Effect Of Internal Audit on Reduction of Fraud on State Corporations in Kenya (Case of State Corporations in Nairobi CBD)

Abstract

Although internal auditing in state corporations in Kenya is intended to eradicate misuse of the entities’ funds, fraud reduction has not been so successful, raising questions on its effectiveness. More often than not funds are lost and such lost funds are never recovered due to rampant fraud in these corporations. In Kenya, state corporations have been reported to be ineffective and corruption has led to their closure. The failure to ensure fraud reduction is attributable to weak internal auditing system of state corporations in Kenya. This then result into financial losses of these organizations. This means that weak internal auditing provide avenues for fraud in these organizations, which challenges the performance of these state corporations in Kenya. Studies have been carried out locally, regionally and globally on internal auditing and fraud. However, there is scanty information on fraud reduction of state corporations in Kenya as being as being influenced by audit staff competence, attributes of the audited, independence of the internal audit staff and objectivity of individual audit staff. This is despite the fact that there has been uncontrolled occurrence of fraudulent acts that have continued to challenge the performance of the state corporations in Kenya. It is in this light that the study sought to fill the existing gap by carrying out research on the role of internal audit in fraud reduction on state corporations in Kenya. The study used descriptive survey and had the 64 state corporations in Nairobi CBD as its target population. Since the target population was easily reachable and accessible, the study used census during data collection. The data was analyzed using descriptive statistics on SPSS 20.0. The study found that that state corporations in Kenya fraud reduction in their state corporations is by caused internal audit. The main factors leading to this effect include internal audit staff competence attributes of the audited, internal audit objectivity factors and internal audit staff independence. The study concludes that, internal audit staff competence, attributes of the audited, internal audit staff independence and internal audit objectivity highly influences fraud reduction of state corporations in Kenya. The study concludes that; internal audit staff competence attributes of the audited, internal audit staff independence, and internal audit objectivity factors, are useful in predicting fraud reduction of state corporations in Kenya. The study recommends that the state corporations in Kenya should come up with standards and policies that ensure staff competence, and ensure continuous assessments on the staff competency by qualified and recognized bodies and ensure frequent on job training of its audit staff to ensure vast experience in auditing of its staff. The study further recommends that state corporations in Kenya should allow their internal audit staff gain full access to all activities, records and properties, and have unrestricted access to all activities, records and properties, and ease of access to required records required for auditing. Further, the study recommends that there should be regulations and policies to internal audit staff independence and objectivity.