Effect Of Internal Audit Practices On Fraud Risk Management In State Corporations In Kenya

Abstract

Most internal audit functions of many organizations have adopted practices of fraud risk management yet fraud is still prevalent and occurrences are reported. The fraud problem in all its forms; corruption, asset misappropriation and fraudulent financial reporting registers a continuous upward trend. Fraud is an emerging problem affecting public organizations and private companies as well in all the countries and all the industries/sectors. The response to the fraud problem stands not just in the regulatory environment and the supervision bodies’ monitor, but first of all in the companies’ awareness that fraud does happen and there is a stringent need to proactively manage fraud risk. This study sought to establish the extent to which internal audit practices contributes to success of fraud risk management in State Corporations in Kenya. The target population was all state corporations in Kenya; Stratified random sampling was used to sample the state corporations under study. Structured questionnaires were used to collect data which was then coded and analyzed. 40 state corporations were sampled for the study and out of these 33 responded which gave a response rate of 82.5%. The researcher found that fraud policy had a combined mean of 3.19, standard deviation of 1.072, variance of 1.149 and a Pearson Chi-Square statistic of 0.001; Periodic assessment of fraud risk exposure had a mean of 3.13, standard deviation of 1.1.0, variance of 1.217 and a Pearson chi-square statistic of 0.582; Fraud prevention had a mean of 2.92 , standard deviation of 0.956, a variance of 0.915 and a Pearson chi-square statistics of 0.319; Fraud detection had a mean of 2.93, standard deviation of 0.912, variance of 0.832 and a Pearson chi-square statistic of 0.005. The study concludes that internal audit practices; fraud policy, periodic assessment of fraud risk exposure, fraud prevention and fraud detection when combined contributes to success of fraud risk management in state corporations in Kenya. The researcher recommends that State corporations should promote fraud policy as part of their key policies in terms of governance and strengthen their measures as a way of facilitating internal audit in the organization. To ensure successful fraud risk management; State corporations must analyze and assess periodic fraud risk exposure in the organization as a way of promoting internal audit that may positively impact on the institutions success on fraud risk management; State corporations to put in place appropriate measures of fraud prevention that may help effective and efficient internal audit that supports on the success fraud risk management and lastly that state corporations must assess all the internal and external environment to help in fraud detection and enable the organization administer and post a successful fraud risk management.