Effect of Internal Controls on Detection and Prevention of Fraud in Public Universities in Kenya

Abstract

Reports of fraudulent activities within higher learning institutions have been consistent, indicating significant financial losses. Many public institutions in Kenya, including universities, have been tainted with widespread corruption and mismanagement of funds. Thus, the general objective of the study was to determine the effect of internal controls on the detection and prevention of fraud in public universities in Kenya. The specific objectives of the study were to determine the effect of segregation of duties, internal audit, information and communication systems, and staff rotation on the detection and prevention of fraud in public universities in Kenya. The study also examined the moderating effect of government intervention on the relationship between internal control and the detection and prevention of fraud in public universities in Kenya. The study utilized an explanatory research design to explore relationships between variables. The target population consisted of 34 heads of finance and 34 heads of audit totaling to 68 respondents. A census of the selected finance and audit offices was done for all the 34 public chartered universities in Kenya. Quantitative data were analyzed using statistical methods, providing a clear understanding of the respondents' opinions, attitudes, and perceptions regarding the research variables. The correlation results showed that segregation of duties, internal audit, information and communication systems, staff rotation, and government intervention are positively and significantly correlated with the detection and prevention of fraud in public universities in Kenya. The regression results showed that segregation of duties is positively and significantly related to fraud detection and prevention (β=0.204, p=0.022). Furthermore, internal audit is positively and significantly related to fraud detection and prevention (β=0.486, p=0.000). In addition, information and communication systems are positively and significantly related to the detection and prevention of fraud (β=0.228, p=0.014). Besides, staff rotation is related to the detection and prevention of fraud (β=0.147, p=0.000). The findings revealed that the p-values for the interaction terms were less than 0.05. As a result, government intervention in Kenyan public universities has a significant moderating effect on the relationship between internal control and the detection and prevention of fraud. In conclusion, this study found that there is a significant relationship between the segregation of duties, internal audit, information and communication systems, staff rotation and fraud detection and prevention in Kenyan public universities. Specifically, well-defined roles and responsibilities, robust internal audits, advanced information systems, and systematic staff rotation enhances the capacity to detect and prevent fraud. Additionally, government intervention acts as a significant moderator, strengthening the impact of internal control measures on fraud prevention. Consequently, universities are recommended to prioritize enhancing segregation of duties, investing in and strengthening internal audit functions, upgrading information systems, enforcing staff rotation policies, and fostering collaboration with government bodies to fortify fraud prevention efforts.