organizational assets if left unchecked. Despite the fact that the banking industry is the most controlled and regulated industry in Nigeria, fraud in various forms remains a recurring theme in the industry and threatens the performance of these banks. Studies exist on the effect of the internal audit function on the detection of fraud. There is however, dearth of research on the direct association of internal audit function, auditor’s qualities and detection of fraudulent financial reporting. This study examined the internal auditor’s qualities of ICT competency skill, qualification and experience and independence and their direct effect on the detection of fraudulent financial reporting in banks. The study made use of a cross-sectional survey design with population of 471employees in the internal audit departments of selected 10 banks in Nigeria. A structured and validated questionnaire was used to collect data from a sample of 216 internal auditors. Cronbach’s Alpha reliability coefficients for the constructs ranged from 0.702 to 0.837. A response rate of 100% was achieved. The study revealed that internal audit positively and significantly affects detection of fraudulent financial reporting (Adj. R 2 = 0.363, F(4, 211) = 31.91, p < 0.05) and internal auditors’ qualities significantly moderated the effect of internal audit on the detection of fraudulent financial reporting (Adj.R 2 = 0.029, F(4, 211) = 10.51, p < 0.05). It was concluded that internal audit is germane in curbing the incidence of fraudulent activities in the Nigeria banks. The study submitted that emphasis be placed on efficient internal control systems within listed banks in Nigeria. The internal auditors need to be up to date in ICT skills in order to prevent and detect frauds of various forms within the banking industry in Nigeria. Keywords: Fraud detection, Internal audit, Internal control, Deposit money bank, Auditors --------------------------------------------------------------------------------------------------------------------------------------- Date of Submission: 26-07-2021 Date of Acceptance: 11-08-2021 --------------------------------------------------------------------------------------------------------------------------------------- I. Introduction Internal audit is one major guaranteed way of ensuring fraud prevention when standards are complied with by organisations (Tanja, Julija & Tatjana, 2016). It contributes to the attainment of organizational objectives (El Azhary & Taouab, 2018). To halt fraud, the internal auditor needs to be independent, objective and report irregularities without fear of pressures from executives. In today’s changing business environment, it is also important that internal auditors should be knowledgeable of business, systems, and developments and skilful in the use of information technology (ICT), because as it is essential in ensuring the integrity of financial reports through harmonious working of the entire internal control component in banks.The head of internal audit should be qualified with auditing certification such as the Certified Internal Auditor (CIA) and chartered accountancy certifications (FCA, ACA, FCCA, and ACCA). The qualities of internal auditors combined with internal control activities is needed to prevent fraud in organizations. According to McCafferty (2016) one of the major activities of internal audit is to execute a fraud risk assessment that singles out an organization's vulnerabilities to internal and external fraud. Another way internal audit prevents fraud is through unscheduled audits or surprise audits (Lowers & Associates, 2018). An impromptu audit strictly probes the company’s internal controls that are expected to forestall and spot fraud. These preventative measures enable auditors to spot any flaws that could make assets susceptible and to determine whether anyone has already abused those weaknesses to report fraudulently and/or misappropriate assets. Another fraud prevention mechanism is whistleblowing (Fawole & Fasua, 2017). Fraud prevention comes under internal control systems of organizations like banks and consists of five interrelated components that provide the foundation for fraud detection (COSO, 2013). These five components are control environment, risk assessment, control activities, monitoring activities, and information and communication. Providing a proper control environment for an organization is very essential in ensuring fraud detection. Risk assessment deals with the recognition and scrutiny of the achievement of the management objectives related risks (Terje, 2016). With control activities, auditors possess sufficient information required in examining the overall control system designed in monitoring the strategic financial management practices of a