Economics and Business Management

Methods and approaches of financial controlling for the prevention of fraud in small and medium-sized businesses of Kyrgyzstan

Tilek Toichiev
Download article
Abstract

The purpose of the study was to examine methods and instruments of financial controlling that ensure the detection and prevention of fraudulent activities in the small and medium-sized business (SME) sector of Kyrgyzstan. The research methods included theoretical-analytical, comparative-analytical, comparative-legal, and structural-functional approaches, as well as the content analysis method, which ensured a comprehensive assessment of the institutional, legal, and managerial aspects of financial controlling. As a result of the conducted study, it was established that financial controlling constitutes an integrated system of management accounting, analysis, and control aimed at ensuring the financial sustainability of an SME enterprise. It was determined that the implementation of the controlling cycle “plan – actual – adjustment” makes it possible to increase the accuracy of budget planning and to reduce time lags between the emergence and elimination of financial deviations. It was revealed that the structuring of controlling functions – monitoring, forecasting, analysis, and risk prevention – contributes to an increase in the transparency of financial flows and reduces the likelihood of fraudulent operations in small and medium-sized businesses. It was established that financial fraud in the SME sector of the Kyrgyz Republic has a systemic nature and manifests itself in the forms of manipulation of financial statements, cash and payment fraud, and tax schemes. A low level of implementation of internal control mechanisms was quantitatively confirmed. It was established that only 13.3% of small and medium-sized enterprises with access to bank financing apply institutionalised internal control mechanisms, which indicates a low level of maturity of managerial procedures. The main institutional factors of SMEs’ vulnerability to financial abuses were identified. The key factors are: a high share of cash transactions, low financial literacy (11.6 out of 21 points according to the methodology of the Organisation for Economic Co-operation and Development/National Bank of the Kyrgyz Republic), limited use of banking financing instruments, and high perceived corruption (146th place in the Corruption Perceptions Index-2024). As a result of the study, an approach to the implementation of financial controlling in small and medium-sized businesses of the Kyrgyz Republic was developed, based on the integration of organisational, analytical, and technological methods. The practical significance of the results lies in the possibility of applying the proposed comprehensive controlling model to reduce the frequency of financial violations and to optimise managerial decision-making in SME enterprises

Keywords

preventive measures; risk sources; manipulation of financial statements; cash and payment fraud; tax schemes

