Operational Risk in Ethiopian Commercial Banks: A Case Study with Emphasis on Financial Fraud
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Date
2025-08
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Addis Ababa University
Abstract
This study evaluates the operational risks and financial fraud faced by Ethiopian commercial banks, focusing on internal, human, and external factors that contribute to these issues. It also examines the most prevalent types of fraud and the countermeasures in place. This study employed a mixed-methods research approach to gather data via questionnaires from 236 employees working in 31 commercial banks. A descriptive research design was used to explore and characterize the subject under investigation. Data were sourced exclusively from primary sources, ensuring direct relevance to the research objectives. Ethical considerations were rigorously upheld throughout the data collection process. Additionally, reliability and validity were assessed on a sample basis before analyzing the complete dataset using SPSS. The research identified key internal processes and systems factors that contribute to operational risk. These include inadequate IT systems and infrastructure, weak transaction authentication protocols, a lack of segregation of duties, poor documentation practices, and insufficient real-time monitoring systems. Human factors also played a significant role, such as a weak ethical culture within the organization, a lack of accountability and oversight, a lack of employee training, insufficient background checks during hiring, and employee misconduct. External factors were identified that include cybersecurity threats, political and economic instability, lack of specialized oversight for emerging technologies, weak enforcement of compliance standards, and inconsistent enforcement of anti-fraud regulations. The study documented prevalent types of fraud committed by customers, such as mobile banking fraud, cheque fraud, money laundering, and identity theft, which were identified as the most common. Among employees, the most prevalent types of fraud included debits from dormant accounts, embezzlement, bribery, and collusion with external parties. Additionally, the findings highlighted critical measures for mitigating operational risk and preventing fraud, such as strengthening internal controls, conducting regular audits and monitoring of high-risk accounts, implementing strict access control for sensitive systems, implementing advanced real-time fraud detection systems, and providing regular employee training on fraud prevention. These insights emphasize the importance of a multifaceted approach to mitigate operational risk and prevent financial fraud in the banking sector.
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Ethiopian commercial banks, financial fraud, fraud detection, internal controls, mitigation strategies, operational risk.