The Impact of Fraud Control Practices on the Financial Performance of Commercial State Corporations in Kenya

Abstract

The detection of illegal financial activities by CEOs and other cadres in the public and private sectors of the economy leads to fraud. Missing or misdirected cash, overstating expenses, understating revenue, and inappropriate foreign exchange dealings both inside and outside of banks are the main examples of these activities. The issue in emerging Third World countries, especially Kenya, is that fraud is widespread, impacts many citizens, and most of the time, those who commit it get away with it. As a result, there is little deterrence for more fraudulent conduct and individuals engaged are left free. Kenya's largest issue, according to both the governmental and commercial sectors, is fraud. In addition to shattering public confidence in the government, it has cost Kenyans and the government billions of dollars because of corrupt public company management, unfinished public projects, and deteriorating infrastructure brought on by embezzled maintenance funds. Examining the impact of fraud control practices on the financial performance of commercial SCs was the aim of this study. The study's population, which was determined by a descriptive research design, consists of 26 commercial SCs. The data was obtained using both primary and secondary data collection methods. In correlation analysis, each of the three fraud control practices shared a positive and statistical correlation with financial performance with variances being in the strength of association. Financial performance was strongly correlated with internal control, moderately correlated with fraud investigation, and strongly correlated with fraud audits. Regression analysis revealed that the three fraud control methods accounted for 65.2% of the variation in Kenyan SCs' financial performance. Based on the study's findings, it suggests that Kenyan commercial SCs implement fraud control procedures by establishing a productive, trustworthy, and operational fraud detection department to monitor all transactions deemed susceptible to fraud. This will help them minimize losses and improve their financial performance. Additional measures that are thought to be effective in reducing financial fraud ought to be implemented. The report also suggests implementing procedures like forensic accounting and auditing to deal with financial accounts.