Our　study　is　the　first　to　provide　systematic　evidence　of　the　internal　control　(IC)　prevention　and　punishment　effect　on　financial　fraud　(FF).　We　examine　the　pre-fraud　and　post-punishment　IC　of　Chinese　firms.　Results　show　that　the　lower　the　firm＇s　IC,　the　greater　the　possibility　of　FF.　We　find　that　IC　five　elements　have　different　prevention　effects.　Information　and　communication　cannot　prevent　FF,　while　the　other　four　can.　Executive　compensation,　audit　fees　and　earnings　management　can　weaken　the　negative　correlation　between　IC　and　FF,　while　independent　director　attendance　can　strengthen　the　negative　correlation　between　them.　In　addition,　the　IC　of　fraudulent　firms　has　been　improved　after　punishment.　This　article　extends　the　role　of　IC　and　its　five　elements　in　FF　and　the　response　of　IC　to　punishment,　providing　country-specific　evidence　for　other　emerging　market　research　about　IC　prevent　FF.