Effectiveness of Internal Control on Detection and Prevention of Fraud on Commercial Banks Listed in Nairobi Securities Exchange

Abstract

Fraud related practices have increasingly been reported in Kenya financial ecosystem particularly commercial banks. Despite many of these banks instituting internal controls, loses arising from fraud were on the rise. This study sought to establish the effectiveness of internal controls on prevention and detection of fraud on commercial banks listed at NSE. The research study targeted eleven (11) Heads of audit. Questionnaires were administered to solicit information from respondents. Data collected was analyzed descriptively using figures and tables and inferentially using Microsoft office spreadsheet program (Excel).Validity and reliability was ascertained using test-retest method and also experience and competence of the respondents. The findings of the study revealed a strong positive association between internal controls instituted by an organization and prevention and detection of fraud (r=0.664, P< 0.05).Findings also showed that each component of internal controls as proposed by COSO positively impacted on fraud prevention and detection. Control Environment positively prevent fraudulent practices (ß1=0.2366,P<0.05).Risk assessment particularly fraud risk assessment would positively prevent fraud related practices ß2=0.096.P>0.05).Findings also showed that information and communication would expose lapses hence preventing fraudulent practice(ß3=0.043,P<0.5).The study also found out that control activities significantly prevented fraudulent practices (ß4=0.6548,P<0.05).The study also showed that monitoring activities would serve as a precursor in preventing fraudulent practices (ß5=0.3305)