Internal Control Systems and their role in Financial Fraud Prevention in Kenya

Abstract

Financial fraud, encompassing activities like embezzlement and misappropriation of assets, poses a substantial threat to businesses, potentially leading to financial losses, legal consequences, and the erosion of stakeholder trust. The study explores the critical realm of internal control mechanisms within organizations, particularly focusing on their role in ensuring the accuracy of financial statements and preventing financial fraud. The literature review aims to comprehensively analyse existing research on internal controls and their impact on preventing financial fraud. It evaluates dimensions such as the control environment, risk assessment, control activities, and monitoring, emphasizing their interplay in achieving financial reporting objectives and operational efficiency. Theoretical frameworks, such as the Fraud Triangle Theory and Agency Theory, form the basis for understanding the motivations behind fraudulent activities and the conflicts of interest that may arise within organizations. The study observed that internal control mechanisms, examined through the lens of the control environment, transaction monitoring, risk assessment, and internal audit, are crucial components in the fight against financial fraud. The integration of advanced technologies, continuous learning, and a commitment to ethical standards further enhance the effectiveness of internal controls in safeguarding organizations against the ever-evolving landscape of financial fraud.