Effect of audit committee characteristics on fraud detection in state ministries in Kenya.

Abstract

This study sought to determine the effect of audit committee characteristics on fraud reduction in state ministries in Kenya. The study used a descriptive research design. The population for the study was the 20 government ministries. The study used secondary sources of data because it saved a lot of time as compared to conducting interviews and also enabled the study to collect objective data. The study covered a period of three years which was sufficient for establishing the relationship between audit committee characteristics and number of fraud incidences. Panel data was obtained from treasury, transparency international and the ministries whereby data on the specific variables under investigation was extracted from annual reports, financial statements and records.A document analysis guide was prepared to guide the researcher in collection of data on audit committee characteristics and number of fraud incidences in all the 20 state ministries in Kenya. Data was analyzed using Stata data analysis and statistical software. Descriptive statistics used entailed mean analysis, minimum, maximum and standard deviation. To test the research hypothesis on the effect of audit committee characteristics on fraud reduction, the study adopted fixed effects panel data model. Results from the study indicate that number of audit committee meetings (β = -0.4385; p < 0.05) and expertise of the audit committees (β = -0.4593; p < 0.05) had negative and significant effect on the incidences of fraud in the state ministries. The study also established that tenure of the audit committees had a significant positive effect on incidences of fraud in the state ministries in Kenya (β = 0.3601; p < 0.05). Size of the audit committee (β = 1.5284; P > 0.05) and independence of audit committees (β = -0.1546; p > 0.05)did not have a significant effect on fraud incidences in the ministries. Following the findings from the study, the following recommendations were made. First, ministries in Kenya should ensure that they have audit committee members who have expertise in finance, accounting auditing. Secondly, the ministries should adhere to the statutory provision which indicate that audit committees should have at least four meetings in a year. Lastly the study recommends to the ministries to ensure that tenure of audit committee members is shortened. Having longer tenure is expected to erode independence and objectivity of the members and hence jeopardize their ability to deal with their monitoring role.