Fraud cases in Indonesia’s banking sector seem to never truly stop. Although various regulations have been issued, audit systems strengthened, and fraud detection technologies becoming more sophisticated, reports of fraud still emerge. From embezzlement of customer funds, manipulation of financial statements, to credit misuse, all of them reaffirm that the financial sector is always a fertile ground for fraud.

 

Amid these challenges, an interesting study emerged titled Enhancing Fraud Detection Performance: The Interplay of Red Flag Awareness, Self-Efficacy, and Professional Skepticism. The article was published in June 2025 in the Journal of Risk and Financial Management and was written by Andi Auliya Ramadhany, Erlina Erlina, Isfenti Sadalia, and Khaira Amalia Fachrudin.

 

Although written by a team, our spotlight this time falls on Herlina, one of the academics from the Faculty of Economics and Business, Universitas Sumatera Utara, who specializes in audit and internal control. For Herlina, fraud issues are not merely criminal cases, but governance problems that touch the roots of public trust in financial institutions. “Once trust is lost, the impact is not only on one bank but can shake the financial system at large,” she explained in an interview.

 

This study focused on three key factors influencing the ability of bank internal auditors to detect fraud: red flag awareness, self-efficacy, and professional skepticism. Red flag awareness refers to auditors’ ability to recognize early signs of fraud, such as unusual transactions, drastic changes in employees’ lifestyles, or inconsistent documents. Self-efficacy relates to auditors’ confidence in their own ability to carry out their tasks. Meanwhile, professional skepticism is a critical, cautious attitude that avoids taking management’s information at face value.

 

Why are these three important? The study emphasized that although audit technologies and procedures exist, human factors remain decisive. An auditor unaware of red flags tends to miss important signals. Auditors lacking self-confidence hesitate to take firm actions. And auditors with low skepticism may be trapped by neatly prepared false reports.

 

The methodology used was quite comprehensive. The research team distributed questionnaires to internal auditors in various commercial banks in Indonesia. In total, more than 300 auditors participated as respondents. Data analysis was conducted using the Partial Least Square (PLS) approach, which allowed the researchers to test direct and indirect relationships between variables.

 

The results were clear. First, red flag awareness was proven to enhance auditors’ professional skepticism, which ultimately increased their ability to detect fraud. Second, self-efficacy also played an important role: confident auditors were more willing to ask critical questions, challenge assumptions, and follow up on suspicious findings. Third, the combination of the two, mediated by professional skepticism, significantly strengthened fraud detection.

 

For Herlina, these findings are not just statistical figures. She has directly observed how auditors often face dilemmas. On one hand, there is pressure from management to “not make noise” about certain findings. On the other hand, there is a moral and professional responsibility to uphold the integrity of financial statements. “Professional skepticism is the auditor’s last line of defense. If that collapses, the audit function will become a mere formality,” she said.

 

This study also highlighted the regulatory context in Indonesia. The Financial Services Authority (OJK) has issued Regulation No. 39/POJK.03/2019 requiring banks to implement anti-fraud strategies based on prevention, detection, investigation, reporting, and monitoring. Although the regulatory framework is quite strong, implementation in the field still faces challenges. Many internal auditors are not fully trained to recognize red flags or lack the confidence to be critical toward management.

 

In discussion, Herlina emphasized the importance of continuous training. She argued that improving auditor quality is not enough by mastering technical procedures alone. They must also be equipped with soft skills such as the courage to make decisions, communication skills, and moral integrity. “Fraud is not always visible in the numbers. Sometimes it emerges from behavior, transaction patterns, or even from how someone answers questions,” she said.

 

This study provides practical contributions to banking. First, banks need to strengthen internal auditor training on red flag awareness. Simple indicators such as transactions without complete documentation or the use of third-party accounts should immediately trigger auditors’ alarms. Second, organizations need to build a work culture that supports self-efficacy. Auditors who feel valued and supported are more willing to uphold standards. Third, banks must foster a culture of professional skepticism as a core value, not just a technical skill.

 

In addition, this study emphasized that fraud cannot be seen only from the individual perpetrator’s side. A permissive work environment, weak controls, and unrealistic target pressures often become triggers. Auditors who can read “red signals” early can provide warnings, but those warnings are only effective if supported by a responsive system.

 

From an academic perspective, this study adds to the literature on fraud detection in the banking sector. So far, many fraud studies have been conducted in the public sector or non-financial companies. Focusing on banking provides added value because this sector has high transaction complexity and systemic risk.

 

At the end of the conversation, Herlina shared a reflective view: “Fraud will always exist, but that does not mean we surrender. What we can do is strengthen auditors’ abilities so it becomes harder for perpetrators to hide their tracks.” This statement reflects the essence of the research—that the fight against fraud is not a one-time journey, but a continuous effort involving competence, attitudes, and organizational culture.

 

Thus, this article is not only about discussing the relationships between academic variables but also offering a message relevant to the banking industry: audit quality is not only about procedures, but about the people who carry them out.