The Impact of Forensic Audit Services on Fraud Detection Among Commercial Banks in Kenya

Abstract

This study set out to investigate the effects of forensic audit services on fraud detection in commercial banks in Kenya. The objective of this study was to examine the effect of the forensic audit services offered by commercial banks in Kenya; Suspicious incidences and recurrent costs related to Anti money laundering services. The population of this study was all licensed commercial banks in Kenya as at December 2016. The commercial banks have been entrusted by the Central Bank of Kenya in identification and reporting of suspicious transactions on a regular basis. This study used secondary data from reports submitted to FRC and CBK, as well as data from commercial banks in Kenya. Data was collected for a period of five years spanning 2012 to 2016. More data will be collected from AML compliance managers’ management reports on ML. The data collected was coded and analyzed using both descriptive statistics and inferential statistics using Statistical Package for social Sciences (SPSS Version 23.0). Analyzed data was presented in the form of figures and tables for easy understanding. The study used questionnaires to collect data from registered commercial banks in Kenya. The results showed that fraud detection has an inverse relationship with investigation services and litigation support. This means that there exists a negative correlation between the dependent variable (fraud detection represented by frequency of occurrence of red flags) and the independent variables (investigation services and litigation support). A unit increase in forensic audit investigation services will discover and reduce the occurrence of fraud by 0.795 and a unit increase in litigation services would reduce fraud by 0.650, indicative of fraud detection. The study found out that forensic audit services have their highest application in the control of financial statement fraud, detection of scandals in the bank, ensuring regulatory compliance, internal controls monitoring and evaluation, and enhancing financial reporting quality. The study also showed that the prevalent fraud in commercial banks is payroll fraud with a mean of 3.8571 and the theft of cash, physical assets, and procurement fraud both with a mean of 3.5714.