Effect of iinternal iaudit ipractices ion ifraud irisk imanagement iin idevolved igovernment isystems iin ikenya

Abstract

Internal audit practices have been documented to be effective in enhancing financial reporting quality and also improving financial performance. Practices such as audit planning, periodic risk assessment, and audit automation have been lauded for being significant in detection, prevention, and reduction in fraud risk. However, most of the studies on internal audit practices and fraud risk management have tended to focus on players in the financial sector and public organizations at the expense of devolved government units such as county governments. This is despite of the counties receiving large amounts of public fund for development and recurrent expenditure. Furthermore, reports indicate that county governments in Kenya loss approximately 730 billion Kenya Shillings annually due to corruption, thereby questioning the effectiveness of internal audit practices in these entities. This study therefore sought to determine the effect of internal audit practices on fraud risk management, taking the case of Kisumu County Government. Specific objectives were to: examine the effect of internal audit planning on fraud risk management, establish the effect of periodic risk assessment on fraud risk management, and to determine the effect of audit automation on fraud risk management. The study was guided by Credibility, Policeman and Technology Acceptance Theories and employed correlational research design. The target population was112 operational managers who supervise task activities related to finances, including fraud risk management. Through census method, all the 112 operational managers were included as the study sample. Primary data was collected through the use of structured questionnaire. Validity was ensured through adequate conceptualization of study variables. The instrument reliability was ensured through Chrobach’s Alpha test of internal consistency, where a coefficient of 0.85 was achieved. Data was analyzed through descriptive statistics like mean and standard deviation and inferential statistics such as regression and correlation. Findings showed that 34.4% changes in fraud risk management is attributed to the iternal audit practices investigated by the study (R2 =0.344). Findings also showed that audit planning (β=0.936); periodic risk assessment (β=1.188) and audit automation (β=0.721) all are significant predictors {F=13.340, P<0.05} of fraud risk management in Kisumu County Government. It is concluded that audit planning, periodic risk assessment, and audit automation are critical internal audit practices for enhancing fraud risk management. The study recommends that internal audit practices should be enhanced for the purpose of improving fraud risk management. Further research need to be done on effects of audit planning and audit automation on fraud risk management.