Lines of defense in business and their impact on financial fraud in Ecuadorian SMEs
Article Sidebar
Main Article Content
Abstract
This research examines the impact of enterprise lines of defense on the prevention of financial fraud in small and medium-sized enterprises (SMEs) within the fishing sector of Manta and Portoviejo, Ecuador. In a context characterized by high competition, resource constraints, and weaknesses in internal control systems, the study analyzes how operational management, risk management, and internal auditing contribute to reducing fraudulent practices and strengthening corporate governance. A quantitative approach was applied, with a correlational and explanatory scope, using a non-experimental, cross-sectional design. The sample consisted of 32 companies and 101 respondents, including managers, administrators, and financial officers. Data were collected through a structured questionnaire and processed using descriptive statistics, Pearson correlation analysis, and multiple linear regression. The results reveal a positive and statistically significant relationship between enterprise lines of defense and financial fraud prevention (R² = 0.58; p < 0.001). Risk management showed the strongest explanatory power (β = 0.41), followed by internal auditing (β = 0.33) and operational management (β = 0.28). Additionally, it was found that micro and small enterprises exhibit greater structural weaknesses, particularly in function segregation, risk management practices, and internal audit implementation. It is concluded that the comprehensive and integrated implementation of enterprise lines of defense significantly reduces exposure to financial fraud, while simultaneously enhancing transparency, operational efficiency, and organizational sustainability in SMEs within the studied sector.
Downloads
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Derechos de autor:
La Revista Científica Espíritu Emprendedor TES conserva los derechos patrimoniales (copyright) de las obras publicadas, y favorece y permite la reutilización de las mismas bajo la licencia Creative Common Atribución -No Comercial 4.0 International (CC BY-NC 4.0), se puede copiar y redistribuir el material en cualquier medio o formato, remezclar, transformar y construir a partir del material siempre que:
- Usted no puede hacer uso del material con propósitos comerciales.
- Usted debe citar la autoría y fuente original de su publicación (revista, editorial, URL y DOI de la obra).
- Usted debe mencionar la existencia y especificaciones de esta licencia de uso.
References
Achmad, T., Huang, C.-Y., Putra, M. A., & Pamungkas, I. D. (2024). Forensic accounting and risk management: Exploring the impact of generalized audit software and whistleblowing systems on fraud detection in Indonesia. Journal of Risk and Financial Management, 17(12), 573. https://doi.org/10.3390/jrfm17120573
Association of Certified Fraud Examiners (ACFE). (2024). Occupational fraud 2024: A report to the nations. ACFE. https://www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf
Choi, H. (2023). The differential effects of internal control teams on investment decision making based on industry competition. International Journal of Financial Studies, 11(4), 131. https://doi.org/10.3390/ijfs11040131
Cando-Morejon, I. A., Guanoluisa-Salazar, J. B., & Villacis-Yanez, D. P. (2023). Casos de fraudes financieros en ecuador: una revisión breve. ISTE SCIENTIST, 2(01). https://revistas.iste.edu.ec/index.php/reviste/article/view/15
Christensen, L. (2022). Internal audit: A case study of impact and quality of an internal control audit. International Journal of Auditing, 26(3), 339–353. https://doi.org/10.1111/ijau.12280
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal control—Integrated framework. COSO. https://www.coso.org/guidance-on-ic
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2017). Enterprise risk management: Integrating with strategy and performance. COSO. https://www.coso.org/guidance-erm
Dao, M., Pham, T., & Xu, H. (2024). Internal governance and internal control material weaknesses. Corporate Governance: An International Review, 32(3), 474–499. https://doi.org/10.1111/corg.12548
De La Torre-Lascano, C. M., Quiroz-Peña, J. I., Páez-López, D. O., & García-Cáceres, D. V. (2024). Crimen organizado transnacional y su incidencia en la pesca ilegal, no declarada y no reglamentada, en el archipiélago de Galápagos. Jurídicas, 21(2), 267-287. https://revistasojs.ucaldas.edu.co/index.php/juridicas/article/view/10519
Efremova, E. I., Zatsarinnaya, E. I., & Soloshenko, A. A. (2023). Internal control system as a fraud management element in the company. E3S Web of Conferences, 449, 04007. https://doi.org/10.1051/e3sconf/202344904007
Flore, C., Degryse, H., Kolaric, S., & Schiereck, D. (2021). Forgive me all my sins: How penalties imposed on banks travel through markets. Journal of Corporate Finance, 68, 101912. https://doi.org/10.1016/j.jcorpfin.2021.101912
Hernández Aros, L., Sarmiento Morales, J. J., & Moreno Hernández, J. J. (2026). Structured framework for dealing with types of financial statement fraud, integrating common modalities, variables, strategies, and patterns. Journal of Risk and Financial Management, 19(2), 157. https://doi.org/10.3390/jrfm19020157
Institute of Internal Auditors (IIA). (2024). Global internal audit standards. The IIA. https://www.theiia.org/en/standards/2024-standards/global-internal-audit-standards/
