Effect of Fraud Risk Management on Financial Performance of Non-governmental Organisations in Nairobi County

Abstract

According to the International Standards on Auditing (ISA), fraud refers to an intentional act by one or more individuals among management, those charged with governance, employees or third parties involving the use of deception to obtain an unjust or illegal advantage whereas the ISACA (Information Systems Audit & Control Association) state that an intentional miss explanation that results to a party incurring damages especially in monetary form describes fraud. Fraud risk management practices influence the financial performance hence sustainability of Non-Governmental Organization. Several fraud risk management techniques are deployed within organizations to curb the vice; anti-fraud policies, fraud detection and fraud deterrence mechanisms. This study sought to establish the relationship between fraud risk management and financial performance of non-governmental organizations in Nairobi. The objective of the study was to evaluate the effect of fraud risk management on financial performance of non-governmental organizations in Nairobi. The researcher utilised a descriptive research design. Questionnaires were employed in collecting data from a sample of 170 finance managers from registered and compliant NGOs in Nairobi. Stratified random sampling method was applied: the population was divided into three financial based strata; huge, medium and small sized NGOs. The study collected quantitative data and analyse it using descriptive analysis methods. Inferential statistics (correlation and regression analysis) was also applied in deriving the relation between the dependent and independent variables. The study established that the Nairobi based NGOs have suffered from fraud occurrences hence it is a matter of interest within these organisations with most of them undertaking a daily or weekly monitoring of fraud. Generally, the researcher concluded that anti-fraud policies, fraud deterrence and fraud detection significantly impact financial performance of the Nairobi based NGOs. These variables explain up to 63.4% of the variation in financial performance within the NGOs. The researcher therefore recommended that the organizations should undertake a more frequent fraud monitoring process and utilize strategies such as staff supervision, safe controls when accessing systems, clear division of duty, monitoring work performance, fraud risk register and fraud awareness training, whistle blower strategy, fines and penalty and strict legal consequences as strategies to deter fraud. The organizations should also sufficiently allocate resources towards fraud risk management so as to help them save on fraud investigation