Forensic accounting practices, internal control mechanism and fraud detection among selected county governments in Kenya

Abstract

County governments are operating without systematic fraud prevention programs or fail to review their programs on a regular basis, despite the high prevalence of reported cases of county governments’ fraud. Therefore, the general objective of this study was to examine the moderating role of internal control mechanisms on the relationship between forensic accounting practices and fraud detection. The specific objectives were to establish the effect of forensic accounting practices (investigative practice, prevention practice, examination practice and litigation practice) on fraud detection and the moderating effect of internal control mechanisms on the relationship between forensic accounting practices and fraud detection. The main theories underpinning the study were the fraud triangle and the internal control theory. An explanatory research design was used in this study. The target population comprises accountants, forensic accountants, and auditor’s North and South Rift to 336. The researcher obtained a sample size of 179 respondents. The study used proportionate stratified sampling to select respondents. The study collected primary data using a questionnaire. Descriptive statistics were used in data analysis to describe the basic features of the respondents and data collected, while inferential statistics were correlation and multiple regressions. The study results showed that investigative practice has a positive and significant effect on fraud detection (β 1 =0.262, p<0.05). The preventive practice has a positive and significant effect on fraud detection (β 2 =0.173, p<0.05). Examination practice has a positive and significant effect on fraud detection (β 3 =.238, p<0.05). Litigation practice has a positive and significant effect on fraud detection (β 4 =0.170, p<0.05). The R 2 is 0.652, which is statistically significant at p<0.001. This means that 65.2% of the variation in fraud detection is explained by the four independent variables (litigation, prevention, examination, and investigative). The R 2 change of internal control mechanism moderating the four variables (litigation, prevention, examination, and investigative) is 0.011, which is statistically significant at (p<0.05). The R 2 change of internal control mechanism moderating the effect of investigative practice on fraud detection is 0.074, which is statistically significant at (p<0.001). The R 2 change of internal control mechanism moderating the effect of investigative and preventative practice on fraud detection is 0. 001, which is statistically significant at (p<0.05). The R 2 change of internal control mechanism moderating the effect of investigative, preventative and examination practices on fraud detection is 0. 043, which is statistically significant at (p<0.001). The R 2 change of internal control mechanism moderating the effect of investigative, preventative, examination and litigation practices on fraud detection is 0. 008, which is statistically significant at (p<0.05). The study concluded that investigative, preventive, examination and litigation practices significantly affected fraud detection. Internal control mechanisms had a significant moderating effect on the relationship between investigative practice, preventive practice, examination practice, litigation practice and fraud detection. The study recommends that the county government should impose the use of forensic accounting and auditing to deter corruption in all sectors of the economy.