Effect of Internal Controls on Fraud Detection of Manufacturing Firms in Garissa County, Kenya

Abstract

Purpose: This research aims to investigate the impact of internal controls on fraud detection in manufacturing firms in Garissa County, Kenya. The study assesses the influence of Internal Control, Risk Assessment, Control Activities, Information and Communication, and Monitoring on fraud detection in these companies. Methodology: Utilizing a quantitative cross-sectional survey design, data is collected from 75 manufacturing companies affiliated with the Kenya Association of Manufacturers (KAM) through purposive sampling. Internal Audit Managers (IAM) are key respondents, and primary data is collected using structured questionnaires distributed through drop-and-pick method. The collected data is analyzed descriptively using figures and tables, and inferentially using Microsoft Office spreadsheet program (Excel) and SPSS. The research instruments' validity and reliability are established through the test-retest method, and outcomes are presented using charts and tables. Findings: The study reveals that Internal Control, risk assessment, control activities, information and communication, and monitoring all positively and significantly influence fraud detection in manufacturing firms in Kenya. The study concludes that top management in manufacturing firms should establish clear lines of authority and allocate duties effectively, making each employee accountable for their actions. Additionally, the management should adopt effective fraud detection and prevention methods, motivate employees to report fraudulent activities by offering rewards, and formulate clear duties and responsibilities for all staff members. Unique Contribution to Theory, Practice and Policy: The study recommends proper communication channels within the organization, regular seminars for creating awareness on fraud detection methods, and punitive measures for employees engaged in fraudulent activities.