Operational Risk Management Practices and Fraud in Commercial Banks in Kenya

Abstract

Operational risk continuously evolves and occurs in different types. In recent years, the importance of operational risk for banks has been increasing due to the products and methods which are very complex. Therefore this study undertakes to investigate the effect of operational risk management practices on bank fraud among commercial banks in Kenya. The population that was accessed consisted of all commercial banks as of the 31st of December, 2022 which had operated for at least 5 years. The study was conducted via the use of a census survey and primary data was used to collect and review information in order to fulfill the requirements of this investigation. From the results there was an indication that the correlation between the bank fraud when compared operational risk management practices as measured by the five variables of operational risk was negative. The research results also indicated that there is a strong positive relationship, thus a very high degree of correlation. A high R value is an indication that the model fits the data very well; in this case R value is 0.593. This implied that 59.3% of the variation in bank fraud as measured by computer fraud, payment fraud and credit card fraud was due to operations risk assessment, operational risk identification, operational risk measurement, operational risk monitoring and operational risk mitigation. While, 40.7% was due to other factors not covered in the model. The research findings are important to all the financial institutions in terms understanding the impact of sound operational risk management practices on the fraud and performance of financial institutions. The financial institutions can use this study for training purposes and improving employee awareness in operational risk management practices.