Effect of Internal Control on Fraud Prevention in Commercial Banks of Ethiopia

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Different reports from different parts of the world confirms banking fraud is growing from time to time both in kind and size all over the world. Studies show different results regarding the effect of internal control on fraud prevention in banks. The conflicting findings plus lack of understanding about the appropriate research design and the presence of few researches with few sample size in the topic area in our country were the major gaps that necessitated this study. This study tried to fill this gap by conducting a census targeting all 18 commercial banks in Ethiopia by choosing appropriate research design and tried to provide reliable findings. Hence, analyzing the effect of internal controls on fraud prevention was the primary objective of this paper. Explanatory research design adopted for this study. 155 directors, managers, senior officers from all commercial banks targeted and responded to the designed questionnaire. Ordinal logistic regression analysis was used to analyze the data. The major findings include, control environment has significant effect on fraud prevention in commercial banks of Ethiopia, Risk assessment has also significant effect on fraud prevention, similarly, control activities, information and communication, and monitoring activities has significant effect on fraud prevention in commercial banks of Ethiopia. For every one-unit increase in the predictor variables, the probability of the Ethiopian Commercial Banks being in a high level of fraud Prevention showed increase by respective regression coefficient values of all predictor variables, keeping the other variables in the model constant. The full model with five predictors provided a better fit than the null model with no independent variables in predicting cumulative probability for Fraud prevention in commercial banks of Ethiopia. The study concluded that internal control has significant effect on fraud Prevention in commercial banks of Ethiopia.



Internal control components, Fraud prevention