The Effect of Internal Controls on Fraud Detection and Prevention Among Commercial Banks in Kenya

Abstract

The study sought to investigate the effect of internal controls on fraud detection and prevention among commercial banks in Kenya. The main problem was that there is increased level of fraud and misappropriation of funds in Kenyan commercial banks caused by poor internal control measures. The fact that Kenya has the highest incidences of fraud in the world, based on a global ranking of 78 Countries surveyed and also the findings that commercial banks in Kenya are more susceptible to fraud than commercial banks in her neighbouring countries in Eastern Africa formulated the basis of the research problem. The study adopted an explanatory research design. The population of the study was all the 43 commercial banks operating in Kenya in the study period. The study conducted a census on all the 43 commercial banks .The study used primary data. An ordinary linear regression model was used. The regressions were conducted using statistical package for social sciences (SPSS) version 20. The regression results indicated that there was a negative and significant relationship between reconciliation control and level of fraud prevention and detection. The results also indicated that there is a negative and significant relationship between financial governance control and level of fraud prevention and detection while the relationship between reporting and budget control and level of fraud prevention and detection was positive and significant. Following the study findings, the study recommended that Commercial banks should fully reconcile their accounts more frequently in order to reduce the cases of more incidences of frauds. The study also recommends that commercial banks should put in place stronger financial governance control measures through more frequent meetings among the members of the risk management committee and also finance and investment committee. Another recommendation made by the study is that commercial banks should reduce the variances in budgets through better reporting and budgetary control measures as it will reduce cases of frauds.