145 METHODS FOR DETECTING FRAUD IN INTERNAL AUDITING T. Kopotiienko, PhD in Economics, Associate Professor, Associate Professor of the Department of Financial Analysis and Audit, Auditor: V. Datskevych master’s student at the Department o f Financial Analysis and Auditing, State University of Trade and Economics Fraud in organizations poses a serious threat that can lead to significant financial losses, damage to reputation, and loss of trust from stakeholders such as investors, customers, or regulatory authorities. In the context of internal auditing, fraud is defined as intentional actions aimed at the illegal appropriation of assets, manipulation of financial statements, or corrupt practices such as bribery or conflicts of interest [1]. Internal audit plays a key role in detecting and preventing such violations, as it provides an independent assessment of the effectiveness of business processes, control systems, and regulatory compliance, helping organizations minimize risks and maintain transparency. The purpose of this work is to provide a detailed analysis of modern fraud detection methods, assess their effectiveness and practical application in auditing, and discuss the challenges and ethical issues associated with this field, with a focus on how these methods can be integrated to achieve better results. The fraud detection process diagram serves as a practical tool for auditors, helping them quickly translate collected data, such as from financial statements, into specific actions, such as initiating an investigation when fictitious transactions are suspected. It emphasizes the importance of a clear sequence— from evidence gathering to reporting—that allows, for example, the detection of 146 cash transaction abuses and the implementation of measures to eliminate them. This approach simplifies the daily work of teams, for example, when integrating with software such as ACL for analyzing real cases in the banking sector. Fig. 1. Fraud detection process diagram Among the main methods of detecting fraud in the internal audit process are analytical procedures, which involve a thorough analysis of financial and operational data to identify anomalies that may indicate fraudulent activity. For example, auditors can compare financial indicators for the current period with data from previous years, calculate key ratios such as liquidity or profitability, and identify deviations from expected averages, which often signal manipulation such as overstating revenues or concealing expenses. This method is particularly effective when working with large amounts of data, as it allows you to quickly cover significant amounts of information, but it requires the auditor to have in- depth knowledge of the specifics of the business and the ability to interpret the results in order to avoid false conclusions. The next important method is testing internal controls, which focuses on assessing the effectiveness of systems designed to prevent fraud. Auditors check whether transaction authorization procedures are properly organized, whether responsibilities are divided among employees so that one person cannot control the entire transaction cycle, and whether access to key assets such as cash or confidential information is restricted. For example, if a company lacks proper segregation of duties between the person who initiates a payment and the person who approves it, this creates a vulnerability for misappropriation of funds, and testing helps identify such weaknesses at an early stage. Data collection Reporting Anomaly analysis Verification of controls Investigation 147 The use of technology is another powerful tool, where modern data analysis software such as ACL or IDEA is combined with artificial intelligence and machine learning to automate transaction scanning. Algorithms can analyze huge amounts of data in real time, identifying unusual patterns such as repeated payments to suspicious accounts or abnormal fluctuations in inventory, which significantly speeds up the process and improves accuracy, although it requires investment in staff training and ensuring the quality of input data. Employee interviews and surveys add a human element to the audit, allowing information about potential violations to be gathered directly from those who work within the organization. Auditors conduct structured interviews, asking questions about daily processes, possible conflicts of interest, or suspicious situations, while anonymous channels for reporting violations, known as whistleblowing, encourage employees to share information without fear of reprisals, as it is often internal sources who are the first to notice fraud but are afraid to speak openly. Finally, forensic auditing is an in-depth investigation of suspicious transactions using specialized techniques such as analyzing digital traces in computer systems, verifying the authenticity of documents, or recovering deleted data from storage media, which is especially useful in complex cases where standard methods do not provide a complete picture, for example, when uncovering money laundering schemes or contract fraud. Regarding the practical aspects of applying these methods, it is important to consider their advantages and limitations, which can be clearly presented in a comparative table. 148 Table 1. Comparison of fraud detection methods Method Advantages Limitations Analytical procedures High efficiency for big data; quick overview of trends Requires skilled analysis; may miss complex schemes Testing controls Identification of systemic weaknesses; preventive effect Limited effectiveness with hidden schemes; depends on documentation Use of technology Automation, processing speed; accuracy in pattern detection Dependence on data quality; high implementation costs Interviews and surveys Value of the human factor; identification of informal risks Risk of subjectivity; dependence on respondent honesty Forensic audit In-depth investigation; evidence base for court proceedings High cost and duration; requires specialists Source: сompiled by the authors In conclusion, fraud detection methods are an integral part of internal auditing, contributing to a significant reduction in risks, enhanced control over assets, and increased overall trust in the business from internal and external parties. The comprehensive application of analytical procedures, control testing, technology, interviews, and forensic auditing creates a powerful barrier against fraud, allowing organizations not only to respond to problems but also to prevent them. In the future, the development of technologies such as artificial intelligence for risk prediction or blockchain for data immutability promises even greater efficiency, making auditing more automated, accurate, and adaptable to new threats. Auditors need to continuously improve their skills, undergo training, and adapt their methods to the dynamic business environment in order to effectively combat fraud and maintain the sustainability of organizations. 149 REFERENCES: 1. Bonrath, L., et al. Internal auditing's role in preventing and detecting fraud: An empirical analysis. International Journal of Auditing, 2024. DOI: 10.1111/ijau.12342. URL: https://onlinelibrary.wiley.com/doi/full/10.1111/ijau.12342. 2. International Federation of Accountants. International Standard on Auditing (ISA) 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. New York: IFAC, 2020. 3. Oyedotun, S. A., et al. The Role of Internal Audit in Fraud Detection and Prevention: A Multi-Contextual Review and Research Agenda. Journal of Science Research and Reviews, 2025. Vol. 2, No. 2. P. 76–85. URL: https://josrar.esrgngr.org/index.php/josrar/article/view/51. 4. Saidon, I. M., et al. Toward Understanding Ability to Detect Fraud among Internal Auditors: A Proposed Framework. International Journal of Research and Innovation in Social Science, 2025. Vol. 9, No. 10. P. 1–15. URL: https://rsisinternational.org/journals/ijriss/articles/toward-understanding-ability- to-detect-fraud-among-internal-auditors-a-proposed-framework/. НАПРЯМИ ПРАВОВОГО РЕГУЛЮВАННЯ ЦИФРОВІЗАЦІЇ В ЕНЕРГЕТИЦІ О. В. Корват, к.е.н., доцент, п.н.с. НДІ правового забезпечення інноваційного розвитку НАПрН України, м. Харків Глобальна цифрова трансформація нашого часу торкається всіх галузей світової економіки, у тому числі й енергетики. Офіційно вважається, що впровадження цифрових технологій в енергетичну сферу має впливати на весь https://onlinelibrary.wiley.com/doi/full/10.1111/ijau.12342 https://josrar.esrgngr.org/index.php/josrar/article/view/51 https://rsisinternational.org/journals/ijriss/articles/toward-understanding-ability-to-detect-fraud-among-internal-auditors-a-proposed-framework/ https://rsisinternational.org/journals/ijriss/articles/toward-understanding-ability-to-detect-fraud-among-internal-auditors-a-proposed-framework/