Organizational Factors Affecting the Level of Fraud in Commercial Banks in Kenya

Author: Benta A. O. Rotich
Institution: Moi University
Post category: Research Abstracts


The failure of banks to adequately fulfill its role arises from the several risks that they are exposed to, many of which are not properly managed. One of such risks that is increasingly becoming a source of worry is the banking risk associated with fraud. It is indeed worrisome that while banks are constantly trying to grapple with the demands of monetary authorities to recapitalize up to the stipulated minimum standards, fraudsters are always at work threatening and decimating their financial base. The main purpose of this study was to examine organizational factors affecting the level of fraud in Commercial Banks in Kenya. Specifically, the study sought to answer the following research questions:  what are the most common methods of perpetuating frauds in Commercial Banks in Kenya? What are the internal factors contributing most to fraud among the commercial banks in Kenya? And what are other factors that contribute to fraud among the commercial banks in Kenya? The study also tested for hypotheses to establish whether there is significant effect of various internal factors (Internal audit, policies, training and technology) on the level of fraud in commercial banks. The study employed an exploratory descriptive survey research design. The research design was advantageous in this case since the elements under study could not be put in a controlled environment for them to be studied (Cooper and Emory, 1995). The target population consisted of all the management staff of the Kenyan Commercial banks in Nairobi. Stratified random sampling procedure was used to arrive at 30% of the 43 commercial banks, that is thirteen of them. The sample consisted of one hundred and thirty staff members picked from 4 departments in the selected banks. Only six (6) of them did not respond to the questionnaire. Stratified sampling procedure was used to arrive at the staff based on the departmental strata. Questionnaire was used to collect data since it is time saving and straight forward. The collected data from were coded using Statistical Package for Social Sciences (SPSS) version 11.5 for windows. The coded data were analyzed using descriptive statistics. From the analysis, the study revealed the following findings: The most common method of perpetuating fraud in the commercial banks among all others was forged documents, in their order of occurrence, the other most common included fraudulent loan, check fraud and identity theft, lack of effective internal auditing, sound policies and procedures, technology failure contributed to the high level of fraud on commercial banks. Majority of the respondents strongly agreed that some of the personal driven factors that contributed to frauds in commercial banks included but may not have been limited to greed (81%), opportunity availing itself (65%), poor pay (60%), lack of incentives (45%) and source of quick wealth. From the regression analysis, the study found that there was a significant effect of internal audit, policies, training and the level of fraud in Commercial Banks in Kenya. The study suggested the following recommendations: The Banks’ management to promote the highest standards of integrity and ethical behavior among staff members and other counterparts in the industry, draw upon diagnostic assessments of the risks of fraud while laying emphasis not only in the banking sector but also other partners in the government, the private sector, non-governmental organizations and sharing information about fraud with government, the private sector and civil societies.

Key words: bank fraud, commercial banks fraud, Kenya banks fraud, bank fraud factors, bank fraud level, addressing bank fraud, bank fraud information sharing

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Suggested Referencing

Rotich, B.O.A. (2012). Organizational Factors Affecting the Level of Fraud in Commercial Banks in Kenya. Retrieved from