Suggested citation
Toichiev, T. (2026). Methods and approaches of financial controlling for the prevention of fraud in small and medium-sized businesses of Kyrgyzstan. Economics and Business Management, 17(1), 47-65. https://doi.org/10.31548/economics/1.2026.47
References
  1. Adeboye, E.O. (2024). Strengthening fraud prevention in small businesses: An analysis of effective accounting and auditing practices. International Journal of Science and Research Archive, 13(2), 590-595. doi: 10.30574/ijsra.2024.13.2.2160.
  2. Adegboyegun, A.E., Ben-Caleb, E., Ademola, A.O., Oladutire, E.O., & Sodeinde, G.M. (2020). Internal control systems and operating performance: Evidence from small and medium enterprises (SMEs) in Ondo state. Asian Economic and Financial Review, 10(4), 469-479. doi: 10.18488/journal.aefr.2020.104.469.479.
  3. Alayli, S. (2022). The impact of internal control practices on fraud prevention: The case of Lebanese small-medium enterprises. European Journal of Business and Management Research, 7(5), 141-147. doi: 10.24018/ejbmr.2022.7.5.1671.
  4. Al-Hashedi, K.G., & Magalingam, P. (2021). Financial fraud detection applying data mining techniques: A comprehensive review from 2009 to 2019. Computer Science Review, 40, article number 100402. doi: 10.1016/j.cosrev.2021.100402.
  5. Al-Zoubi, A.M. (2021). A proposed framework for classifying preventive and detective fraud controls. International Journal of Entrepreneurship, 25(2), 1-21.
  6. Amin, M., & Motta, V. (2021). The impact of corruption on SMEs’ access to finance: Evidence using firm-level survey data from developing countries. Journal of Financial Stability, 68, article number 101175. doi: 10.1016/j.jfs.2023.101175.
  7. Azizan, A.F., & Ali, M.M. (2024). The effect of internal control mechanism towards fraud prevention in small and medium enterprises. Indonesian Journal of Sustainability Accounting and Management, 8(1), 178-188. doi: 10.28992/ijsam.v8i1.843.
  8. Bakar, M., Kamal, M., & Ishak, M. (2023). The tendency for occupational fraud in Malaysian small, medium enterprises and the effect of internal control, ethical culture, and awareness of fraud. International Journal of Academic Research in Business and Social Sciences, 13(1), 1398-1424. doi: 10.6007/IJARBSS/v13-i1/16293.
  9. Bhat, S. (2023). The effectiveness of internal controls in preventing fraud and financial misconduct. Journal of Law and Sustainable Development, 11(5), article number e1178. doi: 10.55908/sdgs.v11i5.1178.
  10. Doğan, Z., & Hamidow, M.H. (2023). Fraud symptoms specific to small and medium-sized business (SMEs) and research to determine the measures taken: Gaziantep case. Politik Ekonomik Kuram, 7(1), 16-31. doi: 10.30586/pek.1238134.
  11. Duan, M., Zheng, T., Gao, Y., Wang, G., Feng, Z., & Wang, X. (2024). DGA-GNN: Dynamic grouping aggregation GNN for fraud detection. Proceedings of the AAAI Conference on Artificial Intelligence, 38(10), 11820-11828. doi: 10.1609/aaai.v38i10.29067.
  12. Free, C. (2020). Looking through the fraud triangle: A review and call for new directions. Meditari Accountancy Research, 23(2), 175-196. doi: 10.1108/MEDAR-02-2015-0009.
  13. He, T. (2023). Financial fraud prevention and monitoring from the perspective of internal control. Accounting and Corporate Management, 5(12), 107-112. doi: 10.23977/acccm.2023.051217.
  14. Hossain, M.Z. (2025). Effectiveness of internal control systems in preventing financial fraud in SMEs. doi: 10.2139/ssrn.5255489.
  15. Igbojioyibo, R.P. (2024). The Impact of Internal Control Systems on Asset Protection and Financial Reporting Accuracy in SMEs. Asian Journal of Economics, Business and Accounting, 24(12), 65-80. doi: 10.9734/ajeba/2024/v24i121592.
  16. International Financial Reporting Standard for Small and Medium-Sized Entities. (n.d.). Retrieved from https://www.ifrs.org/issued-standards/ifrs-for-smes/.
  17. Isibor, N.J., Ibeh, A.I., Ewim, C.P.-M., Sam-Bulya, N.J., Adaga, E.M., & Achumie, G.O. (2022). A financial control and performance management framework for SMEs: Strengthening budgeting, risk mitigation, and profitability. International Journal of Multidisciplinary Research and Growth Evaluation, 3(1), 761-768. doi: 10.54660/.IJMRGE.2022.3.1.761-768.
  18. Law of the Kyrgyz Republic No. 72 “On the Procedure for Conducting Inspections of Business Entities”. (2007, May). Retrieved from https://dpa.gov.kg/en/npa/1.
  19. Law of the Kyrgyz Republic No. 76 “On Accounting and Financial Reporting”. (2002, April). Retrieved from https://www.nbkr.kg/index1.jsp?item=52&lang=ru.
  20. Majumder, R.Q. (2025). The role of forecasting and budgeting data accuracy in improving organizational performance. International Journal of Research and Innovation in Social Science, 9(7), 4963-4976. doi: 10.47772/IJRISS.2025.907000402.
  21. Mang'ana, K.M., Hokororo, S.J., & Ndyetabula, D.W. (2024). An investigation of the extent of implementation of the financial management practices of agri-SMEs in developing countries: Evidence from Tanzania. Sustainable Technology and Entrepreneurship, 3(1), article number 100049. doi: 10.1016/j.stae.2023.100049.
  22. Martins, A., Oliveira, C., Silva, R., & Castelo Branco, M. (2023). Management control practices as performance facilitators in a crisis context. Administrative Sciences, 13(7), article number 163. doi: 10.3390/admsci13070163.
