The Effectiveness of External Auditing in Detecting and Preventing Management Fraud in Organizations

Posted: Sep 23, 2023

• Jaxson Morgan
• Aubree Foster
• Sawyer Brooks

Abstract

This research investigates the effectiveness of external auditing in detecting and preventing management fraud through a novel methodological framework that integrates behavioral analytics, network analysis, and machine learning algorithms. Traditional auditing approaches have primarily focused on financial statement verification and compliance testing, often overlooking the complex behavioral patterns and organizational dynamics that facilitate management fraud. Our study introduces an innovative multi-dimensional assessment model that examines auditing effectiveness across three critical dimensions: detection capability, preventive influence, and organizational impact. We developed and implemented a sophisticated fraud detection system that analyzes both quantitative financial data and qualitative behavioral indicators across 127 organizations over a three-year period. The findings reveal that conventional external auditing methods alone detect only 34