The Effectiveness of Internal Control System in Detecting and Preventing Fraud in the Case of Bank of Abyssinia
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Date
2024-06-25
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AAU
Abstract
This study investigates the effectiveness of internal control systems in detecting and preventing fraud within Bank of Abyssinia, a leading private bank in Ethiopia. Drawing on an explanatory research design, the study employs quantitative methods to explore cause-and-effect relationships among key variables: control environment, risk assessment, control activities, information and communication, and monitoring. The research focuses on a target population of 273 permanent employees directly involved in internal control functions. Using convenience sampling, 162 respondents were selected, reflecting a sample size determined by Slovin's formula. Data was primarily collected through structured questionnaires utilizing Likert scales validated through content validity and tested for reliability using Cronbach's alpha coefficients. Statistical Package for the Social Sciences (SPSS) version 23.0 facilitated data analysis employing descriptive statistics, multiple regression analysis, and t-tests to examine relationships and validate the research model. The regression model reveals an R-squared value
of 0.764, indicating that approximately 76.4% of the variability in fraud prevention and detection is explained by the independent variables. The adjusted R-squared value and standard error of the estimate of suggest good fit and relatively accurate predictions by the model. The analysis of variance (ANOVA) yields an F-statistic with a significance level of 0.000, confirming
the overall significance of the regression model. Additionally, the Durbin-Watson statistic supports the independence of residuals. The findings highlight the significant impact of a robust control environment, effective communication, and comprehensive risk assessment on fraud detection and prevention. Control activities and monitoring were also identified as critical in
mitigating fraud risks. The study underscores the importance of continuous improvement and adaptation in internal control practices to address evolving fraud threats effectively. Based on the results, the study recommends advocates implementing robust internal control systems at Bank of Abyssinia to effectively mitigate fraud risks. Recommendations include integrating
stakeholder feedback, training for auditors and accountants, and proactive monitoring by boards of directors. Ongoing, independent evaluation of internal controls by the governing body and audit committee is crucial for transparency and accountability