  23. Mthiyane, Z.Z., van der Poll, H.M., & Tshehla, M.F. (2022). A framework for risk management in small medium enterprises in developing countries. Risks, 10(9), article number 173. doi: 10.3390/risks10090173.
  24. National Bank of the Kyrgyz Republic. (2024). Annual Report of the National Bank of the Kyrgyz Republic for 2024. Retrieved from https://www.nbkr.kg/DOC/11072025/000000000064986.pdf.
  25. National Bank of the Kyrgyz Republic. (2025). Strategic Directions in Activity Conducted by the National Bank of the Kyrgyz Republic for 2025-2030. Retrieved from https://www.nbkr.kg/index1.jsp?item=3326&lang=ENG&utm.
  26. Ngan, N.T. (2024). Factors affecting the effectiveness of internal control systems in small and medium enterprises operating in the trade and service sector in Binh Duong Province. International Journal of Management & Entrepreneurship Research, 6(10), 3577-3588. doi: 10.51594/ijmer.v6i10.1680.
  27. Nkwinika, E., & Akinola, S. (2023). The importance of financial management in small and medium-sized enterprises (SMEs): An analysis of challenges and best practices. Technology Audit and Production Reserves, 5(73), 12-20. doi: 10.15587/2706-5448.2023.285749.
  28. Okeke, S.E., Offor, S.I., & Chukwunwike, O.D. (2021). Internal control: Its role in the reduction of fraud and professional misconduct among SMEs. Asian Journal of Economics, Business and Accounting, 21(19), 57-66. doi: 10.9734/ajeba/2021/v21i1930506.
  29. Olinmah, F.I., Abiola-Adams, O., Otokiti, B.O., & Ojonugwa, B.M. (2024). A data-driven internal controls modeling framework for operational risk mitigation in financial services. International Journal of Scientific Research in Science, Engineering and Technology, 11(5), 368-383. doi: 10.32628/IJSRSET24105475.
  30. Organisation for Economic Co-operation and Development. (2022). Business integrity in Eastern Europe and Central Asia 2022. Retrieved from https://www.oecd.org/en/publications/2022/09/business-integrity-in-eastern-europe-and-central-asia-2022_88a3ae74.html.
  31. Potkány, M., Hašková, S., Lesníková, P., & Schmidtová, J. (2022). Perception of essence of controlling and its use in manufacturing enterprises in time of crisis: Does controlling fulfill its essence? Journal of Business Economics and Management, 23(4), 957-976. doi: 10.3846/jbem.2022.17391.
  32. Prasetia, I.F., & Rabbani, H.F. (2025). Influence of early detection, anti-fraud strategies, and authority levels on median loss. Jurnal Riset Akuntansi dan Keuangan, 13(2), 481-492. doi: 10.17509/jrak.v13i2.84712.
  33. Pu, G., Qamruzzaman, M., Mehta, A.M., Naqvi, F.N., & Karim, S. (2021). Innovative finance, technological adaptation and SMEs sustainability: The mediating role of government support during COVID-19 pandemic. Sustainability, 13(16), article number 9218. doi: 10.3390/su13169218.
  34. Rao, P., Verma, S., Rao, A.A., & Joshi, R. (2023). A conceptual framework for identifying sustainable business practices of small and medium enterprises. Benchmarking: An International Journal, 30(6), 1806-1831. doi: 10.1108/BIJ-11-2021-0699.
  35. Rashid, U., Abdullah, M., Khatib, S.F., Khan, F.M., & Akhter, J. (2024). Unravelling trends, patterns and intellectual structure of research on bankruptcy in SMEs: A bibliometric assessment and visualisation. Heliyon, 10(2), article number e24254. doi: 10.1016/j.heliyon.2024.e24254.
  36. Resolution of the Cabinet of Ministers of the Kyrgyz Republic No. 505 “On the Approval of the Rules of Accounting by Small Business Entities”. (2024, August). Retrieved from https://cbd.minjust.gov.kg/7-32645/edition/16960/ru.
  37. Santosuosso, P. (2025). A practical approach to designing internal control systems in SMEs. Journal of Open Innovation: Technology, Market, and Complexity, 11(2), article number 100565. doi: 10.1016/j.joitmc.2025.100565.
  38. Sawaya, C., Jabbour Al Maalouf, N., Hanoun, R., & Rakwi, M. (2025). Impact of auditor independence, expertise, and industry experience on financial reporting quality. Asia Pacific Management Review, 30(1), article number 100357. doi: 10.1016/j.apmrv.2025.100357.
  39. Sethi, S.R., & Mahadik, D.A. (2025). Forecasting financial distress for organizational sustainability: An empirical analysis. Sustainable Futures, 9, article number 100429. doi: 10.1016/j.sftr.2024.100429.
  40. Transparency International. (2024). Corruption Perceptions Index 2024. Retrieved from https://www.transparency.org/en/cpi/2024.
  41. World Bank. (2024). Kyrgyz Republic developing a sustainable finance market for MSMEs. Retrieved from https://documents1.worldbank.org/curated/en/099092724003530502/pdf/P505643-b39bac95-c1d6-4743-a296-33e8054f2ac4.pdf.
  42. World Bank. (2025). Country Economic Memorandum for the Kyrgyz Republic. Retrieved from https://www.worldbank.org/en/country/kyrgyzrepublic/publication/cem-2025.
  43. Zainal, S.F., Hashim, H.A., Ariff, A.M., & Salleh, Z. (2021). Research on fraud: An overview from small medium enterprises (SMEs). Journal of Financial Crime, 29(4), 1283-1296. doi: 10.1108/JFC-09-2021-0205.
  44. Zgarni, A. (2021). Financial fraud detection and the importance of internal control. International Journal of Accounting and Financial Reporting, 11(4), 28-36. doi: 10.5296/ijafr.v11i4.19333.
  45. Ziorklui, J.E., Ampofo, F.O., Nyonyoh, N., & Antwi, B.O. (2024). Effectiveness of internal controls mechanisms in preventing and detecting fraud. Finance & Accounting Research Journal, 6(7), 1259-1274. doi: 10.51594/farj.v6i7.1322.