Lubis, H. Z., Sari, M., Ramadhany, A. A., Ovami, D. C., & Brutu, I. R. (2024). Effect of internal audit, internal control, and audit quality on fraud prevention: Evidence from the public sector in Indonesia. Problems and Perspectives in Management, 22(2), 40–50. https://doi.org/10.21511/ppm.22(2).2024.04
Lucas, F. F. S., Lourido, W. A. B., & Giler, M. V. (2022). Auditoría de gestión de calidad y mejoramiento continuo de procesos en pequeñas y medianas empresas del sector pesquero, Manta, Montecristi y Jaramijó–Ecuador. Dominio de las Ciencias, 8(1), 718-729. https://dialnet.unirioja.es/servlet/articulo?codigo=8383384
Maldonado, F. X. J., Ordoñez, E. J. C., & Vera, R. M. I. (2025). Gestión estratégica de activos intangibles en la industria pesquera: caso Mariscos del Ecuador Cía. Ltda. Pro Sciences: Revista de Producción, Ciencias e Investigación, 9(57), 182-192. https://doi.org/10.29018/issn.2588-1000vol9iss57.2025pp182-192
Michailidis, I., Alexandridou, K., Nerantzidis, M., & Drogalas, G. (2022). Revisiting the linkage between internal audit function characteristics and internal control quality. Journal of Operational Risk, 17(1), 55–78. https://doi.org/10.21314/JOP.2021.015
Mojtahedi, A., & Zhou, L. (2024). Information technology internal control material weaknesses in financial reporting: Categories, trends, associations, and industry effects. International Journal of Accounting Information Systems, 53, 100679. https://doi.org/10.1016/j.accinf.2024.100679
Monteiro, A. P., Vale, J. A., Cepêda, C. L., & Leite, E. M. (2021). Internal control system quality and decision-making success. Universal Journal of Accounting and Finance, 9(3), 285–294. https://doi.org/10.13189/ujaf.2021.090302
Moodley, A., Ackers, B., & Odendaal, E. (2022). Internal audit’s evolving performance role: Lessons from the South African public sector. Journal of Accounting & Organizational Change, 18(5), 704–726. https://doi.org/10.1108/JAOC-05-2021-0063
Nadirsyah, N., Indriani, M., & Mulyany, R. (2024). Enhancing fraud prevention and internal control: The key role of internal audit in public sector governance. Cogent Business & Management. https://doi.org/10.1080/23311975.2024.2382389
Organisation for Economic Cooperation and Development (OECD). (2021). Financing SMEs and entrepreneurs 2021: An OECD scoreboard. OECD Publishing. https://doi.org/10.1787/23065265
Oyedotun, S., Oise, G. P., Akilo, B. E., & Nwabuokei, C. O. (2025). The role of internal audit in fraud detection and prevention: A multi-contextual review and research agenda. Journal of Science Research and Reviews, 2(2), 76–85. https://doi.org/10.70882/josrar.2025.v2i2.51
Pamungkas, I. D., Oktafiyani, M., Swatyayana, P. A., et al. (2025). Can corporate governance structures reduce fraudulent financial reporting in the banking sector? Insights from the fraud hexagon framework. Journal of Risk and Financial Management, 18(12), 698. https://doi.org/10.3390/jrfm18120698
Peñarreta-Angamarca, M. T., Torres-Palacios, M. M., & Moreno-Narváez, V. P. (2024). Efectividad de la auditoría financiera en la prevención del fraude en pequeñas y medianas empresas [Analysis of the Effectiveness of financial and tax auditing in fraud prevention]. Revista Multidisciplinaria Perspectivas Investigativas, 4(especial), 26-35. https://mail.rperspectivasinvestigativas.org/index.php/multidiscipinaria/article/view/106
Quiroz, J. I. P., Pozo, Á. G. S., Arguero, P. S. O., & Flores, H. L. B. (2025). El Fraude organizacional y su incidencia en la marca empleadora en cooperativas de ahorro y crédito: Fraude organizacional y su incidencia en la marca empleadora en cooperativas de ahorro y crédito. Mikarimin. Revista Científica Multidisciplinaria, 11(1), 7-31. https://revista.uniandes.edu.ec/ojs/index.php/mikarimin/article/view/3619
Saidon, I. M., Kurniawan, W. O., Khodari, N. S., & Ismail, J. (2025). Toward understanding ability to detect fraud among internal auditors: A proposed framework. International Journal of Research and Innovation in Social Science. https://doi.org/10.47772/IJRISS.2025.909000228
Steenkamp, L., Smidt, L. A., Kahyaoğlu, S. B., & Coderre, D. (2023). A maturity level assessment of the use of technology by internal audit functions. EDPACS, 68(1), 1–41. https://doi.org/10.1080/07366981.2023.2229986
Supriadi, T., Tjakrawala, K., Suryadnyana, N. A., & Sjam, J. M. E. (2024). Fraud prevention in the public sector: The role of internal audit. Journal of International Crisis and Risk Communication Research, 7(3), 313–320. https://jicrcr.com/index.php/jicrcr/article/view/2659
The International Journal of Accounting and Business Society. (2024). Crowe’s fraud pentagon theory review of fraudulent financial statements with audit committee moderation. International Journal of Accounting and Business Society, 32(1), 1–11. https://doi.org/10.21776/ijabs.2024.32.1.758
Tümmler, M., & Quick, R. (2025). How to detect fraud in an audit: A systematic review of experimental literature. Management Review Quarterly, 76, 287–332. https://doi.org/10.1007/s11301-024-00480-7
Zeng, H., Yang, L., & Shi, J. (2021). Does the supervisory ability of internal audit executives affect the occurrence of corporate fraud? International Journal of Accounting Information Management, 29(1), 1–26. https://doi.org/10.1108/IJAIM-02-2020-0020