INFLUENCE OF INTERNAL MANAGEMENT SYSTEMS ON FINANCIAL FRAUD CONTROL IN LISTED COMMERCIAL BANKS IN KENYA
Abstract
This study sought to examine influence of internal management systems on financial fraud control in listed commercial banks in Kenya. The study was based on explanatory research design and utilized structured questionnaire to collect primary data. The study targeted 120 managers from the 12 listed commercial banks in Kenya from where Yamane’s stratified sampling formula was used to get 93 respondents who were selected to participate in the study using simple random sampling technique. Data collected from the field was coded, cleaned, tabulated and analyzed using both descriptive and inferential statistics with the aid of Specialized Statistical Package for Social Sciences (SPSS) version 24 software. Descriptive statistics such as frequencies and percentages as well as measures of central tendency (means) and dispersion (standard deviation) were used. Further, inferential statistics such as regression and correlation analyses were used to determine both the nature and the strength of the relationship between the dependent and independent variables. A total of 93 questionnaires were dispatched for data collection, from which 85 questionnaires were returned dully filled, representing a response rate of 91.39% which is very good for generalizability of the research findings to a wider population. Both descriptive and inferential statistics revealed that all independent variables (risk assessment system, auditing system, adherence to professional ethical standards and employee remuneration) significantly influenced financial fraud controls in listed commercial banks in Kenya (dependent variable). The study concluded that one; commercial banks that invest in secure and updated risk assessment systems boosts their fraud control systems and lessens financial fraud incidences; two; an effective fraud detection, control program or audit system significantly improves financial fraud controls in commercial banks. The study recommended that one; commercial banks should have authentic employee recruitment and monitoring system that only secures employees with integrity and consistently compensate staff with incontestable professional ethical standards; and two, commercial banks should prudently apply employee remuneration and compensation schemes to only employees with undisputable professional ethical standards.
Key Words: Risk Assessment System, Auditing System, Adherence to Professional Ethical Standards, Employee Remuneration
CITATION: Ouma, J. O., & Otinga, H. N. (2020). Influence of internal management systems on financial fraud control in listed commercial banks in Kenya. The Strategic Journal of Business & Change Management, 7(4), 206 – 223.
Full Text:
PDFReferences
Accenture Analytics Innovation Center (2015), “Protecting the Customer: Fighting Bank Fraud in a New Environment,” available at https://www. accenture.com, 1-9.
Association of Certified Fraud Examiners (2016). Report to the Nations on Occupational Fraud and Abuse. Global Fraud Study. Retrieved from http://www.acfe.com.
Adeyanju, O. D. (2014). Code of ethics and professionalism: Implication for bank failure in Nigeria. Research Journal of Finance and Accounting, 5(19), 75 – 86.
Adeyemo, K (2017). Frauds in Nigerian banks: Nature, deep-seated causes, aftermaths and probable remedies. Mediterranean journal of Social Sciences, 397.
Akinyomi, O. J. (2012). Examination of fraud in the Nigerian banking sector and its prevention. Asian Journal of Management Research, 3(1), 182-194.
Albrecht, W. S., Albrecht, C. & Albrecht, C. C. (1995). Current Trends in Fraud and its Detection: A Global Perspective. Information Security Journal Vol.17.
Angeli, M., & Gitay, S., (2015) Bonus Regulation: Alignment Reward with Risk in the Banking Sector. Quarterly Bulletin,pp. 322-333.
Armstrong, M., & Taylor, S., (2014) Armstrong’s Handbook of Human Resources Practise (13th Ed.), Kogan Page Limited.
Association of Certified Fraud examiners (ACFE), (2009).Report to the Nation on Occupational Fraud and Abuse, Available online on; www.acfe.org.
Association of Certified Fraud examiners (ACFE), (2009).Reports on emerging trends in banking, available online on;www.acfe.org.
Avgouleas, E., & Cullen, J., (2015) Excessive Leverage and Banker’s Pay: Governance and Financial Stability Costs of a Symbiotic Relationship. Columbia Journal of European Law, 20 (2)
Bhasin, M.L. (2013), Corporate Accounting Fraud: A Case Study of Satyam Computers Limited,” Open Journal of Accounting,2(4).
Boomer, L. (2007): Strategy Execution and Alignment, Accounting Today, Vol 21 Issue 9-24.
