Internal Audit Functions and Level of Financial Fraud Among Commercial Banks in Kenya

Abstract

Financial fraud has become one of the challenges of Commercial Banks operating in the 21st century both in developing and developed countries. Issues of financial fraud have contributed to deteriorating financial performance of Banks in Kenya little has been done to uncover the challenges. This study aimed at establishing the effect of internal audit functions and the level of financial fraud in Commercial Banks in Kenya. The objectives of the study were to establish the effect of Proactive Fraud Audit, Compliance to Policies, Risk Management, Control of Operation and Financial Reporting on level of financial fraud in Commercial Banks in Kenya. The study adopted a descriptive research designs to establish the statistical relationship between variables of the study. The target population of the study comprised on 43 employees of Commercial Banks. Stratified sampling technique was used to select the representative sample. 31 employees were the sample size of the population. The primary data was collected using a structured questionnaire consisting of close-ended and open-ended questions. Qualitative data was analyzed using content analysis method where key themes of published and spoken word were reviewed and conclusions were made. Quantitative regression analysis with the help of Statistical Packages for Social Sciences (SPSS Version21). Data was analyzed using descriptive statistics and presented in form of mean scores, standard deviation and percentages. Regression analysis was conducted at 5% level of significance and at 95% confidence level. The analyzed data was presented in form of tables. The study revealed that there was a statistical relationship between fraud proactive audits, compliance to policies, controls of operations and financial reporting and the level of financial fraud in Commercial Banks in Kenya. The study concludes that Commercial Banks are likely 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. The study recommends that by Banks should, train employees on fraud detection in systems, adhere to CBK regulations, develop risk management systems and review internal control systems to promote the spirit of transparency and accountability thus reduced levels of financial fraud.