THE EFFECT OF INTERNAL CONTROL ON PREVENTING AND DETECTING FRAUD IN BANKS: THE CASE OF ABAY BANK S.C ADDIS ABABA BRANCHES

Abstract

This study aims to determine the effect of internal control on fraud detection and prevention in Abay Bank. The factors tested in this study are internal control as an independent variable and fraud prevention and detection as dependent variables. The research method used inthis research is descriptive and explanatory research methods. The type of data used in this studyis primary data with data collection using a questionnaire instrument. The population in this study is both managerial and non-managerial employees of Addis Ababa city branches, with 273 respondents using random sampling technique. The analytical methods used in this study areboth descriptive and inferential.Data processing using Statistical Package for Social Sciences (SPSS) Ver.26.0.The results of the study showed that internal control has a significant effect on fraud prevention and detection.The study revealed that all the five internal control components have positively and significantly affect the fraud prevention and detection practices in Abay Bank. There observed a positive relationship between the independent variables (the five components of internal control) and the dependent variable (fraud prevention and detection). This means an increase in one component of internal control system will bring an increment on fraud prevention and detection. Moreover, collusion between internal or internal and external parties, human judgment under pressure, system error, override by management and breakdowns imply the presence challenges in the proper implementation of internal control System in preventing and detecting fraud in AB. So as to make the control system brought the required fraud prevention and detection, the management of the bank should communicate the employees objectives of IC and what is expected of them, identifying and assessing risks of fraud occurring on an on-going basis, establish channels of communication to report suspected breach of laws and regulations and monitor the effective application of policies on an on-going basis.The level of fraud prevention and detection is must be enhanced by effectively utilizing vigorous fraud hotline so that both internal and external stakeholders of the bank reported actual and suspected fraudulent activities within the bank. Lastly, as no internal control system gives absolute assurance regarding fraud prevention and detection, challenges on proper implementation of internal control should be given important emphasis by management of the bank.