INFLUENCE OF INTERNAL CONTROLS AND STAFF COMPENSATION ON FRAUD OCCURRENCE IN COMMERCIAL BANKS BRANCHES IN KISUMU COUNTY, KENYA
Abstract
This study investigated the effect of internal control and staff compensation on fraud occurrence in commercial banks branches in Kisumu County, Kenya. This study adopted descriptive survey design and a sample size of 147 senior management staff of commercial banks branches located in Kisumu, Kenya were selected using stratified random sampling technique and structured questionnaires used to collect data. The study through descriptive and multiple regression analysis revealed that all the independent variables were significant predictors of fraud occurrence in commercial banks branches in Kisumu, Kenya. That is; Internal controls;β = -0.316at p<0.01; Staff compensation; β = 0.373 at p<0.05 and from the model summary, R2 = 0. 779; which is a good model; because the model significantly explains 77.9% of the variations in fraud occurrence in commercial banks branches in Kisumu, Kenya. The study concluded that a commercial bank that invests heavily in secure internal controls can significantly reduce bank frauds that arise from weak and compromised banks internal control mechanisms. Further, staff compensation is very elusive issues since several studies had found that it significantly influence bank fraud; that is, bank fraud can only be reduced by viable staff compensation schemes. The study recommended that, while it is impossible to achieve zero fraud risk in the banking institutions because fraudsters will always find their ways, management of commercial banks should design independent, secure internal control systems with real time checks so as to tame both internal and external bank. On staff compensation, the study recommended that, viable risk-adjusted return metrics, prudential metrics, strategic metrics and conduct metrics should be wisely adopted while crafting prudential staff compensation schemes meant to reduce employee fraud in commercial banks fraudsters.
Key Words: internal controls, staff compensation, fraud occurrence, Kisumu County
CITATION: Onyuka, E. A., & Otinga, H. N. (2019). Influence of internal controls and staff compensation on fraud occurrence in commercial banks branches in Kisumu County, Kenya. The Strategic Journal of Business & Change Management, 6 (1), 286 – 304.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i1.1054
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