THE ROLE OF INTERNAL AUDIT IN PREVENTING FINANCIAL ERRORS AND FRAUD IN COMMERCIAL BANKS OF UZBEKISTAN

Abstract

Commercial banks process large volumes of transactions, which exposes them to both unintentional errors and deliberate fraud. This paper examines the role of internal audit in preventing and detecting financial errors and fraud in the commercial banks of Uzbekistan. The study uses a qualitative design based on international standards (the IIA Global Internal Audit Standards, Basel Committee guidance and ISA 240), recent empirical studies of the banking sector, the Central Bank’s regulatory framework and two publicly reported cases. The review shows that auditor independence and audit quality are the main determinants of internal audit effectiveness, and that an effective internal audit function is associated with lower fraud and faster detection. In the ACFE’s 2024 global study, organisations with an internal audit department had a 43% lower median fraud loss and detected fraud twice as fast as those without one. In Uzbekistan, Regulation No. 3302 of 2021 gives the internal audit service an independent mandate and direct reporting to the supervisory board, and the Central Bank’s Roadmap for 2025–2028 extends internal audit to outsourced services. The cases of Trastbank and Xalq Bank show that internal audit can uncover misconduct and trigger legal action. The paper concludes that internal audit is most effective as part of a wider control system and recommends risk-based and data-driven auditing, systematic follow-up of findings, and coverage of outsourced and digital operations.