Bonner, C, Claik, P, Vedrin N, Baker, (2011). Relationships of Internal Accounting Controls and Occurrences of Computer Fraud, Nova University: Michigan.
Business ethics quarterly (2000). “defining and understanding fraud: South African case study” , fraud,10(4):885-895,11
Central Bank of Kenya (2018). Financial Risk Assessment reports. Central Bank of Kenya. Available online at: http://www.centralbank.go.ke/.
Chartered Institute of Management Accountants (CIMA) (2009). Fraud Risk Management: A guide to good Practice. CIMA.
Chan,C M Tsai, J and Li, L(2015),Executive Compensation and Corporate Fraud in China. Working Paper Presented to Wharton School.
Chapman, R.J. ( 2006). Simple tools and techniques for enterprise risk management. USA: Hoboken, NJ, Wiley.
Coenen, T. (2008). Essentials of Corporate Fraud. USA: Hoboken, NJ, Wiley.
Comer, M. J (2003). Investigating Corporate Fraud. GBR: Abingdon, Oxon, Gower Publishing Limited.
Cooper, D &Schinder, P. (2007). Business Research methods (8th Ed.). New Delhi: tata McGraw hill
Cressey, 1973;Cressey, D. (1973). Other People’s Money: A study in the social psychology of embezzlement. New Jersey: Patterson Smith Publishing Corporation.
Criminal Investigation Department (CID) (2019). Report of investigated and prosecuted Bank Related Cases in Kenya. Government of Kenya printers, Nairobi
Deloitte Fraud Survey (2015), The Deloitte India Banking Fraud Survey Report Edition II. Available at www.deloittee.com/in.
Dillman, K (2000). Proposal and Thesis writing: An introduction. Nairobi: Pauline’s Publication Africa.
Dorminey, J., Fleming, A. S., Kranacher, M. J. & Riley Jr, R. A. (2012). The Evolution ofFraud Theory. Issues in Accounting Education, Vol. 27(2), pp. 555–579.
Dzomira, S. (2014), Cyber-banking fraud risk mitigation conceptual model, available at https://www.academia.edu.
Eseoghene J. I. (2010). Bank frauds in Nigeria: Underlying causes, Effects and possible remedies; African Journal of Accounting, Economics, Finance and Banking Research Vol. 6. No. 6.
Gates T. & Jacob K. (2009). Payment Fraud: Perception Versus Reality – A conference Summary. Economic Perspectives , Vol. 32 No. 1
Geffner, M. (2016). How banks fight fraud in electronic banking. Journal of Social Sciences, Vol. 3 (2), 24-29
Goldmann, P. D & Kaufman, H. (2009). Anti-Fraud Risk and Control. USA: Ho-boken, NJ, Wiley.
Grosse, R. E. (2001). Drugs and Money: Laundering Latin America's Cocaine Dol-lars. USA: Westport, CT, Greenwood Press.
Hab, L.H., Tarsalewska, M., Zhan, F., (2015). Equity Incentives and Corporate Fraud in China. Journal of Business Ethics,3(9).
Hairr, J. F, Black, W, C, Babin, B. J, & Anderson, R. E. (2006). Multivariate data analysis. 7th edition Prentice Hall NY.
Hampton, J. J. (2009). Fundamentals of Enterprise Risk Management: How Top Com-panies Assess Risk, Manage Exposure, and Seize Opportunity. USA: Saranac Lake, NY, AMACOM Books.
Han, T., & Shen, C., (2006) The Effect of Bonus Systems on Firm Performance in Taiwan High Tech Sector. Internationali Issue No. 2, pp. 95-103.
Handal, K. V. and Blount, S, (2009). Now more than ever, using technology to simplify compliance, 28(7):14-16.
Kingsley, O (2012) The Nature, Extent and Economic Impact of Fraud on Bank Deposit in Nigeria. Interdisciplinary Journal of Contemporary Research in Business, Vol. 4 no. 9 pp. 253 - 264.
KPMG, (2015). African Fraud and Misconduct Survey. KPMG Forensic, Switzerland.
KothariC.R., (2007), Research Methodology: Methods and Techniques, New Age International Publishers.
Kranacher, M.J., Riley, R.A. and Wells, J.T. (2010). Forensic Accounting and Fraud Examination. London: John Wiley and Sons.
Leiner, L and Young, K (2012). Bank failure and persistent distress: a discriminant Analysis. Journal of Economic and Financial Research.2 (1).
