Internal Audit and Fraud Detection in Relationships with Buyers and Suppliers: Risk Evolution and a Matrix-Based Approach

Abstract

The article substantiates the need to institutionalize a risk-oriented approach to fraud detection and response within an enterprise’s internal audit system as an integrated mechanism for protecting owners’ economic interests and strengthening financial security. The purpose of the study is to develop the methodological basis of internal audit for detecting fraud in counterparty transactions (relationships with buyers and suppliers) through a risk classification and a matrix-based approach.

A two-level classification of fraud risks is proposed. At the first level, risks are systematized by interaction contours (the internal environment of the enterprise; the “enterprise - counterparty” interface; external threats posed by third parties). At the second level, risks are classified by the carrier/channel of risk (internal organizational; consequence-oriented for owners/beneficial owners; interaction-related within counterparty relationships; external). Based on this classification, a matrix is developed that summarizes for each combination typical fraud schemes, early warning signs, audit detection procedures, and control indicators, thereby ensuring reproducibility of audit planning and enhancing the evidential strength of internal auditors’ conclusions and reports. The study demonstrates an evolution of fraud risks in today’s environment: while internal audit traditionally focused on internal abuses and documentary substantiation of counterparty interactions, the digitalization of document flows and settlements has intensified external third-party attacks and increased the significance of consequences for owners and beneficial owners. In this context, reputational risk is treated as a cross-cutting component that transforms local incidents into long-term constraints, including loss of counterparty trust, escalation of contractual disputes, disruption of supply chains, and growth of indirect financial losses.

Considering the Fraud Triangle and Fraud Diamond models, the proposed approach primarily operationalizes the “opportunity” component through the analysis of process and control vulnerabilities and partially addresses “capability” through assessing authorization structures and the digital capacity to bypass established control procedures. The “pressure” and “rationalization” components are regarded as peripheral to this methodological construct and may be extended in further research through instruments for assessing organizational culture and motivational factors. The practical value of the results lies in the applicability of the proposed framework for structuring internal audits of counterparty transactions, improving the targeting of recommendations, and reducing the risk of recurring fraud incidents.