The effect of financial fraud on the financial performance of state corporations in Kenya

Abstract

Finance is a fundamental resource that has to be efficiently and effectively managed to cause the required change. This crucial resource, however, is at times mishandled and embezzled by those in power. This study therefore, sought to establish the relationship between financial fraud and financial performance of state corporations in Kenya. This research used descriptive research design and utilized primary data. The population of study was one hundred and twenty six (126) state corporations. The population was sampled at 30% of the population. The sample size was (0.3*126 =38). This research gathered primary data using a research questionnaire. The gathered data was analyzed using inferential and descriptive analysis. The study found out that financial fraud reduces the financial performance of state corporations in Kenya to a great extent and results to poor services. The study concluded that on types of fraud in corporations, theft and embezzlement, fraudulent money transfer and unauthorized withdrawal were some of the main types of fraud witnessed. On causes of fraud in State Corporation, the study came to a conclusion that greed, poor internal controls, lack of appropriate punishment to fraudsters, poor record keeping, Poor salaries, Inadequate training were the main causes. From the findings on the extent of occurrence of fraud in state corporations in the last 5 years, it was concluded that there was evidence of fraud in every single year. Based on the findings in relation to specific objective, the study concluded that financial fraud negatively influences organization business performance. Finally given that fraud had negative effect on financial performance, the study came to conclusion that fraud leads to several shortcomings in corporations including shortage of funds for projects, reduction in liquidity position, poor share prices, higher cost for debt financing among many others. The study recommends effective governance and ethical practices within public institutions as a remedy to financial fraud. This involves: dealing with fraud at an individual level as well as with corporates. Dealing with fraud entails both internal and external effort in the corporations. Efficient governance in the corporate sector is an instrument that increases effectiveness, enhances capital access and makes sure there is sustainability and is also an efficient anti-fraud mechanism. State corporation managers must be accountable for the actions and decisions and adhere to justice, avoid biasness or conflicting business interests and should conduct their duties with probity, integrity and honesty. The building of an organization that is ethical is more about personal leadership and commitment to the organization other than about sheer compliance with a formal process or system. Business ethics is also at the basis of preventing corruption and ensuring proper corporate governance.