Lowers, M. (2014). Key components of a fraud prevention policy. Available online on; http://www.lowersriskgroup.com/
Mackevicius, J., &Giriunas, L. (2013). Transformational Research of the Fraud Triangle, EKONOMICA,Vol. 92(4), pp. 150-163.
Mhamane. D and Lobo, F (2012). Effect of Fraud on Risk Management in Not-For-Profit Organizations, Corporate Ownership & Control, Vol. 12 Issue 1, pp. 641-652.
Moyes, G.D., Hasan, I. (2006), An empirical analysis of fraud detection likelihood, Managerial Auditing Journal, Vol. 11 No.3, pp.41-6.
Mueller, K. (2015). How technology is shaping the fight against fraud? Journal of Business and Social Sciences, 3 (2), 8-16
Mugenda, O, M. & Mugenda, A. G., (2003), Research Methods: Quantitative and Qualitative Approaches, ACTS Press.
Neuman, W, L (2005) Social Research Methods: Quantitative and Qualitative Approaches (6th Ed). Boston, MA; Ally & Bacon
Nwaze, C. (2006), “Bank fraud exposed with cases and preventive measures”. Lagos: Control and Surveillance Associates Ltd.
Pan, G., Seow, P. S., Suwardy, T., & Gay, E. (2011). Fraud: A review and research agenda. Journal of Accountancy Business and the Public Interest, 10, 138-178.
Pasricha, P. and S. Mehrotra, (2014). Electronic crime in Indian banking. Sai Om Journal of Commerce and Management, November, 1(11),7-14.
PricewaterhouseCoopers [PwC], (2017Fraud Solutions for Africa Banks-A Kenyan Perspective. PWC, Nairobi, Kenya.
Robertson, J. C. & Timothy, J. L. (1999). Auditing, New York: Irwin McGraw-Hill.
Rollins, S. C & Lanza, R. (2004). Essential Project Investment Governance and Reporting: Preventing Project Fraud and Ensuring Sarbanes-Oxley Compliance. USA: J. Ross Publishing, Incorporated.
Samociuk, S., Martin, K., Iyer, S., Nigel, R & Doody, H. (2010). Short Guide Fraud Risk: Fraud Corruption Resistance and Detection. 2nd Edition. GBR: Farnham, Surrey, Ashgate Pub-lishing Group.
Schmidt, M. (2005). "Whistle blowing" regulation and accounting standards enforcement in Germany and Europe - an economic perspective. International Review of Law and Economics, 25, 143-168.
Sitienei, A. K. (2012). Factors influencing credit card fraud in the banking sector in Kenya. University of Nairobi. Retrieved from www.researchkenya.or.ke/api
Trintech, I. (2010). Unity ERM features. USA: Westport, CT, Greenwood Press. USLegal, Inc.
Tunji, S. (2015). Effective internal control system as an antidote for distress in banking industry in Nigeria. Journal of Economics and International Business Research, 1(5), 106 – 121.
Vallascas, E and Hagendor, B (2010) Is there a Link Between Executive Equity Incentives and Accounting Fraud? Journal of Accounting Research, 44, 113-144
Vanasco, R.R. (1998), Fraud auditing, Managerial Auditing Journal, Vol. 13 No.1, pp.4-71.
Wells, J.T. (2005). Principles of fraud examination. London: John Wiley and Sons.
Wells, R (2017). African Journal of Business Management. Mobile technology interaction to e-Commerce in promising of U-commerce, Vol.7- 85-95
Woods I. (1998). Fraud and the Australian Banking Industry Paper presented at the conference Crime against Business, convened by the Australian Institute of Criminology, Melbourne.
Wolfe, D., & Hermanson, D. R. (2004). The fraud diamond: Considering four elements of fraud. The CPA Journal, 74 (12), 38-42.
Zagaris, B. (2010). International white-collar crime. Cambridge: Cambridge University Press.
Zuraidah, M. S., Mohd, N. F. R., &Yusarina, M. I. (2015). Fraud schemes in the banking institutions: Prevention measures to avoid severe financial loss. Procedia Economics and Finance, 28(2015), 107-113.
DOI: http://dx.doi.org/10.61426/sjbcm.v7i4.1785
Refbacks
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution 3.0 License.
PAST ISSUES:
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.