Application of Forensic Auditing for Detecting and Preventing Financial Fraud in Microfinance Institutions

Abstract

This study investigates the role of forensic auditing in detecting and preventing financial fraud within microfinance institutions. Unlike conventional auditing, forensic auditing adopts a more proactive approach, emphasizing thorough examination of financial transactions to identify irregularities and gather evidence suitable for legal proceedings. The research employs a library research method, reviewing articles, reports, and documents related to forensic auditors, financial managers, and relevant practices. The findings indicate that implementing forensic auditing enhances management accountability, strengthens corporate governance, and mitigates risks of financial fraud and potential bankruptcy in the microfinance sector. Furthermore, a multidisciplinary approach involving accounting, finance, law, and information technology proves effective in improving the quality and outcomes of forensic audits. This study highlights the critical importance of integrating forensic auditing into routine financial oversight practices to establish a more transparent, secure, and reliable financial environment, fostering confidence among stakeholders and supporting the sustainable development of microfinance institutions.