Effect of internal audit functions on fraud detection in insurance companies in Kenya

Abstract

Financial fraud has become one of the challenges of firms operating in the 21st century both in developing and developed countries. For instance in Kenya, insurance companies have continued to record declined financial performance due high cases of fraud (KPMG, 2015). This study aimed at establishing the effect of internal audit functions on fraud detection among insurance companies operating in Kenya. The objectives of the study was to establish the effect of Proactive Fraud Audit, Compliance to Policies, Risk Management, Control of Operation and Financial Reporting on fraud detection among insurance companies in Kenya. The study adopted a descriptive research designs to establish the statistical relationship between variables of the study. The study adopted a census approach where information was collected from all the 41 Insurance companies in Kenya. The primary data was collected using a structured questionnaire consisting of close-ended and open-ended questions. The analysis was done using Statistical Packages for Social Sciences (SPSS Version21). Data was analyzed using descriptive statistics and t-test was used in testing the significance of the effect between dependent variables and independent variables at 5% level of significance. The analyzed data was presented in tables. Multiple regression analysis was used to determine the statistical relationship between variables. It was established that there was a statistical relationship between Proactive Fraud Audit, Compliance to Policies, Risk Management, Control of Operation and Financial Reporting and fraud detection among insurance companies in Kenya. It was concluded that insurance companies were likely to gain competitive edge in the changing business environment if only they developed proactive fraud audit systems, compliance systems, risk management systems, internal control systems and financial reporting systems. It was recommended by the study that insurance companies in Kenya should recognize the need of sensitizing employees and customers on the consequences of fraud, train employees on fraud detection in systems, develop risk management systems and review internal control systems to promote the spirit of transparency and accountability.