Effect of Internal Auditor Quality on Fraud Detection in Quoted Insurance Firms in Nigeria

Abstract

This study examined the effect of internal audit quality on fraud detection in quoted insurance companies in Nigeria. Internal audit quality was proxied by internal audit independence, competence, objectivity, and diligence, while fraud detection served as the dependent variable. The persistent incidence of fraud in the Nigerian insurance sector, despite regulatory reforms, necessitates an empirical assessment of the effectiveness of internal audit functions in mitigating and detecting fraudulent activities. The study adopted a survey research design, and data were collected through structured questionnaires administered to 450 respondents drawn from 24 quoted insurance companies in Nigeria. The respondents were selected from internal audit, risk management, compliance, finance departments, and audit committees. Data were analyzed using Structural Equation Modeling (SEM) via SmartPLS to test the hypothesized relationships. The findings revealed that internal audit competence (β = 0.312, p < 0.05), objectivity (β = 0.284, p < 0.05), diligence (β = 0.241, p < 0.05), and independence (β = 0.126, p < 0.05) all have significant positive effects on fraud detection. The results indicate that improvements in internal audit quality significantly enhance the ability of insurance firms to detect fraudulent activities. The study concludes that strong internal audit quality is essential for effective fraud detection in Nigeria’s insurance sector. It recommends enhanced audit independence, continuous professional training, strengthened ethical standards, and improved diligence in audit processes to improve fraud detection outcomes.